audio_id,segment_id,start_time,end_time,speaker,text
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,0,42.21,45.91,1,I am Jeremiah Opoku Investor Relations Manager for M T N Ghana.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,1,46.49,50.74,1,With me on the call today are Selorm Adadevoh c e o of M T N Ghana;
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,2,51.24,54.38,1,Modupe Kadri former C F O of M T N Ghana;
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,3,54.73,61.52,1,and Kobina Bentsi-Enchill acting acting C F O for M T N Ghana and Group Investor Relations.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,4,62.11,73.42,1,Selorm will provide you with an overview of the company's performance for twenty nineteen and outlook for this year before we move on to the q a session which will be facilitated by the conference call operator.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,5,73.42,75.84,1,With that over to you Selorm.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,6,77.58,78.45,2,Thank you Jeremiah.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,7,78.45,83.2,2,Good afternoon everyone and thank you for making time to join us on this call today.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,8,84.09,96.21,2,I will provide a brief overview of our performance for the year ending December twenty nineteen and speak a little bit about the outlook for this year twenty twenty before handing it over to the operator for questions and answers.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,9,97.42,109.85,2,We're excited by the strong performance delivered by M T N Ghana the team here for the year twenty nineteen and in a competitive industry while maintaining market leadership with fifty five percent market share.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,10,110.6,118.46,2,And we grew service revenue 23% year-on-year driven by strong growth in voice data and Mobile Money.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,11,119.54,140.01,2,Voice revenue was up in the double digits an increase by nineteen percent year-on-year supported by growth in our active subscriber base continued improvements to our network and the impact of various customer value management initiatives and pro-customer activity which encouraged increased usage of our services by our customers.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,12,140.44,155.22,2,The contribution of voice revenue to overall revenue edged down from forty five to forty five percent from forty six percent as expected as new lines of revenue continued to grow faster than the traditional voice business.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,13,156.08,170.86,2,Data revenue growth was strong at thirty three percent year-on-year and was attributable to the higher number of active data subscribers and smartphone users on the network as well as an increase in data usage across our customer base.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,14,171.8,177.27,2,Data contributed twenty eight percent to total service revenue up from twenty six percent in twenty eighteen.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,15,178.36,188.58,2,Mobile Money revenue also contributed on a strong tra on a strong trajectory increasing by twenty eight percent in a year in which we marked its tenth anniversary in Ghana.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,16,189.59,201.14,2,The growth in Mobile Money was driven by the ongoing expansion in the number of active subscribers and the increased transactional activity as well as good growth in advanced services.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,17,201.14,206.39,2,That's retail merchant payments pensions remittances as examples.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,18,207.23,214.03,2,Mobile Money made up nineteen percent of our overall service revenue compared to eighteen percent in the prior year.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,19,215.16,229.35,2,Turning to EBITDA or earnings before interest tax depreciation and amortization this grew by sixty six percent with a year-on-year EBITDA margin expansion of thirteen percentage points to fifty one percent on a reported i f r s view.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,20,230.16,238.65,2,When comparing the like for like I A S seventeen basis our EBITDA margin increased by four point eight percentage points to forty two.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,21,238.92,239.61,2,five percent.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,22,240.61,249.82,2,If we further normalize for management fee then like for like EBITDA margin expanded by five point nine percentage points to forty three point five percent.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,23,250.72,257.92,2,The margin improvements were supported by tight controls on our operating expenses as well as distribution efficiencies.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,24,259.17,271.07,2,In terms of capex we invested gh one .1 billion in support of the growth in the core business and improving the participation of and quality of service to our customers.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,25,271.84,279.04,2,M T N Ghana acknowledges the outbreak of coronavirus worldwide and its potential impact on our supply chain.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,26,279.82,286.92,2,While we monitor unfolding developments we're exploring multiple scenarios in a bid to mitigate the impact on our business.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,27,287.85,295.05,2,On the regulatory front the Payment Systems and Services Act twenty nineteen was passed in May last year into law.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,28,295.87,299.66,2,This governs the way Mobile Money services are conducted.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,29,299.66,305.35,2,As required of existing players such as us we have duly applied for the new license.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,30,306.93,318.55,2,M T N Ghana maintains ongoing engagement with regulatory stakeholders with a firm focus of sustaining cordial relationships and achieving continued improvement in customer experience.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,31,329.4,336.55,2,We have submitted applications for the renewal of our international gateway and fixed access licenses which are pending N C A approval.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,32,337.91,347.7,2,We continue to invest in our communities with the M T N Ghana Foundation and support reaching a total of one forty nine projects since inception in two in two thousand and seven.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,33,348.34,356.5,2,In twenty nineteen the foundation initiated eight new projects in education three in health and one in economic empowerment.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,34,358.16,364.57,2,The board declared an interim dividend of two pesewas per share after reviewing the midyear performance of the company.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,35,365.45,379.16,2,After reviewing the full year performance of the company the board shall shall be recommending a final dividend of four pesewas per share bringing the total dividend for twenty nineteen to six pesewas per share.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,36,380.02,387.11,2,This corresponds this represents seventy three percent of profit after tax and a twenty percent increase in dividend per share.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,37,388.91,398.95,2,Before I comment briefly on on prospects for the outlook I would like to take this opportunity to highlight some changes in our management which Jeremiah touched on a little earlier.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,38,399.46,419.04,2,As you may be aware from our release to the market last week our C F O Modupe Kadri and executive director of M T N Ghana has been appointed to the chief financial officer and executive director role of M T N Nigeria effective first March twenty twenty.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,39,432.2,436.63,2,On this note I would like to wish both gentlemen the very best in their new roles.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,40,442.07,444.78,2,In terms of the outlook for 2020 2019 marked the year of the customer for M T N Ghana.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,41,444.78,453.41,2,And in twenty twenty we're building on that foundation as we transition from a traditional mobile telecoms operator to an emerging digital operator.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,42,453.98,465.91,2,As a business we're well-positioned for continued growth as we invest in ongoing improvements in quality of service in a drive to increase participation of Ghanaians in all our service offerings.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,43,466.61,476.06,2,In line with our with our transition journey M T N Ghana has declared twenty twenty as the year of the customer the digital experience with a firm focus on digital.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,44,477.87,483.57,2,The focus on digital is a tool to enhance customer experience as well as create value for our shareholders.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,45,484.3,489.54,2,At this point I'd like to hand over the conference call to the operator for questions and answers.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,46,489.65,491.09,2,Thank you very much once again.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,47,531.4,534.09,3,Thank you for the opportunity to ask questions.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,48,534.77,536.67,3,Uh two questions from my side.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,49,537.47,541.51,3,Um one relates to the two g license renewal.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,50,542.11,545.6801,3,Could you provide some color as to how much the renewal costs please?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,51,546.46,560.16,3,And secondly on the Mobile Money services with the change in legislation and application for the new license is this a simple administrative tick in the box or is there more to the process?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,52,568.2,570.23,1,Let me start with the two g license.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,53,570.44,575.1,1,And the two g license was renewed um at twenty five million dollars.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,54,575.1,584.83,1,This was an industry renewal and both ourselves and and Vodafone had this renewal and the validity or the tenure of the license was fifteen years.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,55,586.46,600.06,1,In terms of the MoMo process the new the new act the p s s a Payment Systems and Services Act I believe the question was whether this was an administrative tick in the box for the regulator or whether there was something else behind it.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,56,600.86,605.17,1,I think the spirit behind the p s s a two two or three things here.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,57,605.51,626.89,1,Um the first one is in twenty fourteen there was the E M I which was the Electronic Money Issuer regulation that was passed which allowed telcos to take more responsibility in managing agents and and accounting for for customers as a customer of the Mobile Money operator.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,58,626.89,632.69,1,Before that it was actually bank-led fully and therefore those assets were essentially owned by the banks.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,59,633.39,645.11,1,The p s s a is intended to expand on this by allowing fintech the broader fintech community beyond the Mobile Money operators to also have a framework under which they operate.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,60,646.79,655.5,1,That being said and that allows some sort of regulation and oversight for the fintech community does have an impact on the Mobile Money industry overall.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,61,655.72,670.99,1,But then the second thing was also after the banking sector clean-up was also to institute certain mechanisms that allow risk to be managed in a structured format so that we can prevent a similar situation from happening within the Mobile Money or the fintech space.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,62,671.83,686.14,1,And then the third thing is really to strengthen the governance processes um with the Central Bank themselves with the growth in Mobile Money over the last three to five years and have had to update their own internal processes for better governance and an understanding of this space.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,63,686.14,687.8199,1,So these would be the three main drivers.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,64,688.25,705.35,1,And but certainly a positive um framework from our perspective in terms of enabling the environment and looking out for um a future that's gonna continue to be dominated essentially by the mobile financial services and the fintech companies in terms of having managed financial services overall.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,65,764.84,768.36,1,We don't actually foresee that to be to be a major constraint.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,66,768.36,776.0,1,Obviously we have to also be diligent in our submission which we have done and but we don't see any major roadblocks from where we sit at this stage.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,67,776.33,781.34,1,Um the process will will end in June and you know if there are any changes we will update you through that.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,68,785.79,800.93,5,"In terms of your second question um which was about the fine and and whether that's all been resolved yes um you know we received a fine for a gh a hundred ,000 in December following the implementation of of new services."
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,69,801.2,805.52,5,And that situation was resolved within forty eight hours of of us receiving the fine.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,70,805.81,811.67,5,Um I don't believe that we can expect any other any other fines uh in terms of the business.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,71,821.85,822.63,5,That's correct yes.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,72,838.58,856.49,6,Okay no thank you very much.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,73,870.24,871.17,6,Thanks for the question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,74,871.49,889.8,6,Um in in terms of the two g license and why we thought it was important to renew it and just to give you some context today we have approximately forty percent smart phones on our network which means we have sixty percent of our users today that do not have a smartphone and rely on two g services.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,75,890.8,898.96,6,Now in as much as you know smartphone users have a higher ARPU you know the sixty percent even on a lower ARPU is a very significant component of the business.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,76,900.28,906.95,6,So you know we we really have no option if we have to continue to grow the business forward to renew the two g license.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,77,906.98,925.41,6,However we're also expecting that in the next couple of years we should see universal access license um implemented by the regulator which would mean that we can reappropriate the nine hundred and eighteen hundred spectrum under the two g for higher generations of technology.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,78,947.44,958.62,6,So we haven't had any impact on the business currently and but in anticipation of what may happen uh we're making sure we put in place the right processes to prevent any impact on the business going forward.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,79,979.79,988.73,9,Um then secondly des despite the strong year-on-year growth it looks like the Mobile Money revenue came in just a little bit softer in q four um based on our numbers.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,80,988.73,990.6,9,Can you can you just give some color on what drove that?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,81,990.95,991.29,9,Thanks.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,82,995.48,996.47,6,alright thanks for the question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,83,996.47,1007.43,6,And the first one I'll take the first one which was around the voice ARPU what the expectations are um for twenty twenty and some of the initiatives that that that supported the voice the voice business.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,84,1008.59,1017.56,6,Um so we see the voice business as as a business that's gone from you know being the most significant business to now um a business that we're managing forward.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,85,1018.22,1030.0699,6,And so by that we're minimizing our above the line campaigns in terms of voice and doing a lot of below the line campaigns which takes us into an area called customer value management C V M.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,86,1030.64,1046.17,6,And so what we basically do in terms of voice is look at profiles of customers and try to define specific products and services that's skewed to the specific behavior based on the characteristics and the attributes of that particular segment or that particular user.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,87,1046.49,1056.2101,6,So this has been I would say the primary mechanism to manage voice um in order not to impact the growth in some of the newer areas which have been mixes between voice and data users.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,88,1057.12,1070.73,6,In terms of the expectations for twenty twenty we have a very strong desire to continue to drive smartphone growth so we will expect to see the mix of smartphone and and and non-smartphone changing in favor of smartphones.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,89,1071.3101,1084.55,6,However with the rate we've seen historically we won't we won't suddenly change the baseline for the non-smartphone users and would expect to see a reduction in that base um but continue to still be significant and strong.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,90,1084.97,1105.1801,6,As such the activities on C V M will continue um but the focus to drive growth and secure the future of the business will will be largely driven by the smartphone base what we do in terms of apps MyMTN app music apps gaming and things like that um as well as the enhancements in customer experience to ensure that we can drive more transactional activity.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,91,1105.4399,1107.61,6,So that will really be the focus for for twenty twenty.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,92,1108.79,1130.73,6,In terms of the MoMo performance um there there were some changes in q four which impacted the year-on-year revenue growth and the most significant of which is part of the the p s s a meant that we we there was a change in how the interest revenue on on MoMo float was distributed.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,93,1131.13,1133.48,6,And that change would've given us an additional…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,94,1133.48,1133.6899,6,sorry.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,95,1133.6899,1138.3601,6,Without that change we would've seen an additional ten percentage point growth in MoMo.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,96,1138.36,1140.86,6,So that was the primary driver of the drop.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,97,1141.0699,1143.7001,6,And the organic business continues to be very strong.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,98,1148.0,1161.7001,9,That's great.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,99,1180.15,1180.92,6,Thanks for the question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,100,1180.92,1186.1899,6,I'll just um Modupe is on the line and he would he would respond to that and the costs.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,101,1186.78,1248.1899,11,All right there is um hello.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,102,1261.04,1268.3501,12,I mean any services now that you can offer or can't offer um you know or fees that you can charge or not charge?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,103,1295.1899,1315.66,12,And I'd just like to hear your thoughts on on what's the latest on this and uh does this new license address that at all or is this still something that's that's an issue?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,104,1330.29,1330.5901,12,Thanks.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,105,1341.72,1346.86,6,The changes there have been a reduction to the operator so it's no longer twenty percent to the operator.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,106,1346.86,1349.85,6,it is now ten percent to the operator and ninety percent to the customer.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,107,1350.7,1356.66,6,But also what has changed here is the interest on float which is regulated by the Central Bank.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,108,1357.35,1362.62,6,And that number was seven percent prior to q four and has been reduced to four percent.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,109,1362.62,1367.73,6,So the entire interest scheme has changed uh for the for the for the float earnings.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,110,1368.54,1370.7599,6,Um so these are the two main main changes.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,111,1370.76,1379.1699,6,However on the operational side in terms of the products we offer that we've built internally there was no impact on that portfolio at all.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,112,1380.62,1397.9199,6,In terms of the thirty percent local ownership um the p s s a has clarified the the thirty percent ownership now which was which is um in terms of thirty percent it is measured on the capital required to get the license.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,113,1397.92,1406.6901,6,So for us to be a dedicated E M I which is called a DEMI d e m i um we need a minimum capital requirement of gh twenty million.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,114,1407.97,1418.11,6,The local ownership is thirty percent of that twenty million capital required which is six million for us.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,115,1419.36,1427.76,6,We're in the process now um to finalize that but it's a pretty straightforward activity now than what had been suggested in the past.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,116,1448.86,1451.1001,6,Um just bear with me one second.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,117,1451.1,1464.22,6,So so total voice revenue um I I don't I dunno if I got the last part but total voice revenue was GH2 .318 million sorry GH2 .318 billion.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,118,1465.08,1470.74,6,Um data revenue is one point four six one billion and Mobile Money revenue is nine five nine million.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,119,1471.79,1473.87,13,And and what about the other digital revenue?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,120,1475.4,1480.3199,6,Digital revenue um just bear with us one second if that's not in there.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,121,1482.4,1485.2301,6,one ninety nine million in terms of digital revenue.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,122,1487.71,1488.0499,13,Okay.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,123,1488.7,1495.16,13,And then it looks like MoMo was down about twenty three percent in the fourth quarter.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,124,1495.5699,1500.0,13,Is that is that what you guys have as well?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,125,1500.0,1503.14,13,Because we're we're trying to back into a uh a fourth quarter number here.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,126,1504.78,1505.13,6,Sure.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,127,1505.13,1521.3,6,I mean I there was a question earlier on you know what drove the the change in in the MoMo trend from q three to q four and it's largely a change in the interest scheme both on on the float interest and the split between customers and operators.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,128,1523.15,1523.36,13,Right.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,129,1523.36,1530.5,13,So I guess the the business the the peer-to-peer payments the transactional payments can you give us an idea of how much that grew year-on-year?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,130,1531.13,1539.12,6,So most of the key lines I mean the Mobile Money drivers would be cash out revenue as well as peer-to-peer revenue.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,131,1539.12,1542.75,6,Cash out is about at sixty percent and peer-to-peer is about thirty percent.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,132,1542.99,1548.22,6,And both of those are trending about the same rate as the total business of about twenty eight percent year-on-year growth.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,133,1549.24,1549.53,13,Gotcha.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,134,1569.8101,1573.74,15,We've submitted the application and the central bank is currently reviewing that.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,135,1573.74,1577.0599,15,So we'll get the response to um that in due course.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,136,1578.96,1584.62,15,But he has the six million in terms of the value of the business um it is quite it's quite a small amount So.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,137,1585.17,1590.03,15,We don't expect this to be a hurdle to achieving localization from the perspective of mobile money.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,138,1591.4399,1595.0601,14,And then what was the management fee amount in twenty nineteen?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,139,1649.5601,1660.29,15,I mean can you guys give us some-some high level thoughts on you know revenue growth by-by the major buckets voice data and and um m o m o.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,140,1661.74,1668.1899,14,We don't have that split but our overall guidance is-is you know to maintain our overall guidance in the prospectus for year three.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,141,1669.97,1672.4501,15,Okay and what about um what about margins?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,142,1673.5601,1675.4,14,Well without guidance we should be we should be…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,143,1678.84,1679.15,15,Okay.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,144,1701.84,1706.59,17,Uh look like for twenty nineteen.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,145,1706.75,1714.7,17,Uh and then I guess total amount of remittances as a portion of mobile money revenue or mobile money transaction volume.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,146,1729.48,1729.98,15,But let me…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,147,1729.98,1732.8301,15,let me start with the transactions per user per month.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,148,1733.59,1734.9901,15,And so the two…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,149,1735.05,1747.5801,15,the two most popular transactions which will be aligned with the revenues of this as well the <unk> and cash outs and it's typically five transactions on p two p and five transactions on cash out per user per month.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,150,1759.27,1767.8301,15,The rest are really small transactions that are continuing to grow We're seeing good growth in metal payments and bill payments but the transaction frequencies are quite small.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,151,1769.13,1774.3401,15,In terms of the update on the subscriber share just to clarify is that subscriber share in mobile money?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,152,1774.34,1776.73,15,Or is a subscriber share on the core business?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,153,1795.73,1798.97,15,So in terms of our whole business market share we're 55.2% In terms of the core business by the end of twenty nineteen.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,154,1825.54,1826.85,17,last year you were at ninety four.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,155,1826.85,1827.08,17,Right?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,156,1861.35,1862.22,15,I hope that clarifies…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,157,1862.22,1862.72,17,Got it.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,158,1864.33,1865.23,17,And then did you…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,159,1865.33,1869.12,17,did you give a number for um yearly transaction value?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,160,1872.42,1872.6599,17,I think…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,161,1880.1,1885.9399,17,Um I don't think I have a twenty eighteen number but I was wondering what the twenty nineteen transaction value is.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,162,1887.14,1888.6,15,Sure we'll come back to you on that.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,163,1888.63,1893.38,15,And we just have to rely on the disclosures by the central bankers consistent so we'll come back to you on that.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,164,1893.5601,1895.9501,17,Okay sounds good.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,165,1895.95,1897.0599,17,And then last question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,166,1897.0601,1926.3099,17,So just seeing the-the obvious uh Operators split of uh the interest off the flow come down and then the interest rate that's being you know charged on their credits and that flow is-is this something we're gonna see in another part of the cycle in four or five years and updated um another updated act where that gets stripped down to you know the operators taking no share of interest income off of the float?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,167,1926.53,1927.9601,17,Is-is that where we're headed?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,168,1930.1,1933.9399,15,No I don't believe we will get to the point where there's no interest for operators.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,169,1934.03,1943.21,15,Um I think this trend was really facilitated by trying to promote one more-more interest back to the consumers which is where the ninety percent came in.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,170,1943.78,1945.4099,15,Um In terms of their…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,171,1945.4399,1947.92,15,in the reduction in the interest rate itself.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,172,1947.92,1953.53,15,This is something that a central bank could manage in and we've had quite a tough financial industry.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,173,1953.5601,1955.5499,15,There was a restructuring last year.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,174,1955.71,1957.4,15,So that's all driven by…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,175,1957.4301,1960.53,15,sorry that's the result of some of these activities.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,176,1960.53,1968.2799,15,So I don't expect to see major changes um to these numbers going forward but certainly not getting to zero interest.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,177,1969.77,1970.09,17,Got it.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,178,1970.12,1977.41,17,And then just final question on um subscriber growth for mobile money uh it looks so…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,179,2014.8101,2017.0099,17,you're more focused on the monetization of what you have?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,180,2017.04,2018.4399,17,Or how do you think about that strategically?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,181,2020.47,2021.86,15,You know you're absolutely spot on.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,182,2021.86,2022.88,15,I mean…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,183,2022.88,2028.3899,15,Yeah there was a bit of a focus on monetization and launching more advanced services.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,184,2028.6,2033.67,15,Suddenly we've-We've started this year on an acquisition drive so we should see growth.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,185,2033.8199,2035.9,15,We should see continued growth this year as well.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,186,2038.02,2038.3199,17,Got it.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,187,2038.8,2039.1901,17,Awesome.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,188,2048.49,2048.73,17,Thanks.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,189,2050.6899,2057.97,18,Um So please could you name some of the existing partner banks um that you're working with on the MOMO wallet?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,190,2058.4399,2059.55,18,Is my first question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,191,2060.28,2068.4001,18,Second question is Um does the payment systems and services act change the nature of these relationships?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,192,2068.5601,2070.8401,18,And if so in what way?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,193,2071.3401,2077.3901,18,Uh and then my last question is on the reduction in the interest um for float?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,194,2077.7,2078.3401,18,Um That's…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,195,2078.3799,2080.6301,18,that's come down from seven to four percent.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,196,2080.9099,2087.4802,18,Is there a provision in the existing acts that allows for revision upwards Um Should rate in the market change?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,197,2087.9199,2088.23,18,Thank you.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,198,2089.5901,2092.72,15,All right.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,199,2095.8899,2103.8201,15,And then I will take the question on-on whether we expect um another provision in the app that can a-affect the interest rates.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,200,2104.1499,2107.0701,15,So I'll start with a provision and I'll handle that and after that.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,201,2107.8501,2114.8,15,in terms of the provision there is no provision in the act itself and you know the four the four percent and the 7% are not governed by the act.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,202,2114.8,2117.3401,15,These are no operational tactics by the central bank.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,203,2118.1201,2121.22,15,Um So there wasn't a a a provision per se.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,204,2121.72,2122.6101,15,However these are…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,205,2122.6101,2129.25,15,these are discussions we will continue to have with the central bank on trying to to maximize the opportunity with interest moving forward.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,206,2165.8501,2169.74,18,you to name the partner banks that you work with on the MOMO wallet.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,207,2170.3799,2171.4399,19,Oh we…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,208,2183.3401,2183.7002,18,Okay.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,209,2186.4299,2187.05,18,Thank you for that.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,210,2187.98,2197.79,20,Hi guys thanks for the call.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,211,2198.24,2204.05,20,Um quick question to continue this discussion on this float um on the slow part of the business.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,212,2204.49,2212.4199,20,Can you give us a sense of the total value of float generated by MOMO during the year twenty nineteen?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,213,2212.4199,2214.8799,20,And how did it grow versus twenty eighteen?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,214,2224.6599,2225.21,19,Alright.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,215,2302.04,2302.1301,19,What…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,216,2327.4299,2327.8298,19,um…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,217,2687.1299,2695.3599,24,That's correct.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,218,2695.6699,2695.95,21,Yes.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,219,2788.4199,2788.46,24,Understood.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,220,2812.03,2812.28,24,Great.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,221,2812.49,2813.1401,24,Thank you guys.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,222,2816.8201,2829.22,25,I just wanted to quickly um ask you in terms of um um for the merchant payment and mer merchant agent agency network what's the what's the evolution year on year?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,223,2830.1201,2837.8,25,And the s the other the second question is regarding the impact of the changes and regulation the p s a the new p s a Act.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,224,2838.4399,2843.3701,25,That's uh the impact of this on the q four mobile revenue.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,225,2844.3101,2848.49,25,What should we expect for the for the full year twenty twenty?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,226,2898.0,2902.75,21,So we should see good growth this year as well in terms of merchant services.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,227,2903.1201,2910.51,21,But more importantly we should see an increase in the transaction per merchant with the merchant that were newly onboarded last year.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,228,2914.1101,2915.77,23,Please go ahead.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,229,2923.3899,2923.4399,26,Hello.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,230,2923.4399,2928.73,26,Thank you uh for the opportunity and congratulations on your performance.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,231,2929.8201,2944.8499,26,Um I see a lot of the banks not coming up with their MoMo business and I want to find out if um from your projections how far would these uh bank businesses affect your MoMo business?
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,232,2946.28,2946.6501,26,Thank you.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,233,2948.96,2949.1299,21,Sure.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,234,2949.1299,2950.0701,21,Thanks for the question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,235,2950.0701,2961.6401,21,Uh uh and I think it's too early to tell but if I just sort of take you know um um an industry perspective where the MoMo Money industry is still you know very very young.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,236,2962.02,2967.1401,21,Um the the opportunities for transactional activity is is massive.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,237,2967.1399,2970.79,21,If you look at the the inaudible that I gave uh uh to an earlier question.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,238,2971.1499,2979.47,21,I mean customers are doing five p two ps per user per month currently and and and uh I- and about five partial per month per user.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,239,2979.8401,2983.6602,21,I mean that's a very low number and we should expect that you know in…
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,240,2983.6899,2988.8101,21,In its mature stage you should expect twenty to thirty transactions per user per month.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,241,2989.4299,2998.1599,21,On the basis of that I think you know having new entrance in the marketplace um that can allow customers to get more used and comfortable to digital currency.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,242,2998.6699,3002.3398,21,We've continue to help the industry and the ecosystem continue to expand.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,243,3002.3401,3016.6299,21,So at this stage it's very difficult to tell the direct impact on us as a business but I do think that as an industry we should expect the industry to continue to expand quite rapidly the more the players come in and help us develop the ecosystem.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,244,3021.78,3022.26,21,Okay.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,245,3022.26,3026.1199,21,Um thank you once again for making time for today's call.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,246,3026.4199,3032.74,21,If there are any further or unanswered questions please contact me after the call and I'll be glad to assist.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,247,3033.3701,3047.8301,21,Please visit the investor page on our website mtn com gh to download our financials and access all relevant investor information including the transcript and audio for this call which would be made available within the week.
2020-03-0230487MTN-Ghana-2019-Annual-Results-Call,248,3048.52,3049.1699,21,Thank you.
2020-Annual-Results-Call-Recording,0,86.89,98.85,1,Um we…
2020-Annual-Results-Call-Recording,1,1079.02,1079.13,2,Okay.
2020-Annual-Results-Call-Recording,2,1630.38,1630.63,6,Okay.
2020-Annual-Results-Call-Recording,3,2193.3501,2193.6201,10,Okay.
2020-Annual-Results-Call-Recording,4,2496.1599,2496.3398,2,Okay.
2020-Annual-Results-Call-Recording,5,2645.8799,2646.1599,2,Sure.
2020-Annual-Results-Call-Recording,6,2750.3701,2750.6401,11,Yeah.
2020-Annual-Results-Call-Recording,7,2751.1799,2751.8701,11,That's what I thought.
2020-Annual-Results-Call-Recording,8,2752.1699,2752.49,11,Okay.
2020-Annual-Results-Call-Recording,9,2755.0601,2912.6899,11,That's what I thought.
2020-Annual-Results-Call-Recording,10,2988.72,2988.8799,2,Okay.
2020-Annual-Results-Call-Recording,11,3074.8501,3077.22,2,And as soon as we have more information we will be able to share that.
2020-Annual-Results-Call-Recording,12,3270.3201,3271.8899,2,And we'll all benefit from that.
2020-Annual-Results-Call-Recording,13,3741.9399,3742.0,2,Yeah.
4329526,0,0.08,8.35,0,Good day everyone and welcome to LATAM Airlines Group Earnings Release conference call.
4329526,1,8.81,11.59,0,Just as a reminder this conference is being recorded.
4329526,2,12.41,17.87,0,LATAM Airlines Group earnings released for the period was distributed on Tuesday March third.
4329526,3,18.19,27.62,0,If you have not receive it you can find it in our website at www dot latam airlines group dot net in the investor relation section.
4329526,4,28.14,38.11,0,At this time I would like to point out that statements regarding the company's business outlook and anticipated financial and operating results constitute forward looking comments.
4329526,5,38.98,45.43,0,This expectations are highly dependent on the economy the airline industry and the international markets.
4329526,6,45.9,47.85,0,Therefore they're subject to change.
4329526,7,48.3,51.6,0,Now it is my pleasure to turn the call over to Mr.
4329526,8,51.6,56.04,0,Ramiro Alfonsin Chief Financial Officer of LATAM Airlines Group.
4329526,9,56.63,56.9,0,Mr.
4329526,10,56.9,58.58,0,Alfonsin please begin.
4329526,11,61.69,67.12,1,Thank you Carmen and good morning everyone and welcome to LATAM Airlines fourth quarter earnings call.
4329526,12,67.94,69.16,1,Joining me today is Mr.
4329526,13,69.16,72.13,1,Roberto Alvo Chief Commercial Officer Mr.
4329526,14,72.13,75.73,1,Jerome Cadier c e o LATAM Airlines Brazil and Mr.
4329526,15,75.73,78.4,1,Andres De Valle VP of Corporate Finance.
4329526,16,79.84,85.11,1,Please join me on slide two where you will find the highlights for the full year two thousand nineteen.
4329526,17,86.74,93.59,1,We quickly reacted to growth opportunities in the region after the cease of operations of some airlines in the region.
4329526,18,94.42,112.63,1,As a consequence we grew in inaudible case by four point one percent and during two thousand nineteen LATAM carried seventy four million passengers the highest numbers in our history and more than five million additional passengers half of them in Brazil compared to two thousand eighteen.
4329526,19,113.42,117.47,1,These represented more growth than any other airline in the region.
4329526,20,119.23,128.14,1,In addition to growth we continued improving two main pillars where we put the special attention our operations and our customers.
4329526,21,129.11,137.8,1,Regarding our operations we improved the capil- capillarity of our network especially from our hut in Santiago Lima and Sao Paulo.
4329526,22,138.68,143.38,1,At the same time we put a special focus on the reliability of our operations.
4329526,23,144.57,157.4,1,We are proud to be named the most punctual airline in the world in the mega category by o a g and by Cirium with approximately eighty six percent of our flights being on time.
4329526,24,178.45,191.35,1,Growing in shorter routes and cabin capacity in longer routes mainly those from Argentina early in the year due to the evaluation of the vessel reduced our average stage length by three percent for the year.
4329526,25,191.74,194.48,1,Diluting fixed costs per flight inaudible.
4329526,26,196.09,210.44,1,In addition the grounding of the Boeing seven eight seven took longer than anticipated and we have an average of three air crafts on ground during two thousand nineteen due to engine delays which we expect to recover by the second quarter twenty twenty.
4329526,27,237.38,240.89,1,During two thousand nineteen we invested in our passengers as never before.
4329526,28,241.84,252.14,1,We acquired multiples and we announced our now unified frequent flyer program under the LATAM Pass brand becoming the fourth largest frequent flyer program in the world.
4329526,29,253.46,262.84,1,We announced the first planes with our new cabins designed to offer an industry living onboard experience and to better serve different types of passengers.
4329526,30,263.64,274.15,1,We currently have sixty seven air crafts retrofitted of the one hundred and seventy we are targeting in this phase and that will be concluded by the end of this year twenty twenty.
4329526,31,275.21,282.62,1,In addition we announced our new business service and a premium economy service that later Andres will detail.
4329526,32,284.35,300.76,1,As a result our passengers recognized us with several awards such as the best airline in South America by Skytrax for the Airline Awards and the best global airline of South America according to the Apex Passenger Choice Awards among others.
4329526,33,302.73,317.93,1,Intensively during two thousand nineteen we approved our network we approved our operations and our customer service and further strengthened our position as the leading airline in the region and one of the main airline groups in the world.
4329526,34,319.88,325.27,1,As previously announced LATAM will lead The One World Alliance on May first twenty twenty.
4329526,35,325.47,332.87,1,It will maintain the existing bilateral agreements with all of The One World members with the exception of American Airlines.
4329526,36,333.32,342.5,1,And we'll continue to offer customer benefits such as earning and redeeming of miles reciprocal inaudible among other benefits.
4329526,37,344.66,349.83,1,we're happy to report a net income of a hundred and ninety million for the full year two thousand nineteen.
4329526,38,350.91,352.55,1,For the third year in a row.
4329526,39,352.6,356.62,1,We increased our total revenue reaching more than ten point four billion dollars.
4329526,40,357.84,365.13,1,Once again this revenue increase was driven by our passenger operations which increase three point four percent year over year.
4329526,41,366.99,379.95,1,Once again we generated over one billion dollars in free cash flows despite one time investment in multiples and the investments we're carrying out by upgrading our cabins of the a hundred and seventy planes.
4329526,42,403.2,410.15,1,With further review free commitments for the following years which will give us even more financial flexibility for the upcoming years.
4329526,43,411.89,424.35,1,The agreement with Delta announced last September is a recognition of the footprint that LATAM have in the region and we are excited about the benefits that this strategic agreement will bring to our shareholders customers and employees.
4329526,44,425.73,432.61,1,Delta is currently a shareholder of LATAM after successfully completing the tender offer of twenty percent of the shares of LATAM.
4329526,45,433.93,440.36,1,In addition our affiliates in Columbia Peru and Ecuador implemented new co chairs agreements with Delta.
4329526,46,441.09,451.39,1,We have already announced co chairs in Brazil to be implemented in starting in the first half of this year and we expect to announce co chair in Chile also during the first half of twenty twenty.
4329526,47,453.22,461.7,1,We also signed a loyalty program agreement that will enable reciprocal frequent flyer benefits starting April first twenty twenty with Delta.
4329526,48,462.99,469.66,1,LATAM Pass members will be able to earn and redeem miles on Delta flights to more than three hundred destinations worldwide.
4329526,49,471.56,482.84,1,We already relocated our flights to J F K from terminal seven uh from terminal eight sorry to terminal four to better serve passengers connecting with Delta flights.
4329526,50,485.61,492.13,1,We could not be happier with all this achievements and we want to thank our employees for the efforts during this year.
4329526,51,492.98,498.4,1,Together we solidified LATAM's position in the region and we improved our competitiveness.
4329526,52,499.73,512.71,1,Before turning the call to Andres for more detail in the fourth quarter we would like to thank our customers for the continued support and express our commitment to providing the best travel experience and connectivity in Latin America.
4329526,53,518.26,523.83,1,we're following it closely monitoring consistently it's evolution and working closely with health authorities.
4329526,54,525.12,529.66,1,Our crews and ground staff are prepared to handle situations of this nature.
4329526,55,530.5,539.94,1,For us the most important is the safety of our passengers and crews and therefore we suspended our flight from Sao Paulo to Milan until April sixteenth.
4329526,56,541.1,543.55,1,In addition we have frozen all…
4329526,57,548.86,555.65,2,With that I would like to take the call to Andre inaudible our VP of corporate finance to ana-analyze the fourth quarter in more detail.
4329526,58,556.96,559.04,3,Thank you Romero and uh good morning everyone.
4329526,59,559.81,563.33,3,Please turn to slide three where you'll find the summary of the income statement.
4329526,60,564.47,571.08,3,Total revenues for the company with two point one billion dollars in the fourth quarter with a inaudible increase of three percent year over year.
4329526,61,572.25,582.89,3,Capacity grew three point two percent in the quarter while revenues for A SK grew by three point one percent in inaudible healthy domestic Brazilian market and they will cooperate in international unit revenues.
4329526,62,583.85,587.39,3,The result total inaudible revenues grows six point five percent.
4329526,63,603.01,610.29,3,Other revenues decreased twenty four percent to a hundred and fourteen million dollars explained by the merger of Multiplus with LATAM Airlines in Brazil.
4329526,64,611.55,614.84,3,Multiplus' revenues are now recognized under inaudible revenues.
4329526,65,615.15,617.41,3,Same as the revenues of the loyalty program LATAM Pass.
4329526,66,618.97,622.9,3,Total costs increased by three point one percent in the quarter to two point five million dollars.
4329526,67,623.28,628.29,3,And as a result our operating income for the quarter amounts to three hundred fifty million dollars.
4329526,68,628.74,634.58,3,This is two percent higher than last year's operating inaudible while operating marketing reached twelve point two percent.
4329526,69,636.33,649.5,3,Net income amounted to two hundred twenty seven million dollars in the fourth quarter due to the decline of 163 million inaudible last year mainly explained by the two hundred twenty two million dollars decline in foreign inaudible year over year.
4329526,70,650.85,656.92,3,Looking at full view figures on the right side of the slide revenue shows zero point six percent to two…
4329526,71,657.02,665.28,3,ten point four billion dollars while costs grew by two percent due to an increase of four point one percent in capacity resulting in the decline of one percent…
4329526,72,665.78,667.55,3,one point eight in cost per A SK.
4329526,73,668.77,677.14,3,With that operating income for the year was seven hundred forty two million dollars and operating marking seven point one percent in line with our previous guidelines.
4329526,74,677.98,682.9301,3,Lastly our net income amounted to one hundred ninety million dollars for the full year two thousand nineteen.
4329526,75,685.0,686.18,3,Please turn to slide four.
4329526,76,687.56,693.79,3,Looking at the inaudible unit you can see that international unit revenues have shown a recovery year over year.
4329526,77,694.69,697.66,3,This is a result of the active capacity management of the company.
4329526,78,698.32,706.24,3,International inaudible approximately fifty one percent of the total A SK's for the quarter down from fifty four percent in the previous quarter.
4329526,79,706.79,710.06,3,inaudible five percent decrease in capacity during the fourth quarter.
4329526,80,718.04,721.34,3,Revenues for A SK's were six times which is four point six…
4329526,81,722.41,724.73,3,four point six percent higher from the same quarter of last year.
4329526,82,726.01,730.61,3,Looking at the domestic Brazil operations inaudible 50% of the total A SK's.
4329526,83,731.17,735.76,3,Total capacity increased by seventeen point two percent and traffic by twenty percent.
4329526,84,736.93,743.73,3,Load factor reached eighty five point two percent this is one point seven percent head points higher above the fourth quarter of two thousand nineteen.
4329526,85,744.92,759.03,3,LATAM Airlines inaudible AerCap previously operated by inaudible Brazil at the beginning of the year inaudible in that manner inaudible compared with the first half of the year mainly by operating the inaudible up to the exit of the inaudible Brazil.
4329526,86,760.02,771.81,3,In addition the continued recovery inaudible domestic demands inaudible for A SK's grows over thirteen percent local currency and six percent inaudible reaching 7.1% in the quarter.
4329526,87,774.26,780.29,3,In Spanish-speaking countries domestic operations which altogether would send nineteen percent of the total inaudible capacity.
4329526,88,780.94,786.75,3,Capacity rose nine percent while traffic grew three point eight percent and load factor with seventy eight point three percent.
4329526,89,787.33,793.04,3,This is almost four points lower than the same quarter two thousand eighteen affected by the social inaudible.
4329526,90,793.04,801.8,3,Excluding inaudible operations capacity rose 13% and traffic rose 12% with a load factor of eighty two percent.
4329526,91,802.83,808.57,3,Revenues for A SK declined by four point two percent through the quarter mainly due to the devaluation of local currencies.
4329526,92,809.18,815.86,3,Excluding foreign exchange effects revenues for A SK's would've grown five percent in the Spanish-speaking countries domestic operations.
4329526,93,816.98,821.71,3,As a result overall passing capacity grew by three point two percent year over year this quarter.
4329526,94,822.22,825.09,3,Revenues for A SK's grows three point one percent year over year.
4329526,95,825.54,828.83,3,And load factor remain relatively stable at eighty three percent.
4329526,96,830.47,840.03,3,Lastly if we exclude effects of our former Mexican inaudible our current operations increase capacity by zero point six percent while profit declined zero point six percent.
4329526,97,840.98,846.15,3,So a decline of zero point seven percent in points load factor to fifty six point four percent.
4329526,98,846.87,861.2,3,Revenues for A SK declined by eight point seven percent in the fourth quarter mainly driven by lower imports into region expanding to Brazil and Argentina and distributions generated by the inaudible during the fourth quarter of two thousand nineteen.
4329526,99,863.22,864.58,3,Please turn to slide number five.
4329526,100,865.57,873.13,3,Uh once again I'm showing this slide so that you can inaudible revenues in the past twelve months.
4329526,101,874.65,877.94,3,On the left side you can see the revenues inaudible in two thousand eighteen.
4329526,102,878.58,885.96,3,Here Brazil represented unfortunately thirty five percent of total revenues while Argentina represented ten percent of revenues.
4329526,103,904.35,912.66,3,Please turn now to slide number six.
4329526,104,913.18,928.7,3,As Romero said we maintain our cost per A SK SQ despite the operational challenges we faced during the year such as the adjustment to the international network social and inaudible region and an average of three point seven eight seven AerCap on ground during the year.
4329526,105,929.79,935.46,3,But in terms of flight you can see that LATAM today continues to expand its operations and transport more passengers.
4329526,106,936.18,942.46,3,We carried almost twenty million passengers in the fourth quarter and reduced number of employees per AerCap compared to last year.
4329526,107,943.63,954.0,3,Fuel costs deceased by ten point six percent due to decline of fourteen percent in fuel price per gallon offset by a three percent increase in fuel consumption in line with the capacity increases.
4329526,108,955.18,962.96,3,Cost associated weight inaudible benefits declined by five point seven percent in fourth quarter two thousand nineteen mainly explained by the devaluation of the local currencies.
4329526,109,964.41,978.31,3,If you look at the inaudible cost which includes maintenance inaudible and inaudible expenses those were a around a hundred million dollars year over year in the quarter mainly due to the addition of inaudible AerCap inaudible in the year inaudible in Brazil.
4329526,110,979.78,985.67,3,Lastly inaudible costs from the slide increased twelve percent as we carried nine point four percent more passenger year over year.
4329526,111,986.27,991.27,3,inaudible weight and inaudible in fourth quarter two thousand eighteen.
4329526,112,993.26,1003.18,3,As a result cost per A SK declined by three point one percent to six point six percent while cost per A SK ex fuel increase by six point seven percent year over year to four point six percent.
4329526,113,1004.25,1012.0,3,After the full year two thousand nineteen cost per A SK declined by one point eight percent and inaudible SQ remained stable at four point five percent.
4329526,114,1014.12,1015.85,3,Please turn to slide number seven.
4329526,115,1016.7,1020.5,3,During the year we have made important progress for the fleet commitment schedule.
4329526,116,1021.07,1029.26,3,We have now further reduced by one point one million dollars to inaudible commitments to be delivered uh between two thousand and twenty and two thousand and twenty two.
4329526,117,1030.3,1034.7,3,This is equivalent to a thirty eight percent inaudible commitments for this three year period.
4329526,118,1035.76,1048.11,3,We believe that this inaudible gives us the necessary flexibility to adapt the goal to different market conditions and allows us to continue moving cashflow of investments helping us maintain inaudible and a healthy liquidity level.
4329526,119,1050.1899,1051.42,3,Please turn to slide number eight.
4329526,120,1052.63,1058.27,3,inaudible LATAM has never invested more in its passenger than in the last year in two thousand nineteen.
4329526,121,1059.01,1067.45,3,We began with the update of the cabins of our fleet and we are already flying six seven AerCap with the new cabins leading to significant improvements in customer satisfaction.
4329526,122,1068.5,1074.38,3,We have also deployed a inaudible at fixed airports and have inaugurated our V I P lounge in Miami.
4329526,123,1074.88,1078.88,3,All contributing to improve customer satisfaction through different stages of the journey.
4329526,124,1080.37,1083.75,3,During two thousand nineteen we also launched a new basic…
4329526,125,1086.66,1094.5499,4,And in March twenty twenty we will be inaudible all the airline inaudible with a premium economy service in all its international and domestic flights.
4329526,126,1095.48,1099.65,4,This new premium service consists in a inaudible airports.
4329526,127,1100.1801,1109.46,4,Certain access will be at the lounges prior to check in and boarding as well as differentiated on-board service such as the middle seat blocked more comfort and privacy.
4329526,128,1110.26,1113.75,4,inaudible catering service and exclusive overhead space for the luggage.
4329526,129,1114.5601,1120.74,4,We have invested in our passengers and we will continue to do so without increasing inaudible as you can see in the next slide.
4329526,130,1122.51,1129.62,4,Turning to slide number nine our gross inaudible declined by two hundred ninety two million dollars from the previous COVID to seven point two billion.
4329526,131,1130.25,1135.47,4,That inaudible was down to four times in December from fo two times in September.
4329526,132,1147.59,1151.4801,4,The best inaudible liquidity position with twenty percent of the last twelve months' revenue.
4329526,133,1153.14,1154.5499,4,Moving on to our head test.
4329526,134,1155.05,1158.34,4,At the bottom left you can find our updated fuel heads position as of today.
4329526,135,1159.05,1164.47,4,For the fourth quarter two thousand nineteen we had unfortunately fifty six percent of that total consumption.
4329526,136,1165.41,1174.33,4,For this year we have a good inaudible heads for the first half with sixty five percent and eighty one percent respectively q one and q two that is.
4329526,137,1174.74,1178.4199,4,While for the third quarter we currently have forty nine percent of consumption heads.
4329526,138,1180.17,1183.17,4,Finally on slide ten inaudible guidance.
4329526,139,1183.8101,1186.8401,4,We are not chained to the guidance provided in December of last year.
4329526,140,1187.41,1190.65,4,We expect total inaudible to grow between three to five percent each year.
4329526,141,1191.46,1196.2,4,This is composed by a inaudible two percent target for international business.
4329526,142,1196.62,1202.1499,4,seventy nine percent inaudible for domestic Brazil and sixty eight percent for domestic inaudible operations.
4329526,143,1203.12,1206.9501,4,We are also correcting cargo capacity to increase between four to six percent this year.
4329526,144,1208.04,1210.7899,4,And with that we conclude the presentation for today.
4329526,145,1211.0601,1212.99,4,I will be really happy to open the line for questions.
4329526,146,1213.29,1213.64,4,Thank you.
4329526,147,1215.29,1216.01,5,Thank you.
4329526,148,1216.04,1221.1901,5,And ladies and gentlemen to ask a question just press star then one on your telephone keypad.
4329526,149,1222.01,1224.36,5,To withdraw your question press the pound key.
4329526,150,1225.29,1229.0801,5,I guess to get in the queue just press star then one.
4329526,151,1229.97,1234.4299,5,And our first question comes from Michael Linenburg with Dolce Bank.
4329526,152,1234.52,1235.25,5,Please go ahead.
4329526,153,1236.49,1238.49,6,Hi this is actually Kate on for Mike.
4329526,154,1239.16,1251.4399,6,Um we were wondering though if you could just talk about any more changes that you might make to like your route network in response to corona just in addition to Milan if there was any other regions that you're particularly concerned about or watching closely.
4329526,155,1253.87,1254.0699,4,Yes.
4329526,156,1261.63,1264.9099,4,We are very closely monitoring trends in traffic.
4329526,157,1264.9399,1271.33,4,We don't see an impact on domestic markets at the point in time uh in any of the countries where we operate.
4329526,158,1271.91,1282.2,4,Uh however we're started to see certain inaudible in the ma- on international routes partly due to changes in policy travel uh rules from companies in general.
4329526,159,1282.5699,1289.3,4,Uh but at this point in time uh we're in the process of just looking very carefully how this develops in the next uh few weeks.
4329526,160,1290.47,1290.7899,6,Okay.
4329526,161,1290.88,1291.71,6,Thank you so much.
4329526,162,1294.33,1294.9,5,Thank you.
4329526,163,1295.23,1298.87,5,Our next question comes from Savi Seist with Raymond James.
4329526,164,1300.71,1301.5701,7,Hey good morning.
4329526,165,1302.08,1307.1799,7,Um just kind of curious uh you know the…
4329526,166,1307.23,1316.71,7,on these uh Columbia uh kind of plan to to kind of grow your corporate share you know what what's kinda the latest development there?
4329526,167,1316.71,1328.03,7,and and uh just in this kind of current environment with you know the commodity uncertainty inaudible uncertainty kinda is this kinda more of an opportunity or are you kinda scaling back uh you your plans there?
4329526,168,1330.0601,1330.5801,4,Hi Savi.
4329526,169,1330.58,1331.34,4,This is Roberto.
4329526,170,1331.8101,1337.21,4,Um so just to remind everyone we launched the plan to grow in Columbia.
4329526,171,1337.21,1345.2001,4,We uh increased our operations as of July first twenty nineteen focus mostly on corporate markets in uh…
4329526,172,1345.23,1345.8301,4,in Columbia.
4329526,173,1361.6,1363.88,4,And at this point in time we are at that stage.
4329526,174,1364.23,1372.1799,4,Uh but we're looking at the developments uh very closely and uh we're satisfied with what we have achieved in the last uh seven months.
4329526,175,1373.61,1374.01,7,Okay.
4329526,176,1374.4399,1384.14,7,Um and then if I might just on uh domestic Brazil um you know one of your competitors who have been kind of sounding concerned about uh capacity growth levels.
4329526,177,1384.87,1385.1801,7,Just…
4329526,178,1385.1801,1385.8501,7,And you you you know…
4329526,179,1385.85,1394.0,7,you just kind of finished a a strong fourth Q but now you're starting to lap maybe some of the uh Avaicao Brazil uh you know capacity pullouts.
4329526,180,1394.46,1400.62,7,Uh just any updated thoughts on kind of what you are seeing here in in one Q and and kind of thoughts on capacity in two Q.
4329526,181,1402.4,1402.5801,4,Yes.
4329526,182,1402.58,1408.4199,4,So um first domestic capacity will grow double digits as compared to first semester last year.
4329526,183,1408.42,1413.36,4,And this is basically because inaudible operational of fourteen aircraft Andre has made reference to.
4329526,184,1414.01,1419.4401,4,Uh we have at this point in time no plans of increasing our capacity in terms of number of aircraft further than that.
4329526,185,1419.75,1427.66,4,So you will see a gradual decline in growth in the second half basically because of the uh base of second half of last year.
4329526,186,1429.3,1433.0801,7,And are you still seeing kinda double digit rough increases on a…
4329526,187,1433.08,1435.4501,7,kinda on a local currency basis here in the first quarter?
4329526,188,1435.45,1436.8101,7,Or are we starting to see that moderate?
4329526,189,1438.11,1441.75,4,We see healthy inaudible in the first quarter.
4329526,190,1442.15,1445.37,4,Uh but it's starting to compare to the base of last year.
4329526,191,1445.6801,1449.28,4,So uh it's not a double digit increase at this point in time.
4329526,192,1449.37,1449.59,7,Okay.
4329526,193,1450.0601,1450.87,7,Yeah that makes sense.
4329526,194,1451.59,1452.3899,7,alright thank you.
4329526,195,1455.13,1455.6899,5,Thank you.
4329526,196,1455.9301,1459.87,5,Our next question comes from Matthew inaudible with Barclays.
4329526,197,1506.1801,1506.52,8,Thank you.
4329526,198,1508.6,1509.3101,4,Thank you Matthew.
4329526,199,1509.3101,1510.89,4,Uh w well you're right.
4329526,200,1510.89,1520.4501,4,we we are reducing compared to two thousand nineteen our free inaudible and therefor our free CapEx from one billion to to maybe four hundred million.
4329526,201,1520.88,1525.33,4,and and some of inaudible will probably be arranged through inaudible.
4329526,202,1527.38,1529.1901,4,So they will not be considered CapEx.
4329526,203,1529.78,1530.87,4,And we'll be inaudible.
4329526,204,1531.6,1535.8201,4,However the company is still carrying on significant monthly investments.
4329526,205,1536.5699,1540.42,4,Uh we are concluding our retrofit of the cabins.
4329526,206,1540.6899,1542.61,4,So that is requiring cash flow this year.
4329526,207,1543.21,1545.63,4,There are a lot of engine repairs that are included in the…
4329526,208,1545.66,1546.84,4,in the monthly CapEx.
4329526,209,1547.21,1551.5599,4,And we're targeting a monthly CapEx of approximately one billion this year.
4329526,210,1552.25,1556.3199,4,Which is similar to the one that we had in in two thousand nineteen.
4329526,211,1556.79,1565.8,4,Regarding priorities our main two priorities besides the engine repairs that are mandatory for our recurrent recurrent operations the main…
4329526,212,1565.87,1572.35,4,the main two projects I would say are are the retro-fitting of the cabins inaudible investment in IT.
4329526,213,1572.64,1576.85,4,We're improving our digital uh IT services to our customers.
4329526,214,1577.33,1579.59,4,and and those are the two main priorities.
4329526,215,1586.24,1586.8201,5,Thank you.
4329526,216,1587.52,1591.62,5,Our next question comes from Bruno Amorime with Goldman Sachs.
4329526,217,1593.45,1593.74,9,Hi.
4329526,218,1593.77,1594.5,9,Good morning everyone.
4329526,219,1594.5,1601.53,9,So I just have a follow-up question on the unit revenue uh perspectives in in Brazil.
4329526,220,1602.0601,1608.98,9,Uh you have mentioned that uh you were seeing a deceleration in the rate of growth in unit revenue in the fourth quarter.
4329526,221,1627.15,1633.28,10,Is it possible for us to see you know a negative unit variation unit revenue in the second quarter?
4329526,222,1633.28,1636.12,10,Any indication you could provide at this point?
4329526,223,1636.2,1637.04,10,Thank you very much.
4329526,224,1638.5699,1639.0601,11,Hi Bruno.
4329526,225,1639.0601,1639.74,11,This is Lorenzo.
4329526,226,1639.8101,1642.73,11,Uh just to clarify we are not taking out capacity.
4329526,227,1680.27,1680.5701,11,Okay?
4329526,228,1680.92,1686.4399,11,So uh yields have uh improved as I said as compared to last year in the first quarter.
4329526,229,1686.8101,1692.01,11,Uh and in comparison second quarter we'll still see um also how the market develops.
4329526,230,1692.48,1703.41,11,Uh the only point of consideration is that yield base also increased significantly last year because by the time of the second quarter Avianca has mostly ceased it's ceased it's operation.
4329526,231,1705.52,1713.02,10,Yeah so th that was my concern because you know there was a big uh you know jump in yields it's only adjusted in the second quarter last year.
4329526,232,1713.5601,1717.34,10,And and then with the much tougher comparison this uh you know…
4329526,233,1717.64,1721.8199,10,do you have any indication if it could be you know negative in the second quarter?
4329526,234,1721.8199,1723.01,10,Or it's too too early to say?
4329526,235,1724.3,1725.17,11,I think it's too early to say.
4329526,236,1725.59,1737.38,11,Uh however I think that if you put everything together our expectation for yields for RASK if you want for the whole year would be in the range of stability as compared to what we found in twenty nineteen.
4329526,237,1738.46,1739.33,10,Thank you very much.
4329526,238,1741.6899,1742.25,12,Thank you.
4329526,239,1742.9301,1747.1,12,Our next question comes from Roberta Versiani with City Bank.
4329526,240,1749.64,1750.41,13,Hi good morning.
4329526,241,1762.51,1762.7899,13,Thank you.
4329526,242,1763.37,1767.2,11,n no we have not had um management conversations with Qatar.
4329526,243,1769.17,1771.4501,11,Other than the recurrent business conversations.
4329526,244,1772.48,1773.15,13,Okay thank you.
4329526,245,1774.55,1774.9401,11,No problem.
4329526,246,1776.08,1776.83,12,Thank you.
4329526,247,1783.91,1786.9701,14,I wanted to ask another question about the coronavirus.
4329526,248,1787.01,1798.08,14,Um I know it's still very early and there's not very much information but I was wondering if you could help us uh get a sense of how large the impact could be in different scenarios.
4329526,249,1798.42,1806.2699,14,I mean are there any historical precedents for something like this you would use in your analysis of figuring out what the traffic impact is?
4329526,250,1806.27,1809.05,14,Are you considering some bad scenarios or good scenarios?
4329526,251,1809.36,1811.5901,14,I'm just trying to understand order of magnitude.
4329526,252,1811.59,1817.3101,14,I mean would the impact on traffic be five percent or fifty percent i is really the thrust of the question.
4329526,253,1819.61,1820.66,11,Yes hi Joe.
4329526,254,1820.6899,1826.11,11,Um first I'm not sure that any of the precedents before would serve as an example.
4329526,255,1826.5699,1831.73,11,Uh both MERS and SARS had very little effect in Latin America when both happened.
4329526,256,1832.2,1837.3,11,However swine flu that started in Mexico last two decades ago I dunno…
4329526,257,1837.33,1843.41,11,fifteen years ago had a slightly bigger effect and traffics were double-digit impacted at the time.
4329526,258,1843.59,1845.71,11,Honestly can't remember exactly the figures.
4329526,259,1846.6801,1852.52,11,Um and I'm not sure that this is a good point of comparison with whatever can happen this year.
4329526,260,1852.85,1856.99,11,However what I can tell you is we have very little traffic coming and going from and to Asia.
4329526,261,1869.48,1880.51,11,We are not seeing anything too significant yet in other countries in Europe and we do not fly to Iran either which is another country where there is a significant uh number of cases.
4329526,262,1880.51,1885.6799,11,So um it's very hard to foretell to be to be thoroughly honest.
4329526,263,1885.73,1888.41,11,What I can tell you is that we're following the very closely.
4329526,264,1888.84,1900.16,11,And as Ramiro explained how we took the measures in terms of decreasing non-essential hiring non-essential expenses and non-essential investments just to be on the safe side uh with respect to this.
4329526,265,1902.3,1903.55,14,alright thank you very much.
4329526,266,1905.66,1906.36,12,Thank you.
4329526,267,1909.61,1913.1901,12,And ladies and gentlemen as a reminder to ask a question just press star then one your telephone keypad.
4329526,268,1916.5601,1919.78,12,And our next question is from Sabby Sisk with Raymond James.
4329526,269,1921.29,1922.74,15,Hey thanks for the follow up.
4329526,270,1922.77,1926.1801,15,Uh just uh i i I wanna ask as little bit about Brazil.
4329526,271,1926.1801,1938.03,15,I know it takes time to change perceptions but you've kind of implemented this new um kind of uh on-board experience an and you are kinda chan uh uh retrofitting the fleet.
4329526,272,1938.5601,1943.6499,15,Any early observations on on on what you're seeing as a result of those changes?
4329526,273,1953.0601,1953.9299,11,So it hasn't started.
4329526,274,1953.96,1954.25,15,Okay.
4329526,275,1954.54,1957.34,11,So maybe on next quarter we can provide some color on…
4329526,276,1957.37,1958.8099,11,on how this is going.
4329526,277,1959.33,1962.76,11,Uh however we believe that we will have a premium product.
4329526,278,1963.03,1964.0,11,We actually do not believe.
4329526,279,1964.0601,1964.7999,11,We will have…
4329526,280,1965.0,1969.5699,11,we will be the only airline that will have a premium product in most Latin mark in markets.
4329526,281,1969.5699,1976.49,11,We believe that this will distinguish us from our competition and we expect that that this will be very well taken with our customers.
4329526,282,1977.76,1981.72,15,Does that does that help you ve in the very near term with your kind of corporate discussions?
4329526,283,1981.72,1983.98,15,Or is that something that kind of develops over time?
4329526,284,1997.5601,1998.73,15,market share immediately?
4329526,285,1998.73,2002.8,15,Or is it something that you know perception changes and over time you expect the revenue benefits?
4329526,286,2004.01,2007.02,16,You know Sabby uh this is Jerome uh from from Brazil.
4329526,287,2007.02,2012.59,16,th we have already seen some positive results regarding market share with corporate agencies.
4329526,288,2013.0601,2020.26,16,Given that we're offering a better product uh that will be even better after after March fifteen.
4329526,289,2020.29,2024.83,16,So we have seen positive results and are excited of about what's coming up.
4329526,290,2025.6899,2028.27,15,Got it.
4329526,291,2041.37,2042.75,17,Yeah the hedges were taken…
4329526,292,2045.16,2048.3801,17,uh of course last year cuz of the current uh levels.
4329526,293,2048.46,2057.1699,17,So at at today's prices uh we have uh kinda uh expected that despite the negative compensation which is in a ways it it's uh…
4329526,294,2066.76,2066.8,15,Oh.
4329526,295,2074.03,2078.72,17,Uh but uh it's uh uh I think uh slightly under the water the hedges.
4329526,296,2079.8201,2080.01,15,Okay.
4329526,297,2080.04,2080.9502,15,th that's helpful.
4329526,298,2080.95,2081.3501,15,Thank you.
4329526,299,2084.0,2084.8098,12,Thank you.
4329526,300,2085.01,2089.51,12,And ladies and gentlemen this concludes our QnA session and program for today.
4329526,301,2089.73,2091.05,12,Thank you again for joining us.
4329526,302,2091.9099,2097.46,12,Please feel free to contact our investor relations department if you have any additional questions.
4329526,303,2097.77,2100.2,12,We look forward to speaking with you again soon.
4351517,0,4.19,11.54,0,Ladies and gentlemen thank you for standing by and welcome to Telkom's Full Year of two thousand nineteen Results Conference Call.
4351517,1,11.98,14.81,0,At this time all participants are in listen only mode.
4351517,2,15.18,19.76,0,After the speakers' presentation there will be a question and answer session.
4351517,3,20.08,24.5,0,To ask a question during the session you will need to press star one on your telephone.
4351517,4,25.11,28.0,0,Please be advised that today's conference is being recorded.
4351517,5,28.54,31.91,0,I would like to hand the conference over to your first speaker today Mr.
4351517,6,31.91,32.22,0,Andi Setiawan.
4351517,7,32.98,33.49,0,Thank you.
4351517,8,33.49,34.32,0,Please go ahead.
4351517,9,69.66,69.72,0,<unk>…
4351517,10,69.72,70.14,1,session.
4351517,11,123.7,123.96,1,Mr.
4351517,12,123.96,128.08,1,Zulhelfi Abidin as Network and IT Solutions Director Mr.
4351517,13,128.08,132.32,1,Edwin Aristiawan as Wholesale and International Service Director Mr.
4351517,14,132.32,136.52,1,Bogi Witjaksono as Enterprise and Business Service Director Ms.
4351517,15,136.52,140.0,1,Siti Choiriana as Consumer Service Director Mr.
4351517,16,140.0,144.06,1,Achmad Sugiarto as Strategic Portfolio Director Mr.
4351517,17,144.06,147.78,1,Faizal r Djoemadi as Digital Business Director and Mr.
4351517,18,147.78,150.27,1,Edi Witjara as Human Capital Management Director.
4351517,19,151.48,153.88,1,Also present are the Board of Director of Telkomsel Mr.
4351517,20,153.88,158.33,1,Setyanto Hantoro as President Director Mr.
4351517,21,158.33,161.24,1,Heri Supriadi as Finance Director and Ms.
4351517,22,161.28,163.13,1,Rachel Goh as Marketing Director.
4351517,23,164.35,166.66,1,I now hand over the call to our c e o Mr.
4351517,24,166.66,169.5,1,Ririek Adriansyah.
4351517,25,170.75,171.38,2,Thank you Andi.
4351517,26,171.66,173.01,2,Good afternoon ladies and gentlemen.
4351517,27,173.5,176.56,2,Welcome to our conference call for the full-year of two thousand nineteen results.
4351517,28,177.37,179.38,2,We really appreciate your participation in this call.
4351517,29,180.31,189.9,2,Ladies and gentlemen for the full year of two thousand nineteen our inaudible IndiHome became the engine of growth and continuing to demonstrate a strong promise.
4351517,30,190.54,198.07,2,Mobile digital business also saw strong growth on the back of solid data traffic in line with four g network quality and coverage.
4351517,31,198.77,208.16,2,In the meantime enterprise business experience was down as we deliberately reduced our exposure on full margin business and partly due to securability.
4351517,32,208.7,237.23,2,For the full-year of 2019 our Telkom inaudible 3.7% year-on-year growth in revenue to 135.63 IDR while EBITDA and net income grew by 9.5% and 3.5% year-on-year respectively as a result of modest growth in total expense of 1.3%.
4351517,33,237.68,250.41,2,Our EBITDA margin recovered 47.8% or 2.6 inaudible increased from that of two thousand eighteen.
4351517,34,251.4,260.83,2,Cash flows from operating activities reached historical high of fifty one point nine trillion or down by twenty point three percent year-on-year.
4351517,35,261.67,280.05,2,Export then business through IndiHome became the growth driver continuing its strong performance year revenue grew by twenty eight point one percent year-on-year while in mobile business the consolidated business grow strongly by thirty three point one percent and successfully inaudible legacy business to decline.
4351517,36,281.9,297.28,2,Ladies and gentlemen during full-year of two thousand nineteen our fixed broadband posted remarkable performance even added two million new subscribers during the year of two thousand nineteen to reach seven million of subscriber.
4351517,37,339.91,351.49,2,In twenty twenty we target to add another seven hundred thousand new subscribers lower than last year due to floods in the beginning of the year and also the covid nineteen pandemic.
4351517,38,378.65,389.02,2,In 2019 digital business accounted for sixty three point nine percent of total Telkomsel revenue increased significantly from fifty three.
4351517,39,389.73,392.54,2,zero percent for the same period a year ago.
4351517,40,419.55,427.1,2,EBITDA margin improved by oh point one percentage point to fifty four percent amidst the declining legacy business.
4351517,41,427.96,441.87,2,Ladies and gentlemen we continue our strategy to protect high-value customer by providing services according to their inaudible and at the same time we pay a lot more attention to the us market by giving attractive prices through digital channels.
4351517,42,442.65,448.55,2,We keep investing to certain number of quality and corporates to provide the best experience for our customers.
4351517,43,449.11,456.75,2,We deployed more than twenty three thousand new businesses during full-year of two thousand nineteen over four g biz.
4351517,44,457.46,474.04,2,By the end of two thousand nineteen Telkomsel inaudible around two hundred and four thousand units seventy six point three percent of which were three g and four g which supported that particular increase by fifty three point six percent year-on-year.
4351517,45,476.75,492.33,2,Our inaudible business declined by eleven point two percent year-on-year as we intentionally reduced low-margin business and see that our focus on more profitable services such as data center and cloud and also the securability of characteristic.
4351517,46,493.17,503.5,2,In an effort to strengthen data center and cloud business we are building more than three thousand worth of data center and and the first stage is expected to commence inaudible next year.
4351517,47,504.15,507.49,2,In the long run we tend to get another six percent rate of data center.
4351517,48,509.31,518.87,2,Our wholesale international business uh segment recorded ten point six trillion in revenue or grew by five point two percent compared to the same period last year.
4351517,49,519.66,525.39,2,The segment is the integral for other segment in Telkom Group in particular for mobile business.
4351517,50,537.97,546.16,2,Wholesale and international business contributed around seven.
4351517,51,559.95,567.42,2,The mobile services CapEx was utilized to further improve four g network quality and capacity as well as IP system enhancement.
4351517,52,568.34,580.57,2,While in fixed line business CapEx was primarily utilized to the global fiber-based access and backbone infrastructure to support fixed as well as mobile broadband business.
4351517,53,581.12,585.9,2,A small portion of CapEx was assigned to other projects inaudible.
4351517,54,621.54,630.95,2,Nevertheless since the end of the first quarter of this year we have been performing strict cost cutting measures as part of our commitment to maintain profitability.
4351517,55,632.03,639.42,2,In an effort to maintain level of quality and inaudible we tend to spend CapEx of around 25% of revenue in 2020.
4351517,56,640.49,641.68,2,That is ending my remarks.
4351517,57,641.98,642.31,2,Thank you.
4351517,58,643.88,644.6299,1,Thank you Ririek.
4351517,59,645.11,646.91,1,we'll now begin the q and a session.
4351517,60,647.73,651.54,1,Getting your questions please speak clearly and state your name and your company.
4351517,61,652.23,654.39,1,Uh operator may we have the first question please?
4351517,62,658.85,662.19,0,Ladies and gentlemen we will now begin the question and answer session.
4351517,63,662.76,668.31,0,If you wish to ask a question please press star one on your telephone and wait for your name to be announced.
4351517,64,668.91,673.13,0,If you wish to cancel on the request please press a pound or hash key.
4351517,65,673.79,677.29,0,Please know there will be a short pause as the questions are being collated.
4351517,66,677.81,679.33,0,We thank you for your patience.
4351517,67,685.51,690.72,0,Your first question comes from the line of inaudible from Goldman Sachs.
4351517,68,690.72,691.98,0,Please ask your question.
4351517,69,705.13,709.52,3,You know have there been any significant change compared to um last year?
4351517,70,710.44,712.38,3,Secondly is on your digital service.
4351517,71,712.99,716.89,3,Uh you talked about this detecting a very key driver of growth.
4351517,72,717.45,728.07,3,Uh I'm wondering whether for Telkomsel are they able to also monetize on some of those services like let's say video streaming or mobile financial services?
4351517,73,728.57,733.45,3,Or are we simply monetizing largely to selling data uh for that?
4351517,74,734.82,738.07,3,And then lastly I'm wondering on even the whole right?
4351517,75,738.07,743.02,3,I mean what is sort of the normalized or longer-term EBITDA margins that we can probably get to?
4351517,76,743.29,746.63,3,You know we're seeing obviously very nice increase in margins last year.
4351517,77,747.08,747.42,3,Thank you.
4351517,78,765.42,785.01,4,Just addressing your first question regarding competition uh so if referring to year two thousand nineteen uh we see that uh none of the other competitors in the top three have achieved any significant monetization on data um which is pretty much data corresponding.
4351517,79,785.07,787.24,4,Uh in terms of the…
4351517,80,787.96,797.48,4,and also to take note that uh for additional data revenue Telkomsel still managed to achieve a significant share in terms of the revenue for data.
4351517,81,798.16,801.91,4,And and pricing wise it still remains um…
4351517,82,802.21,817.12,4,It was very competitive in terms of price in two thousand nineteen especially towards the end when you saw uh one of the top three uh operators here when going into uh a limited push push their R P M be extremely low.
4351517,83,817.62,820.95,4,A question would be then what's next after the unlimited offering?
4351517,84,821.64,824.0,4,We also see in terms of competition…
4351517,85,824.03,837.6801,4,increased competition uh in ex-Java because of uh the extension of our competitor's network in the ex-Java and hence you know it's its how they'll play the price game to achieve revenue share.
4351517,86,838.26,843.58,4,Uh in Java itself we are seeing it pretty stable and and it's something which…
4351517,87,846.91,851.73,5,Um I hope that answer responded to to your question on competition.
4351517,88,852.14,858.54,5,Uh from Telkom's health point of view we will continue to focus uh on renewal.
4351517,89,858.66,874.71,5,on on maintaining competitive business in our network quality and also especially in our high-value segments who are very concerned with quality and also the variety of packages and and non-data services that we offer.
4351517,90,874.74,878.89,5,Which leads me to the next point about yes we are monetizing not only for data.
4351517,91,879.21,883.33,5,We also are growing in terms of our gaming business as well as our video business.
4351517,92,891.35,891.63,5,Thank you.
4351517,93,893.59,894.02,6,inaudible.
4351517,94,895.16,909.6,6,Okay uh for for the third question uh at least for the next couple of years uh we believe the inaudible margin will eventually move towards uh uh mid thirties level so around thirty five percent level.
4351517,95,910.33,916.39,6,And then we hope in the long run it could be getting stronger as uh we've uh…
4351517,96,916.42,926.3,6,We've been uh strengthening the digital patch points uh whereby make it easier for customers to uh reach us.
4351517,97,926.79,933.08,6,And at the end it would uh reduce the o m o m costs which helps with the debt.
4351517,98,936.64,937.06,7,Thank you.
4351517,99,944.55,950.21,8,Your next question comes from the line of p u Chaudhry from H S B C.
4351517,100,950.21,951.42,8,Please ask your question.
4351517,101,956.16,956.72,9,Good afternoon.
4351517,102,957.46,958.58,9,Uh a couple of questions.
4351517,103,959.03,960.54,9,Firstly the question for Ms.
4351517,104,960.54,975.14,9,Rachel um for Telkom's health is for twenty twenty and kind of medium term is the strategy now to maintain the market share revenue market share or is it to improve the revenue market share?
4351517,105,975.56,986.18,9,And if you can share what are the initiatives taken to achieve such goals and how has been the response to the by you product if you can share that.
4351517,106,987.24,998.15,9,Secondly on um the impact of COVID could you specifically share how is the impact on the non-mobile business particularly the enterprise business.
4351517,107,998.86,1006.1299,9,And thirdly could you share what are the various cost efficiency initiatives taken by the company to maintain a inaudible.
4351517,108,1006.78,1007.08,9,Thank you.
4351517,109,1014.22,1016.18,10,Hi um Rachel here.
4351517,110,1016.66,1025.4801,10,So um in terms on your twenty twenty um question about our strategy inaudible improve commenting of course.
4351517,111,1025.58,1025.6599,10,<laugh>.
4351517,112,1025.66,1029.4301,10,As on organization we always wanna increase our revenue market share;
4351517,113,1029.8101,1034.85,10,however we will always focus on just being ability and health of the revenue market share.
4351517,114,1035.42,1040.42,10,Um so this is very much in line market share revenue market share leadership is key for us.
4351517,115,1041.08,1053.1799,10,Um and also that is supported by our aim to you know keep investing in our network and make sure the quality is very good because we will be focused on uh high-quality and high-value protecting of our customers.
4351517,116,1054.26,1057.3101,10,And what are initiatives we have put in place so far?
4351517,117,1078.11,1082.0601,10,And all the the r p m v has the time.
4351517,118,1082.51,1087.89,10,Uh what has been very very encouraging for us is that the approval has been increasing.
4351517,119,1089.27,1094.9401,10,So here it shows that there is demand for Telkom's health network quality.
4351517,120,1094.97,1096.5901,10,Uh there is the potential for growth.
4351517,121,1097.76,1106.15,10,So comprising what we've in the end of q q four twenty nineteen uh is starting to get results for us.
4351517,122,1106.76,1112.02,10,so so to answer you yes we wanna continue to maintain and improve our revenue market share.
4351517,123,1112.1,1114.3201,10,We've put in initiatives with variety.
4351517,124,1114.66,1116.1801,10,So certainly adjusting inaudible.
4351517,125,1116.1801,1120.5,10,And growth in high-value segments.
4351517,126,1121.08,1123.0599,10,And in terms of value um…
4351517,127,1123.5699,1129.48,10,Yes as you can that the value base that come online is is exactly what we are going after additional segments.
4351517,128,1129.85,1140.61,10,So the numbers on big data improving and what is important to note here is that inaudible in the data utilization of the value base is actually high contact with the average uh customers.
4351517,129,1141.39,1142.8,10,So that's what we have.
4351517,130,1142.8,1144.9399,10,I hope that answers your question.
4351517,131,1147.83,1148.47,9,Yes it does.
4351517,132,1148.58,1148.96,9,Thank you.
4351517,133,1182.71,1184.4301,9,What should we expect in twenty twenty?
4351517,134,1184.4301,1184.65,6,Okay.
4351517,135,1187.64,1188.1001,7,Yeah hi.
4351517,136,1188.1,1188.6,7,Hi Piyush.
4351517,137,1188.6,1189.52,7,Carey here.
4351517,138,1189.55,1203.1,7,Um so uh we we have started to see a a a few uh uh uh events such as a project getting delayed or even getting canceled.
4351517,139,1204.03,1218.7101,7,Uh and uh you know uh some clients uh have also even refused their uh spendings or total return from some of our services especially those who are in the…
4351517,140,1218.71,1227.3199,7,are adversely impacted uh uh uh indefinitely such as hospitality transportation and property.
4351517,141,1228.21,1237.75,7,Uh there's also been some uh payment delay or request to um uh restructure the contract uh and structure of payment.
4351517,142,1238.77,1249.73,7,and and also because of the lack of uh mobility of people because of the situation uh delivery of the projects uh have also been uh delayed.
4351517,143,1250.9,1260.76,7,Uh we have we have been uh uh uh unable to discipline the quantity of this uh as this is very dynamic.
4351517,144,1261.45,1268.28,7,Uh but but uh admittedly we have seen those things happening in the in the past couple of months.
4351517,145,1276.23,1276.5601,9,Got it.
4351517,146,1276.87,1277.66,9,Thanks for that Carey.
4351517,147,1277.6899,1280.9301,9,and and the cost initiatives cost health initiatives?
4351517,148,1284.64,1298.21,7,Uh we we've been doing various things uh uh from the o m uh as well as some of the personnel costs like inaudible costs.
4351517,149,1299.02,1312.3101,7,Uh it is in our sole intention to keep the inaudible margin and and net income margin uh within this year as what we have in two thousand nineteen of the entire group.
4351517,150,1313.11,1318.6901,11,mm-hmm <affirmative>.
4351517,151,1318.72,1326.0699,11,I think so far how he explains it I think it sounds uh inaudible.
4351517,152,1333.51,1339.53,11,This also impacted our cost of uh marketing and sales.
4351517,153,1340.09,1344.4501,11,Uh we see this gonna be some time in the future but it just depends.
4351517,154,1344.53,1355.3501,11,Although we uh still uh also need to manage the traditional channel as we see the traditional also is uh part of the b two b business in the future.
4351517,155,1359.03,1359.49,9,Thank you Pakar.
4351517,156,1367.23,1372.71,8,Your next question comes from the line of Collin McCallum from Credit Suisse.
4351517,157,1372.71,1373.96,8,Please ask your question.
4351517,158,1376.39,1377.46,12,Uh thanks for the opportunity.
4351517,159,1377.78,1379.21,12,Um two questions from me.
4351517,160,1379.25,1385.85,12,Um first of all just on on IndiHome um you mentioned seven hundred thousand target for this year.
4351517,161,1386.24,1392.3099,12,Um you also mentioned flooding um and I think first quarter was particularly bad.
4351517,162,1392.67,1404.62,12,Um but other than that issue in first quarter um intuitively one would've thought the demand would be quite strong given work-from-home and home schooling et cetera.
4351517,163,1405.15,1412.61,12,Um so is it uh a kind of lack in user demand you're seeing in addition to the flooding?
4351517,164,1412.99,1421.91,12,Or is it sort of difficulty accessing homes cuz people don't want engineers to come to their home to be connected because they're worried about the virus?
4351517,165,1422.3,1428.95,12,A little bit more color on why um the the the net ad numbers are less than a million would would be helpful.
4351517,166,1429.5,1439.62,12,Um second question related to that if you're only looking at seven hundred thousand net ads why would your CapEX to sales ratio not fall a bit more.
4351517,167,1439.62,1442.66,12,I think it's falling from twenty seven to twenty five you said.
4351517,168,1443.1,1445.64,12,Um why would it not be falling more?
4351517,169,1446.0601,1448.25,12,Is it related to the data center build out.
4351517,170,1448.25,1451.8401,12,if if you could give us a bit more color on that uh Pakar that would be good.
4351517,171,1452.66,1469.1901,12,Um and then third question just a kinda house keeping one the impairment charge of one point two trillion um what was the background to that distributor and um what is the remaining book value that you have uh in your accounts?
4351517,172,1469.73,1474.9601,12,i i Is it likely that we will face another impairment on that later?
4351517,173,1475.4399,1476.5601,12,Those are my three questions.
4351517,174,1476.59,1476.9099,12,Thank you.
4351517,175,1480.88,1481.3,11,Yeah okay.
4351517,176,1481.3,1483.28,11,on on IndiHome uh yes.
4351517,177,1483.3101,1496.13,11,Uh part of the the uh the work-from-home and learn-from-home situations have helped quite a bit in terms of increasing our sales on Zoom.
4351517,178,1497.22,1502.72,11,But we are anticipating that uh these will not last forever.
4351517,179,1502.75,1520.45,11,In terms for the new customers uh we are anticipating that likely some of them will either refuse their subscription or totally turn uh from from from the new subscription that they they just uh signed up.
4351517,180,1521.38,1525.86,11,Uh but you you were also right that uh there's been some uh…
4351517,181,1527.08,1538.3201,11,Because of the uh uh uh spreading outta the virus uh the uh mobilization of our engineers has somewhat been hampered as well.
4351517,182,1538.48,1547.1801,11,Uh so we have not been able to operate throughout uh the country uh especially in in those uh…
4351517,183,1547.85,1550.74,11,Uh we have here like what what we call rapid results.
4351517,184,1551.87,1555.96,11,Um so that that that's uh for the IndiHome.
4351517,185,1555.99,1562.9601,11,Uh in terms of CapEX uh some of the uh um purposes uh are still there.
4351517,186,1562.96,1568.28,11,Uh the the new one is uh is like you mentioned is the the data center one.
4351517,187,1568.28,1570.91,11,that that would cost us around uh…
4351517,188,1571.24,1575.0499,11,It would've to be more than a couple a hundred billion Rupiah uh for this year.
4351517,189,1575.49,1577.48,11,There will be some more CapEX for the next year.
4351517,190,1578.49,1581.35,11,Uh and and and also uh…
4351517,191,1582.3,1600.3501,11,uh to uh enhance the CapEX in data sales particularly in 4G uh there's also some CapEX we will spend for the powers and uh for the for the IT enhancement both in uh inaudible.
4351517,192,1602.23,1615.74,11,On the impairment charts uh this is due to the decline of the shared price of the company uh from more than nine hundred Rupiah by…
4351517,193,1615.97,1623.0699,11,in the beginning of two thousand nineteen to around three hundred Rupiah uh at the end of two thousand nineteen.
4351517,194,1623.8101,1628.74,11,So this is uh purely a a an accounting segment that we have to do.
4351517,195,1629.89,1642.27,11,Uh but in the in the company's book itself the book value the remaining book value uh still sits around five hundred billion Rupiah at the end of two thousand nineteen.
4351517,196,1643.66,1651.55,11,Uh we are exploring ways to inaudible uh with regards to this.
4351517,197,1662.03,1674.9299,6,Uh I think to inaudible on the direct uh inaudible specifically are coming from the hotel.
4351517,198,1675.3,1680.8099,6,But we can uh tell you actually this uh revenue is inaudible by the demand.
4351517,199,1684.36,1687.64,13,In addition inaudible.
4351517,200,1687.64,1696.88,13,Based uh based on inaudible aspect of the the aspect of the inaudible.
4351517,201,1699.42,1711.74,13,That why we're uh I think we think that our uh inaudible this year cuz uh we we've been inaudible.
4351517,202,1712.23,1718.66,14,Got it thank you.
4351517,203,1720.01,1721.12,14,thank you.
4351517,204,1728.26,1732.85,15,Your next question comes from the line of Arthur Penanda from Citigroup.
4351517,205,1733.2,1734.4399,15,Please ask your question.
4351517,206,1735.4,1736.86,16,Hi thanks for the opportunity.
4351517,207,1736.86,1738.0,16,Several questions for you.
4351517,208,1738.54,1744.86,16,Uh firstly on the inaudible segment what growth of big loss in enterprise in the fourth quarter.
4351517,209,1777.52,1779.3,16,Uh and that question is inaudible.
4351517,210,1780.58,1784.46,16,Are were there any other one-offs booked for the period thank you.
4351517,211,1786.5601,1803.51,13,Uh I think uh inaudible on this one.
4351517,212,1803.51,1803.65,13,inaudible.
4351517,213,1803.65,1804.62,13,Redirect for inaudible.
4351517,214,1805.76,1824.8099,13,You can see the uh inaudible.
4351517,215,1824.8101,1866.54,17,Yeah um I I'll address the point about inaudible.
4351517,216,1874.21,1882.6901,17,I'll address the point about uh talcum sales uh inaudible market share inaudible.
4351517,217,1883.0699,1889.3,17,So uh overall a revenue share is dropped mainly because of a legacy which is still in decline.
4351517,218,1889.78,1908.0601,17,Uh as you know compare to the other players our inaudible revenues are inaudible higher inaudible detail of the revenues uh we I think we are still doing quite well uh with the data revenue share of sixty two percent inaudible.
4351517,219,1922.24,1941.3199,17,As I said inaudible also inaudible continue to increase uh our network uh investments to drive up our data revenues uh as rapidly as possibly to be able to make up for that decline in the legacy as much as you can and also in other digital ventures that we have.
4351517,220,1942.77,1943.29,16,Understood.
4351517,221,1947.9399,1962.7699,13,"inaudible as you see our net worth figure right now only about 50,000 of inaudible."
4351517,222,1981.23,1996.2001,13,The long term objective of beside the the inaudible decline we agree to as well inaudible.
4351517,223,1996.2,1996.2899,18,crosstalk.
4351517,224,2005.5601,2015.58,18,I I think that that inaudible the performance decline.
4351517,225,2015.58,2023.88,16,Thanks inaudible is it possible to disclose what what that number would be?
4351517,226,2025.9,2031.89,16,So we can better see the outlook for f y twenty?
4351517,227,2034.02,2034.7999,16,Uh yes.
4351517,228,2036.95,2038.88,18,Uh it's likely be low four hundred billion.
4351517,229,2042.36,2044.45,18,Around three hundred inaudible three ninety billion.
4351517,230,2047.33,2047.63,16,Okay.
4351517,231,2047.63,2048.2,16,Understood.
4351517,232,2064.27,2064.77,16,Understood.
4351517,233,2066.3201,2066.76,16,Thank you.
4351517,234,2069.6899,2070.25,18,You're welcome.
4351517,235,2075.5701,2080.1802,14,Your next question comes from the line of Franz Charma from JP Morgan.
4351517,236,2080.21,2081.3501,14,Please ask your question.
4351517,237,2084.2,2084.51,19,Hi.
4351517,238,2084.51,2086.4099,19,Good afternoon and thank you for the call.
4351517,239,2086.5801,2088.0601,19,Couple of questions from my side.
4351517,240,2089.0801,2112.8201,19,Firstly with the impact of COVID have you seen any change in consumer behavior in the first quarter and also in like April and May um have you seen a moment of uh customers between operators inaudible consolidation of rising spending if you can share any color that would be um helpful.
4351517,241,2113.6399,2120.23,19,Um second question is on different uh has there been an announcement made on it and how how should we think of the policy?
4351517,242,2121.0801,2128.8799,19,Um lastly can you share any update on any regulatory changes that mi-that might be uh impending in Indonesia thank you.
4351517,243,2134.26,2162.6001,13,Okay uh inaudible COVID inaudible uh as already mentioned inaudible now uh more inaudible uh uh around 60% inaudible digital channel so again actually the inaudible channel itself uh maybe 35%.
4351517,244,2162.6001,2184.6201,13,they're not really operating but we inaudible that I think that across the country we inaudible have the same inaudible.
4351517,245,2184.6201,2203.3301,13,I think if we see this one uh we can see it actually the this is a good brand for us beside uh in fact inaudible…
4351517,246,2204.2,2216.5,13,inaudible and what is the I think uh uh this inaudible uh digital channel is going to be in the future and what is the inaudible.
4351517,247,2216.5,2221.7898,13,I think the inaudible itself in the customer base uh they're consumed.
4351517,248,2221.79,2223.04,13,they're inaudible uh inaudible.
4351517,249,2223.04,2235.8501,13,So I think the again the the inaudible the center of the I think uh inaudible not necessarily becoming uh inaudible digital channel to do this inaudible.
4351517,250,2235.8501,2253.05,13,So I think a lot of the uh the inaudible and the customer behavior in which they are becoming a much more difficult now compared to before.
4351517,251,2259.79,2271.1299,15,Yeah maybe adding to that uh we also have seen that demand is inaudible uh in in in our network through the home.
4351517,252,2272.1201,2293.71,15,The latest data that we can share was uh nine point six terabyte per second that was by only Apple which was eleven percent increase from uh uh from mid March when the the pandemic literally stopped innovation so eleven percent increase in in in two weeks.
4351517,253,2295.3899,2330.27,15,And and also in some software uh inaudible volume or new installation inaudible in the home per day uh at the end of March uh and uh in in April until maybe the beginning of May we saw like around eight thousand to ten thousand uh per day even though now has somewhat been used to the uh you know inaudible six thousand uh new installation per day.
4351517,254,2332.26,2339.6702,15,Uh for your second question I'm gonna inaudible as we speak we have still been inaudible.
4351517,255,2339.6699,2353.0801,15,We know for sure for sure we have mounted our ATM on the nineteenth of June.
4351517,256,2356.3,2382.75,13,And in the inaudible application on the inaudible and we can have our own uh application uh crosstalk becoming more and more digital in doing that work.
4351517,257,2388.9099,2409.95,19,So hi uh I had a question on the regulatory changes if if there's anything impending and second inaudible i am clear but had you mentioned that there would be like three hundred thousand inaudible homes this year?
4351517,258,2410.6699,2411.01,19,Thank you.
4351517,259,2414.6001,2422.9399,13,Uh so if you you you asking about number of customers or data?
4351517,260,2423.9199,2428.4299,19,Uh number of customers inaudible in the homes for this year.
4351517,261,2431.3101,2431.8201,18,inaudible.
4351517,262,2431.8899,2442.54,13,Oh yeah that that's uh uh the uh the topic of uh additional new customers uh in the home for this year.
4351517,263,2444.5801,2445.99,13,it's around seven hundred thousand.
4351517,264,2450.3799,2451.3699,19,Okay last question.
4351517,265,2458.4099,2468.1699,13,The rest we're still waiting about inaudible but since we're waiting we don't have any more data on this point.
4351517,266,2468.1699,2468.25,13,inaudible.
4351517,267,2468.25,2497.3999,13,There's some recent change in the inaudible number so stopping inaudible it would be nineteen percent for publicly listed companies.
4351517,268,2514.1899,2524.2798,18,I think some incentive the government has given to the companies during the inaudible.
4351517,269,2524.28,2531.1699,20,inaudible alright thank you so much.
4351517,270,2535.45,2537.3801,21,Please ask your question.
4351517,271,2537.3799,2537.9199,22,Hi.
4351517,272,2542.02,2544.7,22,Thank you for the opportunity.
4351517,273,2545.01,2546.98,22,Uh two questions from me please.
4351517,274,2547.26,2550.8198,22,Uh first of all you know following up on the regulatory question.
4351517,275,2551.5701,2564.0198,22,Given what Covid has done to the industry do you think that there is an increased likelihood of industry consolidation taking place post Covid?
4351517,276,2564.48,2566.49,22,Or even as soon as twenty twenty?
4351517,277,2566.8301,2572.72,22,Or do you think there's still too much uncertainty around the Spectrum situation to inaudible this?
4351517,278,2573.6101,2587.1199,22,And related to that you know do you see the competition uh facing increased network issues and potentially monetization issues uh given this Covid pandemic?
4351517,279,2587.1201,2589.6399,22,And what do you think happens next on this front?
4351517,280,2589.95,2590.3,22,Thank you.
4351517,281,2611.5901,2623.5,20,Uh we do expect that uh all the regulatory are aware that uh we need uh some more productivity and quality as well to inaudible uh the people in country.
4351517,282,2624.04,2637.1101,20,Uh with inaudible with thinking about monetization uh with the acting profit margin that uh our competition already uh met today.
4351517,283,2637.6299,2648.97,20,it's supposed to be kinda I think a inaudible for them to not uh coming to more say uh intense competition in the rising.
4351517,284,2649.1699,2651.3499,20,it's better to monetizing this one.
4351517,285,2651.3501,2655.5601,20,We already see uh one of the competitors already provide the inaudible.
4351517,286,2655.5601,2661.5701,20,But inaudible uh based on the situation that uh has someone yet to consume the mine quota.
4351517,287,2661.5701,2667.8401,20,It's been a field they're thinking about uh I think uh sanitization.
4351517,288,2667.8401,2675.0598,20,Yeah the other one uh I know that uh they're inaudible to review for the uh inaudible.
4351517,289,2675.3,2680.9902,20,Because uh with this uh competitive one they need to be pushed more.
4351517,290,2680.99,2687.26,20,I think uh without uh justified uh flight they're not going to make any margin.
4351517,291,2687.51,2695.8201,20,I think they're supposed to be a uh making a bit more uh but they're not thinking on how to monetize uh how to plan B.
4351517,292,2697.27,2703.3899,20,And uh I think the consolidation of post Covid is uh quite uh difficult to answer the question.
4351517,293,2722.23,2728.2798,20,Um we this is supposed to be a bit on uh uh business inaudible.
4351517,294,2728.48,2737.5798,20,So uh whenever it is going to happen basically we need uh support uh uh at the time that makes all the difference.
4351517,295,2737.7,2740.1099,20,But nothing could make inaudible a bit healthier.
4351517,296,2740.47,2750.8,20,Uh this one I think uh from the inaudible of government I'm going to think also what I expect to qualitate that.
4351517,297,2751.4299,2757.77,22,Has there been any clarity with regards to Spectrum and the in the consolidation process?
4351517,298,2757.77,2759.7,22,Or is that still the big unknown?
4351517,299,2761.9099,2766.27,20,I think uh still unknown on this one.
4351517,300,2766.6899,2774.46,20,But uh if you ask for them uh when we think about five g I think Spectrum is uh supposed to be bigger.
4351517,301,2774.71,2780.4299,20,That can be also another uh reason for uh consolidation inaudible.
4351517,302,2781.4299,2786.6501,23,Okay just to just to enter some of some of the point of um what you just uh gives.
4351517,303,2786.9199,2796.46,23,I think uh post Covid uh the meat of the industry become healthier as in the bigger interest of everybody.
4351517,304,2796.8999,2813.4299,23,So idea that there could be uh possibly one of them uh but uh and and and also can be somewhat like a argument and is uh monetizing the uh the uh the the metal game in a better result.
4351517,305,2813.4299,2822.6602,23,So we do expect that all the inaudible can be more rational in the in the in the competition.
4351517,306,2825.8899,2827.6702,22,Okay thank you.
4351517,307,2828.21,2828.6299,20,Thank you.
4351517,308,2836.7,2842.0601,21,Once again ladies and gentlemen if you wish to ask a question please press star one on your telephone.
4351517,309,2843.3501,2849.1699,21,Your next question comes from the line of Nico Margaronis from inaudible.
4351517,310,2849.6599,2850.8801,21,Please ask your question.
4351517,311,2852.1299,2855.6299,24,Yeah uh good afternoon and thank you for the opportunity.
4351517,312,2856.98,2864.1001,24,Um two questions which arise from uh some uh news that that uh surfaced from uh media.
4351517,313,2879.8,2884.0999,24,Um so if you can if you can give us some color on this two topics.
4351517,314,2885.3799,2889.03,24,And whether you believe if adding Netflix into the into your uh product portfolio would uh would increase the inaudible.
4351517,315,2895.96,2911.3301,24,And um uh and maybe uh one uh one more question on uh um we see that uh that the yield for telecom sales um fourth quarter coming down.
4351517,316,2924.01,2926.25,24,And uh yeah.
4351517,317,2926.29,2941.5,24,And uh how to connect this uh with uh your uh your argument that um uh quarter that uh that the competition will moderate the uh going forward this year.
4351517,318,2941.6201,2942.03,24,Thank you.
4351517,319,2946.8999,2947.23,23,Okay.
4351517,320,2947.23,2949.9702,23,Um I'll take the uh the inaudible question.
4351517,321,2951.6399,2959.27,23,Yeah um we um not in a hurry to do any um monetization in our uh tower district.
4351517,322,2959.99,2972.1699,23,Uh I think that the way we uh see this business is somewhat different probably uh compared to any other operators from any other uh independent tower providers.
4351517,323,2972.2,2980.28,23,Uh so we see it that uh as uh important enabler to support our business particularly our inaudible.
4351517,324,2980.28,2993.28,23,Uh having that we are open for any uh obviously uh inaudible uh if there's any uh clear uh benefit from uh from monetization.
4351517,325,2993.28,2995.78,23,But not not in not in the near inaudible.
4351517,326,2996.5,3002.3101,23,So uh but we do uh feel like the importance of power especially when five g comes around.
4351517,327,3002.95,3008.76,23,Where my uh you know we need uh uh better or more than inaudible towers.
4351517,328,3009.3899,3013.1399,23,Uh if if we have five g.
4351517,329,3014.1001,3014.1702,20,Yeah.
4351517,330,3036.24,3041.26,24,Or uh taking it to IPO or um um yeah.
4351517,331,3041.8101,3045.28,24,What are the options for for for towers in front of you?
4351517,332,3045.8101,3046.1802,24,Thank you.
4351517,333,3048.8301,3051.0601,20,We we are basically open for any options.
4351517,334,3051.1299,3059.22,20,We we have not uh uh we have not uh you know uh as of now we're not seriously thinking any particular option.
4351517,335,3059.95,3069.1602,20,Uh and as I uh inaudible we are not really in a hurry to execute anything with regard to tower business monetization anytime soon.
4351517,336,3070.54,3070.96,24,Okay.
4351517,337,3071.95,3072.6799,24,Okay thank you.
4351517,338,3073.6699,3074.22,24,Thank you for having me.
4351517,339,3076.2,3079.22,23,Oh okay and the second question is uh on the Netflix.
4351517,340,3079.22,3087.3701,23,Uh the inaudible idea we're discussing with them uh and uh so far it's it's uh focusing uh quite well.
4351517,341,3087.3999,3091.8301,23,Uh mainly the discussion was focusing on uh two things.
4351517,342,3091.8301,3094.74,23,One is on the uh inaudible.
4351517,343,3094.8501,3097.3401,23,And the second one is the focusing on the subscribers.
4351517,344,3097.9199,3113.2998,23,So uh I believe uh we are closing the uh gap between the two and and and once uh we give them the inaudible uh we are gonna be opening the uh the access to the uh to Netflix.
4351517,345,3143.72,3148.3298,20,Connectivity definitely is uh we need to provide I think uh a good uh option for our customers in order for them to stay with us.
4351517,346,3148.3301,3158.3201,20,And also to increase the inaudible and also is to make some inaudible outta this.
4351517,347,3158.96,3168.4202,20,Uh I think many uh other uh more besides of the big deal we have inaudible in order to increase the inaudible.
4351517,348,3168.4199,3179.8501,20,And uh your question on the situation with uh how is the other uh inaudible called us.
4351517,349,3192.1001,3197.21,20,Uh what we actually might possibilities to increase the productivity of our customer base.
4351517,350,3197.5901,3199.9299,20,And also to increase the output of those.
4351517,351,3200.4299,3202.3499,20,As long as we can have that one.
4351517,352,3202.3501,3210.76,20,That way we have uh the package inaudible that we give to our customers.
4351517,353,3210.76,3213.6902,20,cuz we have uh the other one on daily inaudible.
4351517,354,3232.3501,3242.6301,20,We know uh inaudible our profitability on this one.
4351517,355,3259.3301,3263.24,20,inaudible Okay.
4351517,356,3263.29,3265.1299,21,There are no further questions at this time.
4351517,357,3265.1299,3267.0901,21,I would like to hand conference back to Mr.
4351517,358,3267.0901,3269.3701,21,Andy inaudible for closing remarks.
4351517,359,3269.3701,3270.3899,21,Please continue.
4351517,360,3272.6399,3276.1599,25,Thank you everyone for participating in today's call.
4351517,361,3276.49,3280.49,25,And should you have any further questions please feel free to contact us directly.
4351517,362,3281.1299,3281.51,25,Thank you.
4351517,363,3285.03,3287.9302,21,Ladies and gentlemen this concludes this conference call.
4351517,364,3287.9299,3289.6399,21,Thank you for participating.
4351517,365,3289.6699,3290.73,21,You may all disconnect.
4372696,0,57.73,60.5,1,We hope you manage to take some rest and recharge batteries.
4372696,1,144.2,151.55,2,We also continue to see important regulatory developments and uh and a growing public support for the green agenda technologies in our core markets in Europe and the US.
4372696,2,280.1,286.89,2,Overall the reported net profit decreased by twenty two percent so this is dragged by non-recurring items in the first half of twenty twenty.
4372696,3,287.68,302.98,2,Essentially the key items here are the impairments in the coal assets following the the closure again specific closure of <inaudible> we are now planning to live and also the one-off cost of the hybrid fund we purchased which we were given the first quarter of this year.
4372696,4,305.09,314.39,2,Net debt down two percent year to date to €14.1 billion and obviously this reflects in the first half of payments of the annual dividend in the second quarter.
4372696,5,314.39,319.93,2,This is a recurring event every year so there's uh more pressure on the second quarter.
4372696,6,319.93,342.08,2,I'd also like to note that the net that's June twenty twenty was flat versus June nineteen so as a result the ratio of EBITDA was 3.7 times in June twenty twenty to slightly above the 3.6 and 719 clearly below the the four point one sold last year uh from year to date last year.
4372696,7,343.44,348.95,2,In terms of cash flow recurring organic cash flow rose uh point €3 billion to €2 billion.
4372696,8,349.64,356.99,2,That's obviously supported by better performance and activities in which we don't have partners or minority interests and also the lower interest costs.
4372696,9,379.54,383.47,2,So as you know we've closed the agreement for the acquisition of <inaudible> with good valuation.
4372696,10,383.98,393.01,2,This includes as you know the long term partnership with Macquarie for the electricity distribution business in Spain it's reinforces our regulated and long term protected risk profile.
4372696,11,420.54,427.41,2,Finally we also announced over the last month through after rotation deals totaling €1.1 billion of enterprise value.
4372696,12,428.05,439.72,2,The first deal which we announced in mid-August was two hundred forty megawatts in Spain at an easy multiples €2.1 million per megawatt for portfolio with an aggregate average age of nine years.
4372696,13,453.17,456.42,2,It's the the reference that uh that we should use.
4372696,14,468.42,470.25,2,Let's move forward to the next slide.
4372696,15,470.25,484.9,2,So on EBITDA the breakdown by business platform so as I mentioned consolidated EBITDA down two percent year on year but would've been flat if we excluded the Forex in fact namely the Brazilian Real which depreciated twenty percent versus the euro.
4372696,16,485.61,501.01,2,Within renewables and despite the eighty percent increase in our hydro production in Iberia um four percent below historical average the the hydro e b i t d a had an eight percent decline mainly due to the decline in the wind and solar.
4372696,17,502.22,508.21,2,This in turn is explained by the winds resource in our global wind farms portfolio it was nine percent below long term average.
4372696,18,508.61,523.23,2,The average capacity and operation decreased by six percent and this is essentially due to the asset rotation uh last year of a fifty one percent stake in a one gigawatt wind portfolio so obviously that has a relevant impact at that level.
4372696,19,524.56,532.42,2,Several million euros year on year impact on EBITDA obviously at the net profit level this is much less relevant so it's also plus minorities.
4372696,20,534.23,548.16,2,Finally the decrease in asset rotation gains by €74 million year on year so in the first half of 2020 the asset rotation gains were €145 million uh reflecting valuation and the shareholding adjustments from the transfer of most of our offshore wind assets.
4372696,21,548.69,553.54,2,The new fifty fifty Wind offshore joint venture with energy cuz you know it's called Ocean Winds.
4372696,22,583.45,589.28,2,Finally the the improvements in climate solutions and energy management I think this is a strong improvement.
4372696,23,589.31,600.51,2,It's fully driven by the positive hedging results in Iberia partially offset by the seventeen percent decline in EBITDA from supplying Iberia mostly given the contraction in electricity supply volumes by seven percent.
4372696,24,601.17,611.35,2,So this was most relevant in the b two b segments where the decrease in volumes reaching fourteen percent was only partially mitigated by the one point five percent increments in the b two c segment.
4372696,25,613.23,617.48,2,Let's move forward to the the next slide uh on financing costs.
4372696,26,619.29,632.88,2,So here uh interest goes down sixty percent supported by a seventy basis points declining the average cost of debt as I mentioned and a six percent decrease in the average that's now this better performance.
4372696,27,633.64,642.05,2,The I mean it's due to the more active debt management um as the rates of maturing debt were much higher than those for new financing we've got this year.
4372696,28,642.65,648.48,2,But it's also also to mention it's also a significant reduction in the short term rates in Brazil.
4372696,29,649.11,663.69,2,So as you can see here on the table on the right hand side we continue to have some short term debt maturities with relatively high rates that will be maturing over the next quarter so let's just continue to support the downward trend on the average cost of debt over the the next couple of years.
4372696,30,664.42,674.02,2,This is something I think we've been flagging and you guys have also asked us about this for the last year or so and I think we're seeing that's um flowing through now the <inaudible>.
4372696,31,675.6,679.3,2,Let's move forward to the next slide um on recurring net profits.
4372696,32,681.15,688.61,2,Um so here the the negative effects in fact the EBITDA is obviously more diluted at the base level and even more at the the net profit level.
4372696,33,689.27,698.24,2,cuz we typically fund our operations in the local currency <inaudible> um there's a positive impact from lower net financing costs.
4372696,34,699.2,703.78,2,And there's also lower um minority interests both at E D P R and E D P Brazil.
4372696,35,732.14,738.98,2,Just quickly recapping what what we've done um since we announced our strategic update back in March nineteen.
4372696,36,739.58,745.76,2,I think we've really shown in this period it's basically a year and a half that we've been front loading the execution of this plan.
4372696,37,745.93,761.57,2,So this has been really important um particularly given what's happened in the last couple of months with COVID cuz we've managed to really lock in a lot of value creation and it's put us on the right path to extract value from growth opportunities that we've been developing now for a number of years.
4372696,38,762.35,774.33,2,But renewables as you know eighty four percent of the seven gigawatts targets um for the periods of long term contracts we're well positioned now for accelerated growth in in Europe and in the US.
4372696,39,803.27,813.26,2,On top of that we're down to two point seven million proceeds from two disposals in Iberia so the the six hydro plants in Portugal and the two teams in the b two c supply portfolios.
4372696,40,815.05,820.88,2,Overall I think we consider this uh proactive portfolio restructuring has been a major source of value creation.
4372696,41,844.99,857.93,2,But it's also really allows us to to accelerate some of these um savings um given increased digitalization and also greater operational efficiency that were uh redesigned during this period.
4372696,42,857.98,863.16,2,So it's given us a boost in that respect as well.
4372696,43,871.74,877.32,2,And we're completely committed to reinforcing our green position and accelerating our decarbonization.
4372696,44,877.32,882.12,2,So as you know that's a key part of our strategy and it'll continue to be.
4372696,45,911.84,919.39,2,We have some storage projects under analysis for <inaudible> and we also have some renewable projects that we're intensively developing via those coal sites which have been decommissioned in the south of Spain.
4372696,46,919.39,926.34,2,So uh definitely repositioning is extremely important for us.
4372696,47,927.94,929.47,2,Let's just move forward to the next slide.
4372696,48,929.47,933.38,2,So just a quick note here uh on the on the rights issue.
4372696,49,934.08,938.42,2,So as you know subtle eight and a half percent uh increase.
4372696,50,938.42,944.89,2,I won't dwell much on it but I think the market reactions to the operation show the merits of the combined acquisition and the <inaudible> deal.
4372696,51,945.8,946.95,2,Um how did I say?
4372696,52,946.95,948.36,2,That's <inaudible>.
4372696,53,948.36,953.77,2,To move forward to the next slide slide ten.
4372696,54,954.7,957.17,2,I think you know this is I think an interesting slide.
4372696,55,958.3,962.86,2,Um so it shows how we've been active in reshaping our idea and portfolio.
4372696,56,963.7,972.98,2,So to remind you in December we announced the disposal of six hydro plants in Portugal for the €2.2 billion already costing the EU merger control approval.
4372696,57,1000.63,1003.6201,2,But um but again we we think that's on track.
4372696,58,1003.62,1007.59,2,And um we expect that to be done by the fourth quarter.
4372696,59,1007.59,1011.82,2,In fact we expect all these transactions to be completed in the fourth quarter <inaudible>.
4372696,60,1052.3101,1054.12,2,Let's just move on to Slide eleven.
4372696,61,1055.27,1058.67,2,Maybe a note here on um the asset rotations.
4372696,62,1059.22,1065.38,2,So the last couple of weeks have been really busy for the teams here in terms of finalizing these deals.
4372696,63,1068.02,1073.7899,2,Back in August we announced the sale of the two hundred forty megawatts as I mentioned in Spain two point one million per megawatt.
4372696,64,1074.67,1079.92,2,By comparison our previous asset rotation deal in April was at around a multiple of one point six.
4372696,65,1079.92,1084.12,2,So significant <inaudible> value despite a slightly older portfolio.
4372696,66,1098.09,1104.79,2,There's both wind and solar for an implicit <inaudible> multiple of two point one million dollars per megawatt as the c o d as I mentioned.
4372696,67,1193.6801,1198.73,2,Um so it's really just it's d o d will be beginning of two one.
4372696,68,1199.9301,1207.8601,2,Um as you know the there was this extension for versus the previous the p p t versus the previous target in December twenty twenty.
4372696,69,1208.4301,1211.3199,2,So um we're pretty comfortable there.
4372696,70,1239.17,1243.8201,2,Two remaining assets to be transferred from our side Mayflower and uh so in the US.
4372696,71,1244.26,1246.62,2,Wind flows in Portugal before the end of this year.
4372696,72,1252.6,1257.98,2,Um in addition to our project the wind float Atlantic this was commissioned in in the summer.
4372696,73,1258.91,1269.12,2,I think it is it is an interesting some facets about this project it's an interesting milestone for the offshore industry it's the largest turbine ever installed on a floating platform.
4372696,74,1323.67,1325.6901,2,So this really fits well with our strategy.
4372696,75,1326.14,1328.4501,2,I think we're really well positioned to benefit from it.
4372696,76,1329.3,1340.37,2,Overall the National Energy Plan has estimated over 340 gigawatts of new onshore wind and solar capacity by 2030 of which 55% are sponsored by eight European countries who were already present.
4372696,77,1340.37,1348.23,2,So um supporting also not to forget other investments that will be key namely the hydro electric mobility smart grids where we've also been very active.
4372696,78,1348.23,1352.49,2,So I think in general good news for where we are strategically.
4372696,79,1366.85,1373.1,2,In the US definitely we benefit from the extension of the BTCs.
4372696,80,1389.83,1393.04,2,So now let's move to slide fourteen and just a word on Brazil.
4372696,81,1420.52,1422.62,2,So this increases liquidity for the company.
4372696,82,1423.53,1426.5801,2,It's also passive cost-related to the estimated COVID impact.
4372696,83,1444.1801,1445.5499,2,And obviously we benefited from that.
4372696,84,1446.6,1452.12,2,In generation uh there was a recent approval by the Senate of new legislation to solve the GFS issue.
4372696,85,1452.58,1455.58,2,I think this is a critical step to reduce the regulatory uncertainty.
4372696,86,1456.35,1462.59,2,So the presidential approval is required to proceed uh with the release of the details from the regulator.
4372696,87,1480.6801,1491.13,2,In transmission we had some delays in the construction works um given COVID but construction has resumed seventy one percent total capex of six transmission lines was already executed.
4372696,88,1495.25,1513.4199,2,And regarding future transmission options we will obviously continue to review opportunities um you know but we'll also be disciplined in the way that we approach this as as you know we are when we we go into these options.
4372696,89,1515.61,1521.6899,2,Looking at the macro environment um strong depreciation in Brazil Real so that worsens our financial euros.
4372696,90,1522.65,1529.88,2,But also some positive indicators from a macro view in Brazil namely really low interest rates I mean record low interest rates.
4372696,91,1530.46,1535.52,2,Uh the Salic the benchmark rate just recently we set it at two percent by the Brazilian central bank.
4372696,92,1535.52,1540.2,2,So um in that sense also greatly reducing the the funding costs in Brazil.
4372696,93,1542.28,1558.4299,2,In March twenty twenty um so beginning of the crisis Brazil took several preventive measures to protect financial liquidity it was for a lot of uncertainty at the time so they initially cut the dividend proposal and had some capex postponed with an increase of credit lines.
4372696,94,1559.14,1571.41,2,As a result they had a very strong financial liquidity of 3.4 billion <inaudible> uh low leverage of two times that EBITDA but given their strong position things seem to be recovering.
4372696,95,1587.58,1594.34,2,it's withdrawn cuz of the COVID that we're now reaffirming that and maintaining that for the the next few years.
4372696,96,1595.75,1619.34,2,Um in the release in the press release that the company made um it was also stated that the absence of investment opportunities in you know Brazil at attractive conditions the remaining cash flow will be distributed either as buybacks or additional dividends but basically the idea is to have an optimized capital structure in Brazil and and make sure that it's um efficient.
4372696,97,1621.92,1623.6001,2,So let's just move to slide fifteen.
4372696,98,1623.78,1629.89,2,Talk a little bit about some things I know will also interest many of you which is the beer and energy markets.
4372696,99,1630.9399,1643.01,2,Those already mentioned we had pretty solid results in energy management in the first half and this compensated the negative effects from weaker volumes and low energy prices.
4372696,100,1643.98,1655.13,2,For the rest of the year we expect much lower energy management results below the average of the last five semesters really the first half in particular the first quarter was exceptionally good.
4372696,101,1656.0699,1670.2101,2,Um and obviously going forward over the the remaining months of the year in the second half it'll be the reason for this is on the back of hedging in the customer seasonality in basically the recovery of energy prices.
4372696,102,1670.77,1676.73,2,So I just wanted to remind you that this expectation is already reflected in our guidance which we've been providing.
4372696,103,1678.0,1686.03,2,Also in relation to 21 and not something I'd like to highlight as we've been doing that over the last couple of months is we're reducing our massive exposure.
4372696,104,1717.33,1721.01,2,So this is um essentially twenty twenty one.
4372696,105,1721.01,1747.87,2,<inaudible> So let's just quick make it on slide sixteen um on impact just to say as I've mentioned before it really shows <inaudible> this really challenging time um we have shown a lot of resilience um particularly in the second quarter of twenty twenty was particularly tough in terms of the lockdown in terms of the impact on the economy.
4372696,106,1747.87,1753.3199,2,And I think despite that we're able to have you know solid results.
4372696,107,1754.1801,1758.55,2,Of course this has to do also with um adaption capacity of the company but also our people.
4372696,108,1777.46,1783.97,2,This translated also to a good quality of service also even in terms of both the suppliers and the distribution.
4372696,109,1809.17,1813.36,2,And so I think that will bring a lot of benefits also in terms of motivation for for our team.
4372696,110,1815.95,1818.85,2,Last slide let's just move into summary.
4372696,111,1819.4301,1828.3199,2,Um so we maintain the financial guidance that we shared with you just a month ago the <inaudible> acquisition and the rights issue presentation.
4372696,112,1829.25,1843.67,2,So despite twenty twenty being difficult from COVID we are keeping solid earnings resilience recurring EBITDA three point six billion recurring net income point 85 point nine targets.
4372696,113,1844.51,1853.8601,2,But you know our recurring net profits assumes the status of non recurring so if you take that out versus the point eight um including the sales.
4372696,114,1883.29,1888.3201,2,So I still have around two billions slightly less than that during that couple of years.
4372696,115,1888.3199,1899.67,2,I think what we've seen in terms of um asset rotations over the last eighteen months to twenty four months it has allowed us to be slightly more optimistic versus our assumptions.
4372696,116,1901.38,1921.48,2,We also see improved growth opportunities for renewables both wind onshore offshore solar hybrids uh <inaudible> also storage green hydrogen I think there's a lot of a lot of moving pieces here which I think will give us good opportunities to create value improved economics a lot of public support both in Europe and in the US.
4372696,117,1921.48,1923.4,2,So I think we have some tailwinds here.
4372696,118,1924.91,1944.38,2,The the portfolio restructuring into focus goes into long term contracted and regular activities also going to reduce how much exposure and improve our low-risk profile and that together with very supportive credit markets and lower yields for longer term allow us to also continue to reduce our average cost of debt.
4372696,119,1964.13,1966.4801,2,So we obviously then have a couple of annexes.
4372696,120,1966.48,1976.24,2,I'm not gonna go through that but you have a lot of information we typically provide um in other presentations um we can refer to that in the Q and A if necessary.
4372696,121,1977.02,1979.66,2,Let's stop here and turn it back over to Miguel then.
4372696,122,1981.85,1984.38,1,Yes we can start now the the Q and A session.
4372696,123,2193.75,2194.01,3,Thank you.
4372696,124,2195.99,2205.27,2,So in relation to to your first question um just how much asset rotation is in the recurring numbers I was talking about.
4372696,125,2205.8701,2211.4399,2,So we're expecting that for the full year we should be close to point four.
4372696,126,2211.9199,2221.8499,2,Um so I think Iran is forty five in the first half and you know we've had two recent deals which will be closing in the second quarter.
4372696,127,2222.6101,2228.5798,2,I think you know from the multiples you can assume the that those obviously are gonna be relevant capital gains associated with that.
4372696,128,2239.6899,2276.24,2,So after rotations um close to point four um and what I would like to highlight though also it does show the recurring power of this business model because it's not one it's not two it's not three it's not four it's already several transactions that we've been doing over the last um couple of years or less than the last two years selling majority stakes where we have consistently shown our not only the market appetite for these assets but also the interest and the sort of the attractiveness of these assets which is obviously increased even during this period.
4372696,129,2290.5701,2297.3201,2,Um the liability management is what it is it's obviously the the hydrogen buyback at the beginning of the year and the fans as well.
4372696,130,2297.8701,2300.1101,2,Um I think this is detailed in the presentation.
4372696,131,2302.77,2308.98,2,But essentially that's sort of the one-off which is clearly signaled and and is not part of the these numbers.
4372696,132,2340.1899,2343.73,2,Then don't forget a lot of this was also in Brazil.
4372696,133,2344.25,2348.5598,2,So when it gets down to the net profit line it's mitigated.
4372696,134,2349.1599,2357.26,2,And in Iberia um it was also impacted our commercial business and then but then that was also mitigated by part of our energy management.
4372696,135,2357.26,2362.28,2,So I I certainly wouldn't draw this out on the contrary we were heavily impacted by COVID.
4372696,136,2362.96,2372.5,2,But fortunately we also had other levers um which then allowed us to mitigate that impact so that on a recurring basis we we ended up in a in a good place.
4372696,137,2373.9399,2375.1599,2,In relation to your second question.
4372696,138,2375.1599,2378.3301,2,So the well positioned for growth.
4372696,139,2379.04,2380.95,2,Listen I think we focused on the business plan.
4372696,140,2380.95,2382.5398,2,As I mentioned we're still at eighty four percent.
4372696,141,2402.75,2406.0801,2,Um you know I think then we would then be able to elaborate a little bit more.
4372696,142,2406.48,2409.6602,2,But just in also in relation to this question I think it is a relevant point.
4372696,143,2410.4399,2414.26,2,I mean our balance sheet will be at the end of the year where we wanted it to be.
4372696,144,2414.73,2423.5,2,In other words um we are still a triple B minus rating and we have the objective of of trying to move to a triple B rating.
4372696,145,2424.27,2429.4399,2,And so that means that we need to be consistent in the way that we um that we move in this direction.
4372696,146,2429.4399,2437.7002,2,So it's not the transactions we're doing are allowing us to get a little bit more freedom and to move towards the Triple B.
4372696,147,2437.7,2449.3499,2,It doesn't mean we're currently uh you know have a huge amount of space and so we are moving in the right direction but on on track in line with uh what we expected.
4372696,148,2449.8799,2455.0901,2,So I'd say that's in relation to the the capacity for for more growth.
4372696,149,2455.6399,2469.78,2,Really I'd like to to probably answer that when we do a full uh sort of DMV um when we can take all the different pieces put them together and have a sort of a solid coherent plan rather than just answering.
4372696,150,2469.78,2474.3599,2,it is just a part of it um in relation specifically to renewables.
4372696,151,2475.47,2483.3901,2,Um in growth pipelines for the third question you're right we don't typically provide a lot of information on on pipeline.
4372696,152,2484.04,2492.8201,2,Um you know obviously as we go on closing the PPAs we provide that we have a very large pipeline which has allowed us to feed it's basically a funnel.
4372696,153,2492.8201,2505.5701,2,And I think we've talked talked about this a little bit in the past I mean in some of the conversations that sometimes you need to be developing this pipeline for four five six years in different geographies until you actually get it to maturity.
4372696,154,2732.72,2737.02,2,There are also some positives that we were already you know beginning to see.
4372696,155,2737.8101,2742.3,2,And um and so we sort of built that into our view at the time.
4372696,156,2743.3601,2750.96,2,Um positives you know we have already seen the lower interest rates we were seeing already higher gains in the asset rotation.
4372696,157,2751.71,2761.53,2,Um some of the negatives that we have let's say been highlighted over the last couple of months um the stronger devaluation of the Brazilian Real.
4372696,158,2762.3701,2772.1101,2,Um and and obviously the the demand so I think you know definitely those those pieces have continued to move.
4372696,159,2772.1101,2783.0,2,But the positive ones we've already seen I think the Brazilian Real will continue to to devalue um a little bit further versus where we we were in uh back in May.
4372696,160,2783.6799,2801.98,2,And in terms of the the energy management also for the remaining part of the year I think as I mentioned we had an extremely extraordinarily strong first quarter uh second quarter was was good but obviously was strong and typically the second half of the year um is less strong than the first half.
4372696,161,2802.1599,2805.7002,2,So as I mentioned that's already built into our targets.
4372696,162,2805.7,2812.02,2,So we are already now in September where you have the chance to sort of incorporate the latest uh assumptions.
4372696,163,2812.02,2816.5701,2,And I think these positives and negatives needed to be comfortable with the the guidance we provided a month.
4372696,164,2817.8899,2820.7,2,Um in relation to your question on the the net profit.
4372696,165,2821.03,2831.6699,2,So yes the the guidance in short already assumes the gains that may come in from moving the remaining projects into the JV so that's also built in.
4372696,166,2832.4099,2840.6299,2,Um so it's essentially Mayflower and <inaudible> which are the ones that have will have the greatest impact in that.
4372696,167,2841.76,2843.9102,2,Um so that's relatively a quick question.
4372696,168,2843.9099,2845.9199,2,And I think you also asked about the euro dollar.
4372696,169,2846.01,2850.7402,2,That's one point fifteen roughly is what we were assuming for that for that forecast.
4372696,170,2884.8201,2885.96,2,Nothing more to say here.
4372696,171,2900.52,2903.1301,2,We have not provisioned and we have no intention of provision.
4372696,172,2917.1599,2920.1201,2,And no not even a reference that exists.
4372696,173,2921.76,2921.8999,4,Great.
4372696,174,2923.6299,2927.8501,4,Thank you.
4372696,175,3055.0601,3061.0701,2,That it should be reduced in line with the system debt unfortunately this coincided with the COVID.
4372696,176,3061.5901,3066.1101,2,Um and so the the system debt is actually not expected to decline this year.
4372696,177,3066.8401,3076.52,2,Um we do expect it to continue to decline going forward because the COVID is obviously a one-off impact so it equates short term pressure this year.
4372696,178,3077.0701,3088.3799,2,But then we continue when we look forward to when we project the task going forward and then the system debt we continue to see it is completely sustainable and and will you know fall away for the next couple of years.
4372696,179,3108.21,3123.98,2,Um essentially you know some steps were taken as you know the active state uh is already mentioned that we should net off the sales and the and the the social tariffs against the the call back.
4372696,180,3124.8601,3134.25,2,And so that now needs to be detailed and reflected in specific uh regulatory uh regulation.
4372696,181,3146.1799,3153.4099,2,But that's Portuguese regulation in terms of solar oxygen so we obviously go to these auctions.
4372696,182,3153.4099,3157.3601,2,And we participate the same way we participate in many other auctions around the world.
4372696,183,3158.0601,3164.0,2,Um you know we we do our best we set up the teams we we try to find the locations we use our pipeline.
4372696,184,3165.04,3177.1101,2,But then we're also disciplined about what we see is the the return that we expect for for these type of projects and so we will go in and we will have a a price that we're willing to uh to go to.
4372696,185,3177.3101,3181.4399,2,And then it goes beyond that and then we'll step out and we'll invest elsewhere.
4372696,186,3192.3899,3211.75,2,But this year had a particularity which is you could also bid with storage so 75% of the solar of the of the 700 megawatts ended up being taken in the modality which is solar plus storage.
4372696,187,3228.99,3233.5801,2,So they may have a say a different view on the economics.
4372696,188,3234.1799,3236.1802,2,And so they're able to be more competitive there.
4372696,189,3236.6399,3245.8699,2,I can't really tell but I guess it would be uh certainly interesting to try and understand a little bit more of those economics there.
4372696,190,3246.52,3248.2,2,But it's part of part of life.
4372696,191,3248.2,3254.6399,2,I mean we go to these auctions we win some we lose some and that's just have to be disciplined in how we approach this.
4372696,192,3269.55,3281.0,2,We have a pipeline and I think that's something that you know we've all stressed is the big change I think strategically that we we had was to build as much as we can.
4372696,193,3281.6899,3286.6499,2,Um and then if necessary sell part of it to to continue to recycle that capital.
4372696,194,3287.78,3291.0,2,In from an organizational perspective we've also been ramping up.
4372696,195,3291.04,3303.77,2,I mean we've been hiring a lot of people we've been sort of building up the organization um obviously to match that so you know this year will be already obviously now for COVID it's been slightly delayed the number of megawatts we're building this year.
4372696,196,3310.22,3317.5701,2,Um as I said some of those megawatts have slipped into tiny tiny one but I think the organization is there.
4372696,197,3344.1201,3360.74,2,Um I'd wait to see sort of uh the full scale <inaudible> to talk about any other numbers until then.
4372696,198,3360.74,3362.01,5,Thank you.
4372696,199,3389.6201,3389.7002,1,Miguel?
4372696,200,3389.7,3389.98,2,Sure.
4372696,201,3445.4099,3462.27,2,I I would just also say in relation to the tax issue I mean obviously since we will have more than seventy five percent in the distribution holding company we will have the full fiscal consolidation within the GDP Spain perimeter so uh we expect that to also generate uh significant salaries.
4372696,202,3487.52,3492.25,1,Um finally I think we have uh we are reaching the end of the the call.
4372696,203,3525.4199,3532.77,2,We also think it's important to continue to issue dollars since most of our growth or part of our growth is also US driven dollar driven.
4372696,204,3533.6699,3538.3201,2,Um hybrids was in their tool and then and we may use them in the future.
4372696,205,3538.3201,3539.71,2,So I never say never.
4372696,206,3539.8899,3545.6101,2,Um we need to reinforce credit metrics but certainly we don't have any plans uh to do that at the moment.
4372696,207,3546.1699,3554.46,2,You know it's just focused on executing the the leverage plan which doesn't require any more habits for that.
4372696,208,3579.6699,3581.3899,2,Um but as you know that was impossible.
4372696,209,3581.5601,3583.1101,2,I think we are very comfortable.
4372696,210,3583.1899,3584.6401,2,We have solid results.
4372696,211,3584.98,3586.3,2,We're comfortable with the guidance.
4372696,212,3586.8501,3593.52,2,Um we're comfortable in terms of the asset rotation deals we're comfortable in terms of the the way we're managing the energy management.
4372696,213,3594.1201,3611.0901,2,So we're feeling very positive about the company and you know several you raised this in terms of our future prospects I would prefer to have a say in a comprehensive uh discussion and presentation too um on this in the future.
4372696,214,3611.8201,3616.97,2,But certainly we're we are feeling very good about the company and about the prospects going forward.
4372696,215,3616.97,3619.6599,2,So I think we're in a good place.
4420696,0,10.88,11.6,1,Greetings.
4420696,1,12.09,15.68,1,I am Peter Kweon Head of IR at KB Financial Group.
4420696,2,16.21,20.41,1,We will now begin the twenty twenty one q one earnings release presentation.
4420696,3,21.29,25.44,1,I would like to express my gratitude to everyone for your participation.
4420696,4,25.67,34.46,1,We have here with us at today's earnings release k b f g S E V P Hwan Ju who is our group C F O as well as other executives from the group.
4420696,5,34.62,43.46,1,We will first hear S E V P Hwan Ju's presentation on twenty twenty one q one major business highlights and then we will engage in a q and a session.
4420696,6,44.29,49.24,1,I would like to invite our S E V P to deliver twenty twenty one q one business results presentation.
4420696,7,55.99,56.86,1,Good afternoon.
4420696,8,57.25,61.33,1,I am Hwan Ju C F O of KB Financial Group.
4420696,9,61.69,67.86,1,Thank you for joining KBFG's q one 2021 earnings release presentation.
4420696,10,69.38,83.41,1,Also even in the middle of an unprecedented crisis brought on by the covid nineteen pandemic I extend my deep gratitude to shareholders for your undivided support and kind patience.
4420696,11,86.24,99.57,1,Fortunately during the first quarter covid nineteen spread came under somewhat of a control and there was vaccination rollout which brought expectations for economic recovery.
4420696,12,100.39,108.29,1,As such Korean economy is displaying signs of improvement driven by exports and CapEx investment.
4420696,13,108.57,118.88,1,And as there were signs of uptrend in the market rate more positivity was expressed for the sector and banking share prices outperformed the market first time in a long while.
4420696,14,118.88,138.46,1,But when optimisms abound we at k b f g feel that it is important to focus on the fundamentals and think of ways to enhance corporate value and undertake bold innovations so as to respond to future changes.
4420696,15,139.54,150.01,1,First we have placed foremost priority on profitability and soundness thereby focusing on improving fundamentals for sustainability.
4420696,16,151.22,162.36,1,This quarter driven by the bank's core deposit growth and sophisticated loan pricing we were able to improve NIM five basis points on quarter.
4420696,17,163.01,172.76,1,And the insurance business whose performance was relatively subdued last quarter managed to recover margin supported by loss ratio improvement.
4420696,18,173.02,184.52,1,Also on stronger competitiveness of core businesses including Trust WM and Investment Banking we expanded net fees and commission income of the Group.
4420696,19,184.9,195.47,1,To overcome economic crisis triggered by the COVID pandemic KB actively joined in on efforts toward soft landing of the financial system.
4420696,20,195.89,207.25,1,We have also been quite rigorous in controlling the asset quality through a systematic monitoring of problem-prone exposures and reexamination of the portfolio.
4420696,21,207.85,219.08,1,Second we issued six hundred billion won of hybrid bond last February securing additional capital buffer against internal and external uncertainties.
4420696,22,219.48,235.11,1,On top of reinforcing flexibility of the capital structure to realize shareholder value that fall in line with our capital adequacy levels which is top tier in the industry we are conducting in-depth reviews of the shareholder return policy as we speak.
4420696,23,235.57,245.56,1,Lastly to make the leap and become a number one financial platform KB Financial Group is steadfast at implementing its strategic tasks.
4420696,24,247.06,252.93,1,KB Star Banking application now has around seventeen million customer base.
4420696,25,253.18,265.48,1,And from convenience perspective we are currently integrating Group's core services thereby upgrading to an earnings-generating and all-encompassing financial platform.
4420696,26,265.88,279.8,1,For the credit card business Liiv Mate which is the MyData platform and KB Pay an open payment platform formed the basis for delivering product and services in connection with Group affiliates.
4420696,27,280.11,289.86,1,And externally we have expanded product partnerships with many other institutions and have bolstered our competitiveness as an open and comprehensive financial platform.
4420696,28,291.58,304.88,1,k b f g will boldly respond to impending crisis and risks and we'll do our utmost to prepare against future changes to further upgrade Group fundamentals and corporate value.
4420696,29,308.26,314.28,1,With that I will now move on to q one twenty twenty one financial highlights.
4420696,30,317.92,342.27,1,k b f g in q one twenty twenty one reported a net profit of one trillion two hundred seventy point one billion won which is a historical quarterly performance since the company was launched driven by our efforts to beef up competitiveness of Group's core businesses and the result of business portfolio diversification from our m and a efforts.
4420696,31,343.3,372.53,1,Also quarterly figure reported a sizable increase of seventy four point one percent on-year which is attributable to solid core profit growth led by net interest income and net fees and commission income while at the same time there was large improvement in other operating income which was impacted from sudden volatilities of the financial market in the first quarter of last year.
4420696,32,373.3,390.04,1,As can be seen from the upper right graph k b f g meaningfully expanded earnings-generating capacity across all segments over the past year while securing incremental earnings from the capital market and the insurance businesses.
4420696,33,390.77,400.27,1,We also have proven our unparalleled capability in asset quality management elevating the Group's earnings profile in a stable and robust manner.
4420696,34,402.21,405.59,1,Let's now take a look at each segment in more detail.
4420696,35,408.76,416.61,1,q one net interest income was two trillion six hundred forty two point three billion won driven by m and as i e.
4420696,36,416.61,425.87,1,acquisition of Prudential Life and solid loan growth of the bank which led to twelve point five percent year-on-year increase.
4420696,37,426.19,432.91,1,While an improvement in NIM there was an increase of two point five percent versus last quarter.
4420696,38,435.25,440.03,1,q one net fees and commission income was nine hundred sixty seven point two billion won.
4420696,39,440.38,457.27,1,There was a sizable increase of around two hundred ninety seven billion won on-year and one hundred seventy nine billion won on-quarter which was driven by significant increase in fee income from securities business on the back of the bullish stock market.
4420696,40,457.59,462.68,1,Also there was recovery of trust sales boosting trust income for the bank.
4420696,41,462.93,470.03,1,And then the recovery of consumer spending merchant fees from the credit card business also recorded an increase.
4420696,42,470.97,483.59,1,Particularly in q one bank's trust income which was somewhat muted for some time on the back of regulations and worsening market conditions largely regained its level.
4420696,43,484.02,500.1,1,And by bolstering market competitiveness of the IB business for the first time on a quarterly basis net fees and commission income came in at around nine hundred billion won level which attests to a more improved earnings capacity in the non-interest income businesses.
4420696,44,501.75,504.9,1,Next is on other operating profit for q one.
4420696,45,505.91,523.27,1,With the removal of securities and derivatives and FX-related losses of q one of twenty twenty and consolidation impact of Prudential Life other operating profit was up three hundred and eleven point two billion won on-year.
4420696,46,524.8,531.39,1,For the insurance underwriting profit for non-life insurances there was a decline in auto accident rate.
4420696,47,531.54,537.23,1,And on premium hikes loss ratio improved mostly around auto insurance.
4420696,48,537.55,548.21,1,And in terms of the life insurance on base effect of year-end guarantee reserves and improved investment yield there was performance improvement versus last quarter.
4420696,49,551.88,554.75,1,Next is on the Group's g and a expense.
4420696,50,557.16,569.79,1,q one Group g and a was one thousand seven hundred twenty two point eight billion won which is up eighteen point one percent year-on-year seeming to have risen quite significantly.
4420696,51,569.96,583.08,1,However unlike q one of twenty twenty following the acquisition of Prudential Life Prasac et cetera one hundred thirty four billion won was booked as related expenses.
4420696,52,583.37,589.58,1,And also there was additional expense adjustments for employees' welfare fund and year-end special bonuses.
4420696,53,589.83,595.61,1,So if we were to exclude such factors we can say that g and a is being well-controlled.
4420696,54,596.56,598.106,1,Next is on P C L.
4420696,55,600.01,605.31,1,q one Group P C L was one hundred seventy three point four billion won.
4420696,56,606.24,618.28,1,Despite Group's yearly loan asset growth of thirty seven trillion won P C L was actually down seventy point three billion won year-over-year.
4420696,57,619.27,630.92,1,And thanks to our continuous effort toward quality improvement of the loan portfolio and preemptive risk management we are keeping asset quality at a steady level.
4420696,58,632.71,645.0,1,Next if you look at the bottom-right graph k b f g has been expanding its earnings capacity by driving up core competitiveness of each of its subsidiaries.
4420696,59,645.24,654.44,1,And as a result non-banking businesses as of q one account for forty eight point six percent of the Group's net income.
4420696,60,654.76,658.71,1,As such company's earnings profile has improved.
4420696,61,659.95,673.08,1,For the banking business in order to overcome difficult business environment in the domestic market we sought out for inorganic growth opportunities in the growth global market reinforcing our earnings capacity.
4420696,62,673.46,682.95,1,For the securities business aside from brokerage services we strengthened profitability across all of the businesses including wealth management capital market and investment banking.
4420696,63,683.23,689.48,1,And while for insurance by acquiring Prudential Life we were able to increase its contribution to the performance of the group.
4420696,64,689.48,692.24,1,On the next page I will walk through key financial metrics.
4420696,65,694.2,703.75,1,twenty twenty one q one Group R O A and R O E each posted zero point eight five percent and twelve point five percent respectively.
4420696,66,704.15,717.09,1,Through interest income and fee income-centered core earnings growth and Group level revenue diversification we are improving profitability and maintaining sound earnings fundamentals.
4420696,67,718.32,734.19,1,Next to elaborate on bank's loans in won growth as of March end twenty twenty one bank's loans in won posted two hundred ninety seven trillion won and grew zero point four percent y t d.
4420696,68,735.69,740.96,1,Amidst this situation household loans posted one hundred sixty three trillion won.
4420696,69,741.19,748.23,1,Centering on Jeonse loans and prime unsecured loans household loans grew zero point six percent y t d.
4420696,70,749.47,758.98,1,Considering the overall household debt level and loan portfolio mix we are partially controlling the speed of growth compared to the previous year.
4420696,71,760.55,767.65,1,Corporate loans grew zero point one percent y t d a marginal increase.
4420696,72,767.76,777.16,1,But it was because in the case of corporate loans due to the revitalization of corporate loan issuing market there was overall loan demand decrease.
4420696,73,777.26,787.136,1,And in March temporarily there was a great increase of repayments leading to around one trillion won decrease Y T D.
4420696,74,787.51,795.83,1,In the case of S M E loans centering on SOHO loans it increased one percent y t d and is stably growing.
4420696,75,798.67,800.95,1,Next is the net interest margin.
4420696,76,801.82,809.1201,1,twenty twenty one q one Group and bank NIM posted one point eight two percent and one.
4420696,77,809.12,811.42,1,fifty six percent respectively.
4420696,78,811.78,816.74,1,And following the previous q four a growth momentum is continuing.
4420696,79,817.06,830.4301,1,And since it has already increased by a five to six bp level compared to the previous year's annual NIM this year's solid interest income growth momentum has gained more visibility.
4420696,80,831.19,839.33,1,Going into detail in the case of the bank NIM core deposits increased by around six trillion won in this quarter.
4420696,81,839.68,852.94,1,And with the proportion of low-cost deposits among the total deposits continuously increasing alleviating the overall funding cost burden Bank NIM increased by five bp QoQ.
4420696,82,853.24,866.38,1,In the case of the Group NIM reflecting card asset yield improvement centering on installment financing coupled with bank NIM improvement Group NIM increased by seven bp QoQ.
4420696,83,866.65,868.19,1,Let's go to the next page.
4420696,84,870.7,875.5269999999999,1,First I would like to cover the Group's cost income ratio the C I R.
4420696,85,876.31,889.2,1,The Group C I R based on twenty twenty one q one posted forty seven point three percent and efforts to increase core earnings and control costs is gaining visibility.
4420696,86,890.18,898.8,1,On a recurring basis excluding one-offs including digitalization costs it posted forty six point one percent.
4420696,87,907.37,931.81,2,For your reference taking into consideration the custom adjustment effect from employee welfare fund reserved in this quarter and year-end bonus expenses accrual the cost efficiency improvement trend is gaining more visibility and on the back of sound top line expansion and group-wide cost control efforts cost efficiency is expected to additionally a…
4420696,88,931.93,932.81,2,improve.
4420696,89,933.14,935.85,2,Next is the credit cost.
4420696,90,938.23,964.97,2,twenty twenty one q one group and bank credit cost as a result of our continued prudent lending policy and cr- credit quality management posted zero point two zero percent and zero point zero eight percent respectively and is being maintained stably at a low level proving KBFG's advanced risk management efforts.
4420696,91,967.73,981.18,2,We are taking into account the situation where covid nineteen related uncertainty is being continued and we are going to maintain preemptive and conservative asset quality management for the time-being.
4420696,92,981.59,983.95,2,Next is the group's capital ratio.
4420696,93,986.09,1005.78,2,As of end March twenty twenty one the group B I S ratio posted sixteen percent and the c e t one ratio posted thirteen point seven five percent respectively and grew by zero point seven two percentage points and zero point four five percentage points respectively q o q.
4420696,94,1006.39,1027.74,2,Based on our solid earnings fundamentals centering on cet one we are maintaining the highest level of capital strength in the industry and we are also improving our capital structure's flexibility through strategic capital management including issuing hy hybrid bonds.
4420696,95,1028.37,1030.0399,2,Let's go to the next page.
4420696,96,1031.8199,1038.95,2,From this page I will cover KBFG's non-face-to-face or digital channel competitiveness.
4420696,97,1039.75,1050.03,2,With the development of IT technology platform models are evolving and service expediency and efficiency is rapidly improving.
4420696,98,1050.4,1061.74,2,The population structure is changing with the increase of one percent households and the rise of the MZ generation leading to a rapid increase of consumers preferring digital channels.
4420696,99,1062.09,1078.65,2,With the expansion of covid nineteen transition into the untact generation is accelerating and the center of weight of financial transaction channels is rapidly moving from face-to-face channels to digital or non-face-to-face channels.
4420696,100,1079.15,1086.79,2,k b f g which has been preemptively responding to these changes as of late last year has secured more than one hundred…
4420696,101,1086.79,1093.5901,2,ten million digital customers which is around forty four percent of the group's total active customers.
4420696,102,1094.42,1126.62,2,In addition in the case of thanks KB Star Banking which is our group's representative digital platform we have secured around eight million monthly active users M A U as of now and is maintaining the industry's leading position as a result of customer-centered UI-UX reorganization and diverse product offerings customer convenience has improved in a innovative way leading to rapidly growing M A U each year.
4420696,103,1129.74,1147.9701,2,Looking at the financial transactions through the group's digital channels in the case of major investment products including time deposits and fund around fifty percent of new accounts are being transacted through digital channels such as internet and mobile banking.
4420696,104,1148.35,1165.13,2,In the case of loan products in the past there was a smaller proportion of digital channel transactions relatively but as a result of online product lineup alignment and focus on process simplification it's growing at a fast speed.
4420696,105,1165.41,1181.0699,2,In particular in the case of unsecured loans in two thousand seventeen the size of digital channel new loans was only KRW four hundred billion per annum but last year it grew to around KRW three trillion level and is rapidly expanding.
4420696,106,1181.64,1192.45,2,In addition I would like to elaborate on some of the major efforts we're making to bolster our group's non-face-to-face or digital channel competitiveness.
4420696,107,1193.58,1205.42,2,In January of this year among our subsidiaries bank and card subsidiaries acquired MyData business license and we are doing our best to prepare for service launch in August.
4420696,108,1206.39,1224.87,2,The bank subsidiary through KB Star Banking with the goal of establishing the group's integrated comprehensive financial platform is advancing seamless wealth management services through converging wealth management knowhow and specialized data connection technology.
4420696,109,1225.3199,1243.15,2,Card subsidiary plans to offer optimized customized financial product solution by utilization Liiv Mate three point zero which connects information from around one hundred thirty financial institutions as an externally open comprehensive financial platform.
4420696,110,1243.6899,1275.74,2,In addition KB Mobile Certificate which received attention from the market by being the industry's first private digital certificate as a local financial group and the only public sector digital signature pilot provider among financial companies as a result of securing definite competitive edge in customer convenience and security in just one year and eight months after launching has surpassed seven point three million registered users.
4420696,111,1276.02,1285.79,2,We expect the competitiveness of these mobile certificates to contribute to expanding the group's customer touchpoints and customers' convenience.
4420696,112,1286.23,1301.1399,2,In addition card has just launched KB Pay which has strengthened competitiveness compared to other existing app cards to expediently respond to the rapidly changing settlement market.
4420696,113,1301.17,1315.51,2,Insurance KB Insurance based on customers' health information plans to offer ultra customized comprehensive digital healthcare service and we plan to secure a newly elevated level of competitiveness.
4420696,114,1315.83,1339.6901,2,Last but not least k b f g plans to not only bolster digital channel competitiveness but also for wealth management loan consulting and other areas where face-to-face channels importance is high we plan to offer services that are elevated through centering on a more specialized consulting and differentiated products.
4420696,115,1340.7,1357.21,2,Through seamless connection between digital channels and face-to-face channels leading to maximizing customer convenience and satisfaction we will work hard to grow as the solid leading financial group even amidst the future financial industry's paradigm change.
4420696,116,1357.65,1362.73,2,From the next page there are detailed pages regarding the earnings that I have covered so far.
4420696,117,1363.1899,1369.35,2,With this I will conclude KBFG's Q1 2021 business results presentation.
4420696,118,1371.4399,1372.64,2,Thank you for listening.
4420696,119,1378.46,1383.0701,3,we'll now begin the q and a.
4420696,120,1384.0601,1391.38,3,For those of you joining via the internet please refer to the contact info on the last page of the presentation.
4420696,121,1391.76,1395.98,3,For those of you using the phone press star and one to submit your questions.
4420696,122,1395.98,1398.5601,3,Please bear with us as we wait for questions to come in.
4420696,123,1407.74,1414.73,3,Just for your information there is about a uh a slight time lag between the internet and the phone bridge so please bear with us one more moment.
4420696,124,1418.25,1421.9301,3,Yes we will take the first question from Samsung Securities Mr.
4420696,125,1421.9301,1423.01,3,Kim Jaeho.
4420696,126,1423.84,1424.6101,3,Please go ahead.
4420696,127,1425.86,1426.5,4,Good afternoon.
4420696,128,1426.5,1428.7201,4,I am Kim Jaeho from Samsung Securities.
4420696,129,1428.72,1430.36,4,I would like to ask a few questions.
4420696,130,1430.66,1432.76,4,First question relates to dividend.
4420696,131,1434.28,1437.45,4,There's high level of expectation and people are looking forward for…
4420696,132,1437.52,1439.37,4,towards quarterly dividend.
4420696,133,1439.37,1445.02,4,I understand that KB is willing to pay out on a quarterly basis do you have plans to do so?
4420696,134,1445.42,1460.88,4,And also when we talk of quarterly uh dividend I feel that in terms of interim dividend payout maybe uh most optimal so what's the possibility of uh that?
4420696,135,1461.13,1476.2001,4,And also secondly according to press uh articles I think the major banks are also talking about internet based bank what is your policy or stance vis-a-vis the online um banking?
4420696,136,1477.11,1479.25,4,For instance Kakao and other…
4420696,137,1480.45,1487.8999,4,and since you also have certain uh shareholding at Kakao would like to understand what your position is with respect to the online dedicated banks.
4420696,138,1488.2,1493.8,4,And also my last question is that your uh performance this quarter was quite good.
4420696,139,1493.89,1496.38,4,Uh had there been any one-off items?
4420696,140,1497.13,1498.2799,3,Thank you for the questions.
4420696,141,1498.78,1501.1899,3,Would like to respond to the questions.
4420696,142,1501.74,1502.0,3,The…
4420696,143,1502.0,1503.78,3,uh just uh give us one moment.
4420696,144,1514.04,1515.55,2,Thank you uh Mr.
4420696,145,1515.55,1517.1499,2,Kim for those questions.
4420696,146,1517.62,1521.0299,2,You asked about quarterly dividend payout.
4420696,147,1524.3101,1530.54,2,At this point in time we are uh looking into and reviewing different options.
4420696,148,1530.74,1546.48,2,When it comes to dividend payout and shareholder return I understand that the market has quite a bit of interest and as I've mentioned during the IR session at the year-end of last year if I may just once again summarize what our position is is as follows.
4420696,149,1546.48,1552.1899,2,In terms of payout ratio as you know we've adopted a progressive dividend payout policy.
4420696,150,1552.1899,1555.3999,2,This is something that we have been quite steadfast at.
4420696,151,1555.91,1560.76,2,Basically from mid to long-term perspective increase the payout ratio to around thirty percent.
4420696,152,1561.23,1577.99,2,Second point is that in the second half of this year we expect uncertainties around covid nineteen pandemic to alleviate and also the capital ratio and our earnings stability and the quality of our assets and asset quality uh and soundness of our assets.
4420696,153,1578.4399,1580.6799,2,In light of all of these elevents…
4420696,154,1581.08,1591.79,2,uh elements we are going to do our utmost to actually regain and recover to the previous uh payout level.
4420696,155,1593.86,1617.8099,2,And also we were balanced and consider different um aspects such as a need to retain earnings for m and a purposes and also interim payout as well as our share buybacks and other shareholder return enhancement uh options are being at this point in time deliberated by the company.
4420696,156,1618.63,1621.0,2,I'll speak around financial institutions.
4420696,157,1621.0,1625.9401,2,When it comes to shareholder return and dividend payout we've been quite preemptive.
4420696,158,1626.14,1629.6801,2,If you look back at our track records you will be able to see that.
4420696,159,1630.08,1632.72,2,And we've been quite aggressive and progressive.
4420696,160,1633.4301,1642.74,2,And lastly together with the supervising authority we will also engage in very close communication with respect to this item.
4420696,161,1643.65,1661.64,2,Uh uh the second question will be responded by our C F O and the third question on any of the one-offs on the expense side the welfare fund basically uh q one or q two of last year there were some reserves so there's not been anything that's quite significant.
4420696,162,1662.53,1666.88,2,And also we haven't really made any um I guess.
4420696,163,1670.52,1673.2001,5,Yes I am inaudible the C F O.
4420696,164,1673.66,1675.25,5,As you have mentioned Mr.
4420696,165,1675.25,1685.3101,5,Kim when it comes to the internet dedicated the online bank and and launching of that business there's a lot of interests.
4420696,166,1685.35,1699.0599,5,And currently the association of banks currently is talking to the F S C and even discussions as to allowing financial holding companies to gain an internet online bank license.
4420696,167,1699.45,1709.1799,5,If there are any changes in the direction of the regulation by the F S C we will of course be in line with those direction and review the potential possibility.
4420696,168,1709.49,1717.01,5,I think it will not be appropriate for me to specify any specific business model per se uh today at this point in time.
4420696,169,1721.5601,1723.03,3,We will move on to the next question.
4420696,170,1723.03,1723.37,3,Mr.
4420696,171,1723.37,1725.6,3,Kim inaudible from Hyundai Motor Securities.
4420696,172,1726.99,1729.4299,3,Please ask your question greetings.
4420696,173,1730.59,1733.9301,6,Congratulations and thank you for your earnings.
4420696,174,1736.89,1744.4301,6,As the C F O mentioned your q two NIM has surpassed a earn…
4420696,175,1744.62,1749.86,6,uh level of the previous year and it's quite outstanding and can you give us an out…
4420696,176,1749.99,1751.34,6,uh breakdown of the NIM?
4420696,177,1752.55,1763.92,6,I know that the commercial interest rate has gone up and I know that your low cost deposits has come in so if you can give us a breakdown it will be very helpful.
4420696,178,1764.42,1773.08,6,And including the next quarter if you can give us an estimate of your forecast of quarterly trend it will be very helpful.
4420696,179,1773.51,1780.39,6,My second is about your group's digital or non-face-to-face channel plans.
4420696,180,1782.49,1803.76,6,I know that you have a platform and you have many advantages and I am sure that you'll be quite profitable but can you tell us about what is your forecast for earnings if you have any simulated uh numbers…
4420696,181,1805.4301,1815.62,7,And we see banks going online and there is the internet and the existing sales channels that are becoming divided.
4420696,182,1816.0699,1821.89,7,And I believe that the banks need to make the existing channels more efficient.
4420696,183,1821.89,1824.55,7,So can you tell us what you're doing in that direction?
4420696,184,1825.0699,1829.1,7,Thank you very much for your questions we will soon answer them.
4420696,185,1855.6801,1857.76,7,<silence> thank you very much Mr.
4420696,186,1857.76,1859.8199,7,Kim Jun Sung for your questions.
4420696,187,1861.4,1876.8199,7,Regarding the NIM question that you first posed as you just aforementioned compared to the previous quarter largely there'll…
4420696,188,1876.85,1889.75,7,there will be the volume effect and rate effect related to profitability and the low cost deposits of portfolio change impact that has added to this improvement.
4420696,189,1890.0699,1895.1,7,Regarding the concrete numbers I don't have them with me now but I'm sure that our I…
4420696,190,1895.1801,1898.85,7,our team can get back to you about the details.
4420696,191,1899.96,1901.21,7,Regarding the NIM…
4420696,192,1905.35,1905.49,7,Oh.
4420696,193,1906.55,1911.59,7,Talking about the forecast looking at what the market has said in Q…
4420696,194,1911.71,1918.89,7,until q two um there are estimations that uh the NIM will go up but there will be a floor uh later.
4420696,195,1919.24,1936.6201,7,So I think that is the uh main gist of what people are mentioning now but regarding our annual earnings presentation I mentioned that on an annual level we will safeguard the NIM at about one point five one percent.
4420696,196,1936.99,1955.8,7,And as you have seen in our presentation materials the interest environment and the funding costs have uh been uh rapidly changing and we are seeing the NIM that has actually improved uh by a large scale.
4420696,197,1956.23,1977.1599,7,We have five BP improvement in this quarter as well and looking roughly at the reasons first we had efforts to increase to increase low cost deposits and core deposits have increased by six trillion Won and it led to our funding cost uh burden going down.
4420696,198,1977.58,1981.12,7,And relatively speaking for the…
4420696,199,1981.2,1987.87,7,Oh time depo uh posits you can see that there was a portfolio effect because it contracted.
4420696,200,1988.54,1998.1899,7,And regarding the roll over of our deposits you can see that there was an impact as well.
4420696,201,1998.36,2007.02,7,So overall we had a alleviation of the funding burden which lead to this positive trend.
4420696,202,2008.11,2016.53,7,We put the prudency first and uh we said we want loan growth based on conservative trend.
4420696,203,2016.53,2020.3201,7,So we believe that also added to the NIM improvement.
4420696,204,2020.5,2027.33,7,And in q one regarding low cost deposits we had the increase and we had the inaudible deposits that went down.
4420696,205,2027.33,2030.71,7,So it lead to funding cost uh decrease.
4420696,206,2030.96,2043.59,7,So we believe that on average balance effect this trend will continue in going forward and uh we plan to have a prudent uh loan policy going forward.
4420696,207,2047.51,2058.22,7,And we believe that in the one point five percent level for the bank NIM we believe that will uh be um what we're forecasting.
4420696,208,2059.6201,2060.9302,7,And in…
4420696,209,2061.47,2062.1799,7,when the NIM…
4420696,210,2062.8601,2063.26,7,Oh.
4420696,211,2063.29,2078.0701,7,We had one BP NIM improvement in the previous quarter so we believe that we will be uh doing uh very detailed management so that we can have the best uh NIM level going forward.
4420696,212,2080.04,2092.5701,7,y Your second question was about the platform and what type of benefits that we are looking at and looking for.
4420696,213,2094.3,2101.3701,7,The market environment as was mentioned in my presentation uh is veering toward an untapped economy.
4420696,214,2101.6101,2108.5701,7,So we believe that it goes without saying that we need to bolster the digital channels or non face-to-face channels.
4420696,215,2108.8899,2122.3801,7,And regarding the uh indexes for digitalization and indicators we are actually um creating them and we are assessing them as we speak.
4420696,216,2122.52,2138.75,7,So internally uh we are currently organizing them and aligning them so that uh we can actually talk in more detail about it at future IRs if possible.
4420696,217,2139.52,2144.1401,7,Thirdly you mentioned about the digital channels the…
4420696,218,2144.1699,2144.3999,7,Uh.
4420696,219,2144.5901,2146.1301,7,Oh you mentioned about the not…
4420696,220,2146.25,2153.4099,7,the uh face-to-face channels and although we have more percentage of the non face-to-face channels but…
4420696,221,2153.45,2158.53,7,or offline channels there are many things that we need to do.
4420696,222,2161.9299,2176.71,7,And for the offline channels and online channels we need hybrid seamless connection for the customers and we need to satisfy the customers so this can be well uh and seamlessly connected.
4420696,223,2176.71,2187.0,7,So we need to work in that direction and we need to have uh upskill and reskill of our employees so that they can gain more professionalism in this area.
4420696,224,2187.2,2189.53,7,So we are working toward that was well.
4420696,225,2190.01,2210.4299,7,Next in two thousand fourteen looking at our channel numbers and it's breakdown for the channels and the employees we have seen a contraction of about twenty percent for both of them.
4420696,226,2210.8401,2221.9302,7,So it means that we are uh becoming more lean and we are becoming more muscular so that uh we are gaining more efficiency and we plan to work toward that end as well.
4420696,227,2221.96,2222.48,7,Thank you.
4420696,228,2223.6699,2226.78,7,Thank you for your answer we will take the next question.
4420696,229,2229.6201,2232.48,7,From Cape Investment <unk>.
4420696,230,2233.1101,2234.5698,7,Please go ahead with your question.
4420696,231,2234.97,2237.26,7,Thank you i'm Kim Do-Ha from Cape I-Investment.
4420696,232,2237.26,2238.5601,7,I have two questions.
4420696,233,2239.0901,2243.1201,7,First is on your fee uh income line item.
4420696,234,2243.3799,2249.2,7,Compared to my forecast actually uh there is a quite big surprise.
4420696,235,2250.03,2251.9001,7,If you look at last year I've…
4420696,236,2251.97,2261.1399,7,Uh I've been looking at the banking related fees but because of difficult circumstances on the trust as well as sales through the bank branches there's been decline.
4420696,237,2261.1399,2268.0601,7,But if you look at other uh banks which uh did earnings last ye Uh yesterday as well as KB.
4420696,238,2268.0601,2272.71,7,If you look at trust on the q q o q basis there's a sixty percent increase.
4420696,239,2272.71,2274.9099,7,So you've really regained your previous level.
4420696,240,2275.3101,2284.6899,7,So out at the f front end h how do your people actually assess this in terms of uh trust fees as well as sales related commissions?
4420696,241,2284.96,2289.53,7,Do they feel that the strength can continue in q two and q three as well.
4420696,242,2289.53,2290.6299,7,So that's my first question.
4420696,243,2290.97,2298.3599,7,Second question if you look at the bank and if you look at the credit cost uh I think it's only seven basis points.
4420696,244,2298.73,2301.4299,7,So compared to the past there's m…
4420696,245,2301.52,2304.05,7,there must have been come reversals uh right back.
4420696,246,2304.3999,2318.1899,7,So in terms of the reserve that you booked last year uh to respond to COVID when do you think is going to be the cycle or the timeline for us to see a significant write back from tha those reserves?
4420696,247,2318.6599,2321.3398,7,Thank you just give us one moment to answer that question.
4420696,248,2336.5601,2338.5,7,Thank you Ms.
4420696,249,2338.5,2340.1101,7,Kim Do-ha for your question.
4420696,250,2341.97,2343.55,7,You asked two questions.
4420696,251,2343.9299,2351.0601,7,First uh for the commission income you've mentioned trust income uh…
4420696,252,2351.0601,2357.8401,7,So let me just provide some overall explanation on the fee and commissions side.
4420696,253,2360.8101,2365.03,7,As I said before the first inaudible at the group level.
4420696,254,2365.77,2376.0901,7,If you look at the stock market and the bullish stock market we've seen brokerage fee income increase quite um significantly.
4420696,255,2376.0901,2382.74,7,And if you look at the IB business basically we've seen our market competitiveness strengthen.
4420696,256,2383.05,2404.0898,7,And also out of the trust business because of some of the regulatory impact as well as despite the fact that we're still w in the middle of the uh pandemic there's been some uh recovery in the spending of the consumers and the emergent fees have gone up.
4420696,257,2404.0901,2409.3499,7,So overall we have seen fee and commission income actually improve across the board.
4420696,258,2411.3899,2411.74,7,Now…
4420696,259,2411.95,2413.25,7,But is this sustainable?
4420696,260,2413.25,2421.5,7,That is the question that you have uh asked and also is an aspect that we are looking into.
4420696,261,2422.46,2434.6399,7,In our view our customers for the WM and also strengthening uh related assets that would be our priority.
4420696,262,2435.5801,2445.04,7,And also if you look at DCM and ECM and M and As the corporate advisory businesses we want to be able to expand our sales related capabilities.
4420696,263,2445.04,2455.3699,7,And if we could really leverage our sales capabilities I believe that we can bring about a double digit growth on an annual basis.
4420696,264,2456.21,2460.8398,7,So that would be the answer to the first question that you asked.
4420696,265,2461.1499,2462.3701,7,Second question.
4420696,266,2463.75,2472.6101,7,Regarding COVID yes we have uh preemptively r made some reserves and you asked about any uh reversals of those reserves.
4420696,267,2475.3899,2488.54,7,At this point in time if you look at this year we're still in the middle of the pandemic and some are also talking about a possibility of the fourth wave of pandemic coming.
4420696,268,2489.1101,2492.95,7,And government support financial support is still ongoing.
4420696,269,2493.22,2499.5601,7,So in light of all these circumstances I think it would be too premature to talk about a reversal of the reserve.
4420696,270,2501.0601,2501.8499,7,Only when they…
4420696,271,2501.8501,2510.2102,7,the whole circumstances are normalized maybe then we may have a possibility to think about a write back.
4420696,272,2510.3999,2511.5701,7,I say that with caution.
4420696,273,2512.02,2512.3599,7,Thank you.
4420696,274,2516.52,2519.6201,7,We will take the next question from DB Securities.
4420696,275,2520.3999,2522.03,7,inaudible you're on the line sir.
4420696,276,2525.29,2525.79,7,Hello.
4420696,277,2527.1399,2531.45,7,Thank you for your good earnings results I have two questions.
4420696,278,2531.45,2539.1399,7,First compared to your loan g broke plans at the early part of this year…
4420696,279,2539.5801,2541.1101,7,well I think there was a difference.
4420696,280,2541.1101,2548.04,7,And thinking about the corporate loans that was lesser even still I think it is a bit low.
4420696,281,2548.04,2551.0798,7,So can you tell us about your growth after q two?
4420696,282,2551.1101,2557.26,7,So I think your plan was five percent but can you uh tell us your forecast?
4420696,283,2557.26,2561.9199,7,Do you think it will be met in q two q three going forward or not?
4420696,284,2562.3101,2568.4299,7,My second question is about uh the trust which has gone up which is quite encouraging.
4420696,285,2568.72,2572.2998,7,But there has been uh a reinforcement of customer protection laws.
4420696,286,2572.3701,2582.2302,7,So at the tellers or the windows it uh might be more difficult in the trust area so in late March and in April.
4420696,287,2582.23,2588.0801,7,Can you tell us about the atmosphere at your banks uh physically?
4420696,288,2588.4099,2592.21,7,So do you think it will have a negative impact the strengthening of the law?
4420696,289,2592.52,2593.02,7,Thank you.
4420696,290,2594.55,2597.4102,7,Thank you for your questions we will soon answer them.
4420696,291,2598.04,2598.8401,7,Please hold.
4420696,292,2609.0,2610.5901,7,Thank you very much Mr.
4420696,293,2610.5901,2613.9299,7,inaudible for your insightful questions.
4420696,294,2614.3899,2626.01,7,Regarding loan growth I would like to talk about what we believe will happen after q one our forecast.
4420696,295,2626.01,2633.8201,7,And regarding the consumer protu- protection act our um C F O will answer your question.
4420696,296,2635.46,2644.5198,7,As was aforementioned in q one banks loans in Won was uh a bit uh low at zero point four percent.
4420696,297,2645.26,2651.4202,7,And regarding the household loans and corporate loan uh status for this year.
4420696,298,2651.7,2658.0601,7,In the case of household loans there was zero point six percent growth y t d which was one trillion Won of growth.
4420696,299,2658.73,2671.0798,7,And at our annual earnings release for the whole year I mentioned mid single digit loan growth goal for this year.
4420696,300,2671.3301,2680.1199,7,And compared to that goal q one growth was somewhat uh relatively low.
4420696,301,2681.3201,2684.46,7,And for inaudible loans and for mor…
4420696,302,2684.5601,2695.27,7,because of the mortgage loan regulations there were um the demand for inaudible which went down So four point three percent growth y t d.
4420696,303,2713.3601,2727.6099,9,So we had about one percent decrease compared to uh the previous year end and there was one point seven percent uh contraction for collective loans as well so we had a down turn for household loans as a whole.
4420696,304,2731.8999,2747.1702,9,There there have been policies to cut down or curb household loans and we believe that for the Chonsei loans and for the high quality unsecured loans uh we believe that there's still very strong demand.
4420696,305,2747.9399,2758.71,9,And for our um uh thi this year's goal mid-single digit growth we believe that it will be quite achievable and they will not be challenging.
4420696,306,2758.8701,2773.1299,9,And I talked about the non face to face or digital phase improvement and we will improve our digital capability so that we will solidify our market position.
4420696,307,2773.1799,2781.6001,9,And for Chonsei loans and for the prime unsecured loans we're going to have appropriate growth uh that are quite profitable.
4420696,308,2781.8101,2786.73,9,In the case of the corporate loans there was zero point one percent increase y t d.
4420696,309,2786.99,2801.6499,9,And related to this for the SOHO and SME loans uh because of those that have large exposure to covid nineteen we had uh improvement in preemptive exposure.
4420696,310,2801.95,2820.7898,9,And compared to other in uh fin you know financial intuitions uh we had some repayments uh so that is why YTD speaking one point two percent growth for SOHO loans and uh we had about one zero point two percent for SMEs.
4420696,311,2820.99,2832.5801,9,And for the large corporates the Because of the uh corporate loan situation uh we had a decrease uh YTD as well.
4420696,312,2834.8799,2841.6001,9,And we had more repayments in uh March so this also had an impact as well.
4420696,313,2842.0,2847.7,9,But for the SOHOs and SMEs the loan demand is quite solid each year.
4420696,314,2848.0,2858.5601,9,And in two two in April uh it seems that the numbers are quite uh different from the q one numbers.
4420696,315,2858.74,2870.78,9,So if we um actually respond uh very flexibly and with resilience we believe that we can um have better performance.
4420696,316,2870.8301,2881.97,9,So the mid-single digit goal that we have uh mentioned to you early this year is quite achievable and I have been mentioning this repeatedly.
4420696,317,2882.0,2890.1201,9,And for KB uh we believe prudence and the conserv uh and uh asset qualities of utmost importance.
4420696,318,2890.1201,2893.9299,9,So that will be our steadfast direction going forward.
4420696,319,2898.77,2899.8599,10,Thank you very much.
4420696,320,2899.97,2904.76,10,inaudible And I am inaudible the bank CFO.
4420696,321,2906.8601,2918.05,10,In March we had the Customer Protection Act that was came into effect and it takes about thirty to forty minutes to explain at the teller windows.
4420696,322,2918.05,2924.5698,10,So there was some confusion and customers and employees had a hard time adjusting in the beginning.
4420696,323,2926.22,2938.6699,10,That is why in the beginning we had lower numbers but in April we are seeing that uh with mutual understanding improvement uh the numbers are improving.
4420696,324,2938.8601,2951.9802,10,So we believe that due to Customer Protection Act we will not have an e negative impact on our our performance and the government has given us a six month um grace period.
4420696,325,2952.2,2963.47,10,And the government said that they will receive opinions from the banks so that they can make this process more um reasonable for everyone.
4420696,326,2963.47,2971.96,10,So if that happens we are sure that Customer Protection Act will not have a negative impact on our performance compared to other banks.
4420696,327,2974.01,2981.4202,10,For uh the last year and the year before that we had less problems involving have inaudible loans.
4420696,328,2981.6499,2995.0798,10,So we believe that we are seeing more fee income and for ELS as well you can see that we had almost one hundred percent early redemption leading to new demand.
4420696,329,2995.3999,3004.1201,10,So taking that into consideration the trust related fees for this year we believe that it will not worsen compared to q one of this year.
4420696,330,3007.0701,3008.6101,11,Thank you very much.
4420696,331,3009.5701,3011.4399,11,It is already four fifty.
4420696,332,3013.1201,3023.2898,11,And because we don't have uh enough time we will take one last question and please contact our IR team and we will answer your questions.
4420696,333,3023.29,3023.73,11,Thank you.
4420696,334,3027.23,3029.5601,11,From JP Morgan George Young please go ahead.
4420696,335,3031.5901,3032.05,12,Thank you.
4420696,336,3033.6101,3035.5298,12,I would like to ask three questions.
4420696,337,3036.46,3052.6902,12,First question is because of covid nineteen uh things were quite difficult but if you look a credit card fee uh because of the government provided uh support and benefits I was expecting that the number would be quite good.
4420696,338,3052.96,3068.1101,12,If you look at credit card profit basically is actually higher than my forecast basically cause the government has paid out the so-called disasters subsidies via the credit card.
4420696,339,3068.51,3074.9099,12,I mean would that be a one-off impact that had an upward um upward impact?
4420696,340,3075.2,3089.77,12,You mentioned CIR zero point four percent was driven by digitalization since you are doing ERP and you're doing digitalization digital transformation it doesn't seem that the CIR improvement is all that significant.
4420696,341,3089.77,3101.78,12,So the investment that you're making into digital transformation or digitalization uh in terms of the size and sustainability of this investment how valid is that?
4420696,342,3101.78,3103.1799,12,What's your budget plan?
4420696,343,3103.1799,3107.97,12,And when can we see a more meaningful improvement in your CIR ratio?
4420696,344,3109.0801,3117.9001,12,My last question is most recently at national assembly they've adopted a modification on providing support to the vulnerable class.
4420696,345,3118.29,3128.7002,12,And basically they have requested about ¥100 billion of funding from the banking sector to provide financial support to a low income class.
4420696,346,3129.75,3139.27,12,And it seems that the government may come up with additional requests or measures to engage uh the banking sector more.
4420696,347,3139.27,3148.8801,12,So in terms of setting up the budget or being needing to provide such financial support what are your plans or measures to do so.
4420696,348,3154.48,3155.4602,16,Just give us one minute.
4420696,349,3178.54,3179.8899,16,Thank you for the questions.
4420696,350,3181.6299,3183.5901,16,You asked three questions.
4420696,351,3185.02,3189.4702,16,Uh responding to your question on CIR let me respond to that.
4420696,352,3189.8401,3199.3701,16,And we have CFO from KB Card who will respond to that and also we have the bank CFO will respond to the third question.
4420696,353,3205.76,3217.6299,16,Now overall on a recurring basis if you look at the trend of CIR it is showing a downward stabilization trend.
4420696,354,3220.1101,3234.3701,16,Now in terms of the biggest factor year end if you were to include the e r p expense we consider that ERP expense as a investment for the future.
4420696,355,3235.3799,3241.8398,16,And we believe that within five years time we'll be able to recoup that investment.
4420696,356,3243.1299,3260.1602,16,And in terms of digitalization and I've mentioned in a presentation if you were to exclude uh digitalization but basically digitalization is an inevitable investment for us to respond to future changes.
4420696,357,3260.1599,3264.8801,16,If we miss out in the opportunities then there will be bigger negative impact.
4420696,358,3265.1201,3271.78,16,Hence there needs to be a preemptive investment into digitalization and we will be bold at it.
4420696,359,3272.1799,3276.04,16,However we will be mindful of efficient investment.
4420696,360,3276.04,3280.5,16,We want to rid ourselves of any redundant investment.
4420696,361,3280.5,3282.6599,16,We will have internal process to allow for that.
4420696,362,3282.6599,3297.5,16,From a mid to long term perspective the c i r ratio we believe is uh we we are going to have a target that is downward stabilizing and controlling that level um uh at a steady state.
4420696,363,3300.03,3301.4001,9,Thank you for the question.
4420696,364,3302.1299,3304.3701,9,I'm from KB Card.
4420696,365,3304.3701,3305.5601,9,I am the CFO.
4420696,366,3307.21,3310.5,9,You mentioned credit card fee income.
4420696,367,3310.5,3314.99,9,On an year over year basis there's been a significant increase.
4420696,368,3315.5601,3325.54,9,And you've asked whether there's any one off non-recurring impact and also the government provided covid nineteen related allowances and whether that had an impact.
4420696,369,3325.8701,3335.2302,9,Now just to tackle those issues one by one overall the government allowances that were given last year there was one that was done by the Gyeonggi Province.
4420696,370,3335.51,3341.0701,9,And the amount that was given out as an allowance was around a hundred thousand Korean Yuan.
4420696,371,3343.5701,3354.5598,9,Of all of the credit card companies our market share uh in terms of uh sending out rolling out those allowances we it was about twenty two percent.
4420696,372,3354.5601,3357.5601,9,So there's been just maybe a slight operate increase.
4420696,373,3357.8899,3368.1499,9,And one of the reasons why the credit card fee income had gone up is because comp compared to the previous year basically the total payment volume had gone up significantly.
4420696,374,3368.5601,3372.48,9,Basically the two point four trillion increase in payment volume.
4420696,375,3372.48,3376.5801,9,And as a result we've seen significant increase in terms of merchant fee income.
4420696,376,3377.3899,3384.3101,9,Aside from this You also asked about any other one off items but these are not one off.
4420696,377,3384.3101,3387.9299,9,We expect that this is going to be a recurring item going forward.
4420696,378,3388.98,3403.3801,9,If you look at end of last year and if you were to compare with q one of twenty twenty basically if you look at the reserves for credit loss there's been a significant decline compared to q one of last year.
4420696,379,3403.8,3411.6001,9,Last year we did about fifty two fifty nine billion of additional reserving and we've been quite conservative in our reserving policies.
4420696,380,3411.8701,3428.8499,9,So thirty seven point two billion there's been a decline and also for uh substandard uh um ratio as well as delinquencies for second and third cycle all of these uh soundness related indicators are showing an unprecedented level.
4420696,381,3429.4199,3439.76,9,After q two if you look at q three figures as well in our view we we if we make the comparison in q one there is no big of a one off.
4420696,382,3439.76,3445.76,9,It's just that our asset quality uh and soundness is at a quite positive level.
4420696,383,3449.9099,3451.26,10,I'm the CFO of the bank.
4420696,384,3451.26,3452.53,10,I am inaudible.
4420696,385,3453.5901,3454.98,10,Thank you for your question.
4420696,386,3456.55,3466.28,10,Now the government uh have tabled or had adopted a legislation on providing financial support to the low income class.
4420696,387,3466.6499,3479.8198,10,And the article have said a press article has said that the banking sector will bear about a hundred billion Korean Yuan and KB is expected to probably bear about twenty percent of that.
4420696,388,3481.03,3498.55,10,So these were featured in the press but since we are still in the process of improving our our profitability and we are generating good earning so it's not a significant burden to our institution.
4420696,389,3498.77,3511.96,10,And as a member of this society as we live in this very difficult period during the COVID pandemic um we feel that we are a responsible entity and a member of this society.
4420696,390,3512.6201,3520.46,10,We do a lot of uh s social corporate responsibility activities and we also provide do donations as well.
4420696,391,3520.6001,3527.05,10,So we will consider all of these different elements thoroughly and come up with appropriate budget.
4420696,392,3527.3301,3538.26,10,And going forward if there are more demand uh for uh our bank we will also going forward think hard as to how we could respond to those expectations.
4420696,393,3540.46,3541.1101,10,Thank you.
4420696,394,3541.3501,3546.8901,10,And if you have further questions please contact our IR team and we would be more than happy to answer them.
4420696,395,3547.26,3550.1101,10,With this we will conclude our earnings presentation.
4420696,396,3550.1499,3551.8701,10,Thank you for your participation.
4423872,0,7.73,18.43,0,Ladies and gentlemen thank you for standing by and welcome to the Itau CorpBanca first quarter two thousand twenty one financial results conference call.
4423872,1,19.11,21.83,0,At this time all attendees are in listen only mode.
4423872,2,22.43,25.53,0,After the speaker's remarks there will be a question and answer session.
4423872,3,26.19,31.02,0,If you would like to ask a question simply press star then the number one on your telephone keypad.
4423872,4,31.62,35.12,0,If you require any further assistance please press star zero.
4423872,5,35.84,36.2,0,Thank you.
4423872,6,36.99,40.27,0,Now I would like to welcome Miss cla Miss Claudia Labbe.
4423872,7,41.46,42.8,0,Ma'am the floor is yours.
4423872,8,44.59,45.02,1,Thank you.
4423872,9,45.76,46.38,1,Good morning.
4423872,10,47.12,52.72,1,Thank you for joining our conference call for our first quarter twenty twenty one financial results.
4423872,11,53.6,73.64,1,Before proceeding let me mention that our remarks may include forward looking information and actual performance could differ materially from that anticipated in any forward looking comment as a result of macroeconomic conditions market risk and other factors.
4423872,12,74.53,94.8,1,I would also like to draw your attention to the financial information included in this management discussion and analysis presentation which is based on our managerial model in which we adjust for non recurring events and we apply managerial criteria to disclose our income statement.
4423872,13,95.58,110.08,1,This managerial financial model reflects how we measure analyze and discuss financial results by segregating commercial performance financial risk management credit risk management and cost efficiency.
4423872,14,110.56,120.13,1,We believe this form of communicating our results will give you a clearer and better view of our performance through this different perspective.
4423872,15,120.87,125.72,1,Please refer to pages nine to twelve of our report for further details.
4423872,16,126.67,129.83,1,With us today in this conference call our Mr.
4423872,17,129.87,132.79,1,Gabriel Moura C E O and Mr.
4423872,18,132.83,134.47,1,Rodrigo Couto C F O.
4423872,19,135.03,135.38,1,Mr.
4423872,20,135.38,143.89,1,Moura will comment on twenty twenty one first quarter results and our strategic evolution as well as recent events.
4423872,21,144.57,149.91,1,Afterward afterwards we will be available for a question and answer session.
4423872,22,150.57,159.46,1,We have included a q a box on the console where you can type in your questions if you are not connected by phone.
4423872,23,160.08,164.14,1,We will take questions from from both the phone and the console.
4423872,24,164.68,168.89,1,For the latter we will read and answer your questions verbally.
4423872,25,169.71,173.01,1,It is now my pleasure to turn the call over to Gabriel.
4423872,26,175.93,176.68,2,Thank you Claudia.
4423872,27,177.22,178.12,2,Hello everyone.
4423872,28,178.16,182.8,2,And thank you for joining us for our twenty twenty one first quarter earnings call.
4423872,29,183.35,184.98,2,Today's presentation has three parts.
4423872,30,185.67,194.63,2,An update on covid nineteen our first quarter twenty twenty one results in an update on our transformation plan and the business strategy.
4423872,31,195.28,197.31,2,So moving straight into slide three.
4423872,32,198.25,207.03,2,While Chile gain international attention from the speed of its vaccination process during the first quarter of twenty twenty one new infections surged to record levels.
4423872,33,207.76,213.36,2,As a result mobility restrictions were reintroduced and international borders were closed.
4423872,34,214.01,221.21,2,This is strict quarantine measures which for a while affected almost ninety percent of the population are now being brought back.
4423872,35,222.16,233.2,2,Chile's vaccination process has been one of the fastest in the world outpacing both the US and the UK in terms of the doses administered per one hundred habitats.
4423872,36,234.31,247.63,2,As of April thirty eight point one million people in Chile had received at least one dose of the vaccine and eighty three percent of the people over sixty year old had received both.
4423872,37,248.52,256.71,2,We expected this speedy vaccination effort to pave the way for a significant economic reopening in the coming months.
4423872,38,257.4,258.93,2,So let's move to slide four.
4423872,39,259.71,265.24,2,The Chilean authorities continue to act swiftly as well as on the economic recovery fronts.
4423872,40,265.87,275.139,2,The government announced an expansion to the two year corporate fund by over six billion that's two percent of the Chilean G D P.
4423872,41,275.74,289.9,2,The Central Bank of Chile also has launched the third stretch of its credit facility conditional on increasing lending the C I C three amounting to ten billion dollars over six months.
4423872,42,290.46,297.57,2,Congress has also approved the expansion of the uses in the benefits of the guaranty fund for SMEs <inaudible>.
4423872,43,298.75,303.28,2,Legislators also approved a third ten percent pension withdraw.
4423872,44,304.37,311.03,2,We once more demonstrated our commitment to being part of the solution through our participation in the Fogarty reactivation program.
4423872,45,311.58,325.8,2,We granted almost two hundred and sixty eight billion pesos of Fogarty <inaudible> guaranteed loans achieving a participation of eleven point three percent which is the high which is higher than our overall market share.
4423872,46,326.55,340.73,2,Collectively the Chilean authorities has have acted decisively in responding to the pandemic crisis both on the sanitary and economic fronts with positive impact both in economic activity and on the credit side.
4423872,47,341.65,350.23,2,Nevertheless there are medium to long term consequences of the economic measures that are difficult to assess in winter now to be significant in the future.
4423872,48,351.29,353.38,2,If we can please move to slide five.
4423872,49,354.67,358.87,2,Prior to the latest locked down in Chile activity was building strong momentum.
4423872,50,359.5,364.77,2,In the short term the latest quality measures temporarily hindered economic activity.
4423872,51,365.35,371.51,2,But the sustained progress of the vaccination I strongly externally impose for better terms of trade.
4423872,52,371.88,379.6,2,Support from macro policies in the carryover effect are consistent with a significant growth rebound this year.
4423872,53,380.27,388.15,2,We continue to see G D P expanding six point five percent in twenty twenty one following the five point eight percent decline last year.
4423872,54,388.67,391.9,2,Moreover risks remain tilted to the upside.
4423872,55,393.09,401.22,2,We still see inflation close to the three percent target over our forecast horizon as the output output gap is too wide.
4423872,56,401.91,412.57,2,Lastly we expect the first rate hike of the cycle to come in the last quarter of twenty twenty one from the first part of twenty twenty two previ previously.
4423872,57,413.37,433.24,2,While we see only one two five basis points rate hikes this year in the last meeting of twenty twenty one assess the reopening of the economy than we currently expect in an environment of high terms of trade would probably lead the central bank to increase rates by more before the year ends.
4423872,58,433.87,443.22,2,In Colombia we expect the economy to bounce back with growth of five percent this year after shrinking by six point eight percent in twenty twenty.
4423872,59,443.79,454.59,2,We also expect a broadly stable current account deficit this year and a wide three point four percent of G D P compared with three point three percent of G D P last year.
4423872,60,455.32,459.51,2,Inflation is on track to close this year at two point eight percent.
4423872,61,460.1,466.43,2,We believe that there's still large output gap along with well behaved inflation and inflation expectations.
4423872,62,466.72,473.59,2,Support rates remain stable at a low one point seven five percent for the remainder of this year.
4423872,63,474.22,481.86,2,However the risks the risks tilt toward early rate hikes if global financial conditions keep tightening.
4423872,64,482.64,490.54,2,Now moving forward let's talk about the bank how the bank performed for these three three months of twenty twenty one.
4423872,65,491.94,497.3,2,On slide seven we share some of the highlights for the first quarter twenty twenty one.
4423872,66,497.82,510.74,2,Our consolidated net income was ninety five point one billion Chilean pesos in eighty four billion Chilean pesos in Chile which is the highest quarterly net income in our history.
4423872,67,511.45,522.49,2,Consolidated return on tangible equity was twenty one point five percent and return on tangible equity for our Chilean operation was twenty five point four percent.
4423872,68,523.29,526.69,2,Our revenues in Chile were boosted by financial margins with the market.
4423872,69,527.05,533.33,2,Expense growth remains due with cost decline zero point four percent quarter on quarter.
4423872,70,534.14,547.94,2,Also credit was quite benign across all our portfolios resulting in an eighty nine point three reduction relative to last quarter when we reinforce provisions for corporate and S M E clients.
4423872,71,548.92,561.94,2,While we do not believe that the levels of profitability achieved in first quarter will be maintained going forward we do believe that this strong first quarter sets up for a significant rebound in profitability this year.
4423872,72,563.12,577.65,2,Moving on to slide eight we show that our loan portfolio grew by one point five four percent in the first quarter which is broadly in line with our guidance of mid single digit loan growth for twenty twenty one.
4423872,73,578.26,582.56,2,Our portfolio grew two point three percent in retail and one percent in wholesale.
4423872,74,583.09,592.14,2,Also in line with our strategy and guidance of focusing on retail growth while being selective in terms of the returns for wholesale <inaudible>.
4423872,75,593.25,601.28,2,Our strategy for wholesale has enabled us to significantly improve margins and therefore to achieve higher returns on capital.
4423872,76,602.06,616.65,2,On slide nine we see that our financial margins with clients in Chile decreased one point six percent in the first quarter mainly due to seasonal effect of the sale of the student loan portfolio in the fourth quarter of twenty twenty.
4423872,77,617.33,630.24,2,On the graphic below which explains the change in our first quarter twenty one margins with clients versus the fourth quarter of twenty we see the effect of higher margins on commercial loans as well as on deposits.
4423872,78,630.97,644.58,2,Those positive contributions were upset by a change in credit portfolio mix mainly due to the contraction of the consumer portfolio as a result of the pandemic as well as by a reduction in average loan volumes.
4423872,79,645.87,661.63,2,Moving on to slide ten we show that our financial margins with the market was sixty point five billion pesos in the first quarter about twenty one billion pesos higher than that of the fourth quarter of twenty twenty.
4423872,80,661.93,668.89,2,Despite a lower exposure to the US uh decreasing five hundred billion pesos and a lower inflation.
4423872,81,669.96,680.09,2,Revenues were high across our trading and banking businesses despite a forty five percent reduction in inflation exposure since the third quarter of last year.
4423872,82,681.46,687.25,2,Here on slide eleven we can see our main credit risk indicators in Chile.
4423872,83,688.22,698.54,2,Cost of credit in the first quarter was twenty four point eight billion trillion pesos which corresponds to zero point five percent of our average loan portfolio.
4423872,84,699.59,703.92,2,We are seeing quite benign credit risk across our portfolios.
4423872,85,704.19,718.7,2,In retail the NPLs of the retail and consumer credits that did not receive any payment relief are below mid twenty nineteen levels that is pre pandemic and pre social unrest.
4423872,86,719.22,727.73,2,The credits that did not that did receive payment relief are in all repayment now and performing better than expected.
4423872,87,728.39,738.67,2,In wholesale we did have one corporate case rolling to N P L but it was already adequately provisioned so it did not have any significant impact on p and l.
4423872,88,739.46,750.12,2,The movements that you see in commercial NPLs total NPLs and N P L coverage are mostly explained by that one case and therefore do not reflect overall portfolio trends.
4423872,89,750.76,761.88,2,As a result of the provisions we established in twenty twenty our N P L coverage ratio remains very high in historical terms despite the decrease shown in the Spyder.
4423872,90,762.48,775.26,2,Our coverage evolution quarter over quarter is consistent with our expected loss provisioning model which allow us to be ahead of the N P L cycle while maintaining high levels of protection through the cycle.
4423872,91,776.17,789.69,2,As for our perspective for the year we are tra training towards the low end of the range we provided as guidance for cost of credit which was between one percent and one point three percent.
4423872,92,790.96,808.28,2,On July twelve we show non interest expenses for the quarter which had been which had remained very much under control decreasing zero point four percent quarter over quarter while the efficiency ratio improved by five percentage points.
4423872,93,808.78,822.74,2,Despite their both inflation increasing cost year over year which resulted mainly from the fact that the on the first quarter twenty twenty was positively affected by reversal of variable compensation provisions.
4423872,94,823.15,829.09,2,We maintain our guidance of a cost growth below inflation for twenty twenty one.
4423872,95,830.31,847.27,2,Now moving on to slide thirteen we show that our liquidity provisions remains very strong with both l L S R L C R and N S F R and historically high levels since twenty twenty boosted in part by government liquidity support measures.
4423872,96,848.36,860.25,2,In slide fourteen we can see that Colombia as well had a positive impact on the quarter reaching at eight point two percent managerial return over tangible equity.
4423872,97,860.81,874.15,2,Operating trends were positive as well with three percent quarter on quarter loan growth a rebound in operation revenues and a normalization of cost of credit at significantly lower costs.
4423872,98,875.59,887.76,2,On slide fifteen we see our fully loaded set one capital ratio increased by fifty basis points year over year and twenty basis points quarter over quarter.
4423872,99,888.51,898.79,2,We expect our capital ratios to improve steadily going forward as our profitability recovers and we continue to advance in our capital efficiency efforts.
4423872,100,899.24,908.05,2,As I mentioned in the last call we are discussing internally at the highest levels how best to address our capitalization ratios going forward.
4423872,101,908.48,916.1,2,Considering our upcoming acquisition of additional interest in Itau <inaudible> Colombia as well as the role winning of <inaudible>.
4423872,102,917.4,922.58,2,we'll make the rele relevant disclosures of information as it becomes available.
4423872,103,924.05,926.86,2,Let's move on to the next part of the presentation.
4423872,104,927.57,933.35,2,On slide seventeen I will recap recap our evolution in the last twelve month period.
4423872,105,933.74,938.24,2,And on the following slides I will share the progress that we have made so far.
4423872,106,939.06,947.58,2,When facing a crisis scenario of a scenario never seen before in March twenty twenty our adaptation and management capabilities were tested.
4423872,107,948.08,957.04,2,Our robust governance and solid risk management allow us to continue to run the bank under those challenging circumstances.
4423872,108,957.59,964.31,2,As you know we promptly promptly organize our operations and prepared the bank for the crisis.
4423872,109,964.71,973.05,2,We acted quickly to ensure our customers had appropriate remote access to the bank while at the same time developing solutions needed for that period.
4423872,110,973.74,981.18,2,It was a time of taking care of our people our customers and the bank and we fully focused on that.
4423872,111,982.12,993.27,2,From September twenty ten to twenty onwards we began to shift our focus to building the bank of the future leveraging what we learn and develop during the crisis.
4423872,112,993.82,1012.85,2,In the months that followed we developed o o our transformation plan based on the pillars of a strategic focus on disruption customer centricity simplicity and digitization in a <inaudible> working model and a discipline approach to achieving sustainable results.
4423872,113,1013.8,1016.16,2,If we can please move to slide eighteen.
4423872,114,1017.88,1025.4701,2,Before sharing some of the advances in this strategy I would like to first to introduce our new organizational structure.
4423872,115,1026.4,1037.4099,2,We made an important change to our executive committee to ensure that we have the right structure and the right talents with the necessary skill set to lead this transformation process.
4423872,116,1038.17,1052.76,2,The most relevant structural changes are one we created a digital business development management division which is in charge of our transformation overall as well as the most innovative elements of our plan.
4423872,117,1053.33,1060.01,2,And two the decentralization of our operations which was key to reinforce customer centricity and agility.
4423872,118,1060.53,1068.6,2,In addition to structural changes we also brought over new heads of technology and the whole for the wholesale bank.
4423872,119,1069.92,1086.0901,2,On slide nineteen we introduce Eduardo Neves as the new head of IT who has been working with us since April and Sebastian Romero as head of the wholesale banking replacing Christian Tauber who will leave us in September.
4423872,120,1086.64,1097.11,2,Both Eduardo and Sebastian are top executives with experience in the industry and strong track records as you can see in their mini bios on this page.
4423872,121,1098.35,1108.84,2,On slide twenty I would like to introduce Jorge Novis as the head of our new digital business development division.
4423872,122,1109.65,1112.6799,2,Jorge has been with us for a few years now.
4423872,123,1113.09,1114.85,2,Lastly as head of operations.
4423872,124,1115.52,1130.5299,2,Previously he led several business transformation programs at Itau Unibanco which gave him gave him relevant experience in meeting the best person to lead the transformation office we have created to implement our new strategy.
4423872,125,1131.1899,1144.9601,2,The transformation office will coordinate and oversee the transformation process supported by dedicated IT finance and HR sales and working closely with the each of the workstream leaders and teams.
4423872,126,1145.9399,1160.1901,2,It is worth mentioning that this is structured and the overall methodology we are following to implement the transformation has been successfully deployed in Itau Unibanco as well as in other banks and companies in different regions.
4423872,127,1160.8199,1172.97,2,After describing how we are setting ourselves up to deliver the transformation plan i'll now comment on the progress we have already made over the last few months starting on slide twenty one.
4423872,128,1174.48,1190.74,2,We recently announced a new strategic alliance with Rappi our leading digital player in Latin America through which we seek to bring innovative and disruptive ways of providing financial services to both individuals and companies in Chile.
4423872,129,1191.4301,1205.78,2,Through this partnership we are integrating financial services into a large ecosystem which enable us to assess a lot to assess a large customer base to boost our growth while adding value to the ecosystem.
4423872,130,1206.4,1212.6799,2,We expect to launch the first products of our partnerships uh on the third quadrant of this year.
4423872,131,1214.65,1223.98,2,In our journey of customer experience transformation we have made significant progress over the last year as you can see on the left hand side of slide twenty two.
4423872,132,1224.75,1236.03,2,Having said that we are not at all satisfied as we regard the low N P S of the banking industry in general Chile as a clear opportunity for us to disrupt the market.
4423872,133,1236.8101,1247.53,2,On the digital front we have made huge progress with our uh with our new app which is now ranked number one in Chile in the three major app stores.
4423872,134,1248.2,1263.5801,2,As you might recall in the fourth quarter twenty twenty we launched a digital wallet that allows payments in smartphones and smartwatches making them easier and safer as well as offering both Visa and MasterCard options for our clients.
4423872,135,1264.49,1269.1799,2,Three months later we have seen an increasing adoption of this functionality.
4423872,136,1270.02,1270.1801,2,As…
4423872,137,1270.1801,1287.26,2,A few weeks ago we launched the <inaudible> check in account which enables quick and easy access to our open investment platform through a one hundred percent digital platform with a hassle free onboarding.
4423872,138,1288.53,1293.9,2,On slide twenty three we present our innovative organization model at a glance.
4423872,139,1294.34,1301.2,2,We are moving towards an agile working model at scale with full integration across all areas.
4423872,140,1301.71,1311.65,2,The first step on this journey is integrating business and technology in joint teams pursuing business objectives broken down into three months sprints.
4423872,141,1312.73,1324.4399,2,This migration towards an agile operation model allows us to simplify the organization structure and therefore accelerate decision making through empowered multidisciplinary teams.
4423872,142,1325.1,1329.24,2,This year we also have been recognized for our excellence in key areas.
4423872,143,1348.8101,1356.24,2,Wrapping up we started twenty twenty one strong which is just the first step on the journey to achieving sustainable results.
4423872,144,1356.65,1368.74,2,we're fully conscious that much remains to be done and that is why we are in full transformation mode to achieve our medium to long term performance aspirations.
4423872,145,1369.73,1377.04,2,With this we conclude the presentation part we have for you today and we would gladly take any questions that you might have.
4423872,146,1381.58,1382.0499,0,Thank you.
4423872,147,1382.1801,1385.4099,0,Ladies and gentlemen we will now begin the question and answer session.
4423872,148,1385.9301,1391.23,0,As a reminder if you wish to ask a question please press star one on your telephone.
4423872,149,1391.64,1394.9,0,Or on the webcast you can submit the question using the q and a box.
4423872,150,1395.59,1398.1901,0,Once again that's star one on your telephone keypad.
4423872,151,1407.02,1410.92,0,Your first question is from the line of Jason <unk> from Scotiabank.
4423872,152,1411.15,1412.09,0,Your line is now open.
4423872,153,1414.17,1414.65,3,Hello.
4423872,154,1415.08,1419.72,3,Thanks for the opportunity to ask questions Gabriel Rodrigo Claudia.
4423872,155,1421.28,1425.16,3,My first question is just on overall profitability.
4423872,156,1425.16,1431.05,3,You you highlighted the trend in in cost of risk and the strong trading.
4423872,157,1431.73,1435.55,3,And um and we have some guidance for the full year.
4423872,158,1435.89,1448.79,3,I'm just trying to get a sense if we kind of normalize the provisions and normalize trading I mean I think uh use some kind of twenty percent tax rate uh around there.
4423872,159,1449.38,1456.64,3,It's it seems to me that you you know your your return on equity you're showing almost twenty one percent is pretty impressive.
4423872,160,1457.4399,1463.01,3,But it's you know when we normalize we would be at probably half that level or even slightly below.
4423872,161,1463.53,1468.2201,3,And I just wanted to get a sense if that if I'm thinking about that right for the rest of the year.
4423872,162,1469.3101,1476.72,3,And then um my second question is related to your agreement with with Rappi.
4423872,163,1476.75,1478.96,3,Is is this an exclusive agreement?
4423872,164,1479.16,1480.97,3,I I think you talked about some terms.
4423872,165,1481.05,1486.9801,3,Uh I think there there's some period through which it may be but if you can talk a little bit on on how that's going to work.
4423872,166,1488.1899,1488.49,3,Thank you.
4423872,167,1490.73,1491.2,2,Sure.
4423872,168,1491.5,1493.85,2,Thank you for your question Jason.
4423872,169,1495.14,1510.38,2,As you mentioned your first question I don't think that we are we are saying that we are going to have a twenty five percent return on tangible equity in the operation in Chile on a sustainable basis.
4423872,170,1510.38,1525.9301,2,I think it was a very good uh quarter in terms of financial margins with the market as well with our cost of credit below uh what we thought we might have for for this year.
4423872,171,1526.62,1535.92,2,Uh as I previously mentioned uh we do see a lot of potential for the asset that we have uh in Chile.
4423872,172,1536.48,1545.4701,2,Uh I think that uh the the guidance that we had for long term cost of credit was something around zero point eight percent.
4423872,173,1545.47,1558.22,2,As you remember we always discuss this number as a business as usual uh sustainable cost of uh cost of credit given our mix of portfolio.
4423872,174,1558.9399,1562.6801,2,Uh the number that we saw was zero point five percent.
4423872,175,1562.97,1577.38,2,As a matter of fact if you take the numbers for Itau Chile and CorpBanca on a separate basis between twenty twelve and twenty fifteen I think that you're going to have an average of zero point five percent.
4423872,176,1577.6801,1580.34,2,So it is nothing that new.
4423872,177,1580.7,1583.14,2,Of course we didn't expect for this credit cycle.
4423872,178,1583.88,1593.0701,2,So I would say if we normalize this and normalize the financial margins with the market we will encounter a lower return on tangible equity.
4423872,179,1593.46,1598.5699,2,Having said that I'm quite optimistic with the year that we have.
4423872,180,1598.74,1601.7799,2,we are seeing good results in terms of spreads.
4423872,181,1601.78,1607.26,2,We were able to increase the spreads that we have on the on the wholesale portfolio.
4423872,182,1607.5601,1611.6901,2,Uh we still have some challenges on the consumer portfolio.
4423872,183,1612.13,1630.13,2,And as I mentioned before when I think about the the potential potential of return on tangible equity for operation Chile I think sixteen percent is something achievable from what I see here and the projections that we have.
4423872,184,1630.26,1643.83,2,So we don't have any specific guidance for the year but I'm hoping for better numbers than the ones that you mentioned for the return that we have for this year.
4423872,185,1644.23,1653.29,2,And we hope for better returns approaching the fifteen sixteen percent return on tangible equity on a sustainable basis for the bankers.
4423872,186,1653.42,1655.12,2,At least this is the plan that we have.
4423872,187,1656.73,1672.88,2,For Rappi we have negotiated for six months uh with Simon Borrero who is the C E O with Rappi globally for this joint venture that we have with them.
4423872,188,1672.92,1697.4,2,We have exclusivity over the application of Rappi for the distribution of financial services both for the clients that Rappi has it has over one million clients in Chile as well as on the company side all the providers that Rappi has of companies that are selling these these services through through the platform.
4423872,189,1697.77,1702.3199,2,We also have the exclusivity for the distribution of financial services.
4423872,190,1702.65,1703.8201,2,It's a new model.
4423872,191,1703.85,1704.59,2,We…
4423872,192,1705.03,1716.3899,2,If you take our experience in Itau Unibanco of doing partnerships with retail with retailers we were quite successful in in in achieving that.
4423872,193,1716.8101,1720.3601,2,We are developing this model with Chile with Rappi.
4423872,194,1720.36,1746.4901,2,So I think there are good opportunities for us with all the flow of clients that they have incorporating a new attraction model for the bank as well as to learn more from a company that has been wildly successful in developing its digital model for all Latin America to learn from them and apply what we learn into our business.
4423872,195,1746.99,1750.74,2,That's at least the the the ambition that we have for Rappi.
4423872,196,1755.2,1755.78,3,Thank you very much.
4423872,197,1757.73,1758.0,2,Sure.
4423872,198,1760.5,1765.34,0,Your next question is from Sebastian from Credicorp Credicorp corp Capital.
4423872,199,1765.34,1766.2001,0,Your line is now open.
4423872,200,1769.16,1770.36,4,Hello everyone.
4423872,201,1770.67,1777.26,4,Gabriel Claudia uh and the rest of the team Rodrigo uh thank you for the presentation.
4423872,202,1777.8199,1780.3201,4,I have several questions today.
4423872,203,1780.52,1785.0399,4,The first one on Capitol.
4423872,204,1785.04,1791.9301,4,Gabriel you mentioned during the presentation that the new information will be disclosed when it is available.
4423872,205,1792.4399,1803.11,4,Uh the key question is here is what are your initial thoughts uh considering the recovery of profitability uh the potential needs that the bank may have?
4423872,206,1803.6899,1810.48,4,Uh and when do you expect uh to be to to have disclosures uh for the market?
4423872,207,1810.72,1812.4399,4,That will be the initial question.
4423872,208,1813.01,1819.9,4,Uh the second question uh is regarding overall profitability going back to the question of Jason.
4423872,209,1820.37,1842.4,4,Uh because you talk a lot about how uh the sustainable RE return on tangible equity will be between fifteen to sixteen percent in Chile uh but but you are you continue to fail to talk about consolidated profitability and talk about uh the picture in Colombia.
4423872,210,1842.4,1852.5299,4,So my my specific question here would be what are the trends uh that you're looking at on a consolidated basis uh for for profitability?
4423872,211,1852.53,1863.6499,4,And what's the outlook uh including from a strategic point of view uh in Colombia also considering recent challenges um at the fiscal front?
4423872,212,1864.14,1875.01,4,Uh and the third question uh will be uh we saw a minor we saw a minor uh impairment on the managerial uh result.
4423872,213,1875.59,1888.8199,4,Um and I'm wondering if you could expand on that impairment chart that you made uh during the quarter and if we uh should expect uh new impairments throughout the year.
4423872,214,1889.12,1890.11,4,Thank you very much.
4423872,215,1892.55,1892.92,2,Sure.
4423872,216,1892.92,1896.1,2,Thank you for your question Sebastian.
4423872,217,1896.8101,1917.79,2,Uh first on capital as I mentioned in the previous uh call uh when we take a look at the first plan that we have of uh doing all the convergence to be so free with generating and retaining capital uh prior to twenty twenty five.
4423872,218,1918.42,1948.88,2,I think that plan was mostly affected by the effects that we saw in twenty twenty nineteen in twenty nineteen I'm sorry due to the social unrest in Chile and the cost of credit debit that entailed and of course with the dividend payment that we had of a dividend payout of one hundred percent in the past as well as uh all the pandemic adjustments that we did on the portfolio last year.
4423872,219,1949.54,1956.88,2,So taking the time that went through and taking our ability to generate and retain capital during those years.
4423872,220,1957.3101,1961.28,2,I think that the the plan has to change.
4423872,221,1961.77,1976.35,2,And this is uh the discussion that we now have with the board uh and with the controlling shareholder in terms of the capital structure that we have in the bank and how we will converge through time.
4423872,222,1977.21,1997.27,2,Uh we do not have any specific information to share with you right now regarding time and also uh amounts of an eventual capitalization of the bank but I can tell you that we will have new information this year to share with you.
4423872,223,1998.15,2001.62,2,Uh your second question was about overall profitability.
4423872,224,2002.15,2007.8199,2,Uh when I take a look at Chile the answer is the same that I gave to to to Jason.
4423872,225,2008.1899,2011.5901,2,When I take a look at Colombia I think things are more challenging.
4423872,226,2011.59,2035.13,2,In Colombia as you saw we had a dilution of of certain basically three or four percentage points in Colombia that's coming from twenty five different coming out of sixteen for instance the potential dilution would be lower than that something around two percent as I mentioned previously previous calls.
4423872,227,2035.6899,2042.29,2,Uh I think it has been challenging in in Colombia because we were affected in our go to market strategy.
4423872,228,2042.79,2061.0801,2,As things also become more complicated in Colombia especially because of the pandemic I still think that it's possible for the Colombian business to converge to to its cost of equity around twelve percent.
4423872,229,2061.76,2071.21,2,Uh and we had an eight percent return on the first quarter which I think then again not different from Chile.
4423872,230,2071.6799,2076.8799,2,I think that we're probably going to going to see a lower return in Colombia than eight percent for this year.
4423872,231,2077.96,2094.4399,2,I don't think that Colombia will dilute us more than two percent but we are now discussing what are the options that we have to increase our shareholders equity uh value creation for the business in Colombia?
4423872,232,2094.8701,2098.8501,2,Uh and I think that the best SEs are that we have so far.
4423872,233,2098.8501,2110.1702,2,<inaudible> see more of the bank uh in some specific segments and uh we are going to share this with you uh this year as well.
4423872,234,2110.78,2117.6199,2,For the impact of the impairment I think it'd be a good idea if Rodrigo can discuss this with you.
4423872,235,2118.02,2118.3501,2,Rodrigo?
4423872,236,2121.22,2121.54,5,Yes.
4423872,237,2129.3101,2135.5798,5,One is the amortization of the intangible generated through business combinations.
4423872,238,2135.9399,2140.9202,5,That's uh that's a treatment that we have every quarter so there's nothing new there.
4423872,239,2141.3701,2143.6099,5,And I can tell you better there was no impairment.
4423872,240,2143.98,2148.1499,5,I know of goodwill or often tangibles for business combinations.
4423872,241,2149.21,2153.28,5,The only thing there was was the <inaudible> amortization of business combinations.
4423872,242,2155.4199,2170.1902,5,<inaudible> which is like one point three uh billion pesos was related to some uh technology assets uh related to the the system consolidation.
4423872,243,2170.1899,2175.0898,5,As you might remember we did our larger impairments in December.
4423872,244,2175.4299,2180.1799,5,And these are some these are some residual impairment of technology assets.
4423872,245,2180.5901,2183.5798,5,We do not expect any major impairments going forward.
4423872,246,2184.04,2191.1201,5,Having said that we review our our intangible assets and we also review our fixed assets continuously.
4423872,247,2191.3999,2195.3301,5,We might have some small movements throughout the year.
4423872,248,2198.99,2199.73,0,Very clear.
4423872,249,2199.73,2201.49,0,Thank you very much for the answers.
4423872,250,2206.1201,2214.96,0,Once again if you wish to ask a question simply press star then the number one on your telephone keypad or send the question via your webcast tool using the q and a box.
4423872,251,2215.8799,2219.6501,0,Your last question is from the line of George Friedman from Citibank.
4423872,252,2219.75,2220.7302,0,Your line is now open.
4423872,253,2223.1399,2223.6699,6,Hello.
4423872,254,2223.6699,2224.5598,6,Good morning everyone.
4423872,255,2224.5601,2227.05,6,Thank you for the opportunity to make questions.
4423872,256,2227.73,2235.6499,6,Uh so uh I'd like to try to get a bit more color about your expectations on the revenue front.
4423872,257,2236.5701,2246.3601,6,I think it was very clear already from the comments of Gabriel what to expect in terms of final coming profitability uh for the year.
4423872,258,2246.3601,2251.75,6,But just to get a bit more sense about how to get there.
4423872,259,2252.3601,2275.1799,6,If you could you know Gabriel remind us uh what are the trends that you know support your A L M results because even though you know everybody you know makes a call on how unsustainable these numbers might be.
4423872,260,2275.8999,2290.3298,6,I also you know noticed that you know last quarter it was strong that this quarter it was strong and I think it might be associated to ALM given levels of rates or something else.
4423872,261,2290.6001,2303.5698,6,So if you could uh you know help us through understanding uh what has sustained uh these levels of you know an AI with the market that would be helpful is the first question.
4423872,262,2304.0601,2308.53,6,And the second question but also focusing on revenue generation.
4423872,263,2309.22,2316.3,6,Uh if you could you know give us some ideas about what are the trends expected for fee income?
4423872,264,2316.6899,2331.05,6,One of your uh competitors last week uh released the guidance expecting eight to ten percent increase of income throughout the year as you know the reopening takes place and activity increases.
4423872,265,2332.1599,2338.5701,6,Is this a trend that we could also expect for the other banks in the in the banking system?
4423872,266,2338.8101,2339.5601,6,Thank you very much.
4423872,267,2341.22,2341.6799,2,Sure.
4423872,268,2341.74,2343.98,2,Thank you for your question George.
4423872,269,2344.53,2359.2,2,Uh I think that when I take a look at over the next few years I think that revenue generation will be key in order to to maintain the levels of results that I mentioned before.
4423872,270,2359.72,2371.79,2,Uh through this year I think that we are still gonna be a little bit shy than than the long term projections that we have on revenues mainly because of two things.
4423872,271,2372.1499,2384.5601,2,We still see at least on the first semester of this year uh a little bit shy the volumes especially on the consumer front.
4423872,272,2384.99,2389.7002,2,We saw some resilience on the on the mortgage's portfolio.
4423872,273,2389.7,2393.53,2,As you saw we are increasing eight percent year over year over year.
4423872,274,2393.97,2404.1399,2,Uh it was a market that is more resilient and has a higher latency in terms of being affected by by uh economic downturn.
4423872,275,2405.4399,2410.1702,2,On the other hand we were able to to…
4423872,276,2410.21,2422.9402,2,If you take a look at how interest rates have fallen for the past few years and the resiliency that we had on spreads I think it was quite good especially on the…
4423872,277,2423.54,2425.8801,2,on the wholesale part of the portfolio.
4423872,278,2426.3101,2436.71,2,As you mentioned uh I we were very focused on making sure that we are increasing the value creation of the credits that we are in.
4423872,279,2437.5601,2446.8999,2,Uh we are able also to to to maintain or expand the spreads that we have on the retail side.
4423872,280,2447.3101,2464.8301,2,But of course if you take a look at the portfolio as a whole in terms of the the mix it was affected as we are decreasing less than the market but truly decreasing the consumer portfolio as all the effects of the pandemic.
4423872,281,2465.55,2486.6401,2,Uh if we take a look at the fees as you mentioned I mean growing now fees by eight percent from the fall that we had last year I think it's something feasible but it has to do more with the starting base that we have then compared to the numbers that we had in two thousand and nineteen.
4423872,282,2487.0,2490.99,2,And I think that that comment goes as well for the industry.
4423872,283,2491.3401,2499.7,2,You have to remember that in Chile uh not like Brazil which the fees are more on the service side.
4423872,284,2499.9299,2513.4502,2,The fees in Chile especially on our case are more linked to credit concession in terms of the insurance products that we have in terms of the fees that we charge for structuring credits on the wholesale.
4423872,285,2513.8401,2519.8201,2,So as we see on the second semester uh a better activity on credit concessions.
4423872,286,2520.0701,2532.24,2,I do see a rebound in fees and I think that the numbers that you mentioned are are are very reasonable for the year that we have.
4423872,287,2532.9399,2541.1399,2,Uh but the main drivers that we are seeing in terms of of the profitability for this year is growing.
4423872,288,2541.1699,2555.48,2,The the revenues that we have I'm sorry uh but I see the normalization over cost of credits and a strong cost control.
4423872,289,2556.3201,2561.9402,2,I think that for this year I think that will be the main highlight for the bank.
4423872,290,2562.3301,2564.5,2,As you saw we are doing well in treasury.
4423872,291,2564.8201,2574.1499,2,We are the first bank for instance in Chile for for FX trading uh for our clients and also for derivatives.
4423872,292,2574.1499,2582.0601,2,So we do see a strong treasury in terms of the activity with clients and you see those those numbers.
4423872,293,2582.54,2594.4199,2,Uh but then again I think that converging to the bottom or perhaps better than the bottom of the guidance that we issued for for cost of credit.
4423872,294,2594.4199,2597.1802,2,It's it's a strong driver.
4423872,295,2597.5,2612.73,2,I don't I don't feel that if we are uh at the bottom of the range or even lower than the range that we've provided this cost of credit is something that it's not sustainable for the bank as I mentioned several times before.
4423872,296,2613.0701,2621.52,2,What I do see as a cost of credit on a business as usual situation for the bank is something around zero point eight percent.
4423872,297,2622.0601,2632.0701,2,Uh so converging on that strong cost uh efficiency and growing revenue <inaudible> for the next few years.
4423872,298,2632.46,2639.3,2,Uh I think that we will converge the profitability to what we mentioned before.
4423872,299,2640.0601,2642.95,2,Uh I dunno if I answered your question George.
4423872,300,2643.6399,2653.02,6,Actually you answered uh even more uh than what was question and really appreciate the call.
4423872,301,2653.6001,2659.4299,6,But if you could you know just you know touch base once again on an AI with the market.
4423872,302,2659.5901,2683.73,6,So what are really the trends we should monitor to understand uh you know the levels of you know these results or uh whether we should expect already for the coming quarters a reversion to the mean which was you know uh over the last year something around twenty five billion pesos per quarter.
4423872,303,2683.78,2684.0801,6,Thank you.
4423872,304,2685.8401,2691.97,2,Yeah what probably we are going to see our lower returns on on treasury.
4423872,305,2691.97,2697.48,2,I don't think that we can repeat the partner that we have sustainably going forward.
4423872,306,2698.4399,2702.8198,2,Uh I do see food results uh for the next quarter.
4423872,307,2702.8201,2707.99,2,But then again maintaining the level of profitability financial margins with the market I think would be tough.
4423872,308,2708.9399,2713.49,2,But I do see reactivation of volumes in order form.
4423872,309,2713.49,2728.6799,2,So I I think that we'll not fully compensate the lower return on financial margins with the market throughout the year with financial margins with clients that that takes a little bit of time.
4423872,310,2729.1101,2736.5601,2,Uh but then again uh as I mentioned with the Fogarty loans that we put forward that we have a good guarantee.
4423872,311,2736.8799,2742.03,2,And I think that we were able to put forward a good portfolio on SMEs.
4423872,312,2742.3401,2746.78,2,Uh the level of portability that we have for our deposits.
4423872,313,2746.78,2755.3601,2,If you take a look at deposits year over year at retail we rose almost seventy percent our current account deposits.
4423872,314,2755.8,2760.29,2,Uh so those operational trends they are they are quite good.
4423872,315,2760.8101,2771.4402,2,But then again I think that what we are going to see on the first semester of the year is is more a market dominant uh return.
4423872,316,2771.6799,2777.6399,2,And what we are going to see on the second semester is more a client dominated return.
4423872,317,2778.3501,2782.74,2,I think I like better the second one because it's more sustainable throughout time.
4423872,318,2783.0901,2790.7,2,Even though if you take a look at the results that we have in Treasury for the last few years they're quite good and sustainable.
4423872,319,2791.0801,2793.28,2,So I think that for for…
4423872,320,2793.28,2813.0,2,to achieve the level of returns that we are that we we are talking about for this year probably it's going to be more concentrated on second semester in terms of the growth of the portfolio to the mid single digits that we have talked about within the guidance.
4423872,321,2813.0,2821.5901,2,If you take our guidance and you you put it forward probably you will arrive in the return that we're talking about.
4423872,322,2823.1101,2823.6902,6,That's perfect.
4423872,323,2823.95,2824.6301,6,Super clear.
4423872,324,2824.8101,2825.53,6,Thank you very much.
4423872,325,2826.75,2827.29,2,Thank you George.
4423872,326,2830.1201,2831.5999,0,There are no further questions.
4423872,327,2831.6299,2832.8,0,Claudia please go ahead.
4423872,328,2835.1699,2835.6299,1,Hello.
4423872,329,2836.1201,2839.9402,1,We have two questions from the console that we will answer now.
4423872,330,2856.79,2857.1899,2,Okay.
4423872,331,2857.6599,2863.29,2,I think it is similar to to the discussion that we had on the previous answers.
4423872,332,2863.6699,2869.8599,2,But I think it gave it gives me the opportunity of making making something clear.
4423872,333,2870.3401,2888.6299,2,Uh I don't think that we are are are saying that we do believe that for the Chilean operation even for the consolidated return of twenty plus something percent it's something that it's sustainable taking a look at the future of the bank.
4423872,334,2889.0701,2907.0999,2,In the same way I think it's reasonable to say that the results that we went through on the last few years giving all the adjustments that we needed to do in the portfolio do not fully represent the potential value that we have for the bank.
4423872,335,2907.77,2923.48,2,So I think it's it's important to take a look at the balance of both things cause it's easy to somehow discontract the results that we are having this quarter but it's also important to take a look at the context of the results that we have in the past.
4423872,336,2923.9299,2935.9202,2,Uh seeing the big picture as we always mention I think for the Chilean operation we can clearly see a result sustainable between fifteen and sixteen percent of return on tangible equity.
4423872,337,2936.49,2939.0898,2,Uh it is true that we have…
4423872,338,2941.96,2944.95,2,<inaudible> the Colombia operation.
4423872,339,2945.3,2954.1201,2,As I mentioned also before we think that the Colombian operation is at least two years behind what we did in Chile.
4423872,340,2954.53,2964.45,2,I still think it's possible for the Colombia operation to converge to a return on tangible equity around twelve percent which is the cost of equity that we assign to Colombia.
4423872,341,2964.75,2977.21,2,And given that the dilution especially because we have less than around twenty percent of the assets on the Colombia operation will be less than two percent on the overall picture.
4423872,342,2977.71,2986.1199,2,Uh I think it's important to see through the cycle in the same way that we were optimistic taking a look at the future.
4423872,343,2986.49,3001.6499,2,When we did all the adjustments that was necessary for the bank during the pandemic and before the pandemic mainly on the cost of credit I think it's impossible I think it's possible and reasonable to have the same expectation that we have right now.
4423872,344,3001.96,3005.8,2,So I do feel that we have a strong asset.
4423872,345,3006.21,3011.1099,2,I do feel that it's possible to achieve the results that we're seeing.
4423872,346,3011.5801,3023.6599,2,And I do feel that the transformation process that we are going through uh will give strong base for this bank to continue to grow and maintain those those levels for all their future.
4423872,347,3026.9199,3027.71,1,Thank you Gabriel.
4423872,348,3027.79,3034.6599,1,We have one last question today coming from Philippe Torres <unk>.
4423872,349,3034.6599,3037.3499,1,Philippe says Thanks for the presentation.
4423872,350,3037.48,3046.4299,1,Could you gi could you give us some guidance regarding low growth cause of risk mean and net income regarding the Colombian operation?
4423872,351,3048.8101,3049.6902,2,Hi Philippe.
4423872,352,3049.98,3062.6201,2,Uh we do not disclose uh guidance for the Colombian operation because we are still stabilizing the operation uh as we mentioned before.
4423872,353,3063.03,3073.8198,2,Uh it's hard for us to come up with some numbers for for Colombia given all the volatility that the bank has uh and also the volatility of the market.
4423872,354,3074.3501,3091.8701,2,Having said that uh I think that the Colombian operation is experiencing the same effects that we saw in Chile that all the work that has that was done throughout uh the past few years uh are generating results.
4423872,355,3091.8701,3102.29,2,So in terms of the credit losses that we have uh it's much more stable given all the the the provisions that we did last year and the years before that as well.
4423872,356,3102.6499,3111.03,2,When I take a look at uh expenses we were able to grow expenses less than inflation and less than the market.
4423872,357,3111.3799,3117.5,2,Uh so those are two comments for cost of credit and also for expenses.
4423872,358,3117.8401,3122.3499,2,I think that the main volatility that we have is for for income.
4423872,359,3122.71,3131.3999,2,I think that we we had a portfolio that uh didn't perform in terms of the commercial performance as we would like.
4423872,360,3132.03,3145.2798,2,Uh then again I think that that works in our favor in this moment that I think that the relationship between risk and return is more opaque during the pandemic.
4423872,361,3145.28,3156.8601,2,So we didn't grow twenty five percent the the commercial portfolio as we saw some banks growing in Colombia in two thousand and nineteen.
4423872,362,3156.8601,3159.8201,2,I think that that went in our favor.
4423872,363,3159.8201,3166.3999,2,And we also went out of some portfolios that we thought had higher risk.
4423872,364,3166.8899,3179.1001,2,So we were able to adjust the bank in terms of of its balance sheet uh in terms of its operational value and now we have to construct over this.
4423872,365,3179.6499,3184.24,2,Uh as we mentioned we are thinking about how to better tackle this.
4423872,366,3184.8,3209.3101,2,Uh probably the strategy that we had which was a strategy based on on being a universal bank for all segments in Colombia uh is a strategy that it's very difficult to implement given the scale that we have uh and we would like more to focus on our operation in some specific segments.
4423872,367,3209.6399,3216.6599,2,Having said that I think that's something that we can discuss a few months in the future as we work out the plan that we have.
4423872,368,3225.8701,3227.8501,1,This was our last question Gabriel.
4423872,369,3228.3401,3229.3401,1,So I think that's <crosstalk>-
4423872,370,3229.3401,3229.99,2,Fantastic.
4423872,371,3230.3701,3231.1399,1,final remark.
4423872,372,3232.98,3233.4199,2,Brilliant.
4423872,373,3234.0601,3238.5698,2,Thank you so much for for your participation and for the questions that you have.
4423872,374,3239.0601,3244.46,2,As always Rodrigo Claudia and I I'm always available for you.
4423872,375,3244.95,3256.0601,2,Uh I'm I'm very positive with the year that we have looking forward and also with all the changes that we are doing with the bank.
4423872,376,3256.0601,3263.75,2,I think that way it's a beginning of a new chapter in our history and we will keep you updated as we move along.
4423872,377,3264.26,3265.1899,2,Thank you very much.
4423872,378,3269.8301,3272.47,0,And with that this concludes today's conference call.
4423872,379,3272.6499,3273.53,0,Thank you for attending.
4423872,380,3273.6201,3274.3799,0,You may now disconnect.
4423872,381,3274.76,3278.4302,0,Presenters please stand by.
4426736,0,0.45,2.32,0,Good day and thank you for standing by.
4426736,1,2.61,6.97,0,Welcome to the Telkom's full year of twenty twenty results conference call.
4426736,2,7.42,11.19,0,After this presentation there will be a question and answer session.
4426736,3,11.19,16.36,0,To ask a question during the session you will need to press star one on your telephone.
4426736,4,16.83,19.68,0,Please be advised that today's conference is being recorded.
4426736,5,20.06,23.94,0,If you require any further assistance please press star zero.
4426736,6,24.35,28.53,0,I would now like to hand the conference over to your first speaker today Mr.
4426736,7,28.53,29.68,0,Andi Setiawan.
4426736,8,30.2,31.03,0,Please go ahead.
4426736,9,31.9,32.65,1,Thank you Raquel.
4426736,10,34.34,40.93,1,Gentlemen welcome to PT Telkom Indonesia conference call for the full year of two thousand twenty results.
4426736,11,41.83,53.56,1,We released our full year of twenty uh of two thousand and twenty results on the twenty ninth of April twenty twenty one and the reports are available on our website www telkom dot co id.
4426736,12,54.82,61.24,1,Today's presentation is available on the webcast and an audio recording will be provided after the call for the next seven days.
4426736,13,62.36,69.91,1,There will be an overview from our c e o and after that all participants are given the opportunity to participate in the q and a session.
4426736,14,70.85,78.81,1,Before we start let me remind you that today's call and the response to questions may contain forward-looking statements within the meaning of Safe Harbor.
4426736,15,79.59,85.54,1,Actual results could differ materially from projection estimations or expectation voiced during today's call.
4426736,16,86.28,92.02,1,This may involve risk and uncertainty and may cause actual results to differ substantially from what we discussed.
4426736,17,93.03,99.46,1,Telkom Indonesia does not guarantee to any actions which may have been taken in reliance of the discussion held today.
4426736,18,100.42,107.7,1,Ladies and gentlemen it's my pleasure now to introduce Telkom's Board of Directors who are joining us today Mr.
4426736,19,107.78,111.42,1,Ririek Adriansyah as President Director and Chief Executive Officer;
4426736,20,112.24,112.56,1,Mr.
4426736,21,112.56,114.96,1,Heri Supriadi as Finance Director;
4426736,22,115.63,115.92,1,Mr.
4426736,23,115.92,119.41,1,Herlan Wijanarko as Network and IT Solutions Director;
4426736,24,120.07,120.37,1,Mr.
4426736,25,120.37,123.73,1,Dian Rachmawan as Wholesale and International Service Director;
4426736,26,124.34,124.82,1,Mr.
4426736,27,124.82,127.84,1,Edi Witjara as Enterprise and Business Service Director;
4426736,28,128.33,128.54,1,Ms.
4426736,29,128.57,130.93,1,Venusiana as Consumer Service Director;
4426736,30,131.82,132.21,1,Mr.
4426736,31,132.21,135.61,1,Budi Setyawan Wijaya as Strategic Portfolio Director;
4426736,32,136.16,136.51,1,Mr.
4426736,33,136.51,139.58,1,Muhamad Fajrin Rasyid as Digital Business Director;
4426736,34,140.06,140.52,1,and Mr.
4426736,35,140.52,143.02,1,Afriwandi as Human Capital Management Director.
4426736,36,143.94,147.92,1,Also present are the Board of Directors of Telkomsel Mr.
4426736,37,147.92,149.82,1,Setyanto Hantoro as President Director;
4426736,38,150.54,151.01,1,Mr.
4426736,39,151.01,153.57,1,Leonardus Wahyu Wasono as Finance Director;
4426736,40,154.28,154.62,1,Mr.
4426736,41,154.62,157.78,1,Wong Soon Nam as Planning and Transformation Director;
4426736,42,158.22,158.63,1,and Ms.
4426736,43,158.63,160.5,1,Rachel Goh as Marketing Director.
4426736,44,161.91,164.3,1,I'll now hand over the call to our c e o Mr.
4426736,45,164.3,165.96,1,Ririek Adriansyah for his comments.
4426736,46,168.95,169.47,2,Thank you Andi.
4426736,47,170.96,172.43,2,Good afternoon ladies and gentlemen.
4426736,48,173.06,176.38,2,Welcome to our conference call for the full year of twenty twenty results.
4426736,49,176.88,179.34,2,We really appreciate your participation in this call.
4426736,50,189.9,199.42,2,We recorded a hundred thirty six point five trillion in consolidated revenue increased 0.7% from previous year.
4426736,51,200.23,229.76,2,Our EBITDA grew by 11.2% with an EBITDA margin increase from 47.8% to 52.8% while at the bottom line net income increased by eleven point five percent to IDR20 .8 trillion with a better net income margin at 15.2% from 13.8% last year.
4426736,52,238.49,247.73,2,Our EBITDA margin of IndiHome reached 38.9% a significant increase from 33.9% last year.
4426736,53,248.07,266.06,2,The IndiHome revenue growth was a result of increasing subscribers coupled with improving ARPU.
4426736,54,266.75,283.0,2,Total subscribers grew by fourteen point five percent to reach eight million while ARPU in first quarter improved to two hundred sixty two thousand compared to two hundred fifty three thousand in the previous quarter.
4426736,55,283.79,295.16,2,Increasing ARPU was largely driven by revenue from adds-on that grew by twenty seven point eight percent and contributed to around fourteen point seven percent to IndiHome revenue compared to 13.6% in the same period last year.
4426736,56,295.64,324.67,2,inaudible From the enterprise segment although it declined by five point two percent year-on-year it saw significant improvement during the year which was mainly due to the success of the new strategy to reduce low margin business and focus on more profitable products along with various effort to get quality revenues.
4426736,57,325.94,338.57,2,inaudible will continue to strengthen the fundamentals with focus on core activity data center and cloud and application services that blended into various enterprise solutions.
4426736,58,339.23,345.96,2,With proper solid fundamentals we expect the price segment to become our next engine of growth in the foreseeable future.
4426736,59,348.61,362.9,2,Ladies and gentlemen in the year of twenty twenty wholesale and international business segments successfully performed with revenue grew by twenty seven point three percent year on-year to IDR13 .5 trillion.
4426736,60,363.33,382.33,2,The growth was basically generated from domestic business such as power business due to inorganic activities and increasing aid to the S M S due to the pandemic while the international business also have some good performance driven by overseas growth in voice data service and data business.
4426736,61,382.79,389.21,2,Data data center contributes to a promising growth for both domestic and international market.
4426736,62,392.43,402.04,2,inaudible Our mobile business still face intense competition and continued declining legacy due to transition from voice and S M S to data.
4426736,63,403.24,410.318,2,As a result the company revenue declined by four point four percent year-on-year mainly driven by some decrease in voice and S M S.
4426736,64,411.49,427.05,2,On the other hand retail business revenue increased by seven percent to sixty two point three trillion and significantly increased its contribution to seventy one point six percent of reconciled revenues compared to sixty three point nine percent last year.
4426736,65,427.95,433.94,2,Digital business revenue growth was driven data traffic that increased by forty three point eight percent.
4426736,66,435.4,443.6,2,The company will continue to focus on providing the best customer experience rather than promoting unreasonable pricing to support industry readiness.
4426736,67,495.54,510.43,2,In the past five years we have seen revenue portion from fixed business increase from twenty eight percent to thirty nine percent while its net income contribution significantly increased from around five percent to twenty two percent in two thousand twenty.
4426736,68,511.37,518.7,2,Ladies and gentlemen to conclude my remarks let me share our spend guidance for the year of twenty twenty one.
4426736,69,519.51,525.94,2,One we expect consolidated revenue to grow by around mid-single digit.
4426736,70,527.25,531.45,2,Two EBITDA margin is expected to be relatively stable.
4426736,71,540.13,541.07,2,That's the end of my remarks.
4426736,72,541.41,541.73,2,Thank you.
4426736,73,543.43,544.0699,1,Thank you Ririek.
4426736,74,545.35,546.74,1,we'll now begin the q and a session.
4426736,75,548.15,552.19,1,When reading your question please state clearly your name and your company.
4426736,76,552.98,554.92,1,Operator may we have the first question please?
4426736,77,556.4,556.74,0,Thank you.
4426736,78,556.74,561.76,0,Just a reminder to ask a question you will need to press star one on your telephone.
4426736,79,562.1,564.94,0,To withdraw your question press the pound or hash key.
4426736,80,567.13,571.5099,0,Your first question is from Piyush Choudhary of h s b c.
4426736,81,571.59,572.61,0,Please ask your question.
4426736,82,576.09,577.22,5,Yeah hi good afternoon.
4426736,83,577.51,579.63,5,Uh thanks for the call and congrats for the results.
4426736,84,579.84,580.3799,5,Two questions.
4426736,85,581.15,589.36,5,Firstly on mobile can you talk about the competitive dynamics in the industry and outlook for twenty twenty one?
4426736,86,589.88,595.51,5,And has Telkomsel achieved the desired objective after the rollout of unlimited plans last year?
4426736,87,596.84,604.7,5,Secondly um as you mentioned that you have acquired twenty megahertz in two point three can you share the likely network rollout plans?
4426736,88,605.42,609.05,5,And when do you intend to start offering five g services using two point three?
4426736,89,609.71,610.0099,5,Thank you.
4426736,90,612.98,614.82,6,Hi Piyush Rachel here here.
4426736,91,615.84,619.35,6,Um I'll address your question on uh competition landscape.
4426736,92,620.15,632.63,6,So as uh you pointed out the last six months for twenty twenty our product and pricing strategy were inaudible uh corrections needed to put discipline into the type of industry pricing practices back then.
4426736,93,633.04,636.5,6,It was necessary for Telkom to protect our relative market position.
4426736,94,636.81,641.58,6,And so now we have achieved those objectives in those six to nine months of strategy.
4426736,95,641.98,647.95,6,However as the market leader we need to always stay focused on driving sustainable growth behaviors in the industry.
4426736,96,648.47,654.25,6,Telkomsel has already initiated price adjustments on the back of macroeconomic recovery.
4426736,97,662.23,668.02,6,All this uh inaudible of the prospect of the pace of economic activity and we see this as a positive outlook.
4426736,98,668.64,690.03,6,And with this positive outlook in our consideration we felt the timing was right for us to review our product and pricing away from unlimited introducing more focus on uh B T L simple and easy to understand offers for existing customers and also introducing more affordable packages in the form of uh more affordable lower denominations in the areas of acquisitions.
4426736,99,691.39,703.24,6,However Telkomsel will continue to monitor closely the behaviors of other operators to avoid and prevent price wars and to have optimum premium gaps uh while protecting uh rela relative market positions.
4426736,100,703.63,713.25,6,I think moving forward uh looking at uh the other players in the market we foresee uh healthy upward new recoveries and grow positively.
4426736,101,713.25,719.33,6,I think overall the industry is much more rational now and let's strive to watch the sustainable growth as a whole industry.
4426736,102,726.27,726.55,11,Yeah.
4426736,103,726.65,730.35,11,This is Setyanto from Telkomsel.
4426736,104,730.4,741.45,11,Uh regarding your question about uh network rollout plan with regard to the 2300 uh megahertz that we won from the auction uh few weeks ago.
4426736,105,741.77,746.74,11,So uh by having this uh additional twenty megahertz in two thousand three hundred;
4426736,106,747.18,757.02,11,now Telkomsel holding fifty megahertz in two thousand three hundred and it'll strengthen uh our network position in the market.
4426736,107,757.15,770.43,11,Uh so we'll use it uh both for uh strengthening our four g leadership and also uh preparing for uh five g implementation in Indonesia uh as soon as possible.
4426736,108,770.46,778.82,11,So as a company uh as a leading digital company we want to be uh remain as the leader in the technology.
4426736,109,778.82,784.89,11,So uh we'll use uh maximize the usage of this new spectrum to strengthen both four g and five g.
4426736,110,788.48,788.95,8,Sure.
4426736,111,789.15,792.76,8,But is there any timeline when you're looking to launch five g services?
4426736,112,794.84,797.94,11,Uh we will launch it uh this year.
4426736,113,798.04,799.7,11,Uh we have some plan.
4426736,114,799.83,811.46,11,Uh I cannot uh reveal it uh exactly now but uh in upcoming uh few months you'll see the the the launch of the five g.
4426736,115,812.92,813.07,8,Okay.
4426736,116,813.72,814.22,8,Thanks a lot.
4426736,117,814.61,815.59,8,Uh I'll come back in the queue.
4426736,118,818.42,822.82,12,The next question comes from the line of Arthur Pineda from Citigroup.
4426736,119,822.92,824.03,12,Please ask your question.
4426736,120,824.91,826.21,10,Hi thanks for the opportunity.
4426736,121,826.24,827.18,10,Uh two questions please.
4426736,122,827.75,832.84,10,Uh first can we get a better understanding of the growth of Telkomsel into the fourth quarter?
4426736,123,833.37,837.12,10,Um you've posted a four percent Q-on-Q growth for Telkomsel as a group.
4426736,124,837.37,842.24,10,But when you break down voice that was down and data was down Q-on-Q.
4426736,125,842.89,845.17,10,So it could mean that other revenues are driving this.
4426736,126,845.37,848.94,10,So what is exactly classified on on this side?
4426736,127,849.68,854.08,10,Uh second question I had is with regard to the outlook for twenty twenty one.
4426736,128,854.24,861.22,10,Are you able to flesh out your mid-single-digit growth guidance across the business lines between fixed mobile and enterprise?
4426736,129,862.14,862.61,10,Thank you.
4426736,130,867.23,872.9901,13,Okay Arthur uh Heri speaking here.
4426736,131,872.99,876.03,13,lemme try to answer your second question.
4426736,132,876.03,886.68,13,On the guideline for 2021 uh basically we have uh diversified our portfolio of course uh from uh in the home going to continue to grow.
4426736,133,887.08,898.67,13,And I think in the enterprise uh with regard to current COVID situation today uh which we don't uh really know uh where it's going to be benign.
4426736,134,898.92,903.45,13,I think that uh uh provide us with uh let's say vertical digit growth.
4426736,135,903.76,914.38,13,But uh our focus is to have uh more quality I think uh in terms of the uh portfolio uh customer portfolio and also uh profitability in this uh area.
4426736,136,914.78,926.68,13,And then uh in the cellular uh we see there's build-up I think uh pressure in the industry until the conciliation uh really happen.
4426736,137,926.94,938.8,13,So we put it more I think uh uh conservative because this industry is also gonna be providing uh low-single-digit growth in the mobile uh as well.
4426736,138,939.16,956.5699,13,So while having that uh combination I think we uh come to the uh overall as uh my C E O previously mentioned that uh we're going to have a low to mid-single digit uh growth in the revenue uh overall in our company.
4426736,139,957.61,962.1299,13,That's uh I think a brief uh explanation to the your second question.
4426736,140,962.64,962.81,11,Yes.
4426736,141,963.01,977.76,11,So from from number uh number one question actually the the impact for uh q four actually coming from the implementation of the PSAK uh seventy two which is related with i f r s fifteen.
4426736,142,978.27,983.54,11,So we we are doing the analyze with uh regard to delegated revenue on queue.
4426736,143,983.54,994.3,11,If we have the similar comparison it'll be supposed to be uh this is based on the you know the the last uh uh accounting report.
4426736,144,994.33,996.59,11,It's going to be normalized five point six.
4426736,145,997.02,1011.22,11,And then if if we look at the digital revenue if it is also normalized uh it's going to be uh increased by seven point three in instead of decreasing seven point one related with the the digital business revenue.
4426736,146,1011.55,1011.88,11,Thank you.
4426736,147,1013.29,1013.56,10,Okay.
4426736,148,1017.68,1020.99,10,not not because of value-added services being being booked?
4426736,149,1022.23,1030.05,11,So actually because the under the i f r s uh fifteen we have to uh request related with the discount we said.
4426736,150,1030.05,1040.29,11,So in in in the last uh uh quarter four we did the you know the reclassification and proportionate allocate for the legacy revenue and digital business revenue.
4426736,151,1040.92,1041.23,11,Thank you.
4426736,152,1042.34,1043.0399,10,Got it thank you.
4426736,153,1046.61,1051.61,12,Your next question comes from the line of Xian Chen Fong of c i m b.
4426736,154,1051.6899,1052.9,12,Please ask your question.
4426736,155,1054.84,1055.8301,14,Hi thanks for the call.
4426736,156,1055.83,1057.52,14,This is uh Fong from c i m b.
4426736,157,1057.98,1059.36,14,Uh three questions from me.
4426736,158,1059.36,1064.87,14,Firstly uh on IndiHome can you talk a bit about competition uh in this space?
4426736,159,1065.0699,1075.22,14,And uh do you see that as potentially uh you know uh posing some risks to your ARPU and also your subscriber targets for twenty twenty one?
4426736,160,1075.98,1077.0199,14,Uh that's the first question.
4426736,161,1077.0699,1087.87,14,Secondly for uh the enterprise business um you mentioned uh there are still some uncertainties with regards to uh the impact on covid nineteen and all that.
4426736,162,1088.41,1097.6801,14,Uh but I wanted to find out uh you know do you expect the enterprise business to be still loss making uh this year or do you see a turnaround?
4426736,163,1098.46,1106.54,14,And my third question uh with regards to Telkomsel um how do you see opex trending this year uh excluding depreciation?
4426736,164,1106.95,1107.88,14,Yeah those are my three questions.
4426736,165,1107.88,1108.23,14,Thank you.
4426736,166,1112.23,1112.3199,11,Okay.
4426736,167,1115.89,1118.85,11,Uh thank you uh Mr.
4426736,168,1118.85,1119.12,11,Fong.
4426736,169,1119.53,1125.1801,11,Uh et me start to answer your question on the IndiHome competitive uh landscape.
4426736,170,1125.8199,1136.86,11,Uh today uh even in the I think uh the same footprint that we have with our competitor we don't see kinda a very aggressive uh movement from our uh competitors.
4426736,171,1137.48,1146.6901,11,So the competition quite profitable for us as we have I think uh end to-end uh the fiber that are much stronger compared to our competitors.
4426736,172,1147.63,1172.8199,11,Uh on the other hand with regard to this actually uh regarding the I think uh ARPU correction we don't see that uh in this uh moment because as the digital recession coming uh with the I think uh higher speed right now and also uh more people work from home and uh study from home the demand becoming uh actually uh stronger.
4426736,173,1173.2,1180.21,11,And then uh many actually our customer asking for uh higher speed of the IndiHome services.
4426736,174,1180.65,1196.5901,11,This uh in addition to some of the I think content that we provide also in the in the home uh will uh give us a kind of a profitable situation in terms of the uh ARPU uh uh trend in this year.
4426736,175,1201.6801,1202.15,11,Okay.
4426736,176,1202.15,1226.09,11,Uh and and then uh in the second question under enterprise uh impact of this COVID as we uh mentioned to you that uh actually uh we are becoming more uh I think uh selective in choosing the project and to seeing our clients and also uh more seeing the profitability also of the business.
4426736,177,1226.61,1237.05,11,So uh we say that actually this business uh although still quite low in terms of the profitability it's already provide a profitability business for us.
4426736,178,1237.53,1244.3,11,What we do expect as mentioned also by uh our C E O this is going to be our content of our future business.
4426736,179,1244.6801,1257.73,11,As we improve the I think uh profitability and as I think uh more enterprise need services from this one uh we believe this will going to be next to the uh IndiHome growth in the future.
4426736,180,1260.5601,1261.96,11,Number three uh sorry?
4426736,181,1262.01,1262.65,13,Okay.
4426736,182,1263.17,1274.54,13,So just with the company costs trending for this year for for twenty twenty we see you know slightly decreased uh combination between opex and depreciation.
4426736,183,1274.9301,1297.2899,13,And for this year twenty twenty one the opex related with the revenue and some costs related with the you know spectrum that we get it's gonna be uh uh invest and it is gonna be aligned with the you know additional uh investment that'll assist with our uh costs in the the the you know the the the network and also the power.
4426736,184,1297.7,1307.6699,13,So it means the trending for opex the some cost related with revenue is gonna be increased a little bit with the additional of our uh you know network.
4426736,185,1308.0699,1317.75,13,But some cost related with the uh digitalization related with how we we end up with the impact of the profit is gonna be uh decreasing.
4426736,186,1318.09,1328.97,13,So we also do the you know the monitoring of the cost related with our network because currently we have the program to you know to simplify our network based on settings our three g.
4426736,187,1329.0,1334.5701,13,So perhaps with those kind of you know activity the opex the relative of the network can be managed.
4426736,188,1335.01,1338.7899,13,And we have also scaling out in some of the network capacity.
4426736,189,1339.01,1355.25,13,Uh and then we we we also have the benefit of the you know from the inaudible work that we are uh not currently uh selling the power because the the inaudible have the slightly uh you know bet better compared with the market.
4426736,190,1355.79,1367.1,13,So it means the cost uh still uh can be manageable and if it is uh in place it's gonna be aligned with our uh revenue and our uh uh network value.
4426736,191,1369.83,1371.2899,14,And this is thank you so much everyone.
4426736,192,1375.09,1379.01,13,Next question comes from the line of Krishna Kutabara of Mandeeri.
4426736,193,1379.01,1380.66,13,Please ask your question.
4426736,194,1382.83,1383.0599,15,Hi.
4426736,195,1383.0601,1384.58,15,Good afternoon uh management.
4426736,196,1384.61,1385.72,15,Uh thanks for the opportunity.
4426736,197,1386.14,1388.9401,15,I have two questions actually um so just bear with me.
4426736,198,1388.9399,1391.71,15,Uh my first question is uh a bit on Telkomsel.
4426736,199,1391.74,1397.2201,15,Uh can we get some update on Telkomsel's capital allocation strategy over the next two to three years?
4426736,200,1397.88,1408.97,15,Uh we can see that Telkomsel has monetized its brick and mortar assets such as towers and at the same time invested more heavily into tech platforms such as investments in inaudible N T M I and so on.
4426736,201,1409.8199,1418.73,15,So as Telkomsel uh recalibrates its asset structure uh can we get some color up to how much of Telkomsel's business will actually be the towards the digital mobile?
4426736,202,1419.23,1422.9,15,And perhaps any guidance from the little capex budget for the next two to three years?
4426736,203,1423.33,1427.3099,15,And what sort of r o i c and enterprise solution impact that uh Telkomsel seeks to achieve?
4426736,204,1428.26,1432.71,15,Uh second question is to Telkom management as well uh similar to the question to Telkomsel.
4426736,205,1443.25,1452.3099,16,So how should we balance the need to maintain uh steady cash returns at dot com levels with the need to fulfill uh inaudible video inaudible strategy and negotiate moving forward?
4426736,206,1453.12,1455.9299,17,g g good question thank you.
4426736,207,1458.42,1458.78,18,Okay.
4426736,208,1459.13,1459.46,18,Um…
4426736,209,1461.9399,1462.34,18,Okay.
4426736,210,1462.37,1479.2,18,So I think from the capital we we uh we have the plan to you know to maintain the percentage of our uh revenue is gonna be around fourteen percent to fifteen percent aligned with uh you know the percentage of our uh you know our our revenues.
4426736,211,1479.2,1493.1,18,So this means the capital is gonna be uh slightly uh aligned with our our uh slightly uh good uh our inaudible aligned with our uh revenue contribution and uh treating uh from the next two and three years.
4426736,212,1493.5699,1502.24,18,And then it inaudible digital uh investment I think uh ba inaudible for this uh you know aspect uh the equation please.
4426736,213,1506.13,1509.1901,17,Yeah uh thank you very much uh for the question.
4426736,214,1509.1899,1520.4601,17,And clearly I think uh we continue to look for good and strategic opportunity to invest in uh uh growth potential.
4426736,215,1520.46,1524.3099,17,And I think you highlighted about uh our investment in inaudible.
4426736,216,1524.73,1543.4401,17,Uh yes uh we have done our first investment um and so if I may you know it it has been a good uh opportunity for us and in the early days we have seen good traction uh among the two companies we see synergy that we can derive.
4426736,217,1544.1801,1556.76,17,So moving forward you know uh if we continue to have opportunities like that uh we will we will definitely uh uh look at the investments uh carefully.
4426736,218,1557.25,1566.9099,17,Uh at the same time uh beyond the inorganic uh we also actively looking uh at organic growth or digital.
4426736,219,1567.17,1577.5,17,We have uh over the years built up a lot of digital assets so this will be yet another focus that we will take where we got to uh digital uh investments.
4426736,220,1577.98,1578.48,17,Uh…
4426736,221,1579.9301,1582.09,17,Panto you have anything to add onto that?
4426736,222,1583.17,1583.4,19,Yeah.
4426736,223,1583.87,1584.46,19,Thank you Vasinam.
4426736,224,1585.16,1592.2001,19,Uh uh as an additional information from one pass the end pass you now mention.
4426736,225,1592.6,1598.59,19,So as you can see we are uh transforming ourself from inaudible to become a digital inaudible.
4426736,226,1598.83,1604.34,19,And we show it in them of how we locate our capital to invest on the digital.
4426736,227,1604.64,1630.22,19,Of of course we hope that by doing this we will be able to cope with the with the recent development of the digital world and stay relevant to become uh more and more close to our customer and uh yet we hope that uh our overall movement on digital uh initiative will uh will have a positive impact on our uh valuation multiple uh later on.
4426736,228,1631.12,1633.27,19,That's overall strategy of that concern.
4426736,229,1635.05,1635.14,19,Okay.
4426736,230,1639.23,1639.65,17,Thanks Panto.
4426736,231,1639.96,1640.4901,17,Appreciate that.
4426736,232,1643.37,1648.12,20,Your next question comes from the line of Nico Margaroni's of b r i Benelexa.
4426736,233,1648.71,1649.89,20,Please ask your question.
4426736,234,1652.05,1659.0599,21,Uh thank you uh thank you to management and uh congratulations I think for the for the good uh first quarter.
4426736,235,1660.52,1660.9301,21,Um…
4426736,236,1661.6801,1663.7,21,Three questions but I think they're straightforward.
4426736,237,1663.7,1672.1,21,Uh first of all uh you mention about uh evident margins uh guidance for twenty twenty one to be stable.
4426736,238,1672.75,1676.12,21,Uh can you break it down by uh business billable?
4426736,239,1676.12,1682.8101,21,Uh uh mobile uh mobile in the home and um and the enterprise business?
4426736,240,1683.85,1685.1499,21,Uh that's my first question.
4426736,241,1685.1801,1699.27,21,Um secondly uh how how should we uh think about this uh uh uh uh the consequences from a inaudible 72 in terms of data revenue?
4426736,242,1699.9,1715.08,21,Uh uh so uh that that that should mean that um going forward there will be uh some revenue uh some data revenue being being allocated uh under a legacy revenue.
4426736,243,1715.39,1718.7001,21,Um is that is that a fair uh understanding?
4426736,244,1719.98,1720.33,21,because…
4426736,245,1720.33,1721.0601,21,That's number two.
4426736,246,1721.9399,1734.71,21,And uh number three uh in terms of your uh five g uh roll-outs uh and uh you mentioned that that would be uh that would be within twenty twenty one.
4426736,247,1734.71,1746.71,21,Uh is that going to be uh our retailer for retail segment or uh uh w w would it be selective roll-outs?
4426736,248,1747.25,1750.85,21,How how do you um plan in doing this?
4426736,249,1750.85,1759.3099,21,Uh or is it are you gonna be uh uh initially initially uh focusing on uh the business segments?
4426736,250,1759.91,1760.29,21,Thank you.
4426736,251,1761.9301,1762.77,17,mm-hmm <affirmative>.
4426736,252,1764.3,1768.14,17,Uh thank you Nico for uh uh your question.
4426736,253,1768.14,1770.09,17,i'll take the first question.
4426736,254,1770.5,1775.76,17,On the retail margin data the deadline is mentioned by uh uh our C E O.
4426736,255,1776.16,1779.14,17,We're going to have a inaudible evident margin.
4426736,256,1779.67,1806.74,17,Uh I cannot uh unfortunately I cannot provide you a uh too much detail uh in the parent company under evident margin for the business pillar but uh overall uh I think uh that uh what we refer in twenty twenty this year uh of course the the uh under next uh higher evident margin coming from in the room that was uh highest one coming from telecom sell.
4426736,257,1807.11,1822.0,17,And then uh uh from wholesale and uh as we previously mentioned we are in the under process of uh I think improving the enterprise enterprise uh will be the smallest one.
4426736,258,1822.45,1833.8501,17,Uh why we cannot provide with some detail on this one uh a lot of actually a common asset include in this uh I think uh accounting treatment uh to really understand under cost allocation here.
4426736,259,1834.58,1837.34,17,I think that uh I think uh a brief color to you Pat?
4426736,260,1837.84,1839.0701,22,Yeah yeah so…
4426736,261,1840.55,1840.77,22,Yeah.
4426736,262,1841.42,1848.0701,22,Number two I looked at the the case of two two actually for the quarter four we implement the basic second two.
4426736,263,1848.4399,1853.58,22,So some uh discu we firstly allocate in the legacy.
4426736,264,1853.89,1859.1,22,Currently we review and then we provision it uh if under usage inaudible.
4426736,265,1860.37,1885.28,22,So this is actually the you know what I'm talk we align with the you know pace basic inaudible the funding uh of of inaudible and then going forward it's gonna be consistent for us to allocate the expenditures by fund the person that uses it so the data is uh the usage inaudible from data is going to be allocated also professionally the data and the inaudible gonna be consistent allocated for the legacy.
4426736,266,1885.45,1888.0801,22,So I think for this year it's gonna be consistent.
4426736,267,1888.08,1889.98,22,We implement the basic inaudible.
4426736,268,1890.1801,1894.15,22,So the impact from the data is not gonna be happen like in quarter four.
4426736,269,1894.58,1899.34,22,Thank you.
4426736,270,1900.4,1903.22,17,That's you.
4426736,271,1903.22,1903.72,22,Under…
4426736,272,1905.89,1907.1699,17,I think it's about that…
4426736,273,1907.17,1908.36,17,Let me let me answer it.
4426736,274,1908.39,1908.74,17,Okay.
4426736,275,1909.0601,1916.91,17,Uh by uh Nico uh for for the five g uh five g is a bit different with four g.
4426736,276,1916.91,1919.4099,17,Uh with four g is is for mass usage.
4426736,277,1919.5601,1932.75,17,Uh he uh the uh this year for for for the counsel five g will be uh we'll implement it selectively not as a mass uh uh as a mass roll- outta uh network all over Indonesia.
4426736,278,1937.84,1941.65,17,Uh uh uh and it will be both for b two b and b two c.
4426736,279,1941.99,1955.05,17,So uh uh as a as a leader in in the technology implementation their concern will be always would be uh good service and uh leading service to a customer both for consumer and uh b two b market.
4426736,280,1958.09,1959.5399,22,Uh thank you.
4426736,281,1960.04,1970.12,20,We have another question from the line of Beus Chadhury of h s b c.
4426736,282,1970.17,1971.2101,20,Please ask your question.
4426736,283,1972.66,1973.5,23,Yeah thanks a lot.
4426736,284,1973.67,1975.52,23,Um I have three more questions.
4426736,285,1975.87,1983.13,23,Firstly on in the home can you share what is the current home path samples as of fiscal twenty?
4426736,286,1983.66,1988.5,23,And what are the network roll-out objectives and subs addition targets for twenty twenty one?
4426736,287,1989.45,1993.1799,23,Uh secondly you mentioned about synergy benefits with inaudible.
4426736,288,1993.83,1998.48,23,Uh can you give us some examples of how you are able to derive such benefits?
4426736,289,1999.4301,2006.9299,23,And thirdly on inaudible what is the expectation for organic tower and tendency growth for twenty twenty one?
4426736,290,2007.8199,2011.4,23,Thank you.
4426736,291,2014.88,2025.0,24,Okay and for number one for the inaudible 2020 actually for the inaudible for seven million and for the fourth itself inaudible.
4426736,292,2027.3,2027.8501,24,And…
4426736,293,2031.99,2032.4,17,Okay.
4426736,294,2042.27,2044.7001,24,And for the fourth itself it's about 12.7 million.
4426736,295,2096.8799,2104.9402,19,Basically uh what uh inaudible is uh we expect to have additional about one million of the uh in the home.
4426736,296,2104.99,2106.5999,19,Uh I think that inaudible.
4426736,297,2106.6001,2115.26,19,And also in addition that uh we also do expect we can help uh fix wireless access um five hundred inaudible.
4426736,298,2115.6799,2127.0798,19,So this uh is going to bring us to about one around one point five uh million additional uh I think for uh that been that uh in our uh portfolio.
4426736,299,2129.3401,2129.8699,17,Got it Pat.
4426736,300,2130.0901,2130.25,19,Okay.
4426736,301,2131.6699,2140.4199,19,Uh inaudible from the counsel um with regard to your question about uh synergy benefit from uh uh the counsel with the investments.
4426736,302,2140.4199,2155.5498,19,So uh during our uh first investment we we have uh several uh if I'm not mistaken pan-protege uh synergy initiative that we we plan to implement uh during the collaboration.
4426736,303,2171.74,2173.5,25,Uh we we can name it.
4426736,304,2173.53,2183.6602,25,One one of it is we create a special package for a driver Gojek driver a special Telkomsel package uh data package for a Gojek driver.
4426736,305,2183.6599,2185.45,25,We collate a package for that yeah?
4426736,306,2201.6799,2209.3198,25,Basically the project merchant can use uh Telkomsel uh uh digital advertising things like that.
4426736,307,2209.3701,2217.8899,25,And so far we see that uh the collaboration uh going forward with the project is is going better and better.
4426736,308,2217.8899,2224.0298,25,And we hope that that the synergy value that we uh plan will achieve more than a hundred percent this year.
4426736,309,2226.27,2226.45,26,Okay.
4426736,310,2227.3899,2228.2002,26,Uh on your…
4426736,311,2228.2,2231.47,26,So a third question for inaudible.
4426736,312,2231.47,2241.1702,26,As previously mentioned actually we're in the preparation for uh helping I P O for this uh company.
4426736,313,2241.75,2246.98,26,So uh we pick up to this uh preparation and the process uh.
4426736,314,2247.01,2250.3901,26,Unfortunately I cannot give you so much color on this one.
4426736,315,2250.76,2258.1101,26,We are only uh providing information that we already provide previously and I think that's the maximum that we can provide uh uh with…
4426736,316,2258.1101,2261.6101,26,about respect to the compliant of the process.
4426736,317,2261.79,2263.8499,26,I think the tendency if you…
4426736,318,2263.8799,2278.3899,26,Well if you remember we have around one uh point six five that are all objective and our plan is to have this uh Mitratel ready for the IPO by the end of the year subject to the market condition.
4426736,319,2278.3899,2280.3098,26,I think uh that's the…
4426736,320,2280.3401,2282.0298,26,Well let's say the plan that we have today.
4426736,321,2284.45,2285.1599,27,Thank you Barchetti.
4426736,322,2287.21,2287.54,27,Understood.
4426736,323,2290.04,2293.8901,28,Another question from the line of Arthur Pineda of Citigroup.
4426736,324,2293.97,2294.4399,28,Please ask.
4426736,325,2295.6201,2296.3699,29,Hi hi.
4426736,326,2296.3999,2297.1702,29,Uh yeah sorry.
4426736,327,2297.1699,2298.3201,29,Two follow-up questions please.
4426736,328,2298.73,2303.27,29,Uh I'm not sure if you can answer this but can you share your thoughts on the remaining Telkomsel towers?
4426736,329,2303.3899,2307.1101,29,Are there any plans for any further asset transfers over the long run?
4426736,330,2307.9299,2313.3799,29,Uh second question is on Telkomsel's proceeds uh given the prior sale…
4426736,331,2313.73,2320.0701,29,Uh given that you do have the proceeds at hand um what are your thoughts on deploying the capital on that?
4426736,332,2320.1101,2325.9099,29,Would you look to recycle it by by doing dividends to shareholders i e.
4426736,333,2325.9099,2327.77,29,which is to Telkom and and Singtel?
4426736,334,2327.77,2330.27,29,Or is it likely to be retained on the Telkomsel level?
4426736,335,2330.9099,2331.3701,29,Thank you.
4426736,336,2334.3401,2338.02,30,Thank you very much for the question on the tower.
4426736,337,2338.02,2340.7102,30,This is Sunaman uh from uh Telkomsel.
4426736,338,2341.1101,2351.6599,30,Now uh one of the key strategies that we have is always to look at how we can optimize our capital structure and of course also unlocking the value.
4426736,339,2351.6599,2356.25,30,So we have done so with our towers.
4426736,340,2356.5601,2359.2798,30,And your question is that are we looking at more?
4426736,341,2359.53,2361.55,30,So my answer is that there are…
4426736,342,2361.6001,2373.3101,30,as as long as there is an opportunity for us to u unlock that value we will do so and we'll also do so according to uh market condition as well.
4426736,343,2373.6399,2377.5701,30,So I hope that uh answers the question that you asked.
4426736,344,2379.1201,2379.3401,29,Yes.
4426736,345,2379.46,2384.54,29,And um on on the capital that you received is is that just going to stay on Telkomsel?
4426736,346,2386.75,2387.97,30,The the the capital?
4426736,347,2387.97,2388.0901,30,Yeah.
4426736,348,2388.0901,2393.0,30,Well it is different totally uh because as you see the Telkomsel balance it is very strong.
4426736,349,2393.05,2394.4001,30,So we…
4426736,350,2394.46,2399.51,30,the capital that we get from the selling of the tower is distributed to the shareholders.
4426736,351,2400.27,2400.46,26,Yeah.
4426736,352,2401.1499,2406.6199,26,Uh adding to what Sunny's uh explanation actually the way we see it's like this.
4426736,353,2407.01,2410.22,26,We uh don't reduce our investment in that tower.
4426736,354,2410.22,2420.79,26,Basically uh proceeds coming from the sale of towers from Telkomsel that come in as dividends to Telkom we put it in the Mitratel actually in there.
4426736,355,2420.79,2428.9702,26,So basically uh that is the way uh in practical how we manage the uh cash coming from that uh tower selling.
4426736,356,2429.5701,2430.28,29,Oh okay.
4426736,357,2430.3201,2433.27,29,So there has already been a dividend paid out on…
4426736,358,2434.24,2435.01,29,to Telkom and…
4426736,359,2435.04,2436.0098,29,Okay got it.
4426736,360,2436.1699,2436.27,26,Yeah.
4426736,361,2436.27,2436.5801,29,Okay.
4426736,362,2437.99,2438.4199,29,Thank you.
4426736,363,2441.47,2445.3599,27,We have another question from Niko Margaronis of b r i Danareksa.
4426736,364,2445.96,2447.02,27,Please ask your question.
4426736,365,2449.49,2450.6201,31,Yes thank you.
4426736,366,2450.6499,2452.1401,31,Um I would l…
4426736,367,2452.1699,2463.5999,31,I would like to pick up uh on the on the Gojek collaboration uh and the surveys that are found in the Bloomberg inaudible.
4426736,368,2463.6001,2469.03,31,And that are you considering of increasing your investment in Gojek?
4426736,369,2469.03,2472.9199,31,Uh could you provide some um some some more color on this?
4426736,370,2472.9199,2475.78,31,I mean what do you expect to achieve uh by increasing…
4426736,371,2476.4099,2478.0598,31,by increasing your stake in Gojek?
4426736,372,2479.3601,2481.1699,26,Uh yeah.
4426736,373,2481.23,2482.8401,26,Uh yeah thank you.
4426736,374,2489.7,2490.26,31,Yes.
4426736,375,2490.6299,2490.9399,25,Yes.
4426736,376,2512.79,2521.55,25,So uh we hope that uh in the in the upcoming future with the recent development in Gojek uh we'll increase our uh collaboration.
4426736,377,2521.8701,2523.23,25,So we'll uh…
4426736,378,2523.23,2530.4299,25,both parties will derive a a a synergy value from the synergy collaboration that will happen.
4426736,379,2530.4299,2537.1899,25,And also uh as as an investment also we we also hope that we can get a capital gain from our investment.
4426736,380,2548.78,2549.49,31,Right right.
4426736,381,2550.26,2552.4099,31,Uh thank you inaudible.
4426736,382,2552.4099,2557.73,31,And if I may uh can I have a a second question with uh regards to your um…
4426736,383,2557.76,2560.98,31,uh to to to corporate actions?
4426736,384,2560.98,2568.0999,31,Uh you mentioned about Mitratel a deadline um a timeline towards the end of the year for going i p o.
4426736,385,2569.05,2576.1001,31,I also picked up news about a data center a data center business going i p o of uh…
4426736,386,2576.77,2579.01,31,by by the by the Telkom group.
4426736,387,2579.01,2583.3198,31,Um could you provide also some um uh color on this?
4426736,388,2583.9199,2584.28,31,Thank you.
4426736,389,2586.1201,2586.3901,30,Okay.
4426736,390,2589.1599,2607.8201,30,It's our first data center it's a inaudible the use of the portal basically and it should be ready probably in the the third quarter of of this year.
4426736,391,2608.75,2622.1301,30,And and we also are actually uh as part of of the data center we're also not only helping deploying what we call it as a apps data center uh toward the other countries.
4426736,392,2622.1299,2632.26,30,Now we have uh twenty two uh locations but uh we plan to add uh some more locations uh that were supporting the uh the hyper schedule center.
4426736,393,2634.0601,2634.1802,31,Yeah.
4426736,394,2636.1001,2636.4199,31,Yeah right.
4426736,395,2636.54,2637.02,30,So crosstalk…
4426736,396,2637.1001,2637.1702,30,Sorry.
4426736,397,2637.1699,2638.3,30,Well sorry.
4426736,398,2638.6799,2640.9399,30,For the IPO I think that we we…
4426736,399,2640.97,2645.9199,30,it it still requires some time.
4426736,400,2645.95,2653.72,30,Uh we plan to consolidate the data center first uh and then uh we will look at the others probably some time in early twenty twenty three.
4426736,401,2654.4399,2654.6599,31,Okay.
4426736,402,2656.98,2659.3799,31,So lemme confirm late two three you mentioned?
4426736,403,2661.3799,2661.5,30,Yeah.
4426736,404,2661.5,2663.5598,30,Uh yeah early twenty twenty three.
4426736,405,2663.5601,2664.26,31,Oh early.
4426736,406,2664.9099,2668.8298,30,So uh basically we have uh some data centers.
4426736,407,2668.8301,2679.27,30,i it is just under our subsidiary Six Sigma and also in Telkom International now and their parent company as well.
4426736,408,2679.78,2685.5999,30,we are going to consolidate all that uh data centers and including the potential for future b…
4426736,409,2685.6001,2686.8599,30,uh development.
4426736,410,2687.3601,2691.2,30,Uh inaudible about eighty one uh in the…
4426736,411,2691.3,2695.0801,30,still in the progressing of the inaudible scale and this also…
4426736,412,2695.1101,2698.71,30,uh I think we uh also potentially have…
4426736,413,2698.74,2707.97,30,uh we'll uh invite somebody else also who can bring technology bring market and so on to come to International as well in their partner team.
4426736,414,2708.3401,2716.8899,30,Later on when we have this all ready as mentioned uh before we may come to the market in twenty twenty three for example.
4426736,415,2719.9399,2720.25,31,Thank you.
4426736,416,2720.25,2720.8999,31,Very clear.
4426736,417,2721.6399,2723.8999,31,Thank you inaudible.
4426736,418,2728.27,2731.0601,28,There are no further questions from the line at this time.
4426736,419,2731.29,2733.3499,28,This concludes today's conference call.
4426736,420,2733.4199,2734.9299,28,Thank you for participating.
4426736,421,2734.9299,2736.22,28,You may now all disconnect.
4430051,0,25.92,48.13,1,Today's conference call will consist of the presentation on the earnings results for q one of twenty twenty one and the future management plans and strategic direction by Poong Young Yoon C F O and Head of Corporate Center one and Hyoung-il Ha Head of Corporate Center two followed by a Q&A session.
4430051,1,88.93,94.12,1,And we have with us executives from relevant business divisions to help deepen your understanding.
4430051,2,94.67,102.57,1,Before we begin we want to remind you that all forward-looking statements are subject to change depending on the macroeconomic and market situations.
4430051,3,103.02,111.37,1,Let me now present our c f o.
4430051,4,123.04,128.74,1,First of all let me express my appreciation to investors and analysts for their continued support.
4430051,5,183.56,200.53,1,To fulfill the purpose of the spin-off we completed the cancellation of treasury shares worth two point six trillion won in market value which accounts for 10.8% of the total issued stock.
4430051,6,220.44,227.58,1,we'll carry out the plan with a strong conviction and make sure that all the necessary decisions are finalized within the first half of the year.
4430051,7,272.91,282.46,1,All business divisions enjoyed growth year-on-year and media and safety and care posted a double-digit growth marking a seven point four percent year-on-year increase.
4430051,8,283.09,289.4,1,But the figure declined one point two percent Q-on-Q due to the base effect of higher seasonal sales in q four.
4430051,9,324.03,330.35,1,M N O and media led the operating income improvement by achieving both revenue growth and cost efficiencies.
4430051,10,331.03,336.43,1,s c and commerce also contributed to earnings with their y o y growth in operating income.
4430051,11,416.83,431.32,1,Celebrating the second anniversary of five g on April three we saw the number of five g subscribers reach six point seven four million as of the end of q one and record the biggest quarterly net adds thereby leading M N O revenue growth.
4430051,12,488.09,498.87,1,They include three online only on-tech plans that offer more benefits at lower prices and two additional five gs plans at sixty nine thousand won and seventy nine thousand won.
4430051,13,499.43,506.98,1,we'll continue to promote the transition to five g services based on the variety of price plans that cater to diverse customer needs.
4430051,14,550.19,562.22,1,In the second half of the year we plan to introduce integrated subscription services based on a new subscription marketing platform where customers can enjoy optimal subscription life at reasonable prices.
4430051,15,562.92,568.32,1,We're developing flagship products that will raise customers' expectations for subscription services.
4430051,16,568.75,571.81,1,We will do our best to ensure high quality of these services.
4430051,17,606.23,611.23,1,SK Broadband's consolidated revenue recorded nine hundred sixty seven billion won.
4430051,18,611.74,624.11,1,With the T-broad merger and IPTV subscriber growth it rose by seventeen point six percent year-on-year but declined by four point one percent Q-on-Q due to the base effect of seasonal sales in Q4.
4430051,19,624.76,637.1,1,Thanks to revenue growth and operational process improvements operating income increased by ninety eight point eight percent year-on-year and twelve point six percent Q-on-Q to record seventy five point four billion won.
4430051,20,697.88,704.74,1,After the merger the consolidated revenue including A D T Caps recorded three hundred fifty point five billion won.
4430051,21,705.22,724.21,1,It increased by twenty point three percent year-on-year thanks to the solid growth of new businesses such as home security integrated security and cloud security but it declined five point five percent Q-on-Q due to the characteristic of safety and care business in which revenue tends to peak in q four.
4430051,22,724.87,763.41,1,The new businesses enjoyed both top line growth and bottom line improvement resulting in the quarterly operating income of twenty seven point eight billion won a nine point four percent year-on-year and fourteen point nine percent Q-on-Q increase.
4430051,23,771.28,783.61,1,It increased by seven percent year-on-year based on the continued contactless consumption trend but decreased by nine point three percent Q-on-Q due to concentrated promotions in q four including the eleventh day event.
4430051,24,784.24,792.78,1,Marketing expenses for eleventh Street and SK-Stoa increased in q one but operating income maintained the B E P level thanks to volume growth.
4430051,25,818.98,821.36,1,I am Hyoung-il Ha Head of Corporate Center II.
4430051,26,821.49,825.57,1,Allow me to discuss the achievements and plans for the new I C T businesses.
4430051,27,873.28,882.19,1,In partnerships with Kakao Entertainment and SM c and c seventy percent of the programs are exclusive content unavailable on other TV channels.
4430051,28,926.23,937.65,1,We recently hired chief producer Chan-ho Lee well-known for dramas such as Signal and Stranger as Chief Content Officer and we're in the process of establishing a content planning studio.
4430051,29,971.87,977.83,5,A D T Caps and SK InfoSec will leap forward as Korea's number one integrated security company.
4430051,30,978.24,989.88,5,In addition to achieving growth in the existing security domains we'll expand technology based business models in new security domains such as securities for home unmanned stores and cloud.
4430051,31,1017.7,1031.2799,5,By combining ADT's cloud security services with A W S solutions we'll promote business together to gain market share in the financial and public sectors where there is high demand for transition to cloud.
4430051,32,1097.28,1105.9199,5,It is also selling popular products including daily necessities in partnerships with major domestic and brands such as Amora and P N G Korea.
4430051,33,1251.34,1251.74,5,Thank you.
4430051,34,1256.3199,1257.65,5,Ha for your presentation.
4430051,35,1284.87,1289.47,5,We announced a spinoff plan and canceled treasury shares to enhance shareholder value.
4430051,36,1289.8101,1294.3,5,We also demonstrated that the fundamentals in all our businesses have been strengthened.
4430051,37,1310.76,1319.86,5,After final decisions concerning the spinoff are made at the board in the first half of the year we'll share with you more details including a decision on the quarterly dividend.
4430051,38,1335.73,1340.86,5,Let me reassure you that all the decisions we make will be to maximize shareholder value.
4430051,39,1348.33,1351.4301,5,Thank you.
4430051,40,1447.39,1454.08,5,The first question is regarding the spinoff plan um Wave and Flow were not mentioned in your recent disclosure.
4430051,41,1454.38,1465.38,5,So I'd like to learn how these businesses and subsidies other subsidiaries will be divided between uh the survival the surviving company and the spinoff company after the spinoff.
4430051,42,1465.76,1469.3301,5,The second question is related to your subscription service plan.
4430051,43,1469.45,1474.7001,5,You mentioned that in the second half of the year you are going to launch an integrated subscription service.
4430051,44,1475.0601,1479.1,5,So can you provide us with some updates on your subscription service business plan?
4430051,45,1486.8101,1488.9301,5,O thank you very much for your questions.
4430051,46,1579.21,1584.78,5,They belong to media and content assets thereby falling under the life platform area.
4430051,47,1584.99,1592.0601,5,So under the spinoff company they will become global businesses that will lead new lifestyles of customers.
4430051,48,1635.77,1640.9601,5,We believe m and o is um very competitive in providing subscription services.
4430051,49,1667.11,1671.4,5,And we also have marketing competitiveness in both online and offline channels.
4430051,50,1712.62,1721.4301,5,And we're now in the process of developing product duration and offering based on AI technology in order to offer optimal packages for our customers.
4430051,51,1796.21,1801.96,5,I believe that we can take up about twenty percent of the market share of the subscription market that we can address.
4430051,52,1845.92,1871.58,5,I would like to ask two questions.
4430051,53,1871.58,1876.27,5,Uh the first question is in April you made a disclosure that you will carry out the spinoff.
4430051,54,1876.58,1881.51,5,And you mentioned that decisions related to the spinoff will be made in the first half of this year.
4430051,55,1881.72,1885.23,5,Can you share with us the upcoming schedule regarding the spinoff?
4430051,56,1885.5699,1888.4299,5,The second question is related to the Tina mobility.
4430051,57,1888.52,1896.28,5,Recently you received financial investments and I believe that Tina Mobility will start to accelerate its growth trajectory.
4430051,58,1896.6,1898.95,5,So what is the current status of TM mobility?
4430051,59,1899.4,1908.55,5,And as for UTI which was launched in collaboration with Uber can you provide us with some specific growth strategies on this recently launched business?
4430051,60,1917.91,1918.27,6,Uh…
4430051,61,1967.11,1979.6899,12,In consideration of the board resolution process and the overall process for the spinoff and re-listing we believe that the re-listing can be completed within November after the general shareholders meeting in October.
4430051,62,1987.04,2003.51,12,I'd like to address your question related to the status of business of TNEB Mobility after the the spinoff.
4430051,63,2003.51,2008.03,13,Foreign language.
4430051,64,2008.03,2009.17,13,Mobility on demand.
4430051,65,2009.5601,2010.98,13,Mobility as a service.
4430051,66,2086.1201,2092.7,12,And we also plan to launch a driver on demand service as a pilot for b two c customers.
4430051,67,2170.46,2182.7102,12,Initially services will center around contracted taxi drivers and premium taxi services but going forward we plan to offer various mobile services and additional value added services.
4430051,68,2182.71,2185.3398,12,Based on the taxi platform.
4430051,69,2211.1599,2218.3901,12,And at the same time taxi drivers will benefit from these new services by increasing their sales through differentiated services.
4430051,70,2218.7,2221.9299,12,And by reducing the time to drive around customers.
4430051,71,2317.3799,2319.4202,12,I would like to ask two questions.
4430051,72,2319.4199,2323.2102,12,The first question is related to your dividend policy.
4430051,73,2323.21,2332.02,12,You mentioned that even though you start the quarterly dividend payout the total amount of dividend payout would not go down.
4430051,74,2332.3301,2336.4102,12,I'd like to know uh from when your quarterly dividend payout would begin.
4430051,75,2336.6399,2341.7002,12,And what is the overall dividend payout policy for the two companies after the spinoff?
4430051,76,2342.3401,2348.48,12,The second question is related to the uh related to your investment plan and business plan for Wave.
4430051,77,2348.8501,2365.0098,12,Uh you mentioned that uh by twenty twenty five you are going to receive a one trillion Yuan of investment and you have various plans for Wave but this is quite different from what you mentioned uh previously uh when you're communicating with us regarding Wave plan by twenty twenty three.
4430051,78,2365.2,2395.6699,12,So the the amount of investment and the amount of revenue seems to have declined slightly but when you're adjusting your target for twenty twenty five so can you provide us with some color on what is your overall investment plan for Wave which you mentioned is going to be around one trillion Yuan and what is your revenue uh plan and schedule for wave going forward?
4430051,79,2400.05,2403.9399,12,I'm going to address your question regarding the dividend policy and Mr.
4430051,80,2403.9399,2407.6001,12,Ha from Corporate Center Two will address your question regarding Wave.
4430051,81,2469.2,2478.5498,12,As such we will make sure that we have the shareholder return policy so that earnings growth will lead to increased shareholder returns including dividend payout.
4430051,82,2561.99,2571.4199,12,And by actively attracting investment and pursuing IPOs we'll then we'll then make sure that the corporate value of these businesses will be rightly recognizing the market.
4430051,83,2592.02,2593.1001,12,More details later.
4430051,84,2610.3601,2612.7,12,lemme first comment on the subscriber tar…
4430051,85,2612.7,2616.97,12,subscriber target and the revenue target of Wave before twenty twenty three.
4430051,86,2652.01,2656.72,12,paid subscribers by reaching two million within last year.
4430051,87,2656.9099,2659.4299,12,And this subscriber growth trend is continuing.
4430051,88,2697.5601,2701.1699,12,And we believe that we can achieve this earlier than the original target.
4430051,89,2782.8201,2786.24,12,And we're now in the process of preparing for the second round of funding.
4430051,90,2786.6899,2792.6799,12,As for this uh second round soon as details are prepared we're going to communicate them with the market.
4430051,91,2850.77,2852.54,12,I would like to ask two questions.
4430051,92,2852.54,2855.9399,12,The first question is related to your security business.
4430051,93,2856.1299,2860.1899,12,Uh the ADT caps and SK InfoSec who are merged in the first quarter.
4430051,94,2860.5,2864.25,12,So what's the current status and the operation of this merged entity?
4430051,95,2864.25,2867.1499,12,And what kinds of synergy are you expecting from this merger?
4430051,96,2867.72,2870.5798,12,The second question is related to your m and o business.
4430051,97,2870.79,2874.7302,12,Um what is your five g subscriber target by the end of this year?
4430051,98,2907.3799,2911.4099,20,Ha from corporate center too will answer your question related to the security business.
4430051,99,2952.6399,2956.77,20,So there was a net add of one point two six million compared to the end of last year.
4430051,100,2974.28,2978.3699,20,But considering the current trend we think that we can achieve even ten million.
4430051,101,3048.8999,3059.1401,20,As a result we have the merged ADT Caps with the revenue size of ¥1.3 trillion and inaudible of ¥357 billion.
4430051,102,3083.1599,3087.8501,20,We expect the annual revenue for twenty one to be ¥1.6 trillion.
4430051,103,3201.5601,3213.6399,20,When there is a cyber intrusion or detection of mal uh malicious codes we can do video analysis by utilizing the platform data and by leveraging on our access control system.
4430051,104,3213.6399,3220.25,20,We can detect any intruders to buildings and assets and such flexible response will become more comfortable.
4430051,105,3312.1001,3312.3201,23,Thank you.
4430051,106,3355.54,3363.1702,20,The second factor is the increase in the subscriber base and increasing the commission income from home shopping broadcasting.
4430051,107,3363.3899,3367.98,20,The the third factor is the continued increase in the i p t v subscriber base.
4430051,108,3368.3899,3373.0598,20,And the final factor would be effective CapEx implementation and cost efficiency.
4430051,109,3483.8799,3490.79,20,You mentioned that detailed decisions regarding the payout of the dividend policy for the spin off company will be made soon.
4430051,110,3491.1299,3495.99,20,But can I safely assume that given the MNO dividend payout level of one uh…
4430051,111,3515.1899,3534.05,20,There are high expectations for subscription services and I like to know if your subscription model will be to push several subscription models and services separately or to follow the model of Amazon where you have one single subscription platform where multiple services are provided.
4430051,112,3566.29,3574.4099,20,I am going to respond to your question on the dividend policy and Hun Yung Jean Head of Subscription Service Company will answer the second question.
4430051,113,3605.0801,3613.6199,20,The dividend payout from the MNO business as part of the surviving company will be similar or more than the previous level of dividend payout.
4430051,114,3615.0701,3619.3401,20,And on top of that e- we have not yet decided on the dividend policy of the spin off company.
4430051,115,3619.6201,3623.1699,20,But if they start to pay out dividend it's going to be a plus alpha.
4430051,116,3654.01,3658.4299,20,i'm the heard of the subscription um business and let me address your second question.
4430051,117,3659.0801,3659.72,26,Foreign Language.
4430051,118,3703.3799,3707.99,20,In addition to that we are planning to offer additional services and products for subscription.
4430051,119,3747.1399,3752.28,20,So we are currently not considering any linkage between the subscription services and the MNO feed.
4430051,120,3767.0801,3767.3799,20,Thank you.
4432298,0,2351.3799,2547.97,15,Well I understand that.
4432298,1,2631.0901,2631.1501,18,Bye-bye.
4443871,0,0.45,0.73,0,Hello.
4443871,1,0.73,1.71,0,Good morning everyone.
4443871,2,2.28,6.36,0,Uh welcome to our first semester uh results conference call.
4443871,3,6.99,28.26,0,As usual uh besides myself and the investor relations team we have on the call today uh inaudible from inaudible Paul inaudible from Vorton inaudible from inaudible Fashion Louis inaudible from inaudible and Christian inaudible from inaudible Investment Management.
4443871,4,29.17,38.57,0,Uh I will start by presenting an overview of our results in the first half of the year and then at the end as usual we will have time for Q and A.
4443871,5,40.44,50.86,0,So um as you all know uh twenty twenty one uh continues to be marked by uh severe restrictions uh to all our businesses across uh several geographies.
4443871,6,51.56,56.17,0,Uh in spite of the progress uh in the vaccination plan uh around the world.
4443871,7,56.69,74.62,0,In Portugal in-in particular uh we had another lockdown from mid-January until mid-April uh and since then we have uh witnessed uh a gradual easing of the restrictions but still uh with significant limitations both in terms of store capacity and also opening hours.
4443871,8,75.42,81.47,0,Uh in total we had eleven weeks of lockdown this year versus seven weeks of lockdown last year.
4443871,9,82.39,89.97,0,This being said our businesses displayed a very positive reaction and we are very proud of our operational results this year.
4443871,10,91.72,95.58,0,Uh just before diving into the results let's quickly focus on portfolio management.
4443871,11,95.75,101.85,0,Uh as you know these last six months have been important in a number of fronts uh in terms of capital allocation.
4443871,12,102.41,107.08,0,Uh I would like to highlight uh the restructuring of operations in inaudible Spain.
4443871,13,116.98,137.62,0,Um obviously the ability also shown by inaudible to continue to invest in high-growth tech companies and crystallize value in the right moment and also the agreement reached by inaudible to sell its fifty percent stake in max match for sixty five million Euros with an estimated capital gain of forty million Euros.
4443871,14,137.62,142.18,0,The the completion uh of this deal uh is expected uh in q three.
4443871,15,164.13,167.51,0,Uh and confidence has significantly out-performed the market last year.
4443871,16,168.36,183.14,0,Nevertheless inaudible turnover increased four percent year on year in q two uh with a resilient performance of inaudible uh and with other brands such as inaudible and well benefiting from the recovery from last year a difficult period in terms of restrictions.
4443871,17,184.06,197.21,0,In the first half of the year turnover amounted to two point five million Euros uh a five point four year on year growth and a like for like increase of two point three percent uh a quite solid performance across different banners.
4443871,18,197.66,203.95,0,Uh and once again inaudible was able to strengthen its leadership position uh with a market share increase in the period.
4443871,19,204.75,212.67,0,Uh a quick note to inaudible online channel that registered high growth rates in the first half of the year around forty five percent.
4443871,20,213.4,221.1,0,Having also also grown in q two despite uh the abnormal peak of the main levels in the same period of twenty twenty.
4443871,21,222.07,238.11,0,Regarding profitability uh underlying inaudible uh in the first half of twenty twenty one improved by seven point three percent year on year to two hundred and thirty five million Euros representing a margin of nine point four percent seventeen business points above last year.
4443871,22,238.91,250.38,0,Uh this is the result of um uh strong turnover growth uh and also a sustained operational profitability profile diluting the extra covid nineteen direct uh directly related costs.
4443871,23,251.3,273.97,0,Uh in terms of store expansion uh inaudible continued uh to open stores uh in its proximity format with new inaudible stores a total of six new inaudible stores up to June yeah in June and launched the first ca-cashier-less store uh offered by a European retailer which is called continental laps.
4443871,24,274.47,288.14,0,Um pre-capital before dividends stood at a hundred fifty six million Euros over the last twelve months leading net bet uh six hundred fifty four million Euros at the end of June um only sixty million Euros above last year's figure.
4443871,25,288.14,296.43,0,Mainly impacted by the dividend payment of a hundred forty million Euros in q two and implying a total net inaudible of three point three times.
4443871,26,298.0,310.23,0,Moving on to Vorton at Vorton the dynamics were quite similar to inaudible um with a Portuguese operation decelerating growth after the strong performance achieved during last year's lockdown.
4443871,27,310.84,317.72,0,In Spain obviously total turnover decreased as a result of downsizing of operations in mainland Spain.
4443871,28,318.22,321.82,0,Uh but the evolution on the performer basis was quite positive.
4443871,29,322.54,335.33,0,Overall Vorton delivered a very strong sales performance in q two reaching two hundred forty six million Euros more than four percent growth since twenty nineteen and almost in line with twenty twenty.
4443871,30,335.87,342.63,0,Obviously with the latter benefiting from extraordinary sales resulting from the first uh and most stringent confinement period of last year.
4443871,31,343.59,356.41,0,On a like to like basis Vorton posted sound growth of one point five percent in q two with positive performances from both the online and offline operations including also the marketplace and services operations.
4443871,32,357.37,366.85,0,In year-to-date terms uh total turnover increased seven point five percent year on year with a like to like of fourteen point four percent reaching five hundred eighteen million Euros.
4443871,33,367.61,372.83,0,We further reinforced our market share uh and consolidated our leadership position in Portugal.
4443871,34,399.93,408.92,0,Total turnover increased forty one percent and was practically in line with twenty nineteen a year without any uh restrictions obviously in terms of pandemic.
4443871,35,409.68,416.56,0,Uh inaudible Fashion proved once again to be a solid performer in a challenging context getting market share in its key markets.
4443871,36,417.33,430.43,0,In year-to-date terms inaudible Fashion performance is also encouraging uh as top lines stood at one hundred and thirty five million Euros three point seven percent uh above last year's with a like to like of five point one percent.
4443871,37,431.29,443.51,0,Um and this is particularly taking into account that in the in the first half of the year uh as I mentioned before stores were closed for eleven weeks which compares to the seven weeks of full lockdown in twenty twenty.
4443871,38,445.07,453.17,0,An important highlight to online sales which continued to deliver high growth rates uh having reached seventeen percent of total-t-total turnover uh this semester.
4443871,39,454.11,460.55,0,Overall inaudible Fashion was able to both improvedinaudible both in q two and in the first semester.
4443871,40,461.28,473.14,0,Um after a negative q one mostly due to the new lockdown in Portugal underlying inaudible reached five point four million Euros in q two and one point five million Euros in the first half of the year.
4443871,41,475.03,489.54,0,Moving on to i s r g uh i s r g is having a terrific recovery already surpassing twenty nineteen performance levels a clear sign that even under this backdrop the company's banners have truly unique selling propositions.
4443871,42,490.15,500.53,0,Uh as you know we have a inaudible mismatch inaudible so we consolidate the company's q one accounts uh which saw a significant recovery both regarding last year and the year before.
4443871,43,500.98,503.77,0,With all the banners presenting an encouraging positive evolution.
4443871,44,503.96,514.62,0,Once again the online channel played a critical role with a threefold increase and more than offsetting the weaker evolution of the offline channel given the restrictions that we um experienced.
4443871,45,515.24,521.32,0,Overall the last six months um showed a very good performance both above last year and also twenty nineteen figures.
4443871,46,521.93,527.03,0,This top line improvement in the quarter was above to signal a significant improvement at the inaudible level.
4443871,47,527.62,533.11,0,Uh this performance implied a much better equity method contribution toward summarized results.
4443871,48,534.26,545.7401,0,Apart from the operational performance I would like to highlight the agreement between i s r g and deporvillages' founders to acquire an eighty percent stake in this e-commerce player for a hundred and forty million Euros.
4443871,49,547.02,560.19,0,Deporvillage is a well-known online retailer focused on the sale of specialist sports equipment mainly for cycling running and outdoor uh with sales of a hundred and eighteen million Euros with a profit before tax of seven point four million Euros in twenty twenty.
4443871,50,560.78,584.1,0,Post completion the two founders will keep a twenty percent stake and their management roles as C E O uh and also chief purchasing officer and this acquisition will enhance ISRG's special-specialization in key sports categories while significantly increasing its digital capabilities in the sports' equipment market and also complementing the ongoing positive development in its existing banners inaudible.
4443871,51,585.13,593.7,0,Also in q two i s r g expanded into a new geography by acquiring s u r that operates in the Netherlands uh with a inaudible banners.
4443871,52,595.41,605.06,0,This is also important uh milestone for the company uh an important international expansion move uh and a clear step toward achieving the vision of being a European leader in sports retail.
4443871,53,607.08,616.65,0,As for inaudible uh as you all know twenty twenty one continues to be a challenging year for the shopping center industry as lockdown restrictions across different countries continue to impact performance.
4443871,54,617.27,624.45,0,Uh nevertheless I would like to highlight uh that there has been positive signs of a return to n-normality every time restrictions are eased.
4443871,55,624.85,629.11,0,As there continues to be strong consumer demands for quality shopping center destinations.
4443871,56,630.12,642.79,0,Uh for inaudible q two was all was also a quarter of recovery with encouraging sales performances in Portugal since the reopening of shopping centers uh in the middle of April and the sustained positive evolution in the remaining European countries.
4443871,57,643.85,660.21,0,From an operational standpoint in considering year-to-date figures inaudible European portfolio recorded uh an eleven point six percent year on year increase in ten sales uh a decrease of twelve point three percent year on year in rent uh penalized by discounts in Portugal.
4443871,58,660.54,667.5,0,In-occupancy rates continued at very high and stable rates uh of ninety seven percent at the end of h one.
4443871,59,668.48,682.92,0,Looking at the Portugal management accounts inaudible reported a net loss of four point six million Euros year-to-date split between a positive eleven million Euro direct result and a negative fifteen million Euros of indirect results mainly due to property revaluations in the quarter.
4443871,60,683.56,696.59,0,In any case N E V actually increased for the first time in several quarters up to nine hundred eleven million Euros at the end of June with a net loss that I mentioned previously being more the offset by a positive FX impact in Brazil.
4443871,61,698.77,703.63,0,For inaudible Financial Services the second quarter was marked by the launch of the partnership with inaudible.
4443871,62,704.62,708.96,0,As I mentioned before and the implementation of the new business model for the universal card.
4443871,63,722.79,733.47,2,Nevertheless in operational terms and with regards to Universal's market share it stood at fifteen percent at the end of May the latest data that we have which compares to fourteen point eight percent last year.
4443871,64,733.93,748.55,2,The company also continues its strong efforts to expand uh it's dig digital footprint surpassing already five hundred oh oh oh customers uh digital customers at the end of June uh a thirty nine oh oh oh customer increase when compared to the end of March.
4443871,65,749.51,757.43,2,Regarding M D X um the insurance brok brokerage company um it continues to show a strong commercial performance across all channels and geographies.
4443871,66,758.04,763.48,2,Uh and this results in very strong growth which is high single digits in Portugal and double digits in Brazil.
4443871,67,763.82,766.39,2,And a significant improvement in operating profitability.
4443871,68,767.27,782.86,2,And similarly for the first quarter in proportional terms considering the fifty percent consolidation of M D X some assets continue to register a year on year decrease as a result of both the pandemic context and the bus business model change that I mentioned before with Bankworld c d t.
4443871,69,783.59,792.96,2,Overall h one turnover stood at thirty point one million euros and then the inaudible fall within trend reaching a negative three million euros in the first half of the year.
4443871,70,804.23,812.46,2,And the announcements of the sale together with the other shareholders of Bizdirect for just over twelve million euros which should be concluded in q three.
4443871,71,813.19,820.8,2,Uh Bizdirect was already considered as an act of help for sale and therefore it is not considered both in twenty twenty one and in past comparables.
4443871,72,821.38,833.3,2,In operational terms Sonae IM's turnover increased by eleven percent year on year to twenty nine million euros uh benefiting from the performance of the cyber security portfolio and then the line EBITDA also improved compared to last year.
4443871,73,834.22,848.65,2,In terms of portfolio activity the company's N E V reached three hundred and five million euros and apart from the already mentioned activities Sonae IM entered into the share capital of porta in er dot io one of the most popular container management platforms globally.
4443871,74,849.6,860.14,2,In addition to this um and also not less relevant h one was marked by relevant achievement in some of the minority stakes that we hold uh indirectly.
4443871,75,860.14,865.33,2,Namely feeds like Arctic Wolf inaudible systems the three companies that reached already unicorn evaluations.
4443871,76,865.9,878.91,2,Regarding Arctic Wolf the company recently announced a new financing round of a hundred and fifty million dollars by some of the existing and new investors at an underlying evaluation of four point three billion dollars.
4443871,77,879.24,885.3101,2,Despite being a relatively small transaction it's also a good sign of the company's strong evolution and potential.
4443871,78,886.3,886.96,2,Finally NOS.
4443871,79,887.75,890.92,2,n o s has already published its results last week.
4443871,80,890.92,893.06,2,Uh I would say a solid test result.
4443871,81,893.61,903.6299,2,The company continues to pull solid operational performance in the telpol segment and the media and entertainment segment was marked by the reopening of cinema theaters on the nineteenth of April.
4443871,82,904.3,911.42,2,Turnover amounted to three hundred and forty one million euros in q two um a growth of six point two percent year on year.
4443871,83,911.68,925.75,2,The first quarter with growth since the end of twenty nineteen supported by five percent positive evolution in telpol and a nearly fifty percent growth in the media and entertainment segment as driven by the reopening of cinema theaters as I've mentioned before.
4443871,84,925.75,933.79,2,In h one turnover stood um at a total of six hundred and seventy eight million euros at one point eight percent year on year increase.
4443871,85,934.28,946.33,2,Uh regarding profitability q two e b i t d a decreased two point two percent year on year due to an increase in direct costs as last year these were unusually low due to some extraordinary accounting of content costs.
4443871,86,946.76,953.57,2,And in year to day terms EBITDA stood at three hundred and seven million euros at one point three percent decrease year on year.
4443871,87,954.46,966.68,2,Uh overall inaudible decreased by two million euros uh to forty three million euros in q two at more than double compared to last year to seventy four million euros in the first half of the year.
4443871,88,968.36,971.36,2,I will now cover briefly consolidated performance.
4443871,89,972.02,980.2,2,Uh so in consolidated terms turnover increased by five point one percent year on year to one point six billion euros in q two.
4443871,90,980.96,991.35,2,Mainly anchors on the positive contributions from Sonae MC and Sonae Fashion leading to a five point five percent growth in h one to three point two billion euros.
4443871,91,992.53,1007.44,2,Following the stop line trend in q two underlying e b i t d a increased nine point nine percent year on year to a hundred and thirty six million euro mainly driven by the recovery of Sonae Fashion and also the impact of the Spanish restructuring profits at Worten.
4443871,92,1008.0,1014.23,2,And at the end of the semester we reached two hundred and forty six million euros eleven point four percent above last year.
4443871,93,1015.07,1027.9301,2,e b i t d a reached a hundred sixty five million euros in the q two a significant improvement versus last year mainly backed by the operational recovery of the businesses harmed by the covid nineteen restrictions last year.
4443871,94,1046.89,1063.4301,2,Overall direct results increased almost fifty million euros in q two to fifty five million euros and more than seventeen million euros in the first semester due to the high level of covid nineteen extra costs and provisions registered back in q one of twenty twenty.
4443871,95,1064.66,1072.41,2,Direct results was ten million euros in q two this year positively impacted by Sonae IM score twelve evaluations and the dividends increase.
4443871,96,1073.01,1082.37,2,The dividends received from the direct inaudible NOS of just under eleven million euros which more than offset Sonae Sierra's investment property evaluation decrease.
4443871,97,1083.16,1089.54,2,All in all Sonae's net result reached six two million euros both in q two and also in the semester.
4443871,98,1091.3199,1097.3101,2,In terms of operational cash flow Sonae's portfolio released a total of a hundred and twenty three million euros during the last twelve months.
4443871,99,1098.34,1104.4301,2,These last twelve months saw quite some activity in terms of portfolio management as we discussed in previous calls.
4443871,100,1104.84,1116.64,2,And at Sonae we enforce its shareholder positions in NOS Salsa and Sonae Sierra for a total consideration of three hundred and twenty three million euro's also including Sonae IM's investments in the period.
4443871,101,1117.52,1127.8,2,This was partially offset by a hundred and nine million euros of cash proceeds from active sales mainly related with Sonae IM and Sonae MC sales in these back transactions.
4443871,102,1128.37,1139.3,2,But all in all Sonae's free cash flow for the last uh twelve months before dividends saved showed us a negative a hundred million euros a hundred one million euros at the end of June this year.
4443871,103,1139.89,1162.51,2,Therefore and after dividends saved consolidated inaudible reached just under one point five billion euros still a conservative level of leverage as Sonae continues to hold a solid capital structure with a comfortable financing position which includes a low cost of debt of one point one percent an average maturity profile of three point six years and an L T V of fifteen percent.
4443871,104,1164.02,1171.1,2,Additionally if we look at the leverage profiles of our main businesses uh they also remain quite solid and prudent across the portfolio.
4443871,105,1171.34,1176.25,2,Sonae MC reached as I mentioned before three point three times total inaudible ratio.
4443871,106,1176.64,1188.65,2,NOS maintained it's net financial debt to EBITDA at one point eight times and Sonae Sierra currently holds a loan-to-value of twenty four percent and has a very strong liquidity position.
4443871,107,1189.91,1195.98,2,So overall we are quite pleased with the results achieved by our portfolio of businesses this year.
4443871,108,1196.49,1206.74,2,Um these last eighteen months has been uh challenging but we feel that we are now coming out of this pandemic strong and prepared for the future.
4443871,109,1237.34,1243.3199,4,Um and congrats for anticipating the the release of of the results.
4443871,110,1243.5601,1246.65,4,Um so I have some questions on Sonae MC.
4443871,111,1273.4301,1277.9199,4,That's the first question on Sonae MC.
4443871,112,1293.12,1303.39,4,Um and the third question on Sonae MC if you think flat-ish margins feasible for the upcoming uh quarters even if competition seems to be picking up?
4443871,113,1305.27,1309.83,4,That will be my questions on Sonae MC and then I can continue with another on Worten.
4443871,114,1311.59,1312.13,3,Okay then.
4443871,115,1312.13,1312.59,3,Thank you.
4443871,116,1312.85,1316.49,3,Thank you for your questions I will hand it over to inaudible to cover those those topics.
4443871,117,1318.76,1319.27,5,Hi there.
4443871,118,1320.28,1323.59,5,Uh well I'm to…
4443871,119,1324.21,1327.0701,5,I will answer to the very first question.
4443871,120,1327.75,1330.66,5,I failed to understand the second one and the third one.
4443871,121,1330.66,1330.95,5,I wi will uh…
4443871,122,1387.84,1392.48,5,Well in July we saw positive like-for-like and we actively seeing that the the…
4443871,123,1405.99,1420.1801,4,So these new business I think this is around 10% of Sonae MC sales is the margin is higher than the consolidated margin of Sonae MC or lower than?
4443871,124,1420.1801,1420.42,5,Okay.
4443871,125,1421.55,1427.5,5,Uh those new businesses grow different as we- we inaudible.
4443871,126,1427.79,1436.47,5,Well they are evolving quite well uh in fact they suffered a lot due to the lockdown measures inaudible in the last…
4443871,127,1436.47,1437.88,5,In the last month.
4443871,128,1501.54,1518.38,6,Uh that's uh for us inaudible they're reinforcing the pulling power outta our- outta our performance so we see those those businesses as being very important to uh enlarge the pulling power of the performance.
4443871,129,1518.38,1526.59,6,And they are they're doing doing quite well and we continue to see the margins developing quite uh quite well in the in the in the future.
4443871,130,1528.4301,1529.92,7,Okay if I inaudible…
4443871,131,1530.3101,1530.5901,7,Yes.
4443871,132,1531.76,1543.92,8,Just uh before you go into your follow up questions may may I just everyone to to put your the mics off on mute um because we're hearing a lot of noise and William if you could speak close to the microphone I think that would also help.
4443871,133,1544.13,1544.7,8,Uh sorry inaudible.
4443871,134,1544.7,1544.97,8,Go ahead.
4443871,135,1579.24,1581.52,6,inaudible we have inaudible coffee shop in the businesses.
4443871,136,1596.99,1600.75,6,But we uh they were in two thousand nineteen and two thousand twenty.
4443871,137,1608.09,1609.02,7,Yeah understood.
4443871,138,1609.1,1609.84,7,Okay thank you.
4443871,139,1610.27,1611.87,7,Uh uh then I have question on Wortens.
4443871,140,1611.9301,1623.83,7,So these markets place strategy uh in which inaudible uh the marketplace in total of g m v uh if you can uh share what are they for fees that you're charging.
4443871,141,1623.83,1630.62,7,What is the inaudible target for these uh marketplaces percentage of uh total G M V or sales?
4443871,142,1630.62,1633.1,7,I'm not sure uh if you have any any specific target.
4443871,143,1647.53,1651.2899,7,So if you can uh liberate a little more on the on the strategy would be great.
4443871,144,1652.5699,1652.97,8,Okay.
4443871,145,1653.95,1654.24,9,Sure.
4443871,146,1656.25,1657.8,9,Uh good morning to you all.
4443871,147,1659.86,1660.83,9,Thank you for the question.
4443871,148,1743.7,1745.9301,7,Any three year targets for for these?
4443871,149,1768.61,1780.21,9,So we want to leverage that traffic page and we are comfortable that we will be able to uh give additional uh elasticity to the brand so that we can we can grow.
4443871,150,1843.78,1845.75,8,Maybe if I can just add to what Paulo say.
4443871,151,1845.91,1853.91,8,Uh Worten's digital evolution has been quite outstanding uh over the last um few months.
4443871,152,1854.51,1859.63,8,And as Paulo said Worten today is the largest uh e-commerce player uh in Portugal.
4443871,153,1860.38,1871.46,8,Uh it's really a company that thinks digital first uh with uh a fantastic inaudible leveraging the stores um uh to serve our customers.
4443871,154,1871.89,1877.76,8,And so the marketplace strategy is is a key element uh of the strategy for Worten uh in the coming years.
4443871,155,1877.76,1879.04,8,And we have a lot of inaudible there.
4443871,156,1905.46,1906.64,9,Rich are you there?
4443871,157,1907.98,1908.8201,10,I am here yeah.
4443871,158,1908.92,1909.3501,10,Good morning.
4443871,159,1910.35,1911.22,10,Thank you for the question.
4443871,160,1911.29,1922.9,10,So in relation to our asset rotation strategy um we the the largest chunk and the most important element of our asset rotation strategy have been concluded.
4443871,161,1923.39,1937.75,10,Nevertheless there are a few selected assets which uh where we have uh more stability than stake than what we usually have on average on our assets which we will try to seek to reduce over the coming year.
4443871,162,1977.78,1978.96,7,Okay okay understood.
4443871,163,1979.26,1979.5299,7,Thank you.
4443871,164,1979.62,1980.26,7,That's all for me.
4443871,165,1991.29,1992.5801,12,Yes hi good morning everyone.
4443871,166,1992.61,1994.0499,12,Uh thanks for taking my questions.
4443871,167,1994.05,1994.73,12,I have three.
4443871,168,1997.16,1998.95,12,Uh a follow up on inaudible question.
4443871,169,1999.0601,2007.08,12,This positive like for like that you're seeing in July on the overall portfolio you are also seeing a positive like for like in inaudible supermarkets.
4443871,170,2007.66,2015.6,12,Uh the question is can you elaborate on how the competitive environment has evolved in the recent months?
4443871,171,2016.27,2019.0601,12,And finally a question on capital location.
4443871,172,2019.09,2022.79,12,Uh you have been very active in terms of capital location and inaudible.
4443871,173,2022.8199,2031.5599,12,What could be the next uh big move for inaudible?
4443871,174,2031.88,2045.33,12,Uh also knowing that you want to grow your international presence if you could tell us in general terms what you're looking for inc including if it is in the same sectors you are invested in or are they new ones um would be great.
4443871,175,2045.98,2046.34,12,Thank you.
4443871,176,2145.8701,2146.7,8,Yes very good.
4443871,177,2146.7,2158.96,8,So on the on the on the capital allocation um question um I would say that we are quite happy uh with what we have achieved in the last couple of years uh in terms of portfolio arrangement.
4443871,178,2183.73,2186.0801,13,Uh so we are quite happy with what we've achieved.
4443871,179,2186.0801,2188.4102,13,In terms of what will be the next big move.
4443871,180,2188.6201,2190.9299,13,Um uh we we will see.
4443871,181,2190.96,2199.03,13,I mean we will uh remain active uh looking for opportunities that um um match our investment criteria.
4443871,182,2199.1399,2204.25,13,So high growth opportunities that somehow leverage our existing inaudible capabilities.
4443871,183,2204.8,2212.1001,13,Um also match our return targets uh and help us achieve the best possible balance uh geographically and centralize.
4443871,184,2213.02,2219.51,13,We will also remain active in in a sense of in in looking for opportunities to maximize value in our existing app.
4443871,185,2219.79,2223.99,13,Um uh as you know we have uh a flexible investment strategy.
4443871,186,2224.4199,2226.3298,13,Uh we have companies in which we have partnerships.
4443871,187,2226.3301,2228.8801,13,We have companies in which we are one hundred percent share holders.
4443871,188,2229.25,2235.3398,13,So we will remain uh on the look out for opportunities that helps with help us maximize the value of our of our existing assets.
4443871,189,2240.3601,2241.1101,14,Thank you very much.
4443871,190,2242.8799,2243.5,13,Thank you as well.
4443871,191,2252.76,2253.4702,15,Hi good morning.
4443871,192,2253.47,2256.1101,15,Thank you for taking my questions and thank you for the presentation.
4443871,193,2256.3701,2257.3799,15,I have two questions.
4443871,194,2257.4099,2260.6902,15,One inaudible with an with a with Sierra.
4443871,195,2338.0,2339.7998,13,We just not allowed to turn them on.
4443871,196,2340.4199,2347.8398,13,And that's why when you look at our current performance it's very difficult to make a judgment on how we can actually operate at full capacity.
4443871,197,2348.76,2357.6401,13,Having said that um maybe the best month to to look for fundamentals is the month of May.
4443871,198,2357.8701,2361.05,13,Month of May was the first month post lockdown.
4443871,199,2361.6399,2366.0601,13,Was maybe a month only partially impacted by the Delta Variant.
4443871,200,2387.3899,2395.73,13,We are also seeing uh in some senses uh an out performance compared to two thousand nineteen and some other centers that below.
4443871,201,2396.1499,2398.4502,13,But sales were only down by twelve percent.
4443871,202,2415.1299,2418.2898,13,Uh meaning um less people at at the offices.
4443871,203,2419.22,2425.8101,13,Three we have the harshest limitation in terms of number of people per square meter in our shopping centers.
4443871,204,2527.53,2529.6399,13,Very keen on operation on full speed.
4443871,205,2529.8201,2531.47,13,We are just not allowed to do that.
4443871,206,2562.8999,2566.1401,13,We don't have any relevant news on the legal proceedings.
4443871,207,2566.8401,2571.4299,13,Um in terms of change of um decisions from the court.
4443871,208,2571.8799,2575.48,13,I think the good news is that the company is uh functioning well operating normally.
4443871,209,2575.96,2600.54,13,Uh we are obviously um monitoring the situation and active actively engaging uh with uh relevant parties um but we do not have anything to announce as of the yet.
4443871,210,2604.5701,2604.98,15,Okay.
4443871,211,2610.74,2627.9802,16,I would also like to thank inaudible on commending us presenting the results before the holidays with a huge effort on a part of the teams um but we are very happy that we we were able to achieve this and present you with our q three results at this moment in time.
4443871,212,2628.01,2629.2202,16,So thank you everyone.
4443871,213,2629.22,2635.8401,16,I I would like to wish good holidays for those for those of you who are going on holiday and I hope you all remain safe and healthy.
4443871,214,2636.1499,2642.6501,16,Thank you very much and uh lets talk again um when we present our q three results uh later in the year.
4443871,215,2642.8899,2643.27,16,Thank you.
4443871,216,2643.3799,2643.6299,16,Bye-bye.
4443920,0,4.45,11.51,0,As a reminder the set of materials including the release and the slide presentation are available in our corporate website.
4443920,1,12.18,21.71,0,From this call that you're on you will also have available in in our website a fact sheet that adds a bit of color on our activities to the release.
4443920,2,23.05,35.18,0,Our first half performance confirms the remarkable work done by all our teams in preparing themselves to deliver on their purpose and targets against a difficult and unstable pandemic context.
4443920,3,36.26,44.4,0,Dynamic and competitive business models drove strong sales performance and improved <inaudible> drivers in the first six months of the year.
4443920,4,45.4,56.16,0,Consolidated sales were up by six point three percent or eight point eight percent at constant exchange rates underpinned by the performance of all our banners.
4443920,5,57.16,68.68,0,Biedronka grew throughout the period by successfully meeting consumer needs at all moments innovating on its assortment and crafting relevant campaigns to capture market opportunities.
4443920,6,69.71,81.72,0,As a result our Polish banner was able to reinforce the preference of consumers both in the difficult first months of the year when a new wave of COVID nineteen infections hit Poland.
4443920,7,82.16,88.87,0,And in q two when the pandemic context improved and consumers felt safer to visit the stores more often.
4443920,8,89.98,96.47,0,The Banner also benefited from an overall positive consumer demand and good weather in the second quarter.
4443920,9,98.71,107.5,0,<inaudible> worked hard to continue mitigating the impact of the market constraints that still affect retail and particularly their record activities.
4443920,10,108.57,119.33,0,After a street lockdown in Portugal in the first quarter of the year both banners returned to growth as the restrictions eased and the comparison with prior year became less demanding.
4443920,11,120.26,131.84,0,<unk> that faced again in q two a challenging context delivered consistently well throughout the period proving its capacity to build a solid position in the Colombian markets.
4443920,12,132.77,140.7,0,Group e d t i grew ahead of sales by twelve point six percent or fifteen point five percent at constant exchange rates.
4443920,13,141.62,149.38,0,This very positive evolution reflected sound top line growth at creative margin mix management and cost discipline.
4443920,14,151.17,157.53,0,Operating in the market in a responsible and sustainable way is a priority for all our companies.
4443920,15,158.07,162.21,0,In this respect I would like to highlight just a couple of important developments.
4443920,16,163.15,171.62,0,We are committed to building a stronger company in terms of our human capital and we are mindful that the effects of the pandemic will likely continue.
4443920,17,172.38,184.39,0,We have therefore increased the proportion of our employees with permanent contracts to seventy percent of the group workforce and further invested in employee support compared with the same period last year.
4443920,18,185.43,211.74,0,Under our commitment to contribute to a forest positive future we have continued to take decisive steps such as joining the Colombian government's voluntary agreement to fight deforestation ensuring the plantation of over fifty eight thousand trees under the Saradomin sword forest project in Portugal and continue to publicly encourage the European commission to adopt more ambitious measures to curb deforestation.
4443920,19,212.72,218.96,0,This first six months were a good combination of strong short term delivery and long term vision.
4443920,20,221.43,224.08,0,The delivery on the financial targets is clear.
4443920,21,224.64,237.79,0,The strong operational performance that drove sales to reach €9.9 billion and e b i t d a to attain €715 million together with strict working capital management reinforced our cash position.
4443920,22,238.26,249.52,0,Excluding capitalized operating leases it was at four €407 million by the end of June already after the dividend payment of €181 million in May.
4443920,23,251.05,256.66,0,A very brief update on the operating context before going into the detail of the performance.
4443920,24,257.54,273.82,0,Just to remind you that Poland and Portugal were under locked down in q one and started to relax restrictions in April while in Columbia the second quarter had more restrictions in place than q one although not so severe as in the same period of twenty twenty.
4443920,25,274.91,280.14,0,I will focus this update on what changed in q two starting with Poland.
4443920,26,280.82,291.33,0,In the second quarter with a pandemic under control and the easing of restrictions the environment gained some normality and circulation of people were were significantly resumed.
4443920,27,291.92,296.43,0,This context together with positive consumer demand favored consumption.
4443920,28,297.5,308.96,0,Retail store traffic continued to be limited with the number of people inside the stores being relaxed from one person per fifty square meters to one person ten per ten square meters by the end of June.
4443920,29,309.78,317.6,0,In Poland food inflation increased from zero point six percent average in q one to one point six percent in q two.
4443920,30,318.77,325.0,0,In Portugal restrictions were also lifted or relaxed depending on the risk level of the municipality.
4443920,31,325.55,338.93,0,Nonetheless the limit to the number of people inside stores and restaurants combined with limitations to the opening hours continue to hamper the activity food inflation decline having been muted in q two.
4443920,32,340.02,351.15,0,In Columbia in the second quarter of the year restrictions to manage the pandemic crisis became more frequent particularly in April though measures were less strict than in twenty twenty.
4443920,33,351.89,360.63,0,Social unrest in May also brought constraints to the normal functioning of the supply chain having contributed to an increase in food inflation in the country.
4443920,34,362.24,367.15,0,Looking now at the P and L for q two a couple of notes I would like to share with you.
4443920,35,368.36,380.55,0,Top line growth was strong at every banner but growth rates were particularly high in the Portuguese and Colombian businesses that in q two twenty were strongly impacted by the COVID nineteen outbreak.
4443920,36,381.61,398.65,0,With regard to gross margin the positive margin mix which was enhanced by an easier comp against q two twenty when the unexpected beginning of the pandemic impacted the basket mix in the three countries helped to mitigate the pressure of the retail tax implemented in Poland.
4443920,37,399.72,411.57,0,EBITDA margin increased by sixty basis points driven by the recovery of the operational leverage in <inaudible> and the delivery of the cost restructuring done in Columbia in twenty twenty.
4443920,38,412.58,420.43,0,The low operational performance net earnings evolution also benefited from a favorable movement in the other profits and losses heading.
4443920,39,421.1,437.39,0,I remind you that in q two twenty this heading was at minus €16 million mainly due to the closure of the pharma pharma business in Poland and following the effects of the pandemic the booking of provisions for <inaudible> trade receivables and Hebe stocks.
4443920,40,439.57,471.05,0,The healthy profile of our first half P and L with sales increasing by six point three percent and e b i d t a growing by twelve point six percent reflects the quality of Biedronka's business model and execution that we're able to offset the pressure of the retail tax the successful work of being <inaudible> in fighting against the impact of the restrictive measures and the lack of tourists to recover sales and EBITDA the consistent good performance <inaudible> that also benefited from an improved cost base.
4443920,41,472.22,480.41,0,The net financial cost declined from €96 million in h one twenty to €74 million in h one two one.
4443920,42,481.01,491.5,0,Remember that in in the 2020 figures included a foreign exchange loss of €14 million that in h one two one was positive in €3 million.
4443920,43,493.42,502.66,0,Cashflow generated in h one two one reached €82 million driven by stronger a e b i t d a and better working capital flows than in twenty twenty.
4443920,44,503.5,511.75,0,With regard to working capital people in h one twenty funds generated were negatively impacted by the lower growth and an adverse calendar effect.
4443920,45,513.95,521.1,0,The strength of the balance sheet is intact even further reinforced by the cash flow generation capacity of the different businesses.
4443920,46,523.31,528.94,0,The CapEx reach €200 million with all banners delivering on expansion as planned.
4443920,47,529.75,536.13,0,Biedronka added fifty three locations from a planned one hundred for the year thirty nine on a net basis.
4443920,48,536.78,542.82,0,a d a that plans to open more than one hundred stores in the full year has opened forty one in h one.
4443920,49,543.4,554.85,0,With regard to refurbishments Biedronka which runs the biggest program in the group has remodeled one hundred and fifty three stores as part of its plan to revamp up to three hundred a year.
4443920,50,555.88,562.53,0,We will see an increase in CapEx in h one as more stores will be opened and logistics developments will be accounted for.
4443920,51,564.23,568.7,0,Moving now into the details of the operating performance starting with sales.
4443920,52,569.6,574.81,0,Sales growth was the driver of the strong performance registered in the first six months of the year.
4443920,53,575.56,581.83,0,Reflecting the quality of our banners value proposition Like-for-Like in h one reached six point six percent.
4443920,54,582.53,587.68,0,Currency devaluation that impacted h one performance was softer in q two.
4443920,55,589.23,601.3,0,When splitting sales performance between q one and q two we see that q two was boosted by growth in Portugal and Columbia both of the countries severely hit in q two twenty by the COVID nineteen outbreak.
4443920,56,602.05,608.66,0,We also see the impressive ability of Biedronka to keep reinforcing the preference of Polish consumers quarter on quarter.
4443920,57,609.94,617.0,0,Biedronka sales increased by nine point eight percent in <inaudible> and 6.8% in euros to reach €7 billion.
4443920,58,618.57,630.84,0,Like-for-Like accelerated in q two as a result of Biedronka's ability to continuously adjust to market circumstances having also benefited from a combination of variables that in q one were quite favorable.
4443920,59,631.33,640.66,0,Reopening of the economy with good control over the pandemic situation positive consumer demand and good weather in May June providing extra opportunities.
4443920,60,642.11,648.1,0,In this overall positive context on top of a strong price positioning and an evolving offer.
4443920,61,648.51,655.46,0,The Banner builds strong and innovative campaigns to maximize sales opportunities and strengthened consumer preference.
4443920,62,657.7,667.84,0,Hebe sales increased by ten point four percent in local currency seven point three percent in euros excluding the pharma business which was discontinued in July twenty twenty.
4443920,63,668.51,678.52,0,Top Line was up by twenty three for point for four point four percent and Like-for-Like was at seventeen point seven percent also including online sales.
4443920,64,679.54,684.9,0,E-Commerce continues developing well and represented fourteen of The Banner sales in the periods.
4443920,65,685.54,692.55,0,Hebe is already running tests through its eCommerce platform to conclude on the potential of new markets outside Poland.
4443920,66,694.07,700.4901,0,<inaudible> sales reached €1.9 billion a growth of four point six percent over h one twenty.
4443920,67,701.46,705.35,0,The base of comparison beca became less demanding from March onwards.
4443920,68,705.83,722.7599,0,And the company grew strongly in q two with Like-for-Like excluding fuel at seven point three percent despite all headwinds restrictions still in place low circulation of people and constraints imposed on restaurants and coffee shops activities.
4443920,69,722.76,734.57,0,<inaudible> reinforced its commercial dynamic and maintained the quality offer for which it is recognized driving volume growth and a good financial performance despite <inaudible> inflation across the period.
4443920,70,736.81,745.89,0,With the lack of tourists and severe restrictions on the <inaudible> channel particularly in q one <inaudible> fought hard to offset the losses on Top Line until March.
4443920,71,746.3,760.96,0,In q two The Banner delivered the Like-For-Like growth of twenty one point one percent benefiting from the reopening of the restaurants and coffee shops against the period of lockdown in twenty twenty and managed to end the half year with flat growth on sales.
4443920,72,762.69,769.29,0,In Columbia a d a performed consistently well despite the market conditions that were more challenging in q two.
4443920,73,770.08,773.13,0,Sales in local currency grew twenty point nine percent.
4443920,74,773.65,776.84,0,In Euro terms sales increased by eleven point nine percent.
4443920,75,777.58,787.63,0,The Like-For-Like swing between q one and q two reflects the comparison with two one twenty twenty when the impacts of the pandemic hit the performance as from April.
4443920,76,789.75,795.88,0,Group EBITDA reached €715 million twelve 12.6% ahead of the previous period.
4443920,77,795.88,802.17,0,At constant exchange rates a fifteen point five percent increase.
4443920,78,802.25,814.78,0,This sound performance was driven by strong Top Line growth and all its benefits on operational average enhanced by the efficiency programs ran in all companies and also lower COVID nineteen related costs.
4443920,79,816.07,832.3,0,EBITDA margins for the group in the first half increased from six point eight percent to seven point two percent driven by the excellent work done by Biedronka to grow Like-For-Like improve margin mix maintain cost discipline and increase efficiency.
4443920,80,833.09,839.07,0,The Banner delivered on all fronts and was also able to contain the negative impact of the new retail tax.
4443920,81,840.35,849.46,0,The hard work of <inaudible> to recover sales under difficult market conditions paid off in improved margins due to the operational leverage.
4443920,82,850.21,857.61,0,ADA's good sales performance which together with an optimized cost structure allowed for a significant improvement at e b i t d a level.
4443920,83,860.08,873.96,0,The first six months of performance confirms that our banners are delivering well as a result both of their dynamic business models and competitive value propositions which are recognized by consumers and also of their proven resilience.
4443920,84,874.69,878.73,0,All banners are prepared to continue delivering and generating cash flow.
4443920,85,879.46,886.99,0,The strength of our be our bal of of our balance sheets supports our capacity to further invest to reinforce our competitive positions.
4443920,86,887.81,903.55,0,Despite ongoing uncertainty about the full impact of the pandemic on the economies where we operate we enter h two confident that our businesses are in good shape to deliver on their strategic priorities and continue growing while preserving profitability.
4443920,87,904.37,913.28,0,I finalize by confirming the outlook for twenty twenty one as disclosed on our twenty twenty full year result presentation and reiterate it in April.
4443920,88,913.88,915.08,0,Thank you for your attention.
4443920,89,915.37,918.11,0,Operator I am now ready ready to take questions.
4443920,90,919.03,975.94,1,Thank you.
4443920,91,979.0,989.8199,0,Um so on the turnover tax uh in in Poland um in our case um I think that we cannot conclude that we are passing that to the consumers.
4443920,92,990.05,997.34,0,Uh it's this as as I've al always said uh taxes have uh systemic effect on on the whole economy.
4443920,93,997.75,1014.59,0,I believe that probably some players will have to pass it directly for the consumers but what the performance of Biedronka um shows and and I can tell you that the company operated in inflation during this period uh of of around one percent.
4443920,94,1015.14,1028.03,0,Uh so what that shows is that we maintain competitiveness and and that is not uh shown so the passing of the retail tax uh did not affect uh our consumers or this is not what passes from the from the performance.
4443920,95,1028.6801,1055.3201,0,Uh nonetheless I think what the company did or was able to do in preparing itself not only from the the costs point of view but in managing uh its sales and margin mix introducing a lot of innovation in the offer and putting relevant pro um promotions in place to really uh have the operational average kicking in and compensating for the retail tax was really uh uh quite remarkable in my opinion.
4443920,96,1056.12,1069.0,0,Uh as for the cost outlook um we don't hide I think that we even anticipated and and we always flag that there would be inflation particularly on the personal having and and also on on energy.
4443920,97,1069.52,1075.55,0,Uh we are now also uh having some pressure seen in the market from uh raw materials inflation.
4443920,98,1076.16,1086.84,0,Um and this of course may affect not only uh the different uh the cost of the of the product sold uh but also the cost of the materials for the refurbishments et cetera.
4443920,99,1086.88,1090.36,0,So this is different uh pressures on different levels.
4443920,100,1091.0601,1102.28,0,But that what our companies are doing is really to try to uh accommodate in terms of efficiency to compensate for that and to as we said maintain profitability.
4443920,101,1102.3101,1118.63,0,Of course uh the the best way to protect profitability is getting sales and um and so competitiveness at at price level and and the the quality of the offer will continue to be paramount to compensate and to to continue to deliver profitability.
4443920,102,1118.63,1123.5,0,But as I said this is what we expect uh in all our businesses uh for the year.
4443920,103,1146.83,1150.9701,0,Uh what we feel is some pressure uh also on the cost of goods sold.
4443920,104,1151.58,1159.96,0,Uh but as I said what we are going to do is main is making sure that we maintain quite competitive to compensate for that on the operational average.
4443920,105,1172.9301,1176.0499,3,Hey good morning.
4443920,106,1176.11,1177.77,3,Uh thanks for taking my questions.
4443920,107,1178.25,1179.17,3,Uh just three.
4443920,108,1179.17,1185.41,3,Just to follow on there from your your last point um on just to clarify on on the Polish margin from here.
4443920,109,1185.96,1197.75,3,Um we still think the uh the sort of despite all those different cost pressures you mentioned and the retail facts we still think are broadly flat margin is a is a good target for this year on I think a pre i f r s basis.
4443920,110,1197.75,1199.9199,3,So probably slightly down on i f r s.
4443920,111,1200.34,1201.2999,3,That's the first one.
4443920,112,1220.4,1227.3401,3,And then the final one is you know you mentioned uh quite a few times um and clearly from the numbers the balance sheet is in a in a very strong position.
4443920,113,1227.37,1230.59,3,How do we look at your sort of preferred use of of cash?
4443920,114,1230.59,1232.61,3,Should we be looking at special dividends?
4443920,115,1233.09,1237.11,3,Um and are you still looking at um acquisition opportunities?
4443920,116,1237.11,1242.47,3,And can you maybe give us a a little bit more detail if you are um as to where they are and what type of assets they might be.
4443920,117,1242.65,1243.0,3,Thank you.
4443920,118,1245.4301,1246.2201,0,Good morning Rob.
4443920,119,1246.64,1260.3501,0,Um so as as for the the the Polish margins uh what we always said so I I think it's it's possible continues to be quite challenging uh but we think it's it's it's possible.
4443920,120,1260.38,1268.6899,0,What we do really is um making sure that we invest properly um in order to maintain the competitiveness.
4443920,121,1268.9399,1280.4701,0,As as I as I I've already stated this is really what is paramount is uh guaranteeing that growth uh um compensates for any pressure uh on the cost.
4443920,122,1280.61,1292.8099,0,So uh on on on saying that we think it's it's possible to maintain it uh despite being being challenged but as it has shown until the first half uh uh the company was able to deliver this.
4443920,123,1293.5601,1319.67,0,Um on ADA I think that's uh we we mentioned there are two of course uh we don't hide uh uh and although that doesn't take any merit uh uh uh from the team's work but we don't hide that last year with the full lockdown that affected the country for more than six months uh we are having now a more favorable compar uh comparison base so a a less demanding uh co comparison base.
4443920,124,1320.28,1332.2201,0,Um and as as you know the the Like-For-Like both in in the in the second and in the third quarter were quite low last year against what we expected due to that uh full lockdown.
4443920,125,1332.6899,1340.29,0,Uh so I would say that for q three uh um we still expect to be somehow benefiting from that.
4443920,126,1340.9,1355.77,0,Uh this being said the most important in ADA's performance is not only the fact that they they have really maintained despite all the the uh the social unrest they and and even the pressure on inflations.
4443920,127,1356.23,1364.97,0,The company has a very um important gap to price inflation so uh we are now having a gap of more than five percentage points.
4443920,128,1365.5699,1388.6801,0,And so competitiveness has increased in ADA and that has been quite important in capturing new consumers um and that together with a cost structure that has been optimized due to the restructuring that took place in the second half uh last year uh I think it will definitely uh be very important on on on the performance for the full year.
4443920,129,1389.04,1394.52,0,So I think that the company will be able uh as I flag to deliver a very good uh performance.
4443920,130,1395.23,1399.92,0,We are not seeing the same kind of restrictions that we saw uh last year.
4443920,131,1400.33,1405.9601,0,Uh so we think also that our expansion will not be hampered um and in this case.
4443920,132,1406.02,1422.64,0,So I think that uh this will be more uh um not not so many headwinds as as in last year and a much more prepared company to deal uh with the pandemic constraints and with the fact that the economy in Columbia is suffering from the pandemic definitely.
4443920,133,1423.73,1425.15,3,And always <crosstalk> on Columbia.
4443920,134,1425.2,1426.33,3,Sorry can I quickly interrupt?
4443920,135,1426.33,1426.7999,3,Is it is it…
4443920,136,1426.9301,1435.48,3,Just so sorry to interrupt but is it now are we in a position now we can start thinking about what the longer term margin structure might look like in Columbia?
4443920,137,1435.86,1442.75,3,You know are we able to start thinking about getting back to giving some guidance maybe on where we can get to comparing maybe with the Biedronka margin we see?
4443920,138,1442.75,1448.51,0,I I think I I think Rob it's a little bit too too early to give that guidance.
4443920,139,1448.73,1453.76,0,Um uh long run of course our ambition is always to get that.
4443920,140,1454.0699,1468.77,0,Uh and uh and so we are working really to have a sales density that may allow us to uh to really uh have a great operational leverage and and be able deliver the same margins as Biedronka that will be always the ambition.
4443920,141,1469.0699,1471.61,0,But for now it's still too early to give guidance on that.
4443920,142,1472.39,1480.58,0,Um on the balance sheet um so uh the preferred use of cash is to finance growth.
4443920,143,1481.0699,1491.4,0,Uh uh we think this is the relevance and and and growth being the basis not only of the profitability for the company but even for the purpose of the company.
4443920,144,1491.49,1510.9301,0,The so uh we think that we always said that that uh being relevant or maintaining the relevance for our employees our consumers our business partners and the community that we serve the best way to do it is through through uh growing sales and and being relevant really for for all of them.
4443920,145,1511.54,1517.77,0,So to finance growth is our best uh um uh opportunity and and alternative.
4443920,146,1518.34,1541.53,0,Uh this being said any of course if the growth opportunities will not be uh totally uh um um taking advantage of all our financial position we never rule out uh an an exceptional dividend but that would be of course um a board decision depending on the the extra opportunities that may appear and the ones that we we find <inaudible> creative.
4443920,147,1542.9301,1546.33,3,Uh and are you seeing those those growth opportunities to spend at the moment?
4443920,148,1548.55,1555.15,0,Uh I think that the pandemic also brought some some opportunities but uh we will not comment on any of those.
4443920,149,1556.47,1558.0199,3,<laugh> Thank you very much.
4443920,150,1560.01,1560.35,0,Rob.
4443920,151,1605.77,1612.67,4,We we we saw a catch on the gross margin at the consolidated level in Q2 versus uh what was q one.
4443920,152,1621.96,1631.9299,4,And the final question on uh <unk> Bueno in Colombia any insights uh of what should be the end game for this player.
4443920,153,1632.7,1633.0,4,Thank you.
4443920,154,1636.97,1637.33,0,Thank you.
4443920,155,1637.33,1655.91,0,So on on Biedronka um uh this acceleration of course I I think I I I mentioned that even in my introduction so it's not just the weather of course we think that the weather uh has uh uh this or or induces uh a positive sentiment also on the consumer.
4443920,156,1655.91,1666.5599,0,But uh uh we saw a a a consumer favorable uh demands uh in this second quarter definitely compared with the second quarter of twenty twenty.
4443920,157,1667.11,1681.21,0,Uh so and as a consumer confidence uh um is is at a higher level and and and the consumer is still uh reacting uh quite significantly uh to all our actions.
4443920,158,1681.75,1692.61,0,Um this being said I think that the main driver really was uh all the dynamic that the company puts in place not only launching uh quite successful new products.
4443920,159,1692.6899,1705.96,0,So a lot of innovation also on the assortment um to uh really capture uh this more positive or more favorable consumer demands uh and also more relevant uh promotional campaigns.
4443920,160,1706.03,1712.48,0,So we did increase our level of uh of promotions by more than two percentage points versus last year.
4443920,161,1712.95,1730.04,0,And uh and so this acceleration is definitely a mix of uh of the consumer uh more or or the reaction of the consumer but but also definitely of the um of the dynamic and and and the commercial campaigns that were put in place by by the company.
4443920,162,1730.8101,1744.9301,0,Um in terms if if this is going to be maintained of course it's true that all the comparables uh and and particularly in Biedronka uh for the next two uh couple of of courses will be more difficult or or more demanding.
4443920,163,1744.96,1746.64,0,Uh we don't we don't have that.
4443920,164,1747.1801,1753.7999,0,Uh but this being said we think that uh at this point we don't see any reason uh for the consumer.
4443920,165,1753.98,1768.38,0,It's it is true that also depends on the pandemic and and on on its evolution with the new variants but uh we don't see at at this point a consumer that that um is is standing to be less uh uh positive.
4443920,166,1768.87,1783.72,0,Um we still have some challenges also namely uh uh uh the not only we don't have only the inflation we also have deflation and we are seeing that uh in a a quite significant part of our assortment namely in fresh.
4443920,167,1784.03,1786.5701,0,So in fruits and vegetables and uh in meat.
4443920,168,1787.36,1792.16,0,Um and but we also have the positive effect of inflation in the salaries.
4443920,169,1792.22,1797.77,0,So people have more available income and uh and that helps also uh uh in the top line.
4443920,170,1798.08,1804.73,0,So for the next quarter uh we continue to be quite positive uh despite some some headwinds also.
4443920,171,1805.4,1808.8099,0,Uh on the gross margin so this was driven basically…
4443920,172,1809.12,1821.48,0,So the only business that didn't uh grow a gross margin versus last year was Biedronka but that was already expected considering um that they they had the retail the pressure from the retail tax.
4443920,173,1822.0601,1836.22,0,Uh but all the other businesses were able really to post um an increase in um in uh in its gross margin and contributing for the performance and for the number that we see you see at the consolidated level.
4443920,174,1836.92,1843.3099,0,As to Husten Bueno so uh what we know and its public is that they are in a a restructuring process.
4443920,175,1843.59,1849.95,0,So I in some financial distress but we don't comment uh on any of the situation of our competitors.
4443920,176,1850.55,1855.03,0,And um and uh and so no novelty on that front from our part.
4443920,177,1862.9399,1869.15,0,Uh I don't think so because the environment is quite uh um is quite tough in in Columbia.
4443920,178,1869.1801,1880.89,0,What we think really that drives uh the performance of of a d a is really the fact that it has attracted more consumers because it's really providing you know a very competitive offer.
4443920,179,1881.27,1899.6499,0,And um you know it's really trying to stop uh inflation which is heavily hitting the food inflation as you can imagine uh uh with the way that the households were affected by the by the pandemic in terms of of income uh it's quite paramount to maintain competitiveness.
4443920,180,1899.6801,1910.59,0,And I think that's uh um uh a d a is really managed in a very balanced way uh the the the prices to really become much more relevant to the consumers.
4443920,181,1910.59,1913.84,0,So it's being able to to attract more consumers to the stores.
4443920,182,1913.84,1926.77,0,I think it's more than the others situation is really uh um uh uh ADA's um merit uh the fact that they being able to increase sales versus other competitors.
4443920,183,1929.0,1929.36,4,Okay.
4443920,184,1930.15,1930.5499,4,Thank you.
4443920,185,1950.3101,1957.4099,5,Um if you can provide us any more context I mean obviously Colombia is still very uh very loss making level.
4443920,186,1957.4399,1964.33,5,Um so first I wanted to clarify is it just a matter of building sales densities that resolves that?
4443920,187,1964.66,1967.1,5,Um are you happy with the sales mix?
4443920,188,1967.6801,1973.83,5,Uh how important is the overall skill build um to to really getting a proper return on on that investment in Columbia?
4443920,189,1974.37,1990.2201,5,And uh I don't expect you to share views on timing but I I presume the board um has a very clear view of what it wants EBIT to look like in Colombia uh given that there's still a lot of incremental in investment going to into the business.
4443920,190,1990.22,1992.24,5,So that was really the first one.
4443920,191,1992.3199,2001.29,5,Um and the second one can you perhaps update us on where you are i in terms of relative price competitiveness in Poland at the end of q two?
4443920,192,2001.29,2001.7101,5,Thank you.
4443920,193,2004.21,2004.89,0,Thank you James.
4443920,194,2005.41,2028.24,0,Um so in Colombia it's it's true that it's loss making and uh and we expect really uh and and of course we had some headwinds that avoided um uh or or make it more challenge uh to attain our objective which was presented a positive e b i t d a pre i f r s sixteen uh uh this year or next year.
4443920,195,2028.62,2030.4099,0,Uh but I think it's still pos possible.
4443920,196,2030.46,2040.24,0,So it's loss making but as you probably saw from the numbers there is really uh a very big uh improvement uh done by by ADA.
4443920,197,2040.9399,2073.1599,0,That's um uh I would say the first uh um one of the one of the reasons is of course a different cost base but the most important is uh as you said I think that what we are doing is really bui building a um a sales density uh that uh we expect and and so board expects and believes really in the not only in the in the um ability of the company to uh grab the opportunity because we see it intact in proximity and in uh in the in the market.
4443920,198,2073.4099,2079.0898,0,Uh um and so the idea really is that the operational leverage can kick in.
4443920,199,2079.1201,2084.3999,0,And with that of course uh asset turnover uh will be much higher.
4443920,200,2084.73,2099.5698,0,And even uh if margins may not be the same as Biedronka although the ambition is that they they they could be um we will be uh having a quite uh um uh important return on invested capital.
4443920,201,2099.5701,2107.21,0,So the idea really is to to reach that uh of course and and we are working to have it as as fast as possible.
4443920,202,2107.6699,2113.6001,0,Um it's true that it was very challenging to um start a business from scratch.
4443920,203,2113.6001,2122.8699,0,We knew that that would be challenging uh but I think that uh everyone now believes that uh a d a is really reinforcing its position in the Colombia markets.
4443920,204,2123.4099,2131.3201,0,Uh we have now the suppliers uh uh really um wi willing to bet uh on us and to grow with us.
4443920,205,2131.5,2136.3601,0,Uh and this has been quite paramount to also build uh the uh the gross margin.
4443920,206,2136.6899,2141.8198,0,And it'll be very important in um in having a a profitable company uh in the future.
4443920,207,2142.6599,2145.8501,0,Um in terms of of where we are in in price gap.
4443920,208,2145.9099,2149.55,0,So no big difference uh um at at this point.
4443920,209,2149.5801,2160.3201,0,So Biedronka continues to maintain a gap not only uh for the the hyper markets which is higher than ten percent but also from for the other uh discounters.
4443920,210,2160.3201,2173.49,0,We think that on food that is really paramount to maintain the competitiveness and we are uh willing to invest uh uh to have to grab sales and not to lose competitiveness uh in in the Polish market.
4443920,211,2175.1201,2175.5999,5,Very clear.
4443920,212,2175.6001,2177.79,5,Can can I just ask a follow up on in Columbia?
4443920,213,2178.2,2192.25,5,Um on that asset turn uh um are we uh is is that sort of twenty percent I guess twenty percent two year stack of the clean picture the sort of assets and you really need uh to build sales densities at the appropriate level?
4443920,214,2192.25,2194.8601,5,Do do we need to go significantly higher than that?
4443920,215,2198.0701,2201.3,0,Overall uh I think we we are almost there.
4443920,216,2201.3,2208.1001,0,Now I think that we have still and and we have been building uh also um on the margin of course.
4443920,217,2208.3101,2213.0901,0,So I think that's uh on the asset turnover we are on track on the margins.
4443920,218,2213.22,2220.71,0,There was some as I said some setbacks because of course of all the situations uh but we are picking up uh uh on that of course.
4443920,219,2222.73,2223.24,5,That's clear.
4443920,220,2223.45,2223.8699,5,Thank you.
4443920,221,2223.8999,2224.1299,5,Bye.
4443920,222,2225.3701,2225.9399,0,Thank you James.
4443920,223,2283.3501,2284.01,0,Thank you Joel.
4443920,224,2284.3401,2290.3801,0,So on on growth margins um of course i i it will be uh more demanding.
4443920,225,2290.5601,2307.3098,0,We don't hide uh uh that um because as as we said the growth margins in in the in q two twenty twenty was highly pressured uh um uh as even on on the uncertainty and inst inst and and instability.
4443920,226,2307.3101,2314.0701,0,So the companies invested uh to really keep and grab uh sales that were being uh under pressure all over.
4443920,227,2314.6299,2317.6101,0,Uh so that's that's uh really affected.
4443920,228,2318.1399,2339.0901,0,This being said uh the companies what they are doing is really to maintain uh the level of <inaudible> and and new campaigns and and even adjusting the offer to have the best the best uh sales and margin mix to uh um to be able to offset uh the the further pressure that that it may they may feel.
4443920,229,2339.52,2354.2,0,On the OPEX um decline of course in Poland as you remember uh last year not only we had more COVID costs uh related uh so that has been uh much softer uh in in this quarter.
4443920,230,2354.4399,2358.8899,0,I would say that uh for the remaining quarters uh we will also…
4443920,231,2359.1299,2366.1101,0,I think that this the the COVID costs are already incorporated in most of our contracts from cleaning to safety and and all of that.
4443920,232,2366.49,2381.99,0,So um but uh but see this being said overall for the full year uh what we really expect is that um the operational leverage will play a role and so relevant sales will be able to continue diluting costs.
4443920,233,2384.21,2384.6499,6,That's clear.
4443920,234,2385.22,2385.51,6,Thank you.
4443920,235,2407.3899,2416.1201,7,We see uh an increasing gap in Columbia between food inflation and your basket inflation still quite a material gap in uh Poland.
4443920,236,2416.3501,2422.74,7,So the the question on on Poland is really uh how how do you manage your basket inflation?
4443920,237,2422.8401,2428.3398,7,Uh how do you arbitrate between you know uh profitability and market share?
4443920,238,2455.1201,2460.5801,7,How do you see things you know after all this settles down and the dust settles down in one year or two years.
4443920,239,2461.0601,2474.52,7,And and the the the follow up question on Columbia which is more or less linked to this one is uh are you trying to recruit uh customers in in Colombia over the next let's say uh twelve twenty four months?
4443920,240,2474.52,2481.5,7,Would you continue to put pressure on your prices to recruit uh to recruit more more clients improve identity?
4443920,241,2481.5,2493.3301,7,And should we have like a a a kind of muted profitability profile over the next two three years and suddenly an acceleration where you are where you are where you want to be in terms of this identity.
4443920,242,2493.3301,2494.1101,7,Thank you very much.
4443920,243,2496.0701,2497.2,0,Thank you Cedric.
4443920,244,2497.73,2513.9199,0,Um so in terms of of the basket inflation of course um the ba the basket inflation compares the same products as we are also introducing innovations and and in some cases uh putting uh further promotions on some on some of the products.
4443920,245,2514.4099,2525.4502,0,It's uh uh it's quite difficult to manage but what we use really is that possibility to offset in terms of the the sales mix to offset the deflation.
4443920,246,2525.45,2551.0901,0,So it's really playing uh with novelties with different products with promotions uh and and and that uh brings a lot of relevance and and compensates of course for the fact that in the same periods uh in in different periods with the same products uh being um still investing on on on the those products that of course we should not uh be in any way uncompetitive.
4443920,247,2551.77,2558.3599,0,Um and so that is overall not only in in Poland that happens in Portugal uh and and in Columbia.
4443920,248,2558.3601,2568.75,0,Of course the consumer reaction is different because the consumer uh um also uh um uh confidence is also different uh in in the three economies.
4443920,249,2569.74,2578.6899,0,Uh in terms of of trying to arbitrate between profitability and market share I think we never um uh how it…
4443920,250,2578.6899,2607.1199,0,We we were al always very clear that the first priority would be uh sales uh and of course that if if probably that would trans translate in market share uh but uh the idea and we think it's possible with all the the uh um initiatives that we are taking not only at at uh at the commercial level but also at efficiently efficiency level uh on the costs uh to preserve the profitability.
4443920,251,2607.1201,2627.1799,0,So not we don't want to increase our margins we really want to leverage on those to to maintain the relevance at the top line because we think really what pays off is uh what we usually call the operational leverage is really by increasing sales we dilute costs and uh and we maintain relevance with the consumer.
4443920,252,2630.55,2639.6001,0,It's not really uh um it's it's it can be a difficult balance as we can imagine particularly if if the consumer does not react but that's the way we see it.
4443920,253,2639.6499,2645.3999,0,We think that growth is the main leverage um in terms of profitability for for the company.
4443920,254,2645.5801,2647.9099,0,So it's going to be or continue to be the priority.
4443920,255,2648.6299,2649.3298,0,Sorry Cedric.
4443920,256,2673.6101,2680.6199,7,And could you please if you have any data on market share you know the most recent data in Poland of data on market share revolution.
4443920,257,2681.8999,2682.2998,0,Okay.
4443920,258,2682.72,2693.1699,0,So on on that Cedric um so we we keep of course uh uh and we are the company's working to uh as we said preserve profitability in terms of margin.
4443920,259,2693.1699,2706.3301,0,But as I said if we are able to by investing more uh to have a higher asset turnover so a return on invested capital that is even higher uh that is the the priority is really on the top line as I said.
4443920,260,2706.6699,2716.8701,0,In terms of market share year on year uh Biedronka until May which is the the last numbers that we have uh has increased its market share by one point seven percent points.
4443920,261,2717.47,2723.49,0,So uh May twenty twenty uh year to date to um year to date May twenty twenty one.
4443920,262,2725.55,2728.1499,0,the profitability uh in po in Poland.
4443920,263,2728.1799,2728.24,7,mm-hmm <affirmative>.
4443920,264,2728.3501,2738.9102,0,Uh so it's it's not a secret that the market is changing and and you know that some players so are are leaving uh the market other players are are are going in.
4443920,265,2739.29,2745.8699,0,Uh usually uh on <inaudible> most on a more hard discount kind of type on the more proximity.
4443920,266,2745.8701,2758.6599,0,So you continue to see uh all players that decided to stay uh um in the in the country to increase their networks and their footprint in Poland to grab the growth opportunity uh in the market.
4443920,267,2759.21,2771.9099,0,Uh so I I think that we we still expect a lot of pressure but you have it's true uh you have <inaudible> we don't know uh recently there were some some rumors that Carrefour might leave the country.
4443920,268,2772.1399,2794.3599,0,Uh uh uh but uh so in two three years time uh I wou I would say that Poland continues to be a very attractive market for some uh and and probably for others it it they will feel the pressure particularly if they can they cannot adjust their format or they are not operating in in the right format to really meet the needs of the Polish consumer.
4443920,269,2805.9299,2819.02,0,Uh in the case of ADA um it's true that we are recruiting uh con consumers and and and trying to increase our our numbers of number of tickets because we keep investing in our prices.
4443920,270,2819.4399,2849.0,0,And we are really currently uh in terms of the products that we offer which is a limited offer as as you know um but in terms of the products that the products that we offer we are uh uh very competitive and that has been quite important in a a much more price sensitive uh um consumer uh um considering the current context that has been quite important in um having new consumers in the stores um buying our products.
4443920,271,2849.0,2854.72,0,And of course uh being able to increase the um the uh sales density of each store.
4443920,272,2855.3,2858.8601,0,And and so I think that's probably what we expect.
4443920,273,2859.03,2865.74,0,Uh we were not so sure when the pandemic kicked in but what we are seeing now is the consumer reacting.
4443920,274,2865.8701,2871.23,0,The government apparently is not putting so restrictive measures to fight the pandemic.
4443920,275,2871.8101,2885.3499,0,Uh I I think that they are not uh uh really um uh wanting to to the economy to be closed again because that's hampered significantly the the uh uh the socioeconomic um context.
4443920,276,2886.01,2894.5601,0,And and it being said I think that we will be able to maintain our passive passive of growth and and and resume uh our way to profitability.
4443920,277,2994.23,2994.95,0,Thank you Javier.
4443920,278,2995.3,2998.7002,0,Um so on on the profitability for Portugal.
4443920,279,2998.73,3009.3999,0,So what we believe really is when things are are I wouldn't say probably back to normal uh but in terms of the circulation of people uh this is paramount.
4443920,280,3009.4299,3020.0901,0,So traffic and um and all the the the the the consequences that go with it for both <inaudible> are quite important.
4443920,281,3020.1499,3039.95,0,So for <inaudible> as you can imagine uh um having the restaurants the hotel so the lack of touri tourists was really uh um what hit very significantly uh the the the company's performance at top level uh and but also affected <inaudible> because they have restaurants they have coffee corners.
4443920,282,3040.3101,3051.7102,0,So uh while there will be restrictions in terms of the circulation of people I think that we will see some pressure on sales enhanced on the profitability of the chains.
4443920,283,3052.26,3071.2302,0,Uh but this being said what we believe is that is that things will uh uh improve and the companies have been working uh uh on not only on their offer or or on the way that they are organized to make sure uh that they they get back to the levels of profitability that that they had before.
4443920,284,3071.4299,3076.9399,0,Uh we think that that is possible uh uh and in at least in in in Portugal.
4443920,285,3077.3101,3085.3899,0,it'll take some time particularly in <inaudible> more than in <inaudible> uh because of that dependence on on uh on your channel.
4443920,286,3085.8301,3090.4199,0,But um this being said we think that that this is still a possibility.
4443920,287,3090.6499,3098.54,0,So to to get to uh the levels of possibility that that we had it and it's what we are trying to build as fast as as possible.
4443920,288,3098.96,3101.97,0,But again top line will be paramount for this.
4443920,289,3102.49,3115.24,0,Uh uh we can do and we are doing everything that we can at the cost level with more efficiency uh with working on the logistics on the supply chain on on the the different ways that we work.
4443920,290,3115.8601,3122.4399,0,But um but top line is is going to be very or definitely uh the the key driver of possibility.
4443920,291,3123.23,3140.21,0,Uh so in Colombia uh it's really the way that see it yes uh uh we think that we should have more stores to grab the potential but we also think it's possible to reach break-even with the stores that we have if we have the the right uh sales density.
4443920,292,3140.5901,3149.01,0,Uh so we don't need an acquisition to really leverage uh the current uh can uh the current store uh network.
4443920,293,3149.53,3155.3198,0,And so we we think that we can reach break-even even uh with uh with uh with the current footprint that we have.
4443920,294,3158.76,3159.0701,8,Thank you.
4443920,295,3169.8799,3172.05,9,Thank you very much for taking my my question.
4443920,296,3172.3401,3178.73,9,Uh with respect to Hebe what is the percentage of sales that is generated in store versus what is generated online?
4443920,297,3179.26,3190.1299,9,And the second question that I had coming back to to the Colombian market um there there's been some also some shifts in dynamic over there with uh some players which are weakened financially.
4443920,298,3190.5,3195.8899,9,Is your strategy still to very much grow um organically in in that country?
4443920,299,3196.1799,3205.53,9,And then more broadly um you had previously mentioned interest in potentially expanding into other countries in Eastern Europe and just wondering where your thoughts are on on this front.
4443920,300,3209.77,3230.79,0,Um so on Hebe the uh the the online sales accounted for fourteen percent of our turnover in the first half uh and and we think it will continue to be uh relevant although we know that it also um is influenced by the lockdown and the closure of of uh the shopping centers.
4443920,301,3232.26,3232.8799,0,we think that…
4443920,302,3233.76,3234.8401,0,Apologies yes.
4443920,303,3235.45,3239.1001,9,Sorry is it uh fourteen or four zero percent?
4443920,304,3239.1899,3239.52,9,Sorry.
4443920,305,3239.8899,3240.72,0,No fourteen.
4443920,306,3240.72,3241.1699,0,fourteen.
4443920,307,3241.1699,3241.72,0,One Four.
4443920,308,3242.0801,3244.03,0,So still the stores are quite relevant.
4443920,309,3244.3601,3245.4299,0,It's it's one four.
4443920,310,3247.49,3247.8201,0,Okay?
4443920,311,3247.8501,3248.1799,9,Thank you.
4443920,312,3249.1499,3249.4099,0,Okay.
4443920,313,3249.9399,3270.1899,0,Um and and then so on the Colombian uh markets uh our first priority of co of course and we never uh um hide that is to grow organically to to have the the right spots and the the right uh store formats that uh that uh that we can operate under our business model.
4443920,314,3270.6499,3292.7,0,Um so basically and and as I already said it's we we think and we are betting in in really becoming more relevant the fact that uh um uh I I think that is it is up to the company to uh continue to be uh as competitive as possible to attract the consumers and to be relevant to the consumers.
4443920,315,3292.9299,3302.71,0,And and that of course if that will affect some of the players I think that's uh um uh the main uh issue was really the pandemic uh at a certain point.
4443920,316,3303.23,3319.78,0,But for us what is really paramount at this stage is to maintain that uh that uh um relevance to the consumer to be by by uh uh by the side of our clients uh that really saw their their income uh decrease over the pandemic.
4443920,317,3320.1399,3326.5,0,Uh and the the main priority is is to grow is to continue to grow organically um on that on that market.
4443920,318,3326.9299,3332.02,0,In Eastern Europe um we continue to monitor uh the the markets.
4443920,319,3332.1001,3334.8201,0,We don't hide that uh uh that we are doing that.
4443920,320,3335.3201,3341.0298,0,Uh and and if we see a growth opportunity of course we will uh uh look at it.
4443920,321,3341.1899,3346.21,0,We don't hide but we don't comment uh on or give any details at this stage.
4443920,322,3347.76,3348.5701,9,Thank you very much.
4443920,323,3350.1101,3350.5601,0,Yeah Laura.
4443920,324,3353.5801,3354.1201,1,Thank you.
4443920,325,3361.5601,3365.78,0,So uh thank you all for your questions and for attending this conference call.
4443920,326,3366.28,3378.3298,0,In h one and particularly in q two we maintain the strong cash generation leverage by Biedronka's performance and by the progression of the remaining businesses that were able to overcome the challenges in their respective markets.
4443920,327,3379.1699,3404.0801,0,Conscious that environment wise the way ahead can still be bumpy and that comps will start to be more demanding we are confident that the flexibility of our business models will allow us to live up to our strategic priorities to grow sales to protect profitability through efficiency and to responsibly engage with our people our consumers our suppliers and remaining business partners and the communities that we serve.
4443920,328,3404.6299,3407.0,0,Thank you again and I wish you all a nice day.
4446796,0,21.31,21.88,0,Thank you.
4446796,1,22.18,38.1,1,This statement should be taken in conjunction with the additional information about risk and uncertainty set for in CCU's annual report in form twenty f filed with the US Security and Exchange Commission and in the annual report submitted to the c m f and available on on our website.
4446796,2,38.79,40.93,1,It is now my pleasure to introduce Patricia Jottar.
4446796,3,42.1,46.8,2,Thank you Carl Claudia and thank you all for joining us today.
4446796,4,47.38,61.69,2,In the second quarter of twenty twenty one C C U continued with a positive momentum by posting strong improvement in volumes and financial results not only versus last year but also versus pre-pandemic figures.
4446796,5,62.83,81.98,2,The latter has been the result of our capability to adapt and operate in a challenging scenario with the covid nineteen pandemic pandemic through the execution of a regional plan with three points the safety for people operation continuity;
4446796,6,82.1,98.55,2,and financial health and the successful implementation of our strategy which focus in maintaining and gain business scale and market share along with a gradual recovery in profitability as we have shown since the fourth quarter twenty twenty.
4446796,7,99.78,115.13,2,Regarding our consolidated performance revenues jumped fourteen point six percent during the quarter boosted by a thirty point five percent growth in volumes and thirteen point two percent higher average prices in Chilean pesos.
4446796,8,115.87,120.84,2,The sharp volume expansion was explained by a recovery in consumption.
4446796,9,121.12,125.71,2,A solid sales execution and the strength of our portfolio of brands.
4446796,10,126.26,137.15,2,In terms of a financial results consolidated e b i t d a more than tripled versus last year and e b i t d a margin improved from six point two to thirteen point one percent.
4446796,11,137.72,188.98,2,The better financial result was mainly driven by the increase in consolidated volumes as mention above efficiency gains from the Excellence c c u Program with msd and a expenses sub-percentage of net sales decreasing from forty five point eight to thirty nine point six percent and four hundred sixty three basis points expansion in gross margin mainly due to positive mixed effects and the implementation of revenue management initiatives and positive net external effects from the appreciation of the Chilean peso against the US dollar affecting favorably our US dollar denominated cost partially compensated by wine export revenues in foreign currencies and higher cost in raw material in line with the short rally of the commodities during the year.
4446796,12,189.34,198.88,2,In all net income totalized a gain of eighteen thousand nine hundred sixty eight million Chilean pesos versus a loss last year.
4446796,13,200.79,214.66,2,The Chile operating segment our top line expanded fifty four point three percent due to forty point two percent growth in volumes driven by all main categories and ten point one percent higher average prices.
4446796,14,215.22,225.38,2,The high average prices were associated with both positive mixed effects mainly based on a strong performance of premium brands in beer and revenue management initiatives.
4446796,15,226.4,251.32,2,Gross profit grew sixty five point seven percent and gross margin improved from forty six point one to forty nine point five percent mainly as a result of the revenue expansion mentioned above efficiencies in manufacturing and the positive next journal effect from the appreciation of the Chilean peso against the US dollar affecting favorably our US dollar denominated cost.
4446796,16,251.86,254.78,2,This was partially offset by higher cost in raw material.
4446796,17,255.24,265.54,2,msd and a expenses grew thirty two point three percent consistent with the high higher volume and marketing activities in line with pre pandemic levels.
4446796,18,265.95,277.33,2,Although as percentage of net sales msd and a improved from forty two point four to thirty six point four percent due to cost-control initiatives through the Excellence c c u Program.
4446796,19,277.8,283.35,2,In all e b i t d a expanded one hundred thirty six points on percent on perc six…
4446796,20,283.47,283.95,2,Excuse me.
4446796,21,284.82,293.79,2,In all e b i t d a expanded one hundred and thirty six point one percent and e b i t d a margin improved from one two to eighteen point three percent.
4446796,22,294.54,296.13,2,In additional business operate…
4446796,23,296.3,315.23,2,In international business operating segment which includes Argentina Bolivia Paraguay and Uruguay posted uh fifty eight point two percent rise in revenues due to an increase of thirty nine point one percent in average prices in Chilean pesos and thirteen point seven percent higher volumes.
4446796,24,315.81,323.07,2,Volume growth was mostly driven by Argentina although all the other countries posted positive growth.
4446796,25,323.4,335.36,2,The better average prices in Chilean pesos were explained by revenue management initiatives and positive mix effects in the portfolio which more than offset negative currency translation effects.
4446796,26,335.94,362.65,2,In addition our efforts in pricing allowed us to compensate higher US dollar-denominated costs from the depreciation of the Argentine peso against the US dollar and higher cost in raw materials posting a gross profit expansion of one hundred and fourteen point four percent and an improvement in gross margin from thirty two point seven percent to forty four point four three percent.
4446796,27,362.98,373.93,2,msd and a expenses as a percentage of net sales improved from sixty nine percent to fifty four point four percent due to efficiencies from the Excellence C C U Program.
4446796,28,374.26,379.01,2,Altogether EBITDA improved eighteen point two percent versus last year.
4446796,29,379.92,399.51,2,The wine-operating segment reports an eleven percent rise in revenue due to a seven point four expansion in volumes and a three point four percent growth in average prices volumes were driven by domestic markets and exports both posting metal single middle single single-digit growth.
4446796,30,399.84,413.31,2,The higher price including pesos were mainly a consequence of a better mix which more than offset the appreciation of the Chilean pesos against the US dollar and its negative impact on exports re on export revenues.
4446796,31,413.86,427.78,2,Gross profit was up six point five percent and gross margin decreased from thirty nine point five percent to thirty seven point nine percent in line with a higher cost of wine due to the harvest level of twenty twenty.
4446796,32,428.51,439.83,2,msd and a expenses as a percentage of net sales improved from twenty six point eight percent to twenty five point six percent thanks to efficiencies driven by the Excellence c c u Program.
4446796,33,439.86,448.71,2,In all e b i t d a recorded a four point one percent increase while e b i t d a margin increased from seventeen point eight to sixteen point seven percent.
4446796,34,449.49,462.78,2,In Colombia finally where we have a joint venture with Postobon we finished a positive first half of the year with a volume with a volume expansion over forty percent gains in market share and an improvement in our financial results.
4446796,35,463.21,474.19,2,Specifically during the quarter we expanded volumes over fifty percent with growth in all main brands and categories standing out the performance in premium beer.
4446796,36,474.57,478.74,2,Now I will be glad to answer any questions you may have.
4446796,37,481.43,481.77,1,Thank you.
4446796,38,482.1,486.89,1,If you would like to ask a question you may signal by pressing star one on your telephone keypad.
4446796,39,487.64,493.35,1,If you're using a speaker please make sure your mute function is turned off to allow your signal to reach our equipment.
4446796,40,494.04,495.8,1,Once again star one for questions.
4446796,41,507.2,508.55,4,Thanks for taking my questions.
4446796,42,509.26,510.55,4,I have two so I made…
4446796,43,516.37,529.5,4,So in terms of this can you comment what was the volume growth between alcoholic and non-alcoholic beverages and how you expect them to behave the remaining of the year?
4446796,44,529.97,532.13,4,And I have a another question.
4446796,45,534.86,535.17,4,inaudible.
4446796,46,535.17,536.03,2,Thank you Fernando.
4446796,47,536.03,537.85,2,I listened to your voice with a lot of echos.
4446796,48,537.85,539.7,2,Did you understand the question?
4446796,49,539.73,546.36,5,Yeah he's asking about our solid growth in during uh during the quarter I think Fernando.
4446796,50,552.5,553.0,2,Okay.
4446796,51,553.2,553.54,2,Okay.
4446796,52,553.54,554.08,2,Thank you.
4446796,53,554.33,556.6,2,Again I listened to you with a lot of echo.
4446796,54,556.6,558.91,2,This is the reason why I I didn't understood you.
4446796,55,559.01,561.31,2,I I didn't understand you perfectly.
4446796,56,561.73,593.61,2,But I mean as you know Fernando knows the group uh Chilean consumers and Chilean population have been receiving um a lot of uh money in our pockets for two reasons I mean number one because of all the expenses of the government and the direct subsidies to to people and secondly because we have been allowed to retire money or to withdraw money from our pension fund.
4446796,57,594.4,609.45,2,Altogether I mean pay money retired from pension funds has been fifty billion dollars and uh but and uh subsidies from government about around twenty billion dollars.
4446796,58,609.45,616.55,2,Altogether seventy billion dollars is equivalent to the total expenses of government in a in a regular year pre-pandemic.
4446796,59,616.55,619.21,2,So it's it's a lot of money on one hand.
4446796,60,619.58,627.34,2,And on the other hand there are many expenses that have been restricted as restaurants the travels vacations etc.
4446796,61,627.34,627.69,2,etc.
4446796,62,627.69,638.91,2,So that most of that money has been concentrating concentrated on on consumption and this is the reason why our volumes has been extraordinary high.
4446796,63,639.0,642.82,2,I mean at the same time of course we are doing we are doing our job.
4446796,64,642.82,645.36,2,We are executing the correctly.
4446796,65,645.36,649.28,2,We are keeping and gaining market share in the different uh categories.
4446796,66,649.28,654.45,2,But the the real reason behind the behind this expansion is what I'm explaining.
4446796,67,655.5,658.43,2,How much is going to it's going to last?
4446796,68,659.29,677.21,2,Probably for probably for semester a year eighteen months is but no more than that so but I think that uh it's wise to imagine that uh this trend will not uh continue in the future.
4446796,69,677.21,687.1801,2,Having said that we are gaining scale and uh we expect to keep our scale and not to lose our scale and we're going to make our best effort uh to continue growing.
4446796,70,687.18,697.03,2,But uh I think that um that it's more wise and serious to to imagine that this trend probably is going to last in q three eventually in q four.
4446796,71,697.57,703.5699,2,But for twenty twenty two my recommendation is to be much more careful regarding regarding this.
4446796,72,705.74,706.13,4,Okay.
4446796,73,706.23,708.2,4,I I ho I hope you hear me better.
4446796,74,711.6,712.42,2,Excuse me Fernando.
4446796,75,712.45,712.67,4,Yes?
4446796,76,712.67,714.41,2,Now i am listening you perfectly.
4446796,77,715.14,715.71,4,Oh okay.
4446796,78,715.74,716.71,4,Great thank you.
4446796,79,726.2,726.75,2,Yes.
4446796,80,728.19,730.33,2,Um we grew we grew…
4446796,81,731.26,736.45,2,I mean as you know we present the segmento Chile the Chilean segment together.
4446796,82,736.45,743.9,2,Because we operate Chile as one segment multicategory same sales sales force same same track same managers.
4446796,83,745.0,749.91,2,Having said that uh we are growing a lot in both segments.
4446796,84,749.96,760.93,2,In q two we grew a little bit less than forty percent in beer and little and a little bit more than forty percent in non-alcoholic.
4446796,85,762.01,762.54,4,Okay.
4446796,86,763.46,763.69,4,Great.
4446796,87,763.96,766.47,4,And my my second question is related to cost.
4446796,88,790.45,800.91,2,I mean as you know perfectly and as I mentioned in my introduction we are facing strong pressures in cost of raw material on one hand and on exchange rate on the other.
4446796,89,800.91,816.99,2,I mean exchange rate in Q in q two was not too high but today exchange rate in Chile be be before the beginning of this conference the the Chilean pesos was seven hundred eighty five I mean to buy a dollar which is very high.
4446796,90,817.38,832.53,2,So in order to offset this we need to do revenue management initiatives number one to improve our mix number two and to be very efficient in terms of in terms of msd and a and we have doing this.
4446796,91,832.53,865.2,2,I mean as we know that the the current level of volume is something transitory and that sooner than later we'll move to a much normal growth we have been very careful on on this on on on hiring people on keeping our msd and a and the tight control as i I mean we are we are managing msd and a as if as if we were not growing in our volumes in order to be to be prepared for the future.
4446796,92,865.74,880.58,2,And regarding direct direct cost also we are doing our best effort in order to make revenue management initiatives in terms of promotions discounts to increase the percentage of premium products in our portfolio.
4446796,93,881.01,883.79,2,So as an example here I have the figures.
4446796,94,885.78,889.23,2,Premiumization yeah for example in q two…
4446796,95,889.27,905.08,2,Here I have in beer in Chile premium accounted for more than forty percent of our of our volumes while in q two of twenty twenty represented just twenty three percent of our volumes and same thing in all the different categories.
4446796,96,905.79,914.93,2,Because again like we need to be prepared for a for a future scenario which is not going to be as good as as twenty twenty one mm?
4446796,97,915.73,922.03,2,Having said that and regarding particularly particular mat raw material I prefer Felipe you to to discuss this.
4446796,98,922.34,928.48,5,As as you probably know Fernando it is a global pressure on raw material cost.
4446796,99,928.69,940.06,5,For example aluminum year-on-year increase sixty percent PT or resting more than forty percent and so on.
4446796,100,940.09,943.68,5,You have also international freight uh increasing a lot.
4446796,101,943.85,964.97,5,We saw uh containers from China uh the actual cost is about ten thousand dollars per per container so uh this will last at least for more than one year this is what we we expect uh so this outlook.
4446796,102,965.55,979.29,5,Along with this we are facing a compared to last year a more favorable uh exchange rate that somewhat compensate that uh but it is not uh in an in in our control.
4446796,103,979.83,1003.98,5,But by saying that uh especially the Chilean peso and also the Argentine peso are very volatile so uh the exchange rate in Chile is volatile for uh other uh process more than international So so at at the end we will continue to face inflationary pressures uh due to raw materials.
4446796,104,1004.36,1009.66,5,So so and and and the actions are the ones that Patricio highlighted.
4446796,105,1011.92,1013.01,4,Great great.
4446796,106,1013.08,1013.9901,4,Thank you so much.
4446796,107,1015.09,1016.12,2,Thank you Fernando.
4446796,108,1038.98,1044.1,6,H so on the first one obviously ve very solid on your international operation.
4446796,109,1044.6,1054.9299,6,Um when I look at it on a currency basket basis it looks like you were able to increase prices in Argentina very aggressively but obviously there's also a mixed effect in there.
4446796,110,1055.3199,1064.6699,6,Um so I was just wondering if you could break that out for us and give us a bit of color on what's happening on on on price enforcement or controls in in Argentina.
4446796,111,1064.98,1066.89,6,And then then I'll follow up with Chilean market shares.
4446796,112,1066.89,1067.28,6,Thanks.
4446796,113,1069.35,1073.16,2,Yes I mean in in in argenti in argent Thank you Felipe for your question.
4446796,114,1073.16,1078.85,2,In Argentina we have been able to cope with with inflation in our structural prices.
4446796,115,1079.24,1091.77,2,And at the same time we're improving we are improving our mix um both on premium which is growing and we have a shift from returnable bottles to cans.
4446796,116,1092.42,1101.1599,2,And cans are more expensive per liter than returnable bottles as you know but the margin is is less attractive than than than bottle.
4446796,117,1101.16,1106.5699,2,So altogether we are moving along with the with inflation along with with our costs.
4446796,118,1111.65,1115.36,6,Excellent and maybe on on Chilean Market shares I'm just wondering.
4446796,119,1115.36,1132.15,6,I I know this is difficult because Nielsen and the other surveyors are having a tough time delivering an apples-to-apples comparison um but just wondering how you are seeing the the market share picture in beer in Chile given the distribution changes at your competitor.
4446796,120,1132.4,1132.8101,6,Thanks.
4446796,121,1133.3,1135.64,2,Yes maybe you're right.
4446796,122,1135.64,1146.34,2,I mean Nielsen it's not completely precise because they have they have a good reading on what happens in supermarket but not the best reading on what happens then in mom and pop.
4446796,123,1146.62,1157.8199,2,Having said that um uh if you compare up our market in q two twenty twenty one it's slightly higher than our market share in q two twenty twenty.
4446796,124,1158.6,1173.71,2,But I prefer to say that our market share has been stable in the uh in the last many months as in and years and we have been able to to cope against uh the competition with its new distribution.
4446796,125,1177.53,1178.78,6,Excellent call thank you.
4446796,126,1178.78,1180.4601,6,And and you know what?
4446796,127,1180.46,1183.0599,6,I'll I'll stop it here so other analysts can ask questions.
4446796,128,1183.0601,1185.5901,6,And maybe I'll get back on the queue if they don't ask my third question.
4446796,129,1185.59,1185.92,6,Thank you.
4446796,130,1187.01,1187.53,2,Indeed.
4446796,131,1187.66,1188.4401,2,Thank you Felipe.
4446796,132,1190.41,1193.6801,3,As a reminder star one if you would like to ask a question.
4446796,133,1205.33,1208.5699,8,Um thank you for taking my question.
4446796,134,1209.08,1216.7799,8,Um just comparing to twenty nineteen I know you uh you answered to Felipe that you are stable.
4446796,135,1235.47,1246.67,8,But I just wanted to know if if the market has grown that much or maybe in certain segments you've grown faster uh to to get that in your numbers particularly you know beer versus non-beer.
4446796,136,1246.84,1247.25,8,Thank you.
4446796,137,1248.33,1249.27,2,Yes indeed.
4446796,138,1249.35,1254.53,2,Looking the Chile operating segment we grew our volumes.
4446796,139,1255.24,1256.5601,2,This is first half no?
4446796,140,1256.6899,1256.9199,2,Yes.
4446796,141,1257.8101,1257.92,5,Yes.
4446796,142,1258.37,1261.3,2,First half six months inaudible here I have it.
4446796,143,1261.35,1263.4401,2,Here I have the the answer Mohammed.
4446796,144,1263.89,1263.9501,8,Yeah.
4446796,145,1264.6801,1284.63,2,Regarding uh regarding volumes from the Chile operating segment this is non-alcoholic beer and spirits first half of twenty twenty one compared with the first half of twenty nineteen we grew our consolidated volumes by seventeen point seven percent;
4446796,146,1286.42,1289.39,2,in international business by two percent;
4446796,147,1290.5699,1295.0601,2,and in the wine operating segment by sixteen point eight percent.
4446796,148,1299.0601,1305.38,8,And in Chile operating segment that was a stable margin so the market grew that much so through stable market share?
4446796,149,1306.35,1317.92,2,Yes market share but in a sligh with slight slightly higher and we have been rather stable in beer growing a little bit on on non-alco- on non-alcoholic.
4446796,150,1322.12,1325.4301,2,and non-alcoholic here gentlemen?
4446796,151,1325.47,1326.16,1,I can inaudible it.
4446796,152,1326.16,1326.55,5,inaudible.
4446796,153,1326.83,1334.4399,2,lemme check but we have grown more in beer than in than in non-alcoholic having said that because the per capita for beer has been uh…
4446796,154,1334.52,1335.1801,5,Yeah.
4446796,155,1335.1801,1336.02,5,Growing yeah.
4446796,156,1336.05,1336.3401,2,Yes.
4446796,157,1336.46,1336.73,5,Yeah.
4446796,158,1337.04,1345.14,5,But in both in non-alcoholic and and beer we are growing Mohammed uh against uh twenty nineteen.
4446796,159,1345.72,1345.99,2,Yes.
4446796,160,1346.61,1356.8099,2,In fact here we here have in beer we have grown in two years roughly speaking a little bit more than forty percent.
4446796,161,1359.46,1359.7999,8,Okay.
4446796,162,1360.74,1361.01,2,2020-
4446796,163,1361.01,1361.04,2,20…
4446796,164,1363.6,1364.38,8,Um thank you guys.
4446796,165,1365.0601,1365.8199,5,Quarter two.
4446796,166,1370.3,1377.05,2,And year-to-date both and year-to-date thirty one.
4446796,167,1378.27,1383.37,2,The first semester compared with first semester thirty one.
4446796,168,1384.3101,1385.2401,5,Yeah.
4446796,169,1385.27,1388.1899,2,Uh quarter compared with quarter forty one.
4446796,170,1390.54,1390.67,5,Yeah.
4446796,171,1391.51,1391.99,8,Okay.
4446796,172,1392.55,1400.1201,8,Sorry the voice was breaking up a little bit so am I to understand that you said beers grown thirty one percent versus first half of twenty nineteen?
4446796,173,1401.2,1401.61,2,Yes.
4446796,174,1402.27,1406.48,5,Yes and not alcoholic roughly 11%.
4446796,175,1407.5601,1417.1,2,That's it.
4446796,176,1417.98,1418.29,5,Yeah.
4446796,177,1418.34,1426.51,5,Remember that Mohammad that non-alcoholic suffer much than beer last year also mm?
4446796,178,1426.8101,1427.3301,8,Okay.
4446796,179,1429.67,1443.99,8,Thank you very much for your answer.
4446796,180,1443.99,1454.02,8,I'll get back in queue.
4446796,181,1456.11,1456.3199,5,Okay.
4446796,182,1466.87,1468.2999,6,So so I can do a follow-up.
4446796,183,1468.47,1475.48,6,Uh maybe in Colombia you guys had very strong results on the operation with the with with a very strong rise in volume.
4446796,184,1475.87,1486.37,6,So I was just wondering if you can give us a little more of color on what's going on in the ground there in terms of market share price um and maybe utilization of the plant.
4446796,185,1486.52,1488.9801,6,All those would be uh great if we could get some color.
4446796,186,1488.98,1489.3199,6,Thank you.
4446796,187,1491.53,1492.47,2,Thank you Felipe.
4446796,188,1492.47,1508.53,2,As we mentioned the when we entered into Colombia we design our plan for our plant for three point two three point three three point four depending on mix volume or hectoliters of total volume.
4446796,189,1509.09,1514.49,2,And we are running this year but a little bit more than two million hectoliters.
4446796,190,1514.49,1518.3601,2,Now this is what we expect to sell in in this year.
4446796,191,1518.36,1522.29,2,So we have a sixty percent utilization of of the plant.
4446796,192,1522.39,1524.5901,2,Um we have been growing market share.
4446796,193,1524.59,1530.73,2,As I mentioned before margins are good in the in the industry.
4446796,194,1531.1,1533.92,2,Prices are growing in line with inflation.
4446796,195,1534.29,1549.29,2,And again we are doing our best effort to to to increase our volumes and to complete the the capacity of the plant because if we do this we will be having a good profitability.
4446796,196,1549.39,1549.98,2,That was…
4446796,197,1551.41,1557.1,2,We began this opera operation still our purpose and we are moving in the right dire direction.
4446796,198,1559.51,1562.24,6,OK great thanks for the color guys.
4446796,199,1562.6899,1563.5699,6,Congratulations again.
4446796,200,1564.5601,1565.12,2,Thank you Felipe.
4446796,201,1565.12,1569.8799,2,Remember that in Colombia we operate in those segments beer and malt.
4446796,202,1570.83,1578.6699,2,Um beer representing plenty more than eighty percent of the total volume and malt less than twenty percent.
4446796,203,1579.02,1586.37,2,When they say that this is the total volume this is the total volume of the plant for both categories beer and and malt.
4446796,204,1592.12,1592.42,2,Okay.
4446796,205,1619.65,1625.0901,3,With no additional questions in queue I'd like to turn the call back over to our speakers for any additional or closing remarks.
4446796,206,1626.88,1627.8301,2,Thank you very much.
4446796,207,1628.21,1645.51,2,For closing i would like to say that during the second quarter of twenty twenty one in a steel challenge scenario due to the pandemic CCU delivered a solid performance in volumes and financial results improving versus both last year and pre-pandemic figures.
4446796,208,1646.1899,1672.98,2,Looking ahead we'll continue investing in the key aspects of the business in order to keep executing the strategy that we have been carrying out which is continue building strong brands and portfolio and putting our efforts in maintaining and gaining business scale and market share while recovering profitability the latter through revenue management initiatives and efficiencies particularly in an inflation in an inflationary scenario.
4446796,209,1673.22,1674.25,2,Thank you very much again.
4448760,0,4.57,15.35,0,Welcome to Grupo Aval's second quarter two thousand twenty one consolidated results conference call.
4448760,1,15.95,18.43,0,My name is Yanni and I'll be your operator for today's call.
4448760,2,21.3,25.05,0,Grupo Aval Acciones Y Valores S.A. Grupo Aval is an issuer of securities in Colombia and in the United States.
4448760,3,25.87,32.5,0,As such it's subject to compliance with securities regulation in Colombia and applical- applicable US securities regulations.
4448760,4,42.2,50.42,0,The Consolidated Financial information included in this document is presented in accordance with i f r s as currently issued by the i a s b.
4448760,5,50.92,58.97,0,Details of calculations of non GAAP measures such as r o a a and r o a e among others are explained when required in this report.
4448760,6,73.39,78.51,0,estimates predicts potential or continue or the negative of these and other comparable words.
4448760,7,79.1,86.84,0,Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions.
4448760,8,103.01,123.89,0,Matters described in this presen presentation and our knowledge of them may change extensively and materially over time but we expressly disclaim any obligation to review update or correct information provided in this report including any forward-looking statements and do not intend to provide any of the for such material developments prior to our next earnings report.
4448760,9,124.74,132.54,0,The content of this document and the figures included herein are intended to provide a summary of the subject discussed rather than a comprehensive description.
4448760,10,133.32,137.57,0,When applicable in this document we've referred to billions as thousands of millions.
4448760,11,138.17,140.95,0,At this time all participants are in listen-only mode.
4448760,12,141.42,143.71,0,Later we will conduct a question and answer session.
4448760,13,144.23,145.78,0,i'll now turn the call over to Mr.
4448760,14,152.33,156.47,1,Good morning and thank you all for joining our second quarter two thousand twenty one conference call.
4448760,15,157.03,160.16,1,I trust that all of you and your families are keeping healthy.
4448760,16,161.05,165.18,1,Today it is my pleasure to present our strongest quarter ever.
4448760,17,165.76,180.25,1,In doing so I will cover the following an updates uh on the macroeconomic environment of the regions where we operate the status of the loan relief granted to our clients the progress of our digital efforts and the main highlights of our financial performance.
4448760,18,181.32,184.46,1,Let's start with a macroeconomic scenario of the last few months.
4448760,19,185.28,189.68,1,During the second quarter of the the year the global economy continued to recover.
4448760,20,190.08,198.89,1,There are however material differences in the recoveries of countries depending on the effectiveness of this country's vaccination programs.
4448760,21,199.5,206.28,1,Additionally new variants of the virus such as the Delta Plus and more recently the Gamma variant continued to appear.
4448760,22,206.56,212.39,1,For now it is apparent that the vaccinations being administered are effective against these new variants.
4448760,23,212.47,216.63,1,However it is not the case economic recoveries would be curtailed.
4448760,24,217.35,228.62,1,In any case clear evidence of the effectiveness of the vaccination programs recites in the fact that although people continue to get infected the lethality of the virus has drastically dropped.
4448760,25,229.28,235.86,1,Colombia has not been the exception to the economic recovery or to a well-administered vaccination program.
4448760,26,236.54,244.25,1,To date more than thirty million doses have been administered and more than thirteen million people have been fully immunized.
4448760,27,245.27,252.71,1,This progress in the vaccination program along with better external conditions have boosted the recovery of the Colombian economy.
4448760,28,253.33,264.32,1,This recovery has not been devoid of headwinds specifically the violent demonstrations and strikes that plagued the country mostly during the months of April and May.
4448760,29,265.15,289.76,1,However after a drop in consumer confidence not surprisingly during April and May as of July this indicator has recovered and is now at its highest level since the start of the pandemic supported by the progress of the vaccination campaign better unemployment numbers renewed commercial activity and higher prices of export commodities such as coffee and oil.
4448760,30,290.68,297.89,1,High frequency data such as energy demand suggests that business activity is advancing toward its pre-pandemic level.
4448760,31,298.67,306.22,1,As a result analysts have continued to raise their estimates of the G D P growth forecast for Columbia during two thousand and twenty one.
4448760,32,306.88,320.08,1,The o e c d for example now forecasts a G D P growth of seven point six percent for two thousand twenty one and the I M F is expected to raise its projections in August given the positive outcome of recent months.
4448760,33,320.85,335.53,1,In its latest meeting the central bank revised its own growth forecast from six and a half percent to seven and a half percent and in Aval we now forecast that the economy will grow approximately seven percent in two thousand twenty one.
4448760,34,336.83,346.61,1,Moving on to the labor market in June the unemployment rate fell to fourteen point four percent and the number of jobs increased by a hundred sixty one thousand.
4448760,35,347.52,358.65,1,The average unemployment rate during the second quarter was fifteen percent compared to fifteen point eight percent during the first quarter and twenty point three percent a year earlier.
4448760,36,359.34,363.01,1,Of course there is still a long way to go on this front.
4448760,37,363.44,373.78,1,Despite the mentioned improvement there are still approximately one point four million jobs that still need to be recovered to bring us back to the pre-pandemic levels of employment.
4448760,38,374.65,381.6,1,If these jobs were recovered the country would experience a drop of between six and seven percent in unemployment.
4448760,39,382.4,395.18,1,For now as the recovery process continues we expect the further decline in the unemployment rate to twelve percent by year's end reaching an average of fourteen point eight percent for two thousand twenty one.
4448760,40,396.54,407.22,1,In June twelve month inflation reached three point six three percent two hundred and four basis points higher when compared to inflation during two thousand and twenty.
4448760,41,407.99,413.32,1,This year's number has been driven mainly by supply factors and by statistical base effect.
4448760,42,413.77,423.3,1,In fact the surge of food prices of five and a half percent in May was triggered by the disruptions of supply and logistics that arose from the strikes.
4448760,43,423.99,431.15,1,As of July twelve month inflation had risen by thirty four basis points versus June to three point nine seven percent.
4448760,44,431.84,445.44,1,This increase was driven by food prices which rose by forty basis points and by higher prices in service sectors as a result of higher activity leisure industries such as restaurants hotels recreation and culture.
4448760,45,446.11,457.88,1,We expect that inflation for two thousand twenty one will reach four percent as food prices revert offset by the pass-through of higher commodity prices and the shipping costs.
4448760,46,459.12,473.36,1,Although medium term inflation expectations remain well anchored at three percent given the recent surge in consumer prices the weaker peso and the growth prospects we expect that central bank will start monetary pilot…
4448760,47,473.36,481.53,1,policy tightening cycle in the last quarter with a high probability of two twenty five basis point hikes before the end of the year.
4448760,48,481.99,489.66,1,In that scenario the repo rate will increase to two and a quarter percent from its current one point seven five percent level.
4448760,49,490.45,511.28,1,Regarding the exchange rate in the last few weeks the peso has weakened to as high as four thousand pesos per dollar due to the strengthening of the dollar in international markets as investors seek shelter and save assets caused by the renewed uncertainty owing to the spread of the Delta variant and also due to the increase in Colombia's risk premium.
4448760,50,511.96,530.0,1,However with the projection that the central bank will start the new monetary tightening cycle and if as expected Congress approves the proposed tax reform to which I will refer in a minute it is likely that the Colombian peso will seek a level close to thirty seven hundred pesos per dollar in the next few months.
4448760,51,531.0,539.445,1,The government has presented a new tax reform that seeks to increase tax revenues by fifteen trillion pesos or one point two percent of G D P.
4448760,52,540.22,552.72,1,The additional revenue would mainly originate from increasing the corporate tax rate to thirty five percent starting two thousand twenty two instead of reducing it to thirty percent as approved in the two thousand nineteen tax reform.
4448760,53,553.38,560.06,1,The financial sector however will continue to pay a three percent surcharge over the corporate rate until two thousand twenty five.
4448760,54,560.49,564.36,1,The surcharge was expected to seize by two thousand twenty three.
4448760,55,565.2,574.15,1,Other components of the tax reform include reducing tax-deductible expenses and strengthening legal measures to fight tax evasion and of freezing government spending.
4448760,56,574.76,592.486,1,This new tax reform has greater political support and is expected to be approved in Congress in the next few months In the meantime the government expects the fiscal deficit to reach two thousand twenty one at eight point six percent of G D P with a primary deficit of five point three percent of G D P.
4448760,57,593.6,604.76,1,Regarding the current account deficit it is expected to widen to four point four percent of G D P by year's end up from the three point three percent of G D P observed at the end of two thousand twenty.
4448760,58,605.37,614.11,1,Pent-up demand should translate into a larger trade deficit that will be partially offset by larger and better priced oil and coffee exports.
4448760,59,615.23,622.35,1,With respect to Central America the I M F expects a five point seven percent growth of the region's economy in two thousand twenty one.
4448760,60,623.0,635.57,1,As discussed in the past Central America greatly benefits from the recovery of the US economy as certain Central American countries are highly dependent on h cash remittances incoming from the United States.
4448760,61,636.41,647.85,1,Economic growth of the region should be positively impacted by the infrastructure sector as these countries that were affected by storms Eta and Iota need to invest heavily in the reconstruction works.
4448760,62,648.82,659.82,1,During the first two months of the second quarter Panama estimated an annual G D P growth of sixteen and a half percent in during the same period Costa Rica estimated G D P growth of twelve point three percent.
4448760,63,660.58,670.74,1,Panama benefits from the reactivation of global trade and foreign investment given its role as a global maritime transportation hub and the consequential increase in canal activity.
4448760,64,671.33,676.61,1,In Costa Rica six out of fifteen economic sectors reached pre-pandemic production levels.
4448760,65,677.59,697.95,1,Remittances have searched year and year fifty five percent In El Salvador forty three percent In Guatemala and forty four percent in Honduras.
4448760,66,708.0,718.16,1,Finally based on leading indicator year-on-year economic estimated growth reached fifteen point two percent in Nicaragua during the first two months of the second quarter.
4448760,67,718.68,727.32,1,Despite internal and external favorable economic conditions growth in Nicaragua could be limited by the challenging political context.
4448760,68,728.98,731.31,1,Moving on to the status of our loan relief programs.
4448760,69,731.68,742.52,1,As of June we had active reliefs represented approximately eleven and a half percent of our total consolidated loan portfolio or approximately twenty four point five trillion pesos in loans.
4448760,70,743.26,758.29,1,In Colombia as of June thirty active relief amounted to eight trillion pesos or five point nine percent of the Colombian loan portfolio including seven point seven trillion in structural agreements with clients.
4448760,71,758.97,766.1,1,In Central America reliefs amounted to sixteen and a half trillion pesos representing 20.9% of the region's portfolio.
4448760,72,767.19,774.2401,1,These reliefs in Central America were driven by Panama which accounted for more than half of the region's active reliefs.
4448760,73,775.2,793.27,1,Of all loans in both geographies that have concluded the relief periods those currently past due ninety days or more represent only one percent of our total consolidated loan portfolio and those currently past due thirty days or more represent one point eight percent of our total consolidated loan portfolio.
4448760,74,794.14,802.42,1,Our cost of risk as it's been booked reflect our estimation of losses related to the complete unwinding of these relief programs.
4448760,75,803.96,809.11,1,We continue to execute our digital strategy in accordance with our expectations.
4448760,76,809.21,810.69,1,Allow me to elaborate.
4448760,77,811.63,822.92,1,As I have mentioned before we have prioritized the transformation of our core products into digital solutions and the digitalization of core processes in our backs.
4448760,78,823.64,832.38,1,We believe that both those efforts will yield additional net income via additional sales revenues and cost savings.
4448760,79,833.39,843.19,1,We have successfully concluded the digitalization of most of our retail bank products products and are now in the process of rolling those out to all our banks.
4448760,80,844.1,847.74,1,This has led us to increase our digital retail sales substantially.
4448760,81,848.39,864.71,1,In Colombia sixty percent of all sales of retail products for which a digitalized solution has been developed are currently conducted through the di digital applications and forty percent of those are end-to-end digital sales without human intervention.
4448760,82,865.51,871.82,1,These sales represent almost forty percent of our total digitalized and non digitalized retail products sold.
4448760,83,872.63,878.32,1,In Central America approximately twenty five percent of total sales our sales of digitalized products.
4448760,84,879.27,892.15,1,As part of our IT transformation process our digitalization effort is cloud-based allowing us to scale up faster and cheaper than with traditional IT infrastructure models.
4448760,85,892.8,893.77,1,Allow me to explain.
4448760,86,894.98,900.46,1,First all of our digital products are already a hundred percent in the cloud or cloud-native.
4448760,87,901.15,909.3,1,As a result we do not need to further invest to migrate the infrastructure of our digital products to the cloud because we're already there.
4448760,88,910.22,925.98,1,Secondly our centralized data platforms in our digital labs such as Augusta and Matilda are also in the cloud allowing us to be more efficient in our processes reduce operational costs and increase our client penetration.
4448760,89,926.6,930.05,1,Matilda is a marketing platform which has led us…
4448760,90,930.09,937.1299,1,which has allowed us to acquire new digital clients and what we currently believe is the lowest acquisition cost in the market.
4448760,91,966.71,977.86,2,Even though adding active digital clients is a necessary step for digital transformation obtaining long-term sustainable value as a result of this effort is the primary objective.
4448760,92,978.62,993.35,2,High acquisition costs of digital clients have led us to be watchful of where we de have denominated net loss growth associated with one transaction users or those that lack potential to be monetized.
4448760,93,994.58,1010.23,2,In Colombia a country with very strict usury rate restrictions transactional platforms with low or no fees will find it difficult to sell profitable banking products regardless of the number of digital customers.
4448760,94,1010.97,1027.83,2,We have been working in alternative ways to acquire new digital clients that meet our profitability criteria leveraging ecosystems that provide services that are valuable to our clients and were profitable products of our banks are part of the solution.
4448760,95,1028.4,1051.4299,2,Among those first in Colombia Aval di Digital Labs has been working to redesign popular existing websites such as Carulla Metro Cuadrado and elem pleo com and to add to those ecosystems additional products including banking digital products to further our goal of adding profitability to digital growth.
4448760,96,1052.3,1061.67,2,Being part of these ecosystems afford our banks the opportunity to increase digital clients through auto loans mortgages payroll loans and other products.
4448760,97,1062.29,1066.4299,2,These ecosystems currently serve over ten million users.
4448760,98,1067.25,1084.4401,2,In Central America we recently launched Kash with a K a transactional app available across the region that already has a hundred thousand digital clients seventy percent of which are not bank clients with more than three hundred and fifty thousand transactions to date.
4448760,99,1085.3,1089.4,2,Soon family remittances will be available through our Kash app.
4448760,100,1089.74,1101.7301,2,This will allow us not only to acquire at least five hundred thousand additional profitable digital clients by year-end but also to increase our remittances' fee income and to make our app profitable.
4448760,101,1102.62,1107.48,2,Finally in Colombia we're improving our digital channels to better fit our customers' needs.
4448760,102,1107.79,1119.3099,2,Banco Popular launched recently its banking app at the beginning of the year and we expect Banco de Occidente and Banco AV Villas to launch their new apps in the next couple of months.
4448760,103,1120.02,1126.2899,2,These apps have a more modern intuitive and secure design that will contribute to a better customer experience.
4448760,104,1127.38,1131.25,2,In Central America our focus has been primarily on customer service.
4448760,105,1131.71,1141.4399,2,In two thousand twenty one fifty four percent of client interactions have been conducted through digital channels and forty six percent through our call centers and others.
4448760,106,1142.11,1148.48,2,Customers have quickly adopted the mobile channel as the preferred means to make the requests.
4448760,107,1149.23,1157.0599,2,Almost twenty percent of those queries queries are picked up and handled by chat bots and resolved without human intervention.
4448760,108,1158.9301,1166.8199,2,To finish regarding our financial results Diego will refer next in detail to our financial performance during the second quarter of two thousand and twenty one.
4448760,109,1166.9,1169.37,2,However allow me to highlight the following.
4448760,110,1170.97,1181.0399,2,To start with Grupo Aval registered its best results ever for a quarter with attributable attributable net income of approximately nine hundred and fifty billion pesos.
4448760,111,1181.0699,1187.9,2,Aval's attributable net income for the first half of two thousand twenty one was one point seven four trillion pesos.
4448760,112,1188.4301,1200.63,2,This resulted resulted in a in a return on average equity for the quarter of eighteen point two percent and of sixteen point seven percent during the semester.
4448760,113,1201.64,1205.13,2,Among the principal reasons for these results I would include the following.
4448760,114,1206.25,1220.83,2,First two thousand twenty one has been a year with excellent results in the pure banking business where we have been able to defend our intermediation spread mainly through pricing discipline while successfully growing our loan book.
4448760,115,1221.67,1227.8501,2,Our loan portfolio has been behaving better than expected resulting resulting in better cost of risk.
4448760,116,1228.08,1232.59,2,In fact cost of risk has moved to near pre-pandemic levels.
4448760,117,1233.4,1240.3,2,Thirdly we have benefited from a well-structured fixed income portfolio in terms of durations and yields.
4448760,118,1241.25,1253.77,2,Fourthly our non-financial sector was able to quickly regain momentum and return to pre-pandemic activity within a very short period resulting in the recovery of significant income contribution to our bottom line.
4448760,119,1254.66,1265.6801,2,Next our pension fund manager has been successful in defending its market leadership in managing costs and in obtaining healthy yield from the portfolios it administers.
4448760,120,1266.23,1274.79,2,Lastly throughout all our companies we continue to stress the importance of a cost containment and or cost reduction culture.
4448760,121,1276.04,1282.87,2,I do thank you for your attention and now I'll pass on the presentation to Diego who will explain in detail our business results.
4448760,122,1283.27,1284.01,2,You have a good day.
4448760,123,1285.4301,1286.47,3,Thank you Luis Carlos.
4448760,124,1286.64,1290.86,3,I will now move to the consolidated results of Grupo Aval under i f r s.
4448760,125,1291.83,1305.03,3,Before covering the following pages bear in mind that as of June twenty twenty one M F G no longer affects the comparison of our volumes relative to a year earlier given that its acquisition was completed on May twenty twenty.
4448760,126,1305.75,1317.05,3,However the year-on-year comparisons of our p and l lines are still affected given that the second quarter of twenty twenty only included one month of MFG's operations.
4448760,127,1318.3101,1320.0601,3,Now starting on page nine.
4448760,128,1320.5,1326.15,3,Our assets grew two point two percent over the quarter and three point four percent year-on-year.
4448760,129,1326.47,1342.85,3,Colombian asset growth continued strengthening recording two point three percent increase during the quarter and three point four percent year-on-year while Central American assets recorded a point one percent quarterly and a three point six percent year-on-year growth in dollar terms.
4448760,130,1343.65,1356.37,3,Quarterly depreciation of one point nine percent and a twelve month appreciation of point two percent take quarterly and annual growth in pesos of Central America to two percent and three point four percent respectively.
4448760,131,1357.13,1360.88,3,The share of Central America in our book remained at thirty six percent.
4448760,132,1362.27,1363.5801,3,Moving to page ten.
4448760,133,1364.11,1368.95,3,Loan growth continued to show a positive trend that now includes a rebound in Central America.
4448760,134,1369.3,1378.5601,3,In Colombia the sustained growth of high-quality retail lending products was partially dampened by a still sluggish growth of commercial loans.
4448760,135,1379.16,1384.58,3,The social unrest experienced during April and May in Colombia temporarily held back loan origination.
4448760,136,1385.83,1390.42,3,Our total loans grew two point one percent over the quarter and two point two percent year-on-year.
4448760,137,1390.72,1398.73,3,Colombian gross loan portfolio increased one percent during the quarter slightly slower than the quarter earlier while twelve month growth was one point five percent.
4448760,138,1400.12,1407.2699,3,Demand of consumer loans remained high in Colombia resulting in a one point seven percent increase during the quarter and eleven point three percent year-on-year.
4448760,139,1407.8199,1411.92,3,Competition remains high in low risk products such as payroll loans.
4448760,140,1412.24,1418.5599,3,However as a new development unsecured products have started to regain traction over the past couple of months.
4448760,141,1419.04,1421.88,3,This may signal an increase in the risk appetite of banks.
4448760,142,1422.84,1430.98,3,Payroll lending that accounts for sixty one percent of our Colombian consumer portfolio grew three point one percent over the quarter and twenty one point three percent year-on-year.
4448760,143,1430.98,1440.09,3,In contrast although performing better than a quarter earlier credit cards contracted one point six percent and personal loans remained relatively stable.
4448760,144,1440.63,1445.65,3,These products account for twelve percent and twenty percent of our Colombian consumer portfolio respectively.
4448760,145,1446.9399,1455.7,3,As seen in other secured retail products in Colombia mortgages remained dynamic expanding three point one percent over the quarter and twelve percent year-on-year.
4448760,146,1456.33,1462.7201,3,Our Colombian corporate portfolio continued its mild recovery growing at a still shy point four percent.
4448760,147,1463.4301,1472.22,3,Our growth versus that of our peers continues to benefit by our pricing discipline where we privilege profitable customer relationships over market share.
4448760,148,1472.88,1479.7201,3,Cumulative twelve month growth was negative at minus four point four percent with a still high comparison base a year ago.
4448760,149,1481.17,1488.6,3,Moving to Central America our gross loan portfolio increased two percent over the quarter and three point six percent year-on-year in dollar terms.
4448760,150,1489.3,1497.8201,3,Quarterly performance in Central America the strongest since fourth quarter twenty nineteen was driven by a two point nine percent growth of consumer loans.
4448760,151,1498.47,1504.9501,3,This performance resulted from a four point four percent growth in credit cards and a one point three percent growth in payroll loans.
4448760,152,1505.61,1514.26,3,Quarterly growth in credit cards took the year-on-year growth to five point eight percent the first positive figure since second quarter twenty twenty.
4448760,153,1515.0601,1521.66,3,Commercial loans and mortgages grew one point seven percent and one point one percent respectively during the quarter in Central America.
4448760,154,1522.42,1527.46,3,Looking forward fundamentals for loan growth continues to strengthen in both geographies.
4448760,155,1527.8101,1533.72,3,We ex expect commercial loan growth to be supported by improvements in economic activity and business confidence.
4448760,156,1534.12,1544.6901,3,In the retail lending front we expect that the improvement in employment outlook will continue to allow an increase in our bank's risk appetite in products that were deemphasized during the shock.
4448760,157,1545.9399,1551.0699,3,On pages eleven and twelve we present several loan portfolio quality ratios.
4448760,158,1551.78,1569.78,3,The covid nineteen credit juncture continued unwinding unwinding favorably for our banks during the second quarter driven by a stronger and faster recovery in both economies than initially forecasted that has translated into a better evolution of reliefs and a stronger performance of the rest of our portfolio.
4448760,159,1570.72,1574.4,3,This has resulted in a lower cost of risk than initially forecasted.
4448760,160,1575.85,1579.73,3,Loan reliefs continued to expire and returned to active payment schedules.
4448760,161,1580.14,1583.9,3,As expected these loans have higher delinquency ratios than the average.
4448760,162,1584.84,1594.86,3,In contrast the remainder of our loan portfolio eighty eight point five percent continues to improve in line with a stronger economy offsetting the burden of the relief loans.
4448760,163,1595.76,1608.3099,3,As of June thirty we had three percent of our total gross loans under payment holidays and eight point five percent under structural payment programs together accounting for eleven point five percent of our loan portfolio.
4448760,164,1608.8,1612.66,3,In Colombia five point nine percent of our loans have some type of relief.
4448760,165,1613.49,1617.78,3,Only point two percent of our Colombian gross loans are still under payment holidays.
4448760,166,1617.8101,1620.9399,3,The remaining reliefs are under structural payment programs.
4448760,167,1621.41,1633.21,3,In Central America twenty point nine percent of our loans still have some type of relief with seven point eight percent of gross loans under payment holidays and thirteen point two percent under structural payment programs.
4448760,168,1633.62,1638.6899,3,Payment holidays persist mainly in Panama that account for ninety four percent of those in the region.
4448760,169,1639.8,1651.9,3,At end of period four point two percent of our total loans that in the past had benefited either from payment holidays or were restructured and that had returned to active payment schedules were past due more than ninety days.
4448760,170,1652.33,1655.9199,3,These past due loans represent one percent of our total gross loans.
4448760,171,1656.3199,1661.9501,3,These numbers were seven point three percent and one point eight percent for loans past due more than thirty days.
4448760,172,1662.98,1673.4,3,In Colombia five point seven percent of loans previously relieved that had resumed active payment schedules were ninety days past due representing one point one percent of gross loans.
4448760,173,1673.79,1678.74,3,For thirty days past due loans these numbers were nine point three percent and one point eight percent.
4448760,174,1679.47,1689.5,3,In Central America two point six percent of loans previously relieved that had returned to active payment schedules were ninety days past due representing point nine percent of gross loans.
4448760,175,1689.88,1695.0199,3,For thirty days PDLs these numbers were five point three percent and one point eight percent.
4448760,176,1696.21,1702.5701,3,As mentioned before the deterioration in relief loans was partially offset by the improvement of the rest of our loan portfolio.
4448760,177,1702.85,1709.29,3,This resulted in the overall metrics for thirty days and ninety days PDLs remaining relatively stable during the quarter.
4448760,178,1709.29,1714.86,3,Our allowance coverage of thirty days and ninety days PDLs remained flat as well as our-
4448760,179,1715.02,1715.85,3,over the quarter.
4448760,180,1716.71,1721.88,3,The ratio of charge-offs to average ninety day PDLs stood at pre COVID levels.
4448760,181,1722.3101,1739.02,3,Regarding thirty day P D L formation seventy six percent was explained by retail products with credit cards and personal installment loans contributing twenty eight percent and 20% of PDL formation respectively despite representing only eight percent and five percent of our gross loans.
4448760,182,1739.52,1743.17,3,This behavior was mainly driven by relief loans that became delinquent.
4448760,183,1744.3199,1755.4401,3,The quality of our loan portfolio was materially stable quarter-on-quarter at four point seven six percent on a thirty day basis and three point four two percent at ninety day P D L basis.
4448760,184,1755.8101,1758.4199,3,With thirty day and ninety day PDL…
4448760,185,1759.63,1759.9401,3,Sorry.
4448760,186,1760.1899,1766.99,3,Our thirty day and ninety day PDLs were seventy one and forty two basis points higher than those a year earlier.
4448760,187,1767.76,1776.86,3,Composition of our loan portfolio in term of stages shows an improvement in the share of stage one loans compensated by a decrease in stage two loans.
4448760,188,1777.25,1781.5299,3,As anticipated part of the stage two loans migrated to stage three.
4448760,189,1782.48,1795.98,3,This improvement was mainly driven by our consumer loan portfolio in both geographies which recorded a one hundred forty six basis points increase in the share of stage one loans and a hundred fifty five basis points decrease in stage two.
4448760,190,1796.98,1801.46,3,Coverage of each stage remains relatively stable compared to a quarter earlier.
4448760,191,1802.6,1815.4,3,Cost of risk net of recoveries was two percent twenty three basis points lower than the two point two percent in the previous quarter and a hundred eleven basis points lower than the three point one percent a year earlier.
4448760,192,1815.92,1823.41,3,The quarterly improvement incorporates fifty eight basis points decrease in retail loans and a five basis points increase in commercial loans.
4448760,193,1824.1,1829.9099,3,Quarterly cost of risk improved by thirty four basis points in Colombia and four basis points in Central America.
4448760,194,1830.45,1837.1599,3,In Colombia the cost of risk of retail loans improved eighty four basis points while that for commercial loans remained stable.
4448760,195,1837.8199,1846.4601,3,In Central America the cost of risk of retail loans fell twenty two basis points and increased seventeen basis points for commercial loans.
4448760,196,1847.74,1851.47,3,On page thirteen we present funding and deposit evolution.
4448760,197,1852.2,1856.4701,3,Funding growth during the quarter continued to reflect a high liquidity environment.
4448760,198,1857.09,1866.26,3,Our deposits to net loans ratio and our cash-to-deposit ratio remained stable over the quarter at a hundred ten percent and fifteen point eight percent respectively.
4448760,199,1866.97,1873.41,3,Our funding structure remained materially unchanged with deposits accounting for seventy eight percent of total funding.
4448760,200,1874.28,1879.3199,3,Deposits increased one point seven percent during the quarter and six point four percent year-on-year.
4448760,201,1880.01,1885.76,3,Colombia grew one point four percent during the quarter while Central America grew point two percent in dollar terms.
4448760,202,1886.1801,1892.84,3,For the twelve month period Colombia grew three point three percent and Central America eleven point six percent in dollar terms.
4448760,203,1893.3,1902.25,3,Annual growth of deposits above that of of a loans reflects a conservative liquidity standing particularly in Central America.
4448760,204,1903.65,1911.9401,3,On page fourteen we present the evolution of our total capitalization our attributable shareholders' equity and the capital adequacy ratios of our banks.
4448760,205,1912.26,1923.7,3,Total equity grew five percent over the quarter and eight point two percent year-on-year while our attributable equity increased five point three percent and seven point six percent respectively mainly driven by our earnings.
4448760,206,1924.05,1932.34,4,Sovereignty ratios under Basel III remain relatively stable as net income provided support for risk-weighted assets growth over the quarter.
4448760,207,1933.7,1938.6,4,On page fifteen we present our yield on loans cost of funds spread and NIM.
4448760,208,1939.24,1945.1499,4,NIM performance during the quarter was driven by a stable NIM on loans and an improvement of NIM on investments.
4448760,209,1945.65,1953.8201,4,Nim on loans remained at five point eight percent during the quarter as the spread between yields and loans and cost of funds remained flat at six percent.
4448760,210,1954.61,1960.8201,4,Yield on loans continue to keep decreasing however it was compensated by a similar decrease in cost of funds.
4448760,211,1961.41,1969.3201,4,NIM on investments was one point four percent during the quarter returning to positive ground from the minus oh point four percent recorded last quarter.
4448760,212,1970.05,1975.75,4,The excess liquidity associated with the prudent liquidity standing continued to weigh on our NIM.
4448760,213,1976.95,1980.4299,4,On page sixteen we present net fees and other income.
4448760,214,1981.1,1986.0801,4,On this page and the following we will present several PNL lines and metrics.
4448760,215,1986.4301,1991.17,4,Please bear in mind that two factors limit the comparability of our results year-on-year.
4448760,216,1991.33,2005.77,4,First a low baseline considering that the strongest effect of the pandemic and commercial activity was suffered during that quarter and second only one month of MFG operations was part of our second quarter twenty twenty p n l.
4448760,217,2006.73,2008.61,4,Now moving to the content of this page.
4448760,218,2009.01,2016.4,4,First half gross fee income increased eight point seven percent year-on-year while quarterly year-and-year growth was seventeen point nine percent.
4448760,219,2017.36,2026.26,4,Gross fees fell three point six percent during the quarter affected by a temporary pause in recovery associated with the demonstrations held in Colombia during April and May.
4448760,220,2026.8101,2035.53,4,In addition performance-based pension management fees in Colombia and bancassurance related expenses in Central America affected this quarter's performance.
4448760,221,2036.58,2042.97,4,Income from the nonfinancial sector reflects the strong performance of the infrastructure and energy and gas sectors.
4448760,222,2043.3101,2051.1001,4,Our infrastructure sector grew seventeen point five percent over the quarter mainly due to the a strong performance in the construction of some of our inaudible.
4448760,223,2051.8,2057.6599,4,First half contribution from the inaudible infrastructure sector grew forty eight percent year-on-year.
4448760,224,2057.79,2068.4302,4,Quarterly income from infrastructure was three point eight times that a a year earlier when the stringent lockdowns experience March to May halted construction.
4448760,225,2069.1799,2076.5598,4,The energy and gas sector contribution increased fourteen percent over the quarter due to positive results in gas distribution and pipeline construction.
4448760,226,2077.28,2090.3201,4,First half income from the energy and gas sector grew sixty percent year-on-year while quarterly income was two point one times compared to a year earlier when a decrease on in in industrial gas demand during the lockdowns affected our results.
4448760,227,2090.96,2104.99,4,The bottom of the page the quarterly decrease in other income is explained by lower contribution of OCI realization of fair value uh fixed income uh portfolios and by the seasonally high income from dividends during the first quarter.
4448760,228,2105.95,2109.1802,4,On page seventeen we present some efficiency ratios.
4448760,229,2109.8101,2117.0901,4,First half other expenses increased two point four percent year-on-year while quarterly expenses grew four point five percent year-on-year.
4448760,230,2117.8899,2125.99,4,Year-to-date expenses grew point six percent in Colombia and fell point two percent in dollar terms in Central America excluding the effect of MFG.
4448760,231,2126.78,2139.1499,4,Quarterly expenses uh increa increased year-on-year three point three percent in Colombia and six point seven percent in dollar terms in Central America excluding the effect of MFG.
4448760,232,2139.9299,2151.03,4,Compared to first quarter other expenses increased six point one percent with Colombia growing at six point eight percent and Central America growing at one point three percent in dollar terms.
4448760,233,2152.23,2169.78,4,In addition to an increase in cost associated with higher activity this quarter included provisions of the remaining fifty percent of the penalty imposed to inaudible Colombiana by the Colombian Superintendency of Industry and Commerce in relationship uh to the inaudible investigation.
4448760,234,2170.5801,2180.73,4,Compared to a year earlier cost-to-assets remains stable at three point two percent and improved forty five percent down from fifty one point three percent on a cost-to-income basis.
4448760,235,2182.4399,2186.9299,4,Finally on page eighteen we present our net income and profitability ratios.
4448760,236,2187.4099,2198.79,4,Our tradable net income for second quarter twenty twenty one was nine hundred fifty billion Colombian pesos or forty two point six pesos per share its best result ever for a quarter.
4448760,237,2199.1299,2206.48,4,This result was nineteen point nine percent uh higher than the previous quarter and two point nine times that a year earlier.
4448760,238,2207.6101,2213.0701,4,Our return on average assets for the quarter was two percent and one point nine percent year to date.
4448760,239,2213.6001,2220.6799,4,Our return on average equity for the quarter was eighteen point two percent and sixteen point seven percent year to date.
4448760,240,2221.9399,2224.53,4,I will summarize our guidance for twenty twenty.
4448760,241,2225.1201,2229.0999,4,We expect loan growth to be in the nine to ten percent area.
4448760,242,2229.6101,2236.6101,4,Net interest margin on loans to be five point eight and total net interest margin to be in the four point eight to five percent range.
4448760,243,2237.3,2248.4102,4,Cost of risk to be in the two point one to two point two percent range net fees to grow in the eight percent area our nonfinancial sector to grow in the five percent area.
4448760,244,2248.8501,2251.28,4,Expenses growth to be in the four percent area.
4448760,245,2257.22,2260.4399,4,we're now available to a address your questions.
4448760,246,2263.47,2263.98,5,Thank you.
4448760,247,2263.98,2267.7698,5,If you have a question please press star then one on your touch-tone phone.
4448760,248,2268.1599,2271.98,5,If you wish to be removed from the queue please press the pound sign or the hash key.
4448760,249,2272.4399,2276.98,5,If you're using a speakerphone you may need to pick up the headset first before pressing the numbers.
4448760,250,2277.52,2282.21,5,Once again if you have a question please press star then one on your touch-tone phone.
4448760,251,2285.22,2292.3801,6,Good morning.
4448760,252,2292.4199,2297.72,6,Uh thank you for the presentation and congratulations on on very strong results.
4448760,253,2298.27,2300.6699,6,I have uh several questions today.
4448760,254,2300.8,2304.22,6,Uh first of all the you just mentioned uh Mr.
4448760,255,2304.22,2311.1099,6,Diego mentioned an ROE guidance of fifteen to fifteen point five percent in twenty twenty one.
4448760,256,2311.1799,2323.27,6,Uh can you discuss on how uh sustainable are are are these type of returns uh going into twenty twenty two and on a long-term uh sustainability basis?
4448760,257,2323.9399,2326.6902,6,Uh second uh it caught my attention…
4448760,258,2326.74,2328.04,6,Uh Mr.
4448760,259,2328.04,2339.97,6,Luis Carlos uh comments on the potential competition on digital platforms and how far those platforms could have trouble monetizing uh the uh…
4448760,260,2340.8,2342.4299,6,Uh I mean their their users.
4448760,261,2342.8601,2358.02,6,Can you uh discuss a little bit more the the competitive environment on on that front and and why are you so confident that uh other uh players may not be able to monetize uh those those users?
4448760,262,2358.49,2371.7898,6,And finally if you could provide uh an outlook for loan growth uh breaking down per uh per region and breaking down uh per segments uh given the nine to ten percent uh guidance.
4448760,263,2371.9099,2372.8599,6,Thank you very much.
4448760,264,2374.6101,2375.0701,7,Okay.
4448760,265,2375.0701,2375.49,7,Yeah.
4448760,266,2385.7,2414.1401,7,Uh the the what we see around the region with uh platforms uh fintech platforms that have been able to uh turn in net income uh is basically the uh uh not charging fees but uh charging substantial interest rates in one way or another.
4448760,267,2415.26,2422.45,7,In Colombia as I said it's a little bit more complicated because we have very strict usury rate uh regulation.
4448760,268,2423.0701,2433.5,7,So uh here when when you bring on digital clients you have to consider how you're gonna monetize 'em.
4448760,269,2434.6399,2453.7798,7,And uh you can massively increase your digital clients in those sort of platforms but if in that massification you acquire a lot of digital clients that will probably not transact too much.
4448760,270,2453.78,2482.26,7,Like for example clients that are just become so to receive subsidies from the government or uh other types of clients that will probably not be subject to uh becoming uh debtors in uh uh via loans uh it might be a little bit harder to monetize 'em so I you know I don't have the the solution.
4448760,271,2482.97,2489.4399,7,Uh and I am sure that everybody who is uh coming up with a digital platform has thought about this.
4448760,272,2490.1101,2500.53,7,And and obviously most of it is gonna depend on what your cost of funds is if if you are planning to take in funds to then try to make those customers into borrowers.
4448760,273,2501.27,2506.1899,7,It also depends on your on your cost uh uh structure.
4448760,274,2506.22,2542.47,7,And and obviously some of these uh fintechs which are starting uh in uh from the beginning as as uh as solely digital platforms with no legacy of of other types of costs uh have a an easier time of of keeping costs down but all that I'm saying is uh in our case when we think about uh massification of digital clients uh we always think in terms of what's that going to produce i in with respect to net income for the company.
4448760,275,2543.1399,2563.97,7,So uh in that respect we we usually say let's start with those actions that we know are gonna result in in in valuation and valuation via additional net income because as you know we are basically valued based on on a price to earnings ratio and so we have to produce the earnings.
4448760,276,2564.6899,2582.0898,7,And uh and and that's why we're saying in our in our in our strategy we first decided we would put a lot of emphasis on being able to offer our own legacy products in a digital manner so that new clients uh could acquire them that way.
4448760,277,2582.6499,2591.71,7,And secondly we've been going through this digitalization of of of processes and operations in the banks and and that has resulted in cost savings.
4448760,278,2592.25,2611.46,7,We will obviously not discard in any shape the idea of of massifying digital clients uh but we have to make sure and and that that those clients have some future in terms of producing additional revenues for the company.
4448760,279,2686.1499,2687.24,4,It is the tax reform.
4448760,280,2687.76,2691.6799,4,It is building in what comes out from from from that reform is still to be seen.
4448760,281,2741.22,2744.7898,4,We could expect to see something in the twelve to fourteen percent area growth.
4448760,282,2745.3101,2749.6501,4,And on the commercial front it should be somewhere between six and seven percent.
4448760,283,2904.6101,2907.3601,9,I would say the main driver will be economic activity.
4448760,284,2934.03,2934.4299,10,Thank you.
4448760,285,2934.77,2940.53,10,And as a reminder if you have a question please press than one on your touch tone phone.
4448760,286,2941.96,2945.45,10,Our next question comes from Brian Flores from ASA Investment.
4448760,287,2945.7,2946.3701,10,Please go ahead.
4448760,288,2947.99,2950.3501,11,Hi thank you for the opportunity to ask a question.
4448760,289,2950.48,2955.0999,11,Can can you please confirm what was the guidance you used for cost of risk?
4448760,290,2955.5801,2957.9001,11,Uh and then I'll give a second question.
4448760,291,2957.96,2958.27,11,Thank you.
4448760,292,2959.8401,2960.8201,9,Okay.
4448760,293,2960.8201,2964.6101,9,Uh regarding cost of risk you might have known that we lowered our guidance.
4448760,294,2964.6101,2965.8799,9,We had previously given…
4448760,295,2966.23,2974.98,9,Initially we started out with two and a half lowered it two point three to two point four and this time around we're lowering it to two point one to two point two percent.
4448760,296,2975.52,2996.4399,9,The reason for that eh is we're seeing a much better performance on our loan portfolio particularly on the retail side and then given the much stronger economy that we're looking into in Colombia and Central America the remaining of the remainder of the portfolio beyond what what was a um benefited from reliefs is also performing much better.
4448760,297,2996.4399,2998.27,9,So so that's the reason we're doing that.
4448760,298,3037.3601,3037.8999,11,Thank you very much.
4448760,299,3068.0701,3071.6702,12,Hi all uh first congrats on the results very good quarter.
4448760,300,3071.71,3076.53,12,Uh I have a uh a question on margins uh actually on the liability side.
4448760,301,3076.74,3080.8201,12,Um I guess we are seeing logbook accelerating in Colombia right?
4448760,302,3141.54,3146.8398,9,The short answer is deposit growth uh we we should expect to continue sustaining that.
4448760,303,3198.97,3212.1699,9,If you eh recall um what eh we have in our in our commercial portfolio in Colombia is substantially floating eh loans based on IBR.
4448760,304,3212.6299,3218.6201,9,So eh we've started to feel that already it's benefiting us and expect to see that in the future.
4448760,305,3266.8799,3268.05,12,Like uh if there is…
4448760,306,3268.1001,3276.54,12,I I know it's not the main is not a reference rate but just as approx like if the rates move up one hundred beeps what should we see for your your inaudible?
4448760,307,3277.3301,3280.71,9,Well yeah uh you have to build in cost of risk into that.
4448760,308,3280.71,3281.3699,9,Uh we've…
4448760,309,3281.5901,3295.8201,9,In the past we used to disclose some sort of sensitivity around the the the twenty basis points uh uh or the twenty cents per dollar kinda of sensitivity but that was pure interest rate sensitivity.
4448760,310,3295.8501,3303.5701,9,However pricing has become growingly intelligent in Colombia and you have to build in as well uh the cost of risk into those.
4448760,311,3350.23,3363.77,13,I would like to know if you can give us a little bit more color of your expectation for the second half of two thousand twenty like you think the earnings is gonna beha are gonna behave the same as the first half of the year.
4448760,312,3363.9199,3372.6299,13,And also I would like to know if you can give us a little bit more color about eh what are your expectation on long growth?
4448760,313,3372.8899,3384.8801,13,Like if you can eh give us eh like the consumption the consumer the the market segments how they will grow if you have this detail thank you.
4448760,314,3398.49,3402.3899,9,We are quite positive on how the second the year will behave.
4448760,315,3402.8501,3406.0,9,As I mentioned still prudent on the cost of risk side.
4448760,316,3406.3701,3416.29,9,That's the reason why eh we're guiding into fifteen to fifteen and half percent r o e for the year in spite of having already over performed eh those numbers.
4448760,317,3416.6399,3428.3799,9,So eh we're we're prudent on on that side because the the the cycle is not over yet but eh we are quite positive on eh the core banking side of how things are are behaving.
4448760,318,3428.8601,3449.04,9,And regarding eh long growth just to to to repeat eh what eh I answered Sebastian at the beginning we're looking into eh commercial lending growing somewhere in the six eh to 8% area and eh the consumer side the retail side growing more in the twelve to fourteen percent eh area.
4448760,319,3454.8999,3455.3298,10,Perfect.
4448760,320,3463.3401,3465.4001,14,Uh my question is related to expenses.
4448760,321,3465.75,3473.3301,14,Uh when I compare expenses this quarter with the second quarter of twenty nineteen there is uh an fourteen percent growth.
4448760,322,3473.47,3482.72,14,Obviously we you have inorganic growth in the middle bu it's still um uh you have uh real expense growth over that period.
4448760,323,3483.0701,3488.5,14,So I would like to to understand uh if there is any strategy to uh achieve efficiency.
4448760,324,3488.5,3500.8301,14,In the past uh you mentioned that this could be one of the opportunities uh that the digital transformation cou could bring to uh a group of inaudible uh through the uh uh backend int integration of the uh different brands.
4448760,325,3501.3401,3505.0601,14,So I would like to to understand your thoughts about your your expense performance.
4448760,326,3506.8401,3517.9299,9,Eh well eh I I will start first with uh the the quantitative eh discussion here and then we can we can move into the more strategic one.
4449269,0,2.05,10.33,0,Good morning ladies and gentlemen and welcome to the E S G Flight Plan event in Embraer second quarter twenty twenty one financial results.
4449269,1,10.82,11.88,0,Thank you for standing by.
4449269,2,12.32,14.98,0,I'm Felipe Calzada and I'll be your host for today.
4449269,3,15.69,20.0,0,At this time all participants will watch our financial results presentation.
4449269,4,20.42,26.67,0,Right after we will conduct a question and answer session and instructions to participate will be given at that time.
4449269,5,27.1,32.51,0,If you should require any assistance during the event you can do so using the chat box on the platform.
4449269,6,33.08,38.3,0,As a reminder this presentation is being recorded and webcasted at Writer's platform.
4449269,7,38.87,41.13,0,Before we begin just a legal statement.
4449269,8,41.65,48.75,0,This conference call includes forward-looking statements or statements about events or circumstances which have not occurred.
4449269,9,49.32,61.48,0,Embraer has based this forward looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance.
4449269,10,61.93,75.75,0,These forward-looking statements are subject to risks uncertainties and assumptions including among other things general economic political and business conditions in Brazil and in other markets where the company's present.
4449269,11,76.22,88.01,0,The words believes may will estimates continues anticipates intense expects and similar words are intended to identify those forward-looking statements.
4449269,12,88.48,98.13,0,Embraer undertakes no obligations to update publicly or revise any forward-looking statement because of new information future events or other factors.
4449269,13,98.64,107.31,0,In light of this risks and uncertainties the forward-looking and circumstances discussed on this conference call might not occur.
4449269,14,107.87,114.4,0,And the company's actual results could differ substantially from those anticipated in the forward-looking statements.
4449269,15,115.1,128.61,0,Participants on today's conference are Francisco Gomes Neto president and C E O Antonio Carlos Garcia chief financial officer and procurement and Eduardo Couto director of investor relations.
4449269,16,129.18,132.97,0,And now I would like to turn the conference over to Francisco Gomes Neto.
4449269,17,133.36,134.99,0,Please go ahead Francisco.
4449269,18,138.38,154.27,1,Thank you Felipe.
4449269,19,154.27,160.7,1,Good morning to all and thank you for joining our call today.
4449269,20,161.95,168.91,1,I hope that uh all of you are well and safe and thank you for your interest in our company.
4449269,21,170.21,176.44,1,As you'll see in Antonio's presentation our results for the quarter were strong.
4449269,22,177.47,194.16,1,The q two results are a clear example that our strategic planning has been well executed with the right focus and discipline showing significant improvement in our financial performance.
4449269,23,195.17,206.36,1,Before we go into more details regarding the q two results I'd like to highlight the good momentum we are going in the different business segments.
4449269,24,207.28,223.86,1,In commercial aviation we announce that a new firm order for third e one ninety five e two from the Canadian Porter Airlines' with uh purchase rights for fifty more aircraft.
4449269,25,224.67,240.0,1,We also announce that new firm orders for thirty four e one seventy five jets to Horizon Air and Sky West to be operated for Alaska Airlines and the Delta Air Lines.
4449269,26,241.28,253.23,1,These new orders and other activity campaigns reiterate the continuous interest in the E jet family as the best option in the regional aviation market.
4449269,27,254.91,260.83,1,In as executive aviation we keep up the momentum with the record sales in the quarter.
4449269,28,261.65,273.51,1,We maintained our price discipline strategy and had a strong backlog growth with book to build in excess of two to one for this business.
4449269,29,274.24,281.94,1,In the defense insecurity we delivered seven Super Tucano aircraft in the first half of the year.
4449269,30,282.88,299.5,1,Also we had strong performance in our cybersecurity and systems integration companies with double digit revenue growth in the first half of this year compared to the first half of last year.
4449269,31,300.34,313.26,1,Further in the second quarter the kc three ninety Millennium reached an important milestone by successfully performing unpaved runway tests.
4449269,32,314.41,331.56,1,Although we are currently in negotiations with the Brazilian Air Force on the kc three ninety Millennium contract we are continuing to be focused on the new export sales campaigns for this aircraft as well as the Super Tucano.
4449269,33,333.05,352.93,1,In services and support we are pleased with the strong second quarter results with better revenues and higher margins as traffic recovery and a strong maintenance activity drove fifty five percent revenue growth in the second quarter.
4449269,34,353.84,373.82,1,it's exciting to see the continued positive sales activity in services with due signed with several important customers across all markets and at OGMA driving backlog backlog expansion for this segment during the period.
4449269,35,375.0,384.99,1,This was further highlighted by the contract we signed with Porter Airlines for a twenty year total support program.
4449269,36,386.74,402.23,1,With respect to innovation we continue to make progress on partnerships in the urban air mobility ecosystem through our subsidiary if in a segment with a strong growth potential in the years to come.
4449269,37,403.81,415.47,1,In addition our service collaborative platform Beacon signed agreements with key customers such as Republic for its maintenance applications.
4449269,38,416.77,422.27,1,Finally on the operations front we continue to see great improvements.
4449269,39,422.75,442.3,1,We expect a sixteen percent increase in inventory returns compared to twenty twenty and a twenty percent reduction in production cycle time of our aircraft this year positively impacting working capital and production costs.
4449269,40,443.4,454.32,1,I will now hand it over to an Antonio Garcia our C F O to give further details on the financial results and I will return in the end.
4449269,41,454.7,455.17,1,Thank you.
4449269,42,470.55,471.52,2,Thank you Francisco.
4449269,43,472.12,473.53,2,And good morning everyone.
4449269,44,474.65,477.14,2,I will start for our backlog for the quarter.
4449269,45,478.42,490.28,2,On slide seven the graph shows we ended the second quarter at fifty nine billion up one point seven billion or twelve percent from the prior quarter.
4449269,46,491.49,500.05,2,This represent a return to the same fifteen point nine billion we were at in twenty twenty before the pandemic began.
4449269,47,500.86,519.51,2,In our commercial aviation business we closed forty eight aircraft sales in the quarter is spread across several different airlines In executive aviation we had to record second quarter sales a solid backlog as demand for light and larger business that continue to grow.
4449269,48,520.68,527.71,2,Backlog service and support and defense and security also grew from the prior prior quarter level.
4449269,49,528.6,533.72,2,In summary it was the best sales quarter since mid June two thousand nineteen.
4449269,50,535.01,541.03,2,This give us confidence in our plans for future revenue growth and improvements.
4449269,51,544.26,556.08,2,Moving to slide eight you can see the continuous improvement in aircraft delivers compared last year and both commercial aviation executive aviation.
4449269,52,556.7,561.07,2,In commercial aviation we delivered fourteen aircraft in the quarter.
4449269,53,561.86,573.08,2,This represents a fifty six percent increase compared to the prior quarter and two hundred fifty percent increase compared to the second quarter in two thousand twenty.
4449269,54,573.9,582.04,2,Year to date delivers we were at twenty three almost two and a half times higher than the same period in the prior year.
4449269,55,582.9,591.2,2,Of these twenty three delivers fourteen were each choose compared to four each choose in the same period last year.
4449269,56,592.4,601.23,2,Sales continues to perform very well for the two as the most efficient right side of single oil aircraft for the world post-pandemic.
4449269,57,602.31,611.84,2,In executive aviation we delivered twelve l jets light jets and eight larger jets for a total of twenty aircraft in the second quarter.
4449269,58,612.51,622.48,2,This represents fifty four percent increase compare to both first quarter two thousand twenty one and the second quarter part of the prior year.
4449269,59,623.23,633.61,2,Year to date delivered uh executive aviation delivered thirty three aircraft a fifty percent increase compared to the first half of two thousand twenty.
4449269,60,635.01,652.43,2,As noted in the guideline the guidelines two thousand twenty one we published this morning we expect delivers of commercial jets to reach between forty five to fifty fifty aircraft and executive jets to reach between ninety to ninety five.
4449269,61,652.43,653.11,2,Aircraft.
4449269,62,657.02,660.14,2,On the slide nine we show Embraer net revenue.
4449269,63,661.17,670.04,2,Embraer had the solid revenue growth in the quarter as all four business units rebrand is stronger from the pandemic.
4449269,64,671.02,675.68,2,Our top line more than doubles compared to the second quarter of last year.
4449269,65,676.85,686.69,2,Growth came primarily from higher deliveries in commercial aviation although all our segments showed much improved growth during the quarter.
4449269,66,688.0,698.42,2,Year to date narrow net revenue was just under two billion that's seven hundred sixty seven million or sixty five percent increase over twenty twenty.
4449269,67,699.33,716.56,2,Net revenue breakdown by business show Embraer diversification with commercial aviation representing thirty four percent of the total revenues service and support at twenty eight executive aviation twenty two and defense sixteen percent.
4449269,68,740.42,747.9,4,We remain highly focused on sg and a efficiencies that are being implemented since the component inaudible last year.
4449269,69,748.73,778.5,4,Although the second quarter has a slight increase in sg and a this was primarily driven by increase in provision for inaudible and performance based inaudibleprogram due to better expected results for the company two thousand twenty one as compared to two thousand twenty Combined with consolidation of expenses from Pampus our new cyber security component acquired in the end of two thousand twenty.
4449269,70,779.95,793.49,4,Selling expenses remains an historical low levels compared to the prior quarters selling expenses increased four percent while net revenue increased over forty percent sequentially.
4449269,71,794.64,803.99,4,As percentage of net revenue selling expenses was four point two percent in the second quarter compared to five point seven percent in the first quarter.
4449269,72,804.94,816.74,4,We achieved this results by leveraging our sales activity as volume increased combined with some more cost efficiency digital sales effort.
4449269,73,821.5,827.59,4,it's like a eleven shows are adjusted e b i t and adjusted e b i t d a.
4449269,74,828.01,834.33,4,We are very encouraged by this stock market performance across all business segments in the second quarter.
4449269,75,835.11,842.85,4,Our adjusted EBIT margin was nine point three percent up thirteen percentage points over the first quarter.
4449269,76,844.03,853.84,4,Our adjusted e b i t margin was in double digits at fourteen percent or up over sixteen percentage points from the first quarter.
4449269,77,855.35,861.37,4,Both of these profitability matrix have recovered to the level that was seen before twenty twenty.
4449269,78,862.96,876.4,4,For the first half of two thousand twenty one our adjusted e b i t margin was zero point nine percent and our adjusted EBITDA margin was nine point two percent both well above prior year level.
4449269,79,878.21,901.51,4,This improvement comes from several factors including higher delivers resulting in higher revenue better growth margin on improved pricing mixed product efficiency fixed cost leverage on higher volumes and favorable tax obligation reversal of this quarter of approximately twenty five million.
4449269,80,902.56,913.31,4,All of our segment has much better performance in the second quarter adjusted e b i t margin by segment in the second quarter were as follows.
4449269,81,914.85,924.78,4,Commercial aviation was at one point seven percent negative which although negative shows a great improvement from last year.
4449269,82,926.11,933.62,4,Executive aviation was at positive eight percent with a strong price discipline and consistent profitability.
4449269,83,934.93,945.93,4,Defensive security was at positive twenty five percent led by Super Tucanos delivers along with positive adjustments on certain defense contracts.
4449269,84,947.14,954.67,4,And serves and support was at nineteen percent as a strong contribution from the spare parts programs.
4449269,85,960.55,963.71,4,inaudible shows our adjusted net income.
4449269,86,964.08,970.8701,4,It was positive for inaudible in the second quarter.
4449269,87,974.28,979.94,4,This represents the first net profit on a quarterly basis since two thousand eighteen.
4449269,88,981.58,1000.17,4,they're recovering against net income is primarily driven by improved operative margins reduction in financial leverage also contributes to improved profitability and any future that redemption would naturally have any additional positive impact on earnings.
4449269,89,1004.45,1009.17,4,inaudibleI would like to begin with free cash flow.
4449269,90,1011.01,1025.02,4,Free cash flow in the second quarter was positively forty five million two hundred seventy two million higher than first quarter and five hundred seventy million higher than the same period of last year.
4449269,91,1025.8199,1027.6901,4,This is a remarkable achievement.
4449269,92,1028.78,1043.39,4,Although here to-date the cash flow is negative one hundred eighty one million this is compared if you have free cash flow built of around a billion of the first half of two thousand twenty.
4449269,93,1044.48,1055.61,4,We expect positive free cash flow from the second half of the year of two thousand twenty one as indicated in this morning guidance.
4449269,94,1057.15,1058.3401,4,Now to investments.
4449269,95,1059.88,1070.34,4,Our total investments were fifty million in the second quarter and eighty nine million year-to-date both of which are in line with last year levels.
4449269,96,1071.16,1075.3201,4,This is important because it shows we continue to invest in our future.
4449269,97,1076.36,1083.2799,4,We have been very adjusting the balancing the need to invest our future with the need to preserve cash.
4449269,98,1086.22,1089.5399,4,it's like inaudible shows our cash and liquidity position.
4449269,99,1090.2,1095.48,4,We end up the quarter with two points forty nine billion cash and cash equivalents.
4449269,100,1096.1,1098.6801,4,I like to increase it from the end of the first quarter.
4449269,101,1099.53,1105.03,4,Our debt balancing was at four point three billion a light decrease from three months ago.
4449269,102,1107.14,1110.2699,4,Our average debt maturity remains at four years.
4449269,103,1111.11,1119.85,4,We expect to continually generate cash in the second half of two thousand twenty one and beyond so our leverage will naturally decrease.
4449269,104,1121.1801,1129.4,4,This will correspondingly reduce our net interest and expense and have an additional positive impact on net income.
4449269,105,1133.6801,1146.8999,4,Finally inaudible Embraer has published two thousand twenty one financial delivers guidance for the first time since the start of pandemic.
4449269,106,1148.83,1167.8201,4,Despite of risks of economy recovery vaccination rates around the world and with the solid first half and good visibility for the remaining of the year we decided to share the inaudible our targets for twenty twenty one.
4449269,107,1170.53,1187.89,4,We expect to deliver between fifty four to fifty at commercial jets just to correct forty five to five oh commercial aircraft in two thousand twenty one and ninety to ninety five ejector jets in the year.
4449269,108,1188.65,1219.3401,4,We have good confidence in both figures as our skyline are inaudible filled for both segments combined with the inaudible credit and continue to recovering the services support inaudible recover globally we expect consolidated revenues to be between four and four point five billion dollars this year representing a low inaudible which grow at the media point compared to the last year.
4449269,109,1221.26,1233.11,4,Adjusted inaudiblemodule should be in the range of three to four percent and adjusted inaudible for twenty twenty one should be between eight point five percent to nine point five percent.
4449269,110,1236.01,1246.8201,4,Embraer has had in the first half of two thousand twenty margin in these ranges as we expect these good margins to repeat in the second half of the year.
4449269,111,1247.6801,1259.01,4,it's important to mention that those margins includes cost related to the integration of commercial aviation as well as expenses related to the arbitration process.
4449269,112,1260.75,1271.75,4,Finally our free cash flow guidance is arranged from free cash flow users of a hundred fifty million total break-even for two thousand twenty one.
4449269,113,1272.66,1290.96,4,We had a hundred eighty one million of free cash users in the first half of the year so we are anticipating Embraer to generate up to a hundred eighty million cash in the second half of two thousand twenty one without any cash inflows from inaudible.
4449269,114,1291.8,1298.2799,4,With that I conclude my presentation and hand it back over to Francisco for his final remarks.
4449269,115,1298.6899,1310.05,4,Thank you very much thanks Antonio.
4449269,116,1311.35,1333.66,4,The second quarter results and the guidance for the year reinforce our confidence in our strategy and this confidence motivates us to accelerate the performance improvements then the delivery of our long term strategic plan with focus and discipline.
4449269,117,1334.85,1348.24,4,As I had mentioned in the past this year is one of recovery and next year and beyond we plan to capture embrace full potential to grow with profitability.
4449269,118,1349.36,1361.6699,4,Looking ahead we foresee in the mid-term the potential to double the size of the company and that doesn't include new strategic projects.
4449269,119,1362.78,1372.91,4,We are going to be bigger and stronger focusing not only on the top line but also much higher profitability.
4449269,120,1374.1801,1386.76,4,We are already showing some positive results of the hard work our united and motivated teams of employees have done over the past several months.
4449269,121,1387.75,1399.9601,4,With expectation for positive operating profit this year and much better free cash flow performance with a clear potential to break-even for the year.
4449269,122,1401.41,1410.8101,4,This will be supplemented by partnerships and new programs to drive even higher growth opportunities.
4449269,123,1412.28,1425.51,4,We are also advancing on our E S G journey and right after the Q and A session we will share with you our new E S G commitments.
4449269,124,1426.48,1428.04,4,I invite everyone;
4449269,125,1428.16,1436.1599,4,therefore to remain online for this E S G event which will start just after the results Q and A.
4449269,126,1438.03,1444.0701,4,Also we are looking forward to a new chapter of Embraer with our…
4449269,127,1449.04,1470.55,5,We expect our shareholders to approve the election of two international board members with extensive global aerospace industry experience following constructive feedback from analysts and shareholders to improve our corporate governance.
4449269,128,1471.98,1481.21,5,These candidates have deep technical knowledge strategic profiles and an innovative thought process.
4449269,129,1482.4301,1489.26,5,Finally i'll close today by thanking everyone for this strong quarter.
4449269,130,1490.25,1498.0599,5,It always starts with our people and their focus and passion on executing our strategic planning.
4449269,131,1499.4399,1505.46,5,As I mentioned to you in the last earnings call we are a different company today.
4449269,132,1506.48,1510.9199,5,We are in a process of transformation and we are moving fast.
4449269,133,1512.35,1516.42,5,Thank you for your interest and confidence in our company.
4449269,134,1517.6,1518.5801,5,Over to you Philippi.
4449269,135,1525.38,1526.6899,6,Thank you very much Francisco.
4449269,136,1526.99,1529.88,6,And before we continue we'd like to show you a video.
4449269,137,1530.26,1530.84,6,Check this out.
4449269,138,1532.01,1534.77,7,The world is a different place to a year ago.
4449269,139,1535.1899,1541.75,7,Industries have changed aviation perhaps more than any other Embraer has changed too.
4449269,140,1542.91,1545.92,7,We're leaner more agile and fit for growth.
4449269,141,1546.83,1565.64,7,We're already on a path that will make us bigger and stronger and with an all new product portfolio that are the most efficient and technologically advanced in their class all built with the passion to improve sustainability economics cost efficiencies and driving new innovations.
4449269,142,1566.16,1569.6899,7,We're better adapted to the challenges and opportunities of now.
4449269,143,1570.65,1576.0,7,Like our customers we're always looking above and beyond what was previously thought possible.
4449269,144,1576.63,1578.97,7,That's why the world looks to Embraer.
4449269,145,1579.36,1582.99,7,We are right for the world ahead right now.
4449269,146,1584.9301,1589.7101,7,Embraer challenge create outperform.
4449269,147,1591.22,1600.65,6,And now let's move on to our questions and answers sessions we are preparing this side here and remember that questions can only be sent to the writers platform.
4449269,148,1601.21,1605.49,6,Eduardo Colto will be our moderator and he already has some questions with him.
4449269,149,1605.9399,1615.79,6,Eduardo over to you.
4449269,150,1619.75,1619.96,8,Thanks.
4449269,151,1622.13,1624.52,8,So let me see the questions that we have.
4449269,152,1625.1899,1631.5599,8,Uh a first question we have is can you give an update on the SPAC negotiations with Eve?
4449269,153,1632.05,1635.21,8,I dunno uh Francisco Antonio who wants to take that?
4449269,154,1635.33,1636.47,5,Yes thank you I do.
4449269,155,1636.51,1637.4601,5,Thanks for the question.
4449269,156,1638.08,1644.2899,5,I mean at this point of time we can say that uh the negotiation is moving very well I would say.
4449269,157,1644.46,1646.37,5,We are very optimistic with this process.
4449269,158,1648.59,1649.0,8,Okay.
4449269,159,1649.92,1663.51,8,Uh moving on the questions second question we have uh what or what work has Embraer been doing to develop electric aircraft in making this product more viable for customers?
4449269,160,1664.39,1666.08,5,Uh thank you also good question.
4449269,161,1666.53,1672.61,5,Well we we had our first technical flight recently with the Ipanema full electric.
4449269,162,1673.2,1677.77,5,And um we hope to present this aircraft to the to the public soon.
4449269,163,1678.37,1696.4,5,And uh continue to to invest in this uh electrification field as one of the one of the innovations uh innovation fronts that we have I mean to be in line with the E S G uh activities that we are moving fast uh uh in Embraer.
4449269,164,1698.61,1698.86,8,Great.
4449269,165,1699.5601,1706.2999,8,Uh third question we have from investors is from uh Vitor Misosaki from Verbesco.
4449269,166,1706.74,1711.91,8,He said the inaudible showed a material gross margin expansion in the second quarter.
4449269,167,1712.27,1715.5,8,Can you give a more details about that Antonio?
4449269,168,1715.92,1718.96,9,Uh Vitor thanks for the question.
4449269,169,1719.59,1726.76,9,We we had in the second quarter two main facts uh on the defense side.
4449269,170,1727.05,1735.8,9,First one was the Super Tucano deliver that we were not able to deliver in q one that flows to the q two figures.
4449269,171,1736.64,1745.27,9,In addition to it we have the uh uh adjustment in the defense contract we have in the local inaudible in Brazil.
4449269,172,1745.27,1757.0699,9,i I would say both effects higher delivers in Super Tucano and the uh adjustments in the contracts lead us to this twenty five percent margin in q two.
4449269,173,1761.5,1761.9301,8,Okay.
4449269,174,1762.51,1763.0,8,Very good.
4449269,175,1763.34,1766.59,8,Uh next question comes from uh U B S.
4449269,176,1767.27,1772.77,8,Uh could you comment on the twenty five million reversal mentioned in the press release?
4449269,177,1773.26,1781.6599,8,Also what was the positive cost base revision related uh uh related on the results?
4449269,178,1783.0601,1784.26,9,So thanks for the question.
4449269,179,1784.26,1796.95,9,First point we we built a provision two thousand eighteen for the Brazilian guys here inaudible that we had a claim discuss been discussing two thousand eighteen.
4449269,180,1797.55,1806.3,9,And we we were able to gain this uh this claim uh in second quarter that's why we reversed the this tax position.
4449269,181,1806.83,1812.8199,9,That was also already adjusted in two thousand eighteen that's why we also consider in our results.
4449269,182,1813.75,1818.17,9,And the second question was in in in regards to the contracts.
4449269,183,1818.4399,1824.5,9,We have an adjustment here around ten million dollars in the second quarter that were both effects.
4449269,184,1825.29,1833.92,9,It's important also to mention that even that we have this tax reversal twenty five million let's put first quarter the second quarter.
4449269,185,1834.63,1848.87,9,And we do have all the tax of course that we are not adjusting that's also not I would say uh for example a reintegration of commercial aviation and arbitration costs which is more or less net this twenty five million I would say.
4449269,186,1849.21,1859.75,9,The numbers you're seeing right now I would say combined q one and q two is really uh for me describe the real performance of the company.
4449269,187,1862.95,1863.0399,8,Okay.
4449269,188,1863.12,1866.47,8,Uh we have several questions about uh about Eve.
4449269,189,1866.79,1868.64,8,i'll try to to summarize them.
4449269,190,1868.64,1873.27,8,So basically any general updates on your Eve eVTOL initiatives?
4449269,191,1873.5,1877.8,8,Would be very helpful particularly all negotiations with Zanite.
4449269,192,1878.38,1884.0,8,We already talk a little bit but maybe an update of the eVTOL uh Francisco Antonio?
4449269,193,1884.12,1884.3,5,Yeah.
4449269,194,1884.3,1889.49,5,Well we as I said we are very excited with this uh with this initiative with this product.
4449269,195,1889.97,1899.3,5,I mean we we had uh the the first flight with the prototype scale one to three a successful test by the way.
4449269,196,1899.72,1906.0701,5,Now we are preparing the the the next uh next test with the prototype uh scale one to one.
4449269,197,1906.62,1908.77,5,And uh technically it's moving very well.
4449269,198,1909.27,1916.6399,5,We are we are planning the certification by twenty twenty five and entering service in twenty twenty six.
4449269,199,1916.98,1920.62,5,And about the negotiation with Zanite I mentioned already that's moving very well.
4449269,200,1922.5699,1922.9199,8,Okay.
4449269,201,1923.29,1923.76,8,Very good.
4449269,202,1924.24,1928.13,8,Now moving to business jet we have a question from Credit Suisse.
4449269,203,1928.5699,1943.4299,8,Um uh business jet has been very strong uh and in the first quarter results you mentioned half uh of the delivers were for first-time buyers in the second quarter how much were first-time buyers?
4449269,204,1943.6801,1946.1801,8,Maybe you an give an overview of the business jet market?
4449269,205,1958.39,1963.6699,9,In our backlog in delivered for the whole year we are talk about thirty percent first-time buyers.
4449269,206,1964.36,1975.4301,9,And we are growing with the market if you see the industry book to be between one to five to two to one uh one to five to one and two to one to two.
4449269,207,1975.64,1985.62,9,And we are I would say a little bit above that and it's doing pretty well but for sure the first buyers portion also inaudible in the light jets category.
4449269,208,1987.73,1992.13,8,Uh now there is a question on commercial from Credit Suisse.
4449269,209,1992.65,1998.53,8,Uh your guidance for commercial delivers of forty five to fifty seems low given your…
4449269,210,1998.75,2002.12,8,you have already delivered twenty three uh jets.
4449269,211,2002.52,2009.98,8,Uh are there any supply chain issues that could prevent you from being above uh that range?
4449269,212,2010.33,2016.71,8,Uh also they are asking what do you see in terms of the numbers for twenty twenty two?
4449269,213,2016.8101,2017.9,8,Any any color on that?
4449269,214,2018.54,2025.67,9,Let's say uh let's take into account that commercial aviation is still suffering for the pandemic huh?
4449269,215,2026.62,2034.25,9,What we are giving as a guidance to deliver this year is now a little bit higher to last year.
4449269,216,2034.25,2041.2201,9,Last year we delivered forty four and for sure we are selling more but it's going to impact more twenty twenty two.
4449269,217,2041.78,2050.3701,9,And the fact that we we deliver already twenty three aircraft is because it's really divided no uh throughout the year.
4449269,218,2050.9299,2060.1799,9,Uh that's why the the forty seven uh I would say between fif uh forty five to fifty is the number ha we are having.
4449269,219,2060.3999,2069.5801,9,And we do see I would say around thirty percent for next year between the sixty five to seventy aircraft.
4449269,220,2069.6399,2073.48,9,That has to be confirmed but it's more or less the number we are seeing.
4449269,221,2073.8301,2083.6299,9,It's important to mention we do see commercial aviation coming back to historical levels at inaudible uh from two thousand twenty three onwards.
4449269,222,2083.6299,2092.1702,9,We are selling more but the sales quarter we are closing right now is going to fulfill this timeline starting two thousand twenty two.
4449269,223,2092.5801,2097.1001,9,And two thousand twenty one is more or less the same level from twenty twenty.
4449269,224,2098.3899,2105.0798,5,Uh if inaudible Antonio I'd like to to to make a link between this uh answer and the result of the company.
4449269,225,2105.5701,2116.1699,5,It is true that uh in this first half of the year comparing to the first half of uh last year we did much better in terms of deliveries i in terms of results.
4449269,226,2116.2,2118.1699,5,The numbers speak by themselves.
4449269,227,2118.5901,2131.4399,5,But if you look at the the gui the guidance for the for the entire year you see that uh no as planned we won't see a huge increase in volumes in the in the commercial or or or or executive.
4449269,228,2131.75,2137.0901,5,Yes we have seen some some growth now that growth gives you a compare to to the last year.
4449269,229,2137.6699,2161.6401,5,But the improvements in the results I mean either uh uh the the EBIT coming from almost minus three percent last year to something between three and four percent this year or the free cashflow from minus nine hundred million last year to something between minus one fifty and zero this year all this good performance is is came from efficiency gains pure efficiency gains.
4449269,230,2161.95,2163.78,5,We really did a good right size in the…
4449269,231,2172.5801,2175.05,10,I mean pushing the sales for the future.
4449269,232,2175.3,2191.5598,10,So again I mean from next year on I mean we we expect that uh w with a with a with a stronger growth in the in the in the volumes in all the the business units and with this uh more efficient and agile company there you see uh a much better performance.
4449269,233,2191.6899,2199.1499,10,So that's why our result is coming from this year from efficiency gains from some additional sales of course but mainly from efficiency gains.
4449269,234,2199.3701,2204.2,11,And just to complete in the question from supply change issue no?
4449269,235,2204.74,2216.3401,11,What we are put in the guidance and what we agreed with our customers for this year at least for the commercial aviation having not seen any supplier chain I would say problems this year.
4449269,236,2218.79,2218.8801,12,Okay.
4449269,237,2219.21,2225.5701,12,We have uh several other questions so the next one is related to margins and free cashflow.
4449269,238,2225.8799,2230.73,12,So the question is how do we see margins per business in the long term?
4449269,239,2231.22,2238.98,12,And uh and what sort of free cashflow conversion EBITDA into free cashflow conversion does Embraer expect?
4449269,240,2239.3899,2239.6599,12,Antonio.
4449269,241,2241.0601,2242.23,11,So I…
4449269,242,2242.26,2252.8801,11,in regards to margin we do see uh let's in the long term perspective we do see service and support double digit as it is today.
4449269,243,2253.8601,2261.1799,11,We do see executive in the sales single higher digit area we are more or less in also today.
4449269,244,2261.5601,2272.4202,11,And we so see the the commercial aviation I would say uh mid-single digit close between three to five percent in the long term.
4449269,245,2272.6399,2273.75,11,That's what we see.
4449269,246,2274.1899,2279.22,11,In regards to profitability for the company and in regards to the cash…
4449269,247,2279.3301,2289.27,11,the conversion from e b i t d a to uh EBIT today I would prefer to talk we are seeing today a fifty percent conversion from e b i t to cashflow.
4449269,248,2289.6599,2302.76,11,We still need d to improve something but it's more or less the inaudible use internally we do see today in the longer run fifty percent of the e b i t being converted into cash for the years to come.
4449269,249,2304.3301,2308.2998,12,So the next question is uh from JP Morgan inaudible.
4449269,250,2308.73,2315.3,12,In what rate on the sales campaigns for commercial aviation could we see more orders during the second quarter?
4449269,251,2316.9299,2317.8101,10,Yeah good question.
4449269,252,2317.8401,2324.1201,10,Yes we we have a lot of uh active uh sales campaigns ongoing on our commercial aviation.
4449269,253,2324.6499,2331.0601,10,We we just announced this sales for for SkyWest with uh sixteen aircraft and uh yes we're…
4449269,254,2331.0601,2332.0,10,we have more to come.
4449269,255,2333.01,2338.0,11,By the way the SkyWest it's not part of the backlog in q two no?
4449269,256,2338.0,2342.79,11,We are going to book this seventeen aircraft in q three.
4449269,257,2343.9299,2345.97,10,seventeen aircraft correct aircraft correct.
4449269,258,2345.97,2346.6001,10,Thank you Antonio.
4449269,259,2348.25,2354.5601,12,Uh there is a question here from Lucas uh from Santander uh talking about you know inflation.
4449269,260,2354.75,2362.78,12,Can you please comment on how the company see the raw material inflation and how is the company offsetting this impact?
4449269,261,2363.5901,2369.78,11,I would say uh we do see in our final products inflation I would say.
4449269,262,2370.3799,2384.0701,11,On index we have with our suppliers between two to three percent for next year and to to the customer side we have also the the real adjustment clause with the index I would say.
4449269,263,2384.54,2393.4102,11,Uh our uh takeaway for next year is a balance between what we have internal inflation and the passover to the customer base.
4449269,264,2393.73,2405.79,11,That's more or less what we are seeing but there is in some indicators uh a spark in deflation with the index for next year that we we are going to discuss for our customer base.
4449269,265,2405.8401,2422.8401,11,Moreover we do have we did this year and we we are doing this year and we tha we do have also a lot of design inaudible inside Embraer to reduce the base of the cost we have today without any impact on any inflation or indicators.
4449269,266,2424.23,2424.74,12,Very good.
4449269,267,2425.0701,2434.6201,12,So now moving to new projects there is a question from inaudible And what date are the partnerships for the turboprop aircraft?
4449269,268,2435.97,2436.8599,10,Also good question.
4449269,269,2436.8601,2447.21,10,Well this front is also moving very well especially with a with the moves uh uh with the recent interest of uh US airlines in that product.
4449269,270,2447.5601,2459.3699,10,So we we see that product as a as a good alternative for for that market and other market as well and also as a preparation for for new technology in the future.
4449269,271,2459.7,2466.22,10,So we are we are very optimistic and working hard to you know to a to accelerate this uh partnership front.
4449269,272,2469.47,2469.95,12,Okay.
4449269,273,2470.0901,2473.71,12,Um I think we have at least one final question.
4449269,274,2473.96,2476.1201,12,It's back to commercial aviation.
4449269,275,2476.4099,2477.5798,12,What do you expect…
4449269,276,2477.5801,2491.49,12,it It's from uh W T S what do you expect in the mid to long term in commercial aviation as we are seeing recovery in demand for flights and also renewal for having more sustainable fleets?
4449269,277,2492.54,2493.23,10,Yeah good question.
4449269,278,2493.27,2494.1301,10,Thank you sure.
4449269,279,2494.1599,2510.2998,10,a Again we have uh you know I mean globally ninety four percent of the Embraer fleet back in the skies in the US I mean uh uh ninety seven percent of the Embraer fleet is is is flying again.
4449269,280,2510.74,2526.6802,10,So it shows that the the recovery in the domestic market really is coming and that's why we we are working in very in very uh serious camp a lot of serious campaigns in that segment for e one s and uh e two s as well.
4449269,281,2526.99,2532.3101,10,So we we we are working hard to take advantage of this moment.
4449269,282,2532.55,2539.9399,10,As Antonio mentioned that we see volumes growing I mean in two thousand twenty but uh s strongly from two thousand…
4449269,283,2539.9399,2544.0798,10,uh uh two thousand twenty two but strongly from two thousand twenty three onwards.
4449269,284,2546.3601,2550.6301,12,Um I think a final question uh it's related to defense.
4449269,285,2551.0901,2556.1499,12,Can you please comment on the expectations for new inaudible orders?
4449269,286,2557.46,2567.6802,10,Well it's uh uh as I said in the in the opening we are working in the in many in many sales campaigns for for employed sales campaigns for the inaudible.
4449269,287,2567.97,2570.9299,10,And also I mean we are working in the…
4449269,288,2571.5,2578.73,10,to develop partnerships that will help us to open uh new markets for that great uh aircraft.
4449269,289,2581.3799,2583.98,12,Uh I think that that's what we had on the q and a.
4449269,290,2586.3301,2589.96,12,Um so I think uh that concludes the q and a.
4449269,291,2590.4199,2593.8599,12,Um I wanna thank you all for for the questions and the time.
4449269,292,2594.1499,2601.1899,12,So now yeah Antonio or Francisco no comments?
4449269,293,2601.23,2601.3999,12,Okay.
4449269,294,2601.8201,2602.2898,12,Thank you all.
4449269,295,2603.1101,2603.9199,11,Yeah thanks a lot.
4449269,296,2604.26,2604.9202,10,Thanks a lot.
4449269,297,2604.9199,2608.4299,10,So thanks for for for your interest in supporting our company.
4449269,298,2608.8501,2610.8201,10,We are living a really a special moment.
4449269,299,2611.3401,2616.8098,10,As I said before this year is the year of uh recovery the year of turnaround and…
4449269,300,2616.8101,2620.53,10,for Embraer and the numbers as I said before speak by themselves.
4449269,301,2620.97,2630.8101,10,We expect uh to have uh a much better year in twenty twenty one compared to the to the last year coming from a very tough crisis as you know.
4449269,302,2631.25,2637.5798,10,And we hope to you know we expect to capture the new Embraer uh potential from…
4449269,303,2637.5801,2639.9399,10,to grow from twenty twenty two onwards.
4449269,304,2639.9399,2641.6799,10,So thank you very much for your support.
4449269,305,2643.8301,2644.1401,13,Thank you.
4449269,306,2644.8899,2653.21,13,So this concludes today's q and a session that in turn concludes Embraer's Second Quarter twenty twenty one Financial Results Presentation.
4449269,307,2653.79,2655.9302,13,Thank you very much for your participation.
4450488,0,15.82,20.22,0,It's uh uh for the first half of twenty twenty one.
4450488,1,23.27,35.35,0,We uh meet together mainly uh through video uh broadcast uh but I would also like to uh welcome all of those who came in person to the Warsaw Stock Exchange.
4450488,2,35.62,41.21,0,We'll start traditionally with uh Management Board's comments on the results for the first half of the year.
4450488,3,41.44,44.16,0,And then we'll move on to the Q and A session.
4450488,4,44.85,56.6,0,Now we will answer questions asked both here in the room and uh the one's that you send uh by chat IR um at kg hm dot uh com.
4450488,5,58.24,76.23,0,If uh there are any questions that uh we uh won't be able to answer today or questions that will require more detailed answers we will uh answer them in a more detailed manner on our website and you will be able to uh find all the answers uh there.
4450488,6,77.82,102.02,0,The results of uh k g h m in the first half of the year will be presented by the Management Board uh in its almost full composition Marcin Chludzinski President of the Management Board and Adam Bugajczuk Vice President for Development Paweł Gruza Vice President for assets Foreign Assets and Andrzej Kensbok uh Vice President for Financial Matters.
4450488,7,102.54,112.49,0,We do not have here Dariusz Swiderski um but we'll also address production matters uh and too the ones related to our national domestic operations.
4450488,8,113.05,116.94,0,Ladies and gentlemen I would like to give the floor to President uh Marcin Chludzinski.
4450488,9,120.48,126.05,2,Ladies and gentlemen I would like to welcome you on this still summertime afternoon.
4450488,10,126.4,127.1,2,We have over…
4450488,11,127.17,128.41,2,We already passed twelve.
4450488,12,129.12,137.66,2,We have a few uh pieces of good news about the operations of the company in the first half of twenty twenty one.
4450488,13,139.39,145.15,2,I think that the figures um of of today's meeting are one hundred thirty two and four hundred thirty three.
4450488,14,145.51,166.92,2,Why these numbers a hundred percent uh higher um year on year a adjusted EBITDA thirty percent higher revenues four hundred thirty three percent higher net profit if we um make reference to the first uh half of uh twenty twenty.
4450488,15,169.52,173.89,2,Plus uh what we experience in macroeconomic space.
4450488,16,174.43,179.23,2,And uh the recurring comment is that uh corporate prices were favorable to us.
4450488,17,179.23,180.41,2,I cannot deny that.
4450488,18,180.41,182.31,2,For the first time in quite a while…
4450488,19,182.38,191.78,2,Actually this is the first year when uh we have tailwind around the of an uh have to struggle against the wind.
4450488,20,192.59,200.72,2,The prices in the first half of the year were very difficult even uh the prices uh below five thousand per ton.
4450488,21,202.22,216.26,2,Twenty uh eighteen and twenty nineteen were not uh uh very favorable to us either but uh corporate prices is not the only or not the main reason why we can share those good numbers with you today.
4450488,22,216.58,222.72,2,We implemented a number of um optimization initiatives and we can see the results.
4450488,23,222.72,227.19,2,In the context of Sierra Gorda uh comes another good number.
4450488,24,227.83,231.39,2,And I think that's very relevant here.
4450488,25,231.59,238.88,2,This is the first year where money is flowing not from Poland to Chile but from Chile to Poland.
4450488,26,240.34,250.19,2,So we are facing a situation where about five hundred million uh came back from Sierra Gorda to Poland and that's not the end of it.
4450488,27,251.8,267.01,2,The next amounts uh are planned for this year so will not end with uh this number if good production parameters continue good financial parameters continue but uh should become reality.
4450488,28,267.29,274.69,2,Of course this happened much later than we had planned it would uh when we started this investment.
4450488,29,274.69,288.16,2,But three years of very intense work of the Management Board and uh people who are responsible for Sierra Gorda both Polish people and Chileans uh that are and in the headquarters of the company uh inaudible…
4450488,30,288.16,296.65,2,In spite of uh lower prices we were able to show you much better financial results uh improvement on EBITDA improvement of production volumes.
4450488,31,297.75,306.07,2,And uh the battle for this project in terms of cost in terms of full organization of production capacity all that is uh bringing results.
4450488,32,306.07,314.3,2,The price uh does support us but even without this favorable price we could see uh the positive impact on our financial results.
4450488,33,318.32,340.16,2,Maybe that will sound like an anecdote uh but uh there were quite a few examples like this where several dozen costs uh uh more uh m m inaudible that uh uh um carry out but uh to the mill and give us uh uh specific uh measurable results.
4450488,34,340.16,343.54,2,Because that uh at the end of the day means more copper.
4450488,35,343.54,347.8,2,That was just one of the the many optimization initiatives.
4450488,36,348.72,357.01,2,Uh and again uh this is not the end of our initiatives uh in this regard.
4450488,37,358.83,364.2,2,Most importantly this is happening without any new major new capital expenditures.
4450488,38,364.74,368.86,2,Uh we uh basically only optimize what we had previously.
4450488,39,368.91,375.05,2,And we try to uh create value based on what we have already invested.
4450488,40,375.44,379.88,2,Uh we trying to increase the value of our assets to improve the financial result.
4450488,41,379.88,387.63,2,By the way we are trying to do exactly the same thing in Poland uh in terms of cost in terms of maintenance of our production.
4450488,42,388.41,397.68,2,We all know perfectly well that grade is uh not uh favorable as time uh goes on.
4450488,43,397.68,400.09,2,Uh the content of copper is decreasing.
4450488,44,400.09,407.18,2,And Sierra n uh operates in a cyc in cycles uh occasionally we encounter greater contents.
4450488,45,428.39,430.66,2,We have to combat to get them.
4450488,46,431.16,433.35,2,So we are happy when we are getting those results.
4450488,47,433.35,439.75,2,We also happy that for the first time in uh a long time macroeconomic conditions uh support us.
4450488,48,440.03,448.38,2,They are uncertain and we also have to admit openly that uh there is an ongoing battle in the market uh um in terms of price.
4450488,49,450.79,458.54,2,Sometimes uh we can see uh um declining prices and then there are intense efforts to push it up.
4450488,50,458.97,460.94,2,This is something we are monitoring closely.
4450488,51,460.98,463.46,2,We are prepared for a number of various options.
4450488,52,464.05,469.96,2,Also as uh past year uh uh showed uh we are ready for crisis scenarios.
4450488,53,470.0,474.0,2,And uh in spite of those crisis conditions we are able to show good financial results.
4450488,54,474.44,481.29,2,As regards uh specific uh financials these will be presented by m uh individual members of the Management Board.
4450488,55,481.29,489.72,2,Now I would like to uh give the floor to Andrzej Kensbok who will tell us about production uh figures but also uh financial data.
4450488,56,501.39,507.91,3,I would also like to give a warm welcome to everyone h present here uh by our broadcast.
4450488,57,510.07,523.47,3,Ladies and gentlemen as we got production results metals uh show an increase uh eight copper eight point six percent up uh six months to six months.
4450488,58,524.38,528.71,3,Uh we can uh say that this growth is recorded in all segments in Poland.
4450488,59,529.76,536.76,3,Uh k g h m International that is mainly Robinson and um Sierra Gorda.
4450488,60,539.49,547.79,3,As regards uh the production of our two other products that is silver it is slight lower than last year.
4450488,61,548.78,561.28,3,And that uh results from the fact that we particularly in Poland we process more um m uh foreign concentrates w with a slightly different type from the one that we processed last year.
4450488,62,561.86,567.36,3,Therefore with a higher content of copper but not necessarily with higher content of silver.
4450488,63,567.36,574.14,3,So availability of silver and uh um uh u third party concentrate uh is uh slightly lower.
4450488,64,586.13,600.64,3,We should also say a few words about the results of uh Polska Miedz as uh as the uh main holding company in the group.
4450488,65,601.86,608.93,3,Here I would like to uh um bring your attention to the maintenance of uh the level of mining output.
4450488,66,609.49,613.75,3,Uh this is important because we know that the mining conditions are deteriorating.
4450488,67,614.09,622.67,3,We operate in increasingly difficult geological conditions uh getting deeper and deeper on a more extensive area of the mine.
4450488,68,622.92,629.86,3,But the uh the output level was maintained and even slightly exceeded from uh the first half of twenty twenty.
4450488,69,630.2,646.4,3,So the initiative that w link to making uh that deposit available um extraction uh where the functioning of the entire mining complex transportation processing and so on and so forth all that functions smoothly.
4450488,70,646.98,650.42,3,And uh um we are able to cope with the situation.
4450488,71,650.42,654.02,3,Production of electrolytic uh uh copper increased.
4450488,72,654.76,666.78,3,And uh that increase uh stemmed from uh greater processing third-party input scrap uh and third-party input.
4450488,73,667.63,686.0,3,We are also expanding the range of third-party input uh trying to adjust the capacity of inaudible to greater opportunities of choosing and optimizing the purchases of third-party input.
4450488,74,686.42,694.1801,3,On the other hand uh inaudible also adjust that technology to be able to process uh those increased quantities.
4450488,75,695.62,707.33,3,We are preparing for that by building uh storage centers warehousing centers and all the supporting logistics to transport third-party input.
4450488,76,707.33,711.26,3,That is becoming a significant element of our production.
4450488,77,711.55,723.26,3,And it helps us because it gives us an opportunity to fully utilize uh the uh capacity for uh inaudible w- uh push up our volumes.
4450488,78,724.87,734.22,3,Decrease in uh the electrolytic copper production from our own input uh results only from a year on year comparison.
4450488,79,734.55,743.87,3,Uh in the middle of last year we were still processing the remains uh of the surplus uh that we had accumulated before.
4450488,80,743.9,748.48,3,And at the beginning of twenty twenty we still processed that previous surplus.
4450488,81,748.48,752.7,3,And we have slightly higher uh processing of our own input.
4450488,82,752.8,760.5699,3,Now we are running on an ongoing basis uh just whatever is extracted uh is um subsequently processed.
4450488,83,761.02,765.44,3,As for production results in Sierra Gorda we'll uh give the floor to my colleague.
4450488,84,765.99,766.71,4,Thank you Andrzej.
4450488,85,767.07,772.76,4,Ladies and gentlemen the results on our foreign asset in particular Sierra Gorda and Robinson are very good.
4450488,86,773.81,778.59,4,You can see uh hear those numbers that we are very proud of.
4450488,87,779.47,791.13,4,th this is uh the effect of both good management of the mine and of uh um processing plants in Sierra Gorda.
4450488,88,791.54,796.44,4,But also it uh results from our good relations with trade unions.
4450488,89,796.75,800.74,4,We managed to sign um the agreement at the very early stage.
4450488,90,800.74,815.39,4,Uh and that allowed us to work uh in uh calm conditions in spite of the turbulent moment that uh Chile is going through right now Chile and the mining companies operating under their jurisdiction.
4450488,91,817.72,829.17,4,I would also like to mention the financial results and uh and uh if you would to what uh the president said regarding uh repatriation of cash from Chile to Poland.
4450488,92,829.64,838.23,4,Uh last year we managed to uh maintain uh uh financial supplies uh um uh from Poland.
4450488,93,838.72,845.06,4,And this year thanks to good production thanks to the fact that the first time are being supported…
4450488,94,845.24,849.54,4,Uh we at the time of of this of this Management Board we are being supported by the macroeconomic situation.
4450488,95,850.03,858.47,4,We can see the possibility of reversing this financial vector um uh which now points back uh towards Poland.
4450488,96,858.47,859.66,4,And we are very happy about it.
4450488,97,859.66,870.6299,4,Thanks to cost savings which uh uh we uh were able to implement the price went uh down to very low levels below five 000 per ton.
4450488,98,871.09,876.88,4,Uh we were able uh in Sierra Gorda in our foreign assets uh implement those uh savings.
4450488,99,877.24,881.8799,4,Uh and uh thanks to our discipline uh the savings continue also this year.
4450488,100,882.37,887.32,4,As a result this year we generate a financial surplus which is then uh brought back to Poland.
4450488,101,888.92,906.75,4,With regard to k g h m International we can boast excellent production results of Robinson which is also working on the extension of its uh uh L O M uh plan of planned life of the mine.
4450488,102,906.78,909.33,4,And that uh generates a value of assets on our books.
4450488,103,910.2,910.53,4,Thank you.
4450488,104,925.4,931.08,6,The revenue of the capital group we're up um forty two percent on a year to year basis.
4450488,105,931.08,938.7401,6,And it is important to say that we have seen that um growth across all the segments of our business.
4450488,106,939.03,948.22,6,The main driving factor was um um u price increase for all the metals that we sell.
4450488,107,950.38,955.6,6,w the exchange rate uh of z oty against US dollar was working against us.
4450488,108,955.6,958.94,6,And u u z oty depreciated against the US dollar.
4450488,109,958.94,970.37,6,That has a negative impact on our financial performance so we have uh actually experienced some adverse um effect of exchange rate.
4450488,110,970.43,977.12,6,Uh the volume was down by three hundred eighty eight million and this is due to the logistics of sales.
4450488,111,977.12,982.43,6,So first we have to accumulate uh goods before we sell different batches.
4450488,112,982.43,987.81,6,That happens in the US and in Poland um for um silver.
4450488,113,988.1,991.05,6,So this is um a temporary arrangement.
4450488,114,991.08,993.17,6,We simply have to stock up…
4450488,115,993.47,1000.05,6,We had to stock up some products uh before the thirteenth of June when we were closing the books for the quarter.
4450488,116,1000.82,1016.44,6,u u it's a negative result on our derivatives is um is the u u uc it is uh the outcome of our hedging transactions.
4450488,117,1016.44,1034.3101,6,We adjusted the hedgings uh during the first six months of the year as much as we could on the market but uh our historical hedging transactions that were depending our position during the um all-time lows for the copper continue to affect us.
4450488,118,1034.34,1046.86,6,But this negative uh effect is um uh w generously offset by the revenue increase and also another factor that I'm going to address in a second.
4450488,119,1047.38,1056.76,6,Now let me turn to the costs c one unit cost which is the cash cost um of the production of payable copper.
4450488,120,1057.61,1071.12,6,o we can tell that um it went up from one point six to one point eight nine dollars per um pound but there's a number of um factors that uh contributed to that.
4450488,121,1071.1801,1084.55,6,m first of all c one cost was actually going down in Poland so unit cost in Poland uh in Polish production was going down.
4450488,122,1085.23,1089.8099,6,At Sierra Gorda we also had c one unit costs uh falling.
4450488,123,1090.17,1094.64,6,In Poland uh the main thing is the increase of price of silver.
4450488,124,1094.67,1099.91,6,In Sierra Gorda the main driving force was the increased in the production value.
4450488,125,1100.22,1110.29,6,However the negative uh effect is um the um u increased uh inaudible tax um so-called copper tax.
4450488,126,1110.3199,1118.45,6,It is included in c one cost and it is calculated based on the price of the copper and the volume that was produced.
4450488,127,1118.79,1126.45,6,Since the volume is uh stable tha but the price was up substantially the tax was also much higher.
4450488,128,1126.53,1131.4399,6,And that affected uh our c one um cost position.
4450488,129,1133.5601,1135.84,6,Now the operating result.
4450488,130,1136.41,1138.75,6,So as the C E O said um…
4450488,131,1147.74,1156.6901,7,And again let me emphasize that we've seen that growth across all the segments in Poland in um North America and in Sierra Gorda.
4450488,132,1158.15,1177.5299,7,We've also had EBITDA going up in the smaller companies of the group like inaudible etc they're doing quite well they are not growing at such a dynamic rate but nevertheless because of that growth they were able to keep their balances in check.
4450488,133,1177.53,1181.4399,7,And they were able to keep the financial arrangements to their benefit.
4450488,134,1181.79,1184.8201,7,Obviously this is all driven by increased revenue.
4450488,135,1187.26,1207.36,7,But I may say that uh contributors to the EBITDA growth to some extent uh are also related to the fact that we are able to keep the production stable in terms of the cost wherever it's possible I will address the cost of the greater length later.
4450488,136,1207.36,1214.33,7,But as a result of this measures our operating margin was up um two fold nearly.
4450488,137,1215.25,1237.1101,7,Now the net uh income the net result of the Capital Group was up to four billion seven hundred twenty three million the main driving factor was um again increased revenue.
4450488,138,1241.0699,1252.24,7,The change in the cost by type uh is related to the fact that we need to buy more third party or because we have to increase our volume.
4450488,139,1252.71,1262.63,7,Therefore the production and progress and products uh contributed positively to that and therefore we have seen uh the growth.
4450488,140,1263.17,1278.6799,7,But an important factor that I mentioned earlier is the very fact that we were part of the Joint Venture Products namely the stable predictable production.
4450488,141,1279.2,1293.16,7,And um the growing prices of copper enabled us to um come up with the revaluation of the loans that were granted to Sierra Gorda.
4450488,142,1294.76,1305.9,7,And uh that revaluation showed that the value of loans were up by one billion eight hundred and sixty six million.
4450488,143,1306.71,1309.7101,7,So this is our consolidated profit.
4450488,144,1309.9301,1315.24,7,When you look at the standalone results uh we show even higher number there.
4450488,145,1315.83,1329.86,7,And uh in that result we had to include the reversal of uh the previous writers of loans that were granted to other entities that were involved to Sierra Gorda.
4450488,146,1330.1899,1335.29,7,They were not included in Sierra Gorda in in the consolidated statements.
4450488,147,1335.29,1351.0699,7,But overall this is the same outcome so we have better operational results of Sierra Gorda we have more predictable revenue and profit and overall the macroeconomic environment is much more conducive to our business.
4450488,148,1352.3,1378.48,7,Now speaking of costs the main um driver for costs is um much greater acquisition of third party or but when it comes to the cost by type we are tracking them very closely and um there are third party services and the raw materials consumption and electricity and other energy consumption.
4450488,149,1378.74,1380.62,7,This is under control.
4450488,150,1380.62,1392.11,7,But there are some other price factors that are beyond our control like the much higher prices of diesel fuel and natural gas.
4450488,151,1392.8199,1399.26,7,And in addition to that higher prices of E T S allowances.
4450488,152,1400.9,1410.38,7,We are hedging this positions by this hedging uh is not long term long term we are not able to hedge ourselves long term.
4450488,153,1410.88,1432.2899,7,Um our hedging policy works short term and we can see the results and and on top of it the price of the steel was up substantially in the general market and we are actually using quite a lot of steel in the mining operations and therefore we were impacted adversely by the growing prices of steel.
4450488,154,1432.59,1440.73,7,But again let me emphasize that we are tracking the consumption of materials uh very strictly and we are tracking the cost of energy.
4450488,155,1441.04,1447.23,7,Uh there are no negative deviations we do have savings and we've provided for savings in our budget.
4450488,156,1447.26,1450.38,7,And we are right on target here in line with the budget.
4450488,157,1452.35,1455.5,7,Now the next slide shows our cash flow.
4450488,158,1459.98,1470.12,7,At this point I uh would like to highlight the negative number that you see there the negative cash flow which is related to the change in the working capital.
4450488,159,1470.12,1474.5699,7,And I've already explained that we had increased inventory which was a temporary thing.
4450488,160,1475.01,1476.7,7,It was a technical arrangement.
4450488,161,1477.26,1497.5299,7,And uh it was mostly inaudible copper but we had to stock up we have to stock it up before we um actually prepare ourselves for the smelter um repair we also had higher stock up of concentrate copper in the port.
4450488,162,1497.9,1500.85,7,And that was to prepare for the next year.
4450488,163,1500.89,1506.92,7,And as a result we had more ships coming to the port at the same time all in June.
4450488,164,1507.4399,1509.5499,7,So the it's all coincided in time.
4450488,165,1509.66,1514.6201,7,In addition to that we also had the reduction in our debt factoring.
4450488,166,1515.92,1521.5,7,The factoring was paid off since there was no need to to use it.
4450488,167,1521.5,1525.2999,7,And we didn't want to incur unnecessary financial expenses.
4450488,168,1528.0699,1534.5599,7,Another thing was the acquisition of intangible um intangible assets.
4450488,169,1534.59,1538.54,7,So CapEx it was CapEx for Polish operations.
4450488,170,1538.54,1544.4,7,And for international operations specifically Robinson Mine it was all in line with the plan.
4450488,171,1544.75,1561.3601,7,And the third thing that contributed to that negative number was the pay back of our loan to one of the banks four hundred fifty million dollars we took advantage of the fact that we had uh free cash um flow and we didn't want to pay the cost of the debt.
4450488,172,1561.36,1564.6,7,And therefore we decided to reduce our debt position.
4450488,173,1568.71,1570.97,7,So moving on to the debt.
4450488,174,1573.29,1584.92,7,Our net debt to adjusted EBITDA currently or actually at the end of q two was at point zero point seven.
4450488,175,1585.65,1588.9301,7,So this is a much better situation than last year.
4450488,176,1588.9301,1595.8099,7,And this is all in line with the policy that we follow the net that has been fairly stable.
4450488,177,1598.97,1613.41,7,But as we indicated here we took advantage of the fact that we had some positive cash flow and uh we decided to pay back our um one of our loans and everything else is pretty stable.
4450488,178,1613.65,1622.8,7,We don't want to keep too much cash because the cash that sits idle um does not generate any income.
4450488,179,1622.84,1628.84,7,And we don't want to maintain the excessive debt because this is costly.
4450488,180,1628.9399,1640.25,7,We have an open credit line for eight point two billion zlotys and this is um a very flexible credit line we have very um good terms.
4450488,181,1640.6801,1645.54,7,Therefore whenever needed we can actually take advantage of that open credit line.
4450488,182,1646.97,1654.76,7,Our um financial structure and our structure of financing is currently um very optimum.
4450488,183,1654.85,1656.33,7,We continue to optimize that.
4450488,184,1656.33,1660.12,7,And our goal is to avoid financial expenses that are not needed.
4450488,185,1662.17,1666.1,7,I think that we have pretty much covered our financial performance.
4450488,186,1666.33,1672.2101,7,So let me turn the floor to Mr inaudible.
4450488,187,1672.48,1673.74,7,Good afternoon everyone.
4450488,188,1674.91,1679.0,7,And let me walk you through our investment projects and development projects.
4450488,189,1679.54,1693.01,7,Um the first six the first six months we're close with that CapEx at one billion thirty six million zlotys on the pie charts you can see the breakdown on the CapEx for the first six months of twenty twenty one.
4450488,190,1693.3199,1700.3,7,Perhaps the number is not very impressive but let me say that our projects uh are very complex.
4450488,191,1700.78,1704.22,7,And many times these are our multi annual projects.
4450488,192,1704.22,1713.1001,7,Therefore we um like historically the q four always shows um more weight.
4450488,193,1713.42,1724.66,7,Um and uh I just want to assure you that all the investment projects um are delivered according to the plan.
4450488,194,1725.8101,1730.7,7,And this is the more and more important role of the deep Glowgov.
4450488,195,1730.92,1745.1801,7,Um the numbers are quite impressive for the annual growth is over forty percent at each stage of operation so looking at this ratios and looking at this growth we may mention two things.
4450488,196,1745.67,1754.7899,7,Um first of all we have more preparatory work completed and we are also actually getting to the mining in that particular area.
4450488,197,1754.84,1758.9301,7,Therefore you may expect to see a growing production.
4450488,198,1759.46,1764.78,7,Now key um projects hmm…
4450488,199,1767.03,1784.1799,7,first of all the uh tailing um processing facility at the South is pretty much completed and uh all different installations that have been planned uh will be delivered as scheduled.
4450488,200,1784.9,1807.7899,7,Now that was at acc that was an access program we continue to sync gg one shaft we hit one thousand two hundred thirty one meters and for the shaft gg two we do have a spatial plan spatial development plan already published and now we are actually um moving on with their drill holes.
4450488,201,1808.21,1814.9601,7,And we have also completed our uh central air um cooling system.
4450488,202,1814.96,1827.63,7,This is an important project it will actually help us produce um at the sections of the deposit where we're not accessible since the conditions of mining where not adequate.
4450488,203,1828.28,1838.7,7,Now all the projects related to b a t conclusions are moving on as scheduled both in Glowgov and uh like needs aside…
4450488,204,1841.65,1848.92,7,we are um working on the Glowgov One um smelter.
4450488,205,1849.01,1853.6,7,Um and again the work goes as scheduled.
4450488,206,1855.24,1860.5,7,Now our energy development program we move um two fold.
4450488,207,1861.23,1869.8099,7,We are working on the renewable energy sources but at the same time we continue to optimize uh our energy consumption.
4450488,208,1870.71,1884.65,7,And we have already seen the first outcomes we were able to reduce energy consumption uh with the same production parameters um as we used to have.
4450488,209,1885.7,1899.73,7,And the next slide uh shows how we want to reach uh fifty fifty split fifty percent of energy will be from our own um generation including renewable sources by twenty thirty.
4450488,210,1900.36,1906.23,7,As of today the plan is such that we will uh switch to this fifty fifty system.
4450488,211,1907.12,1917.1,7,And we will save on c o two um emission by nine hundred thousand tons give or take.
4450488,212,1917.77,1926.27,7,And by twenty thirty Sierra Gorda Mine will have a hundred percent of uh electricity from renewable sources.
4450488,213,1926.3,1928.48,7,So we have the right data to show.
4450488,214,1928.89,1932.3,7,Now the next slide shows the photovoltaic farm.
4450488,215,1932.74,1938.01,7,And uh we were able to build that at Legnica Smelter.
4450488,216,1938.42,1942.74,7,And we also have two other projects at inaudible and Glowgov.
4450488,217,1942.9,1951.03,7,Uh the all the numbers for these investments are shown next to the pictures.
4450488,218,1953.45,1959.1801,7,So all these projects um have been delivered um as scheduled.
4450488,219,1966.48,1972.7101,8,Ladies and gentlemen it seems that we are getting to the end of our presentation.
4450488,220,1973.0699,1977.8,8,And maybe as a wrap up I would like to say that it is worth mentioning.
4450488,221,1978.09,1984.52,8,But obviously we will not uh rest on our laurels uh having communicated that there's good news to you.
4450488,222,1984.55,1989.1799,8,Uh as I mentioned before we are working on updating our strategy.
4450488,223,1989.58,1995.41,8,Uh and hopefully by September we will be ready to share with you the results of our studies.
4450488,224,1995.7,2006.7899,8,But in general we can say that unless something fundamental changes worldwide we assume that the following years will be the years of copper and silver.
4450488,225,2007.12,2018.9,8,If that is indeed the case then we need to produce as much as possible with the optimum um cost level and with uh the highest sales while taking care of the costs.
4450488,226,2019.24,2022.2,8,But in order to do that the company needs to transform.
4450488,227,2022.6,2025.76,8,It needs to transform both in the context of…
4450488,228,2028.58,2057.6899,8,increasingly restrictive regulations for the energy sector and in the context of uh environment energy use also in the context of the optimization of processes uh the use of new technologies automation and in the context of securing new deposits for further exploration uh and operation of our business.
4450488,229,2058.6799,2091.53,8,So what we are looking into uh very closely right now that's actually something you are well familiar with we have been working on green energy on new energy sources namely small uh nuclear reactors as a source of energy hydrogen which is potentially a very interesting uh source of energy uh in our sector also offshore uh projects uh are being considered.
4450488,230,2091.9099,2112.01,8,A big project for us inaudible license that is uh basically new mind and new technology a new regulatory environment that is a priority uh topic for us under the license and ports and potassium salts but also very promising future oriented subject to the context of the current business cycle.
4450488,231,2112.55,2118.77,8,All that is the subject of our analysis we do not fundamentally change our assumptions.
4450488,232,2120.03,2130.5,8,In um December uh twenty seventeen when we uh develop our original strategy we have this uh motto Uncertainty is the only thing that is certain.
4450488,233,2130.5,2137.6399,8,You have to be ready for all options but at the same time the company needs to transform in the context of opportunities that open up to it.
4450488,234,2139.0601,2142.1602,8,And that is why we are updating our strategy.
4450488,235,2142.1899,2145.51,8,And that is what we will bring to you in detail in September.
4450488,236,2146.27,2146.6299,8,Thank you.
4450488,237,2147.72,2151.4299,7,Thank you very much uh to the management board members for their comments.
4450488,238,2151.74,2154.1499,7,Now I open the uh q and a session.
4450488,239,2154.55,2159.1499,7,This uh time we have questions both from the room here and from the chat.
4450488,240,2160.47,2167.01,7,ir at kj gem dot com please also ask uh questions uh here.
4450488,241,2167.3899,2173.8201,7,The q and a session will be chaired by Janusz Krystosiak head of our Investor Relations uh Department.
4450488,242,2174.0801,2175.29,7,I can see the first question.
4450488,243,2178.3899,2190.3501,7,Good afternoon ladies and gentlemen inaudible said there I have six questions all together should I uh split up by sector?
4450488,244,2190.55,2191.4502,7,Okay one by one.
4450488,245,2192.1201,2193.6299,7,There will be a few short ones.
4450488,246,2193.79,2205.98,7,The first does the company intend to change adjust its volume guidance for any of the products uh of any of the metals for the whole twenty twenty one?
4450488,247,2206.3999,2207.4199,7,Are you talking about production?
4450488,248,2207.4199,2208.23,7,Yes production.
4450488,249,2217.04,2233.3901,7,The second you have mentioned this lower uh content on international uh so I would like to find out whether and when we can expect any changes in the metal content.
4450488,250,2233.8201,2236.8899,7,Uh if i my recollection is correct maybe you're talking about…
4450488,251,2237.7,2238.4001,7,What do you mean?
4450488,252,2239.1599,2239.95,7,Content?
4450488,253,2242.28,2242.9001,7,Grade.
4450488,254,2243.25,2244.3501,7,Oh grade okay.
4450488,255,2244.3501,2245.1201,7,Grade.
4450488,256,2245.54,2248.99,7,Uh and another simple question.
4450488,257,2248.99,2250.3901,7,We have made one offs.
4450488,258,2250.6899,2259.03,7,Uh does the company intend to maintain its dividend payout uh at the same level as it paid this year?
4450488,259,2259.6201,2265.75,7,That is will one off change uh in next year's dividend or not?
4450488,260,2266.8101,2278.22,7,Then there is um uh a beautiful project three megawatt in photovoltaics but my general question is about uh your strategy.
4450488,261,2278.22,2283.76,7,A few years when you showed this strategy my understanding.
4450488,262,2289.22,2296.76,10,So now please do not give us a plan for twenty thirty that's easy to come up with but a plan for the next two three years.
4450488,263,2296.76,2303.4502,10,How exactly Megawatts and Photovoltaics I'm sure you are going to uh put up.
4450488,264,2305.9299,2313.5898,10,There is one more question about progress in the sale of assets.
4450488,265,2314.03,2317.99,10,Has there been any progress in your selling of the assets?
4450488,266,2318.75,2330.8601,10,And the last thing which also contribute to the results I would appreciate very much a short but uh um informative uh uh discussion of this component of costs uh stock.
4450488,267,2331.23,2342.0898,10,You had it minus seven hundred and the first and adjustment of costs by uh stock minus seven hundred in the first quarter minus three hundred in the second quarter.
4450488,268,2342.3601,2351.4102,10,So I would be happy to find out uh what is the management thoughts uh view of what the value might be in the third quarter on the second uh half of the year.
4450488,269,2351.74,2352.51,10,That's it from me.
4450488,270,2353.7,2353.9199,10,Okay.
4450488,271,2353.9199,2356.96,10,We'll try to address those questions uh quickly now.
4450488,272,2357.78,2373.21,10,As uh for the changes in our production plans excluding uh unpredictable events of those related to nature and random events we do not plan any changes here uh or in terms of our production.
4450488,273,2373.71,2380.3201,10,As for the grade uh lower uh uh rate on international although maybe you can take it.
4450488,274,2388.8301,2397.72,10,Ladies and gentlemen the subject you have brought up concerns one of the assets which is uh now in the process of uh sale.
4450488,275,2398.5801,2407.75,10,So it is uh inconvenient for us to discuss it at the moment uh that uh results from the existing geology.
4450488,276,2407.99,2415.0,10,We are transparent on this point towards the participants of uh the uh the disposal process.
4450488,277,2415.03,2422.52,10,Uh this is being assessed by our potential bias uh of uh those assets.
4450488,278,2425.4199,2439.4399,10,And with regard to your second question I would like to uh inform you that the process of uh sales of our assets is uh moving on as planned in accordance with the procedure that we developed.
4450488,279,2439.4399,2445.1599,10,A transparent procedure that was uh communicated uh in side our organization.
4450488,280,2445.3999,2449.1201,10,We are now at a very sensitive uh stage of this process.
4450488,281,2449.3701,2453.9202,10,That's why uh my constraint in informing you more broadly about this subject.
4450488,282,2454.4299,2459.1499,10,And uh I think at the end of the year we'll be able to present you much more information on the point.
4450488,283,2460.4399,2465.3899,10,As regards our approach to dividend next year it's not going to change.
4450488,284,2465.3899,2473.47,10,Uh the dividend policy uh remains in place uh you know that for a couple of years the company did not pay out the dividend.
4450488,285,2473.47,2477.98,10,twenty twenty was the first year for which the dividend was paid after a long break.
4450488,286,2478.3,2488.95,10,Um maintaining of the trend maintaining of the results on the current trends allows uh us to be optimistic about uh dividends.
4450488,287,2489.3301,2491.1399,10,Our dividend policy does not change.
4450488,288,2491.1399,2493.27,10,That's what I can uh tell you right now.
4450488,289,2493.72,2502.1599,10,And as for photovoltaic projects it's not just photovoltaics it is a broadly understood energy optimization.
4450488,290,2502.99,2513.3301,10,Uh Ladies and Gentlemen we um do not have uh already projects uh in this field so we had to build them from scratch.
4450488,291,2513.6699,2522.03,10,You know the uh uh spacing development uh plans uh environmental impact uh assessment.
4450488,292,2522.0601,2525.3298,10,Uh those procedures are very time consuming.
4450488,293,2525.3701,2527.3899,10,It doesn't take uh several months.
4450488,294,2527.3899,2529.45,10,It it may take as long as years.
4450488,295,2529.8,2536.95,10,So the process of placing investments on our land takes time uh because the formalities takes uh take time.
4450488,296,2537.25,2544.6799,10,We will start one uh eight megawatt investment then we will start another of six megawatt and two smaller ones.
4450488,297,2544.71,2549.0,10,Uh so uh that will be the beginning of the investment process.
4450488,298,2549.0,2561.6902,10,Once we have gone through the administrative preparation we also have some uh vapor and gas uh plants uh which uh helps us improve our energy uh management.
4450488,299,2562.77,2568.2,10,The production process is more intense uh and we use eh less energy.
4450488,300,2568.2,2569.96,10,We have lower energy consumption.
4450488,301,2571.3701,2585.4399,10,Very soon we will go out to to the market with an acquisition process uh um apart from what we are uh working on we want to acquire processes uh projects that are already prepared for development.
4450488,302,2585.6399,2598.55,10,So we uh we'll also have PPA and apart from our own investments we will have uh it's it's uh weeks or months rather than years uh that we will be an in the market.
4450488,303,2599.3,2613.26,10,These are in fact strategic project if you uh make a rough calculation uh you will know that uh if we relied only on photovoltaics we would have to cover uh the area of the three inaudible with our panels.
4450488,304,2613.5801,2624.4102,10,So it is not the only source uh that we can utilize in the context of delivering on the promise of being green in energy.
4450488,305,2626.8,2632.6101,10,So this machine is uh going ahead full steam as much as the reality allows us to.
4450488,306,2634.26,2638.02,10,And uh Pavo commented on sales.
4450488,307,2639.24,2642.4099,10,There was also a question about uh stock in the future.
4450488,308,2651.6699,2664.54,10,We actually uh have to stock up um more inventory since we know that uh the modernization program will con be continued for the next year and uh probably two years.
4450488,309,2664.8401,2674.4602,10,And that uh is mostly the global smelter therefore this inventory uh will be maintained perhaps in a different form.
4450488,310,2675.03,2689.74,10,And at the same time we also um process more third party ore and um since we work on the third party material we have to uh stock it up first so that it's it it's ready for the smelters.
4450488,311,2689.98,2696.8301,10,So this is all technical and therefore it doesn't affect our performance because this is a repeated cycle.
4450488,312,2697.25,2710.3899,10,And uh we've already said that this is um also an additional element uh like uh sales logistics and this is a temporary increase in inventory but uh tends to go down uh during the next uh quarter.
4450488,313,2710.7,2725.8501,10,I don't want to predict uh when we are going to have it up and down because it's more related to the shipments cycles for them um or or silver concentrate or uh rolled um material.
4450488,314,2726.3201,2737.04,10,For instance for Sardinia we had a higher inventory of uh rolled sheets because we are getting ready for several weeks of uh downtime of uh Sardinia smelter.
4450488,315,2739.45,2741.0601,10,Any other questions from the room?
4450488,316,2741.9199,2751.23,10,Well thank you for all the answers but if I may my first question was about the volume guidance for the year.
4450488,317,2751.79,2767.1799,10,As far as I remember you are way above the um plan for mardinium Sierra Garda and you you said that you're not going to change your um assumptions.
4450488,318,2767.3799,2783.3401,10,So does it mean that you're going to reduce your production of mardinium dramatically or you are just being cautious and uh you rather keep a surplus in place instead of uh facing a different scenario?
4450488,319,2783.5801,2787.02,10,So how should we um look at it?
4450488,320,2787.0601,2794.5901,10,Um you think that you will deliver the volume as uh actually identified in the guidance or are you actually playing it safe?
4450488,321,2796.0701,2815.3899,10,Well the Sierra Garda budget uh is subject to different rules that uh our uh k g h m in Poland or um international at um Sierra Garda we have to actually come to the arrangements with our partners at the joint ventures every time we work on the budget.
4450488,322,2815.6299,2834.0,10,At this moment we have not had any discussions about any adjustment of the Sierra Garda budget including the production volume therefore um at this point we are not going to come up with any formal position uh regarding the future production of Sierra Garda during the second half of the year.
4450488,323,2839.3601,2857.3101,10,And just to make everything clear it's not going to be less than the than the Budget unless something unexpected happens but we always play it safe because as you know we um we are in a business where there are many factors that are beyond our control.
4450488,324,2857.79,2877.48,10,So um we sometimes we are at the mercy of nature and um whatever possible we try to um over deliver if a situation is uh conducive and uh production situation allows that.
4450488,325,2877.8201,2890.71,10,And to speak about mardinium and Sierra Garda um production during the first six months of this year was actually uh lower than production for the same time last year.
4450488,326,2891.0,2901.6001,10,However the revenue sales revenue is higher because the price was up in terms a volume we were down slightly but but the revenue was up because of the higher price.
4450488,327,2902.24,2904.77,10,Any other questions from the room from the audience?
4450488,328,2904.8,2905.1899,10,Yes.
4450488,329,2905.5801,2911.8101,10,inaudible could be business alert um I just want to make sure whether you meant on shore of offshore?
4450488,330,2911.8101,2913.6199,10,This is the question to the seal.
4450488,331,2913.8899,2923.1399,10,Whether you're speaking about the strategy update or no you you said that you're looking at various um uh electricity options.
4450488,332,2923.1399,2923.3799,10,Yes.
4450488,333,2923.3799,2925.6399,10,We are also looking at offshore options.
4450488,334,2925.9199,2926.21,10,Yes.
4450488,335,2926.21,2932.0498,10,And I also wanted to ask you about the impact of electricity prices on your financial performance.
4450488,336,2932.05,2932.5601,10,And Mr.
4450488,337,2932.5601,2940.5598,10,Kenspok said that the natural gas prices is also a major factor because the price of natural gas is going up.
4450488,338,2940.9099,2950.6702,10,So are you still looking at the um gas units because we know that uh natural gas has a tough in EU in the EU.
4450488,339,2950.7,2953.6799,10,And I also have a question about the new deposits.
4450488,340,2953.6799,2957.6602,10,Uh are we going to expect it any time during the comings conference seasons?
4450488,341,2958.29,2968.3101,10,I think that uh I addressed the first question already in terms of electricity prices and the prices of the natural gas and the impact of uh that on our business.
4450488,342,2968.3101,2998.0701,10,I think Andre will provide more detail in a minute but overall well the only reasonable response that we can take is long term and this is all about the transfo- um transformation and transition and there is no other long term option to actually um avoid the increase in the ETS allowances prices that determine at the end of the day the price of uh energy.
4450488,343,2998.3799,3008.03,10,So we are trying to um regroup and we are transforming our electricity consumption and we are trying to optimize consumption wherever possible.
4450488,344,3008.03,3013.71,10,We want to come up with the technologies that will allow us to reduce uh energy consumption.
4450488,345,3013.8799,3017.74,10,And in terms of uh the current developments over to Andre.
4450488,346,3018.98,3034.8098,10,So I'm not sure if I have all the numbers at hand if not we will uh prepare uh the answer and send it off to you but speaking of the Polish copper essay I I I because I think that that was your question.
4450488,347,3035.1799,3056.3301,10,So the cost of electricity was up by one hundred two million laries seventies cuz of the higher power price seventy seven million up because of the ETS prices and uh and ninety million up because of the increase in uh natural gas and diesel fuel prices.
4450488,348,3056.3301,3060.8799,10,So so this is the um breakdown of energy prices.
4450488,349,3061.1101,3063.6699,10,And in terms of the gas fired units?
4450488,350,3064.1699,3076.8699,10,Well to be honest the price uh dynamics is not very encouraging um therefore we are not taking any decisions but we are watching the trend because it may change.
4450488,351,3077.23,3086.53,10,Um it would be much better if we had more cert regulatory certainty within the European Union in terms of the natural gas supply from Russia.
4450488,352,3088.6399,3097.2,10,I have to actually add to what I said that we are expecting the um our capacity fee to go down.
4450488,353,3097.55,3103.76,10,We know that um the increase that we've seen in this uh component is not uh sustainable.
4450488,354,3108.48,3108.8499,10,Thank you.
4450488,355,3108.8799,3112.3,10,I think that our CEO has already answered the question of Mr.
4450488,356,3112.3,3123.8298,10,Verginsky because the cost was also the question was also about the cost of energy um so um I believe that we have covered this one.
4450488,357,3130.1001,3132.3799,10,Uh any other questions from the audience?
4450488,358,3132.79,3133.2,10,Yes.
4450488,359,3133.48,3133.71,10,Yeah.
4450488,360,3133.74,3136.45,10,Copkaha and bank uh brokerage house.
4450488,361,3136.96,3148.8201,10,I have a question about your renewable uh energy target at Sierra Garda and I would like to find out what is the current situation and how do you go about it?
4450488,362,3149.22,3153.74,10,Uh do you actually have photovoltaics farms or you have a different approach?
4450488,363,3153.74,3156.3701,10,How are you going to actually develop that?
4450488,364,3156.3999,3161.3501,10,Is CapEx going to be uh shouldered Sierra Garda or by external partners?
4450488,365,3161.3501,3186.21,10,And I also have a question about the surplus that you show at Sierra Garda um are you going to actually continue to transfer that to Poland or you really think about uh future development like Sierra Garda two the project that was considered at some time or Sierra Garda oxide that was in the plan at some point in time?
4450488,366,3189.0701,3209.6199,10,Um actually as of today Sierra Garda has some electricity uh generated by renewable sources and the ultimate a hundred percent target has been adopted because very um advantages uh contracts that we have signed.
4450488,367,3209.9399,3214.05,10,They are future are um forward looking.
4450488,368,3214.26,3220.9299,10,So we are actually looking we are waiting for this um supplier of electricity to complete their product.
4450488,369,3220.9299,3229.1599,10,So this is all actually secured and we are really happy with this um electricity transition um at Sierra Garda.
4450488,370,3229.49,3249.6699,10,And to answer your question about the cash flow from Sierra Garda well at this point Sierra Garda is not planning the second phase there is no discussion about Sierra Garda two at this point so there is no um investment planning towards that.
4450488,371,3250.04,3266.4199,10,We continue the same investment methodology that we adopted for Sierra Garda at the very beginning of our engagement there when we actually stepped into this um function of the management board.
4450488,372,3266.4199,3275.98,10,So we want to optimize the operations uh while um containing our um financial exposure.
4450488,373,3276.3999,3280.1799,10,So this is um what we continue to do.
4450488,374,3280.6599,3288.3899,10,We do have uh CapEx um for improvements um that are needed.
4450488,375,3288.6899,3303.8201,10,Uh it is not uh that we are going to double the CapEx for Sierra Garda or that we want to double the capacity of Sierra Garda no but we do take a lot of small steps to move forward.
4450488,376,3304.21,3312.01,10,And uh despite the CapEx that is dedicated to improvements we continue to have substantial cashflow to Poland.
4450488,377,3312.3799,3313.2,10,Final question.
4450488,378,3313.6001,3322.3499,10,Um there is a very um new trend of um electro mobility in the deep minds.
4450488,379,3322.3501,3327.3601,10,Um suppliers of this equipment are actually talking about it everywhere.
4450488,380,3327.3999,3338.1101,10,Have you ever considered that and would it be an option to reduce your energy consumption because you would uh be able to contain your cost related to ventilation and temperature deduction?
4450488,381,3338.1101,3341.49,10,I know that one of your companies has such a vehicle in their portfolio.
4450488,382,3342.51,3350.4099,10,So let me uh answer that question and Adam Bugita who's responsible for development might provide more details.
4450488,383,3350.9199,3355.6201,10,Well the it is true that there is a trend in place.
4450488,384,3355.6499,3361.3201,10,Uh I believe that we need time for technology to develop.
4450488,385,3361.8,3369.54,10,And uh many times suppliers are actually um speaking um much more before for they are able to deliver.
4450488,386,3370.1001,3380.0898,10,Because um the loader has to lift twelve tons per hour and it needs a lot of electricity from the battery.
4450488,387,3380.9299,3395.3799,10,And it means that it would have to be charged several times during the six hour cycle to be able to replace uh the currently uh operated diesel fuel machine.
4450488,388,3395.78,3405.51,10,So we are looking for options for uh options that would help us keep our production cycle in tag so that we do not need to make it longer.
4450488,389,3405.9099,3413.53,10,So we can actually think the transportation of people with the use of electricity we are testing that.
4450488,390,3425.21,3430.3501,12,If the battery is developed substantially then it could be feasible.
4450488,391,3430.8101,3449.5901,12,And at Sierra Gorda we actually have um uh huge machines uh that are also um electrical but um they um have to load vehicles that um have capacity of two hundred fifty tons.
4450488,392,3449.5901,3456.52,12,So theses are electrical machines but they need to be uh supplied from the uh grid.
4450488,393,3456.73,3462.1301,12,It's not possible to upgrade these machines from the battery because the battery would be up very soon.
4450488,394,3462.8501,3466.6799,12,But your question about Sierra Gorda electricity is very interesting.
4450488,395,3466.9099,3478.4399,12,Chileans have it much easier because we spoke about the area that you have to dedicate to them uh photovoltaic they have the entire Atacama uh Desert.
4450488,396,3478.48,3484.99,12,And this is one of the sunniest places in the world and on top of it it is completely empty.
4450488,397,3485.52,3492.6401,12,And the mine such as ours takes just a tiny fraction of this desert.
4450488,398,3492.74,3496.9099,12,Therefore it's much easier to deploy photovoltaic farms there.
4450488,399,3497.5801,3502.6599,12,And um for photovoltaics you need to have appropriate acreage.
4450488,400,3502.95,3506.3201,12,And they have much more um ambitious plans.
4450488,401,3506.3201,3519.5701,12,They want to use uh um electrolysis to generate uh hydrogen and they want to be become a leading producer of um hydrogen in the world.
4450488,402,3520.01,3526.5901,12,And and they will co achieve that through the um by the sea with ships.
4450488,403,3526.5901,3531.6899,12,Obviously first they have to um uh concentrate that into ammonia.
4450488,404,3532.29,3533.6899,12,And now over to my colleague.
4450488,405,3536.98,3548.04,14,In two cases we checked uh what are the companies have previously uh promised and they were unable to deliver to us the machinery that would correspond to our profile.
4450488,406,3548.5601,3555.99,14,We are in talks with all major manufacturers worldwide uh so uh that's that's the situation right now.
4450488,407,3556.25,3560.22,14,As we got lower into the temperature it is unfortunately just one uh degree.
4450488,408,3560.6201,3569.74,14,Uh we will have uh temperature lower on the ground by one degree that will not solve our problem of cooling uh that formation.
4450488,409,3570.53,3581.28,14,And we are thinking about that we are open to uh this direction uh of developments but apart from that we need to optimize uh and cope with the difficult conditions.
4450488,410,3583.1799,3583.9302,14,Thank you very much.
4450488,411,3585.1399,3592.51,14,I would like to come back for a second to the uh theme of operations and results on Sierra Gorda.
4450488,412,3592.8401,3596.23,14,I would like Paweł Gruza to answer the question from Tomasz Piwowarczyk.
4450488,413,3596.6799,3597.0798,14,Thanks.
4450488,414,3597.1599,3605.97,14,To what activities uh did you uh achieve greater uh amount of uh copper uh in Sierra Gorda?
4450488,415,3606.1899,3611.1599,14,Will you be able to maintain the thirty percent growth and production of a Chilean company?
4450488,416,3613.4299,3634.4399,14,In principle I mean output as a function of metal content in the ore but also uh that depends on optimization of the process itself and on parametrization of this process.
4450488,417,3634.8401,3661.1299,14,Let me remind you that in the last quarters we also concluded a certain investments that were those tiny steps low cost uh low uh capital intensity baby steps that allowed us to improve the parameters of installation.
4450488,418,3661.4199,3669.9099,14,We could enumerate here a number of elements uh for example hydrocyclones uh and other uh technological elements.
4450488,419,3669.9099,3688.0698,14,So all those activities are taken together translated into greater capacity for processing and greater uh recovery on what geology offers to us.
4450488,420,3689.6499,3705.3801,14,If you ask about the second half of the year as I said we do not expect any major collapse in the production anything that would threaten our good results.
4450488,421,3706.0601,3715.3701,14,But also at present we are not getting any clear guidance uh quant any quantified plan.
4450488,422,3717.29,3718.0999,14,Thank you very much.
4450488,423,3718.9199,3730.6699,14,I think uh the uh president's commented previous uh um answers uh exhaust the question that I'm going to read out right now.
4450488,424,3730.6699,3735.8999,14,But there was a question addressed to Marcin Chludzinski from Jacob Kinovich.
4450488,425,3736.6101,3741.52,14,What to the greatest extent contributed to the improvement of the situation in Sierra Gorda?
4450488,426,3741.52,3744.5801,14,Which factors were of key importance in this process?
4450488,427,3746.0,3754.5701,14,Well I tried to uh explain this at the beginning uh of uh my presentation but maybe I'll address it in more detail.
4450488,428,3754.8601,3775.8899,14,Ladies and gentlemen when we uh joined this company oh we had our entries full uh of some big CAPEX projects which uh mean that by investing uh more billions our production could grow.
4450488,429,3776.3301,3778.3401,14,We took a risky decision.
4450488,430,3779.1799,3788.5898,14,We invested in the form of purchase price plus loans for all the development of this project that were billions of uh z otys.
4450488,431,3789.0901,3813.5,14,Maybe it's high time now to use ordinary uh optimization of uh maintenance and uh management of uh industrial asset to subdue uh manage of industrial assets and try to squeeze as much of it as possible so that in the following uh stages we get even better financial results.
4450488,432,3813.9199,3820.6201,14,So in a nutshell uh through a series of organizational initiatives I can give you an example of vehicles.
4450488,433,3820.96,3843.5701,14,If uh one uh uh vehicle is loaded to a greater extent uh thanks to better uh capacity better motivation system uh incentive system for the driver for or the loader we have uh several dozen percent higher volume of those uh trucks.
4450488,434,3843.8201,3849.21,14,And uh if we have a better uh transportation to the mills.
4450488,435,3849.24,3855.02,14,Uh and then when we have a better coordination with maintenance we act proactively.
4450488,436,3855.3601,3872.3899,14,We eliminate all those uh risks that can potentially threaten us because uh they might uh bring down our uh production capacity down to sixty percent rather than eighty five percent which is a standard in the industry.
4450488,437,3872.6699,3885.73,14,So we took a number of those baby steps uh and uh there's a reason we are able to produce more that is the work of uh us as a whole management board inaudible managers uh here in Poland.
4450488,438,3886.0601,3888.4199,14,We are working on this uh all the time.
4450488,439,3888.4199,3898.4602,14,People know that this is Polish money of a Polish company but we need to make sure that the investment is uh conducted in a way uh that pays off.
4450488,440,3899.6899,3904.98,14,And also the cost uh level we undertook another initiatives.
4450488,441,3904.98,3911.5801,14,Wherever possible we uh try to do things uh um in a less uh expensive way.
4450488,442,3911.8999,3922.8,14,Like in this photovoltaic project uh are yes mm or um non uh closing down of the company during COVID.
4450488,443,3923.1001,3926.51,14,It was not easy at all uh to continue production.
4450488,444,3926.51,3933.74,14,Uh COVID is still uh uh at high risk of uh COVID.
4450488,445,3934.0701,3936.29,14,We have uh frequent inspections.
4450488,446,3936.29,3944.99,14,We uh go through them with a positive outcome and that means that we are able to manage uh the uh companies that are quite well.
4450488,447,3945.3,3957.5798,14,Also relations with trade unions you know this is a delicate matter in Chile and we are uh nevertheless able to uh find common language uh with workers there.
4450488,448,3957.8899,3968.9399,14,With the scale of production that is millions um of um z otys or dollars we were able to ensure transportation for employees continuity of operations.
4450488,449,3969.3101,3972.73,14,Uh so uh that was a whole range of such factors.
4450488,450,3972.76,3981.6401,14,I would call them uh importance uh significance good management and without an extra CAPEX uh we can see the results.
4450488,451,3982.5601,3992.95,14,CAPEX can be brought to any of these uh uh trend uh becomes uh a lasting one than we can consider adding additional capital expenditures.
4450488,452,3993.1899,3993.9001,14,Thank you very much.
4450488,453,3994.25,4002.8301,14,Uh let me just briefly read out question to Andrzej Kensbok.
4450488,454,4002.8601,4009.4399,14,inaudible and UBS ask this question.
4450488,455,4010.3701,4018.23,14,And it concerns doubts about uh the significant increase and remuneration at k g h m.
4450488,456,4018.75,4023.28,14,Uh the second uh quarter should not uh be treated this…
4450488,457,4023.3101,4027.51,14,uh second quarter level be treated as a starting point for uh the following ones.
4450488,458,4028.1799,4035.8398,14,Ladies and gentlemen uh remuneration cost uh is derivative of uh the collective bargaining agreement that we signed.
4450488,459,4036.1799,4043.8401,14,This collective bargaining agreement uh identifies quite precisely the algorithm uh that uh determines salaries.
4450488,460,4046.75,4050.54,14,And it's a derivative of of this uh arrangement.
4450488,461,4050.8899,4058.77,14,In the collective bargaining agreement we also included um award from uh the profit.
4450488,462,4061.0801,4077.5498,14,If all the factors that we have mentioned today uh continue on the positive trend we forecast a record high profit and then we uh are obliged to establish a provision for an increased bonus uh for all the crew.
4450488,463,4077.9299,4098.3398,14,So we pay out more but on the other hand we also have the feeling that this collective bargaining agreement and our activities allow us to share uh uh the beneficial situation of the company uh with um broad range of stakeholders that is employees.
4450488,464,4098.7402,4099.3599,14,Thank you very much.
4450488,465,4099.3599,4101.4102,14,I have a financial question as well.
4450488,466,4101.4102,4104.3296,14,I will quickly answer it right now.
4450488,467,4104.5898,4108.5396,14,Reminding you uh of the impact of hedging on our result.
4450488,468,4109.7002,4119.8901,14,Rafoviat asked uh about uh how much hedging uh came on sales and how was on the remaining activities in the first half of the year?
4450488,469,4122.3501,4129.7598,14,On hedging we had seven hundred forty two million uh adjustment on revenue.
4450488,470,4129.7598,4142.8398,14,seven hundred thirty three uh million reduction of uh the uh result on other operations and the remaining twenty million uh was uh assigned to financial result.
4450488,471,4143.3501,4151.79,14,And you can find it in our presentation in its full version but I just mentioned this as something that uh facilitates our modeling.
4450488,472,4153.52,4155.8301,14,Are there any questions from the room?
4450488,473,4158.8198,4161.0503,14,It seems we have more questions coming in.
4450488,474,4164.3501,4171.8701,14,Uh some of them have already been answered so I'm quickly going through uh what comes in here online.
4450488,475,4174.2202,4181.25,14,I would just like to refer to the question that was asked before about electrical energy.
4450488,476,4181.5,4188.4697,14,The CEO answered that you expected among other things uh reduction uh I think it was a reduction.
4450488,477,4189.1602,4193.71,14,Reduction in uh the the power capacity fee.
4450488,478,4194.0298,4198.5303,14,Why do you expect this fee uh to be reduced?
4450488,479,4198.5298,4201.0,14,Does it follow from any regulations?
4450488,480,4201.4399,4203.98,14,Yes it does follow from uh regulations.
4450488,481,4204.27,4216.9697,14,We uh in the regulatory policy of the European Commission we are in the list of uh uh uh industries that can be exempted from the fee.
4450488,482,4217.25,4220.9502,14,Mining uh copper mining uh can be exempted from the fee.
4450488,483,4221.3901,4230.0498,14,Now uh uh resolution is mm being considered uh where this exemption is envisaged.
4450488,484,4230.3301,4235.7397,14,And what was this fee uh in the first uh half twenty twenty one?
4450488,485,4238.1099,4239.75,14,About one hundred million PLN.
4450488,486,4240.7202,4244.48,14,And this fee will continue till the end of uh twenty twenty one?
4450488,487,4247.25,4253.5,14,That depends on when uh the resolution the CEO had just mentioned will come into forms.
4450488,488,4253.9902,4254.6597,14,Thank you very much.
4450488,489,4255.8701,4270.7202,14,I have uh two quick questions regarding whether we can say something more whether can uh dwell on the subject of our interest in MSCR uh reactors and hydrogen.
4450488,490,4271.3701,4283.5298,14,Um but we have already mentioned here that those uh things are being studied as part of uh a broader discussion broader thinking.
4450488,491,4285.1201,4296.6001,14,Oh wait the results of which uh we will try to show you uh when we talk about update of our strategy or certain element of the strategy.
4450488,492,4297.0298,4305.2202,14,Um on my part we have exhausted the the questions that was sent in by email so thank you very much.
4450488,493,4308.0601,4319.75,14,Uh let me just remind you that all questions and answers from today and the questions that uh you will still send to us by email will be published on our website.
4450488,494,4319.8901,4325.8101,14,We will uh provide answers and we will add any details if you uh have any more specific questions.
4450488,495,4325.8101,4328.4902,14,We are at your disposal also right after this conference.
4450488,496,4328.8198,4333.79,14,Let's hope we will meet again uh next quarter hopefully with a bigger number of participants.
4450488,497,4333.79,4334.54,14,Thank you very much.
4450488,498,4334.9902,4336.5503,14,I would like to thank the management board as well.
4450488,499,4336.5498,4336.9897,14,Thank you.
4450779,0,57.88,58.25,1,Thank you.
4450779,1,58.69,62.39,1,I'm pleased to welcome you to Arco's second quarter two thousand twenty one conference call.
4450779,2,62.87,67.9,1,With me in the call today we have Arco CO Ari de Sa Cavalcante Neto and Arco CF Roberto Otero.
4450779,3,68.43,72.41,1,During today's presentation our executives will make forward looking statements.
4450779,4,72.46,87.63,1,Forward looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks uncertainties and other factors that may cause inauidble materially from those contemplated by these forward looking statements.
4450779,5,87.67,104.55,1,Forward looking statements in this presentation include but are not limited to statements related to our business and financial performance our expectations and guidance for future periods our expectations regarding strategic project initiatives and their related benefits and our expectations regarding the market.
4450779,6,105.26,114.61,1,These risks include those set forth in the documents that we issued earlier today as well as those more fully described in our findings with the securities and exchange commission.
4450779,7,115.35,120.91,1,The forward looking statements in this presentation are based on the information available to us as of the day hereof.
4450779,8,121.52,129.69,1,You should not rely on them as prediction of future events and we disclaim any obligation to update any forward looking statements except as required by law.
4450779,9,130.42,134.99,1,In addition management may reference non i f r s financial measures on this call.
4450779,10,135.42,144.11,1,The non i f r s financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with i f r s.
4450779,11,144.21,152.94,1,We have provided a reconciliation of these non i f r s financial measures to the most directly comparable i f r s financial measure in our press release.
4450779,12,153.54,169.65,1,Please note that except from revenue gross margin selling expense G N A and cash flow from operations all other financial matters we discuss here are non i f r s and growth rates are compared to the prior year comparable period unless otherwise stated.
4450779,13,170.38,177.63,1,We also note that year over year comparisons are effected by acquisitions that were not included in our two thousand twenty financials.
4450779,14,177.69,180.29,1,lemme now turn the call over to Ari Arco's CO.
4450779,15,182.37,186.08,2,Thank you Carina and thanks everyone for joining today's conference call.
4450779,16,186.88,189.86,2,We hope that you and your families are all healthy and safe.
4450779,17,190.85,195.03,2,We would like to present four topics today as shown in slide three.
4450779,18,195.93,210.88,2,First on the results we had a twenty one point nine percent revenue recognition in the quarter leading to a net revenue of 588 million reals for the first six months of twenty twenty one.
4450779,19,211.42,216.0,2,We're a eighteen percent increase versus the same period of twenty twenty.
4450779,20,272.03,282.71,2,Second the commercial cycle for twenty twenty two school year continues to show encouraging results as pandemic related restriction are progressively lift.
4450779,21,312.02,335.49,2,Third as we continue to search for innovative ways of better service our clients and consolidate our leadership position in the industry we launched this year SAS Adapt a customizable and data-oriented version of SAS our most premium core solution allowing us to better serve the premium back segment.
4450779,22,335.49,352.29,2,s a s Adapt was developed on top of Educause LMS a solution we acquired in July that will integrate our Arco tech portfolio and has great data and Linux capabilities.
4450779,23,352.45,362.77,2,And finally we concluded our first step towards disclosure improvement and commitment to increase our impact with the release of our E S G report.
4450779,24,363.22,366.89,2,I will now turn the call to Otero to discuss the results for the quarter.
4450779,25,452.25,466.23,3,On slide six we present a breakdown for our receivables which re- reduce 19% from the first quarter level as we collected the receivables from our partner schools to whom we provided support through more flexible payment terms.
4450779,26,510.56,517.33,3,To conclude this session moving to slide eight we'd like to take an opportunity to make a quick recap on the seasonality of our business and how we expect this year to behave when compared to historical trends.
4450779,27,613.61,635.78,4,As we present in slide 11 despite in its still early stage the commercial cycle for the 2022's whole year is presenting a much faster organic growth pace versus last year indicating that the worst is definitely behind us.
4450779,28,660.0,664.17,4,That indicate a two step recovery to pre-pandemic growth rate levels.
4450779,29,664.75,677.16,4,We had one of the best years for renewals last year and at this point we know rates for car solutions are in line with these growth levels while supplemental solutions are presenting a stronger renewal performance.
4450779,30,815.07,836.1,5,On slide 15 we present s a s Adapt a version of SAS our most premium brand that offers more customization possibilities generates more data on students' engagement in pedagogical gaps and allows for higher connectivity among all content available in the platform.
4450779,31,915.86,931.5,5,On our final slide on page eighteen we bring a summary of our e s g report released last week our first step towards mapping our strengths and gaps so we can further expand our impact on Brazilian education.
4450779,32,932.75,948.54,5,The materiality analysis presented last quarter guided us to focus on three main topics which are fully aligned with our strategy impact on education focus on people and strong and sustainable structure.
4450779,33,963.65,968.2,5,m and a was key to support our mission to scale quality education across Brazil.
4450779,34,968.72,979.95,5,And now is the time for us to organize our structure and further extract the benefits of having reputable brands quality solution in a highly talented team.
4450779,35,989.47,1005.17,5,And there's more to come as we deep dive into our processes generating savings that will translate into freeing capital to invest in what really creates value serving well our clients in unlocking value to grow.
4450779,36,1005.38,1009.24,5,Thank you for your time operator we can now open for questions.
4450779,37,1116.53,1121.35,4,Um on ArcoPlus I would say that there's no change in mindset here.
4450779,38,1121.71,1132.08,4,I think that's something that uh we always mapped that was gonna happen we were just waiting for the right timing uh to do uh such um integration.
4450779,39,1132.11,1139.78,4,So the idea here is ready to join uh efforts in a more uh efficient way across uh those brands.
4450779,40,1140.08,1156.76,4,Okay so in terms of what is gonna be centralized and integrated uh we here internally you're saying that everything that is behind the curtain right so everything that uh will not prevent uh the client from uh perceiving the uh unique identity of the brand.
4450779,41,1157.04,1166.66,4,Okay so uh everything related to operations and back office uh services will at first uh be integrated.
4450779,42,1167.0601,1171.61,4,Um with regards to the sales team the idea here is to keep them independent.
4450779,43,1171.78,1172.0901,4,Right.
4450779,44,1172.46,1177.84,4,So as we discussed in the presentation we already have a team dedicated to the cross-sell.
4450779,45,1199.4399,1199.71,4,Okay.
4450779,46,1209.11,1212.76,8,So it's really about finding the right timing ah to do it.
4450779,47,1212.87,1217.1201,8,As you know we made several acquisitions ah over the last uh two three years.
4450779,48,1217.46,1231.97,8,And the key priority ah inaudible was really to improve the content to improve the product to improve the customer service ah ah and to improve the go-to market strategy and to use the local technology at first right?
4450779,49,1234.17,1237.0,8,So that was the-the strategy ah for those acquisitions ah that we made.
4450779,50,1237.35,1238.46,8,Now we think it's the…
4450779,51,1262.14,1267.03,8,But we're gonna have this centralized backbone ah ah driven by Arco Tech right?
4450779,52,1267.03,1271.9199,8,So the idea here is to drive more efficiency uh to drive more agility right?
4450779,53,1271.95,1275.78,8,And to allocate the best resources possible to all the brands right?
4450779,54,1275.78,1277.1399,8,So-so that's the idea here.
4450779,55,1304.63,1338.1499,11,These are my two questions thank you.
4450779,56,1339.86,1344.98,12,Ah regarding the commercial cycle I'd say that the early signs are very strong.
4450779,57,1345.51,1347.59,12,We still are in the beginning of the cycle.
4450779,58,1347.9,1355.11,12,Ah most of the contracts are signed in the second semester of the year between September and November.
4450779,59,1355.4301,1361.84,12,But ah I think the main difference here is that we are now able to visit schools.
4450779,60,1362.22,1364.71,12,Ah our team is traveling extensively.
4450779,61,1365.1899,1372.2599,12,We are able to ah receive schools you know at headquarters so we are hosting events ah very frequently.
4450779,62,1372.51,1378.8,12,And this last uh step of the sales cycle to close the deal is very important.
4450779,63,1378.85,1390.3199,12,So ah we see that ah in core we are multiple times ahead of ah twenty twenty and in a growth space in line of twenty nineteen.
4450779,64,1390.74,1398.9301,12,In the supplemento ah in 2019 we were growing sixty percent ah so I would say that in twenty twenty it's multiple times ahead of…
4450779,65,1399.54,1402.87,12,sorry in twenty twenty one it's multiple times ahead of twenty twenty.
4450779,66,1403.35,1408.78,12,But I would say that the recovery ah to the liables of twenty nineteen it's going to be in a…
4450779,67,1408.78,1410.85,12,in a two step ah way.
4450779,68,1411.53,1422.48,12,So we are very optimistic at this point Too early but ah the the traction of the sales force and the sales team ah is is very strong.
4450779,69,1422.76,1425.14,12,We are very excited for the months ahead.
4450779,70,1451.92,1462.5399,12,Ah I would say that ah these are in most of the times ah premium schools that they have their own content produced in-house.
4450779,71,1462.85,1470.55,12,And regarding the pricing ah it's the same pricing that we use ah as S A S because it's already a premium solution.
4450779,72,1476.9399,1477.2999,13,Thanks.
4450779,73,1480.89,1533.4199,12,Ari uh so just reading to the title here so uh thanks for the question.
4450779,74,1543.6899,1547.7301,12,Um to the second one with regards to uh to the margin.
4450779,75,1547.95,1554.79,12,Yes we are reaffirming or reiterating uh the-the range between thirty five point five and thirty seven point five.
4450779,76,1555.15,1557.97,12,Uh I mean in terms of course we assume that we will we wait…
4450779,77,1558.01,1563.02,12,reach the uh the internal uh goals for um for-for next year right?
4450779,78,1563.02,1565.8201,12,So i i mean traditionally uh we do.
4450779,79,1566.02,1566.47,12,Right?
4450779,80,1566.74,1573.5901,12,So uh you're assuming and based on the early signs for uh as Ariit said for the commercial cycle they seem achievable.
4450779,81,1573.78,1574.1,12,Right?
4450779,82,1574.1,1580.1,12,So uh-um we brought the expected to the Miami for-for margins of this year.
4450779,83,1580.4,1583.74,12,So season-seasonality will reflect the historical trend.
4450779,84,1584.15,1585.0701,12,Uh right?
4450779,85,1585.1,1593.2,12,So we should expect a a weak adjusted bigger margin q three and a strong a-adjusted EB margin in q four.
4450779,86,1652.4,1656.2899,14,uh uh That you guys published here today.
4450779,87,1657.36,1657.66,14,Thank you.
4450779,88,1663.15,1667.91,11,Hi P-P-Pedro here so um to your first point…
4450779,89,1667.96,1669.73,11,um on the…
4450779,90,1669.73,1671.16,11,uh supplemental growth.
4450779,91,1671.55,1677.53,11,Um as Ari mentioned or in two thousand nineteen this was a business unit that was growing close to uh sixty percent.
4450779,92,1677.8,1678.1101,11,Right?
4450779,93,1678.34,1685.84,11,So by saying that we expect this to be a two step recovery is not that we don't think that sixty percent growth is no longer achievable right?
4450779,94,1686.13,1695.9299,11,It's just because we think that to reach those growth levels we would need to have a full one year of a normal uh commercial activity which did not happen.
4450779,95,1695.9301,1696.1901,11,Right?
4450779,96,1696.26,1708.55,11,So uh the truth is that uh uh our-our safety uh uh was able to more intensively interact with schools from the month of May beginning of June o-onwards right?
4450779,97,1716.3101,1728.0499,11,So uh our point here is that we think we would need a a a full year of normalized commercial activity to be able to reach uh those um growth rates.
4450779,98,1734.6899,1739.86,11,Uh and by saying to save the things that possibly this could happen in two thousand and twenty three.
4450779,99,1740.3101,1740.78,11,Let's see.
4450779,100,1741.27,1744.59,11,Um as to the non recurring uh expenses.
4450779,101,1744.97,1746.7999,11,Uh could you just repeat the question?
4450779,102,1746.83,1749.87,11,you you wanted to understand what is in-included in the recurring right?
4450779,103,1751.22,1756.91,14,Yes there is a line uh uh called the non recurring expenses but we don't have further details.
4450779,104,1756.91,1758.1,14,So I just wonder if you…
4450779,105,1761.36,1761.7899,14,That's it.
4450779,106,1764.09,1764.76,11,Yeah absolutely.
4450779,107,1765.03,1771.02,11,So inside the recurring you basically have costs related to uh the stocks um…
4450779,108,1771.1,1775.91,11,implementation um or accreditation um to the company okay.
4450779,109,1780.96,1782.5901,11,M and A uh uh…
4450779,110,1782.59,1785.71,11,deals and due diligence process uh that we're undergoing.
4450779,111,1785.88,1786.16,11,Okay?
4450779,112,1788.9399,1791.17,14,Yes thank you very clear.
4450779,113,1802.96,1803.11,15,Hi.
4450779,114,1854.66,1861.3301,18,Uh Ayub highlight that inaudible which is the premium brand uh is performing quite well uh so far.
4450779,115,1861.8199,1874.0801,18,Uh but I think that the good surprise here is is really Positivo uh where we have uh uh a two times higher uh student intake this year when you compare that to uh last year.
4450779,116,1874.11,1880.29,18,Uh and I think the reason for that is is it is it's not the the price positioning.
4450779,117,1880.29,1886.8201,18,It's mainly the changes and the evolution that we made uh in the product uh and in the technology.
4450779,118,1887.34,1900.34,18,Uh I'd say that uh it's it's a it has been a good year for a replacing school that used textbooks because uh they lack the technology necessary to pursue their activities uh in a post COVID scenario.
4450779,119,1900.8199,1919.99,18,Uh but I also say that uh especially for the less uh uh proximilized uh and smaller learning systems that lack the scale to invest has also been a a a trend that these schools look for more robust solution like ours.
4450779,120,1920.23,1932.79,18,Uh so I would say that technology uh is playing uh a very important role uh in uh shifting uh schools from textbooks and and small learning systems to our solutions.
4450779,121,1974.73,1981.1799,18,Uh both for retention and commercial cycle because the the deal is expected to approved uh on the forth quarter.
4450779,122,1981.63,1992.9199,18,Uh so far uh uh because of the the anti trust of the the limited figures uh that we have show us that the the numbers are in line with previous years.
4450779,123,2022.65,2028.7799,19,Um we have a question uh from Maria uh from our site uh from the webcast.
4450779,124,2029.26,2032.6801,19,So uh can you provide more color on the inaudible prospects?
4450779,125,2033.0699,2039.8201,19,How does inaudible growth look like and what are the opportunities identified for the d two c uh product?
4450779,126,2040.21,2043.3099,19,So Maria thanks very much for uh for for the question.
4450779,127,2053.1201,2061.6599,19,Uh we wanted uh to uh have the possibility to serve uh students um enrolled in in public schools right?
4450779,128,2061.95,2069.74,19,So uh uh we wanted to impact those students but it was very challenging to to find the right to find uh the right uh product.
4450779,129,2069.8701,2070.2202,19,Right?
4450779,130,2070.52,2082.96,19,And to find equilibrium between what would be affordable uh for those students and the acquisition cost of uh those students inaudible uh those are uh traditionally digital uh products.
4450779,131,2094.05,2101.6201,19,Uh your point on d two c is is is actually uh very interesting because uh this is uh a possibility.
4450779,132,2101.72,2102.0801,19,Right?
4450779,133,2102.0801,2117.25,19,So we think that uh the products offered uh by inaudible and the inaudible tutoring that uh they offer um is highly capable of adding incremental value uh to the schools that we uh serve already.
4450779,134,2117.5601,2124.29,19,Uh we are starting to test uh the appetite uh for these products already in this semester.
4450779,135,2124.3401,2124.6101,19,Right?
4450779,136,2124.6101,2127.45,19,In the second semester of two thousand and twenty one.
4450779,137,2127.7,2129.46,19,Uh through uh a freeman.
4450779,138,2130.1899,2132.29,19,Uh uh uh uh a feature.
4450779,139,2132.6299,2136.9199,19,Um and let's see I mean we are testing a a inaudible now.
4450779,140,2137.1899,2168.3999,19,Uh and the idea is possibly next year uh upsell uh this product to uh a inaudible.
4452058,0,138.06,179.82,1,With that i'll hand it over to our c e o Murat.
4452058,1,196.68,202.0,2,That that roughly 90% of total retail is still offline offering a large opportunity for growth.
4452058,2,327.82,336.44,2,Total number of orders in the second quarter were 13.1 million which is the highest we have recorded to date in a single quarter.
4452058,3,398.21,491.27,2,"We operate six fulfillment centers covering more than 120,000 square meters strategically located across Turkey."
4452058,4,585.45,646.9901,2,HepsiPay is designed to be a companion wallet to spend save and mobilize in a flexible way across online and offline channels.
4452058,5,653.25,735.21,2,Having acquired its license in 2016 HepsiPay marked an important milestone by launching HepsiPay Cuzdanım which i'll refer to as HepsiPay Wallet as an embedded digital wallet product on our platform on the 10th of June.
4452058,6,747.55,756.93,2,It is…
4452058,7,1053.17,1064.99,3,In the marketplace revenues are recorded on the net bases mainly consisting of marketplace commissions transaction fees and other contractual charges to our merchants.
4452058,8,1474.3101,1491.79,3,Now i'll leave the floor back to Murat to share our guidance with you.
4452058,9,1575.62,1577.9401,2,With this we end our presentation.
4452058,10,1578.47,1580.85,2,We can now open the line for questions.
4452058,11,1581.4,1582.28,2,Thank you for listening.
4452058,12,1583.5699,1586.72,0,Ladies and gentlemen at this time we'll begin the question and answer session.
4452058,13,2116.26,2155.1699,2,HepsiPay will enable peer to peer money transfers and will constantly explore new use case scenarios across online and offline.
4452058,14,2502.1399,2544.0298,3,Exactly that's right.
4452058,15,2544.03,2544.22,3,Exactly.
4452058,16,2701.8201,2705.3599,7,Uh I wanna say thank you.
4453076,0,61.1,63.45,0,Andi Setiawan.
4453076,1,63.45,66.21,0,Please go ahead.
4453085,0,20.52,21.1,1,Good evening.
4453085,1,21.64,27.89,1,Welcome to the teleconference dedicated to CD Projekt Group's earnings in the first half of 2021.
4453085,2,29.04,34.63,1,Today as usual I'll be running this call together with Piotr Nielubowicz and micha Nowakowski.
4453085,3,35.89,46.14,1,The webcast of the presentation along with the audio feed are also streamed on our corporate website at cdProjekt.com and on our IR YouTube channel.
4453085,4,47.89,57.93,1,Let's start off with the Cyberpunk twenty seventy seven franchise and a brief summary of what we've accomplished so far with regard to supporting the game.
4453085,5,59.44,65.79,1,In the first half of the year we were focused on supporting Cyberpunk by rolling out successive improvements.
4453085,6,67.12,71.78,1,So far four patches and three hot fixes have been delivered.
4453085,7,73.08,82.96,1,What's more the recently we recently released Patch one point three also included additional free content referred to as DLC.
4453085,8,84.19,92.5,1,With each update we address multiple performance and stability issues improving the overall gameplay experience for players.
4453085,9,94.02,107.66,1,Restoring Cyberpunk twenty seventy seven to the digital PlayStation storefront in the second half of June was an important milestone for us reinforcing our confidence in our plans to improve the game.
4453085,10,108.95,114.24,1,In terms of support work on Cyberpunk will continue for as long as it's necessary.
4453085,11,114.96,121.28,1,Our ultimate goal is to deliver on the promise we gave to gamers and regain their trust.
4453085,12,122.09,129.97,1,We are fully committed to ensuring that Cyberpunk lives up to its full full potential and becomes a long-term success.
4453085,13,131.0,139.15,1,At the same time we are focused on development of the next-gen version of the game which brings me to slide number four.
4453085,14,140.89,145.44,1,Our target date for the release of the next-gen update is late twenty twenty one.
4453085,15,146.02,153.89,1,Please note however that as the game is still in development production plans might be subject to change.
4453085,16,154.56,159.97,1,The next-gen version is an important step of our adventure in the Cyberpunk universe.
4453085,17,161.08,165.55,1,As I said before we strongly believe in the long-term potential of this IP.
4453085,18,166.34,176.26,1,That's why we're currently working on the first expansion for the game although I cannot say anything more about it at this point of point in time.
4453085,19,177.65,181.22,1,Now let's move on to next Witcher franchise.
4453085,20,181.68,183.6,1,Please move on to the next slide.
4453085,21,186.96,193.67,1,The two most significant events related to Witcher universe took place after the close of the reporting period.
4453085,22,194.52,204.98,1,In July together with NETFLIX we co-organized the first ever edition of WitcherCon a two day virtual event for fans of the Witcher universe.
4453085,23,205.84,212.3,1,The event attracted great community attention and was streamed live by a number of key influencers.
4453085,24,248.92,250.56,1,Let's move on to slide eight.
4453085,25,251.8,263.38,1,The Witcher Monster Slayer a mobile location location-based AR game developed and published by our daughter company SPOKKO was launched on the twenty first of July.
4453085,26,264.58,269.93,1,We are very satisfied with how the game has been reviewed and rated by gamers.
4453085,27,270.88,277.9,1,Its ratings currently stand at four point five on App Store and four point one on Google Play.
4453085,28,279.4,289.06,1,Regular users as well as experts point to among others strong focus on storytelling and the game's immersive nature driven by AR.
4453085,29,289.93,291.3,1,We are in the process we…
4453085,30,291.39,291.97,1,<laugh> Sorry.
4453085,31,292.42,301.7,1,We are in the process of collecting and ana analyzing data in-game stats and feedback from gamers and we have ambitious plans for the coming quarters.
4453085,32,302.98,309.58,1,The plan we plan to roll out new content including new adventure seasons monsters and features.
4453085,33,310.74,313.26,1,Now let's move to slide nine.
4453085,34,314.84,323.61,1,In July following the signing of a takeover agreement Digital Scapes for formally became a member of CD Projekt family.
4453085,35,324.36,328.54,1,The studio was subsequently rebranded as CD Projekt RED Vancouver.
4453085,36,329.4,341.0,1,The Canadian studio has set itself an ambitious goal to triple in size by the end of the calendar year with a target team size of approximately forty people.
4453085,37,342.21,350.79,1,it'll focus on supporting CD Projekt's efforts related to technology and gameplay programming for the studio's core IPs.
4453085,38,352.52,357.04,1,Let's move to the final slide of this part of the presentation number eleven.
4453085,39,358.31,365.82,1,In accordance with our promise to gamers we intend to keep improving Cyberpunk for as I said as long as it takes.
4453085,40,366.68,370.9,1,Meanwhile we do not lose sight on the bigger picture.
4453085,41,371.23,377.57,1,We want to develop other products based on our franchises and to keep growing our core business.
4453085,42,378.42,389.14,1,Right now one hundred sixty people are working on the first expansion for Cyberpunk while nearly seventy more are involved in other unannounced projects.
4453085,43,390.72,392.37,1,That's all from me for now.
4453085,44,392.8,395.11,1,Let's move let's move on to slide twelve.
4453085,45,395.76,397.5,1,Piotr the floor is yours.
4453085,46,402.03,404.86,2,our profit and loss account for the first half of this year…
4453085,47,411.13,419.02,2,this year our revenues from sales of products reached three hundred sixty seven million zloty and were fifty four percent higher than a year ago.
4453085,48,419.63,425.63,2,While twenty twenty had been our best h one in years the first half of this year was even better.
4453085,49,426.91,436.2,2,Though we saw lower sales for The Witcher franchise this year which is natural and expected Cyberpunk two thousand seventy seven has more than made up for this decrease.
4453085,50,436.76,443.44,2,CP was the most important source of revenues half this year and most of its sales came from digital channels.
4453085,51,444.23,450.94,2,As you may remember at the end of twenty twenty we booked some provisions mainly for settlements with our physical distributors.
4453085,52,452.2,454.9,2,During this year we were adjusting and utilizing them.
4453085,53,455.41,478.92,2,We've analyzed the situation and possible settlements of contracts with our distributors and have decided to decrease part of our unused sales provisions by nearly forty million zloty which boosted our product sales revenues and at the same time we did increase our cost provisions related to cooperation with CP distributors by forty million zloty which boosted our costs of products sold.
4453085,54,479.44,491.58,2,These two changes were efficient were effectively uh neutral with regard to the gross margin however they reflect our updated estimation of future settlements of contracts with our distributors.
4453085,55,492.05,497.37,2,There is also one more important far new element in the cost of products and services sold line.
4453085,56,497.87,504.85,2,During the first half of last year it included mostly the depreciation of the Witcher three Switch edition Gwent and Thronebreaker.
4453085,57,505.42,511.43,2,This year it also includes depreciation of Cyberpunk in the amount of three four million zloty;
4453085,58,511.92,516.83,2,hence the nearly eighty eight million zloty total value of cost of products and services sold.
4453085,59,523.84,534.5099,2,G O G sales of goods and materials stayed at the same level as last year although the zloty got visibly stronger against the dollar while at CD Projekt RED the line decreased…
4453085,60,535.94,541.15,2,had sales of relatively low margin physical goods and materials on the way to the Cyberpunk premiere.
4453085,61,541.78,544.85,2,This year it's back to normal in this respect.
4453085,62,545.42,549.72,2,Hence lower sales and costs of goods and materials sold at CD Projekt RED.
4453085,63,550.52,559.42,2,All in all our total sales revenues this year reached four hundred seventy million zloty and were twenty nine percent above the sales of the first half of twenty twenty.
4453085,64,560.12,566.44,2,Our gross profit from sales reached three hundred eight million zloty which is one fifth more than a year ago.
4453085,65,567.26,572.75,2,Moving to the operating costs our selling costs increased this year to one hundred thirty one million zloty.
4453085,66,573.75,582.77,2,The increase was driven by the Cyberpunk servicing costs a large number of our developers and testers were working on updates and patches to the game.
4453085,67,583.38,589.02,2,This year alone the total cost allocated to Cyberpunk servicing reached nearly forty eight million zloty.
4453085,68,589.9,593.53,2,g and a costs also inclu al also increased versus last year.
4453085,69,593.98,606.34,2,Among others we included in this position some of the early project research phase costs in the amount of eleven million zloty and also a ten million zloty increase in costs of our incentive program compared to a year ago.
4453085,70,607.1,615.74,2,Our financial activity presents a negative outcome due to negative FX differences and missing interest on deposits due to the low interest rates.
4453085,71,616.54,619.65,2,And our effective income tax rate was around nine percent.
4453085,72,619.93,624.09,2,This is slightly above the level of last year when it was just below nine percent.
4453085,73,624.89,632.87,2,All in all our net profit for the first half of this year reached one hundred and five million zloty twenty eight percent less than a year ago.
4453085,74,633.58,642.78,2,As G O G posted negative results one hundred and nine million zloty net profit was generated by pipeline…
4453085,75,642.78,645.81,2,perspective let's go to the next slide number thirteen…
4453085,76,647.12,653.64,2,of each of the four bars represents revenues for the first six months of each of the presented years.
4453085,77,654.17,660.73,2,From these revenues we covered our costs and expenses marked gray and earned our net profits marked blue.
4453085,78,661.41,666.16,2,However this year our cost structure was different than ago uh than a year before.
4453085,79,666.78,668.08,2,Please go to the next slide…
4453085,80,670.49,672.5,2,presents CP servicing costs.
4453085,81,672.74,678.35,2,This is our commitment to gamers but also I believe an expense of a temporary nature.
4453085,82,678.91,687.85,2,The yellow slice represents depreciation of CP something natural after release yet nonexisting last year and of a non-monetary nature this year.
4453085,83,688.3,693.41,2,And the red part these are the early phase research research expenses mostly of q one.
4453085,84,693.94,708.39,2,And finally the dark gray part on top represents adjustment for the increase of sales revenues due to the revaluation of our sales provision that I ex as I ex that as I explained was neutralized by a costs provision of a similar value.
4453085,85,709.37,713.61,2,Let's move to the next slide number fifteen our consolidated balance sheet…
4453085,86,715.81,726.55,2,months of this year our net expenditures on the development projects balance decreased by twenty seven million zloty mainly due to the depreciation of Cyberpunk I just mentioned.
4453085,87,727.14,736.65,2,At the same time our long and short-term other financial assets increased in line with our purchases of T-bonds as a way of diversifying our financial reserves.
4453085,88,761.57,766.32,2,I will elaborate more on more on how this cash flow was allocated in a moment.
4453085,89,767.44,776.8,2,Our equity decreased over the first six months of twenty twenty one mainly due to the twenty twenty dividend payout which in some part was compensated by profits for the year.
4453085,90,777.59,783.41,2,I did not elaborate much on the expenditures on development projects as I wanted to share with you one more slide.
4453085,91,783.66,785.99,2,Please go to the next page number sixteen…
4453085,92,787.86,797.16,2,RED's expenditures on research development and service of released games quarterly continuation of what I was presenting du during our q one conference.
4453085,93,797.72,804.82,2,In q two the yellow part our total costs of servicing our released games decreased visibly versus q one.
4453085,94,805.36,810.08,2,Since the release of Cyberpunk this part is mostly dedicated to to CP.
4453085,95,810.64,816.54,2,Also the green part which is the early research phase costs were much lower in q two versus q one.
4453085,96,817.02,822.3,2,And at the same time the blue part actual development of new projects visibly increased.
4453085,97,822.77,828.35,2,This is in line with what Adam was presenting just uh now regarding involvement of our team.
4453085,98,829.06,832.39,2,And finally simplified cash flow on slide seventeen.
4453085,99,833.32,851.05,2,The money flowing in from reduction of receivables by one billion twenty nine million zloty was mainly dedicated to paying the dividends in the amount of five hundred and three million zloty and decreasing our long and short-term liabilities and provisions by three hundred sixty six million zloty.
4453085,100,851.68,868.86,2,"Altogether with the one hundred and five million zloty net profit for the period it increased our financial reserves by two hundred fifty five million zloty up to 1,129,000,000 billion one hundred twenty nine million zloty of cash bank deposits and T-bonds as of the end of June two thousand twenty one."
4453085,101,869.41,873.14,2,This is the source of financing for our future projects and developments.
4453085,102,873.57,875.05,2,That's all from me for now.
4453085,103,875.1,876.25,2,Thank you for your attention.
4453085,104,876.63,879.09,2,Let's now move on to the q and a section.
4453085,105,881.6,882.12,0,Thank you.
4453085,106,888.29,892.48,0,Please make sure the mute function on your phone is turned off so the signal can be read by equipment.
4453085,107,893.56,894.81,0,Star one for questions.
4453085,108,920.26,926.28,4,Um and you said late twenty twenty one but I guess arguably any day from tomorrow is late twenty twenty one.
4453085,109,926.28,946.81,4,So if you could maybe just be a bit more specific on um uh you know when during the next four months you broadly anticipate the release of these two titles and maybe you could comment on the risk of or not the risk but I guess you know your attitude towards pushing uh the release of the uh of these titles uh in twenty twenty two.
4453085,110,947.18,948.17,4,That's the first question.
4453085,111,948.58,962.87,4,Um secondly um I dunno whether whether I missed it inaudible but I just so if you could just clarify what percentage of the totals revenues or maybe the percentage of the sales of the product uh come came from Cyberpunk in uh q two that would be helpful.
4453085,112,970.42,978.27,4,Um and then thirdly I just wanna refer to slide 10 um uh I can see from um what you said there that if you look at other projects does that include uh the next uh AAA release?
4453085,113,978.27,981.03,4,I'm thinking about um the next Witcher for example.
4453085,114,981.34,983.35,4,Is that included in in other projects?
4453085,115,1010.47,1011.16,9,Uh hi Omar.
4453085,116,1011.16,1012.44,9,So thanks for the questions.
4453085,117,1012.58,1021.35,9,Uh I'll I'll tackle the first one which I believe was about the uh next gen releases of Cyberpunk and The Witcher if you kind of combined the uh the questions.
4453085,118,1021.35,1022.66,9,So I'll start with Cyberpunk.
4453085,119,1022.66,1033.0399,9,I mean our our target is to release the next gen version of uh of CP twenty seventy seven uh uh late this year which which is something that uh Adam uh uh mentioned in his opening statement.
4453085,120,1033.5699,1048.3101,9,At the same time you know keeping in mind the lessons we have learned during the past year and uh taking to account the fact that you know this project still remains in development uh um we can't say with full certainty that the production schedule will not uh will not change of course.
4453085,121,1048.3101,1066.3101,9,And and and with The Witcher three uh the situation is is slightly different uh in a way that this is being tackled by the external team mainly uh uh which is Saber Interactive uh uh the company we have worked before on on on Switch and also the uh the uh updates in the past.
4453085,122,1066.34,1075.0699,9,Um and the uh as with Cyberpunk twenty seventy seven our goal is to release that game still uh in late twenty twenty one.
4453085,123,1076.17,1085.5901,9,Um however you know similarly you know development process is ongoing uh and we cannot be absolutely dead certain that the release schedule will not change.
4453085,124,1085.62,1091.4099,9,But for the time being we we definitely are aiming with with with both titles for the late twenty twenty one.
4453085,125,1091.41,1094.92,9,And I don't want to be no more specific at this moment in time.
4453085,126,1096.79,1097.1,9,Thank you.
4453085,127,1099.2,1106.9401,5,The revenue split uh I was not uh referring to that in a precise revenue split for Cyberpunk or other products.
4453085,128,1107.49,1115.25,5,But what I can confirm is that Cyberpunk was the leading source of revenue for us during the first half of uh twenty twenty one.
4453085,129,1120.4399,1122.63,6,Hi Omar Omar Adam here.
4453085,130,1122.92,1127.5,6,I'll take the the the the third one regarding slide ten.
4453085,131,1127.74,1137.7,6,So uh the yellow part is strictly related to Cyberpunk twenty seventy seven the game which is already rel released.
4453085,132,1138.26,1150.6899,6,The the maybe the uh the part which is not covered there yet uh because we are in the transformation is technology because technology I think that we will be uh separate.
4453085,133,1183.64,1213.46,6,So we we do not provide any comments on on obviously on unannounced projects so I can't confirm anything uh more than this is this is about games which uh uh which uh which we haven't announced yet and uh the um the the next um big AAA content will be obviously uh e p one which which you can see on the slide uh as well.
4453085,134,1216.55,1216.8401,4,Okay.
4453085,135,1216.89,1217.3799,4,Sounds good.
4453085,136,1225.8101,1226.51,3,Please go ahead.
4453085,137,1227.85,1228.2899,8,Uh yeah.
4453085,138,1228.29,1229.1201,8,Good afternoon guys.
4453085,139,1229.28,1230.1499,8,I have three.
4453085,140,1230.22,1233.9301,8,Um so so I'll start just looking at these provisions.
4453085,141,1234.1,1242.98,8,So to understand this you are unwinding a negative provision in the revenue lines around forty million z oty.
4453085,142,1243.49,1248.1801,8,And then you have a new provision of around forty million z oty in the cost line.
4453085,143,1248.67,1260.9,8,So effectively without those things you are boosting the revenue uh line by about forty million but the operating profit is more or less unchanged by the activity.
4453085,144,1261.11,1263.0,8,But first of all I want to understand if that's correct.
4453085,145,1263.0,1271.5499,8,And secondly how can we expect any other provisions in the rest of the year in relation to to to these areas.
4453085,146,1271.99,1282.64,8,Um second question um did you sell more or fewer units of Cyberpunk twenty seventy seven in q two versus q one?
4453085,147,1282.74,1284.7899,8,Are you able to to give us an indication there?
4453085,148,1285.37,1286.42,8,If you can then give us a number.
4453085,149,1287.0601,1302.42,8,And the third question the comments on your release about q three being a lower quarter in general than q two and q four um are are you pointing us towards q three being a lower revenue quarter than q two?
4453085,150,1303.55,1314.67,5,Uh I'll take the first questions regarding provisions.
4453085,151,1315.1899,1317.49,5,Uh so yes you're understanding this correct.
4453085,152,1318.0699,1324.1799,5,Both our uh due to the let's say in very simplified terms reclassification of provisions.
4453085,153,1324.7,1329.4,5,Uh so it will decrease our sales provisions and increase our cost provisions.
4453085,154,1329.9301,1343.9501,5,Uh our gross margin or gross profits were not affected uh because those values are very close to forty million z oty actually the cost provision was slightly bigger than uh the sales provision.
4453085,155,1344.67,1364.6899,5,Uh as far as the um other provisions are uh concerned we still have one hundred and sixty millions złoty of uh provisions to be used for the second half of the year or for the future maybe not not all of them are exactly for the second half of the year.
4453085,156,1365.1801,1371.0299,5,Uh we have them up to our best knowledge estimated as uh for the publication date.
4453085,157,1371.5699,1383.48,5,And uh yeah that's that's uh what is uh our our judgment on the future potential settlements with the distributors and the contracts we have is reflected into this amount.
4453085,158,1383.73,1390.47,5,And this amount also includes provisions for uh on this is for the team for the first half of this year.
4453085,159,1390.96,1392.38,5,I hope it answers the question.
4453085,160,1399.01,1404.6,3,we will take our next question from Matthew Walker of Credit Suisse.
4453085,161,1404.95,1405.5699,3,Please go ahead.
4453085,162,1406.11,1406.64,9,Actually hold on.
4453085,163,1413.33,1415.52,9,Um sorry and this is me micha Nowakowski.
4453085,164,1415.6,1424.67,9,Uh regarding the q two verus q one CP units where we're not really um commenting the number of uh unit sales uh for the time being.
4453085,165,1433.96,1441.55,5,Regarding on uh future sales results uh or future profits that uh you you the third quarter of the year is the weakest quarter.
4453085,166,1442.15,1453.51,5,Uh it covers the summer time it dismisses uh the big promo events like the summer promo or the promos that happen around Black Friday in the fourth quarter.
4453085,167,1453.89,1462.27,5,So uh I would say that uh the traditional seasonality for the third quarter is uh is to be to be expected lower.
4453085,168,1462.8,1472.1599,5,Uh but it is just general too uh and I'm not intending to guide you on any specific results we may achieve in this particular third quarter.
4453085,169,1492.02,1494.6901,9,Now now we we have finished the answer.
4453085,170,1494.74,1495.87,3,Okay thank you very much.
4453085,171,1496.25,1499.47,3,We'll take our next question from Matthew Walker please go ahead.
4453085,172,1501.38,1502.1799,10,Uh thanks everyone.
4453085,173,1502.1801,1502.9399,10,Can you hear me okay?
4453085,174,1504.0601,1504.4099,3,Yes sir.
4453085,175,1505.5601,1505.8401,10,Okay.
4453085,176,1506.01,1506.5,10,Thanks a lot.
4453085,177,1506.96,1507.3,10,Um yeah.
4453085,178,1507.3,1523.85,10,So could you just explain the um first of all on the provision side can you ex just um go back to first principles and explain why you took these provisions in the first place and now why you are releasing them into the revenue line?
4453085,179,1524.4301,1531.66,10,Uh and explain about the provisions that you um dissolved in the period as well.
4453085,180,1532.48,1535.23,10,Um that's the first that's the first question.
4453085,181,1535.58,1549.0399,10,The second question is on you Seth I think maybe I got it wrong but did you say that you had a a hundred and sixty millions of potential provisions that you could release into the sales line in the second half of the year?
4453085,182,1549.76,1553.05,10,Uh can you just explain that for us as well?
4453085,183,1553.85,1568.0599,10,And then uh could you also maybe give us an indication of how many units you got through Seth putting it back onto the PlayStation in uh in the latter part of um June.
4453085,184,1568.59,1580.7899,10,And then just confirm when your talking about the uh expansion for Cyberpunk are you talking about the first paid d l c which is coming in twenty twenty two?
4453085,185,1580.79,1584.5399,10,Is that is that what you're referring to when you talk about expansion?
4453085,186,1606.67,1613.12,5,So we set some provisions in the first place back in twenty twenty upon releasing Cyberpunk.
4453085,187,1613.74,1624.4301,5,Uh and the provisions included boss both expected cost of releasing the game that were not invoiced to us back in twenty twenty and we expected the invoices to come into the company.
4453085,188,1624.91,1631.73,5,And also potential returns of price protections that uh that we were expecting to happen later on.
4453085,189,1632.17,1639.8401,5,However uh we're supposed to correct this sales switch uh we already invoiced back in q four of twenty twenty.
4453085,190,1640.2,1650.0,5,So the provisions for the cost or or sales revenues originate mostly from the premiere back in uh in twenty twenty.
4453085,191,1650.67,1656.0099,5,Uh each quarter we have to evaluate them and we have to adjust them.
4453085,192,1656.5,1672.3099,5,Right now based on the market situation based on the reports from our distributors we decided to reevaluate them and in very simple terms uh we reclassified some of the sales provisions into cost provisions.
4453085,193,1672.79,1681.6,5,Uh hence the closed neutral effect of this uh of this uh transactions to our uh gross profit.
4453085,194,1682.08,1691.4199,5,But we believe having the knowledge we have today that the better present which should happen to our um profit and loss calculations.
4453085,195,1691.42,1709.2699,5,So the company should have higher sales but at the same time uh our settlements with distributors will include more cost that uh we will recount uh based on the contracts we have with 'em.
4453085,196,1709.27,1714.5599,5,At the same time having hi higher sales and higher incomes from from them.
4453085,197,1715.03,1730.74,5,So that's kind of technical uh booking I would say that uh better reflect how we should present it book-wise uh and how we decided to adjust it based on the current knowledge we have right now.
4453085,198,1731.24,1748.5,5,And as far as uh how much of the provisions were used and how much of the provisions were uh adjusted I would love to point you to note twelve as far as I remember uh other provisions uh of our financial statement.
4453085,199,1748.87,1768.85,5,And there are two tables precisely shown uh what sales provisions what cost provisions and what bonus provisions we have for the beginning of the period how they were used uh which were consumed and which were added and which were uh canceled over the first six months.
4453085,200,1769.33,1775.28,5,Uh I believe this will be much uh much more convenient than me describing all of the numbers right now.
4453085,201,1775.76,1782.27,5,Uh if you would happen to have any additional questions I will be uh happy to answer them directly.
4453085,202,1784.08,1784.59,5,Thank you.
4453085,203,1785.14,1789.1599,5,I believe that's all from my side on the first two provision questions.
4453085,204,1790.21,1796.0601,9,And uh micha Nowakowski again I'll jump in on the third and fourth questions.
4453085,205,1809.11,1812.5399,12,So so I can't go deeper in in in that question either.
4453085,206,1813.17,1841.2,12,Uh regarding the fourth question about um is the expansion that uh Adam mentioned in his opening statement is it the first inaudible I I'd actually like to first focus on the on the naming conventions here because we we actually make a distinction when we say about when we speak about BLCs we we mean small things like a skin for the character like a like a new jacket or or a new color of the hair or something similarly uh uh well not sizeable.
4453085,207,1841.2,1843.5499,12,When we speak about expansions then then yes.
4453085,208,1843.55,1851.01,12,we're talking about uh uh a bigger thing uh like in the past with flood and wine or uh hearts of stone for example.
4453085,209,1851.01,1862.41,12,So so when Adam was mentioning in the opening statement the uh people working on the expansion he did mean the the bigger one uh uh uh which historically has been paid.
4453085,210,1863.0,1864.11,12,I hope that explains.
4453085,211,1865.4301,1865.7001,13,Yeah.
4453085,212,1865.89,1866.25,13,Okay.
4453085,213,1866.46,1867.11,13,Thank you very much.
4453085,214,1867.41,1867.79,13,Thanks a lot.
4453085,215,1872.95,1876.6499,14,we will take our next question from Ken Rump with Jefferies.
4453085,216,1876.97,1877.6801,14,Please go ahead.
4453085,217,1879.92,1880.7999,15,Hello everybody.
4453085,218,1880.91,1889.5699,15,Um I I suppose I'll I'll try a further uh go at the provisions just to see if if I'm understanding it in real world terms.
4453085,219,1890.65,1905.11,15,So are we to take it that you think that you will have sold more units but suppliers will make use of the price protection type policies that you have anyway.
4453085,220,1905.11,1907.76,15,I think you get my idea what what's happened in the real world.
4453085,221,1907.8199,1912.7999,15,Do you think that's causing this reallocation of provisions if there's a way of explaining that?
4453085,222,1913.2,1917.41,15,Um my questions however were going to be mainly about slide ten about staff.
4453085,223,1917.9399,1920.96,15,Uh firstly any comment on staff turnover.
4453085,224,1921.39,1928.6599,15,Secondly these are percentage numbers approximately where are the absolute numbers between the end of the year and and now.
4453085,225,1929.34,1934.17,15,Um and probably finally I was a little bit surprised how large the inaudible number was.
4453085,226,1934.87,1953.23,15,Um is this just kind of the normal number of people for Gwen given that it has expanded to mobile now or is you know it is the perhaps more going on in terms of development of of that game than than I'd realized it's a bigger share of the total than I would've expected.
4453085,227,1953.23,1953.7001,15,Thank you.
4453085,228,1958.6,1964.4099,12,Once again uh no they are not directly related to unique sites.
4453085,229,1964.45,1978.3401,12,Obviously the fails are uh the data on which we base estimates in the reserves and and potential future uh outcome of of settlers of our contracts.
4453085,230,1978.34,1986.23,12,We have distributors but it's not that you know this or that number of units generated this uh this result.
4453085,231,1986.77,1994.41,12,Uh we cooperate with a number of distributors and with some of them we were adjusting their reserves this way with with other the other way.
4453085,232,1994.92,2013.8301,12,Uh and we came to a conclusion uh closing the books for the first half of this year that all in all that sales provisions should be smaller but at the same time provisions for costs of corporation with the distributors and inaudible in our accounts with them uh should also be higher.
4453085,233,2013.83,2021.9301,12,It happens that both amounts are close to be equal and the cost is slightly higher than the sales.
4453085,234,2021.9301,2036.0599,12,But it's it's it's not directly related or linked one to another and neither it's linked to any specific situation with you know more unit sold than we expected or less units sold.
4453085,235,2036.16,2045.34,12,Uh that's that's the effect of total calculation of a number of contracts with distributors and number of markets we evaluated for this purpose.
4453085,236,2049.5801,2050.6201,15,Okay.
4453085,237,2053.1201,2053.5901,15,Thanks.
4453085,238,2053.5901,2053.6201,15,<laugh>.
4453085,239,2054.53,2055.5698,12,Yes yes yes.
4453085,240,2056.0601,2057.8201,12,I'll I'll try to cover it.
4453085,241,2058.4199,2066.01,12,So uh of course we are observing uh increased chance uh this year this is this is normal.
4453085,242,2066.3999,2068.1599,12,This is what we expected.
4453085,243,2068.45,2074.3899,12,Um after the conclusion of the la large project it always it's always like this.
4453085,244,2075.27,2099.8201,12,Um we have always also intensified our recruitment activities um and what I can say that the total uh number uh of employees uh to the project was I mean at the end by the end of of of June uh it is very similar comparable to to to what we had uh at the end of twenty uh twenty.
4453085,245,2128.3,2133.1602,12,So so nothing nothing nothing under this.
4453085,246,2133.1599,2135.9602,12,I mean it's a normal normal situation.
4453085,247,2136.45,2147.3398,12,So so a a apparently uh at the end of of of of uh h one the number was like this but it might it might change in the future as well.
4453085,248,2149.3401,2149.6201,15,Okay.
4453085,249,2149.6201,2151.76,15,Could I ask a couple of supplementaries?
4453085,250,2151.9099,2169.52,15,Um one is to say without going too much into current trading but is is the where do we stand in at the end of August in terms of employees you know does do your comments regarding churn and against that recruitment still apply?
4453085,251,2169.52,2173.2,15,Has there been any traumatic change kind of in in July and August?
4453085,252,2173.72,2189.3101,15,Um and the other question I was gonna ask was you referred the fact that at the moment kind of technology slash engine um staff are kind of included within the other groups largely within the cyber pro cyber punk it was yellow bar.
4453085,253,2190.03,2204.04,15,What's your idea do you think for how large that group would be either in absolute or percentage terms kind of on the new model when you're working under the new sort of central resource for technology and engine model.
4453085,254,2205.8999,2206.3699,12,Thank you.
4453085,255,2207.6201,2215.28,12,Uh so uh after the end of July there was no dramatic change.
4453085,256,2215.3101,2225.9502,12,I mean nothing uh nothing uh new uh in terms of uh of what we had at the end of uh h one.
4453085,257,2227.02,2230.9399,12,Uh in terms of technology unit it is still in discussion.
4453085,258,2230.97,2247.52,12,So so hard to say where we'll be in a year from now definitely big part of the of the of of tech will uh support more than one project at a time but it's still in discussion.
4453085,259,2247.52,2253.47,12,We are you know in the middle first part in the middle of transformation.
4453085,260,2253.47,2270.48,12,So so so so hard to hard to say anything precise regarding numbers but definitely though there'll be people working on technology not necessarily at least booking team wise uh assigned to to to to to projects.
4453085,261,2271.8701,2272.25,15,mm-hmm <affirmative>.
4453085,262,2273.1299,2273.5598,15,Okay.
4453085,263,2273.6299,2274.4099,15,Thank you very much.
4453085,264,2289.8,2306.72,16,Uh so just to check that um would all the days in June um for uh PlayStation digital units and uh Steam summer sale units um uh be already recognized in q two revenue?
4453085,265,2306.9399,2315.74,16,So in o in other words um were all the June days uh from those channels uh included in the q two sales number?
4453085,266,2316.3899,2321.99,16,And uh the second question is um related to REDengine four.
4453085,267,2321.99,2324.29,16,So you mentioned that technology investment.
4453085,268,2324.73,2352.3801,16,Um if we were to talk about hypothetically about your next big project um would it be correct to um sort of assume that the technological investment in the engine required to get the next big game out would be less um uh than that's between which are free and uh Cyberpunk twenty seventy seven where you uh update it to a whole new version of the uh REDengine while you're also working on the game.
4453085,269,2352.51,2352.8401,16,Thank you.
4453085,270,2356.6799,2363.7,12,So with revenues from digital storefronts uh specifically Steam and uh PlayStation.
4453085,271,2364.28,2374.9299,12,So all of the sales by the end of June uh that were reported to us and basically all of them were reported to us are included in the revenues uh for the first half of the year.
4453085,272,2375.3501,2384.49,12,You mentioned the Steam summer sale as far as I remember uh this action started uh in June but ended in July.
4453085,273,2384.96,2392.6501,12,So not the whole Steam summer promo was uh included in the first half results.
4453085,274,2393.1599,2397.1501,12,Only the sales achieved by the end of June.
4453085,275,2397.55,2405.8301,12,The July sales will finish off the summer promo will be part of the uh q three uh report from us.
4453085,276,2409.51,2414.29,12,Uh Adam on this end I'll take the the the second about REDengine.
4453085,277,2414.29,2430.3398,12,To be honest it's too to early to say because we are still uh very deep in in working on the current uh technology for Cyberpunk twenty seventy seven and we are evaluating and discussing future avenues uh in this regard.
4453085,278,2452.2,2452.6099,12,Thank you.
4453085,279,2460.1001,2460.8999,14,Please go ahead.
4453085,280,2462.22,2464.5801,17,Uh hello and thank you for taking my questions.
4453085,281,2464.6699,2466.22,17,Uh I have actually two.
4453085,282,2466.95,2475.48,17,Uh during the first quarter conference call you mentioned that uh each quarter fewer people would work on fixing Cyberpunk.
4453085,283,2475.51,2485.48,17,Uh will it be the case in the third quarter and should we expect some improvement in profitability as a result as I would assume more people would work.
4453085,284,2485.52,2493.1599,17,Uh even within Cyberpunk project on on expansions and these costs costs could be capitalized I assume.
4453085,285,2493.75,2496.6299,17,And the second question is on inaudible.
4453085,286,2496.6299,2508.8801,17,You haven't consolidated it yet but given the release of the Monster Slide game uh uh are you going to consolidate it from this third quarter?
4453085,287,2508.8799,2520.8901,17,And if you are going to consolidate what uh could we expect in terms of uh revenues costs uh just in the overall effect on CD Projekt's uh financials.
4453085,288,2521.24,2521.5801,17,Thank you.
4453085,289,2532.0801,2541.4102,12,Question with regard to Cyberpunk we realized the game still needs improvements and uh we will continue to work on it as long as necessary.
4453085,290,2541.55,2551.6001,12,However as the developers naturally move to other projects the number of team members engaged in the supports of the game decreases with each month.
4453085,291,2551.6499,2553.5701,12,That's that's the status quo for now.
4453085,292,2554.1699,2558.2,12,You ask whether it will uh increase profitability?
4453085,293,2558.6499,2565.3999,12,Well I would say it will uh decrease our costs for the period directly booked uh into the p and l.
4453085,294,2565.4299,2570.0999,12,That's that's probably more uh proper to uh to put it this way.
4453085,295,2572.6699,2588.1001,12,In Spark company uh so we have uh certain rules for uh consolidating in companies.
4453085,296,2588.1001,2602.48,12,So we will evaluate the group rules results versus the Spark results uh both sales numbers uh and uh the balance uh the the the total value of their assets.
4453085,297,2602.98,2605.3398,12,As far as I remember that's the second criteria.
4453085,298,2605.3401,2610.49,12,And based on that having the q three results uh we will make final decision.
4453085,299,2611.1899,2627.3201,12,Uh it is not decided yet whether inaudible should be consolidated in starting from potentially it should be consolidated in starting from uh q three or starting from the full uh full year uh results for twenty twenty one.
4453085,300,2627.9199,2636.8301,12,Uh and the question what uh what's how Spark results will uh influence our group results.
4453085,301,2636.8301,2640.49,12,That's obviously a question about future results that are still in front of us.
4453085,302,2641.04,2654.0701,12,Uh we are not guiding on that we've not calculated this yet ourselves so uh please be patient please be with us and we will cover it as soon as we have some news to share.
4453085,303,2656.3999,2656.5898,17,Okay.
4453085,304,2656.6399,2657.4702,17,Thank you very much.
4453085,305,2665.29,2665.99,14,Please go ahead.
4453085,306,2667.98,2668.6602,18,Uh good afternoon.
4453085,307,2668.6599,2682.3801,18,Uh I've got two questions uh first sorry for for another follow up on provision but I'm just trying to understand looking at uh the note uh twelve that that you mentioned of your financial statement.
4453085,308,2683.0701,2700.3799,18,I can see uh for provisions for returns uh that actually uh the the those created uh in fact have are almost forty three million but dissolved or released for this uh seem to be eighty two million.
4453085,309,2717.8501,2725.4302,19,So if you could just uh explain uh the difference that I'm probably uh not seeing in those numbers.
4453085,310,2726.1599,2727.6199,19,So that would be the first question.
4453085,311,2728.02,2735.8401,19,And the other question I would just refer uh to uh the de revenues of uh CD Projekt RED.
4453085,312,2736.3601,2745.47,19,So basically if you could uh just explain uh what was the reason the main reason for quarter on quarter growth in revenues.
4453085,313,2746.3,2751.22,19,Uh if we sorry if we exclude the the positive impact of provision.
4453085,314,2751.27,2763.22,19,So if we just uh adjust uh this forty million provisions for for the second quarter it would be still like quite visibly higher revenues uh than in first quarter.
4453085,315,2763.25,2782.52,19,So uh I'm aware that you are not commenting specifically on on uh the numbers for uh Cyberpunk or or Witcher but maybe you could just at least say whether this growth came ma mostly from Cyberpunk or sales increase quarter on quarter or Witcher or anything else.
4453085,316,2783.54,2785.47,19,That's all for my my sake.
4453085,317,2785.47,2785.97,19,Thank you.
4453085,318,2792.02,2804.1599,20,The forty millions latte I referred to was the balance of all the adjustments we've made or the number of distributors we work with.
4453085,319,2804.74,2815.75,20,So if you look at the referred notes in our financial statement uh actually uh nearly seventy millions latte provisions were consumed.
4453085,320,2815.75,2819.98,20,So they were effectively used uh during this period.
4453085,321,2820.6399,2826.7,20,They were eighty two million latte provisions dissolved and forty two millions latte created.
4453085,322,2827.3101,2839.29,20,So the balance of the eighty two minus forty two is the forty millions latte that influenced directly our uh our revenues for for the period and then I mentioned in my presentation.
4453085,323,2839.9199,2842.5901,20,Uh as I said there is more than one customer.
4453085,324,2842.5901,2858.79,20,There is more than one contract that we monitor and that that's uh that we reflect uh in our provisions assessment and the forty around forties million latte net effect uh is the outcome of all of the calculations.
4453085,325,2859.3899,2866.03,20,Uh the second uh question was uh what influenced the q two results being better than the q one?
4453085,326,2866.6399,2877.7,20,Uh as I said uh the biggest revenue driver was Cyberpunk and most of the sales generated uh during this uh period on Cyberpunk came from digital distribution.
4453085,327,2878.1799,2882.6599,20,Uh during q one we were not present on Sony PlayStation store.
4453085,328,2883.1799,2887.1001,20,Uh Cyberpunk came back uh to sales.
4453085,329,2887.3,2895.8901,20,Uh it was uh it was an event for us but it also allowed us to generate some extra revenues that were not present in the q one.
4453085,330,2896.3799,2913.71,20,Uh and so so other uh other Cyberpunk in other stores like Steam uh added to the size and all in all uh made q two better in this respect than uh than the inaudible in q one.
4453085,331,2916.3899,2921.71,20,Can't comment from from the top of my head uh for now.
4453085,332,2921.74,2922.1001,20,<laugh>.
4453085,333,2922.3,2923.3398,20,Thank you very much.
4453085,334,2924.1799,2924.51,19,Okay.
4453085,335,2924.51,2925.1101,19,Thank you.
4453085,336,2932.99,2935.9302,21,We'll take our next question from Tomasz Rodak with BOS Brokerage House please go ahead.
4453085,337,2937.98,2938.28,22,Yes.
4453085,338,2938.28,2938.5801,22,Hi.
4453085,339,2938.6299,2939.52,22,Can you hear me well?
4453085,340,2940.9299,2941.28,21,Yes sir.
4453085,341,2941.3101,2941.6702,22,Hello?
4453085,342,2942.3601,2942.5801,22,Yes.
4453085,343,2942.98,2945.4099,22,Uh hi thank you for taking my questions.
4453085,344,2945.4099,2956.1399,22,Uh first questions first first question once again is related to the provisions to reduction of provision and it's uh fairly simple I think.
4453085,345,2957.0701,2978.3701,22,Uh uh does it the the fact that you reduced the provision does it to any extent mean that the sale of cyber Cyberpunk uh in uh physical channels is better than you expected when you was creating this provision or is it at all not uh connected with wi with this?
4453085,346,2978.97,2996.26,22,And uh um and uh with regards to uh second half uh of uh this year uh you you will probably be uh maybe uh reducing the provisions in the future in the second half.
4453085,347,2996.26,3039.6902,22,Uh wha is there any chance that the reduction of provision in the second half uh be uh uh profit uh contributing uh if yes what what would would have to happen to to to to make the reduction of provision uh profit uh contributing and uh um uh yes and if you co could could you give us some uh uh and uh some information on on uh the m digital versus physical uh revenue structure in the first quarter and second quarter.
4453085,348,3040.28,3044.3699,22,And yeah and and that's it thank you.
4453085,349,3051.1201,3055.9402,20,Actually distributors have number of possible ways of settling.
4453085,350,3056.73,3064.8901,20,In some cases we get sales revenues but in some other we are also liable to refund them some of the expenses they covered on their side.
4453085,351,3065.5601,3082.0,20,The fact that we dissolved part of the sales provisions but increased the cost provisions does not naturally mean that we expect better sales on the sales side or worse sales on the cost side of the provisions.
4453085,352,3082.4299,3090.5598,20,Uh that's the effect of our estimation of what the future may bring in respect of our settlements with distributors.
4453085,353,3091.22,3103.5601,20,It happened to be close to neutral uh for the gross profit but it's based on the amounts we contractually expect to be settling with the distributors and not directly on the inaudible.
4453085,354,3104.72,3116.3801,20,So your question whether we could be viel evaluating the provisions in the third or fourth quarter and will it affect and then and then will it affect our profitability?
4453085,355,3116.8601,3154.0898,20,Yes we are evaluating the provisions every quarter and depending on what uh the future market situation will be we may either be required to increase them or if we were to uh to secure uh maybe we will be lucky to <laugh> uh to uh lower the amount of provisions but uh what we booked uh for the end of June reflects our estimations on uh future cooperation with distributors and our our and their future liabilities arising from the contracts we have.
4453085,356,3154.0901,3156.6199,20,So that's our best knowledge on this.
4453085,357,3157.55,3171.1401,20,Uh uh regarding the physical digital uh speed of our revenues in those q two and q one I would say digital uh from the top of my head without checking in uh in tables.
4453085,358,3171.6699,3178.8799,20,Digital was definitely the most important part of uh the most important source of revenues for us.
4453085,359,3179.46,3199.6602,20,Uh as in case of physical uh for vast majority of our corporation with distributors due to the nature of physical distribution that first high quantities of games are shipped to the market and then then uh you uh manage the stock in the retail channels.
4453085,360,3200.03,3208.3098,20,Most of the corporation and most of the revenues uh with physical uh distribution partners are settled right now on the level of provisions.
4453085,361,3208.75,3218.1699,20,So the new royalties and new revenues uh inaudible are generated mostly via the distribution channels for now.
4453085,362,3282.6399,3285.03,23,Yes we do have an idea.
4453085,363,3285.45,3294.76,23,Uh Charles maybe you can cover this because uh I think that you are running this this project um if you may.
4453085,364,3302.2,3323.3501,20,The brokerage house which mediated uh the take up of shares at the beginning of uh the program when uh when we were making back in twenty twenty will reach out to program participants who are contemplating potentially contemplating sale of shares.
4453085,365,3323.71,3333.3701,20,Soon after the lockup period is over and present them with a comprehensive offer which should enable such transactions to be carried out in an organized manner.
4453085,366,3334.25,3343.1401,20,The offer would also enable so the product to inform the market ahead of time how such sale orders should be carried out.
4453085,367,3343.8601,3356.05,20,As within transactions carried out last year all sales order placed by our shareholders would be aggregated and processed by an experienced team of uh Trigon brokers.
4453085,368,3356.5801,3365.5601,20,We expect these transactions to be spread over some time and to have a limited uh share in our daily turnover.
4453085,369,3365.5601,3390.8899,20,That's the idea which we discussed with uh with Trigon when preparing uh for the end of the lockup to be able to offer them to come to uh our employees with uh a proposal of uh some organized solution uh how to mm how to potentially uh help them if they decide to sell their shares.
4453085,370,3391.4299,3410.96,20,But at the same time uh I can say that uh we've discussed it among uh with my colleagues from the board and uh none of the board members intends to sell their shares following the end of the lockup period uh that's uh that that will expire this September.
4453085,371,3411.6201,3415.97,20,So that's uh that's the info that I can share right now.
4453085,372,3421.3999,3431.23,24,And uh next question I have is we have here sorry this is inaudible from from uh Bloomberg News and there's two questions actually.
4453085,373,3431.6001,3436.8701,24,Um so the first one is regarding expansion to regarding the expansion to Cyberpunk.
4453085,374,3436.8701,3438.3499,24,When should we expect it?
4453085,375,3439.29,3442.02,24,Uh and the question is year twenty twenty two.
4453085,376,3442.77,3447.75,24,And is it finally agreed will be paid and what scale of price should we expect similar to Witcher expansions?
4453085,377,3448.0601,3452.7202,20,So I I'll cover that first and then I'll I'll read the the other one before uh uh switching off.
4453085,378,3452.72,3467.6401,20,So uh regarding the expansion uh I as we mentioned earlier we're actually not uh it's it's in development but but we're not providing uh any specifics about the the dates.
4453085,379,3467.6699,3470.02,20,Uh and I know twenty twenty two is a broader question.
4453085,380,3470.02,3481.8298,20,It's not super specific like X Y Z even month but but we still would like to you know uh uh keep up the rule that we're not committing the date uh uh until we're ready to le to deliver that.
4453085,381,3481.8301,3484.1501,20,So I'll refrain from from going deeper here.
4453085,382,3484.6599,3490.3701,20,And uh uh regarding the price you know when it will be paid and what scale of price should we expect.
4453085,383,3490.3701,3496.6399,20,I mean historically uh expansions have been uh have been paid as you have rightly noted with with with the Witcher.
4453085,384,3497.1201,3503.6101,20,Uh however it is definitely way too early to you know to talk about price since we're not uh even giving the dates.
4453085,385,3503.6101,3506.9299,20,So again I I cannot give any any details.
4453085,386,3506.9299,3517.5498,24,And then the second question you that was asked here was regarding your cover of report you came back to inaudible uh does it suggest that you will focus on Witcher three next-gen or Witcher four maybe?
4453085,387,3529.71,3533.1699,20,Um like you said just here but but obviously you know there's a Witcher three next-gen coming.
4453085,388,3533.1699,3537.1599,20,So um so I guess you could tie it um to that.
4453085,389,3537.1599,3540.8999,20,I hope that that covers the question and I'm I'm switching off now.
4453085,390,3540.8999,3541.3599,20,Thank you.
4453085,391,3551.4399,3551.99,23,All right.
4453085,392,3552.1899,3554.9399,23,Uh the time…
4453085,393,3555.48,3561.4602,23,This is uh seven PM in Poland at least and uh this is the end of the conference.
4453085,394,3561.8899,3562.9402,23,Thank you very much.
4453085,395,3563.21,3574.1401,23,If you have any further questions please contact our IR uh and we will gladly to answer all the questions of course that's the questions we can answer.
4453085,396,3574.47,3575.3301,23,Thank you very much.
4453085,397,3580.3899,3582.0,21,We appreciate your participation.
4453085,398,3582.0,3583.0901,21,You may now disconnect.
4453225,0,229.91,239.84,0,So um it has an impact on our on our margin performance as well.
4453225,1,979.2,1012.84,2,So pleasing cause uh our our our key components are here what we do in South Africa and what we do in Australia both those businesses came under pressure having big portfolios of antibiotics and OTCs.
4453225,2,4179.3999,4180.4897,3,Um hi everyone.
4453225,3,4180.5698,4184.4902,3,Uh so we have two questions that we're going to take this morning.
4453225,4,4216.9902,4232.3398,0,But at the moment you can probably start with about 30% of of debt being rand denominated.
4453225,5,4234.8501,4246.1099,0,But that um may may well decline during the course of the year depending on what we do with with cash inflows.
4453225,6,4246.1099,4257.25,0,We do um try and seek the right uh balance of of currency debt to our our earnings a and and the other factors we take into consideration as well.
4453225,7,4259.7402,4260.1104,3,alright.
4461799,0,4.66,6.29,0,Good morning ladies and gentlemen.
4461799,1,6.35,11.45,0,Welcome to Galp's third quarter two thousand twenty one results presentation.
4461799,2,12.06,13.74,0,I will now pass the floor to Mr.
4461799,3,13.74,16.77,0,Otelo Ruivo head of investor relations.
4461799,4,17.64,24.35,1,Good morning and welcome to Galp's third quarter in nine months twenty twenty one results presentation.
4461799,5,24.97,29.26,1,I would like to thank you for joining us today and wish that you are all in good health.
4461799,6,30.17,38.22,1,Today Andy will provide an overview of the quarter performance and key strategic developments as well as an updated guidance for the full year.
4461799,7,39.15,42.58,1,Philippe will then take us through the quarter financial results.
4461799,8,43.81,51.53,1,At the end we are happy to take your questions where Andy and Philippe will be joined by the remaining members of the executive committee.
4461799,9,52.38,56.85,1,If you want to participate please follow the operator's instructions at the end of the call.
4461799,10,57.95,73.31,1,As usual I would like to remind you that we will be making forward looking statements that refer to our estimates and actual results may defer due to factors included in the cautionary statement at the beginning of our presentation which we advise you to read.
4461799,11,74.84,76.2,1,I will now hand over to Andy.
4461799,12,79.16,80.59,2,Good morning ladies and gentleman.
4461799,13,81.27,90.65,2,Galp's q three operational results were robust capturing the improved macro namely higher Brent prices and improved refining margins.
4461799,14,91.71,98.26,2,We delivered over six hundred million euros of consolidated EBITDA already at pre COVID levels.
4461799,15,99.42,111.6,2,On top of this we now have a renewable business not consolidated but fully capturing improved market conditions delivering twenty eight million euros of performed EBITDA in the quarter.
4461799,16,113.26,119.15,2,We also generated a healthy operating cashflow of four hundred and sixty eight million Euro.
4461799,17,119.99,124.08,2,Therefore a robust contribution despite some operational challenges.
4461799,18,125.34,136.05,2,However our free cash generation reflected the temporary effect related with our gas hedging strategy and the significance spike in gas prices during the period.
4461799,19,137.4,148.09,2,Due to this effect as well as the interim dividend of two hundred million Euro paid to shareholders during the period meant our net debt increased to two billion Euro.
4461799,20,149.23,153.59,2,This puts us slightly above our targeted net debt to EBITDA ratio of one.
4461799,21,154.84,162.96,2,However we're expecting further deleverage through q four and confident that the dividend variable component will be distributed.
4461799,22,163.22,165.7,2,And I'll cover that again later in this call.
4461799,23,167.61,175.59,2,In addition to the actual q three financial numbers we also made progress towards executing our strategy to create a more sustainable company.
4461799,24,176.95,187.2,2,Finally I'm happy to see the external recognition of our strategy with Galp re currently holding leading leading positions on the relevant E S G rankings.
4461799,25,188.31,193.39,2,Acknowledged further by the seven hundred million Euro lending we have secured from e i d.
4461799,26,196.47,198.98,2,Now let's look at the businesses in more detail.
4461799,27,200.23,208.14,2,During the period we have seen some operational improvements in upstream namely into Petrobras in Brazil leading to a stronger oil output.
4461799,28,208.47,210.99,2,Welcome at a time of high oil prices.
4461799,29,211.5,218.86,2,However due to some maintenance activities on Galp's exports overall oil and gas production was planned quarter on quarter.
4461799,30,220.14,225.65,2,During the quarter the largest F P S O so far in production in Brazil was started up on the sepia field.
4461799,31,227.46,231.7,2,Petrobras' delivery of the F P S O in these difficult times is to be commended.
4461799,32,233.09,242.77,2,Although a small production contribution to Galp in the period the production rate from the one world hooked up is prolific boarding well for the full potential of the field.
4461799,33,244.54,251.83,2,The F P S O in Atapu is also now producing at high levels close to plateau production with only four wells connected.
4461799,34,253.37,263.46,2,The Brazilian pre-sold continues to be an amazing story with new wells demonstrating high productivities and strong reservoir potential.
4461799,35,265.07,269.88,2,The improved operational conditions allow us to resume some inspection and maintenance activities.
4461799,36,270.33,274.3,2,And through q four we hope to see progress on working through the maintenance backlog.
4461799,37,275.31,285.88,2,We remain confident on the four-year production guidance updated last quarter at one hundred and twenty five to one hundred and thirty thousand barrels oil equivalent per day.
4461799,38,288.24,303.18,2,Going forward we expect the business to maintain its strong cash deliv delivery with disciplined approach to CapEx focused on key attractive low carbon developments such as backlow a project which continues to progress well.
4461799,39,305.12,314.54,2,Coral F L N G from Mozambique also progresses well and is on track for first gas during twenty twenty two with sail away from career expected during q four.
4461799,40,316.37,328.98,2,On the expiration of fore front we are keenly anticipating key worlds in the Campos Basin in Brazil and in Saitama Princebay to be spurted later this year and early next year.
4461799,41,331.57,339.79,2,On the industrial side refining margins have now recovered from the weak environment throughout twenty twenty and early twenty twenty one.
4461799,42,340.66,349.95,2,There are up to seventy percent quarter on quarter to four dollars per barrel supported by an increase of middle distillate and gasoline cracks during the quarter.
4461799,43,351.75,360.05,2,This refinery margin includes all energy costs such as natural gas and electricity and any c o two licenses we may need to acquire.
4461799,44,361.69,362.43,2,On top of this.
4461799,45,362.43,370.13,2,we are seeing gap's refining margin October to date at above q three levels at around five dollars a barrel.
4461799,46,371.12,376.43,2,However we need to report that we will see some production limitations during this quarter.
4461799,47,378.14,385.73,2,As announced a few days ago there was an unplanned event in one of the two furnaces of the Sines atmospheric distillation unit.
4461799,48,386.47,390.46,2,There were no injuries but it's led to a temporary stoppage of the unit.
4461799,49,391.87,400.05,2,However during the rest of q four the three put of the distillation unit will be restricted while repairs are completed on impact in furnace.
4461799,50,401.18,405.31,2,We expect the issue to be fully resolved during this quarter.
4461799,51,406.82,413.28,2,In addition we have a planned maintenance in the hydro packer which will start this week and should last around twenty days.
4461799,52,415.28,423.85,2,Considering these operational limitations for q four we expect three puts of fifteen million tons about thirty percent down quarter on quarter.
4461799,53,425.01,429.23,2,While realized refining margins should stand at four to five dollars a barrel.
4461799,54,432.06,440.92,2,On energy management this was a weak quarter impacted firstly by the extra costs related to the access to the L N G re regasification terminal Portugal.
4461799,55,441.6,445.09,2,These extra costs are now no longer charged from q four onwards.
4461799,56,446.22,455.39,2,Also with impact impacted by negative effects by the all product supply pricing lag resulting from the commodity price increase during the period.
4461799,57,457.28,468.53,2,But most importantly by unplanned natural gas sourcing restrictions related to our long term suppliers which obliged us to acquire some volumes at expensive spot conditions.
4461799,58,470.29,474.31,2,All in and all energy management contribution was negative in the quarter.
4461799,59,474.68,483.96,2,And going into q four we're setting with our main suppliers any potential deviations from the planned deliveries given the cost of securing alternative supplies.
4461799,60,484.44,488.64,2,And we're preparing contingency plans to mitigate any potential shortfalls.
4461799,61,489.96,493.6,2,Clearly shortfalls could have an impact on operations and results.
4461799,62,493.95,499.53,2,And in such cases we may continue to see some weaknesses on the energy management contribution.
4461799,63,500.21,506.08,2,Therefore unfortunately q four for industrial energy management may not be stronger than q three.
4461799,64,507.77,513.3,2,Looking further ahead we should have our Sines refining system operating in normal conditions by the end of this year.
4461799,65,513.34,523.22,2,And I'm confident on the work we're doing on our gas trading strategy to allow some more flexibility and increased contributions from twenty twenty two onwards.
4461799,66,526.47,539.16,2,In commercial mobility in Iberia is recovering with an all product sales increasing both in b two b and b two c segments but still some twenty percent below pre COVID levels.
4461799,67,540.53,546.61,2,Our results show this progressive positive trend where b two c has been recovering faster.
4461799,68,547.34,553.94,2,But we now also see some positive signs in b two b but aviation and marine segments do still remain weak.
4461799,69,555.4,561.78,2,And the same time we're taking steps to transform this business to adapt to consumer needs.
4461799,70,562.17,566.51,2,Uh efforts to extract more from non-fuel have been proven successful.
4461799,71,566.97,577.47,2,And our convenience retail is already delivering at pre COVID levels and today represents over twenty percent of the commercial contribution margin which is up five percent on twenty nineteen.
4461799,72,579.28,586.65,2,With progressively increasing convenience sale and expect convenience contribution to more than double by twenty twenty five.
4461799,73,588.97,597.48,2,In renewables our production is sold under distraught merchant conditions and our generation capacity could have been hired this quarter.
4461799,74,597.51,601.84,2,However four plants have been restricted due to an issue with one transformer.
4461799,75,602.91,610.16,2,And we've been implementing mitigations with some of the two hundred meg megawatts of impacted uh electricity.
4461799,76,611.24,615.51,2,And we hope to get back to full operation in early twenty twenty two.
4461799,77,617.02,622.69,2,But in addition we plan to bring online an additional two hundred thirty six megawatts of solar projects by year end.
4461799,78,625.9,633.6,2,Meanwhile we are executing our strategy and progressing with our renewable expansion inside and outside Iberia.
4461799,79,634.15,638.77,2,In q three we acquired additional solar capacity in Spain of two hundred twenty megawatts.
4461799,80,639.07,651.38,2,And last week we announced an important step in our renewable venture in Brazil where we acquired six hundred megawatts of solar capacity of high quality projects projects in a pre-construction stage.
4461799,81,652.98,655.78,2,The acquisition cost in Brazil were not material.
4461799,82,656.71,662.2401,2,Further payments however made but only when the projects hit specific development milestones.
4461799,83,664.06,668.24,2,These projects are expected to be online before twenty twenty five.
4461799,84,669.87,675.38,2,This is a clear step forward for Galp in the country where we've been present for over twenty years.
4461799,85,676.2,684.64,2,And we've recently reinforced our renewables team in Brazil a country which offers an opportunity to develop profitable renewable power generation platform.
4461799,86,686.17,687.7,2,But we will maintain our discipline.
4461799,87,688.74,696.19,2,Entering in early a pre-construction stage and creating value by building up a por portfolio from there.
4461799,88,697.53,708.98,2,Our energy management team will be fundamental to capture market dynamic opportunities monitoring the market development and valuing the best way to sell our power generation with a mix of PPAs and merchant exposure.
4461799,89,710.7,719.48,2,These acquisition positions Galp with a four point seven gigawatt portfolio with projects both under operation development and construction.
4461799,90,720.63,726.88,2,This puts us in a strong podition position to at least meet our twenty twenty five goal of having over four gigawatts operating.
4461799,91,727.51,732.44,2,And well positioned for the twelve giga and visions we have for twenty twenty five.
4461799,92,735.04,751.3701,2,Thriving through the energy transition is not just about renewable capacity but also about developing low carbon businesses and making sure we have access to finance structures to provide us an efficient capital structure to develop these projects.
4461799,93,752.54,753.62,2,So what are we doing on this front?
4461799,94,754.76,762.3,2,In early August we launched a pilot of a new convenience concept store in Portugal with no fuel offering.
4461799,95,762.85,768.17,2,And in Spain we've upgraded around thirty five stores which are also showing strong results.
4461799,96,769.67,778.16,2,We're also proceeding with our electrification plans having acquired in the quarter two hundred and eighty EV charging points across Iberia.
4461799,97,778.22,782.7,2,And we will end the year with over a thousand points more than doubling since last year.
4461799,98,783.69,788.07,2,And step further to reach the company's ambition by twenty twenty five.
4461799,99,790.13,797.72,2,On new energies green hydrogen plants are becoming real currently developing a two megawatt pilot with f i d expected by year end.
4461799,100,798.45,803.91,2,This will accelerate our learning curve before the larger capacity electrolysers get closer to reality.
4461799,101,804.59,809.3,2,we are advancing simultaneous with two projects of a hundred megawatts each.
4461799,102,811.3,814.46,2,One by ourselves and the other one in a consortium.
4461799,103,815.95,827.28,2,On another front we are thrilled to have secured access to funding to our low to no carbon projects by prestige ent entity like the European Investment bank.
4461799,104,828.19,841.94,2,This includes an up to seven hundred and fifty million Euro to finance solar PV projects in Portugal and Spain as well as the rollout to five hundred and fifty thousand EV charging points across Iberia.
4461799,105,844.94,851.67,2,We've also secured project finance for fifty megawatt project in Spain operating in full merchant conditions.
4461799,106,853.0,859.83,2,All our operating projects in Spain have now been project financed all with debt level above seventy percent.
4461799,107,862.94,884.44,2,Looking at twenty twenty one overall considering the status of operations and adjusting to the short term ma macro outlook assuming a seventy dollars breadth for the year we estimate now full year EBITDA and adjusted operating cash flow to stand above two point three billion Euro and one point eight billion Euro respectively.
4461799,108,885.76,900.39,2,While on the operational side commercial industrial energy management should stand below the estimates we we provided last June on the back of slower anticipated Iberia into mine recovery and restrictions in energy management.
4461799,109,901.51,906.56,2,But upstream and renewables will benefit from higher oil gas and power prices.
4461799,110,908.47,917.34,2,Our c f f o non-ad adjusted operating cash flow is predicted to have a four hundred million Euro difference to our adjusted operating cash flow.
4461799,111,918.8,927.63,2,This impact is mostly driven by a hedging strategy to protect the commodities price risk related with our gas sourcing and supply activities.
4461799,112,929.48,940.55,2,In the recent months we saw an increase in margin deposits related with future contracts as a result of the unexpected significant spike on gas prices.
4461799,113,942.01,949.86,2,This impact drives mostly from contracts that will end in twenty twenty two when the supplies are delivered to the customers.
4461799,114,949.94,961.4901,2,Therefore going forward we will see cash inflows yielding c f f o levels above the O C F either when we make these gas deliveries or when gas prices are just downwards.
4461799,115,961.69,975.71,2,Philippe will elaborate a bit more on this later but let me in reinforce despite currently materially impacting our c f f o and net debt this is a temporary effect.
4461799,116,975.71,979.88,2,One that will be reverted on the short term during twenty twenty two.
4461799,117,981.61,986.49,2,We are aware this may impact our shareholder distributions framework.
4461799,118,987.37,995.32,2,We will need to monitor how gas prices evolve and what will the effects on financials be at year end.
4461799,119,995.87,997.98,2,By then we will take a view.
4461799,120,997.98,1008.54,2,If some adjustments to the dividend framework should be considered when proposing our twenty twenty one distributions given the one off and temporary nature of this impact.
4461799,121,1010.4,1018.49,2,Lastly on net CapEx we are now estimating the year end be at the lower half of the previously provided garden guidance.
4461799,122,1019.03,1026.8301,2,So to stay within point five and point six billion euros demonstrating our continued capital discipline.
4461799,123,1028.15,1040.3401,2,So to wrap up this quarter benefited from the more supportive macro and we continued seeing positive signs of recovery and a strong commodity price environment ahead.
4461799,124,1041.02,1044.6799,2,This environment is causing some temporary impacts on our cash delivery.
4461799,125,1045.11,1048.5699,2,But as I mentioned these are temporary and will revert.
4461799,126,1049.46,1066.52,2,More importantly looking further ahead we are starting to show clear and important signs of stress the execution both around our legacy business' growth and transformation but also around expanding our renewables footprint and moving forward with new businesses.
4461799,127,1068.09,1077.97,2,Our operational rement- momentum has room for improvement and I am confident we will see a turnaround allow us to deliver even stronger results.
4461799,128,1079.39,1086.3201,2,Finally a relevant part of our investment case is to maintain a competitive shareholder remuneration.
4461799,129,1087.09,1093.4401,2,We are conscious that our shareholders deserve to be rewarded in such a strong macro environment.
4461799,130,1094.29,1109.09,2,Therefore we are monitoring very closely the evolution of the lines impacting our net debt and c f f o and confident that we will be able to recommend a variable component related with twenty twenty one.
4461799,131,1110.23,1113.58,2,Now over to you Philippe to look more deeply at the financials.
4461799,132,1118.71,1119.6001,3,Thank you Andy.
4461799,133,1120.1801,1121.24,3,And good morning everyone.
4461799,134,1123.08,1141.5601,3,I am on slides twelve where we have the upstream EBITDA of five hundred twenty two million which clearly benefited from the rise in Brent prices even if we did continue to see below average premiums on the cargos we sold to Asia.
4461799,135,1142.78,1152.8199,3,And this comes from China restrictions on some local importers and regional crudes being priced more competitively versus Brent.
4461799,136,1155.0,1165.4299,3,Our oil and gas realizations versus Brent were also affected by the cap we have for now on our Brazilian associated gas sells.
4461799,137,1166.6801,1171.8301,3,So the current gas price formula is capped at fifty five dollars Brents.
4461799,138,1174.13,1187.0701,3,Upstream CapEx was one hundred eighty seven million and this went primarily to our pre-sold developments namely Tupi and Bakaleo and Koral in Mozambique.
4461799,139,1189.45,1196.8101,3,The CapEx line this quarter also includes thirty four million payment for the acquisition of a stake in bms eight.
4461799,140,1198.97,1204.62,3,This increased the Galp's stake from fourteen to twenty percent back in twenty seventeen.
4461799,141,1205.38,1208.9601,3,And the payments were contingent on certain milestones.
4461799,142,1209.85,1219.26,3,And the final one should be distributed in q four or early q one next year of about forty to fifty million dollars.
4461799,143,1221.87,1226.37,3,Commercial EBITDA was eighty seven million in the quarter.
4461799,144,1227.87,1237.0,3,Now this with seasonal quarter on quarter higher oil product sales and the gradual easing of lockdown measures.
4461799,145,1238.48,1247.62,3,Still commercially EBITDA was down year on year as the margin environment is been pressured by the current much higher commodity prices.
4461799,146,1250.0601,1259.09,3,Industrial and energy management EBITDA was only fifteen million that's down thirty five million from the previous quarter.
4461799,147,1260.1801,1269.2,3,The Sines Refinery had a healthy contribution with realized margin of four dollars per barrel and cost of one point five oh dollars per barrel.
4461799,148,1270.62,1281.14,3,Energy management however saw gas sourcing restrictions leading to spot purchases to comply with our commitments with clients.
4461799,149,1282.8199,1295.11,3,Also as we had flagged before the increase regasification costs in Portugal impacted EBITDA with about ten million euros during this quarter.
4461799,150,1296.37,1309.0,3,In oil products the rapid commodity price increases that we're seeing in the period has caused negative price lag effects under the formulas we have established with our clients.
4461799,151,1311.6801,1328.27,3,Industrial and energy management operating cashflow includes the contribution from associate companies such as the Galp's stakes in the international pipelines which bring the gas from Algeria through Morocco and Spain.
4461799,152,1329.3,1337.6801,3,Now after some twenty five years invested in those assets these concessions will end this month.
4461799,153,1338.5601,1344.7999,3,So we will now bring the Algerian gas through the Medgaz Pipeline where we are not an investor.
4461799,154,1347.42,1353.46,3,On renewables now you know we do you know we don't consolidate this business.
4461799,155,1354.3101,1362.22,3,So what we show here are proforma numbers and the proforma EBITDA was a very healthy twenty eight million in the quarter.
4461799,156,1364.25,1377.45,3,Now we do continue to see significant supply chain and permitting challenges to develop and build the renewable projects in Liberia at the speed we wanted to.
4461799,157,1378.63,1386.4,3,But we remain committed to deploy the ambitious pipeline of projects and grow the installed capacity.
4461799,158,1387.72,1395.0601,3,So short term we have over two hundred megas of new build capacity coming online by year end.
4461799,159,1396.59,1398.8199,3,This is most welcome in this environment.
4461799,160,1399.23,1408.8,3,And in addition we should also see the transformer issue uh resolved shortly and this has kept about two hundred megawatts offline.
4461799,161,1412.2,1420.8101,3,On slide thirteen here you have the p and l where you see the EBITDA of six hundred seven million in the quarter.
4461799,162,1421.5,1424.46,3,And EBITDA follows this uh in tandem.
4461799,163,1426.3,1433.1101,3,Associates were up to mainly from the increased net income from our solar JVs.
4461799,164,1435.8101,1439.6599,3,Net income was a hundred sixty one million under R C A.
4461799,165,1439.92,1452.23,3,Now under i f r s net income was negative three hundred thirty four million driven by the negative five hundred forty five million in special items.
4461799,166,1452.64,1457.13,3,And this comes mainly from the market to market of our hedging positions.
4461799,167,1459.2,1467.46,3,Now these price protection contracts do not qualify under i f r s hedge accounting roles.
4461799,168,1467.97,1472.47,3,So we need to take this volatility to the p and l as opposed to equity.
4461799,169,1474.14,1487.6001,3,So throughout twenty twenty two The revenues we generate from the gas volumes that underline these derivatives will compensate these market to market variations as it is designed to.
4461799,170,1489.4,1493.2799,3,So the hedges are made to reduce our economic risks.
4461799,171,1493.88,1499.97,3,So no worries here other than unwelcome temporary volatility.
4461799,172,1503.16,1512.9301,3,The cashflow on slide fourteen you see we're strong operating cash flow for a hundred sixty eight million.
4461799,173,1514.91,1525.53,3,Now c f f o is affected by the working capital built resulting from the margin deposits to cover the exchange rated derivative positions.
4461799,174,1527.4399,1532.62,3,And maybe Otelo we should spend a minute on this derivative and margin deposit topic.
4461799,175,1534.64,1540.04,3,So in the p l we have the market to market of the entire derivative book.
4461799,176,1541.03,1547.97,3,And in the cash flow statements we have the cash that we need to post as collateral with the exchange.
4461799,177,1549.1801,1557.76,3,The number is quite high this quarter three hundred seventy three million four hundred forty four for the full nine months.
4461799,178,1558.64,1561.96,3,And this is the reflection of how much gas prices have gone up.
4461799,179,1563.91,1568.0,3,And why do we enter into derivatives in the first place?
4461799,180,1569.61,1574.53,3,So we buy gas from our suppliers and we sell the gas to clients.
4461799,181,1575.36,1579.77,3,And the business model is to make a commercial margin between the two.
4461799,182,1581.5699,1592.78,3,However the gas that we buy is mainly priced off Brent and our sale say to industrial clients are normally T T F linked.
4461799,183,1594.14,1601.9301,3,So we therefore protect the basis risk of the price of what we buy and what we sell through the derivative market.
4461799,184,1603.4301,1615.12,3,So effectively the gains that we could have made from the recent sharp increase in T T F versus Brents those gains are neutralized by the derivatives.
4461799,185,1617.59,1630.3401,3,So if you exclude these derivative margin accounts which are temporarily the free cashflow was a healthy two hundred sixty million in the third quarter.
4461799,186,1632.72,1636.1799,3,This is all from my side Otelo um we'll now take your questions.
4461799,187,1636.37,1636.71,3,Thank you.
4461799,188,1643.99,1648.09,0,To ask a question you'll need to press one on your telephone.
4461799,189,1648.45,1653.84,0,In the interest of time we ask participants to limit their questions to two each.
4461799,190,1654.29,1657.27,0,To withdraw your question please press the key.
4461799,191,1657.84,1660.66,0,Please stand by while we compile the q and a roster.
4461799,192,1675.5601,1681.45,0,Your first question code from the line of Beraj Bukacha from r b c.
4461799,193,1681.64,1682.78,0,Please ask your question.
4461799,194,1684.12,1685.73,4,Uh thanks for taking my questions.
4461799,195,1685.73,1686.51,4,Um apologies.
4461799,196,1686.51,1690.17,4,I cut off on my this might have already been covered but two two questions.
4461799,197,1690.17,1692.12,4,The first one's on the sort of she distribution.
4461799,198,1692.78,1696.98,4,You mentioned a number of times about the the temporary nature of the the margin impact.
4461799,199,1697.76,1706.3,4,So as we're thinking about your full year dividend i is it fair to just strip that number out and then run the calculation on on that CFFO number?
4461799,200,1706.9301,1712.21,4,Um and then the second question is on um what you mentioned on gas sourc- sourcing.
4461799,201,1712.27,1716.89,4,Um you highlighted some contingency plans um for gas sourcing in the fourth quarter.
4461799,202,1717.38,1720.1901,4,Um I was wondering what what exactly that would entail.
4461799,203,1720.52,1723.7101,4,Uh thank you.
4461799,204,1725.02,1727.01,2,Thanks Beraj and then thanks for your question.
4461799,205,1727.0699,1737.14,2,Look I have to say that you know we have set up to now that we're just gonna do a mathematic calculation on the the supplementary dividend uh we will do a mathematical calculation on that.
4461799,206,1737.14,1741.0599,2,And you know depending on that working capital build we'll we'll see what that yields.
4461799,207,1741.59,1748.42,2,What I think we're saying here is there will be uh we've agreed with the board that there may well be a discretionary element that we will add to that.
4461799,208,1749.24,1761.15,2,Uh I can't tell you today how that will be calculated or or what there will be Beraj but I think you know what we are what we're indicating here is that we think this is a very much a one off issue that and the shareholders shouldn't be penalized for it.
4461799,209,1761.2,1763.73,2,So um you know more to come on that one.
4461799,210,1764.9,1779.15,2,On the gas sourcing you know I think this is about you know we are um having some issues with our gas supplies and you know with the current gas markets as you might imagine um replacing and buying new cargos um you know can be really expensive.
4461799,211,1779.23,1795.17,2,So we're very much looking at the at the demand side of that and seeing you know what we can do to reduce um our our own use as well uh to be honest with you Beraj and and to see how we can mitigate um any potential sourcing constraints we get in the quarter.
4461799,212,1795.17,1803.4801,2,So you know we're turning every stone and and would be very reluctant to go and buy new volumes to the kind of spot prices we're seeing today to be honest with you.
4461799,213,1807.11,1807.37,4,Okay.
4461799,214,1807.51,1807.83,4,Thank you.
4461799,215,1809.89,1814.3601,0,Your next question comes from the line of Alessandro Pozzi from Midiobanca.
4461799,216,1814.4301,1815.63,0,Please ask your question.
4461799,217,1816.86,1820.04,5,Uh thank you for taking my uh questions.
4461799,218,1856.61,1860.4301,2,Um I think I'll hand over to Tori to talk about the the upstream position.
4461799,219,1861.47,1861.99,6,Thank you Andy.
4461799,220,1861.99,1871.51,6,Um so with respect to the upstream production and the guidance for the fourth quarter I think you can expect the production that it's very similar to the one that we have seen in the the third quarter.
4461799,221,1871.73,1873.73,6,That's our key guidance to you.
4461799,222,1874.23,1876.2699,6,With respect to twenty twenty two that's a bit early.
4461799,223,1876.27,1883.25,6,Let's revert to twenty twenty two at the capital markets day when we have consolidated all our numbers un unless it's for for next tier.
4461799,224,1884.26,1887.86,6,With respect to Coral uh the product is going extremely well.
4461799,225,1888.04,1910.66,6,Um and um it now it's um very visible that we will have a sail away from um Korea in the middle of uh middle of November then it's sails to um to uh Mozambique um for the offshore commissioning and uh in our plans uh we have first gas in the second half of uh twenty twenty two.
4461799,226,1911.36,1911.7001,6,Thank you.
4461799,227,1913.4301,1913.7301,5,Okay.
4461799,228,1913.99,1914.4,5,Thank you.
4461799,229,1944.51,1945.63,2,Thank you for your comment.
4461799,230,1945.66,1953.2799,2,I mean I I what I what I'd like to just um say is that what we are doing is we're building a portfolio.
4461799,231,1953.28,1955.12,2,We talked about four point seven gigawatts.
4461799,232,1955.65,1964.77,2,Um we're continuing to build a portfolio to give us more options um to make sure we are delivering the gross capacity of of the four gigawatts.
4461799,233,1965.96,1974.46,2,In terms of our sell down strategy you know clearly we we haven't yet got firm plans of when we are gonna kick that process off.
4461799,234,1975.26,1982.49,2,Uh we are diversifying the countries we're working in with our announcement now we're moving uh into Brazil.
4461799,235,1983.23,2007.7,2,Um but there will be a moment um when we will both look at at some sell downs um particularly when we de-risk the projects uh but also you know at what look at what time what timing we would take some some more PPAs because we are we're entirely merchants at the moment which is obviously um good with the current current prices.
4461799,236,2008.34,2018.0199,2,Uh but over time I think we will want to position um more in the long term markets um but no nothing definitive um to share at the moment.
4461799,237,2018.15,2019.15,2,So thank you for that.
4461799,238,2019.9,2022.7,5,No just to follow up on on Brazil.
4461799,239,2022.7,2027.8301,5,And do you expect to sign P P A uh for the new asset?
4461799,240,2028.9301,2044.98,2,Yeah I mean Brazil has quite attractive index linked um both public um you know so uh both open commercial and and government uh PPAs that that we can um take part in.
4461799,241,2044.98,2049.3701,2,But it also has a very attractive merchant market at the moment.
4461799,242,2049.3999,2058.8098,2,We we probably will plan to do a bit of both um to get a strong underpinning for the project but then to enjoy some of the upside um in the merchant market.
4461799,243,2058.8101,2067.73,2,At the moment in Brazil there is has been quite a str significant drought uh which is um putting some distress into the electricity system.
4461799,244,2068.24,2079.6099,2,Um and therefore I think there will be a it'll be very welcome for us to build some more renewable capacity there and take part in the you know electricity growth that they are seeing in that country.
4461799,245,2079.6101,2085.04,2,I think they have an ambition for something like forty gigawatts of renewable cacity- capacity by twenty thirty.
4461799,246,2085.04,2088.8699,2,So a very attractive market for us to uh to participate in.
4461799,247,2090.5801,2090.9302,5,Thank you.
4461799,248,2093.0701,2096.72,0,Your next question comes from the line of Michael Alford from city.
4461799,249,2096.76,2098.0,0,Please ask your question.
4461799,250,2098.6599,2099.8,7,Uh thank you.
4461799,251,2099.8301,2100.6399,7,Uh good afternoon.
4461799,252,2100.6399,2102.5,7,I've got a couple just pressing on the upstream.
4461799,253,2102.53,2112.79,7,I was wondering whether you could update us on when we might expect uh a new development plan for Tupi which could help offset the declines that we're going to see from the field I guess in the next year or so.
4461799,254,2113.3101,2139.3098,7,Um and then secondly just to follow up on the gas sourcing uh question from earlier um I appreciate you you're looking at mitigating the the cost impact of of gas sourcing uh in four key but I I dunno if you could maybe look out a little bit more into twenty twenty two and and and why do we not still see I guess a headwind around the costs uh associated with with buying that gas uh for more of a medium term impact on the business and energy management?
4461799,255,2139.4299,2139.7202,7,Thank you.
4461799,256,2143.1799,2146.5698,2,So firstly can I ask Tori to talk about the plan of development for Tupi?
4461799,257,2146.8201,2147.0601,2,Tori.
4461799,258,2147.3799,2148.77,6,Thank you Andy.
4461799,259,2148.77,2160.6899,6,So um the work with the the new plan for operation and the development on Tupi and RSM is actually going really well and and the partnership uh uh it is significant work already done.
4461799,260,2160.6899,2163.96,6,I think the document is now in the order around nine hundred pages.
4461799,261,2163.96,2171.54,6,Uh the expectation and the full intention from the partnership is to de deliver this plan to the AMP by the end of uh end of this year.
4461799,262,2171.8201,2176.26,6,So that's the uh forecast and uh the plan seems to be being a robust.
4461799,263,2176.71,2179.1301,6,Thank you.
4461799,264,2179.8799,2180.0798,2,Yeah.
4461799,265,2180.0801,2184.6902,2,So on the gas sourcing um kind of early to to talk too much about twenty twenty two.
4461799,266,2184.72,2206.1101,2,Uh clearly we we wanna build more flexibility uh into our position in terms of you know I think for me for us the lessons learned a bit that we we did hedge a hundred percent of the volume and and I think going forward we we are gonna have to look to uh to give ourselves a bit more flex if we do have supply um restrictions.
4461799,267,2207.0601,2212.8701,2,Uh you know I I'm I'm quite optimistic about the long term we've got Venture LNG coming in twenty twenty three.
4461799,268,2212.8999,2219.76,2,Um and I think we can position that in the market uh in hopefully in a in a strong profitable basis.
4461799,269,2220.49,2223.8499,2,So no no specific guidance on twenty twenty two.
4461799,270,2223.8501,2231.3401,2,The only thing I can say is we've secured the regasification here in Portugal without the premium that we paid up to the end of q three.
4461799,271,2231.3401,2238.73,2,So going through twenty twenty two we'll still enjoy um a lower cost of regasification of the LNG that that is delivered.
4461799,272,2239.26,2255.6501,2,Um but I think we've now got a much better handle on our ability to respond um to any um sulla supply shortfalls particularly looking at you know some of our own use and and and how we can how we can build more flexibility in that balance over time.
4461799,273,2257.26,2257.6699,7,Great thanks.
4461799,274,2257.6699,2266.4702,7,And just to follow up on Tori's point on the uh sure development plan in Tupi um is it there a prereq prerequisite sorry that um you need to get a license extension?
4461799,275,2266.47,2270.4199,7,And if that is the case um how how is that going in terms of that negotiation?
4461799,276,2270.47,2272.4302,7,Thank you.
4461799,277,2273.1299,2273.5098,6,Okay.
4461799,278,2273.6499,2274.6001,6,Uh thank you Michael.
4461799,279,2274.6001,2290.7,6,Um without going into too much detail on this uh Michael uh but you can can expect that we will have several elements into this plan and some of the elements in the plan will also then be requiring a license extension.
4461799,280,2290.7,2292.1101,6,Uh correct.
4461799,281,2292.5701,2299.3499,6,Uh so this we are expecting that there will be um uh some discussions going in in order before the whole plan is uh is for…
4461799,282,2299.8101,2304.49,6,We are looking for twenty or plus extension on the on the uh field life actually.
4461799,283,2305.28,2305.52,6,Thank you.
4461799,284,2306.8601,2307.1101,7,Okay.
4461799,285,2307.1799,2307.5,7,Thank you.
4461799,286,2310.3899,2315.5801,0,Your next question comes from the line of <unk> from Morgan Stanley.
4461799,287,2315.6299,2316.8,0,Please ask your a question.
4461799,288,2320.9199,2322.3101,8,Uh I had two please.
4461799,289,2322.3101,2324.8401,8,Uh the first one was related to Brazil production.
4461799,290,2324.8401,2332.03,8,Uh last quarter you talked about uh preventing maintenance impacting uh production uplift in the second half of twenty twenty one.
4461799,291,2332.53,2335.0801,8,Just wanted to check if uh you could comment on the progress here.
4461799,292,2335.0801,2335.95,8,Uh yeah.
4461799,293,2335.95,2341.1101,8,Is the maintenance activity completed in three q or is it still persisting in uh into into the fourth quarter?
4461799,294,2341.8799,2345.5798,8,Uh the second one was related to your uh shareholder distribution policy.
4461799,295,2345.5801,2350.05,8,Again uh last quarter you mentioned uh that you're reviewing the option of using buybacks.
4461799,296,2350.55,2360.8499,8,Uh I was just wondering if you have reached the decision on that or uh will we see uh uh the incremental uh inc the increase in the shareholder distribution are reflected in the additional dividend.
4461799,297,2361.01,2361.28,8,Thanks.
4461799,298,2364.22,2365.97,2,Let me just start with the second.
4461799,299,2366.26,2379.55,2,Um what I have said and and what we are doing is is looking at um and and consulting with shareholders around uh buybacks versus cash dividends.
4461799,300,2379.76,2381.4099,2,And and that work is still ongoing.
4461799,301,2381.4399,2383.52,2,So I have nothing to report on that at this stage.
4461799,302,2384.03,2389.28,2,Um but just to to reaffirm you know we are looking and and and consulting with the various shareholders about that.
4461799,303,2390.5701,2394.5798,2,On the Brazil production I'll I'll hand it over to Tori in in a second.
4461799,304,2394.5801,2414.4602,2,I think you know one of the difficulties um that we've had and actually you know we see this in in other parts of the world as well where through COVID um clearly there was a maintenance backlog increase but also a delay in hooking up wells a delay in doing work overs.
4461799,305,2414.98,2419.6001,2,Um and so I don't think this is uh constrained uh just to Brazil.
4461799,306,2420.1201,2424.3201,2,But Tori anything more to add on on the normalization of the situation in Brazil?
4461799,307,2425.6499,2439.29,6,So Sophie we we are moving in the right direction still however being constrained um just to give you a sort of in one indicator and while the POB was restricted around sixty percent of the capacity has now increased a bit.
4461799,308,2439.29,2443.7002,6,So we are around eighty percent of POB capacity on the different insulation.
4461799,309,2443.7,2449.5999,6,So we have more uh hands on the deck in order to to work with the uh the backlog.
4461799,310,2449.79,2459.3398,6,Uh it's now being worked systematically and uh we expect that there is two units that is scheduled for uh maintenance in the in the fourth quarter of this year.
4461799,311,2459.3401,2464.03,6,So it's picking up but there is a backlog and that will take some time to to be sorted out.
4461799,312,2464.99,2465.2998,6,Thank you.
4461799,313,2469.8401,2473.73,0,Your next question comes from the line of John Rigby from UBS.
4461799,314,2473.8401,2475.04,0,Please ask your question.
4461799,315,2476.3,2476.53,9,Hello.
4461799,316,2476.53,2478.8,9,Thank you for taking the call uh taking the question.
4461799,317,2478.8301,2481.8201,9,Um I think this is for Philippe I guess.
4461799,318,2481.8601,2490.0898,9,Um I I noticed the the sort of step up in come contribution from renewables obviously with the the high electricity prices.
4461799,319,2490.5901,2497.6602,9,And that sort of flows through from your performer EBITDA into mainly into associates um as you've noted.
4461799,320,2517.7,2523.28,9,Um does that reappear back in your cashflow statement as a dividend or as a divestment?
4461799,321,2523.6299,2541.02,9,Um uh I just wanted to sort of understand and what the allocation and priority of cashflows would be to paying interest versus paying dividends back to yourselves uh paying um back some of the capital on the uh loans et cetera.
4461799,322,2541.02,2551.2,9,So if this makes sense some sort of um map of how cash flows and earnings work back into your into your business if that if that's possible.
4461799,323,2553.4299,2555.9402,3,Good morning John.
4461799,324,2556.6499,2566.3,3,Um I don't think what we are doing and will do is different from uh what we've done with other associates or what everybody else does.
4461799,325,2566.3701,2572.3301,3,So you have unconsolidated entities are currently generating more cash.
4461799,326,2572.6001,2577.24,3,So that cash goes to pay project finance and OpEx of course.
4461799,327,2577.97,2578.0701,9,Yeah.
4461799,328,2578.1001,2588.28,3,And whatever is left under the financing agreement as long as you comply with debt service code ratio then you distribute the cash uh as dividend.
4461799,329,2589.5,2594.5798,3,And when you use that cash for CapEx but we will show the numbers gross.
4461799,330,2602.71,2604.4199,3,and CapEx will be gross.
4461799,331,2604.5,2608.78,3,So the money goes back into projects for expansion.
4461799,332,2609.8401,2620.29,3,On the p and l what you see is the share of profits it's an accounting number share of profit that goes under associates in the in the p and l.
4461799,333,2621.2,2639.1599,3,So because we have very long term funding you know the one we've just closed as an eighteen year maturity we do expect depending uh on power prices of course we do expect significant cash flow monies coming in over the next few quarters.
4461799,334,2639.6001,2639.79,9,Yeah.
4461799,335,2640.75,2640.8799,9,Yeah.
4461799,336,2642.23,2642.8,9,Okay cool.
4461799,337,2643.25,2643.74,9,That makes sense.
4461799,338,2643.74,2648.6499,9,Um can I just ask a follow-up question um just on on Mozambique?
4461799,339,2648.8999,2656.78,9,Um um it's really about the the onshore project uh itself and not really about the the the delays or or visibility around that.
4461799,340,2656.78,2689.8301,9,But just as as the sort of at a higher level just as the um the world is starting to focus very much on um scope one scope two uh emissions around new projects is there's a dilemma um or a paradox with with LNG is that scope one scope two can be actually quite high or very high although scope three sort of full life cycle can be relatively competitive including there's some advantages in terms of of clean air where you are you are using the gas to generate electricity et cetera.
4461799,341,2690.6799,2714.6699,9,Does that present a problem for you in the context of your plans around um um going to to lower emissions zone to to net zero um in terms of being a participant in that in that project or is the plans ultimately to physically uh deal with the the carbon uh that will be omitted as part of the process of of liquefying uh the gas?
4461799,342,2715.01,2717.0701,9,Thank you.
4461799,343,2717.6101,2718.1101,2,Thanks John.
4461799,344,2718.1101,2720.9299,2,And I'll I'll be asking Tori to to follow through you.
4461799,345,2720.96,2724.9302,2,Clearly you know our net zero commission uh position is twenty fifty a long a long way off.
4461799,346,2725.3999,2731.79,2,Um particularly gas as you know particularly in the Asian context uh replaces coal so so so it's positive.
4461799,347,2732.3999,2738.97,2,Um but we are very focused on what the scope one and two emissions of the LNG plant um being designed are.
4461799,348,2739.01,2741.4602,2,So I mean Tori do you wanna explain some of the things we're looking at?
4461799,349,2741.8,2743.1499,6,Yeah I'll do that.
4461799,350,2743.24,2743.77,6,Thank you John.
4461799,351,2744.3,2755.3401,6,Uh so yes actually one of the things that is being looked at as the the product now is um is being revised ah and we're using this time in order to see how we can optimize it further.
4461799,352,2755.6001,2762.3,6,One of the things that also then is looked into is how to reduce the c o two emissions from the um from the uh from the plant.
4461799,353,2762.9299,2767.4099,6,And uh with that in particular mind what you just uh mentioned John.
4461799,354,2767.4099,2771.0701,6,So that is one of the factors that is now being uh being put on the drawing board.
4461799,355,2771.5,2772.05,6,Thank you.
4461799,356,2773.9299,2774.2202,9,Thank you.
4461799,357,2779.1201,2784.49,0,Your next question comes from the line of Giacomo Romeo from Jefferies.
4461799,358,2784.9299,2785.9299,0,Please ask your question.
4461799,359,2789.1699,2790.8401,10,Uh good morning.
4461799,360,2791.02,2791.71,10,Good afternoon actually.
4461799,361,2791.71,2793.27,10,And thank you for taking my question.
4461799,362,2793.6101,2812.3298,10,Uh I have uh two uh left on my list and uh first one is if you can talk a little bit more about uh the size of the Brazilian renewable opportunity and sort of what sort of uh uh what sort of pipeline beyond the the sort of capacity that you announced you see?
4461799,363,2812.8101,2825.8599,10,Um and the other question still on renewables is uh if you can give an update on how the uh search for uh the new CEO role is going and when you expect to sort of have uh an update on that.
4461799,364,2829.3401,2830.7,2,Okay thank you for the question.
4461799,365,2830.9299,2834.25,2,Uh look the Brazilian uh pipeline is a significant one.
4461799,366,2834.25,2839.5,2,We've announced um a participation in two projects of total six hundred megawatts.
4461799,367,2840.3401,2845.6902,2,Um but we are looking at a much a much bigger funnel of opportunities there both in solar and some in wind as well.
4461799,368,2846.26,2852.8999,2,Um but no deals done yet uh but we continue to look at how we can expand away from that position.
4461799,369,2854.3501,2858.5701,2,Um I hey look I can we have selected someone to be the new CEO.
4461799,370,2858.6499,2860.97,2,Um we haven't gone public on who that is yet.
4461799,371,2861.3,2864.53,2,Uh but just to say that that that process has gone well.
4461799,372,2865.02,2871.1899,2,Uh I'm very excited about the individual that we will be able to announce that will take that business to the next level.
4461799,373,2873.8101,2874.1599,10,Thank you.
4461799,374,2878.76,2882.0701,0,Your next question comes from the line of Joshua Stone from Barcode.
4461799,375,2882.75,2883.8499,0,Please ask your question.
4461799,376,2885.72,2885.9299,11,Thanks.
4461799,377,2885.9299,2886.6699,11,Hi good afternoon.
4461799,378,2886.72,2888.03,11,Uh two questions please.
4461799,379,2888.1299,2890.3901,11,Um first just like clarification on the dividend again.
4461799,380,2890.4399,2899.48,11,You mentioned there's gonna be some discretionary elements but you you've quantified the year to date number at four oh oh million euros of what you're losing on these temporary derivatives.
4461799,381,2899.48,2904.4001,11,So would you not be able to know exactly what that number is at year end and just just add it back?
4461799,382,2940.5701,2940.9399,11,Thank you.
4461799,383,2944.2,2944.9199,2,Thanks Josh.
4461799,384,2944.99,2952.6899,2,Um you know I I I don't want to give any definitive guidance on how we will calculate the supplementary dividend.
4461799,385,2952.6899,2954.8298,2,It it will we believe it'll be partial.
4461799,386,2955.3899,2964.0,2,Um we have uh permission from our board to say that the this will be uh considered but no clear mandate on on the magnitude of that.
4461799,387,2964.73,2975.26,2,Uh when we yeah when we look at our mechanism we use c f f o because normally managing working capital is quite a bit of hard work in in terms of managing stocks and everything else.
4461799,388,2975.26,2979.05,2,I mean this is a distinct one off that we really couldn't control.
4461799,389,2979.8501,2984.76,2,Um but actually not only affects CFFO it affects net debt.
4461799,390,2985.22,2992.8101,2,Um so both those parameters uh are affected by this this one off um margin account build.
4461799,391,2993.4199,3002.3201,2,Uh but I can't I'm not in a position today to give you a definitive calculation method uh for how that supplementary dividend uh will be calculated.
4461799,392,3002.3201,3005.5801,2,We'll have to see how the rest of the year plays out.
4461799,393,3005.8101,3015.03,2,What the macro what our o c f is how strong the company is at the end of the year um before we declare what that supplementary dividend will be.
4461799,394,3016.3101,3027.53,2,Um I think I'll hand over to to Tori to talk a little bit about you know what we've seen in terms of shut in production and and how much uh there is behind the pipe there.
4461799,395,3028.0601,3028.3201,2,Tori.
4461799,396,3029.25,3029.78,6,Thank you Andy.
4461799,397,3029.98,3032.2,6,Um thank you Josh.
4461799,398,3032.8899,3036.4199,6,So when it comes to maintenance is a part of life.
4461799,399,3036.4199,3039.22,6,That's the natural part of the way we do the business.
4461799,400,3039.22,3049.9299,6,So also going forward you have to expect that we will um have a periodic maintenance on the different units uh in uh in in uh in all of our operation.
4461799,401,3050.01,3057.51,6,Typically the the chartered FPSOs have uh ten to uh fifteen days of maintenance uh every year.
4461799,402,3057.6201,3066.5901,6,Uh on the replicants uh we have a longer but more periodic maintenance typically that is twenty days but then only every three years.
4461799,403,3067.1599,3070.3699,6,It's done with more force and typically also connecting with the flotel.
4461799,404,3070.3701,3073.5801,6,So you have more uh people to to to to contribute.
4461799,405,3073.5801,3087.6101,6,So uh what I can say is that uh we expect going forward that maintenance will be more or less as we have guided before and have impact in the production in the order of around five thousand barrels um um per per day.
4461799,406,3088.1201,3091.8599,6,And that is the best guidance I can give you also going going forward uh Josh on that.
4461799,407,3092.1799,3092.4402,6,Thank you.
4461799,408,3094.78,3095.05,11,Thank you.
4461799,409,3110.03,3111.3201,6,in front of me.
4461799,410,3111.3201,3113.1199,6,So sorry I can't answer that here now.
4461799,411,3115.27,3115.51,6,Thank you.
4461799,412,3116.3999,3117.03,11,Thank thank you.
4461799,413,3117.03,3117.4299,11,Thanks.
4461799,414,3119.3401,3123.99,0,Your next question comes from the line of Medi Anabati from Bank of America.
4461799,415,3124.0601,3125.2,0,Please ask your question.
4461799,416,3138.6201,3138.9001,12,Hi.
4461799,417,3205.76,3206.3301,12,Thank you.
4461799,418,3206.96,3209.0,2,Uh let me answer the first question.
4461799,419,3209.0,3211.46,2,I'll ask Philippe to do the second and third.
4461799,420,3212.3501,3220.6301,2,Um now we are indeed we're in intensive uh negotiations with with our suppliers to say to try and mitigate any impacts.
4461799,421,3221.1399,3233.1802,2,Um there are some uh penalties but I have to say that there are a very small fraction of the difference between the spot price and and and the market pri and the price we have actually um secured for those volumes.
4461799,422,3233.71,3237.03,2,Um so that that really doesn't compensate uh the difference.
4461799,423,3237.6399,3249.6899,2,Um but indeed it you know it is a discussion we have and we are obviously working really hard to make sure that there is no interruption and and we're able to supply our customers um um without um missing a beat.
4461799,424,3249.97,3258.0999,2,So uh I can't give you any numbers on how much we would recover from from any uh lack of supply.
4461799,425,3258.6399,3264.6499,2,I can say we are in um active discussion uh with them to make sure that they do supply.
4461799,426,3265.1599,3267.4001,2,So Philippe second and third question?
4461799,427,3270.46,3271.0498,3,Hi Medi.
4461799,428,3271.72,3279.0901,3,Um your question is on working capital in q four and how does uh TTF change that?
4461799,429,3279.1201,3280.28,3,If I understood correctly.
4461799,430,3281.3701,3285.02,12,No no I no the question was about Sinopec.
4461799,431,3285.3201,3285.6301,3,Okay.
4461799,432,3285.6599,3286.9399,3,Yeah that one that one I got.
4461799,433,3286.9399,3287.21,3,Okay.
4461799,434,3287.24,3302.77,3,So on on Sinopec what we have agreed with Sinopec way back then is that free cash flows after paying all CapExs are distributed out thirty seventy percent.
4461799,435,3303.0,3312.6699,3,So depending on the free cash flow um this year and next um and and the following years the the role is quite uh straightforward.
4461799,436,3313.4199,3318.9099,3,So this year we are expecting um an a payment.
4461799,437,3318.9099,3338.0698,3,So within fiscal year twenty twenty one say a hundred twenty a hundred <inaudible> depending on what the micro will do and next year uh it's not necessarily payable in q one is we'll look at what the cash flows for twenty twenty two look like.
4461799,438,3338.1001,3343.9399,3,And thirty percent of the free cash flows will be distributed out sometime during next year.
4461799,439,3346.71,3346.98,12,Thank you.
4461799,440,3359.73,3363.3801,3,Again it is not necessarily payable in the first quarter.
4461799,441,3363.8799,3374.6799,3,So we paid the Galp shareholders in the second quarter and we discuss with Sinopec depending on what the cash flows are CapEx commitments the best timing of payments.
4461799,442,3374.6799,3378.53,3,So we have quite flexibility on timing of payment.
4461799,443,3378.95,3386.2898,3,But within twenty twenty two then it should be about thirty percent of the free cash flows.
4461799,444,3388.04,3388.51,12,Understood.
4461799,445,3388.51,3389.55,12,Thank you.
4461799,446,3390.05,3390.3601,3,Thank you.
4461799,447,3391.77,3396.02,0,Your next question comes from the line of Michele Della Vigna from Goldman Sachs.
4461799,448,3396.02,3397.21,0,Please ask your question.
4461799,449,3398.71,3399.27,13,Thank you.
4461799,450,3413.8101,3429.24,13,And then secondly I was wondering if you had a chance to start looking at your business through the lenses of the EU green taxonomy and uh if you have an early indication of what percentage of revenue and CapEx will be taxonomy compliant for you.
4461799,451,3429.24,3434.3401,13,Thank you.
4461799,452,3435.29,3436.0198,2,Thank you Michele.
4461799,453,3436.0801,3453.5,2,Uh so on the the the current security issues you know largely this is a well offshore and and therefore um we believe uh outside uh the current insecurity um clearly sure bases exist um but in places which uh where I think uh security is is better guaranteed.
4461799,454,3454.0,3462.25,2,So at this stage um we do not have any uh specific concerns around that but we need to stay alert of course.
4461799,455,3463.21,3476.99,2,Um on the use of taxonomy I you know I think it's it's early days for us to to make any um clear indications to the market about uh the proportion that would fall under that um requirement.
4461799,456,3477.97,3480.9102,2,So at this stage no update on the EU taxonomy.
4461799,457,3483.0901,3483.49,13,Thank you.
4461799,458,3488.6101,3489.0298,0,Thank you.
4461799,459,3489.03,3492.6599,0,Your next question comes from the line of Jason Candy from Santandery.
4461799,460,3492.73,3493.9299,0,Please ask your question.
4461799,461,3495.8101,3496.6602,14,Oh yeah thanks.
4461799,462,3496.75,3506.54,14,Um going back to Brazil and and maybe a couple of the earlier questions uh is is the Brazil renewable asset base gonna be consolidated or non-consolidated?
4461799,463,3506.6299,3510.6199,14,Will you treat it differently from the Iberian uh renewable business?
4461799,464,3510.9399,3518.9302,14,Um and what kind of CapEx do you think is needed to build out that um Brazil solar twenty twenty five?
4461799,465,3520.0,3529.0601,14,And if I may um obviously you're looking at asset rotation uh in renewables and you've got this target of twelve gigawatts by twenty thirty.
4461799,466,3529.6599,3536.4199,14,Am I my best to assume around fifty percent of that would the net capacity for Galp uh twenty thirty?
4461799,467,3536.5801,3536.9202,14,Thanks.
4461799,468,3540.8701,3541.6499,2,Thank you Jason.
4461799,469,3541.73,3554.7898,2,I mean I think firstly the way we are actually approaching Iberia as well so the one gigawatt we've essentially added to the original ACS deal um plus Brazil is that in the first instance we develop it.
4461799,470,3555.1899,3562.3501,2,Um and then only after the c o d when it's online that we will sell sell down and and deconsolidate it.
4461799,471,3562.8899,3565.9602,2,So um that is our current modus operandi.
4461799,472,3566.77,3573.04,2,Um and you know clearly we will also finance uh um these uh these projects.
4461799,473,3573.8701,3580.74,2,Uh so you know I think uh that's the way we we we will go about um those projects.
4461799,474,3580.74,3586.3201,2,The the CapEx renewable costs have gone up a little bit in the um globally in the last uh six nine months.
4461799,475,3587.1001,3604.3,2,Um but yeah I'm I'm not I won't give you any any clear guidance but anything between what is it five hundred thousand and seven hundred thousand uh per megawatt would be would be in the ballpark of how much uh it costs to develop these projects.
4461799,476,3604.3,3609.8899,2,But we hope to get you know sixty five seventy percent or more financing as well.
4461799,477,3609.8899,3613.79,2,So the equity uh contribution is is is far lower.
4461799,478,3613.79,3620.97,2,Uh um and I think that also answers the the asset retain yeah the twelve gigawatts.
4461799,479,3622.27,3624.1699,2,Yeah I think we will continue to…
4461799,480,3624.3201,3631.1599,2,You know we talked about essentially a um dilution of fifty percent in our portfolio on the twelve gigawatts position.
4461799,481,3631.72,3633.0999,2,And and we we maintain that.
4461799,482,3633.26,3639.1602,2,I think this is all going to be uh based on opportunities on being able to maintain the deconsolidation.
4461799,483,3639.6201,3653.02,2,Um and when we can rotate it so the timing of it when we can rotate those assets that we've de-rationed significantly that we can sell down to a strategic investor in order to leverage up our own returns.
4461799,484,3653.6399,3671.8601,2,So I don't want to give any firm indications when we're gonna do it how we're gonna do it um but I think it's about a discipline that we want to instill within the renewable business about how we make sure that we do get and and have an opportunity to get double digit equity returns on our renewable investments.
4461799,485,3673.6001,3674.22,14,Now that's great.
4461799,486,3685.25,3686.1899,2,Euros.
4461799,487,3686.3601,3686.6401,14,Euros.
4461799,488,3686.78,3687.21,2,Yeah.
4461799,489,3687.3101,3687.6101,14,Okay.
4461799,490,3687.6399,3690.03,14,Thank you.
4461799,491,3690.3701,3695.8801,0,Your next question comes from the line of Ignacio Dominic from JB Capital.
4461799,492,3696.0701,3697.2898,0,Please ask your question.
4461799,493,3698.8101,3699.8201,15,Yes good afternoon.
4461799,494,3699.8501,3701.5601,15,And thank you for taking my questions.
4461799,495,3701.8301,3708.7,15,I have to my first question is on refining and the positive evolution of refining cash costs.
4461799,496,3730.8101,3732.5798,15,Thank you.
4461799,497,3738.21,3740.3398,2,So lemme start with the transformer issue.
4461799,498,3740.5901,3746.79,2,Um clearly this was part of the legacy in the joint venture we had uh with ac ACS.
4461799,499,3747.71,3751.79,2,Uh we've had two hundred megawatts that have been uh outta capacity.
4461799,500,3752.4199,3758.48,2,Uh we have we're on the verge of putting sixty five megawatts back in online to to compensate for that.
4461799,501,3764.3501,3774.8799,2,Clearly at this time of year and going forward with lower solar radiation uh that really helps uh mitigate if not totally mitigate the the losses we may get in the fourth quarter.
4461799,502,3775.55,3789.0601,2,But we have new transformers that are arriving to installed in just in the new year um early early months of next year that to have us um completely ready to go once the sun comes back in Iberia for uh for q two onwards.
4461799,503,3790.0701,3799.5701,2,Um now when we comes to refinery uh cash costs we've talked about driving down to um a dollar seventy per barrel.
4461799,504,3800.0801,3818.0498,2,Um clearly safety comes first and costs comes second as we we continue to emphasize to to our people on the ground but Tori do you wanna talk a bit about the um the cash costs and what we might see in q four or particularly with also the the work we need to do on the on the furnace?
4461799,505,3818.9199,3819.1099,6,Yes.
4461799,506,3819.1499,3819.6799,6,Thank you Andy.
4461799,507,3819.6799,3821.3101,6,Um you're right.
4461799,508,3821.3101,3828.3999,6,So the overall ambition has been to drive down the cash cost and uh be in the area of um slightly below two dollars per barrel.
4461799,509,3828.3999,3837.29,6,However as you know we have had an um operational issue in the um in the atmospheric distillation unit which we will need to repair.
4461799,510,3837.29,3844.0598,6,The repair is actually ongoing as we we speak that will impact our cash cost for the fourth quarter.
4461799,511,3844.0601,3857.2,6,And uh our current best estimate is that we will be spending around ten to twelve uh million on on on those repair that will translate into the to the cash cost.
4461799,512,3857.2,3870.27,6,So I guess the best guidance I can give you today is that the fourth quarter you will see it around three dollars per uh per barrel as an indication for what the uh the uh the uh cash costs will be for the for the fourth quarter.
4461799,513,3871.02,3883.1899,6,We however believe that the by by this quarter we should be back into normal operation unless we're getting any um surprises during the uh this repair uh repair work.
4461799,514,3883.1899,3886.4402,6,So all work is that this is completed during this quarter.
4461799,515,3886.8999,3887.2,6,Thank you.
4461799,516,3890.0601,3890.3201,15,Thank you.
4461799,517,3893.8501,3899.03,0,Your next question comes from the line of Rafael Dubois from Societe Generale.
4461799,518,3899.46,3900.6099,0,Please ask your question.
4461799,519,3939.6499,3939.97,16,Thank you.
4461799,520,3944.3,3948.21,2,So can I ask Philippe to answer the first question?
4461799,521,3949.1399,3968.3999,3,I have felt compared with what we have on the balance sheet on September thirty we have calendar twenty twenty two TTF was training at about fifty seven euros.
4461799,522,3969.53,3973.28,3,Uh it is currently at fifty four I think.
4461799,523,3982.0701,3984.52,3,uh but it is incredibly volatile.
4461799,524,3984.6899,3988.5701,3,So it's very hard to call the shots on what uh December thirty first.
4461799,525,3988.5701,3990.9502,3,And this is a daily market to market number.
4461799,526,3990.98,3992.3499,3,It's that is every day.
4461799,527,3992.3899,3992.6399,3,Yes.
4461799,528,3993.27,3994.3801,3,Thank you.
4461799,529,3995.1899,3995.6702,16,Thank you.
4461799,530,3996.6599,3997.3501,2,Hi Rafael.
4461799,531,3997.3799,3999.8301,2,Yeah just on this renewables question.
4461799,532,3999.8701,4007.5898,2,Um moment to well in the q three we enjoyed about a hundred and ten euros per megawatt hour as a solar capture price.
4461799,533,4008.23,4013.4399,2,Um clearly our generation capacity comes down in q four as and we get less sun.
4461799,534,4014.24,4024.3599,2,Um but we will have about about an extra one hundred megawatt available online to um to enjoy whatever sun we do get in the in the fourth quarter.
4461799,535,4025.28,4039.3301,2,Um so you know that's that's really twenty eight million was the Pro-Forma EBITDA for for the q three to give you an idea of what kind of run rate clearly it would have the extra twenty percent that would've been um somewhat higher.
4461799,536,4039.3301,4041.8298,2,So that that's that's the current position we're in.
4461799,537,4043.8401,4044.1201,16,Okay.
4461799,538,4044.8,4045.51,16,Thank you very much.
4461799,539,4047.77,4052.1001,0,Your next question comes from the line of Matt Lofton from JP Morgan.
4461799,540,4052.1001,4053.3799,0,Please ask your question.
4461799,541,4055.3601,4058.3901,17,Hi thanks for taking the questions uh two if I could please.
4461799,542,4058.3899,4064.8401,17,First just I wanted to come back to the operational outlook in pre-sold Brazil and the earlier comments.
4461799,543,4064.8799,4095.1401,17,Um could you just share a sense of of how the operational backdrop has evolved since perhaps the update you provided in the summer um where the sort of the maintenance backlog sits today compared to the middle of the year and how long you expect it to be able to to work through before you get back to the normalized for five thousand barrels a day plus minus of um annual maintenance effect that that Tori I think you referenced earlier.
4461799,544,4095.1399,4104.2598,17,And then secondly just on price realizations of the upstream we've seen a wider average oil and gas realization discount the headline.
4461799,545,4104.2598,4112.3599,17,Brent the last couple of quarters I think you've highlighted softer pricing or or more competition into Asia on the Brazil exports.
4461799,546,4112.7998,4116.2603,17,Um how do you see the outlook there looking into twenty twenty two?
4461799,547,4126.79,4133.25,2,If I can just start and I'll hand over to Tori to to add on the Brazilian um outlook.
4461799,548,4134.29,4144.3999,2,And we did a quite a full analysis of what we produced this year versus what we'd hope to produce this year and to try and understand what what the key issues for the shortfall were.
4461799,549,4145.1499,4155.21,2,I mean what we found was one of the biggest thing is just how it takes a lot longer to hookup wells now whether they're new wells or their work over activities that need to be done.
4461799,550,4155.9199,4168.02,2,Um we had also and we've mentioned this issue about the um the riser issues and um tests we've been doing on the corrosion the stress corrosion cracking corrosion of of of rises.
4461799,551,4168.4902,4178.3804,2,Um and Petrobras' done a lot of work on that and that has that has an impact um of a couple of points of availability at the moment and and for for a short time to come.
4461799,552,4179.5098,4187.8701,2,Uh and then there's the overall uh availability level of the of various FPSOs that that Tori was was just was alluding to.
4461799,553,4188.4102,4196.1196,2,And then lastly there's a reservoir performance and I know a lot of people are being stunned about it but what we found the reservoir actually performed slightly better than we expected uh this year.
4461799,554,4196.1499,4202.6802,2,So so I think there's some good use below the wellhead in terms of the um the reservoir itself.
4461799,555,4202.6802,4210.96,2,It's it's these compounded issues that we have above the wellhead that I think you know that we are that possibly are working through.
4461799,556,4211.3799,4212.71,2,Any more to add uh Tori?
4461799,557,4213.4302,4217.6597,6,No I think um on the on the on the maintenance I think you've covered it uh well.
4461799,558,4217.6602,4231.1899,6,It's uh actually to to sum it up fifty percent of the shortfall uh we have seen this year is due to delays in well connections and uh then there's another twenty percent that is related to uh um delays in in well work overs.
4461799,559,4231.1899,4233.9097,6,So that's that's really is capturing the the majority.
4461799,560,4233.9102,4236.3799,6,Uh it actually has been slightly positive.
4461799,561,4236.3799,4245.5498,6,What have happened on the on the issue of stress corrosion we we uh the inspection that is was done over the summer actually proved to be better than anticipated.
4461799,562,4245.5498,4252.4702,6,So that meant that um a few producers could be put back in in operations uh before expectations.
4461799,563,4252.4702,4257.6099,6,So hopefully and crossing fingers that is now going forward in in a good good way.
4461799,564,4257.6802,4266.23,6,The long term solution however that will take some time um cause that will require new materials to be um uh qualified uh for that that issue.
4461799,565,4266.9399,4281.7397,6,Um and when it comes to the price validation uh the market that's very much dependent on the situation in in China we have seen that the the Chinese market has been um somewhat more difficult in the uh in the in the in the third quarter.
4461799,566,4282.25,4288.2798,6,Uh so the uh the discounts uh has had to be a little larger in order to place the volumes.
4461799,567,4288.6802,4298.29,6,Let's see what the role of the independent refiners uh in uh in China will be going forward that has a direct impact on that that market and uh the old outlook.
4461799,568,4298.29,4312.4199,6,So we will stay uh with the uh with the um uh with the sort of same guidance that we have given you but expect it to be uh for this quarter in the area of eight to ten dollars per per barrel less as a discount overall.
4461799,569,4312.7998,4325.3198,6,And that's factored in which is very important what Andy also said in his speech uh in the beginning that our gas prices in um Brazil the for the associated gas is actually capped at fifty five.
4461799,570,4325.3198,4333.4102,6,Uh so uh there is a there's um there's a limit to uh to how much we can get on the on the on the on the gas side.
4461799,571,4333.6699,4336.8296,6,However that ends um by the end of this year.
4461799,572,4337.0098,4344.3896,6,So from next year we uh we will actually dispose and handle the the natural gas the associated gas ourselves in Brazil.
4461799,573,4344.6899,4350.2202,6,And that should give us some more um uh capture capturing a higher higher margin on that.
4461799,574,4350.5698,4350.9102,6,Thank you.
4461799,575,4355.4702,4360.5098,0,Your final question comes from Anish Kapadia from Palissy Advisors.
4461799,576,4360.6401,4361.8901,0,Please ask your question.
4461799,577,4363.5,4363.8799,18,Oh hi.
4461799,578,4363.8799,4366.8599,18,Um yeah just had uh one question remaining.
4461799,579,4366.8599,4376.75,18,I think you you touched on it slightly but you know we are seeing um evidence of quite strong inflation and it could be quite persistent inflation in in the market.
4461799,580,4376.7798,4387.0801,18,And you know I'm thinking about that both from the raw material side of things but also the uh the potential for um higher inflation and higher interest rates going forward.
4461799,581,4407.1899,4407.48,18,Thank you.
4461799,582,4413.6602,4422.3301,2,Um you know I think one of the benefits of our joint venture that we secured with ACS was was it locked in construction costs going forward.
4461799,583,4423.1602,4430.4199,2,So um we've largely de-risked particularly with the two point nine gigawatts that that we have in that in that particular deal.
4461799,584,4431.27,4451.7197,2,Um but what's interesting about these higher costs and perhaps the risk of higher interest rates is you also see a bit of a slow down in people building more capacity and you know as result that feeds into what we also see particularly at the moment is is clearly pretty high uh solar capture prices.
4461799,585,4452.3701,4455.1499,2,Um so I think these things have their own balance to them.
4461799,586,4455.6401,4462.9302,2,Uh we have pretty strong position in that we you know we've de-risked uh the construction costs in our deal with with ACF.
4461799,587,4463.6699,4467.1899,2,But Philippe do you wanna talk a bit about the interest rates and and how exposed we are to that?
4461799,588,4470.2402,4479.9702,3,Anish because we we project finance the the banks ask us for a very significant proportion of the funding to be swapped fixed rates.
4461799,589,4480.8599,4484.5903,3,So we're fairly hedged on the funding cost.
4461799,590,4484.8198,4490.1699,3,we are fairly hedged through the EPC uh contract we've signed with ACS.
4461799,591,4491.0801,4495.3701,3,Um we are seeing unit CapEx prices going up.
4461799,592,4495.3701,4501.1997,3,So everything is becoming more expensive uh access to land interconnection equipments.
4461799,593,4501.3301,4511.1602,3,Um actually quite a number of auctions took place recently a number of bidders were betting on declining CapEx numbers.
4461799,594,4511.8301,4513.3101,3,And they've bid very aggressively.
4461799,595,4513.3101,4519.8604,3,So also to be seen how many of those projects will actually get funding and get off the ground.
4461799,596,4519.8599,4526.4702,3,So we'll see less projects being uh built more challenge for those that are not hedged.
4461799,597,4527.4302,4533.6597,3,Having said this um we're seeing a lot of inflation on the price of the electrons that we see.
4461799,598,4534.4302,4542.1499,3,So net net this is not um necessarily a bad for the projects and in the short term.
4461799,599,4542.27,4546.8496,3,Um in the longer term we we'll see but Galp is mostly hedged.
4461799,600,4547.02,4547.3599,3,Thank you.
4461799,601,4550.71,4551.0103,18,Thank you.
4461799,602,4553.0898,4553.48,1,Okay.
4461799,603,4553.6899,4555.1797,1,I think this ends our sessions.
4461799,604,4555.4302,4557.4902,1,Thank you for your time and for participating.
4461799,605,4557.6201,4560.9702,1,Uh we hope you find this is update useful.
4461799,606,4561.5,4566.1699,1,As always the best relations team is available for any additional qualifications.
4461799,607,4566.8799,4569.79,1,We will be on the road again from November onwards.
4461799,608,4569.8799,4573.3296,1,So really hope to meeting you in person soon.
4461799,609,4573.8599,4576.71,1,Have a great day and a productive hunting season.
4461799,610,4579.0801,4580.9302,0,That does conclude our conference for today.
4461799,611,4581.0298,4582.5698,0,Thank you all for participating.
4461799,612,4582.75,4584.2397,0,You may now disconnect.
4462231,0,5.74,12.16,0,Good day and welcome to the Texas Instruments q three twenty twenty one earnings release conference call.
4462231,1,13.4,15.16,0,Today's conference is being recorded.
4462231,2,16.31,20.94,0,At this time I would like to turn the conference over to Dave Paul please go ahead.
4462231,3,28.07,28.75,1,Good afternoon.
4462231,4,28.78,32.9,1,And thank you for joining our third quarter twenty twenty earnings conference call.
4462231,5,33.57,38.45,1,For any of you who missed the release you can find it on our website at ti dot com slash ir.
4462231,6,40.07,44.5,1,This call is being broadcast live over the web and can be accessed through our website.
4462231,7,45.37,47.26,1,A replay will be available through the web.
4462231,8,48.19,59.54,1,This call will include forward looking statements that involve risk and uncertainties that could cause TI's results to differ materially from management's current expectations.
4462231,9,60.06,73.31,1,We encourage you to review the notice regarding forward looking statements contained in the earnings release published today as well as TI's most recent S E C filings for a more comp complete description.
4462231,10,74.6,80.47,1,Our Chief Financial Officer Rafael Lizardi is with me today and will provide the following updates.
4462231,11,81.47,84.31,1,First I'll start with a quick overview of the quarter.
4462231,12,85.86,102.42,1,Next I'll provide insight into third quarter revenue results with some details of what we're seeing in respect to the with customers and markets and I'll also provide details by end market including some sequential performance as we have the last few quarters.
4462231,13,103.4,110.79,1,As sequential data begins to be less insightful we'll move back to reporting only year over year per our normal practice.
4462231,14,111.97,121.79,1,And lastly Rafael will cover the financial results an update of our capacity expansion plans and our guidance for fourth quarter twenty twenty one.
4462231,15,123.29,124.89,1,Starting with a quick overview of the quarter.
4462231,16,126.8,139.01,1,Revenue in the quarter was four point six billion dollars an increase of one percent sequentially and twenty two percent year over year driven by demand in industrial automotive and personal electronics.
4462231,17,140.45,146.63,1,On a sequential basis analog grew two percent emb embedded processing declined five percent.
4462231,18,147.55,153.59,1,On a year over year basis analog revenue grew twenty four percent and embedded processing grew thirteen percent.
4462231,19,154.62,157.94,1,Our other cycle grew nineteen percent from the year ago quarter.
4462231,20,159.41,165.94,1,Now let me comment on the current environment to provide some context of what we're seeing with our customers and markets.
4462231,21,166.78,173.87,1,Overall the quarter came in generally as we expected across the product segments and markets and geographies.
4462231,22,175.33,180.43,1,Lead times for of the majority of our products remain stable but hotspots continue to exist.
4462231,23,181.55,193.51,1,However customers are becoming more selective in their expedite requests focusing on products that complete a matched set rather than expediting products across the board.
4462231,24,194.56,200.31,1,This behavior is not specific to any product family end market or geography.
4462231,25,202.03,219.48,1,Discussions with customers confirm a high level interest in our commitment to expanding our internal manufacturing capacity roadmap including three hundred millimeter wafer FABs rfab two and <unk> or what we call LFAB and the associated assembly test expansions.
4462231,26,220.82,230.81,1,These investments to strengthen our manufacturing and technology competitive advantage will provide lower costs and greater control of our supply chain.
4462231,27,231.93,243.34,1,And while there is a growing recognition that the near term supply demand and balance will end at some point the secular growth of semi conductor content per system will continue to grow.
4462231,28,244.01,250.73,1,And this requires a robust manufacturing capacity roadmap for twenty twenty five and beyond.
4462231,29,251.87,256.0,1,Moving on I'll provide some insight into our third quarter revenue by end market.
4462231,30,257.52,264.73,1,First the industrial market was down mid single digits sequentially and up about forty percent from the year ago.
4462231,31,265.89,272.23,1,The changes both sequentially and from the year ago were generally consistent across the diverse set of sectors.
4462231,32,273.76,279.03,1,The automotive market again grew sequentially and was up more than twenty percent from the year ago.
4462231,33,279.98,287.22,1,When comparing to pre pandemic levels of q four two thousand nineteen revenue is up almost thirty percent.
4462231,34,288.4,295.18,1,Personal electronics grew low double digits sequentially and was up low double digits compared to a year ago.
4462231,35,296.23,302.64,1,The strength sequentially in the year ago was due to mobile phones PC notebooks and tablets.
4462231,36,304.7,312.23,1,Next communications equipment was down mid single digits sequentially and was down upper teens from a year ago.
4462231,37,313.73,318.08,1,Enterprise systems grew sequentially and from the year ago quarter.
4462231,38,319.38,324.33,1,Rafael will now review profitability capital management and our outlook.
4462231,39,325.86,327.64,2,Thanks Dave and good afternoon everyone.
4462231,40,328.22,334.04,2,As Dave mentioned third quarter revenue was four point six billion dollars up twenty two percent from a year ago.
4462231,41,335.25,339.48,2,Gross profit in the quarter was three point two billion dollars or sixty eight percent of revenue.
4462231,42,340.29,344.28,2,From a year ago gross profit margin increased three hundred and sixty basis points.
4462231,43,345.9,352.06,2,Operating expenses in the quarter were eight hundred million dollars up one percent from a year ago and about as expected.
4462231,44,353.03,357.24,2,On a trailing twelve month basis operating expenses were eighteen percent of revenue.
4462231,45,358.17,362.14,2,Over the last twelve months we have invested one point six billion dollars in r and d.
4462231,46,364.23,371.98,2,Acquisition charges and non cash expense were forty seven million dollars in the third quarter and will go to zero beginning fourth quarter of twenty twenty one.
4462231,47,373.39,377.58,2,Operating profit was two point three billion dollars in the quarter of percent of revenue.
4462231,48,378.54,381.64,2,Operating profit was up forty three percent from the year ago quarter.
4462231,49,383.34,388.37,2,Net income in the third quarter was one point nine billion dollars or two dollars and seven cents per share.
4462231,50,390.11,394.63,2,Let me now comment on our capital management results starting with our cash generation.
4462231,51,395.53,398.44,2,Cash flow from operations was two point four billion dollars in the quarter.
4462231,52,399.26,402.6,2,Capital expenditures were four hundred and eighty six million dollars in the quarter.
4462231,53,403.54,407.55,2,Free cashflow on a trailing twelve month basis was seven point one billion dollars.
4462231,54,408.56,416.86,2,In September we announced we would increase our dividend by thirteen percent effective this month marking our eighteenth consecutive year of dividend increases.
4462231,55,417.74,424.63,2,In the quarter we paid nine hundred forty two million dollars in dividends and repurchased a hundred thirty nine million dollars of our stock.
4462231,56,426.2,429.45,2,In total we have returned four point two billion dollars in the past twelve months.
4462231,57,430.22,435.96,2,Over the same period our dividend represented fifty three percent of free cash flow under scoring its sustainability.
4462231,58,437.18,443.16,2,Our balance sheet remains strong with nine point eight billion dollars of cash in short term investments at the end of the third quarter.
4462231,59,444.2,450.67,2,In the quarter we've issued one point five billion dollars of debt in three tranches of five hundred million dollars each.
4462231,60,451.18,455.43,2,The first has a coupon of one point one to five percent which is due five years.
4462231,61,455.93,462.42,2,The second at one point nine percent due in ten years and the last at two point seven percent due in thirty years.
4462231,62,463.15,469.11,2,This resulted in total debt of seven point eight billion with a weighted average coupon of two point six percent.
4462231,63,470.51,476.99,2,Regarding inventory tier inventory dollars were up seven million dollars from the prior quarter and days were a hundred and twelve.
4462231,64,477.68,480.91,2,Up one day sequentially but still below low desired levels.
4462231,65,482.01,495.37,2,For the fourth quarter we expect TI revenue in the range of four point two two to four point five eight billion dollars and earnings per share to be in the range of a dollar eighty three to two dollars and seven cents.
4462231,66,496.29,501.69,2,The Lehigh acquisition closed last Friday but the costs are not the included in our guidance.
4462231,67,502.45,505.97,2,We will provide those details when we report fourth quarter results.
4462231,68,506.63,517.82,2,Just as a reminder the purchase price was about nine hundred million dollars and we expect ongoing costs of about seventy five million dollars per quarter through twenty twenty two.
4462231,69,519.27,528.5,2,We continue to expect our annual operating tax rate for twenty twenty one to be about fourteen percent and our effective tax rate to be about thirteen percent.
4462231,70,529.73,548.46,2,As you're looking at your models for twenty twenty two without any changes to tax law we would expect our annual operating and effective tax rates to remain about what they are this year with a similar quarterly profile of discrete tax benefits that are higher in the first quarter compared to the rest of the year.
4462231,71,550.45,557.36,2,In closing we continue to invest to strengthen our competitive advantages and in making our business stronger.
4462231,72,558.24,565.7,2,Our investments in our long term roadmap for capacity expansion both in l f a b and r f a b two are great examples.
4462231,73,566.92,576.2,2,As a reminder our CapEx will be higher on an absolute level as well as a percentage of revenue as we strengthen disadvantage.
4462231,74,577.36,585.71,2,We are working through detailed plans of our long term roadmap and we have specifics of timing and CapEx spending in our capital management call in February.
4462231,75,586.5,592.19,2,We continue to believe owning and controlling our supply chain will be of growing strategic importance.
4462231,76,592.81,594.19,2,With that let me turn it back to Dave.
4462231,77,595.09,595.31,1,Thanks.
4462231,78,596.19,599.02,1,Operator you can now open the lines up for questions.
4462231,79,599.62,606.5,1,In order to provide as many of you as possible an opportunity to ask a question please limit yourself to a single question.
4462231,80,607.06,610.88,1,After our response we'll provide you an opportunity for an additional follow up.
4462231,81,611.28,611.73,1,Operator.
4462231,82,615.52,616.0,0,Thank you.
4462231,83,616.73,626.08,0,If you would like to ask a question please signal by pressing star one on your telephone key pads and if you're on speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment.
4462231,84,626.33,628.24,0,Again press star one to ask a question.
4462231,85,629.22,632.12,0,We'll pause just a moment to allow everyone an opportunity to signal for questions.
4462231,86,636.38,640.27,0,And we will go first to John Pitzer of Credit Suisse.
4462231,87,644.44,655.76,3,Dave I know in this sort of environment seasonality doesn't make a lot of sense but when you look at the September quarter I I'm just kind of curious the the June quarter came in well above your guidance range.
4462231,88,655.95,660.18,3,September was was well above the midpoint but still within the guidance range.
4462231,89,660.22,665.0,3,We're hearing of logistical constraints and supply can constraints across the economy.
4462231,90,665.0,676.06,3,I'm kind of curious when you look at sort of the the the the lower level upside in the September quarter versus the June quarter to what extent might have that been supply constraints outside of your control?
4462231,91,676.06,681.42,3,To what extent do you think its customers just being more selective about what they're pulling from you?
4462231,92,681.76,683.1801,3,Any color there would be helpful.
4462231,93,684.3,685.02,1,Sure John.
4462231,94,685.08,687.17,1,Uh and uh and thanks for the question.
4462231,95,687.55,687.68,1,Yeah.
4462231,96,687.68,690.84,1,I I really think it depends on the customer's uh bill of material.
4462231,97,690.84,697.45,1,I think that there are supply constraints that are you know widely reported across uh different uh different components.
4462231,98,697.45,719.63,1,And you know as we you know mentioned in uh our uh uh prepared remarks you know the behavior that we're seeing that's different uh our customers are showing up and and requesting you know when we have meetings with them rather than showing up long lists of devices uh the they're asking us to expedite uh they're really just short lists.
4462231,99,719.63,727.59,1,So they're looking for you know particular parts that complete those uh those match sets so that they you know can complete those builds uh for them.
4462231,100,727.59,733.11,1,So uh it is a different behavior that we're seeing this quarter versus uh the the prior quarters.
4462231,101,733.82,735.05,1,So do you have follow on?
4462231,102,736.16,746.71,3,Yeah just just as the follow on I know you are gonna give us more color about LFAB expenses and and RFABs expenses as we get into next year but I'm wondering if you could just help us set the stage a little bit.
4462231,103,746.71,759.33,3,Next year is obviously going to be kind of a a capacity build out year for you and I guess all those being equal how how should we think about the gross margin impact on calendar year twenty two as as you layer in these investments?
4462231,104,760.61,760.91,2,Yeah.
4462231,105,760.94,762.68,2,Uh I'll I'll take that one.
4462231,106,762.71,772.5099,2,Uh first uh you know as as you know you noticed for a long time we don't manage the business to uh to gross margins we manage for the long term growth of for cash per share.
4462231,107,772.85,776.34,2,And uh and that starts with uh driving uh the top line.
4462231,108,776.56,780.56,2,And that's why we're making these investments right to support uh revenue growth.
4462231,109,780.56,790.34,2,And as we do that is uh is extending our low cost uh manufacturing advantage uh that gives us uh uh that great structural cost advantage with three hundred millimeter.
4462231,110,790.34,793.72,2,And in addition to that uh we uh we're controlling the supply chain.
4462231,111,794.19,807.0,2,Um uh and specifically on your question uh you know take r f a b two uh all in that's about a six billion dollars uh expense about a billion of that is a building which you know depreciates over thirty years or so.
4462231,112,807.37,813.95,2,Uh the balance of of the rest is equipment and and we're gonna be uh putting that equipment starting uh next year and over the coming years.
4462231,113,814.54,823.83,2,Uh with l f a b obviously a nine hundred million purchase price um and um and that some of that is built and some of that is equipment.
4462231,114,823.88,830.64,2,And then on top of that we'll put about three billion dollars of of CapEx uh over a number of years as we uh as we ramp that up.
4462231,115,831.15,841.57,2,Um so uh we'll we'll give you uh additional details on that and the bigger longer term picture uh of how we're gonna support that uh the long longer term growth.
4462231,116,841.84,844.74,2,We'll give you those details in February at the at the capital management call.
4462231,117,845.37,845.79,3,Okay.
4462231,118,845.93,846.17,3,Thank you.
4462231,119,846.59,848.73,1,Uh thank you John and we'll go to the next caller please.
4462231,120,850.03,852.65,0,And we'll go next to Timothy Arcuri of U B S.
4462231,121,854.55,855.12,4,Hi thanks.
4462231,122,855.15,858.47,4,Um Rafael I was I was wondering if you could talk about pricing.
4462231,123,858.5,864.29,4,Um you know obviously you're seeing some uh you know increases in your input costs.
4462231,124,864.29,873.34,4,Can you talk about you know whether you're passing those on to um customers and sort of how ubiquitous any you know price increases on uh you know your side might be?
4462231,125,874.76,877.72,2,Yeah what I would tell you you know stratum pricing has not changed.
4462231,126,877.72,881.65,2,We we regularly monitor that and our goal is is to be competitive.
4462231,127,882.1,888.81,2,Uh and it's really frankly independent of the of the input uh and the input cost to the large to the to the largest degree.
4462231,128,889.31,896.57,2,Uh but our goal is to be competitive and uh if uh prices move higher we uh we adjust those over time and we have been adjusting those over time.
4462231,129,897.43,897.56,1,Yeah.
4462231,130,897.56,898.23,1,Follow up Tim?
4462231,131,899.36,900.38,4,I did I did Dave thanks.
4462231,132,900.42,905.29,4,Um and I I guess I'll ask the same question that I've asked the last I think three calls about share repo.
4462231,133,905.8,907.71,4,Um it was pretty low again.
4462231,134,908.21,915.29,4,I guess is there sort of can you help us think through maybe what the triggers might be for you to start to buy back more stock?
4462231,135,915.29,922.3199,4,Is there a target cash level where maybe you'd say that the balance sheet is getting a little bit over capitalized and you'd start to you know buy back more stock?
4462231,136,922.32,930.25,4,I'm just kind of you know obviously you're not buying back much but but I'm just kinda wondering if you can talk us through what triggers you might be looking for to start that back again.
4462231,137,930.25,930.48,4,Thanks.
4462231,138,931.54,931.99,2,Yeah.
4462231,139,931.99,936.27,2,You know stepping back and and just to remind everybody how we think about our returns.
4462231,140,936.27,941.4301,2,Um our objective is to return all free cash flow to the owners of the company over the long term.
4462231,141,941.61,943.7,2,And we do that through dividends and and buybacks.
4462231,142,944.08,947.62,2,You look at our eighteen year history on that and it's it is really consistent.
4462231,143,947.62,955.15,2,In fact we we've uh many years most years we've averaged um uh well over a hundred percent uh of return.
4462231,144,955.6,964.9,2,Uh you know during that time we have I would remind you we have increased the proportion of uh uh of the return that comes into dividends so that uh that also plays into that.
4462231,145,964.9,971.42,2,But you know as long as we think um the the buybacks that are creative to uh long term owners we we're gonna have some buybacks.
4462231,146,971.42,986.35,2,And as you have been as you pointed out the last three quarters we have uh uh in fact they I don't think there's been a single quarter in the last eighteen years or so that we have not uh purchased a return uh on uh uh cash to the owners through uh through buybacks in one form or another.
4462231,147,987.57,987.91,1,Okay.
4462231,148,987.91,988.56,1,Thank you Tim.
4462231,149,988.62,989.94,1,And we'll go to the next caller please.
4462231,150,991.6,993.64,0,We'll go next to Harlan Sur of JP Morgan.
4462231,151,996.08,996.62,5,Good afternoon.
4462231,152,996.62,997.8,5,Thanks for taking my question.
4462231,153,1022.58,1029.6,5,So how far below normal are consignment inventories relative to your customers target levels?
4462231,154,1044.77,1049.26,2,Yeah so I'll I'll start and Dave you wanna chime in uh after that.
4462231,155,1049.26,1054.2101,2,But uh uh I think where you're going with that let let me maybe step back.
4462231,156,1054.21,1054.5399,2,Yeah.
4462231,157,1054.54,1058.02,2,Obviously inventory levels are are below below desired levels right?
4462231,158,1058.02,1059.2999,2,we're at a hundred and twelve days.
4462231,159,1059.91,1062.3301,2,Our target is a hundred thirty to a hundred ninety days.
4462231,160,1062.33,1065.9601,2,So you know clearly we're well below uh where we want to be.
4462231,161,1066.36,1076.5901,2,And inside of that as you pointed out finished goods all finished goods whether it's in consignment or or at our product distribution centers uh are the ones that are de uh are decreasing most.
4462231,162,1076.59,1090.0399,2,In fact uh even though inventory total inventory level stayed above flat slightly up uh second to third uh quarter finished goods uh decreased uh and then with uh raw materials increase a little bit uh to to offset that.
4462231,163,1090.5601,1114.42,2,Um so you know our goal um as soon as capacity increases if there's an adjustment in demand we will build uh those inventory levels uh back up uh to be at a at more healthy levels and given our business model it's just a great uh a great bet uh just given the the low up lessons of our inventory the the diversity of positions diversity of products that we can uh we can afford.
4462231,164,1114.42,1121.67,2,Not only we can afford it makes sense for us to to build that inventory have it ready for the for the secular growth that that we're confident will will happen beyond that.
4462231,165,1122.13,1128.6799,2,You know and and I think maybe tactically where you're going on on consignment inventory frankly those tend to be pretty lean to begin with.
4462231,166,1128.6801,1131.8999,2,That's that's how that process is designed to just keep a couple weeks.
4462231,167,1132.49,1143.15,2,So uh I I I wouldn't expect that by itself to build significantly purely consignment uh where what I would expect the the bill to happen is more at our product distribution centers.
4462231,168,1143.6,1148.6901,2,And that gives us more flexibility to then uh ship where the demand uh is is most needed.
4462231,169,1149.61,1149.7999,5,Yeah.
4462231,170,1152.6801,1166.6899,1,I think just tactically where we whether we keep it in in our hubs uh where we would prefer it or um you know if we push it out to a consignment center it'll just be reflective of uh our expectation that a customer will pull it.
4462231,171,1166.84,1170.0801,1,So that's just a a tactical uh tactical decision.
4462231,172,1170.48,1204.1899,1,Uh I'd also point out that uh as you said Rafael we do plan to bring on more capacity incrementally uh as we have each quarter uh through this year uh and uh through the middle of next year uh and uh in the back half of uh of twenty twenty two r f a b two will uh we'll come online uh and then that'll be followed by um uh l f a b uh since as Rafael pointed out we did close uh on uh on that factory on Friday of last week.
4462231,173,1204.67,1213.5299,1,And uh so that is uh on target to uh to come online in early twenty twenty three uh to uh to support growth in in the future.
4462231,174,1214.21,1215.7899,1,So did you have a follow on Harlan?
4462231,175,1217.4399,1218.03,5,Yeah thanks.
4462231,176,1218.03,1220.02,5,I appreciate the uh insightful answer.
4462231,177,1246.49,1251.78,2,Uh on your first question on percent I think you asked for percent of our revenue from consignment is that right?
4462231,178,1253.73,1253.91,1,Yeah.
4462231,179,1253.91,1259.15,1,Could you just repeat it Harlan so we got make sure we got it right what you were asking uh the first question.
4462231,180,1262.7,1263.41,2,Harlan are you there?
4462231,181,1264.87,1266.97,5,Yeah just percentage of the overall direct business?
4462231,182,1268.36,1269.5699,1,Oh uh direct business.
4462231,183,1269.6,1269.87,1,Yeah.
4462231,184,1269.87,1277.58,1,So yeah so we left last year uh with uh um about uh two thirds of our revenues uh uh direct.
4462231,185,1278.13,1283.34,1,Uh so um you know we expect that that percentage will increase uh over time.
4462231,186,1283.8101,1295.64,1,Uh you know we'll provide an update of uh of uh of what we've done with that uh this year in our February call um uh cap management uh call in February of of actually what that looks like.
4462231,187,1295.64,1303.4501,1,But uh just to say over time that we do expect that that will move up uh um uh you know slightly uh over time.
4462231,188,1303.96,1320.52,1,So and and uh just the other color with uh with Rafael uh talking about book to bill um as we've a lot of our revenue on consignment we've got ti dot com uh you know the actual backlog isn't quite as meaningful as what it uh used to be.
4462231,189,1320.52,1327.47,1,So uh as he said uh it's just not a number that uh um that that we look at or measure or we've talked about.
4462231,190,1327.47,1330.75,1,And and sometimes so it isn't quite as helpful as what it used to be.
4462231,191,1331.0601,1333.71,1,So thank you Harlan and we'll go to the next caller please.
4462231,192,1336.13,1338.9299,0,And we'll go next to Stacy Rasgon of Bernstein Research.
4462231,193,1340.3,1340.6901,6,Hi guys.
4462231,194,1340.6899,1341.7699,6,Thanks for taking my question.
4462231,195,1342.42,1345.74,6,For the first one I wanted to ask about the near term um micron impact.
4462231,196,1345.74,1351.5701,6,I know you said seventy five million in in cost impact in the model next year those costs don't go away right?
4462231,197,1362.22,1365.0499,2,Very good uh Stacy a good direct question.
4462231,198,1365.05,1372.13,2,So yes uh that seventy five million is uh mainly people and direct cost not depreciation.
4462231,199,1372.6,1380.4801,2,Uh depreciation will not start until about first quarter twenty three when we start uh production just the way the the rules work uh on that front.
4462231,200,1380.9301,1395.84,2,Um and that seventy five million uh they might we're still working through the details but uh we currently believe that uh the most likely scenarios that most of that cost will go through the restructuring charges slash other line until we start production right.
4462231,201,1395.84,1400.3401,2,And then at that point uh the majority of the costs would go to the the CRO line.
4462231,202,1400.6899,1405.98,2,Uh now the costs actually do increase over time as we increase production right.
4462231,203,1405.98,1413.75,2,But I think where you're going is that uh as that happens and those course those costs are then absorbed uh by revenue right?
4462231,204,1413.78,1422.4601,2,Uh now how quickly those are absorbed beyond utilization under utilization et cetera that just depends how quickly we we uh we ramp that factory right.
4462231,205,1422.46,1430.1901,2,Uh you know cle clearly at the beginning there we there won't be you know a hundred percent absorption and we'll we'll get to that uh uh at some point.
4462231,206,1430.1899,1434.8201,2,But we'll you know we're not gonna you know that that's uh that's in twenty twenty three.
4462231,207,1434.8199,1437.6,2,So we'll get to that at some point to give you to give you some details.
4462231,208,1437.6,1447.71,2,And and in February the capital management call I think we'll frame it kind of the bigger picture of that along with our other CapEx uh investments and you get a better sense of uh of how that's gonna play out.
4462231,209,1448.78,1449.53,1,Your follow on Stace?
4462231,210,1451.64,1453.26,0,And it looks like Stacy has disconnected.
4462231,211,1454.75,1455.01,1,Okay.
4462231,212,1456.66,1457.02,1,Okay.
4462231,213,1457.13,1460.79,1,If you have a follow on let us let us know Stacy we'll go to the next caller please.
4462231,214,1463.01,1465.51,0,And we'll go next to Ross Seymore of Deutsche Bank.
4462231,215,1467.42,1468.95,7,Hey guys thanks for letting me ask a question.
4462231,216,1469.38,1475.73,7,Uh Dave Rafael I wanted to talk about the quarter you reported and and get into some of the supply dena uh supply demand dynamics.
4462231,217,1475.98,1481.2001,7,Uh it was the smallest beat to your original revenue guidance you guys have had uh in a year.
4462231,218,1481.2,1497.97,7,And I realized that it's been exceedingly volatile in the last year but I wondered it was that the demand profi uh the demand uh profile changing from those investors that selectivity changing that you're talking about or did supply play a role in that where you just couldn't meet up to the demand?
4462231,219,1497.97,1504.9301,7,Just trying to get what really changed versus whatever level of conservatism you had built into the prior quarters when you beat by bigger deltas.
4462231,220,1506.4301,1506.79,1,Yeah.
4462231,221,1506.79,1508.9,1,you I think you said demand from investors.
4462231,222,1508.9,1512.51,1,I think you meant to say demand from cu uh customers right uh right Ross?
4462231,223,1512.51,1512.76,7,Yes.
4462231,224,1512.86,1513.4099,7,Sorry about that.
4462231,225,1515.4399,1520.87,1,Uh certainly if any uh investors want to buy semiconductors from us we'll be happy to uh sell 'em.
4462231,226,1520.87,1527.65,1,But uh um but yeah so I you know I just say that overall the quarter you know came in as we expected it to right.
4462231,227,1527.76,1543.16,1,And uh um and and and that's a statement uh you know as we said in the prepared remarks and we looked across uh geographies and products and uh product groups and um end markets you know those types of cuts.
4462231,228,1543.4,1550.46,1,So um there wasn't like one uh area that was uh underperformed or outperformed what we were expecting.
4462231,229,1550.9399,1563.4199,1,Um but again the the main uh the main thing of uh what was different this quarter versus last quarter was really where customers were coming in and and uh uh requesting expedites and and upsides uh from us.
4462231,230,1563.87,1569.95,1,Uh and and those upsides were much much more narrow uh and focused just on uh on on few products.
4462231,231,1569.95,1572.4301,1,So uh that was really what the difference was.
4462231,232,1572.4301,1577.2301,1,If you're looking for you know what was different this quarter versus last quarter and those types of things.
4462231,233,1577.77,1582.66,1,Uh that's what I would point to to say uh what's changed in the in the last ninety days.
4462231,234,1585.12,1585.88,7,Thanks for the help on that.
4462231,235,1585.88,1588.91,7,And I guess as my follow up uh a similarly toned question.
4462231,236,1588.91,1594.16,7,You mentioned that lead times remain extended but are stable and then you you talked about that whole selectivity dynamic.
4462231,237,1595.17,1598.0701,7,What would you imagine uh would change the lead times?
4462231,238,1598.0699,1613.6801,7,Is it gonna be your supply incrementally rising or or more so with Lehi or is the selectivity something as you guys look back and are are students of cycles is the demand side and that selectivity side more likely to impact the lead times going forward?
4462231,239,1615.0,1619.3,1,Well uh you as you know uh you've been through many cycles uh with us right?
4462231,240,1619.3,1621.25,1,It uh it's always a combination of both.
4462231,241,1621.42,1644.01,1,And uh um you know we will uh and continue to add the incremental capacity uh as we have planned for you know some time um and uh you know certainly as we go out in time as we get the bigger uh tranches of capacity coming on with uh with our fab two and then and then l f a b uh you know we'll be able to make more progress on that front.
4462231,242,1644.4399,1651.0701,1,Um and at some point you know uh we know that uh uh you know things will change from a demand standpoint.
4462231,243,1651.12,1656.87,1,And uh uh so we you know we don't spend time trying to predict that but we'll be ready for it.
4462231,244,1657.3199,1658.6,1,Uh we know what we'll wanna do.
4462231,245,1658.64,1666.9401,1,And you know as Rafael talked about you know one of the top things there is we'll want to rebuild inventory uh to prepare for the next time that that demand strengthens.
4462231,246,1667.0,1672.29,1,Uh so we have a long list of things that we're doing to invest in the company to to make it stronger.
4462231,247,1672.29,1678.26,1,So um you know uh we won't control the timing of that but uh but we'll be ready ready for it for sure.
4462231,248,1678.5699,1700.75,2,And just to emphasize that point right when that adjustment happens uh whenever that is uh we will continue investing in r and d uh focus on the areas uh auto and industrial uh for the secular long term growth uh will continue to invest on uh CapEx uh in uh to set up the company for the next ten to fifteen years uh with a great uh long term roadmap.
4462231,249,1701.11,1721.9501,2,And we will build inventory that's uh where Dave mentioned that range is a hundred thirty to a hundred ninety days frankly we'll probably end up being at the higher end of that range just because we're feel so good about uh the business model and uh how good that inventory will be and how it sets us up for the next uh upturn on the other side uh uh given the uh the the long live nature of that inventory.
4462231,250,1722.92,1723.1899,1,That's right.
4462231,251,1723.1899,1723.2599,1,Yeah.
4462231,252,1723.26,1723.55,1,Okay.
4462231,253,1723.55,1724.21,1,Thank you Ross.
4462231,254,1724.28,1725.67,1,And we'll go to the next caller please.
4462231,255,1727.48,1730.11,0,We'll go next to the Vivek Arya of Bank of America.
4462231,256,1737.4301,1750.74,8,Um are customers not ordering as much from you because they don't have enough from you on the component side or they don't have enough from others that they need uh to complete uh their bill of materials?
4462231,257,1751.78,1752.6901,1,It's both Vivek.
4462231,258,1752.88,1760.23,1,Um you know there's uh there there there are instances of of both of those uh and sometimes it is not even semiconductors right.
4462231,259,1760.23,1763.45,1,It's uh may may be other components that they may be uh missing.
4462231,260,1763.96,1766.7999,1,Um so yeah it's a combination of of those things.
4462231,261,1766.8,1775.91,1,Uh you know some supply chains are complex uh depends on uh on on the on the bill of materials and the systems uh that uh that that they're that they're that they're building.
4462231,262,1776.16,1778.26,1,So uh it it depends.
4462231,263,1778.61,1778.86,2,Yeah.
4462231,264,1778.86,1788.04,2,And Vivek the the new ones change is you know ninety days ago a hundred eighty days ago they were expediting everything almost almost regardless of of matched uh set position.
4462231,265,1788.04,1805.67,2,Now they're they're more selective in what they're expediting right.
4462231,266,1811.04,1823.4299,8,So as it applies to TI what do you think has been kind of the interplay between content and and mix or or do you think that there is perhaps inventory stuck in the automotive uh supply chain somewhere that uh we should watch out for?
4462231,267,1824.9399,1827.61,1,Yeah I I you know I'll I'll comment on automotive.
4462231,268,1827.61,1830.01,1,I think I'll even extend it into industrial.
4462231,269,1830.14,1840.0,1,And you know those are two markets that we have long talked about that we believe that there is content growth in those markets uh content per system.
4462231,270,1840.0,1844.3,1,It's easy to see in cars and uh you know well reported on.
4462231,271,1844.3,1848.53,1,I I know Vivek in your reports that you've uh reported on that uh the content growth.
4462231,272,1848.53,1855.39,1,You can see it in in automotive it's happening in industrial across thirteen different sectors so harder harder to see.
4462231,273,1855.95,1863.86,1,Uh and you know uh we invest in all the markets but uh uh we have a strategic focus on automotive and industrial.
4462231,274,1863.86,1869.59,1,So you're beginning to see some of the benefits of of those uh that strategic bias that we have.
4462231,275,1870.1,1875.8,1,Uh our channel advantages the breadth of our products uh advantages in those markets as well.
4462231,276,1876.14,1877.75,1,So there's components of that.
4462231,277,1878.22,1886.6801,1,Uh but that said uh anytime that we have uh supply shortages in the industry customer behavior is always very consistent.
4462231,278,1886.76,1891.95,1,And uh that behavior is that they will want to build inventory to protect themselves.
4462231,279,1892.46,1899.58,1,So you know whether they've already begun that or have already done that uh they certainly will want to do that.
4462231,280,1899.61,1906.34,1,And uh at some point they'll they'll have too much product and that's what creates the cycles in our in our in our industry.
4462231,281,1906.34,1916.89,1,So um you know it won't surprise us if the cycle you know comes to an end at some point uh we will be prepared for that and we'll know what uh what what we'll want to do at that uh at that point.
4462231,282,1917.14,1921.24,1,So thank you for those questions and we'll go to the next caller please.
4462231,283,1923.01,1924.8201,0,We'll go to Joe Miller of Morgan Stanley.
4462231,284,1927.3,1927.53,9,Great.
4462231,285,1927.53,1928.04,9,Thank you.
4462231,286,1928.08,1935.9199,9,Um I wonder if you could talk to the hotspots you know is there any particular pattern that's driving which products you have in short supply?
4462231,287,1935.92,1944.53,9,I mean it seems like you know we see it most in areas like enterprise and some of the personal electronics you know higher volume stuff.
4462231,288,1944.58,1951.71,9,Is is that is that something that you guys would agree with and do you think is it you know is there more Foundry versus internal FABs?
4462231,289,1951.71,1953.8101,9,Like is there anything in particular driving those hotspots?
4462231,290,1955.59,1959.37,1,Yeah I wouldn't uh I I wouldn't put it down on any one thing Joe.
4462231,291,1959.41,1967.98,1,Um certainly you know there's uh you know reports of uh the tightness across boundaries so obviously we see that as well.
4462231,292,1968.01,1971.85,1,So um there's there's tightness in in some lead frames.
4462231,293,1971.96,1974.0199,1,Uh so you know we see that as well.
4462231,294,1974.42,1992.54,1,Uh other input uh you know raw materials more more compounds uh we have uh you know uh testers in some cases some process technologies uh uh some particular uh products themselves that have uh large number of uh of of customers.
4462231,295,1992.58,2003.52,1,Uh so um and and those hotspots move around as our operations teams uh will sometimes uh uh uh uh move capacity from uh one area to the other.
4462231,296,2003.95,2007.5701,1,So they're not always uh always consistent or persistent.
4462231,297,2008.02,2018.1799,1,Um uh sometimes they are but uh sometimes the they're not and there's things that we can do to uh uh to mitigate those or or uh actually completely uh alleviate them.
4462231,298,2018.1801,2034.09,1,So uh and that's why as we describe them um you know it's not just one particular product area or one particular product set that uh or even one particular market um or even I'd say even one particular customer that would be impacted by that uh uh that you you may may say.
4462231,299,2035.08,2054.8999,2,Hey uh and just to uh to highlight something for maybe new listeners uh uh Dave mentioned the the foundries uh only about twenty percent of our of our wafers are uh come from foundries uh the vast majority eighty percent and and growing uh uh with our investments in three hundred millimeter uh our internal uh wafers.
4462231,300,2054.8999,2061.3501,2,And that just gives us much uh better control uh of our destiny and for all the reasons uh Dave mentioned.
4462231,301,2061.3501,2066.46,2,And and then the the local s uh uh structure or low cost that we that we get with three hundred millimeter.
4462231,302,2066.6299,2066.8699,1,Yeah.
4462231,303,2066.9299,2074.99,1,I think that makes it uh uh especially clear why we believe that uh continues to be a strategic adva advantage for sometimes like this.
4462231,304,2075.1599,2076.0801,1,So you have a follow in Joe?
4462231,305,2077.3799,2077.5298,9,Yeah.
4462231,306,2077.53,2094.76,9,I wonder also with the the hotspots you know is there a situation where you can't respond to upside in demand and that's why it's tight or are there actual areas where you know I know there's always a little bit of this but on a broad scale where you're not meeting kind of commitments that you had made because of some of those things that are upstream from you?
4462231,307,2095.77,2099.5,1,I I think there's probably both uh both of those that uh that that exist.
4462231,308,2109.0601,2109.21,1,Yeah.
4462231,309,2109.5,2109.6699,1,Yeah.
4462231,310,2110.74,2112.05,1,So okay.
4462231,311,2112.0801,2112.8,1,Well thank you Joe.
4462231,312,2113.0701,2115.99,1,Uh we will go to uh go to the the next caller please.
4462231,313,2117.8301,2119.9099,0,Our next question comes from Christine Lee of Citi.
4462231,314,2122.77,2123.6201,10,Oh hey thanks guys.
4462231,315,2123.6499,2131.9199,10,Um so uh Dave and Rafael you mentioned that the lead times haven't really changed but the expedites are getting better or less bad.
4462231,316,2132.4099,2134.0601,10,Um why do you think that is?
4462231,317,2134.0601,2142.3899,10,Do you think that you know your competitors are reducing lead times do you think that the the supply chain has had a a little bit of a chance to build some buffer inventory?
4462231,318,2142.3899,2145.9001,10,Why do you think the situation is getting I guess either either better or less bad?
4462231,319,2147.3201,2147.55,1,Yeah.
4462231,320,2147.55,2150.52,1,I you know Chris I I think that's a great question.
4462231,321,2150.55,2159.4099,1,Um I don't know that we know the answer specifically to that question so I I think we're trying to stick to the facts of we can observe that behavior change.
4462231,322,2159.76,2167.99,1,Uh I think you're offering some some good uh good theories of uh of why that uh uh behavior may be uh may be changing.
4462231,323,2168.4299,2186.26,1,Uh but uh you know what we're trying to do is to stick to the facts of uh of what's going on Uh there's you know multiple reasons why it might be changing uh and we'd rather not venture into uh you know guessing or predicting or uh you know calling uh what what you know what what's driving that behavior.
4462231,324,2187.04,2188.03,1,So you have a follow on?
4462231,325,2189.4199,2192.3301,10,Yeah I guess you can leave the guessing and predicting up to a cell siders.
4462231,326,2196.76,2210.0601,10,Um on the uh since you guys don't talk about uh gross margin but you do talk about free cash flow margin uh I think you had an all time high in in free cash flow margin in q three and it looks like there's uh some headwinds coming down the pike um in in the I guess near to medium term.
4462231,327,2220.05,2220.27,2,Sure.
4462231,328,2220.27,2225.0,2,I'll take that uh Chris.
4462231,329,2225.0,2228.8601,2,And Chris you know us uh very well you follow us for a long time.
4462231,330,2229.27,2233.27,2,You know we do not manage to free cashflow margin percent right?
4462231,331,2233.27,2240.3301,2,That is not what uh what drives the long term value for the owners is the long term growth of free cash dollars right.
4462231,332,2240.74,2250.02,2,Uh and to your point there there are some headwinds on that uh with the with the CapEx uh uh that we're talking about to set up the company well for uh for the future.
4462231,333,2250.29,2258.4602,2,But of course we we are only doing that because we think that is gonna drive even faster growth of of uh the long term trend of free cash flow dollars.
4462231,334,2258.46,2264.77,2,So we'll continue to uh to focus on that because we think that is uh that is what drives uh value for the longer owners.
4462231,335,2265.95,2266.27,1,Okay.
4462231,336,2266.27,2266.8801,1,Thank you Chris.
4462231,337,2266.9099,2269.47,1,And we've got time for one more uh call.
4462231,338,2271.6499,2273.48,0,And we'll go to <inaudible> Sandberg of <inaudible>.
4462231,339,2276.0901,2276.3401,11,Yes.
4462231,340,2276.3401,2277.75,11,Uh thank you for squeezing me in.
4462231,341,2277.8601,2283.1201,11,Um as far as the question on controlling the supply chain you talked about eighty percent outsourced.
4462231,342,2283.1201,2292.8899,11,Now I I believe that's kind of the more advanced nodes but should we assume that that eighty percent is is just gonna grow uh and that you're gonna rely less and less on foundries going forward?
4462231,343,2293.8301,2293.9502,2,Yeah.
4462231,344,2293.95,2297.3601,2,So you said eighty outsourced is eighty insourced just to make sure.
4462231,345,2301.4099,2302.5601,2,eighty percent-
4462231,346,2303.6799,2316.04,2,And um yeah that should grow over time as we continue to add uh this wafer uh FABS that uh that we're talking about all in three hundred millimeter which with you know the efficiency of three hundred millimeter is huge right?
4462231,347,2316.04,2326.8799,2,Because uh uh what three hundred millimeter wafer accounts for almost two point three times a a two hundred millimeter wafer and these are pretty large uh wafers for efficiency purposes.
4462231,348,2326.8799,2329.53,2,In fact r f a b two is uh is gonna be bigger than r f a b one.
4462231,349,2329.53,2335.8999,2,So so yeah it's reasonable to to to the dues that uh that uh percent will increase over time.
4462231,350,2337.46,2337.9399,11,Very good.
4462231,351,2337.9399,2345.3699,11,And as of follow up and and I don't want to steal your thunder from February but in the past you've talked about capacity of twenty two billion dollars.
4462231,352,2345.3701,2349.03,11,Obviously you're going to go through capacity expansion here for the next twelve to eighteen months.
4462231,353,2349.6899,2352.71,11,Uh you know would you share any new numbers with those?
4462231,354,2352.71,2354.1299,11,I don't know twenty five twenty eight?
4462231,355,2354.46,2355.45,11,Uh anything at all?
4462231,356,2356.45,2356.8899,2,Yeah no.
4462231,357,2356.8899,2357.8601,2,So great question.
4462231,358,2357.8601,2359.49,2,Thanks for the setup for February.
4462231,359,2359.52,2362.5701,2,We we will talk about uh that in in February.
4462231,360,2362.5701,2369.0598,2,So uh until then uh what I would tell you is uh you know you've heard us talk about demo sticks and r f a b one.
4462231,361,2369.51,2377.9399,2,Uh roughly uh that's uh potential of about eight billion dollars of uh of annual revenue on three hundred million than rfab two.
4462231,362,2378.03,2380.4099,2,And this is all dependent highly dependent on mix right?
4462231,363,2380.4099,2390.8999,2,So these are not exact numbers but uh r f a b two uh with that caveat rfab two should add another five billion dollars of annual revenue again when it's full week web price.
4462231,364,2390.8999,2396.52,2,So not obviously not on day one and uh Lehi should add three to four billion of of annual revenue.
4462231,365,2396.52,2414.99,2,So you know we're thinking in in terms of that and we're thinking even beyond that right because as we as we uh look at uh at the company's potential for growth into the next ten and and fifteen years then uh we we we we're not stopping uh just thinking uh in the next uh four or five years we're thinking ten uh fifteen years.
4462231,366,2414.99,2417.6602,2,And we'll talk about that uh in February in more detail.
4462231,367,2418.53,2418.97,1,That's great.
4462231,368,2419.5801,2423.76,1,And I think we can go ahead and wrap up uh Rafael see if you'd like?
4462231,369,2423.9199,2424.4299,2,Okay.
4462231,370,2424.46,2428.8,2,So uh uh let me wrap up by reiterating what we have said previously.
4462231,371,2429.46,2440.3201,2,At our core we're engineers and technology is the foundation of our company but ultimately our objective and the best metric to measure progress and generate long-term value for owners is the growth of free cash over share.
4462231,372,2441.02,2445.3601,2,While we strive to achieve our objective we will continue to pursue our three ambitions.
4462231,373,2445.3601,2456.9099,2,We will act like owners who will own the company for decades we will adapt and succeed in a world that's ever changing and we will be a company that we're personally proud to be a part of and would want as our neighbor.
4462231,374,2457.3401,2461.3999,2,When we're successful our employees customers communities and owners all benefit.
4462231,375,2461.75,2463.1699,2,Thank you and have a good evening.
4462231,376,2467.8,2469.8501,0,And so this concludes today's call.
4462231,377,2469.8501,2471.46,0,Thank you for your participation.
4462231,378,2472.26,2480.2,0,You may now disconnect.
4463259,0,8.52,10.83,1,Today's conference will be conducted by Mr.
4463259,1,19.08,28.35,1,I would now like to hand the call over to Mr.
4463259,2,28.77,30.5,1,Alvarez-Pedrosa.
4463259,3,32.43,40.26,0,Today's call will be hosted by Josu Jon Imaz our Chief Executive Officer with other members of the executive team joining us as well.
4463259,4,40.97,44.43,0,Before we start I advise you to read our disclaimer carefully.
4463259,5,44.92,48.99,0,During this presentation we may make forward-looking statements based on estimates.
4463259,6,49.67,55.43,0,Actual results may differ materially depending on a number of factors as indicated in the disclaimer.
4463259,7,55.87,58.03,0,I will now hand the call over to Josu Jon.
4463259,8,58.89,62.42,2,Thank you Ramon and thanks to everyone joining us today.
4463259,9,63.06,65.1,2,I hope that all of you are doing well.
4463259,10,65.7,69.15,2,In today's call I'd like to cover the following main topics.
4463259,11,69.61,71.92,2,Firstly the key initiatives of the quarter.
4463259,12,72.38,75.94,2,Secondly the divisional highlights and financial results.
4463259,13,76.7,82.84,2,Thirdly our capital allocation priorities uh in the current higher price scenario namely…
4463259,14,82.84,89.74,2,Namely our updated ambitions in low carbon and our proposal to increase shareholder remuneration.
4463259,15,90.6,93.7,2,i will finalize with our revised outlook to the end of the year.
4463259,16,94.38,103.64,2,At the end of this presentation we'll be available to answer your questions and let me uh start by reviewing the key messages.
4463259,17,103.64,113.81,2,Uh in the third quarter Repsol has delivered an outstanding set of results and cash generation that consolidates our recovery to pre-pandemic levels.
4463259,18,114.42,123.82,2,This performance has been supported by a positive market environment with all business segments benefiting from a higher demand for energy and petroleum products.
4463259,19,124.66,137.64,2,In this context the adjusted net income reached €623 million its highest level since twenty eighteen and a nineteen percent improvement compared to the same period in twenty nineteen.
4463259,20,138.39,146.05,2,The accumulated result to September was uh €1.6 billion three percent below the first nine months of twenty nineteen.
4463259,21,147.26,157.76,2,The underlying cash generation was strong across all businesses with all the three divisions increasing their operating and free cash flow contributions compared to the previous quarter.
4463259,22,158.85,166.61,2,Cash flow from operations was €1.4 billion in the quarter and uh €3.4 billion accumulated to September.
4463259,23,167.58,187.85,2,Excluding working capital movements mainly related to an inventory buildup associated with higher prices the operating cash flow was €1.7 billion in the quarter and €4.8 billion through September a twenty eight percent and six percent increase respectively compared to the same periods in twenty nineteen.
4463259,24,187.99,204.14,2,Free cash flow amounted to €0.9 billion in the quarter and one point nine billion up to September more than covering investments interests shareholder remuneration and the purchase of treasury shares in both periods.
4463259,25,204.94,218.26,2,Net debt stood at €6.1 billion by the end of the quarter roughly a two hundred fifty million reduction compared to June and around €650 million lower than in December.
4463259,26,219.17,228.28,2,At the operating level upstream production was negatively impacted by issues in several assets including the impact of Hurricane Ida in the Gulf of Mexico.
4463259,27,229.22,238.22,2,By quarter end these issues have been solved and production has averaged around five hundred seventy five thousand net barrels per day in October.
4463259,28,239.31,250.25,2,Longer-term the value over volume strategy remains intact with our focus on operational efficiency lowering break-evens and the rationalization of our portfolio.
4463259,29,251.43,257.61,2,In the industrial division the performance of the refining business confirmed the inflection point that we anticipated in July.
4463259,30,258.42,266.02,2,In chemicals the margins remained strong partially softened from the maximums achieved in the first half of the year.
4463259,31,266.65,279.86,2,All in all our strong performance year to date together with our reinforced financial position and a better commodity price outlook is allowing us to move into the next phase of our capital allocation framework.
4463259,32,280.8,291.43,2,Earlier this month we announced increased ambitions for the energy transition accelerating investments in the hydrogen renewable power generation and e-mobility among others.
4463259,33,292.11,298.69,2,And uh aligned with this ambition we increased our intermediate decarbonization targets through twenty fifty.
4463259,34,299.83,310.4,2,Now the extra cash we expect to generate in a higher commodity price scenario has opened the possibility to improve the distributions to our shareholders.
4463259,35,311.04,335.46,2,In that sense the board of directors has agreed to propose to the next annual general meeting a five percent increase of the shareholder remuneration to be paid in twenty twenty two to sixty three euro cents per share and a capital reduction through the redemption of seventy five million treasury shares equivalent to around a five percent of our share capital.
4463259,36,337.08,342.41,2,Looking now very briefly to the evolution of the main micro indicators in the quarter.
4463259,37,343.27,354.86,2,Uh starting with oil Brent crude averaged around seventy four bucks seven percent higher quarter on quarter and seventy one percent higher than a year ago.
4463259,38,355.54,370.09,2,In gas inaudible oil prices uh increased sharply through the quarter and we have averaged four dollars per million B T U forty three percent higher than in the second quarter and one hundred percent higher year over year.
4463259,39,370.79,379.73,2,Prices were let me underline this point particularly strong in Asia and Europe multiplying by four or five times their levels in twenty twenty.
4463259,40,380.66,389.84,2,The refining margin indicator benefited from the better market environment more than doubling compared to the previous quarter.
4463259,41,390.98,395.3,2,Moving on now to the main divisional highlights starting with the upstream.
4463259,42,395.58,400.48,2,Production averaged five hundred thirty thousand net barrels of oil equivalent per day.
4463259,43,401.07,407.64,2,This was six percent lower than in the previous quarter and fourteen percent below a year ago.
4463259,44,408.29,425.81,2,As explained earlier quarterly volumes were negatively impacted by production shutdowns in the Gulf of Mexico issues on the Peru L N G Plant delays in Trinidad and P S C effects due to the high prices of oil and gas.
4463259,45,426.48,438.9,2,Compared to the first nine months of twenty twenty the operating cash flow per barrel has increased by one hundred ten percent since January above the increase of oil and gas prices.
4463259,46,439.62,441.82,2,The lower production has been compensated by…
4463259,47,442.03,449.92,2,By a higher share of oil in our mix and also by the contribution of Libya.
4463259,48,450.27,458.3,2,Repsol's uh average gas realization price has increased by a seventy seven percent in the first nine months of twenty twenty one.
4463259,49,458.91,470.3,2,The recent price escalate has continued in October with uh some regional references uh achieving or soaring to record-setting levels.
4463259,50,471.02,479.35,2,Gas accounts for around sixty percent to sixty five percent of our production so this price environment is beneficial for us.
4463259,51,480.08,493.97,2,In broad terms around twenty percent of our gas sales are referenced to oil twenty five percent are on fixed contracts and thirty percent are exposed to North American spot prices mainly Henry Hub.
4463259,52,494.41,499.12,2,The reminder production is mostly linked to other regional spot references.
4463259,53,500.14,504.0,2,Looking into our development activity Yme in Norway.
4463259,54,504.0,507.3,2,Yme has started production this week.
4463259,55,507.66,514.41,2,At plateau the field uh is expected to produce fifty six thousand gross barrels per day.
4463259,56,515.6,530.14,2,In unconventionals as recovery in Marcellus and another one in Eagle Ford will start drilling operations in November each rig is expected to contribute ten thousand barrels per day of additional production in twenty twenty two.
4463259,57,531.29,538.09,2,In the Gulf of Mexico we took the final investment decision for the development of Shenzi North the FIDs of…
4463259,58,538.09,545.36,2,For Akacias in Colombia and Leon-Castile in the Gulf of Mexico are expected uh…
4463259,59,546.04,550.66,2,These two uh FIDs by year-end.
4463259,60,552.28,556.3,2,Moving on now to the industrial division starting with uh…
4463259,61,556.6,557.35,2,The refining.
4463259,62,557.76,567.5,2,Margins and utilizations benefit from the recovery of demand driven by the progress of vaccination strategies and the end of mobility restrictions.
4463259,63,568.29,576.1,2,The margin indicator averaged three dollars twenty cents a significant improvement from the one point five bucks of the second quarter.
4463259,64,577.08,583.91,2,And on top of this the flexibility of our system allows us to generate a half a dollar premium in the C C S margin.
4463259,65,584.79,597.88,2,The impact of higher energy costs and the increase in the price of c o two were more than offset by wider products spreads and a stronger heavy to light crude uh differentials.
4463259,66,598.32,609.49,2,Margins were uh particularly solid in September as the strengthening of middle distillate differentials pushed the indicator to four point six bucks per barrel.
4463259,67,610.68,617.79,2,The utilization of distillation and conversion capacity increased to their highest level since the first quarter of twenty twenty…
4463259,68,617.79,622.93,2,I mean pre-pandemic levels driven by the better market dynamics.
4463259,69,623.9,628.37,2,Activity continued to be prioritized in the plants with the higher margins.
4463259,70,628.74,637.94,2,The recovery of demand has also allowed to end the temporary layoffs adopted earlier this year in response to the weak market conditions.
4463259,71,638.04,647.17,2,In October work has started in the new general plant turnaround of Cartagena refinery that will last uh forty five days.
4463259,72,647.88,661.92,2,it'll require a total investment of €75 million of which one third will be deployed on energy efficiency initiatives that are going to improve the competitiveness of uh the refinery from now on.
4463259,73,662.67,665.13,2,The chemicals business remained on track.
4463259,74,665.55,673.85,2,Uh on track means that it's on track to surpass its uh €1 billion EBITDA guidance for the year.
4463259,75,674.84,681.65,2,Repsol's uh petrochemical margin indicator was uh four percent lower than in the second quarter.
4463259,76,682.15,688.97,2,International margins remained at very healthy levels partially eroded by the increase in the price of feed stocks.
4463259,77,689.56,694.8,2,This was aligned with our expectation of a soft landing of margins towards the end of the year.
4463259,78,695.67,705.25,2,After quarter end Repsol signed an agreement with the Portuguese government for the expansion of Sines that includes tax incentives of up to €63 million.
4463259,79,705.78,716.59,2,Finally let me highlight that the result of industrial segment was negatively impacted in the quarter by a mark to market adjustment in the wholesale and gas trading business.
4463259,80,718.56,718.89,2,It is uh…
4463259,81,718.89,729.49,2,Let me explain that because this adjustment corresponds to unaccounted mismatch between the valuation of physical and financial positions on gas transactions.
4463259,82,730.12,738.36,2,We expect that this adjustment will be offset in the operating result in the coming months after the physical transactions materialize.
4463259,83,739.07,754.6,2,The negative impact in the industrial segment was partially offset at group level by a positive consolidation adjustment in the corporate and others line also due to this gas position.
4463259,84,755.48,760.87,2,Moving now to the commercial and renewables division uh starting with mobility.
4463259,85,761.82,771.61,2,Sales in our service stations in Spain increased gradually through the quarter and were on average ten percent lower than in the same quarter in twenty nineteen.
4463259,86,772.21,778.16,2,In renewables we continued developing assembling and putting an operational project pipeline.
4463259,87,778.9,782.19,2,In the US we are making progress in our Jicarilla solar project.
4463259,88,782.91,790.73,2,In Spain the Valdesolar photovoltaic project will start to generate electricity in July and is now fully operational.
4463259,89,791.5,800.83,2,In Chile our JV completed the construction of Cabo Leones III our first wind farm in the country and secured long-term project finance.
4463259,90,801.44,804.85,2,We also started the construction of the Atacama wind project.
4463259,91,805.51,819.09,2,Lastly after quarter end Repsol was uh awarded one hundred thirty eight megawatts of new wind capacity in Spain in the recent renewable auction held last week.
4463259,92,820.08,823.43,2,Let me now review briefly the financial results.
4463259,93,823.98,832.34,2,The group's adjusted net income was €623 million which compares to €7 million in the same period a year ago.
4463259,94,833.22,848.69,2,By division the adjusted net income of the upstream was €385 million three hundred thirty four million higher year on year mostly due to higher realization prices partially offset by the lower production.
4463259,95,849.6,860.76,2,In industrial the adjusted net income was uh €100 million €167 million higher than a year ago mostly driven by chemicals and refining.
4463259,96,861.63,868.32,2,The result in commercial and renewables was €169 million in line with the same period of twenty twenty.
4463259,97,869.08,880.87,2,Better results in Mobility and other segments were partially offset by the l p g business due to the regulated price uh formula that…
4463259,98,881.13,881.88,2,You know that…
4463259,99,881.88,883.33,2,Uh in case of uh…
4463259,100,884.24,892.44,2,An increase in commodity prices uh has a gap to be translated to this uh price formula.
4463259,101,892.83,902.76,2,In corporate and others the adjusted net income was €31 million negative a one hundred fifteen million improvement over the same period a year ago.
4463259,102,903.82,904.16,2,The…
4463259,103,904.16,916.4,2,The result was positively impacted by higher results from treasury stock positions and the consolidation adjustment previously discussed uh associated to gas positions.
4463259,104,917.07,930.23,2,The group's uh EBITDA at C C S grew to €1.8 billion in the quarter one hundred twelve percent higher year on year for an accumulated €4.
4463259,105,930.3,934.38,2,seven billion generated in the first nine months of this year.
4463259,106,935.21,945.62,2,At this point I want to elaborate on the allocation of the extra cash that we expect to generate thanks to the positive evolution of the main macro indicators.
4463259,107,946.38,968.5,2,Our twenty twenty one to twenty twenty five self-finance strategic plan includes a clear capital allocation policy for the extra cash generated in scenarios of higher commodity prices compared to our strategic price deck that as you know was set at fifty bucks Brent and two and fifty Henry Hub.
4463259,108,969.37,980.81,2,In the first place we will invest in profitable growth opportunities within our portfolio basically in the development of the newer carbon platforms accelerating our plans or increasing our ambitions.
4463259,109,981.43,994.98,2,Aligned with this we have increased uh our planned renewables CapEx in twenty twenty one by €0.3 billion and the total low carbon investment between twenty twenty one and twenty twenty five by €1 billion.
4463259,110,995.54,1004.15,2,With that the share of low carbon CapEx until twenty twenty five increases from thirty to thirty five percent and it's great.
4463259,111,1004.15,1014.49,2,In our capital employed it is now expected to reach uh a figure close to forty five percent by twenty thirty above the four oh percent expected in the plan.
4463259,112,1015.62,1022.49,2,In the second place we'll improve the distribution to our shareholders always searching for the most valuable choice for them.
4463259,113,1023.4,1028.8501,2,Our delivery in twenty twenty one and improved outlook at least in the short term opens this possibility.
4463259,114,1029.42,1042.17,2,Therefore our board of directors has agreed to propose to the next annual general meeting an increase in the shareholder remuneration of twenty twenty two and a capital reduction through the redemption of treasury shares.
4463259,115,1042.9,1069.08,2,As a consequence the cash dividend to be paid in twenty twenty two will amount to six three euro cents per share of course five percent below the commitment set in our strategic plan and we will redeem seventy five million shares launching in November a program to purchase thirty five million shares with the rest coming from our treasury stock position.
4463259,116,1070.0,1082.61,2,Today with just two months to go to complete twenty twenty one we expect that the cash flow from operations is going to be at least €1 billion above our budget.
4463259,117,1082.92,1085.67,2,One third of this extra cash has been allocated…
4463259,118,1086.61,1090.9399,2,One third more or less to each of the following uh areas.
4463259,119,1091.41,1096.0599,2,Increase of our renewable CapEx mainly the entrance in the US market.
4463259,120,1096.9,1107.8501,2,Improved shareholder remuneration building a treasury share position that will be available to redeem the seventy five million shares once approved in the a g m.
4463259,121,1108.64,1121.42,2,Reinforce finally our balance sheet and financial flexibility reducing our net debt as part of our prudent financial policy and keeping the gearing below the average forecast in our strategic plan.
4463259,122,1122.21,1133.91,2,Before moving to our guidance let me briefly review our updated ambitions into the energy transition that were thoroughly discussed in our recent low carbon day held uh earlier this month of…
4463259,123,1133.9399,1134.67,2,Of October.
4463259,124,1147.22,1157.87,3,In only one generation we have accelerated our capacity ambition by a fifteen percent in twenty twenty five to six gigawatts and by a sixty percent in twenty thirty to twenty gigawatts.
4463259,125,1158.1899,1172.1,3,Finally in the customer-centric business we will bring forth a mobility offering with the installation of more than one thousand public points of recharge in in Spain and Portugal and Iberia by twenty twenty two.
4463259,126,1172.85,1176.0801,3,Deploying ever a fast…
4463259,127,1181.4399,1194.75,3,Moreover our enhanced ambitions in low-carbon together with a favorable regulatory environment and technological breakthrough allow us to increase our intermediate decarbonization targets to twenty fifty.
4463259,128,1195.3,1209.3101,3,The carbon intentions indicate the reduction targets increased from twelve to fifteen percent in twenty twenty five from twenty five to twenty eight percent in twenty thirty and from fifty to fifty five percent in twenty forty.
4463259,129,1210.97,1215.51,3,At this point I want to take you through our update or look to the end of the year.
4463259,130,1216.39,1229.1901,3,Full year of production we expect it to average around five hundred and eighty thousand net barrels per day a three percent reduction compared to the previous guidance due to the older operational issues already solved.
4463259,131,1230.26,1236.67,3,In refining we expect to beat our previous guidance of two dollars per barrel average margin indicator in twenty twenty one.
4463259,132,1237.4399,1242.11,3,The indicator has averaged four point five bucks in the total and we expect…
4463259,133,1242.2,1246.39,3,eh we will expect it to remain above four bucks during the rest of the quarter.
4463259,134,1247.39,1259.1901,3,The expected EBITDA this year is now it stands at €6.7 billion a €0.6 billion increase compared to previous estimate and 65% above 2020.
4463259,135,1261.0,1267.22,3,And net debt is expected to close uh in twenty twenty one at around €6 uh billion.
4463259,136,1267.6,1269.76,3,Less than one time EBITDA.
4463259,137,1270.37,1277.9901,3,To wrap up Rexoil has delivered a remarkable third-quarter performance aligned with pre-pandemic levels.
4463259,138,1279.13,1286.75,3,And the results in the first nine months together with an improved commodity outlook have allowed us to accelerate investment in low carbon.
4463259,139,1287.53,1293.22,3,And it gave the remuneration to our shareholders maintaining at the same time our financial discipline.
4463259,140,1293.51,1307.13,3,In the long term the new opportunity generated here the support of favorable climate policies and a better environment have encouraged us to increase our ambitions towards the energy transition.
4463259,141,1307.95,1321.23,3,Going forward we'll maintain our focus and enforce on the availability of our commitments and the strategic plan transforming our operations and business to become more efficient and competitive.
4463259,142,1321.96,1335.05,3,Digitalization technology and new ways of working will be key enablers of our transition allowing us to remain leaders of our sector in our pathway to net zero emissions in twenty fifty.
4463259,143,1336.4,1342.47,3,With that I'll now hand the call back to Ramon who will lead us through our question and answer session.
4463259,144,1352.97,1354.15,4,Please go ahead operator.
4463259,145,1355.21,1355.6399,5,Thank you.
4463259,146,1390.05,1394.0499,6,Um so you you have seventy minus five million shares um whi…
4463259,147,1394.09,1395.41,6,some of which are already in hand.
4463259,148,1395.41,1399.2,6,I was just wondering why you don't cancel the shares as in when you buy them?
4463259,149,1399.38,1403.38,6,Uh what what's the rationale for keeping some uh as treasury?
4463259,150,1407.6,1409.9401,6,that equates to what you are you are actually buying in the market.
4463259,151,1410.48,1414.34,6,Um and then the second question's on uh twenty twenty two capex gains.
4463259,152,1414.34,1418.23,6,Should we assume it's a modest increase from twenty twenty one levels?
4463259,153,1418.23,1419.46,6,And if so how much?
4463259,154,1419.92,1421.3,6,Um and maybe i…
4463259,155,1421.3,1425.8401,6,you know if there is an increase can you talk about where the incremental capex is going in in…
4463259,156,1425.89,1426.9399,6,outside of renewables?
4463259,157,1426.9399,1430.24,6,Is it is it higher activity in the in the US onshore or anywhere else?
4463259,158,1432.7,1433.05,6,Thank you.
4463259,159,1433.05,1433.3601,3,Yes.
4463259,160,1433.41,1436.3701,3,I mean uh first of all uh the the p…
4463259,161,1436.37,1442.16,3,the the proposal of our board approved yesterday is clear is defined.
4463259,162,1442.65,1453.76,3,it's the redemption of the cancellation of these seventy five million eh shares that is more or less a figure close to a five percent of the o of the number of shares or the total capital of that.
4463259,163,1453.76,1462.4401,3,So that legally eh this uh redemption this cancellation has to be approved by the a g m this spring.
4463259,164,1462.4399,1468.59,3,So eh our board is going to uh to present this proposal eh to uh to the a…
4463259,165,1468.59,1473.95,3,the A G M eh this spring uh to uh to be a a approved.
4463259,166,1474.37,1480.16,3,Eh going to your your point about about the capex in the in the upstream.
4463259,167,1480.46,1484.52,3,I think that in twenty twenty three uh we are going to recover in some way.
4463259,168,1484.86,1492.79,3,Let me say there are more uh more above average capex level uh in in the company and also in the EPM.
4463259,169,1500.26,1522.53,3,the exploratory effort we had in the past because you know that we're going to invest at around two hundred two hundred fifty million dollars per year in the in the exploration uh mainly focused in uh in our main uh production areas where we have a clear competitive advantages where we have a fa…
4463259,170,1522.53,1523.4199,3,eh facilities.
4463259,171,1523.7,1531.49,3,Where we have a clear capacity to monetize eh the these resources i i in the short term and so on.
4463259,172,1531.87,1536.24,3,But we are in some way in the process to to go back to the normal.
4463259,173,1536.5699,1554.72,3,In defense uh it seems to me that in the upstream uh we are going to to invest uh in capex terms more or less six hundred million bucks more uh in twenty twenty two comparing uh with uh what is going to be the capex level in twenty twenty one.
4463259,174,1554.72,1564.52,3,The main drivers of this uh of this uh increase of capex are gonna be of course the the the the effort we're uh doing now.
4463259,175,1564.52,1574.39,3,And we are going to develop in twenty twenty two the unconventional where where we have two rigs in the Marseilles and we have eh two three rigs sorry now uh in the…
4463259,176,1574.42,1579.25,3,two two rigs in the effort and we are going to increase with our first rig the…
4463259,177,1579.25,1580.47,3,our effort in the year four.
4463259,178,1580.47,1582.7799,3,Uh as I said uh and drive this…
4463259,179,1583.4399,1590.2101,3,The first rig is going to add uh ten thousand barrels per day more or less in in in every case in year four.
4463259,180,1590.29,1592.0,3,And uh uh in…
4463259,181,1592.0,1593.77,3,and and uh and the Marseilles.
4463259,182,1594.1,1600.92,3,And the second one is going to to add more or less at around five six uh thousand barrels per day in every…
4463259,183,1601.4301,1603.3099,3,Uh off of these uh these assets.
4463259,184,1603.5601,1607.35,3,On top of that uh I mean we are m m…
4463259,185,1607.35,1612.5,3,taking uh FIDs as we have proved in the case of Buxton eh and in Weller.
4463259,186,1612.5,1615.2999,3,This uh summer we took uh uh the…
4463259,187,1615.3,1620.22,3,Or we approved the f i d of the essentially north uh eh part.
4463259,188,1620.52,1629.0699,3,On top of that probably this uh fourth quarter uh we are going to see new uh FIDs as a inaudible in the north of Mexico.
4463259,189,1629.0699,1634.67,3,The CPO line is going to come in the first uh quarter of twenty twenty two.
4463259,190,1634.9399,1641.58,3,On top of that I mean in twenty twenty two we are going to come up with the uh the f i d of the pick-a…
4463259,191,1641.58,1646.1801,3,uh eh buy it uh or the pick-a-part uh in in Alaska.
4463259,192,1646.49,1652.1799,3,And then also we are eh working now to uh to uh to uh to enter this…
4463259,193,1652.3101,1659.52,3,the and o our rig and they created it some area uh in Canada taking advantages of the current uh gas pri…
4463259,194,1659.52,1661.75,3,uh price price situation in the area.
4463259,195,1661.75,1666.52,3,So all that is going to have a clear effect in production terms.
4463259,196,1667.02,1671.3601,3,I know and I understand that production has been a a concern for the market.
4463259,197,1671.53,1678.71,3,And in some moments I mean market thought that we had an under-investment uh in the in the E M P production.
4463259,198,1678.71,1684.1,3,I mean lemme underline again that unfortunately this year we have suffered.
4463259,199,1684.13,1684.96,3,Uh some…
4463259,200,1685.0,1687.86,3,one short effect is uh the the twenty five per…
4463259,201,1690.45,1694.85,3,have lost over this uh quarter uh and depending on the l and g.
4463259,202,1695.38,1696.3501,3,That fault…
4463259,203,1696.35,1701.42,3,or or due to probably l and g that fault really has been eh solved and now it's working.
4463259,204,1701.59,1710.3,3,You might remember well uh the the thirty thousand barrels per day we have lost over the whole year due to the decline of that BPTT.
4463259,205,1710.9,1722.8101,3,And unfortunately after uh they they they they they they s s s started that process not a barrel has been recovered in in in ten twelve barrels per day eh more or less.
4463259,206,1723.4,1726.2101,3,Amy is in in operation since this week.
4463259,207,1726.24,1731.1,3,We are going to see a ramp up in coming weeks months that we are going to achieve a peak of fifty…
4463259,208,1731.73,1736.9501,3,f fifty thousand per day more or less gross over twenty twenty two.
4463259,209,1737.45,1742.35,3,And remember that we have a fifty five percent eh of of of the estate okay?
4463259,210,1742.35,1743.49,3,Of of these assets.
4463259,211,1743.49,1752.0499,3,So all in all we are quite comfortable about uh the guidance we have in the strategic plan eh for twenty twenty two.
4463259,212,1752.05,1755.42,3,it is true that I mean we are not going to recover some barrels.
4463259,213,1755.5699,1760.2599,3,Uh the first one uh the the barrels eh and…
4463259,214,1760.26,1763.95,3,I mean that uh that one because the divestment process in the company…
4463259,215,1763.95,1768.65,3,I mean a a rationale that is going to disappear from mala Malaysia and T T F.
4463259,216,1768.95,1779.86,3,All of that is going to to reduce comparing with twenty nineteen the the number of barrels uh in in that figure that could be close to m more or less three oh…
4463259,217,1780.25,1783.4401,3,eh thirty five thousand barrels per day.
4463259,218,1783.9399,1787.17,3,On top of that uh we lost a a…
4463259,219,1787.21,1794.23,3,due to hi higher prices a twelve fifteen barrels per day due to the P F C contracts.
4463259,220,1794.46,1804.7999,3,I mean all in all uh today uh we're comfortable with our production level at around six hundred five oh oh zero barrels per day for the whole uh twenty twenty two payload.
4463259,221,1805.28,1812.4701,3,That fits with the figure we have in the strategic plan taking into account the new prices the PFC effect and the effect of the divestment.
4463259,222,1812.47,1821.11,3,So we are concerned about the production level of the company because we are recovering the figures we had uh eh before.
4463259,223,1825.04,1825.1001,3,No?
4463259,224,1825.1,1825.35,3,Okay.
4463259,225,1825.35,1826.04,3,Thank you very much.
4463259,226,1828.58,1829.84,3,Yes.
4463259,227,1829.84,1831.6899,7,Okay sorry.
4463259,228,1831.6899,1832.52,7,I'm sorry.
4463259,229,1832.61,1832.91,7,Thank…
4463259,230,1832.91,1851.66,7,so th- thank you very much.
4463259,231,1856.1899,1858.5901,7,Um and fantastic color there on the upstream.
4463259,232,1858.59,1859.12,7,Thank you.
4463259,233,1859.17,1866.6901,7,Um just finally could you talk about um you know things like the Camisea Gas Field in Peru?
4463259,234,1866.72,1869.8,7,Obviously some potential issues coming up there.
4463259,235,1869.8,1877.1699,7,o obviously tricky to call but any discussions you're having there with with the government around that field as it might affect Peru?
4463259,236,1877.17,1880.66,7,But also uh unplanned maintenance.
4463259,237,1880.66,1889.74,7,You've talked about it there today but I mean do you think that you have this under control again for twenty twenty two so that we don't see this unplanned maintenance popping up again next year?
4463259,238,1889.74,1891.8301,7,And then s secondly could I ask…
4463259,239,1891.83,1895.2101,7,You talked about LPGs and some of the margin being light.
4463259,240,1895.21,1898.5801,7,But c could you also talk about lubricants and specialties?
4463259,241,1898.58,1904.02,7,I think your feed stock is uh putting a bit of margin pressure here uh in the quarter.
4463259,242,1904.02,1907.11,7,When do we see that starting to normalize for you please?
4463259,243,1907.47,1907.8401,7,Thank you.
4463259,244,1919.76,1925.2899,3,an operator always uh have…
4463259,245,1939.9,1941.0,3,You know that we no- n-…
4463259,246,1941.0,1951.0701,3,don't have not even a mistake in the in the plant.
4463259,247,1951.97,1955.96,3,Uh if we're not the operators it means we suffer the consequences for the experts for the whole country.
4463259,248,1956.52,1963.16,3,And then in BPTT where we have uh I mean eh a mistake of a thirty percent on our growth partner and our growth operator.
4463259,249,1963.16,1971.29,3,But I mean we have unplanned eh problems in in the in the country and a decline that was eh larger than expected.
4463259,250,1971.36,1982.38,3,But as I said before I prefer to see the positive part and the positive part is that inaudible is eh partially offsetting this uh reduction of production in in in BPTT.
4463259,251,1982.8,1995.0699,3,And then gonna Peru I mean uh let me just underline that in Peru we have seen eh different uh different political eh scenarios over the last twenty two five years.
4463259,252,1995.51,2001.91,3,Uh Peru is an unstable country with solid institutions uh and uh where…
4463259,253,2001.96,2005.08,3,Eh I think that the rule overall works in the country.
4463259,254,2005.72,2010.9801,3,Uh saying that I mean in in every uh country where we operate uh w…
4463259,255,2011.98,2016.88,3,that th there that there could be uh talks conversations and a…
4463259,256,2016.88,2024.4099,3,and potential negotiations with government about the assets and revenues and so on.
4463259,257,2024.41,2027.76,3,And let me say in Camisea we have a ten percent uh uh for a stake.
4463259,258,2027.76,2031.23,3,It's not not even the main asset we have uh in in Peru.
4463259,259,2031.74,2041.3101,3,And uh I mean we have it of course uh ready as always to have an strong place and good relationship with governments in countries where we operate.
4463259,260,2041.71,2046.62,3,And Peru let me say that it's not a an eh exceptions uh a at all.
4463259,261,2047.14,2059.47,3,Uh going to the to the uh lubricant uh business uh it's true that maybe they were under pressure during the the the quarter.
4463259,262,2060.8,2064.6802,3,Uh by year end we m-…
4463259,263,2064.6799,2070.1499,3,we might see margins uh in a normal level.
4463259,264,2070.5901,2079.1101,3,It's true that the raw materials mainly the the the lubricant base uh eh raw material have increased due to commodity prices.
4463259,265,2101.99,2122.0801,3,And seeing that margins are on track of being normalized lemme be a bit uh optimistic about the evolution of our lubricant uh business.
4463259,266,2122.1899,2122.8999,3,Thank you Oswald.
4463259,267,2132.4199,2133.9399,8,Thank you very much for the time.
4463259,268,2133.9399,2135.24,8,And thank you Joseph John.
4463259,269,2135.28,2143.0901,8,Um great news on the 5% increase in the dividend um for this year.
4463259,270,2203.96,2210.5901,3,I mean eh starting by the first part uh from the first part of your question.
4463259,271,2211.3501,2217.3201,3,I mean lemme uh say so something that is evident but I prefer to underline it.
4463259,272,2217.3201,2223.6699,3,I mean what we are missing today is to be able to increase a five percent the twenty twenty two cash dividend.
4463259,273,2223.9399,2233.8901,3,I mean in addition we are going to cancel seventy five million of shares with our program to be launched eh this month in…
4463259,274,2233.9199,2234.8501,3,I mean not this month.
4463259,275,2235.22,2237.48,3,I mean November twenty twenty one.
4463259,276,2238.5,2247.4099,3,Of thirty five million of shares and the other forty million of shares coming from the current inaudible position.
4463259,277,2247.96,2250.8101,3,The physical all the relatives relat…
4463259,278,2250.8401,2254.3201,3,it related that to our better price scenario we we have in the past.
4463259,279,2254.3201,2261.6501,3,So I mean we are going to launch this purchasing program of thirty five millions shares in November.
4463259,280,2262.1899,2273.74,3,Uh as I explained before to to Bill was the annual general assembly in spring uh will considerably redeem these seventy five million of shares.
4463259,281,2274.1001,2277.1399,3,I mean but I I understand your point Michele.
4463259,282,2277.1399,2281.6699,3,I mean I'm not let me say rigid and closed in my in my mind.
4463259,283,2282.05,2283.46,3,Eh e…
4463259,284,2287.8701,2290.6499,9,I mean my answer is definitely not.
4463259,285,2291.46,2299.4802,9,Uh is our strategic plan distribution of roadmap written on a stone without any remote possibility to be modified?
4463259,286,2299.77,2300.5,9,Or improve?
4463259,287,2300.96,2303.1699,9,Of course we cannot.
4463259,288,2303.5701,2310.1301,9,I mean saying that let me again to be inaudible all that is defined in the framework of strategic plan.
4463259,289,2310.77,2318.6602,9,But let me emphasize that providing a competitive shareholder remuneration has always been a pillar inaudible strategy.
4463259,290,2318.6599,2321.8601,9,And we have traditionally been a good distribution player.
4463259,291,2322.6299,2342.8899,9,And uh remember as I said when we presented our strategic plan last year in that price scenario the extra cash generated will be allocated either to pay taxation on growth and also to increase shareholders remuneration exactly what we are announcing today.
4463259,292,2343.4199,2354.3201,9,And that will be exactly what we do in the close future in case of seeing a pretty good macro scenario and a good cash generation.
4463259,293,2355.1201,2374.1301,9,And that is exactly what we do in case of seeing this extra cash generation in the future but then is placed uh Mikel being present taking today the decisions we have to take today and uh living for the future the decisions that have to be taken in the future.
4463259,294,2374.5801,2379.8,9,In case of course of seeing a sustainable cash improvement over the whole period of the plan.
4463259,295,2380.1799,2385.6699,9,All that of course uh keeping going of a strong uh balance sheet.
4463259,296,2386.3301,2391.1799,9,And uh going to your question about the the the industrial area.
4463259,297,2391.71,2408.99,9,I mean uh you are you are right uh because uh refining is uh performing in the right way uh margin the fourth quarter are going to be significantly better than in the in the third one.
4463259,298,2409.1499,2426.48,9,I don't know depending on thirty or fifty percent better than in because we we have experience four point five those per barrel in in in October and being inaudible of expectation is that the average age of or coming to months are going to be about four bucks per barrel.
4463259,299,2426.48,2429.3401,9,So what are we missing?
4463259,300,2429.48,2444.21,9,The what we are missing uh Michel is uh that we have uh negative impact uh at around ninety or one hundred million euros at adjusted income level in industrial segment.
4463259,301,2444.7,2449.04,9,What is the the the reason for for this negative impact.
4463259,302,2449.04,2453.5701,9,i am going to try to to be uh clear and and tactic.
4463259,303,2454.0601,2464.5698,9,In September August and September we bought a volume uh in the Spanish market for the month of December or or January at a fix price.
4463259,304,2465.3,2471.97,9,And we transformed uh this uh this volume to a price with a TTF reference.
4463259,305,2472.95,2480.3899,9,And we close on a small margin that is based on the differential applied to the to the purchase and the sale with respect to the TTF.
4463259,306,2480.3899,2486.26,9,I mean the margins are going to be there and they are going to be positive at the end of the road.
4463259,307,2486.47,2487.53,9,No doubt about that.
4463259,308,2488.1699,2502.6499,9,The physical purchase uh will be very positive since the market price that is uh correlated with T T F has risen a lot and the financial position of this reimburse of the previous one uh represent inaudible.
4463259,309,2503.0901,2510.6299,9,So the the problem is that the first the positive one uh will be collected in the edit of December or in January.
4463259,310,2511.3,2530.76,9,And the second one the the the the mark to market position uh is uh reflected in September in the the the p and l of September and this ninety or one hundred million views negative in the industrial area are related to this mark to market position.
4463259,311,2531.47,2544.9399,9,And it's true that in the opposite sense we have an intragroup positive adjustment that is partially with forty forty five million euros especially offsetting this effect in the corporate side.
4463259,312,2545.3899,2558.5701,9,And all that is related to the uh intragroup activity between our our gas supply activity and the electricity and gas retail business.
4463259,313,2558.8,2578.6499,9,So all in all we have a negative effect in the adjusted with a result of one hundred million euros in the industrial side and we have a positive effect of forty million euros that has the the same nature the same rational in the corporate and uh financial uh side.
4463259,314,2579.1399,2582.1599,9,And let me underline again the negative part.
4463259,315,2582.1599,2602.6702,9,I mean this gap is going to appear in a positive way in fourth quarter and first quarter of the year and all that is going to depend of course the evolution of of when is going to appear depending on the closing uh date of the physical operation is going to appear in a positive in the p and l.
4463259,316,2602.96,2621.1799,9,Uh and that is the rational of what is happening in the industrial p l uh nothing to do with the refining nothing to do with the chemical that is performing in a great way is the mark to market position that is partially offset in the the corporate and financial uh side.
4463259,317,2622.3799,2622.95,9,Thank you.
4463259,318,2625.52,2629.1099,11,And next question comes from inaudible at Morgan Stanley.
4463259,319,2630.8799,2632.75,12,Hi uh thanks for taking my questions.
4463259,320,2632.75,2640.6899,12,I was just following up on uh the refining margins uh and wanted to check the impact of uh the higher energy costs and higher hydrogen costs.
4463259,321,2640.95,2649.29,12,Uh you highlighted uh uh four point five billion uh four point five oh bucks per barrel uh refining margin so far in uh in in four q.
4463259,322,2649.75,2661.2798,12,Uh can you just confirm that this includes the the increase in the uh energy prices and uh it would be great if you can isolate the impact of higher hydrogen costs on refining margins at present.
4463259,323,2662.5801,2669.52,12,My second question was related to the twenty twenty one CapEx which you have reiterated at two point nine billion euros.
4463259,324,2670.3101,2677.7302,12,That kind of implies a very significant increase in CapEx for four q almost more than double the quarterly on that we have seen so far.
4463259,325,2678.28,2690.4299,12,Uh if you can just uh provide some guidance on uh where this higher CapEx is coming from and also apologies if you have already flagged this but can you confirm what the guidance for e and p CapEx is for uh twenty twenty one?
4463259,326,2693.1399,2693.6599,12,Thanks.
4463259,327,2694.9299,2695.45,9,Oh excuse me.
4463259,328,2695.6899,2713.6301,9,Uh it was my mistake uh all defect of the gas price that is a variable cost for a refining system is fully included in the uh refining margin indicator.
4463259,329,2713.95,2725.6199,9,So when we say that uh in the first quarter the refining marketing indicator was three point three uh three point two three point three oh per barrel.
4463259,330,2725.95,2729.3899,9,And in October has been four point five bucks per barrel.
4463259,331,2729.77,2754.21,9,The let me say the negative effect of the cost increase of the gas to feed this refineries are fully included in this margin indicator of course are impacted in a negative way comparing with our budget and more or less I have in mind the figure that in we have experience in October a negative effect of zero point seven zero point seven zero point eight bucks per barrel.
4463259,332,2754.8101,2772.8701,9,So in the third quarter and in October due to this effect but all that is already included when we say that the margin is four point five oh per barrel in October the the the huge TTF prices and uh um MVP prices and so on.
4463259,333,2772.8701,2778.3701,9,In Europe are included uh and the cost of all that is included in in this margin.
4463259,334,2778.6001,2786.03,9,So uh same thing of course because we produce the hydrogen with gas it's included and the c o two prices at around.
4463259,335,2786.03,2789.3101,9,Like I remember the fill about sixty sixty two dollars sorry euros.
4463259,336,2789.5801,2811.54,9,The turn of of c o two in the third quarter and in October are included in this variable cost because I mean the construction of a refinery margin indicator is made taking the oil prices on on on the the slate of of crude oils we use plus the the the products and the spreads of the products plus the variable cost.
4463259,337,2811.54,2825.3801,9,We have that they are mainly oil and gas uh and including the hydrogen we we use uh on top of that the c o two this year is fully included as available cost in the refining margin.
4463259,338,2825.3799,2838.0999,9,So we are taking into account all that when we say that we have have a refining margin of three point two three point three dollars per barrel this uh first quarter of four point five zero per barrel in October.
4463259,339,2838.5801,2844.0801,9,Uh going uh to to your second point yes you are right.
4463259,340,2844.0801,2848.7,9,Uh we are going to see a significant increase in in the fourth quarter twenty one.
4463259,341,2849.0601,2864.6799,9,Uh for e and p CapEx that uh are going to come mainly from the investment default we are developing in the unconventional and I I I refer to to decipher before and the progress of the FID of the projects I mentioned before but you are right.
4463259,342,2864.72,2878.47,9,We are going to say uh achieving uh two point nine uh two point nine billions euros are total CapEx guidance for the whole company in twenty twenty one.
4463259,343,2878.8799,2887.8301,9,And uh one point one billion one point three billion more or less and for the e and p uh this year.
4463259,344,2888.2,2907.4202,9,For that vision I said before that what we are going to see in twenty twenty two is going to be at around one point nine billion bucks uh in the case of almost two billion in the case of e and p I mean two one point nine two two point one is going also to depend on the on the exchange rates that I have in mind.
4463259,345,2907.4199,2915.5,9,But I mean we are at around two billion is going to be the effort in CapEx terms of the e and p in twenty twenty two.
4463259,346,2915.5,2916.0,9,Thank you.
4463259,347,2917.0801,2918.55,11,Uh thank you inaudible.
4463259,348,2918.55,2921.3501,11,Next question comes from John inaudible at DVS.
4463259,349,2922.3101,2925.6399,13,Uh thank you for uh taking my question.
4463259,350,2926.74,2930.4001,13,Um can I just circle back on on distributions again?
4463259,351,2930.4299,2936.4702,13,Uh first on the on the buyback it it always gets me confused and I think the point about the treasury shares et cetera.
4463259,352,2937.1101,2943.52,13,Um uh always I stumble on so can can we just just go through some of the the mechanics of this?
4463259,353,2943.52,2963.45,13,Can you can you explain to me um do you have call options or or or anything like that uh in treasury that you can use to to buy back or to to realize some of the buy back of these shares and therefore is there some sort of cost or lower cost in in acquiring the shares and putting 'em into treasury?
4463259,354,2963.45,2969.6799,13,I'm just trying to understand what you have physically in treasury and what you have in sort of synthetics or derivatives.
4463259,355,2970.1101,2972.4202,13,And is it the intention to buy back?
4463259,356,2972.4199,2984.4502,13,I think the thirty five million um through to the end of this year um so that it sort of cleaned out uh and then just just one piece of of sort of arithmetic.
4463259,357,2984.45,3004.3401,13,I was a little puzzled about was um I think you say um forty million you see seventy five million um of um of shares to be canceled that you are doing thirty five million in the market but you have forty five million treasury shares already.
4463259,358,3004.3401,3010.4399,13,Why not just take that all out and take the whole eighty million uh treasury shares just clean the whole thing up?
4463259,359,3010.4399,3018.0801,13,I don't I don't quite understand why we we go backwards and forwards on this partly in the market partly in treasury et cetera.
4463259,360,3018.1499,3036.29,13,That's just on some some mechanics of the of the buyback and just secondly on on on the dividend um is it your sort of sense that um the dividend should reflect underlying performance of the business and operating performance of the business and the buyback the sort of macro surplus.
4463259,361,3036.75,3046.49,13,In in which case I'm again a little puzzled why you've chosen to sort of allocate this surplus partly to a a recurring commitment ie the dividend and partly to to the buyback.
4463259,362,3046.5701,3048.8799,13,I just sort of philosophically could you explain that please?
4463259,363,3051.1299,3051.78,9,Thank you John.
4463259,364,3051.78,3060.3799,9,I mean I I promise you I'm willing to do my best to explain all that but I I would guarantee in the the result cuz it's complex but I will do my best.
4463259,365,3060.52,3078.78,9,I mean today today means uh at the end of September at the end of the third quarter we had a forty nine million shares in cash that means part of our balance sheet and seventy four million shares in equity the derivative instruments.
4463259,366,3079.1101,3097.5698,9,Uh fifty million shares in a collar that I remember that at that time was acquired as a price at around I have to check the figure that eight point two euros per share more or less but it's mark to market of course as a as derivative collar.
4463259,367,3098.05,3104.2402,9,And we have twenty four million inequity strokes that are not uh part of our balance sheet.
4463259,368,3104.24,3110.46,9,That means that we have seventy four million shares equity derivative plus forty nine million shares in cash.
4463259,369,3111.04,3121.96,9,Uh what we are going to do now is we are going to take forty million shares of this uh physical uh shares that are part of our balance sheet.
4463259,370,3122.9099,3144.0701,9,And we are going to launch a new program of purchasing program develop under the the rules to this kind of things that is going to be launched in November and it's going to to to extend till it is going to last till the spring to uh before the a g m to acquire thirty five million shares in the market.
4463259,371,3144.4199,3150.95,9,I mean your question is right why are you doing that instead of taking what you have in your hands?
4463259,372,3151.24,3154.3,9,I mean first of all because that is not going to be the last shot.
4463259,373,3155.02,3163.0901,9,That means that we have we are going to go on with uh the the the buyback policy of the company.
4463259,374,3163.45,3181.1101,9,I mean I'm not going to enter uh on the debate about we are gonna to to to redeem only the two hundred million uh shares will commit in the strategic plan or more as I said before I mean we have to go step by step.
4463259,375,3181.1599,3191.1301,9,And today that is the step we have to develop and be sure that if we have uh room to do more things in the future we'll do it John.
4463259,376,3191.5601,3200.2,9,And I go to your last uh uh point uh why to distribute some in cash and some in buybacks.
4463259,377,3200.23,3209.8101,9,I mean first of all I linked in all that with the deportation program because I think that the action the share is not reflecting the real value of the company.
4463259,378,3210.5801,3219.7,9,And I think that we have the the the opportunity to to create value for the shareholders buying today shares of the inaudible the market.
4463259,379,3220.27,3228.28,9,And we are going to do that in the framework of our program under the the the the law uh to redeem the shares and so on.
4463259,380,3228.49,3235.0798,9,And we are going to stay uh keep in going these options that could come in in the future.
4463259,381,3235.0801,3249.6699,9,So that is the rational behind the distribution combining cash and buybacks because we think that buying shares today is a better option for shareholders than uh than than paying uh the dividend in cash.
4463259,382,3249.6699,3256.52,9,Of course we combine both options because for or some shareholders cash is also an interesting option.
4463259,383,3257.1299,3284.77,9,And I mean if you take John your models and you see uh the cash flow for operations we have had this year what we expect in twenty twenty two uh and default we are developing in terms of uh of distribution and combining buyback and combining uh cash uh cash dividend and taking into account that we are going to use forty million shares uh that were acquired in twenty twenty one.
4463259,384,3284.77,3303.1199,9,I mean you could see that all in all we are more or less going back to a dividend that is close to oh point nine zero point point eight seven eighty eight uh cents of euro per share already know the combination of both years.
4463259,385,3303.4199,3309.6401,9,Uh so every year oh point nine as I said and we are going to grow in the future.
4463259,386,3309.6399,3312.9099,9,So we are almost a year after the pandemic.
4463259,387,3313.03,3319.22,9,We are almost recovering the dividend we have before the pandemic in the past.
4463259,388,3319.6899,3323.8101,9,And we are going to go on improving this this distribution policy.
4463259,389,3323.8101,3347.8501,9,John if we have room to do uh to do that uh always under a principle and financial policy cuz if you take this figure you could see that what we are applying in these two years 2021 2022 combined is below a 30% of the the figure uh fitting with the cash flow for an operation.
4463259,390,3347.8501,3349.48,9,That means that we are product.
4463259,391,3349.8,3370.0701,9,We are uh mainstream in the sector uh in in in Europe in in our sector in terms of distribution policy and and expecting that we have room to improve the cash flow from operations in the future this year that we have also room to increase and to improve the dividend distribution in the future.
4463259,392,3370.1101,3379.0,9,That is true that I prefer to be inaudible because I mean I have to go a step by a step taking accountable ability we are seeing in the macro scenario.
4463259,393,3379.1001,3379.6799,9,Thank you John.
4463259,394,3379.8101,3380.0,13,Okay.
4463259,395,3380.29,3380.96,13,Thank you for the collar.
4463259,396,3380.96,3381.23,11,Thank you.
4463259,397,3381.7,3382.26,11,Thank you John.
4463259,398,3382.26,3385.04,11,Next question comes from Matt Loftin at JP Morgan.
4463259,399,3387.51,3390.1199,14,Hi um gents thank for taking the questions too.
4463259,400,3463.54,3464.0801,15,Thank you.
4463259,401,3465.23,3471.3198,21,I mean mm let me say as I said before that nothing is written on the stone.
4463259,402,3471.3501,3472.54,21,We have a guidance.
4463259,403,3472.6599,3484.6699,21,The guidance is a strategic one but be sure that we are going to follow the capital allocation policy I defined when we presented the strategic plan.
4463259,404,3485.04,3505.25,21,That means that any extra cash under the principle of financial prudency and strengthening the balance sheet is going to be focused on growing in low carbon platforms anticipating the future and increasing the shareholder distribution for our shareholders.
4463259,405,3505.8401,3512.55,21,And uh I mean today the framework is two hundred uh uh million shares.
4463259,406,3512.5801,3513.23,21,That's clear.
4463259,407,3513.4099,3530.52,21,But let me say that that is going to o occur potentially evolve depending on the cash flow from the operations the macro scenario and of course the share price because uh if we are uh I mean I'm talking about a hypothesis a disclaimer.
4463259,408,3530.71,3551.8999,21,If we are in one year at eur fifteen per share for instance in Repsol in that case or sixteen perhaps could be a better option to uh increase the cash uh part of the the distribution and reducing uh or or or limiting the uh the the the the share buyback.
4463259,409,3552.1201,3555.6902,21,I mean because we are in some way preparing all these scenarios.
4463259,410,3556.03,3568.3499,21,Uh for that reason we are comfortable keeping going these seventy four million shares in equity derivative instruments that I mentioned before uh to uh to John.
4463259,411,3568.6899,3577.2698,21,Uh but again that is today the decision um coming from the extra cash we are having today.
4463259,412,3577.49,3591.95,21,And depending on the evolution of of this cash flow from operations and the potential extra cash of the future we could hypothetically take some other decisions in in this uh line as I said before step by step.
4463259,413,3592.3101,3608.79,21,Uh going to your question about the EBITDA expectation for our industrial business in this uh year uh what we expect uh this uh year uh is uh two point two billion EBITDA in twenty twenty one.
4463259,414,3609.9199,3617.22,21,Let me underline Matt that I'm talking about the net EBITDA pure EBITDA.
4463259,415,3617.3401,3626.3699,21,If I go into a figure of EBITDA at CCS the figure this year for the whole industrial business is going to be eur one .5 billion.
4463259,416,3626.8601,3646.6599,21,Uh if we compare with what we have in the industrial uh area uh what we have in the strategic plan uh for this year twenty twenty one was eur one .6 billion cuz we were taking at that time fifty bucks per barrel for the whole uh period.
4463259,417,3646.6599,3659.25,21,Uh that means that inaudible CCS it seems to me I have to check the figure that more or less will be the the same in our forecast uh for uh twenty uh twenty twenty one.
4463259,418,3659.6499,3672.9402,21,Let me say that the the figure is more or less what we expected we forecast uh in our industrial uh area uh in in twenty twenty one in our strategic plan.
4463259,419,3673.48,3691.5,21,The better uh chemical business is in some way offsetting uh what we are losing in the refining business because you know that over the last half of the year the margin has been due to a low expected growth of the pandemic.
4463259,420,3691.5,3695.02,21,In Europe it has been significantly lower than expected.
4463259,421,3695.05,3697.96,21,And now we are starting to recover.
4463259,422,3698.46,3713.3601,21,And let me say what we are seeing by twenty twenty two in margin terms is probably better than the expectations we have in our strategic plan for twenty twenty two or or aligned with the expectations we have.
4463259,423,3713.6399,3714.3201,21,My point is.
4463259,424,3714.3201,3718.0,21,we are recovering the pre-pandemic uh pathway.
4463259,425,3718.6599,3734.0801,21,And in some way we have been punished uh in the first half of the twenty twenty one because the pandemic uh uh stayed unfortunately longer than expected over the forecast we had last year when we presented the strategic plan in November.
4463259,426,3734.1101,3734.75,21,Thank you Matt.
4463259,427,3735.78,3736.76,22,Thank you very much Matt.
4463259,428,3736.76,3739.1501,22,The next question comes from Alejandro Vigil at Bestinver.
4463259,429,3739.3899,3742.9399,17,Uh hello Josu Jon.
4463259,430,3742.9399,3744.4199,17,Thank you for for taking my question.
4463259,431,3744.55,3748.4702,17,I have um a couple of of questions about the the low carbon strategy.
4463259,432,3748.53,3757.23,17,Uh one is about your thoughts about the the different options you have to crystallize value in in renewables and in the in the customer-centric activity.
4463259,433,3757.23,3760.0901,17,You're you are planning an i p o private investors.
4463259,434,3760.0901,3762.48,17,If you can elaborate on that uh please?
4463259,435,3762.48,3767.49,17,And and the second question is about the uh the European Union next-generation funds.
4463259,436,3767.77,3773.4202,17,Uh how important are these funds for for your strategy in low carbon particularly in hydrogen?
4463259,437,3773.8101,3780.6902,17,Which is the level of uh su financial support you you need from these funds to to go ahead with your hydrogen projects?
4463259,438,3781.3,3781.6201,17,Thank you.
4463259,439,3783.98,3785.24,21,Uh gracias Alejandro.
4463259,440,3785.24,3788.51,21,I want to start with a thank you uh very much.
4463259,441,3788.51,3802.9001,21,U going to uh the your question on the low uh strategy I mean the the most important thing Alejandro is that we uh go on uh performing developing projects over the last quarter.
4463259,442,3803.3101,3820.1201,21,Uh we have uh launched uh the Valdesolar project in the southwest part of Spain the Kappa project both solar combined combining four hundred megawatts uh of photovoltaic storage capacity new capacity in Spain.
4463259,443,3820.6001,3832.0,21,Uh we are starting to put in operation parts of the Delta two project in the in the in the north northeast part of Spain in in Aragon in this case uh our wind farms.
4463259,444,3832.0,3841.4299,21,Uh I have in mind that uh we put in operation 80 80 megawatts more or less of a part of this project in over the last weeks.
4463259,445,3841.4299,3848.8799,21,So so that means that we are on track of increasing uh what we are doing in the renewable uh business.
4463259,446,3849.22,3857.6902,21,Uh Cabo Leones is now working with a a a project finance that was signed this uh this quarter.
4463259,447,3857.6899,3868.1599,21,we're working on the Jicarilla project to to to to get a reality from from this potential option that we are analyzing now.
4463259,448,3868.24,3869.8098,21,I mean all that is on track.
4463259,449,3870.3,3883.24,21,And as as I said before when I present the strategic uh low carbon uh or the low carbon strategy at the at the first of October I mean mm we have a a period of time.
4463259,450,3883.24,3887.4299,21,We are not in a hurry uh to incorporate a partner to this division.
4463259,451,3887.6201,3898.3901,21,We want to do that because we think that is important the entrance uh of an equity partner or uh an IPO in this uh in this business.
4463259,452,3898.8999,3913.6799,21,I think that that's important from the point of view of to crystallize the value we are creating in this business that would be important but also to help us to to find or to reduce the cost of capital of this business to be more competitive.
4463259,453,3913.72,3916.48,21,But in the meantime I mean we are improving our position.
4463259,454,3916.6899,3918.3101,21,We are seeing opportunities.
4463259,455,3918.8101,3922.28,21,We are not in a hurry to do that because I mean it's not a financial problem.
4463259,456,3922.28,3926.1699,21,We don't need let me say this cash to go on growing in this business.
4463259,457,3926.49,3928.8101,21,But we have eyes on opportunities.
4463259,458,3928.99,3936.6101,21,I asked for eighteen months to take a decision and I'm still in the in the framework of this of this period.
4463259,459,3936.99,3952.4102,21,Going to the to the hydrogen I think that for the hydrogen uh being refiners what is important is the the current and the development of the European regulation related to uh to to decarbonization of liquids.
4463259,460,3952.8401,3973.9802,21,That means that uh uh we could be competitive now producing highly renewable refineries cuz this refinery is going to to be used to to uh to our own refining operations building the hydrocarbon chain and hydro generating the oil we produce as feedstock.
4463259,461,3974.0801,3995.6702,21,That means that this hydrogen green hydrogen is not competing in price terms with the green hydrogen coming from uh the the uh the the reforming process of natural gas that is tip of that competes with the alternative of palm oil that is coming from Malaysia or some other parts of the world.
4463259,462,3995.8,4007.24,21,So we have a clear real and unique opportunity to develop this hydrogen uh business uh in coming two three years.
4463259,463,4007.4199,4015.9099,21,Remember that Repsol today consumes sixty two percent of the total Spaniard hydrogen consumption.
4463259,464,4016.47,4032.4099,21,And on top of that I mean let me say uh reducing capex in hydrogen uh through the next-generation funds could be a way to reduce risk of these projects to reduce the capex intensity to accelerate the learning curve of this hydrogen.
4463259,465,4032.73,4047.2102,21,And lemme say what is important of course for Repsol but also for the Spanish society and for Spain uh to be a reference in Spain leading the hydrogen uh the green hydrogen business in Europe.
4463259,466,4047.3601,4049.01,21,We have the opportunity to do that.
4463259,467,4049.23,4050.8,21,Repsol could be the player.
4463259,468,4051.25,4052.3301,21,We are going to do it.
4463259,469,4052.8101,4059.6001,21,And in case of having lemme say some kind of public support with that what we could do is accelerate this process.
4463259,470,4059.6001,4063.6399,21,That is important not only for Repsol but also for the whole Spaniard economy.
4463259,471,4063.99,4064.5801,21,Uh thank you.
4463259,472,4064.5801,4065.2798,21,Gracias Alejandro.
4463259,473,4065.79,4066.8801,22,Uh thank you Alejandro.
4463259,474,4066.8799,4069.53,22,Next question comes from Joshua Stone at Barclays.
4463259,475,4118.8999,4123.1899,21,First of all I can't be I I can't give you the accurate uh answer.
4463259,476,4123.1899,4137.0903,21,But lemme say that our uh days days could be one day two days three days or some days after the a g m we'll proceed to to cancel to redeem the seventy five million shares.
4463259,477,4137.0898,4142.25,21,So that's the the technical process that's today on your table to give you an an answer.
4463259,478,4142.25,4149.8901,21,Of course our our team is going to check that but we are talking about days a couple of days or some days after the AGM.
4463259,479,4149.8901,4157.2002,21,Uh why we do we need the the the other ones or the approval of the AGM?
4463259,480,4157.2002,4163.2197,21,I mean mm again I'm not an expert but to be sure it's Spanish regulation.
4463259,481,4163.3101,4168.4702,21,And I see this seems to me but making sure that it's also a European Union regulation.
4463259,482,4168.6001,4170.2197,21,I'm not sure on this last part.
4463259,483,4170.25,4184.7598,21,But be sure that is Spanish regulation uh ask for the the the approval of the AGM to redeem or to cancel such such a significant uh part of uh of of uh of of shares.
4463259,484,4185.0898,4192.3301,21,Uh I mean excuse me I have asked uh a member the legal member of my team but yes.
4463259,485,4192.3599,4192.7598,21,Okay.
4463259,486,4192.8398,4194.4199,21,Uh thank hank you Miguel.
4463259,487,4194.4199,4196.7402,21,it is Spanish company law.
4463259,488,4196.7402,4198.0396,21,So it's a Spanish regulation.
4463259,489,4198.4702,4198.77,21,Thank you.
4463259,490,4198.77,4200.0,18,Okay thank you.
4463259,491,4201.8599,4203.0601,22,Uh thank you Joshua.
4463259,492,4203.0601,4205.6396,22,Next question comes from Peter Low at Redburn.
4463259,493,4207.5698,4211.0498,23,Uh the first was just a question on the refining margin premium.
4463259,494,4211.4302,4216.1602,23,I think you said it was point five dollars a barrel in three q which was lower than two q.
4463259,495,4216.1602,4221.8198,23,Can you perhaps explain some of the moving parts there and what level you might expect for the fourth quarter?
4463259,496,4222.6001,4227.3599,23,And and then secondly and and really sorry just another clarifying question on on the buyback.
4463259,497,4227.8901,4250.4502,23,But the existing forty million of treasury shares uh that you already hold and that you plan to retire uh can you disclose over what time period you acquired those shares?
4463259,498,4250.4502,4250.8701,23,Thanks.
4463259,499,4250.8701,4253.1304,21,So uh uh thank you uh Peter.
4463259,500,4253.1299,4259.8599,21,Starting by your first question related to the refining margin pre premium it's true it was uh lower.
4463259,501,4260.3599,4262.3701,21,Uh the main factor I have to check.
4463259,502,4262.3701,4266.5298,21,Uh I mean first of all $0.5 per barrel is a good premium over the uh IMC.
4463259,503,4268.02,4281.25,21,Uh but uh the the main factor it seems to me that is related to the the power uh electricity prices in Spain.
4463259,504,4281.2798,4283.7197,21,And I'm going to try to to develop the rationale.
4463259,505,4283.7202,4289.27,21,Uh we are even in our industrial uh in our industrial uh assets.
4463259,506,4289.3198,4296.9897,21,That means that uh I can't remember the exact figure but we have six hundred megawatts of coal generation combining refining and chemical.
4463259,507,4297.4199,4311.7798,21,And if we are let me say exporting to the system more or less one point three percent one point four percent of the total Spanish consumption what we are buying for our own needs in industrial assets are uh even with this exported.
4463259,508,4312.29,4327.4497,21,Uh in regulatory terms due to this uh that means that in in in the mid long term uh we are not impacted in in in any way by this uh uh debate about the the the power prices because we are at the same time producers and consumers.
4463259,509,4327.96,4335.7998,21,It's true that in in regulatory terms we have some kind of cap in the short-term to the the the tariffs of the coal generations.
4463259,510,4335.8301,4346.2197,21,And for that reason we have had uh a negative temporary effect that is going to be redressed in coming uh in in coming weeks months.
4463259,511,4346.4199,4348.2402,21,So that's one other factor.
4463259,512,4348.5098,4362.2197,21,The other one is also that uh in in the second quarter we have an extra premium coming from the the biofuels market that gave us opportunity to improve the margin uh we we have.
4463259,513,4362.2202,4383.0898,21,Uh gonna the the second part of of of the period what we have more or less uh in in in mind is that the premium could be at around uh I mean that is going to depend that is not a commitment cuz we could have uh operational problems operational or market advantages.
4463259,514,4383.3398,4407.3804,21,But it's going to my my at first glance today what I have in mind is that we could be at around zero point five bucks per barrel in the quarter taking into account that we are going to have a a a penalty coming from the the maintenance program of a part to the refinery of Cartagena.
4463259,515,4407.4102,4414.6899,21,When I say a part because that is impacting a part of the distillation and and on the coker of the refinery.
4463259,516,4414.6899,4426.6802,21,So all in all I think that zero point five per barrel could be uh could be a a quite reasonable uh period.
4463259,517,4426.6802,4445.6201,21,gonna your uh question on buyback I mean uh the the the buyback uh we have at the beginning of the year mm I mean at the end of uh of twenty twenty I have in mind we have at that time one eight million or nineteen million shares in our balance sheet.
4463259,518,4445.9702,4455.5698,21,So if we have at the end of September forty nine million shares it means that we we have acquired thirty million shares over the the whole period.
4463259,519,4455.98,4473.8398,21,Uh I can't I don't have in mind uh the total uh uh cash uh applied to this uh to this purchase but but I mean but we could see that we have invested around eur three hundred million over the whole year uh increasing the treasury stock of the company.
4463259,520,4473.9399,4474.3999,21,Thank you.
4463259,521,4475.4902,4476.6899,22,Uh thank you Peter.
4463259,522,4476.79,4478.54,22,Well that was our last question.
4463259,523,4478.98,4481.9199,22,At this point I bring our third quarter conference call to an end.
4463693,0,0.91,2.67,0,Good morning and good afternoon.
4463693,1,3.02,9.72,0,Thank you for joining E L D Electronics Earnings Release conference call for the third quarter of twenty twenty one.
4463693,2,422.96,435.09,0,We maintained sound profitability by offsetting the high LCD TV panel price burden with effects from increased Oola TV sales and efficient resource management.
4463693,3,583.82,595.5,0,Amidst this environment we expect sales to grow quarter on quarter and year on year with the seasonality effect in IT business and the recovering demand in the b two b market.
4463693,4,622.55,623.84,0,we'll now take questions.
4463693,5,712.59,720.52,4,And also I'm wondering what will be your corporate strategy in response to the logistic disr- disruption that is appearing recently.
4463693,6,739.74,755.8101,5,Foreign Language.
4463693,7,762.21,769.36,4,Uh the question on HNA uh it was about our corporate response and strategy with respect to logistics disruption.
4463693,8,769.72,776.9901,4,As you know the uh air and sea transportation costs are heating a record high every day.
4463693,9,777.36,780.56,4,And that is tempering the profitability of H N A company.
4463693,10,784.64,785.83,5,Foreign Language.
4463693,11,795.09,805.19,4,According to many research firm it's forecast that the phenomenon will persist until the first half and even up until the second half of next year.
4463693,12,805.46,808.72,4,And some predict that it'll take another one to two years more.
4463693,13,810.06,814.5,5,Foreign Language.
4463693,14,814.5,844.93,4,Uh it's the look at is impact on our top line revenue it it's decreasing our top line revenue by two percent on year on year basis.
4463693,15,845.44,852.84,4,And in line with this we are trying to deploy more extra ships in collaboration with global shipping companies.
4463693,16,853.18,856.74,4,So so that we can minimize its impact on our supply site.
4463693,17,857.14,864.37,4,Also we are trying to curve the uh spike of by logisticals by optimizing our global supply chain.
4463693,18,865.64,871.9,5,Foreign Language.
4463693,19,873.54,905.11,4,In 2022 as well based on a flawless supply chain and logistic network we are going to make tiny decisions and take them into action with speed so that we can minimize the risk on our uh supply side.
4463693,20,911.44,918.08,5,Foreign Language.
4463693,21,925.7,948.52,4,Further more based on a solid partnership with our partnership in companies we are working on the negotiation to create a win-win operation for both of us and also by leveraging the S T N capability and logistic c competitiveness that we have built this far we are going to put the first priority in meeting our delivery commitment we're with our customers.
4463693,22,967.1,983.17,4,So lemme take your question on the uh the proportion of new appliance sales.
4463693,23,983.51,990.4,4,i'll say that the sales of new appliance has been recording a two-digit level growth every year.
4463693,24,990.78,999.4901,4,So we're seeing the rise of the proportion from fourteen percent in two thousand eighteen to around seventeen to eighteen percent in two thousand twenty one.
4463693,25,999.82,1006.13,4,So I will say that the proportion of new appliances still is increasing within H N A company.
4463693,26,1012.1,1025.5901,5,Foreign Language.
4463693,27,1053.15,1059.1499,5,Foreign Language.
4463693,28,1134.59,1147.8101,6,we're trying to make those products which have hygienic and healthcare functions as extension products for consumers by offering those products at a more affordable price range to increase of our sales furthermore.
4463693,29,1148.76,1163.72,6,So also for the consumers' awareness we are trying to leverage the successful cases in the Korean market so for this then we are continuing our investment in the brand and we'll try to enhance the brand positioning in the market through these efforts.
4463693,30,1239.73,1254.9399,10,My second question is for HE.
4463693,31,1557.17,1577.2001,6,If you think the impact was not big I'd like to understand the reason why.
4463693,32,1752.41,1760.25,10,With a spike on raw material prices the cost level deteriorated which hampered the profitability of most of the module makers.
4463693,33,1802.75,1806.42,10,we'll be leveraging our LG brand and global sales capability.
4463693,34,1806.8101,1820.7201,10,Also through our development capability for high-efficiency high-output products we will continue to extend sales opportunities in the residential market and inaudible countries showing a clear preference for high-output products.
4463693,35,1821.13,1828.64,10,At the same time we'll strive to raise profitability by improving cost level and output of our products.
4463693,36,1845.95,1847.88,8,Please go ahead with your question.
4463693,37,2260.1299,2313.04,18,Foreign language.
4463693,38,2314.97,2315.4402,15,I have two questions.
4463693,39,2315.4399,2319.3101,15,Both uh questions are on HE.
4463693,40,2319.72,2324.8701,15,First uh this year you've recorded such a solid performance with your TV products.
4463693,41,2325.3301,2330.6602,15,I think that with this performance you'll be able to achieve four million units of sales this year.
4463693,42,2331.3701,2337.4199,15,Now I'm wondering how you forecast this year twenty twenty one and next year in terms of the sales of over TV.
4463693,43,2337.8999,2346.1301,15,If you meet the target of sales I'm wondering what will be the proportion of all the TV sales out of the total TVs revenue.
4463693,44,2346.6899,2348.9902,15,My second question is also on HE.
4463693,45,2349.3501,2354.5898,15,Uh we see uh the price level of LC TVs is going down very regularly.
4463693,46,2355.1399,2365.45,15,I think uh compared to all the TV uh with this price decrease uh the LC TV will be able to recover its price competitiveness in the market.
4463693,47,2366.01,2372.7,15,So I'm wondering about the impact of this trend on the sales and profitability of your OLED business.
4463693,48,2373.46,2376.3899,15,So can you share your uh corporate opinion on this?
4463693,49,2407.4399,2412.8101,15,So looking at the performance of OLED TV sales um in the third quarter of this year we don't…
4463693,50,2412.8401,2416.77,15,we are meeting the plan for OLED TV sales one hundred percent.
4463693,51,2424.3701,2424.79,16,Foreign language.
4463693,52,2427.6399,2451.04,15,However looking into the fourth quarter there is a concern or the risk of the slowdown of TV demand globally because of the uncertainty in the global economy and extension of living with uh covid nineteen inaudible.
4463693,53,2451.25,2455.0901,16,Foreign language.
4463693,54,2456.6599,2469.04,15,However we think that uh there will be no difficulty in achieving our target of meeting four million units of sales that we set out early this year which is the double the target of the previous year.
4463693,55,2469.8999,2472.73,16,Foreign language.
4463693,56,2472.73,2492.8599,15,If this is the case we forecast the proportion of OLED TV sales to be around thirty two percent showing twenty four percent of growth on a year-on-year basis.
4463693,57,2500.54,2503.0701,16,Foreign language.
4463693,58,2504.01,2515.26,15,Regarding the target for the next year with our OLED TVs we haven't finalized our our target yet and we are working on the planning and simulation to set up the target for the next year.
4463693,59,2518.3101,2519.96,16,Foreign language.
4463693,60,2521.3999,2548.26,15,However uh if we do a close analysis on the TV market trends uh both for TV sets and panels and consumer needs uh we forecast that the demand for premium product will continue to go up.
4463693,61,2562.6001,2569.75,15,Now I'll take your second question.
4463693,62,2572.22,2589.7102,15,It was on the impact of decreased of l c d TV prices on the profitability and top line revenue of o l e d TVs.
4463693,63,2593.3301,2595.1201,16,Foreign language.
4463693,64,2596.76,2618.0701,15,Based on our understanding on the market dynamics uh we understand that the competitor has given a price discount mainly to the new OLED TV inaudible space.
4463693,65,2621.74,2624.22,16,Foreign language.
4463693,66,2628.1699,2648.0498,15,However looking at various external factors such as the l c d supply LCD panel supply led by the Chinese panel makers a short supply of semiconductor components and increase in logistics costs we believe that it won't be easy to give that much price discount to the LCD TV.
4463693,67,2651.47,2668.47,15,Given that um there will be some impact on the demand of OLED TV cuz of this limited price discount of LCD TVs.
4463693,68,2668.8601,2692.1201,15,However we can make use of this trend of increasing demand for premium product especially on OLED TVs.
4463693,69,2692.8,2695.74,15,And the strength of the OLED TV…
4463693,70,2697.03,2703.8899,15,I believe that we will be able to maintain uh the solid top line revenue and profitability for the next year.
4463693,71,2704.8101,2707.6001,16,Foreign language.
4463693,72,2709.0801,2710.01,15,Next question please.
4463693,73,2711.1499,2711.1799,17,<unk>.
4463693,74,2715.98,2775.8301,17,The next question will be presented by Nikola Gudua from Uveus.
4463693,75,2896.99,2907.8901,15,I think these questions uh raise the concerns mainly about the automotive semiconductor shortage the inaudible sourcing for semiconductors uh required for our products.
4463693,76,2908.0801,2913.1399,15,We don't have significant issues except for some impact on the price increase.
4463693,77,2954.28,2968.98,15,As for the impact on our performance we have been affected to some degree by the supply disruption of a OEM because this…
4463693,78,3040.3301,3052.26,16,Foreign language.
4463693,79,3102.3701,3125.22,15,inaudible such as steel inaudible and uh copper so have seen a price increase on every quarter and that this trend will continue even in the fourth quarter.
4463693,80,3142.9199,3143.3899,16,Foreign language.
4463693,81,3143.71,3167.3401,15,Again in twenty twenty one uh raw material supply and demand imbalance will continue and also we expect that especially the steel price will increase steeply.
4463693,82,3169.02,3173.9299,16,Foreign language.
4463693,83,3179.04,3215.45,15,Under these circumstances along with globally integrated negotiations we are minimizing need for raising product prices by the fostering the key makers in each region adopting diversified sourcing and the optimized s c n and the other many others uh activities.
4463693,84,3220.46,3223.96,16,Foreign language.
4463693,85,3251.1599,3265.3701,22,foreign language The next question will be presented by inaudible from Bank of America.
4463693,86,3265.3701,3313.3699,22,Please go ahead with your question.
4463693,87,3370.6699,3383.1699,20,Um if you look at the operating inaudible at a quarterly basis you used to show a great fluctuation for many many years so far in terms of TV and home inaudible businesses.
4463693,88,3383.7,3391.8799,20,However looking at the fourth quarter the performance of the fourth quarter is decreasing more slowly than what has been happening in the past.
4463693,89,3392.25,3394.75,20,Can you explain the reason why this phenomenon?
4463693,90,3395.3401,3407.3801,20,And also I'm wondering if there would be any risk of showing a high performance solid performance in the first half and then showing a decrease of the performance in second half once again like the past?
4463693,91,3407.8,3417.9199,20,Or you have already established a stable business model with TV and inaudible products showing even performances between first half and the latter half?
4463693,92,3418.4399,3420.8,20,And my second question is on inaudible.
4463693,93,3421.3,3428.4302,20,Recently many agencies or governments are announcing their ESG or emissions related policies.
4463693,94,3429.0801,3443.0798,20,As you have already explained about your solar business I'm wondering and I'd like to understand the overall progress of your renewable business related strategy and ongoing project in line with this trend?
4463693,95,3444.0701,3496.24,20,If you look at the trend for the past four years including 2021 especially looking at the two year 2018 and two thousand nineteen the profitability ratio was around seventy three between first half and the second half.
4463693,96,3496.3501,3511.2002,20,inaudible you're gonna find the pent up inaudible caused by the covid nineteen for the past two years recent two years two thousand twenty and two one the performance was around sixty four first half and second half.
4463693,97,3511.48,3516.6201,20,So we are seeing a gradual improvement of profitability in the second half.
4463693,98,3520.1899,3558.6699,20,As you are already aware most of the promotional seasons including the United States are concentrated in the second half or in particular fourth quarter which is driving up all of the inaudible of that period.
4463693,99,3559.0601,3564.3198,20,And also we are impacted by the seasonality related to the AC business.
4463693,100,3564.8601,3572.1401,20,So that's the reason why we have the structure of showing a lower profitability in the second half compared to that of the first half.
4463693,101,3592.6599,3613.29,20,Uh of course there were some impacts coming from the pent up demand in improving our performance for the second half for the last two years however we internally made continuous efforts to improve the profitability in the second half and also we strive to execute our expenses in a more efficient manner.
4463693,102,3624.51,3638.54,20,So as of yet we couldn't overcome this pattern of showing a lower performance in the second half fully.
4463693,103,3638.8701,3649.6399,20,However compared to the past we were able to make gradual small but important improvements showing better performance in the second half.
4463693,104,3649.76,3658.3298,20,So uh with this gradual improvements I believe that this pattern of showing a lower profitability in the second half will continue to persist for the time being.
4463693,105,3658.3301,3666.3201,20,lemme take your question regarding new renewable energy.
4463693,106,3671.75,3694.25,20,As ESG grows in importance major countries are spending their green policies to tackle climate change.
4463693,107,3694.8301,3700.6799,20,In light with this trend the demand for new renewable energy is forecasted to grow continuously?
4463693,108,3707.0901,3725.5,20,Regarding your question about the progress of new projects please understand that it is difficult to share specifics.
4463693,109,3726.0901,3733.7798,20,But I like to say that we're keeping a close watch on additional business opportunities arising in the energy business ecosystem.
4463693,110,3734.79,3753.1201,20,So for example we are reviewing a solution as to how we can offer an optimized solution for efficient power consumption at home.
4463693,111,3777.24,3785.49,22,The next question will be presented by inaudible from Bank of America.
4463693,112,3785.5701,3787.6099,22,Please go ahead with your question.
4463693,113,3935.49,3944.7202,20,So as we communicated the order backlog of twenty twenty one is over six trillion wan and is continuously rising.
4463693,114,4031.1499,4048.3501,20,However when you see our when we see our trends of the older backlogs once these semiconductor issue is resolved we can say that we can start to achieve a meaningful outcome.
4463693,115,4049.5801,4050.48,20,Next question please.
4463693,116,4109.4199,4112.0498,22,For further questions please contact the inaudible team.
4463693,117,4112.27,4114.0601,22,Thank you for your participation.
4466251,0,33.27,39.04,1,Avramenko's presentation we'll turn the call over for your questions.
4466251,1,39.54,48.35,1,Before we begin please kindly be advised of our cautionary statement This conference call may contain forward-looking management comments including projections.
4466251,2,48.91,53.24,1,These should be considered in conjunction with the cautionary language contained in our inaudible.
4466251,3,54.21,59.51,1,A copy of our Earnings inaudible and Financials are available on our website at www.
4466251,4,61.71,61.74,1,CCIconcierge.
4466251,5,63.54,68.61,3,Good morning and good afternoon everyone.
4466251,6,68.85,72.53,3,Thank you for joining us today to discuss our third-quarter results.
4466251,7,72.89,77.35,3,Uh we are reporting in the sixth-quarter since the pandemic began.
4466251,8,77.96,90.41,3,Although it has been a challenging and volatile experience thanks to the commitment of our people the power of our brands and the loyalty of our consumers C C I continues to deliver solid results.
4466251,9,91.59,97.7,3,In the third quarter we kept building on the momentum we had s-seen since the beginning of this year.
4466251,10,98.91,108.82,3,Before moving to the Third Quarter Operational Performance I would like to thank our people for working relentlessly as one team to create value for all of our stakeholders.
4466251,11,109.99,119.01,3,I also would like to reiterate how happy we are to have successfully closed the Coca-Cola Bottlers Uzbekistan acquisition at the end of the quarter.
4466251,12,120.18,122.8,3,Uzbekistan has now become part of our family.
4466251,13,123.2,126.49,3,Integration will progress at full speed.
4466251,14,127.33,130.51,3,I will give more information on this operation later in the call.
4466251,15,131.76,141.53,3,Looking at our quarter performance the consolidated data says Volume grew eleven percent on the strong summer season volume performance both in Turkey and internationally.
4466251,16,142.69,146.78,3,We have reached the highest ever quarterly performance on the consolidated basis.
4466251,17,147.74,157.66,3,With the reopening of on-premise channels and our focus on globalization in the home channel as well the number of transactions are performed says volume growth.
4466251,18,158.48,166.84,3,Although not yet back to two thousand and nineteen levels as the percentage of total sales we saw sequential improvement in IC shares.
4466251,19,168.4,177.39,3,Net sales revenue growth on pace says volume driven by the price increases beta discount management and other revenue growth management initiatives.
4466251,20,178.77,188.15,3,e b i t a grew strong in absolute terms although as expected the e b i t a margin declined by four hundred and fifteen basis points versus prior…
4466251,21,189.22,193.62,3,twenty four percent remaining significant level inaudible averages.
4466251,22,194.53,200.06,3,As guided before the margin contraction is due to exceptionally high base of the last year.
4466251,23,201.17,210.14,3,Net profit was nine hundred and sixty million Turkish lira in the third quarter and two billion PL in the nine months on the back of strong business momentum.
4466251,24,210.6,215.66,3,High profit and FX Gains due to inaudible long position.
4466251,25,216.61,218.23,3,Let's move on to the next slide please.
4466251,26,220.04,227.33,3,As discussed in the previous slide our performance was in line with our quality growth algorithm except for e b i t a and margin contraction.
4466251,27,227.96,242.46,3,As you would remember to deal with covid nineteen uncertainties last year we cut down significantly our D M E spent to an absolute minimum and substantially reduced the number of inaudible to be more flexible to…
4466251,28,242.46,243.63,3,to our supply chain.
4466251,29,244.63,254.67,3,Now that the business is back on to normalized top-line growth all the learnings from the pandemic remain and we continue operating with a frugal mindset.
4466251,30,254.76,259.39,3,The margin of third quarter of two thousand and twenty are not a realistic comparison.
4466251,31,261.23,268.98,3,inaudible twenty four percent margin is the second highest third quarter margin ever achieved right after third quarter of twenty twenty.
4466251,32,270.92,282.22,3,On the next slide the Sparkling category grew by ten percent mainly driven by the performance of the brand Coca-Cola Coca-Cola Zero Sugar growing ten and fifteen percent respectively.
4466251,33,282.91,286.14,3,Fanta also posted fourteen percent strong growth.
4466251,34,287.45,297.39,3,inaudible from some decline still category resisted twenty seven percent growth in the third quarter on the back of solid performance of iced tea and juices.
4466251,35,297.94,304.88,3,Energy drinks delivered strong twenty three percent driven by Monster Energy which doubled its volume a quarter.
4466251,36,305.99,311.26,3,The water category grew by sixteen percent with the con-continuous prioritization of Icee Packs.
4466251,37,312.26,326.31,3,We continue to support our consumers with our rich and diverse product portfolio on all at-home occasions including work education leisure entertainment family gatherings breakfasts refreshments and et cetera.
4466251,38,327.85,340.45,3,Channel Mix further improved during the quarter share of the on-premise channel increase by more than three percentage points compared to the same quarter of previous year and reached to twenty percent.
4466251,39,341.05,342.94,3,The shift was more visible in Turkey.
4466251,40,344.0,354.66,3,As a result of both on-premise recovery and at-home channel performance Icee Packages significantly recovered in the third quarter reaching to a twenty nine percent share of total volume.
4466251,41,355.35,360.03,3,The share of Icee Packages reached to thirty two percent in Turkey.
4466251,42,361.11,365.39,3,On the next slide let me talk about Turkey business a little bit.
4466251,43,366.11,381.4,3,Turkey says volume grew by fifteen percent in the third quarter compared to a year ago lead by segmented marketing campaigns effective promotion management successful innovations in summer seasons and increased visibility in the e-commerce platforms.
4466251,44,382.45,390.02,3,Eased pandemic restrictions increased mobility and favorable weather conditions contributed to strong top-line growth as well.
4466251,45,391.23,394.0,3,The record high sales volume was exceeded in…
4466251,46,394.07,398.97,3,In July and the high momentum was maintained for the rest of the quarters.
4466251,47,399.76,408.28,3,We are also delighted with Coca-Cola Zero Sugar's performance that we launched in the previous quarter with an improved taste and new look.
4466251,48,409.05,413.6,3,Sparkling beverages grew by thirteen percent lead by a fourteen percent growth of the…
4466251,49,413.92,414.85,3,Brand Coca-Cola.
4466251,50,415.52,421.23,3,Coca-Cola Zero Sugar drove the share of the sugar-free category to six percent.
4466251,51,422.73,428.77,3,The Stills category listed twenty one percent growth lead by double-digit growth in both Icee and juices.
4466251,52,429.69,436.96,3,The Energy Drinks continue to high single-digit growth with the sale volumes of Monster Energy almost doubling.
4466251,53,438.04,445.99,3,We maintained our more profitable small packs focus in the Water category and listed eighteen percent growth in the third quarter.
4466251,54,447.43,463.92,3,Highest inaudible improved Icee mix and effective pricing enabled seventeen percent growth in the net sales revenue per unit case however the depreciation of Turkish lira and high commodity prices put pressure on margins in Turkey.
4466251,55,464.17,470.56,3,While citing an exceptionally high base of the previous year profit margins contracted in Turkey.
4466251,56,471.76,481.26,3,Moving on to the next slide on our international business we have cited a high base of the third quarter of twenty twenty of…
4466251,57,481.39,482.54,3,of nine percent.
4466251,58,483.77,487.22,3,Satellite operations in Pakistan were the main drivers of our growth.
4466251,59,488.16,495.02,3,Sparking beverages grew by eight percent with seven percent growth on Coca-Cola and fifteen percent growth on Fanta brands.
4466251,60,496.05,502.82,3,Stills category grew by thirty five percent driven by the strong performance of iced tea and juices.
4466251,61,503.38,510.35,3,The Water category continued its gradual recovery with fourteen percent growth in the third quarter of twenty twenty one.
4466251,62,511.6,515.7,3,All large operations registered net sales revenue per unit case growth.
4466251,63,516.05,528.91,3,When occurrence in neutral basis N S R grew by twenty two percent by result of our inaudible initiatives including package region-based pricing adjustments effective discount management and improved category mix.
4466251,64,529.95,536.47,3,Currency neutral e b i t a grew by twenty percent delivering twenty eight percent e b i t a margin.
4466251,65,537.26,538.58,3,On to the next slide please.
4466251,66,540.38,543.37,3,Pakistan is always a fascinating market.
4466251,67,544.24,549.0,3,As challenging as it is the market possesses so much potential.
4466251,68,549.25,558.3,3,The operation became much more resilient with our effort to improve execution in Pakistan by fixing the fundamentals and creating a better route to market.
4466251,69,559.39,571.97,3,Despite pricing increases in the third quarter and a robust base of third quarter twenty twenty sales grew by eight percent thanks to improved route to market and better market execution.
4466251,70,573.27,582.23,3,The sales volume of brand Coca-Cola increased by ten percent top line grew by twenty three percent on the back of solid winter performance and price adjustments.
4466251,71,583.24,589.83,3,We are committed to staying on track in Pakistan to deliver sustainable value creation.
4466251,72,590.91,600.07,3,On the next slide Kazakhstan and Iraq are other key international markets with around twenty percent shares in our total volume.
4466251,73,601.02,605.62,3,Sales volume grew twenty one percent in Kazakhstan compared to a year ago.
4466251,74,605.84,616.58,3,Eased covid nineteen restrictions effective consumer promotions with the right execution favorable weather conditions were the main drivers of the volume growth in the third quarter.
4466251,75,617.49,623.13,3,With the continued Icee focus transactions grew above volume by twenty eight percent.
4466251,76,624.06,628.91,3,Citing a solid base Iraq sales volume went down by five percent.
4466251,77,629.34,635.43,3,It is worth noting that in Iraq the main decline is coming from the Water category inaudible.
4466251,78,636.93,651.46,3,Sparkling decline is limited to three percent citing eleven percent growth a year ago while observing a fifteen percent price increase in response to twenty three percent currency devaluation at the end of twenty twenty.
4466251,79,653.27,656.84,3,So lemme touch base our Uzbekistan addition.
4466251,80,656.89,666.35,3,On September twenty ninth we completed as you know the Uzbekistan acquisition after obtaining all regulatory approvals and integration has started at full speed.
4466251,81,667.54,683.11,3,While integrating the operation to the c c i family our immediate focus is on ensuring the business continuity delineating in all key activities to c c i standards and minimizing organization change anxiety by adapting an open-communication strategy.
4466251,82,684.42,699.91,3,Although we are still at the very early stage of integration we wanted to share some preliminary figures for the first nine months of the year to give you an idea of the scale of the business acquired and opportunity in front of us.
4466251,83,701.37,715.43,3,With seventy eight million unit cases sales volume in the first nine months Uzbekistan would have a seven percent incremental growth effect to our nine month results had it been a part of c c i in the period.
4466251,84,716.66,723.68,3,Uzbekistan's revenue per unit case is equivalent to CCI's consolidated per unit case as guided before on…
4466251,85,731.47,744.44,4,We work very diligently in all functions of expertise from HR to digital from commercial to legal to unlock a great value potential of Uzbekistan business as soon as possible.
4466251,86,745.47,755.63,4,Our team is combining the expertise of c c i with the deep knowledge required to bring locally in an environment that remains dynamic and opportunistic.
4466251,87,756.76,766.72,4,When we announce are full results in February we believe we can give more precise guidance on the impact of this business to our consolidated results.
4466251,88,767.55,770.7599,4,I will now leave the floor to Andri to go over the financial results.
4466251,89,770.8,771.42,4,Andri please.
4466251,90,772.29,773.15,5,Thank you Barack.
4466251,91,787.19,795.38,5,Our net sales revenue grew by thirty seven percent in the quarter driven by the sales volume momentum especially in Turkey and Central Asia.
4466251,92,796.02,802.39,5,Improved package and channel mix timely price adjustments and other revenue growth management initiatives.
4466251,93,803.4,812.92,5,There awarded two hundred and thirty three basis points contraction in gross profit margin due to the surge in commodity prices and depreciation of Turkish Lira.
4466251,94,814.14,822.15,5,Contraction remained limited thanks to our hedging initiatives proactive procurement management and price adjustment we made during the quarter.
4466251,95,823.43,834.31,5,When we look at the country detail contraction comes mainly from Turkey while there has been a hundred sixty five basis points improvement in the gross margin of international operations.
4466251,96,835.33,841.23,5,Higher Turkish Lira devaluation against small stable international currencies is one of the main reasons.
4466251,97,842.16,848.93,5,As we guided previously our direct marketing expenses increased in line with the normalization and higher mobility.
4466251,98,849.82,857.39,5,OPEX to sales ratio realized is around sixteen percent are by a hundred and four basis points against a year ago.
4466251,99,858.97,864.6299,5,EBITDA grew by seventeen percent and we delivered twenty four point one percent EBITDA margin.
4466251,100,865.53,872.0,5,four hundred fifteen basis point decline in the EBITDA margin is mainly due to exceptionally high base of the last year.
4466251,101,873.23,881.4,5,As I mentioned gross profit margin contraction in Turkey also made an impact due to significant depreciation of Turkish Lira and high commodity prices.
4466251,102,882.61,887.89,5,We delivered a strong a hundred nine hundred and sixteen million Turkish Lira quarterly net income.
4466251,103,888.61,896.82,5,Strong operational performance and prudent financial expense management made the highest contributions to the net in to the net income growth.
4466251,104,897.95,909.01,5,I also must mention that during the quarter we recorded a sizable provision for slow moving and lower per unit value spare parts amounting to two oh five million Turkish Lira.
4466251,105,909.78,922.81,5,This was partly mitigated by the one hundred and forty million Turkish Lira income from the land sale yet on a net basis basis it had a non-cash negative impact on the consolidated net income.
4466251,106,923.99,925.11,5,Next slide please.
4466251,107,927.64,933.1,5,Our FX neutral net sales revenue for unit case growth was on track in the short quarter.
4466251,108,933.84,946.23,5,It increased by fourteen percent on the back of dynamic pricing better discount management and other revenue growth management initiatives including prioritization of certain SKUs and IC multi-packs.
4466251,109,947.18,957.87,5,However due to the significant surge in commodity prices COGS per unit case grew by eighteen percent more than upsetting the positive contribution from from the strong top line.
4466251,110,959.06,962.9,5,We continue to invest in my marketing as our business is back to a new normal.
4466251,111,963.66,971.2,5,As guided before we stepped up our marketing expenses from two percent last year to over four percent this year in third quarter.
4466251,112,971.86,983.32,5,This gradual normalization in OPEX combined with higher cost pressure led by to a five percent contraction in FX neutral EBITDA per unit case in the short quarter.
4466251,113,984.09,990.11,5,Our proactive hedging initiatives and frugal OPEX mindset help us to keep reduction to a limited level.
4466251,114,991.48,1001.59,5,However looking on a nine-month cumulative basis the profitable gross momentum continued strengthening our confidence to deliver in line with our revised guidance for the full year.
4466251,115,1003.03,1004.07,5,To the next place please.
4466251,116,1006.6,1013.0699,5,Let me give you more color now on consolidated EBITDA and free cash flow evolution for the first nine months of the year.
4466251,117,1014.34,1018.78,5,In terms of top line growth we performed ahead of our expectations here to date.
4466251,118,1019.41,1026.36,5,The easing of pandemic related restrictions and reopening of on-premise channels contributed to this robust performance.
4466251,119,1026.77,1030.0199,5,While the positive momentum at the head home channel continued.
4466251,120,1031.2,1039.2201,5,Top line growth with improving channel package package mix and timely price adjustments were the main contributors to EBITDA growth.
4466251,121,1040.4301,1052.41,5,However globally elevated demand and the supply chain bottlenecks led to a significant surge in the commodity prices which pressured margins through COGS especially in the third quarter.
4466251,122,1053.4399,1058.9299,5,On the OPEX side we continued our tight OPEX management with the learnings from the pandemic period.
4466251,123,1059.8101,1068.04,5,But in line with the normalization and as we guided before our direct marketing expenses increased to their pre-pandemic levels.
4466251,124,1069.5,1078.5601,5,We delivered forty three percent EBITDA growth in four months twenty twenty in nine months of twenty twenty one with less than half a percentage point of margin contraction.
4466251,125,1079.53,1084.1,5,On the other hand our networking capital over annualized sales turned negative.
4466251,126,1084.95,1092.4801,5,Although CAPEX doubled in nominal terms it only increased by one percentage point as a percentage of the net sales revenue.
4466251,127,1093.37,1104.6,5,Bearing in mind that last year we cut CAPEX to absolute minimum this limited increase in CAPEX is a result of our disciplined spending and is a strong contributor to thirty percent free cash flow growth.
4466251,128,1105.6899,1106.77,5,Onto the next slide please.
4466251,129,1111.3199,1122.7,5,Our net leverage continued to decrease to the lowest level ever of zero point four times due to strong free cash flow generation and our prudent FX risk management.
4466251,130,1123.52,1129.4399,5,We financed the Uzbekistan acquisition with our own cash relying on our strong balance sheet.
4466251,131,1130.5601,1141.75,5,Even after two hundred fifty two million dollars payment for the acquisition our net debt EBITDA ratio remain at historical low levels thanks to our continued cash generation.
4466251,132,1142.67,1147.35,5,We do not expect a significant change in our leverage for the rest of the year.
4466251,133,1148.34,1152.3199,5,We remain comfortable with the strengths of our balance sheet and liquidity position.
4466251,134,1153.84,1160.4299,5,Use of cash to finance Uzbekistan acquisition increased our short currency position compared to the first half.
4466251,135,1161.3199,1168.8199,5,We have short position of three hundred fifty million dollars after deducting the existing hard currency cash balances and financial hedges.
4466251,136,1169.65,1177.25,5,This is approximately to one time of our international EBITDA which we are comfortably to carry.
4466251,137,1177.25,1182.15,5,As you know on top of financial hedges we have a net investment hedge as well.
4466251,138,1183.1,1186.86,5,Since the Uzbekistan's acquisition is made by our Dodge subsidiary.
4466251,139,1187.1801,1192.6799,5,And in order to finance this we made a cash capital increase in the Dodge subsidiary.
4466251,140,1193.21,1199.05,5,We were able to increase the net investment hedge amount by a hundred fifty million dollars.
4466251,141,1199.97,1211.02,5,If we include net investment hedge as well then C C I maintains net loan currency position and secure FX gain when Turkish Lira depreciates against dollar.
4466251,142,1212.77,1221.9301,5,Considering the recent currency fluctuations we keep our financial management discipline to mitigate the negative effects of currency depreciation on our balance sheet.
4466251,143,1222.45,1226.1001,5,We may consider further hedging alternatives depending on the market conditions.
4466251,144,1227.34,1234.46,5,We are committed to maintain the balance between subs sustainable short position and strong free cash flow.
4466251,145,1236.02,1237.35,5,Onto the next slide please.
4466251,146,1241.28,1246.1801,5,From a cost point of view the world is certainly through a very challenging time.
4466251,147,1246.92,1254.9701,5,The rapid price increases in global commodity markets are coupled with reports of raw material shortages and procurement delays around the world.
4466251,148,1255.74,1261.63,5,In this environment our number one priority is to ensure continuity of raw material supply.
4466251,149,1262.55,1276.86,5,Our procurement team has been quite proactive in terms of identifying potential incoming issues engaging with alternative suppliers preparing back up plans and even implementing in-house solution for certain items such as c o two.
4466251,150,1277.9301,1283.3,5,Therefore we do not expect to run into any procurement problems in the foreseeable future.
4466251,151,1284.03,1287.2001,5,However we are not immune to the commodity inflation.
4466251,152,1288.72,1291.27,5,This is another factor we are managing proactively.
4466251,153,1291.58,1296.5299,5,We have been successful with hedges that were put in place in twenty twenty one during the pandemic.
4466251,154,1297.6,1301.6001,5,They helped mitigating the impact of current input cost inflation substantially.
4466251,155,1306.99,1310.76,5,We kept adding new hedges over the course of twenty twenty one.
4466251,156,1311.71,1323.01,5,Although at higher levels than during pandemic the new hedges still provide some mitigations against current sport prices and help with input cost visibility for the next year.
4466251,157,1324.71,1329.45,5,For twenty twenty two we have already hedged eighty percent of our elusive needs.
4466251,158,1343.11,1349.09,5,Aluminum is not a substantial part of our cost base and we are questioning the sustainability of current prices.
4466251,159,1350.75,1355.91,5,We also hedged forty two percent of raisin requirements and looking for opportunities to add coverage.
4466251,160,1357.6801,1360.9,5,Sugar is a regulated commodity in many of our markets.
4466251,161,1361.45,1365.9,5,Therefore our coverage is limited since hedging is not available or practical.
4466251,162,1366.87,1369.7101,5,We continue monitoring the commodity price environment.
4466251,163,1370.61,1383.8199,5,Apart from hedging we are taking practice price increases implementing further R G M initiatives and accelerating productivity measures to offset some of the commodity cost pressure as we look forward to the next year.
4466251,164,1386.05,1388.98,5,I now hand over to Barack for his closing remarks.
4466251,165,1389.53,1390.2001,5,Barack please.
4466251,166,1391.03,1392.0701,4,Well thanks Andri.
4466251,167,1392.11,1403.4199,4,Uh given strong results year to date and increased visibility into the rest of the year we are revising our organic guidance on sales volume and revenue terms.
4466251,168,1404.4301,1412.13,4,Our existing hedges protect us to a great extent and the larger scale also supports our profitability.
4466251,169,1412.67,1421.3501,4,As a result we are committed to keep our e b i t d a margin flat on an organic basis despite the challenging commodity cost environment.
4466251,170,1421.92,1430.49,4,As you know since the beginning of last quarter of twenty twenty one we have started consolidating Uzbekistan operation into our financials.
4466251,171,1430.74,1433.7201,4,The fourth quarter impact will not be significant.
4466251,172,1433.72,1441.9401,4,Therefore you will see only a couple of percentage points of incremental growth from this operation on the volume and revenue side.
4466251,173,1442.59,1443.86,4,As discussed before…
4466251,174,1449.38,1457.75,6,Looking ahead an inflationary environment supply chain bottlenecks and currency volatility will be the main headwinds for our operations.
4466251,175,1458.53,1478.1899,6,We continue to be agile careful in in dealing with these short term challenges however we are leveraging the learnings from the COVID period applying revenue growth management initiatives working our supply chain levers and expanding digital enablement of execution to capitalize on the stance of our brands.
4466251,176,1479.02,1489.25,6,We have years of experience succeeding in the volatile environment however we will not deviate from our long term roadmap of creating value for our stakehol- holders that we serve.
4466251,177,1489.71,1503.3,6,We look at the future with the confidence contin counting on our commitments talented people excellent brand portfolio digital capabilities inaudible system alignment and on the lying potential of our markets.
4466251,178,1504.33,1507.78,6,We are now ready to take your questions and operator please.
4466251,179,1508.03,1508.41,6,Thank you.
4466251,180,1514.01,1518.14,7,If you wish to ask a question please press zero one on your telephone keypad.
4466251,181,1518.77,1521.38,7,Thank you for holding until we have our first question.
4466251,182,1572.61,1573.01,6,Oh.
4466251,183,1575.22,1577.72,6,Um thank you for the question.
4466251,184,1577.76,1593.2201,6,Um in terms of the margin i I guess uh I understand you're looking for the guidance for the next year uh and I think we'll be more comfortable to provide it when we actually finish the…
4466251,185,1593.22,1596.3899,6,this year and uh we're working on different scenarios.
4466251,186,1596.77,1628.71,6,Uh obviously as uh before we are focused on uh optimizing the business and mitigating the impact of uh commodity prices uh by other measures uh that we described uh there are also with devising the plans for the remainder of this year and for uh next year to make sure that uh we minimize or mitigate the impacts of commodity prices on um on our uh margins.
4466251,187,1629.11,1636.76,6,Uh I understand that uh you would prefer to hear the guidance but we we're not ready to give the the gu guidance for margins for the next year.
4466251,188,1637.53,1639.4701,8,All right maybe not the guidance but I'm trying to…
4466251,189,1692.6801,1692.9801,6,Yeah.
4466251,190,1693.98,1703.42,6,Uh the the th- Why why why the hesitance to to provide guidance cuz uh our twenty twenty numbers particularly third quarter numbers uh in terms of the commodity prices were extremely low right?
4466251,191,1703.42,1707.8999,6,This was probably the bottom of uh the pricing for a very very long time.
4466251,192,1708.55,1724.1801,6,Uh right now we r sort of uh ran over uh hedges that we made during the crisis during COVID last year for this year by sort of early um q three.
4466251,193,1724.26,1730.2899,6,And in q three we were on a more normalized uh procurement and added hedges this year.
4466251,194,1730.99,1739.96,6,Uh therefore if anything the q three is sort of a more sustainable uh situation uh than the previous year.
4466251,195,1740.6,1749.5599,6,Um and therefore we're looking at how much price we already took and uh how much price we we need to take to cover that impact.
4466251,196,1751.35,1751.6799,8,All right.
4466251,197,1818.1,1819.51,6,Uh thank you for the question.
4466251,198,1819.54,1840.84,6,Uh we yes we include only uh for the fourth quarter uh impact of c c b u since it's the smallest quarter you understand that impact overall is uh fairly small uh particularly that uh c c b u has only um seven percent volume impact uh on overall C C I.
4466251,199,1841.86,1846.6599,6,Um so yes uh it's a fairly uh small impact on overall guidance.
4466251,200,1873.29,1875.02,6,Um we we…
4466251,201,1875.02,1883.3101,6,I think we talk about it fairly often uh on our uh investor calls and um presentation to uh investors.
4466251,202,1883.3101,1894.4,6,If we look at this cycles economic cycles and sort of prices uh in the past uh sparkling usually goes to decline last.
4466251,203,1895.03,1901.84,6,Uh it declines less and then uh it comes out of the crisis uh earliest.
4466251,204,1902.59,1904.5801,6,Uh this is in…
4466251,205,1904.61,1906.8101,6,And this is al exactly what happened in COVID.
4466251,206,1907.52,1914.13,6,Um so this was uh sort of sparkling performed relatively better significantly better than uh than still.
4466251,207,1914.5,1930.3899,6,Now when we get to uh uh sort of economic improvement overall climate uh consumer confidence increasing uh newer categories um they tend to grow uh relatively faster.
4466251,208,1930.39,1934.54,6,Uh so that's nothing uh unusual.
4466251,209,1934.83,1936.7001,6,Uh so we expected that.
4466251,210,1937.09,1948.87,6,Uh obviously we are very focused on uh continue to develop uh the full portfolio um without forgetting continue to grow sparkling at the core of our business.
4466251,211,1949.38,1953.28,6,Uh but we don't see any unusual trend in this.
4466251,212,1953.58,1958.08,6,It's a normal dynamic of sort of uh cyclical performance in our industry.
4466251,213,1960.8101,1979.9,9,Thank you.
4466251,214,2063.99,2075.9502,6,On Energy uh I think it is uh all the factors that you mentioned one uh the consumer demand uh is there and very evident it's a it's a high growth category overall.
4466251,215,2076.26,2089.3,6,Uh two we are we said it multiple times we are committed to grow in this category this is one of our strategic categories and we will continue improve.
4466251,216,2089.9099,2095.3799,6,And um so um that's why we are actively driving uh the business.
4466251,217,2095.75,2097.1699,6,Uh we are…
4466251,218,2097.1699,2110.45,6,we continue to improve and uh streamline our relationship with Monster and working uh with their strong portfolio and uh winning portfolio from our uh perspective.
4466251,219,2110.79,2124.26,6,Um so um yes there were some uh brand extensions uh and other actions uh but nothing unusual just a inaudible and very good execution by us and Monster together.
4466251,220,2128.76,2129.75,6,Now Pakistan.
4466251,221,2130.1299,2147.6899,6,Uh in terms of Pakistan and route to market uh we have been talking about route to market and Pakistan for the last two and a half three years and uh this was a very deliberate uh change that we started uh two and a half years ago or so.
4466251,222,2148.2,2159.6702,6,And um now it's uh given the results uh that we wanted that we planned that we expected uh from that change.
4466251,223,2177.3899,2179.1699,11,And uh that was an…
4466251,224,2179.23,2186.23,11,fairly uh archaic and multilayered system of how product was moving with…
4466251,225,2187.0701,2188.77,11,from multiple participants.
4466251,226,2189.2,2190.74,11,Uh and this is as…
4466251,227,2190.8201,2194.79,11,this was a standard for the industry for F M C G more broadly.
4466251,228,2194.79,2216.54,11,In Pakistan uh we decided to change it to what we are more accustomed to much more efficient and effective system where uh participants are in the daily chain only if they truly clearly contribute to the advancement of our business and our product and adding value uh to the uh…
4466251,229,2216.54,2217.3101,11,to the chain.
4466251,230,2217.6699,2238.97,11,And uh therefore that simplification uh in addition to just normal uh route to market expansions sort of horizontal expansions uh adding more outlets reaching uh new areas uh moving uh through the placement and in uh in-store execution and uh is giving the results.
4466251,231,2239.3999,2239.8699,11,Um…
4466251,232,2240.4099,2246.2898,11,but again this is not something new this is uh very deliberate plan for last two and a half years.
4466251,233,2250.5801,2257.0,13,Thank you.
4466251,234,2313.45,2320.25,11,We are very excited that uh CCG will became part of our CCI family uh.
4466251,235,2320.77,2332.97,11,It's a well established corporation when it comes to uh manufacturing and basic uh processes and procedures of the Coca Cola system uh.
4466251,236,2333.52,2343.6599,11,However uh the biggest opportunity we see in Uzbekistan is uh sort of commercial area and in market execution and commercial capabilities.
4466251,237,2344.29,2355.9302,11,Uh and this is where we believe we bring strengths particularly in emerging and frontier markets and this is uh a very significant part of our focus how to create value.
4466251,238,2356.1699,2358.48,11,Uh and accelerate create…
4466251,239,2358.48,2360.6499,11,value creation in Uzbekistan.
4466251,240,2360.6499,2365.03,11,Particularly the market uh continues to demonstrate uh tremendous growth.
4466251,241,2365.51,2375.04,11,Uh naturally with our execution capabilities uh that we will be able to step change of what C C G has been doing so far we believe we could add a lot of value.
4466251,242,2375.3701,2391.1099,11,Second uh the business uh uh was sort of optimized uh and uh run on a very limited capacity and essentially they have been selling until now what they can produce uh from the factory floor.
4466251,243,2391.77,2396.27,11,Uh there is a tremendous unaddressed demand in the market.
4466251,244,2396.77,2408.76,11,And therefore adding capacity uh while improving in market execution could provide very significant growth potential for uh foreseeable future in Uzbekistan.
4466251,245,2409.1799,2411.0,11,In terms of the uh…
4466251,246,2411.3601,2441.5898,11,in terms of the guidance for the next year on Uzbekistan uh again i i I'm afraid I will disappoint you as Bradway said that by uh probably by end of the year when we have a next uh quote for the next quarter we will give uh a clear guidance on uh how Uzbekistan will be performing uh and this time we just would like to share with the nine months uh actual results and uh the…
4466251,247,2442.8701,2443.27,11,that's…
4466251,248,2443.3,2451.8801,11,that's pretty much what we have as we took control of that duration uh since basically the last day of this third quarter.
4466251,249,2453.79,2456.6401,14,Thank you.
4466251,250,2457.8201,2458.2,13,Thank you.
4466251,251,2474.4399,2478.78,15,inaudible Thank you.
4466251,252,2481.4199,2489.1499,11,Yeah uh we have been uh we have been uh taking prices regularly uh in uh…
4466251,253,2489.52,2501.6399,11,in all our markets and this year was no uh exception as we have been uh communicating for last few years uh regularly that uh we are uh…
4466251,254,2501.6699,2509.1499,11,we are committed to monetize value of brands we have to rate better in every market we uh…
4466251,255,2509.1499,2509.78,11,are present.
4466251,256,2510.5,2514.52,11,Um and we stick to that uh strategy.
4466251,257,2514.8799,2520.4399,11,In terms of uh increases in Turkey uh in this uh…
4466251,258,2520.4399,2528.74,11,in the third quarter we made approximately ten percent uh price increases on average uh in Turkey specifically.
4466251,259,2529.3301,2533.5801,11,Right and uh so we uh that's just in this quarter.
4466251,260,2533.95,2538.75,11,And we will continue to look for opportunities uh to…
4466251,261,2539.1001,2548.3801,11,to sort of continue on our strategy of uh realizing eh is on a sort of better value and better pricing.
4466251,262,2548.6599,2556.0898,11,Uh for example as you Mary Cole in the first uh half of the year uh we already grew uh…
4466251,263,2556.1399,2561.0,11,increase uh average price in Turkey by about seventeen percent.
4466251,264,2564.6399,2565.6501,15,Thank you.
4466251,265,2565.6499,2574.1599,15,Eh is there eh any other significant price increases in other markets uh I mean that you may flood?
4466251,266,2575.6599,2577.5901,11,Yeah uh I think that we we we…
4466251,267,2577.6399,2582.98,11,as I said we we took uh pretty much price increases pretty much in all markets we inaudible.
4466251,268,2582.98,2596.8198,11,And therefore I think uh you can see the uh the results uh in terms of n s r growing significantly ahead of uh volume in international operations and in Turkey.
4466251,269,2597.6799,2610.51,11,In Pakistan for example uh we took pricing in the third quarter uh in high single digits again and this is on top of the previous price increases that we already realized then.
4466251,270,2611.5701,2611.9202,15,alright.
4466251,271,2624.1599,2625.3301,16,Well thank you everybody.
4466251,272,2625.45,2636.47,16,Uh eh as the system with the Coca Cola company we are very exited and very happy how are we gonna close the year eh as c c i and the Coca Cola system.
4466251,273,2637.1899,2659.1399,16,Eh and we're also very happy and optimistic about how the twenty twenty will eh turn out to be eh and Ivynovan has discussed there will be a lot of headwinds that we have to deal but we are extremely confident that with our system with our strong capable business skills eh we are gonna be able to deliver another strong year for next year as well.
4466251,274,2659.4199,2666.3599,16,And I would like to thank all our employees and thank you as well supporting us eh on every front.
4466251,275,2666.75,2670.78,16,So I'm wishing you all the best and eh hope to see next time.
4466251,276,2670.78,2671.8999,16,Thank you very much thank you.
4466251,277,2678.28,2679.73,13,Thank you all for your participation.
4466251,278,2679.8501,2681.1199,13,You may now disconnect your lines.
4466399,0,1.0,3.12,0,Ladies and gentlemen thank you for standing by.
4466399,1,3.38,5.33,0,I'm Konstantinos your course call operator.
4466399,2,18.9,19.46,0,Mr.
4466399,3,21.61,22.88,0,Yagci you may now proceed.
4466399,4,24.03,25.14,1,Thank you Konstantinos.
4466399,5,25.14,25.89,1,Hello everyone.
4466399,6,26.38,29.87,1,Welcome to Turkcell third quarter financial and operational results call.
4466399,7,30.39,32.95,1,Today's speakers are our C E O Mr.
4466399,8,32.95,34.9,1,Murat Erkan and our C F O Mr.
4466399,9,34.9,35.71,1,Osman Yilmaz.
4466399,10,36.42,40.66,1,they'll be delivering a brief presentation and afterwards taking your questions.
4466399,11,41.48,48.21,1,Before we start I'd like to kindly remind you to re-read the last page of this presentation for our state fiber statement.
4466399,12,48.73,50.24,1,Now I hand over to Mr.
4466399,13,51.43,51.7,1,Erkan.
4466399,14,51.74,52.59,2,Thank you Serdar.
4466399,15,52.81,55.11,2,Good morning and good afternoon to all.
4466399,16,55.64,59.09,2,Welcome to our presentation and thank you for joining us.
4466399,17,60.25,75.81,2,In the third quarter we recorded twenty two point three percent revenue growth and our e b i t d a reached four billion Turkish lira for the first time implying an e b i t d a margin of forty three percent forty three point one percent.
4466399,18,77.66,87.14,2,Growing eighteen percent year-on-year we recorded a net income of one point four billion Turkish lira an all-time high quarterly figure.
4466399,19,88.07,92.51,2,Net income settled above one billion Turkish lira run rate per quarter.
4466399,20,94.11,108.79,2,Our customer-centric strategy diversified business model and focus on mobile and fixed network quality are the key factors of the sustainable performance which was further supported by increased mobility in these quarters.
4466399,21,110.21,120.84,2,This strategy has enabled us to continue outstanding growth in total subscriber by one point two million which marks a record of the past fourteen years.
4466399,22,121.95,133.01,2,In the first nine months of the year we gained a total of two point five million subscribers further strengthening the subscriber base for the upcoming quarters.
4466399,23,134.51,141.69,2,The r two trend remains robust at twelve percent for mobile and ten percent for residential fiber.
4466399,24,142.78,153.58,2,Lastly this quarter the revenue share of digital channels in consumer sales rose to seventeen percent increasing five percentage points year-on-year.
4466399,25,155.06,162.6,2,We have also distributed the last installment of the two thousand twenty one dividend on October twenty seventh.
4466399,26,163.8,172.3,2,In consideration of these solid results we further increased our full year guidance which I will celebrate on my last slide.
4466399,27,174.17,174.71,2,Next slide.
4466399,28,176.14,179.01,2,Here we see the operational performance of the third quarter.
4466399,29,180.23,187.87,2,In all three fronts mobile fixed broadband and i p t v we delivered a strong net add performance.
4466399,30,188.86,198.49,2,On the mobile front we gained a net four hundred sixty four thousand postpaid and six hundred forty three thousand prepaid subscribers.
4466399,31,199.64,211.49,2,This outstanding performance was achieved through our customer-focused offer innovative storage portfolio and also supported by increased mobility thanks to vaccination.
4466399,32,212.45,221.82,2,High net add performance in prepaid subscribers is due to the visit of Turks living abroad after lifting of restrictions in international travel.
4466399,33,223.19,229.57,2,The average monthly mobile churn rate was at one point nine percent well below that of the last year.
4466399,34,230.25,235.28,2,And we believe around two percent monthly churn is a healthy level in this market.
4466399,35,236.53,239.54,2,The landed mobile output rose to fifty eight percent…
4466399,36,239.82,252.34,2,fifty eight Turkish lira on twelve percent increase thanks to a higher post-pay subscriber base upsell to higher tariffs price adjustments and increased data and digital storage users.
4466399,37,253.66,267.7,2,Also our AI-based analytical capabilities observed strong upsell levels and incremental that an upsell post-paid customer pays in two times than the same quarter last year.
4466399,38,269.47,283.41,2,In the fixed broadband segment amid the prevailing demand for high-speed connection with the back to school period we gained net sixty thousand fiber subscribers with our high-speed fiber internet offers.
4466399,39,284.09,291.65,2,Our rollout plans are on track as we exceeded four hundred thousand new home passes in the first nine months.
4466399,40,292.28,297.57,2,This quarter we also welcome our twenty fifth city in our fiber network.
4466399,41,299.12,308.09,2,We are pleased to register a two hundred fifty one thousand net addition to our i p t v subscribers exceeding one million customers this quarter.
4466399,42,309.05,315.35,2,IPTV's penetration within the residential fiber subscribers reached sixty three percent accordingly.
4466399,43,316.46,322.42,2,Residential fiber output rose to seven nine Turkish lira on ten percent growth.
4466399,44,322.87,334.27,2,thirteen percent annual fiber subscriber growth should be taken into consideration where we aim to manage a delicate balance between r two growth and net addition.
4466399,45,336.6,340.85,2,Next an update on the data usage and four 5G subscription trends.
4466399,46,342.0,348.9,2,Average mobile data usage rose twelve percent year-on-year to thirteen point seven gigabytes per user.
4466399,47,350.17,358.47,2,The rise in data consumption was due mainly to higher content consumption boosted by seasonality and lifted restrictions.
4466399,48,359.72,378.25,2,Out of the thirty four million subscribers signed up for four 5G services around seventy percent have four 5G compatible smartphones still indicating growth potential for the upcoming quarters and implying further room for growth in data consumption.
4466399,49,379.32,387.68,2,Overall smartphone penetration is at eighty four percent with ninety two percent of these units being four 5G compatible.
4466399,50,389.56,402.44,2,We reaped the benefit of our careful planned efforts to provide best-in-class services which is evident by the outstanding net add figures in this quarter.
4466399,51,403.44,410.39,2,Our well invested high quality network and strong infrastructure is once again confirmed in the G S A report.
4466399,52,411.68,429.14,2,With its rich spectrum access and well planned modern infrastructure Turkcell is able to provide speeds of up to one point six gigabit per second which even exceeded the five g speeds provided by certain operators with this capability.
4466399,53,429.63,437.26,2,Turkcell ranks among the world's top three operators and its fastest four 5G network infrastructure in Europe.
4466399,54,439.08,451.78,2,Our longterm invested customer-centric approach which enables Turkcell to provide service are based in customer exact needs has made us a winner at the European Customer Centricity Awards.
4466399,55,453.03,459.7,2,At the Turkcell team we have realized over a hundred projects that touched the hearts of our customers.
4466399,56,460.75,475.02,2,Additionally our key strength including data delivery personalized offer and extensive distribution channel both physical and digital stands up as core factors influencing customer decision making.
4466399,57,476.31,482.41,2,With all of the above customers have continued to recommend Turkcell over the competition this quarter.
4466399,58,482.94,486.2,2,Even extended the wide gap with the second best.
4466399,59,487.8,488.15,2,Next.
4466399,60,489.94,495.21,2,Now our strategy focus areas let's zoom into digital services and solutions.
4466399,61,496.09,506.61,2,The standard of revenue from digital services and solutions continue its strong growth at thirty one percent year-on-year reaching four hundred thirty five million Turkish lira.
4466399,62,507.11,513.28,2,The paid user base reached three point six million up zero point nine million from last year.
4466399,63,514.49,524.82,2,We are delighted to have reached another remarkable milestone for our digital services as the i p t v user base exceeded one million in September.
4466399,64,525.95,541.01,2,tv plus has continued to increase its share in the TV market reaching just above thirteen percent in q two and it is the only TV platform has steadily increased its share for the past twelve quarters.
4466399,65,542.34,550.49,2,Content and product quality enabled us to increase prices whereby the product enjoys rising retention levels.
4466399,66,552.01,564.67,2,With its robust infrastructure BiP our instant messaging platform provides seamless communication and has reached twenty seven million three-month active users this quarter;
4466399,67,565.48,567.63,2,triple from the same quarter last year.
4466399,68,568.43,577.7599,2,A quarter of the active user base is abroad where the leading countries are highly populated countries like Nigeria Indonesia and Bangladesh.
4466399,69,579.38,588.81,2,Our constant effort in our digital services are improving the user experience of the application and we achieved this by responding to our customer needs.
4466399,70,589.33,597.35,2,For instance new features in BiP this quarter include the status posting and video group call with up to fifteen people.
4466399,71,598.36,604.67,2,On Fizy our digital music services we have added over a hundred and twenty podcast series.
4466399,72,606.25,606.76,2,Next slide.
4466399,73,610.48,612.74,2,Next is the digital business services.
4466399,74,613.25,617.35,2,We continue to lead end-to-end digital journey of corporate in Turkey.
4466399,75,617.91,624.89,2,This has resulted in a revenue of four hundred ninety nine million Turkish lira from digital business services this quarter.
4466399,76,626.24,633.94,2,Of the total revenues seventy five percent are service revenues which rose by twenty eight percent year-on-year.
4466399,77,634.97,644.7,2,From the service revenues we have seen continued strong demand particularly in data centers and cloud business cyber security services and IoT.
4466399,78,646.45,653.44,2,We signed five hundred seventy five new contracts with a total contract value of two hundred twenty one million.
4466399,79,654.49,666.7,2,Overall backlogs from the system integration projects signed to date is at eight hundred thirty two million Turkish lira which will be contributing to the top line in the upcoming quarters.
4466399,80,667.83,673.81,2,This quarter we continued our product launch in cyber security and cloud services.
4466399,81,674.25,680.53,2,<unk> is an economic and flexible cyber solution that works in physical and virtual system.
4466399,82,681.25,690.24,2,And as the first in the country object storage is a cloud-based solution for the further support the vision of keeping corporate data in Turkey.
4466399,83,692.05,692.59,2,Next slide.
4466399,84,694.48,696.95,2,Last but not least in our tech fin focus.
4466399,85,697.65,705.75,2,Tech fin services revenue rose to two hundred eighty one million Turkish lira on thirty seven percent year-on-year growth.
4466399,86,706.89,714.24,2,Paycell saw another remarkable quarter topping six million active users on a thirty percent rise year-on-year.
4466399,87,715.06,721.93,2,The revenue saw fifty three percent year-on-year growth mainly with traction in the pay later product.
4466399,88,722.95,729.58,2,We started to monetize port solutions which includes virtual and physical Android port services.
4466399,89,730.56,742.38,2,We have installed one point seven thousand devices at the local SMEs and also launched our virtual port solution with nine hundred E-commerce <inaudible> including Turkcell <inaudible>.
4466399,90,743.57,752.73,2,This quarter Finance Cell's revenue rose twenty eight percent year-on-year due to higher interest rates and support from emerging insurance business.
4466399,91,754.29,763.13,2,Finance Cell continues to finance technological needs of broad range of customers including individual residentials SMEs and corporates.
4466399,92,763.84,773.07,2,To date we have scored eleven million customers and we have twenty four percent market share in consumer loans below five thousand Turkish lira.
4466399,93,774.23,782.4,2,One of Finance Cell's key strength is the assigning right limit to the right customer based on Turkcell last data.
4466399,94,783.14,787.36,2,We have recently launched a new credit model based on machine learning.
4466399,95,788.17,796.69,2,Initial results indicate high rep two rates and higher limits without negatively impacting the historically low cost of risk levels.
4466399,96,798.33,798.87,2,Next slide.
4466399,97,800.83,807.34,2,Let's look at our performance in the international segment which now generates ten percent of group revenues.
4466399,98,808.24,816.86,2,In this quarter international revenue grew by thirty nine percent year-on-year thanks to the expanding subscriber base in all three regions.
4466399,99,817.9,826.72,2,Higher mobile data consumption and the positive impact of currency movement organic growth and excluding the currency impact was at eighteen percent.
4466399,100,827.97,839.19,2,Our Ukraine business has continued its strong operational performance in this quarter by reaching eight point nine million mobile subscribers on a fourteen percent rise year-on-year.
4466399,101,840.2,844.09,2,Revenue growth in local currency turn was twenty four percent yearly;
4466399,102,844.74,848.31,2,exceeding twenty percent for the last four quarters.
4466399,103,849.38,861.59,2,This business has seen a four point six percentage point EBITDA margin improvement year-on-year on the back of limited interconnection cost and live contract operational expenses.
4466399,104,862.84,873.33,2,In the local currency terms Belarus revenues declined two percent due mainly to lower handset sales which on the other hand affected the EBITDA margin positively.
4466399,105,874.95,875.94,2,Belarus we…
4466399,106,876.61,879.26,2,In Belarus we focused on digital subscription.
4466399,107,879.61,887.67,2,In the third quarter one out of five new customers opted for live through digital services…
4466399,108,887.67,888.59,2,digital channels.
4466399,109,890.43,905.98,2,Our subsidiary in Turkish Republic of Northern Cyprus recorded strong twenty four percent growth with rising voice revenues and data usage due to increased mobility after the recovery of education services and tourism in the island.
4466399,110,910.27,914.55,2,I would like to end my presentation by sharing our new guidance for the full year.
4466399,111,915.85,927.14,2,Taking into consideration consideration our outstanding nine month performance and expectation for the remainder of the years we once again revise our guidance upwards.
4466399,112,928.09,932.63,2,Accordingly we rise our revenue growth guidance to around twenty percent.
4466399,113,933.53,950.59,2,Generating real revenue growth in a high inflationary environment we revise our nominal EBITDA expectation to around fourteen point five billion Turkish lira and expect to register an operational capex over <inaudible> around 21%.
4466399,114,953.56,960.53,2,Lastly as you remember we held our last Capital Market Day back in November two thousand nineteen.
4466399,115,961.15,968.61,2,Since then covid nineteen pandemic has significantly impacted our industry and the way we do business.
4466399,116,969.53,977.39,2,This necessitates us to revisit our plan and targets in relation to the core business and strategic focus area.
4466399,117,978.19,990.24,2,We plan to organize a Capital Market Day after the announcement of Full Year two thousand twenty one results where we aim to reveal our revised three-year business plan and targets.
4466399,118,991.58,995.44,2,We will make necessary announcements regarding the details of the event in time.
4466399,119,996.63,1000.52,2,I will now leave the floor to our C F O Osman for the financial discussion.
4466399,120,1001.95,1002.51,3,Thank you Murat.
4466399,121,1003.34,1006.16,3,Now let's take a closer look into our q three financials.
4466399,122,1006.9,1010.42,3,In q three we recorded a nine point four billion TL top line on…
4466399,123,1010.42,1020.45,3,and a two percent year-on-year growth thanks to subscriber base expansion higher data and digital service revenues coupled with contributions from international operations tech fin and equity sales.
4466399,124,1021.27,1023.9,3,The first nine months growth exceeded twenty one percent.
4466399,125,1025.15,1029.0701,3,Our e b i t d a reached four billion TL level on a nineteen percent increase.
4466399,126,1030.05,1036.65,3,Net income was solid at one point four billion TL marking eighteen percent yearly growth mainly driven by sub-top line growth.
4466399,127,1037.26,1042.8401,3,The bottom line has settled consistently above one billion TL with the contribution of disciplined financial risk management.
4466399,128,1043.78,1047.5299,3,We are pleased with our solid performance which exceeded our expectation.
4466399,129,1048.4301,1048.89,3,Next slide.
4466399,130,1051.0601,1053.62,3,Long form details on revenue and EBITDA developments.
4466399,131,1054.09,1059.77,3,This quarter with contribution of all segments we generated one point seven billion TL incremental revenue.
4466399,132,1060.58,1062.9,3,one billion TL derived from Turkcell Turkey.
4466399,133,1063.41,1068.9399,3,This is all possible with a larger subscriber base r two growth and upsell efforts with price adjustment.
4466399,134,1069.84,1080.7899,3,two hundred fifty eight million TL from international subsidies support the top line mainly due to robust subscriber and r two performance of Ukrainian operations as well as the positive impact of currency movement.
4466399,135,1081.79,1085.66,3,Our tech fin segment had a seventy six million TL positive impact.
4466399,136,1086.14,1091.73,3,Paycell and Finance Cell has supported this with an annual growth of fifty three and twenty eight percent respectively.
4466399,137,1092.76,1098.5601,3,The other segment contribution of three hundred thirty four million TL was mainly driven by increased equipment sales.
4466399,138,1100.73,1105.26,3,This quarter our e b i t d a margin was at forty three percent percent.
4466399,139,1105.76,1123.98,3,The main factors behind the one point three percentage points margin of contraction year-on-year were as follows First minus zero point six percentage points from gross margin impacted by our energy businesses increased cost of goods sold and rising radio cost due to high energy prices.
4466399,140,1124.47,1133.35,3,And secondly minus zero point seven percentage points from s and m expenses mainly due to increased selling expenses on the back of record high net activity quarters.
4466399,141,1134.29,1134.7799,3,Next slide.
4466399,142,1136.85,1139.2799,3,Now a few verses on our balance sheet and leverage.
4466399,143,1140.0,1145.73,3,Our total debt increased by seven hundred million TL in this quarter mainly due to the currency movement.
4466399,144,1146.55,1154.3501,3,A cash position of around one point four million dollars equivalent which is mainly in FX covers our debt service until twenty twenty five.
4466399,145,1155.52,1164.23,3,We maintained our leverage below one time in this quarter despite the second installment of the last year's dividend amounting to eight hundred sixty two million TL.
4466399,146,1165.41,1171.02,3,Excluding the financing business this was at zero point eight times the same level as the previous quarter.
4466399,147,1172.4301,1179.87,3,We generated just over one billion TL of free cashflow thanks to stronger operational performance as well as relatively lower capex in this quarter.
4466399,148,1180.88,1181.39,3,Next slide.
4466399,149,1183.39,1185.76,3,Now I will go into management of foreign currency rates.
4466399,150,1186.6899,1190.87,3,We continue to hold the bulk of our cash in hard currencies as a natural hedging tool.
4466399,151,1191.5699,1198.4399,3,With hedging instruments in place the share of FX debt declined from eighty three percent to fifty one percent as of the end of this quarter.
4466399,152,1199.22,1203.92,3,Our hedge contracts our cashflow hedges are covering the full maturity of related FX liabilities.
4466399,153,1205.05,1213.34,3,We were in a long net FX position of a hundred seventy two million dollars as at the end of q three and we continue to target a neutral to long FX position going forward.
4466399,154,1213.95,1214.45,3,Next slide.
4466399,155,1217.0,1223.8999,3,Now let's take a closer look at our fintech companies' performance and start with our financing business Finance Cell.
4466399,156,1224.78,1233.55,3,As we communicated before in line with our expectations the negative trend in finance Finance Cell's portfolio ended in q two and the growth has gradually started.
4466399,157,1234.52,1242.48,3,The revenues rose by twenty eight percent year-on-year on the back of higher average interest rate on the portfolio versus last year and growing insurance revenue.
4466399,158,1243.35,1247.26,3,We expect to sustain the long portfolio at around two billion TL by the year end.
4466399,159,1248.0,1254.1101,3,e b i t d a rose by twenty four percent to around one hundred twenty TL with a margin of seventy three percent.
4466399,160,1254.8101,1263.8501,3,The two point three percentage points margin contraction is due to the base FX as we sold some of our receivables debt receivables in q three q three two thousand twenty.
4466399,161,1265.21,1272.74,3,As a result of strong collection performance and improvement in the customer portfolio cost of risk has been declining since the start of this year.
4466399,162,1273.5699,1277.9299,3,Cost of risk has remained nearly unchanged at zero point three percent for this quarter.
4466399,163,1279.84,1280.3099,3,Next slide.
4466399,164,1282.39,1284.45,3,Lastly our payments business Paycell.
4466399,165,1285.61,1294.52,3,In line with the global trends Paycell users continued their payment habits in the post-pandemic period which is reflected in Paycell's solid operational and financial performance.
4466399,166,1295.38,1303.6801,3,Paycell continues to see increased recognition with the contribution of rising active customers and merchant numbers in q three.
4466399,167,1304.46,1310.64,3,In fact Paycell's three month active users reached six million and the number of merchants hit fourteen thousand.
4466399,168,1312.17,1317.3101,3,The most popular product on our platform pay later delivered another strong performance in q three.
4466399,169,1318.02,1323.3199,3,Pay later volume rose by eighty four percent to four hundred fifty five million TL year-on-year.
4466399,170,1324.42,1331.58,3,Transaction volume of Paycell card has increased to six-fold of the same period last year and reached six hundred fifty seven million TL.
4466399,171,1333.0699,1338.49,3,As you may remember at the beginning of the year we launched Android ports for our corporate customers.
4466399,172,1339.42,1348.88,3,Focusing on virtual P O S as well we shifted Turkcell's payment channels to Paycell's virtual ports providing a revenue channel for Paycell and saving for Turkcell.
4466399,173,1350.49,1357.34,3,Thanks to our increased focus on this business P O S transaction volume reached four hundred seventy five million TL in this quarter.
4466399,174,1358.67,1366.9099,3,Overall in q three Paycell revenues increased by fifty three percent to a hundred nineteen million TL fifty five percent of which are non-group revenues.
4466399,175,1367.79,1374.71,3,EBITDA margin was at forty six percent impacted by increased human capital investments and s and m expenditures.
4466399,176,1375.75,1381.52,3,With its unique product range and disruptive nature Paycell has always taken its place among regional fintech leaders.
4466399,177,1382.21,1388.86,3,As discussed earlier we are seeking growth capital to scale this business further in Turkey and then globally.
4466399,178,1389.5601,1391.24,3,This concludes our presentation.
4466399,179,1391.28,1392.8501,3,We are now ready to take your questions.
4466399,180,1393.09,1394.12,3,Thank you very much.
4466399,181,1395.74,1399.36,0,The first question is from the line of Kennedy Good-Jonathan with JP Morgan.
4466399,182,1399.64,1400.26,0,Please go ahead.
4466399,183,1402.5699,1404.8099,4,Good evening and thanks for the opportunity to ask questions.
4466399,184,1405.25,1415.8101,4,My first question on Paycell could you give us a sense of what the total payment value across the platform is at the moment and the growth rate there?
4466399,185,1425.67,1435.3201,4,And the second question um I wanted to understand how your pricing strategy is evolving at the moment given the inflation rates.
4466399,186,1436.01,1446.8099,4,And whether you can push mobile r two growth at higher rates than what you've seen at the moment or whether that that's hoping for too much into the new year?
4466399,187,1452.33,1452.63,2,Okay.
4466399,188,1453.1899,1454.21,2,Jonathan thank you very much.
4466399,189,1454.21,1459.72,2,For the first question regarding total payment volume is around five hundred million Turkish lira.
4466399,190,1459.99,1464.0,2,Uh it's it's up and down around five hundred.
4466399,191,1464.51,1473.74,2,And the the the bill payment is you know because it it moves from physical channel to the digital channel.
4466399,192,1474.11,1475.4301,2,So that's why…
4466399,193,1475.4301,1479.17,2,and you might see the decline but we see growth.
4466399,194,1479.2,1482.72,2,But when it moves to the digital channel we can get it.
4466399,195,1482.78,1493.1,2,For the pricing strategy obviously you know to be able to grow the business there are two options in your hand.
4466399,196,1493.49,1498.9399,2,One of them is growing subscriber base and the other one is growing the r two.
4466399,197,1499.42,1501.6,2,So we would like to push both of them.
4466399,198,1502.12,1506.72,2,This is our strategy since two year two and a half years back.
4466399,199,1506.75,1509.24,2,So we would like to push r two…
4466399,200,1509.49,1516.9301,2,And on the other hand the inflation was uh increasing more than expected by the by the market.
4466399,201,1516.9301,1523.84,2,So our uh initial plan was in terms of inflation it's not gonna grow that much.
4466399,202,1524.1899,1527.24,2,But we are adapting ourselves based on pricing.
4466399,203,1527.52,1533.87,2,But as you know we have a contract with the customer for 12 months.
4466399,204,1534.12,1537.9,2,So it'll take some time to catch up the real inflation.
4466399,205,1538.1801,1543.28,2,But we are gonna push to reach on inflationary pricing.
4466399,206,1543.5699,1550.7101,2,As I mentioned it was quite harsh in terms of our expectation but we'll catch it up.
4466399,207,1550.98,1577.46,2,But on the other hand I would like to emphasize our our customer growth because if you wanna pick one I would prefer on the customer growth side because at the end of the day we can create more value from one customer especially we have other businesses like Paycell and Finance Cell and digital services and so on.
4466399,208,1577.72,1585.4399,2,If we catch customer we can easily increase the r two level in near-term.
4466399,209,1590.1899,1590.8,2,So what…
4466399,210,1591.38,1596.5499,2,Regarding growth rate it's around eighty five percent for payment in Paycell.
4466399,211,1598.49,1599.96,2,eighty four percent range yeah.
4466399,212,1600.9301,1604.34,2,Sorry I <crosstalk> the first questions yeah.
4466399,213,1609.5,1613.21,0,The next question is from the line of Kim Evan with Excel Capital.
4466399,214,1613.51,1614.23,0,Please go ahead.
4466399,215,1616.36,1619.6801,5,Yes I uh three questions from my side actually if I may.
4466399,216,1620.21,1624.12,5,Firstly on five g auction when to expect the five g auction?
4466399,217,1624.12,1625.1799,5,And what's that…
4466399,218,1625.1801,1626.4,5,do you expect to be sold?
4466399,219,1626.4,1628.6901,5,Is it C-band and seven hundred megahertz?
4466399,220,1629.37,1629.92,5,That's one.
4466399,221,1630.5699,1637.24,5,Two on capital intensity in twenty two so how do we think about it compared to twenty one?
4466399,222,1637.3199,1643.4701,5,Do you think capital intensity will increase in twenty two compared to twenty one given where the year is?
4466399,223,1644.53,1655.8,5,And then thirdly on Paycell's take rates it's pretty high three percent in twenty twenty and like three point five percent and if you look at the third quarter of twenty one.
4466399,224,1656.38,1660.3099,5,Where do you expect that the take rate to evolve when it's…
4466399,225,1660.5,1661.53,5,when the business scales?
4466399,226,1661.99,1662.26,5,Thank you.
4466399,227,1664.98,1667.5801,2,Yeah thank you very much Evan Kim.
4466399,228,1667.87,1679.8201,2,First of all regarding 5G 5G roadmap auction obviously there is no official timeline for five g announced by the regulator.
4466399,229,1680.1899,1692.58,2,There are a number of explanation or a number of announcement coming from ministry but obviously we have to wait for official announcement.
4466399,230,1693.1801,1695.14,2,five g is vital technology.
4466399,231,1695.64,1703.7001,2,We would like to facilitate this on the digitalization of industry and contribute to the economic development of our country.
4466399,232,1704.51,1710.76,2,However we believe there are some issues that need to be addressed for the how to launch.
4466399,233,1710.97,1723.39,2,First is the fiber connection of base station currently similar to the low household penetration fiber connectivity of the base station is not enough for the full-fledged transition to five g.
4466399,234,1724.09,1731.77,2,Secondly we believe we have not reached a desired localization rate in the development of five g network equipment.
4466399,235,1732.37,1737.88,2,We think localization rate can only be reached around twenty percent two thousand twenty three.
4466399,236,1738.51,1742.23,2,This could be even lower for the core network on base station level.
4466399,237,1742.3101,1749.98,2,Therefore we believe there are some some risk for the full-fledged transition to the local five g network.
4466399,238,1750.53,1770.52,2,Uh regarding the license cost or capex side first of all auction structure is not clear yet and we don't have an official timeline which limits us in making an estimate regarding a possible capex or frequency payment.
4466399,239,1770.89,1783.1,2,The difference between four 5G and five g is that four 5G was a great leap over three g in terms of speed particularly for the individual user.
4466399,240,1783.64,1792.63,2,Therefore we need some time to see how it's gonna end up for that probably end of this year.
4466399,241,1793.4301,1806.7001,2,For the capex plans two thousand twenty two and allocation we have not finalized our budget planning for the next year and we will give two thousand twenty two guidance when we announce our full year result.
4466399,242,1807.97,1830.0399,2,But I don't expect a major increase on the capex side even a little bit decrease cuz we spent capex earlier than expected this year and we get a positive result due to the FX fluctuation.
4466399,243,1830.46,1838.23,2,So next year probably we are gonna spend a little more capex on the fixed line on the fiber side a little less on the mobile.
4466399,244,1838.23,1844.7999,2,So more or less we're gonna we would like to keep similar level on the capex side.
4466399,245,1846.52,1848.2899,2,Sorry for the for the third question.
4466399,246,1848.3199,1849.76,2,Could you repeat the third question?
4466399,247,1849.79,1853.75,2,It was regarding Paycell but I couldn't catch the third question.
4466399,248,1854.97,1855.7,5,Yes of course.
4466399,249,1855.7,1859.25,5,On Paycell just a quick question on its decrease.
4466399,250,1859.25,1863.91,5,So basically we should take Paycell's revenue and divide it by total payment volume.
4466399,251,1864.51,1869.0601,5,So it's pretty high by international standards three percent in twenty twenty.
4466399,252,1869.0601,1872.0399,5,And if you look at the third quarter twenty one it's three point five percent.
4466399,253,1872.04,1876.48,5,And so I was wondering where do you expect that to settle when the business scales?
4466399,254,1880.49,1880.72,5,Thank you.
4466399,255,1880.72,1881.98,2,Okay.
4466399,256,1881.98,1884.9501,2,Let lemme give over to Osman he he'll answer those questions.
4466399,257,1885.61,1889.05,3,Yes uh actually Paycell started its business with uh…
4466399,258,1889.08,1893.27,3,as a business unit within the group and then it became a standalone company.
4466399,259,1893.3,1896.39,3,And now we are expanding Paycell revenues outside of the group.
4466399,260,1896.42,1899.35,3,And now more than half of the revenues are coming out of the group.
4466399,261,1899.76,1908.8,3,Actually the intensity of uh revenue revenues over total turnover is partly on the back of the uh two factors.
4466399,262,1908.8,1911.72,3,First factor is group group revenues.
4466399,263,1912.08,1917.33,3,And the second but but more important factor is our lending business pay later business.
4466399,264,1917.77,1924.24,3,Many payment companies do not have this pay later business which is a relatively more profitable part of the fintech business.
4466399,265,1924.67,1926.6899,3,You can see some international examples.
4466399,266,1926.98,1932.99,3,There are companies fintech companies payment service companies which are only processing payments and doing remittances.
4466399,267,1933.1,1939.26,3,And on the other hand there are pay later businesses which have a higher profitability and higher growth scale.
4466399,268,1939.65,1941.0599,3,We are a combination of both.
4466399,269,1941.0601,1943.1799,3,We either have a total uh high volume…
4466399,270,1943.88,1944.63,3,high turnover.
4466399,271,1944.95,1951.3199,3,On the other hand we have a higher profitability thanks to our strong penetration into prepaid cell network.
4466399,272,1951.5699,1957.46,3,What we are aiming going forward is to first to penetrate in in overall Turkish market.
4466399,273,1957.54,1967.52,3,We are expanding our footprint also of the Turkcell group and we are aiming to double our customer base in a couple of years.
4466399,274,1967.79,1972.3101,3,And then we want to expand regionally and uh and then later on globally.
4466399,275,1972.65,1975.6799,3,That is why we are seeking growth capital for this business.
4466399,276,1976.17,1983.99,3,But we'll not be doing that at the expense of negative EBITDAs and negative profitabilities.
4466399,277,1984.12,1988.12,3,We will keep this healthy balance sheet while doing this growth.
4466399,278,1990.3199,1990.71,5,That was great.
4466399,279,1990.77,1991.49,5,That's very helpful.
4466399,280,1991.71,1992.0,5,Thank you.
4466399,281,1996.05,1999.66,0,The next question is from the line of Karbachek Andriy with UBA.
4466399,282,1999.83,2000.54,0,Please go ahead.
4466399,283,2002.6899,2004.29,6,Hello and thank you for the presentation.
4466399,284,2004.3199,2007.02,6,I have one followup and three questions if I may add.
4466399,285,2007.02,2016.6399,6,The followup pertains to the fiber connectivity on towers that you mentioned as a kind of prerequisite to using um running uh the five g option properly.
4466399,286,2016.64,2018.11,6,So can you expand on that?
4466399,287,2018.11,2021.04,6,Does that mean perhaps that you are uh you know kind of…
4466399,288,2021.36,2036.8101,6,or you would be kinda pushing for a uh some kind of large scale regulated fiber access needed you know across the market to connect base stations you know across the operators for for five g to really be successful?
4466399,289,2036.8101,2037.54,6,Is this what you mean?
4466399,290,2037.95,2045.88,6,And then the three questions I believe you mentioned uh four hundred thousand um homes passed in terms of fiber year to date.
4466399,291,2046.96,2055.1499,6,Can you give us an idea in terms of the take up on that footprint so far and where that take up is coming from?
4466399,292,2055.1499,2060.0701,6,Whether these are you know green field customers or whether you're perhaps taking market share in some areas?
4466399,293,2060.97,2067.6602,6,Second question if I may understand in terms of your capex guidance you are now guiding for the lower.
4466399,294,2067.6599,2075.1299,6,And I know that it's not a huge difference but with the lira having depreciated again in the fourth quarter what has changed in your plans?
4466399,295,2075.73,2080.0601,6,And the third question a quick one on Ukraine please uh you know some…
4466399,296,2080.0901,2087.03,6,or one of your peers is looking at doing something with their towers in Ukraine.
4466399,297,2087.03,2088.5901,6,Is this also an area…
4466399,298,2088.6899,2093.6899,6,I know you're doing that in Turkey but is it also something that you're uh looking at in Ukraine?
4466399,299,2094.02,2094.3301,6,Thank you.
4466399,300,2097.54,2098.99,2,Uh thank you very much Andriy.
4466399,301,2099.0901,2103.76,2,For the fiber connectivity in Turkey overall for…
4466399,302,2103.8501,2113.6001,2,I'm talking about all operators the reaching to the base station with the fiber is around less than forty percent.
4466399,303,2114.22,2118.6799,2,And and even the incumbent operator has less than fifty percent.
4466399,304,2119.22,2129.8799,2,So in this case without fiber ex fiber reaching to the base station it is difficult to give proper five g solutions.
4466399,305,2130.4299,2145.6099,2,On the other hand for existing base station numbers like around a hundred thousand for all operators probably when we go the five g it's gonna be maybe ten times higher the base station.
4466399,306,2145.8899,2149.6401,2,So it the fiber connectivity and fiber…
4466399,307,2149.98,2155.1899,2,reach reaching fiber with the proper connection this is mandatory fiber.
4466399,308,2155.8899,2162.5698,2,Regarding four hundred k home pass usage so uh it is…
4466399,309,2162.5701,2166.54,2,we are we are gonna see the increasing demand on the fiber.
4466399,310,2167.6599,2175.1899,2,So our take up rate for this segment is around more than twenty percent for the first year.
4466399,311,2175.73,2180.3101,2,But to reach the real take up rate is around forty five percent.
4466399,312,2180.6899,2184.04,2,So we are faster than our business case.
4466399,313,2184.5901,2191.8398,2,So there are you know existing green field customer as well as the customer from the competition.
4466399,314,2192.2,2201.55,2,So in terms of market share I believe we have more than fifty percent in the areas that we reach.
4466399,315,2202.2,2211.21,2,For the guidance of lower capex you know there are two things about capex uh with two important actions for this year.
4466399,316,2211.53,2224.1299,2,First of all we need advance payment to the suppliers by lowering the cost of equipment and so which helps us our our capex management.
4466399,317,2224.3899,2234.6899,2,The second one is we decided to invest earlier than expected which means the first half of this year so which is front loaded investment.
4466399,318,2234.8899,2239.02,2,So this is gonna help us to address the capex guidance level.
4466399,319,2239.4199,2248.45,2,Uh so for the capex guidance even though we see a dramatic increase on the FX side we don't want to change our our guidance.
4466399,320,2248.8799,2252.3701,2,For the Ukraine uh…
4466399,321,2253.0601,2259.98,2,actually I have no idea what the what that the peers are doing on the on the travel side.
4466399,322,2260.3,2262.0999,2,So we…
4466399,323,2262.4399,2267.6501,2,I don't I don't wanna comment on things that I I have no clue about it.
4466399,324,2269.9199,2270.1799,6,All right.
4466399,325,2270.1799,2270.74,6,Thank you very much.
4466399,326,2270.74,2273.5698,6,If I may just do a quick followup in terms of the connectivity.
4466399,327,2273.5701,2280.6299,6,So you mentioned you know sub fifty percent of powers even for the incumbent for the market about forty percent.
4466399,328,2281.05,2283.0601,6,Uh but what what is your proposal then?
4466399,329,2283.0601,2286.9302,6,What do you think needs to be sorted for the five g auction to make sense at this stage?
4466399,330,2288.3899,2291.49,2,Uh obviously we publicly announced our proposal.
4466399,331,2291.8799,2309.51,2,Uh Turkey needs common infrastructure companies common investment portfolio because if everybody invests on expensive fiber side it doesn't help countries' economy it doesn't help for you know services side of it.
4466399,332,2309.8,2321.4602,2,If we invest capex under grant we will probably run out of money to give services to the customer uh digital services I mean.
4466399,333,2321.46,2322.9299,2,So that's the…
4466399,334,2323.3701,2330.74,2,the you know this one proposal on the table let's have common investment on fiber.
4466399,335,2331.02,2334.3801,2,Let's compete on the services side not the infrastructure side.
4466399,336,2334.6899,2339.05,2,Because infrastructure competition is old world old world competition.
4466399,337,2340.75,2341.23,6,Understood.
4466399,338,2341.23,2343.01,6,And if I may sorry one final one.
4466399,339,2343.01,2350.8899,6,What do you think needs to happen for for you know a common infrastructure company to to uh be a reality in Turkey.
4466399,340,2350.9299,2351.8401,6,What do you think needs to happen?
4466399,341,2353.74,2370.2898,2,I think uh the wise way and intelligent way to establish this thing I think uh the ministry has the vision to implement such a common infrastructure company.
4466399,342,2370.73,2375.6299,2,And there are you know the intention to do so.
4466399,343,2376.05,2377.3601,2,So we'll see what is gonna happen.
4466399,344,2377.3601,2379.3499,2,But I think the vision is there.
4466399,345,2380.1201,2381.8201,2,The vision of the Prime Minister…
4466399,346,2381.9099,2383.8799,2,sorry the president is there.
4466399,347,2384.01,2388.1501,2,The vision of the ministry of transportation and communication is there.
4466399,348,2388.1499,2392.02,2,So I think this is the the wise way.
4466399,349,2393.28,2394.8799,6,<crosstalk> thank you.
4466399,350,2395.49,2398.8799,2,And then obviously Turk Telecom concession has uncertainty.
4466399,351,2398.8799,2406.5798,2,The ministry of communication also told that this uncertainty sometimes blocks some of the things.
4466399,352,2407.02,2415.5901,2,But I think uh you know reasonable people understand that Turkey needs common fiber infrastructure.
4466399,353,2417.6101,2418.0,6,That's clear.
4466399,354,2418.0,2418.6299,6,Thank you very much.
4466399,355,2422.3799,2425.29,0,The next question is from the line of Nagy Nora with <unk>.
4466399,356,2426.05,2426.77,0,Please go ahead.
4466399,357,2448.0601,2448.3901,7,Thank you.
4466399,358,2451.1499,2451.6399,2,Okay.
4466399,359,2452.03,2454.71,2,Let's let Osman to take this question.
4466399,360,2454.8501,2460.6299,3,Actually uh we disclosed the same application in Q in our q two financial.
4466399,361,2461.4099,2470.9399,3,And there are further opportunities on our balance sheet which we're evaluating further and we will decide on this issue in our year-end financial.
4466399,362,2472.1799,2475.45,7,I see.
4466399,363,2475.45,2481.8401,7,Thank you.
4466399,364,2483.3601,2487.29,0,The next question is a followup question from the line of Karbachek Andriy with UBS.
4466399,365,2487.51,2488.21,0,Please go ahead.
4466399,366,2490.0,2490.55,6,Uh thank you.
4466399,367,2490.55,2500.1802,6,Just just one follow up please in terms of the other headlines that we saw today with you looking for monetizing the the fintech business.
4466399,368,2500.1799,2508.5098,6,Is it still the case that you prefer a strategic partner who would help you develop this business uh from the minority perspective?
4466399,369,2508.51,2517.3601,6,Or or or are you you know are you in a different place compared to the past of couple of quarters where you were kind of suggesting this would be the preferred option?
4466399,370,2517.53,2517.8401,6,Thank you.
4466399,371,2519.6101,2520.3599,2,Okay thank you.
4466399,372,2520.3601,2529.6799,2,First of all regarding the the monetization or strategic partnership uh this was not a secret.
4466399,373,2529.6799,2538.4199,2,It was you know we were talking about secure online we were talking about our tower business we were talking about Paycell on the fintech side.
4466399,374,2538.7,2544.29,2,So I think uh this is a good good opportunity that…
4466399,375,2544.3301,2547.8899,2,and we are planning to offer minority stake.
4466399,376,2548.0601,2554.0698,2,And the partner we're looking for should ideally be able to contribute to Paycell's growth story;
4466399,377,2554.3101,2556.1899,2,not only provide growth capital.
4466399,378,2556.8,2568.3201,2,They should be able to share knowhow make expansion plans and make sure that the business further evolves and potentially gets ready for an IPO in the next couple of years.
4466399,379,2577.96,2578.4802,0,Please go ahead.
4466399,380,2578.48,2579.1099,8,Hi.
4466399,381,2582.95,2585.1599,8,Thank you very much for this presentation.
4466399,382,2635.6699,2635.99,8,Thank you.
4466399,383,2636.9399,2641.72,2,First of all regarding Paycell uh obviously one of our…
4466399,384,2642.04,2646.5701,2,Paycell is one of our most important and valuable asset.
4466399,385,2646.8701,2650.1299,2,Not just just Paycell also we have other assets as well.
4466399,386,2650.5801,2662.1599,2,We disclosed the company's financial and operational matrix every quarter in our presentation and we're quite you know open to the market as well.
4466399,387,2663.79,2675.05,2,And we all know the fintechs and payment companies around the world enjoy the quite high multiples and thanks to their disruptive nature and unique growth profiles.
4466399,388,2675.6201,2682.1802,2,And these companies are mostly having negative EBITDAs which makes the relations to be based on the revenues.
4466399,389,2683.28,2697.1401,2,But our Paycell has a positive e b i t d a margin with strong global profile thanks to its diversified business model involving group and non-group revenue as well as individual user running options.
4466399,390,2698.05,2704.5901,2,Both in terms of revenue growth and e b i t d a margin Paycell is a unique business.
4466399,391,2705.1001,2716.3801,2,So everybody can do the math for the relation by using the global revenue and EBITDA multiples thus evaluation of Paycell per per global average.
4466399,392,2717.6799,2732.54,2,Regarding about the inflation pricing r two growth and so on I think I tried to explain that we we would like to keep our r two in line with the inflation increase.
4466399,393,2732.99,2739.8901,2,As I said our initial plan was not expected that much increase on the inflation side.
4466399,394,2740.28,2746.47,2,So to be able to adapt to inflation increase sometimes we need time.
4466399,395,2746.6699,2749.98,2,So I believe that we're gonna catch the inflation.
4466399,396,2750.9299,2755.8499,2,I hope the inflation is not gonna go same same speed as we see today.
4466399,397,2756.0801,2758.9202,2,So we can catch this uh in a while.
4466399,398,2759.2,2763.8401,2,But on the other hand we shouldn't forget that you're gaining customer.
4466399,399,2764.8799,2769.4399,2,Two and a half million customer from uh year…
4466399,400,2769.4399,2771.9099,2,at the beginning of the year.
4466399,401,2772.1299,2790.04,2,So these customers when we get the customer we put them into the in the system and provide upsell opportunities for this customer and sell other other products like Paycell digital services TV and so on.
4466399,402,2790.0701,2799.78,2,So it all takes some time to get the acceptable r two level from the the customer who comes recently.
4466399,403,2800.3501,2815.6401,2,So we have quite important system in terms of using AI and other technology customer-centricity and so on we are gonna get to the acceptable level.
4466399,404,2816.3701,2824.1001,2,Regarding Ukraine operation we actually this is not the result of the last quarter.
4466399,405,2824.47,2829.27,2,We have focus on Ukraine the last couple of years.
4466399,406,2829.6699,2837.02,2,We invested in the area where we have weak network and captured the customer.
4466399,407,2837.02,2844.0901,2,So we're probably gonna continue on the on the customer side in in a similar level.
4466399,408,2844.3601,2856.3298,2,But I would like to remind that our subscriber growth is fourteen percent year-over-year our r two growth is nine percent it's above the inflation of Ukraine.
4466399,409,2856.76,2866.1101,2,Plus we are doing better than the competition and we are gaining market share in terms of revenue in terms of customer as well.
4466399,410,2866.3,2873.5801,2,And we are growing almost double percentage points versus the competition.
4466399,411,2874.6899,2881.8401,2,So we we are gonna keep grabbing market share and our expectation is that as well.
4466399,412,2883.3701,2884.0798,8,Uh thank you.
4466399,413,2891.0801,2914.28,2,Uh to be honest we're in telecom business we are in the technology business we're in services business and we are in tech fin business and uh and and so on.
4466399,414,2914.4399,2919.8201,2,So to be able to successful on this area you need to get more customer.
4466399,415,2920.1201,2925.6099,2,So our gaining customers strategy will continue.
4466399,416,2926.1001,2928.55,2,We hope to see another million next year.
4466399,417,2929.1399,2933.0601,2,As I mentioned this year is outstanding year.
4466399,418,2933.75,2938.75,2,And having such a customer is very important for next year revenues as well.
4466399,419,2938.75,2940.6001,2,Because you gain this year…
4466399,420,2940.8799,2947.3301,2,You spend subscriber acquisition cost this year but you get the real revenue for next year.
4466399,421,2947.3301,2950.76,2,So I think uh the strategy is in line.
4466399,422,2951.22,2959.1501,2,We are executing well on the operations side and uh and we hope to continue this level.
4466399,423,2961.0901,2961.8101,8,Okay.
4466399,424,2961.8401,2964.6899,8,Thank you and congratulations on the with the results <inaudible>.
4466399,425,2965.4099,2966.1301,2,Thank you very much.
4466399,426,2966.1899,2967.28,2,I appreciate it.
4466399,427,2970.6699,2973.4402,0,Ladies and gentlemen there are no further questions at this time.
4466399,428,2973.8201,2977.6799,0,i'll now turn the conference over to Turkcell management for any closing comments.
4466399,429,2978.0701,2979.3,0,Thank you.
4466399,430,2980.51,2983.98,2,First of all I would like to thanks everyone to join the conference call.
4466399,431,2984.24,2990.4102,2,Uh I hope to see you in our Capital Market Days and…
4466399,432,2990.4099,2994.48,2,at the end of actually the next uh the beginning of next year.
4466399,433,2994.9199,2995.8899,2,So thank you very much.
4466399,434,2995.8899,2996.5601,2,Have a good day.
4466399,435,2998.5801,3000.02,1,So this concludes our call.
4466399,436,3000.1399,3000.99,1,Thank you for joining.
4466399,437,3000.99,3001.45,1,Have a day…
4466399,438,3001.5701,3003.1401,1,have a nice day or evening.
4466399,439,3003.3,3003.6101,1,Thank you.
4466607,0,25.35,26.06,1,Thank you.
4466607,1,26.2,27.47,1,Good morning everybody.
4466607,2,27.66,35.95,1,Um Franck Renoir and myself are happy to welcome you to the Legrand 2021 nine months result conference call webcast.
4466607,3,36.84,43.77,1,We have published today as usual our press release financial statements and a slight issue to which we will refer.
4466607,4,44.68,47.07,1,Those documents are available on the Legrand website.
4466607,5,48.04,51.16,1,Please note that this conference is recorded and web casted.
4466607,6,52.42,60.49,1,After a few opening remarks Franck and I will comment into more details the twenty twenty one nine months results.
4466607,7,61.03,65.63,1,i will begin in page four of the deck with two uh key takeaways.
4466607,8,66.5,76.92,1,First any tensions in supply chains that have intensified Legrand recorded a strong rise in financial results in the first nine months of the year.
4466607,9,77.76,94.44,1,Sales grew plus fifteen percent year on year and plus five point seven percent over two years driven by a strong organic of plus 16% over one year or plus four point four percent over two years.
4466607,10,95.41,110.97,1,Adjusted operating margin came to twenty one point four percent of sales and net profit rose plus forty two percent uh from the first nine months of twenty twenty one or plus twelve percent from the same period of twenty nineteen.
4466607,11,112.45,126.43,1,These very good results testify once again to the soundness in elements of our unique model for value creation and confirm our continued capacity to improve competitive positions on our market despite strong headwinds.
4466607,12,127.89,142.99,1,Second takeaway given the sorted showings recorded in the first nine months of the year but also significant pressure on supply chains with a volatile pandemic environment we are specifying the full year twenty twenty one targets.
4466607,13,144.54,152.04,1,Getting now into the path we are moving to page six um diving first into sales rates.
4466607,14,153.02,156.97,1,Over nine months sales rose strongly in all regions.
4466607,15,157.6,170.23,1,Organic growth reached a significant plus sixteen percent uh at double digit levels in both metro countries with plus thirteen point two percent and new economies with plus twenty four point seven percent.
4466607,16,171.03,175.49,1,Over two years organic sales grew plus four point four percent.
4466607,17,177.6,188.84,1,This strong performance comes from Legrand's continued capacity to improve its competitive positions on its markets as pressures build on supply chains especially in the first q in the third quarter.
4466607,18,190.46,202.87,1,At end of September this performance is not only driven by good demand residential as well as sales in faster expanding segments mainly data centers connective solutions and our energy efficiency programs.
4466607,19,204.31,205.48,1,This is for organic growth.
4466607,20,205.94,215.97,1,Acquisitions contributed to an increase of sales of plus two point seven percent and actions rates had a negative impact of minus three point four percent over the first nine months period.
4466607,21,217.56,230.89,1,Supplying September average four x rate to the rest of the year this uh uh actions rate effect should theoretically be about minus two point five percent in twenty twenty one overall.
4466607,22,233.2,239.41,1,Let's now move to page seven to go into more details regarding the like for like evolution of sales by geographical zone.
4466607,23,240.7,247.53,1,In Europe organic sales grew plus twenty one point eight percent in the first nine months of twenty twenty one.
4466607,24,248.96,257.0,1,In Europe's metro countries growth was plus twenty two point three percent including plus four point three percent in the third quarter alone.
4466607,25,257.85,268.05,1,Over nine months this step rise recorded included strong showings in France and Italy with many commercial successes notably faster expanding segments.
4466607,26,269.25,281.46,1,Sales in Europe's new economies were up plus nineteen point two percent including plus eleven point nine percent in the third quarter alone with very good showings in Turkey and Eastern Europe over nine months.
4466607,27,282.76,289.92,1,Moving now to North and Central America organic sales increased plus seven point nine percent in the first nine months.
4466607,28,291.17,301.53,1,In the US alone the organic rise in sales was plus six percent with a slight decline of minus zero point nine percent over the third quarter alone.
4466607,29,303.15,315.1,1,Over nine months these trends reflect a marked sales increase in solutions for data centers and residential spaces while demand for other non-residential spaces grew slightly.
4466607,30,317.26,329.67,1,Let me now move uh to the last zone um inaudible where organic sales rose plus twenty two point four percent over nine months.
4466607,31,330.63,339.05,1,In Asia-Pacific sales increased plus eighteen point nine percent including plus five point four percent in the third quarter alone.
4466607,32,339.58,343.66,1,Over the nine month period China and India both grew their budget.
4466607,33,345.22,354.35,1,In Africa and the Middle East sales rose plus sixteen point six percent with plus plus five point seven percent in the third quarter alone.
4466607,34,355.55,361.83,1,The region's nine month performance was by buoyed supported by strong gains in Africa.
4466607,35,362.68,374.02,1,In South America sales increased forty three point one percent with plus twenty two point eight percent in the third quarter alone reflecting continued significant growth in main countries.
4466607,36,375.89,383.38,1,Fees were the key elements on sales I am now passing the mic to Franck for another view of our financial performance.
4466607,37,384.87,385.58,2,Thank you Benoit.
4466607,38,385.88,388.51,2,A good morning to all of you I hope you're doing well.
4466607,39,389.71,406.24,2,Going to page eight now adjusted operating margin before acquisitions in the first nine months stood at twenty one point six percent meaning an increase of plus two point nine points from the end of September twenty twenty.
4466607,40,407.89,419.62,2,Inflation in raw materials and components reached nearly plus ten percent over the nine months period and nearly plus 15% in the third quarter alone.
4466607,41,421.52,432.71,2,This point is significant inflation our profitability increased reflecting in particular strong inaudible initiatives.
4466607,42,434.58,456.11,2,After acquisitions the adjusted operating margin for the first nine months of twenty twenty one was twenty one point four percent setting the adjusted operating profile just over one point one billion euros or up plus thirty one point five percent from the first nine months of twenty twenty.
4466607,43,458.68,463.68,2,Going now to page nine regarding the net profit activity levels for the group.
4466607,44,464.78,474.36,2,At six hundred and ninety nine million euros it grew plus forty one point seven percent compared with the first nine months of twenty twenty.
4466607,45,475.38,479.92,2,The main driver is the strong growth recorded in the operating profit.
4466607,46,480.94,502.37,2,Trend in the final inaudible and this positive I- items were partially offset by an increase in value of corporate income tax while the corporate tax rate was slightly down from the first nine months of twenty twenty at twenty eight point five percent.
4466607,47,504.35,509.13,2,Moving now to page ten with a few comments on cash and balance sheet.
4466607,48,510.41,522.24,2,As a percentage of sales cashflow from operation was up plus two point three points at nineteen point seven percent of sales over one billion euro.
4466607,49,524.17,542.23,2,It's driven first by the rise in cashflow from operation and second as expected an increase in working capital requirement and then the free cashflow stood at a solid fifteen percent of sales in the first nine months of twenty twenty one.
4466607,50,543.95,560.5,2,Now when normalizing working capital inaudible on the right end side of the slide the normalized cashflow stands at eight hundred fifty nine million euros or sixteen point six percent of sales in the first nine months.
4466607,51,562.39,572.83,2,One last point I wanted to share on this slide end of September Legrand successfully its first sustainability linked bond index.
4466607,52,602.77,605.13,1,We are on page twelve uh of the deck.
4466607,53,606.13,618.14,1,Given solid showings in the first nine months of the year but also significant pressure on supply chains with a volatile pandemic environment Legrand is now aiming for the following full year targets.
4466607,54,619.13,627.81,1,Organic growth in sales of between plus eleven and plus thirteen percent compared to at least plus ten percent previously.
4466607,55,628.44,646.21,1,The scope of consolidation effect of nearly plus three percent and adjusting the operating margin of between twenty point zero percent and twenty point five percent of sales including acquisitions consolidated in twenty twenty one compared to about twenty percent previously.
4466607,56,647.05,665.72,1,The group also aims to achieve at least a hundred percent of its C S L roadmap for twenty twenty one testifying to its ongoing deployment of a bold exemplary approach to E S G with a particular focus on the fight against global warming as a inaudible of diversity.
4466607,57,667.57,670.97,1,Uh let's now move to the last part of the presentation.
4466607,58,670.97,681.59,1,We are on page uh fourteen to come back briefly on our last uh C N D where we reaff uh uh f uh uh uh f ferred our ambition to inaudible.
4466607,59,682.82,692.24,1,As you can see on the left hand side Legrand's strategy growth map is supported by the strong pillars of a unique business model and by our solid integrated performance.
4466607,60,693.22,702.2401,1,Building on these strong assets uh we accelerate growth initiatives in particular in what we name faster expanding segments.
4466607,61,702.97,713.48,1,We target to uh raise the share of group sales made in these promising fields from thirty one percent in twenty twenty to fifty percent in the midterm.
4466607,62,715.28,720.67,1,Going to page fifteen few additional words on two important aspects of our strategy roadmap.
4466607,63,721.63,737.89,1,First we will continue to do the performance driven close to market organization leveraging on uh operational excellence talent promotion and strong employee engagement which to that eighty percent this year rising strongly from twenty seventeen results.
4466607,64,738.76,750.8,1,Secondly we intend to keep on deploying the goals and supply approach to E S G which as you know is driven by demanding C S R roadmaps with the fifth one starting in twenty twenty two.
4466607,65,752.74,773.9,1,Um I am now moving to slide sixteen we have confirmed our midterm targets regarding gross margin cashflow and E S G in terms of capital allocation Legrand will continue its balanced policy dedicating more than half of free cashflow to bolt-on acquisitions on average while maintaining an average dividend payout ratio of about fifty percent.
4466607,66,775.55,780.62,1,As you know the inaudible can be found on our website.
4466607,67,855.41,855.7,3,Thank you.
4466607,68,857.06,858.53,1,Uh hello Daniella.
4466607,69,858.53,871.63,1,So um on the first question um I'm sure that our distributors would like to um um build some inventory but uh given the constraints on the supply chain um I think they they can hardly do so.
4466607,70,871.98,882.86,1,So no we haven't seen um uh significant change in the inventory uh in twenty uh twenty one and they are not ably unfortunately to build back some inventory.
4466607,71,883.4,891.17,1,Uh now uh it compares uh twenty twenty one compared to a situation where the level of inventory in twenty twenty was already low.
4466607,72,891.7,902.44,1,So even uh with the current level of inventory and even without building back some inventory there is some positive impact on the top line um c coming from from inventory.
4466607,73,902.44,906.62,1,But but again uh uh I don't believe that their inventory is particularly high.
4466607,74,906.62,911.9,1,They would be uh happy and pleased to build back some inventory and unfortunately they they cannot.
4466607,75,912.44,918.9,1,Um as far as our own inventory um um well it's coming back to to normal.
4466607,76,919.28,932.87,1,Uh we had a level of inventory which was very low in h one uh given the very strong uh um surge in demand and in sales which was somehow unexpected um in in our effort to to answer to the demand.
4466607,77,932.87,943.73,1,So it's now coming back to normal so it has a mechanical um uh let's say negative impact on our uh net networking capital uh which we expected to happen.
4466607,78,943.97,959.88,1,Um and we clearly uh guided the market when we released our h one ones saying Be aware that as far as n networking capital is is concerned uh the the the free cashflow is concerned the situation will somehow deteriorate a little bit uh in h two compared to h one.
4466607,79,959.88,962.24,1,So it was completely e expected.
4466607,80,979.73,993.97,1,In other words or um our strategy for q three and q four probably going into twenty twenty is to do whatever it takes to serve our customers even at the expense of extra inventory.
4466607,81,994.82,1005.0,1,Uh unfortunately it's a bit difficult given the current scarcity of resource but um we will not hesitate in in building a bit more inventory if needed to get several customers.
4466607,82,1005.65,1020.75,1,As far as restructuring is concerned uh I think that a at the end of uh um uh September our level of restructuring is about eighteen million euros um which compared to fifty five um million euros uh or seventeen.
4466607,83,1020.75,1025.84,1,Sorry seventeen million euros compared to uh fifty five millions euros uh at the end of of last year.
4466607,84,1026.6899,1043.36,1,The key message is that we are uh coming back in twenty twenty one to a sort of normal level of restructuring um i e a level of restructuring between uh let's say twenty to thirty million euros or twenty to twenty five million euros which is sort of historical level of of of restructuring.
4466607,85,1044.08,1054.27,1,Uh so you shouldn't expect anything exceptional in q four um it should be more or less uh in line with what we have done so far uh since the beginning of year.
4466607,86,1054.45,1061.4501,1,Uh last year's level of restructuring was sort of uh exceptional uh given uh of course the the the the prices.
4466607,87,1061.99,1078.29,1,Uh I have uh to specify that are numbers are are are I'm giving you are uh excluding um the the the s sales of of asset and you remember that last year in q one uh we sold uh uh the big asset I think for fifteen million euros in uh in South America.
4466607,88,1078.37,1087.13,1,s so seventeen million at the end of o o o of September uh twenty to twenty five or thirty million euros for the full year.
4466607,89,1087.13,1093.54,1,q four we should be consistent with the rest of the year that's it.
4466607,90,1155.98,1180.33,1,Well um uh it is true that um the the the press and uh eleven to plus thirteen percent uh organic growth for the full year uh implies uh uh q four which would be uh over one year uh between uh minus two point seven percent and plus four point seven percent.
4466607,91,1180.88,1188.0699,1,And and and over two years um between let's say the the stronger uh decrease to almost a stability.
4466607,92,1188.28,1201.09,1,So this is the range we are shooting for um um for the plus eleven to to plus thirteen percent and as you are rightly mentioning the big uncertainty is coming from the supply chain.
4466607,93,1201.12,1205.72,1,The situation has clearly deteriorated in q three uh on many fronts.
4466607,94,1206.09,1218.26,1,Um it has uh uh become uh increasingly difficult to get the organic components for example it has been become increasingly difficult um to get uh uh containers and transportation capabilities.
4466607,95,1218.77,1224.48,1,Um or or or or capability to get the goods out of uh the customs quickly.
4466607,96,1224.48,1233.4199,1,The number of um of places um and and at times also um it has been the case for for more traditional raw raw materials.
4466607,97,1233.42,1235.3101,1,So the situation has deteriorated.
4466607,98,1237.04,1244.8099,1,Uh we'll see it's in q four but this is the the big uncertainty uh let's say between the plus eleven um and the plus thir thirteen percent.
4466607,99,1245.15,1250.41,1,Now I believe that the plus eleven to to make to make things clearer is somehow a bit conservative.
4466607,100,1251.0699,1262.38,1,Um um and and it's clearly the the l low end of guidance and it assumes very strong deterioration in the uh supply chain in in q four which which may not happen.
4466607,101,1262.78,1270.1799,1,But but this is a clear um let's say variable or or input that can change a bit the profile of the the q q four.
4466607,102,1270.58,1275.15,1,Um um compared to uh compared to to to to q three.
4466607,103,1275.46,1276.65,1,Last last word.
4466607,104,1276.85,1283.38,1,Uh beyond um the the supply chain constraints don't forget that q four twenty nineteen was a very strong quarter.
4466607,105,1283.9399,1290.11,1,So when you compare over the two year uh period yes q four twenty twenty was not uh very strong as such.
4466607,106,1290.11,1301.6901,1,But q four twenty nineteen was very strong both in terms of absolute gross and in terms of um um y you know comparison with our peers especially in North America.
4466607,107,1301.6899,1305.74,1,So it may also negatively impact the q four twenty twenty one performance.
4466607,108,1380.3,1389.92,6,Well it is is a quite a difficult question to answer uh like well it it it was it was a midterm comment not to comment for the next uh couple of quarters.
4466607,109,1390.3,1399.8701,6,And I think that uh um the first priority is for people to get back to their feets which a again um is not the case everywhere huh?
4466607,110,1400.58,1409.74,6,Uh if you look at the big metros in the US right now both of those work from home uh is is still quite inaudible in still um prevalent in many uh in many uh many places.
4466607,111,1409.74,1422.85,6,Um s- so i I could hardly tell you that uh we have done inaudible in the the pending quotes s saying that there is a structural change um in in the value of of of office space.
4466607,112,1422.96,1426.3899,6,So it was more a midterm comment th than a than a short comment.
4466607,113,1427.29,1430.85,6,Now um w we are very confident it'll happen.
4466607,114,1431.4399,1441.11,6,Um because um it is uh um supported by a number of requests and and times of fr from people to too.
4466607,115,1441.37,1445.47,6,For example the fact that uh uh office spaces will need to be greener.
4466607,116,1445.47,1451.5,6,There is a COP twenty six uh twenty happening with the US coming back to to the to the table.
4466607,117,1451.5,1452.74,6,It is sure that this will help.
4466607,118,1453.1801,1467.27,6,The fact that the more and more spaces will need to be connected uh to support um AV conferencing or inaudible conferencing is a fact to say that you'll need more and more connectivity whether it is wired or wireless to accommodate for more needs.
4466607,119,1467.27,1474.39,6,It's a fact the fact that a number of people uh will re require uh not to need to have a desk to work.
4466607,120,1474.39,1482.84,6,But also a number of uh you know um social uh spaces uh a lot more that before will will also happen.
4466607,121,1482.84,1486.28,6,So uh so those trends we saw some how much inaudible rise.
4466607,122,1486.35,1501.5699,6,inaudible speaking I have no uh you know precise number to tell you to tell you X or Y percent of office uh space will need to be inaudible out uh f for for additional of of of y s so uh we'll um we will see.
4466607,123,1502.48,1507.5801,6,<laugh> if I if I may say it's not uh yet uh happening because this is a long term trend.
4466607,124,1507.99,1509.73,6,But we are very confident that they will materialize.
4466607,125,1511.79,1512.04,7,Okay.
4466607,126,1561.6801,1564.95,6,Yes so of course well the the math are almost right.
4466607,127,1565.51,1581.79,6,Um inaudible supply in q four in terms of adjusted or breaking e b i t d inaudible including acquisitions between fifteen point three percent is the low end of the guidance up to seventeen point nine percent.
4466607,128,1582.14,1583.98,6,The uh upper end of of the guidance.
4466607,129,1584.8,1584.92,9,Right.
4466607,130,1584.92,1587.3,6,Well um three comments.
4466607,131,1587.85,1592.1001,6,Number one seventeen point nine percent is not uh never seen.
4466607,132,1592.4301,1598.03,6,Uh q four uh margins are always lower than the rest of the year.
4466607,133,1598.62,1600.23,6,it it's a seasonality to peak.
4466607,134,1600.23,1608.76,6,And if you look at the past five years uh margins uh around eighteen percent so let's say eighteen to eighteen point five percent were not uh never seen.
4466607,135,1609.14,1612.71,6,In twenty fifteen uh q four margin was eighteen point four percent.
4466607,136,1612.71,1615.1,6,In twenty sixteen it was eighteen point one percent.
4466607,137,1615.1,1622.4801,6,s so you know uh the inaudible q four margins are lower than our uh nine months margin.
4466607,138,1622.48,1626.1599,6,And eighteen percent e b i t d margin is not uh never seen.
4466607,139,1627.5601,1638.1699,6,Number two um uh there is a strong squeeze uh happening since the beginning of the year which is not a surprise to you.
4466607,140,1638.2,1643.7799,6,Between uh selling price and and purchase price which worsened in in q three.
4466607,141,1644.22,1647.1801,6,Uh maybe I can give you the precise uh precise number.
4466607,142,1648.6899,1658.33,6,the first uh nine months of the year um purchase price increased by close to ten percent.
4466607,143,1658.9,1663.1899,6,And selling price were up plus two point seven percent.
4466607,144,1664.67,1675.1801,6,Um a and uh those numbers were plus uh seven percent for the uh purchase price in h one and plus one point nine percent for the same price.
4466607,145,1675.1801,1684.58,6,So it implies q three which is at nearly plus fifteen percent as far as purchase price uh is concerned.
4466607,146,1685.03,1688.53,6,And plus four point three percent as far as selling price.
4466607,147,1689.3199,1698.65,6,Uh so y you remember I told in in July that in h two uh we we would have the purchase price which would be double digit.
4466607,148,1708.34,1719.4501,6,It's plus fifteen percent for purchase price and as a reserve uh we we uh did some some pricing at the upper end of of there's um of of the sort of the guidance I gave you.
4466607,149,1719.6801,1720.6599,6,Plus inaudible percent.
4466607,150,1721.17,1728.59,6,What to expect in q four well purchase price will probably be uh at the level of q three or even worse.
4466607,151,1792.05,1801.75,6,inaudible we have some instituting charges which h- has a pointed out by inaudible.
4466607,152,1801.75,1804.48,6,So we have many things that will partially composite for that.
4466607,153,1808.37,1818.23,6,Uh the difference between the low end of of the margin guidance and the high end of the margin gu guidance is clearly um coming from the supply.
4466607,154,1818.86,1828.53,6,Um and and whether you have a a let's say a minus three percent in q four plus five percent in q four of course does not have a same impact on the margin.
4466607,155,1862.83,1870.02,9,Could you talk about maybe what regions uh or maybe product lines what what drove that and how sustainable it's please?
4466607,156,1870.58,1870.62,6,Yeah.
4466607,157,1871.63,1872.97,6,Well um…
4466607,158,1876.08,1879.97,6,Oh so so in the rest of the world o over two years.
4466607,159,1888.12,1891.49,6,And and the nine months it is plus six point four percent.
4466607,160,1891.49,1898.2001,6,So yes indeed you have the big inaudible and and i I could uh I could hardly say that's it's it's a big expiration.
4466607,161,1898.67,1901.9701,6,And it's uh it's mostly coming from uh from India.
4466607,162,1902.55,1912.6201,6,Uh which is uh positive single digit over two years in Q3.
4466607,163,1912.62,1915.6799,6,And which is still negative single digit over nine months uh over over two years.
4466607,164,1915.6801,1926.7101,6,So you remember that in India the Covid inaudible is more twenty twenty one h one to peak then twenty twenty to peak as opposed to to most of the rest of the world.
4466607,165,1946.38,1950.67,6,Both in uh in- in uh Q3 and in nine months.
4466607,166,1951.6801,1956.42,6,Uh China uh is doing very well both in q three and in nine months.
4466607,167,1956.42,1958.55,6,inaudible two years of course.
4466607,168,1958.99,1961.08,6,And and and North America was too.
4466607,169,1961.61,1972.95,6,The the place which is a bit more difficult uh is the Middle East uh which is down uh over nine months and uh over q three over two years.
4466607,170,1973.0,1983.2,6,So to make a long story short uh the the it's good all across the zone except in Middle East and there's a change in trend between the h one and q three is mostly coming from India.
4466607,171,1985.24,1985.75,9,Very helpful.
4466607,172,1995.3101,1996.64,10,inaudible Frank.
4466607,173,1996.64,1997.64,10,Thanks for the time.
4466607,174,1998.01,2001.9301,10,Um I wanted to follow up on on the guidance discussions we've had.
4466607,175,2001.9301,2011.42,10,It was there in in early November already and you you assume in your range uh a pretty uh material further deterioration in the supply chain.
4466607,176,2011.42,2020.9601,10,So maybe you could comment what you have seen uh in October so far and how much visibility do you normally have in terms of uh components stock at hand and and so on.
4466607,177,2020.96,2029.5,10,The uh would this imply a dramatic deterioration basically into into the year end to get to the middle or to lower end of the range?
4466607,178,2029.53,2032.73,10,Or have you already seen a further deterioration in October?
4466607,179,2032.86,2033.98,10,That's my first question.
4466607,180,2035.36,2041.08,6,Well um you know the whole rules of the game on res so so no I will not comment on on uh on on October.
4466607,181,2041.65,2058.99,6,Um but again just just uh you know looking at q three I can confirm that the situation is uh is to to give you what is I mean to give you sort of a feeling of of what we are uh f facing in front of us.
4466607,182,2058.99,2067.3401,6,Uh we we had for example uh to relocate a couple of uh some of our IND team uh to do uh a sort of inaudible to supply.
4466607,183,2069.1201,2077.01,6,So to to uh start redesigning a number of products to incorporate companies that were more available than the ones that the products we already have.
4466607,184,2077.5801,2087.3098,6,Um uh we have um uh task force of of um supply chain people admitting uh weekly uh of of the top peaks.
4466607,185,2087.98,2093.27,6,Um we have uh daily discussions um uh with with our with our own suppliers.
4466607,186,2093.75,2099.3899,6,So so no it t translated it it was in q three par particularly uh difficult.
4466607,187,2099.3899,2102.1602,6,We are probably lost a couple of tens of million Euros of sales.
4466607,188,2102.95,2114.5901,6,Uh difficult to be more precise in terms of quantification because of well because you know um and at the same time we probably had a couple of distributors who were uh ordered a bit more than they needed.
4466607,189,2114.8101,2120.9099,6,When you want to make sure to get uh ten products uh you tend to order fifteen or twenty so <laugh>.
4466607,190,2121.5901,2129.3601,6,As a reserve to you think you you you are um the mo more sure if I may say to to get the the thing you really need.
4466607,191,2129.3601,2134.3201,6,Um so so you have many factors that that place specific to give you a precise number.
4466607,192,2134.3201,2138.8201,6,But we are probably lost uh a couple of tens of million Euro of sales over over over nine months.
4466607,193,2139.74,2149.96,6,Um a and again uh yes supply they're gonna assume that there would be a strong deterioration um in this situation.
4466607,194,2149.99,2154.0999,6,And and uh and as I said a little bit earlier uh to see some inaudible.
4466607,195,2155.55,2161.9299,6,So no I cannot be more specific inaudible the wholes of the game we we are not commenting months we are commenting quotas.
4466607,196,2163.6899,2164.03,10,Thank you.
4466607,197,2164.03,2166.8,10,And my my second question is on North America.
4466607,198,2166.9299,2174.49,10,Um maybe you could uh give a little bit more uh granularity on on the trends there in terms of uh volume growth.
4466607,199,2174.52,2176.79,10,Where volumes are now versus two years ago.
4466607,200,2176.79,2182.76,10,I assume the US has also seen or North America's also seen pretty high price increases uh this year.
4466607,201,2182.76,2186.3501,10,So where are volumes versus two thousand nineteen?
4466607,202,2186.76,2194.72,10,And what are you seeing or have seen in q three sequentially in terms of the growth trends uh momentum in the market in res versus non res?
4466607,203,2195.1499,2195.53,10,Thank you.
4466607,204,2196.04,2202.3999,6,Yeah well um um we are not commenting price on on a region valuation basis.
4466607,205,2202.3999,2208.4099,6,But uh I can uh tell you that's certainly no reason why we would do more price in North America and elsewhere.
4466607,206,2208.79,2216.8999,6,a and I sort of could put a inaudible where people were were stating a price increases of uh five percent or 7% or 9%.
4466607,207,2216.8999,2219.48,6,This is not the sort of price increase we are seeing in North America.
4466607,208,2219.9099,2225.7,6,Um so we're not increasing uh prices in North America more more more than elsewhere.
4466607,209,2226.22,2234.26,6,Um as for the trends uh are concerned uh not much new things to tell you compared to what we told you in h one.
4466607,210,2234.6399,2246.1699,6,Over nine months that doesn't inaudible and and residential are doing very well over the first nine months of the year with a strong double digit increase over two years.
4466607,211,2246.8501,2258.5701,6,Um as far as other non residential spaces which could present sixty percent of our sales uh I remind you uh that's still strongly negative over two years.
4466607,212,2259.05,2265.4199,6,However uh the two year trend is improving in q three compared to h one.
4466607,213,2266.1799,2272.6499,6,So the drop in sales over two years is not as strong in q three as it was in in H in h one.
4466607,214,2273.1899,2279.6001,6,And so inaudible that there is a slight growth uh over nine months compared to twenty twenty.
4466607,215,2279.71,2282.8899,6,So still a strong drop in sales over two years.
4466607,216,2283.8,2285.5798,6,A slight growth over one year.
4466607,217,2285.8101,2290.1101,6,And if you compare h one to q three uh q three is better than h one.
4466607,218,2290.1101,2293.9702,6,Um over over uh over two years.
4466607,219,2294.5901,2296.6101,6,Well so that's what I can tell you.
4466607,220,2296.8301,2301.5598,6,Uh and there so again nothing specific as far as the pricing is concerned in North America.
4466607,221,2302.0901,2311.8499,6,Um neither between the values inaudible business uh residential um non residential that is the inaudible when comparing North America with the rest of the world.
4466607,222,2313.5601,2314.23,10,Thank you very much.
4466607,223,2321.24,2327.6299,8,Thank you.
4466607,224,2360.71,2362.0,6,Yeah slight growth in value terms.
4466607,225,2362.0601,2362.27,6,Indeed.
4466607,226,2363.28,2367.3401,11,Are you able to to give us an indication of how we might look at in volume terms?
4466607,227,2369.8101,2372.4199,6,Well we are not uh we are not giving pricing inaudible.
4466607,228,2373.6799,2381.6401,6,Now now again uh you can assume that uh that the pricing we are doing in North America is not much different from uh what we're doing as well.
4466607,229,2381.6399,2385.6399,6,So uh um you can you can come to the conclusion by yourself.
4466607,230,2386.3999,2388.0801,6,no we're we're not giving precise pricing per region.
4466607,231,2409.1399,2409.3799,11,Okay.
4466607,232,2432.4199,2433.01,11,And also when you think about your procurement and whether this is procurement of components or procurement of finished product how much of that is is um is really dependent on what I would call sea freight um rather than just kinda more traditional transportation?
4466607,233,2448.1699,2455.72,6,Um a- a- and of course um the the inaudible do not need transportation where inflation is inaudible low single digit.
4466607,234,2456.74,2468.6699,6,We as uh transportation uh by sea or as inflation could be as high as uh times four five or six for for inaudible for example.
4466607,235,2470.25,2482.1602,6,Um uh and and the only significant uh um let's say flow we have big one uh is between Asia and the US.
4466607,236,2482.46,2483.5801,6,We already discussed that.
4466607,237,2483.5801,2489.5498,6,<laugh> two years back when we discussed the trend for inaudible a year ago when we discussed Covid.
4466607,238,2489.55,2497.8,6,So this is so the biggest uh let's say a a flow of products or companies uh from one continent to another.
4466607,239,2498.25,2505.28,6,Now uh I'm starting to make at least a way able to uh give more precise breakdown of those uh three percent.
4466607,240,2505.4399,2506.6001,6,Um not sure we can.
4466607,241,2507.8999,2516.6199,6,inaudible no no nor do we see a profit here we we we we can know type of stuff that that much I inaudible but you see three percent of sale is not a lot.
4466607,242,2516.6201,2526.0598,6,inaudible say that looking at our footprint uh it's more domestic at transportation than what you you call the the sea flows that are inaudible.
4466607,243,2527.05,2543.02,6,And third our product and moreover the ones have leaned from China to the US are really small products where the the the um th the freight doesn't think of the cost like the inaudible sales are minimum.
4466607,244,2543.4399,2548.95,6,So this is why uh the question is how much uh the transportation is harming our P&L it's not much inaudible today.
4466607,245,2548.95,2563.8201,6,And last maybe comment as far as um uh increasing in price of transportation it's pretty consistent with what I told you about inaudible confidence.
4466607,246,2564.27,2570.27,6,It's really higher than what I told you for inaudible it's a little bit lower for inaudible for example but it's pretty consistent.
4466607,247,2572.99,2573.6001,11,Thank you much.
4466607,248,2573.6001,2574.3201,11,Very helpful.
4466607,249,2607.6201,2625.6301,6,Well I'm I'm i I don't today I- I don't see that as a as a short term relief because there's such a short edge in uh in in the inaudible and materials that the people are um you know e eager to to uh to continue the the innovation of the section work.
4466607,250,2625.8799,2628.0898,6,And that that's gonna be stoked by by inflation.
4466607,251,2628.25,2631.53,6,Which inaudible has uh somehow it gets impacted at the inaudible.
4466607,252,2632.0,2640.73,6,Uh which again is difficult to side and to inaudible but when you have no wood uh for wooden construction where you have no complete for example and you have no wood.
4466607,253,2648.27,2656.98,12,Uh um now of course if the construction cost was to uh uh increase by I don't know thirty forty percent it could potentially…
4466607,254,2656.98,2662.22,12,you are right it could potentially over the mid-term have a negative impact on uh on the on the market itself.
4466607,255,2662.4399,2673.3699,12,That's not what we are seeing so far um and I believe that uh part of this uh negative impact uh would be more of an offset uh by by all the positive inaudible which I already mentioned.
4466607,256,2673.8201,2678.5601,12,Uh you know whatever the cost of uh uh of of the goods um…
4466607,257,2678.6001,2690.3899,12,if there is um the strong uh uh political and social uh willingness um to uh make the buildings greener uh a lot of innovation work will happen.
4466607,258,2690.3899,2696.02,12,And you know what whatever the cost of of of raw materials and components.
4466607,259,2696.02,2701.1301,12,If you need to install uh you know uh uh inaudible system at home to remotely work you will.
4466607,260,2701.6399,2708.75,12,So so um…
4466607,261,2719.1799,2721.03,12,It's not increasing by ten or fifteen percent huh?
4466607,262,2721.97,2726.55,12,<laugh> Uh and of course also the price of other inputs uh is also increasing.
4466607,263,2727.0,2738.9199,12,Um uh but but to today I don't believe that that the price for the total renovation for example or price for uh big construction is increasing by uh thirty forty fifty percent huh?
4466607,264,2739.3401,2745.0901,12,And and it's not uh something we have never seen to to do a price increase of plus two point nine percent.
4466607,265,2745.6101,2747.3,12,s so uh uh…
4466607,266,2747.3301,2748.8501,12,Sorry two point seven percent not two point nine.
4466607,267,2748.8501,2750.96,12,So so I wouldn't be so uh so sure.
4466607,268,2750.96,2752.28,12,Theoretically it could happen.
4466607,269,2752.8401,2761.9099,12,Frankly speaking number one given the level of pricing we see today in the market which is not plus ten fifteen or twenty percent but closer to what we are doing plus two point seven percent.
4466607,270,2761.9099,2768.0701,12,And number two also mega trends which uh which will materialize I don't believe it'll really happen.
4466607,271,2770.8799,2771.22,13,Thank you.
4466607,272,2782.71,2786.24,15,Good morning everyone and thank you for giving me the opportunity to ask question.
4466607,273,2786.74,2798.73,15,Uh on on the uh sort of continuing on the pricing point just wanted to get your thoughts on um uh you know you said said that you'll p- potentially continue to take pricing action into fourth quarter as well.
4466607,274,2799.1899,2803.8901,15,Uh how much do you see that supporting sales maybe in early…
4466607,275,2803.8899,2805.23,15,in twenty twenty two?
4466607,276,2805.8501,2811.4302,15,Um and also just wanted to get your thoughts on the uh supply chain issues and supply shortages.
4466607,277,2811.9199,2816.21,15,Uh what is your outlook or thoughts on this situation?
4466607,278,2816.21,2817.72,15,How do you see that developing?
4466607,279,2817.75,2823.22,15,Or let's say how how long do you expect these constraints uh to last uh in the market?
4466607,280,2824.0,2832.5398,15,And uh maybe last question a little bit more medium or long-term is related to the um European renovation market.
4466607,281,2832.7,2833.8301,15,Are you starting…
4466607,282,2833.8301,2840.21,15,How do you see that that developing in the context of uh the Green Deal as well as the Recovery Fund?
4466607,283,2840.21,2845.1499,15,Are you starting to see uh sort of demand and funds flowing into the market now?
4466607,284,2845.71,2846.0601,15,Thank you.
4466607,285,2847.4199,2848.02,12,So um…
4466607,286,2848.05,2849.3501,12,Well clearly there will be a carry.
4466607,287,2849.3501,2850.5198,12,So so so as I told…
4466607,288,2850.52,2856.47,12,As I said q four pricing should be around plus four percent compared to q four twenty twenty.
4466607,289,2856.47,2859.5901,12,So so pretty much what we did in in q three.
4466607,290,2859.5901,2865.6501,12,And of course this will have uh uh uh carryover impact on on uh…
4466607,291,2865.6499,2867.1702,12,into twenty twenty two.
4466607,292,2867.48,2870.1499,12,Well so will the cost of raw materials and components.
4466607,293,2870.1499,2870.26,12,<laugh>.
4466607,294,2872.27,2875.6599,12,So you have of course a negative impact on sort of the pr price of input.
4466607,295,2876.0801,2882.3801,12,Well it is far too early to discuss twenty twenty two um uh guidance.
4466607,296,2882.3799,2900.3401,12,We will do that uh we'll do that in February when we release our 2021 uh num- numbers but of course you know our mid-term guidance which is five to ten percent top line growth on average per year excluding for inaudible and about 20% EBIT so…
4466607,297,2900.5601,2906.52,12,which we repeated uh and redirected uh at the end of September.
4466607,298,2907.05,2936.97,12,As far as the supply chain constraint well I have no crystal ball and I have to um uh you know listen to specialists and read studies and what most people say is that uh you have uh you know a very sort of inaudible to the issues which for example is about containers and a number of traditional raw material such as polypropylene and most people say that this should ease uh in the coming months or quarters.
4466607,299,2937.48,2954.8401,12,And um but but most of the specialists also expect the the semiconductor issue and the electronic component issue to last until the beginning of twenty twenty three because it'll take time for semiconductor especially to build the capacities…
4466607,300,2955.1201,2958.49,12,extra capacities additional capacities to to answer to the demand.
4466607,301,2958.49,2959.8701,12,So that's what most people say.
4466607,302,2967.3701,2971.8301,12,it should last a bit longer than that.
4466607,303,2972.3799,2977.72,12,As far as the third question is concerned well it is too early to see the European renovation wave.
4466607,304,3001.6299,3020.8999,12,It it it always take a bit of time uh between the time initiative is announced is structured than it is voted by the European Parliament then it is voted by the local parliaments and then the uh uh the fl- fl- flow of money is getting out into the market.
4466607,305,3020.8999,3027.1299,12,So so the renovation markets were pretty positively oriented in twenty twenty one but it's not coming from any stimulus plans.
4466607,306,3027.1299,3050.23,12,It's coming from the fact that following the lockdowns a lot of people decided to uh renovate their their home because they felt that it would become <laugh> that the new place where they wouldn't like to leave or to inaudible a place where they would need to be uh remotely uh uh connected to their doctors to their office and so and so forth.
4466607,307,3050.23,3058.5801,12,So renovation is is pretty well-oriented in twenty twenty one but it's not coming from the renovation wave or the Future fifty five or any of those programs.
4466607,308,3059.2,3069.73,12,Uh it's coming mostly from the the need of of individuals and to a certain and lower extent from local uh incentive plans that were announced one or two years back.
4466607,309,3071.1201,3071.3501,15,Okay.
4466607,310,3071.46,3071.6099,15,Thanks.
4466607,311,3071.77,3072.01,15,Thank you.
4466607,312,3072.01,3072.8098,15,Thank you very much.
4466607,313,3109.52,3113.74,12,Well you know that for us it is always difficult to identify a a mix.
4466607,314,3113.74,3124.4202,12,We have on one hand pricing which we can you know um quantify measure very accurately and then we have volume and mix and it's it's a bit difficult to split between volume and mix.
4466607,315,3125.3601,3129.54,12,And and and we are doing the analysis over nine months.
4466607,316,3129.54,3131.8999,12,So uh uh uh…
4466607,317,3132.1699,3133.95,12,It's difficult for me to answer.
4466607,318,3134.3601,3143.1199,12,What I can tell you is that um uh when we look at the values product families uh the the sectors which we notified as a…
4466607,319,3143.1201,3155.4502,12,or or labeled as faster expanding segments inaudible products data centers and then the green programs grew faster than the rest of a part of it.
4466607,320,3155.45,3160.8198,12,Now I have no more precise uh uh n n number to tell you.
4466607,321,3160.8201,3169.01,12,We haven't seen um the big change whereby for example given the increasing price of of products customers will…
4466607,322,3169.25,3172.8799,12,would shift from added value products to simpler or access the product.
4466607,323,3172.8799,3176.8801,12,No there is not such a move and we don't expect this move to happen.
4466607,324,3177.6399,3179.26,12,But I have no more comment to give you.
4466607,325,3179.26,3182.3701,12,We're not doing this kind of in-depth analysis on a nine-month basis.
4466607,326,3218.54,3221.1299,16,I understand.
4466607,327,3243.5,3244.72,12,they're not growing twenty percent.
4466607,328,3245.54,3245.6001,12,<laugh>.
4466607,329,3245.6001,3260.3,12,And uh so so all products families in non-resi in the u s uh somehow suffer from the fact that uh people have not yet gone back fully to the office and that the renovation work are not are not really uh…
4466607,330,3260.72,3262.77,12,have not yet really happened there.
4466607,331,3263.3101,3268.1799,12,Take on the other side Western Europe and residential market which is which is booming.
4466607,332,3268.6699,3274.03,12,It's booming on those th th- th- th- three um segments as well as inflation product.
4466607,333,3375.1101,3397.1199,12,In July we said two to four in pricing for h two and now we are saying it's going to be uh m more four than two cuz it was four point three percent in q three and we are shooting for four percent in q four.
4466607,334,3399.9299,3401.8799,12,what is never granted because you are always…
4466607,335,3401.8799,3404.9199,12,you could all always give some price out to your customer.
4466607,336,3404.9199,3413.6799,12,But given the pricing initiatives we have launched until then we are very confident our ability to reach these plus four in in in q four.
4466607,337,3414.3301,3417.8,12,If your question is why aren't we doing more?
4466607,338,3418.4199,3421.49,12,The answer is we could.
4466607,339,3421.49,3431.4001,12,Um especially in the current context we could do a five six or seven percent price increase instead of four in in q four.
4466607,340,3431.8101,3441.9302,12,I don't believe it would be a wise decision for Legrand because even though everybody's increasing its price I think that it'll put us somehow at a competitive risk.
4466607,341,3442.6001,3451.71,12,So pricing it's always a you know small balance you have to find between protecting your profitability and protecting your competitiveness.
4466607,342,3452.23,3459.52,12,And and we believe we lack a few managers who are really you know driving these price increases.
4466607,343,3459.52,3470.8,12,We jointly believe that the plus uh four percent plus if I may say in h two in q four uh is uh is the best balance uh we can we can have today.
4466607,344,3477.24,3477.3899,17,Okay.
4466607,345,3500.99,3501.55,17,Yes.
4466607,346,3516.71,3522.3699,12,Now now we'll see it is true that the labor shortage is a is a fact.
4466607,347,3522.3701,3533.7,12,It impacts actually not only people at uh you know contractors for example but it it's also something we have to manage in our factories.
4466607,348,3535.6799,3540.98,12,Well well uh so far I think this is not the topic.
4466607,349,3540.98,3546.5,12,The topic is more the fact that the recovery is as expected a bit slow.
4466607,350,3546.5,3553.98,12,it'll take a bit of time before the people get back fully to work and all renovation work are performed.
4466607,351,3659.0901,3663.8999,12,And and again the answer be…
4466607,352,3716.73,3718.3198,12,I'm gonna invest my money is in something else.
4466607,353,3718.6001,3719.71,12,Also more as…
4466607,354,3720.29,3726.4199,12,don't forget that during the year twenty twenty in many countries people saved a lot of money.
4466607,355,3727.1899,3733.71,12,I see the total savings for France alone and I don't remember the exact number but it's a hundred twenty or one fifty billion Euros of money which was saved.
4466607,356,3733.71,3735.6401,12,So no to make a long story…
4466607,357,3735.6399,3746.6902,12,to make a long story short I don't see this kind of behavior whereby there would be a migration let's say toward cheaper product.
4466607,358,3746.73,3751.9099,12,All the more as all of the factors are seen to play the fact that your product need to be available…
4466607,359,3752.6001,3757.0,12,you know today clearly there is a rush to want products which are available.
4466607,360,3792.9099,3801.6599,12,Now again um when it is a contractor choosing or the end user choosing are they usually choosing lower value product?
4466607,361,3801.6599,3803.6299,12,The answer is no.
4466607,362,3803.96,3813.1201,12,And and and um you can still sell value added value products to those guys.
4466607,363,3831.9399,3833.8701,12,So you see it's a couple of tens of billion euros.
4466607,364,3833.8701,3834.3699,12,It's not big.
4466607,365,3834.3701,3836.77,12,So it's not a big let's say cost problem for us.
4466607,366,3837.3701,3854.1499,12,It can even provide additional opportunities and push people either in engineering offices contractors end users toward buying a lot more energy-efficient inaudible solutions.
4466607,367,3854.1799,3855.2998,12,You know when you uh…
4466607,368,3979.1599,3985.3301,21,Um I don't see there is I don't think there is a specific uh difference inaudible except that they're going faster.
4466607,369,3985.8501,3989.9099,21,Uh so no I wouldn't I wouldn't tell you that we have more more pricing power.
4466607,370,3989.9399,4019.8,21,As far as the twenty twenty two um uh uh you know inaudible is concerned but again inaudible we are very confident in our ability to uh deliver a midterm inaudible which uh which inaudible but on- on top of that uh given the fact that we're pretty reasonable in terms of pricing that's a feeling I have uh not doing too much of of pricing.
4466607,371,4020.1899,4021.5801,21,Uh that's probably a inaudible for 2022 if we needed.
4466607,372,4021.5801,4035.7998,21,Uh and and as far as cost management is concerned we have reinvested uh into uh into cost uh expenses uh wherever needed in twenty twenty one.
4466607,373,4035.8,4042.46,21,So again if we did uh we would have the ability to uh uh put cost under under a bit more more constraint.
4466607,374,4042.98,4046.1899,21,Uh so um I'm not giving any warning for twenty twenty two.
4466607,375,4093.29,4095.3301,21,Not only for pricing but also for leverage.
4466607,376,4112.7598,4116.1401,21,Well part of that cost of course is inaudible but part of it also inaudible.
4466607,377,4153.0898,4157.4897,23,I think about q four and the guidance you've given uh what it implies for margins.
4466607,378,4175.3701,4177.8203,23,and and margins are obviously under pressure in q four.
4466607,379,4177.8198,4182.8896,23,And I just as we go into q one and q two of next year is this just something we have to weather.
4466607,380,4183.1899,4191.0898,23,i I listened to your comment around confident that you can recover the margin to 20% on the midterm and is that really how we should read things?
4466607,381,4191.0898,4204.0898,23,That the exit rate next year can be twenty percent but honestly you know as we move into the early part of next year we're going to have to accept margins sub twenty for awhile cuz you can't pull the lever of price without hurting market share.
4466607,382,4204.3799,4231.4199,23,Or is there an alternative such as a a more aggressive restructuring campaign that we could see inaudible different level you could pull to offset the headwinds you now seem to be experiencing.
4466607,383,4249.77,4258.5,21,Uh inaudible another one inaudible yearly guidance and and the twenty percent margin.
4466607,384,4259.0,4269.1597,21,Number two I'm doing what it takes uh uh to serve my customers inaudible um and and reinforces inaudible.
4466607,385,4269.1602,4273.6001,21,Uh so so inaudible I know that it'll not precisely answer your question but uh again we discuss the 22 guidance uh in February.
4466607,386,4274.5,4279.2998,23,Okay but I guess crosstalk.
4466607,387,4279.2998,4279.5298,21,crosstalk.
4466607,388,4279.5298,4293.2197,21,You should inaudible when we are telling you that uh that we will uh uh do whatever it takes to deliver on midterm guidance.
4466607,389,4294.3599,4294.6099,23,Yes.
4466607,390,4296.3198,4296.4497,23,crosstalk.
4466607,391,4296.4502,4298.8896,21,inaudible achieve uh inaudible.
4466607,392,4300.1401,4303.2798,23,Yeah i I have confidence on on you recovering the twenty percent margin.
4466607,393,4357.3198,4369.5195,21,inaudible uh either uh we can uh consolidate them uh uh before the end of the year uh and the the scope of consolidation will be uh slightly above uh two percent.
4466607,394,4369.52,4373.48,21,or or we can inaudible the scope of consolidation will be slightly below two percent.
4466607,395,4375.54,4375.8701,21,inaudible.
4466607,396,4375.8701,4379.4497,21,it is not a big deal and we're not rushing to consolidate uh uh you know.
4466607,397,4379.4502,4392.8101,21,for for for me uh it's not uh naturally nice to be uh uh like 3.1 uh and I can very much leave with a two point eight for example because we wouldn't uh have uh rushed too much in consolidating.
4466607,398,4393.1699,4411.9697,21,So so that's where the the that's why the the the you know wording is nearly um it depends on the ability to consider the facts which does not only depend on us but also on the state of the financials the readiness of the companies to be consolidated.
4466607,399,4412.75,4429.8696,21,As for our sort of midterm um uh inaudible effect what we said during inaudible is that inaudible percent including the big deal inaudible and excluding inaudible it was uh three percent.
4466607,400,4430.2598,4438.2002,21,So we are not changing inaudible between uh plus three or plus four percent depending on whether or not we are doing a bigger deal.
4466607,401,4438.54,4447.8101,21,If we could do more if we could do uh inaudible year five or six we would would of course be delighted to do so provided we are buying the right companies.
4466607,402,4448.4902,4467.6001,21,The third comment as far as uh um uh pipeline is is concerned well we still have a number of discussions uh going on so I'm not uh afraid about our ability to to further this uh in the quarters uh to come.
4466607,403,4474.5898,4482.8999,21,Now it has always been uh inaudible asset to be able to uh uh buy quality companies at uh reasonable prices.
4466607,404,4482.8999,4488.8301,21,But what we did uh this year was uh uh inaudible to do the quarters to come.
4466607,405,4488.8301,4491.5703,21,So no there's still a number of discussions going going on.
4466607,406,4492.0801,4504.2397,21,I can not be precise on the on uh when they will materialize because uh until you have signed inaudible contract and even sometimes close the deal you never sure to to to to make it.
4466607,407,4624.6401,4635.4199,21,Uh i think our performance was um something like plus two uh in q four twenty nineteen compared to to q four twenty eighteen and other inaudible were were down sometimes three four five six percent.
4466607,408,4636.0898,4656.9102,21,So so um so uh uh I think that the inaudible in q four twenty twenty one will have to be compared with q four twenty nineteen which is uh uh so a two year comparison which uh must to be done for inaudible in twenty twenty one given the very specific uh uh let's say uh pattern of the year twenty twenty.
4466607,409,4657.23,4665.1401,21,So so that's why we don't expect uh you know inaudible in the US cuz inaudible for comparison over two years is pretty pretty difficult.
4466607,410,4665.8301,4687.8901,21,As far as China is concerned when I told you that inaudible nine months prior than the q four was positive inaudible two years um uh both Q3 in nine months were up the inaudible where it's inaudible but nothing to be worried about.
4466607,411,4722.3999,4744.25,21,It's not saying that uh we will go in China whatever happens but it mean that uh for example uh we will continue to look at potential acquisitions in China uh we've done uh two in the past uh four years and we'll remain interested to do more and we'll keep investing into new products inaudible ability midterm to keep going inaudible in China.
4466607,412,4744.3901,4754.4502,21,So to make a long story short nothing specific between inaudible and q three uh uh no precise guidance for the rest of the year no for twenty twenty two because it's too early.
4466607,413,4763.5801,4773.9697,21,We haven't seen uh significant customer uh going down.
4466607,414,4774.8599,4781.1299,21,I mean you know going outta business uh in twenty twenty because of financial constraints.
4466607,415,4781.6802,4787.7603,21,Uh so it's not um reason why customers are changing.
4466607,416,4788.2202,4809.8198,21,Uh and uh and we continue to work with all the big guys inaudible as well as big contractor inaudible so I don't see there's anything specific uh coming from customer churn that would be worth mentioning.
4466607,417,4810.4502,4817.79,21,Um we have a pretty solid and stable customer base and I haven't seen a a big shift from one customer to another coming from the prices.
4466607,418,4818.8501,4820.73,21,Again you are mentioning pricing.
4466607,419,4821.79,4839.7998,21,Um uh I don't wanna repeat uh things but uh see seeing uh pricing such as the one we are seeing is plus two point seven percent inaudible or plus four point three in q three.
4466607,420,4842.1401,4845.9102,21,inaudible plus three or plus four percent.
4466607,421,4865.0498,4886.0698,25,Um I wanted to ask another question on the USA please.
4466607,422,4886.1299,4888.5503,25,Just if you can help us understand.
4466607,423,4888.5498,4899.5098,25,If i if I think about the year and how it's developed I think um in q one you know you had four percent growth and non-resi decline.
4466607,424,4899.5898,4906.6904,25,In q two you had fifteen percent growth and again your non-resi was um nearly unchanged.
4466607,425,4921.0898,4930.9302,25,It seems to be if we are seeing pricing was plus four in q in q three then there's a volume drop of about five percentage points.
4466607,426,4931.23,4934.3501,25,Non-resi was growing according to your commentary.
4466607,427,4934.8101,4940.4399,25,So why why is there such an apparent drop in q four around data centers and residential?
4466607,428,4940.8198,4942.8701,25,or or perhaps I'm reading it the wrong way.
4466607,429,4943.1299,4949.4302,25,How would you describe the trend in the segments in q three across the business lines?
4466607,430,4951.3301,4956.5103,21,Well i I was um more commenting over two years than over one year.
4466607,431,5013.7402,5022.27,21,And over two years that's where I can tell you residential uh up strongly up I mean up double digit.
4466607,432,5023.0098,5029.98,21,In nine months up double digit in q three we about the same number.
4466607,433,5061.4199,5083.6699,21,The market itself is still supportive.
4466607,434,5107.6602,5114.8496,21,So uh we see that as a sort of uh sign for improvement even though it remains um a negative over two years.
4466607,435,5118.1802,5119.2803,25,Thank you very much.
4466607,436,5119.8301,5120.1899,25,Um…
4466607,437,5126.0698,5126.7798,22,Thank you.
4466607,438,5173.0,5178.8999,21,Thank you.
4466718,0,2.26,9.39,0,Good morning ladies and gentleman and welcome to Bancolumbia's third quarter twenty twenty one earnings conference call.
4466718,1,10.2,13.67,0,My name is Claudia and I will be your operator for today's call.
4466718,2,14.81,17.76,0,At this time all participants are in a listen-only mode.
4466718,3,19.15,22.83,0,Following the prepared remarks there will be a question and answer session.
4466718,4,23.95,30.54,0,During the question and answer session if you have a question please press star then one on your touch down phone.
4466718,5,31.39,34.02,0,Please note that this conference is being recorded.
4466718,6,35.03,46.48,0,Please note that this conference call will include forward looking statements including statements related to our future performance capital position credit related expenses and credit loses.
4466718,7,47.87,58.79,0,All fore-looking statements whether made in this conference call in future filing in press releases or verbally address matters that involve risk and uncertainty.
4466718,8,59.65,66.57,0,Consequently there are factors that could cause actual results to defer material from those indicated from such statements.
4466718,9,67.19,70.8,0,Including changes in general economic and business conditions.
4466718,10,71.43,78.57,0,Changes in current exchange rates and interest rates introduction of competing products by other companies.
4466718,11,79.8,84.31,0,Lack of acceptance of new products or services by our targeted clients.
4466718,12,84.97,92.74,0,Changed in business strategy and various other factors that we describe in our reports filed with the f c c.
4466718,13,93.99,99.59,0,With us today is Mr Juan Carlos Mora Chief Executive Officer Mr.
4466718,14,99.59,115.27,0,Mauricio Rosillo Chief Corporate Officer Mr Jose Humberto Acosta Chief Financial Officer Mr Rodrigo Prieto Chief Risk Officer Mr Carlos Raad Investor Relations Director and Mr.
4466718,15,115.27,118.38,0,Juan Pablo Espinosa Chief Economist.
4466718,16,119.87,125.05,0,I will now turn the call over to Mr Juan Carlos Mora Chief Executive Officer.
4466718,17,125.49,125.94,0,Mr.
4466718,18,125.94,127.62,0,Juan Carlos you may begin.
4466718,19,134.79,154.16,1,Good morning and welcome to our conference call for the third quarter 2021.
4466718,20,246.12,253.07,1,Given that the trend of the better-than-expected economic recovery not only applies for Colombia but in all the geographies where we have presence.
4466718,21,363.9,365.01,2,Thank you Juan Carlos.
4466718,22,365.64,369.79,2,Now I will ask you to go to slide number three in the presentation.
4466718,23,381.24,387.81,2,Instead the development of new ways of understanding the economic reality has gained momentum.
4466718,24,388.63,392.56,2,Most of these advances are based on the use of data.
4466718,25,393.05,399.62,2,At Bancolombia we have been pioneers of this emerging trend in the local financial industry.
4466718,26,400.46,412.68,2,Our proprietary and analytical tools and our large sample of banking transactions allows us to have a comprehensive real-time picture of the state of the Columbian economy.
4466718,27,413.45,434.47,2,In the first place our inaudible tracker of overall activity which follows closely inaudible official figures points to our year-on-year growth in the third quarter of fourteen point one percent higher than the latest consensus estimate of nine point two percent.
4466718,28,435.61,447.33,2,A significant contributor to this growth is domestic demand which according to Bancolombia's card holder purchases has been accelerating in the past few months.
4466718,29,447.72,457.8,2,For instance in the first twenty days of October these transactions grew twenty percent compared to twenty twenty and eight percent relative to twenty nineteen.
4466718,30,458.39,470.49,2,Moreover the graph at the bottom left shows that the volume of deposits to corporate banking accounts by sector and firm size relative to pre-pandemic levels.
4466718,31,471.11,487.91,2,These figures are good at anticipating sectoral performance and they're signaling that important contributors to G D P such as retail manufacturing and agricultural sectors expanded at a strong pace in the third quarter.
4466718,32,488.71,494.3,2,Furthermore SME's revenues are recovering faster than those of large firms.
4466718,33,494.85,506.87,2,Finally the number of payrolls payments processed through through Bancolombia's accounts which is a proxy for formal labor demand accelerated during the last quarter.
4466718,34,507.41,513.66,2,This suggests that the labor market is already reacting to the rebounding economic activity.
4466718,35,514.17,520.55,2,In turn this would allow an employment rate to decline further towards the end of the year.
4466718,36,521.06,533.36,2,All in all our indicators point to a widespread and consistent improvement of the Columbian economy after the disruptions caused by the national strike and the reduction of COVID cases.
4466718,37,533.95,542.21,2,This bodes well for two year two thousand and twenty one growth expectations which currently stand at ten percent.
4466718,38,552.65,560.4,1,Moving to slide four I want to continue this presentation by explaining the loans and deposits performance.
4466718,39,561.83,567.67,1,The recovery of the economy has resulted in significant progress in our business.
4466718,40,568.69,572.09,1,We have experienced an important growth in the number of clients.
4466718,41,593.84,615.34,1,In that dynamic uh partially supported by the economic recovery but continues to be evident in inaudible This trend confirms that the bank overcame the economic shock of the pandemic without relevant implications on its financial stability.
4466718,42,615.41,623.97,1,Since the beginning of the year the retail and mortgage segments have shown positive trends.
4466718,43,624.41,629.52,1,Whereas the commercial segment started to improve since the second quarter.
4466718,44,629.52,655.58,1,cuz of the expansionary monetary policy with historically low interest rate makes the balance of bank deposits decrease over the last 12 months and this has been compensated with an increase in savings and checking accounts which has allowed us to reduce the funding cost.
4466718,45,656.78,673.4,1,However as the Central Bank started last month a rate hiking cycle and the loan book is growing at a better pace we expect the balance in term deposits to raise again in the same direction of the funding costs.
4466718,46,705.79,720.22,1,This indicates that the customer experience evolution has accelerated during twenty twenty one towards a permanent adoption of digital channels by many of our clients.
4466718,47,768.86,780.4301,1,During this quarter we added one point five million new clients reaching eight point six million with a very low acquisition cost.
4466718,48,792.15,800.88,1,Remember that we consider an active client the one interacting at least once a month towards a monetary transaction.
4466718,49,801.4,813.4,1,And this is how we leverage the development of our profitability model having clients with a low acquisition cost and with a high active user ratio.
4466718,50,821.5,837.58,1,Notice that we are not only issuing more plastics the number of transactions and the volume of payments are increasing at a very solid pace reaching almost three times the figures observed one year ago.
4466718,51,839.22,845.2,1,Moving to slide seven you can see some relevant figures of Bancolombia a la Mano.
4466718,52,846.26,854.52,1,Like other countries in the region the population in Columbia lives throughout the country in several large medium and small cities.
4466718,53,855.95,858.63,1,Bancolombia a la Mano targets low income individuals.
4466718,54,858.63,864.69,1,we're actively responsible for financial inclusion and education.
4466718,55,865.73,880.43,1,Through our financial inclusion initiatives we provide mostly free financial services for people to access savings and credit tools to become financially empowered and improve their quality of life.
4466718,56,881.33,884.18,1,Bancolombia a la Mano has reached almost six million clients.
4466718,57,885.2,887.59,1,The income per client continues increasing.
4466718,58,912.5,924.63,1,Therefore we provide financial and non-financial solutions to strengthen the productivity network of our countries create sustainable cities and communities and promote financial inclusion.
4466718,59,961.42,962.11,1,Jose?
4466718,60,965.81,966.88,3,Thank you Juan Carlos.
4466718,61,968.0,973.52,3,Now turning to slide nine I want to walk you through the evolution of the relief program.
4466718,62,975.02,976.97,3,Credit reliefs continued decreasing.
4466718,63,977.52,979.75,3,We are gradually returning to normal.
4466718,64,980.97,984.54,3,This quarter relief programs in Columbia and Panama finished.
4466718,65,985.86,993.42,3,During the upcoming quarters it will be key to follow the evolution of the federation restructured loans and charge-offs.
4466718,66,995.05,999.52,3,Considering the geographies where the bank operates our focus is Panama.
4466718,67,1000.8,1009.53,3,The percentage of relief is decreasing gradually but it is still twenty percent of the loan growth coming from twenty six percent in the previous quarter.
4466718,68,1010.93,1017.58,3,Unlike the other countries where we operate Panama maintained a relief program until September thirty.
4466718,69,1017.58,1029.9601,3,This situation required inaudible to allocate considerable resource to which specific agreements with clients that were under some relief is key during this quarter.
4466718,70,1052.3199,1061.39,3,On this slide you can notice not only the percentage of the loan book that is under relief but also its compensation by segment and stages.
4466718,71,1062.48,1067.86,3,On a consolidated basis six percent of the loan book continues under relief.
4466718,72,1095.11,1099.83,3,Provision charges for the third quarter were five hundred fourteen billion pesos.
4466718,73,1100.59,1104.1899,3,As we did in previous quarters we won't explain the breakdown.
4466718,74,1105.95,1114.36,3,This quarter has the lowest provision charges since the pandemic began improving the trend we observed in the first half of the year.
4466718,75,1115.91,1126.34,3,As you can notice in the lower part of the slide we may assume of covid nineteen and parameters obtained and are the main drivers behind these results.
4466718,76,1128.0699,1145.3101,3,At the end of the relief programs in Columbia and Panama and expiration of the ninety four percent of the relief been granted to our clients we have been able to gather more and better information that allowed us to improve the methodology under which we built provisions.
4466718,77,1146.66,1151.03,3,During this quarter we have managed to reach final agreements with clients.
4466718,78,1151.5,1157.39,3,Therefore as they comply we inaudible has been agreed and we release provisions.
4466718,79,1158.55,1165.92,3,These together with a better forecast of economic parameters have innovated a release of the balance of previous periods.
4466718,80,1167.65,1174.4301,3,Specific provisions inaudible in the quarter due to the recall of corporate clients of the construction sector in Columbia.
4466718,81,1176.41,1180.49,3,Moving to slide eleven we give you a snapshot of provisions and asset quality.
4466718,82,1181.79,1190.1,3,Cost of risk for the quarter was one percent and for the last twelve months was two point two percent reflecting the good pace of recovery of our clients.
4466718,83,1190.9301,1202.2,3,If this trend continues continues for the last quarter it's possible that cost of risk for this year may be better than the guidance we gave in the second quarter of two point three percent.
4466718,84,1203.46,1208.65,3,During this year charge-offs have increased exceeding the levels of twenty twenty.
4466718,85,1209.17,1210.97,3,This has two important impacts.
4466718,86,1211.61,1218.1101,3,First it reduces the balance of the loan portfolio and second it helps reduce the level of party loans.
4466718,87,1219.58,1229.02,3,We maintained solid coverage for thirty and ninety days that allow us to handle the following periods of possible deterioration.
4466718,88,1232.0,1236.26,3,On slide 12 represent the consolidated and standalone capital adequacy.
4466718,89,1236.26,1247.86,3,Consolidated total inaudible ratio stands at a level of fifteen point three percent while Tier one at a level of eleven point eight percent under full Basel III for the third quarter.
4466718,90,1248.8101,1256.6699,3,These ratios are well above the minimum regulatory requirements not only in the consolidated basis but in the standalone operation.
4466718,91,1273.51,1278.1299,3,We have enough capital to support the loan book growth in the upcoming years.
4466718,92,1279.27,1281.97,3,On slide thirteen we present the liquidity position of the bank.
4466718,93,1283.0,1287.88,3,In a consolidated basis we continue operating with a sufficient level of liquidity.
4466718,94,1288.6801,1300.34,3,Also this corporate saving and checking accounts represents fifty six percent of inaudible This increase has been compensated with a decrease in term deposits and credits with corresponding banks.
4466718,95,1301.29,1313.7201,3,As we have mentioned during the call the economic activity in the loan book are showing better trends quarter by quarter so we expect to gradually increase the balance in term deposits to support this growth.
4466718,96,1314.48,1320.54,3,As a result and with the expected hikes from the Central Bank the cost of the deposits may increase.
4466718,97,1321.72,1323.6,3,On to slide fourteen we present.
4466718,98,1327.1801,1339.66,11,In general terms the trend through all of the different geographies operated by Bancolombia was similar stable margins steady growth of the loan book increase of expenses and decreasing provision charges.
4466718,99,1340.87,1345.8201,11,Over the last years the training the main metrics of the stand-alone operations is positive.
4466718,100,1347.1801,1352.26,11,The American operations were percent twenty eight percent of profit but thirty two percent of net income.
4466718,101,1353.84,1358.7201,11,Now I want to give you a quick overview of each of the Central American countries where we operate.
4466718,102,1360.72,1362.17,11,Let's start with Banco Agricola El Salvador in Guatemala.
4466718,103,1362.17,1368.42,11,This quarter the growth of the portfolio was driven by the consumer portfolio.
4466718,104,1369.04,1375.35,11,Each reflects the bank's strategy within the total portfolio mix.
4466718,105,1376.7,1380.2101,11,Commercial and mortgages also had a good performance in third quarter.
4466718,106,1381.3,1389.54,11,The recent charges show the recovery thanks to the improvements in the reigning commercial giants and in specific divisions.
4466718,107,1391.96,1397.27,11,Banco Agricola El Salvador continued consolidated the portfolio growth that is boosting recovery.
4466718,108,1399.37,1411.2,11,As an accumulated portfolio grows both in retail and commercial segments responding to the dynamics of economic recovery that the country is experiencing.
4466718,109,1411.55,1415.97,11,And we ch also reflect a solid recovery of free income.
4466718,110,1433.27,1453.0,11,inaudible positive growth is strategy and a renewed physical assets making it possible not only relevant increase but also a change in the inaudible where savings and checking accounts are being shared improving the common cost.
4466718,111,1467.77,1472.8701,11,Net interest inaudible in the five percent area as we were expecting.
4466718,112,1473.75,1483.23,11,The rate hike inaudible started in September and we expect the reference rate to close twenty twenty two in four point two five percent.
4466718,113,1484.09,1489.79,11,This is going to be positive for inaudible but will be reflecting the first couple of quarters of next year.
4466718,114,1491.65,1496.7,11,inaudible will continue with the same pace of growth gradually overcome twenty nineteen fears.
4466718,115,1496.7,1501.2999,11,These inaudible may be treated like a reduction in the funding cost.
4466718,116,1502.38,1506.74,11,We continue using the liquidity in a more efficient way as the dynamic of the establishment improves.
4466718,117,1506.74,1512.6,11,Slide 17 shows the evolution of expenses efficiency.
4466718,118,1522.83,1534.98,11,As a result operating expenses as of September are nine percent up when compared to the same period of twenty twenty.
4466718,119,1549.5601,1556.38,11,Net fees continue to be one of the most resilient lines inaudible growing over ten percent year to date.
4466718,120,1557.6,1576.4099,11,Payment and collections as well as banking services have added to the strong performance although fees from inaudible and commercial establishments is the line with the largest contribution thanks to increasing the volume of transactions the use of the Dutch Islandsinaudible.
4466718,121,1577.16,1580.3,11,Slide eighteen shows the profitability metrics.
4466718,122,1581.4301,1591.1299,11,During the three first quarters of this year we have delivered material year on year earnings growth maintaining the pace of investment in digital transformation.
4466718,123,1592.0,1598.78,11,Net income for the quarter was nine hundred forty three billion pesos and return on equity is 12.7%.
4466718,124,1601.02,1615.14,11,Even though provision charges were the main driver of these results I want to highlight the good performance of the oldest lines of the inaudible such challenging situations stable margins steady growth of inaudible.
4466718,125,1615.5699,1618.2201,11,And the fast recovery of the inaudible income.
4466718,126,1619.65,1628.4601,11,Finally it's worth mentioning the impact of the tax we file in Colombia which is inaudible calculation of deferred tax by generating an additional provisional inaudible.
4466718,127,1632.76,1636.9399,11,Now I want to turn the presentation to Juan Carlo for the closing remarks.
4466718,128,1637.9301,1638.3,11,Juan?
4466718,129,1641.65,1642.34,7,Thank-you Jose.
4466718,130,1674.24,1687.75,7,After elaborating on these key topics we want to open the line for questions.
4466718,131,1689.54,1690.02,11,Thank-you.
4466718,132,1690.66,1693.21,11,We will now begin the question and answer session.
4466718,133,1693.79,1698.54,11,If you have a question please press star then one on your touch-tone phone.
4466718,134,1699.1899,1703.61,11,If you wish to remove yourself from the question cue please press star then two.
4466718,135,1704.52,1708.9,11,If you're using a speaker phone you may need to pick up the handset before pressing any keys.
4466718,136,1709.77,1714.39,11,Once again if you have a question please star then one on your telephone.
4466718,137,1717.5601,1721.1,11,Our first question is from Yuri Fernandes with j p Morgan.
4466718,138,1721.1,1721.8199,11,Please go ahead.
4466718,139,1724.49,1724.72,6,Hello.
4466718,140,1724.91,1725.63,6,Good morning.
4466718,141,1725.63,1729.7,6,Uh congrats on the results and thank-you for for the opportunity of asking questions.
4466718,142,1730.26,1735.38,6,I have the first one regarding the the asset quality to look for two thousand and twenty two.
4466718,143,1735.38,1742.16,6,You already provide some color un in the call but I guess the the indicators they were good for the quarter right?
4466718,144,1742.61,1744.5699,6,And we were concerned with Panama.
4466718,145,1745.4301,1746.6001,6,Panama data was okay.
4466718,146,1746.6,1751.01,6,So so my question is what should we expect for asset quality uh.
4466718,147,1751.01,1752.63,6,Is the worst behind?
4466718,148,1752.63,1757.92,6,Like what should be like the normalized level losses for for the next year?
4466718,149,1758.46,1762.4301,6,And I have a second question regarding your digital initiatives.
4466718,150,1762.66,1771.83,6,I guess Nequi is a very good platform like when we look to the to the KPIs number us users ratings Google trends you know you name it.
4466718,151,1772.41,1779.75,6,But we are starting to see some peers uh entering uh the Colombian market like some fintechs some big ones.
4466718,152,1780.36,1788.1899,6,So just like a high level view from you uh how do you see this competition evolving in Colombia with some players coming?
4466718,153,1788.67,1790.97,6,Um what are the are the challenges in the market?
4466718,154,1791.02,1794.88,6,What are you doing to prepare the company uh for those new guys?
4466718,155,1795.34,1795.75,6,Thank-you.
4466718,156,2012.92,2013.6,8,Please go ahead.
4466718,157,2016.0,2016.55,9,Good morning.
4466718,158,2016.55,2016.99,9,Thank-you.
4466718,159,2017.02,2017.9301,9,Thank-you for the presentation.
4466718,160,2017.9301,2021.9301,9,My first question is a follow-up uh regarding uh cost of risk.
4466718,161,2021.9301,2028.05,9,I I understand the guidance for the year is um two um two point one percent.
4466718,162,2028.05,2037.95,9,That looks still uh pretty conservative considering that during the first uh nine months of the year you you had about one point six percent.
4466718,163,2037.95,2042.0801,9,So that implies uh 2.5% uh cost of risk for the fourth quarter.
4466718,164,2042.74,2062.7,9,And when I um when I look at um your numbers for uh this year um the quarter sorry and I normalize the the cost of risk uh by the provision of releases that you had uh apparently what you you shoulda had is about around one point five percent.
4466718,165,2062.73,2070.6799,9,So I'd like to understand why why are you still conservative about uh the cost of of risk uh expectation for for the rest of this year?
4466718,166,2075.3201,2076.2,7,Thank-you Andres.
4466718,167,2223.75,2227.1699,9,Okay Juan Carlos.
4466718,168,2227.1699,2232.22,9,My my second question is regarding your loan growth expectations for uh two thousand and twenty two.
4466718,169,2232.6499,2238.1301,9,You say that uh you are expecting a G D P growth for Colombia of three point six percent.
4466718,170,2238.72,2245.79,9,So I would like to to see what what are your thoughts in terms of how this translates in terms of uh loan growth uh next year.
4466718,171,2246.23,2253.71,9,And bases on this and our cur current capital location uh ratios how do you feel about your uh current uh dividend uh uh distribution?
4466718,172,2256.53,2257.5,7,Yeah sure Andres.
4466718,173,2269.1599,2284.3601,7,And regarding distribution eh we saw the second half of this year pick up with the growth of retail loans.
4466718,174,2435.3201,2436.8599,9,And congratulations on the results.
4466718,175,2439.6799,2440.23,7,Thank-you Andres.
4466718,176,2443.6599,2447.3599,8,Our next question is from Jorge Kuri with Morgan Stanley.
4466718,177,2447.4199,2448.0601,8,Please go ahead.
4466718,178,2449.21,2449.27,10,Hi.
4466718,179,2450.46,2451.2102,10,Good morning everyone.
4466718,180,2451.21,2452.9001,10,Uh thanks for the call.
4466718,181,2452.8999,2454.0901,10,I hope everyone's doing great.
4466718,182,2454.73,2456.6799,10,Um I wanted to ask two questions.
4466718,183,2456.8999,2459.4001,10,One is on expenses for the quarter.
4466718,184,2459.9199,2464.77,10,They were up uh a lot quarter on quarter and year on year.
4466718,185,2472.1699,2481.3799,10,I want- wanted to hear from you if there were some extraordinary items there or you brought forward some of expenses in the fourth quarter and what the expectation is for the full year and for next year.
4466718,186,2503.55,2503.8801,10,Thank-you.
4466718,187,2504.48,2504.5701,7,Yeah.
4466718,188,2507.9399,2508.8901,7,Thank-you Jorge.
4466718,189,2510.3,2511.8101,7,Eh first one expenses.
4466718,190,2722.6599,2734.6299,14,Next year our sensitivity is for every 100 basis points have changed the Central Bank our sensitivity will be at around eight inaudible.
4466718,191,2734.6299,2755.3101,14,That means that we are going to see an expansion of the mean uh beginning the second quarter of next year and maybe we're gonna if the interest rates at the end of this year closes at a level of 4.5% to 5% maybe you're going to see an expansion of mean in between forty to fifty basis points uh or even more in in our mean portfolio.
4466718,192,2794.3899,2798.3999,15,Our next question is from Ernesto Gabilondo with Bank of America.
4466718,193,2798.53,2799.1699,15,Please go ahead.
4466718,194,2799.2,2803.6401,16,Um uh hi.
4466718,195,2803.6399,2806.6199,16,Uh good morning Juan Carlos inaudible Umberto.
4466718,196,2807.26,2809.74,16,Um Carlos and good morning to all your team.
4466718,197,2809.79,2812.9399,16,Thanks for the uh presentation and for the opportunity.
4466718,198,2813.6001,2815.99,16,Um I have uh three questions from my side.
4466718,199,2816.0901,2819.1401,16,Uh the first one is on the political landscape.
4466718,200,2819.28,2824.1001,16,Um we continue to see petrol leading the presidential post.
4466718,201,2824.1001,2829.9099,16,So um I will appreciate it if you can share with us uh what have you been hearing from his proposals?
4466718,202,2830.54,2837.6199,16,Um I don't know what have you been hearing if he is wanted to implement higher taxes or or banking fees.
4466718,203,2838.3899,2841.79,16,Anything from what you have heard uh I think will be very helpful.
4466718,204,2842.55,2844.7102,16,Uh and then my second question is on uh inaudible.
4466718,205,2845.3701,2852.6499,16,Uh we have seen the rest of the region developing uh inaudible banks and willing to do spin-off at some point.
4466718,206,2852.72,2869.5999,16,Uh so considering that you already have a good number of clients and uh that you are starting to become profitable uh what else do you need to consider uh for a potential spin-off and a listing of inaudible Uh and then my last question is on your effective tax rate.
4466718,207,2869.77,2875.1401,16,Uh we think it was high during the quarter uh considering the new tax reform.
4466718,208,2875.54,2879.6401,16,Um so how should we think about effective tax rate for the last quarter next year?
4466718,209,2879.8501,2880.1602,16,Thank you.
4466718,210,3103.8899,3113.6001,14,And we are expecting at the end of this year the the taxation for Bank of Colombia for the entire group will be 32% at the end of this year.
4466718,211,3114.1699,3121.0701,14,We are expecting next year because of the tax reform we are going to get the level of thirty four percent thirty five percent.
4466718,212,3121.6201,3132.8901,14,And the thirty two percent of this year at the end of December it is explained mainly because the main source of net income comes from the Bank Colombia in which we have the higher statutory tax.
4466718,213,3145.01,3148.75,15,Our next question is from Tito Labarta with Goldman Sachs.
4466718,214,3148.9399,3149.5901,15,Please go ahead.
4466718,215,3150.3799,3156.8999,17,Uh thanks for uh taking my question.
4466718,216,3156.8999,3158.9299,17,Just two quick uh follow-ups actually.
4466718,217,3158.9299,3160.7302,17,First follow-up on the expenses.
4466718,218,3160.73,3165.3,17,In terms of the efficiency ratio um yeah given the growth of expenses right it picked up.
4466718,219,3165.3,3170.5701,17,How how do you think about that that efficiency you know going forward and given the investments you're doing?
4466718,220,3171.0701,3178.78,17,Um could it be some cost savings with the digital initiatives sum or is that the expense is going to um sort of higher initially?
4466718,221,3178.8501,3181.6399,17,It's tough to think about the evolution of that efficiency ratio.
4466718,222,3182.1499,3195.8601,17,And then to follow up quickly on the the tax rate should the the tax rate just go up you know roughly five percent for the next year given the new tax rate so it should be like around thirty five percent or so um I guess in Colombia offset by the lower tax rates in the other countries?
4466718,223,3196.05,3198.7,17,Just to confirm for next year how that's actually inaudible.
4466718,224,3198.8301,3204.9001,17,Thank you.
4466718,225,3207.6699,3220.8699,12,And and you mentioned our digital strategy and digital investments that uh should add efficiency to our operations.
4466718,226,3315.02,3330.0,12,And it is uh inaudible sort of inaudible by Colombia uh in which essentially inaudible you had a tax reform.
4466718,227,3348.77,3352.95,14,Next year 30% to 38% including the special tax that you mentioned.
4466718,228,3364.45,3365.01,17,countries right?
4466718,229,3367.4099,3368.3701,17,more or less around…
4466718,230,3402.5701,3403.3499,17,Thank you very much.
4466718,231,3406.9199,3410.8401,15,Our next question is from Olavo Artuso with UBS.
4466718,232,3411.01,3411.6802,15,Please go ahead.
4466718,233,3464.75,3466.5999,12,So it's…
4466718,234,3630.74,3644.26,12,And with those numbers inaudible uh so we have close to nine million customers in inaudible and close to six million customers on on Bank of inaudible so inaudible 15 uh million customers in in both platform.
4466718,235,3662.99,3671.95,18,But just to follow up on on this stuff like uh I just wanted to hear from you uh do you think the digital initiative is all about the banks?
4466718,236,3826.1699,3828.0999,18,Thank thank you inaudible thank you Carlos again.
4466718,237,3836.9399,3837.6101,15,Please go ahead.
4466718,238,3839.6699,3840.4001,19,Thank you very much.
4466718,239,3840.3999,3841.54,19,Uh can you hear me well?
4466718,240,3841.54,3843.46,19,Because I'm uh with earphones.
4466718,241,3849.0801,3851.2,19,Thank <laugh> thank you Jose Umberto.
4466718,242,3851.4199,3851.9199,19,Thank you Juan.
4466718,243,3852.3799,3853.96,19,So uh hello everyone.
4466718,244,3854.1201,3856.0701,19,Yeah congratulations on the results.
4466718,245,3856.0701,3860.3101,19,And uh I have uh just uh you know a couple of follow-ups as well.
4466718,246,3860.96,3881.5701,19,Uh uh initially uh if you could just clarify and give me uh give us a bit more granularity about uh the reasons uh for uh the uh you know uh uh eh deferred tax rate adjustments uh causing uh a negative impact in this quarter?
4466718,247,3881.96,3885.6802,19,Uh and I explain why uh you know uh my question.
4466718,248,3886.0701,3903.3799,19,The point is that when uh you know the the taxation increased uh in Brazil at least uh we uh uh you know reevaluated uh the tax credit stock uh you know uh uh appreciating that stock.
4466718,249,3903.3799,3915.6499,19,And this caused actually a a positive effect and extraordinary positive effect in the quarter uh when the banks uh reevaluated upwards uh their stocks of tax credits.
4466718,250,3915.72,3925.76,19,Not sure uh if uh in in your case you had a tax liabilities and that was why uh you ended up having a higher uh deferred tax not lower.
4466718,251,3926.01,3937.3899,19,Uh so uh this is the uh uh you know first question just a clarification on uh what really caused uh the impact that if you had uh tax liabilities or tax credits uh tax assets.
4466718,252,3937.8999,3944.5801,19,Uh and uh the second question uh you know just a follow-up here uh you know on the uh digital initiatives.
4466718,253,3944.72,3952.3999,19,Uh when I look into inaudible and Alimano uh it it's interesting because uh you are evolving well uh in both.
4466718,254,3952.95,3958.01,19,But uh you know some of the KPIs uh defer uh quite substantially.
4466718,255,3969.9299,3977.8701,20,Uh when you look into uh you know A la mano uh it's much lower you know just forty one percent.
4466718,256,3978.24,3984.04,20,And uh this has not really increased versus uh last year which was at forty uh percent.
4466718,257,3984.3601,3986.3098,20,Uh the same happened to NPS.
4466718,258,3986.3601,3993.5901,20,Uh you know Nequi had uh approximately eighty one uh in the case A la mano uh you have sixty four.
4466718,259,3993.76,4009.6001,20,So just wondering uh uh w what you are seeing in terms of uh challenges uh for A la mano for you not to achieve uh the same uh KPIs uh you know versus uh what you are achieving already a Nequi?
4466718,260,4009.9099,4010.2598,20,Thank you.
4466718,261,4078.1399,4080.4602,22,Just hold the line one moment while we reconnect.
4466718,262,4094.45,4106.4199,23,Uh you're right and in terms of of deferred tax uh when we recalculate deferred tax based on on the new tax reform we have three elements.
4466718,263,4107.0098,4114.3198,23,Uh the loan portfolio the bonds both as you mention has a positive affect on on the deferred.
4466718,264,4125.46,4128.6997,23,And that's the reason why it affected our taxation.
4466718,265,4128.9399,4135.6704,23,And you can see that thirty eight percent taxation inaudible because of the combination of these three factors.
4466718,266,4136.1001,4139.6104,23,The first two loans and bonds are positive as you mentioned.
4466718,267,4139.96,4145.5498,23,But the third element which is bigger than the other two it is affecting in a negative way.
4466718,268,4145.6201,4148.9697,23,that that explains why the tax increased.
4466718,269,4150.6299,4152.6001,20,Perfect very clear uh Jose.
4466718,270,4152.8301,4153.8301,20,Uh thank you very much.
4466718,271,4155.3999,4155.6001,20,Thanks.
4466718,272,4155.6001,4156.46,23,No no no my pleasure.
4466718,273,4156.5601,4159.6797,23,Juan you can continue with his question.
4466718,274,4163.29,4164.5103,22,i I don't believe we have him back.
4466718,275,4164.5098,4165.1802,22,Just one moment.
4466718,276,4182.2402,4190.54,23,Complementing the answer of of Juan as as in the previous question we have two different profiles in Nequi and A la mano.
4466718,277,4190.5698,4194.71,23,and and the the there are big difference.
4466718,278,4194.71,4203.7798,23,First Nequi is more oriented to people who live in the cities and A la mano is more oriented to people rural who live in small towns.
4466718,279,4203.7798,4206.0303,23,So we complement the offer.
4466718,280,4206.3198,4213.4102,23,Uh the challenge is how we are able to maintain the activity for the first thirty days.
4466718,281,4213.73,4217.46,23,And we feel proud saying that we have very positive numbers in both.
4466718,282,4217.8198,4232.8403,23,and and the reason is because we are using not only to receive for example in the case of low income population uh uh different subsidies but also because they are actively using for transactional uh uh ways.
4466718,283,4233.2402,4235.9399,23,Juan you can continue with the with the with the answer.
4466718,284,4236.3198,4237.4302,23,Now you are connected.
4466718,285,4392.3501,4393.3101,20,That's perfect Juan.
4466718,286,4393.3398,4394.9102,20,Thank you very much for the answers.
4466718,287,4397.0498,4397.5098,21,Thank you Jacque.
4466718,288,4399.3599,4404.1201,22,Our next question is from Carlos Gomez with HSBC New York.
4466718,289,4404.1499,4404.8599,22,Please go ahead.
4466718,290,4417.7798,4422.25,24,You have a positive impact for um loans and for bonds.
4466718,291,4422.25,4423.5503,24,You have a negative for goodwill.
4466718,292,4523.1001,4527.1401,23,Yes Juan uh yes Carlos as you mentioned this is a one off.
4466718,293,4527.54,4530.1299,23,It is affecting the third quarter tax.
4466718,294,4530.7202,4535.9399,23,Uh and again at the end of the year we will expect the three two percent.
4466718,295,4536.3999,4542.6201,23,And yes next year we will expect the thirty to thirty four perfect three five percent tax.
4466718,296,4543.0298,4550.8301,23,And also obviously it'll affect the profitability cuz we were not expecting uh that increase in taxation.
4466718,297,4551.2598,4560.6401,23,But again this is a one off and we are not going to see a recalculation of that next year assuming that the deferred tax will maintain the same thirty five percent.
4466718,298,4561.52,4567.8799,23,I don't know if that answer the question Carlos.
4466718,299,4578.9502,4579.1201,24,Right?
4466718,300,4581.48,4582.3799,23,Correct that's correct.
4466718,301,4582.4102,4589.8501,23,If the taxation comes down the recalculation of goodwill will affect in a different way as you mentioned.
4466718,302,4589.8501,4590.5996,23,That's correct.
4466718,303,4591.8901,4592.4502,24,Okay thank you.
4466718,304,4592.6602,4595.6099,24,And if I can follow up on the on the ROE question.
4466718,305,4614.1201,4618.46,24,Uh are there other factors that have made this year better than you feared initially?
4466718,306,4664.7998,4674.9199,21,So it's driven mainly by the quality which is going through inaudible towards normalize number.
4466718,307,4674.9199,4695.8003,21,But we we had a very challenging uh period during the 2020 and even 2021 uh inaudible bank and- and fees and net interest and margins inaudible perform perform well.
4466718,308,4705.6499,4709.0503,22,Our next question is Jason Mollin with Scotiabank.
4466718,309,4709.3301,4709.9497,22,Please go ahead.
4466718,310,4710.8101,4718.21,25,Hi thank you very much for the opportunity to ask questions Juan Carlos Samberto.
4466718,311,4718.21,4725.2598,25,Uh I have a follow up on the the digital efforts on Nequi and and uh Bancolombia A la mano.
4466718,312,4726.1602,4737.1299,25,I mean we're seeing this very rapid growth for instance in Nequi the number of uh of users uh in the quarter alone from seven point one million to eight point six million.
4466718,313,4737.6602,4743.1904,25,And then uh on on the Bancolombia A la mano from five point four million to five point seven.
4466718,314,4743.6899,4755.73,25,and you are showing which is very interesting the uh customer acquisition cost of thirty three cents at Nequi and thirty six um at Bancolombia A la mano.
4466718,315,4755.73,4763.9702,25,If you can talk a little bit about how you're driving this growth in clients and uh what is incorporated in that acquisition cost.
4466718,316,4764.6001,4769.7402,25,And uh you know is that something that you know in in many ways I think you could say it looks very low.
4466718,317,4769.7402,4773.3301,25,But just how you view that could it be lower could it be higher?
4466718,318,4773.3301,4774.79,25,How should we think of that going forward?
4466718,319,4774.8398,4775.1699,25,Thank you.
4466718,320,4775.1699,4780.0703,21,Uh thank you thank you Jason.
4466718,321,4822.3599,4827.0,21,And once you are a client then you can just sign in in five minutes.
4466718,322,4962.6899,4966.3101,21,We don't expect that number to go lower or higher.
4466718,323,5104.4502,5105.29,21,Thank you Jason.
4466718,324,5106.5601,5109.98,22,This concludes the time allocated for questions on today's call.
4466718,325,5110.3701,5114.2598,22,I would now like to turn the conference back over to management for any closing remarks.
4466718,326,5170.96,5172.3604,22,You may disconnect your lines.
4466718,327,5172.7402,5175.3696,22,Thank you for participating and have a pleasant day.
4466797,0,55.79,56.05,0,Thank you.
4466797,1,60.53,71.38,1,We've we have here with us our C E O Miguel Stilwell d'Andrade and our C F O Rui Teixeira who will run you through the key highlights and inaudible of the business plan execution and of the the nine month results.
4466797,2,72.08,75.35,1,We'll then move into q and a in which we will be taking your questions.
4466797,3,75.98,83.62,1,This call is expected to last a around one hour um and I'll now give the floor to our C E O Miguel Stilwell d'Andrade.
4466797,4,84.56,85.01,2,Thank you Andre.
4466797,5,85.7,86.6,2,Good afternoon everyone.
4466797,6,87.19,88.6,2,I hope you're all doing well.
4466797,7,88.6,96.97,2,And it's also a pleasure to be on these calls um and be able to not only present what what we've been doing but also take your questions afterwards.
4466797,8,97.8,102.73,2,So anyway today we have a lot to talk about so I'll get straight into the presentation.
4466797,9,103.72,108.82,2,We move to slide five in just giving you a broad overview of the the business plan execution.
4466797,10,109.67,117.64,2,First of all in the the key pillars of growth we are ramping up and we have around two point five gigawatts added year on year.
4466797,11,117.75,125.82,2,So this is a good progress towards the three gigawatts plus uh which we were aiming for in the twenty twenty one to twenty twenty three growth targets.
4466797,12,126.47,130.52,2,So this is actually the largest number of megawatts ever built by E D P Renewables in twelve months.
4466797,13,131.15,138.76,2,And I'd really like to highlight that this shows that there is a successful ramp up of the growth rate and it should give us confidence on the execution of the growth plan.
4466797,14,140.04,143.16,2,Also today uh we just announced the acquisition of Sunseap.
4466797,15,143.2,145.35,2,You would've seen that news I'm sure this morning.
4466797,16,145.93,148.86,2,I think it establishes a great platform in Asia Pacific.
4466797,17,149.62,154.87,2,This is a region and I'll talk a little bit about this later on but it's a huge gross potential in the region.
4466797,18,155.5,158.47,2,Um so that's something I think that's worth also highlighting obviously.
4466797,19,159.81,168.38,2,On secure capacity we now have eight point one gigawatts secured out of which seven point nine gigawatts in twenty twenty one to twenty twenty three.
4466797,20,168.69,172.47,2,So that's around seventy five percent of our twenty twenty one -' twenty three target.
4466797,21,173.01,174.25,2,I think good progress there.
4466797,22,174.75,183.1,2,And we also have visibility on additional four point one gigawatts of PPAs in our key markets in which we are either shortlisted or currently under negotiation.
4466797,23,183.26,189.6,2,So uh we will hopefully be giving good visibility on the rollout of those PPAs also in the next couple of months.
4466797,24,190.58,198.77,2,So overall solid ramp up of growth a good platform for growth in Asia Pacific and also strong execution with short term visibility on the uh additional PPAs.
4466797,25,198.77,208.3,2,On the asset rotation program so the the pillar here in the the middle we continue to see strong market appetite and attractive valuations.
4466797,26,208.42,209.92,2,Um both for wind and solar.
4466797,27,210.51,218.63,2,We have the two point three billion of asset rotation proceeds multiples continue to be very attractive on average one point six million euros per megawatt.
4466797,28,219.01,221.21,2,one point seven for wind and one point two for solar.
4466797,29,221.69,224.27,2,So I'll go there in a little bit more detail in in a minute.
4466797,30,225.13,233.26,2,As of September we have five hundred fifty million of asset rotation proceeds overall capital gains of a hundred fifty one million following the the Mayflower earn out of thirty million.
4466797,31,233.81,240.14,2,So overall we're on tracks to deliver capital gains above the three hundred million euros of guidance that we've given for this year.
4466797,32,240.87,246.74,2,And we have a couple of transactions which we've already announced but which we're hoping to close over the next couple of weeks or months.
4466797,33,247.19,249.86,2,Um but hopefully at least one or two by the end of the year.
4466797,34,260.37,269.34,2,This is a down zero point six percent uh year on year but it still reflects ninety five percent of the expected gross capacity factor.
4466797,35,270.45,274.99,2,We have had a bad year in terms of wind I mean low resource particularly in the US and Spain.
4466797,36,274.99,280.26,2,And I think that's something that we've talked about in previous quarters and the third quarter was um no exception.
4466797,37,281.54,288.06,2,Regarding operations we continue with a strong performance with core OPEX per megawatt decreasing three percent year on year.
4466797,38,288.65,292.97,2,And on the technical side we continue to deliver a good availability of ninety seven percent.
4466797,39,293.0,294.69,2,So slightly above year on year.
4466797,40,294.69,298.44,2,So in terms of operations I think good performance there.
4466797,41,299.2,303.05,2,On E S G execution is well on track for the business plan targets.
4466797,42,303.55,308.52,2,We have already most of the initiatives are already in progress under the changing tomorrow now program.
4466797,43,309.8,320.1,2,And finally um I mean just a on a note it's not here on the slide but we have an inaudible nine hundred seventeen million euros net income of around a hundred fifty million a hundred forty eight million.
4466797,44,320.8,323.86,2,This is mostly impacted by the lower capital gains year on year.
4466797,45,324.72,330.96,2,The first quarter one off ERCOT event and lower generation or lower wind in the US and Spain.
4466797,46,330.96,333.73,2,I think that's um something we have to recognize.
4466797,47,333.95,342.13,2,So it hasn't been a great year from a wind resource perspective um and overall the high pool prices in the third quarter has also introduced some pressure on the the hedges.
4466797,48,343.15,348.43,2,In Spain in particular the EBITDA is forty to forty five million below expectation in the nine months.
4466797,49,349.21,355.16,2,thirty million of which is from low wind especially in the second and third quarter which is below um the the p fifty.
4466797,50,355.7,362.58,2,And then you have around ten to fifteen million from the financial hedges in the third quarter given the high prices combined with low generation.
4466797,51,363.19,368.0,2,So I'll go this go through this in more details and and who we will will also elaborate more on this.
4466797,52,369.63,371.65,2,Anyway let's move forward to slide six.
4466797,53,372.38,380.15,2,So here um on the growth platform for Asia Pacific uh that we and the Sunseap transaction we announced today.
4466797,54,380.81,386.62,2,So as you know we had twenty gigawatts of editions until twenty twenty five set out on the strategic plan.
4466797,55,387.19,391.81,2,one point four gigawatts we'd outlined or highlighted will come from new markets.
4466797,56,392.93,395.67,2,These new geographies do bring us optionality.
4466797,57,395.67,397.8,2,They bring diversification to our portfolio.
4466797,58,398.12,402.51,2,And so the expansion into Asia Pacific was something we'd been working on now for a while.
4466797,59,402.51,405.85,2,So um I think today's news is is certainly good news.
4466797,60,407.16,412.02,2,We move to slide seven uh just talking a little bit about the overall Asia Pacific market.
4466797,61,412.61,414.9,2,It's one of the largest renewables markets globally.
4466797,62,415.48,418.26,2,It has strong growth expectations especially in solar.
4466797,63,419.15,423.82,2,We're talking about a hundred twenty gigawatts per year um in terms of growth.
4466797,64,423.82,424.93,2,So it's a massive market.
4466797,65,723.2,723.64,2,Okay.
4466797,66,723.96,727.0099,2,So um sorry for the technical difficulties.
4466797,67,727.01,728.33,2,I mean I I think this is the first.
4466797,68,729.82,734.56,2,I'm told that we somehow got disconnected around slide seven.
4466797,69,734.56,738.27,2,So I'll resume on side seven hopefully you haven't heard of that before.
4466797,70,739.3,743.94,2,Um so I'll just go back to slide seven and um and talk about Asia Pacific.
4466797,71,743.94,747.71,2,So this is really one of the largest markets globally.
4466797,72,747.9,757.53,2,Uh it's got you know huge growth expectations especially in solar and you know some key numbers which I think are worth highlighting a hundred twenty gigawatts per year market.
4466797,73,757.56,759.32,2,So it's uh it's really a massive market.
4466797,74,759.95,765.8,2,fifty five percent of the global growth and renewables and solar represents sixty five percent of this growth in Asia Pacific.
4466797,75,766.78,773.13,2,Also something which I'm sure everyone will be familiar with which is I mean this is a highly populated densely populated region.
4466797,76,773.63,777.84,2,So it's over four billion people with and over fifty percent of the global power demand.
4466797,77,778.57,786.2599,2,And finally just to say that countries like China Japan South Korea they've all committed to net zero emissions by twenty fifty or twenty sixty.
4466797,78,786.79,793.32,2,And so there does seem to also be a a general trend towards de-carbonization in the region and promoting renewals.
4466797,79,794.23,805.44,2,And so just a final our message on this slide if we are serious about reaching net zero by twenty fifty and there is a broad consensus around this then all regions and all countries will need to contribute to this target.
4466797,80,805.96,811.78,2,And so we want to make sure that E D P Renewables is positioned in the long run to take advantage of this opportunity.
4466797,81,811.78,820.19,2,So I I think I'd just like to highlight this in relation to in relation to this region which um which is obviously I think key to making us global.
4466797,82,820.92,823.14,2,And that's exactly the the topic of the next side.
4466797,83,823.14,823.93,2,So slide eight.
4466797,84,825.0,827.62,2,With this platform we now become truly global.
4466797,85,828.15,830.45,2,So we already had a very strong platform in the US.
4466797,86,830.45,832.67,2,A very strong platform in Europe.
4466797,87,833.16,836.77,2,We have a good platform in Latin America with Brazil Chile Colombia.
4466797,88,837.26,839.71,2,And now we set up this platform also in Asia Pacific.
4466797,89,840.48,847.09,2,Uh so we think that Sunseap's team is very complimentary to E D P R both geographically and technologically.
4466797,90,847.78,854.35,2,Um you know the their footprint solar pipeline together with our scale and our capabilities.
4466797,91,854.58,857.4,2,The fact that we have for example wind that we can also bring to the table.
4466797,92,857.97,862.99,2,That means that we believe we will be able to build out the platform and accelerate the growth in the region.
4466797,93,863.77,865.47,2,So now having…
4466797,94,865.47,873.42,2,Once we complete the acquisition we'll be present in twenty five markets representing seventy five percent of global growth over the next decade.
4466797,95,873.56,877.54,2,So that's you know we'll have a very strong representation in all the key markets.
4466797,96,879.9,883.35,2,Moving to slide nine and a a specific comment on Sunseap.
4466797,97,884.2,886.2,2,So it is a solar focused platform.
4466797,98,886.2,887.77,2,It is based out of Singapore.
4466797,99,888.02,889.34,2,Present in nine markets.
4466797,100,890.07,893.65,2,Uh five hundred fifty megawatts of operating in under construction assets.
4466797,101,894.25,899.35,2,Most of these in Singapore with a very low risk profile as you know Singapore is a AAA rating.
4466797,102,900.29,905.05,2,Sunseap is also present in Vietnam where E D P R has also um is also present.
4466797,103,905.05,907.71,2,So we'll be able to integrate our positions there.
4466797,104,908.7,910.66,2,Very young assets below two years.
4466797,105,911.58,913.44,2,twenty year contracted revenues.
4466797,106,913.8,921.5601,2,So seventy six percent of that PPAs and and twenty four percent regulated at an average price of seventy five euros per MWh.
4466797,107,921.79,927.82,2,So low risk stable long-term cash flows completely aligned with the E D P R strategy.
4466797,108,929.53,933.23,2,Also they bring very strong client relationships and a track record.
4466797,109,933.5,937.4,2,Uh the off takers include some of the E D P R clients in Europe and in the US.
4466797,110,937.85,940.93,2,So companies like Amazon Facebook Microsoft Apple.
4466797,111,941.86,948.82,2,So so solar distributed generation represents around seventy percent of the operating and under construction portfolio.
4466797,112,949.27,958.36,2,And it's a key technology obviously to grow in Asia Pacific going for utility scale will also play a key and increasingly relevant role.
4466797,113,959.34,967.12,2,So Sunseap brings a strong footprint in Asia Pacific a great track record over ten years of success successfully developing the business there.
4466797,114,967.73,971.52,2,Got a a fantastic management team uh with a lot of local knowledge.
4466797,115,972.01,975.75,2,Over four hundred employees and growing uh given the growth of the market.
4466797,116,976.26,981.58,2,So that we'll facilitate the local culture know how and also the long term uh buildup of relationships.
4466797,117,982.04,984.28,2,So I think they have a great reputation in the region.
4466797,118,984.31,988.54,2,And then I think that gives us a lot of confidence to leverage on that and accelerate growth.
4466797,119,990.44,994.72,2,Also very importantly and and moving to slide ten Sunseap has a a great pipeline.
4466797,120,995.43,999.22,2,So overall the portfolio is around five point five gigawatts.
4466797,121,999.89,1006.57,2,So on top of the five hundred fifty megawatts of operating under the construction there are a hundred thirty megawatts of contracted capacity.
4466797,122,1006.57,1008.97,2,So almost seven hundred megawatts of secured capacity.
4466797,123,1009.68,1013.79,2,And we have a pipeline of almost five gigawatts in different stages of development.
4466797,124,1013.82,1019.27,2,So around two gigawatts of advanced stage and two point eight gigawatts of early stage.
4466797,125,1020.78,1028.3401,2,Future growth will have more obviously more geographic diversification and also higher exposure to solar utility uh scale going forward.
4466797,126,1030.4399,1036.41,2,Moving on to slide eleven I'm talking just a little bit about valuations and um and stakes.
4466797,127,1037.0699,1045.14,2,So we are leveraging our capabilities to really accelerate the growth and the value creation in Asia Pacific through Sunseap.
4466797,128,1045.77,1051.02,2,The way we see it it's putting the business on steroids and really leveraging it up.
4466797,129,1051.95,1058.14,2,Uh we will have a eighty seven percent stake this may actually increase to around ninety one percent.
4466797,130,1059.2,1072.26,2,Um Sunseap has a as I mentioned a great management team so the the founders will stay invested with um around uh six and a half percent and with their incentives fully aligned with the growth and the profitability of the business.
4466797,131,1072.97,1087.3199,2,So I think this is the key point to make sure that we have a smooth transition and we really bring the local experience and the the new culture to E D P R with uh obviously they have a great knowledge of the markets and and the development in the Asia Pacific markets.
4466797,132,1087.3199,1097.64,2,And so we want to make sure that um you know that we are able to merge the companies as well and and really leverage on Sunseap to to take it even further and make it grow even faster.
4466797,133,1099.1801,1108.4301,2,Together with um the founders and the management um we we will have around ninety four percent that may actually increase to ninety eight percent.
4466797,134,1109.8,1117.21,2,The impl In terms of valuation so the implied price uh where where we are paying is around eight hundred seventy million euros.
4466797,135,1118.11,1121.89,2,Breaking this down I'd say that there's one block which is CapEx.
4466797,136,1121.97,1124.35,2,So implicit in that five hundred fifty megawatts.
4466797,137,1125.1801,1130.59,2,Since it's mostly solar distributed generation it has an average CapEx per megawatt AC okay.
4466797,138,1130.59,1131.88,2,So this is important to stress.
4466797,139,1131.88,1135.4401,2,This is AC not DC of around one million euros.
4466797,140,1136.8199,1142.27,2,We have the value creation associated with the operating and the construction assets together with the secure capacity.
4466797,141,1143.11,1149.2301,2,Um so a total of seven hundred megawatts and I'm sure you can come up with an n p v per megawatt reference for this bucket.
4466797,142,1149.77,1152.7001,2,I just re-emphasize size that these assets are very young.
4466797,143,1153.0699,1157.9399,2,They have twenty year contracted revenues at an average price of seventy five euros per MWh.
4466797,144,1158.75,1165.7001,2,And finally there's a pipeline and the platform and we believe we'll be creating significant value from the existing pipeline.
4466797,145,1166.1899,1169.0601,2,And we'll be able to leverage the the Sunseap model.
4466797,146,1169.09,1175.5299,2,So with strong development capabilities in this footprint in nine markets to to really deliver the growth going forward.
4466797,147,1176.76,1181.98,2,Overall for G D P R it really opens up a new region of the world where we didn't have a significant presence.
4466797,148,1182.67,1192.4,2,And we think that this together in terms of solar together with what we can bring in wind will really mean that we can ramp up this platform um as I said in the in the Asia as Pacific region.
4466797,149,1193.3199,1193.4099,2,Okay.
4466797,150,1195.17,1196.88,2,So that's uh Sunseap.
4466797,151,1197.13,1201.8201,2,I'd just like to now talk you through some of the other um key metrics for the business.
4466797,152,1202.98,1208.85,2,If we move to slide twelve uh we have around eight gigawatts secured eight point one gigawatts secured.
4466797,153,1209.1,1211.64,2,Uh so it's up two point seven gigawatts year to date.
4466797,154,1212.1899,1218.1799,2,Um and I think that the the origination capabilities and and also the com competitive projects that we're able to bring.
4466797,155,1219.1801,1228.0601,2,If we zoom in just on twenty twenty one to two three as I mentioned earlier we will have around seven point nine gigawatts secured already until two three.
4466797,156,1228.0601,1229.87,2,So that's around seventy five percent.
4466797,157,1231.08,1233.74,2,We continue to have the disciplined investment approach.
4466797,158,1233.74,1238.86,2,And and so I think attractive returns low risk profile contracted n p v of around sixty percent.
4466797,159,1239.26,1244.3301,2,So we continue to see those metrics uh across the different projects that we are investing in.
4466797,160,1244.33,1253.0701,2,And so overall strong visibility on the twenty twenty one to twenty three um timeframe and also solid risk return profile.
4466797,161,1253.77,1260.8401,2,We move to slide thirteen and this is something we've talked about previously but just to give you an update on this.
4466797,162,1261.83,1270.5601,2,So we continue to be protected from CapEx cost inflation as we've discussed in previous calls and we have limited exposure on ten percent of our secured capacity.
4466797,163,1272.1801,1277.92,2,For new projects we are seeing the PPA market and the auctions adjusting to the sector wide increasing CapEx.
4466797,164,1278.55,1285.25,2,So from that perspective it's not hindering our competitiveness when bidding for new projects and the return thresholds are being preserved.
4466797,165,1286.02,1301.0399,2,So just to give you a specific example for example if look at the Spanish auction uh now in October you'll have seen that the average price of the auction went up um that has to do we believe with the adjustment also to the the new CapEx expectations.
4466797,166,1301.55,1315.36,2,We are also seeing that when we are doing bilateral um let's say discussions on PPAs where we are seeing those um prices feeding through into new P P A prices revised p p a prices under discussion and and being accepted by clients.
4466797,167,1317.13,1320.01,2,In relation to the supply chain we have a strong position.
4466797,168,1320.26,1323.42,2,We have a a privileged relationship I'd say with the suppliers.
4466797,169,1324.09,1329.24,2,And so we continue to monitor and to manage any disruptions that might happen to the supply chain.
4466797,170,1330.04,1332.14,2,In relation to winds we feel comfortable.
4466797,171,1332.39,1337.62,2,There doesn't seem to be any uh material issue with our project in the short and the medium term.
4466797,172,1338.27,1348.6599,2,In solar something we're monitoring more closely um obviously to make sure that uh any disruptions are dealt with quickly and that we can manage that in the context of our development and construction.
4466797,173,1349.49,1356.0299,2,If we move to slide fourteen in terms of pipeline we continue to ramp up.
4466797,174,1356.22,1358.87,2,Uh we have good short term visibility on growth.
4466797,175,1359.9399,1364.67,2,I wanted to highlight that sixty percent of the current secured capacity has been secu secured through PPAs.
4466797,176,1365.52,1371.03,2,So that's a market where we continue to be very active and we actually expect it to increase even more of the coming years.
4466797,177,1372.04,1380.96,2,So as I mentioned earlier four point one gigawatts of PPA is under negotiation and shortlisted uh which we hope will provide short term visibility on additional capacity.
4466797,178,1381.59,1385.4299,2,Slide 15 on offshore onshore winds continues to grow.
4466797,179,1385.4301,1388.7,2,So operating capacity is now one point five gigawatts in twenty twenty two.
4466797,180,1389.1,1392.08,2,Expected to reach three point four gigawatts by twenty twenty five.
4466797,181,1392.73,1404.1101,2,Uh more east finalized construction I had the the pleasure of being up in Scotland a couple of weeks ago to uh just inaugurate the o and m center in Fraserburgh.
4466797,182,1404.99,1409.42,2,Um we're moving ahead also with some other project in in Scotland.
4466797,183,1409.42,1413.65,2,So the more west uh we're also expected to give visibility on that soon.
4466797,184,1414.26,1417.12,2,We have several other projects that we are continuing to develop.
4466797,185,1417.1801,1419.26,2,Well Poland US South Korea.
4466797,186,1420.36,1424.46,2,We are we are participating in the RFP in Massachusetts for Mayflower.
4466797,187,1424.46,1426.36,2,Hopefully we'll have visibility on that soon.
4466797,188,1427.15,1430.98,2,And also in relation to Scotland we'll also have visibility on that soon.
4466797,189,1430.98,1433.97,2,So we have a a good strong presence in Scotland.
4466797,190,1433.97,1438.23,2,So let's um let's wait and see what comes out of that auction.
4466797,191,1444.98,1450.8099,3,So just very quickly two point three billion of proceeds thirty percent of the eight billion target such as the full five year plan.
4466797,192,1451.6,1454.66,3,We're overall very happy with the multiples achieved in the in the execution.
4466797,193,1455.54,1462.04,3,Um within the third quarter we up sized the u s transaction to eighty percent and we also signed the Polish transaction.
4466797,194,1462.16,1467.35,3,So clearly we are on track to deliver capital gains north of three hundred million in twenty twenty one.
4466797,195,1468.03,1472.9501,3,The actual value will depend on the timing of the regulatory approvals and the closing of each transaction.
4466797,196,1473.7,1479.7001,3,So all in all execution on the asset rotation going well we continue to see strong appetite from investors.
4466797,197,1480.16,1487.0599,3,And so now our efforts are totally on the regulatory approval side to make sure that we can get at least some of these over the the line here.
4466797,198,1487.25,1488.89,3,Um by the end of twenty twenty one.
4466797,199,1490.74,1493.84,3,Slide seventeen a quick note on E S G.
4466797,200,1494.84,1496.8101,3,So circular economy by diversity.
4466797,201,1497.85,1502.1399,3,We have been promoting um a lot the the waste recovery and the operational phase for a while.
4466797,202,1502.14,1505.25,3,So extending our best practices now to the rest of the value chain.
4466797,203,1506.14,1525.83,3,Re powering although it's still not very material E D P R is focused on tackling the re powering wave that we expect post twenty twenty five especially in Spain Portugal and the u s So far we've done we've re powered two wind farms in Spain and we are re powering another one in the u s In the two sites that we re powered in Spain.
4466797,204,1526.25,1529.98,3,More most of the let's say the waste generated was recovered.
4466797,205,1530.04,1545.5499,3,So almost ninety five percent in this respect we are participating also in some blade recycling projects in Spain the u s and also in Portugal and um you know one hundred percent of the area impacted during the re powering processes in Spain were fully restored.
4466797,206,1546.47,1560.85,3,In relation to communities we are obviously want to make sure that we work with the local communities so that we are able to uh keep the alignment with our core business and make sure that the you know we are able to develop our projects in harmony with the the local communities.
4466797,207,1561.95,1568.4299,3,In terms of people um we are aiming to achieve thirty six percent uh female employees.
4466797,208,1569.04,1575.9,3,Currently we're at thirty two percent but thirty seven percent of our new hires are all women which I think contributes well to achieving our goal.
4466797,209,1575.9,1579.16,3,So definitely looking out for equality of opportunities there.
4466797,210,1580.1899,1593.84,3,And lastly just in relation to the sustainable suppliers goal um we what we've been asking our core business suppliers um is basically in terms of health and safety environmental ethical criteria to be totally aligned with us.
4466797,211,1593.84,1599.0399,3,So it's not just a question of E D P R having certain goals and targets.
4466797,212,1599.09,1614.7,3,It's also making sure that that extends to to our suppliers we our key suppliers and with this business plan as you we have the idea of going one step further by making sure that um we have these ESG goals totally aligned with the suppliers.
4466797,213,1615.9399,1623.0299,3,So I'll stop here and I'll turn it over to inaudible to walk you through the the nine month results and then come back again for closing remarks.
4466797,214,1623.5,1623.76,3,Thank you.
4466797,215,1624.9,1625.64,4,Thank you Miguel.
4466797,216,1625.67,1626.3601,4,Good afternoon to you all.
4466797,217,1626.36,1628.9401,4,Well so let's move on to the uh nine month result.
4466797,218,1629.7,1638.15,4,Um so on slide nineteen our financial performance um your year has been as you know mostly impacted by in one hand lower capital gains.
4466797,219,1638.62,1641.53,4,The one off aircraft event in in q one.
4466797,220,1642.08,1645.58,4,Um and also the lower generation that we have been observing in u s and Spain.
4466797,221,1646.11,1652.9,4,So we achieved the nine hundred and seventeen million Euro inaudible and a hundred forty eight million Euros net profit in this first nine months.
4466797,222,1653.5601,1659.5,4,Uh that's on the back of the generating twenty one point terra watt hours of clean energy that's of five percent.
4466797,223,1660.02,1663.53,4,So that's one hundred twenty two million at the net profit.
4466797,224,1664.2,1676.12,4,So on top of the hundred million uh gain on the US asset rotation we have also some positive price adjustments from two thousand twenty transactions uh in offshore and in this rosewater build and transfer project.
4466797,225,1676.67,1679.6799,4,Um along with thirty million Euros are not from Mayflower.
4466797,226,1680.42,1686.1,4,Below Evita we continue to improve our average cost of debt three point four percent versus three point five percent.
4466797,227,1686.13,1691.23,4,So that's uh reduction of about zero point two percent points year and year.
4466797,228,1691.96,1697.2799,4,Um in US our top line uh is impacted by the q one one of cut event.
4466797,229,1697.74,1701.38,4,Uh you know we extensively discussed this uh in in the first quarter.
4466797,230,1701.71,1705.2101,4,Um but also by the fact that we are below the average resource.
4466797,231,1705.86,1709.79,4,Uh for the period we also have a weak wind resource um in Spain as well.
4466797,232,1710.37,1714.6,4,And let me just you know highlight here um some impact that we have in Spain.
4466797,233,1714.65,1719.0801,4,Uh that of course are uh hitting us uh in the nine month result.
4466797,234,1719.6,1727.03,4,So overall Spain is about forty to five forty five million euros below our expectation for the nine month thousand two one.
4466797,235,1727.79,1738.42,4,Um uh out of these three are around thirty million are from low winds and that's particularly in the q two and q three uh where we have you know we are below the ninety percent of our P fifty.
4466797,236,1739.24,1747.24,4,Um and about ten to fifteen million euros from financial hedges in q two uh q three given the high prices and and the low generation.
4466797,237,1747.33,1757.52,4,Um just to give you an expect expected full year result from this impact uh with the P fifty in terms of wind for the fourth quarter is around twenty five million euros.
4466797,238,1758.37,1765.4299,4,So I think it's also worth highlighting that um given pull only what above the sixty US per micro hour in July.
4466797,239,1765.95,1774.61,4,The the regulatory adjustment that is booked in the q three concentrates uh the regulatory adjustment for the full nine month two thousand twenty one.
4466797,240,1774.61,1778.51,4,So there is a concentration to technicality but there's a concentration here in the q three.
4466797,241,1778.89,1792.05,4,So just you know as snap shotting the balance sheet NetApp decrease year to date to three point thirty two billion Euro this is of course on the back of the one point five billion capital increase around two hundred forty million asset rotation.
4466797,242,1792.1899,1801.3999,4,Uh so the equity proceeds from that uh and around zero point six billion of the tax equity uh tax equity um which is already booked for the US project.
4466797,243,1801.52,1804.5599,4,And of course it impacts the the net that uh reduction.
4466797,244,1805.23,1811.11,4,Um I think it's important now that if we move to the operational side so we can move to slide twenty.
4466797,245,1811.62,1816.41,4,Um highlighting that you know we added two point five gigs of wind and solar capacity.
4466797,246,1816.63,1817.5801,4,Uh year on year.
4466797,247,1817.96,1822.4501,4,This is the highest capacity ever installed by EDPR in a twelve months period.
4466797,248,1822.87,1827.0299,4,I think it is demonstrating that how we are ramping up the business and the growth rate.
4466797,249,1827.5,1831.51,4,Um in addition to that we have two point seven gigs which are under construction.
4466797,250,1831.88,1839.87,4,So I think this in a bizarre nervous that you know speak from themselves in terms of the ramping up of the growth profile at t d p r.
4466797,251,1840.48,1846.9701,4,Year in year we successfully completed one gigawatt net of asset rotation deals that's in Spain and in the US.
4466797,252,1847.55,1853.27,4,Um so we end the period with a thirteen giga uh portfolio uh by the end of September twenty twenty one.
4466797,253,1853.85,1856.5601,4,Uh and it really balanced mix across the main platforms.
4466797,254,1856.5601,1867.77,4,So in North America fifty five percent Europe around forty percent uh and the rest of the world uh Brazil five percent and you know just still a minority position in the rest of the world here just considering Vietnam.
4466797,255,1868.05,1874.76,4,So not yet incorporating the acquisition uh that Miguel referred to uh sincerely being in in in the APAC.
4466797,256,1875.73,1878.88,4,Um our load factor achieved twenty eight percent.
4466797,257,1879.11,1881.05,4,Um in this nine months.
4466797,258,1881.3199,1883.85,4,It is a recovery uh in Nigeria and Brazil.
4466797,259,1884.34,1887.03,4,Naturally this is offset by the one author cart event.
4466797,260,1887.46,1890.7001,4,Um and um across this period a little resource in US.
4466797,261,1891.17,1900.28,4,Technical availability uh at good levels ninety seven percent that's slightly above uh the the this uh this number for the for last year.
4466797,262,1901.24,1904.0099,4,Um electricity output increased five percent year on year.
4466797,263,1904.21,1906.73,4,So this of course benefits from the capacity additions.
4466797,264,1906.8,1910.2,4,Uh naturally this is offset by the lower resource.
4466797,265,1910.5699,1913.6399,4,So we generate twenty one point five Terra watt hours of clean energy.
4466797,266,1913.98,1919.3999,4,So we we can say that we have avoided thirteen million tons of uh c o two emissions.
4466797,267,1919.9,1928.27,4,Um operations in North America Europe and Brazil generated respectively around fifty eight percent to thirty seven percent and six percent of the total input.
4466797,268,1929.21,1932.53,4,On page twenty one in looking into the revenues.
4466797,269,1932.77,1934.6,4,And we have uh a reduction.
4466797,270,1934.77,1936.01,4,Uh this will be last year.
4466797,271,1936.01,1937.25,4,So the five percent reduction.
4466797,272,1937.25,1939.27,4,Of course this is due to sell inaudible.
4466797,273,1939.27,1945.16,4,So if you were or not to see this on a like for like basis we would be plus two percent versus nine months other than twenty.
4466797,274,1945.74,1951.11,4,Um but also driven by the lower average price um around fifty one Euros per micro hour.
4466797,275,1951.5,1959.29,4,Um in some unfavorable effects uh which as I said you know as I said before it's also partly upset by sending capacity.
4466797,276,1959.8,1963.86,4,In Europe the average price decreased ten percent to seventy four Euros.
4466797,277,1963.96,1966.4,4,Uh that's of course you're into Spain.
4466797,278,1966.4301,1970.4501,4,Uh the asset meets not only the asset meets from the following twenty asset rotation deal.
4466797,279,1970.8199,1975.62,4,But also the impact of the regulatory and financial hedges uh in the context of very high pool prices.
4466797,280,1976.29,1992.3101,4,Um in Portugal the tariff extension and the new additions um and you know in the rest of Europe we actually observed an eleven percent increase in terms of the average uh uh revenue price or price increase uh that of course offset these reductions in Spain and in Portugal.
4466797,281,1992.9301,1997.8199,4,In North America the the average price increased by one percent uh with higher merchant prices.
4466797,282,1997.85,2004.92,4,Um that's offset by that were offset by the sell down in q one in Brazil average price was up by nine percent.
4466797,283,2005.1,2007.8101,4,Uh two hundred thirty nine real Brazil in reals.
4466797,284,2008.26,2013.59,4,Um and this of course back on the fact that we have uh were exposed to higher merchant prices.
4466797,285,2014.01,2017.8301,4,Um uh and also you know the evolution in terms of capacity.
4466797,286,2018.5601,2022.84,4,Revenue is totaled one point three billion with impact from the sell down.
4466797,287,2022.84,2026.78,4,So that's a reduction of ninety two million year on year uh lower average prices.
4466797,288,2026.87,2031.0,4,Um so that's minus two seven million year on year if we exclude sell down.
4466797,289,2031.41,2038.99,4,Um and some for X translation as I mentioned in beginning uh and others that account for about fifty four million uh reduction versus last year.
4466797,290,2039.48,2045.51,4,Uh which of course they are not upset by the capacity editions that contributes to around one hundred eighty million year on year.
4466797,291,2045.61,2052.8899,4,So like for like I said before if you are to adjust by the for the sell downs we would have an increased revenues in EDPR by two percent year on year.
4466797,292,2053.8101,2062.6099,4,Uh on the OPEX moving to the next slide naturally you know we keep a very you know focus uh you know in terms of excellence of the operations.
4466797,293,2063.02,2068.1201,4,So core OPEX per average in megawatt uh is up only by one percent year on year.
4466797,294,2068.5901,2074.9902,4,Uh so actually this is a minus three percent if adjusted on the back of uh uh our O and M strategy.
4466797,295,2075.28,2081.6602,4,And of course as you know we have been from uploading the the company in terms of resources to meet the uh the business plan growth.
4466797,296,2082.29,2090.3901,4,Um overall you know this uh leads us to have in a bit of of our of nine hundred and seventeen million euros.
4466797,297,2090.75,2095.8401,4,Of course this is driven not only by the top line performance uh lower capital gains year on year.
4466797,298,2096.28,2107.2998,4,Um in terms of the geographical mix you know pretty much at fifty fifty um contribution uh from North America and Europe uh to EDPR results as on a consolidated basis.
4466797,299,2107.96,2116.2,4,Um on the net profit we ended up the period with a hundred forty eight million euros um again on the back of the the top line uh performance.
4466797,300,2116.6299,2119.5701,4,The financial um have improved uh on the financials.
4466797,301,2119.5701,2124.0898,4,As I said in beginning we have improved our cost of debt uh to three point four percent.
4466797,302,2124.0901,2127.55,4,So that's a reduction uh zero point two percent points versus last year.
4466797,303,2128.0801,2133.1602,4,Um again I would like to emphasize that on uh uh the PNL tax as a negative impact to the year in year.
4466797,304,2133.51,2142.51,4,But the bulk of this is non-cash uh and cash taxes are neutral uh what as as when you compare to the nine month result uh two thousand twenty.
4466797,305,2143.5701,2149.5601,4,So on the next slide in terms of that uh NetApp and tax equity increased a hundred ninety one million Euros.
4466797,306,2149.97,2157.96,4,Um of course you know the asset rotation proceeds and and capital increase they are they have offset or funded the the growth acceleration.
4466797,307,2158.4099,2168.21,4,Um so the by September we actually have that approximately a hundred million lower uh versus the thirty first of December uh uh last year.
4466797,308,2168.6599,2174.96,4,Um and uh almost ninety percent of the three point three billion NetApp is at the fixed interest rate.
4466797,309,2175.2,2177.98,4,Uh so it's as you know it's part of our uh risk profile.
4466797,310,2178.6001,2193.9001,4,Tax equity increased one point four billion uh naturally following the zero point six billion of tax equity proceeds that we announced um recently uh but also offset by the re consolidation of the tax equity associated with the US as as a rotation deal um in June.
4466797,311,2194.6101,2201.0701,4,Um and just also to to finalize the focusing on the period um e s g um on this slide twenty five.
4466797,312,2201.0701,2208.48,4,So starting by the environmental performance um as I said before we avoided thirteen million tons of c o two emissions.
4466797,313,2208.78,2213.78,4,So we are effectively contributing to this global ch challenge of reaching a a net zero.
4466797,314,2214.1499,2218.9202,4,Um the company's emissions represent only about zero point two percent of the avoided ones.
4466797,315,2219.45,2227.4402,4,Um in terms of circularity we we are maintaining our recovery ratios aligned with previous years continuously working naturally to to improve on those.
4466797,316,2227.8,2231.5701,4,In biodiversity no significant spills no significant fires.
4466797,317,2231.9299,2237.8901,4,Uh we have uh sixty uh sorry fifty six near misses uh and year and year.
4466797,318,2237.9299,2240.5701,4,I mean the variation is pretty much aligned with the company growth.
4466797,319,2241.3701,2245.8,4,Um social dimension uh as Miguel said we have surpassed two thousand employees.
4466797,320,2245.8,2256.1899,4,So that's twenty three percent increase year on year uh and actually you know moving towards our diversity goal um with the percentage of female employees increasing to thirty two percent.
4466797,321,2257.0801,2268.4702,4,Uh regarding health and safety uh there was an average of one point seven work related accidents per million work hours uh sixty four lost workdays per million work hours which is in line year on year.
4466797,322,2268.5,2278.5598,4,Unfortunately uh we have some uh um severe accidents to severe accidents uh that are impacting naturally uh the the business.
4466797,323,2278.5601,2289.04,4,And you know we can we have been um dedicating a significant amount of time to improve the the safety health and safety across the different operations and the construction sites.
4466797,324,2289.3501,2291.5698,4,So learning from these lessons unfortunately.
4466797,325,2291.98,2299.26,4,Um and just a final note regarding communities uh EDPR maintained its five million Euros cumulative of investment in access to energy.
4466797,326,2299.6899,2302.6702,4,Um we reached one point one million Euros in social investment.
4466797,327,2302.76,2310.9502,4,So that's slightly lower year on year naturally given the COVID nineteen response plan that we implemented last year uh within our local communities.
4466797,328,2311.51,2314.8499,4,And with this I would hand back to Miguel for his closing remarks.
4466797,329,2315.1699,2315.4302,4,Thank you.
4466797,330,2317.3101,2317.5701,3,Okay.
4466797,331,2317.6001,2318.05,3,Thank you.
4466797,332,2319.0601,2326.04,3,So just to finalize the presentation and just a couple of words on the overall environment and also on the outlook for for renewals.
4466797,333,2327.23,2336.2102,3,First then if we move to slide twenty seven we continue to see an environment a policy environment if want which is highly supportive of the energy transition.
4466797,334,2336.8799,2342.6501,3,We knew we have the recent news clip from comp twenty six which I'm sure you're following uh now taking place in Glasgow.
4466797,335,2343.45,2356.3201,3,And I think it just comes to to show sort of the need to really elevate the global commitments and also different measures that um that the various different countries and and political leaders and companies are taking to fight climate change.
4466797,336,2357.6299,2361.52,3,So clearly this fight for climate change requires strong fundamentals.
4466797,337,2361.99,2367.0901,3,You will have an unprecedented growth in renewables which I think it's an interesting document.
4466797,338,2367.6799,2385.27,3,I'm sure you've read highlighted by the international energy agencies world energy outlook which was just recently re uh uh released now in mid-October and state set to limit global warming warming to one and a half degrees would require an annual global clean energy investment to four trillion by twenty thirty.
4466797,339,2385.5801,2388.6602,3,So four times as much as the one trillion which was invested in twenty twenty.
4466797,340,2388.6599,2392.54,3,I mean these are absolutely staggering uh values.
4466797,341,2393.4099,2398.1301,3,And I mean even a fraction of this would be a significant increase versus what we are seeing today.
4466797,342,2398.96,2403.6699,3,And I believe there is obviously a political rule by a lot of different countries to move move in that direction.
4466797,343,2404.99,2418.6802,3,In Europe in particular which has been a champion of climate change the European commission's toolbox to tackle the increase in energy cost which has been obviously a big issue on the agenda recently is very much to reinforce the need to deploy renewables.
4466797,344,2419.8601,2424.1501,3,Um clearly we need to also have energy efficiency solutions.
4466797,345,2424.1499,2426.8701,3,We need to continue to build out grid across the continent.
4466797,346,2427.49,2433.02,3,Um there will be the need to deploy seven hundred fifty billion euros from the European next generation funds.
4466797,347,2433.8,2439.9199,3,So and that's a process we expect will now be moving to the stage of application of projects at the national level.
4466797,348,2440.45,2456.74,3,And hopefully we'll have more visibility in during twenty twenty two but I mean bottom line is the European commission has been very um aggressive and I think very consistent in its fight for climate change in supporting the need for deploying renewables and uh electrifying economy and so forth.
4466797,349,2458.01,2467.9001,3,In relation to the US I mean clearly i am sure we've all been watching closely the build back better framework package which has been in discussion.
4466797,350,2467.8999,2475.5898,3,So as you know there was already one package had been approved the infrastructure bill which was let's say there were tying it to to the second package as well.
4466797,351,2476.4099,2482.77,3,Um we it is currently estimated at around one point eight trillion uh that builds back better bill.
4466797,352,2483.8101,2489.0701,3,It includes the long term visibility of the fiscal incentives for clean energy investments.
4466797,353,2489.0701,2493.1499,3,So the the PTCs and the ITCs potentially extending those.
4466797,354,2493.8799,2499.97,3,Um and it gives a tax credit total amount of three hundred twenty billion dollars to support the renewables in the medium term.
4466797,355,2500.54,2505.98,3,So clearly the US it seems to be taking some good steps hopefully in the very very short term.
4466797,356,2506.4099,2509.2202,3,The next couple of days is only hopefully no more than a couple weeks.
4466797,357,2509.73,2513.8799,3,There will be um visibility on on closing that.
4466797,358,2514.02,2520.77,3,And uh as you know it's been something which has been around for a while but uh it seems that people are quite optimistic about this.
4466797,359,2521.4399,2522.48,3,In terms of key takeaways.
4466797,360,2522.48,2526.1699,3,So slide twenty eight and then just before moving on to Q and A.
4466797,361,2527.0801,2529.1001,3,So first we really are going global now.
4466797,362,2529.1001,2539.9202,3,I mean we were already a global com company but now present in twenty five markets which exposes the company to seventy five percent of worldwide growth in renewables until twenty thirty.
4466797,363,2540.04,2547.1199,3,So I think this is uh very significant step that we're taking this growth platform in Asia Pacific.
4466797,364,2547.3701,2549.7998,3,Um basically we'll leverage on Sunteep.
4466797,365,2550.3101,2561.22,3,So as I say an established platform fully consistent with our portfolio it's got a low risk long term contracted profile which is very similar to or something that we like uh very much.
4466797,366,2562.3799,2570.1099,3,EDP renewables ramping up the growth two and a half gigawatts added year year on year two point seven gig under construction.
4466797,367,2570.26,2575.1899,3,So getting closer to the three gigs um to target per per year.
4466797,368,2576.1899,2580.25,3,And we now have the over eight gigawatts secured with good returns and risk profile.
4466797,369,2580.48,2584.6699,3,And so that's a seventy five percent of the target until twenty twenty three.
4466797,370,2586.04,2599.9399,3,As a rotation I've talked about very solid and good financials have been impacted in this third quarter or the the nine months to date by the lower capital gains year on year lower generation in US and Spain.
4466797,371,2600.6101,2610.04,3,But we believe that the attractive asset rotation deals that we've done uh will allow us to uh to close the gap uh over the next couple of months.
4466797,372,2610.3899,2621.71,3,So I think there is a need to look through the short term pressure um and really think about let's say the underlying potential and growth uh of VDP renewals which is absolutely fantastic.
4466797,373,2622.3601,2624.3501,3,So the growth outlook continues to be very strong.
4466797,374,2624.3501,2625.8699,3,We see it very strongly.
4466797,375,2626.52,2631.6602,3,EDP renewals is extremely well positioned to capture it globally now in all of the different platforms.
4466797,376,2632.3,2640.21,3,And so I just really like to reiterate I mean on behalf of the team clearly very enthusiastic about the growth prospect for the business in the different regions.
4466797,377,2640.8301,2644.75,3,And now looking forward to also tackle the growth opportunity in Asia Pacific.
4466797,378,2644.75,2651.0601,3,So clearly focus on the US and Europe Latin America and now this additional um region.
4466797,379,2652.03,2656.26,3,So focused on the plan focused on delivering the megawatts and the the numbers.
4466797,380,2684.6899,2689.3301,5,If you change your mind and wish to withdraw your question please press star two.
4466797,381,2693.8,2695.8398,5,If you would like to ask a question.
4466797,382,2823.6001,2825.0701,3,In relation to the first question.
4466797,383,2825.0701,2826.4001,3,So the the cost inflation.
4466797,384,2826.8401,2832.6802,3,Yes I mean we are insulated in fact for you know the project that we have in the in the short term.
4466797,385,2833.24,2841.8999,3,Uh we not only have the in many cases the actual turbines and the solar panels delivered and we're sort of the ones that are under construction.
4466797,386,2842.7,2846.3901,3,Um we have a high degree of confidence and let's say in visibility on that.
4466797,387,2847.23,2862.9302,3,In relation to things which are further out and I I believe you mentioned sort of twenty twenty three I mean in those cases what we're doing to the extent that we haven't yet closed those projects we will be uh feeding that through into the the PPAs as I mentioned in terms of the the cost inflation.
4466797,388,2863.71,2868.4402,3,Um in terms of wind turbines we also have good visibility.
4466797,389,2868.4399,2875.6799,3,We have no indication to the contrary that that would you know we would not be able to get access to to the turbines that have been contracted.
4466797,390,2876.3799,2883.8901,3,Um and so that's something which you know even recently we're talking to the teams I think we have privileged relationship with the different.
4466797,391,2885.0801,2896.01,7,And so that's something again that's you know we don't expect any certainly not any material nothing that would be um sort of out of usual um delays or or disruptions there.
4466797,392,2896.71,2900.3,7,I think in relation to solar it is maybe a slightly different story.
4466797,393,2900.3,2902.73,7,So in the short term again we have the visibility.
4466797,394,2902.73,2905.46,7,In many cases we already have the panels actually in our possession.
4466797,395,2905.46,2907.48,7,And so it's there's no issue there.
4466797,396,2908.0901,2917.0,7,Um in the medium term we're obviously monitoring the supply chain carefully and talking to the suppliers almost on a daily basis to really understand if there are any issues.
4466797,397,2917.6299,2932.72,7,So far um you know I mean the issues that are being highlighted have been delays which could be let's say a month that's sort of the type of timeframe which is really not material in the context.
4466797,398,2932.72,2937.51,7,So even if it's slipped a quarter a month or the other in terms of profitability we don't see that as an issue.
4466797,399,2938.1699,2942.1299,7,But there is a degree of uncertainty in the at the moment.
4466797,400,2942.5701,2953.05,7,And so we are working very closely with the suppliers to make sure that we have that you know we are able to close that um uh timings so that we have better visibility on that.
4466797,401,2953.6899,2958.3701,7,But again um I'd say on on wind certainly there's no issue there.
4466797,402,2958.3701,2970.71,7,In in terms of solar just a lack of visibility which we're working through but so far we have not had any material uh let's say indication that we would be out of um not able to comply with the targets.
4466797,403,2971.6299,2974.9202,7,m and a transaction definitely you know will be done on balance sheets.
4466797,404,2975.27,2977.73,7,Uh I think we have uh space for that.
4466797,405,2977.73,2984.3301,7,I mean this is a transaction which brings also some operational megawatts with good profitability and also good pipeline.
4466797,406,2984.3701,2987.9399,7,So we would be deploying CapEx in any case um in the region.
4466797,407,2988.4399,2994.03,7,And so in that extent you know we are not expecting to do anything different you know from what we would normally do.
4466797,408,2994.03,3002.0698,7,So it would fit within the normal let's say structure of balance sheet um that we would be assuming for the next couple of years.
4466797,409,3002.48,3005.6199,7,And if you want and we can also comment into bit more detail on that.
4466797,410,3006.4399,3013.4399,7,In relation to net income I mean this year obviously there have been you know as I mentioned earlier there have been some issues which have impacted us.
4466797,411,3013.4399,3015.1802,7,So it's not a it's not been a great year.
4466797,412,3015.53,3017.5898,7,We have had much lower wind generation.
4466797,413,3018.1101,3020.6199,7,So that is certainly something which has impacted the year.
4466797,414,3020.9199,3028.5701,7,We've had some one offs like ERCOT which again um obviously not you know impacted us earlier this year.
4466797,415,3029.4099,3037.9199,7,Um and also in terms of some of the the hedges in terms of uh Spain I think you know we addressed that as well although that's let's say more residual.
4466797,416,3037.9199,3040.3201,7,So really the key thing has been the wind generation.
4466797,417,3041.1699,3055.6001,7,I mean obviously we are ramping up growth and so ramping up growth means that we ramp up DevX we ramp up um some of the growth um costs but I think that's what they built into the the numbers over the certainly over the medium uh medium term.
4466797,418,3056.3701,3058.6299,7,So that's let's say the guidance.
4466797,419,3058.6299,3059.7898,7,I could probably give you on that.
4466797,420,3060.3501,3065.1199,7,Um but anyway we can come back to that uh again if you want any any more detail on that.
4466797,421,3081.3601,3081.78,10,Hello.
4466797,422,3081.8101,3084.6401,10,Uh good afternoon and thanks for for taking the questions.
4466797,423,3101.5801,3110.6499,10,Uh I mean in terms of um the expected uh IBITDA uh net profit maybe for for the year twenty twenty two.
4466797,424,3145.0601,3158.1899,10,And also uh wanted to ask you a bit about um about your uh hedging policy for the for the coming year or years in Spain.
4466797,425,3187.6399,3202.5798,7,So in relation to the first question I mean some additional color I can probably provide for twenty twenty two is that you know the expected EBITDA contribution would be around fifty million euros for twenty two.
4466797,426,3203.3501,3209.1099,7,And we expect that to grow at around twenty five percent Kager over the next couple of years.
4466797,427,3210.23,3213.8801,7,So there would be north of a hundred million certainly by twenty twenty five.
4466797,428,3214.1499,3217.6799,7,Um and hopefully well I'd say that.
4466797,429,3217.9099,3223.27,7,So in terms of um let's say financials uh you know and we don't go down to the net income level.
4466797,430,3224.1001,3235.7002,7,In terms of megawatts the um so I I'd say that talking AC operating end of the year you'd probably be expecting to have around four hundred thirty uh megawatts.
4466797,431,3236.47,3238.8398,7,Uh the rest would be coming in early next year.
4466797,432,3238.8401,3243.49,7,So probably another two hundred plus coming in in in two two AC.
4466797,433,3244.26,3249.6799,7,Um and hopefully more than that but I'd say let's say on the conservative side that would be that would be it.
4466797,434,3250.5901,3256.0801,7,So that's probably some of the color I can give it to stage in terms of the transaction.
4466797,435,3256.3,3260.46,7,In terms of timing of closing you know it is subject to regulatory approval.
4466797,436,3260.46,3264.46,7,So we will have to go through that still before we can actually step into the company.
4466797,437,3264.8101,3272.79,7,So what we've done is just signed obviously the the SPAs and we expect that would happen let's say the most optimistic scenario would still be this year.
4466797,438,3273.48,3278.78,7,Um but given COVID et cetera maybe early next year.
4466797,439,3279.05,3281.1001,7,So in terms of actual closing of the transaction.
4466797,440,3289.28,3289.8401,11,Thank you Miguel.
4466797,441,3289.8999,3290.9502,11,Um I'm inaudible.
4466797,442,3291.3201,3297.73,11,So regarding Spain so maybe I think it's better if I just uh no split this in three building block.
4466797,443,3298.47,3301.6201,11,So let's start by the actual pre hedging okay.
4466797,444,3302.0601,3308.1199,11,So we have about two point five TWhs with you know generation which is under the regulated framework.
4466797,445,3308.6799,3313.8699,11,Um and that on average we have a price of seventy six point five euro per MWh.
4466797,446,3314.51,3325.8,11,Then we have about one TWh so that's uh um uh merchant those that capacity which is under a merchant uh you know on a merchant basis so outside a regulatory framework.
4466797,447,3326.53,3330.8401,11,And that was sold at an average price of sixty seven euros per MWh.
4466797,448,3330.8701,3334.76,11,I mean this includes the uh the pool price you know the uh the the WAF.
4466797,449,3334.76,3337.2,11,So the the Wind Adjustment Factor and so on and so forth.
4466797,450,3337.8601,3345.28,11,Um no in if you build these two together you get to an average price of around seventy four euros per MWh.
4466797,451,3345.3701,3347.5701,11,Again this is pre hedging okay.
4466797,452,3348.1699,3359.6599,11,Now the the second part of this is that as you know we have a a hedging strategy to mitigate uh uh volatility uh in in inventory that we have a low risk profile.
4466797,453,3360.3,3373.6602,11,So you know before the year started we have already approximately uh or as the was starting we had approximately two point two TWhs uh of energy sold forward at fifty three point five euros per MWh.
4466797,454,3374.3501,3409.1301,11,So basically when you combine these two plus the fact that you have a lower uh a wind resource this year in Spain basically you get down to an average price of the fifty eight point five euros that uh that you we were reporting and that you were referring to um again the combination either or this is the result of and and the combination of in one hand the fact that we and once we have the hedge in place um then I mean if there are there is any Delta uh towards the regulatory hedge um I mean that is will be impacting the books and impacting the books.
4466797,455,3409.6001,3425.9399,11,And secondly cause there is a a part of this hedging that was uh that we had a shortfall in terms of volume um and therefore we were not able to to generate the the required power um and basically had to buy it at the higher uh market prices.
4466797,456,3426.3899,3435.0801,11,So it's the combination of these two factors you know what is the actual pre hedging plus the hedging that's uh yield this fifty eight point five euro per per MWh.
4466797,457,3435.6201,3439.03,11,Um as we move forward two thousand and twenty two maybe here two comments.
4466797,458,3439.03,3447.4001,11,So we have approximately seventy percent of our capacity our generation hedged for um uh twenty twenty two.
4466797,459,3448.0801,3451.1101,11,Uh that's an average price of fifty euros per MWh.
4466797,460,3451.95,3468.6199,11,As you know I mean there has been there is now a discussion in terms of regulatory um you know some some potential regulatory change impacting the two thousand and twenty two um which you know the government is discussing this with different renewables associations.
4466797,461,3469.0901,3481.1201,11,Um so this is something that we have to wait and see what is the outcome uh of of that discuss and to what extent it could potentially impact the the hedging strategy uh towards twenty twenty two.
4466797,462,3481.1499,3490.0601,11,I mean if nothing changes um as I said I mean we have about uh seventy percent that's around two 2TWhs also had for two two full year.
4466797,463,3505.4199,3506.6899,12,Hi thank you very much.
4466797,464,3506.73,3508.48,12,Um I have two questions please.
4466797,465,3528.6001,3537.23,12,Um I understand uh you say that you've got very strong relationships but I I just wondered whether you can elaborate a little bit more around that.
4466797,466,3537.28,3556.53,12,Do you have existing um uh sort of contracts in place to uh effectively mitigate any uh or claw back any loss earnings on the back of any delays in um some of these supply chain issues which may come through end of this year next year?
4466797,467,3557.1799,3567.1399,12,Um just just really trying to understand where the um uh where where where your strong relationships how how that manifests itself.
4466797,468,3567.74,3574.72,12,And then um secondly uh on Sunseap uh Manuel's already asked quite a bit of the details.
4466797,469,3574.72,3580.55,12,I just wondered uh whether you can give the debt number the net debt number that you'll be taking on.
4466797,470,3580.5801,3597.28,12,And then very lastly uh an apologies for a newbie question but when I look at uh E- Equinor uh when I look at Alstede all of these companies are now starting to report at least give guidance around the EBITDA X gains.
4466797,471,3597.28,3617.54,12,And I just wondered um to hear what your latest thoughts on that uh in terms of uh your views and including the gains in e b i t d a.
4466797,472,3624.7,3636.6101,7,And so to that extent you know those contracts typically uh have clauses which in the case of uh delays or significant delays there are penalties associated with that.
4466797,473,3636.6101,3640.77,7,And you know that's I don't think in anyone's interest that there would be those delays.
4466797,474,3641.6299,3643.3499,7,We have these long term relationships.
4466797,475,3643.3501,3646.96,7,I mean we've been in this business now for you know almost two decades.
4466797,476,3647.6899,3653.6301,7,Uh we're not the number one customer of Vestas we are probably be close depends maybe on the year.
4466797,477,3654.4399,3663.5,7,So I think in relation to that we you know obviously we work with them and you know try to have the best terms possible but we also have the contract in place.
4466797,478,3664.1699,3666.48,7,And uh and we will obviously enforce those.
4466797,479,3667.0,3679.29,7,And to the as I mentioned earlier you know we have had no indication that there would be any delays on the the project that we already have on the construction or that we are let's say developing over the the the next year or so.
4466797,480,3680.3101,3688.98,7,In relation to solar panels um I mean there it is it's not so much a question of um let's say well I'm sorry in in relation to pricing as well.
4466797,481,3688.98,3691.0,7,I mean obviously that's already built into the contract.
4466797,482,3691.0,3696.5598,7,So when we lock in the the CapEx we're also locking in the pricing and and uh yeah.
4466797,483,3696.79,3698.9102,7,And so to the extent that it's closed it's closed.
4466797,484,3699.5901,3711.01,7,If for example we are still in the process of an RFP or a tender or something and there is an increase in the CapEx estimate then we will see that through into the higher PPA prices or the auction prices.
4466797,485,3711.4299,3715.9399,7,And so that's why I gave the example of of Spain where it's on an increase in the tender prices.
4466797,486,3716.3401,3722.51,7,And also in some of the PPAs that we are currently negotiating where we've gone back to the customers with higher p p a prices.
4466797,487,3723.1001,3727.8501,7,Um and since it's a general sector wide thing that's been uh accepted.
4466797,488,3728.8101,3731.77,7,Uh so I'd say that that's the visibility that we have.
4466797,489,3732.03,3745.6401,7,In relation to solars I'd say um again we have good long term relationships with uh suppliers like LONGi Boviet which are let's say some of the the top uh suppliers globally.
4466797,490,3746.6001,3753.9099,7,Um you know to the extent that there is issues on pricing and there have been we are also feeding that through into increased PPAs.
4466797,491,3754.47,3766.21,7,In any case when we talk about increases in PPAs were talking about maybe two two dollars two euros per MWh I mean that's the sort of size of the of the Delta that we see in some cases.
4466797,492,3767.02,3775.3,7,In terms of actual timing as I said there there's some uncertainty so we have had no indication that there will be any material delays.
4466797,493,3775.96,3778.0999,7,But in any case it is something that we're following closely.
4466797,494,3778.1001,3784.6501,7,So obviously we are um we know that there have been issues in the supply chain uh further upstream.
4466797,495,3784.98,3792.5,7,And and so I mean we're we're continuing to monitor the situation but um I don't have any specific let's say guidance to give you on that.
4466797,496,3793.5801,3801.98,7,Um apart from that it seems to be manageable within the current context or within the current uh let's say estimates that that we had given out to the market.
4466797,497,3803.74,3804.8201,7,In terms of net sorry…
4466797,498,3804.8201,3808.48,7,So hopefully that answers the the question or or given you a little bit more color on the question.
4466797,499,3811.3999,3811.6699,7,Yeah.
4466797,500,3812.1101,3815.3101,7,In terms of the net debt for Sunseap so it's around two hundred million.
4466797,501,3815.48,3822.3699,7,Uh so I think we've given enterprise value eight hundred seventy million uh equity value around six hundred and something million.
4466797,502,3822.8701,3825.98,7,And so I think that's the you know the Delta would be around two hundred million.
4466797,503,3826.49,3840.5901,7,What what ha what we have said however is since that there some of these projects are under construction uh over the next couple of months or sort of by the end of the year probably the enterprise value would be closer to a billion because of the additional CapEx that will be in place.
4466797,504,3841.05,3853.8298,7,So uh let's say breaking it down into very specific numbers EV eight hundred seventy as of uh date of signing uh equity value six hundred and ninety net debt a hundred and eighty.
4466797,505,3854.5601,3861.04,7,And um and as I said that the enterprise value will be closer to a billion by the end of the year which is probably when we would do the closing.
4466797,506,3862.71,3875.7402,7,In terms of guidance um I mean to be honest we we consider and we have been considering now for a while that um the asset rotation strategy something which is let's say an intrinsic part of the business.
4466797,507,3875.74,3882.3501,7,I mean uh we build megawatts some of them are to keep others are to sell and we give visibility on those gains.
4466797,508,3883.4199,3897.4099,7,And so when you talk about X gains I mean what we've indicated to the markets let's say in the context of our business plan is that the capital gains implicit in the business plan are roughly three hundred million per year over the next couple of years.
4466797,509,3898.1499,3903.1199,7,So if you look at the numbers that you have for EDPR that's sort of the level of gains.
4466797,510,3903.8401,3907.78,7,And so one minus the other would give you let's say the guidance X gains.
4466797,511,3911.6599,3912.3701,12,Thank you very much.
4466797,512,3927.3601,3929.4099,13,Uh two question for fro from me please.
4466797,513,3929.4099,3937.8901,13,So as you pointed out in in your slides uh the last draft of the the US reconciliation bill is proposing ten year extension for for subsidies.
4466797,514,3938.51,3945.52,13,Uh would it fair to say that there is upside to to your long term capacity targets from from uh February.
4466797,515,3961.51,3964.27,13,Um it's been a a problem for new projects.
4466797,516,3964.77,3974.25,13,Um so could you could you please discuss uh the visibility that you have right now where Sunseap pipeline given is is um so big.
4466797,517,3975.1101,3980.99,13,This inaudible the the operational capacity uh what can you tell us about the permitting situation in in some of those Asian markets?
4466797,518,3998.54,3999.23,13,Thank you very much.
4466797,519,4002.1101,4002.4502,7,Right?
4466797,520,4002.9099,4003.1899,7,Yeah.
4466797,521,4003.46,4005.1599,7,So I mean great questions.
4466797,522,4006.3701,4013.0698,7,In relation to the first one I I mean I think actually your first question is slightly related to your second question as well.
4466797,523,4013.76,4016.4299,7,Uh so the ten year extension is absolutely fantastic.
4466797,524,4016.4299,4022.3699,7,I mean obviously gives a a big boost to the industry as a whole in the US and you know just continues…
4466797,525,4022.5601,4040.1699,7,I mean if renewables is already competitive even without uh the PTCs I think this really gives an extra boost uh to continue to growth of renewals in the US both wind and solar and also even other technologies like storage and hydrogen which will also and offshore which also get let's say that additional boost.
4466797,526,4040.9299,4047.6399,7,I mean I wouldn't want to necessarily give uh a specific target cause I I don't have one of upsides to the long term goals that we've given.
4466797,527,4048.1799,4065.3301,7,What I would say is I would go back to one of the you know the comments which I I made which is if we want to reach the targets the overall sort of um say Paris agreement targets the one and a half degrees we would be investing four trillion per year globally as opposed to the one trillion.
4466797,528,4065.3601,4066.6099,7,So quadrupling.
4466797,529,4067.52,4069.52,7,I mean obviously that's not the basis for our numbers.
4466797,530,4069.52,4074.1399,7,So our numbers are based on let's say let's say more conservative uh growth plan.
4466797,531,4075.48,4077.0901,7,But I mean this is just a massive amount.
4466797,532,4077.0901,4081.1599,7,So I don't think the issue I mean the sky is the limit in terms of number of megawatts.
4466797,533,4081.1599,4091.25,7,I think the bi big issue uh which is on the table in terms of how fast we can roll this out is making sure that each individual country has a very specific target.
4466797,534,4091.25,4100.48,7,So they go from that more aspirational goals to very concrete um yearly goals over the next ten years.
4466797,535,4100.8799,4111.3599,7,And they translate that for example into tenders or they translate that into sort of specific uh processes so that they continue to drive the demand sort of at the the national and at the regional level.
4466797,536,4111.48,4123.0,7,And and then I think one of the things which we've also been highlighting both with the European Commission and also within associations like Wind Europe or Euro Electric is around the permitting issues.
4466797,537,4123.8501,4125.9502,7,So I obviously some countries are easy than others.
4466797,538,4127.27,4130.02,7,Um I think there is work that can be done there.
4466797,539,4130.2598,4138.3701,7,And that's something that I know you know at the highest level in the European Commission and I I think in the certainly in the European Commission.
4466797,540,4138.8101,4154.52,7,They are looking at permitting issues how they can let's say look at the best practices of different countries come up with a list for example of countries and how uh they rank in terms of time to be able to get the permits done and to get projects sort of approved.
4466797,541,4155.2798,4157.52,7,As you know can vary quite a lot between different countries.
4466797,542,4158.0,4176.0,7,And so I think focusing now on some of those issues and making sure those are let's say more are facilitated I think that will help certainly translate some of these more ambitious targets into very concrete numbers on the ground and and accelerate even more uh what we're currently seeing.
4466797,543,4177.27,4190.4702,7,In relation to Sunseap in particular I mean I think in Asia Pacific definitely the issues around permitting are relevant because I mean it is a densely popular region of the world which is good and bad.
4466797,544,4190.4702,4194.6304,7,I mean it's it's good because there's a lot of demand there there's a lot of need to decarbonize economy.
4466797,545,4195.3101,4203.8398,7,But it does mean that land is expensive and need to really manage uh let's say those permitting uh to make sure it's compatible with the local communities.
4466797,546,4204.52,4212.1001,7,I think that's why things like you know floating solar um or or reclaiming land or offshore.
4466797,547,4212.52,4222.2998,7,I mean all those or or distributed generation which is actually something which is really growing a lot in a lot of these countries are ways of reaching those objectives.
4466797,548,4223.0801,4230.6401,7,Um let's say in a way which is consistent also with the the permitting issues and with the the the impact on the local communities.
4466797,549,4231.3901,4239.0503,7,So I think Sunseap has been very successful in terms of what they've done over the last couple of years and the way they've positioned themselves for this.
4466797,550,4240.0098,4252.8799,7,In terms of growth going forward I mean we're talking about you know probably being able to grow at two three hundred mw at least in the short term per year um AC and sort of three four hundred DC.
4466797,551,4253.6299,4261.5303,7,Uh and I think as I said I probably upsizing that given the different markets and and just given the overall size of the region.
4466797,552,4262.0,4265.4902,7,So hopefully that's added a little bit of color too to the question.
4466797,553,4266.2202,4266.3604,13,Yeah.
4466797,554,4268.6899,4268.75,13,Yeah.
4466797,555,4293.6001,4308.8101,14,You mentioned also twenty year p p a which is a good news regarding the duration but is the 670MW which are in operation and and inaudible um are fully under p p a means one hundred percent of the capacity is under p p a.
4466797,556,4309.21,4310.4897,14,That's the second question.
4466797,557,4310.52,4312.9199,14,And the last question is concerning the valuation.
4466797,558,4335.7998,4338.4497,15,Could you just elaborate concerning this valuation?
4466797,559,4338.4502,4339.1201,15,Many thanks.
4466797,560,4341.6802,4342.04,16,Okay.
4466797,561,4342.7798,4345.29,16,In in relation to the first question.
4466797,562,4345.29,4353.7798,16,So the five hundred forty um million I mean it's high but you have to think about it in terms of distributed generations.
4466797,563,4353.8101,4371.79,16,So we're talking about um let's say smaller m project sizes typically would be in the single digit uh megawatts and obviously in locations which have um higher costs in terms of deployment because of cause there are more distributed generations.
4466797,564,4371.79,4381.52,16,So in terms of the CapEx uh you know given the the way they were developed I think it's uh a normal or what would be expected.
4466797,565,4381.8901,4396.9702,16,Also just to remind you it is AC and not DC and sometimes I think when people are comparing the let's say CapEx numbers for solar it is important to make that distinction cuz obviously it is um you know AC and DC do have a around a twenty percent difference.
4466797,566,4397.6802,4409.0,16,Um so I think in relation to CapEx I mean obviously we think CapEx will then continue to come down over the next couple of years but let's say that would be one first comment in relation to that.
4466797,567,4409.9199,4412.1401,16,In relation to the second question the twenty year PPAs.
4466797,568,4413.3501,4426.98,16,So yes um it is pretty much fully contracted uh for the the PPAs or or regulators and I think that's mentioned here on one of the slides I I don't have so I can find exactly the number of the slides.
4466797,569,4427.5698,4432.8799,16,But that is fully contracted and at the seventy around seventy five Euro per megawatt hour.
4466797,570,4432.8799,4440.96,16,So I just also highlight the let's say the the price of the or the implied price of those ppas slash regulated.
4466797,571,4441.8901,4444.5796,16,In relation to the value creation I'm glad you asked the question.
4466797,572,4445.0,4450.52,16,I mean what I would say is you know we look when we look at these projects or we look at these acquisitions for our platform.
4466797,573,4450.8901,4454.1797,16,I mean we are applying the same type of investment metrics that we do for other projects.
4466797,574,4454.54,4461.1899,16,So in this case we would be looking at let's say above two percent spread um over our cost of capital.
4466797,575,4461.77,4470.0898,16,And that's assuming let's say a relatively prudent um growth plan over the next couple of years.
4466797,576,4470.6602,4490.7002,16,So let's say it would be basically basically taking the current uh operational projects and let's say in the margin on that using that sort of spread and then also looking at the future value creation that will be had with uh that growth and the overall it has to be uh in line with our investment criteria.
4466797,577,4490.7598,4494.79,16,So around the one point four times or or at least above the two percent spread.
4466797,578,4495.4399,4498.21,16,So that's sort of the way we would look at it from evaluation perspective.
4466797,579,4498.54,4516.4399,16,That's why in terms of the slide if you noticed I mean in the way we brought it up it's the CapEx and then the value creation and the pipeline and those three bars actually sum up to more or at least visually they should sum up to more look more than the implied enterprise value actually paid for it.
4466797,580,4516.7798,4524.71,16,cuz we do believe we are uh getting a a good return for this investment assuming relative you know reasonable uh assumption.
4466797,581,4563.3901,4575.0103,16,In terms of growth uh of megawatts over the next couple of years until twenty twenty five thereabout and the implied value creation that we will be getting on that assuming our typical investment return.
4466797,582,4575.0098,4579.2197,16,So you know around the one point four times work or above two percent spread.
4466797,583,4579.96,4600.7202,16,And so just saying is that implied in that pipeline we're assuming that we will develop at least part of it not all of it but at least part of it over the next couple of years that we will be creating value from that pipeline and that will give us a return which will be let's say quite a bit higher than the eight hundred seventy that we are paying for the platform.
4466797,584,4603.8999,4604.46,15,Many thanks.
4466797,585,4605.2798,4605.5698,16,Okay.
4466797,586,4621.0,4640.8198,18,Um regarding the the expansion into new markets specifically in in a Asia um this is a a solar platform but uh do you think it could be uh uh a good idea for you to to look for a similar um uh similar transaction or or a similar approach for developing wind in Asia?
4466797,587,4640.8198,4646.4199,18,Or do you think your capabilities are uh good enough to to to go and and do it that directly?
4466797,588,4646.9399,4656.8101,18,And the the the second one is uh if you can provide a little bit of color about a work in progress that you do do you expect to have at the end of of the year?
4466797,589,4656.8101,4665.1602,18,So um which amount of of money will be invested and reflected in the net but not um uh contributing to to EBITDA.
4466797,590,4665.5,4666.25,18,Thank you very much.
4466797,591,4681.2402,4689.1099,16,Uh so we're not looking and not thinking about you know buying any additional platform uh in Asia for wind.
4466797,592,4689.3501,4703.6899,16,We think that you know given the team and the quality of the people there plus our own expertise and you know the people we have in internally that we would be able to build on this platform to develop let's say the the wind uh component to it.
4466797,593,4703.6899,4708.8701,16,So it's not in our plans to go out and do another acquisition for a specific wind platform.
4466797,594,4826.4702,4834.5503,16,Okay so in relation to your questions in relation to the first one distributed generation versus utility scale.
4466797,595,4835.5498,4844.2197,16,I mean I think one of the key things and you know we we've obviously been doing a lot of work on Asia Pacific and seeing how we can take advantage of the growth opportunity there.
4466797,596,4845.04,4848.3999,16,It is quite densely populated and I think that's something to to bear in mind.
4466797,597,4848.3999,4876.1802,16,So uh distributed generation there which can be sort of you know two megawatt the you know that type of range or you know one to ten megawatts type range um can be quite an interesting solution because it can be deployed much closer to the industrial customers or the customers that um let's say that we are entering into PPAs with and then growing that um sort of that scale uh in the region.
4466797,598,4876.9702,4882.6899,16,So it is relatively similar I'd say in the sense that you have also specific counterparts.
4466797,599,4882.6899,4889.6699,16,And I mentioned some of them you know whether it's an Amazon or Microsoft uh those are the type of customers that you can also have in this case.
4466797,600,4890.9502,4892.5601,16,That's true for some markets.
4466797,601,4892.5601,4904.1899,16,In other markets for example in Vietnam I mean maybe you have a regulated tariff and so in that case it would also be let's say for the utility scale um it would also be something that we would be considering.
4466797,602,4904.9199,4912.1196,16,Um so from a technological point of view it is not so different from a regulatory point of view.
4466797,603,4912.3799,4917.6299,16,I mean the key thing is also looking at the at the regulation or at the the counterparty.
4466797,604,4917.6299,4921.1699,16,So I don't think they're very substantially very different businesses at the end of the day.
4466797,605,4921.4902,4929.8501,16,And and we're not talking b two c we're talking you know when I talk distributed generation we're talking basically c n i and the and b two b customers.
4466797,606,4930.71,4934.0498,16,Uh so I don't see it as a materially very different business.
4466797,607,4934.3799,4942.27,16,In terms of the the second question the seventy five Euros per megawatt hour so these are for assets already secured.
4466797,608,4942.3799,4955.29,16,I mean obviously this will evolve over time depending on you know the countries depending on whether um you know what are the the CapEx assumptions that will be using or sort of getting for the different project.
4466797,609,4956.21,4968.8301,16,Uh I would say that over time we would expect these numbers to probably start coming down as also you know the say the economies of sca of scale start kicking in in some of these uh geographies.
4466797,610,4969.7002,4982.1001,16,So but I would say they would still they would still stay relatively high numbers certainly compared to perhaps some of 'em numbers we see in other parts of the world for example like in Iberia or some parts of the US.
4466797,611,4983.3301,4988.23,16,Um so the seven five euros per megawatt hour is for what we have secured.
4466797,612,4988.23,4991.9697,16,I wouldn't expect it to deviate too much over the next couple of years.
4466797,613,4993.1699,4997.5303,16,In terms of floating PV solar CapEx I don't have a specific estimate for that.
4466797,614,4998.2598,5001.5698,16,Uh we can get back to you um on that.
4466797,615,5002.1099,5018.7002,16,When we are looking at let's say when we're looking at what is the pipeline the value of a certain pipeline the most important thing for us is do we think that we can get a positive value creation a positive margin uh on the the projects when we invest in them.
4466797,616,5018.7002,5027.0898,16,And that's why the metrics that we look for whether it's the two percent minimum spread or the one point four times work that's really what's most relevant for us.
4466797,617,5027.79,5034.1802,16,That needs to be technologically feasible you know we need to make sure we have a good a counterpart and that PPA is is competitive.
4466797,618,5035.3301,5039.3804,16,In terms of the specific CapEx estimates maybe we can come back to you with that.
4466797,619,5040.1099,5059.02,16,In terms of EBITDA net income uh what I'd say is that you know we are still comfortable with consensus um and essentially it will depend very much on as I mentioned in the presentation on closing some of the asset rotation transactions before the end of the year.
4466797,620,5059.6299,5061.5,16,So I think we're making good progress there.
4466797,621,5061.5298,5066.4697,16,As you know we have several transactions on track uh that we signed earlier this year.
4466797,622,5067.0601,5074.1099,16,And so I'd say you know we will be above the three hundred million that is our expectation uh by the end of the year.
4466797,623,5074.1099,5078.0698,16,And so in line with EBITDA and net income that's out in the market.
4466797,624,5085.3301,5087.02,16,And which I think has been given out by IR.
4466797,625,5092.29,5092.7998,17,Thank you.
4466797,626,5103.9502,5113.02,20,Um first is on um just going back to the poor wind resource that we've seen this year I'm just ask giving you know asking the question again.
4466797,627,5113.8101,5120.25,20,Do you have any reason to believe that the p fifty low factors that you're assuming in the future for wind should be lower?
4466797,628,5140.7998,5166.2803,20,And then the second question I have is just specifically on the Portugal and Poland um cells um you know done at quite high EV to megawatt multiples two two point four megawatts can we expect when you complete these that the gains that you get on these assets on a per megawatt basis are significantly higher than the um two hundred fifty per mega we saw at the beginning of the year?
4466797,629,5166.6201,5174.1699,20,because if you assume a typical CapEx you might expect that the gains here are gonna be really quite chunky and in excess of five hundred thousand megawatt perhaps.
4466797,630,5174.5801,5176.5801,20,Any comment on that would be much appreciated.
4466797,631,5192.0698,5193.3701,16,I mean that's the honest answer.
4466797,632,5194.1699,5205.4204,16,You know when we look back over twenty thirty forty years I mean you know and look at the long term trend in in sort of we factor in the last couple of years or in the last couple of quarters.
4466797,633,5206.0098,5208.8599,16,I mean there is volatility there always has been volatility.
4466797,634,5209.7598,5215.79,16,It seems to be within the normal range and so the overall trend line does not seem to be um deviating.
4466797,635,5215.8198,5221.5801,16,So um you know there will be good years there will be bad years I mean this is clearly not a good year.
4466797,636,5222.3701,5237.98,16,But um the only voice I think that is inaudible and myself making sure internally that we are sufficiently comfortable to be able to tell you and you know and the rest uh that you know we have no reason to believe that this is changing.
4466797,637,5238.1802,5244.9902,16,And um and so that's the question we ask ourselves internally and that's the assessments we've been looking at and sort of the statistics we've been looking at.
4466797,638,5245.5601,5249.0298,16,And as I said nothing has led us to believe that there is a change.
4466797,639,5250.3101,5255.9199,16,In relation to the second question um I mean yes you are right.
4466797,640,5256.04,5268.3003,16,I would say particularly in the case um of Portugal it would be a higher multiple per megawatt in Poland um it probably be more in line with the the values that you indicated.
4466797,641,5269.0098,5272.7104,16,I mean we will provide specific numbers on the obviously when we close them.
4466797,642,5273.48,5283.8604,16,It is all subject to adjustments and to you know changes um depending on the contractual provisions that we have with um the buyers.
4466797,643,5284.1401,5289.4497,16,And so that's why we typically only give out the final numbers when we actually close the transactions.
4466797,644,5289.4502,5295.5303,16,So you know hopefully by year end we will have done that and then we will a be able to provide additional information on that.
4466797,645,5341.75,5343.9302,21,And the second one uh is related to distributed generation you're doing a a massive uh push on distributed generation with this acquisition of inaudible.
4466797,646,5367.9399,5379.5,16,Um so in relation to the first one I then pass it to Hui and and probably more detail we can also then take it offline um just to walk you through the exact mechanics but but I i will pass it to Hui.
4466797,647,5379.5,5381.3701,16,But so I'll just answer the second question first.
4466797,648,5381.8501,5393.8003,16,And then before I pass the the ball I mean in relation to DG I think DG well first we're talking about typically these platforms are more b two b or c n i.
4466797,649,5394.1802,5401.27,16,And so the line between DG and and utility scale sometimes becomes more blurred certainly in certain geographies.
4466797,650,5401.7598,5412.75,16,So I think our position has been that the same way that we look at you know wind solar offshore within these technologies you then have slightly different segments.
4466797,651,5412.9102,5414.46,16,And sometimes these are blurred.
4466797,652,5414.8198,5427.3799,16,So you can have for example utility scale in France which can be maybe ten megawatts and you can have a what we would call distributed generation which might be also some single digit or or close to ten megawatts depending just cuz it's behind the meter.
4466797,653,5428.21,5439.8003,16,Um so I think you know we do see synergies there and we do see these as different ways of let's say attacking the market in different geographies and also depending on the particular regulatory environment.
4466797,654,5440.8398,5449.7002,16,I I wouldn't see ourselves you know buying a lot more platforms or at least you know we don't have a strategy for going out and buying more DG platforms.
4466797,655,5450.1899,5453.8496,16,We have done that selectively where we think it adds value to us.
4466797,656,5454.2998,5466.3403,16,So this is one case I mean Santi does both does it's expected going forward to do about fifty percent each fifty percent utility fifty percent more let's say CNI and DG.
4466797,657,5467.3398,5470.6001,16,We have done that in the US with c two.
4466797,658,5470.8198,5474.1602,16,So that's also complement to our existing platform in the US.
4466797,659,5474.6602,5481.4702,16,And I think that also gives us a a good insight into the dynamics of the let's say the DG uh markets in the US.
4466797,660,5482.1001,5484.5801,16,So again we will do it selectively.
4466797,661,5484.77,5491.8901,16,We do think it's a good way particularly in some geographies of getting access to to more growth particularly on the lets say on the solar side.
4466797,662,5492.8198,5499.0903,16,But it's not something that let's say we have a an active strategy of specifically going out to buy more of those platforms.
4466797,663,5499.7202,5502.79,16,In relation to the first question then I'll pass the ball Hui.
4466797,664,5503.46,5504.29,16,If you wanna take that.
4466797,665,5504.29,5504.4399,22,Yep.
4466797,666,5504.4399,5505.02,22,Thank Miguel.
4466797,667,5505.02,5505.5498,22,Hi.
4466797,668,5505.9902,5511.6104,22,Um so I I will definitely we can take it offline and go through in more detail but just in a in a ballpark.
4466797,669,5511.9502,5521.5698,22,So we have about €15 million uh impact that's €10 €15 million euros impact in q three uh from this uh financial hedging in Spain.
4466797,670,5522.0498,5530.6401,22,Um our full year estimate is around €25 million on the basis of a p fifty uh wind resource in the in the fourth quarter.
4466797,671,5531.2798,5535.7998,22,Um so that's now the uh the amount sort of the the range that we are talking about.
4466797,672,5536.23,5548.5503,22,Um I mean the mechanics just you know in in one minute is basically once if you are if if you have regulatory uh so wind farms on the regulatory framework and if we are hedged um uh as you know?
4466797,673,5548.5498,5556.2402,22,Any if the price goes above the uh the regulatory cap you will have to get that uh additional revenue back to the system.
4466797,674,5556.5098,5568.2002,22,But if you are hedged cuz we decided to hedge some volumes within the collar so that we don't take that volatility then you need to give back uh the Delta to your hedging and not to the regulatory cap.
4466797,675,5568.9702,5571.52,22,So that's what it is it's impacting.
4466797,676,5571.6401,5578.2798,22,But again if you want what I can do is we take it offline and go step by step so that you can get comfort on the numbers and the dynamics.
4466797,677,5578.7998,5589.7197,16,Um are we there?
4466797,678,5592.1699,5592.7002,17,Thank you.
4466797,679,5592.7002,5595.4502,17,That was the final question in the queue.
4466797,680,5595.75,5595.8599,23,Okay.
4466797,681,5600.3599,5602.4697,23,Thank you very much.
4466797,682,5602.5098,5603.3398,23,Uh everyone.
4466797,683,5604.1699,5604.9199,23,Good afternoon.
4466797,684,5605.29,5605.8999,24,Thanks everyone.
4466797,685,5606.2998,5606.8203,24,Take care.
4466797,686,5607.02,5607.6401,16,Take care bye bye.
4467071,0,6.33,11.74,0,Greetings and welcome to the Tecnoglass Third Quarter two thousand twenty one Earnings Conference call.
4467071,1,12.58,15.37,0,At this time all participants are in a learning-only mode.
4467071,2,16.17,19.39,0,A brief question and answer session will follow the formal presentation.
4467071,3,20.3,26.17,0,If anyone should require operator assistance during the conference please press zero on your telephone keypad.
4467071,4,27.26,29.61,0,As a reminder this conference is being recorded.
4467071,5,30.69,34.92,0,It is now my pleasure to introduce your host Brad Crane Investor Relations.
4467071,6,35.35,36.78,0,Thank you sir you may begin.
4467071,7,37.91,42.51,1,Thank you for joining us for Tecnoglass's Third Quarter twenty twenty one conference call.
4467071,8,43.17,49.77,1,A copy of the slide presentation to accompany this call may be obtained on the investors section of the Tecnoglass website.
4467071,9,50.59,62.15,1,Our speakers for today's call are Chief Executive Officer Jose Manuel-Diaz Chief Operating Officer Chris Diaz and Chief Financial Officer Santiago Geraldo.
4467071,10,63.43,74.68,1,I would like to remind everyone that the matters discussed in this call except for historical information are fore looking statements within the meaning of the private security litigation reform act of nineteen ninety five.
4467071,11,75.34,81.35,1,Including statements regarding future financial performance future growth and future acquisitions.
4467071,12,82.15,89.86,1,These statements are based on Tecnoglass's current expectations or beliefs and are subject to uncertainty and changes in circumstances.
4467071,13,90.48,96.26,1,Actual results may differ in a material way from those expressed or implied by the statements herein.
4467071,14,96.79,105.84,1,Due to changes in economic business competitive and or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass's business.
4467071,15,107.63,114.69,1,These risks uncertainties and contingencies are indicated from time to time in Tecnoglass's filing with the s c c.
4467071,16,115.49,119.23,1,The information discussed during the call is presented in light of such risks.
4467071,17,120.07,127.75,1,Further investors should keep in mind that Tecnoglass's financial results in a particular period may not be indicative of future results.
4467071,18,128.7,142.54,1,Tecnoglass is under no obligation to and expressly disclaims any obligations to update or alter its fore looking statements whether in the result of new information future events changes in assumptions or otherwise.
4467071,19,143.43,147.46,1,I will now turn the call over to Jose Manuel beginning on slide number four.
4467071,20,401.1,433.39,2,With the thanks of our balance sheet and for flexibility we're extremely confident in our ability to achieve our gross of inaudible.
4467071,21,454.71,466.59,3,During the quarter we were pleased to begin invoicing products under our new multi max product lines which started production home builders as well as legacy and new dealers.
4467071,22,467.62,472.91,3,This is an opportunity that we believe represents significant upside to our long-term goals potential.
4467071,23,474.38,483.12,3,Beyond new products we are seeing a sharp acceleration of goals in our prestige and elite single-family residential product lines.
4467071,24,484.13,509.86,3,We continue to expect strong growth in single-family through share gain held by a continued positive overall housing environment in the u s In addition we have a number of commitments and multi-family projects which help to grow our backlog to a new record level of five hundred and seventy five point eight million at quarter end.
4467071,25,510.41,516.52,3,As it related to commercial indicators we have been pleased to see increases in the A B I Index.
4467071,26,550.57,556.02,3,Providing that with solid visibility and commercial demand through twenty twenty two.
4467071,27,556.9,564.87,3,The u s continues to represent an increasing share product accounting for over eighty six percent of our third quarter backlog.
4467071,28,566.71,576.61,3,Approximately two three of our backlog is comprised of medium and high rise residential projects as well as single-family residential production.
4467071,29,577.05,581.63,3,While one three is related to a wide array of commercial products.
4467071,30,591.35,607.92,3,Looking ahead our strong cashflow generation capabilities are rising vertically and integrated advantages have allowed us to invest significantly in gross markets.
4467071,31,608.98,625.53,3,During the third quarter we spent ten million in gross to automate a third class processing line enhance our self-coding facility and expand our aluminum production capacity to address incremental demand.
4467071,32,626.66,634.96,3,We believe growth investments such as this will help us address the expected growth we foresee through two thousand twenty two.
4467071,33,634.96,647.98,3,We previously discussed store capacity and incremental efficiencies anticipated to become operational by the fourth quarter of twenty twenty one or early in the first quarter of twenty twenty two.
4467071,34,648.4,657.47,3,We expect to have the necessary historic capacity to significantly span our invoicing capabilities well beyond current levels.
4467071,35,658.43,671.84,3,I will now turn the call over to Santiago on slide six to discuss the strong demand for a single family products vertically integrated strategy and financial results and improve our look for the year.
4467071,36,673.49,674.35,4,Thank you Christian.
4467071,37,675.04,690.32,4,Our third quarter results represent yet another quarter of consistent execution followed years of investment in technology enhancements our facilities as well as strategic positioning in u s single-family residential market.
4467071,38,691.43,698.73,4,In the third quarter we were thrilled to expand upon our exceptional first half twenty twenty one performance.
4467071,39,700.22,707.78,4,We saw our momentum continue primarily through share gains and new business wings in our single-family business.
4467071,40,709.42,722.26,4,This momentum resulted in our total revenue increasing to new record levels notably our single-family revenues increased two hundred thirteen percent year over year.
4467071,41,723.08,723.84,4,Representing…
4467071,42,739.17,746.55,6,Our sales continue to benefit from our vertically integrated business model and strategically located operations.
4467071,43,747.89,758.21,6,The accelerating demand for our products is attributable to our ability to supply superior quality products with shorter lead times at an attractive value.
4467071,44,803.27,835.9901,6,Looking at slide seven we would like to draw your attention to the factors driving our success and above market growth in twenty twenty one helping us to differentiate TechnaGlass as the architectural glass provider of choice in the US as we have discussed in previous quarters our strategically located vertically integrated and low-cost operations provide us with sustainable competitive advantages compared to our peers.
4467071,45,837.92,870.21,6,Our structural advantages and significant investments in our operations continue to facilitate our ability to quote more projects expand customer relationships and deliver products with much shorter lead times than the current industry average our vertical integration in joint venture with Sangobond allows us significant control over our purchasing and transportation costs with no material pressures from raw material costs or material availability.
4467071,46,871.7,878.77,6,Also we have not experienced any significant wage cost increases or labor constraints.
4467071,47,880.12,891.77,6,Additionally energy costs continue to be stable given our ability to source energy from our solar panel generation and natural gas cogeneration.
4467071,48,913.56,923.81,6,On slide number eight we display the areas where we believe we have already made significant achievements across the e s g spectrum.
4467071,49,924.82,937.12,6,We were pleased to further highlight our commitment to environmental social and governance responsibilities through our twenty twenty sustainability report published a few weeks ago.
4467071,50,938.76,964.19,6,Throughout our years as a public company we have worked to serve all of our stakeholders from implementing green technology such as our fifteen million investment in solar technology for our facilities to our efforts to develop TechnaGlass as an employer of choice in Colombia by way of our investments in our employee and corporate culture.
4467071,51,965.88,975.92,6,On slide nine we have provided a high level view of the goals we will seek to achieve on a go-forward basis as outlined in our report.
4467071,52,976.91,989.67,6,We have designed and continuously implement strategies aimed to encourage the efficient use of materials and resources as well as the development of environmentally friendly technologies.
4467071,53,991.03,997.5099,6,We also look to responsibly manage the value chain and the lifecycle of the products we sell.
4467071,54,998.66,1008.77,6,And we do all of this to offer our partners innovative and best-in class products that are environmentally friendly and energy efficient.
4467071,55,1008.77,1021.44,6,TechnaGlass remains dedicated to corporate social responsibility in our twenty twenty reports marks another important milestone in our e s g journey.
4467071,56,1023.44,1030.01,6,Let's now discuss our third quarter financials starting with revenue drivers on slide number eleven.
4467071,57,1032.03,1041.0099,6,Total revenues increased twenty six percent year over year to a record one hundred thirty point four million for the third quarter.
4467071,58,1042.38,1060.4199,6,In the US which represents ninety four percent of our total revenues we saw growth of approximately twenty nine percent to a record one hundred twenty three point two million compared to ninety five point seven million in the prior year quarter.
4467071,59,1087.64,1096.88,6,Based on conversations with customers we believe commercial is on track to recover as we move early into twenty twenty two.
4467071,60,1099.1,1102.9399,6,Looking at the drivers of adjusted EBITDA on slide number twelve.
4467071,61,1104.78,1117.9299,6,Adjusted EBITDA in the third quarter of twenty twenty one increased thirty six point one percent to a record thirty eight point seven million compared to 28.5 million in the prior year quarter.
4467071,62,1119.71,1123.5801,6,Adjusted EBITDA margin was twenty nine point seven percent.
4467071,63,1123.58,1131.87,6,A third quarter record in a strong two hundred twenty basis points improvement compared to the prior year period.
4467071,64,1134.0,1140.52,6,We were pleased to produce record third quarter gross profit on both a dollar and margin base.
4467071,65,1142.38,1152.6699,6,Our gross profit increased twenty eight point seven percent to fifty one point six million representing a gross margin of thirty nine point six percent.
4467071,66,1154.03,1164.5901,6,This compared to gross profit of forty point one million in the prior year quarter representing a gross margin of thirty eight point eight percent.
4467071,67,1166.33,1187.02,6,Our eighty basis point improvement in margin was mainly attributable to greater operating efficiencies in a higher mix of revenue from manufacturing versus installation activity given our increased mix of single family residential products where we do not carry out installation.
4467071,68,1219.97,1225.11,6,Now looking at our balance sheet and leverage profile on slide number thirteen.
4467071,69,1225.11,1241.88,6,To reiterate a point made in previous quarters the recapitalization of our debt structure last October in our outstanding track record of cash flow generation has significantly enhanced our financial flexibility.
4467071,70,1265.58,1279.7799,6,Our higher margin shorter cash cycle single family revenues combined with exceptional working capital management and low interest expense are all helping to drive additional shareholder value.
4467071,71,1281.4399,1291.98,6,The transformation in our ability to generate significant cash left us well positioned to deploy capital opportunistically during the quarter.
4467071,72,1291.98,1300.9301,6,To that end we spent ten million in growth CapEX in the quarter in order to address affected demand.
4467071,73,1301.87,1313.71,6,This move aligns with our strategy to invest in further operational efficiencies and allows us to prepare for the additional growth we expect in the quarters ahead.
4467071,74,1315.2,1324.17,6,We expect these investments to be operational late in the fourth quarter two thousand and twenty one or early first quarter of two thousand and twenty two.
4467071,75,1325.4301,1337.15,6,In addition to investments in our operations we use excess capital to voluntarily prepaid thirty million of debt under our syndicated term loan facility during the quarter.
4467071,76,1339.04,1349.86,6,We were pleased to achieve a lowest leverage ratio in the company's history which decrease to oh point nine times net debt to adjusted EBITDA at quarter end.
4467071,77,1351.5601,1364.1899,6,Furthermore our joint venture with Sangobond to construct our previously announced second state-of-the-art float glass plant in Barranquilla remains on track to break ground in the first half of twenty twenty two.
4467071,78,1365.53,1371.6499,6,As we discussed in the past our capital contributions toward that project have already been completed.
4467071,79,1372.27,1376.97,6,So we don't expect any additional CapEx as it relate to the project.
4467071,80,1378.59,1381.61,6,Moving to our outlook on slide number fifteen.
4467071,81,1383.3199,1396.75,6,Based on our strong third quarter performance and continued momentum in twenty twenty one as well as our solid demand outlook through inaudible we are increasing our full year twenty twenty one out.
4467071,82,1398.15,1409.08,6,We now expect full year twenty twenty one revenues of four hundred eighty five to four hundred ninety five million representing growth of thirty one percent at the midpoint.
4467071,83,1410.13,1431.55,6,We continue to expect the US to represent the significant majority of our growth.
4467071,84,1436.65,1443.7999,6,Our gross margins should continue to benefit from our high return CapEX investments in automation initiatives…
4467071,85,1448.26,1455.54,7,As a reminder we do not carry out installation for our single family residential sales.
4467071,86,1456.26,1461.38,7,However we do carry out installation for many of the commercial projects in our backlog.
4467071,87,1462.35,1480.51,7,Based on our strong year-to-day mix of single family revenues and our faster growth in that end market we still anticipate a larger mix of higher margin product versus installation revenue for full year two thousand and twenty one compared to the prior year.
4467071,88,1487.71,1496.28,7,That said given the anticipated sequential increase in the mix of our commercial revenues that include installations we expect our margins to normalize to a high thirty percent level in the fourth quarter of two thousand and twenty one.
4467071,89,1498.22,1513.46,7,We expect CapEx in two thousand and twenty one to be approximately thirty five million with a large portion of these expenses going towards further automation and growth investments to efficiently manage increasing demand for our products.
4467071,90,1514.45,1518.86,7,Maintenance CapEx continues to represent less than two percent of our sales.
4467071,91,1535.46,1545.65,7,Our balance sheet is stronger than ever and our very conservative leverage profile positions us well to generate ongoing value creations for shareholders.
4467071,92,1546.9399,1563.91,7,Looking ahead we will continue to leverage our unique very clean integrated platform to target new customer relationships and further penetrate the US single family residential market to our innovative products and superior lead times.
4467071,93,1565.36,1578.1599,7,We believe these key differentiators along with our prudent growth investment will continue to provide greater returns for our shareholders as we move into twenty twenty two.
4467071,94,1579.3,1582.54,7,With that we will be happy to answer your questions.
4467071,95,1583.4301,1585.6799,7,Operator please open the line for questions.
4467071,96,1587.3199,1588.03,8,Thank you.
4467071,97,1588.3199,1591.0701,8,We will now be conducting a question and answer session.
4467071,98,1591.52,1595.85,8,If you would like to ask a question please press star one on your telephone keypad.
4467071,99,1596.54,1599.64,8,A confirmation tone will indicate your line is in the question queue.
4467071,100,1600.35,1603.4501,8,You may press star two if you would like to remove your question from the queue.
4467071,101,1604.21,1609.24,8,For participants using speaker equipment it may be necessary to pick up your handset before pressing the star key.
4467071,102,1609.84,1612.02,8,One moment please while we poll for questions.
4467071,103,1615.9301,1616.51,8,Thank you.
4467071,104,1616.54,1619.58,8,Our first question comes from a line of Tim Rogers with Bair.
4467071,105,1619.58,1621.13,8,Please proceed with your question.
4467071,106,1622.3101,1623.1799,9,Hey uh hey everybody.
4467071,107,1623.1801,1623.64,9,Good morning.
4467071,108,1623.73,1624.6101,9,Nice uh nice job.
4467071,109,1626.4301,1626.8301,7,Good morning.
4467071,110,1628.0601,1635.4301,9,may maybe just um to to start on residential you know obviously you know clearly a lot of momentum behind that business business line.
4467071,111,1635.83,1640.45,9,Um I I guess at this point what's your vi visibility for residential into next year?
4467071,112,1640.45,1644.6901,9,And I I guess you you just did you know basically sixty million dollars in sales this quarter.
4467071,113,1645.22,1649.3099,9,Um do you think that's a a proper kind of baseline you know to use moving forward?
4467071,114,1649.3101,1650.91,9,I mean can we effectively annualize that?
4467071,115,1676.5699,1676.9299,9,Okay.
4467071,116,1677.48,1688.35,9,And and when you think about the opportunity maybe just ev even in Florida could could you give us some perspective how how big the Florida market is on on residential and kind of where um you know your share is today?
4467071,117,1715.09,1715.4299,9,Okay.
4467071,118,1715.5601,1715.77,9,Okay.
4467071,119,1715.77,1716.1599,9,That's good.
4467071,120,1716.16,1722.49,9,And then and then maybe on the margin side just on on raw materials I I know you've had some favorable hedges on aluminum.
4467071,121,1722.98,1728.5299,9,Um h how do you think of that kind of normalizing and and maybe any any impact there on gross margins into next year?
4467071,122,1728.53,1733.6799,9,I guess you know will you effectively be able to offset that with with pricing and and I guess same thing with glass?
4467071,123,1734.98,1738.9399,7,Yeah so basically on on the glass side through our joint venture we get stable pricing.
4467071,124,1738.9399,1743.0701,7,So on on the aluminum front is where you will have to kind of be mindful there.
4467071,125,1743.0699,1749.91,7,But with aluminum prices coming down we don't foresee any impact on on on margins going forward.
4467071,126,1749.9399,1753.36,7,As as we said we see high thirties for the rest of the year.
4467071,127,1753.91,1756.76,7,And into twenty twenty two I don't I don't expect that changing.
4467071,128,1757.42,1757.75,9,Okay.
4467071,129,1757.96,1758.52,9,Okay great.
4467071,130,1758.5601,1759.3099,9,Well hop back in queue.
4467071,131,1759.3101,1759.8301,9,Nice job guys.
4467071,132,1760.7,1761.0699,7,Thanks.
4467071,133,1763.51,1767.24,8,Our next question comes from a line of Josh Wilson with Raymond James.
4467071,134,1767.24,1768.6,8,Please proceed with your question.
4467071,135,1769.83,1770.08,11,Yes.
4467071,136,1770.08,1770.48,11,Good morning.
4467071,137,1770.48,1772.53,11,Thanks for taking my questions and congrats on the quarter.
4467071,138,1773.39,1773.7001,7,Thanks.
4467071,139,1775.89,1780.11,11,Uh could you give us a sense of what the multi max contribution was to single family in the quarter?
4467071,140,1781.46,1786.5601,7,Yeah so basically right now we're doing about two million per month on on that.
4467071,141,1786.5601,1788.55,7,So it's it's ramping up nicely.
4467071,142,1789.23,1794.16,7,Um still a lot of the of the contribution was from the legacy products.
4467071,143,1829.6899,1831.8201,11,Got it.
4467071,144,1833.27,1836.15,11,And you had some nice growth in the backlog.
4467071,145,1836.15,1841.58,11,Was that pretty uniform throughout the US or did you see pockets of strength and weakness regionally?
4467071,146,1843.35,1854.9399,10,Well um on the commercial side of outside of Florida we saw a slow down for a year and a half.
4467071,147,1904.02,1904.29,11,Good.
4467071,148,1904.3199,1905.2301,11,And last one for me.
4467071,149,1905.23,1908.6899,11,Can you give us a sense of what the twenty twenty two CapEx might look like?
4467071,150,1909.3101,1909.3701,7,Yeah.
4467071,151,1919.26,1925.9301,7,So my my guess is that we'll be around kind of ten to fifteen million type CapEx next year.
4467071,152,1927.53,1927.87,11,Got it.
4467071,153,1928.09,1928.49,11,Thanks so much.
4467071,154,1929.53,1930.0499,7,Thanks Josh.
4467071,155,1931.59,1936.1899,8,Our next question comes from line of Julio Romeros Sedori.
4467071,156,1936.1899,1937.61,8,Please proceed with your question.
4467071,157,1937.71,1942.3201,12,Hey good more morning.
4467071,158,1944.38,1954.61,12,Hey so what are you guys hearing from customers in in Florida in regards to your service proposition and and you know talk about how your lead times are trending compared to some of your competition in that area?
4467071,159,2004.1,2004.4199,12,Okay.
4467071,160,2004.59,2004.87,12,Got it.
4467071,161,2004.87,2008.9099,12,And I guess for my follow up um you know your balance sheet's looking very good.
4467071,162,2008.91,2013.9299,12,You're under one times leverage you invested in some growth and and you paid down some debt in the quarter.
4467071,163,2021.71,2038.39,13,Um we invested heavily uh the last couple of years um on increasing the capacity and uh on being a uh more efficient uh doing the products and it's paying off.
4467071,164,2038.76,2047.4601,13,Uh that's why with the increased capacity that we are installing today we are going to be able to continue to grow in double digits.
4467071,165,2048.47,2060.6799,13,Uh as a matter of fact we we are gonna try to be at least twenty percent bigger next year uh better next year.
4467071,166,2076.95,2077.23,7,Yeah.
4467071,167,2077.23,2080.45,7,So we're we're down we're below one time Julio.
4467071,168,2080.45,2084.26,7,I I think our target uh when we started the year was two times.
4467071,169,2084.8,2092.78,7,So obviously we're very comfortable um where we're at and have a lot of financial flexibility to to undertake that the growth that we're seeing.
4467071,170,2093.5901,2103.23,7,I think um for the foreseeable future we'll continue investing in in CapEx and growth and and if we need to repay further debt uh that'll be another way to to use cash.
4467071,171,2103.4199,2108.99,7,But you know at this point we're definitely well below um our regional target.
4467071,172,2112.01,2112.4099,12,Okay.
4467071,173,2112.5901,2114.6501,12,Very nice quarter and best of luck in q four.
4467071,174,2116.03,2116.54,7,Thank you.
4467071,175,2119.02,2122.7102,8,Our next question comes from line to Brent Deoming with DA Davidson.
4467071,176,2122.71,2124.0498,8,Please proceed with your question.
4467071,177,2125.96,2126.5999,14,Hey thank you.
4467071,178,2126.6001,2127.5801,14,Congrats as well.
4467071,179,2127.74,2128.25,14,Great quarter.
4467071,180,2128.28,2128.8101,7,Thanks.
4467071,181,2129.26,2129.8601,7,How are you Brent?
4467071,182,2130.3201,2132.8301,14,Um yeah thank you.
4467071,183,2132.8301,2138.3701,14,Um I I guess I wanted to ask a little bit about twenty twenty two or or see what I can get from you guys.
4467071,184,2138.5,2148.1201,14,Um uh you know I assume that you're going to see a higher mix of installation as you convert some of this backlog but your residential strength is unbelievable.
4467071,185,2148.1201,2160.3101,14,And and I guess I'm trying to think about the impact to to margins as the residential business got into a base that's large enough to offset that you know mix impact you might see next year from installation?
4467071,186,2161.54,2162.6599,7,That's that's correct.
4467071,187,2162.71,2163.79,7,And that's how we're seeing.
4467071,188,2163.9199,2164.1399,16,I…
4467071,189,2164.1399,2171.6499,16,I think both factors will offset each other so even if we have more installation we think that we can maintain gross margins.
4467071,190,2201.3401,2201.9202,17,So…
4467071,191,2225.23,2225.55,15,Okay.
4467071,192,2227.49,2227.99,15,Yeah in that…
4467071,193,2228.02,2229.5,15,I guess I wanted to ask you as well I mean I…
4467071,194,2229.5,2234.7598,15,You seem to be navigating you know higher logistics environment very well I…
4467071,195,2234.76,2239.48,15,I guess has the increase in onshore freight rates impacted your ability at all to…
4467071,196,2239.55,2245.5901,15,to penetrate more of these sort of inaudible markets not the Southeast but maybe Midwest and elsewhere?
4467071,197,2246.1499,2248.0801,15,Um or has that uh been negligible?
4467071,198,2249.1399,2250.0901,17,Yeah freight…
4467071,199,2250.0901,2253.28,17,freight uh has been coming up uh lately.
4467071,200,2253.28,2254.25,17,Um…
4467071,201,2254.5701,2257.6599,17,We have seen them increase like thirty percent of the uh…
4467071,202,2258.23,2260.03,17,or forty percent in the rates.
4467071,203,2274.4099,2277.8201,17,the um…
4467071,204,2292.1899,2307.8,17,and um we are trying to open new ways of shipping to Miami um through Cartagena which is a much bigger port of inaudible to see if we can uh lower the cost of shipping.
4467071,205,2311.5,2311.8,15,Okay.
4467071,206,2312.7,2316.28,15,Um uh I guess maybe one more on MultiMax um…
4467071,207,2316.52,2322.55,15,just be interested in any of your milestones and successes you've had recently with new builders and…
4467071,208,2322.55,2327.48,15,and any targets or objectives you guys can share for that business for the rest of this year or…
4467071,209,2327.5801,2339.4001,15,or even twenty two if you are…
4467071,210,2339.3999,2340.03,15,if you're willing?
4467071,211,2346.8899,2358.1499,17,Well all the builders uh that we have been selling to…
4467071,212,2362.1799,2367.05,17,More modern style.
4467071,213,2391.5601,2392.05,17,We…
4467071,214,2409.1399,2410.1401,15,Okay maybe one…
4467071,215,2410.1699,2411.6899,15,one more for me just um…
4467071,216,2412.3301,2415.1199,15,it doesn't seem like you need to do M N A but is it…
4467071,217,2415.23,2416.45,15,is it something you're looking at?
4467071,218,2416.45,2417.46,15,And what what…
4467071,219,2417.5,2419.71,15,what would that look like if you were?
4467071,220,2427.3701,2433.6899,17,<laugh> Uh to us mergers and acquisitions would make sense on buying a company that we don't have the knowhow.
4467071,221,2434.46,2434.49,17,Eh…
4467071,222,2443.6599,2444.9199,17,eh for the moment…
4467071,223,2475.8899,2477.2998,21,Please proceed with your question.
4467071,224,2478.97,2480.8101,22,Thank you and also a great quarter here.
4467071,225,2481.1399,2481.51,22,Um…
4467071,226,2482.28,2484.54,22,coming back to the MultiMax product and…
4467071,227,2571.3501,2574.0,22,And then turn it over to US commercial business which was uh…
4467071,228,2574.0,2575.3899,22,down in a third quarter.
4467071,229,2575.8101,2587.9102,22,Uh you obviously have very positive comments with regards to the backlog of that business and the reopening of that business so how should we think about modeling the US commercial business in twenty twenty two?
4467071,230,2587.9099,2593.74,22,I suspect it's a little bit more sort of back end loaded in twenty twenty two but uh your comments would be helpful.
4467071,231,2631.6899,2632.1401,22,Very helpful.
4467071,232,2632.1399,2632.75,22,Thank you very much.
4467071,233,2637.3799,2640.2998,21,We have reached the end of the question and answer session.
4467071,234,2640.7,2642.8701,21,I would like to now turn the floor back over to Mr.
4467071,235,2642.8701,2645.0701,21,Jose Manuel Diaz for further comment.
4467071,236,2649.3,2654.0,17,Well thanks everyone for participating on today's call.
4467071,237,2665.6899,2668.6599,21,Ladies and gentlemen this does conclude today's teleconference.
4467071,238,2668.8,2670.7,21,You may disconnect your lines at this time.
4467071,239,2670.78,2673.4502,21,Thank you for your participation and have a wonderful day.
4467079,0,26.16,39.18,0,The company's year begins on July first so that is why we are reporting two one the three months that ended on September thirtieth twenty twenty one.
4467079,1,41.23,45.69,0,Well this transmission is being recorded.
4467079,2,46.22,72.33,0,It is transmitting at our website and also on YouTube and here we're talking about estimates and declarations concerning the business perspectives of the company's projections operational goals based on on our Now I would like to pass the floor to Mr Andre to begin our presentation.
4467079,3,72.72,73.97,0,Ana thank you.
4467079,4,74.38,79.04,0,Thank you Gustavo to all of you who are here in our conference calls.
4467079,5,79.31,83.23,0,It's a great pleasure to be sharing with you good news.
4467079,6,85.86,91.09,0,Even before I arrived I asked the team Gee where are we going to have our bar?
4467079,7,91.31,102.69,0,We're raising the bar at the res the results during this quarter would are the same as the ones that we would celebrate as the year's results.
4467079,8,102.69,104.55,0,So the company is on a new level.
4467079,9,105.39,110.9,0,We have a better prepared company in terms of real estate and operations.
4467079,10,111.5,113.87,0,It is a company that is totally different today.
4467079,11,133.49,150.93,0,Okay the highlights that we bring here for q one as Ana reminded us very well this is q one which began on July first we had a net revenue of three seventy eight million in this period.
4467079,12,151.66,159.98,0,We have a net profit of a hundred seven point nine million and an adjusted inaudible of a hundred and ninety point six million.
4467079,13,160.94,197.06,0,The estimate for the harvest that we're ending the numbers two point six million tons of grains cotton and sugar cane a hundred sixty eight thousand hectares in production and now we have the excellent news that we gave in the last meetings of the company concerning the general assembly on October twenty seventh the approval for a record dividend payment.
4467079,14,198.39,206.2,0,two hundred sixty million in dividends for the previous year two point six two Reais per share.
4467079,15,207.65,210.45,0,So always bringing to the investor.
4467079,16,210.86,226.47,0,Last year was a great investment if we consider the appraisal of our shares and also the size of the dividend that we are paying that will represent approximately nine percent this year.
4467079,17,226.75,227.52,0,Nine percent.
4467079,18,231.26,242.2,0,Well in the highlights in the last call or the call before last we said We are we are sellers.
4467079,19,243.91,246.66,0,We are working on purchases too.
4467079,20,248.36,257.37,0,In the last call we already had these two transactions in progress the negotiations in progress.
4467079,21,257.37,262.78,0,Entering q one we finalized the sale of these two farms.
4467079,22,263.53,274.68,0,I'd like to remind you last year when we talk about two hundred sixty million in dividends they're they are linked to an excellent operational result.
4467079,23,275.08,281.07,0,Last year and a small part of this came from the sale of farms real estate.
4467079,24,281.46,287.81,0,Here we already have relevant results from the sale of real estate.
4467079,25,287.81,289.18,0,The first sale is Rio do Meio.
4467079,26,290.75,298.08,0,Those who have been with us for a short time this came from the acquisition that we made from Agritherman.
4467079,27,299.62,304.23,0,We acquired two farms Rio do Meio and Arrojadinho and we're selling a third.
4467079,28,304.23,313.4,0,This farm has approximately eight thousand hectares and we're selling two thousand eight hundred.
4467079,29,314.42,317.29,0,We acquired this recently January twenty twenty.
4467079,30,330.74,338.44,0,So this shows the potential and a value generation that the company has in terms of real estate results.
4467079,31,407.97,421.85,0,When we deliver we will deliver one thousand five hundred hectares initially and we will record this part this result on the fifteen hundred hectares.
4467079,32,422.17,424.9,0,What will we do with the other twelve hundred hectares?
4467079,33,425.29,426.97,0,We will continue exploring.
4467079,34,427.18,428.57,0,It has sugar cane.
4467079,35,429.5,437.82,0,We will continue until the harvest of twenty twenty three and then we will deliver the second part.
4467079,36,438.05,440.08,0,And then we will record the sale.
4467079,37,440.82,444.51,0,So this is how we do our accounting.
4467079,38,448.07,451.35,0,Well what I'd like to say here two points.
4467079,39,451.97,464.39,0,First the company's capacity to increase its operational area even being a very efficient company in terms of the sale of real estate.
4467079,40,464.73,487.47,0,So if we look year after year we have a growth of ten percent of the cultivated area planted area and this comes from our roll land leased land development of land but shows to you investors those who follow us the capacity to increase more and more operational results in an efficient way and in a safe way.
4467079,41,487.96,492.31,0,The graph also beside you shows the breakdown of the types of crops.
4467079,42,492.31,505.41,0,I'd like to call your attention basically in the harvest twenty one twenty two we are increasing the cultivated area of winter crop for corn corn winter crop.
4467079,43,506.11,508.25,0,Later on we will talk about prices.
4467079,44,508.61,516.04,0,So we see an optimistic scenario for winter corn.
4467079,45,517.08,526.74,0,And also more and more maintaining products that have more added value maintaining the areas with beans.
4467079,46,528.65,535.88,0,Well here we have a summary we will grow in production.
4467079,47,585.12,589.26,0,And here we can continue seeing the numbers.
4467079,48,589.96,602.9,0,We have the crop we have some drought in Mato Grosso and in the North East so the winter crop has an increase but it does not refer to the area.
4467079,49,603.13,610.57,0,It reports to a recovery or maintenance of our er normal results.
4467079,50,612.18,623.13,0,When we look year after year when we look total growth in production we went from two hundred eighty seven to three hundred ninety eight thousand tons.
4467079,51,624.05,624.7,0,Last column.
4467079,52,625.63,636.29,0,Well this is a thermometer this is a new slide and Appala prepared this it's very good to show first on the graph below.
4467079,53,637.36,643.68,0,Here the graph below represents the ideal window for planting.
4467079,54,644.34,645.38,0,This is a picture of…
4467079,55,645.38,656.01,0,the company would like to remind you that this these numbers are from Friday so we can see here the amount planted.
4467079,56,656.68,665.58,0,Also another point we have operations in Mato Grosso part of the plant with soya beans is in the North East.
4467079,57,666.15,668.84,0,It is a window that is different from Mato Grosso.
4467079,58,673.63,677.57,0,We are also seeing the results from Xingu too.
4467079,59,682.19,684.05,0,We will continue.
4467079,60,687.88,697.27,0,We can see here the result soya bean corn cotton and beans in the harvest twenty twenty one twenty twenty two.
4467079,61,725.25,732.94,0,We can also see here twenty twenty one and twenty two harvest year in cattle raising.
4467079,62,734.55,739.458,0,We can see here cattle has pasture and A D G.
4467079,63,739.46,749.48,0,So beans we have some of results already in.
4467079,64,752.79,762.62,0,Well here sugar cane I would like to say that we have we see a great evolution in the number.
4467079,65,770.56,780.74,0,You can see here the production in thousands of tons and the number of hectares for sugar cane and then the harvest area and the number of tons.
4467079,66,855.64,874.22,0,So when we look at Brasil Agro in Brazil in sugar cane we have almost five hundred eighty five hundred ninety which is and we see the harvest at the end of now with five hundred and twenty thousand tons.
4467079,67,874.22,876.23,0,The company had a a drop.
4467079,68,876.23,922.76,0,Here we see the generation of results bringing a lot of results from real estate sales.
4467079,69,922.76,923.97,0,So what did we do here?
4467079,70,923.97,933.05,0,So during a time of spectacular prices we have to max maximize our inventory.
4467079,71,933.42,936.77,0,We had an inventory of cattle had a low price.
4467079,72,964.08,985.34,0,Maybe part of this comes from a lower load when you so with less pressure in the pasture land and g m d had Again we gained five hundred grams of G M D very similar to the mark.
4467079,73,985.42,990.41,0,We're estimating now the closing with zero seven oh.
4467079,74,990.72,1000.79,0,This is what places the company as an excellent producer of sugar cane excellent produteror- producer of beef and other also with the crops.
4467079,75,1001.55,1023.33,0,Here what I'd like to stress is the company's capacity resilience of the company to move this inventory capture the good prices and the last inaudible the- the last slide shows that cattle raising in the company is being done with a lot of operational results and good techniques.
4467079,76,1025.6801,1041.76,0,Well here we're talking about the current harvest and here I'd like to repeat this we're always with a good contribution margin what we expect per hectare.
4467079,77,1042.04,1057.38,0,So we have a moral obligation to make progress every time we have a good contribution margin and depending on the price of sale we're always looking at contribution margins the difference of between sale and cost.
4467079,78,1058.05,1070.4399,0,On this date we can see the amount of corn sold at a price of sixty six point nine six.
4467079,79,1070.78,1083.87,0,Most of the corn production is winter crop so here we have a mix of prices between corn in the North-East then in the mid-West.
4467079,80,1085.83,1088.89,0,So we have fifty percent of the next harvest.
4467079,81,1089.39,1099.48,0,When we look this in comparison with last year wi with the same mix fifty Reais and now sixty seven Reais.
4467079,82,1100.33,1102.25,0,At the bottom we see soya bean.
4467079,83,1103.76,1106.26,0,We're also making progress in soya beans.
4467079,84,1110.8101,1127.84,0,Here we can see the main figures revenues from operations when we look at the future and the exchange rate closing at five point five seven Reais per Dollar.
4467079,85,1127.84,1136.88,0,At little higher than the previous previous harvest when we have five point five one Reais per Dollar.
4467079,86,1137.15,1143.34,0,This will help us with an even more robust result this year because we have…
4467079,87,1147.3,1152.51,1,The last line is cotton where we have progress and important progress.
4467079,88,1153.0699,1165.4301,1,sixty eight percent in sales in relation to the previous harvest actually in relation to this harvest with a price of a hundred sixty three reais.
4467079,89,1166.09,1170.37,1,When we look at the price of the previous it was at a hundred eight reais.
4467079,90,1170.37,1177.6,1,And you'll see we also intensified the area with cotton this year.
4467079,91,1235.47,1251.5399,1,And it's important to stress and the increase in price for corn soybean and especially in sugar cane is what leveraged all these results.
4467079,92,1253.2,1276.14,1,It's important to mention that during this quarter we we harvested almost one million tons of sugar cane and we should expect results that will continue to come in from sugar cane.
4467079,93,1276.76,1285.5099,1,And our expectation is that the price increases will continue leveraging or improving the operational results.
4467079,94,1286.4,1296.1899,1,When we look at adjusted e b i t d a and this shows the performance.
4467079,95,1299.08,1306.05,1,And here we include derivatives as Andrea mentioned in the previous page.
4467079,96,1308.88,1315.1599,1,So we see a hundred ninety million reais.
4467079,97,1315.91,1321.38,1,Last year we had a sa a sale.
4467079,98,1322.47,1336.4401,1,And this year we're expecting for next quarter to record the sale of Rio do Mayo farm and part of the second farm as Andrea mentioned.
4467079,99,1339.4399,1348.1899,1,On the next page here the highlight is the a hundred ninety million reais.
4467079,100,1350.14,1353.3099,1,We see adjusted e b i t d a here last year.
4467079,101,1354.9399,1360.46,1,Here we see the price of sugar cane which almost doubled.
4467079,102,1361.5699,1366.38,1,Last year we had sixty eight reais per kilogram.
4467079,103,1366.8199,1377.41,1,Now it's a hundred thirty a hundred thirty five reminding you that there is an expectation in the market to close at a hundred ninety six a hundred ninety five.
4467079,104,1399.9,1410.05,1,Reminding here in the case of soybean and cotton we're selling the inventory of the harvest that we collected recently.
4467079,105,1412.4301,1417.62,1,And with prices in soybean forty five percent higher.
4467079,106,1418.16,1420.8199,1,And in the case of corn thirty two percent.
4467079,107,1420.8199,1440.53,1,So we reinforce we're expecting an EBITDA that will be very similar to that of June thirty last year but the impact in the price of sugar cane will provoke a significant increase.
4467079,108,1442.0601,1443.04,1,On the next page.
4467079,109,1492.01,1502.41,1,Here we're including receivables of the new se farms that we sold and we will record in the next quarter.
4467079,110,1502.9301,1516.17,1,We see also property for investment the company's farms one billion reais and we see cash totally indebtedness.
4467079,111,1517.14,1521.88,1,And and we will see more details on the next page.
4467079,112,1522.78,1541.9099,1,Well here we see in terms of short term three twenty five million reais short-term debt long-term three hundred million reais total six hundred and twenty six million reais five percent lower than on June thirtieth.
4467079,113,1541.91,1566.88,1,Here one objective we had in the past that we mentioned to you to have a longer debt two hundred forty million uh we have for five years and three oh oh million reais which is what we need to plant and the company's operation.
4467079,114,1573.63,1586.25,1,When we consider the gross debt adjusted adjusted gross debt or a net gross debt in net gross debt we see it's negative.
4467079,115,1587.75,1604.52,1,But we expect to make some investments especially in purchasing farms transformation of areas that we have in the land bank.
4467079,116,1607.13,1612.14,1,And we will be very careful with the company's cash.
4467079,117,1612.99,1630.76,1,But during these times of volatility we know but we're trying instruments to maintain the company's numbers the company's debt at reasonable levels.
4467079,118,1653.42,1660.9299,1,We will pay on the tenth after tomorrow November tenth after tomorrow.
4467079,119,1661.62,1685.62,1,And here I'd like to stress that although we don't have a a clear dividend policy the objective of the company is to have a dividend yield of five percent five point three percent.
4467079,120,1685.62,1689.66,1,So this is what we will have as a goal.
4467079,121,1689.85,1700.96,1,On the next page we we will see net asset value three point two million reais.
4467079,122,1703.17,1705.33,1,Here this is the cost.
4467079,123,1706.4399,1707.8,1,These are the numbers.
4467079,124,1725.26,1727.65,1,We also always consider our evaluation.
4467079,125,1727.65,1745.37,1,We see that the net value of the company four point three four point four billion reais and with the number of shares forty two point seven five forty two point seven five reais per share.
4467079,126,1746.36,1758.5699,1,So once again we'd like to talk about the great potential for upside and we invite you to continue to invest in our company.
4467079,127,1761.45,1778.92,1,On the next page the last slide we see an evolution of the stock market and our share agro three on November fourth.
4467079,128,1799.36,1804.15,1,So we believe that our company is excellent opportunity for investments.
4467079,129,1804.52,1806.76,1,We thank you for participating.
4467079,130,1807.1,1809.53,1,And now we will go on to the q and a session.
4467079,131,1816.03,1828.91,1,Well reminding you if you have a question please through the webcast in writing we're receiving the compa the questions here and I will read them.
4467079,132,1837.9,1861.63,1,The first question Carlos Herera What is the difference between N A V and price of shares sixty eight percent?
4467079,133,1862.0601,1865.8199,1,Do you see opportunities to buy back shares?
4467079,134,1870.21,1891.24,1,Carlos looking of course we have an important gap but we have worked to increase the shareholder base to increase the free float of the company.
4467079,135,1891.9301,1898.75,1,I'd like to remind you before the pre fall one we traded one to two million.
4467079,136,1899.8,1904.91,1,And since the fall one twenty five to thirty million are being traded every day.
4467079,137,1905.28,1906.3199,1,We monitor this.
4467079,138,1906.9399,1914.8101,1,And when we believe this will make sense yes we will approve that through the council of the company.
4467079,139,1914.8101,1915.9401,1,The company's council.
4467079,140,1915.9399,1926.12,1,Today we consider our the evaluation of the properties it's as if it were worth one point five billion.
4467079,141,1926.62,1929.55,1,And we know we have a portfolio of three point four billion.
4467079,142,1929.55,1939.2999,1,So we are now having the farms that are the cheapest in the Brazilian market.
4467079,143,1939.3,1958.2401,1,We're we're looking to see if there are opportunities to launch a new program maybe not with such high volumes but we might buy back shares to show to the market the the value of the shares.
4467079,144,1959.03,1968.33,1,Also Carlos The resources that we're raising with the sale of farms how will we use these resources?
4467079,145,1969.13,1972.3999,1,Will it be used to pay dividends the sale of farms?
4467079,146,1974.09,1975.37,1,Carlos a good question.
4467079,147,1977.99,1993.85,1,It's important to stress the company in the sale of farms we have a lower cost of capital than the producer so we can finance the transaction.
4467079,148,1993.85,2007.63,1,So in purchases we're more aggressive with with cash purchases because we have a cost of capital that makes sense.
4467079,149,2007.92,2034.35,1,So I would say to you that first it's important to stress these sales were made with a duration of two point five in one transaction two point nine in the other approximately two point five two point six oh the revenue from these transactions I'd like to stress the sale of foreign language was made in two terms.
4467079,150,2034.35,2037.61,1,It will be recorded in two instances.
4467079,151,2037.86,2048.49,1,We should record three hundred thirty million in during this year and the remainder the five hundred ninety million only in twenty twenty four.
4467079,152,2048.99,2059.5801,1,And the sale of Rio de Mayo should also be recorded during this year but it is also sold in installments.
4467079,153,2059.9299,2069.3501,1,So I joke we we we buy we buy with down payments cash and we sell in installments.
4467079,154,2069.6899,2071.0,1,This will give us a result.
4467079,155,2071.0,2081.49,1,Gustav showed us how we're showing the results of q one with higher prices better results and different from last year right Carlos?
4467079,156,2081.49,2086.99,1,Last year we had very few sales of real estate in the company's results.
4467079,157,2087.3601,2092.22,1,So the company will be aggressive once again due to the results we will have.
4467079,158,2113.8101,2114.55,1,Thank you Carlos.
4467079,159,2115.9399,2125.3198,1,We also had a question from Damien in line with the previous question concerning the buy-back of shares.
4467079,160,2127.1101,2131.3599,1,So I believe we have already answered.
4467079,161,2147.1101,2153.1599,1,So do you have delays in the delivery of fertilizer for this harvest?
4467079,162,2154.4399,2158.4302,1,Oh I I was in Shingu this week.
4467079,163,2158.4299,2160.02,1,I came back on Saturday.
4467079,164,2161.6599,2163.29,1,It's a pity that is not live.
4467079,165,2163.29,2164.0498,1,We were there.
4467079,166,2164.05,2166.45,1,We went to visit large areas of the region.
4467079,167,2166.45,2168.3499,1,We were very happy with what we saw.
4467079,168,2168.8601,2175.3301,1,So we had operations li we went to look at new areas for acquisitions and you did not go with me.
4467079,169,2176.02,2180.0798,1,We're always inviting you to come to go with us to Shingu.
4467079,170,2180.0801,2187.3999,1,But going back to your question we are following the price of fertilizer.
4467079,171,2188.3701,2195.1301,1,I believe it's very important to see the results how things are happening.
4467079,172,2195.6001,2203.95,1,The fertilizer industry phosphate or nitrogen most of it is born from natural gas.
4467079,173,2203.95,2208.0898,1,You produce natural gas I always said this.
4467079,174,2208.0901,2215.5801,1,So you have to produce also from nitrogen urea.
4467079,175,2216.03,2226.72,1,And with nitrogen urea ammonia and natural gas this is the raw material for phosphate-based fertilizer.
4467079,176,2227.1699,2233.77,1,So being frank we don't believe in a price drop for fertilizers in the next six months.
4467079,177,2233.77,2234.6902,1,Why six months?
4467079,178,2257.3999,2259.1299,1,This always happens every year.
4467079,179,2259.76,2263.99,1,So and now we have very high prices for natural gas.
4467079,180,2265.02,2268.6099,1,You can see the prices the the price of natural gas.
4467079,181,2269.46,2275.49,1,But in Europe too the price of natural gas went up two hundred and eight percent in the last six months.
4467079,182,2276.21,2278.8398,1,So it's fundamental to see this industry in this way.
4467079,183,2279.3601,2283.8901,1,The fertilizer industry on a on a global level has…
4467079,184,2286.72,2293.75,2,I I know that many potassium plants will begin producing phosphate plants will begin producing.
4467079,185,2294.29,2300.5999,2,And in terms of nitrogen we have this great concern with gas which has a direct effect.
4467079,186,2301.1699,2318.8,2,So the way we see it Victor there will be an impact an important impact for Brazil in terms of the second crop the winter crop same for Brazil we're projecting this in our numbers an important impact for the second crop.
4467079,187,2320.48,2327.54,2,For the for for the previous one we have all the fertilizer bots.
4467079,188,2328.29,2335.04,2,So we're we have a crop with the previous prices but they will go up.
4467079,189,2335.6101,2345.3999,2,It's important to see when we look at the price of last year the price of sale for this harvest we're expecting very positive margins for us.
4467079,190,2345.95,2351.22,2,The great question in the market is what will happen in the future from now on.
4467079,191,2351.72,2357.1499,2,We're looking at fertilizer but also agrochemicals with increases in US currency.
4467079,192,2357.6201,2364.29,2,We're talking about increases in dollars ten percent to fifteen percent depending on the chemical.
4467079,193,2364.73,2376.3699,2,So it's a we we have to be careful there are many consequences for the increase in in of prices in chemicals.
4467079,194,2376.3701,2381.7,2,Fertilizer is based on the increase in the price of natural gas.
4467079,195,2381.7,2386.96,2,So this is for the harvest twenty two twenty three we're monitoring.
4467079,196,2387.3501,2397.2998,2,We're already monitoring this Victor and I as I always say when we believe that there is something to do we are making decisions.
4467079,197,2397.3,2405.4399,2,Fertilizers nothing yet but agrochemicals yes we have already uh we already have a strategy.
4467079,198,2407.1399,2410.8799,2,In in te in terms of logistics no problems until now.
4467079,199,2411.3601,2419.1099,2,Gustavo reminded us we put pressure for delivery until now no problems no lack of fertilizer.
4467079,200,2419.46,2431.78,2,All our fertilizers for this that was planted from October to December is already in in our properties.
4467079,201,2432.24,2434.1299,2,Winter crop we bought most of it.
4467079,202,2434.4399,2443.6299,2,There is a part in nitrogen to buy but phosphate I was looking this week and I said Why so much fertilizers here?
4467079,203,2444.6499,2444.73,2,Why?
4467079,204,2444.73,2448.3499,2,And they said No this is the wi fertilizer for the winter crop.
4467079,205,2448.77,2451.4402,2,We are receiving fertilizer for the winter crop.
4467079,206,2454.8,2471.3201,2,Well in line with Victor's question Hey Reiki from VTG inaudible as concerning the cost of production the company's estimates for twenty one twenty two show important increases in the cost for the main crops.
4467079,207,2471.51,2477.96,2,Please comment on how you expect this will impact the profitability this year.
4467079,208,2478.8301,2483.3201,2,And the and now we know the price of commodities is favorable.
4467079,209,2483.95,2489.1599,2,Do you believe there will be a risk for this harvest or next?
4467079,210,2489.53,2493.45,2,I believe Andrea has already answered these questions.
4467079,211,2506.1499,2506.6299,2,Thank you.
4467079,212,2507.1599,2512.8999,2,I believe you have a the harvest for soybean and the winter crown for corn.
4467079,213,2513.28,2515.24,2,I believe you have bought the fertilizer.
4467079,214,2516.01,2520.95,2,How about the future fertilizer for twenty two twenty three?
4467079,215,2520.95,2522.46,2,Have you bought the fertilizer?
4467079,216,2522.76,2526.0798,2,What is your vision concerning the fertilizer market?
4467079,217,2532.55,2540.3799,2,Then the next question I believe that in this question I'd like to say this is it.
4467079,218,2540.8501,2551.1101,2,We have two concerns we have the sugar cane harvest that begins in April May with nitrogen fertilizers.
4467079,219,2551.5901,2560.5701,2,Our perspective as we said the base industry the base raw material is natural gas natural gas.
4467079,220,2560.5701,2567.8398,2,We don't believe in a drop in natural gas especially now with the cold season in the Northern hemisphere.
4467079,221,2567.8401,2587.8901,2,The way we see it after winter in the Northern hemisphere with more natural gas available at the end of the first semester next year beginning of the second semester twenty twenty two we can expect a drop in the price of fertilizer especially nitrogen and phosphate.
4467079,222,2592.51,2598.8499,2,The next question Flavio Bika congratulations for the results.
4467079,223,2600.0801,2605.8499,2,Could you tell us more about rainfall in the various farms?
4467079,224,2607.02,2609.23,2,Flavio thank you for the question.
4467079,225,2609.8999,2611.76,2,It's a great pleasure to talk to you.
4467079,226,2611.76,2618.6099,2,I would say the following this year the behavior is much better than last year.
4467079,227,2618.6101,2631.1301,2,You can see you follow us not only the company but all the market information Mato Grosso as I said is is finishing the planting last year.
4467079,228,2631.8899,2639.73,2,We had a lot of problems in the state of Mato Grosso during the planting season a lot of complexity.
4467079,229,2641.79,2649.5901,2,You you heard me talking about replanting in Mato Grosso in the press in the company or even in other companies.
4467079,230,2650.01,2653.01,2,No one is talking about this this year because it's not happening.
4467079,231,2653.01,2659.73,2,The climate is well with a good window a good distribution.
4467079,232,2659.95,2666.6299,2,And the good news is that the region in inaudible also has good rainfall.
4467079,233,2667.4099,2669.3401,2,Rainfall began a little earlier.
4467079,234,2669.5901,2686.49,2,We have a lot of soybean planted in inaudible by year two things that we know that historically these are regions we have rainfall in Mapitu in November and this year already in October.
4467079,235,2686.71,2694.0,2,So in terms of Brazil when we talk about the situation this is it.
4467079,236,2694.0,2696.79,2,Now in the long term things are positive.
4467079,237,2697.3501,2711.6899,2,We have a year that is running and this announces a good distribution of rainfall in Mapitu within average in the Midwest.
4467079,238,2712.03,2714.78,2,And we're always concerned with the south of Brazil.
4467079,239,2715.73,2724.3,2,When we talk about the south of Brazil so talking about Brazil our our concern this year is Paraguay.
4467079,240,2741.1899,2745.3899,2,We reduce the exposure in Paraguay to new areas.
4467079,241,2746.05,2750.6299,2,Areas where we have coverage where we have been working for a long time we will continue.
4467079,242,2751.1101,2760.9001,2,We will continue planting respecting and planting in a defensive way.
4467079,243,2773.6799,2780.8501,2,In Bolivia the climate is normal we are beginning we began fifteen d fifteen days ago.
4467079,244,2780.8501,2788.99,2,The second harvest for soybean the the winter crop for soybean is more representative than the previous.
4467079,245,2789.3201,2790.1499,2,So we're beginning.
4467079,246,2790.1499,2802.4299,2,And the rainfall in Bolivia is within the average in April May we had a little bit of stress but now rainfall is normal in Bolivia.
4467079,247,2803.26,2804.95,2,There we have a lot of sugar cane.
4467079,248,2804.95,2809.05,2,So Flavio in a nutshell the company is doing very well.
4467079,249,2809.3999,2820.47,2,All of Brazil Midwest and upwards and we have a a concern with Paraguay in the south of Brazil.
4467079,250,2820.98,2827.4299,2,The forecast for the year is good in these regions with the exception of the south and Paraguay.
4467079,251,2830.9399,2834.0601,2,Well the next question comes from Walter.
4467079,252,2856.71,2863.3298,2,Were prepared the company is prepared for this taxation of dividends as the government wants to do.
4467079,253,2865.5701,2873.8401,2,This received a lot of attention when we saw the tax reform being prepared the company is prepared.
4467079,254,2874.51,2887.5798,2,If this actually happens if this reduces the profitability of the for the investors we're looking at the tax reform.
4467079,255,2893.5901,2901.76,2,Well the next question comes from Adrian Patinson concerning fertilizers and chemicals.
4467079,256,2902.4199,2905.04,2,How much was spent in twenty twenty one?
4467079,257,2905.6201,2907.8301,2,And what is the cost for twenty twenty two?
4467079,258,2916.6599,2926.1201,2,Well here we we can talk about percentages without looking at each product.
4467079,259,2926.6599,2928.3201,2,Gustavo help me with the numbers.
4467079,260,2982.8401,2986.54,2,So cotton suffers twice.
4467079,261,2986.8899,2998.22,2,Now in relation to agrochemicals in the harvest twenty twenty one twenty twenty two we had no we had no expressive differences in US dollars.
4467079,262,2998.9299,3002.3,2,We had problems with the with the exchange rate.
4467079,263,3002.3,3012.74,2,When I mentioned previously an increase ten percent to fifteen percent in dollars this is for the harvest twenty twenty two twenty twenty three.
4467079,264,3013.1699,3018.28,2,This is a forecast for the next harvest not this harvest that we're planting now.
4467079,265,3018.6101,3021.1899,2,We're talking about twenty twenty two twenty twenty three.
4467079,266,3021.1899,3036.95,2,We're estimating a possible increase in the price of agrochemicals due to many points natural gas environmental restrictions ocean freights that had high increases.
4467079,267,3037.77,3044.96,2,And we know that the chemical molecules in Brazil the finished products are imported in containers.
4467079,268,3044.96,3061.1099,2,So ocean freight and this issue of containers lack of containers that you see lack of containers containers that came from China to America for fourteen hundred dollars now eighteen thousand twenty thousand dollars.
4467079,269,3061.1101,3064.24,2,So we begin to have important increases.
4467079,270,3064.8101,3068.7202,2,I'm sure that industry will raise their prices for us.
4467079,271,3096.1699,3097.5798,2,For the next also 23% 25% for soybean increase.
4467079,272,3099.5801,3099.8101,2,Why?
4467079,273,3099.8101,3103.73,2,Because we were able to buy in advance.
4467079,274,3118.21,3123.48,2,We we took more time to buy this in.
4467079,275,3123.79,3128.6699,2,We're expecting an increase of seventy percent in relation to last year.
4467079,276,3128.6699,3130.8901,2,Why are we making this decision?
4467079,277,3130.8899,3139.2898,2,Last year in Xingu we had an expectation of sales r thirty five r thirty six per bag.
4467079,278,3139.8301,3146.3401,2,Today we're selling an in an anticipated way around r sixty r sixty five per bag.
4467079,279,3148.3301,3158.4199,2,So in terms of margin They are similar or even better than the increase of the price of fertilizer.
4467079,280,3159.51,3169.9099,2,Also in relation to production costs a question from Rafael Summer Logos concerning the price of inputs for sugar cane.
4467079,281,3171.3,3172.6201,2,A greater price.
4467079,282,3172.6201,3173.99,2,I will answer this Rafael.
4467079,283,3174.49,3184.01,2,So last year this year we began to include the cost of leasing in sugar cane.
4467079,284,3184.01,3194.04,2,If you purged this effect which was not considered last year the increase is whether very similar to the other crops thirty percent around thirty percent.
4467079,285,3218.5701,3223.1899,2,The hedge is done at cost or you hedge a a hundred percent.
4467079,286,3228.5601,3229.28,2,Fabiano inaudible.
4467079,287,3231.71,3234.9602,2,I had a a colleague in inaudible had the same name.
4467079,288,3237.23,3240.76,2,I had a colleague inaudible answering you.
4467079,289,3240.76,3250.6101,2,We do hedging we're always monitoring the total revenue of the product and the contribution margin we monitor the cost and revenue.
4467079,290,3251.26,3259.8999,2,So when the number that we showed fi almost fifty seven percent in soybean that is not the cost.
4467079,291,3295.77,3300.8699,2,And the receivables from farms are also in bags of soybean.
4467079,292,3301.3799,3310.96,2,So all the receivables that mature in that year they become part of the p and l of soybean to be sold.
4467079,293,3311.3799,3316.5701,2,The producer can pay us based on soybean.
4467079,294,3316.9299,3324.6401,2,So we consider the receivables from farms of the year in our analysis of derivatives.
4467079,295,3325.8101,3335.22,2,And this analysis is also done every quarter by Gustavo based on future perspectives of receivables.
4467079,296,3335.3501,3356.6899,2,So answering your question we look at the number that you saw as a result of the estimate of production and the policy foresees that we will be able to sell up to fifty percent of the harvest when we plant.
4467079,297,3356.6899,3366.6101,2,Then we monitor the evolution of the crop and we can get to eighty percent at the time of harvest sale of eighty percent.
4467079,298,3367.6399,3371.77,2,So we're very strict in following this policy.
4467079,299,3372.96,3374.71,2,Fabiano said that he is from Katalgu.
4467079,300,3378.1499,3378.75,2,Thank you.
4467079,301,3397.8999,3403.1299,2,What does the company think in terms of acquisition of new areas new sales?
4467079,302,3403.97,3412.1599,2,There is a question from inaudible then we have inaudible questions on the price of land.
4467079,303,3414.47,3420.6799,2,And we're seeing the growth of almost a a hundred percent in the price of land.
4467079,304,3429.76,3435.1499,4,Well inaudible first let's talk about how we think about this.
4467079,305,3435.71,3443.0,4,We always say that we have to be an anti-cyclical company When everyone wants to sell we buy.
4467079,306,3443.0,3444.8601,4,When everyone wants to buy we…
4467079,307,3446.3401,3447.8599,4,When everyone wants to sell we buy.
4467079,308,3447.8601,3457.1499,4,So we buy the assets that are ready the farm that is producing sugar cane or producing soybeans.
4467079,309,3470.9399,3484.3501,4,When you look at the areas pasture a-areas to be transformed we also see price increase but no as strong as the soybean areas.
4467079,310,3484.74,3488.1001,4,Soybeans area are multiples of the bag of soybeans.
4467079,311,3488.1001,3491.8,4,If it's if a bag of soybean is worth seventy it's a multiple.
4467079,312,3492.27,3495.4099,4,If it's worth a hundred fifty it's X times a hundred fifty.
4467079,313,3495.4099,3496.3201,4,That's the first point.
4467079,314,3498.78,3508.9199,4,So we believe that the price of land will be on a new level cuz we're not going to talk about soybean worth seventy eighty.
4467079,315,3509.6499,3510.51,4,Soybean when it…
4467079,316,3511.47,3520.1702,4,And you are much more smarter than we are we believe that in the long term we should have soybean around eleven dollars.
4467079,317,3520.8999,3535.75,4,We're talking about a a balance as a result of ta adjustments but the price should converge to a balance.
4467079,318,3535.8501,3537.28,4,This should come to a balance.
4467079,319,3537.6699,3540.97,4,In terms of acquisition we're very active.
4467079,320,3542.0801,3546.8301,4,We have spent we have traveled a lot.
4467079,321,3558.6499,3561.1702,4,We should have an efficient allocation.
4467079,322,3562.05,3567.3401,4,We are doing everything to guarantee these this profitability.
4467079,323,3567.75,3571.71,4,We have to be very good at buying and transforming the land.
4467079,324,3572.27,3587.76,4,And with this these new levels and the size of the land we should be able to transform land more quickly and be able to guarantee good returns for investors.
4467079,325,3587.76,3589.26,4,It's an excellent question.
4467079,326,3589.6499,3592.4102,4,Prices have changed for purchase and sale.
4467079,327,3592.96,3601.1199,4,As I said we're always buying farms that are not ready that are not generating this interesting float with commodities.
4467079,328,3601.1201,3608.75,4,We always buy land that needs development needs capex management human capital to transform these areas.
4467079,329,3609.2,3611.48,4,So there will always be opportunities.
4467079,330,3611.78,3613.7,4,This is a very large market.
4467079,331,3614.25,3622.8501,4,We must have discipline resilience to do what we have done during the last fifteen years with a lot of resilience a lot of discipline.
4467079,332,3623.49,3625.8599,4,So this is the message we have to all of you.
4467079,333,3627.95,3628.3301,4,Thank you Ondray.
4467079,334,3628.3301,3635.75,4,A great question from inaudible purchase of land I believe Ondray has answered.
4467079,335,3636.3,3645.26,4,Now we have two questions from John Wayne and Edgar Caster concerning sugarcane.
4467079,336,3645.6799,3655.8098,4,Do you believe that the prices of sugarcane should should continue at high levels due to ethanol for decarbonization?
4467079,337,3656.3301,3657.79,4,How do you see this scenario?
4467079,338,3658.1599,3661.1201,4,And Edgar's question in relation to sugarcane.
4467079,339,3663.4199,3674.25,4,He wants a guidance in relation to sugarcane for the next harvest Whether they will continue at the current levels.
4467079,340,3675.8201,3677.74,4,Well two excellent questions.
4467079,341,3678.8999,3680.8701,4,I'd like to spend all afternoon.
4467079,342,3681.1899,3682.3301,4,First John.
4467079,343,3683.76,3702.8899,4,First we have we have a clean energy ethanol not only ethanol as a source to substitute fossil fuels but ethanol also for hybrid cars.
4467079,344,3703.23,3718.75,4,We believe that if we migrate to an auto industry to that wants to decarbonize decarbonization we need a matrix that will generate fuel for electric cars.
4467079,345,3719.05,3725.51,4,So we believe a lot that ethanol becomes fundamental.
4467079,346,3763.9399,3769.2002,4,So I'm sure that ethanol will be more and more relevant.
4467079,347,3769.2,3786.4199,4,I get sad when I see the world working for a balanced situation and companies saying Oh now it's it's better to buy gasoline instead of ethanol.
4467079,348,3786.75,3789.4302,4,We have to be we have to decide what we want.
4467079,349,3792.8899,3799.8098,4,Emissions than ethanol will be important in this industry in the next few years.
4467079,350,3800.8301,3802.78,4,Edgar's question is very good.
4467079,351,3803.1599,3803.96,4,Why is it good?
4467079,352,3803.96,3807.8499,4,Because sugarcane is a crop with annua cycles.
4467079,353,3810.21,3819.0798,4,It is pluriannual so the effects that we have in a harvest they continue until the next harvest.
4467079,354,3819.6899,3821.8198,4,So why do I say they continue?
4467079,355,3822.6599,3827.47,4,We have two large imports effecting sugarcane and and Brazilian production.
4467079,356,3837.8999,3839.97,4,And we had important results.
4467079,357,3861.04,3884.3401,4,The great problem is when we have cold weather when it happened in july august we had most of the sugarcane already harvested and planted which is for the next harvest so you can imagine the plant had used its reserves to and suddenly comes the cold and it it has to begin again.
4467079,358,3885.0801,3902.73,4,So our experience when this happens for any reasons due to fire or cold or we have an important drop because the plant used its energy.
4467079,359,3903.3501,3908.5999,4,So I would say to you next year two scenarios.
4467079,360,3909.74,3911.6499,4,One optimistic one pessimistic.
4467079,361,3926.8201,3931.5901,4,So if you ask me I believe in a year of favorable prices for sugarcane.
4467079,362,3932.76,3941.5801,4,For Brazilian production we have to look it's important to look outside Brazil the production of sugar in India.
4467079,363,3941.95,3949.29,4,Especially in India we're having a recovery a modest recovery in the production of sugar in India.
4467079,364,3949.8601,3956.47,4,And you can see this with the prices of pound per sugar in New York.
4467079,365,3957.53,3966.75,4,I don't remember having seen sugarcane at twenty one cents like we had a few months ago.
4467079,366,3967.46,3975.3401,4,So the scenario for next year since it's a pluriannual crop the impact we have this year will continue next year.
4467079,367,3975.9399,3984.5698,4,We will have low inventory of raw material and that puts pressure on the price during the next year.
4467079,368,3988.1201,3991.29,4,Well the next question comes from Anthony Gordon inaudible.
4467079,369,3992.0,4005.75,4,As announced in the summit of cop twenty six last year Brazil signed a treaty an agreement for deforestation ending deforestation by twenty thirty.
4467079,370,4007.4099,4011.6899,4,How will this effect our company?
4467079,371,4015.23,4016.76,4,Anthony good afternoon.
4467079,372,4016.76,4018.8699,4,It's a great pleasure to talk to you.
4467079,373,4019.6399,4023.74,4,I believe it's important to understand what they proposed.
4467079,374,4026.03,4037.24,4,Brazil I believe what Brazil signed is our obligation zero deforestation illegal deforestation by twenty thirty.
4467079,375,4037.8201,4039.0601,4,This is what they signed.
4467079,376,4039.6599,4044.8,4,In other wards for zero illegal deforestation in Brazil.
4467079,377,4045.53,4048.25,4,We're talking about illegal deforestation.
4467079,378,4050.0801,4056.9299,4,Okay let's look at let's look at us independent whether it's legal or illegal.
4467079,379,4057.4299,4070.9299,4,We have few areas in our land to be transformed and all of them are savannah lands being transformed and the inaudible that are being transformed.
4467079,380,4071.52,4077.5,4,And we have the best expectations to finish this development by twenty twenty five.
4467079,381,4077.5,4106.1396,4,So illegal de deforestation yes it what Brazil signed and every time we see these commitments and they become a reality for companies like ours companies that have governance companies that respect the environment that have management I believe it's even more decisive for us to take action.
4467079,382,4107.8398,4136.29,4,We so the great one problem in Brazil is that there is illegal not in agro-business I would say ill-illegal deforestation in the Amazon that is illegal Government areas Indian reservations.
4467079,383,4137.5801,4138.6099,4,Thank you Ondray.
4467079,384,4139.6099,4148.2798,4,Question from Victor inaudible concerning can you talk about the technology projects in the field?
4467079,385,4148.2798,4149.8804,4,How can five g help?
4467079,386,4172.5898,4177.8901,4,Brazil with investments of four thousand five hundred antennas.
4467079,387,4178.8101,4193.3398,4,Today Brazil has a coverage of five g seventeen to twenty percent With four thousand five hundred new antennas we will take five g coverage to fifty percent of the agricultural land.
4467079,388,4193.3398,4204.9097,4,With fifteen thousand antennas which is not a very high investment we take coverage of five g around eighty percent of the areas in production in Brazil.
4467079,389,4205.7402,4209.54,4,i'll give you a number I will share with a number from m BROP.
4467079,390,4210.48,4228.2803,4,This first coverage around fifty percent of the Brazilian agricultural area that would be fifty another fifty sixty billion reals from agriculture.
4467079,391,4228.5498,4249.4399,4,If we can take this to eighty percent the estimates and of course we're talking about technology we can get to numbers upwards of a hundred ten billion reals generated to add to our g d p.
4467079,392,4250.1401,4264.2104,4,So Gustavo we're and I are leading projects the company has some units where we have coverage not all the farm but not only five g also other technologies.
4467079,393,4265.5801,4278.0503,4,Biological connectivity linked to five g innovation of many things many tools drones for monitoring many things that are being done in agro-business.
4467079,394,4278.5898,4285.8301,4,And this will represent the new green revolution that agro-business can bring.
4467079,395,4288.5,4304.04,4,The next question Antonio Sicadum concerning the measurement of e s g policies in Brazil environment social and governance.
4467079,396,4306.1499,4315.0703,4,Antonio we here in the company we feel at ease to talk about ESG.
4467079,397,4316.1099,4317.5801,4,I will look at the three letters.
4467079,398,4317.5801,4327.21,4,When we talk about governance we're the first company agro-business to be listed in Novo Mercado the elite companies in the stock market.
4467079,399,4327.8198,4332.1104,4,The only one also listed in New York.
4467079,400,4334.1001,4341.6602,4,Also inaudible with more governance even the stocks legislation.
4467079,401,4342.1802,4344.8198,4,So when we look inside we were born this way.
4467079,402,4345.8999,4346.3604,4,It's in out DNA.
4467079,403,4346.3599,4347.71,4,When you talk about social.
4467079,404,4347.71,4353.6396,4,For being in boundaries we did a lot of this.
4467079,405,4355.7002,4358.9502,4,We made many investments in social programs.
4467079,406,4359.52,4370.04,4,When you take SAP to these regions you have to train people invest resources and the company has invested a lot in social programs.
4467079,407,4370.5,4375.96,4,We created the Brazil Agro Institute and Apollo is the director of the institute.
4467079,408,4376.2798,4387.4199,4,We invest one point five to two percent of our results in projects with focus on education in the regions where we are present.
4467079,409,4387.6602,4395.25,4,When we talk about the environment the company had the capacity and efficiency to manage the assets.
4467079,410,4395.25,4399.1899,4,It had to transform more than a hundred and thirty five thousand hectors.
4467079,411,4400.1099,4406.8203,4,You can see this is linked to conservation preservation.
4467079,412,4407.7002,4414.23,4,We have we have uh thousands of hectors of protected areas.
4467079,413,4425.6299,4434.1099,4,So I would say that agro-business has everything to lead other sectors in terms of ESG.
4467079,414,4438.2798,4439.7104,4,Well we like to close.
4467079,415,4440.25,4444.9102,4,Once again thank you for participating Ondray Gustavo.
4467079,416,4445.1699,4448.1899,4,And we will se you again in the next quarter.
4467079,417,4448.4199,4448.8701,4,Thank you.
4467079,418,4449.8101,4457.0801,4,Thank you Anna thank you Gustavo thank you participants who are with us with many questions.
4467079,419,4459.4199,4466.6602,4,WE had the greatest number of questions very good questions intelligent questions focused on our business model.
4467079,420,4468.3799,4470.79,4,Thank you for attention once again.
4467079,421,4471.1099,4474.1299,4,Count on our team team of people.
4467079,422,4474.3501,4484.3398,4,We're showing the results of a team which has been doing good work committed to the results of the common-company committed with the investors.
4467079,423,4484.7598,4490.9805,4,To the investors we will continue continue this way delivering resilient results.
4467079,424,4491.1602,4491.6201,4,Thank you.
4467079,425,4491.6201,4493.1704,4,We wish you a good afternoon.
4467434,0,114.08,121.27,2,So this earnings call marks my first full quarter and in essence I suppose my one hundred days in the role as group C E O.
4467434,1,121.85,130.54,2,And I couldn't be more pleased with the progress and focused execution of the management team and all of the committed net one team members in advancing our strategic priorities.
4467434,2,131.6,143.29,2,As this is my second earnings call as group C E O I thought it would be worth repeating what I stated about the vision and mission of net one and our intense focus on repositioning the business for growth.
4467434,3,144.72,155.15,2,Or vision is to build and operate the leading South African full serviced fintech platform offering payment processing and financial services to under served merchants and consumers.
4467434,4,155.96,163.72,2,In line with that vision is our core purpose to improve people's lives by bringing financial inclusion to the under served in South Africa.
4467434,5,164.54,174.86,2,This is a tremendous growth opportunity in the Southern African market which is primarily a cash based economy with approximately sixty percent of transactions still conducted in cash.
4467434,6,175.57,199.3,2,We've also previously explained that our mission leads us to a total addressable market of over z a r a hundred fifty billion comprising more than twenty six million adults in LSMs one to six as well as approximately seven hundred thousand formal and one point four million informal micro small and medium enterprises or MSMEs across South Africa.
4467434,7,200.67,210.06,2,We plan to address this growth opportunity both organically and through acquisitions such as the transformative acquisition of the Connect Group that was announced last week.
4467434,8,210.93,218.34,2,The announcement of the Connect Group acquisition marks the start of a transformative opportunity to unlock the next phase of net one s growth.
4467434,9,219.17,229.56,2,And the combined entity provides our stakeholders with the opportunity to apart of building the leading financial technology platform in Southern Africa focus on financial inclusion.
4467434,10,230.52,245.53,2,I think that it is important to point out that none of this would've been possible without the dedication of our exceptional team members across our group and I wanted to thank them all for their commitment to our customers our communities and to our growth ambition.
4467434,11,246.36,253.13,2,As a reminder the Connect Group transaction is subject to regulatory approvals and other customary closing conditions.
4467434,12,253.39,263.27,2,And as such we expect the transaction to close in the quarter ending March twenty twenty two and the focus of this presentation will therefore be on our existing net one business.
4467434,13,265.11,276.63,2,While the economy in South Africa remains challenging i'm encouraged by the continued progress being made in the turnaround of our consumer financial services business and in particular the mome…
4467434,14,276.84,285.69,2,the momentum we are seeing in the rate of new account openings and the ability of our team to take action in improving our financial performance.
4467434,15,286.6,294.27,2,However I want to remind everyone that we are still early in our transformative journey and there's still a lot of work to be done.
4467434,16,294.94,306.83,2,As mentioned on the last earnings call we have started to address legacy organizational dynamics in an effort to provide the necessary foundation for the company to execute on its growth ambition and vision.
4467434,17,307.67,320.54,2,We believe that we now have the right team culture and strategic priorities to take the company to the next level creating a competitively stronger company that can unlock value for all of our stakeholders.
4467434,18,322.4,330.99,2,A key strategic imperative is to return the consumer financial service business to breakeven and then into profitability as soon as possible.
4467434,19,331.57,337.73,2,This is our business comprising EasyPay Everywhere e p e Moneyline and SmartLife.
4467434,20,338.41,347.4,2,It is a scale business that requires operational leverage where the products and infrastructure were built originally to service a base of over ten million clients.
4467434,21,348.09,351.9,2,As you know the offering now has a million clients and is thus loss-making.
4467434,22,359.31,367.42,2,Our strategy for achieving this has three key levers.
4467434,23,375.22,385.0,2,In terms of E P E account growth we have invested in a new sales capability and are in the process of realigning our distribution model to best serve our customers.
4467434,24,385.7,392.86,2,We have seen good momentum and are now consistently signing up around fifty thousand new e p e accounts each month.
4467434,25,393.59,402.38,2,This has meant that our account opening rate has jumped from around two percent of active accounts in May this year to currently around five percent of active accounts.
4467434,26,403.59,406.74,2,Account activation rates are a key focus for us.
4467434,27,428.25,437.88,2,This means that we expect to see growth in active accounts of twenty to twenty five thousand consistently per month from November twenty twenty one.
4467434,28,438.68,445.6,2,And this is a pleasing trend from the past calendar three years where active accounts were consistently declining.
4467434,29,449.66,451.42,2,The second lever is to improve our average revenues per customer.
4467434,30,452.09,459.4,2,To achieve this we are focused on providing access to our broader suite of products in particular SmartLife and Moneyline.
4467434,31,460.0,467.73,2,Our sales teams are being supported and assisted with training and we are building a more integrated cross-products approach to customer solutions.
4467434,32,468.76,477.81,2,The third lever is cost and this is a lever where we as management have full control and here I can report significant progress to date.
4467434,33,478.89,493.2,2,We have managed to reduce the breakeven active e p e account number from approximately one point six five million accounts in June twenty one to one point five five million accounts through direct cost actions taken during the quarter.
4467434,34,494.55,498.96,2,It's important to note that we previously indicated a breakeven level of a…
4467434,35,498.96,501.82,2,be between one point four and one point five million accounts.
4467434,36,517.2,521.7401,2,In order to achieve these things we have closed over three thousand mobile…
4467434,37,521.74,533.51,2,<unk> mobile payment points across the country and replaced them with 114 new express and satellite branches providing similar reach and access for our target client base.
4467434,38,534.24,555.12,2,This change in our point of presence strategy when combined with other cost actions taken in this quarter will translate into approximately z a r one eighty five million of cost savings over the remainder of the fiscal year which in turn translates into an eighteen percent reduction in fixed costs within the consumer financial services business this year.
4467434,39,556.22,567.53,2,Ultimately our aim is to further reduce the breakeven active E P E account numbers to closer to a million accounts through further cost optimization strategies that we are exploring.
4467434,40,568.14,570.77,2,We will report in more detail on the specific of these…
4467434,41,570.77,577.51,2,specifics of these strategies and the implemen mentation thereof at our next quarterly results presentation.
4467434,42,578.94,590.98,2,Taken together once completed these three levers mean we are targeting for future growth in our E P E account base to translate into direct contribution to profitability.
4467434,43,592.13,614.66,2,In summary I'm pleased with the significant mana management actions taken this quarter which will have a positive impact on our financial results going forward and I'm positive about our longterm prospects which will be aided by our acquisition of Connect Group as we move closer to our longer term vision to be the leading financial technology platform in Southern Africa focused on financial inclusion.
4467434,44,615.51,623.17,2,As part of this we are also reviewing our branding and we look to have something new to announce on that front in the coming months.
4467434,45,624.24,631.81,2,And with that I'd now like to hand over to my colleague Lincoln Mali for a fuller update on the turnaround of the South African operations.
4467434,46,632.03,632.4,2,Lincoln?
4467434,47,633.34,633.88,3,Thank you Chris.
4467434,48,634.3,636.17,3,Uh thank you for your passion.
4467434,49,636.38,639.97,3,Thank you for your drive and leadership during the last few months.
4467434,50,640.9,648.66,3,I'd like to go into much more detail on how we plan to address some of the issues that have been highlighted by Chris in his comments.
4467434,51,649.79,661.74,3,Our plan will focus on three primary objectives one building a sales culture two improving our account performance and three launching new products.
4467434,52,662.68,668.09,3,First let me begin by the focus on building a sales culture.
4467434,53,668.98,685.47,3,We have embarked on an ambitious and necessary journey to change the mindset service orientation corporate culture and skillset of our distribution network from a cash logistics to a client focused sales driven culture.
4467434,54,686.47,703.48,3,This mindset is largely based on four important pillars one create a culture of communication engagement transparency and empowerment among our staff to give them pride and dignity about working for net one.
4467434,55,704.2,708.35,3,Two develop a focus on individual customer experience.
4467434,56,709.68,718.01,3,This is about treating our customers with respect and dignity and ensure that we have meaningful conversations about their financial needs.
4467434,57,719.05,725.71,3,Three building a sense of accountability about individual team and company performance.
4467434,58,744.98,754.45,3,This is evident in the increased visibility of our staffing communities as well as the reemergence of our brand in the competitive market.
4467434,59,755.26,763.67,3,I'm humbled by the feedback from our frontline leaders who are daily driving this change on an ongoing basis.
4467434,60,764.78,780.32,3,Our training program has already been implemented for over ninety percent of our team and we believe that these ongoing efforts and better visibility of metrics and performance should assist us in increasing revenue per customer.
4467434,61,781.82,787.42,3,I now want to get to the issue of our focus on improving our account performance.
4467434,62,788.25,802.15,3,As Chris has mentioned to date approximately forty five to fifty percent of the gross customer additions become active within three months of account opening and commence transactions on their accounts.
4467434,63,803.03,805.89,3,This number is in line with historic expectations.
4467434,64,806.19,813.02,3,However we are still putting on more focus in improving overall activation rates.
4467434,65,813.61,814.69,3,How are we doing so?
4467434,66,814.69,821.13,3,One by regular engagement with our SASSA colleagues at a provincial and local level.
4467434,67,821.7,831.03,3,Two by encouraging our customers to approach SASSA offices after accounts are open in order to activate those accounts.
4467434,68,831.86,840.01,3,Three by monitoring activation rates on a regular basis and through increased visibility of activation metrics.
4467434,69,840.45,849.46,3,And lastly engaging SASSA on their plans to digitize the onboarding process longterm beyond the s r d grants.
4467434,70,850.95,869.75,3,net one is committed to be part of creating solutions to the system and process related challenges as this is an imperative for our business about how we onbo- onboard um ev uh grant recipients and make sure that their account is active.
4467434,71,870.62,875.53,3,I want to shift now to the third area of focus which is launching of new products.
4467434,72,876.47,886.02,3,In line with our vision and purpose we are focusing on financial inclusion for the underbanked and unbanked consumers beyond social grant recipients.
4467434,73,886.69,900.69,3,We've been working hard to understand customer needs and are proud to have launched the epep e p e Lite and smart one Funeral Plan into the market as of the first of November twenty twenty one.
4467434,74,901.52,921.55,3,If I start with e p e Lite the E P E Lite proposition is competitively placed in the market and responds to the market requirement for a basic transactional account that is affordable secure and does not include frill capabilities that a consumer may not require.
4467434,75,922.16,928.2,3,This account is aimed at a younger customer base between the ages of eighteen and three oh.
4467434,76,929.22,938.58,3,The customer base may include students young grant recipients and any other customer who seeks a lower cost transactional account.
4467434,77,940.81,945.11,3,Now I want to come to the next account which is smart one.
4467434,78,945.55,953.91,3,In addition to the E P E Lite transactional account we've also successfully launched an enhanced funeral plan called smart one.
4467434,79,954.68,963.99,3,smart one is a standalone funeral plan that can be purchased via the net one network and is offered under the SmartLife insurance license.
4467434,80,964.91,981.9,3,In keeping with the financial inclusion ethos of net one smart one offers affordable funeral plan cover for the primary beneficiary as well as the extended family with additional support benefits that are required by our customers in their times of need.
4467434,81,982.68,987.52,3,The target market are customers between the ages of eighteen and seventy nine.
4467434,82,1002.91,1019.31,3,In order to further broaden our reach into our chosen customer base beyond grant recipients we are also engaging with prospective strategic partners to jointly develop and deliver tailored banking lending and insurance solutions.
4467434,83,1019.87,1032.0,3,We expect these new propositions in addition to our existing and prosev- prospective offerings to answer to the needs of our customers and to accelerate the growth of the financial services business.
4467434,84,1033.7,1036.7001,3,I want to now talk about our a t m business.
4467434,85,1037.53,1044.14,3,Another focus area for customer expansion and revenue growth is our A T M channel optimization plan.
4467434,86,1045.47,1053.0801,3,Transaction volumes in our A T M business were down by twelve percent on the previous quarter and by ten percent on the pre…
4467434,87,1053.08,1054.09,3,on the prior year.
4467434,88,1054.66,1058.5601,3,But this was largely due to the impact of the social unrest.
4467434,89,1073.99,1086.51,3,While we now have a smaller a t m fleet our focus is on improving transaction volumes to compensate for this with a focus on expanding the presence of our ATMs in various retailers.
4467434,90,1087.63,1105.4299,3,During the last three months we have reviewed net one branches with multiple ATMs to evaluate the rationale of the placement and the machines that are there have been relocated uh in those environments where those machines are not performing.
4467434,91,1106.1801,1119.5199,3,we're also focusing on placing more machines in retail outlets where there is a high uh foot traffic for the full duration of the month and the A T M is accessible to customers seven days a week.
4467434,92,1121.53,1132.42,3,It is our belief that our focus optimization should not only result in higher transaction volume but should also improve our bottom line performance over time.
4467434,93,1134.09,1146.63,3,At this time I think it's important for us to give you a sense about how we're rebuilding and establishing relationships with key stakeholders that we work with as part of our growth strategy.
4467434,94,1147.85,1155.95,3,We have had several very constructive engagements with SASSA after having challenging relationships over the last few years.
4467434,95,1156.72,1160.52,3,Let me share one example of this new renewed relationship.
4467434,96,1161.29,1175.9801,3,SASSA has recently issued an r f p to the Banking Association of South Africa BASA members to respond to a tender covering specific social grant payments for a period of time ending in March twenty twenty three.
4467434,97,1176.72,1183.23,3,The expectation is for more than one bank to be appointed to administer the payments under this tender.
4467434,98,1190.1801,1203.09,3,At net one we see this joint submission as a positive step in our continued relationship with Grindrod and confirms the growing strength of our relationship with them.
4467434,99,1204.24,1214.7201,3,Secondly in addition we established net one representation at the Banking Association of South Africa through our partnership with Grindrod.
4467434,100,1215.79,1232.14,3,Thirdly we also now have a direct membership to the South African Bank Risk Information Center known as SABRIC to ensure that we're part of all efforts to deal with security cyber crime and all other related crime matters.
4467434,101,1233.3199,1249.36,3,Four I'm pleased to update you about a longstanding legal matter between net one and the National Credit Regulator N C R that originated in our Moneyline financial services business in September twenty fourteen.
4467434,102,1250.1,1262.59,3,The legal matter has now been settled to the mutual satisfaction of both parties and this now sets a positive tone for the relationship with the National Credit Regulator going forward.
4467434,103,1263.62,1274.8099,3,Taken together we believe our approach to key stakeholder management is showing good results and we will continue to grow these relationships going forward.
4467434,104,1278.8199,1299.1599,3,In summary the work that has been done in the last six months by the leadership and management and teams as well as all of our staffs in net one lay the foundation and moves us in the direction required to transform the consumer financial services business into a full service profitable and leading fintech company serving South Africa.
4467434,105,1310.64,1312.85,3,We are determined to succeed.
4467434,106,1313.3101,1317.98,3,I will now hand over to my colleague Alex to talk about our quarterly results.
4467434,107,1317.98,1318.21,3,Alex?
4467434,108,1320.51,1322.61,4,Thank you Lincoln uh and good morning everybody.
4467434,109,1323.6801,1329.38,4,Uh now let's turn to the financial metrics for the quarter as well as some brief comments on our Connect Group acquisition.
4467434,110,1331.03,1341.35,4,Total revenue for the quarter was thirty four point five million dollars which was a two percent decrease year-over-year in u s dollar terms and a fourteen percent decrease in rand terms.
4467434,111,1342.55,1347.92,4,This was primarily due to fewer prepaid airtime and hardware sales and lower account revenues.
4467434,112,1349.55,1360.39,4,The u s dollar was thirteen percent weaker against the rand during the first quarter of 2022 compented- compared to the same period in the prior year which also impacted our reported results.
4467434,113,1362.53,1376.52,4,We reported an adjusted EBITDA loss of ten point one million dollars which was four percent worse than the nine point seven million dollars EBITDA loss reported for the first quarter of twenty twenty one though ten percent better in constant currency.
4467434,114,1377.8,1384.6,4,This was mainly as a result of the closure of i p g which incurred a loss of two point eight million dollars in the prior period.
4467434,115,1386.1,1404.99,4,The core South African operations saw EBITDA losses for the quarter of eight point six million dollars compared to the four point three million dollars in the prior period primarily due to the lower revenue levels as well as weaker profitability in the financial services segment linked to increased insurance claims related to the COVID pandemic.
4467434,116,1413.75,1421.7001,4,Transaction volumes through our EasyPay switch were up eleven percent compared to the prior quarter while transaction values also increased by around four percent.
4467434,117,1423.1801,1434.49,4,This was in line with expectations as this is a higher volume period from a seasonality perspective but within this portfolio there is an encouraging sustained growth in bill payment volumes over the previous year.
4467434,118,1482.04,1492.5601,4,During the quarter we recognized our share of Finbond's losses for the six months ended August thirty one twenty twenty one as they report their interim results during this reporting cycle.
4467434,119,1494.1,1502.6599,4,Their losses in the period has reduced from the prior period which had been adversely affected by the pandemic but they continue to incur losses due to various challenges.
4467434,120,1521.33,1522.6001,4,Firstly we have MobiKwik.
4467434,121,1523.74,1532.14,4,We continue to hold our investment in MobiKwik at seventy six million dollars in line with the valuation achieved in the most recent investor fund raising round.
4467434,122,1533.37,1541.4301,4,We only adjust our carrying value in the event of observable transactions um and there were none occurring during uh this quarter.
4467434,123,1543.45,1546.38,4,We also continue to hold our investment in Cell C at zero…
4467434,124,1546.38,1547.23,4,at no value.
4467434,125,1548.87,1556.58,4,We noted the renewal of the cautionary by Blue Label Telecoms in respect of the recapitalization and are optimistic about their prospects of achieving this.
4467434,126,1558.1801,1573.41,4,We would again like to highlight that we continue to hold around zar two thirty three million or fifteen point four million dollars of Cell C airtime within our inventory balances which we only expect to recover once the recapitalization is complete.
4467434,127,1574.87,1587.62,4,In August twenty twenty one we increased our short term credit facilities for our fixed ATMs from ZAR1 .2 billion to ZAR1 .4 billion in order to access the necessary cash to stock our ATMs.
4467434,128,1589.23,1597.17,4,These facilities are only available for use in respect of our ATMs and we believe are currently sufficient to optimally operate our A T M business.
4467434,129,1599.5601,1607.36,4,At September thirtieth twenty twenty one we had unrestricted cash of a hundred eighty eight point five million dollars and effectively no debt.
4467434,130,1608.4,1613.5599,4,u s dollar-denominated balances were a hundred sixty two point five million dollars outta that total.
4467434,131,1733.92,1734.28,4,Thank you.
4467434,132,1770.8,1771.39,4,Sure Raj.
4467434,133,1771.4399,1774.62,4,Um so just to clarify on the cost reduction.
4467434,134,1774.62,1784.2,4,So we've identified about a hundred eighty five million of costs that we we'll be able to take out uh this fiscal year.
4467434,135,1784.97,1788.42,4,Um and that's predominantly coming out of the fixed cost base.
4467434,136,1789.34,1790.66,4,Um and when we break down…
4467434,137,1790.73,1796.88,4,And obviously very focused on financial services cuz that's where we're looking to uh to achieve that the profitability.
4467434,138,1797.64,1805.2799,4,Um so when we break down our cost base between fixed and variable um we estimate that the the most of these…
4467434,139,1805.28,1807.58,4,of that of one hundred eighty five million is coming out of the…
4467434,140,1807.58,1812.37,4,of the fixed cost base and that's about an eighteen percent reduction in the…
4467434,141,1812.4,1814.9099,4,in the fixed cost base uh that we'll achieve this year.
4467434,142,1818.8199,1819.1399,5,Right.
4467434,143,1819.29,1828.72,5,and And that would be uh indicative of about one point five million E P E accounts by June of…
4467434,144,1829.72,1830.67,5,by the end of the fiscal year?
4467434,145,1831.83,1833.05,5,Is that the way to look at it?
4467434,146,1834.75,1844.5599,4,So uh we're we're targeting le less than that in terms of um of uh of achieving breakeven at the SA level.
4467434,147,1854.45,1859.9701,4,So um I think in the past we've always indicated uh breakevens at the SA group level.
4467434,148,1860.52,1866.01,4,We're now trying to give some guidance around including the the cost that we hold at at the group level.
4467434,149,1866.3199,1873.5699,4,Um so and that's what lifts the uh the breakeven point up to the 1.55 uh million account level.
4467434,150,1874.45,1875.49,2,If I could add Raj.
4467434,151,1892.77,1895.2899,2,Um that's that's what it equates to.
4467434,152,1895.29,1902.36,2,Uh and an eighteen percent fall uh reduction in the fixed cost base of our financial services business.
4467434,153,1902.71,1903.09,2,And I think…
4467434,154,1903.33,1906.17,2,I think the other point to add is we are…
4467434,155,1906.2,1913.5499,2,we we have a number of other uh areas under under review um and we are working very hard on the…
4467434,156,1913.61,1913.9601,2,on the…
4467434,157,1914.01,1928.3,2,on the cost base with within the financial services business the consumer financial services business and our aim is to bring that breakeven point down as I was saying earlier as close to our our existing uh account base as possible.
4467434,158,1928.4301,1929.92,2,that's That's what we are trying to do.
4467434,159,1929.92,1940.38,2,So I think the important message we are trying to deliver is I think you know historically there was purely one lever being focused on which was the lever of grow account numbers.
4467434,160,1951.33,1954.58,2,or as importantly we we believe we can optimize the cost bases…
4467434,161,1954.95,1966.3201,2,cost base in this business and we are focused on bringing down the breakeven point to as close as possible to our current uh E P E accounts active EPE account base as possible.
4467434,162,1966.53,1967.6,2,So that's very important.
4467434,163,1967.9399,1973.5701,2,And then the third point to add is you know to pick up on some of what Lincoln was saying earlier we want to…
4467434,164,1973.8,1998.16,2,we're we we're putting a real focus on the average revenue per client um and that's through uh you know training and focusing our uh our staff across the country in terms of the broader product set Moneyline uh Smart Life and and therefore you know offering a a greater product offering to our client base and and and improving that overall um revenue per client.
4467434,165,2000.6899,2000.84,5,Okay.
4467434,166,2000.84,2011.29,5,So if I understand it correctly the a hundred thousand um accounts that is gonna be lowered by by the end of the fiscal year it goes from one point five five to one point four five.
4467434,167,2011.79,2012.6,5,No one point…
4467434,168,2012.66,2013.14,5,Is that right?
4467434,169,2013.14,2014.8701,5,one point five five to one point four five.
4467434,170,2019.13,2019.39,5,Yeah.
4467434,171,2027.0699,2031.8101,5,at that level would the consumer group be breakeven?
4467434,172,2031.84,2032.42,5,It wouldn't be.
4467434,173,2033.34,2033.46,2,No.
4467434,174,2033.78,2034.6901,2,No we are not saying that.
4467434,175,2034.6899,2042.39,2,So we are saying those are identified costs that we've already actioned and have managed to reduce the breakeven point to one point five five.
4467434,176,2043.14,2043.48,2,alright?
4467434,177,2043.48,2044.1599,2,That's the first point.
4467434,178,2044.2,2044.4199,5,Right.
4467434,179,2044.42,2057.7998,2,And secondly our our aim our intention is to get this business to a breakeven point to a run rate breakeven in June twenty twenty two through further actions within those three levers that I've just desci- described to you.
4467434,180,2059.8501,2060.0601,5,Right.
4467434,181,2060.0601,2060.8301,5,And does the…
4467434,182,2062.1101,2063.97,5,and I know that I think Lincoln talked about…
4467434,183,2064.4399,2065.98,5,you guys talked about a r p u increase.
4467434,184,2066.5701,2077.5701,5,Uh does that change uh the metric significantly you know from two fifty in account a month um in financing…
4467434,185,2077.75,2080.27,5,in financial and processing does that change that?
4467434,186,2080.3701,2082.7,5,I think the expectation was to go to three.
4467434,187,2084.05,2086.49,5,Um and I'm talking about dollars in ter…
4467434,188,2086.55,2088.3501,5,dollars per account per month.
4467434,189,2088.3501,2088.9102,5,Has that…
4467434,190,2089.23,2091.0601,5,Is that also expecting to change?
4467434,191,2091.6499,2097.3098,5,Uh because you're bringing on some some lite products the EPE Lite and the smart one.
4467434,192,2097.5701,2100.1301,5,Would that lower your ARPU in the business?
4467434,193,2103.0,2105.0801,4,Sorry Raj just could you just repeat that last section?
4467434,194,2107.03,2109.22,5,So the last section was you know you are gonna introduce the…
4467434,195,2109.25,2112.1699,5,you or you have introduced the EPE Lite and the smart one.
4467434,196,2112.6899,2119.8101,5,Um and my question is does the overall ARPU go down as a result of…
4467434,197,2120.9199,2123.99,5,You have the growth uh in the accounts and you have the growth in the overall revenue levels.
4467434,198,2135.9099,2136.25,4,it won't…
4467434,199,2136.8201,2138.52,4,it's unlikely to have a significant effect.
4467434,200,2139.1299,2143.21,4,The smart one product is more of a rebranding and positioning.
4467434,201,2143.5901,2148.55,4,Um and actually um you know may enhance our ARPU slightly.
4467434,202,2148.6799,2152.2402,4,Um wa or cannot can enhance it quite significantly actually.
4467434,203,2152.8799,2156.6799,4,Because we feel that the penetration of uh insurance product into the base is quite low.
4467434,204,2165.27,2170.1902,2,you know our our our our offering you know beyond the social grant recipient market.
4467434,205,2170.1899,2174.6001,2,So the numbers we are talking about uh this will be in addition to that in in a sense.
4467434,206,2175.74,2175.8699,3,Yeah.
4467434,207,2190.8101,2201.28,3,And again it breaks the mold that our focus is not only on social grant recipients but any other person who's looking for a product of that…
4467434,208,2201.49,2202.0601,3,of that nature.
4467434,209,2202.6399,2207.8599,3,So collectively this should be more positive than uh negative.
4467434,210,2210.1899,2210.46,5,Got it.
4467434,211,2211.1699,2212.9199,5,Um thank you.
4467434,212,2212.9199,2216.04,5,that so So on the account growth you are saying that the…
4467434,213,2216.4099,2221.7698,5,you are doing about fifty thousand new accounts a month?
4467434,214,2224.1899,2225.3301,5,Did I catch that correctly?
4467434,215,2225.8,2227.5,2,Yes that's our current run rate.
4467434,216,2227.72,2230.1802,2,We've seen that for the last uh few months.
4467434,217,2232.2,2232.45,5,Right.
4467434,218,2232.6699,2236.76,5,And that's what gets you to the breakeven level of one point five five million.
4467434,219,2240.49,2241.72,2,No the one point five five-
4467434,220,2241.72,2242.8701,5,By the end of the fiscal year.
4467434,221,2244.04,2244.3,2,Sorry.
4467434,222,2244.3,2251.01,2,Again Raj so the one point five five is what we would see as our breakeven based on our cost base and our assumptions on revenues.
4467434,223,2253.0,2253.1699,2,Okay.
4467434,224,2253.6101,2255.96,2,and And we we we we are…
4467434,225,2256.6299,2272.45,2,we are saying that our aim is to get to breakeven by June twenty twenty two run rate breakeven in June twenty twenty two through the combination of three levers which would be uh growing our our account base um you know as we currently set out.
4467434,226,2273.02,2275.0298,2,Secondly increasing the revenue per client.
4467434,227,2275.4199,2282.1902,2,Thirdly and and probably most materially of the three at this point is the cost lever that we are focused on.
4467434,228,2285.3201,2285.95,5,Uh got it.
4467434,229,2287.6101,2288.5901,5,And then this account growth are you um…
4467434,230,2309.8999,2310.1599,3,No.
4467434,231,2310.1599,2310.79,3,we We ha…
4467434,232,2310.8201,2318.1499,3,We haven't factored in the tender uh in our projections.
4467434,233,2319.1599,2328.1599,3,The issues I was talking about was that in our day-to-day interactions we are seeing more collaboration with SASSA.
4467434,234,2328.96,2341.1499,3,There are for example environments where s a s s a has invited us to be in their offices to help capture the accounts and that should drive activation to be better.
4467434,235,2342.5901,2353.1101,3,We have also been invited by SASSA in some of the provinces to go with them in their outreach programs so that we can open new accounts in those environments.
4467434,236,2382.0601,2384.2,5,Uh so Lincoln uh that's very helpful.
4467434,237,2384.2,2384.96,5,Are there any…
4467434,238,2386.3701,2394.0901,5,Are there any sort of expectation of a certain number of accounts that you could gain over the next year two years?
4467434,239,2394.0901,2394.6501,5,Or is that…
4467434,240,2394.6799,2395.8899,5,is that too early to tell?
4467434,241,2397.3799,2397.71,3,Yeah.
4467434,242,2397.75,2429.49,3,it's It's too early to tell Raj because the biggest thing is all of the work of changing the culture all of the work of training the staff all of the work of changing the mindset from a logistics company to a financial services all of the work of improving our relationship with um with SASSA and all of the work of being in the market competing and launching new product;
4467434,243,2429.96,2437.8401,3,all of those are is is early days to be making ah you know def definitive ah you know projections.
4467434,244,2458.9099,2467.1699,3,So it is quite early days to be able to put ah you know higher projections ah which then you know do not come to pass.
4467434,245,2467.6001,2488.79,3,Which then reinforces again ah Chris' point that said of the three levers the one that is so immediately in our control and doesn't depend on a number of other variables is the cost that we see that are outsized versus the opportunity.
4467434,246,2489.48,2501.04,3,And those costs are costs that we will look at and do something about those costs while simultaneously do the other things of improving our ARPU and improving our account growth.
4467434,247,2504.0701,2505.04,5,Uh that's very helpful.
4467434,248,2505.04,2506.1399,5,And then just a last…
4467434,249,2506.3,2508.9099,5,the last bit is on on…
4467434,250,2508.9399,2509.6799,5,um if you are…
4467434,251,2510.1399,2513.9299,5,if you can talk about any synergies related to the Connect Group.
4467434,252,2513.98,2521.46,5,Are you assuming any increase in customer accounts from the the acquisition of Connect Group?
4467434,253,2535.0601,2539.9199,2,into our account growth or revenue growth uh forecasts at- at all.
4467434,254,2540.27,2544.9199,2,Um you know we we've only looked at this purely on a standalone basis.
4467434,255,2545.51,2554.0698,2,Um that said there are some clear synergies that we believe do exist between the two businesses um you know and we are…
4467434,256,2554.0701,2555.9299,2,we are very focused on and you know…
4467434,257,2556.0901,2557.6699,2,Once the transaction…
4467434,258,2557.8501,2566.47,2,Assuming the transaction gets uh you know the approval of the competition commission and the other uh requirements out of the way we'll be very focused on delivering.
4467434,259,2566.47,2573.3899,2,To give you a flavor we you know the things we see uh in terms of synergies firstly uh there's the di…
4467434,260,2573.4399,2578.53,2,the the opportunity of of a payment switch integration between EasyPay and Kazang.
4467434,261,2578.53,2579.6699,2,It's a real opportunity.
4467434,262,2580.1799,2585.72,2,Secondly there's an opportunity in terms of the cost of cash processing between within the combined group.
4467434,263,2585.72,2595.6099,2,The Connect Group is a generator of cash um as a commodity uh through the Smart Save business where the Net one ATM <inaudible> uh requires cash.
4467434,264,2596.1499,2597.3699,2,Uh and then thirdly this is…
4467434,265,2597.3701,2621.6501,2,"this is um you know to to to your point um Kazang has a footprint of over 35,000 formal merchants uh around the country um and we believe there's an opportunity to to align and partner better between net one and and Kazang in in in in in terms of um accessing consumers that would uh you know attend those informal merchant sites."
4467434,266,2622.4299,2638.22,2,Uh and the the fourth one is um you know we have a very strong p presence in places like the Eastern Cape and uh KwaZulu-Na- Natal whereas um you know Kazang traditionally is stronger in the Western Cape and and Gauteng.
4467434,267,2638.51,2641.55,2,So we feel there's an opportunity to help rapid growth in in those markets.
4467434,268,2641.55,2644.03,2,So you know there there are those opportunities.
4467434,269,2644.03,2645.6201,2,They're not built into these numbers.
4467434,270,2646.01,2648.04,2,Uh we've tried to remain conservative.
4467434,271,2648.3401,2655.2,2,I think just to emphasize another point I think Lincoln made very eloquently which is you know this is early days for us Raj.
4467434,272,2655.71,2662.1799,2,Uh we we as the new management team want to give you clarity with with as much certainty as possible around where we are going.
4467434,273,2662.51,2663.45,2,Um we we…
4467434,274,2663.48,2669.6599,2,You know the trends are starting to become clear in terms of account growth uh and activation um and so forth.
4467434,275,2669.6599,2679.48,2,and and But it's a developing picture so we've gotta balance you know trying to give you as early a view on what we are seeing with the confidence that what we are seeing is you know deliverable.
4467434,276,2679.48,2683.2,2,So we we feel we are moving in that direction and we are very excited about it.
4467434,277,2683.6201,2685.8601,2,But we are you know just asking uh…
4467434,278,2685.8601,2688.3301,2,Hopefully we've given you a lot more than we gave you three months ago.
4467434,279,2688.51,2690.72,2,We will want to give you more in another three months.
4467434,280,2692.95,2693.0701,5,Yeah.
4467434,281,2693.0701,2694.05,5,a Absolutely.
4467434,282,2694.05,2702.01,5,Thank you so much for the detail and thank you for the the added color um by Lincoln on on the operations as well.
4467434,283,2702.51,2704.01,5,Uh uh i'll I'll take it offline.
4467434,284,2704.01,2704.3501,5,Thank you.
4467434,285,2742.47,2754.47,3,We have uh hired a very seasoned executive uh in Andrew Wilmot who is repositioning our business ah in order for it to be able to compete.
4467434,286,2755.1399,2759.7,3,It's been early days to see what Voda ah…
4467434,287,2759.7,2768.28,3,you know VodaPay has has been able to do but we've got a competitively strong position to maintain in that environment.
4467434,288,2768.9099,2787.0,3,And if you combine what we've got with what is possible with the Connect Group the talent and the leadership in both teams uh I think we will be a formidable competitor ourselves and we will be able to compete in that space quite quite adequately.
4467434,289,2787.3301,2791.1301,3,So we are watching that space ah you know quite closely.
4467434,290,2791.53,2796.74,3,Ah some of the people that uh are behind VodaPay are people I've certainly worked with.
4467434,291,2796.74,2799.71,3,I know they're very smart guys very committed guys.
4467434,292,2799.71,2802.54,3,So we are not underestimating what's out there.
4467434,293,2803.0801,2814.01,3,But again our focus is we want to make a real difference in under served merchants particularly in the informal space.
4467434,294,2858.8201,2861.6699,2,Thank you for the questions and thank you for the interest in our business.
4467434,295,2862.3201,2877.4299,2,And hopefully you've heard the excitement that we feel around our transformation turning around the consumer financial services business through the customer acquisition reduce costs and our focus on building the leading South African fintech platform for under served consumers and merchants.
4467434,296,2877.96,2882.3699,2,we are all very very committed to this and we look forward to sharing more on the journey in future calls.
4467434,297,2882.9399,2884.21,2,Thank you very much for joining us.
4467434,298,2884.28,2884.6001,2,Thank you.
4467717,0,44.83,100.9,0,Participants can also send questions via the webcast platform.
4467717,1,546.04,584.23,3,Good morning gentlemen and thanks very much for taking my questions.
4467717,2,585.75,594.6,3,I just kind of wanted you know your high-level views on international demand to the u s spooling up again.
4467717,3,595.06,611.45,3,You know now that you're partnered with American Airlines you know what sort of bigger opportunities are you seeing on the horizon and do you see any opportunity as well for American to possibly increase its stake in Gol in some point in the future?
4467717,4,622.27,629.84,1,Uh firstly you know we are uh now gradually reaching our international goals.
4467717,5,630.29,644.87,1,So we have already made available the ticket sales for Cancun in Mexico Dominicans for the Dominican Republic and we're now resuming Montevideo and Buenos Aires.
4467717,6,644.87,657.32,1,So the United States uh will be likely the route to be added in our international portfolio by the end of the second quarter of next year.
4467717,7,657.37,685.46,1,And it is because you are right with the borders are now open to the Brazilians but and there is a considerable but which is uh the the the default the exchange rate made made the purchase the ticket purchase and the whole trip cost including hotels train and car expense pretty expensive from the Brazilian perspective.
4467717,8,685.89,704.66,1,Uh you know the real has the devaluated quite significantly along the last quarter so the Brazilian economic conditions uh also was uh were affected during the the last three months.
4467717,9,705.04,723.41,1,And the combination of a real excitement to resume international trips has a great contrast with the important constraint imposed by the exchange rate.
4467717,10,723.44,734.5,1,So the passengers are willing to fly mainly to the United States but that that trip became quite quite expensive at the moment.
4467717,11,734.58,749.15,1,So uh I cannot say there is a boom related to North American ticket to related to airline tickets uh to fly to the United States.
4467717,12,749.47,754.8,1,Uh you know we are about to begin the Brazilian high season December and January.
4467717,13,755.66,765.9,1,And uh typically that's the period when you see more passengers willing to travel for leisure purpose.
4467717,14,766.1,773.19,1,It is not gonna be different this year maybe it's slightly better for the international markets.
4467717,15,773.41,793.05,1,And the second constraint which is also affecting demand is that there is a backlog to provide North American visas to the Brazilians which we will not be uh solved or rather addressed in the forecast.
4467717,16,793.05,796.75,1,So if you have five members…
4467717,17,796.75,810.2,1,a family of five members uh it is very much likely that at least one of them has no valid visa uh at the moment making not possible to to fly to the United States.
4467717,18,810.2,843.5,1,So all those things combined uh are affecting the potential uh uh flight catch-up that we could get if not by this this two constraints and finally in our case we have the partnership with American Airlines who has already deployed a a considerable capacity increase for the following three months.
4467717,19,843.72,880.4,1,So we have decided to support uh that investment by selling not the American Airlines tickets in our channels as we done already since April 2020 uh and to that strategy we are simultaneously attending our customers and uh supporting this additional capacity increase supplied by American Airlines our partner.
4467717,20,880.4,905.02,1,So we believe that this is the the best strategy to cope with the current demand and then we will uh resume our out flight from Brasilia to Florida uh where a market which has not been attended by American Airlines at the moment from the second quarter next year on.
4467717,21,905.02,914.17,1,So this is I mean an overview of the North American market from the Brazilian perspective in the airline segment.
4467717,22,915.96,917.41,3,Super Kaki really appreciate that.
4467717,23,917.72,920.83,3,And and just very quickly just one last thing uh.
4467717,24,920.83,925.53,3,On business travel any high-level trends you're seeing in the domestic market?
4467717,25,925.53,929.56,3,And let me leave it at that thank you.
4467717,26,929.56,953.54,1,We uh we might be surprised by the speed uh to which the business segment is recovering the uh the uh its pre-pandemic level.
4467717,27,958.8,971.77,4,Uh even above the the pre-pandemic level those are the services y uh generally speaking.
4467717,28,972.08,982.32,4,Uh mainly those those companies pretty much uh uh uh benefited by by the new customer behavior.
4467717,29,982.7,993.07,4,So like food delivery just say uh uh one example and and E-commerce so those segments uh of Boeing.
4467717,30,993.07,999.15,4,And they are probably <laugh> more than they were uh before th uh the pandemic.
4467717,31,999.15,1008.22,4,And also uh some i if I could say so some other traditional segments uh those are pretty strong in in Brazil.
4467717,32,1008.59,1014.88,4,Uh such as the agricultural business oil and gas and inaudible industries.
4467717,33,1014.88,1026.33,4,So we we foresee that by the beginning of the next year we might be above our prior projection which has…
4467717,34,1026.72,1033.74,4,Consider that one-third of the business travelers would be gone for good which might be not the case.
4467717,35,1033.77,1050.14,4,So i- i- it it's it's too early to be precise uh u uh on that projection but uh at this this moment we see that some uh segments are recovering faster than the next sector.
4467717,36,1051.92,1052.27,9,Great.
4467717,37,1068.03,1075.85,7,So Sep two your total liquidity it looked like it ended at two point one billion reais and you're guiding to three point eight at year-end.
4467717,38,1076.51,1083.83,7,Is that um Rich is that predominantly the American Airlines investment and an improvement or an increase in your A T L?
4467717,39,1084.45,1087.11,7,Or is there other things we should be mindful of?
4467717,40,1088.8101,1089.7,8,Yeah no the…
4467717,41,1102.29,1107.05,8,Um the the q three number uh and I'll I'll walk you through that.
4467717,42,1107.05,1126.65,8,q three number which was composed of the the four billion reais that you mentioned which is about uh 1.1 billion of cash investments about 300 million reais of restricted cash about six hundred million reais of accounts receivable and one point nine billion reais of deposits.
4467717,43,1127.5,1180.29,8,Uh the way that would break down in the q four would be about ni- uh uh 900 to a billion reais of cash and investments about th uh which is down around uh two oh oh million reais.
4467717,44,1264.64,1264.73,7,Okay.
4467717,45,1264.76,1265.9399,7,So that okay that's helpful.
4467717,46,1265.9399,1270.04,7,So it's it's flat-edged to slightly down before anything and we know that we're…
4467717,47,1348.09,1354.4099,7,You know you you're always helpful in sorta calling out you know the call it the non o operating expenses associated with fleet idleness and personal related costs.
4467717,48,1354.41,1357.8101,7,And in this quarter this fourth quarter it looks like it's just gonna be under a billion reais.
4467717,49,1358.76,1367.33,7,Now over the year that number has actually moved up meaningfully despite the fact that you are putting more people and planes back into service.
4467717,50,1367.33,1372.14,7,So I don't know is that is that an FX related issue what's driving that number?
4467717,51,1372.14,1378.1801,7,Or am I just my logic in thinking that as you put more people and planes back to work and that that should go down.
4467717,52,1378.76,1379.2001,7,That that logic's…
4467717,53,1380.17,1382.5399,7,That maybe there's something wrong there and how it's being accounted for.
4467717,54,1382.54,1383.85,7,If you could just detail that.
4467717,55,1383.85,1384.48,7,Thanks Rich.
4467717,56,1385.76,1391.7101,8,Yeah I think what you I think it says a depreciation affect uh Michael which is a non cash affect in there.
4467717,57,1458.09,1464.5599,8,And so what you're seeing there is in in the q three is the effect of those sixty aircraft um still idle.
4467717,58,1464.86,1470.02,8,Uh that number at the end of the q four will be reduced to you know hopefully less than thirty.
4467717,59,1494.13,1494.5,7,What's uh now…
4467717,60,1494.5,1499.4099,7,When you say normal in q one are you are you saying that approaches zero in q one?
4467717,61,1499.41,1503.2799,7,Or I I'm just assuming it gets to zero by the back part of twenty twenty two.
4467717,62,1503.38,1505.0399,7,But maybe maybe it gets there sooner?
4467717,63,1505.85,1509.73,8,In the in the q one it goes again we're you know we've returned aircraft.
4467717,64,1510.4,1519.7001,8,Uh we are uh thi this q four is uh activation of a majority of the grounded aircraft.
4467717,65,1519.98,1528.13,8,And as we get into the January February high season you know we might be a little bit in there in the q four but uh for the most part we'll be eliminated.
4467717,66,1570.26,1570.9199,7,Okay great.
4467717,67,1571.33,1572.2899,7,And thanks for that Rich.
4467717,68,1572.85,1573.38,7,Thanks everyone.
4467717,69,1574.71,1574.7999,8,Sure.
4467717,70,1574.8,1578.2899,6,The next question is from Dan McKenzie with Seaport Global Securities.
4467717,71,1578.29,1579.05,6,Please go ahead.
4467717,72,1580.65,1581.02,9,Oh hey.
4467717,73,1581.02,1581.6499,9,Good morning guys.
4467717,74,1581.6801,1583.1699,9,Um couple questions here.
4467717,75,1583.2,1586.6001,9,I guess um first another question on the corporate recovery.
4467717,76,1586.71,1592.1799,9,Big picture you know what are you hearing from corporate customers today on their travel plans for next year?
4467717,77,1592.75,1600.8501,9,And then just related to that you know given the FX volatility I believe there's a certain percent of the revenue that actually benefits from a weaker Brazilian real.
4467717,78,1600.85,1603.01,9,So I'm you know I'm thinking the oil and gas sectors.
4467717,79,1603.01,1604.1,9,I'm thinking agriculture.
4467717,80,1604.59,1609.8999,9,So it seems like there should be a component of the revenue there that should do a little better um you know if the Brazilian real weakens.
4467717,81,1609.9,1612.6799,9,But you know maybe you could clarify or or even correct me on that?
4467717,82,1614.6,1615.0499,10,Yeah.
4467717,83,1615.22,1616.1899,10,Um just…
4467717,84,1617.2,1620.0499,10,Firstly the uh the the customers inaudible.
4467717,85,1620.05,1626.67,10,The the large corporates uh they are basically saying they'll resume flights from January one.
4467717,86,1626.67,1637.8,10,And it it it is somehow affected to their uh home office uh policy which is for inaudible right into the the end of this year.
4467717,87,1638.26,1644.11,10,Uh th i i i when we talk it's specifically to those segments that have just repeated.
4467717,88,1644.55,1657.9399,10,Uh they are already uh forming some travels ahead but this is not even close to the the potential they have for this to the next year up.
4467717,89,1658.4,1677.14,10,Uh in a in a side note uh really what we have is circular itself to address that a specific month via a new inaudible will likely give us an additional um uh set of inaudible.
4467717,90,1692.63,1705.4701,10,So with the new you have the combination of a better product with a redesigned network with much uh activity wh- uh uh uh uh the speed.
4467717,91,1708.16,1715.3899,10,Uh we are now envisioning to to have that t to see that segment uh that that specific segment catching up.
4467717,92,1716.67,1717.28,9,Hm yeah.
4467717,93,1726.58,1731.9199,9,I guess what I was you know trying to get at is it it seems like there should be some pent up demand uh next year.
4467717,94,1732.0601,1738.78,9,And so I guess I just um uh was thinking that there's potentially some more revenue upside here that that folks might be under-appreciating.
4467717,95,1739.89,1743.71,9,Um but you know going back to I guess you know a question for Adu.
4467717,96,1743.71,1748.6001,9,Or or um is just with respect to that inaudible that you just referenced.
4467717,97,1748.6,1753.1101,9,You know the ability to market products in a way digitally that you haven't been able to historically.
4467717,98,1753.67,1758.9299,9,You know so if you think about the grand vision you know what is the f timeframe for exploiting that full capability?
4467717,99,1758.9301,1760.75,9,And you know how material could that be?
4467717,100,1762.24,1763.48,10,I think that it is gonna be…
4467717,101,1774.4399,1782.05,10,And that will be aggressive cuz those are marketing events.
4467717,102,1782.05,1783.17,10,"Uh it'll be inaudible customers around 80,000 to inaudible."
4467717,103,1783.6,1793.2,10,Uh it's really really difficult to g- to give you a inaudible on how uh material those improvements can be.
4467717,104,1793.6,1807.87,10,But we are now basically closing every single gap that we could get from a customer service point of view uh to a a full legacy company.
4467717,105,1808.3101,1811.66,10,At the same t additionally speaking I mean uh I'm talking about digital service.
4467717,106,1812.04,1822.0601,10,Uh at the same time that we are uh now u- uh resuming the c- uh the inaudible advantage that we always had.
4467717,107,1822.09,1825.77,10,So I believe that a combination of inaudible we will…
4467717,108,1825.77,1827.34,10,Uh it is more than promising.
4467717,109,1827.34,1833.53,10,It's something that um has a real uh positive affect uh our our results.
4467717,110,1833.53,1845.08,10,But I wouldn't like to uh because I couldn't at the moment uh to share any any inaudible um on that expectation.
4467717,111,1847.24,1847.51,9,Okay.
4467717,112,1847.51,1848.4301,9,Thanks for the time you guys.
4467717,113,1849.78,1850.0901,11,Thanks.
4467717,114,1850.09,1856.52,11,Let me just uh…
4467717,115,1886.86,1892.52,11,Um it explained what was the right off of deposits for aircraft leases and…
4467717,116,1909.1801,1910.09,11,There were a hundred six…
4467717,117,1923.1801,1923.92,11,And then we…
4467717,118,1927.46,1933.2401,12,we have a um a um reduction in deposits of 264 million reals.
4467717,119,2124.55,2132.6699,12,So hopefully that answers your questions on some of those uh details as you're looking at uh those items that are less focused on software.
4467717,120,2145.8701,2146.5701,14,Hey good morning.
4467717,121,2146.5701,2148.6899,14,This is uh inaudible for Savi here.
4467717,122,2149.0901,2150.96,14,Um either Rich or Kaki.
4467717,123,2150.99,2159.3298,14,Um if you could regarding the the twenty twenty two uh inaudible outlook the eight percent reduction versus twenty nineteen.
4467717,124,2159.79,2164.8999,14,Um can you give us a little bit of color on what you're thinking in terms of capacity production and utilization there?
4467717,125,2165.3799,2172.48,14,Um also is there is there any change in in the um NGV deliveries or or anything we should consider there?
4467717,126,2223.3,2228.6499,12,You know we're getting the as advertised you know roughly for us it's about sixteen percent less uh fuel consumption.
4467717,127,2229.52,2232.6602,12,And so I think that's what you're you're asking about inaudible.
4467717,128,2232.6599,2234.4099,14,Okay certainly that makes that makes sense.
4467717,129,2279.48,2279.6699,14,Okay.
4467717,130,2280.1799,2280.8601,14,Thanks Rich.
4467717,131,2280.8999,2296.6799,14,Um and then if I could on on the revenue side versus what you were thinking in j in late July last quarter when you provided guidance to now what's in the four q revenue outlook what has changed?
4467717,132,2296.6799,2306.5601,14,I know you talk at uh looking out in the one q how some corporate segments have come back faster but that four q number has gone lower versus late July.
4467717,133,2306.5601,2308.6001,14,So I was wondering what has changed since then.
4467717,134,2310.45,2310.76,12,Yeah sure.
4467717,135,2310.76,2315.03,12,Yeah I think you know we re you know revised down the revenue forecast for the q four.
4467717,136,2315.47,2320.0598,12,Uh it's mainly based on uh lower y overall yields in the market.
4467717,137,2320.76,2328.8301,12,And um which has a big effect uh just given the uh still situation of uh low uh efficiency.
4467717,138,2329.4199,2333.1101,12,And then also and and that's overall market that's not just us.
4467717,139,2373.0901,2380.3699,12,But you know we have had a management uh during this twenty months of the pandemic uh focused on two key metrics.
4467717,140,2380.3701,2389.6301,12,One is uh preserving our unit cost advantage uh in the post-pandemic environment and also matching our cash inflows with cash outflows.
4467717,141,2389.71,2392.6799,12,And so that limits uh what we can do.
4467717,142,2393.24,2403.1401,12,Uh and you've seen how we've done that uh for those of you that have followed us you've seen how we've done that through the pandemic um in terms of uh minimizing a any operating uh cash burn.
4467717,143,2403.21,2407.46,12,So and how and how we do that through the capacity uh equation.
4467717,144,2492.49,2495.9001,12,And so that's why our expectations for q four EBIT are down a bit.
4467717,145,2554.3401,2559.8201,12,And those same effects will get you to the uh difference in the leverage.
4467717,146,2560.0901,2562.3101,12,Uh those exact same effects all kind of rolled into that.
4467717,147,2877.8799,2878.3799,12,Um…
4467717,148,2899.8101,2901.8201,16,You know two in two out four total.
4467717,149,2901.8501,2907.1301,16,We can go as high as three per month um given our operational uh capability.
4467717,150,2907.1299,2919.46,16,And so for us it's operational eas easily uh done operationally to you know bring in twenty four MAXes and and and transition out 24 NTs make sure if we need to do.
4467717,151,2919.6699,2927.8,16,So uh our our our flew fund is a little bit less than that and part of it's cause we're still in the sourcing of the right MAXes uh for that activity.
4467717,152,2960.5,2965.71,17,Um so i I guess the question would be for the for the deliveries that you've outlined you know for the rest of this year and into 22 how- how many of those are- are already built?
4467717,153,2995.1499,2997.76,16,And that's that's what we're working on as we speak.
4467717,154,2997.9099,3003.8601,16,Uh cuz…
4467717,155,3003.8601,3006.4199,16,And the issue with the white tail market is we have some additional reconfiguration costs that we wouldn't have if it was coming outta the factory uh for us.
4467717,156,3032.3301,3035.9399,17,How do you see the path um to to to that long term rate?
4467717,157,3041.05,3053.3501,16,But um the you know most uh bank market forecasts are for an appreciating rial you know something with a fore handle on it uh at some point next year.
4467717,158,3053.3501,3058.53,16,If you take fair value calculations our fair value calculations are below four.
4467717,159,3091.47,3097.8799,16,And you know T D P in q three was up uh four percent.
4467717,160,3180.0,3183.77,16,So on the volume side I think the exchange rate is less of an issue.
4467717,161,3204.8899,3215.5601,16,Um and uh just given the volatility and you know the the relative perception of the ex- you know the outside world on- on Brazil.
4467717,162,3219.3501,3221.4502,16,Uh you know we're we're price takers on that.
4467717,163,3230.9099,3239.8,19,Hi Richard thank you for taking my questions.
4467717,164,3260.9399,3266.7,20,Uh the international markets uh recover for two thousand twenty two.
4467717,165,3266.8,3284.8301,20,There is two uh different uh regulations and different sanitary uh requirements uh which make us doubt whether it is gonna be possible to harmonize all of them uh in the first half of the year.
4467717,166,3285.4199,3287.3701,20,So this is one thing.
4467717,167,3287.8401,3302.9102,20,The second is also that uh uh the the potential overcapacity with be deployed because you can imagine the total amount of wide-bodies uh available in the world those has not been.
4467717,168,3302.95,3308.8599,20,So those have not been uh used widely for for I mean many months.
4467717,169,3309.3701,3330.5898,20,and And also clearly if there's gonna be when a specific segment been uh severely effected uh by the the so-called uh new normal behavior it is gonna be the long haul business trips.
4467717,170,3331.0801,3346.24,20,Uh I think that this customer will really uh think twice beca before deciding to take a plane for a short uh uh business trip mainly long haul.
4467717,171,3346.24,3364.4299,20,So uh honestly I think that inaudible the international markets will be uh uh uh effected uh uh they're already effected and that effect will will last longer than than expect.
4467717,172,3364.46,3377.6501,20,So uh but on the other hand I believe that the uh long haul leisure travelers will be there and and and mainly for the most important tourist destinations.
4467717,173,3378.01,3392.3601,20,So but you know inaudible uh was the the the business traveler pre-pandemic for those airlines operating wide-bodies business classes businesses and and and first classes.
4467717,174,3392.98,3399.8,20,Uh I am not that that bullish uh uh about this this specific market demand.
4467717,175,3402.8201,3403.5898,19,Okay thank you.
4467717,176,3403.5901,3412.0098,19,And then uh a second question if I may uh on the maintenance.
4467717,177,3413.47,3419.6899,19,So we were wondering uh what was inaudible this increase and uh what can we expect going forward?
4467717,178,3420.45,3425.48,19,Um i I assume that it's a a a catch-up from the deferred maintenance.
4467717,179,3426.6101,3428.8401,19,Uh but i I'm just uh curious on hear your thoughts.
4467717,180,3428.8401,3429.9099,19,Uh thank you guys.
4467717,181,3480.8301,3493.9299,16,And so as we're accelerating now the um the return of the IDs you have we have to top off we have to increase the amount of provisions uh for maintenance on aircraft.
4467717,182,3740.72,3740.8201,18,Okay.
4468307,0,5.36,13.26,0,Welcome to Ecopetrol's earnings conference call in which we will the main financial and operational results for the third quarter twenty twenty one.
4468307,1,15.93,17.02,0,All lines have been muted.
4468307,2,17.61,20.59,0,There will be a q and a session at the end of the presentation.
4468307,3,21.53,30.05,0,Before we begin it's important to mention that the comments in this call by Ecopetrol's senior management include projections of the company's future performance.
4468307,4,30.92,38.57,0,These projections do not constitute any commitment as to future results nor do they take into account risks or uncertainties that could materialize.
4468307,5,39.33,46.88,0,As a result Ecopetrol assumes no responsibility in the event that future results are different from the projections shared in this conference call.
4468307,6,48.24,49.73,0,The call will be led by Mr.
4468307,7,55.85,57.489999999999995,0,and Jaime Caballero C F O.
4468307,8,58.3,59.33,0,Thank you for your attention.
4468307,9,60.22,60.45,0,Mr.
4468307,10,60.45,62.22,0,Bayon you may begin your conference.
4468307,11,63.96,68.7,1,Good morning everyone and welcome to our third quarter twenty twenty one earnings conference call.
4468307,12,69.18,72.02,1,During this quarter we continued to deliver record results.
4468307,13,72.41,78.84,1,As of September we are now consolidating Interconexion Electrica ISA's financial statement.
4468307,14,79.92,85.64,1,We generated revenues of cop twenty three .3 trillion and EBITDA of COP10 .4 trillion and net income of COP3 .8 trillion.
4468307,15,90.99,99.67,1,These results highlight our successful commercial strategy which has allowed us to capture the favorable conditions of international crude oil prices.
4468307,16,100.19,119.8,1,We achieved important progress in our strategic agenda with the accomplishment of milestones such as the following the closing of ISA's acquisition and the first consolidation of its financial results into the results of the Ecopetrol Group materializing this transformational step in our energy transition and decarbonization program;
4468307,17,120.1,132.01,1,our first liability management transaction for two billion dollars through the issuance of ten year notes and thirty year bonds to partially prepay the loan disbursed to finance ISA's acquisition;
4468307,18,132.37,153.25,1,the authorization granted by the Superintendencia Financiera de Colombia to subscribe the program for the issuance and placement of common stocks enabling Ecopetrol during five years to execute simultaneous issuance within the local and international markets providing flexibility and opportunity in our capital structure strategy.
4468307,19,153.62,160.73,1,And now more than eighty six percent of our employees have completed their immunization against covid nineteen.
4468307,20,161.17,162.62,1,Let's move on to the next slide.
4468307,21,163.0,180.23,1,With the acquisition of the controlling stake in ISA the Ecopetrol Group turns into a leading company in the energy sector of the region participating across the hydrocarbon value chain energy transmission renewable energy self-generation and infrastructure.
4468307,22,180.5,191.18,1,After the closing of the transaction our efforts have been focused on ensuring compliance with legal and regulatory requirements related with accounting consolidation reporting and financial planning.
4468307,23,191.54,199.97,1,We have made progress in matters regarding corporate governance such as the election of ISA's new Board of Directors following its A G M held on October twenty two.
4468307,24,201.27,206.93,1,The new composition of the board will allow Ecopetrol to exercise as controlling party over the company.
4468307,25,207.28,218.14,1,Also I would like to highlight that for market reporting purposes ISA's financial results are now incorporated as a new business line in addition to the existing business segments.
4468307,26,218.54,223.84,1,ISA will maintain its value promise and independence as we have done with the rest of our subsidiaries.
4468307,27,224.36,229.53,1,ISA will bring to the table experience and knowledge that will boost new growth opportunities.
4468307,28,230.04,237.42,1,We are progressing a gradual integration process led by the transition management office a multidisciplinary team from both companies.
4468307,29,237.89,247.3,1,This process involves neutral and detailed knowledge between both companies understanding of both business models and the construction of a shared vision.
4468307,30,247.69,256.19,1,After having consolidated an orderly transition we'll pursue opportunities that allow accelerating the capture of value from our investments.
4468307,31,256.75,275.63,1,We see potential synergies in opportunities such as energy and fuel storage development of new and additional renewable energy projects generation and commercialization of energy in other countries and growth opportunities in the hydrocarbon business in geographies where ISA already operates.
4468307,32,276.21,282.64,1,I will now pass on the floor to Alberto Consuegra who will elaborate on the main operating results for this quarter.
4468307,33,284.61,285.22,2,Thank you Felipe.
4468307,34,285.7,306.85,2,I will start by highlighting the discovery of hydrocarbons after drilling the exploratory well Liria y w twelve which confirmed the presence of gas and forty nine degree Apiay light oil in a new structure near the Cupiagua field a milestone that sets the company's exploratory reactivation in Piedemonte where Ecopetrol is an operator.
4468307,35,307.64,319.08,2,We also highlight the commerciality of Boranda and flamencos one discoveries which are part of the near-field exploration strategy which seeks production and reserves incorporation in the short term.
4468307,36,319.51,331.8,2,Discoveries are located in Santander Department and have produced about ninety four thousand barrels of crude oil for Ecopetrol's share during the testing stage between January and September of the current year.
4468307,37,331.99,334.92,2,We continue our international exploratory strategy.
4468307,38,335.8,356.41,2,During the seventeenth round of the Brazilian Oil and Gas Agency the consortium between Ecopetrol Brazil and Chile acquired this S-M- seventeen oh nine block located in the Santos Basin expanding the portfolios among high potential areas with competitive break-evens close to forty dollars per barrel.
4468307,39,356.8,358.79,2,Let's move on to the next slide please.
4468307,40,359.48,369.5,2,The quarterly production was six hundred and eighty three thousand six hundred barrels of oil equivalent per day twenty two thousand seven hundred more than the volume achieved in the second quarter.
4468307,41,370.35,387.07,2,Despite achieving the production stabilization of the fields affected by blockages and also increasing gas sales milestones of the plan previously announced there were two climate events during the quarter that limited an additional recovery in the growth of our production.
4468307,42,387.44,391.92,2,Abroad the hurricane season in the Gulf of Mexico caused the closure of wells.
4468307,43,392.04,404.07,2,And in Colombia the rainy season caused land slides which affected the Promioriente Gas Pipeline as well as the flooding of the Caricare field causing its temporary closure for twenty days.
4468307,44,404.79,408.09,2,Other weather impacts were related to increasing power outages.
4468307,45,409.11,416.39,2,These events impacted production in and around ten thousand barrels of oil equivalent per day.
4468307,46,416.7,444.88,2,For the fourth quarter we expect a production around seven hundred oh oh zero barrels of oil equivalent per day mainly leveraged in the drilling of between one hundred and ten wells and one hundred and thirty wells the reactivation of the Promioriente Gas Pipeline and the continuity of the operation of the Nare asset which we received on November fourth after ending the association contract adding an average of seven thousand five hundred barrels of oil equivalent per day.
4468307,47,445.61,452.86,2,However some risks associated with climate and public order issues remain and could affect production levels.
4468307,48,453.29,471.25,2,Gas and L P G contributed twenty one percent to total production highlighting the signing of the Santiago de las Atalayas Gas Exploitation and Exploration Agreement with the National Hydrocarbons Agency which allowed the beginning of pre-drilling activities in two new wells in the Piedemonte area.
4468307,49,471.56,487.11,2,Given the effects on gas production due to maintenance and climatic events a commercial strategy was developed to guarantee gas supply at nationwide along with the Ministry of Mines and Energy and market agents through the signing of contingency contracts.
4468307,50,487.93,501.6,2,On the social front new gas and L P G connections have been made allowing near five thousand new families from strata one and two to have this service and improve their quality of life between January and September.
4468307,51,501.89,503.83,2,Let's move on to the next slide please.
4468307,52,505.18,516.92,2,twenty twenty one has been a challenging year in terms of production due to all the factors that we have revealed throughout the year which have mainly affected the basic curve.
4468307,53,518.18,526.02,2,Resuming activity on our wells generated higher levels of water versus oil content with a gradual stabilization.
4468307,54,527.17,535.97,2,The pandemic and public order situations affected our projects in terms of supply chain delivery deadlines and execution.
4468307,55,536.53,552.53,2,This has been partially offset by the implementation of initiatives such as anticipation of twenty twenty two work fronts and strengthening of our commercial gas strategy with which we expect to restore our growth path.
4468307,56,553.03,562.92,2,Given all the above projected production levels for twenty twenty one would be around six hundred and eighty thousand barrels of oil equivalent per day.
4468307,57,563.28,565.2,2,Let's move on to the next slide please.
4468307,58,566.56,576.31,2,On unconventionals we highlight that on July eighth the first territorial dialogue was held for the Platero Comprehensive Research Pilot Project.
4468307,59,576.85,584.36,2,And on October twenty ninth an environmental impact study was filed requesting approval of the license for the drilling of Kale.
4468307,60,585.42,594.36,2,In parallel progress is being made in the documentation of Platero's environmental study in synergy with what has been filed for Kale.
4468307,61,594.87,614.05,2,In August a public survey was carried out by the National Consulting Center in the area of influence of the pilots evidencing a positive change in perception among communities regarding the industry and the unconventional pilots Ecopetrol being the oil company that generates the most confidence.
4468307,62,614.29,633.5,2,In September Ecopetrol started the operation of a mobile environmental laboratory for the Magdalena Medio region so that communities have a better knowledge of the environmental variables present in their surroundings and that will allow once the pilot starts to monitor their behavior.
4468307,63,633.84,650.25,2,Abroad Permian reached a gross production level for Ecopetrol of twenty four thousand and four hundred barrels of oil equivalent per day in the third quarter evidencing the ramp-up of unconventional with a cumulative EBITDA margin of eighty three percent.
4468307,64,650.54,652.52,2,Let's move on to the next slide please.
4468307,65,652.95,669.5,2,The transported volume of refined products increased sixty three thousand barrels per day compared to the third quarter of twenty twenty thanks to the recovery of local demand mainly the Galan-Sebastopol trench by supplying the large consumption areas of the country.
4468307,66,669.57,682.54,2,On the other hand the volume of crude oil transported decreased by thirty thousand barrels per day compared to the same quarter of last year as a result of lower production driven by the previously mentioned causes.
4468307,67,682.87,691.08,2,In order to secure the evacuation of the Cano Limon field eleven reversal cycles of the Bicentenario Pipeline were carried out.
4468307,68,691.42,706.71,2,Finally I want to mention that the consolidation agreement between Frontera c e n i t and Bicentenario was approved by the Administrative Tribunal of Cundinamarca to solve the existing disputes regarding the transportation of crude oil in Colombia.
4468307,69,706.96,718.3,2,As a result of the conciliation Frontera will recognize to c e n i t and Bicentenario the outstanding obligations under their agreements as of December thirty first twenty nineteen.
4468307,70,718.66,739.95,2,Frontera will transfer to CENIT its forty three point oh three percent interest in Bicentenario and will transfer to Bicentenario the pending dividends the funds deposited in their trust as guaranteed for one of the disputes the advanced payments from prior years under Bicentenario Pipeline line field that they have.
4468307,71,740.33,748.72,2,As part of the agreement Frontera will recognize to Bicentenario a portion of the Bicentenario syndicate loan in the amount of cop four hundred thirty eight billion.
4468307,72,749.41,766.38,2,Additionally CENIT and Bicentenario signed new ship-or-pay agreements with Frontera allowing them to receive additional revenues for the payment of obligations included in the conciliation for a value of up to ninety two million dollars subject to adjustments as per the value of the line field.
4468307,73,766.61,781.29,2,Likewise O D L a CENIT subsidiary obtained execution with Frontera of a new ship-or-pay agreement which shall allow o d l to receive additional income up to fifty five point five million dollars.
4468307,74,781.32,791.01,2,The financial impacts of the transaction correspond to the total recovery of outstanding debt as of December thirty first twenty nineteen for a value of cop seven hundred twenty nine billion.
4468307,75,791.63,799.82,2,The one-time impact on EBITDA will be approximately cop seven hundred billion which will be reflected in the figures for the fourth quarter of this year.
4468307,76,800.08,810.32,2,Additionally financial revenues for approximately cop forty one billion will be received due to the effect of default interest and returns on trust funds.
4468307,77,810.58,812.7,2,Let's move on to the next slide please.
4468307,78,813.0,838.54,2,We achieved an accumulated EBITDA record result as of September of COP2 .35 trillion thanks to selling of inventories and benefit from market prices at Barrancabermeja Refinery essentials commercial strategies and an Invercolsa's increase in natural gas sales which contribute to mitigate impacts derived from operational challenges and keeping the cash cost of the segment under control.
4468307,79,838.8,848.6,2,Additionally we are pleased to inform that we achieved the delivery of gasoline at fifty parts per million contemplated by regulation for January twenty twenty two.
4468307,80,848.93,873.58,2,The integrated gross margin of the refineries remain at pre-pandemic levels despite having a more expensive diet because the recovery of Brent price a challenging scenario for the realization of valuable products especially in the Cartagena refinery due to the discount on export diesel and the scheduled maintenance of the petrochemical train and the alkylation unit at the Barrancabermeja refinery.
4468307,81,873.7,895.82,2,The consolidated throughput in September was about three hundred sixty five thousand barrels per day exceeding the throughput restrictions on the refineries affected by public order events at Cano Limon Covenas oil pipeline and electrical contingency presented in August and corrective maintenance planned in the catalytic tracking unit at Cartagena's refinery.
4468307,82,896.31,900.62,2,These events had an EBITDA impact of cop one hundred and twenty one billion.
4468307,83,901.31,923.37,2,A shutdown plan is being implemented with the purpose of improving the reliability of the refineries which will take the operational availability from ninety two point five percent in twenty nineteen to ninety four point two percent in twenty twenty one and up to international reference levels above the ninety six percent in twenty twenty four.
4468307,84,923.69,930.46,2,Other scheduled maintenance for the flare in plants one and two in Esenttia will will be occurring.
4468307,85,931.56,933.45,2,Let's move on to the next slide please.
4468307,86,934.7,947.53,2,At the end of third quarter we have delivered efficiencies close to cop one .8 trillion highlighting a reduction of the dilution factor energy efficiency and savings obtained with the renewable energies.
4468307,87,948.04,960.87,2,The total unit cost accrued to September increased ten point three dollars per barrel as compared to the same period in twenty twenty mainly due to higher purchase and import costs associated with higher Brent prices.
4468307,88,961.07,971.96,2,On the other hand the cumulative lifting cost to September increased point eight seven dollars per barrel as compared to the same period in twenty twenty reaching eight dollars per barrel.
4468307,89,972.61,981.21,2,Such anticipated increase is due to greater numbers of well interventions the execution of process safety and integrity work included in the plan.
4468307,90,981.47,985.6,2,as well as increasing the cost of oil services due to industry inflation.
4468307,91,986.31,992.52,2,By the end of the year we expect to have a lifting cost in the order of eight point five oh dollars per barrel.
4468307,92,992.74,1005.57,2,The cost per barrel transported showed a slight decrease as compared to the same period in twenty twenty reaching two point nine dollars per barrel thanks to the control of variable costs given the lower volumes transported.
4468307,93,1006.01,1015.96,2,The refining cash cost accumulated to September showed a downward trend as compared to previous years correlated to gas composition and its supply chain.
4468307,94,1016.28,1022.97,2,I will open the floor to Jaime Caballero who will talk to you about the main financial results of the Ecopetrol Group.
4468307,95,1023.58,1024.38,3,Thanks Alberto.
4468307,96,1024.58,1036.4,3,During the nine months ended in September twenty twenty one Ecopetrol's net income reached cop ten .6 trillion exceeding more than nine times the results obtained during the same period of the previous year.
4468307,97,1036.66,1055.3201,3,This increase is mainly explained by a higher EBITDA generation of cop fifteen .5 trillion where the following factors stand out a positive net effect of cop thirteen trillion due to realization prices higher crude oil spreads and foreign exchange increase for purchases and sales;
4468307,98,1055.59,1068.4501,3,a positive valuation of inventories for cop four .2 trillion related to market prices and increasing ships in transit to India and the u s given the new delivery at place commercial strategy;
4468307,99,1068.79,1077.78,3,and the consolidation of a hundred percent of ISA's EBITDA cop four .7 trillion corresponding to one month of operation after closing the acquisition.
4468307,100,1090.11,1099.9199,4,Higher operating activity costs for point six trillion pesos mainly associated to maintenance and higher materials consumption as a result of the economic reactivation.
4468307,101,1100.21,1112.74,4,And other effects in the EBITDA for point four trillion pesos mainly related to the increase in exploratory expenses recognition of public work provisions and environmental provisions among other aspects.
4468307,102,1113.01,1117.75,4,Likewise the year to date includes the impact of three non-operational items.
4468307,103,1117.87,1142.0599,4,The non-recurring positive effect of point four trillion recognized in January for the divestment of Savia Peru a negative variation from other non-cash items for one point eight trillion including foreign exchange effect depreciation taxes financial expenses and ISAs non-controlling interest for point seven trillion and one trillion in other subsidy areas.
4468307,104,1142.14,1150.6,4,An increase in the income tax provision as a result of higher financial results and related to deferred tax restatement for three six billion pesos.
4468307,105,1151.2,1157.9399,4,After implementing the new rate established by the tax reform in Columbia from thirty percent to thirty five percent.
4468307,106,1159.04,1163.95,4,These results show a clear continuity of the favorable trend in the company's financial results.
4468307,107,1164.34,1168.3199,4,Please turn to the next slide to see ISAs main financial results.
4468307,108,1169.9,1173.9401,4,For the third quarter and the nine months ended on September twenty twenty one.
4468307,109,1174.71,1184.02,4,ISAs EBITDA continues its growth trend increasing five point eight percent and five point two percent respectively as compared to the same periods in twenty twenty.
4468307,110,1184.33,1208.1899,4,Net income decreased affected by non-recurring events such as cost-associated to the liability management transaction at Interchile which also included the unwind of debt hedging for a total of two hundred seventy three billion pesos and a higher deferred tax expense of a hundred forty six billion pesos due to the application of the rates from the tax reform in Columbia.
4468307,111,1208.59,1217.74,4,In the absence of these impacts ISAs net income for the quarter would have been five hundred forty one billion and one point six trillion year to date.
4468307,112,1218.6801,1227.36,4,ISAs consolidation in Eco Patrol Group is carried out through a business combination of control businesses has defined in i f r s three.
4468307,113,1228.37,1237.35,4,A new segment has been established to incorporate ISAs standalone results starting September and the expenses related to the debt raise to complete the acquisition.
4468307,114,1237.6801,1244.5,4,ISAs contribution is material for the Eco Patrol Group and it will be progressively incorporated over the next accounting period.
4468307,115,1244.65,1254.8999,4,When normalizing the consolidation for the nine months ended in September ISAs contribution to the EBITDA would have been five point three trillion representing about nineteen percent of the total.
4468307,116,1255.25,1259.87,4,The net income contribution would have been point six trillion pesos and oh.
4468307,117,1259.9,1263.59,4,eight trillion excluding the non-recurring events mentioned above.
4468307,118,1263.98,1272.28,4,After consolidation assets and liabilities of the Eco Patrol Group increased by eighty two and fifty five trillion pesos respectively.
4468307,119,1273.17,1280.4399,4,Total equity increased by twenty seven trillion pesos reflecting the concept of non-controlling interest associated to ISA.
4468307,120,1281.0,1289.0499,4,The values of assets liabilities and non-controlling interests as well as goodwill are preliminary and will be updated to final amounts by the end of the year.
4468307,121,1290.39,1293.86,4,Please turn to the next slide to see the main financial KPIs.
4468307,122,1294.88,1308.84,4,Cumulative financial indicators year to date reaffirm Eco Patrol's ability to capture the favorable price environment as well as the initial benefits from ISA after consolidating the first month of its operations since the acquisition.
4468307,123,1309.37,1318.7899,4,In the oil and gas business is worth to highlight the EBITDA per barrel that reach record levels of forty point two oh dollars per barrel and quality the results of forty bucks.
4468307,124,1318.79,1320.86,4,one oh per barrel.
4468307,125,1321.5,1324.8099,4,These levels compare very favorably with other industry peers.
4468307,126,1325.09,1329.2999,4,Net income break even continues to improve as compared to the end of twenty twenty.
4468307,127,1329.9,1334.75,4,And the same period of the previous year reaching thirty four point eight oh dollars per barrel.
4468307,128,1335.34,1339.09,4,Thanks to the recovery of broad spread and higher throughput in the refineries.
4468307,129,1339.22,1340.65,4,Regarding ISAs results.
4468307,130,1340.8199,1348.03,4,It is worth to highlight the EBITDA margin excluding construction that was seventy seven point seven percent aligned with twenty twenty.
4468307,131,1348.58,1359.36,4,ISAs return on equity for the barrel was affected by the liability management transaction effect that did not impact the group results due to the extent that it corresponds to an event prior to the acquisition.
4468307,132,1359.84,1362.5699,4,And therefore it was registered as ugly.
4468307,133,1363.0699,1367.65,4,Year to date EBITDA margin for the Eco Patrol Group was forty six point seven percent.
4468307,134,1368.15,1372.1901,4,Among the highest levels historically surpassing pre-pandemic levels.
4468307,135,1373.21,1379.87,4,The leverage ratio of the Eco Patrol Group is similar to twenty twenty levels when incorporating ISAs debt and one month EBITDA.
4468307,136,1380.5,1386.46,4,Normalizing with this EBITDA for the last twelve months the indicator would have been two point four times.
4468307,137,1386.77,1392.91,4,Please turn to the following slide to see the main highlights of the commercial strategy and its contribution to the financial results.
4468307,138,1393.1899,1398.39,4,The commercial strategy has been fundamental to the successful capture of value in the current environment.
4468307,139,1398.39,1406.55,4,The stable quality of our blends supply reliability and contractual flexibility are fundamental to the corporate strategy.
4468307,140,1407.8101,1421.63,4,As of September twenty twenty one the realization price of our crude basket increased from representing seventy six percent to ninety four percent as compared to the average rent price for the same period in twenty twenty.
4468307,141,1421.99,1440.52,4,It is worth highlighting the increase in barrels delivered to destinations such as South Korea India Brunei Sweden and the u s Gulf of Mexico going from seventeen percent in three q twenty twenty to thirty seven point five percent in three q twenty twenty one in volumetric terms.
4468307,142,1440.8,1447.3601,4,This strategy has allowed a higher commercial margin as compared to shipments sold and delivered at the inaudible.
4468307,143,1447.72,1460.8101,4,Likewise we continued to maximize the value of crude oil and products through asset-backed trading strategies with an incremental benefit of forty seven million dollars by the end of September almost twice the amount achieved during full year twenty twenty.
4468307,144,1461.25,1467.63,4,We estimate that so far this year the commercial effort has contributed around three hundred and thirty nine million dollars.
4468307,145,1468.11,1471.9501,4,Equivalent to a dollar and nineteen cents per barrel.
4468307,146,1472.27,1473.84,4,To the Eco Patrol's Group EBITDA.
4468307,147,1474.34,1483.88,4,As a result of export strategies purchase of new crudes for the refineries benefits from using our crudes and savings from energy efficiencies among others.
4468307,148,1484.12,1494.11,4,Sales of gas and LPG a key element of the strategy contributed almost fifteen dollars per barrel to the EBITDA proving the relevance of this product within the company's results.
4468307,149,1494.52,1496.16,4,Let's turn to the next slide please.
4468307,150,1496.6801,1514.99,4,Organic investment as of n three q amounted to nearly two point two billion dollars showing an important recovery versus the previous year despite global supply chain disruptions public unrest in certain areas of our operation and longer regulatory permitting lead times.
4468307,151,1515.2,1523.61,4,The upstream segment accounted for seventy seven percent of total organic CapEx with a focus on increasing production on reserves.
4468307,152,1524.3199,1527.99,4,While twenty three percent went to the midstream downstream and corporate segments.
4468307,153,1528.27,1534.3099,4,By the end of the year we expect to invest between three point three and three point five billion dollars.
4468307,154,1534.75,1551.25,4,CapEx execution for the fourth quarter will be focused on an increase in drilling rigs directly operated by Eco Patrol in securing the arrival and materials with supply delays boosting activity in Permian Eco Patrol America and Okol and an increase in activity in the refineries.
4468307,155,1551.53,1558.11,4,As for ISAs CapEx its cumulative execution as of September was nine hundred and forty six million dollars.
4468307,156,1558.8101,1564.8,4,Mainly allocated to the progress in the construction of energy transmission projects in the countries where the company operates.
4468307,157,1565.13,1570.3101,4,ISA estimates a year end execution of sector one point two billion dollars.
4468307,158,1570.61,1573.1699,4,Please turn to the next slide to review the company's cash flow.
4468307,159,1574.4,1578.29,4,Cash balance for the third quarter was thirteen point one trillion pesos.
4468307,160,1579.1899,1582.12,4,With the operating cash flow adding eleven point five trillion pesos.
4468307,161,1583.14,1589.74,4,ISA contributed six trillion pesos to the cash balance and point five trillion to the operating cash flow respectively.
4468307,162,1590.88,1596.14,4,The investment component for the year presented an outflow of eight point eight trillion pesos related to CapEx.
4468307,163,1597.08,1605.23,4,The financing component excluding ISA acquisition registered an outflow of two point eight trillions pesos for principal and interest payments.
4468307,164,1605.35,1613.39,4,During twenty twenty one dividends for one point four trillion have been paid to Eco Patrol shareholders and to non-controlling shareholders of its subsidiaries.
4468307,165,1614.51,1623.1899,4,Final cash balance considers cash and cash equivalence for ten point one trillion pesos and a short-term investment portfolio of three trillion pesos.
4468307,166,1624.22,1631.9399,4,The Eco Patrol Group's cash composition is sixty four percent dollar-based and thirty six percent Columbian peso-based.
4468307,167,1632.74,1644.8,4,This cash balance does not include the account receivable from the full price deviation fund for pe for it's a Spanish acronym which at the end of three q amounts to seven point two trillion pesos.
4468307,168,1645.9399,1662.7,4,It is worth mentioning that the recently approved general budget of the Republic of Columbia includes a specific provision of two point seven trillion pesos for the recognition of this item as well as additional budgetary mechanisms to address the remaining amounts.
4468307,169,1663.3199,1664.58,4,Please turn to the next slide.
4468307,170,1666.35,1680.7899,4,Finally we would like to highlight the completion of our first external liability management transaction for two billion dollars by which we partially refinance the three point seven billion loan associated with the ISA acquisition.
4468307,171,1681.97,1690.7799,4,This transaction optimizes the debt maturity profile of the Eco Patrol Group with market rates at historically low levels since twenty fourteen.
4468307,172,1691.16,1701.35,4,The transaction had a robust demand from around two hundred seventy investors from different geographies globally with individual bids of up to four hundred and seventy million dollars.
4468307,173,1702.13,1705.58,4,Evidencing confidence in Eco Patrols financial strength.
4468307,174,1706.6899,1724.2999,4,This transaction in addition to the approval of the program to issue common stock in Columbia by the Superintendency of Finance provides flexibility and access to different sources of debt and equity financing with the objective to continue optimizing the maturity profile and to fund the energy transition strategy of the company.
4468307,175,1724.67,1727.5701,4,Now I hand over to the c e o for closing remarks.
4468307,176,1728.12,1728.77,5,Thank you Hyman.
4468307,177,1729.38,1734.23,5,We continue to move forward on each of the pillars of our t e s g strategy.
4468307,178,1734.77,1755.7001,5,On the environmental side we particularly highlight achievements in our renewable energy projects with the entry to operation of the San Fernando solar farm that is located in the Meta department we have now an additional install capacity of sixty one Megawatts that will supply part of the energy demand for both Eco Patrol and sending operations.
4468307,179,1756.52,1767.85,5,It will also help us to avoid emissions for more than five hundred eight thousand tons of c o two equivalent during the next fifteen years and will contribute to the group's decarbonization plan.
4468307,180,1768.64,1780.54,5,All this in addition to over twenty one thousand tons of c o two emissions that have already been avoided by the Castilla solar farm in its first to use of operations since October two thousand nineteen.
4468307,181,1781.24,1788.86,5,During such period we have also saved with the Castilla Solar Farm some two million dollars in operational costs.
4468307,182,1789.76,1796.38,5,With San Fernando the group's current capacity on renewable energy stands at a hundred and twelve Megawatts.
4468307,183,1830.63,1847.6901,5,On the other hand we recently joined the group of the task force of on nature related financial disclosures t n f d to help develop a reporting framework for nature related risk and opportunities as well as mitigating negative impacts on the environment.
4468307,184,1847.95,1854.4099,5,Last week we participated in cop twenty six in Glasgow as one of the organizations representing Colombia.
4468307,185,1855.02,1871.5801,5,In addition to discussing actions that allow to mitigate climate change impact we met with different leading organizations to explore potential alliances in the development of several opportunities on our road to net zero and energy position roadmaps.
4468307,186,1871.97,1882.21,5,Regarding technology I wanna highlight the capture of some thirty six million dollars year to date of benefits from our digital transformation agenda.
4468307,187,1882.71,1894.09,5,Also the award of the sustainable development goals good practices led by the global compact of the UN to our open innovation program a hundred times a hundred.
4468307,188,1895.16,1912.38,5,In the social dimension Eco Patrol achieved the Equipares Silver Seal a certification with a ninety eight point four seven percent score which gives us now five companies in the group that have favorable processes for gender equality.
4468307,189,1912.84,1914.58,5,Let's move on now to the conclusions.
4468307,190,1915.08,1927.28,5,During the quarter we achieved significant progress towards energy transition such as the closing of the ISA acquisition setting a milestone in the history of the country and for both companies.
4468307,191,1927.76,1936.6599,5,Providing the opportunity to consolidate the Eco Patrol Group as a new leading energy company with greater capacity to continue generating sustainable value.
4468307,192,1937.17,1942.35,5,We continue delivering strong financial results to our shareholders and our groups of interest.
4468307,193,1942.74,1951.6799,5,we'll keep consolidating our integrated strategy maintaining the focus on the core business while moving forward in the pillars of energy transition.
4468307,194,1952.0,1955.2101,5,Thanks to everyone for participating today in the call.
4468307,195,1955.72,1958.75,5,And now I will open up for the Q and A session.
4468307,196,1961.05,1961.55,6,Thank you.
4468307,197,1962.09,1969.65,6,At this time I would like to remind everyone in order to ask a question simply press star and then one on your telephone keypad.
4468307,198,1970.64,1974.0801,6,If you would like to withdraw your question please press the pound key.
4468307,199,1974.96,1977.8,6,We'll pause for just a moment to compile the Q and A roster.
4468307,200,1991.51,1995.53,6,We have a question from Keller Levy from Morgan Stanley.
4468307,201,1999.12,1999.4399,7,Hi.
4468307,202,1999.47,2000.27,7,Hello everyone.
4468307,203,2000.3101,2002.28,7,Uh thank you for taking my questions.
4468307,204,2002.39,2003.85,7,Uh I have two questions.
4468307,205,2003.88,2006.39,7,Uh the first one is on leaping costs.
4468307,206,2006.89,2014.6801,7,Uh so I I just wanted to uh to understand your expectations uh for deep line going forward.
4468307,207,2014.74,2024.7101,7,Uh when we consider both uh recovering production and higher audit prices uh that are expected to to remain uh into the next quarters.
4468307,208,2025.01,2037.5699,7,Uh if we should continue to to expect listing costs close to the uh eight dollars per the inaudible range uh and if the company's already seeing some level of industry cost inflation.
4468307,209,2038.01,2045.2999,7,Uh and then the the second question uh is on on the production expectations for uh twenty twenty two.
4468307,210,2045.64,2054.74,7,Uh I just wanted to to pick a bring and and try to understand what sort of projects uh can be anticipated at the current oil price environment.
4468307,211,2055.1399,2065.9399,7,Uh and also how much the the Shao JV in the U.S. could uh contribute to the group uh in this is strong oil price environment?
4468307,212,2066.1399,2066.8301,7,Thank you very much.
4468307,213,2072.5701,2073.03,5,Yeah.
4468307,214,2073.03,2073.3501,5,Thanks.
4468307,215,2073.3501,2077.1501,5,And thanks for participating today in the uh in the conference call.
4468307,216,2077.6201,2083.3098,5,So um I'll give you some context and then uh I'll ask Alberto to provide more detail.
4468307,217,2083.5601,2088.4299,5,Uh first around uh lifting cost and then around uh production.
4468307,218,2109.54,2111.1899,5,So that's sort of the expectations.
4468307,219,2111.1899,2120.53,5,So clearly we see there will be there will be an um an increment or an increase uh in terms of the lifting cost.
4468307,220,2121.1399,2125.1001,5,Alberto will provide detail around levels of activity.
4468307,221,2144.3301,2153.3701,5,And then again Alberto will provide some detail but if you look at what has happened this year uh we started at uh one q at six seven six.
4468307,222,2154.1499,2159.7,5,We went down to six six one in two q and up to six eight four in three q.
4468307,223,2160.4399,2161.53,5,So there's a recovery.
4468307,224,2161.53,2163.9199,5,We are uh we are seeing recovery from some of the…
4468307,225,2292.1001,2297.0999,8,So eh in terms of e s o p eh I wanna provide a bit of context.
4468307,226,2297.1399,2301.1799,8,We we had something called a T M O the Transition Management Office.
4468307,227,2301.8,2305.0601,8,It's basically comprised of some eh eighty people.
4468307,228,2311.79,2330.6899,8,And for the last uh eh two and a half months since we closed the deal on the twentieth of August eh a dedicated team has been eh posed uh on the premise on premises mainly eh working on eh some ten to twelve um streams of work mainly.
4468307,229,2330.6899,2332.05,8,So there's different things.
4468307,230,2332.05,2337.7202,8,You know and we've talked about eh the legal versus regulatory the uh financial consolidation.
4468307,231,2337.72,2344.2898,8,So we'll work now on things like uh budget and finance eh plan planning sorry planning purposes.
4468307,232,2344.29,2345.8301,8,And so there's a lotta work.
4468307,233,2346.1201,2348.71,8,And uh and that's actually going quite well.
4468307,234,2349.3201,2353.76,8,Eh in terms of uh eh Heimi and myself joining the board.
4468307,235,2354.1799,2355.0601,8,That's already happened.
4468307,236,2355.0601,2360.1699,8,So I I just wanted to provide sort of the high level context eh in terms of uh where we are.
4468307,237,2360.48,2367.3,8,Some things that we're looking at and there's uh some very eh tactical pragmatical things that we're looking at.
4468307,238,2367.3,2379.1001,8,So for example eh uh in a lot of the uh eh things in which we operate eh for example on a digital eh we have a a lot of synergies and opportunities.
4468307,239,2379.1001,2381.48,8,Because we use the same providers.
4468307,240,2381.8799,2390.73,8,You know and we can share some of the conditions and uh some of the favorable conditions that EcoPetrol has eh on contracting some of these services.
4468307,241,2399.1299,2406.0701,8,And there's some ongoing work between the teams around things like innovation and technology very important.
4468307,242,2406.45,2409.6702,8,So things like when you mention power generation.
4468307,243,2409.6699,2422.3198,8,So eh in Colombia by the current existing regulation eh since we are in transmission we would not be allowed to enter the power generation market to sell to third parties.
4468307,244,2422.78,2426.6299,8,So that's the current eh sort of regulatory priority in Colombia.
4468307,245,2427.0801,2432.23,8,Having said that there's opportunities in the other countries where we na now have a presence.
4468307,246,2432.5801,2434.0701,8,So that's that's inaudible number one.
4468307,247,2434.5801,2444.5598,8,That in terms of uh things like a additional eh renewable power power generation projects from renewable sources there's a lot of opportunity.
4468307,248,2444.5601,2457.9099,8,Both in country and outside in terms of energy storage which is fundamental as we think about the transition and and sort of ensuring that there's reliability in terms of the se eh of the provision of electricity you know?
4468307,249,2458.27,2460.8999,8,To uh to the uh to the consumers.
4468307,250,2461.27,2467.1299,8,Eh even in things like eh hydrogen and things like low emission energy.
4468307,251,2467.1299,2469.6799,8,So eh the teams are actually working on that.
4468307,252,2469.6799,2476.72,8,So uh we're very um enthusiastic I would say in terms of uh eh the new opportunities.
4468307,253,2476.72,2479.3601,8,And there's a lot of things that are coming up from those conversations.
4468307,254,2479.3601,2489.6902,8,And uh eh what we'd like to do Matthews is that uh as soon or as long as we are progressing and advancing we'll continue to communicate.
4468307,255,2489.99,2514.02,8,You know in terms of uh eh where we are how we how we planned it some of those uh opportunities that um I I would end up saying there before inaudible to to inaudible is that eh I don't think we fully understand eh the potential that we can unlock you know in terms of the transaction that we've done and opportunities going going forward.
4468307,256,2514.6599,2522.1501,8,So uh one thing why don't we move into the downstream to talk a little bit more about the margins and uh and what do we see going forward.
4468307,257,2524.0601,2524.6501,12,Thank you Fillipe.
4468307,258,2524.6499,2525.3301,12,Thank you Filipe.
4468307,259,2525.6201,2528.27,12,And thank you Matthew for your question on the inaudible business.
4468307,260,2529.24,2544.3101,12,Uh I will start uh mentioning that uh as you saw on the slide uh uh I think wa was covered by Roberto that eh as of September we have accumulated a record of eight a of ₱2.3 billion eh for the segment.
4468307,261,2627.26,2633.8801,12,So we see Cartagena for the fourth quarter eh coming up in term of uh margins.
4468307,262,2647.2,2653.51,12,So in overall for the refining we are projecting to finish eh twenty twenty one.
4468307,263,2653.95,2663.8601,12,Eh in regarding eh inaudible rate eh we have told you that we are planning to be on the three forty five to three sixty five k b d.
4468307,264,2664.0901,2668.04,12,Uh we are projecting to be on the high side of uh that range.
4468307,265,2768.3301,2768.5901,13,Hi.
4468307,266,2768.5901,2769.6799,13,Good afternoon everyone.
4468307,267,2769.6799,2771.46,13,Uh thank you for taking my questions.
4468307,268,2772.0801,2775.0999,13,Uh m my first one is uh regarding Brazil.
4468307,269,2775.28,2778.8999,13,Uh when do you expect uh the drilling of of the first well there?
4468307,270,2778.8999,2781.3799,13,And sort of where what are the next key milestones?
4468307,271,2782.26,2799.0701,13,Uh my second question is regarding to Unconventional uh do you feel that after we get the licenses for for Calle and Platero uh that that you know for for other f future potential areas uh these licenses could could could come up quicker?
4468307,272,2799.0701,2801.23,13,a And then if I just may sorry.
4468307,273,2801.26,2802.9099,13,Eh uh a followup on the previous question.
4468307,274,2803.28,2811.76,13,Uh d do you still see risks of uh of public order in the Canyo Leman pipeline uh this quarter uh that that that could uh again affect refineries?
4468307,275,2811.76,2813.55,13,Or or or things are calmer there?
4468307,276,2813.71,2814.0798,13,Thank you.
4468307,277,2822.4299,2823.98,8,Misente good morning.
4468307,278,2823.98,2825.6399,8,And thanks for the question.
4468307,279,2825.99,2830.3501,8,With regards to Brazil what uh we are um doing right now.
4468307,280,2830.3501,2841.3201,8,Uh in terms of exploration uh we are in the planning phase uh to drill uh our second well in the Saturno block.
4468307,281,2841.8601,2845.0398,8,Which um um basically is what we call the Yapitos prospect.
4468307,282,2845.6201,2852.01,8,And we expect to drill this well em late in twenty twenty two or early twenty twenty three.
4468307,283,2852.24,2860.5601,8,Uh and and this will depend very much in in our conversations with our planners in that case uh Shell and and Chevron.
4468307,284,2861.3799,2864.3601,8,Um also in terms of uh development.
4468307,285,2864.77,2868.8201,8,Uh just to recognize that that Gato Do Mato is going well.
4468307,286,2869.3899,2875.6799,8,And that we have uh several uh milestones to complete in the in the next uh few months.
4468307,287,2876.0,2881.96,8,The first one is the award of the FPSO uh the Floating Production Storage and Offloading facility.
4468307,288,2881.96,2886.25,8,Uh initiate fabrication of the FPSO.
4468307,289,2926.4099,2933.0898,8,So we're in the process eh as as we mentioned that in our report uh in the process of uh obtaining the licenses for Calle and Platero.
4468307,290,2936.1201,2941.1699,8,We we already de delivered the the environmental assessment study for Calle.
4468307,291,2941.9199,2947.21,8,And we are uh trying to do so uh uh for plato for Platero.
4468307,292,2960.74,2966.1602,8,I I think our focus should be in the two areas where we have uh eh at this moment the inaudible.
4468307,293,2966.72,2978.02,8,Once that we are successful in in in in getting the licenses inaudible well at at us doing uh uh the execution of well doing the drilling of the well.
4468307,294,2978.28,2984.1201,8,Then we can foresee there are opportunities in inaudible.
4468307,295,2984.1201,2985.8599,8,inaudible point I'd just um like to add.
4468307,296,2985.8601,2998.52,8,And and before you come back to Canyon Leman and the third question is eh what inaudible eh with regards to the uh Unconventional pilots in Colombia is that this is not about doing it quickly.
4468307,297,2998.77,2999.8301,8,It's about doing it well.
4468307,298,3000.4099,3009.47,8,And in that sense and you you saw some of the uh the timelines that we produce in the report eh we see ourselves uh drilling the wells in twenty twenty three.
4468307,299,3009.97,3013.3899,8,But we're working to see if we can actually accelerate that drilling.
4468307,300,3013.7,3016.51,8,And inaudible bring that forward into twenty twenty two.
4468307,301,3017.3101,3028.23,8,But bear in mind that after we have all the results and the data there's an independent commission that will look at the results of the pilot and determine if the pilots were successful or not.
4468307,302,3028.79,3033.8101,8,In terms of they're achieving the objective that were set up with the regulations in the pilot.
4468307,303,3033.8101,3037.0,8,So we'll make to see what that what that means.
4468307,304,3037.5,3043.9399,8,Having said that eh obviously we've we've worked on identifying additional areas with potential.
4468307,305,3044.3999,3051.24,8,And uh thinking about how can we take this next uh level in terms of becoming part of the uh the operation that we're doing.
4468307,306,3056.4299,3065.71,8,So that's being eh both being brought home in terms of uh planning and ensuring that we can understand how to move to the next phase.
4468307,307,3065.8999,3070.1099,8,Which eh uh if I understand correctly is sort of the uh the question.
4468307,308,3070.55,3072.6101,8,And uh and then in terms of uh Canyo Leman.
4468307,309,3072.6101,3083.73,8,Yeah well in terms of Canyo Leman we we need to recognize that we have the pressure of social unrest eh and guerrilla activity in both the Catatumbo and the Aralca regions.
4468307,310,3100.3601,3117.29,8,Particularly in Barrancabermeja.
4468307,311,3133.1599,3133.6299,10,Thank you.
4468307,312,3134.1799,3137.6799,10,Our next question from from Frank Meganne from Bank of America.
4468307,313,3138.0901,3138.71,10,Please go ahead.
4468307,314,3140.22,3140.4399,14,Okay.
4468307,315,3140.4399,3141.26,14,Thank you very much.
4468307,316,3141.29,3149.78,14,Um just you know maybe stepping back to uh a little bigger picture in terms of how you're seeing the CapEx potential in upstream.
4468307,317,3149.8799,3161.6001,14,Um after the last four or five years which <laugh> um you went from you know having a lot of you know opportunities and and being very aggressive to you know pulling back as as…
4468307,318,3161.6001,3174.2,14,You know right rightfully so to um restore the balance sheet and and and not you know overly get over-aggressive in terms of spending given the less clear environment as especially of course of the last eighteen twenty four months.
4468307,319,3174.74,3178.5,14,I'm just thinking ha you know wondering now how you're how you're thinking about upstream.
4468307,320,3178.6699,3184.9199,14,Um you've got I would assume a lot of kind of uh low hanging fruit that you could potentially exploit.
4468307,321,3185.1899,3192.78,14,You could uh you know I would think you could um increase CapEx quite a bit and and profitably so if if you wanted to.
4468307,322,3192.78,3197.2,14,But I'm just wondering how how big that portfolio is potentially inaudible one.
4468307,323,3197.23,3209.5999,14,And secondly um are you are you tempted to get more aggressive over the next couple of years given the very favorable environment in in I think fairly short payback period that you have for a lot of those investments?
4468307,324,3215.4399,3215.99,8,Thanks Frank.
4468307,325,3215.99,3217.8599,8,And um great question.
4468307,326,3217.9099,3222.0701,8,And uh and I think um I'll provide you some um some views.
4468307,327,3222.0701,3224.26,8,And then Heimich and inaudible and Roberto as well.
4468307,328,3224.26,3227.8,8,And and I think I can sorta basically inaudible the views.
4468307,329,3227.8,3231.1902,8,But uh the way I um I would put it.
4468307,330,3244.3201,3261.0398,15,And if you look at um how we've uh ramped up CapEx over the last few years from basically uh two point two billion in twenty seventeen to two point nine billion in 18 to three and a half in 2019 we will be in that range this year.
4468307,331,3261.1101,3271.2,15,And uh I was um answering a question earlier saying that we see ourselves in the four billion dollars to $5 billion range uh organic excluding ISA.
4468307,332,3272.99,3276.8201,15,And historically eighty percent to 85% of the CapEx has gone to the upstream.
4468307,333,3277.3301,3279.0798,15,So we're not going to abandon that.
4468307,334,3279.0801,3285.22,15,So uh there will be uh additional focus in terms of exploration.
4468307,335,3285.9099,3296.3401,15,And this goes from uh uh looking at seismic that we already have and doing the uh reinterpretation of that seismic with new technology and new capabilities.
4468307,336,3296.79,3298.03,15,So that's point number one.
4468307,337,3298.6001,3313.8201,15,And I think the uh the news that we gave the markets earlier in the week with uh the media JW the well which is the discovery of a inaudible show that um sort of adjusting our view on exploration is paying off.
4468307,338,3314.1299,3315.3699,15,And I think that's very important.
4468307,339,3316.4199,3323.0398,15,Uh this year we will end up with some four hundred wells uh in our in our portfolio that we've drilled development wells.
4468307,340,3323.45,3325.25,15,We should probably see an increase in that.
4468307,341,3325.25,3327.6201,15,And that's the way you're going to think about it.
4468307,342,3327.6201,3334.78,15,If you look at geographically uh we have um very good activity in the Permia and it is paying off.
4468307,343,3334.78,3341.8201,15,It's it's not only providing uh molecules or barrels but it's also producing good EBITDA.
4468307,344,3342.1001,3346.9399,15,You know and we'll be able to top that uh when we close the year and the likes.
4468307,345,3347.6201,3353.1602,15,Uh so a lot of focus in Colombia but we do have uh focus in both the Permian…
4468307,346,3353.22,3359.52,15,And Alberta was just referring to Gato Domato in Brazil that will require some additional CapEx.
4468307,347,3360.8,3364.8401,15,But clearly focus in Colombia were uh e o r techniques.
4468307,348,3365.6599,3368.0999,15,Increasing recovery factors are fundamental.
4468307,349,3368.55,3374.3499,15,We have to deal with a fifteen to seventeen decline natural decline per year in our main fields.
4468307,350,3390.8501,3397.98,15,Having said that and we we had a a I think a good discussion earlier on about sector inflation and some of the things that we're doing.
4468307,351,3397.98,3412.7898,15,But again things like zero based budgeting and something called performance plus which is an internal program to look at more efficiencies I think can provide a lot of um support in terms of uh how we see ourselves going going forward.
4468307,352,3413.3,3417.27,15,And we have uh identified lot of opportunities.
4468307,353,3418.04,3426.47,15,Uh we have something called the taxonomy so we know which each and every opportunity that we have in pipeline ranks up uh…
4468307,354,3426.47,3433.23,15,But and I'll stop here we don't want to get crazy you know in terms of spending money just for the sake of spending money.
4468307,355,3433.23,3441.97,15,We wanna stay very focused and disciplined in terms of how do we inaudible uh the CapEx in the operations.
4468307,356,3442.3799,3446.3301,15,inaudible if you wanna add something else inaudible jump in.
4468307,357,3446.3301,3448.7,16,than thank you Felipe.
4468307,358,3448.7,3451.4399,16,So so Frank uh good to hear you.
4468307,359,3451.98,3453.0298,16,I'll give you some color.
4468307,360,3453.03,3464.49,16,And and and initially i am gonna I'm gonna give you some broad uh group numbers that that provide context for the for the conversation and then some directional numbers associated to the plan which we're working on.
4468307,361,3465.3,3484.0999,16,I think I think the biggest headline is that as we as we look to refresh the plan twenty three twenty four in the context of a higher price environment and in the context of course of the of the production lag that we've seen this year clearly our our strategic intent is to increase production right?
4468307,362,3484.1001,3484.97,16,So direction.
4468307,363,3484.97,3487.46,16,What we wanna do with the upstream is to increase production.
4468307,364,3488.27,3506.3301,16,And and the good news is that the the result of the portfolio analysis that we've been having over the over over the last few months is one that indicates a stronger portfolio with more prospects with more possibilities and therefore with more with more value right?
4468307,365,3506.76,3523.3,16,To to give you an idea you know this year's plan compared to to last year's plan uh speaks about um maturing around one point five billion uh barrels of resources of three P resources right?
4468307,366,3523.3,3525.4302,16,That's the extent of the total portfolio.
4468307,367,3525.4299,3531.8,16,Last when we were looking at this number eighteen months ago it was more in the one point one kind of range.
4468307,368,3531.8,3535.3801,16,So we've actually seen a bigger portfolio to to work with.
4468307,369,3536.0,3552.4199,16,The second thing that we're seeing is that in the context of the full agenda of a performance plus and efficiencies and becoming more competitive and the like we're also seeing improved ratings and therefore a more value associated to the portfolio.
4468307,370,3552.4199,3564.3799,16,So directionally a portfolio that maybe a couple of years ago was worth and I'm talking about the growth component of the portfolio around $6 billion in in in n p v.
4468307,371,3564.53,3567.6699,16,it is now around nine billion dollars in n p v.
4468307,372,3568.03,3573.45,16,So where I'm trying to go here is is is that there's there's value to be had.
4468307,373,3610.0601,3613.3601,16,And and going back into sizing so this is this is…
4468307,374,3613.3601,3615.95,16,You know the opportunities are there and they're sufficiently mature.
4468307,375,3615.95,3617.4299,16,Let me give you a statistic here.
4468307,376,3671.54,3674.49,16,Obviously this is all subject to some fine tuning.
4468307,377,3674.49,3679.9099,16,And we're gonna have a more detailed conversation in February but that's that's where our head is right now.
4468307,378,3681.2,3690.3101,17,Frank and uh I i'll just add that um when when you look at our portfolio uh and years back our focus was uh the main and mature fields uh heavy oil fields.
4468307,379,3751.0,3751.6001,18,Thank you.
4468307,380,3751.6299,3753.22,19,Hello Felipe inaudible.
4468307,381,3753.22,3754.0498,19,Hope you're well.
4468307,382,3754.6201,3760.6799,19,Um I wanted to get your views on a couple of points.
4468307,383,3761.3601,3768.6799,19,Um first uh capital allocation and then on the return on capital employed.
4468307,384,3768.6799,3774.7998,19,In terms of capital allocation um you've already touched on CapEx.
4468307,385,3775.5901,3790.5601,19,Um I was wondering if you could also touch on deleveraging and uh and dividend payments um how you prioritize those given the very strong results in cash flow generation that you're having.
4468307,386,3791.1499,3797.46,19,And um also touch on the potential need for an equity offering.
4468307,387,3797.97,3816.05,19,Um and whether that equity offering if needed would be more to um supply ISA with capital to pursue uh inorganic growth or is it would it be more driven to just um strengthen the overall inaudible patrol financial position?
4468307,388,3816.6699,3821.8801,19,And then in terms of um return on capital employed which is an area where you've…
4468307,389,3821.8799,3835.3999,19,The company always stood out relative to your peers um with the addition of ISA that has great margins and and great return and capital employed I was just wondering if you could talk a little bit about where you see…
4468307,390,3835.77,3836.6499,19,Uh well let's see…
4468307,391,3837.1399,3841.5801,19,Maybe X ISA is going into uh two thousand twenty two please.
4468307,392,3841.8999,3846.3101,19,Thank you.
4468307,393,3848.2,3849.1101,15,Thank you Christian.
4468307,394,3849.1599,3850.3198,15,Uh hope you're doing well.
4468307,395,3850.78,3854.7698,15,So um so so let's talk about capital location and inaudible.
4468307,396,3854.77,3862.0,15,I I i would first start with kind of what is our what is our view of the of the world going forward in terms of price environment?
4468307,397,3889.27,3898.3501,15,You might recall that in the plan the plan that we're actually executing right now our our price assumption for this year was was around forty five dollars per barrel.
4468307,398,3898.73,3909.2,15,Next year we were looking at fifty dollars per barrel and that's something that we have been reflecting on and that we are going to update in our plans going forward.
4468307,399,3909.6101,3922.6001,15,So the outlook in which we are planning ahead is one where where where next year is at sixty three dollars per barrel and twenty three and twenty four at are at sixty.
4468307,400,3923.04,3926.01,15,These these this price that uh uh uh is still is still conservative.
4468307,401,3929.0,3929.4001,15,It's still conservative.
4468307,402,3929.3999,3933.72,15,Uh when you look at at the current you know uh uh headline price uh…
4468307,403,3933.72,3947.9099,15,But we believe that it kind of position us as well in a place where where we can retain our capital discipline capital and cost discipline whilst at the same time making sure that we don't leave opportunities uh on the table.
4468307,404,3948.96,3957.49,15,Uh the broader conversation around long term price uh uh uh in in this business we we still remain conservative.
4468307,405,3957.49,3962.21,15,We believe that that our all our projects need to fly at fifty bucks per barrel.
4468307,406,3997.0701,3998.5601,15,What is the balance that we wanna have?
4468307,407,3998.5601,4016.6499,15,The balance that we wanna have is one where we have a bit of space there to uh encourage them whether it's for inorganic opportunities that might arise uh and also to capture or to reflect in our consolidated balance sheet the the leverage that ISA eh might have.
4468307,408,4016.6499,4020.6802,15,Given that their ceiling is four point five times gross debt to EBITDA.
4468307,409,4020.99,4022.03,15,Why is that important?
4468307,410,4033.1201,4042.77,15,The more we look at it the more excited we are uh and and we definitely don't want capital to be a constraint for ISA's growth right?
4468307,411,4043.1101,4047.3201,15,So so we are comfortable with that range that inaudible operating in.
4468307,412,4047.8701,4054.3201,15,It's three point five to four point five times and we wouldn't have any problem with ISA going to the very top end of that range.
4468307,413,4055.05,4059.3601,15,Uh so with that uh our range of two point five kind of makes sense.
4468307,414,4059.46,4061.1401,15,That's ho that's how we're looking at this.
4468307,415,4061.1399,4064.97,15,Now on leverage we're not gonna stay uh uh put.
4468307,416,4064.97,4069.9001,15,We just had this liability management transaction we put two billion uh of our…
4468307,417,4070.3899,4071.99,15,inaudible of the near term.
4468307,418,4072.29,4075.0698,15,It was an expiry that we weren't gonna have in twenty twenty three.
4468307,419,4075.25,4079.9702,15,Now we kick that off into the future and we intend to do that uh more.
4468307,420,4079.97,4090.71,15,We believe that the the fundamentals of the capital markets right now and the results that inaudible are delivering allows to pursue more transactions like that into the future.
4468307,421,4090.71,4092.54,15,So directly that's how we're thinking about that.
4468307,422,4093.0701,4096.27,15,With regards to dividend payments you know our policy.
4468307,423,4158.98,4162.7002,15,Directionally right now it would be about strengthening the balance sheet.
4468307,424,4163.0098,4167.6699,15,It would be about reducing the depth that we have to to get into a more comfortable level.
4468307,425,4168.1899,4182.3101,15,Finally with regards to your question around inaudible uh you might have seen that we posted a a pretty solid inaudible ten point eight percent which is great you know uh going back to double digits.
4468307,426,4191.4102,4192.7402,15,And and and we're happy about that.
4468307,427,4193.1099,4212.3701,15,When you include ISA in the equation ISA is inaudible.
4468307,428,4212.3701,4224.6104,15,With ISA we are actually…
4468307,429,4234.6099,4235.2598,15,Thanks Christian.
4468307,430,4250.6299,4250.8999,18,Thank you.
4468307,431,4251.3999,4253.48,15,And um very very quickly.
4468307,432,4253.48,4257.1802,15,I'd just like to thank everyone for being here today at the conference call.
4468307,433,4257.1802,4265.5,15,And uh thanks again for following Ecopetrol for the interest that you've put into uh our activities and how we continue to make progress.
4468307,434,4265.9399,4268.0898,15,Very good results for the quarter.
4468307,435,4268.0898,4273.52,15,Uh very good results not only in terms of numbers but in terms of how strategically we continue to advance.
4468307,436,4282.4902,4283.5601,15,It's going very well.
4468307,437,4283.8301,4287.2803,15,We continue to make progress in our t e s g agenda.
4468307,438,4302.7598,4303.3501,15,foreign language.
4468307,439,4315.5098,4316.54,18,You may now disconnect.
4468639,0,36.36,42.28,0,If you go to ask a question during the q and a course of the day then you may do so by pressing one on your telephone keypad.
4468639,1,49.81,50.28,1,Thank you.
4468639,2,50.51,51.27,1,Hi everyone.
4468639,3,51.49,55.73,1,Uh thank you for attending SONAE'S q three Results Conference Call.
4468639,4,56.28,71.65,1,i'm joined today by inaudible from SONAE MC inaudible from Worten inaudible from SONAE Fashion inaudible from s o n a e Sierra Cristina Novais from SONAE Investment Management and obviously our Investor Relations team.
4468639,5,72.3,83.11,1,Uh as usual I will do a brief presentation with an overview of our performance in the quarter and also in the first five months of the year and afterwards uh we will open up the the session for a q a.
4468639,6,84.22,87.4,1,Um starting with the market context uh very briefly.
4468639,7,87.45,98.46,1,Um as you all know we continue to live under some restrictions and direct impacts from the pandemic during the quarter but already with very uh encouraging improvements over the last few months.
4468639,8,99.27,111.81,1,Uh the vac the vaccination rates in both Portugal and Spain um are quite high uh and therefore the public health context remains largely under control which enabled a gradual return uh to normality.
4468639,9,113.14,121.64,1,Before we dive into the operational performance um I would like to give you an overview of our mo most recent quarter photo management activity.
4468639,10,122.99,142.81,1,So this was a a particularly active quarter for s o n a e as we announced a major deal uh in the beginning of August by establishing a partnership with C D C uh in which we sold um twenty four point nine nine percent stake um of SONAE MC for initial upfront value of five hundred and twenty eight million euros.
4468639,11,143.62,145.02,1,We also acquired Gosh!
4468639,12,145.36,157.44,1,um a UK plant-based uh food manufacturer which allows SONAE to invest in a high-potential sector uh while expanding our international footprint and driving a more sustainable future.
4468639,13,158.0,175.14,1,And in addition and also during the quarter SONAE MC sold its fifty percent stake in Maxmat and SONAE IM monetized its interest uh in Bizdirect and cd four and also entered uh in the share capital of Sitcon.
4468639,14,176.8,181.29,1,So now going to the operational results um starting with SONAE MC.
4468639,15,182.24,197.08,1,For SONAE MC this was another positive quarter with a strong uh delivery from the food formats and also um a robust recovery of the non-food formats after a long period of restrictions which impacted these banners quite significantly.
4468639,16,210.96,219.42,1,Um in food retail we continued to gain market share and increased our leadership gap having posted positive like-for-like growth across all formats.
4468639,17,220.4,237.09,1,The online business also continued to grow having reached uh a forty percent year-on-year increase in the first nine months of the year proving that our digital approach is being well-recognized by our customers uh and also translating into higher loyalty levels which significantly impact store sales.
4468639,18,238.42,256.78,1,Regarding profitability uh SONAE MC maintained a broadly stable underlying EBITDA um margin of ten point nine percent in the quarter uh on the back of productivity gains and the permanent fine-tuning of its core uh business properties in spite of some pressures that were felt um in terms of energy costs.
4468639,19,257.51,268.22,1,In the first nine months uh of twenty twenty one underlying EBITDA improved six point one percent year-on-year overall to three hundred and eighty four million euros with a margin of nine point nine percent.
4468639,20,269.22,286.89,1,SONAE MC also continued to execute on its expansion strategy with seven additional Continente Bom Dia stores the proximity format but also refurbishing uh a a number of food retail units while uh investing in the reinforcement of its logistical capacity and also its technological background.
4468639,21,315.04,318.46,1,a hundred and fourteen million euros in the second quarter uh of this year.
4468639,22,319.24,323.84,1,So total net debt inaudible underlying EBITDA reached an all-time low of two point nine five.
4468639,23,325.78,326.65,1,Moving on to Worten.
4468639,24,326.65,330.97,1,Um at Worten q three was also a quite positive period for the business.
4468639,25,331.84,350.48,1,Um Worten ended the quarter with a seven point two percent like-for-like growth uh clearly showing the company's solid um and recognized omni-channel value proposition including the marketplace and and also a significant growth in the service's business mind leading to the the reinforcement of its leadership in Portugal.
4468639,26,351.42,362.3,1,In terms of total sales Worten reached two hundred and eighty five million euros in q three a slight decrease year-on-year of three percent which is basically explained by the repositioning of the operation in Spain mainland.
4468639,27,362.99,371.13,1,On the proforma basis so excluding um this movement uh consolidated turnover increased eight percent year-on-year in the quarter.
4468639,28,371.99,384.27,1,In year-to-date terms uh total turnover increased three point six percent year-on-year at twelve percent like-for-like increase uh just uh over reaching uh over just over eight hundred million euros in the first nine months.
4468639,29,385.54,397.58,1,The online channel continued to perform extremely well I would say um and at the end of the first nine months growth was already above thirty percent versus twenty twenty which was already an extraordinary year for our e-commerce operation.
4468639,30,398.17,403.24,1,So overall online sales grew by a factor of three since two thousand and nineteen.
4468639,31,435.03,446.71,1,Still total turnover reached ninety five million euros in the quarter a six percent year-on-year decrease which reflects a weaker-than-expected recovery of footfall in sales performance after the re-opening of stores uh in Portugal.
4468639,32,447.42,461.83,1,In year-to-date terms and despite all the restrictions to store operations in the beginning of the year SONAE Fashion's total turnover stood at two hundred and thirty million euros almost in line uh with twenty twenty um which is a positive sign in our view.
4468639,33,462.5,473.8,1,In terms of profitability I would like to highlight that SONAE Fashion was able to post an underlying EBITDA of eight million euros in the quarter which means that the year-on-year evolution in year-to-date terms is still quite positive.
4468639,34,475.87,484.79,1,As for Iberian Sports Retail Group uh the latest quarter shows another very positive set of results um both versus last year but also versus twenty nineteen.
4468639,35,485.58,495.31,1,Um total growth versus twenty nineteen actually reached thirty two percent um with the online channel remaining an important growth avenue for the company.
4468639,36,495.39,510.17,1,So total e-commerce sales increased by a factor of four since twenty nineteen and this is still before the consolidation of inaudible Village uh the acquisition that was made uh in um uh at the end of June beginning of July which will only impact revenues in the coming quarter.
4468639,37,511.02,530.4,1,So overall the last nine months um registered top-line levels above both last year and two thousand nineteen figures inaudible with total turnover reaching five hundred and ninety million euros a a double-digit increase uh of twenty six percent year-on-year um and of eighteen percent versus uh the nine months in twenty nineteen.
4468639,38,531.09,543.0,1,Regarding e b i t d a once again the top-line improvement was able to drive profitability upwards and in the last nine months EBITDA improved by fifty one million euros year-on-year and twenty million euros versus the same period of twenty nineteen.
4468639,39,543.44,548.5,1,So this resulted in an e b i t d a margin improvement um to eleven point five percent.
4468639,40,549.53,558.06,1,All in all the contribution of i s r g to SONAE's results in q three reached six point seven million euros above both twenty twenty and twenty nineteen figures.
4468639,41,558.96,573.28,1,Um this performance has carried on to August and September with i s r g showing growth and profitability enhancements uh in line with the ones that we saw in previous months across all channels and geographies.
4468639,42,576.65,591.4,1,Going forward and looking at SONAE Sierra s o n a e Sierra's uh operational activity showed um a steady progress during q three following the improvement of the pandemic context and also the relief of restrictions in uh our main European geographies.
4468639,43,592.15,604.02,1,In this context occupancy rates remained high uh and inaudible sales were already very close to two thousand nineteen levels in the European portfolio at the end of the quarter and in some assets even above twenty-
4468639,44,604.02,605.1,1,twenty nineteen level.
4468639,45,605.85,629.79,1,The service's uh business line delivered a positive evolution in the quarter showing significant signs of returning to a more normalized activity and if we look on a proportional uh accounting basis direct result in q three stood at twelve million euros in the quarter already practically in line with twenty nineteen and twenty three million euros in the first nine months of the year which compares with five million euros last year.
4468639,46,630.71,643.95,1,Uh indirect result in the quarter was practically flat as we typically do not revalue assets in q three and all in all net income reached six million euros in the first nine months of the year which represents a year-on-year increase of twenty six million euros.
4468639,47,644.97,652.6,1,N E V increased marginally to nine hundred and thirteen million euros and L T V remained at quite conservative levels.
4468639,48,654.88,663.72,1,At SONAE Financial Services the performance was uh overall positive in operational terms and the main leading indicators showed sustained improvements.
4468639,49,669.76,685.02,2,The universal operation uh continues to increase its customer base and the number of cards uh issued the number of users reached um uh circa nine hundred and thirty six thousand uh an increase of twenty three thousand versus the previous quarter.
4468639,50,685.63,694.53,2,And the efforts to develop the digital front continued and today uh circa sixty percent of Universal card clients are already digital users.
4468639,51,695.29,706.84,2,The market share uh in the Universal card continued to increase and reached fourteen percent year on year in Portugal at uh year to date which compared to thirteen point five percent for the same period of last year.
4468639,52,707.65,717.31,2,And for the financial results Sonae FS delivered a total consolidated turnover of nine million euros in the quarter in line with last year and only slightly below below twenty nineteen.
4468639,53,717.96,727.44,2,In terms of profitability results are still subdued given the transition stage which we are uh living in um going into the new business model with Banco C T T.
4468639,54,728.44,740.91,2,Uh a special note to M B S which has been posting very positive results uh with significant increases both in top line and operating profitability when compared to twenty twenty and also to twenty nineteen.
4468639,55,741.49,759.19,2,So all in all in proportional terms and considering the fifty percent stake in M B S turnover for the first nine months of the year stood at forty nine million euros slightly below last year and underlying EBITDA was practically nil uh given uh the transition space I mentioned before uh at Sonae FS with Banco C T T.
4468639,56,761.62,762.92,2,Moving on to Sonae IM.
4468639,57,763.08,774.77,2,q three was another quarter with important developments in the portfolio management front with the conclusion of the sale of Biz Direct and cb four during the quarter which resulted in capital gains of around ten million euros.
4468639,58,775.69,786.23,2,And also in the first nine months of the year uh Sonae IM concluded the acquisition of a minority stake in a new company Sitcon which specializes uh in technology for retail.
4468639,59,787.01,802.62,2,In terms of operational performance Sonae IM recorded better top line and underlying EBITDA fi- figures versus 2020 and in the first ni- nine months of the year total turnover increased by six point four percent year on year to forty three million euros and underlying e b i t d a also continued to improve.
4468639,60,803.58,813.42,2,So today with a total cash invested of 150 million euros in the current portfolio as of September the company's N E V amounts to three hundred and twenty four million euros.
4468639,61,816.03,820.08,2,Um moving onto Norges.
4468639,62,832.22,839.13,2,Turnover amounted to three hundred and sixty six million euros in q three five point six percent um above last year.
4468639,63,839.71,850.35,2,The second consecutive quarter of growth since the fourth quarter of twenty nineteen leading to a turnover increase of three point one percent year on year in the first nine months just above one billion euros.
4468639,64,851.14,867.23,2,Profitability followed the same trend with an EBITDA increase in in q three of six point six percent year on year um in year to date terms one point four percent to four hundred and seventy eight million euros which leads to a margin of forty six percent.
4468639,65,868.38,884.57,2,Net income increased by two million euros year on year to forty six million euros in q three an increase by more than fifty percent in year to date terms um to a hundred and twenty million euros in the first nine months uh which obviously implies an increased contribution to our account.
4468639,66,885.81,895.18,2,The company continues to show a conservative leverage profile with a net debt inaudible after lease payments of 1.7 times and maintains an investment grade profile.
4468639,67,895.98,917.65,2,I would obviously like to highlight that already in October and after two hundred days of bidding the auction for the allocation of the five g frequencies ended with Norse acquiring the largest fraction of the spectrum released uh and in all possible bands which positions the business very well to lead the five g revolution in Portugal.
4468639,68,948.86,965.6,2,Total EBITDA in the first uh nine months of the year was positively impacted by the capital gains uh that I mentioned before related with the sale of inaudible and also the sales of Biz Direct c b four and Article which happened in q two inaudible.
4468639,69,966.14,983.12,2,All in all EBITDA reached five hundred and thirty one million euros spending significantly above last year driven by the better underlying operational profitability uh but also obviously by the significant level of capital gains and the recovery of equity methods consolidating businesses.
4468639,70,997.41,1006.81,2,All in all net income reached a hundred and fifty eight million euros um this year significantly above last year's figure but also significantly above twenty nineteen.
4468639,71,1008.12,1015.13,2,In terms of operational cash flow Sonae inaudible released a total of a hundred and twenty million euros dur during the last twelve months.
4468639,72,1015.85,1042.71,2,Uh if we add to this the free cash flow generated in our portfolio management activity Sonae's free cash flow before dividends paid stood at five hundred and fifty five million euros in the last twelve months which after the dividend payments uh which occurred last May led to a significant decrease in our consolidated net debt to eight hundred and fifty eight million euros uh at the end of September and to an all time low L T V of nine percent.
4468639,73,1043.63,1055.9099,2,This uh solid capital structure uh is obviously complemented with a comfortable financing position with a low cost of debt of one point one percent and an average maturity profile of three point four years.
4468639,74,1056.91,1058.6899,2,So this is it from me for now.
4468639,75,1058.72,1061.26,2,Um I will now open the session to q and a.
4468639,76,1061.47,1062.0699,2,Thank you very much.
4468639,77,1063.98,1066.4199,3,Ladies and gentlemen the q and a session starts now.
4468639,78,1066.86,1071.1,3,As a reminder if you wish to ask a question please press star on your telephone keypad now.
4468639,79,1071.9301,1075.1499,3,When preparing to ask your question please ensure your device is unmuted locally.
4468639,80,1079.11,1082.34,3,Our first question comes from Joao Pinto from JB Capital.
4468639,81,1082.54,1084.27,3,Joao your ni line is now open.
4468639,82,1085.79,1086.63,4,Hello everyone.
4468639,83,1086.86,1088.09,4,Thanks for taking my questions.
4468639,84,1088.38,1094.0499,4,Um firstly on capital allocation what do you intend to do with your own shares?
4468639,85,1094.63,1100.96,4,Will you keep them to use as liquidity inaudible in the future or would you consider um a cancellation?
4468639,86,1101.95,1108.64,4,Secondly also on capital allocation uh following the Sonae MC deal I imagine you're looking for alternatives to invest.
4468639,87,1108.92,1119.28,4,Um we know you you are not in a rush but can you tell us if you are already seeing good candidates to acquire including the sectors or nothing in the pipeline at the moment?
4468639,88,1120.27,1122.3201,4,Uh third on Sonae MC.
4468639,89,1122.38,1125.52,4,Uh like for like inaudible despite the discounts.
4468639,90,1125.78,1139.65,4,Um can you tell us if it remained positive in October and also on Sonae MC can you give us some color on OpEx pressures in the competitive environment and how do you see margin evolving next year?
4468639,91,1140.26,1140.5,4,Thank you.
4468639,92,1143.66,1144.3199,2,Thank you Joao.
4468639,93,1144.63,1151.34,2,Uh for your questions uh I will take the uh the first ones and then I'll I'll ask inaudible to comment uh on the finance-y one.
4468639,94,1152.5601,1156.3101,2,So in terms of capital allocation and and starting with uh the owned shares.
4468639,95,1157.05,1171.12,2,Look the the t r s cancellation was um basically a financing decision and so as as you know the the equity SOP um that we had with uh Banco B T I was a financing uh arrangement.
4468639,96,1171.25,1187.84,2,And obviously with the significant cash flow seeds uh that we received in recent months uh we had to um um optimize our credit facilities and this is one of the operations that we decided to terminate uh given um uh the analysis that we made.
4468639,97,1188.71,1192.1599,2,Um so these shares uh and a lot of TV shares were already…
4468639,98,1192.16,1194.78,2,in accounting terms they were already considered as own shares.
4468639,99,1195.35,1202.03,2,Um and uh and and they were also in practice our shares as we were exposed economically to the variation uh of of the shares.
4468639,100,1202.52,1205.2899,2,And so in that regard nothing really changes for us.
4468639,101,1205.34,1211.28,2,So basically we terminated a financing arrangement and those shares um are um…
4468639,102,1211.52,1212.96,2,uh remain as our own shares.
4468639,103,1212.96,1220.9,2,And so we do not have any changes in the in the outlook and uh and and the possible usage of these of these shares going into the future.
4468639,104,1222.36,1229.47,2,Um and so the…
4468639,105,1232.1,1249.0,2,from the C V C transaction and the alternative um possible uses for those cash proceeds I mean uh you're right uh I think we have discussed this in the past um we we do not have or we didn't have at the time of the transaction any specific use for those cash proceeds.
4468639,106,1249.73,1253.3101,2,Uh that was not uh the main rationale uh to do the transaction.
4468639,107,1253.87,1267.2001,2,And we will remain as I said before very uh disciplined um in looking at alternative um investment opportunities uh and we will look at the opportunities that make sense for us with a long term perspective.
4468639,108,1268.08,1275.78,2,Um obviously we do have uh identified opportunities in our current portfolio to invest and we will continue to invest in our current portfolio.
4468639,109,1276.45,1279.4501,2,And we are also looking at opportunities outside of the current portfolio.
4468639,110,1279.45,1283.74,2,We just announced recently the investment um in GOSH which is a sector which we like.
4468639,111,1283.9399,1290.03,2,Um the inaudible sector is a sector which we believe has a lot to do with Sonae has a lot to do with who we are.
4468639,112,1291.1,1291.61,2,Uh it's a…
4468639,113,1291.61,1292.2,2,And we are…
4468639,114,1292.23,1292.7799,2,We will pro…
4468639,115,1292.78,1301.37,2,We will continue to look uh for opportunities uh in that segment but also in other segments that that somehow relate to us and where we feel that we have a right to play.
4468639,116,1308.52,1308.87,5,Sure.
4468639,117,1309.0,1310.5,5,Uh Joao hi.
4468639,118,1310.5699,1311.16,5,How are you?
4468639,119,1311.16,1312.7,5,And thank you for your question.
4468639,120,1341.3,1346.5601,6,Well uh will continue for sure uh uh uh as aggressive as it is today.
4468639,121,1367.46,1370.6899,6,It's and to us with a very good uh very good results.
4468639,122,1372.86,1373.2,7,Thank you.
4468639,123,1373.28,1380.89,7,With just a follow up on that one are you seeing inflation in negotiations with suppliers and energy costs logistics?
4468639,124,1382.09,1382.25,6,Yeah.
4468639,125,1382.25,1382.7201,6,Good point.
4468639,126,1383.74,1383.88,6,Yeah.
4468639,127,1385.14,1397.4401,6,Yeah well uh at now uh the what what is happening is that the in fact the enzig- energy costs uh uh and transportation costs uh are the the costs are increasing heavily.
4468639,128,1397.4399,1405.77,6,But n not yet having a dramatic uh uh dramatic uh costs uh dramatic point of view in terms of the cost structure.
4468639,129,1406.5699,1424.58,6,But if costs continue to to evolve the way that we are seeing and we are witnessing in the last months yeah for sure that we that uh all retailers will will will need to consider those uh cost evolutions in their their the prices that that they are they are uh offering to to the customers.
4468639,130,1424.79,1425.3101,6,Obviously.
4468639,131,1428.12,1428.6599,7,Very clear.
4468639,132,1428.8199,1429.14,7,Thank you.
4468639,133,1437.65,1439.0801,9,Jose your line is now open.
4468639,134,1440.5601,1441.2799,10,Uh yes.
4468639,135,1441.35,1441.5599,10,Hi.
4468639,136,1442.17,1443.1001,10,Uh good afternoon to all.
4468639,137,1464.6801,1489.42,10,If you can share some uh some data on these channel economics namely if it's already marching positive and if it not if it's not what is needed for this part of the business to to start to have a positive contribution to hm to PPTI?
4468639,138,1503.29,1512.05,10,Um and and also uh on inaudible uh in terms of marketplace strategy if you can uh share any insights?
4468639,139,1516.0,1528.23,10,And uh and finally I I think that uh inaudible mentioned that the online channel has also been performing very well.
4468639,140,1537.46,1537.99,11,Very good.
4468639,141,1539.45,1542.1499,11,Uh let's do this let's do this in order.
4468639,142,1542.73,1548.6001,11,I'm I'm I'm listening to a bit of noise so not sure if everyone can mute?
4468639,143,1551.9399,1552.6399,11,Okay.
4468639,144,1553.4399,1553.92,11,Better now.
4468639,145,1554.0601,1555.85,11,Um so let's take this in order.
4468639,146,1556.0,1559.66,11,Let's start with with inaudible's questions and then Paolo will take the inaudible.
4468639,147,1562.16,1563.03,12,Hi inaudible.
4468639,148,1563.03,1563.86,12,Well how are you?
4468639,149,1607.84,1611.65,12,And they are offering us very high levels of EBITDA of e uh e b i t d a.
4468639,150,1613.11,1617.7201,12,Meaning they are very profitable meaning that the online is also very profitable to us.
4468639,151,1618.6801,1619.7,12,Uh yes.
4468639,152,1619.87,1643.5601,12,The on uh the online business as um uh as as it is uh well if we only consider the the acquisition and the the the purchasing that the our customers do in the online we're fighting to get well we are almost fighting to to to break even in terms of e b i t d a.
4468639,153,1651.2,1654.5701,12,So we see that these operation has been very profitable in fact.
4468639,154,1659.0601,1660.7999,12,I don't know if I answered to your question?
4468639,155,1664.26,1665.0701,11,That's very good.
4468639,156,1665.51,1666.3199,11,Uh I think so.
4468639,157,1671.33,1673.8999,13,Okay um good afternoon to you all.
4468639,158,1771.95,1773.3101,13,If it's profitable?
4468639,159,1773.96,1776.54,13,Uh yes it's.
4468639,160,1779.97,1781.45,13,Uh we don't have stores.
4468639,161,1808.23,1818.65,13,Uh and in market share so very healthy um operation offline.
4468639,162,1852.9,1853.24,14,Hi.
4468639,163,1853.38,1854.39,14,Good afternoon everyone.
4468639,164,1854.45,1856.0801,14,I have two questions if I may.
4468639,165,1856.59,1864.1599,14,I would like to know if it's possible to disclose the market share of inaudible IMC and inaudible since you have been uh repeatedly gaining market share.
4468639,166,1864.99,1867.87,14,Uh and if possible uh number two and number three.
4468639,167,1867.87,1879.0,14,In terms of players um and I also understood um that uh this partnership with the CTT has changed the the me the business model of inaudible uh Financial Services.
4468639,168,1879.08,1882.76,14,So when can we expect positive e b i d t a for this addition?
4468639,169,1883.1899,1884.99,14,And thank you for taking my questions.
4468639,170,1910.8,1917.89,11,Uh and so previously with with a partnership with b n p we had a commission which was uh which we charged uh upfront.
4468639,171,1918.48,1921.9701,11,Uh for the generation um of um of credit.
4468639,172,1922.67,1923.5399,11,Uh of loans.
4468639,173,1923.66,1933.51,11,Uh and so and now we are basically building um uh a credit um um we are building a uh uh a credit along the time.
4468639,174,1945.11,1946.9399,11,Going into your question uh directly.
4468639,175,1947.08,1960.6599,11,Uh this is temporary uh and we expect uh to reach posit positive levels of EBITDA uh in the next few quarters and reach the same level of profitability at least that we had uh historically uh in the next twelve to eighteen months.
4468639,176,1961.0699,1964.1901,11,Uh depending uh obviously on the evolution of the business.
4468639,177,1964.3,1970.89,11,Uh and obv obviously also the restrictions that are still in place and that also affect our financial services activity.
4468639,178,1972.15,1972.25,14,Okay.
4468639,179,1976.5601,1980.47,11,Uh inaudible Paolo can you uh shed some light uh on the question that Artur posed please?
4468639,180,1983.1899,1983.47,6,Uh.
4468639,181,1983.86,1984.5199,15,Okay sure.
4468639,182,1986.34,1996.12,15,Hi inaudible well it is a very difficult issue to approach.
4468639,183,1997.9399,2005.78,15,There are several institutions well there is no institution giving us the proper figures for market share for Portugal.
4468639,184,2005.8101,2015.45,15,What we generally use is some internal research regarding the market share evolution and also the information from Nielson.
4468639,185,2015.45,2034.25,15,Nielson generally gives us the market share variation and in fact we're growing in terms of market share 30 business points comparing to two thousand twenty and almost one percentile point comparing to two thousand nineteen which is amazing.
4468639,186,2036.04,2050.0698,15,For instance the other inaudible in Portugal is growing 20 business points in terms of market share according to Nielson but losing two percentile points against two thousand nineteen.
4468639,187,2052.1499,2063.3201,15,Well then we have other players losing market share like for instance inaudible is losing market share.
4468639,188,2065.52,2071.03,15,And little growing market share is growing roughly forty business points in terms of market share.
4468639,189,2088.8601,2096.28,15,We feel very confident to assume that we according to last years we will continue to gain some market share.
4468639,190,2097.8899,2105.8301,16,So just a little follow up the gap between player number two in this case Unknown Name has been widening?
4468639,191,2132.6201,2133.9399,15,We are gaining market share.
4468639,192,2135.76,2140.01,15,This year we will continue to gain some market share comparing to the figures that we were having last year.
4468639,193,2141.3101,2141.77,16,Very cl ear.
4468639,194,2260.99,2262.4099,18,No we don't have that information.
4468639,195,2263.1599,2265.7,16,Okay thank you very much.
4468639,196,2266.53,2274.6599,17,I think it is also fair to say that our online market share is also close to our offline market share.
4468639,197,2288.7,2289.0598,16,Thank you.
4468639,198,2300.3899,2305.3098,20,I would love to know thank you for taking my question and the questions for the speakers.
4468639,199,2308.95,2317.1599,20,I have two questions the first one is inaudible if you have any information that you can provide us regarding the inaudible process?
4468639,200,2317.9299,2321.79,20,Do I need to finish or what are your thoughts about it?
4468639,201,2346.25,2347.1101,20,Thank you very much.
4468639,202,2349.3701,2350.0398,17,Thank you Antonio.
4468639,203,2350.4399,2355.5,17,So on inaudible the answer is a quite straightforward one it's no.
4468639,204,2355.95,2358.22,17,We don't have any developments of the judicial front.
4468639,205,2359.25,2363.8801,17,So unfortunately the situation remains the same.
4468639,206,2364.02,2372.3,17,Again as we said before the company has not been affected by this by any means.
4468639,207,2372.3,2379.8499,17,The company as you can see by the results is still operating continues to operate normally and execute it is strategy.
4468639,208,2380.52,2387.1799,17,And the five g option was a very important milestone in terms of strategy as far as execution and something that we wanted to ensure.
4468639,209,2395.4199,2410.9099,17,Obviously we would like the judicial system to evolve and to enable us to execute what we have announced to the market already a year ago but unfortunately up to now we don't have any more developments to communicate.
4468639,210,2411.72,2419.5498,17,Regarding the financial structure and the possibility of an extraordinary dividend.
4468639,211,2437.4299,2440.03,17,I would use that as your base scenario going forward.
4468639,212,2440.03,2445.55,17,We have a very steady and stable dividend policy we believe that it is a very attractive one with a very interesting dividend yield.
4468639,213,2446.9099,2453.8,17,So I would not expect an extraordinary dividend but it's a question to be discussed at the end of the year.
4468639,214,2453.8,2461.8699,17,Obviously we are still in November and that would take that assumption as your base.
4468639,215,2464.5801,2472.21,20,Regarding inaudible your intention to break down the joint venture it still remains viable yes?
4468639,216,2473.3899,2476.47,17,Yes yes so we have not changed our intention.
4468639,217,2477.3501,2480.53,17,Not only our intention but our agreement with our partner to do so.
4468639,218,2480.76,2497.1001,17,So we have reached an agreement over a year ago to dissolve the partnership and that is still our intention and making sure that we have no issues with the judicial authority.
4468639,219,2497.74,2501.26,17,And that the dissolution can occur in the smoothest way possible.
4468639,220,2501.3701,2507.98,17,And that is why we have been patiently waiting for that possibility to occur.
4468639,221,2509.0,2511.55,17,Up until now things are still a bit tied up.
4468639,222,2512.9299,2513.1599,20,Okay.
4468639,223,2519.74,2520.8201,20,Thank you very much.
4468639,224,2526.99,2528.1899,17,Thank you Antonio.
4468639,225,2538.73,2549.8,17,Next time we speak we'll be on the back of the yearly results which we continue positive that will maintain the positive trend that we have seen up until now.
4468639,226,2550.46,2553.3799,17,Thank you very much for listening and see you next time.
4468639,227,2555.3501,2556.48,16,This concludes today's event.
4468639,228,2556.8601,2558.73,16,We thank you all for your presence today.
4468639,229,2558.97,2569.2998,16,Ladies and Gentlemen you may now disconnect your lines.
4468647,0,43.8,136.5,1,Here with me we have our Group C F O Cristiano uh Borean.
4468647,1,1454.02,1454.4301,10,Thank you.
4468647,2,2223.97,2224.1499,17,Please.
4468647,3,2232.8601,2233.6401,18,Sorry.
4468647,4,2251.04,2251.3,17,Yes.
4468654,0,3.45,4.08,0,Good afternoon.
4468654,1,4.52,6.77,0,This is the classical conference operator.
4468654,2,48.86,56.51,1,As usual I will make a few comments about the business um in more qualitative and then Mr.
4468654,3,56.51,61.56,1,Pedron the C F O of the company is gonna take all of us through the numbers.
4468654,4,62.31,69.41,1,Now uh this is the first quarter where uh we also have Luminex included in our numbers.
4468654,5,69.44,78.68,1,So uh in order for everybody really to understand how the business is trailing I'm gonna make my comment uh without Luminex at the beginning.
4468654,6,78.68,83.04,1,And then I'm gonna give some uh remarks on the Luminex performance.
4468654,7,83.76,98.65,1,So uh if we look at the the business at constant exchange rate and without Luminex in quarter three the growth was ten percent versus uh q three of twenty twenty.
4468654,8,99.92,120.98,1,Um if we look at the different technology uh CLIA ex-Vitamin D had an outstanding performance plus thirty percent and we are gonna see that this is the result of a successful placement in all the different uh geographies primarily US and Europe.
4468654,9,122.62,141.3,1,And the program that today are driving the success of our CLIA business are the specialty and the stool program together with the the TB deployment and the program that we're running together with QIAGEN to convert and grow the TB franchise around the world.
4468654,10,142.14,160.23,1,Vitamin D uh is down eight point seven percent and this is clearly related to the Quest loss that happen in twenty twenty at the at the end of twenty nineteen and and now is is in full effect starting for from this quarter.
4468654,11,160.84,176.28,1,As far as molecular is concerned the business overall grew five point five percent versus last year clearly the vast majority of the business uh is uh COVID related and I'm gonna make some comments about the COVID uh later on.
4468654,12,177.19,181.25,1,Now if we deep dive into the geographies and we start from Europe.
4468654,13,181.35,186.31,1,Uh Europe grew actually twenty percent uh year-over-year uh quarter-over-quarter sorry.
4468654,14,187.23,192.08,1,CLIA is including Vitamin D so all in is up eighteen percent.
4468654,15,193.55,220.25,1,COVID molecular is up thirty percent versus uh quarter three in twenty twenty and this is uh due to the fact that uh as I think uh many other operators in this industry have already commented about the European uh COVID business has been uh uh more f flat and so less uh affected from volume uh increase or decrease over the last few quarters.
4468654,16,221.08,247.32,1,Uh we do have an install base of of MDX systems which today sits primarily in Italy uh in Spain in in in France and this is due to the fact that uh when we had to launch the system uh during the COVID pandemic we clearly gave uh to these geographies a preference over other geographies due to the limitation in number of systems that we could manufacture.
4468654,17,247.32,257.51,1,Today that the install base in Europe fits into primarily into hospitals and it is used to triage uh uh in patients.
4468654,18,257.51,276.27,1,it's used on symptomatic and therefore today we are not at risk of losing some of the volume that typically was was related to screening of a symptomatic that was happening in the high throughput platforms in the core labs.
4468654,19,277.37,288.53,1,When it comes to uh US and Canada uh the business overall is flat but I think we need to read uh uh between the lines uh in terms of how technologies are performing.
4468654,20,289.16,294.54,1,CLIA is up thirty six percent versus quarter three last year.
4468654,21,294.57,306.98,1,Again deployment of the hospital strategy with the the TB product at and the stool again and all the specialties that are really leading the charge is is allowing us to penetrate this segment.
4468654,22,307.74,324.02,1,If you remember at the end of two thousand nineteen we had invested five million dollars in creating a a dedicated sale force for this segment and I think that today we are reaping the benefit of the fact that we do have a a manual product that fit very well the space.
4468654,23,324.23,329.89,1,Uh the TB is certainly a product that is interesting in this space.
4468654,24,329.89,343.04,1,Today there is lots of send out in that space that due to the viability of datas on XL now hospitals can bring in house and save money versus uh versus the se send out opportunity.
4468654,25,343.04,346.71,1,So overall the CLIA strategy is working very well in the US.
4468654,26,346.71,350.2,1,It is becoming our primary geography around the world.
4468654,27,350.73,357.62,1,When it comes to the molecular business in the US is flattish.
4468654,28,357.62,361.59,1,it is decreasing I believe one percent versus q three last year.
4468654,29,361.59,376.45,1,And this is due to the fact that there has been a softening of volumes clearly from the peak that the the over the industry enjoyed in q one of twenty twenty one.
4468654,30,377.73,396.81,1,I think what is noteworthy is that when it comes to the instrument sales we are €7 million down versus last year and this is explainable by the fact that all the emergency funding that was available in in twenty twenty uh to to buy instruments and now it it it it it really dry down.
4468654,31,397.29,400.45,1,And so today we are we are we're converting CLIA.
4468654,32,400.45,402.82,1,We are not selling systems any lo any longer.
4468654,33,402.82,423.02,1,We are placing system under the inaudible rental business model which is what as you know we've always been doing uh before the COVID pandem- pandemic and emergency funds became available so overall the business is flat but the CLIA is clearly it is very successful in the US.
4468654,34,424.05,431.66,1,Now if we move to China year-to-date is plus twenty eight percent quarter three is plus five percent.
4468654,35,431.66,444.26,1,So we see that in China there is a recovery compared to uh the the debacle of twenty twenty although I believe that uh there are a couple of things that are not working in the geography.
4468654,36,445.68,461.46,1,First thing is that there is volatility in testing volumes and this has to do with the fact that uh in order to fight the pandemic uh there are continuous lockdowns in different provinces and cities and every time there's a lockdown certainly their routine testing is suffering.
4468654,37,462.01,473.08,1,The second effect that is not worth it that we start to see as everybody else price affected due to the fact that these provincial tender are entering into effect.
4468654,38,473.77,483.82,1,There has been a report which has been issued a couple of days ago by one of the primary research firms in the US.
4468654,39,483.86,496.83,1,It was actually saying something interesting about the standards DiaSorin has been one of the companies that has been on the winning side so we won a certain number of provincial tenders.
4468654,40,496.83,518.3,1,o o uh although it is very clear that the pricing structure for some of the routine assays like the thyroid and oncology products that today are really suffering uh the uh competition from local manufacturer the price structure certainly is very different from what we used to enjoy when we were going to each hospital offering our products.
4468654,41,518.3,542.28,1,So I believe that as far as China is concerned and uh as uh other uh manufacturers uh have expressed in the last few days I believe that the future uh for China is quite um uh uncertain and and quite difficult really to predict what is gonna happen in the next few qua few quarters in this geography.
4468654,42,542.37,575.62,1,So I believe that from an overall geographical perspective though today the US do represent fifty percent of the DiaSorin business and strategically if you remember when we were commenting about the Luminex acquisition one of the reason why we want we bought Luminex is is because we strongly believe that the the market today guarantees um growth good pricing and very inaudible for innovation in the US and DiaSorin is very well position to uh enjoy these opportunity again through the Luminex acquisition.
4468654,43,576.21,580.32,1,Now uh i uh i am gonna talk about COVID a little bit.
4468654,44,580.52,582.26,1,The elephant the elephant in the room.
4468654,45,582.7,589.86,1,So today COVID including Luminex and again sorry for for for for changing the perimeter but I think this is important.
4468654,46,589.86,596.3701,1,COVID for DiaSorin does represent today thirty percent of the overall business.
4468654,47,597.82,603.45,1,Year-to-date the business has been growing nicely around fifty five percent fifty seven percent.
4468654,48,603.59,617.54,1,Uh when it comes to the last quarter it's uh plus five percent certainly with different dynamics about uh between the US and Canada and Europe which I've been discussing before.
4468654,49,618.17,649.48,1,it's quite difficult to predict in my opinion what is going to be happen to COVID as I think again other operators have been commenting in their in their quarterly results and so uh but today uh again when it comes to Europe we see a steady demand and when it comes to the US we certainly see a decrease in testing volume compared to peak of around thirty percent but the demand is uh at this point relatively flat uh in the last two to three months.
4468654,50,649.83,661.37,1,Okay so we now need to really wait and see what is gonna happen during the uh uh upcoming flu flu season or uh respiratory season.
4468654,51,662.61,670.21,1,Uh today uh I always provided you with uh also volume testing volume in terms of manufacturing.
4468654,52,670.21,674.01,1,Today is a combination of DiaSorin and Luminex.
4468654,53,674.32,680.79,1,We are shipping roughly one million tests a month of of COVID of COVID products.
4468654,54,682.37,686.45,1,Um then uh I'm gonna make a comment about Luminex.
4468654,55,686.45,697.0,1,Uh as you know uh we have incorporated now Luminex uh for the full quarter and roughly €19 million of revenues in the in the quarter.
4468654,56,698.68,702.46,1,Uh the acquisition uh has been completed in July.
4468654,57,702.5,706.26,1,Since then uh we have started to work with the Luminex management on the integration.
4468654,58,709.08,725.62,1,Uh we have recently announced the new organization where we do have uh uh now a management team that uh is a combination of DiaSorin and Luminex managers that will have the responsibility to lead um the company forward.
4468654,59,726.42,754.78,1,We are completing the integration plan uh that will be presented to the board of directors in December and it is going to be disclosed as part of the December seve seventeen investor day when in broad terms we're gonna talk about what we intend to do with Luminex and how we intend to leverage all the assets that actually Luminex has brought to DiaSorin.
4468654,60,755.9,768.3,1,I make one more comment about the inaudible Two platform that as you know is one of the key platforms or key technologies that we acquired it through this acquisition.
4468654,61,769.15,777.55,1,We uh intended we are planning uh to have a soft launch of the inaudible Two in twenty twenty two ex-US.
4468654,62,778.12,787.18,1,So in Europe and then we're gonna have all the submissions um in the US where we expect to launch the platform in twenty twenty three.
4468654,63,788.49,821.81,1,The platform is gonna be renamed so the inaudible Two name is gonna be soon abandoned and it's gonna be substituted by the new name which is Liaison Plex and this is become there because uh this platform does complete the product portfolio of DiaSorin that I remind you is gonna be made of the M D X Plus which will will be the platform that can can offer small plexes the Liaison Plex which will be the one that will allow us to develop high complex panels.
4468654,64,822.37,852.23,1,And the Liaison Nes that will be the one that we uh are going to use uh for the decentralization of molecular testing alongside the ARIES platform which is the legacy uh from uh a Luminex legacy platform from lum from Luminex that today is has been successfully launched in Europe in uh sorry in the primarily in the US with an install base of roughly seventy systems today placed in some European countries.
4468654,65,853.42,872.34,1,One thing that is uh worth noting is the fact that uh when we look at the the the customer base in the US uh um what is very interesting is that Luminex is primarily o offering its products I'm talking about the inaudible products to the hospital market.
4468654,66,872.86,902.54,1,There are over seven hundred hospitals that uh the uh company is uh is is selling to in the US and uh uh DiaSorin has roughly 250 hospitals that we're uh uh serving and supporting and the interesting part is that uh only seventy hospitals in the US are overlapping and so we believe that uh there is uh a very interesting opportunity for cross selling products in this hospital base.
4468654,67,902.63,911.36,1,You know that DiaSorin made of the hospital segment one of its primary target to develop the US uh market.
4468654,68,912.04,945.94,1,The reason why the there there is there there is no overlap between the two companies is because DiaSorin did develop its installed base using inaudible on XL is on XL certainly requires um certain testing volumes in immunoassay and the hospitals that uh typically were running uh this volume were large uh institutions in the US whereas as far as Luminex is concerned they've been serving this market really starting from a mid-low throughput system which is the the inaudible platform.
4468654,69,945.94,957.68,1,The inaudible One platform and the inaudible and therefore they traditionally have developed their business in the mid uh segment midsize segment uh uh in the US.
4468654,70,957.71,962.51,1,And and in this provides a phenomenal opportunity in my opinion uh inaudible on access.
4468654,71,962.64,984.11,1,As you know we are waiting for the approval of the TB assay on the on the access we already have all the um the other uh products the stool products and the TT team already ready to go and as soon as uh TB is gonna be migrated there and we expect to uh hear something from the F D A by year end.
4468654,72,985.67,986.82,1,Then we're ready.
4468654,73,986.82,1003.95,1,We have an available uh uh market of uh uh over almost seven hundred uh institutions that we can go and sell the access to so I'm very excited about this cross selling uh opportunity that the Luminex acquisition uh has provided to us.
4468654,74,1005.08,1013.62,1,Now uh I think now I'm going to turn the microphone to uh to Piergiorgio and he is going to take you through the financials.
4468654,75,1013.62,1016.7,1,And then we're gonna open up uh the session the q and a session.
4468654,76,1016.7,1017.02,1,Thank you.
4468654,77,1019.27,1021.09,2,Thank you Carlo and good morning.
4468654,78,1021.09,1022.77,2,Good afternoon everybody.
4468654,79,1022.95,1030.9501,2,In the next few minutes as usual i am going to walk you through the financial performance of DiaSorin in the first nine months of twenty twenty one.
4468654,80,1031.74,1043.3099,2,And I will also make some remarks on the contribution of the third quarter and on the impact of the Luminex business whose acquisition has been completed on July the fourteenth.
4468654,81,1044.3199,1049.51,2,Again please note that we are consolidating the full quarter of Luminex into Diasorin financials.
4468654,82,1050.26,1055.76,2,So said that I'd like to start with what I believe are the main highlights of this period.
4468654,83,1086.37,1100.5601,3,The revenue that is reported so at current exchange rate and with the continuation of about ninety one million Euro to Luminex business due by forty one percent here today and fifty one percent in the quarter.
4468654,84,1101.26,1110.98,3,The goal at constant exchange rate and it's corporate consolidation in the nine months is twenty nine percent and ten percent in the quarter.
4468654,85,1112.0,1120.17,3,These numbers as we would see uh in line with higher range of the guidance we provided in July.
4468654,86,1120.88,1133.1599,3,q three twenty one growth margin at sixty five percent is below last year which closed at sixty eight percent because of the expected delusion of the Luminex business.
4468654,87,1134.48,1140.04,3,The year to date margin at sixty eight percent is substantially in line with twenty twenty.
4468654,88,1141.21,1153.0399,3,Likewise Luminex consolidation is that it rooted the effect on q three adjusted return margin which closed the quarter at forty one percent versus the forty six percent of twenty twenty.
4468654,89,1153.77,1160.5399,3,Once again this is in line with our expectations and the guidance we provided back in July.
4468654,90,1161.46,1167.0399,3,Lastly we keep confirming our ability to generate a very healthy free cash flow.
4468654,91,1167.65,1176.0,3,two hundred and twenty four million Euro in the first nine months of the year with an increase compared to twenty twenty of seventy one million Euro forty six percent.
4468654,92,1176.8199,1185.67,3,The net financial position is negative for one point of five billion Euro with three three oh million Euro cash position…
4468654,93,1185.72,1186.9,3,Positive cash position.
4468654,94,1188.64,1191.3201,3,Let's now go up to the main items of the P and L.
4468654,95,1191.3199,1201.63,3,So September year to date the revenue's at eight hundred and fifty nine million Euros grew by forty one percent of two hundred and forty nine million Euros compared to twenty twenty.
4468654,96,1202.27,1204.3301,3,Three drivers behind this balance.
4468654,97,1204.33,1212.1901,3,The sales inaudible Covid and Luminex then grew by sixty five million Euro fifteen percent seventeen at constant exchange rate.
4468654,98,1212.84,1218.9501,3,Then we have the contribution of Covid sales which grew by ninety three million fifty six percent.
4468654,99,1219.71,1223.1801,3,Developed a confe constant exchange rate of sixty percent.
4468654,100,1223.88,1229.6101,3,Luminex which is a difference in co consolidation which accounted for ninety one million Euro.
4468654,101,1230.64,1237.4501,3,September year to date growth margin it's five hundred and eighteen million Euro which grew by thirty eight percent compared to last year.
4468654,102,1237.72,1243.45,3,Closing the first nine months of twenty twenty one with a ratio of a revenue substantially in line with twenty twenty.
4468654,103,1244.71,1252.9301,3,As said in the beginning of my remarks the difference with the previous year is mandatory then by the inclusion of the Luminex business in the scope of consolidation.
4468654,104,1253.76,1263.0599,3,This is even more clear when we consider gross margin ratio of the quarter which closed at sixty five percent compared to sixty eight percent of twenty twenty.
4468654,105,1263.97,1269.51,3,Let me please remind you that this variance again is in line with our expectation and the guidance provided.
4468654,106,1270.3101,1277.2599,3,September operating expenses at two hundred and forty three million Euro grew by twenty four percent compared to twenty twenty.
4468654,107,1299.76,1310.4401,3,Once again let me remind you that that this is in line with what we forecasted and we are expecting this ratio to diminish as the integration of offsets will move forward.
4468654,108,1310.97,1314.8201,3,And we will deliver the synergy's discast during the call…
4468654,109,1315.58,1318.09,3,We had that when we announced the Luminex theory.
4468654,110,1319.11,1325.29,3,Year to date other operating expenses at twenty three million Euro increased by twelve million Euro compared to last year.
4468654,111,1325.97,1334.0901,3,This variance is almost entirely driven by the one off expenses related to acquisition which accounted for about sixteen million Euro.
4468654,112,1335.03,1348.1599,3,As a result of of what Jeff said that September inaudible three one four million Euro thirty seven percent of revenues has increased compared to twenty twenty by forty seven percent or one hundred and one million Euro.
4468654,113,1349.01,1358.9801,3,Interest expense at fourteen million Euro are almost completely driven by the bank term loan and the convertible bond that was supported the Luminex acquisition.
4468654,114,1359.6,1368.1801,3,Let me please remind you that this number includes about three point five million Euro none monetary interest driven by the convertible bond.
4468654,115,1368.75,1376.04,3,This just due by uh how the i s r s is dictating the way to account for interest on convertible bond.
4468654,116,1376.04,1380.83,3,Even though let me remind you that the convertible bond wou wou what it should have b…
4468654,117,1381.21,1382.86,3,Zero monetary interest rate.
4468654,118,1383.63,1389.15,3,The tax rate at twenty four percent is substantially in line with twenty twenty which grow at twenty three percent.
4468654,119,1390.15,1392.21,3,And this brings us to the materials.
4468654,120,1393.24,1398.6,3,Year to date materials at two hundred twenty nine million Euro or twenty seven percent of revenues.
4468654,121,1399.3,1404.15,3,Which is higher than previous year by sixty seven million Euro or forty one percent.
4468654,122,1405.17,1418.51,3,Actually twenty twenty one adjusted inaudible at three hundred and eighty three million Euro forty five percent of revenues is higher than twenty twenty by almost fifty percent of one hundred and twenty five million Euro.
4468654,123,1419.24,1426.3,3,The variance at constant exchange rate is positive by fifty one percent with a ratio of the revenues of forty five percent.
4468654,124,1446.89,1453.75,3,I want to make this very clear and it's coming uh uh from uh the lower operating leverage in the Luminex business.
4468654,125,1474.3101,1487.1801,3,As discussed second July I believe it's worth underlining that uh in twenty twenty one we have had a much higher tax cash out compared to twenty twenty seventy eight million Euro versus the twenty three million Euro.
4468654,126,1487.36,1490.61,3,The difference has been driven mainly by two elements.
4468654,127,1491.36,1501.39,3,The difference phasing accounting for about fifteen million Euro and about thirty five million Euro driven by the higher profit compared to the previous year.
4468654,128,1503.03,1507.34,3,Lastly let me please uh move to the twenty twenty one guidance.
4468654,129,1507.6899,1511.1801,3,As usual it's previous constant exchange rate.
4468654,130,1533.74,1546.37,3,So the new guidance is calling for a total combined revenues that increase at around forty percent and the total combined adjusted inaudible margin at around forty three percent.
4468654,131,1547.33,1550.0499,3,Besides the solid revenues forecasted between inaudible constant perimeter of consolidation and exchange rate by around 18%.
4468654,132,1551.63,1567.7101,3,For concluding please remember that uh DiaSorin financials are exposed to the US Dollar as we always remind everybody.
4468654,133,1568.0699,1574.76,3,And even more so now that the United States represent about fifty percent of the total group sales.
4468654,134,1574.76,1587.54,3,Uh uh therefore as i'll inaudible but for your modeling consider that for every one cent movement of the Dollar against the Euro DiaSorin revenues move by about six million Euro on a yearly basis.
4468654,135,1588.67,1593.49,3,Uh now let me please turn the on the light to the operator to open up the Q and A session.
4468654,136,1593.92,1594.29,3,Thank you.
4468654,137,1597.35,1599.97,4,Thank you this is the COSCO conference operation.
4468654,138,1600.5699,1602.98,4,we'll now begin the question and answer session.
4468654,139,1603.67,1609.0699,4,Anyone who wishes to ask a question may press the star and one on their attached on telephone.
4468654,140,1632.14,1636.85,5,Um i'll I'll start um I've wanted to get used to on on this…
4468654,141,1636.85,1644.2899,5,kinda recent views on on the Covid pill and how you think that might um affect testing um for for for Covid if at all.
4468654,142,1644.78,1650.87,5,Um I mean I always assume you need to have a positive Covid test before taking any pill but I was wanting to check if you…
4468654,143,1650.9301,1658.0,5,if you think that kind of maybe on the margin it could actually increase you know some testing as as people get less cautious and…
4468654,144,1658.5,1663.59,5,or or if pe people that are kind of been more resistant to the vacc vaccine might might con consider not taking a booster shot.
4468654,145,1664.01,1667.5499,5,Um so so that was my first question and uh I'll let you answer it now I'll follow up with another one.
4468654,146,1670.7,1679.75,6,Uh yes I'll take the question look you know the day they announced the the pill I think the whole industry lost uh over five percent.
4468654,147,1680.1899,1689.2001,6,Um the company that is making the m r n a uh for the vaccine lost nineteen percent that day.
4468654,148,1689.97,1692.7301,6,So I see that as being a lot of of a of a reaction.
4468654,149,1692.73,1697.13,6,When it comes to uh testing as you said rightfully so you don't get…
4468654,150,1697.13,1700.92,6,This is not an aspirin so you are gonna get it under medical advice.
4468654,151,1701.5699,1706.99,6,And you're gonna get it once uh there is uh confirmation that uh you have…
4468654,152,1706.99,1708.64,6,you you have contracted co Covid.
4468654,153,1709.63,1725.74,6,To be honest with you I don't think that when it comes to volumes uh uh inaudible volume uh this is gonna have a positive or a negative effect more then I believe the fact that uh the uh vaccination and uh the fact that now the boost is gonna be made available.
4468654,154,1725.74,1731.3201,6,Certainly is going to affect testing volume um I believe next year.
4468654,155,1731.65,1736.2999,6,Especially when it comes to the asymptomatic uh testing right?
4468654,156,1736.3,1743.0599,6,Because let's not forget that a lot of uh testing and testing volume came from asymptomatic testing.
4468654,157,1743.99,1749.76,6,There is uh testing that will remain it has to do with the fact that everybody admitted to the hospital is gonna get tested.
4468654,158,1750.21,1754.73,6,You're gonna have professional uh testing and you're gonna have a air-line testing.
4468654,159,1756.04,1763.53,6,But believe me uh Im not losing sleep uh on the effect that that uh the the pill is going to have on on the business right in the Covid business.
4468654,160,1763.62,1765.79,6,As said it is gonna be affected by other factors.
4468654,161,1767.55,1768.3,5,thank thanks for that.
4468654,162,1768.33,1771.26,5,and and I inaudible kinda moving on to to kinda the base business.
4468654,163,1771.29,1782.4299,5,Um I mean i I had couple of feedback in today that uh you know some people were kind of expecting a bit more kind of all the recovery of the base business especially kind of you…
4468654,164,1782.8199,1786.7101,5,If you can look at it compared to to twenty nineteen so looking at none Covid.
4468654,165,1787.34,1793.51,5,Um you know i I was just gonna get kinda your view or something you kind of mentioned that a lit a little bit ab of what's been going on about if…
4468654,166,1793.87,1805.12,5,You know how are your kind of expectations of none Covid business recovery and how are you kind of inaudible are you seeing kinda any- kinda in reflection points in- in the trends uh given now that we are already quite quite far into…
4468654,167,1805.12,1806.1801,5,in the fourth quarter.
4468654,168,1806.4,1809.37,5,If there's anything you can comment comment on that how how how it's doing right now.
4468654,169,1811.59,1815.03,6,Uh you are uh referring to twenty nineteen.
4468654,170,1815.03,1823.54,6,Uh look uh com uh if you compare uh twenty twenty one to twenty nineteen uh I think there are two elements that that uh make the comparison.
4468654,171,1823.54,1826.4299,6,The overall business comparison uh difficult.
4468654,172,1826.4301,1832.65,6,The first one I said uh uh we are missing a very large vitamin D contract.
4468654,173,1832.77,1837.5701,6,That uh now the effect is gonna be felt throughout uh twenty twenty one.
4468654,174,1838.39,1841.4199,6,And uh and then it is going it is gonna go away clearly.
4468654,175,1842.2,1849.4,6,The second effect though that uh everybody is forgetting is the fact that uh in two thousand and nineteen uh we had FD still.
4468654,176,1849.4,1854.54,6,Uh uh on a inaudible business that was was coming from uh Siemens.
4468654,177,1855.25,1856.12,6,Uh in two-
4468654,178,1856.35,1856.49,6,two-
4468654,179,1856.49,1870.77,6,twenty nineteen it was uh uh the year when we uh we are we are uh still shipping uh the inaudible that we did not convert it to inaudible and uh all that business uh uh pretty much have operated in in twenty twenty one.
4468654,180,1871.23,1875.8199,6,So this is why I keep saying if if you really look at uh the…
4468654,181,1875.8199,1887.1499,6,you you need to look at the be the components of the business which has to do with the clear and clear inaudible you need to look at vitamin D and you need vitamin D element as they said Manu said eight point seven percent.
4468654,182,1887.5699,1897.37,6,There is a negative affect of course and a positive effect inaudible the fact that some of it um post a impact of Covid and Covid testing for vitamin D on on on on patients.
4468654,183,1898.2,1905.15,6,Uh and then clearly you have all the molecular part which has to do with um uh with uh with Covid.
4468654,184,1905.15,1910.51,6,So uh I don't understand why y you are not…
4468654,185,1910.51,1932.6901,6,You don't see the growth of the base business because uh uh to me it is exactly the opposite when it comes to the excel of four hundred and four replacements year to date so again it is gonna be uh we are gonna be placing uh over five hundred and fifty systems considering a slow down of China uh which is telling you that placements are not slowing down in the other geographies they actually…
4468654,186,1932.6899,1933.63,6,They are picking up.
4468654,187,1934.14,1949.5399,6,Uh the um the clear business and again and the success of uh some of the programs we're conducting together with um some of the partners uh like inaudible or inter inaudible develop products uh is uh growing very very nicely.
4468654,188,1950.1,1958.01,6,And on top of it uh when it comes to the base business uh we are weeks away from the launching the inaudible SA you know?
4468654,189,1958.04,1964.24,6,Uh we are the the only company that uh will be able to carry that product on um on the platform.
4468654,190,1965.02,1967.63,6,And uh very excited about that.
4468654,191,1967.63,1973.64,6,Last but not least uh is a big comment on inaudible uh we have seven hundred hospital in the u s that today are…
4468654,192,1973.83,1975.0599,6,They are showing customers.
4468654,193,1975.12,1980.4401,6,And uh we are on the verge of launching inaudible in the u s with TB and the rest of the menu.
4468654,194,1980.4399,1985.5901,6,So i i am very excited uh to be honest with you about the base business.
4468654,195,2002.89,2005.29,3,And uh I believe I didn't mention it in my remarks.
4468654,196,2005.29,2018.0,3,But if I look at q three data clearX vitamin D and inaudible Covid over twenty nineteen is growing by almost twenty percent at constant exchange rate nineteen percent to be precise.
4468654,197,2018.66,2024.75,3,So uh this just to confirm all of your comments uh on the uh growth of the…
4468654,198,2025.3199,2026.4399,3,uh of the base business.
4468654,199,2059.8501,2065.6101,7,So just wondering uh when we should expect uh sales to kick in from the u s from the Verigene two.
4468654,200,2073.2,2088.4199,7,Um and uh one question on China um China is uh up five percent uh can you maybe remind us here uh what uh being a inaudible or should we expect the recovery.
4468654,201,2089.3,2104.99,7,And uh one last on margin uh you inaudible Luminex on the top line but can you maybe help us understand what are the moving parts on the on the on the on the EBDA uh margin and what would've been the margin excluding Luminex.
4468654,202,2105.3,2105.5701,7,Thank you.
4468654,203,2107.8201,2112.1599,6,Okay in terms of colors on the Verigene two of the inaudible launch.
4468654,204,2112.23,2118.2,6,Uh I think uh you will need to wait uh until the December seventeen investor day because we…
4468654,205,2118.2,2120.24,6,I believe we're going to be more specific about this.
4468654,206,2120.96,2122.0701,6,What i am…
4468654,207,2122.0701,2130.24,6,Today uh there are uh uh five panels that are in development the respiratory in included uh uh clearly which has been extended with…
4468654,208,2130.24,2131.52,6,to the Covid product.
4468654,209,2132.1001,2135.8999,6,Um you have the blood culture <cough> three panels.
4468654,210,2136.47,2148.6602,6,You uh the GI panel and then uh you have the CNS panel that uh is the one that uh inaudible where the Luminex company development uh um later than the other.
4468654,211,2149.4299,2158.0898,6,The uh the the bad news about the Verigene two is that the company intended to start launching uh the product starting from the end of this year.
4468654,212,2202.51,2219.23,8,As far as the good news is concerned is that Pro development has continued uh in parallel and now rather than launching the system with just one panel we plan to uh have the completion of the menu happening very rapidly after launch.
4468654,213,2219.71,2228.76,8,Certainly this is the benefit of the delay in the in the cartridge and system inaudible from an industrial point of view.
4468654,214,2229.7,2238.7,8,But again in terms of positioning in terms of expectation I think you need to wait a few weeks until we unveil everything at the investor day.
4468654,215,2238.7,2275.1201,8,As far as channel is concerned plus five percent look I I um I said there are two there are three things that are happening today and they're not happening today sorry I think I already I heard few calls from other companies and everybody is pointing with the same direction and is priced and is a protectionism of the government visa vis the local suppliers when it comes with price we already did comment on that there is an effect of of provincial tenders which is really a reset in the base for some of the two products.
4468654,216,2275.6599,2303.6599,8,When it comes to uh the protectionism of the Chinese government uh well you can read the Financial Time but uh is very clear that today there is a preference of the Chinese government to the Chinese supplier so when possible there has been an acceleration of a strategy that uh if you remember was set in place uh uh with a target date of 2030 of having 50% of the medical supplies made in China.
4468654,217,2303.6599,2368.6199,8,I believe that uh there is today um uh a desire and an ambition to actually make this happen much faster than we thought and as far as we are concerned and as far as how this is going to affect the business look I think short term I think there is gonna be an affect of the business um uh Chinese business because uh there is a really nothing you can do if a provincial tender is asking you to be a Chinese manufacturer and you're not and so uh you are excluded from the tender by the same token I believe that we initiated as you know over a year ago the construction of a manufacturing site in Shanghai which is proceeding and I believe that what this is teaching to all of us is that you cannot be half pregnant in China so you have to be uh perceived as a Chinese local supplier with uh products that are also directed to the Chinese martket which in some cases is are different from what we offer in the US and in europe.
4468654,218,2368.6201,2381.46,8,So fundamentally I believe that uh we are at a crossroads today where either you decide that uh you develop a Chinese brand with Chinese products or your gonna be strategically excluded uh from uh from that market.
4468654,219,2381.8201,2397.76,8,And so the discussion we are having internally is that uh we really need to uh develop now a strategy because behind what we what we had in mind in developing Chinese set of products and and and Chinese manufactured products just dedicated to the Chinese market.
4468654,220,2399.9099,2446.4299,9,I I believe Karl there was a question on margins and so I I will take it for Luminex so we're not going to be disclose uh a detailed margin for the Luminex piece going forward but if you just some reverse engineering uh on uh q three numbers uh comparing to q three twenty twenty what you would see is that Luminex growth margin for the quarter is eh around lemme say 55 60 percent compared to DiaSorin usual margin which was sixty eight sixty nine percent and if you go down to the beta level for the quarter and you do a similar uh reverse math you would get two number which is around twenty five percent.
4468654,221,2500.29,2518.51,9,I believe we would again we will be more detailed and we will give more information during the capital market day which is gonna happen one month from now uh but when we build inaudible in terms of sy synergies we gave a number which uh if i'll remember was fifty five million dollars on the cost side.
4468654,222,2518.54,2539.21,9,We didn't put any any kinda uh uh uh we didn't share any kind of number in terms of uh revenues on the top line so I don't believe that you know any in discussion we're having on merging two is gonna affect our synergies on on the integration process side quite the opposite in terms of revenue side.
4468654,223,2539.21,2558.1001,9,I believe Karl commented pretty well about you know the um good opportunities we see from this seven hundred or so uh hospitals to which we can go and offer our excess with uh the eh our menu eh which was not included in our modeling and nor in the synergies we gave.
4468654,224,2558.7,2567.8599,9,So you know I I still I I don't think that this comment on on inaudible is gonna have any effect on uh how we see business going forward.
4468654,225,2569.8101,2570.8101,10,Okay thank you very much.
4468654,226,2580.4299,2582.76,12,Three questions from my side please if I may.
4468654,227,2633.26,2669.78,8,Um I'm gonna make a qualitative comment and then uh PJ uh can actually add to this um so is not uh I believe that when uh let me say the visibility that we have today uh with COVID uh versus what we had when we actually gave a guidance is really is allowing us to be more precise and uh I think it is fair to say that um compared to Gloomis and inaudible could have been possible and some uh uh anticipated visa vis COVID in this flu season.
4468654,228,2669.78,2753.01,8,I believe that quarter three was higher than um everybody everybody in the industry was anticipating uh I believe Maya that um the big question mark uh still is in q four but not necessarily whether q four is gonna be lower than q three the question is whether q four is gonna be higher than q three or not and the impact of the um of uh the differential diagnoses visa vis the respiratory season right so everybody coughing from now on with some fever uh will have to go through uh some sort of uh differential diagnoses and the question is in those countries like the US where there is an extended uh I think availability of over the counter testing I believe that that volume is gonna be captured primarily by the over the counter uh test in other in other geographies where the over the counter like in Europe did not really pick up because not sponsored by the government um your going to have an increase in testing volume because it's gonna be done in laboratories where all all the traditional operatives operators are operating so this explains in my opinion the now the comfort that we have on the apparent of the guidance but PJ do you want to add more?
4468654,229,2754.3301,2763.5901,9,No Karlo that that's exactly right I mean eh the eh the rise in the guidance is coming from a better q three uh uh mainly determined by c o v i d.
4468654,230,2808.3701,2821.8298,8,No uh up to today we have not seen uh any price effect but this is because uh in primary geographies where we operate uh there has not been reduction in reimbursements.
4468654,231,2821.8301,2845.3799,8,So in the US reimbursement continues to be same level as before in Europe uh in Italy where again second largest geography for us the government with the emergency decree is actually the one buying the products at a fixed price from the different suppliers so that will uh guarantees that there is no price erosion.
4468654,232,2845.72,2876.55,8,Spain very similar where we have contracts where the price stays as is so I do not expect in q four um price effects with one exception uh which is on the overall one is the mix because as you well know in uh in Italy and Europe we sell uh uh COVID twenty five percent twenty twenty five percent discount compared to what we offer it in the US and this is again has to do with the different reimbursement system uh in the US.
4468654,233,2877.6599,2911.8899,8,If I can move to the liaison IQ which I think is uh your question um the program is uh proceeding in Italy but um I have to tell that there is a problem and the problem uh has to do with uh pricing because I believe that uh there has been um over flow of products made in China that have been flooding uh the European market since we don't have the UA approval system that uh I believe as a sheltered the US from this.
4468654,234,2912.6899,2924.01,8,Today you can go to a pharmacy and um Chinese are offering these products uh lateral flow without uh much sophistication at uh one point three euro.
4468654,235,2924.9299,2984.73,8,So your getting to a point where you need to make a decision uh visa vis do you want to make money or not on this lateral flow and if you just sell it in the European market I believe that the situation is very different when it comes to the US um where I believe one of the our the primary companies providing these is a is a using nine dollars as a as an end user price so if you open it in Italy today you want to really decide if this is worth or not and so for they time being we have been um uh disciplined in terms of only providing this system to those pharmacies that appreciate the um the technology added value that we provide so not a simple strip but uh the instrument the traceability and so forth but it's certainly the opportunity is uh shrinking unless you accept a pri dumping on price which is not what you know we are famous for.
4468654,236,2986.1899,2991.21,12,Okay thank you for this and maybe my last question now I remembered and sorry.
4468654,237,3008.6899,3011.99,8,Okay I'm not gonna attach numbers and I give you a feeling how about that?
4468654,238,3012.6899,3013.1199,12,Perfect.
4468654,239,3014.49,3028.6902,8,Okay first you need to take in consideration that when you are comparing a q three to q three in this company you're really comparing for certain product lines um apples with oranges and let me explain you why.
4468654,240,3028.6899,3040.8501,8,In q three last year so this company as far as COVID is concerned has uh uh three products of which one is the Aries uh which is a single plex.
4468654,241,3040.8799,3074.6101,8,The other one is uh as a related with uh um Virgin one and virgin two which were plex panels certainly these plex panels are very manual and uh they do not stand visa vis uh uh products which are offered by competition but back then remember there was shortage all over the place so uh uh hospitals that had the virgin one platform or the NexTag they were actually um taking whatever eh companies were making available at them.
4468654,242,3074.9299,3091.5701,8,So there has been a spike that back then that today is not repeated not withstilling not withstanding the fact that there is COVID testing volume simply because they migrated away from these more manual solutions to more automated solutions okay.
4468654,243,3092.3,3102.3301,8,So as far as so you need to clean the numbers uh the uh of the company if you compare to q three last year from the spike effect that is not repeated.
4468654,244,3102.99,3171.0,8,If you take that away and you look at the Plex business is fairly stable and this eh one of the reason why eh again we bought this company because there is one twenty million dollars of business ex COVID ex COVID effect between virgin two and xTAG that is a nice solid business and is a business where we tend to build clearly growth for uh with the launch of the virgin two years on uh inaudible When it comes to the Aries I believe compared to last year we are um uh miles better uh than <laugh> than we were and this is to the fact that we been able the company has been able really to um bring up the manufacturing volume and stability in manufacturing and today we are really serving we are selling like around two hundred and thirty thousand two four oh oh oh oh a month of this of the cartridge back then I think we're at fifty thousand and so you understand that there is and not because there was no demand but because there was no ability to manufacture uh at that point.
4468654,245,3171.6599,3183.4299,8,So that component is doing well and uh also we keep um placing some of the Aries system in Europe and US so that's uh proceeding fine.
4468654,246,3184.0901,3190.03,8,When it comes to the LTG uh business is uh is uh is booming.
4468654,247,3245.1201,3258.8899,13,The fact that uh uh clearly um some of these programs have been uh very successful if I look for example at the Thermo Fisher business uh when it comes to all the protein uh uh testing business antibody testing business is booming.
4468654,248,3259.5,3274.3699,13,Or when I look at the fact that his life science uh business in business of dollars have been pulled and will be pulled into the into the US especially by the past and current uh administration that explains why this business is really growing significantly.
4468654,249,3274.8201,3294.9399,13,And I see this uh again as an opportunity in some of these fields uh uh to work uh with a partner and now launch programs uh which would include also liaison technology in some uh clinical spaces where we believe the multiplexing inaudible technology can really offer uh an opportunity to the partners.
4468654,250,3294.9399,3297.8601,13,So is a very profitable business by the way.
4468654,251,3297.97,3299.7,13,Uh as you and you understand.
4468654,252,3299.7,3300.79,13,it's a solid business.
4468654,253,3300.9199,3320.3301,13,This company has been manufacturing now for twenty years and so that component uh I think uh is performing better than what we expected and we expect uh this to be uh uh uh in line in terms of growth to uh so not diluted vis a vis uh the the group uh the group revenues uh growth in the foreseeable future.
4468654,254,3320.73,3327.49,13,Again Maya we're gonna be discussing these um better in more specifics uh during the um during the investor deck.
4468654,255,3328.05,3329.1401,14,Understood thank you very much.
4468654,256,3421.4399,3421.76,16,Thank you.
4468654,257,3425.49,3437.9102,13,Okay so as far as the synergies are concerned uh we said fifty five million and uh they're going to come alive in the next uh three to five years I'm very comfortable about the synergies.
4468654,258,3438.6201,3451.0598,13,I don't think there's gonna be any delay uh we actually took in consideration the fact that um we are gonna uh some investments are gonna be necessary uh in order to uh achieve some of these uh uh synergies.
4468654,259,3451.0601,3458.8298,13,But I'm very comfortable with that number and I don't think there's gonna be a delay and this is nothing to do with the delay on version two manufacturing.
4468654,260,3459.4199,3468.6199,13,When it comes to the um version two the cartridge uh I think uh you you you you put it uh um in the right term.
4468654,261,3468.6201,3471.03,13,Look um uh we…
4468654,262,3471.6499,3490.96,13,were it this company when I learn about this company is that uh um it it is a step and not a still a notch away from being an i v d consolidated manufacturer and this uh is clearly explainable by the fact that if you think about this company was actually built around the research research.
4468654,263,3490.96,3493.3101,13,Uh very successful research uh products.
4468654,264,3493.9299,3518.8499,13,Today still uh as said that the hardcore of this company the Luminex is that business and then uh uh the company stepped into try to step into uh accelerator growth in diagnostic buying technologies or buying other companies uh around uh around the globe around the US and uh and bringing that i v d uh well needed uh uh infrastructure to the to the company.
4468654,265,3519.3501,3535.72,13,The problem I believe that uh some of the companies that have been bought were small and not necessarily properly structured and certainly from a quality um from a quality system point of view I believe uh behind what are uh the um expectations in modern i v d.
4468654,266,3536.21,3551.1602,13,I believe the four eighty three that uh was actually uh given to the company uh had to do with uh some of these delays or some of these uh the way that uh the company was operating that uh we are in the process of uh correcting.
4468654,267,3551.97,3592.75,13,Um by the way uh we have decided uh that uh we are going to um participated to anyway we've been accepted uh to participate to a pilot program that the FDA has issued in the US uh where n uh nine companies are gonna be enrolled into a a program where the agency together with uh a consulting firm that the agency has um actually uh selected to use they're gonna be working with a company for eighteen months and during this eighteen months they were gonna redesign uh the uh quality system and we're gonna redesign it in light of uh what are the most recent expectations uh by by the agency.
4468654,268,3592.75,3611.3101,13,And this uh to me is uh great because uh uh as far as Luminex is concerned it is clearly focusing the people to the program is giving a a a free access by the way to one of the top notch consulting firms that uh the FDA is putting is making available at no cost uh to the company to uh redesign the quality system.
4468654,269,3611.6699,3623.7102,13,And my expectation is that at the end of this process eighteen months from now we're going to pretty much exit uh this program uh with a very modern up to date and FDA blessed um quality system.
4468654,270,3624.04,3624.4102,13,Okay?
4468654,271,3624.96,3639.3799,13,As far as the cartridge and what you said uh again uh I think uh you are very right and the problem is that uh the cartridge we found and the manufacturing system we found we found over here was not really uh ready to launch a product.
4468654,272,3639.8999,3649.6499,13,It was uh ready for a prototyping launch uh which is not a tradition of DiaSorin you know being an IVD supplier we look at products uh finished products uh launched to the market.
4468654,273,3650.1499,3654.1399,13,Also we are talking about a much bigger inf commercial infrastructure.
4468654,274,3654.1399,3683.75,13,So we would expect the ramp up of volumes to be faster than prior with Luminex uh and uh we did not feel that uh we could really go to the to the market with uh um with the manual um manufacturing lines and a process that was very cumbersome prone to errors so where are whereas the the company already order some uh fully validated uh completely automated lines that now we are in process of validating and putting in into uh operation.
4468654,275,3684.1101,3690.24,13,And then uh we are going to conduct clinical then uh with a much better uh process uh under control.
4468654,276,3690.77,3705.54,13,So long story short um we always is very clear that uh when it comes to multiplexing uh this is uh is not a space uh where uh uh you you you we we're gonna be pioneering is a space that today already has uh good solutions.
4468654,277,3706.1201,3715.54,13,And uh so uh the only way in my opinion to make it to that space uh is with a system that is very solid and stable with uh the complete panel.
4468654,278,3715.5701,3740.6499,13,And uh what is very attractive uh uh of this system in my opinion is the flexing concept the ability to utilize the flexing concept that provides flexibility of the the launch of the panels in uh especially in the European countries where you know all the reimbursement are different and also in the US where there has been a recent push backs uh vis a vis the complexity of the panels uh that are offered uh uh by the competition.
4468654,279,3740.7,3758.74,13,Clearly if you want to make money with the flexing concept you better have your manufacturing costs under control uh because certainly there is uh uh uh a margin effect on the flexing concept and this is why company more established that today are selling products uh can not really go back to that concept they would be killing their business.
4468654,280,3759.1201,3764.97,13,As far as we are concerned uh we want to have all ducks in a row and the manufacturing cost under control before we launch it.
4468654,281,3764.97,3768.6899,13,So when we launch it and we are gonna we're gonna make money right?
4468654,282,3787.53,3793.47,17,Um so I've got a couple of questions for uh Piergiorgio please and one high level question for for for you um Mr Rosa.
4468654,283,3794.04,3813.0901,17,Um Piergiorgio just just wonder if you can um um um please qualify I think at the the last um uh h one up update you um i'm pro provided an implicit guidance for fifteen percent growth for your base business ex COVID.
4468654,284,3826.8501,3840.7002,17,Uh and second question for you Piergiorgio please um so um the the revenues coming in from Luminex I think um uh were better than we expected and and I think you talked about performance um being pretty pretty decent uh there.
4468654,285,3841.3201,3850.6501,17,Um i can you confirm please whether Luminex original guidance to the market of four hundred and eighty million dollars is still on track this year?
4468654,286,3851.55,3859.1299,17,Um and maybe give us a sense of what COVID was for Luminex last year um roughly speaking what you expect it to be this.
4468654,287,3859.3799,3860.26,17,That would be helpful.
4468654,288,3869.7,3887.9099,18,Uh I believe uh what we see uh um as we said before the in case in the guidelines to say that we are now at the high uh uh in the uh high uh- uh part of the inaudible has been even by better Q3 sales and mainly by better COVID sales.
4468654,289,3888.3201,3897.3098,18,I believe we have commented at length about the what we see in the ex COVID business uh which is going uh uh which is going uh uh very well uh.
4468654,290,3897.6699,3913.1001,18,And uh uh in terms of the ex uh COVID sales for DiaSorin business uh for the remainder of the year I believe uh that what we said in h one was fifteen percent uh and I think that that that is still the right you know the right number.
4468654,291,3957.1699,3965.53,18,Uh and uh we are uh uh a little bit uh um better than what we modeled toward toward this year.
4468654,292,3966.0601,3974.26,18,Then for uh twenty twenty two and so on uh uh I believe you need to wait until the inaudible market day when we would be more more more specific.
4468654,293,3989.1599,3997.1899,18,Uh the Luminex part of those revenues uh you know we said ninety one million euro of uh Luminex sales in the quarter.
4468654,294,3997.5701,4004.79,18,I believe uh both partner though on the top of my head that the um uh COVID related sales uh COVID only right?
4468654,295,4021.3899,4029.9001,17,Um there's been some market speculation about a potential tie-up combination between BioMarin and Qiagen.
4468654,296,4030.73,4038.8501,17,Uh bio ma uh Maria of course having an immuno-assay business and Qiagen of course being a uh a player in in QuantiFERON.
4468654,297,4056.6101,4074.98,13,Listen uh Scott since I am in Texas uh I think I can use the fifth amendment and um I will not uh comment on um on this uh rumor and speculation because I think uh again uh today is a rumor and a and a speculation.
4468654,298,4075.5801,4084.5598,13,Um uh I can comment on the fact that uh the relationship today uh with uh my good friend Thierry is uh is doing very well.
4468654,299,4084.8,4112.9702,13,I believe that uh in Europe uh the program today is is uh almost to maturity because together we have been uh driving the conversion and uh growth of this business and today we are working on uh uh actually uh uh Qiagen uh still works on uh driving uh demand so testing volume now that we have a um almost uh four hundred accounts today that are using uh the product on our platforms.
4468654,300,4113.4399,4117.3101,13,In the US uh we are at the beginning of uh the story.
4468654,301,4117.8501,4125.6401,13,Uh we had a very successful conversion of uh one of the two largest uh labs in the US uh to the technology.
4468654,302,4126.3301,4147.98,13,We have um uh today um a very significant number of hospitals that are using the XL and uh together with Qiagen we are working and we are eagerly waiting for the approval uh of the access uh because in the US we s we see the mid-size uh hospital uh market as an untapped opportunity.
4468654,303,4147.98,4160.7202,13,A lot of this business is send out and uh we can catch uh capture the business as a at the price range uh that uh is is really makes Qiagen both parties uh uh very very hap very happy.
4468654,304,4161.3799,4168.4399,13,I would like just to make uh one comment Scott uh to the famous four hundred eighty million that uh you were discussing about.
4468654,305,4168.4399,4171.79,13,Look uh um if you look at the at those at those four hundred and eighty-
4468654,306,4171.79,4182.27,13,uh eighty million uh there are two components to it that uh did not materialize and actually they were in the expectation of Luminex and when we look into it we decided to de-risk.
4468654,307,4182.98,4199.4204,13,Um one is to do with the fact that um in those numbers you had a version two launch in uh twenty twenty one uh which we we know uh we expected not to happen uh when we make certain decision as DiaSorin about the launch of this product.
4468654,308,4199.9302,4218.0601,13,The second thing is the fact that uh in that um assumption there was a certain dynamic of uh increase of manufacturing capacity that uh eventually did not happen and so the uh today the the volume is capped at uh two hundred and thirty two hundred forty thousand testaments.
4468654,309,4218.6401,4225.9399,13,I believe that plan was actually calling for an increase uh that uh would've taken the company behind that that number.
4468654,310,4226.1201,4246.8301,13,So if you really take out these two effects and if you look at that number uh uh we I think we we are running pretty much to where the company was saying with I believe a better mix uh which um may does contribute to profitability which is an LTG performance which is evolve uh expectations.
4468678,0,0.94,8.89,0,Good afternoon ladies and gentlemen and welcome to the Prysmian Group nine month two thousand and twenty one financial results call.
4468678,1,9.19,13.3,0,At this time our participants are in listen-only mode until we conduct a question and answer session and instructions will follow at that time.
4468678,2,13.3,20.57,0,Just to remind you all this call is being recorded.
4468678,3,42.46,42.95,1,Okay.
4468678,4,42.95,51.27,1,Let's go immediately to the page number three the key highlights of the first nine.
4468678,5,71.28,76.49,1,So like 14% adjust would the the margins.
4468678,6,81.84,88.18,1,The real margin could have been <inaudible>.
4468678,7,92.04,96.85,1,Record backlog and order intake in the product.
4468678,8,119.96,138.59,1,That is the biggest single HVVC project in uh million energy with what just one week ago in the value of 630 million euros.
4468678,9,161.99,165.61,1,The tunnel guide of 11.4%.
4468678,10,165.64,177.78,1,Related EBITDA has been surrounding 25 million with an adjusted EBITDA margin of 7.8%.
4468678,11,177.78,191.41,1,You have to consider the effect of the metal price in that but those counts are values are not the percentages.
4468678,12,191.41,205.53,1,The the solar um not extremely positive now is about the future flow cuz of the weight of the working practical due to the a very high level of cost of raw materials.
4468678,13,207.81,209.9,1,So going back to the organic growth.
4468678,14,210.0,214.42,1,Organic growth was very good specially in ENI and P N I.
4468678,15,215.39,225.4,1,The industrial network and component business uh <inaudible> renewal was very well and the telecom too.
4468678,16,252.67,286.55,1,<inaudible> we're seeing that the problem of <inaudible> by the strong increase of raw materials and consequently the operating working capital that could be quite a lot.
4468678,17,293.04,299.81,1,We said 2.3 billion euros award them the <inaudible> development now.
4468678,18,299.81,311.1,1,With two big project with US the <inaudible> and other various projects <inaudible> first of all wind pharmacy UK the gold wind the <inaudible> the Saudi <inaudible>.
4468678,19,330.02,342.64,1,That is at least for this year <inaudible> expected to stand in the last one.
4468678,20,345.06,349.39,1,Uh six yes six.
4468678,21,351.53,360.11,1,Let's compare quickly please or then say about <inaudible> internal <inaudible>.
4468678,22,360.48,385.27,1,North America and try to compare the the volume the pay of the sake of uh the first nine months <inaudible> two one three 2019.
4468678,23,385.87,396.27,1,cuz the reference here for us is two one nine is not anymore two thousand and twenty cuz <inaudible> was affect largely by the COVID.
4468678,24,397.84,408.5,1,As you can see North America we have a plus one percent for example compared to two oh.
4468678,25,416.03,420.02,1,Even if obviously the <inaudible> with 20 is much higher is eleven percent.
4468678,26,446.72,460.6,1,And that's the reason for the minus 2.5 you see in the chart compared to twenty nineteen.
4468678,27,462.06,475.33,1,two thousand and twenty obviously is a <inaudible> and is a plus 11.3%.
4468678,28,476.92,494.89,1,My business my business E and I is a first driver of the group 3.3% compared to one nine and 12.3% compared to two oh.
4468678,29,498.87,517.16,1,cuz the sale is for or similarly is <inaudible> is uh the medal the gold medal of resiliency in terms of performance even in a difficult condition matter.
4468678,30,524.5,526.9,1,The performance is negative especially in the first half of the year.
4468678,31,526.9,541.52,1,<inaudible> that in nineteen the bonus were extremely high to build the peak in the summer of one nine.
4468678,32,541.52,553.1,1,Then the market collapsed and uh the first nine months suffering.
4468678,33,566.16,577.97,1,I have to say that the the the projects sorry that posted on organic growth that is one point three percent.
4468678,34,578.48,591.1801,1,But in the third quarter posted 11.1% and that's the picture or an anticipation of the results that we expect to come in the lab.
4468678,35,593.03,601.47,1,So at the end the <inaudible> that is what what counts is very similar to the nine month twenty twenty.
4468678,36,602.31,611.03,1,But the last quarter will be the the real indicator for next year.
4468678,37,614.54,621.84,1,He and I he and I the same view for eighty percent in the last quarter of sixteen point eight percent.
4468678,38,622.75,638.82,1,And the results of the <inaudible> of the division went up from <inaudible> with a very good ramp up and a pretty good margin.
4468678,39,639.47,647.11,1,I from seven that with with the matter of twenty twenty has to be treated seven percent.
4468678,40,647.87,662.51,1,So the margins are really growing <inaudible> industrial metal component moved from one three oh to sorry the posted 9.2% for them grow.
4468678,41,663.16,676.09,1,And in the last quarter 8.9% <inaudible> is stabilizing with a pretty good organic grow around about nine percent and are pretty good <inaudible>.
4468678,42,677.24,682.8,1,Moving from one hundred thirty to one hundred fifty million in the first nine months twenty one.
4468678,43,685.76,716.25,1,Finally telecom telecom has posted uh an organic growth nine months of thirteen point five percent with a last quarter of 9.7% rising their sales from one point four seven 1.447 to 1.204 million euro sales with a EBITDA that moved from one fifty two to one seventy eight.
4468678,44,716.67,730.4,1,And the margin that went up if you consider the <inaudible> well stable from fifteen point five percent to fourteen point eight percent.
4468678,45,731.02,750.7,1,The fourteen point eight in reality if we use the metals value cuz there is a lot of M M S multi major solution or uh cables that has inside the <inaudible> can be read as fifteen point four percent.
4468678,46,752.44,755.59,1,The volume has been good in the US expression.
4468678,47,756.21,760.22,1,And the contribution of what you see has been almost stable.
4468678,48,783.05,791.12,1,But in the last quarter the acceleration is clearly is clearly there with a twelve point nine percent organic growth.
4468678,49,791.74,805.63,1,The result to <inaudible> equal from 147 to 725 million euros after nineteen million of uh Forex negative <inaudible>.
4468678,50,809.78,811.4,1,Let's flip to page eight.
4468678,51,813.93,816.88,1,Let's have a look over the last years accumulated.
4468678,52,818.04,827.17,1,The reference year as I was saying before when we reach at one billion and seven million in advance.
4468678,53,828.68,837.71,1,Today we have to consider that there is a effect on Forex effect that is roughly fifty million just to simplify.
4468678,54,845.24,859.28,1,These are those effects negative effects being partially compensated modestly compensated by the volume.
4468678,55,859.85,862.62,1,But very much by the prices.
4468678,56,862.7,872.23,1,Consequently this is demonstration that especially energy is able to transfer the cost increase to the customers.
4468678,57,872.42,879.77,1,cause there is no way or the payers are gonna transfer it quickly or are gonna use nothing.
4468678,58,881.04,893.9,1,The volume in the telecom segment has been a little bit negative and the price mix in has been pretty tough you know.
4468678,59,893.98,902.84,1,cause obviously in compared to nineteen the price went down middle of one nine the price.
4468678,60,902.93,903.41,1,Yes.
4468678,61,903.73,906.72,1,And the bonus went down and the price too.
4468678,62,908.56,922.95,1,The project had been still suffering a little bit but we are sure that the last quarter the result of the projects we record completely the gap we closed completely.
4468678,63,924.68,934.52,1,Finally the efficiencies and the fixed costs have helped us to reach the guidelines and probably in the upper side of COVID.
4468678,64,936.85,940.46,1,Let's flip to page nine by region.
4468678,65,960.28,969.08,1,You remember that last year we were commenting the very the very heart ramp up of North America.
4468678,66,970.4,977.58,1,Today we are here telling that by is <inaudible> to drive the game in terms of <inaudible>.
4468678,67,978.84,986.52,1,And like in America too you can see that like in America view 32% in terms of states.
4468678,68,989.16,995.8,1,With and maybe that that you from forty one to seventy three in India.
4468678,69,997.44,1001.6,1,So Latin America gave us an ex outstanding performance.
4468678,70,1001.6,1012.83,1,Where North where North America suffered a bit of the decline of the very strong power distribution business we have seen last year.
4468678,71,1014.63,1033.84,1,Last but not least <inaudible> the problem becomes for not very big around fifty four million with an organic growth of 11.3% compared to the first nine 21st nine months 2020.
4468678,72,1034.38,1041.88,1,<inaudible> and the covid nineteen already is now over.
4468678,73,1072.39,1073.97,1,Move to…
4468678,74,1073.97,1084.54,1,Sorry to page nine to page one zero.
4468678,75,1089.01,1093.1801,1,The guidance the guidance is fulfillment nine twenty nine seventy.
4468678,76,1105.9,1106.37,1,Why?
4468678,77,1107.16,1119.0599,1,cuz as the guidance for <inaudible> was three hundred plus or minus sixty million the the maximum of the guidance will not be easy to be reached.
4468678,78,1119.41,1119.7201,1,Why?
4468678,79,1119.72,1124.15,1,Because in the last or in the first nine months we suffered a lot the increase of raw materials.
4468678,80,1124.1801,1142.84,1,And energy that obviously are gonna absorb cash to us reason why our today's guidance is more in the middle of the range than in the upper side.
4468678,81,1145.88,1148.0,1,Last but not least page eleven.
4468678,82,1148.6899,1172.53,1,On the page eleven you can see the trend of the last five years in seventeen nine hundred forty million in 18 952 in nineteen one billion and seven twenty twenty eight hundred and forty cuz of COVID and this year let's say something like nine sixty or around about nine six oh.
4468678,83,1175.46,1177.3199,1,Now what happened?
4468678,84,1177.76,1191.1,1,That the energy business is the blue line enjoy the position of general cable rising the light the light line.
4468678,85,1217.55,1217.9801,1,Why?
4468678,86,1256.8101,1257.2401,1,Why?
4468678,87,1257.29,1276.9501,1,cuz after three years of difficult market finally we are we have an outstanding of the book the probably not or maybe only the execution but we are totally focused on the institution now.
4468678,88,1277.34,1287.9399,1,The risks and we are quite sure that the projects will run back in terms of performance starting from the last quarter this year.
4468678,89,1290.22,1307.4501,1,Let's have a look on the lower side of the chart about the careers between the performance of the business and the budget the budget the CapEx allocation <inaudible>.
4468678,90,1309.01,1319.4601,1,You can see that in the I always say that our CapEx were run about two hundred fifty million after the acquisition of <inaudible>.
4468678,91,1320.15,1332.0,1,And that has been the you can see very clearly the very big increase of telecom CapEx in the years 17 18 nineteen the green chunk of the of the coal.
4468678,92,1333.52,1348.15,1,Starting from second of one nine we dropped the telecom fabrics cuz of the <inaudible> we have seen in the in the market.
4468678,93,1348.89,1360.2999,1,And we start to grow the uh CapEx the green that green uh CapEx that are the ones related to projects.
4468678,94,1362.04,1364.5299,1,Now what about the fifth?
4468678,95,1389.87,1411.67,1,The the cable ship the cable lane ship has been able to lay all the devices the first chunk of biking with very good results.
4468678,96,1494.5601,1509.9399,2,And even more importantly I would say uh Valerio explained uh the level of organic growth or organic sales is about the pre-pandemic uh level of two thousand nineteen.
4468678,97,1509.9399,1521.7001,2,Uh in the energy business uh for approximately 3% <inaudible> and even not too far from the pre pandemic two thousand nineteen public telecom deal.
4468678,98,1521.85,1527.97,2,So these are extremely positive uh signals and uh indications.
4468678,99,1530.0601,1546.79,2,Uh adjusted EBDA uh 725 million uh a very good margin uh 7.8%.
4468678,100,1561.41,1569.55,2,So a wide formula margin increase in particular in the uh energy business.
4468678,101,1569.55,1572.85,2,And in particular the ENI uh business.
4468678,102,1573.34,1583.95,2,The third quarter was pretty strong uh 255 million at the same level more or less of the uh second quarter.
4468678,103,1583.95,1600.54,2,Uh the uh excluding the uh more or less six oh million 46 million for success accumulated over the last two years.
4468678,104,1615.01,1627.35,2,And for all these reason as Valerio mentioned we are quite confident to close the year in the very high part of our E B D A guidance we're very close to nine seven oh.
4468678,105,1627.35,1637.29,2,Uh you see on the uh box uh top right.
4468678,106,1664.13,1672.29,2,You see that the deviation the positive deviation compared to the previous year uh is is growing quarter after quarter.
4468678,107,1672.29,1676.4901,2,From one three million in q one to twenty million in q two.
4468678,108,1676.96,1689.88,2,thirty five million in q three even even as by the easing of the Forex effect that the Forex effect is one nine million here today for the first nine months.
4468678,109,1689.88,1699.9299,2,And you see it was particularly negative in the first quarter relatively negative in the second quarter and even slightly positive in the in the third quarter.
4468678,110,1699.9301,1708.35,2,cuz of course will also support the the uh full year E B D A and full and the full year closing.
4468678,111,1709.89,1722.3199,2,Uh adjustments below the adjusted EBDA line meaning they mainly restructuring costs <inaudible> down to twenty five million as as totally as expected.
4468678,112,1722.3199,1743.12,2,But after the uh South European <inaudible> footprint of two thousand nineteen and two thousand twenty uh they uh special items so which are no <inaudible> items not affecting the cash uh are also very low.
4468678,113,1743.48,1757.11,2,Uh last year they suffered from a politicized holding permit is help you with year we're not having this negative effects and this is course in the end uh driving their power back <inaudible>.
4468678,114,1796.24,1810.38,2,Let me now uh go to the uh following line the uh balance sheet.
4468678,115,1810.38,1845.53,2,Uh lemme start from the stability uh obviously with the point of the next financial position of the next financial debt at six thousand six hundred sixty three million uh <inaudible> stable from September two thousand twenty.
4468678,116,1845.85,1864.66,2,Also in this case Valerio anticipated that the the the reasons for the <inaudible> very clear way and the the substantial reason is a a major impact that can from raw material prices.
4468678,117,1888.85,1896.37,2,If it's much more difficult to estimate the low metal raw material prices increase much more difficult to estimate.
4468678,118,1896.73,1899.7001,2,I would estimate these at at least eighty million.
4468678,119,1899.7,1913.2899,2,So all in all we can count a four hundred million impact on our balance sheet and operating working capital coming from the uh raw material prices.
4468678,120,1913.89,1919.61,2,Of course we have we have tried our best to compensate.
4468678,121,1919.64,1924.05,2,This was not very easy I assure that.
4468678,122,1945.22,1951.46,2,Uh uh and and uh to form principal the market recovery the good volume trend.
4468678,123,1951.46,1961.99,2,And I think we achieved a very good reduction working capital both on the front of uh receivable and front of the payables.
4468678,124,1961.99,1967.0599,2,And these allowed us to partially compensate the raw material prices effect.
4468678,125,1971.7,1977.6699,2,Let me finally go to the cash flow following page.
4468678,126,1977.67,1985.12,2,Here we have the usual which uh of the data showing the data stability from September to September.
4468678,127,2007.9,2024.24,2,Uh and that the one hundred and eighty two million is the number which is consistent and could enter with our year end guidance at the at the 300 million plus minus 20%.
4468678,128,2024.24,2029.4399,2,Uh for this means that overall we anticipated for water in terms of cash flow pretty much in line with the previous year maybe is likely better allowing us to grow that 182 at least start to to uh the mid point of the year just to like 300 million euros.
4468678,129,2036.7,2062.4199,0,Thank you ladies and gentlemen if you have a question at this time please press star one on your telephone keypad.
4468678,130,2062.9099,2065.46,0,To cancel your question you can press the hash or palm key.
4468678,131,2065.95,2071.3799,0,Once again that's star one on your telephone keypad to ask a question and the hash or palm key to cancel.
4468678,132,2071.8501,2076.3499,0,We have a question coming from the line of Lucy <inaudible> from Morgan Stanley.
4468678,133,2076.3501,2077.0598,0,Please go ahead.
4468678,134,2139.05,2156.9399,2,With the seasonality sector number one and with the normally with ordering they and also milestone delivery in the project business which are very passion rate in the last part of the year mainly the fourth quarter.
4468678,135,2157.52,2165.49,2,Uh I if you allow I I prefer maybe to start to to at least take out of the picture one of the factors <inaudible>.
4468678,136,2182.6799,2202.9202,2,Uh we may also benefit of the uh metal price of some metal price effects cuz the copper price flattened in the last period even decreased a little bit.
4468678,137,2203.1899,2208.5901,2,So in the fourth quarter we may benefit a bit.
4468678,138,2208.5901,2216.5701,2,Where whereas in the fourth quarter last year you remember that the was the start of the metal price increase.
4468678,139,2216.5701,2220.79,2,So the two trends are quite opposite should be quite opposite of course.
4468678,140,2231.3201,2231.47,2,Uh…
4468678,141,2295.29,2298.72,1,And that will be discussed that touch rate given us.
4468678,142,2299.96,2321.6899,1,Reason why the raw material <inaudible> price so much and the scarcity of raw material perceived by some of the markets we made the mistake to run for higher models in our stock.
4468678,143,2322.6101,2330.6602,1,That is going to be compensated cuz we are acting pretty strongly in our supply chain.
4468678,144,2330.9399,2349.25,1,And that the mayor effect we be saying will mean a a some recovering working capital specifically in stock in the in the fourth quarter <inaudible> will be a a positive effect.
4468678,145,2349.25,2363.5298,1,Whereas we will certainly a higher level of CapEx so the two hundred forty eight million of last twelve month CapEx we grow to two ninety three oh oh million and this will be on the on the on the negative side.
4468678,146,2363.8999,2371.9399,1,Like also the fact that last year was a particularly strong cash flow of the project business in the fourth quarter.
4468678,147,2374.3899,2387.51,1,As I said we had a very good dynamic of cashflow from projects in in uh the first nine months in the last 12 months.
4468678,148,2387.74,2394.8899,1,And compared to last year I think we will have a um less positive contributions still positive but less positive contribution from projects in the fourth quarter.
4468678,149,2394.8899,2401.0601,1,But all in all all these sectors are substantially compensating each other right?
4468678,150,2419.5901,2425.1702,1,I dunno if I was clear Lucy?
4468678,151,2425.1699,2425.23,3,Yes.
4468678,152,2425.23,2425.9399,3,Thank you very much.
4468678,153,2511.8201,2520.9199,1,With the advance payment we expect to materialize some more quarter of which the biggest one of the histories that is gonna be different.
4468678,154,2521.8401,2527.25,1,Which is gonna be our uh our share of this project.
4468678,155,2527.25,2537.95,1,I can participate in because we are under the silent period but uh I'm quite confident.
4468678,156,2538.8899,2549.45,1,For next year obviously that's a trend that uh we are reasonably confident to be able to catch.
4468678,157,2550.26,2561.72,1,So next year projects we will uh hopefully confirm the trend of the last two quarters and we'll grow significantly.
4468678,158,2566.05,2566.3101,3,Thank <crosstalk>.
4468678,159,2583.6899,2587.6101,1,Next week when we are gonna give the guidance for next year.
4468678,160,2588.8201,2589.0601,3,Okay.
4468678,161,2772.6499,2778.77,1,Investments in CapEx <inaudible> the execution of <inaudible> are not in.
4468678,162,2779.0601,2779.46,1,Why?
4468678,163,2779.6201,2781.26,1,cuz are not foreseen.
4468678,164,2781.6399,2801.8799,1,The cap the capacity we have to manage the terranean and confidently there will not be an additional CapEx to manage the <inaudible>.
4468678,165,2802.76,2803.27,4,Okay.
4468678,166,2803.72,2804.1001,4,Thank you.
4468678,167,2805.3701,2805.77,1,you are welcome.
4468678,168,2806.05,2818.25,2,Monica regarding the free cash flow uh question uh if I understood well obviously to who uh 2022.
4468678,169,2818.25,2818.5601,4,Yeah.
4468678,170,2819.74,2836.53,2,Uh well in principal if we if we think how much the raw material price is affected the cash flow this year I think should be shouldn't be possible to should be feasible.
4468678,171,2836.53,2849.3499,2,The level that you mentioned the four oh oh uh of course uh as as usual uh we are a target to improve our results that's the first component.
4468678,172,2850.04,2857.0,2,Then of course we shouldn't suffer from these major raw material price uh increase.
4468678,173,2905.4299,2905.8198,4,Okay.
4468678,174,2905.8201,2906.23,4,Got it.
4468678,175,2908.1101,2909.79,2,<crosstalk>.
4468678,176,2919.5601,2923.4202,5,And thanks for your time.
4468678,177,2924.0601,2927.3901,5,Uh my I have three questions as well and I'll ask one at a time.
4468678,178,2927.99,2934.54,5,My first question is on slide eleven and first of all thank you for giving some medium term picture on e b d a.
4468678,179,2935.21,2949.6799,5,Um but looking at this slide and if I look at the dots for projects <inaudible> and it looks like you are indicating substantial increase in in projects E B D A in the medium term which could be above five hundred million euros.
4468678,180,2949.71,2952.1201,5,If I uh just measure these bar right.
4468678,181,2952.6699,2957.6499,5,And can you confirm that?
4468678,182,2965.54,2970.4399,1,Uh you are asking me something that is too much precise.
4468678,183,2970.55,2979.3599,1,I already gave the indication that we expect for <inaudible> and I can confirm.
4468678,184,2988.6499,2992.6399,1,<inaudible> something like in between 400 and 500 <inaudible>.
4468678,185,3034.26,3043.3801,5,And just wondering I think you have a high voltage factory here but um um do you have any plan to have a <inaudible> uh factory in the UK for an option event?
4468678,186,3045.51,3052.3301,1,Honestly I met also some some people from uh UK <inaudible> about it.
4468678,187,3052.6299,3058.45,1,Uh I cannot say no but I cannot say yes as of today.
4468678,188,3058.9099,3064.3401,1,Also cuz makes no sense to pollute the world of the summary plant.
4468678,189,3065.1201,3074.9399,1,Summary plants are very expensive <inaudible> very difficult to ma- to be managed and we cannot have a templates of summer.
4468678,190,3076.1201,3078.98,1,The priority we choose is the US.
4468678,191,3079.6299,3081.24,1,Later we are gonna see.
4468678,192,3082.21,3086.2002,1,Never say never but it depends of the development of the market.
4468678,193,3086.4199,3091.23,1,We have capacity in favor we have capacity for the medium voltage in Germany.
4468678,194,3091.48,3097.1802,1,We have capacity for the X-ray voltage in Italy for the time being <inaudible>.
4468678,195,3099.6499,3100.1301,5,Thank you.
4468678,196,3100.1799,3104.7202,5,And my final question is on uh price cost going into twenty twenty two.
4468678,197,3143.73,3161.1499,1,I understand perfectly uh what I can tell you is difficult to to tell cuz the labor cost the total labor cost of the company like one billion uh two oh oh.
4468678,198,3161.1499,3169.6399,1,Obviously if we are gonna see a five percent level cost increase it'll not be easy to be passed to the market.
4468678,199,3170.6299,3178.47,1,So cuz that labor cost increase and the related base is different count account envision rate.
4468678,200,3179.9199,3185.1702,1,I would say that there shouldn't be an issue in our p m l.
4468678,201,3186.6699,3190.51,1,If limited to a single little digit.
4468678,202,3191.8999,3203.9001,1,The goal I give you to the HR and to the the local is to control and to keep under the under the level of uh <inaudible>.
4468678,203,3250.25,3252.1899,1,You're welcome.
4468678,204,3256.8999,3262.3801,0,Our next question comes from the line of <inaudible> from Seychelles please go ahead with your question.
4468678,205,3264.49,3265.3699,6,Yes good afternoon.
4468678,206,3273.6699,3277.1799,6,Uh we have seen also the the last channel about tender.
4468678,207,3277.6899,3281.1699,6,Uh so an update on that side also in the European market.
4468678,208,3281.55,3286.74,6,The second question is on your new <inaudible> cable project in the US Cost of Virginia offshore.
4468678,209,3287.55,3289.75,6,Uh can you provide any more color on that?
4468678,210,3307.9099,3313.6501,6,Then third then last question is still on the on your CapEx plan in in North America.
4468678,211,3314.0,3340.8101,6,Uh so basically you have announced um uh one hundred million uh plus eighty five million for the telecom segment and your investment in the energy project for the new plant uh in the in the short term can we assume these are the the investments plan for the North America or maybe necessary to to to to think about uh more investment going forward.
4468678,212,3341.04,3341.3201,6,Thank you.
4468678,213,3343.1201,3343.6301,2,Okay.
4468678,214,3354.51,3361.1699,2,Then uh how is already in the number I presented to you?
4468678,215,3361.3301,3362.6199,2,If i am not wrong?
4468678,216,3363.04,3376.9299,2,I already told you that we were going to write the CapEx letter for the next three years twenty two two three and twenty four around about three hundred million three hundred up to three hundred and fifty.
4468678,217,3377.6499,3384.3699,2,Why most of all because the shit is over but the US plant is coming.
4468678,218,3420.78,3429.0901,2,We are planning a number of tactics not the huge to reduce the level of the mission of the company.
4468678,219,3429.75,3438.0901,2,Scope one engine eh the other two questions the US submarine okay <inaudible>.
4468678,220,3448.2,3449.02,8,I'm connected.
4468678,221,3449.02,3449.3401,2,Okay.
4468678,222,3449.8,3458.9299,2,Just the question and give a number.
4468678,223,3461.1399,3461.5798,8,Okay.
4468678,224,3462.04,3468.8,8,Um the question was about dominion the balance of plant and the uh pricing in the US.
4468678,225,3469.5,3479.4299,8,So um if I comment on the dominion um the dominion is uh the first uh balance of plants offer that we have made together with DMA.
4468678,226,3480.1699,3503.95,8,Uh and um in an in an environment uh like the US where um you know offshore wind uh is um just emerging um sometimes customers prefer uh to buy uh the whole system including transportation of the poles and also installation of the poles um together.
4468678,227,3504.48,3510.6599,8,And uh the balance of plants approach uh becomes um important um uh elements.
4468678,228,3510.97,3519.1301,8,So we have done the first time uh a partnership with uh <inaudible> to to approach that new uh way of uh business.
4468678,229,3519.96,3529.25,8,So uh I think the uh important thing here is that the pricing definitely uh is relative to the risk that you're taking.
4468678,230,3529.76,3536.96,8,And uh we can say that it's comparable to um to the overall uh offshore wind uh projects that we have.
4468678,231,3537.3899,3547.6199,8,Um and um I cannot say that it's extremely high it's extremely low but it's in line with the expectations uh in line with the risks that we are taking.
4468678,232,3548.22,3570.8901,8,Um and um it's not going to be the first one and the last one uh we um uh we foresee uh to have more um uh especially when the uh wind farm market is growing uh to utilize also external um uh installers um apart our own fleet uh in some projects.
4468678,233,3570.8899,3574.3699,8,And we uh we are expecting that uh to continue.
4468678,234,3574.8799,3596.74,8,Um and I can say that um um let me uh uh say um it is more complicated uh to have a balance of science approach but it's also um I think a good approach for our utilities or for our TSOs uh to reduce the risk overall um of the project splitting it into uh pieces.
4468678,235,3605.1399,3605.4102,7,Yes <inaudible>.
4468678,236,3606.71,3607.04,8,Okay.
4468678,237,3609.5601,3610.1599,7,Thank you yeah.
4468678,238,3610.1599,3611.51,7,<crosstalk> last question on telecom.
4468678,239,3611.55,3611.76,7,Yes.
4468678,240,3612.75,3613.3501,1,Yes.
4468678,241,3613.3999,3632.0801,1,The the first question we went back from the last to the first one I leave the floor for the telecom to to my friend Philip here around the table to give you the reasons about the pricing and the environment in telecom.
4468678,242,3632.9399,3635.3,9,Okay good evening <inaudible>.
4468678,243,3655.02,3671.48,9,Europe <inaudible> and the rest of the world also grow.
4468678,244,3678.02,3705.99,9,Um as far as prices are concerned um you have seen also that the China mobile can <inaudible> up with more than one <inaudible> increase price which is uh uh which was expected.
4468678,245,3750.4299,3750.8098,8,Okay.
4468678,246,3754.1899,3754.51,8,Thank you.
4468678,247,3756.45,3757.46,1,you are welcome.
4468678,248,3759.9299,3760.1199,0,Okay.
4468678,249,3766.0,3766.4299,10,Thank you.
4468678,250,3766.6299,3774.4102,10,Um just my first question was around uh the the evolution of the projects business in the fourth quarter.
4468678,251,3774.4099,3785.96,10,So I I think I think when when I look back at this business the kind of good quarters of revenue are typically around sort of four fifty four sixty million of of revenues.
4468678,252,3786.4099,3790.9102,10,So is is that a sort of good indication for where this business could get to in q four?
4468678,253,3794.0801,3794.4202,1,Sure.
4468678,254,3795.6201,3796.52,2,I think so.
4468678,255,3797.2,3804.52,2,I think so for a one oh oh million maybe I would uh a good move <inaudible> maybe even a little bit more.
4468678,256,3805.45,3805.9099,10,Okay.
4468678,257,3839.8301,3842.76,2,That may give you a different way of <inaudible>.
4468678,258,3863.96,3864.6001,2,Yeah yeah.
4468678,259,3864.6001,3867.8899,2,Then the last quarter I don't have <inaudible> but uh <inaudible>.
4468678,260,3869.0701,3872.8501,10,Yeah cuz you're at eleven you're at eleven point six year to date.
4468678,261,3872.8799,3874.1301,10,So that would be the <inaudible>.
4468678,262,3879.21,3881.78,2,That's the work then I like the article.
4468678,263,3895.8101,3907.3899,1,cuz if you take if you go back uh many years you will always find a very significant difference in margin between the first part of the year and the second part of year.
4468678,264,3907.3899,3916.1602,1,So I wouldn't say these 16 states the Q4 the compound calculation in 16% I wouldn't use these for 2002.
4468678,265,3916.3101,3927.5801,1,I think we should use the 13 one three 14 <inaudible> of course with the growth of the business we have operating leverage.
4468678,266,3927.5801,3934.45,1,And uh and not certainly the q four used for the uh following the full year.
4468678,267,3934.98,3935.3101,10,Sure.
4468678,268,3947.1699,3947.6299,1,Absolutely.
4468678,269,3947.6299,3948.02,10,Which is what…
4468678,270,3953.03,3953.2,10,Yeah?
4468678,271,3954.27,3955.0,1,It is correct.
4468678,272,3955.72,3955.9299,10,Yeah.
4468678,273,3956.0,3956.4399,10,Okay.
4468678,274,3956.47,3958.05,10,Um that that's helpful.
4468678,275,3958.9199,3970.3899,10,So my my next question is just on this sort of four hundred to five hundred million sort of project <inaudible> number that that you've talked about.
4468678,276,3971.05,3978.6699,10,I so so the thing I the thing I'd like to understand is we are talking about <inaudible> kinda in in energy projects nearly doubling so adding about 200 million.
4468678,277,3984.6799,3997.6101,10,Uh and if if we think about kind of what that means in terms of revenues we'd need to add assuming it's a 15% margin sort of somewhere north of a billion of revenues in in order to achieve that.
4468678,278,4041.6399,4044.52,1,Okay let me give an answer uh in a different way.
4468678,279,4044.52,4051.29,1,In term of installation capability and capacity we're already there.
4468678,280,4052.3,4067.6001,1,We need some additional CapEx are foreseen and honestly speaking we have authorized an additional CapEx in Finland to be executed this year.
4468678,281,4093.23,4101.0298,1,So at least in the <inaudible> we should be not so far from the required capacity by the markets.
4468678,282,4103.1499,4107.5801,1,With the investment that I already told you.
4468678,283,4109.3701,4109.6201,10,Okay.
4468678,284,4109.6201,4109.8501,10,So <crosstalk>.
4468678,285,4111.73,4112.0601,10,Sorry.
4468678,286,4112.98,4127.4399,1,<inaudible> reported in page one one is a really reasonable level then maybe that some other opportunity will come and we're gonna <inaudible> with additional CapEx.
4468678,287,4166.1001,4177.54,10,Because I know there's been this effect where your contracts get renegotiated that can have a delayed impact on margins.
4468678,288,4241.8901,4245.77,9,If we do not have any big change in the mix of geography <inaudible>.
4468678,289,4246.0,4251.52,9,I'm sorry to to add up consideration that my opinion is quite important.
4468678,290,4253.8799,4260.9902,9,If you look at the inflation on the transportation cost that is very helpful to us.
4468678,291,4261.8398,4279.77,9,Because our investor presence all over the market whereas the injuries for instance of the country will have a much higher problems or much higher cause to export to the other markets we don't.
4468678,292,4280.4302,4284.7197,9,And that is helpful <inaudible>.
4468678,293,4285.5698,4297.7598,9,We are seeing investors in the UK market where the plant fish were <inaudible> exporter of energy <inaudible> and today they are suffering a lot.
4468678,294,4297.8701,4302.8501,9,The availability as well as the cost of containers.
4468678,295,4305.1001,4318.46,9,It's more expensive also for us but we are I think at least I can talk for my business.
4468678,296,4318.6299,4326.8901,9,I think we are the most local of the global players and <inaudible> that's for everything I can see as well.
4468678,297,4329.8901,4330.2002,10,Okay.
4468678,298,4330.7402,4335.79,10,Larry could I could I just check because I I struggled to hear during the the the presentation.
4468678,299,4351.98,4352.5103,9,I did not.
4468678,300,4352.5098,4353.6602,9,I did not.
4468678,301,4360.75,4367.6099,0,Please go ahead with your question.
4468678,302,4367.6099,4371.7402,11,Good afternoon.
4468678,303,4372.7202,4374.6699,11,Thank you for taking my my question.
4468678,304,4374.6699,4385.1499,11,So first is uh coming back to slide eleven could you just talk a little bit more about what you mean by climate change and digital in terms of CapEx allocation?
4468678,305,4385.1802,4386.71,11,How should we think about this?
4468678,306,4426.8701,4432.71,1,We have to reuse our <inaudible> and to do that we need some covers.
4468678,307,4433.1899,4446.3296,1,For instance the relenting water of all our factories are already ongoing but there are other targets other not significant targets but other efforts that we have to do.
4468678,308,4507.2002,4510.4702,2,And this is what these climate changes about.
4468678,309,4511.23,4519.6602,2,We also are working on the moving some uh uh SS six gas which are very contaminating in our footprint.
4468678,310,4519.6602,4525.0898,2,The one that we use as an our competitor score how about access to cable testing?
4468678,311,4525.77,4528.7896,2,And this is this requires some additional topics.
4468678,312,4540.4199,4544.48,1,If we start something and we're gonna do.
4468678,313,4545.3799,4551.1499,1,That's our side.
4468678,314,4551.1499,4551.6597,11,Understood.
4468678,315,4551.6602,4556.1899,11,And and how should I think then about the digital part of that?
4468678,316,4556.3901,4561.6797,11,because surely that is going into new uh product areas.
4468678,317,4563.3198,4569.0601,1,No the digital is uh uh as quite important chunk of investment.
4468678,318,4596.8301,4597.8701,1,Did I answer to your question?
4468678,319,4598.27,4598.6899,11,Yes.
4468678,320,4599.27,4605.0898,11,That that's very clear.
4468678,321,4605.0898,4606.1699,11,Thank you.
4468678,322,4606.25,4622.0098,11,And if I may just one follow up just to be clear on the projects CapEx.
4468678,323,4622.8101,4630.48,11,We know about US facility I'm just thinking about the split between submarine and high voltage.
4468678,324,4630.5098,4633.8101,11,Uh I guess the the ship is obviously a submarine specific.
4468678,325,4633.8101,4643.0698,11,But I can I assume there's complete overlap in new capacity um in the projects for both submarine and underground high voltage?
4468678,326,4645.73,4646.4399,1,Yes of course.
4468678,327,4647.04,4660.5801,1,I I'm not sure to have understood very well your question but the topics we are referring to are the topics including the HV land and the the submarine.
4468678,328,4661.0698,4671.23,1,But of course uh for the other the incidents the high voltage CapEx land high voltage CapEx the total energy project is lower than summer.
4468678,329,4671.8599,4677.5,1,Most the chunk scatter would be the deployed in the summer in capacity.
4468678,330,4692.21,4700.6802,2,But you have to consider that the CapEx required for human corridors are almost already done.
4468678,331,4728.2798,4728.7197,11,Okay.
4468678,332,4728.75,4729.1802,11,Thank you.
4468678,333,4730.4302,4730.98,2,you are welcome.
4468678,334,4743.75,4744.6099,12,Hi good evening.
4468678,335,4765.1201,4766.1401,12,And I can ask the second one later.
4468678,336,4769.8701,4772.54,3,<crosstalk> <inaudible>.
4468678,337,4772.54,4779.9097,2,Yes it's possible it's possible but <inaudible> quotation will be expensive.
4468678,338,4794.71,4802.4897,2,Reason why having no business capacity or a labor capacity for various market in Europe.
4468678,339,4804.3799,4808.6997,2,Being also in the European market expect them to track and grow.
4468678,340,4809.3101,4811.9199,2,We have decided to move into the market.
4468678,341,4812.3901,4821.8301,2,Let me remember you that we had been the first to build the HV plant in US followed by our competitors.
4468678,342,4822.3701,4828.9502,2,Now <inaudible> we are not the first sorry the summer in HV.
4468678,343,4830.4302,4833.9102,2,We wanted to be the second and not more than the second.
4468678,344,4835.2002,4840.2202,2,It also it is also <inaudible> we balance our capacity with the demand.
4468678,345,4840.2202,4846.98,2,We will have situation in which we produce from Europe and deliver to US even if we have a part from US and also that we around.
4468678,346,4854.2002,4863.3799,2,So the second the plant in United States will have separate Oakland across uh across the world and respond from three to to market month.
4468678,347,4878.2202,4882.1899,12,Uh but your committee around pricing was still uh challenging.
4468678,348,4882.2402,4892.6997,12,So how much time do you think uh it'll take for the telecom pricing to reflect the PPI data?
4468678,349,4894.2798,4903.8398,3,<inaudible>.
4468678,350,4904.9902,4914.2002,1,No the question is about <crosstalk> how much it would take to go back to pre-pandemic margin in telecom.
4468678,351,4931.04,4931.3599,2,Right.
4468678,352,4931.5098,4936.98,1,And uh since then uh the price went down by something around thirty percent.
4468678,353,4937.77,4942.6401,1,Very suddenly and they stayed down and even went down further for a while.
4468678,354,4943.3701,4953.4004,1,Uh we are uh we are going to be back to these uh levels I hope one day that I don't see it yet.
4468678,355,4953.7202,4961.1099,1,I what I see is something like half the gap being fulfilled in the coming twelve months something like this.
4468678,356,4970.5098,4976.4497,1,The volatility of the telecom market is unfortunately <inaudible>.
4468678,357,4977.7998,4984.5596,1,Consequently now we are recovering what's going to happen in the next <inaudible> market <inaudible>.
4468678,358,4984.8398,4985.2197,2,Yes.
4468678,359,4987.0498,4992.79,2,The trends are on the <crosstalk> sorry.
4468678,360,4993.8999,4994.23,12,Thank you.
4468678,361,4994.3501,4995.4902,12,Thank you for answering my questions.
4468678,362,4996.5498,4996.9399,2,Okay.
4468678,363,4999.6099,5000.1201,0,Thank you.
4468678,364,5009.1602,5009.4502,13,Hi.
4468678,365,5009.4502,5009.73,13,Yeah.
4468678,366,5013.0298,5022.9502,13,Um listening to some of the commentary across the wind energy sector recently the industry has fairly struggled with logistics and raw materials cost inflation.
4468678,367,5042.8799,5053.8799,1,Let's say <inaudible> growing the <inaudible>.
4468678,368,5063.1299,5072.54,1,And that's very good cuz at the end once you transfer the CapEx price increase or the insulation material cost increase.
4468678,369,5073.6401,5080.7397,1,Something remain in your pocket especially if you are able to to negotiate properly.
4468678,370,5082.2598,5082.9297,1,Now…
4468678,371,5096.6602,5097.1201,1,Sorry.
4468678,372,5099.1001,5109.9902,1,So the the growth of raw materials in our business is positive if the demand is good.
4468678,373,5109.9902,5113.0801,1,cuz we can pass it to the market to the customers.
4468678,374,5114.2402,5118.6602,1,If the demand is not good that's another problem.
4468678,375,5119.1802,5122.6001,1,It's a very big problem but usually doesn't happen.
4468678,376,5122.6802,5124.7397,1,In the last 20 years that I'm in the business I've never seen.
4468678,377,5124.7402,5143.6099,1,So in the offshore as you were asking for a the offshore in the projects.
4468678,378,5143.6499,5149.5303,1,In the projects the metals is fixed in advance.
4468678,379,5164.7202,5168.54,1,And that we may suffer <inaudible> the margins.
4468678,380,5168.9702,5172.4902,1,But uh is not uh is not a number that is gonna kill us.
4468678,381,5173.71,5180.52,1,So the raw material cost increase is usually passing to the customers.
4468678,382,5181.9502,5194.2998,1,For the projects of course the timeline to compute the project and to realize the cable is longer than the move of the raw material price.
4468678,383,5194.6001,5198.9199,1,And the contract did not foresee <inaudible> an adjustment of the price due to the raw material fixation.
4468678,384,5200.0298,5208.54,1,If not for the <inaudible> that are <inaudible> and sometimes <inaudible>.
4468678,385,5211.5801,5221.6299,1,<inaudible> I dunno if you wanted to work something about the project margin plan?
4468678,386,5221.8701,5222.25,2,Yes.
4468678,387,5222.6401,5225.5801,2,Valerio you explained very well uh the project part.
4468678,388,5225.8501,5235.5703,2,Uh I can only add that um uh it is very project specific uh to adjust sometimes also raw materials other than metals.
4468678,389,5236.1699,5251.1401,2,Uh if um if the customer is in agreement uh that we can escalate uh you know uh with an escalation formula uh the price according to uh the uh indexes of other raw materials.
4468678,390,5251.1401,5263.6602,2,We are taking that into consideration in case uh we are not um in agreement and the customer wants to uh uh keep a fixed price uh in the project other than the metals.
4468678,391,5264.04,5279.6899,2,Then we include uh some inflation um into our project that cover partially uh you know the um or let me say uh the normal um increases in the um market uh regarding the raw material.
4468678,392,5280.1299,5293.1304,2,But of course if um there are short term significant fluctuation uh um they they are not covered by the um um let's say um by these adjustments.
4468678,393,5293.1299,5307.96,2,However we do not see um um such a situation um lately um especially when we signed the contract um uh after the uh raw material price uh uh increases that has happened.
4468678,394,5308.0098,5316.2598,2,We are already including um all the uh updated raw materials and also expected increases um going forward.
4468678,395,5316.6699,5327.02,2,So um vale as Valerio said um we we from time to time are affected but it is not changing the profitability of the project significantly.
4468678,396,5330.3301,5330.6099,13,Okay.
4468678,397,5330.6401,5332.6602,13,Thank you very much for the uh color on that.
4468678,398,5335.96,5336.1201,13,Thanks.
4468678,399,5337.8599,5338.27,1,Okay.
4468678,400,5346.9702,5348.8696,0,Um would you like to take it?
4468678,401,5349.8701,5350.75,1,Yeah of course.
4468678,402,5351.0,5351.4502,0,Yeah.
4468678,403,5363.1401,5363.4302,14,Hi.
4468678,404,5395.8701,5399.8101,3,<crosstalk>.
4468678,405,5403.8999,5407.0801,1,Listen uh I have to be very honest with you.
4468678,406,5407.8301,5416.04,1,I rarely have seen <inaudible> especially he and I going back sharply.
4468678,407,5416.04,5417.5601,1,Going <inaudible> our forecast.
4468678,408,5417.5898,5425.4702,1,I tell you the truth is to be able to <inaudible> the the volume of energy.
4468678,409,5426.3999,5435.0103,1,because that could be already a success after the very big increase we have seen in the last year.
4468678,410,5435.0098,5436.48,1,<inaudible> what you wanted…
4468678,411,5436.48,5436.7998,2,Yes.
4468678,412,5437.0098,5446.3501,2,Volume will remain uh conservative but we're very positive after what we've done this year in terms of passing costs inflation to the marketing price right.
4468678,413,5446.3501,5453.5303,2,So you will see an organic growth not related to volume and more or less to price than uh than anything else.
4468678,414,5453.5298,5476.04,2,So this is something that we foresee lasting at least for uh the first six months of next year then beyond that <inaudible> visibility but we're counting that we do that we do next year same good job that we did uh this year <inaudible>.
4468678,415,5480.8901,5481.6899,1,Till the next one.
4468678,416,5489.1699,5490.77,0,You may now disconnect your lines.
4468678,417,5490.9902,5491.9102,0,Thank you very much.
4468679,0,3210.95,3211.51,11,Goodbye.
4468715,0,10.21,13.25,0,As a reminder all participants are in listen only mode.
4468715,1,13.88,17.42,0,After the presentation there will be an opportunity to ask questions.
4468715,2,34.85,35.37,1,Good morning.
4468715,3,35.48,44.2,1,Good morning to everybody on this call and thank you for joining us in our third quarter results uh session.
4468715,4,45.17,56.82,1,As usual I'm here with Bernardo Mingrone of CFO inaudible is leading investor relations but we have also a few other colleagues connected in here with us in case it is needed.
4468715,5,57.64,58.84,1,Uh as usual.
4468715,6,58.84,75.42,1,Um I will start giving you a little bit of an update on where we see uh the volumes going and evolving on the back of uh the evolution of COVID and it also give you a short business update with focus on merchant services.
4468715,7,75.49,88.0,1,Then I will hand over to Bernardo who will cover financial results and i'll come back to give you a quick update on where we are in creating the European Paytech leader and bringing the new group uh together.
4468715,8,89.0,98.15,1,And obviously I will conclude commenting on uh guidance that as you know has been confirmed for uh the full year already.
4468715,9,98.66,102.69,1,Um before I go in let me uh…
4468715,10,102.99,113.13,1,reminder to everybody this is the first time for us uh in presenting the aggregated numbers of Nexi and Nets.
4468715,11,113.87,126.58,1,Uh last time you may remember Bernardo gave you uh an overview of what proforma the profile of uh the new group uh would've looked like to kind of introduce the topic.
4468715,12,126.63,129.85,1,This time we're reporting integrated Nexi-Nets.
4468715,13,130.58,138.05,1,Uh uh we will uh cover the performances by uh region which will give you an indication of how things are going.
4468715,14,138.12,147.13,1,Uh I will probably make a few more comments on uh uh the standalone performances but as I said we're reporting for the first time in an integrated way.
4468715,15,147.55,153.07,1,Uh and then at the end of the presentation we leave time as always for your questions.
4468715,16,153.45,157.28,1,Now let me start as usual with key messages at page three.
4468715,17,157.77,165.85,1,Uh the three messages basically are enforcing the same three messages we had over the last couple of uh uh quarters.
4468715,18,166.2,174.79,1,Number one uh it served a continued volume recovery in acceleration across uh the various geographies in Italy.
4468715,19,174.82,183.92,1,We continue to see a strong volume performance with Italian cards growing anywhere in between twenty to twenty five percent uh versus two thousand nineteen.
4468715,20,183.92,190.69,1,That again I remember to everybody is always our benchmark here cuz it was the pre COVID year.
4468715,21,191.09,204.48,1,Uh next to Italy we've seen also a good recovery in the Nordics that uh came back to positive over the last few weeks as a total with some stronger performances across uh many sectors.
4468715,22,204.85,220.04,1,That region uh is still recovering it's not back to the previous level at full but actually seeing a stronger basic conception growth uh and also more recently uh we've seen the discretionary sector coming back to positive here.
4468715,23,220.28,231.59,1,The travel sector impacted that for uh uh our business there still uh relevant in volumes is the one that is still behind although recovering.
4468715,24,232.77,238.86,1,Uh third point we see an acceleration stronger in SMEs than in LAKA.
4468715,25,238.86,254.49,1,This has to do also with the different uh uh profiles of uh uh the different sectors in terms of inaudible and LAKA but we believe this is really positive uh for our uh positioning and for the outlook as well.
4468715,26,254.74,268.89,1,And last but not least we continue to see clear signals of acceleration of cash to digital payments transitions across all sectors and visible in all geographies also the ones that are already more penetrated.
4468715,27,270.21,270.92,1,Message number one.
4468715,28,270.99,279.99,1,Message number two also in the third quarter we've seen strong and growing financial performance revenues for the group.
4468715,29,280.24,289.28,1,Uh we're at ten point one percent in the quarter in acceleration versus the previous two quarters for a total of nine point six percent in the nine months.
4468715,30,289.87,294.4,1,We've seen in particular strong revenue growth performance in national services and solutions with…
4468715,31,294.64,303.82,1,for both Nexi and Nets very similar levels plus twelve point two percent for the total in the third water ten point six here to date.
4468715,32,303.85,306.03,1,And again here you see an acceleration.
4468715,33,314.83,333.15,1,Uh EBITDA in the quarter was up fourteen point six percent up to twelve point three percent from the beginning of the year with continued margin expansion that in the third quarter was at fifty three percent up two percentage points versus last year.
4468715,34,335.11,336.0,1,Third message.
4468715,35,336.29,340.92,1,We continue to progress in the creation of the European Paytech leader.
4468715,36,341.62,349.22,1,Here as reported again stronger standalone performance and will comment on a dedicated page.
4468715,37,349.5,358.87,1,As you know we have received the Antitrust approval on October fourteenth on the combination of an Nexi and Sia and the closing is now expected by year end.
4468715,38,358.87,365.73,1,In the meantime we have closed the deal uh with Intesa on the UBI merchant book.
4468715,39,366.22,385.58,1,Uh yesterday we've also signed the dealer with Alpha Bank to create a joint venture in merchant services deal in Greece closing the spec that at some point in the second half probably the second quarter uh of uh sorry in the second half probably the second quarter of uh uh next year.
4468715,40,385.76,388.22,1,Last but not least uh we made them…
4468715,41,388.22,399.29,1,have done a small but actually strategic investment for our future in a company it's called Ordebad and is leading DACH inaudible software solution for the hospitality sector inaudible.
4468715,42,399.29,405.61,1,In other geographies it is a small investment talking of only about 16 million euros.
4468715,43,406.0,414.67,1,We've increased our uh ownership from twenty percent we were already there to forty percent with a clear path to control.
4468715,44,415.05,428.34,1,And we're very happy for this because it is the first real s m l test for us in entering in a deeper way the software space especially for SMEs starting from Germany.
4468715,45,428.67,433.56,1,This is a very strategic market for us in expanding in other places as well.
4468715,46,434.32,444.23,1,On the back of all of this we've confirmed our ambition for twenty twenty one on a Nexi-Nets combined level revenues.
4468715,47,444.63,448.4,1,We expect them to grow at about ten percent year over year.
4468715,48,448.43,455.23,1,And EBITDA expect EBITDA to grow at eleven to thirteen percent year over year.
4468715,49,455.9,460.6,1,Now before I go into volumes lemme jump to page five.
4468715,50,460.6,465.64,1,As a quick reminder this is the new profile of the group.
4468715,51,465.64,474.68,1,Uh we have a group that sees about sixty percent of the revenues in national services and solutions with a strong exposure to E-commerce.
4468715,52,475.1,482.33,1,twenty nine percent is what we call cars and digital payments and the remaining ten percent in what we call digital banking and corporate solutions.
4468715,53,482.67,495.01,1,Second the group uh is highly highly exposed to market with super strong and very very long term and secular growth opportunity in digital payments.
4468715,54,495.05,496.89,1,seventy one percent is uh…
4468715,55,496.89,507.57,1,of our revenues are in low penetration markets such as Italy such as German such as the Central uh uh European ones and Southern European ones.
4468715,56,507.57,525.05,1,Uh number three sixty four percent of our revenues are coming from uh volume and uh the thirty six percent from installed or installed uh uh like uh uh type of uh inaudible last but not least we have a very strong operating leverage.
4468715,57,525.49,533.51,1,Now let me jump into volumes and recovery pretty fast and then I will also give you an highlight on what we see happening in the other key geographies.
4468715,58,533.51,536.03,1,Page number six is the usual page.
4468715,59,536.03,538.82,1,The dark blue line is the total here.
4468715,60,538.82,545.8199,1,We're focusing on merchant services where we have more insights and therefore the dynamics are more interesting.
4468715,61,546.05,548.42,1,The dark blue line is the total.
4468715,62,548.42,557.22,1,The uh uh the the lighter blue line is actually on Italian card the gray one is on international card and for visitors to Italy.
4468715,63,557.69,568.09,1,Here you see that uh after the summer we continue to basically grow revenues compared to twenty nineteen anywhere in between ten to twenty percent sometimes also above twenty percent.
4468715,64,568.78,578.0601,1,And here there is a clear strong contribution from Italian cards that been growing anywhere in between twenty to thirty percent over the last few months.
4468715,65,578.34,584.47,1,I would say particularly interesting is also uh uh the dynamic in uh in the international visitors card.
4468715,66,584.47,604.68,1,Here you see that you had a very very fast recovery uh in the summer leading to August where now we went back to the levels of pre COVID uh mainly driven by European visitors with uh Americans and uh and the Asians being still uh not present or present in a very limited way.
4468715,67,605.05,609.59,1,Uh then with the slowdown again but then a strong recovery over the last few weeks.
4468715,68,609.59,611.92,1,Uh uh the the…
4468715,69,611.92,618.83,1,This dynamic is probably explained by the fact that uh the touristic side of international travel is recovering fast.
4468715,70,618.83,621.5,1,People are really keen to travel as soon as they can do it.
4468715,71,621.84,632.54,1,Well actually the business traveler uh dynamic is still uh uh is still behind and therefore depending on the moment of the season probably we'll continue to see these dynamics happening.
4468715,72,632.84,652.39,1,Hopefully the recovery of October is uh also due the to the fact that uh we have uh we had uh less restrictions also for business travel so it's a combination of business travelers coming a bit back and actually holidays in some countries in Europe uh in the latter part of October as well.
4468715,73,653.23,658.28,1,Jumping to page seven we have the usual split by macro sectors.
4468715,74,658.28,669.04,1,Uh this is the total so this is not separating Italian cards versus international cards and therefore the sectors are also affected by the dynamic that I was explaining before.
4468715,75,669.04,687.68,1,Here we see uh very strong continued growth in the basic consumption sectors like groceries utility uh uh medical um and so and so forth growing anywhere around the thirty percent thirty thirty four percent thirty seven in the last uh uh week.
4468715,76,688.14,708.57,1,And we see the other two sectors now moving uh uh kind of similarly anywhere in between I would say five to ten percent uh year over year uh with a super strong recovery I would say definitely faster than expected in particular in uh uh uh in uh in the impact sectors and I would say in particular in restaurants uh and uh bars.
4468715,77,709.04,711.95,1,Uh so this is the dynamic we are observing uh in Italy.
4468715,78,711.98,717.44,1,we will come back in a moment uh to give you a bit more insight on specific sub sectors cuz I think it's interesting.
4468715,79,718.02,721.73,1,On page eight we see instead the dynamics…
4468715,80,721.73,726.44,1,We've observed the dynamics uh uh in the Nordics area and in the DACH region.
4468715,81,726.44,759.07,1,Uh if you just take the total before going into the sub sectors space uh we have observed a plus twelve percent growth in October across both across the Nets if you like uh uh geographies uh twelve percent growth of our SMEs uh versus two thousand nineteen LAKA instead we're still behind but actually if you strip out the effect of their impact consumption sectors growing as well uh uh plus eight percent.
4468715,82,759.6,770.1299,1,Uh last but not least we also see good recovery in issuing now growing five percent in Nets' geographies and basically this one is mainly uh uh relating to the Nordics.
4468715,83,770.72,776.28,1,Um as we're talking about the Nordics here you see in the top graph the dynamic.
4468715,84,776.58,782.56,1,Nordics have been back to positive from September and actually growing further in October as a total.
4468715,85,782.92,786.54,1,They've been growing seven percent versus two thousand nineteen in terms of volumes.
4468715,86,786.84,788.5099,1,Actually the last week is…
4468715,87,788.51,799.44,1,was actually double digit with twelve percent very strong and continued performance on the basic consumption sectors about thirty percent actually forty five in the last uh week.
4468715,88,800.01,816.83,1,Uh the discretionary consumption sector uh uh trending a bit slower but now close to zero and a good recovery over the last few months also for the high impact sectors uh over the last month at minus one percent.
4468715,89,817.68,825.82,1,Uh last but not least in the DACH region and here most of the volumes are actually associated to Germany.
4468715,90,826.17,833.6,1,Here you see a continued strong performance of growth in the basic consumption sectors.
4468715,91,834.19,845.33,1,Uh you see actually uh discussionary services going back to uh uh a positive uh 8% last week 2% in October versus two thousand nineteen.
4468715,92,845.61,847.47,1,Here the sector is still behind.
4468715,93,847.47,864.25,1,It is actually the one that is related to travel uh and here uh in Germany there's an important impact on the total mix and this is one of the reasons why the key reason why actually Germany is still behind compared to two thousand nineteen volumes.
4468715,94,864.65,875.93,1,So this is the total feature page nine a bit more into the specific sectors to reinforce the point that I think we made over the last many calls.
4468715,95,875.93,893.79,1,I would say that uh we have been observing underneath these COVID related dynamics uh a very strong acceleration of the transition from uh cash to digital payments not only in under penetrated markets like Italy but also in more penetrated markets like the Nordics.
4468715,96,893.79,905.05,1,And here you see at page nine a few examples here with the pick from top to bottom the top uh eight uh um sectors per market.
4468715,97,905.28,911.41,1,Uh uh some of them maybe are less relevant in size but here you see actually also very relevant sectors.
4468715,98,911.89,925.61,1,uh think of the restaurants and bars in Italy thirty four percent growth of groceries twenty five percent growth nicely growing uh uh old double digit next to some very special ones like doctors eighty two percent for example.
4468715,99,925.89,932.52,1,Nordic similarly groceries twenty three percent twenty five percent versus two thousand nineteen.
4468715,100,932.75,939.06,1,Again for a market that uh we tend to believe that is already highly penetrated a big…
4468715,101,939.06,941.53,1,is a big positive in our opinion.
4468715,102,941.53,951.7401,1,And then you see some more specialized smaller sectors such as for example cosmetic or hardware growing at forty percent fifty nine percent and so on.
4468715,103,951.74,955.41,1,Last but not least also in the DACH region groceries 49%.
4468715,104,956.4,974.56,1,Also restaurants despite that some limitations been instilled in place thirteen percent and many other sectors growing double digit with actually department stores uh uh growing triple digit but uh I would look at it uh with a lot of sympathy that is swelling up uh the the benchmark for the other sectors of inaudible for now.
4468715,105,975.4,979.23,1,So this is basically the picture uh uh in terms of volumes.
4468715,106,980.13,1010.73,1,Um before I hand over Bernardo to cover financial results I would love to dive with you for a few minutes on the dynamics and the key initiative that we're observing in particular in merchant services that as you know is uh more than half of our revenues and is always uh up inaudible focused not just for us but also for uh uh for uh for you and for uh investors uh more broadly.
4468715,107,1010.73,1016.0601,1,And here we try to give a little bit of a feeling of what we are doing in the different uh uh uh segments.
4468715,108,1016.55,1031.6899,1,inaudible this by SMEs that represent almost sixty percent of our revenues uh in national services E-con that represent about twenty five percent and also LAKA that is a bit less than ten percent of total revenues.
4468715,109,1031.6899,1046.2301,1,If you're asking yourself why they don't sum up to one hundred the reason is that there is a seven percent that has to do with acquiring ATMs as we call it cash and it is not allocatable to any segment.
4468715,110,1046.64,1053.03,1,For simplicity reasons that are allocated inaudible as revenues to SMEs because most of it is really SMEs.
4468715,111,1053.5601,1057.08,1,Now uh uh going uh uh uh one by one.
4468715,112,1057.8101,1072.36,1,In essence we see a strong acceleration on our on our digital proposition um uh in Germany positive results in Germany on the back of uh uh the very positive result we had in the Nordics as well as in Italy.
4468715,113,1072.39,1077.63,1,we're promoting more and more uh the uh uh mobile post proposition for new…
4468715,114,1077.67,1081.12,1,to uh merchant uh sub sector.
4468715,115,1081.45,1091.03,1,Uh at the same time no we are very successfully uh pushing on vertical propositions in the in in uh in in the specific uh sectors.
4468715,116,1091.03,1112.08,1,We've started in Italy uh uh we've dedicated a go-to market for uh very nano verticals for example restaurant cafes hotels uh uh retail and so and so forth where we package uh very often from the distribution go-to market point to view but sometimes also pricing end product itself.
4468715,117,1112.25,1118.03,1,And this is really uh uh uh eating the ground well with customers.
4468715,118,1118.4399,1124.5199,1,At the same time we are increasing our focus on IVs and more in general the software space.
4468715,119,1124.9,1128.1499,1,Uh and here uh uh basically there are two things we are doing.
4468715,120,1128.15,1134.61,1,On the one side we're expanding our partnerships across all geographies I would say with ISVs.
4468715,121,1134.83,1142.7,1,Uh and if you count them across the board we can't count them actually for this call it is actually more than five hundred partnerships in the I S V space.
4468715,122,1142.7,1151.4301,1,And there are mix of partnerships with local leaders uh on uh uh merchants uh uh C R M and e r p softwares.
4468715,123,1151.62,1153.91,1,For example Team System just to mention one.
4468715,124,1154.29,1162.21,1,Uh and many many many smaller uh much smaller vertical specialists that very often are local companies as well.
4468715,125,1162.21,1166.91,1,And we normally partner we do technical integration and some of them we do also go-to market together.
4468715,126,1167.27,1182.53,1,As we anticipated uh now with Oderbad we're one level deeper as uh no we will uh integrate more on the proposition side as well and we will test it in one segment in one market that expanded further as we go along.
4468715,127,1183.1899,1189.39,1,In the S M E segment um uh uh basically we we have not seen any major news in terms of competitive dynamics.
4468715,128,1190.01,1197.53,1,Uh we know I mean we discussed it in the past that we have uh uh important competition in the new to…
4468715,129,1197.53,1220.5399,1,uh new two digital payments segment the smaller merchants that are started to use digital payments for the first time in particular in Italy in particular also in Germany from basically one player uh that is inaudible that actually successful in the market in winning a number of customers but actually the value associated with these customers given the size of them is uh normally very small.
4468715,130,1220.86,1227.72,1,Uh we have also increased in Italy our focus uh in uh uh that segment and we're actually quite successful.
4468715,131,1227.72,1242.77,1,We have doubled our acquisition bonds but we're also focusing uh in in uh winning back these customers as they grow uh and when they need the proposition it is more structural and more complete.
4468715,132,1242.77,1250.78,1,This is in terms of SMEs the volumes across our inaudible were up about fourteen percent in the quarter compared to the same quarter two thousand nineteen.
4468715,133,1251.98,1265.59,1,Um eCommerce which represent about twenty five percent uh of our uh revenues in merchant services see seeing a lot of dynamics a lot of new players coming some of them going as well uh to be honest with you.
4468715,134,1265.62,1271.35,1,And by the way this is a sector where we have a new segment a new propositions emerging as well.
4468715,135,1271.73,1278.75,1,We need to talk more about it in our inaudible sessions but let me give you a flavor of what we're doing here.
4468715,136,1279.0699,1305.01,1,Uh first of all when it comes to the more p s p like uh type of position for the acceptance propositions uh uh we are launching easy in Germany after uh uh a pretty good success in the Nordics as a collecting P S P proposition at the same time uh we are extending our P S P proposition uh uh in terms of capability in Italy it's called Xpay.
4468715,137,1305.24,1315.4199,1,And we are extending this proposition also in the back of the experience and the capabilities that we have in Nets for example in one three checkouts uh and cards pre-onboarding.
4468715,138,1315.73,1326.27,1,Uh in uh the nine month our E-commerce activations in Italy had been up seventy percent compared to the same period uh two years ago just to give you a flavor.
4468715,139,1326.61,1332.38,1,At the same time years uh uh we are seeing a lot of activity in the alternative payment method space here.
4468715,140,1332.77,1334.99,1,Uh our angle is twofold.
4468715,141,1335.28,1335.98,1,We know…
4468715,142,1336.24,1347.6699,1,We own alternative payment methods and at the same time we partner with inaudible at the uh payment method to make them available for our gateways to our merchant customers.
4468715,143,1347.88,1359.7799,1,If you focus for a moment on uh account to account propositions we actually have a very strong position a successful position both in Poland and Finland and they're growing very very strongly.
4468715,144,1359.8101,1370.25,1,At the same time we are onboarding more and more uh account to account solutions to our gateway for example inaudible pay uh in uh uh Italy.
4468715,145,1371.38,1377.39,1,Uh similarly similarly in Buy Now Pay Later we have a very strong proposition called inaudible in Germany.
4468715,146,1377.42,1381.8401,1,We own the proposition that proposition is growing uh very very strongly.
4468715,147,1382.04,1394.62,1,Uh but again that is the proposition that is made available not only through our gateway solutions uh in Germany but also to basically every other uh national international P S P active uh in the country.
4468715,148,1394.65,1418.14,1,At the same time in the other geographies uh we are partnering more and more with party uh by now politic providers because at the end of the day as a P S P we must be able to offer uh uh all possible payment methods uh to uh our uh merchant customers uh in inaudible to allow them to basically maximize their conversion rates uh checkout.
4468715,149,1418.75,1430.72,1,Um last but not least we continue to uh strike partnerships with uh uh with uh E-commerce enabler platforms uh across all markets.
4468715,150,1431.3,1435.1801,1,Uh we have about uh we actually have more than ten partnerships across the group.
4468715,151,1435.1801,1439.7999,1,Many of them uh uh are with players that are present in more than one market.
4468715,152,1440.04,1442.89,1,Today we cover about sixty six-
4468715,153,1442.9301,1445.6001,1,seventy six percent of the relevant market.
4468715,154,1445.6,1466.49,1,Today E-commerce enables cover uh across our geography about ten percent of the volumes that basically serve the tiniest inaudible in the micro-merchants uh the micro-SMEs uh in E-commerce we cover through technology integration um and uh in certain cases we also go to market partnership percent of that.
4468715,155,1467.22,1476.5601,1,Uh again here volumes are growing thirteen percent despite no uh uh the travel related sector still being uh uh uh suffering.
4468715,156,1477.34,1492.25,1,The reason why the growth rate of revenues uh is actually well above thirty percent is because uh when it comes to account to account and Buy Now Pay Later solutions that we own the growth rate is very very strong and it's contributing to the total growth.
4468715,157,1492.61,1499.1699,1,Last but not least uh uh the LAKA of segment represents about nine percent of our total revenues in uh merchant services.
4468715,158,1500.03,1506.41,1,Here Uh uh we don't see any major news uh in terms of uh uh uh uh competition.
4468715,159,1506.41,1521.1901,1,Obviously we continue to see active very active players like uh inaudible in very specific segments that are basically segments of the global brands in particular I would say in luxury uh and uh in uh fashion.
4468715,160,1521.1899,1539.4801,1,Uh to be very clear uh uh we continue to uh uh compete successfully and win in the sectors that instead are more local uh in nature uh such as for example food retail household goods mobility insurance public administration and so on and so forth.
4468715,161,1539.9301,1565.5,1,Basically no we win and continue to win where the physical components of the omnichannel solutions is actually relevant for these companies where they need the complex needs in terms of terminals and terminals acquiring acceptance of integration where the local integration with local payment method is important where the vertical sector integration is important where customization is important you know.
4468715,162,1565.97,1574.03,1,At the end of the day uh no uh that's the core of what we do thanks to our uh local entrenchment.
4468715,163,1574.4,1604.59,1,And here we continue to serve successfully no uh uh not only at the local uh uh uh uh large merchants but also global brands that are present uh in market with the characteristic that just describes so across our geographies we cover and serve merchants such as for example Ikea Sky inaudible I mean names that appear in international names but require very specific local support integration and uh delivery.
4468715,164,1605.79,1609.42,1,Now before I move on let me use one example of something that we had announced yesterday.
4468715,165,1609.42,1620.65,1,It is actually today's mold but I think it is also a good example of uh what uh we see as uh as as the core of uh the nature of uh the new Nexi group.
4468715,166,1620.65,1622.59,1,I think we said in the past that and in many…
4468715,167,1625.9399,1637.8401,2,We want to combine the scale that is necessary to drive hard innovation based on innovation in particular and when we send confidence is important investments are important for scale.
4468715,168,1638.2,1642.16,2,So we want to remain competitive with the global players specialized players.
4468715,169,1642.16,1654.8401,2,We wanna cancel product proposition innovation but at the same time we also want to be very very locally entrenched thanks to all the people thanks to all the ecosystem integration that we have in the different geographies.
4468715,170,1655.17,1667.37,2,And one simple example of this on top of the many I've given to you over the last few minutes it is a new product we launched recently it's called foreign language as a pay by account.
4468715,171,1667.37,1682.1599,2,This is a very nice product because it is an account to account payment product that we are making available to begin with in commerce that will be available also on management solutions for end S M E as well.
4468715,172,1682.46,1689.89,2,we are actually integrating many capabilities that we have not all the merchant services but it also depends banking space…
4468715,173,1690.66,1704.03,2,Now to deliver a solution that we're making available to our p s p merchant customers in that I believe they're progressing also to other PSPs also that want to operate in Italy.
4468715,174,1704.03,1712.47,2,And this solution is basically a leveraging open banking enabler that we provide because we are a provider of different banking systems for Italy.
4468715,175,1712.52,1744.22,2,Our capability in this space plus our local accesses plus our local integration plus our low profitabilities on eCommerce side and basically a merchant can offer the opportunity to some customers to pay by the bank account without registering on anything because inaudible banking the customers find a click button on the checkout page you click on the button then basically the um…
4468715,176,1744.22,1764.78,2,the page of the bank will open the customer will identify themselves with the standard identification method of the bank and the transaction will happen cause it is pre already filled on the different components inaudible and the transaction will happen automatically.
4468715,177,1764.78,1770.79,2,Again there's no thing inaudible global scale but also being locally entrenched and integrated.
4468715,178,1770.79,1784.3099,2,Clearly it's targeting not necessarily the small production but actually a large production because inaudible can take for the moment up to fifteen thousand Euros pre-production and going forward even more.
4468715,179,1785.36,1792.36,2,inaudible I really wanted to try and give you a flavor of what is happening in this space.
4468715,180,1792.36,1792.92,2,Bernardo.
4468715,181,1793.25,1793.7999,3,Thanks Paolo.
4468715,182,1794.16,1798.51,3,So just we'll try and be quick here so we as much space as possible for q and a.
4468715,183,1798.61,1806.2,3,Starting on slide twelve we've seen how revenues have grown approximately ten percent in the quarter and ten in the nine months.
4468715,184,1806.2,1813.11,3,As Paolo said earlier this is how what we discussed in terms of volumes and in terms of the business updates translates into the financials.
4468715,185,1813.74,1822.46,3,I think it's important to underline how growth in revenues is very similar growth and I guess that's the message I would like to leave you with.
4468715,186,1822.46,1831.76,3,In terms of foreign language we can see there's been a two percentage point increase year on year and the quarter and the same applies if we look at the nine months.
4468715,187,1831.9301,1842.46,3,And most of this accretion actually comes from nets we have less of an accretion this year on nets as we've discussed in the past due to the fact that we're unwinding or let's say there is…
4468715,188,1842.46,1854.13,3,coming outta last year we have the fact of certain costs of the cost cutting exercise we had last year which impacts our growth and costs next this year as expected.
4468715,189,1854.13,1859.11,3,So two percentage points accretion which is in line with our expectations.
4468715,190,1859.34,1862.83,3,On slide number thirteen we see how the various travel fees performed.
4468715,191,1863.92,1874.3,3,Italy Italy is strong a strong performance in the quarter with twelve percent growth accelerating compared to compared twelve percent versus twenty nineteen.
4468715,192,1874.58,1882.3101,3,Accelerating thirty eight percent we had in the first nine months so again good signs of recovery from c o v i d.
4468715,193,1882.3101,1889.74,3,Back in Poland had even stronger growth we have close to eighteen percent growth in nine months nineteen percent if you're including the quarter.
4468715,194,1890.03,1898.0601,3,Actually Germany growing more than Poland thanks to the strong exposure we have in Germany to eCommerce and BMP I'm sure Paolo referred to earlier.
4468715,195,1898.41,1901.25,3,And then Nordics and southeastern Europe slightly different dynamic.
4468715,196,1901.53,1914.1799,3,Again there is less exposure say to eCommerce to compensate in Germany and Poland for the slow recovery in terms of coming out of the lockdown in some of the former or in some of the geographies.
4468715,197,1914.1801,1921.6,3,And that's just a present process as we will see later the effect in the Nordics of the…
4468715,198,1922.39,1930.39,3,as we mentioned in the past the fact that we have renegotiated the last major contract and that has hit us in twenty twenty one.
4468715,199,1931.28,1947.87,3,Moving on to the various divisions we have merchant services and solutions where we've had a very strong quarter with double digit revenue growth across the group and this is true as I said both at the next level.
4468715,200,1949.45,1971.71,3,Nets has proven to be extremely resilient to those geographies you can see that transactions have recovered very nicely throughout the group and we have fifteen percent year to year growth for the nine months and this was only partially offset by slightly slower growth in some of the other geographies due to their different phasing of lockdown.
4468715,201,1971.9399,1982.0,3,I think it's important to underscore how eCommerce has continued to grow nicely we have three seven percentage growth in the third quarter this year thirty two percent if you look at the nine months.
4468715,202,1982.73,1989.5601,3,And this is also sustained as I said earlier through a strong performance in Germany and Poland.
4468715,203,1990.2,2016.2799,3,Just a word of explanation with regards to a trend which in the past has been different in terms of the growth and volumes of international schemes which is lower than the overall volume growth this is due to a factor in Italy of domestic debit cards now being able to transact contactless transacting on the domestic scheme rather than the international schemes and this causes some version of the trend.
4468715,204,2016.73,2022.14,3,On slide fifteen we can see the data for cards and digital payments.
4468715,205,2049.6299,2053.26,3,But overall we have strong growth in the quarter so…
4468715,206,2054.23,2056.8899,3,In cards and individual payments.
4468715,207,2056.9199,2065.49,3,Slide sixteen we can see how D B S or digital bank and corporate solutions it's now called performed in the nine months.
4468715,208,2066.04,2090.5701,3,This we have discussed this in the past is a division in which project related revenue which is recurring by nature even though it's not contractualized but every year we have project work for our partner banks mainly in the various geographies has been from a seasonality perspective present more in the first half of the year hence the deceleration you can see from eleven percent to five percent.
4468715,209,2090.6399,2093.9702,3,So eleven percent through the first nine months and five percent for the last quarter.
4468715,210,2094.53,2101.99,3,Overall I would say that performance has been in line with our overall expectations.
4468715,211,2101.99,2114.76,3,Maybe in Italy we have had a bit of a slow down which will also impact us it has impacted us this year on monthly inaudible as they were discussing potential transactions credit.
4468715,212,2114.76,2120.5801,3,That is no longer the case so hopefully we will recover some of the lost revenues there in twenty twenty two.
4468715,213,2121.3799,2123.48,3,Slide seventeen shows us the cost dynamic.
4468715,214,2123.48,2135.46,3,I think it's important to look at the commentary we've put into the side of this slide where we try and give you a picture of what the cost dynamics really look like if we normalized for last year.
4468715,215,2135.46,2147.03,3,I mentioned earlier that in next I reminded you that next year we had a cost containment program which was a hundred million Euros of cash cost last year to protect our inaudible and our cash flow.
4468715,216,2147.6001,2157.25,3,This unwinds this year and hence we have a bounce back of pools on variable compensation and a bounce back of travel expenses and the likes.
4468715,217,2157.78,2165.24,3,If we normalize for those I'd say two items in HR costs for instance the overall HR costs would actually be flat year on year.
4468715,218,2165.24,2177.4299,3,There is some slight say increase due to the annualization of people who were hired last year but overall basically flat HR costs if we normalize for a variable comp.
4468715,219,2178.0901,2201.8,3,With regards to other non HR costs these would be up one point four percent if we normalize for the growth in volume so effectively obviously revenues are growing we've seen double digit our cost base grows by one point four percent so if we take out the growth in volume driven processing costs patch them into the fixed nature of most of our cost base.
4468715,220,2203.3701,2211.0598,3,With regards to debt position of the group we should look at it with…
4468715,221,2211.0601,2247.4399,3,or at least I look at it with included we have received anti trust approval and Paolo will speak to this in a second but basically now we have the certainty if we look at the combined numbers both inaudible adding onto the last 12 months you will also see is three hundred and twenty seven you review for the last twelve months and we include eight hundred twenty eight million Euros of net debt our overall ratio is three point six times leverage which is also three times if we include run with synergies which we announced as part of this transaction.
4468715,222,2247.6499,2256.02,3,And this we expect to unwind pretty quickly any leverage profile which we highlighted in announcement.
4468715,223,2256.1599,2267.3701,3,Just a reminder that three quarters of our debt is fixed rate so moving into a say potentially higher rate environment I think we feel pretty comfortable with regards to out capital structure.
4468715,224,2285.8201,2298.8999,2,The revenues were up nine point three percent and inaudible was up twelve point nine percent so very close to the rest of the group performance.
4468715,225,2298.8999,2317.29,2,Year to date results are even higher than this I think as we anticipated that at the beginning of the conversation around Sia the first half of the year is a bit richer than the second half basically due to phasing and very specific events nothing to do with underlying.
4468715,226,2317.29,2336.1802,2,As far as the inaudible is concerned as you know the Italian trust approved the lien on October fourteenth the foreign language specifically in the areas that are connected to Michelin products and the signing conditions were what our expectations were.
4468715,227,2336.1799,2341.3101,2,it's very much correct.
4468715,228,2342.26,2354.27,2,In terms of revenue there is only one of them that is structural and this remedy is to do with what I would call the national clearing non set clearing.
4468715,229,2354.27,2363.25,2,The size of that business is about six million Euro of revenues for the year.
4468715,230,2363.46,2372.46,2,About two or three of foreign language declining cause we're talking about products such as for example checks.
4468715,231,2375.02,2397.3901,2,It would inaudible to implement these remedies as we speak and we expect to close by the end of the year we still have two or three positions missing but they tend to be a bit more technical or in any case they're due at the end of the process such as for example Italian structures change regulator for the approval of the prospects.
4468715,232,2398.21,2405.73,2,And everything else is in line in terms of preparing for the execution of the closing within this timeframe.
4468715,233,2406.05,2412.4001,2,On page twenty one we have a bit broader update on what is happening on the various fronts.
4468715,234,2412.3999,2418.99,2,You may remember inaudible and so forth.
4468715,235,2420.1101,2428.98,2,Quick update on the technology side basically we already have one new group technology plan and we already started to execute around some areas.
4468715,236,2428.98,2447.1899,2,For example CAPEX inaudible are pulling together group delivery and their one hub optimizing for pressure ready to execute processing platform consolidation as soon as we close Sia and many other areas of initiatives.
4468715,237,2447.49,2466.8599,2,As far as inaudible is concerned we have already started to optimize to other management in the foreign language and we're ready to execute the fuller integration next year in Italy while there are many other operational initiatives already ongoing.
4468715,238,2467.1499,2481.74,2,As far as procurement is concerned we are still working on this inaudible and we have a very good plan defined and we already closed one two strategic propositions.
4468715,239,2481.77,2492.03,2,And as far as revenues are concerned we touched on a few of them before but they're already working together starting with the lower end employees.
4468715,240,2492.5901,2508.5598,2,And even on the CSI that we use a team approach to prepare we've already obtained a commercial plan to deliver 'em out as soon as we close end up selling more products and services to our customers in Italy to begin with.
4468715,241,2508.8601,2517.5701,2,Oh and we expect to have synergies for about a hundred million Euros of cash for next year.
4468715,242,2518.5,2527.73,2,Part of business CAPEX as you can imagine one of things is it's easier to optimize and faster to optimize but we're progressing on all initiatives.
4468715,243,2528.6001,2538.3999,2,Here I'm talking about one of them being inaudible through the year and therefore our opposite exit rate would be much higher than that.
4468715,244,2539.3101,2541.98,2,we'll now move to page twenty three.
4468715,245,2553.8799,2556.6101,2,This is obviously for net and…
4468715,246,2557.25,2565.0601,2,net just remember that we'll update our guidance at quarter one and that one we'll talk about next week.
4468715,247,2565.3401,2572.3601,2,we are now confirming all of this ten percent from about ten percent revenue growth in the year.
4468715,248,2572.3601,2585.1602,2,About eleven to thirteen percent growth with margin expansion both versus 2020 and even more twenty nineteen which was normally about three percent shrunk back into seventeen one eight.
4468715,249,2609.6201,2613.8599,2,So page twenty four i'll not go through all of it again.
4468715,250,2613.8601,2627.48,2,Key messages for today continue the record acceleration of volumes across all geographies with clear signals of acceleration of cash to each payment across again all geographies.
4468715,251,2628.7,2652.45,2,Match performance with double digit revenue growth in the quarter and further margin expansion as well and a very strong performance in merchant services and solutions and last but not least progressing according to our plan and matching ahead and putting the new group together as a combination of the next step in Sia.
4468715,252,2652.77,2658.5801,2,And last but not last as we said a concern for the condition for the fiscal year.
4468715,253,2659.7,2663.22,2,I'll stop there and open up for your questions.
4468715,254,2715.9199,2726.28,5,We are seeing Dutch or Nordic credit recovering is it reasonable to assume the kinda acceleration of the trend moving into next year?
4468715,255,2760.22,2760.46,5,Thank you.
4468715,256,2761.71,2774.4802,2,So listen twenty twenty two we'll talk about guidance for twenty twenty two in February that's when i'll try to give you our view for the year.
4468715,257,2774.8799,2791.77,2,I think when we did that announcement we said that our ambition was to obviously increase the speed of growth for the company and a larger and more resilient parameter.
4468715,258,2791.77,2809.1899,2,Our previous take on it if you wish inaudible five to ten percent of revenues as well as another 14 to 16% and with that our plan is to obviously do better than that on the back of the new complex and the new group profile.
4468715,259,2809.55,2817.1802,2,Then every single region has its own dynamics clearly we see it as we are preparing the budget.
4468715,260,2817.1799,2843.0901,2,As you can imagine we're actually having in terms of volume there's good expectations from the Nordics but then there are many other specific dynamics that have to do with our specific contracts our specific areas of investment so I really prefer to wait and give you a more detailed commentary when we come to February and a global picture.
4468715,261,2843.3201,2866.8101,2,But I believe that what we are serving as we speak and the data that we show you in terms of specific individual sectors are confirming that we see growth potential in the Nordics as well on top of all this Italy or Germany all these places like Poland or central eastern Europe.
4468715,262,2867.21,2881.9502,2,When it comes to the dynamics in other markets I think that in other markets we are seeing other dynamics that I mentioned before I mean in inaudible you see these…
4468715,263,2881.95,2898.77,2,but to be honest with you there's really some more we don't see for the moment geographies other players becoming more visible or more aggressive so there's a competition that we know and it is very much focused on neutral carbon segments.
4468715,264,2898.77,2913.9502,2,In the commerce space you tend to see a little bit of the same players around inaudible we'll measure a new dynamic there creating…
4468715,265,2915.0701,2924.55,2,making a more inaudible in Shopify or in the markets where Shopify is strong.
4468715,266,2924.55,2936.21,2,But as I said before all of this is strengthening our partnerships with the other contingent systems in eCommerce.
4468715,267,2937.23,2951.1101,2,And when it comes to foreign language I would say a bit more the same of what I said before.
4468715,268,2951.5,2957.9001,2,Actually being more present and in general intentional our clients being more present but nothing really major.
4468715,269,2958.29,2976.1799,2,As you know by now buy now pay later is becoming a bigger phenomenon and we're actually benefiting from that inaudible Klarna is becoming more active in the Nordics and also in Germany as well.
4468715,270,2976.1799,2982.3101,2,inaudible honestly we're not very exposed as we have been in the past.
4468715,271,2982.6899,2992.8599,2,When it comes to d two or line players moving more in store inaudible for the moment we don't see a lot of movement.
4468715,272,2993.6001,3011.3298,2,We don't have yet any particularly successful of other PSPs or account to account providers or now inaudible is the majority of our revenue in merchant services.
4468715,273,3011.3301,3027.2,2,It remains a very specific space it is very local it's very still very much connected with banks requires a lot of specific attention and the more segmented the more we arrive at it because even more locals are now…
4468715,274,3027.45,3030.1501,2,So I would say nothing's really new from that angle.
4468715,275,3065.21,3079.2,6,I mean we've got a weaker comparative space I think in the Italian business including the progressive reopening across the Nordics but particularly DAC I mean given the travel exposure that you have there.
4468715,276,3079.3601,3080.3999,6,That's the first question.
4468715,277,3080.7,3090.4402,6,And then maybe to sort of follow up on the inaudible for the quarter and for the outlook can you make a comment just on…
4468715,278,3126.0601,3132.21,3,So the question on the fourth quarter it is a difference between our guidance and where we are in the third quarter.
4468715,279,3132.21,3133.8701,3,As you said the math is pretty easy.
4468715,280,3134.26,3147.76,3,What we can say is that we expect the fourth quarter revenue to accelerate compared to the third quarter and this is primarily driven by merchant services performances that we expect to be strong in the fourth quarter and stronger than you want in the third quarter.
4468715,281,3148.0901,3152.3701,3,Overall for the year though I would say that…
4468715,282,3152.3701,3157.71,3,I would take what Paolo said with regards to our rule guidance which is to grow revenues double digit.
4468715,283,3158.1499,3161.49,3,The second question you asked was on what was it?
4468715,284,3161.49,3164.5801,3,On inaudible for next year nets is that right?
4468715,285,3185.8601,3192.6099,3,Where we had a significant step up from second quarter to third quarter nineteen percent growth in EBITDA.
4468715,286,3192.6499,3199.0,3,I think that's what we would like to stick to for now in the comments for the fourth quarter funds.
4468715,287,3218.6001,3233.5701,7,First of all I'd like to ask an update maybe on the Sia process if you have any view on when you'll start to consolidate the CIV into the group.
4468715,288,3239.27,3245.49,8,steady uh where you said that uh there was uh twenty to twenty five percent uh growth.
4468715,289,3251.5601,3262.6199,8,Uh and uh if you expect uh kind of uh help plan from the from the Italian government to uh to push further this uh this inaudible?
4468715,290,3262.6201,3262.9102,8,Thank you.
4468715,291,3267.6001,3268.1899,9,Hi Stephan.
4468715,292,3268.1899,3269.73,9,Thank you for uh the question.
4468715,293,3269.73,3278.49,9,Let me take the second one and then i i I will uh a a ask Bernardo to uh cover the first one uh and give you more the taste what a a a I've already done.
4468715,294,3279.22,3289.8501,9,Listen i i I think um we are very happy what we're seeing uh in Italy in terms of uh growth uh uh uh of uh of uh of volumes uh in particular inaudible.
4468715,295,3289.8501,3297.4199,9,We expect this actually to continue into uh uh into next year even if the competitors become more and more difficult.
4468715,296,3297.4199,3304.3701,9,Uh the reality is that um uh today you still have a little bit of limitations uh uh here and uh there.
4468715,297,3304.6799,3315.3601,9,But honestly even with project uh the fourth quarter this year we expect to continue to see a bit uh further recovery and potentially therefore uh volume uh acceleration.
4468715,298,3315.3601,3322.0701,9,Uh but uh we remain quite uh uh quite uh quite optimistic on uh on uh on the outlook.
4468715,299,3322.3501,3328.8398,9,Um taking into consideration the fact that uh that even if uh no uh most of the activity uh all the activity are still open are already uh are now open.
4468715,300,3328.8401,3338.4199,9,Uh you still have some uh some uh uh some kind of uh uh complexity there for some of these uh uh some of these activities.
4468715,301,3338.98,3356.6401,9,Um grant initiatives uh I think uh as we commented in the past uh uh uh uh we uh believe every government will continue to support inaudible because uh of the many many positive uh contribution that it gives uh to society the economy the position uh transparency and and so on and so forth.
4468715,302,3357.4099,3365.75,9,The um um this government uh has decided not to uh uh uh to basically stop uh the cashback.
4468715,303,3365.75,3368.1399,9,It was the most visible uh initiative.
4468715,304,3368.1399,3374.1199,9,And uh uh and uh uh because basically it was not convinced on some of the mechanics.
4468715,305,3374.78,3376.47,9,Uh and it's obviously finance.
4468715,306,3376.47,3381.3101,9,We said in the past uh our plans our expectations are not uh uh driven by that.
4468715,307,3381.3101,3389.9302,9,What we said the cash pool is a very good initiative a nice initiative but uh no uh uh uh uh uh uh uh basically changing the shape of our uh profile.
4468715,308,3390.48,3401.1602,9,Uh the good thing is that this government is actually is actually decided and and and implemented two more uh uh two two newer initiatives that are more on the merchant side.
4468715,309,3401.1599,3407.9099,9,And therefore they're incentivizing the merchants to basically upgrade their their shop equipment and inaudible basically.
4468715,310,3408.28,3422.1001,9,Uh um uh and at the same time basically for one year they're also supporting inaudible merchants um uh in terms of giving them the possibility that from the taxes the the commissions that they pay.
4468715,311,3422.1001,3438.0999,9,So uh uh ch changing the nation on uh on uh uh on cashback uh uh but actually a confirmed belief of importance of uh uh supporting uh uh digital payments through uh I would say the merchants.
4468715,312,3438.1001,3454.0798,9,And they're happily cooperating with uh uh as much as we can with uh uh with the governmental institutions probably implementing all of this and continuously provide uh uh further ideas uh uh and uh and uh opportunities.
4468715,313,3454.71,3456.8,9,Uh Bernardo you want to cover crosstalk.
4468715,314,3456.8,3457.29,10,Sorry on…
4468715,315,3457.29,3457.9299,9,the process one?
4468715,316,3457.9299,3462.54,10,On CRN in terms of the process there's a bullet point on Slide twenty Where Are We?
4468715,317,3462.8201,3465.8899,10,We're expecting uh BaFin approval anytime soon.
4468715,318,3465.8899,3469.46,10,It's uh pretty I would say uh administrative process here.
4468715,319,3469.46,3473.8301,10,There's actually a typo in the presentation The Danish Investment Authorities have approved the transaction.
4468715,320,3473.8301,3484.4199,10,And then we will need to have the prospectus uh um the prospectus uh with the pro forma numbers approved by inaudible Stock Exchange regulators similarly for what we did with uh with NET.
4468715,321,3484.4199,3487.1199,10,And that should happen again somewhere in mid-December.
4468715,322,3487.1201,3495.1301,10,So we now have I'd say deal certainty give that uh anti-trust approval which uh was uh the the one where most of the work needed to be done.
4468715,323,3495.45,3500.01,10,And has been obtained and we're looking to close at midnight of the thirty first of December.
4468715,324,3500.3401,3504.9099,10,Uh that means going back to your question we will be consolidating from the first of January next year.
4468715,325,3504.9099,3509.7998,10,So we'll have a full year uh uh of of consolidated uh numbers for SIA.
4468715,326,3509.8,3520.3298,10,And we will obviously as part of this provide you with uh comparison numbers for twenty twenty one which include SIA and Nets as if we had bought it from the first of January of uh of this year.
4468715,327,3520.3301,3527.3,10,So you will have a a a same perimeter um and the same will go with uh with the database that the client puts on the website.
4468715,328,3527.52,3532.46,10,This by the way is also true for the UBI book acquisition which closed on the twenty sixth of October.
4468715,329,3532.46,3535.8,10,But has retroactive ef uh effects from the first of January.
4468715,330,3536.1699,3542.6799,10,Um and the same will happen when we close uh the Alpha Bank uh uh deal which will be in the second quarter of next year.
4468715,331,3542.6799,3547.4099,10,So we will always strive to make sure you have a meaningful like-for-like comparison of the same perimeter.
4468715,332,3547.4399,3550.49,10,But the closing of SIA is midnight this year.
4468715,333,3550.6201,3555.5701,10,So from first of January next year you have the consolidated numbers in the actual accounts.
4468715,334,3557.1201,3557.78,8,Okay thank you.
4468715,335,3557.78,3560.1499,8,I I I have quick follow-up on Germany.
4468715,336,3560.54,3566.26,8,Uh did you see any weakness uh in q three compared to what you were expecting?
4468715,337,3566.6499,3577.21,8,And are you concerned about the rise in number of COVID case that could probably or potentially have some impact on your on your fourth quarter?
4468715,338,3577.6101,3577.8301,8,Thank you.
4468715,339,3577.8301,3590.8699,9,Uh well I I think in Germany we see super strong as you understood ecommerce in particular inaudible and and and that area as well.
4468715,340,3591.26,3592.78,9,Uh in terms of COVID yes.
4468715,341,3592.78,3601.8301,9,I mean y y you are right that on the fact that um eh in the third quarter there was still frustration in Germany more than in the other geographies.
4468715,342,3603.8401,3607.5398,9,the Stringency Index that is quite telling from this point of view.
4468715,343,3607.54,3616.21,9,And Germany was across Europe uh as a country we still uh uh uh still uh uh restrictions and uh I was there two weeks ago.
4468715,344,3616.21,3617.4099,9,And you could really feel it.
4468715,345,3617.4099,3618.27,9,I was there with Bernardo.
4468715,346,3618.27,3620.8,9,You could really feel it uh from the smaller things.
4468715,347,3620.8,3623.01,9,Hotels uh to the more visible ones.
4468715,348,3623.5801,3629.1802,9,And this is actually as we said before affecting in particular I would say the LAKA sector.
4468715,349,3629.3999,3634.76,9,The larger merchants where we have uh uh as I said still an important portfolio straddling the industry.
4468715,350,3635.1399,3648.6799,9,Uh and uh I would say there are two angles that are particularly relevant that are are are kind of intersecting between uh uh international travelers coming in and business travel more more broadly.
4468715,351,3649.3799,3659.27,9,And uh uh and uh as you can imagine while in places like Italy you have a huge amount of uh uh inbound from tourists.
4468715,352,3659.6399,3661.52,9,Uh so international has tourism.
4468715,353,3661.55,3667.0999,9,In the summer don't have that many people are going to Germany uh to enjoy the summer.
4468715,354,3667.1299,3668.29,9,It's actually the other way around.
4468715,355,3668.29,3671.29,9,So the traffic there is much more business uh related.
4468715,356,3678.5801,3683.26,9,Um listen on w- what is happening these days difficult to comment honestly.
4468715,357,3683.5901,3687.4102,9,Uh I think we need to understand exactly what will happen in terms of measures.
4468715,358,3687.4099,3694.9802,9,Was reading before coming the new news before coming into this into this call about cases growing uh uh again.
4468715,359,3694.98,3702.46,9,But at the same time the measures that we're thinking about implementing were not really comparable to real inaudible and stuff like that.
4468715,360,3702.46,3712.5701,9,I think it was talking about asking the green pass to to enter in certain places like uh restaurants or clubs and stuff like that which is something in Italy is already happening.
4468715,361,3713.1201,3714.0701,9,So let's let's see.
4468715,362,3714.0701,3718.21,9,I think uh it is really uh uh probably uh too early to see to say.
4468715,363,3718.21,3738.4299,9,I think the good news is that uh uh we are more or less the percentage of people with vaccine are uh uh are now more high and and therefore that with cases increasing the impact on the health of the people is uh is more limited than before hopefully the need for registrations.
4468715,364,3740.76,3741.51,8,Thank you very much.
4468715,365,3749.1499,3774.0801,12,And then also is there geographic uh kinda uh statistics around what is currently served by by those partners um especially then maybe also breaking it down between in-store and online.
4468715,366,3774.73,3791.73,12,And and then maybe you can give uh more color on ecommerce growth for the group.
4468715,367,3802.5801,3803.27,9,Hi Hanneson.
4468715,368,3803.27,3806.1899,9,Thank you for uh your uh uh questions.
4468715,369,3806.1899,3811.3701,9,Uh um so uh l let me start from the first one in here.
4468715,370,3811.3701,3815.0601,9,Uh uh uh maybe you can follow up more uh more uh precisely.
4468715,371,3815.4099,3818.3901,9,In general as I said that the these partnerships uh…
4468715,372,3818.3899,3821.3701,9,I mean they're happening I would say in inaudible geographies.
4468715,373,3821.3701,3828.28,9,And probably they're actually a bit more new to Italy even if we are very active uh uh are happening with two type of uh uh players.
4468715,374,3828.95,3831.3201,9,Uh the ones that are…
4468715,375,3831.3201,3832.97,9,and obviously it really depends on geography.
4468715,376,3832.97,3838.8101,9,And and let me give you inaudible in case it is probably uh more uh uh closer one.
4468715,377,3838.8101,3840.54,9,If uh you take uh…
4468715,378,3840.54,3842.6501,9,in Italy you have two type of uh players.
4468715,379,3842.6499,3846.4199,9,You have the ones that are coming from the inaudible systems.
4468715,380,3846.8101,3855.3501,9,they're keen not to uh integrate uh uh payment inaudible across merchants from all possible industries.
4468715,381,3855.3799,3858.23,9,Something that probably more specialized for certain industries.
4468715,382,3858.6499,3867.03,9,And we're partnering with inaudible partnerships with uh the two super uh uh super key ones.
4468715,383,3867.03,3876.29,9,Uh the uh the at the same time you have a bit more on uh uh development with the ones that I would call vertical ones.
4468715,384,3876.29,3877.6902,9,Uh uh I don't know.
4468715,385,3877.6899,3885.52,9,I give you an example pharma inaudible that is serving pharmacies just to mention uh just to just to mention uh uh one of them.
4468715,386,3885.52,3887.23,9,But uh we are really talking about…
4468715,387,3887.23,3889.28,9,I mean in Italy you're talking about statistics.
4468715,388,3889.28,3891.8201,9,We have forty eight of these partnerships today.
4468715,389,3892.1499,3894.29,9,Uh Denmark more than one hundred.
4468715,390,3894.29,3895.3699,9,Sweden more than one hundred.
4468715,391,3895.3701,3896.8298,9,Norway almost one hundred.
4468715,392,3896.8301,3897.96,9,Finland more than one hundred.
4468715,393,3897.96,3898.99,9,Germany more than one hundred.
4468715,394,3898.99,3900.9199,9,And and so on and so forth.
4468715,395,3900.9199,3902.1602,9,So there are many many of those.
4468715,396,3902.1599,3908.78,9,And economics vary a lot depending on uh what is the relationships something that uh uh the Spanishes are more technical integration.
4468715,397,3908.78,3912.54,9,So there is not a very specific uh uh uh economic partnership.
4468715,398,3912.54,3915.6499,9,In some other cases like the one I was mentioning before.
4468715,399,3915.6499,3917.76,9,Instead you have a go-to-market initiatives.
4468715,400,3917.76,3918.52,9,You invest together.
4468715,401,3918.52,3919.6201,9,You go to market together.
4468715,402,3919.98,3922.4502,9,And you share the benefit uh uh uh together.
4468715,403,3922.45,3924.55,9,So very very different situation.
4468715,404,3924.55,3930.22,9,But also involving uh uh in an important uh uh in an important uh uh way.
4468715,405,3930.8401,3939.5801,9,Um as far as inaudible maybe on ecommerce volume learning and growth you can comment Bernardo on the on the shift uh…
4468715,406,3939.6101,3940.8401,9,these are more a political question.
4468715,407,3940.8401,3941.9099,9,But it's a very important question.
4468715,408,3942.8,3959.95,9,The thing is inaudible over the last uh uh uh I would say few quarters uh we have not seen any further acceleration of ecommerce in terms of uh people moving even more from uh uh from uh uh physical to ecommerce.
4468715,409,3960.1899,3967.4099,9,If anything you have that some sectors uh uh the direction uh uh the opposite direction.
4468715,410,3967.8501,3973.0,9,And therefore people are keen to go out and shop again in the physical world.
4468715,411,3973.3,3979.7698,9,Uh uh I guess uh uh uh obviously because now stores are are open again.
4468715,412,3979.77,3988.6499,9,But more in general people being keen to go out and socialize and uh and and and buy in uh uh in real places.
4468715,413,3988.6499,3994.8101,9,I think that the I mean the trend to more ecommerce remains uh remains there.
4468715,414,3994.8601,4008.79,9,But uh it's interesting because some of the acceleration that we've seen when COVID started this period of COVID now is is going down a a a bit in certain cases uh uh inaudible a little bit.
4468715,415,4009.3401,4011.04,9,And in general the trend is continue.
4468715,416,4013.26,4013.5601,9,Yeah.
4468715,417,4013.5901,4014.03,10,Yeah sure.
4468715,418,4014.03,4021.47,10,We saw that revenues grow uh you know in the third quarter grew thirty six thirty seven percent if I remember correctly from the slide we had in the in the document.
4468715,419,4021.8,4024.2102,10,Volume growth was actually approximately thirteen percent.
4468715,420,4024.21,4026.3301,10,You see it on Slide ten of the of the document.
4468715,421,4026.72,4029.45,10,Within this clearly SME uh uh are growing.
4468715,422,4029.45,4039.04,10,LAKA suffers from the fact that LAKA has an ecommerce component including travel high impact which uh you know has caused it actually to uh to um shrink in the quarter.
4468715,423,4039.1299,4046.49,10,So if you look at uh LAKA without uh without um without the the high impact it's actually grown nine percent.
4468715,424,4046.79,4049.6299,10,Overall ecommerce volumes as I said are growing thirteen percent.
4468715,425,4063.78,4064.03,12,Okay.
4468715,426,4064.45,4064.6899,12,Okay.
4468715,427,4067.55,4119.5801,12,Thank you.
4468715,428,4120.73,4128.4897,9,Listen on LAKA uh the uh the uh the dynamic that we're observing is very much driven by the industry needs.
4468715,429,4128.8901,4130.3999,9,Uh and it's very very clear.
4468715,430,4130.7202,4146.7002,9,I mean in uh i- if you inaudible from uh from uh the high impact sectors like uh uh airlines to use a typical example or or travel agencies and so on and so forth the overall volumes are growing nine percent compared to pre c o v i d levels.
4468715,431,4147.2002,4152.8999,9,Actually even more so uh in uh places like uh uh like uh like Italy.
4468715,432,4153.7798,4160.5601,9,And you have growth coming back despite the fact that uh there is still some uh uh similar situations around.
4468715,433,4160.5601,4165.8398,9,And I think the different dynamic that you observe uh with Adyen is probably driven by two elements.
4468715,434,4165.8398,4168.9902,9,Number one is that they're less exposed to traveler sectors.
4468715,435,4168.9902,4170.23,9,I think more broadly.
4468715,436,4170.6602,4176.7598,9,Uh and number two you should also consider the fact that they're actually entering new markets and expanding further.
4468715,437,4177.0298,4187.7202,9,Uh the the if if uh uh if you're pointing precisely on the on the relative dynamics with a player like them I I go back to what I said before.
4468715,438,4188.02,4193.3701,9,Clearly you know Adyen is a very strong player that we uh immensely respect to be very very clear.
4468715,439,4193.7798,4204.75,9,Uh uh the company continue to see them successful when they play on global merchants with global CRM systems integrated with a lot of alignment more limited in store.
4468715,440,4205.0498,4207.5801,9,And we continue to be successful also against them.
4468715,441,4208.7202,4219.1899,9,Instead you have more local regional merchants more local integrated uh that require local assistance and require more specialized solutions and more customized solutions and so on and so forth.
4468715,442,4219.98,4229.6699,9,Uh when it comes to DAKA DAKA uh is uh is two ha ha has two elements that that explain the dynamic there.
4468715,443,4229.6699,4238.5898,9,And I think it's very visible when you go to page uh uh uh page eight of the presentation where you have uh the volumes for DAKA by by macro sector.
4468715,444,4238.96,4244.5298,9,And as you can see there on the one side uh uh there is a mixed effect.
4468715,445,4244.5298,4259.1299,9,And and the mixed factor has to do with the fact that Nexi no not not uh not not Germany per se but Nexi uh uh was more exposed and it's been more exposed in terms of mix of sectors to the high-impact sectors in terms of volumes.
4468715,446,4259.1299,4263.9102,9,And inaudible in terms of volumes uh uh to travel and airlines in particular.
4468715,447,4263.9102,4266.6597,9,Uh these exposures been diminished over time.
4468715,448,4266.6602,4284.0498,9,But still is a relatively high exposure and it is a mixed effect uh in Germany when you look at uh uh the other sectors instead now you see a very strong performance in uh in in the building construction growing anywhere around thirty thirty percent plus versus two thousand nineteen.
4468715,449,4284.0498,4289.7803,9,And also the uh the more discretionary uh products and services sectors.
4468715,450,4289.7798,4292.6802,9,Uh uh uh coming back to growth.
4468715,451,4292.6802,4299.3301,9,On page nine on the right you see some very visible examples of sectors growing double digit uh in that space as well.
4468715,452,4299.3301,4305.1699,9,So I I would say it it is more driven by the exposure to travel in the mix.
4468715,453,4305.6201,4308.1104,10,I'd say also Paulo the Italian SMEs were under-penetrated.
4468715,454,4308.23,4312.23,10,I think there's uh structural under-penetration there which is we're now closing the gap.
4468715,455,4312.8799,4312.9497,9,Yeah.
4468715,456,4314.4102,4314.75,13,Thank you.
4468715,457,4328.3198,4329.46,14,I had a couple as well.
4468715,458,4375.1802,4378.4297,14,Now what's your sort of strategy to sort of compete against that?
4468715,459,4378.4702,4382.4399,14,And I kind of nuance that further you know the Nordics is a fairly well-penetrated market.
4468715,460,4384.3901,4388.7202,14,Um and you know we have a you know a number of kind of digital first players there.
4468715,461,4389.0498,4395.23,14,So what's your sort of strategy to to perhaps defend your position or even kind of grow your your business there?
4468715,462,4408.4902,4412.1602,14,Could you give us a bit more color around where those savings came from?
4468715,463,4412.1602,4427.9697,14,And as we as we go forward um what's kind of the path and and what are the kind of levers in terms of the synergies uh that you expect to extract to sort of hit uh uh the the milestones for the um uh the next kinda payout uh to uh to be achieved?
4468715,464,4428.1299,4428.4502,14,Thank you.
4468715,465,4431.75,4432.3696,9,Hi Mohammed.
4468715,466,4432.3701,4433.9497,9,Thank you for uh different questions.
4468715,467,4433.9502,4435.04,9,I will cover the second.
4468715,468,4435.04,4439.7603,9,And then I will endeavor to uh inaudible very good question.
4468715,469,4439.7598,4442.29,9,Eh let me try to inaudible.
4468715,470,4442.29,4449.8003,9,Uh uh first of all LAKA as you understood for the Group is uh is about five percent of it.
4468715,471,4449.7998,4452.7002,9,That's more than ten percent of total uh uh revenues.
4468715,472,4452.7002,4458.1201,9,Uh it is about nine in total uh uh transfer is about uh uh sixty four percent.
4468715,473,4458.1201,4461.1001,9,So we're talking about more or less five percent of total the begin with.
4468715,474,4461.8198,4467.27,9,Nevertheless inaudible opportunity uh for the new Nexi in particular.
4468715,475,4467.71,4475.4502,9,Uh and to be clear uh uh uh uh the competition uh uh from uh players like Adyen is there.
4468715,476,4475.8301,4478.3599,9,Uh uh as I said before they're very good.
4468715,477,4478.3599,4480.0596,9,They're more focused on certain markets than others.
4468715,478,4480.0898,4490.7598,9,And i am sure uh they uh will try to move a bit more into uh into markets uh uh on uh uh smaller uh players.
4468715,479,4491.0,4509.04,9,At the same time no I think the good news is that uh in those markets uh the markets we're represented we're very inaudible and we're actually investing to build stronger uh uh in in uh uh in the camp of omni-channel uh uh products and services omni-channel integration and analytics capabilities.
4468715,480,4509.48,4512.4604,9,Uh uh and and and and that will continue.
4468715,481,4512.46,4516.5298,9,So you will see a nice competitive dynamic where they will probably try to do it.
4468715,482,4516.5601,4527.73,9,And we'll defend our turf on the back of being local but also sca scaled up and for being able to invest uh in uh uh new products and services.
4468715,483,4527.73,4535.3799,9,At the end of the day if you wish each one of the two of us uh is uh uh uh strong and weak at the same time based on our strategies.
4468715,484,4535.5898,4559.6099,9,In the sense that the key strength of places like Adyen is the one platform uh uh theme uh uh that has many positives but also a lot of limitations when you have to start playing with the smaller players more complex players more integrated players uh uh merchants that don't have integrated CRNs that are less sophisticated that require a lot of inaudible care and so on and so forth.
4468715,485,4559.6899,4561.4697,9,Our position is the other way around.
4468715,486,4561.9199,4568.23,9,Uh it's true no we are more complex in terms of uh uh our technology set up inaudible and so on and so forth.
4468715,487,4568.52,4578.3398,9,But at the end of the day uh uh makes us quite effective in serving uh the local needs in being closer to the customers being able to integrate effectively with their needs.
4468715,488,4578.6099,4583.52,9,And for example segmenting by industry more effectively for what is relevant locally.
4468715,489,4583.52,4590.9102,9,So I think we continue to see this dynamic in each one of the two us will do uh uh it's best.
4468715,490,4590.9102,4593.7202,9,I think the good news is that in many cases it's a market that is growing.
4468715,491,4603.3501,4604.3198,9,Bernardo inaudible?
4468715,492,4606.3901,4611.48,10,Yeah so it's I think uh going back also um I think James asked a similar question earlier on.
4468715,493,4611.48,4613.5601,10,So I can only go back to what we said earlier.
4468715,494,4613.5601,4618.23,10,We expect the fourth quarter to be better than the third quarter in terms of top-line growth.
4468715,495,4618.23,4624.7803,10,And that you know I think um with regards to the the the degree of prudence in this we won't comment on that.
4468715,496,4624.7798,4625.98,10,Our guidance is our guidance.
4468715,497,4625.98,4626.9497,10,We're committed to deliver it.
4468715,498,4626.9502,4627.9102,10,Hopefully we'll do better.
4468715,499,4627.9102,4631.6899,10,But that's um what I'm prepared to say on on on that front.
4468715,500,4632.1201,4643.25,10,Um with regards to uh Nets as as as I mentioned earlier the EBITDA growth in the in the third quarter for Nets was um was um nineteen percent.
4468715,501,4643.2798,4650.1001,10,eighteen point eight percent if I remember if I remember correctly uh nineteen percent uh compared to twenty twenty.
4468715,502,4650.4102,4653.8003,10,Uh I expect that to improve in the fourth quarter uh of this year.
4468715,503,4654.0098,4657.25,10,I think that's also implicit in what we had said uh some time ago.
4468715,504,4657.25,4672.8003,10,How we were aiming to uh to hit an EBITDA for Nets which uh lies within the the um within the the earn-out range for uh uh for Nets was agreed with sellers back uh at the end of last year.
4468715,505,4673.2002,4684.4199,10,Um so this growth in EBIDTA which is obviously uh you know fueled by by top-line growth is also aided by the realization of uh of synergies uh within Nets.
4468715,506,4684.8999,4686.5703,10,Um and I think that was your question.
4468715,507,4686.5698,4690.21,10,Well because synergies coming from Nexi-Nets integration…
4468715,508,4690.2402,4696.1396,10,well those this year are I would say in total approximately €10 million uh mostly capex.
4468715,509,4696.29,4700.3403,10,Uh a small portion of that will be in uh our fourth quarter numbers.
4468715,510,4700.6699,4706.29,10,Um and with inaudible as I already said we're targeting €100 million of cash synergies.
4468715,511,4706.3198,4712.04,10,Uh from the three entities approximately I'd say sixty percent of that will be p and l synergies.
4468715,512,4741.8999,4769.6899,9,So um uh our strategy in the space uh uh is uh at the end of the day uh uh two-fold.
4468715,513,4769.7202,4772.5601,9,Now we are happy to have these assets inaudible.
4468715,514,4773.0698,4778.3501,9,Uh just to be uh uh explicit this is operating at the moment in Germany.
4468715,515,4778.3501,4782.7998,9,In Germany only with potential to stand uh uh as well at some point.
4468715,516,4782.8398,4788.3101,9,And it is by now inaudible focused on the merchant side.
4468715,517,4788.3101,4792.3701,9,And so we don't have a consumer-facing strategy like inaudible.
4468715,518,4792.7598,4799.6602,9,The inaudible with the merchants that they normally white label and afford really the best possible partner for merchants as well.
4468715,519,4800.1602,4801.7402,9,They are uh uh successful.
4468715,520,4802.3599,4809.2998,9,Um the business is growing uh very rapidly depending on the quarter it's anywhere between fifty and a hundred percent.
4468715,521,4809.4302,4812.2002,9,So I think last quarter was about seventy seven five.
4468715,522,4812.6201,4814.0601,9,And it's become a sizeable business.
4468715,523,4814.0601,4817.96,9,We don't provide details of uh of of this.
4468715,524,4817.96,4820.3896,9,But uh it's it's uh uh getting bigger and bigger.
4468715,525,4820.3901,4826.1899,9,So we're talking about uh uh tens and tens of million of Euros uh uh per quarter now.
4468715,526,4826.6001,4830.5303,9,The um the uh…
4468715,527,4830.5298,4833.52,9,So this is one side of the strategy.
4468715,528,4833.52,4857.46,9,At the same time uh uh we also recognize the fact that uh uh if you want to uh inaudible your core uh ecommerce strategy one of providing great acceptance to merchants uh uh you you have to be able to provide uh uh the uh relevant the locally relevant inaudible together with other alternative payment methods.
4468715,529,4867.3901,4872.9697,16,Um and ideally these will continue to be uh the way forward.
4468715,530,4873.3599,4878.02,16,Uh now uh um clearly uh uh uh as the other way around works as well.
4468715,531,4878.02,4885.6899,16,And therefore uh a company like uh Ratepay uh because it's technically our company uh is also partnering with other PSPs.
4468715,532,4885.6899,4899.48,16,So uh in uh uh uh in uh uh in uh Germany they're used by uh the the the audience that will pays uh the the the DSP ones uh uh and and the Computops uh and and you name them.
4468715,533,4899.48,4903.3901,16,So uh uh at the moment we have these two parallel strategies.
4468715,534,4903.4199,4915.4902,16,it's very very very clear that uh uh going forward we'll continue to partner with more and more uh of 'em uh and uh uh uh we are IP owners of uh uh of these fast growing and sizable uh buy now pay later assets.
4468715,535,4919.0898,4919.79,16,Okay.
4468715,536,4919.8301,4920.8604,17,You said it.
4468715,537,4920.8599,4922.1401,17,So same growth.
4468715,538,4922.6602,4925.8198,16,All right.
4468715,539,4927.1699,4927.23,16,Yeah.
4468715,540,4930.52,4930.7002,18,Okay.
4468715,541,4985.5498,4991.54,20,I mean is there any kind of updated thoughts you have around potential m and a whether that switches maybe more towards e-com?
4468715,542,5002.2202,5006.0898,16,Uh a good mix of uh uh detailed uh questions and uh and super strategic ones as well.
4468715,543,5006.0898,5006.8599,16,That's just great.
4468715,544,5007.21,5014.0601,16,Um uh listen uh on uh on the first two uh I think we'll come back to you with uh uh a bit more detail if it's important to you.
4468715,545,5014.4199,5021.4404,16,I think in general um uh and during the second line on Giro card we're uh uh uh are clearly challenges in that space.
4468715,546,5021.4399,5036.1304,16,Uh and as far as we want to grow in that space uh don't forget that uh Concardis is coming from uh uh uh a position where they were mainly acquirers for international schemes a little bit like uh what CartaSi was in Italy back uh five years ago six years ago.
4468715,547,5036.3999,5042.4102,16,And from there there they moved uh uh uh over the last uh year or two into offering the full package.
4468715,548,5042.77,5048.04,16,So uh uh the terminal and basically acquiring across all schemes including Giro card.
4468715,549,5048.04,5054.5801,16,So I don't have the kinds of the numbers but uh uh but clearly there's a a space uh for uh developments.
4468715,550,5054.5801,5059.9097,16,Uh uh on Dankort I think we will come back to you because honestly uh we don't have uh a precise uh answer.
4468715,551,5060.3599,5080.9399,16,Uh but broadly instead of capital allocation coming to the very strategic question listen uh uh our focus re today is is really really really uh uh on uh uh kind of getting uh the three companies together delivering the synergies and most importantly building a stronger and stronger and stronger company for our customers our people and our shareholders.
4468715,552,5081.5498,5089.8003,16,Um uh uh along the way as we always said that you know we will uh continue to consider opportunities.
4468715,553,5089.7998,5096.8301,16,But uh uh uh uh it's our duty somehow but we really really focus on the ones that makes absolute sense uh for us.
4468715,554,5096.8301,5101.3501,16,I think what uh uh uh we've done uh uh with UBI or Alpha Bank is very clear.
4468715,555,5101.5601,5105.1997,16,We'll be looking at other stuff where we didn't do for uh uh for uh very good reasons.
4468715,556,5113.2998,5117.5601,16,As you can imagine we cannot talk about specific uh uh uh uh uh cases.
4468715,557,5117.5601,5137.9497,16,Uh um taking to account the fact that uh uh uh uh uh as with the leverage and the uh uh diverse uh with the potentially the rest also assets uh that are not core and so on and so forth uh I will also consider putting more investments uh more organic investments you know because uh there is always this feeling that uh that m and a is easier than massive uh organic investments.
4468715,558,5137.9502,5148.2002,16,Actually now given uh where we are as a as a company given that no amateur uh we are keen uh to invest in geographies such as Germany or in spaces such as e-commerce.
4468715,559,5148.5298,5152.4102,16,Uh and that is also another important area of investment.
4468715,560,5152.4102,5156.3203,16,So I believe you'll see uh uh our portfolio of of of those.
4468715,561,5156.3198,5164.71,16,But really our focus today is uh you know uh to deliver in uh what uh we have already committed uh uh to you.
4468715,562,5200.71,5201.6602,16,I want to be very clear.
4468715,563,5201.6602,5204.9302,16,I think thank actually thank you for giving me the opportunity to clarify this.
4468715,564,5205.3398,5211.3799,16,On the antitrust thing we we less to do uh because it's a uh uh uh it is a request by the antitrust.
4468715,565,5211.5801,5220.7202,16,But again it's about the business that is six million euro of uh uh revenues probably two or three EBITDA declining uh revenues because it's a legacy business.
4468715,566,5220.7202,5222.1899,16,it is checks and the likes.
4468715,567,5223.0898,5226.79,16,Uh uh and so uh uh that has nothing to do with uh the business strategy.
4468715,568,5226.79,5229.6401,16,Uh uh I don't even know how much uh uh that is worth.
4468715,569,5229.6699,5233.1597,16,Uh we are doing our normal work but we'll be talking about a very very small thing.
4468715,570,5233.5498,5250.6997,16,Uh uh instead what is very much right is the first of what uh of the two things you said that is an ongoing and regular strategic view of our portfolio of uh of of assets to make sure that we put uh our uh uh resources and focus and energy uh work on what is strategic for our future.
4468715,571,5250.8901,5259.04,16,And instead we let uh the other assets uh uh uh uh to be owned by better owners uh the assets for whom uh uh they are strategic.
4468715,572,5259.2798,5270.7998,16,Never forget as a benchmark data before uh uh doing uh uh uh even way before the company was listed actually we did do uh a five or six m and a deal where we bought stuff.
4468715,573,5270.9302,5273.2803,16,We did do twelve where we sold stuff.
4468715,574,5273.75,5280.8701,16,So we like to clean uh as much as possible the portfolio and focus uh uh uh and uh and we will continue to do it.
4468715,575,5280.8701,5286.9199,16,And some of the business that we love them we would love to continue to have them but actually it doesn't make sense for for them.
4468715,576,5286.9902,5289.6001,16,And uh uh uh uh for our service I think it's very rational.
4468715,577,5289.6001,5292.3604,16,I think it's we always need to be very rigorous.
4468715,578,5292.7998,5296.3003,16,Um we we are very uh uh continue to be very very excel.
4468715,579,5296.2998,5305.0801,16,And look at what uh for example uh also Nexi's um when they sold uh their corporate services uh uh and instant key and services uh to MasterCard.
4468715,580,5305.0801,5308.5903,16,By the way it's a very interesting and attractive uh uh valuation.
4468715,581,5308.5898,5309.6104,16,And we'll continue to do so.
4468715,582,5309.6099,5310.7603,16,I think it's good discipline.
4468715,583,5311.0898,5318.1201,16,Uh we'll try to give you uh uh an update on these uh ideally in February together with uh the outcomes for the New Year.
4468715,584,5336.02,5348.0,21,Um I had a couple of questions.
4468715,585,5417.9902,5418.5801,16,Uh hi Alexandre.
4468715,586,5429.3101,5432.7397,16,Well listen uh uh let me start from the second one uh uh around Italy.
4468715,587,5432.7402,5440.0498,16,I think uh uh uh the good news for merchants actually is that uh prices are structurally going down in our sector.
4468715,588,5440.0498,5446.3101,16,It it it's absolutely normal because uh uh when volumes go up uh unitary prices go down.
4468715,589,5446.3101,5455.71,16,Uh it it it's almost uh uh uh uh a law of economics see uh unless uh you have monopolies uh or or duopolies which is not the case in our industry that is very competitive.
4468715,590,5456.2202,5463.27,16,Uh the good news is that the combination of uh volume growth uh uh uh and and unitary prices going down uh is positive.
4468715,591,5463.27,5465.4004,16,Uh and on top of it you also have value added service.
4468715,592,5465.9302,5470.2202,16,So prices tend to go down uh um as is as has always happened.
4468715,593,5470.2202,5487.8398,16,Uh uh I the if you like uh the one thing that you're doing more proactively and this is driven by company dynamics uh is also to to to to design propositions uh for the merchants which are newer to these uh uh uh uh to these to these products and services not the typical new to card uh uh segment.
4468715,594,5487.8701,5495.7998,16,And we are offering a nice uh uh ent entry levels uh almost try uh uh uh uh uh and that type of situation we believe is important.
4468715,595,5495.7998,5505.0498,16,Uh although it is not necessarily on the rate because uh uh uh uh uh a customer who is new to card uh doesn't know how much do we use.
4468715,596,5505.0498,5507.5698,16,So for them the barrier to entry is more the terminal.
4468715,597,5507.96,5524.6699,16,That's where you know uh we uh have launched as well the mobile uh POS terminal uh that uh doesn't have a fixed rate per month but is basically uh a small one-off that's depending on the campaign and so on and so forth is uh uh uh normally below uh uh fifty euros forty nine euro.
4468715,598,5524.6699,5537.9102,16,Uh uh but again with a higher you know uh uh uh uh merchant fee that then uh we upgrade the merchant to uh uh uh uh to to to uh uh a proposition is more suited for higher uh uh volumes.
4468715,599,5538.4502,5551.54,16,Uh when it comes um uh instead uh uh uh on uh the uh a A P M methods and so and so forth uh let me try to give you the overview and then uh Bernardo can um can uh can help you in comment uh uh uh uh a bit better.
4468715,600,5551.96,5561.9102,16,First of all um uh uh economics uh clearly the economics are very different if you're talking about uh A P M that you own you know or APMs that you distribute and your partner with.
4468715,601,5561.9102,5562.1602,16,Huh?
4468715,602,5562.6099,5570.9204,16,Uh uh we should distinguish in between uh account to account uh and the buy now pay later uh uh for the ones that you own.
4468715,603,5571.2402,5573.5601,16,Buy now pay later has an amazing growth.
4468715,604,5573.9902,5579.3403,16,Uh uh profitability-wise it is actually lower because obviously it comes with a certain cost.
4468715,605,5579.3398,5581.1299,16,But here it is very much under control.
4468715,606,5581.1299,5598.4697,16,But it's actually uh uh uh uh material and by the way in this specific case uh uh uh uh uh Ratepay is also investing uh in growth you know um as well as every other player in the industry I'm sure you've seen uh the numbers from some of these players uh uh and they are quite explicit about it.
4468715,607,5598.4702,5600.4702,16,Actually Ratepay is profitable this is good news.
4468715,608,5600.4702,5603.8599,16,But uh we'll keep on investing uh in uh growth.
4468715,609,5603.8599,5607.1997,16,Uh account to account is normally more profitable.
4468715,610,5607.2002,5611.46,16,Uh there is a cost to develop the ecosystem because it's a two-sided business model.
4468715,611,5611.46,5614.8701,16,You have to sell it to the consumer and sell it to the merchant.
4468715,612,5615.2202,5622.4902,16,Once this ecosystem is developed normally it comes with uh a nice uh uh variable uh variable margin.
4468715,613,5622.7998,5626.6602,16,Instead when you distribute you can really have any type of deal to be honest with you.
4468715,614,5627.0,5633.54,16,Uh the more you are the one facing the customer and distributing to the customer uh the better the economic side.
4468715,615,5633.54,5640.77,16,If it's just a technical integration uh uh uh uh then uh uh uh uh your economics as such uh are are are much lighter.
4468715,616,5641.0098,5647.4399,16,But actually for some of them uh the economics are quite compatible with the ones that we have on cards to be clear you know.
4468715,617,5647.4399,5655.7598,16,Uh uh and uh I I I cannot give you a specific example because I c I I I <laugh> I could but I cannot uh uh in terms of disclosure.
4468715,618,5656.1499,5665.5898,16,But I have in mind at least a couple of examples where economics are uh exactly one in Italy uh and one in another place where economics are basically the same that we have uh on uh card.
4468715,619,5666.21,5671.8301,16,Uh but on strategy I think I think I I'm not sure I understand exactly your question because the communication was not very clean.
4468715,620,5671.8301,5696.1899,16,But if if your question is uh how do you guys balance on the strategy uh uh whenever strong A P M uh do I give it to everybody uh uh or uh uh uh uh to to expand it or do I monetize it uh uh by uh uh differentiating myself as uh on on the acceptance side I think that's a very very very relevant strategic question that does not have a one answer.
4468715,621,5696.1899,5703.29,16,Uh uh uh that is always the same by product and by market cuz it really depends on the specific market uh uh dynamics.
4468715,622,5725.5,5725.8301,16,Why?
4468715,623,5725.8301,5727.9004,16,Because we have a lower market share you know.
4468715,624,5727.8999,5734.98,16,And therefore uh uh if we were leaving it only to us it'll be s too much a restrictions for the full potential of uh of the product.
4468715,625,5734.98,5741.0903,16,Maybe uh in another market with a different uh starting competitive position and market share we go in a different direction.
4468715,626,5742.6401,5743.6899,17,So on the margin yeah.
4468715,627,5743.6899,5748.8604,17,Now so um I think we need to distinguish as Paolo did the three in account to account and and b n p l.
4468715,628,5748.8599,5753.46,17,Starting with b n p l we should really think of it is a different uh a different product different different business.
4468715,629,5753.46,5765.9302,17,So in terms of the margin accretion or the take rate accretion uh it really depends where you cut the p and l because it's uh there is a a a cost of risk element there that you have in in b n p l but not in account to account.
4468715,630,5766.3101,5768.0098,17,Um so take rates would be higher.
4468715,631,5768.0098,5779.8896,17,But then if you go to the very bottom line right now obviously as you've seen in uh some of the other larger listed also players in the in the b n p l space uh you have uh uh you have the cost of risk element that you need to take into account.
4468715,632,5780.2402,5788.04,17,Uh whereas the account to account I think in terms of top line you should think of it as being priced in the various geographies in which it's present more similar to domestic uh rails.
4468715,633,5788.4102,5796.4199,17,But uh depending on how lean or efficient they are with the margin being similar to what a uh a card acquirer could be uh in that same market.
4468715,634,5796.4199,5799.3799,17,So uh in terms of margins it shouldn't be diluted.
4468715,635,5803.4399,5803.7598,21,Got it.
4468715,636,5841.1499,5841.4497,16,Yes.
4468715,637,5851.27,5854.8198,16,Uh that's the reason why last time we gave you these highlights.
4468715,638,5854.8198,5858.8501,16,Uh this time we're giving you uh our outlook for next year.
4468715,639,5859.1899,5860.2402,16,Uh we'll continue to do it.
4468715,640,5860.2402,5863.8901,16,we'll continue to update uh uh the more uh we have uh visibility.
4468715,641,5863.8901,5875.1099,16,To be honest with you uh uh uh uh it goes it goes in phases in the sense that we have uh ob obviously when we get close to deals uh we had our own view that was uh outside-in uh on the opportunities.
4468715,642,5875.1099,5882.27,16,Then as we're closing the deals uh we do our first round of inside-out uh view of the opportunities uh in the long term.
4468715,643,5882.27,5885.48,16,And then we go into the more year-by-year detailed plans.
4468715,644,5885.6899,5887.23,16,So this is a little bit what is happening.
4468715,645,5887.23,5888.4302,16,We'll continue to keep you updated.
4468715,646,5888.4302,5889.7803,16,But the short answer is yes.
4468715,647,5897.1699,5897.52,22,Thank you.
4468715,648,5902.3398,5902.6797,23,Hi.
4468715,649,5902.71,5904.0996,23,Good afternoon uh everyone.
4468715,650,5970.5898,5972.6396,16,insightful uh for what we're looking at.
4468715,651,5972.6401,5990.7798,16,So uh the uh on a on a uh uh on m a I think here uh uh we will ever to remain focused not only on what we do but also what we consider cause also re uh and screening uh opportunities we're engaging in processes that that might sell from organizational costs.
4468715,652,5991.3799,5994.3999,16,And uh we're trying to stay as much focused as we can.
4468715,653,5994.3999,6009.8599,16,Uh I I uh I I reiterate probably what we sa I said that uh uh in uh in uh in in the past the two uh key areas of focus uh for us uh where we engage and remain uh uh uh uh uh our priorities remain at the end of the day in merchant.
4468715,654,6009.8599,6014.0498,16,Uh I mean first of all it is mainly merchant services you know.
4468715,655,6014.0801,6026.4404,16,Uh first one being uh merchant books especially you know in the markets where we are already in on relationships that we already have because for us it's important to follow our banks and other strategies and partner with 'em.
4468715,656,6026.4399,6033.8198,16,Uh and this is what we've done for example on uh on uh on uh on Ruby on Alpha Bank as well uh and and so on.
4468715,657,6033.8198,6040.0703,16,And secondary is more broadly e-commerce both in terms of geographies and also uh our capabilities.
4468715,658,6040.0698,6049.4702,16,Uh uh uh and and if you wish as an extensions of these you could also consider this wo world of uh uh uh software uh that can be effectively integrated with payments.
4468715,659,6049.6499,6054.8003,16,Uh and these are small example of all the broader is a uh is a is a nice one.
4468715,660,6054.7998,6058.8301,16,That does not mean that we go after uh uh many of those necessarily.
4468715,661,6058.8301,6064.5996,16,Uh uh uh we will uh base it very very carefully uh and we really want to understand it before.
4468715,662,6064.98,6069.1797,16,Uh we did also because like you are in a position wherein market partnerships are are also very good.
4468715,663,6069.6201,6073.79,16,Uh and uh and and therefore we want to learn more about uh about our business.
4468715,664,6073.79,6080.7998,16,But clearly e-commerce and uh uh uh e-commerce merchant channel and the merchant books uh for us are the key areas.
4468715,665,6081.7402,6082.25,16,Bernardo?
4468715,666,6082.5898,6087.52,17,On occasion as well uh thanks Paolo for the economist <laugh> but I give you my ten cents worth.
4468715,667,6087.52,6095.5601,17,But I don't believe Europe will uh will uh will uh will will definitely lag the US and probably not have such such a steep increase in inflation even though it's lingering.
4468715,668,6095.9502,6103.3398,17,Um I our view or my view uh is that our business is actually geared to benefit from from inflation as you were saying.
4468715,669,6103.7598,6105.96,17,Two-thirds of our revenues are volume driven.
4468715,670,6105.96,6108.8804,17,And most of that comes from the value of the transaction.
4468715,671,6108.8799,6112.3398,17,Conversely our cost base is predominantly fixed.
4468715,672,6112.3398,6115.3896,17,And obviously there may be some wage price inflation.
4468715,673,6115.3901,6118.9399,17,Europe tends to be secure or more resilient than than the US on that front.
4468715,674,6119.3398,6120.9399,17,Uh but that should give us some protection.
4468715,675,6120.9399,6125.3501,17,But more importantly we pay uh our processing cost on a per transaction basis.
4468715,676,6125.3501,6136.46,17,So we'd have a nice spread between uh revenues growing because of volume growth thanks to inflation and as you were suggesting lower transaction numbers um uh with lower core processing costs.
4468715,677,6136.8198,6151.3901,17,Um in addition on the on the um on the capital structure front I mentioned it earlier I think two three quarters of our capital base is or or our fi you know our our our fixed income capital base is uh uh effects to be effectively fixed rate.
4468715,678,6151.3901,6157.0298,17,So uh you know an inflationary pressure should deflate the value of this debt so beneficial to us.
4468715,679,6157.4702,6166.4897,17,Uh and in the very short term um uh I think it is 1.5 billion of our liabilities are indexed to your l i b o r but uh your LIBOR is scored at at zero.
4468715,680,6166.77,6171.9697,17,And therefore we have some absorption capacity and that's uh built into our debt structures overall.
4468715,681,6203.71,6206.1802,16,I think uh that's a that's a simple uh comment.
4468715,682,6206.1802,6208.3701,16,Thank you for uh uh for being with us.
4468715,683,6208.3701,6217.5,16,Thank you for the many important questions uh uh uh across um uh uh across uh numbers uh outlook uh and strategies as well.
4468715,684,6217.5,6223.0801,16,I think it's important uh to have always set that at the core uh as well.
4468715,685,6223.4102,6228.0796,16,Again simple messages for us uh continuing the volume recovery across all geographies.
4468715,686,6228.0801,6233.2402,16,I think this is really important strategically not just uh uh uh financially for us.
4468715,687,6233.2402,6243.0601,16,A good strong uh in financial performance um uh uh uh across the board uh in ratings and uh and uh um margin as well.
4468715,688,6243.0601,6253.0098,16,And last but not least we continue to progress uh in uh the group coming together to have a stronger company for the future across the board.
4468715,689,6253.3398,6254.3301,16,So thank you very much.
4468715,690,6254.3301,6262.75,16,And uh looking forward to see many of you uh over the next uh few days and week and hopefully uh uh uh in person.
4468715,691,6262.75,6267.1201,16,And uh uh and and it is great to see that some of the meetings I understand will be in person uh uh again.
4468715,692,6267.3999,6268.1304,16,Thank you very much.
4468715,693,6268.1299,6269.0801,16,Enjoy the rest of the day.
4468919,0,1.1,6.67,0,Good morning and welcome to the Loma Negra third quarter twenty twenty one conference call and webcast.
4468919,1,7.22,9.38,0,All participants will be in listen only mode.
4468919,2,10.06,15.09,0,Should you need assistance please signal a conference specialist by pressing the star key followed by zero.
4468919,3,15.95,19.38,0,After today's presentation there will be an opportunity to ask questions.
4468919,4,20.23,21.12,0,Also Mr.
4468919,5,21.12,26.19,0,Sergio Faifman will be responding in Spanish immediately following an English translation.
4468919,6,26.86,30.87,0,To ask your question you may press star then one on your telephone keypad.
4468919,7,31.51,34.23,0,To withdraw your question please press star then two.
4468919,8,35.11,36.92,0,Please note that this event is being recorded.
4468919,9,37.65,39.84,0,I would now like to turn the conference over to Mr.
4468919,10,39.84,41.83,0,Diego Jalon head of IR.
4468919,11,42.5,43.74,0,Please Diego go ahead.
4468919,12,46.13,46.64,1,Thank you.
4468919,13,47.28,51.17,1,Good morning and welcome to Loma Negra's third quarter earnings conference call.
4468919,14,52.07,61.12,1,By now everyone should have access to our earnings press release and the presentation for today's call both of which were distributed yesterday after market close.
4468919,15,61.87,69.77,1,Joining me on the call this morning will be Sergio Faifman our C E O and Vice President of the Board of Directors and our C F O Marcos Gradin.
4468919,16,70.44,73.2,1,Both of them will be available for the q and a session.
4468919,17,74.1,79.03,1,Before I turn the call over to Sergio I would like to make the following safe harbor statements.
4468919,18,79.69,89.67,1,Today's call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filing with the s e c.
4468919,19,90.76,98.98,1,We assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances.
4468919,20,99.78,104.29,1,This conference call will also include discussion on non GAAP financial measures.
4468919,21,104.77,110.91,1,The full reconciliation to the corresponding financial measures is included in the earnings press release.
4468919,22,111.68,114.08,1,Now I would like to turn the call over to Sergio.
4468919,23,116.21,116.94,2,Thank you Diego.
4468919,24,117.59,119.99,2,Hello everyone and thank you for joining us today.
4468919,25,120.77,129.96,2,As usual I am going to mention a few highlights of the third quarter and then Marcos will lead you through our market review and financial slides.
4468919,26,130.63,136.33,2,After that I will provide some final remark and then we will open the queue to your questions.
4468919,27,137.31,156.12,2,As you could see from our release yous yesterday we are pleased to share our third quarter results where we observe solid demand and high historic figures as we keep our core finance margin at world-class level.
4468919,28,156.12,168.38,2,inaudible the strong movement experienced in cement sales since the start of the recovery in mid twenty twenty has reached level most equivalent of the those seen in record industry years.
4468919,29,169.16,174.58,2,Our high efficient production standard enabled us to delivery another robust quarter.
4468919,30,175.41,187.97,2,Despite the impact of the normalization of operation and the subsequent effect of regular seasonality maintenance cost and the higher energy input in our ISAC and e b i t d a margins.
4468919,31,188.92,209.7,2,Despite these effects when measured in US dollar our ISAC and e b i t d a increased to fifty one million from forty eight million in third quarter twenty twenty even improving the result from last quarter keeping the US dollar per ton above thirty bucks.
4468919,32,211.21,221.95,2,Finally regarding the expansion project of L'Amali we are delivering cement to the market and already seeing promising result from the first production budget.
4468919,33,222.72,226.38,2,We expect to show its benefits in the coming quarters.
4468919,34,227.41,234.57,2,I will now hand off the call to Marcos Gradin who will lead you through our market review and financial results.
4468919,35,235.4,236.84,2,Please Marcos go ahead.
4468919,36,239.28,240.17,3,Thank you Sergio.
4468919,37,240.17,241.1,3,Good day everyone.
4468919,38,241.62,255.23,3,As you can see on slide four leaving behind a deep drops of G D P in two thousand twenty we saw a sharp recovery in the second quarter and an improvement in twenty twenty one G D P estimated growth reaching eight point three percent.
4468919,39,255.85,270.56,3,Construction activity measured by the i s a c also had a strong performance in recent months starting to present a more moderate growth as third quarter to two thousand twenty showed the start of the post-pandemic recovery.
4468919,40,271.52,275.98,3,Regarding cement national industry sales they had kept on growing strongly.
4468919,41,276.72,279.07,3,Even above our previous expectation.
4468919,42,279.65,290.48,3,Consolidated in high figures with ten months accumulated volumes almost reaching industry's year record less than one percent down from the same period of two thousand seventeen.
4468919,43,291.61,299.73,3,Although we do not see large private infrastructure projects purchases recur mostly on the back of smaller projects.
4468919,44,300.35,307.77,3,So when breaking down the consumption by dispatch mode we observe figures in line with historical pre-pandemic average.
4468919,45,308.5,318.52,3,Certainly the economy as a whole still faces different challenges particularly on the market economic outlook that may impact our future growth expectations.
4468919,46,322.57,326.8,3,Turning on to slide five for a review of our top-line performance by segment.
4468919,47,327.08,339.81,3,Consolidated revenues increased year on year by eight point five percent mainly reflecting the continued recovery of the other segments more affected by the pandemic restrictions and the growth of our core seven business.
4468919,48,340.41,349.89,3,Seventh measure inaudible on line segment was up two point four percent with margins expanding eight point four percent with softer pricing dynamic.
4468919,49,350.46,358.74,3,Concrete and aggregates show sharp revenues recovery of one hundred seventeen percent or forty seven percent year on year respectively.
4468919,50,359.29,364.62,3,As we mentioned before these segments suffer more deeply the effects of the pandemic restrictions.
4468919,51,365.13,373.43,3,In the case of concrete volume expansion of one hundred eleven percent was underpinned by a positive price in recovering performance.
4468919,52,374.06,381.75,3,Regarding aggregates the segment volume was up seven point two percent boosted by recovering pricing and a positive pricing mix.
4468919,53,382.56,396.58,3,Finally regular revenues increased by twenty five point four percent in this quarter versus the same quarter in two thousand twenty as the higher transported volumes were coupled with a good price in performance and a positive product mix.
4468919,54,397.95,399.32,3,Moving on to slide seven.
4468919,55,399.49,414.25,3,Consolidated growth profit for the quarter slightly declined zero point one percent year on year with margin contracted by two hundred twenty two basis points mainly impacted by the demonetization of seasonality cost and higher energy inputs.
4468919,56,414.77,434.27,3,Seventh growth margin contracted by five five hundred seventy seven basis points from thirty five point five percent to twenty nine point eight percent with the comparison affected by regular inaudible maintenance cost this quarter against the third quarter of two thousand twenty with the maintenance schedule affected by the pandemic restrictions.
4468919,57,435.26,437.38,3,We also experienced some pressure and…
4468919,58,437.38,445.72,3,from seasonal energy charges as winter production in two thousand twenty was abnormally low due to the sharp drop in demand in last year.
4468919,59,446.76,456.46,3,For the next year the brand new line built in L'Amali plant will give us a flexibility to maximize production out of the winter months avoiding higher energy charges.
4468919,60,457.74,470.26,3,inaudible expenses a percentage of revenues remain almost flat decreasing by five basis points to seven point six percent from seven point seven percent mainly due to cost inaudible from higher sales volume.
4468919,61,472.1,473.29,3,Please turn to slide eight.
4468919,62,473.63,494.97,3,Our adjusted e b i t d a was down nine point one percent in the quarter reaching four point seven billion pesos with consolidated EBITDA margin contracted by five hundred twelve basis points to twenty six point four percent mainly explained by lower a seventh segment adjusted e b i t d a and the impact of the recovery of the other segments.
4468919,63,495.62,499.86,3,Which as they have lower margins contributed negatively to the consolidated margin.
4468919,64,500.46,506.93,3,In a nine-month basis adjusted EBITDA margin expanded fifty five basis points to thirty point seven percent.
4468919,65,508.23,519.45,3,When measured in US dollars our third quarter EBITDA reached fifty one million dollars up six point five percent from forty eight million in the same quarter a year ago and sequentially.
4468919,66,521.17,538.29,3,Seventh segment adjusted e b i t d a margin contracted by four hundred eighty four basis points to twenty nine point five percent mainly due to the impact of regular seasonality maintenance and winter energy costs coupled by a softer price in dynamic partially offset by the increase in sales volume.
4468919,67,539.13,543.67,3,In a inaudible basis EBITDA remains at a top-notch level of thirty dollars.
4468919,68,544.39,559.7,3,Concrete adjusted e b i t d a increased forty two million pesos compared to third quarter twenty explained by a recovery in sales volume and a positive price performance yet margins remained at negative four point zero percent.
4468919,69,560.5,575.03,3,Aggregate adjusted EBITDA improved sharply from negative sixty four million pesos in third quarter twenty to one million pesos in third quarter two one with margin of zero point three percent as better price and mix in volumes outweighed cost increase.
4468919,70,575.72,594.4301,3,Finally regular adjusted EBITDA improved thirty four million pesos to one hundred and ten million pesos for the quarter with margin expansion from six point three percent to seven point three percent mainly explained by higher transported volume positive product mix and good pricing performance.
4468919,71,596.92,599.39,3,Moving on to the bottom line on slide ten.
4468919,72,599.6,607.89,3,Our profit before tax to the two point six billion pesos was a comparison to third quarter twenty affected by an extraordinary result in such quarter.
4468919,73,608.83,626.5,3,Total final cost stood at zero point three billion pesos in third quarter two one compared to a net gain of three point one billion pesos in third quarter twenty due to an extraordinary result in foreign exchange gain of three point one billion pesos during that quarter.
4468919,74,627.45,634.6,3,Again on that margin our position was zero point three billion in third quarter two one compared to zero point two billion third quarter twenty.
4468919,75,635.25,650.49,3,As a result our net final expense increased by seventy nine million pesos to zero point three billion pesos compared to same quarter of last year driven by lower effects of recession effect compared to the evolution of the inflation rate.
4468919,76,651.37,666.5,3,Finally during the quarter we recognized a non-cash internment of Sierra Bayas asset facility of one hundred thirty one million pesos due to its obsolescence and the future higher efficient production scheme of Loma.
4468919,77,669.14,670.4901,3,Moving on to the balance sheet.
4468919,78,670.54,680.46,3,As you can see in slice eleven we entered the quarter with a cash position of four point three billion pesos and a total debt of four point zero billion pesos.
4468919,79,680.46,691.41,3,Consequently our net debt to e b i t d a ratio stood at minus zero point zero two times compared to zero point one six times at the end of two thousand twenty.
4468919,80,692.0,701.48,3,In third quarter two one we reduced our debt in sixteen million US dollars standing at forty million eighty three percent of which is eliminated in US dollars.
4468919,81,702.07,712.01,3,Additionally as we continue with our third share repurchase program we acquired shares for a total amount of six hundred million pesos in the quarter.
4468919,82,712.87,719.93,3,Our operating cash generation stood at five point four billion pesos with a positive seasonal working capital effect.
4468919,83,720.68,729.06,3,Regarding expenditures we spent one point five billion pesos for the fix of which was dedicated to L'Amali expansion project.
4468919,84,729.71,732.02,3,Uh the second line is already delivering cement.
4468919,85,732.02,734.55,3,The capital requirements are almost completed.
4468919,86,735.31,739.03,3,Now for our final remarks I would like to hand the call back to Sergio.
4468919,87,741.21,742.15,2,Thank you Marcos.
4468919,88,742.55,747.37,2,Now to finalize the presentation I please ask you to turn to slide thirteen.
4468919,89,748.64,753.01,2,To wrap up I would like to highlight the strong evolution of the cement demand.
4468919,90,753.82,761.18,2,With accumulated volume until October our most reaching industry record even through with stren…
4468919,91,761.58,764.16,2,the strength to continue in the forthcoming quarter.
4468919,92,764.98,776.0601,2,We remain cautioned through the mean term as Argentina faces macroeconomic and political changes that could affect the evolution of the economic activity.
4468919,93,778.16,787.1,2,Regarding our new line at L'Amali we are glad about the advance in the project as we are already delivering cement to the market.
4468919,94,787.91,797.13,2,We are enthusiastic with the preliminary results and expect to start seeing the operational efficiency and the economic benefit in future quarters.
4468919,95,798.3,815.35,2,Furthermore this additional capacity will allow us to minimize production in winter avoiding the seasonality higher energy input and also reducing the need of solid fuel that will lead to a more environmental friendly energy matrix.
4468919,96,816.37,826.53,2,Natural gas will remain our main source of thermal energy giving us flexibility and avoiding the hike in pe OPEC international price.
4468919,97,828.61,835.98,2,We continue to work analyzing alternatives for the near future to support sustainable growth path for Loma Negra.
4468919,98,836.63,842.61,2,And be by our highly efficient operation standards and solid capital structure.
4468919,99,844.07,857.95,2,Last but not least I would like to thank all our people and stakeholders for the coming months to Loma Negra operational excellence without whom this set of solid results would have been much harder to achieve.
4468919,100,858.86,861.07,2,We are now ready to take your questions.
4468919,101,861.55,863.96,2,Operator please open the call for questions.
4468919,102,865.73,866.2,0,Thank you.
4468919,103,866.6,869.02,0,We will now conduct a question and answer session.
4468919,104,869.02,874.66,0,If you would like to ask a question please press star then one on your telephone keypad.
4468919,105,875.38,878.66,0,The confirmation tone will indicate that your line is in the question queue.
4468919,106,879.59,882.68,0,You may press star then two if you would like to remove your line.
4468919,107,883.89,889.92,0,For participants using speaker equipment it may be necessary to pick up your handset prior to pressing the keys.
4468919,108,890.66,894.13,0,Once again star one on your telephone keypad.
4468919,109,895.01,899.9,0,We would also like to ask that you please limit your questions to one question and one followup please.
4468919,110,900.69,905.97,0,If you have additional questions you may re-enter the queue for those questions and they will be addressed.
4468919,111,906.87,907.8,0,Please note that Mr.
4468919,112,907.8,912.66,0,Sergio Faifman will be responding in Spanish immediately following an English translation.
4468919,113,913.44,915.97,0,Please hold momentarily while we assemble our roster…
4468919,114,915.97,930.28,0,Our first question today comes from Alexandra Obregon with Morgan Family.
4468919,115,930.38,930.97,0,Please go ahead.
4468919,116,933.07,934.15,4,Hi good morning Loma Negra.
4468919,117,934.15,935.7,4,th Thank you for taking my question.
4468919,118,935.7,937.12,4,Congratulations on the results.
4468919,119,937.73,940.17,4,Um I have two questions so I'll ask the first.
4468919,120,940.4,949.78,4,Uh I was just wondering if you can comment please on the different trends that you're seeing across the different verticals residential infrastructure uh formal and informal housing.
4468919,121,949.78,953.1,4,If you can help us understand how that's developing as we go into the…
4468919,122,953.13,954.83,4,into twenty twenty two.
4468919,123,956.19,956.48,4,Thank you.
4468919,124,966.46,968.23,0,Speakers you may have yourself on mute.
4468919,125,983.28,983.72,2,Spanish.
4468919,126,983.97,1049.77,5,And to start um uh infrastructure projects which have been approved uh to start ramping up uh in the near future.
4468919,127,1056.41,1056.6799,4,Thank you.
4468919,128,1056.6801,1057.77,4,that that that was very clear.
4468919,129,1057.77,1062.28,4,i I have another question if I may and this one is regarding the Olavarria quarry.
4468919,130,1062.33,1071.27,4,I was just wondering if you can comment uh on whether the quarry is supplying limestone normally to Loma Negra and and if you have seen any stop of supply of her materials in the…
4468919,131,1071.3,1075.02,4,in the area or whether this is just operating at at a normal capacity.
4468919,132,1075.62,1075.84,4,Thank you.
4468919,133,1081.1801,1081.65,2,Spanish.
4468919,134,1156.75,1157.41,4,Thank you very much.
4468919,135,1157.41,1158.16,4,This was very clear.
4468919,136,1160.59,1160.89,5,No worries.
4468919,137,1168.65,1171.54,0,Ladies and gentlemen at this time there are no further questions.
4468919,138,1172.37,1174.88,0,So this will conclude our question and answer session.
4468919,139,1175.08,1178.8201,0,I would like to turn the conference back to di Diego Jalon for closing remarks.
4468919,140,1181.35,1182.5701,1,Thank you for joining us today.
4468919,141,1182.9399,1186.2301,1,We appreciate your participation and interest in our company.
4468919,142,1186.87,1190.6,1,We look forward to meeting you again our next call the coming quarter.
4468919,143,1191.0601,1195.6799,1,In the mean time the the team remains available to any questions that you may have.
4468919,144,1196.04,1196.4299,1,Thank you.
4468919,145,1199.7,1201.29,0,The conference has now concluded.
4468919,146,1201.63,1203.49,0,Thank you for attending today's presentation.
4468919,147,1203.85,1205.11,0,You may now disconnect.
4468919,148,1207.2,1208.6801,0,The conference has now concluded.
4468919,149,1209.12,1210.99,0,Thank you for attending today's presentation.
4468919,150,1211.34,1212.6,0,You may now disconnect.
4469075,0,1389.46,1389.58,4,Yes.
4469088,0,0.26,0.66,0,Thank you.
4469088,1,0.66,1.53,0,Good day everybody.
4469088,2,1.53,3.82,0,Thanks for joining us for the results call.
4469088,3,4.16,7.15,0,Uh our year end and and obviously final call to results.
4469088,4,7.52,10.98,0,As always I'll move through the investor presentation.
4469088,5,11.32,13.85,0,Um calling out the page numbers as I move through.
4469088,6,14.21,20.03,0,And I'm gonna start on uh page three which are just some of the highlights for the year.
4469088,7,20.11,28.81,0,And and I think most importantly obviously we return to profitability overall uh following the impact of COVID last year.
4469088,8,28.81,31.82,0,So I'm I'm I'm pleased to say that we did get back to profitability.
4469088,9,32.11,33.48,0,Uh other highlights.
4469088,10,34.1,37.92,0,The packaging and specialty segment achieved record profitability.
4469088,11,38.63,47.45,0,Uh obviously justifying the recent and uh recent years' investments in that segment and we are excited about the prospects going forward.
4469088,12,47.91,50.56,0,DP dissolving pulp was strong.
4469088,13,51.08,52.45,0,Uh price is good.
4469088,14,52.45,54.85,0,Market demand strong and are…
4469088,15,55.76,56.8,0,We were fully sold at.
4469088,16,57.68,58.98,0,Graphics recovered.
4469088,17,59.46,64.41,0,Uh a little bit slower in the early part of the year in Europe but subsequently picking up there.
4469088,18,64.52,69.11,0,So uh relative to pre COVID levels getting back to encouraging levels.
4469088,19,69.11,72.04,0,And I'll talk talk a little bit more about that on the quarter one.
4469088,20,72.47,82.96,0,Um on on on the other side obviously in in in recent times we've seen the rise of costs coming through.
4469088,21,82.96,89.1,0,Initially it was pulp but more recently came energy and that and that negatively impacted margins.
4469088,22,89.1,90.77,0,And we'll we will talk more about that.
4469088,23,90.98,99.3,0,And then the other challenge we faced and it's not unique to Sappi or or even our industry but the ongoing global supply chain challenges.
4469088,24,99.3,101.61,0,And once again we'll talk about that some more.
4469088,25,102.65,105.7,0,Liquidity improved significantly during the year.
4469088,26,106.01,113.83,0,Um obviously from our leverage from the the worst points in COVID we we we we continue to improve.
4469088,27,113.83,117.31,0,And um the balance sheet is looking stronger.
4469088,28,117.31,121.09,0,And uh once again we we will cover that in a little bit more detail.
4469088,29,121.72,129.54,0,Moving to slide four which is specifically on the quarter itself excellent performance from our North American business.
4469088,30,129.54,132.35,0,That was broad based across all the segments.
4469088,31,132.86,144.96,0,Um and the business was able to uh uh achieve um the highest the highest uh the highest uh quarterly results in I I think more than twenty years.
4469088,32,145.04,147.02,0,So very very thrilled by that.
4469088,33,147.57,149.44,0,DP very strong.
4469088,34,149.57,150.71,0,Uh good prices.
4469088,35,151.26,158.55,0,Um and and and that that that that contributed to uh improved profitability in this segment.
4469088,36,158.88,161.61,0,Packaging uh continued to be good.
4469088,37,162.13,170.67,0,A little bit done on the prior quarter but that was a combination of the uh the higher costs and mainly in Europe coming through.
4469088,38,171.07,182.61,0,Um and and remember we did have the impact of in South Africa of the unrest um which we we did share with you uh in in the last quarter.
4469088,39,183.03,189.55,0,Um obviously uh at Tugela Mill we make packaging there so that that impacted volumes there.
4469088,40,190.21,204.71,0,Graphics now have reached eighty six percent of pre COVID levels uh q four twenty nineteen which is probably better than we could have hoped for uh a year ago.
4469088,41,205.02,212.07,0,Um and we'll cover that specifically in the regions but that's enabled us um certainly in the US to follow machines.
4469088,42,212.4,216.98,0,Um and and Europe um things have significantly improved.
4469088,43,218.11,224.39,0,But the one challenge that we did have obviously was the the supply chain challenges.
4469088,44,224.43,227.51,0,And and we talked about this at at the end of the last quarter.
4469088,45,227.89,237.87,0,And unfortunately it's meant that we uh we had a hundred thousand tons which we're able we're not able to deliver during the quarter.
4469088,46,238.36,242.49,0,Um now that's obviously sitting in inventory first and uh…
4469088,47,243.7,247.62,0,But what I should say is that those are contractual volumes.
4469088,48,248.12,248.59,0,They will not…
4469088,49,248.65,250.08,0,They're not going into the marketplace.
4469088,50,250.34,251.86,0,Those are contractual volumes.
4469088,51,252.48,255.56,0,Um the price uh those have been sold.
4469088,52,256.35,260.21,0,The the price is linked to the prior quarter pricing.
4469088,53,260.64,272.13,0,And although we've lost the benefit in these quarterly numbers and we show you that that's a thirty million dollars benefit that is just a timing difference.
4469088,54,272.17,275.67,0,That will be sold in in in in future quarters.
4469088,55,276.18,285.34,0,Um the the the the the shipping challenges that we faced um and and we talked about this in our last quarterly call.
4469088,56,285.8,292.12,0,Um and we gave you guidance at that point in time for what we felt the volumes would be for this quarter.
4469088,57,292.53,301.61,0,What we found subsequent to that uh guidance was that the the the situation deteriorated in in in in Durban specifically.
4469088,58,301.93,309.83,0,Um we started to see cancellation of vessels which we had booked our our our our our our deliveries on.
4469088,59,310.11,319.05,0,And uh you know vessels which we thought were gonna be coming uh were diverted away from the Durban port cause of the significant backlog.
4469088,60,319.35,328.93,0,And I'll remind you that just prior to that results announcement we did have the the IT outage at uh Transnet which impacted on the port.
4469088,61,329.26,334.84,0,So you know uh I I I do concede that that we missed our guidance at that point in time.
4469088,62,334.84,341.44,0,But I I want to point out that was our best estimate and the situation subsequently got much worse.
4469088,63,341.79,347.47,0,Um having said all of that we are more encouraged where we are today.
4469088,64,347.65,354.01,0,And um it does look like more vessels are now coming back to the Durban port.
4469088,65,354.28,359.51,0,We've had uh proactive discussions with the big global shipping lines.
4469088,66,360.04,367.17,0,And we are more encouraged which is indicating that maybe the worst of is behind us.
4469088,67,367.54,377.03,0,Um it's gonna take some time clearly to catch up the uh the backlog um that we uh we have that a hundred thousand tons.
4469088,68,377.5,391.34,0,Um in the earnings guidance that we've given you we've assumed that there will not be uh there won't be a a catch up um but we will be able to um sell our uh the production that we are making cause of the improved situation.
4469088,69,391.49,396.49,0,And in time as I say we are encouraged by the improving situation.
4469088,70,398.47,402.31,0,Moving to slide five just an earnings bridge for the year.
4469088,71,402.31,419.05,0,And yeah uh I guess most of these things we've talked about but uh obviously sales volumes generally up on the prior year um but deeply impacted by the um the the the the backlog that I've just been spending time on.
4469088,72,419.26,421.57,0,Pricing improving across all our segments.
4469088,73,422.12,423.06,0,Costs going up.
4469088,74,423.43,426.91,0,Uh initially purchased pulp as a as as we've indicated.
4469088,75,427.16,429.13,0,Delivery costs rising.
4469088,76,429.67,433.45,0,Um and then we we've grouped together energy wood and chemicals.
4469088,77,433.9,440.06,0,Within that energy and and chemicals up but we did see lower wood costs offsetting some of that.
4469088,78,440.42,444.92,0,Um but I will talk a little bit more about energy in in a future slide.
4469088,79,446.79,457.58,0,Moving to slide six uh just the product contribution split and we thought it would be useful to show you the evolution from sixteen to twenty one both on profitability and volumes.
4469088,80,457.88,460.3,0,And you know we continue to make progress.
4469088,81,460.72,464.94,0,Reducing our exposure to graphics is now down to fifty four.
4469088,82,465.27,468.6,0,Um and I would expect that to continue to come down.
4469088,83,468.86,474.62,0,Uh packaging obviously ramping up and will continue to increase.
4469088,84,475.12,481.78,0,And obviously from a profitability perspective packaging the biggest segment for the year.
4469088,85,482.34,486.74,0,DP uh obviously over the years we've we've had a number of smaller projects.
4469088,86,486.74,490.78,0,And and going forward we will have the the new expansion volumes coming through.
4469088,87,492.62,505.88,0,Slide seven shows you the margins uh in by segment product segment and graphics continues to recover um and is looking more favorable as we move forward.
4469088,88,506.31,509.49,0,Packaging um good good margins.
4469088,89,510.13,518.0,0,Um lower than the prior quarter but uh that is predominantly cause of the higher costs that came through in Europe.
4469088,90,518.36,526.7,0,Um and I'll remind you that those are periodically priced uh contracts in in in the packaging space.
4469088,91,526.94,532.79,0,We did put through a series of selling price increases but then the costs rose once again.
4469088,92,532.82,539.82,0,And and we are now implementing or we have been implementing further raise price increases to offset the higher costs.
4469088,93,540.17,544.1,0,And then dissolving pulp recovery of margins very encouraging.
4469088,94,544.37,546.13,0,Lower volumes because of the backlog.
4469088,95,546.94,554.4,0,Slide eight has the leverage ratio on the debt side uh continuing to come down.
4469088,96,554.78,563.09,0,Uh and then we would expect that to continue in the year ahead as our earnings to improve and we generate more cash.
4469088,97,563.13,567.96,0,And therefore the absolute debt levels will continue to come down.
4469088,98,569.66,571.66,0,Slide nine tells a great story.
4469088,99,571.69,572.23,0,Our…
4469088,100,572.6,577.88,0,Uh we managed to refinance our bonds during the year our securitization also.
4469088,101,578.2,582.6299,0,And we we have a very favorable near term profile.
4469088,102,582.66,586.25,0,Uh we don't have any major debt maturing so feeling good about that.
4469088,103,588.78,592.96,0,On the slide ten moving to CapEx.
4469088,104,593.44,598.15,0,Um our guidance for the year ahead is three hundred ninety five million.
4469088,105,599.06,609.34,0,That includes uh thirty million for the Saiccor expansion project that that that overrun that we talked about in the last quarter.
4469088,106,609.94,610.55,0,So that…
4469088,107,610.64,614.99,0,Uh if you back that out the CapEx for the year is three sixty five.
4469088,108,615.24,615.94,0,Included in…
4469088,109,615.94,618.56,0,And we did disclose this in the earnings announcement.
4469088,110,618.77,625.78,0,Included in that is um firstly sustainability projects of about seventy five million.
4469088,111,626.11,633.55,0,Um as you know we've committed to reducing our carbon footprint um and reducing uh…
4469088,112,633.83,637.54,0,Well reducing our carbon emissions and improving our environmental footprint.
4469088,113,638.06,638.49,0,The…
4469088,114,639.27,649.64,0,Just to quote some of the projects that are contributing to that seventy five million um the first larger one is at um at Saiccor.
4469088,115,650.0,658.17,0,We uh we we are looking to uh eliminate all our use of the calcium and and move that across to magnesium.
4469088,116,658.32,660.97,0,So that that consumes some of the CapEx.
4469088,117,660.97,667.4,0,We have other smaller initiatives that in Ngodwana that will continue to improve our environmental footprint.
4469088,118,667.72,676.32,0,And then in Europe as you know there is legislation very strict legislation to improve um carbon emissions.
4469088,119,676.62,686.35,0,We have a number of initiatives uh and and specifically at Gratkorn Kirkniemi and Maastricht uh Maastricht to improve.
4469088,120,686.78,694.1,0,Um Gratkorn and Kirkniemi moving from uh coal to uh biomass.
4469088,121,695.34,699.76,0,And uh Maastricht we are moving to a uh an e-boiler there as well.
4469088,122,700.1,712.34,0,So that is gonna help us um and that's uh you know will will enable us to get closer to our legislative targets and our science-based targets um that we've committed to.
4469088,123,713.07,723.78,0,Uh on top of that we we included in our CapEx is um uh what we called cost optimization and quality improvement projects.
4469088,124,724.2,729.73,0,We have a project uh at Ngodwana to improve our quality.
4469088,125,730.17,738.56,0,Um as you know we we have a great containable business there and and we need to continue to invest…
4469088,126,742.75,743.72,1,The sound apparently is cutting.
4469088,127,745.29,745.86,0,Apologies.
4469088,128,745.86,748.19,0,Um I'm I'm told that the sound keeps cutting out.
4469088,129,748.22,750.28,0,i I'm not sure why so I will…
4469088,130,750.73,751.85,0,Should I talk slower?
4469088,131,752.59,754.53,0,Um okay.
4469088,132,754.76,758.03,0,I've I've just received feedback that the the the sound is cutting out.
4469088,133,758.06,763.03,0,Uh I'm not sure why um but I'll I'll I'll carry on uh regardless.
4469088,134,763.26,769.2,0,And then if we need further clarification on the questions we'll we'll take them as they come.
4469088,135,769.94,781.23,0,Um included in the cost optimization uh initiatives as I mentioned there's a uh a quality uh improvement project in Ngodwana.
4469088,136,781.87,786.4,0,Um and then we have an a series of smaller cost initiatives.
4469088,137,786.54,801.6,0,one ones that we believe will give us very quick payback two three years um that makes sense which will help us move down the um the cost curve um and uh um entrench our position.
4469088,138,801.92,804.66,0,We also have some IT uh initiatives.
4469088,139,804.66,812.95,0,We're rolling out a new um mill production operating system as as well and that's in that number.
4469088,140,815.56,817.44,0,Moving to slide eleven.
4469088,141,817.9,824.76,0,Um as I talked earlier one of the challenges we've faced is is is with uh shipping.
4469088,142,825.06,830.11,0,And we could have put in many slides that could demonstrate that we we…
4469088,143,830.11,831.89,0,This one is from See Intelligence.
4469088,144,831.89,836.75,0,It's on uh reliability of the of of ocean freight.
4469088,145,837.19,842.26,0,And uh you can see it's dramatically since COVID.
4469088,146,842.54,848.7599,0,Um and actually during the quarter that we've just been in…
4469088,147,848.79,851.96,0,As I talked about it actually declined uh further.
4469088,148,853.44,861.24,0,What I will will say is that we are seeing spot rates for freight now starting to come down.
4469088,149,861.53,866.8,0,So there are positive signs uh which I talked about earlier.
4469088,150,866.87,872.13,0,So we are feeling a little bit more encouraged about the situation for our deliveries.
4469088,151,873.9,877.3,0,Slide twelve has the uh paper pulp prices.
4469088,152,877.91,883.76,0,Um and there's a few there's a few numbers there uh reflected with both…
4469088,153,884.1,889.65,0,We've got the European pulp prices uh which you can see still remain elevated.
4469088,154,889.98,894.67,0,And as you know we we're a we're a a big pulp buyer in in Europe.
4469088,155,894.67,896.85,0,We buy uh close to eight hundred thousand tons.
4469088,156,896.85,898.93,0,So that does continue to infect our business.
4469088,157,899.31,905.43,0,However In China um we have seen pulp prices across the board decline.
4469088,158,905.89,918.84,0,Um that's partially linked to the energy uh the energy capacity uh constraints that the Chinese government has placed on Chinese industries.
4469088,159,919.32,920.82,0,Um and that has had an impact.
4469088,160,921.3,926.24,0,Certainly not benefiting from that at the moment cuz obviously European prices still remain high.
4469088,161,927.33,928.81,0,Moving to slide thirteen.
4469088,162,929.2,942.37,0,Um in recent weeks and and in the last month or two we've seen a big surge in natural gas prices and energy prices across the board in Europe.
4469088,163,942.96,947.33,0,Um you saw the big surge and you can see it in the graph subsequently declining.
4469088,164,948.02,970.57,0,But as we look at our energy costs for q one we uh we are estimating that the costs uh the impact of all of this uh mainly in Europe but it's not just Europe but mainly in Europe is about seventeen million dollars in absolute terms.
4469088,165,971.63,984.88,0,However we have implemented and this is public knowledge we have implemented an energy surcharge in Europe of a hundred euros a ton um to offset that impact.
4469088,166,985.5,988.61,0,Um it was announced a cou uh uh two or three weeks back.
4469088,167,989.34,993.47,0,it's all deliveries subsequent uh in the last couple of weeks.
4469088,168,994.21,998.49,0,Um and um that has been successful for us.
4469088,169,999.28,1010.25,0,It uh has not had an impact on the demand for our paper but it has offset the impact of those higher costs that I've just referred to.
4469088,170,1010.72,1020.91,0,And therefore we we do not believe that in our q one earnings that we will have a margin squeeze cause of the higher energy costs.
4469088,171,1020.91,1033.23,0,We've been able to offset that and we are encouraged by the um the way that it has unfolded and and the way we've been able to implement the the higher uh or the surcharge.
4469088,172,1033.97,1039.1901,0,Obviously at the same time we continued to announce selling price increases as well.
4469088,173,1041.01,1046.8899,0,Moving to slide fifteen uh and that is on our product segments.
4469088,174,1046.89,1054.63,0,Firstly dissolving pulp um prices still strong uh during the quarter remained above a thousand.
4469088,175,1055.0699,1057.75,0,Come back uh a little bit in recent weeks.
4469088,176,1058.09,1070.9299,0,Uh linked to the the energy constraints placed in in in China and and the fact that viscose producers had to reduce their um their operations.
4469088,177,1071.09,1074.03,0,So there was less demand for dissolving pulp.
4469088,178,1074.73,1077.2301,0,Um but generally the market is good.
4469088,179,1077.67,1081.99,0,Um obviously our segment impacted by the backlog that I referred to.
4469088,180,1082.53,1085.27,0,Viscose viscose prices dropped during the quarter.
4469088,181,1085.48,1097.01,0,But what we've seen since um that energy surcharge or that energy constraint has been put in place is that viscose prices actually have dropped uh have increased quite significantly.
4469088,182,1097.6801,1103.9,0,Um we are also going to have the additional volumes coming through from us.
4469088,183,1104.17,1110.04,0,Uh our expansion project we have uh all but complete that project.
4469088,184,1110.74,1114.29,0,Most of the equipment has been handed over now to the mill.
4469088,185,1114.48,1117.3301,0,The last step is the the boiler itself.
4469088,186,1117.77,1131.16,0,The team are doing their final tests and that will be completed in the next uh week or two and then we'll be ready uh to uh operate and ramp up from that that uh from that point.
4469088,187,1131.98,1134.26,0,So uh it's good to get that behind us.
4469088,188,1134.26,1140.86,0,And and and obviously um we're gonna see the benefit of the volumes coming through um as we move through the year.
4469088,189,1141.58,1148.02,0,Um in terms of longer term we are encouraged by the dissolving pulp markets.
4469088,190,1148.8101,1158.0701,0,Um there is additional capacity coming on board but we believe that the demand is more than enough to offset that.
4469088,191,1158.58,1170.92,0,Strategically we as we look forward we uh we anticipate that our um level of contracting will will come down a little bit uh down to seventy two percent.
4469088,192,1171.49,1182.59,0,Um but we are uh we are we're confident of being able to place that in in in into uh the Chinese and and other spot markets.
4469088,193,1184.76,1188.95,0,Slide sixteen has the dissolving pulp uh indicators.
4469088,194,1189.37,1192.89,0,Strong recovery and retail textile demand.
4469088,195,1193.58,1197.03,0,Um and and and you can see that uh flowing through.
4469088,196,1197.59,1201.3,0,The graph on the right just shows you what I was talking about earlier.
4469088,197,1201.71,1205.6,0,DP coming down but now a big surge in viscose prices.
4469088,198,1206.13,1212.62,0,Um so that that we believe will be positive for DP prices moving forward.
4469088,199,1214.75,1218.63,0,The uh packaging segment on sli slide seventeen.
4469088,200,1218.78,1221.55,0,Great year record profitability margin is good.
4469088,201,1222.2,1226.0701,0,Very strong uh demand in North America and South Africa.
4469088,202,1226.37,1227.8099,0,Europe a little bit more mixed.
4469088,203,1229.48,1237.41,0,Um but as as the European economy has recovered we're starting to see a broad a more broad based recovery.
4469088,204,1237.85,1245.95,0,Obviously um profitability as I indicated impacted uh in the quarter by the higher costs.
4469088,205,1246.46,1259.6101,0,But we that surcharge that I referred to earlier was was across all our paper grades so it was equally applicable to um our packaging business and packaging and specialty in Europe.
4469088,206,1261.0601,1265.95,0,Slide eighteen has the North American S B S market.
4469088,207,1266.33,1267.6,0,Um we thought that would be useful.
4469088,208,1267.6,1270.0699,0,You could see the the the impact through COVID.
4469088,209,1270.1,1274.37,0,You did see uh a lowering of production subsequent recovery.
4469088,210,1274.8101,1286.95,0,Uh shipments continued to uh be pretty strong and we've seen significantly rising selling prices obviously to offset the higher costs that are coming through there.
4469088,211,1287.27,1288.92,0,But markets are good markets are tight.
4469088,212,1291.09,1295.3101,0,Slide nineteen um is graphics.
4469088,213,1295.79,1300.51,0,And and I think it's fair to say that the recovery in graphics has exceeded our expectations.
4469088,214,1301.0,1306.72,0,And if you look at the market overall eighty eight percent of pre COVID levels.
4469088,215,1307.8101,1310.5,0,And if you think about that that's over a two year period.
4469088,216,1310.92,1317.58,0,Um I I don't think any of us could have anticipated that uh it it it could have got back to eighty eight.
4469088,217,1317.58,1324.0699,0,But within Sappi um our our our coated wood-free is uh is even better than that.
4469088,218,1324.0699,1327.13,0,And we've been able to um gain market share.
4469088,219,1327.79,1334.04,0,Um overall um volumes in the segment reached eighty six percent.
4469088,220,1334.7,1338.4601,0,Uh in uh uh in q four.
4469088,221,1339.12,1346.8101,0,Um and as I said profitability impacted by cost but we have been implementing selling price increases to offset that impact.
4469088,222,1347.35,1353.13,0,Slide twenty just shows you the respective markets in US and Europe and the recovery in volumes.
4469088,223,1353.13,1359.63,0,Um so we are we are feeling encouraged because both markets now are tight and imbalance.
4469088,224,1361.49,1371.0699,0,And that will enable us to uh implement the selling price increases that we've announced to uh offset higher costs.
4469088,225,1373.99,1381.3201,0,Running to the regions Europe uh and and and much of this I've said so I'm not gonna repeat but early part of the year impacted by volumes.
4469088,226,1382.42,1384.2,0,Volumes subsequently recovering.
4469088,227,1384.52,1389.0199,0,Coated wood-free for us is ninety nine percent of twenty nineteen.
4469088,228,1389.65,1400.0901,0,So you can see that demonstrates uh the tightness of the market that are referred to and why why we've we are more encouraged as we move forward.
4469088,229,1400.8101,1406.1799,0,Um costs rising but we have been implementing selling price increases.
4469088,230,1406.41,1408.0299,0,North America fantastic year.
4469088,231,1408.28,1413.3101,0,Across the board highest quarterly earnings in more than twenty years.
4469088,232,1413.96,1416.84,0,Um all the segments full.
4469088,233,1417.2,1418.3,0,Uh machines are full.
4469088,234,1418.3,1420.5601,0,Margins good improving.
4469088,235,1420.97,1424.8799,0,We're feeling very good about uh our our North American business.
4469088,236,1425.27,1431.23,0,Yes we've got higher costs but we've been able to implement higher selling prices to offset that.
4469088,237,1434.46,1437.02,0,And South Africa we we are also very encouraged.
4469088,238,1437.12,1443.2,0,Yes we have challenges but uh DP markets still remain strong.
4469088,239,1443.52,1444.9301,0,Our paper business is good.
4469088,240,1445.4301,1448.6699,0,Uh container board specifically strong demand.
4469088,241,1449.23,1453.34,0,Um and we are encouraged uh that we can…
4469088,242,1454.63,1456.87,0,The the situation with the backlog.
4469088,243,1457.1899,1461.7899,0,Um and i i I'm going to remind you again that that margin is not lost.
4469088,244,1462.14,1465.0601,0,It's just the lead from the the the overspill.
4469088,245,1466.11,1473.11,0,Um on slide twenty four our cash management um tremendous work done across the year.
4469088,246,1473.48,1478.9,0,Um refinancing our bonds uh improving the liquidity situation.
4469088,247,1479.39,1484.8999,0,Um and that will continue to come down in the year ahead as our profits grow.
4469088,248,1485.54,1490.8199,0,Um so uh the leverage ratio will will will continue to decline.
4469088,249,1491.04,1493.16,0,CapEx I've spent time on already on.
4469088,250,1493.48,1498.75,0,And on the procurement side some nice savings there and we will continue to look for opportunities.
4469088,251,1499.5,1515.34,0,fy twenty five uh I I don't intend spending a lot of time on because we've talked about it previously but are uh the four pillars of our strategy we will continue to look for opportunities to grow in the higher margin segments.
4469088,252,1515.5699,1524.2899,0,We are gonna reduce our exposure to graphics as we move forward but we are gonna redirect that towards packaging grids.
4469088,253,1524.29,1528.83,0,And there and there are opportunities to do that in Europe um and and in the US.
4469088,254,1530.92,1532.6899,0,The financial health I've spent time on.
4469088,255,1532.6899,1534.7301,0,It's it's improved significantly.
4469088,256,1535.35,1546.28,0,Our job continues to be to drive operationally excellence and we will look for uh uh opportunities to to uh save on the procurement side.
4469088,257,1546.6899,1552.11,0,Those cost optimization numbers that are referred to earlier on CapEx that's what that's all about.
4469088,258,1552.16,1554.78,0,It's about driving operational excellence.
4469088,259,1555.62,1560.59,0,Lowering has done the cost curve and generating further savings as we move forward.
4469088,260,1561.2,1562.3099,0,And then enhancing trust.
4469088,261,1562.3101,1568.1901,0,Uh you know we're very excited about the work that we are doing uh to reduce our environmental footprint.
4469088,262,1568.1899,1577.8501,0,We've committed to science based targets um and I'll talk a little bit more about that in the slide ahead um as as we move forward.
4469088,263,1578.17,1579.9701,0,Slide twenty six has are…
4469088,264,1581.39,1585.55,0,Uh just summarizes what I'm saying twenty two uh uh…
4469088,265,1585.55,1585.91,0,Sorry.
4469088,266,1586.6,1589.97,0,The the financial year twenty two further reduction in debt.
4469088,267,1590.7,1593.36,0,Get that profitability back up again.
4469088,268,1593.92,1595.46,0,Continue to look for opportunities.
4469088,269,1595.46,1610.7799,0,We're not gonna um uh commit to any uh a any big projects to uh improve uh to increase our um our exposure yet but we continue to uh evaluate opportunities.
4469088,270,1610.78,1613.9601,0,And and we think there's lots of exciting opportunities in the packaging space.
4469088,271,1615.13,1618.52,0,Slide twenty seven we rolled out a new…
4469088,272,1618.76,1630.53,0,With our Thrive twenty five strategy we rolled out a new sustainability strategy and and that's across the group and and and and uh is being embedded in everything that we are doing.
4469088,273,1630.9301,1635.9801,0,Um and and what we've done in the next couple of slides it's just it's a scorecard that we keep internally.
4469088,274,1635.98,1643.02,0,We have set ourselves targets uh which I'm not gonna talk through all of them but just to highlight a couple briefly.
4469088,275,1643.36,1645.0901,0,And I'm I'm slide twenty eight.
4469088,276,1645.5601,1650.83,0,Firstly safety which obviously comes first for for for Sappi.
4469088,277,1651.1801,1657.8201,0,Um we missed our targets for the year but underneath that some great uh some great work being done.
4469088,278,1658.11,1662.92,0,South Africa where where traditionally we've had our most biggest challenges.
4469088,279,1662.92,1665.45,0,We recorded further improvement.
4469088,280,1665.45,1668.47,0,And in fact we got a record best ever performance.
4469088,281,1668.88,1673.97,0,The US in the quar the final quarter had zero uh injuries.
4469088,282,1674.34,1675.65,0,So very pleased with that.
4469088,283,1675.65,1681.54,0,The reason we missed our targets is in Europe a couple of mills um did not achieve their targets.
4469088,284,1681.79,1691.49,0,And that's something that we're focusing on and we'll continue to uh um spend a lot of time so that we can continue to improve.
4469088,285,1692.12,1701.16,0,Uh another highlight for us is our achievement as a level one contributor in terms of broad based black economic empowerment.
4469088,286,1701.28,1704.65,0,Uh a lot of great work being done there across the board.
4469088,287,1705.72,1718.4,0,Um and you know whether it's from procurement or it's from from uh an an employee perspective lot lot lots of good work to went behind that to achieve the the level one level.
4469088,288,1719.0,1723.0,0,Obviously we missed our return on capital employed targets that we've set ourselves.
4469088,289,1723.41,1726.24,0,that that's on the back of the lower profitability from COVID.
4469088,290,1726.8,1731.63,0,But as we move forward we'll we believe it will continue to make improvement.
4469088,291,1732.52,1756.72,0,On slide twenty nine and a number of targets there uh to improve our envi- environmental footprint the one we did miss out on slightly was our water usage but that was impacted by the civil unrest and uh the co-commissioning that we have to do ahead of the uh going live with the the the the Saiccor expansion.
4469088,292,1757.22,1764.3201,0,Um but we did achieve our targets across emissions and landfill um and and biodiversity.
4469088,293,1764.3199,1766.6101,0,So very very pleased with the progress there.
4469088,294,1767.24,1790.72,0,So turning to the outlook then page thirty one DP strong albeit that there is some short-term pressure in the Chinese market linked to the the energy constraints but you know hopefully that uh will will will uh will start to be over and then we will uh we will benefit from the higher uh viscose prices that are coming through.
4469088,295,1791.27,1794.02,0,Uh packaging good strong demand.
4469088,296,1794.46,1799.84,0,Graphics now uh has has recovered uh strongly.
4469088,297,1800.12,1801.5,0,The markets are back in balance.
4469088,298,1802.21,1809.91,0,We've been able to put through setting price increases that that the energy surcharge that I talked about logistics problems.
4469088,299,1810.1,1817.3899,0,Hopefully over the West we do have the um Somerset coal mill outage during the quarter.
4469088,300,1817.39,1818.24,0,That's been done now.
4469088,301,1818.24,1822.26,0,It's behind us but it does have a twenty two million dollars impact.
4469088,302,1822.5,1830.21,0,Um it's a cold shot so it's more than prior years um but it's it's it's good to know that that's behind us.
4469088,303,1830.21,1834.98,0,And and and uh the mill is operating back up to full capacity there.
4469088,304,1835.4,1839.36,0,So all in all we are we're feeling good about the quarter ahead.
4469088,305,1839.76,1846.25,0,there and we anticipate further improvement in EBITDA um relative to the numbers that we just reported to.
4469088,306,1847.13,1848.37,0,Operator that's me.
4469088,307,1848.7,1849.77,0,I've completed.
4469088,308,1850.45,1854.34,0,Um I'm gonna hand it back to the to you for questions.
4469088,309,1854.34,1862.52,0,Apologies if there was breaking up as I was talking but hopefully most of that came across and I hand it to you for questions.
4469088,310,1863.66,1864.45,2,Thank you very much.
4469088,311,1885.28,1888.75,2,The first question comes from Brian Morgan of RMB Morgan Stanley.
4469088,312,1891.16,1891.45,3,Hi guys.
4469088,313,1891.51,1893.4301,3,Thanks very much for taking the time.
4469088,314,1893.85,1902.14,3,Um if I'm asked three questions um just on the the a hundred thousand tons of of DWP that um that's sitting in inventory at the moment.
4469088,315,1902.4301,1906.84,3,Uh I get that um that it's all contractual sales and that's that's um fine.
4469088,316,1906.84,1917.0,3,I understand what that means but um just um in terms of what what do you think your customers have done um to mitigate not having the volumes of that.
4469088,317,1917.04,1919.05,3,Do you think they've drawn down on their inventories?
4469088,318,1919.4301,1923.12,3,Have they hit the spot market to get to um to get those tons?
4469088,319,1923.3199,1926.9299,3,Um or um or they're just taking reduced um operating rates?
4469088,320,1927.45,1935.02,3,Um and then when that that tonnage does eventually come to the market first of all when do you think it it could come?
4469088,321,1935.02,1937.15,3,Is it um is it the December quarter issue?
4469088,322,1937.15,1938.38,3,Is it a March quarter issue?
4469088,323,1938.38,1947.53,3,And and what impact do you think that that might have on the market at that point given that it is at a big chunk of of global supply if it does come on all in one go?
4469088,324,1948.58,1948.6699,0,Okay.
4469088,325,1949.78,1952.7999,0,Um do you want want to give me the other two questions?
4469088,326,1952.8,1953.78,0,Or do you want me to…
4469088,327,1953.91,1956.6,3,Uh if you could do with that one then then go from there.
4469088,328,1956.6,1956.6899,0,Yeah.
4469088,329,1957.12,1957.4399,0,alright.
4469088,330,1957.4399,1961.9301,0,I'll i will let Mohammed elaborate a little bit further but it's actually a combination of all those things.
4469088,331,1961.9301,1965.0601,0,Their inventory levels have dropped significantly.
4469088,332,1965.4301,1972.6901,0,Um they did uh slow operating rates down a little bit and they did have to go into the…
4469088,333,1973.0601,1978.51,0,They did have to go into markets to um to get some of the additional volumes.
4469088,334,1979.1801,1990.86,0,Um in terms of when will it come back I I I I don't think there's gonna be any meaningful improvement in the current quarter in terms of catching up with the backlog.
4469088,335,1991.4,1995.37,0,We do feel that we can sell the current production volumes.
4469088,336,1995.53,2001.11,0,But in terms of reducing the backlog um we don't anticipate any meaningful improvement.
4469088,337,2001.39,2004.2101,0,There there could be some but not anything materially.
4469088,338,2004.49,2010.0699,0,So we would expect that to be spread over the next uh uh couple of quarters.
4469088,339,2010.3,2014.02,0,You know th th this logistical problem is a is is a worldwide phenomenon.
4469088,340,2014.05,2016.65,0,So it's not it's not gonna be solved overnight.
4469088,341,2016.6801,2018.99,0,So it's gonna progressively improve.
4469088,342,2019.3199,2022.77,0,Um I remind you once again that we do get the…
4469088,343,2022.8,2028.02,0,Uh it's contracted and we do get the the the the the the lag pricing.
4469088,344,2028.0601,2029.2301,0,So it it it's…
4469088,345,2029.36,2032.52,0,That's not lost um contribution.
4469088,346,2033.04,2038.23,0,Um in terms of that suddenly coming onto the market it it it is contractual.
4469088,347,2038.63,2044.28,0,So um you know it it's not gonna suddenly um uh…
4469088,348,2044.28,2046.46,0,It's not gonna suddenly flood the market.
4469088,349,2047.13,2047.7,0,i i…
4469088,350,2048.02,2049.6899,0,The the markets are very tight.
4469088,351,2050.6101,2053.52,0,Customers are pushing hard for volumes.
4469088,352,2053.7,2055.23,0,Maybe not the Chinese customers.
4469088,353,2055.53,2059.6699,0,you you've gotta you gotta separate the Chinese market from the rest of the market.
4469088,354,2060.49,2068.04,0,And outside of China markets are extremely tight and everybody wants more volume.
4469088,355,2068.8201,2072.8,0,The DP price that you see quoted is obviously the Chinese price.
4469088,356,2073.3799,2078.5999,0,And that's linked to this this this energy issue at the moment in in in China.
4469088,357,2079.0901,2089.9299,0,Um ultimately when when when when we do catch up with those volumes they will they will be sold to our contractual customers along with our current US production.
4469088,358,2089.96,2093.8301,3,Okay cool.
4469088,359,2094.8101,2099.03,3,Um can I ask them on the um on the the energy surcharge et cetera?
4469088,360,2099.3701,2104.5,3,Um we saw about a fifty euro a ton price increase from recent or for for November.
4469088,361,2104.6899,2111.2798,3,Um I assume that the price index that we look at um doesn't have the surcharge baked into it.
4469088,362,2111.4299,2112.1001,3,Is that right?
4469088,363,2113.1001,2115.8601,0,I I think so but Marco just confirm that.
4469088,364,2117.4299,2117.6299,4,Yeah.
4469088,365,2117.6299,2125.1702,4,There's um there's a uh a separation between market prices and this um exceptional and temporary um uh energy surcharge.
4469088,366,2125.1699,2128.3701,4,So market prices would not would not include that surcharge.
4469088,367,2128.8701,2129.1501,3,Okay.
4469088,368,2129.2,2133.77,3,So so in our modeling we should just build an extra a hundred euros a ton into our our prices.
4469088,369,2133.77,2138.5801,3,Are you achieving that across your full um graphic paper slides or um only a portion of it?
4469088,370,2139.6201,2139.9001,0,It's…
4469088,371,2140.0901,2140.3201,4,Yeah.
4469088,372,2140.3501,2142.6201,4,No that's that's very steep right?
4469088,373,2143.4099,2144.7002,0,Um go ahead Marco.
4469088,374,2144.8401,2145.1399,0,Go ahead.
4469088,375,2146.1899,2154.6299,4,No that's that's across the um the entirety of our of our portfolio um and and also the entirety of the uh geographical uh destinations.
4469088,376,2156.51,2160.0801,3,Um and then um you spoke about um demand elasticity.
4469088,377,2160.0801,2161.77,3,You refer to demand elasticity.
4469088,378,2161.77,2170.3201,3,I mean we did see um back in twenty eighteen we did see this epic um falls in volumes as a result of price increases.
4469088,379,2170.79,2173.6399,3,Um you're not concerned about that this time are you?
4469088,380,2174.8701,2178.5,0,Marco let me just start with that and then I'll I'll fit to you.
4469088,381,2178.6001,2183.1699,0,Um just just one clarification Brian on the first one.
4469088,382,2183.23,2188.8198,0,Remember the surcharge was only implemented towards the end of October.
4469088,383,2189.8401,2191.8999,0,So it's not the full volume quarters?
4469088,384,2192.3701,2194.5601,0,Uh it's not the few quarterly volumes.
4469088,385,2194.5901,2194.99,0,Okay?
4469088,386,2195.04,2195.3701,3,Okay.
4469088,387,2195.53,2195.99,3,Yep got it.
4469088,388,2195.99,2202.77,0,But we do uh we do anticipate it will offset that absolute increase in energy costs that are referred to.
4469088,389,2203.29,2205.6401,0,Uh I I think that's important to to point out.
4469088,390,2206.27,2215.78,0,Um Marco can elaborate further but just from my perspective um we've seen no impact on demand for our product in the short-term.
4469088,391,2216.02,2221.5601,0,It's very difficult to um project what it might mean in the longer term.
4469088,392,2221.5901,2233.1899,0,And and I guess there is a risk that significant rises in in selling prices could have a a a a soften as uh could soften demand for product in the long term.
4469088,393,2233.45,2237.5598,0,But at the moment demand is strong and markets are tight.
4469088,394,2238.3401,2240.1599,0,Marco uh I don't know if you want to add to that.
4469088,395,2241.1399,2241.6899,4,Yeah.
4469088,396,2241.6899,2243.0798,4,Maybe very shortly Steve.
4469088,397,2243.0801,2244.71,4,Um there is indeed…
4469088,398,2244.8,2254.4302,4,There is a tightness in the market right now which is which is partly uh probably speculative or or at least driven by very long lead times and the disturbance on uh on supply chains.
4469088,399,2254.9399,2264.98,4,Underlying we feel that uh the advertising market after the uh at the end of the lockdowns in Europe has come back um stronger than uh than what we anticipated.
4469088,400,2264.98,2268.22,4,So uh there's certainly a a healthy underlying demand.
4469088,401,2268.22,2271.8799,4,But it's uh uh there is an additional speculative element.
4469088,402,2272.3401,2281.6802,4,Uh to your question on what it will longer term do uh to uh the the demand for print media um difficult to say right now.
4469088,403,2281.71,2282.49,4,We're early days.
4469088,404,2282.75,2297.9299,4,Uh we are calculating in our models with the natural substitution rate as we've seen it uh before um uh where where there is a a leakage towards um um online and and digital media uh that will most likely continue.
4469088,405,2298.3301,2305.1201,4,Um but there is there is certainly a a residual market that is uh that currently uh seems to be very resilient.
4469088,406,2307.73,2315.3999,3,Um sorry can I can I ask um um just um just just um follow-up question on that if if I may.
4469088,407,2315.46,2321.6201,3,Um to what extent do you think we might be seen over ordering by by customers?
4469088,408,2321.6599,2322.5701,3,Is that a risk or not?
4469088,409,2324.4099,2326.8801,0,Um Brian we are not seeing that.
4469088,410,2326.9399,2328.51,0,Um there's been a resurgence.
4469088,411,2328.6001,2331.77,0,And and clearly there was a bit of backlog because of the COVID.
4469088,412,2331.77,2335.7,0,And uh and and uh the dampened demand at that point in time.
4469088,413,2335.75,2342.98,0,But as what Marco has indicated uh advertising has bounced back very strongly along with the rest of the economy.
4469088,414,2343.1899,2347.4102,0,So as things currently stand our orders are very strong.
4469088,415,2347.75,2351.53,0,And yeah there's a little bit of there's a little bit of um…
4469088,416,2352.3601,2352.9299,0,Yeah may…
4469088,417,2353.3701,2362.5601,0,You know there's maybe a a a bit of uh excess demand but we are encouraged as we look on uh on our order book over the next few months.
4469088,418,2363.54,2363.8999,3,Okay cool.
4469088,419,2364.0801,2367.4001,3,Thanks guys.
4469088,420,2368.22,2368.7,2,Thank you.
4469088,421,2369.01,2373.25,2,The next question comes from Sean <unk> of <unk> Research.
4469088,422,2374.22,2374.99,5,Good afternoon guys.
4469088,423,2374.99,2375.4199,5,Thanks.
4469088,424,2387.0,2392.1899,5,Um as well as I think there was a <unk> on one of the COVID mechanical machines in Europe.
4469088,425,2395.3601,2396.8,0,I I think that would be part of it.
4469088,426,2396.8,2398.5,0,Obviously capacities come out.
4469088,427,2398.5,2401.46,0,There was uh procurement that took place.
4469088,428,2401.79,2404.5798,0,And during the you know the difficult period.
4469088,429,2404.72,2407.0601,0,So that that that would've an impact.
4469088,430,2407.3601,2410.24,0,But once again just repeat what I said just now.
4469088,431,2410.24,2415.71,0,Uh if if we look forward and and and and the underlying demand at the moment it is strong.
4469088,432,2416.27,2419.5999,0,Um a lot of capacity came out of the marketplace.
4469088,433,2419.6001,2429.8699,0,So with with with volumes or market demand recovering you you can see the numbers close to ninety percent of twenty nineteen levels.
4469088,434,2430.3401,2438.05,0,Um that that that that is a very healthy recovery when you take into account all the capacity that's coming out that's come out of the marketplace.
4469088,435,2447.96,2458.6201,5,So I mean if you look at whatever the final number for f y twenty one was in terms of uh pure d w p um your mind building a sort of ritual as how we should think about twenty two.
4469088,436,2458.6201,2462.3701,5,Because obviously twenty one you had oxygen impacting over Ghana.
4469088,437,2462.9199,2468.5,5,You've obviously had uh forty thousand tons uh impact on the cycle expansion.
4469088,438,2468.5,2470.8599,5,And then I think obviously they're a hundred k now.
4469088,439,2482.7,2486.6101,5,Um so that will obviously add positively to volumes.
4469088,440,2486.95,2492.9099,5,And then uh I don't know what sort of impact they will be from the sort of calcium and magnesium line conversion.
4469088,441,2493.26,2497.23,5,Today if you just follow the simplistic bridge uh regional standard fees.
4469088,442,2497.79,2497.8801,0,Sure.
4469088,443,2497.8799,2509.1799,0,I mean obviously um there's a lot of noise on on on doing a bridge because obviously you had oxygen outage in the early part of the year then you had the riot and and and all that stuff.
4469088,444,2509.53,2517.4299,0,So uh if I could approach it from the other side uh uh from a capacity perspective and if you look at the most…
4469088,445,2518.01,2524.2998,0,Obviously you you have Ngodwana which is a a two fifty k mill.
4469088,446,2524.8601,2530.97,0,Um Saiccor pre the expansion seven hundred and eighty thousand tons.
4469088,447,2531.9099,2533.6099,0,And then you have Cloquet which is swing.
4469088,448,2534.03,2539.1499,0,But as um quite a high proportion of the the mill.
4469088,449,2539.6499,2540.8101,0,Um and and…
4469088,450,2540.8101,2541.6101,0,You know you'll appreci…
4469088,451,2541.6101,2547.0598,0,I can't give you the exact number because you know we have to buy pulp and and so on and so forth for our paper business.
4469088,452,2547.4299,2555.1101,0,But but a high proportion of our Cloquet will be focused on um um on on DP.
4469088,453,2555.3501,2560.1101,0,Um I I think it's more than seventy five percent um uh on DP.
4469088,454,2560.55,2565.0801,0,On top of that um you have the expansion.
4469088,455,2565.6299,2571.0701,0,Obviously it starts now or in the next week or so uh in the next couple of weeks.
4469088,456,2571.8899,2574.6699,0,Uh it it doesn't all come on board immediately.
4469088,457,2574.71,2576.29,0,There's a progressive ramp up.
4469088,458,2576.6001,2578.5901,0,So you you you have to you have to…
4469088,459,2578.9299,2585.5901,0,Uh it is a hundred thousand a hundred and ten thousand tons in total but but you know you're gonna have to progressively increase that.
4469088,460,2585.77,2588.22,0,Um it's difficult to give an exact number.
4469088,461,2588.22,2589.2898,0,But Alex I I…
4469088,462,2589.6299,2594.27,0,You know perhaps perhaps about half of that over the course of the year conservatively.
4469088,463,2594.51,2600.02,6,Uh Steve mi mind if you take all the the issues we had plus additional capacity?
4469088,464,2600.2,2602.6599,6,We probably in the region of a hundred thousand tons more.
4469088,465,2603.1399,2603.3899,0,Yep.
4469088,466,2603.6499,2603.8899,0,Yep.
4469088,467,2605.78,2607.9001,0,Um but that includes other challenges <crosstalk>.
4469088,468,2607.8999,2607.9299,6,<crosstalk>.
4469088,469,2608.5601,2608.6702,0,Yeah.
4469088,470,2608.6699,2611.1101,0,I'm I'm coming at it from the other the other side.
4469088,471,2611.5901,2614.2998,0,Um and then…
4469088,472,2614.45,2620.1001,0,Um and then obviously you've got the a hundred thousand tons of backlog.
4469088,473,2620.45,2628.48,0,Um uh as I've indicated to you that will catch up progressively um as we move through the course of the year.
4469088,474,2628.9099,2631.1199,0,Uh it it's hard to say no.
4469088,475,2631.9399,2639.3101,0,All of it will be eliminated by September next year but I I I do think we can make a substantial dent by the end of the year.
4469088,476,2641.1599,2641.3499,5,Okay.
4469088,477,2648.5801,2650.01,0,No no no no no uh…
4469088,478,2650.01,2650.05,5,<crosstalk>.
4469088,479,2650.45,2654.1602,0,No we don't anticipate any many uh any significant impact.
4469088,480,2654.1599,2654.3999,0,No.
4469088,481,2655.5801,2655.9102,5,Okay.
4469088,482,2656.0,2656.48,5,Okay great.
4469088,483,2667.8201,2668.76,0,Can we drive what?
4469088,484,2674.9099,2676.1699,5,Just for for the <inaudible>.
4469088,485,2678.03,2682.0,0,Yeah the the d w p uh uh annual shots?
4469088,486,2682.8501,2683.23,5,Yes.
4469088,487,2683.23,2686.9602,0,Um just give us a sec cause we we want to pull out the schedule.
4469088,488,2687.97,2689.96,0,Um just gimme one second.
4469088,489,2690.4399,2691.0,5,No worries.
4469088,490,2700.6001,2702.46,0,And and Alex will jump in as well.
4469088,491,2703.1799,2704.0698,0,Um…
4469088,492,2710.1101,2710.3401,0,Yeah.
4469088,493,2710.3401,2712.25,0,This is just the first quarter.
4469088,494,2712.6101,2716.9199,0,Alex I do I don't have the full year in front of me but sai…
4469088,495,2716.9199,2717.1299,0,Okay.
4469088,496,2717.1299,2719.23,0,So Saiccor is planned for when Alex?
4469088,497,2719.23,2719.9402,6,Maybe April.
4469088,498,2719.99,2720.5601,6,April May.
4469088,499,2720.6699,2721.4399,0,April May?
4469088,500,2721.95,2723.7998,0,And in Ngodwana it's third quarter?
4469088,501,2723.8999,2724.1199,6,Yeah.
4469088,502,2724.6499,2724.8799,0,So…
4469088,503,2724.9099,2725.3701,6,it'll be…
4469088,504,2725.78,2727.51,0,So in Ngodwana third quarter.
4469088,505,2727.6299,2729.0801,0,Uh Saiccor second quarter.
4469088,506,2730.77,2732.02,0,And Cloquet Mike?
4469088,507,2734.71,2735.77,7,Cloquet is in April.
4469088,508,2736.75,2737.1399,0,April.
4469088,509,2738.1599,2738.3899,0,Yeah.
4469088,510,2739.75,2740.3601,5,Okay great.
4469088,511,2740.3601,2740.6001,5,Thanks.
4469088,512,2740.6001,2741.49,5,It's very useful to us.
4469088,513,2747.1899,2747.4399,5,Yeah?
4469088,514,2747.4399,2752.4602,0,Obviously the numbers I've given you in terms of capacity takes into account those shots.
4469088,515,2753.49,2754.1602,5,Yes of course.
4469088,516,2754.1599,2754.5398,5,Yeah.
4469088,517,2754.73,2754.8999,0,Yeah.
4469088,518,2755.6599,2758.54,5,Okay great.
4469088,519,2758.54,2770.1501,5,Um and so going back to graphic paper I mean maybe you could just sort of update on your sort of I guess medium term long term assumptions on on on on demand or if that's changed at all um specifically in Europe.
4469088,520,2776.6699,2778.3799,0,And in which segment was that?
4469088,521,2778.6299,2782.6001,5,In terms in terms of your underlying demand assumptions in Europe.
4469088,522,2784.3601,2784.6101,0,Yes.
4469088,523,2784.79,2785.23,5,In terms of the…
4469088,524,2785.23,2785.3501,0,Um…
4469088,525,2785.3501,2786.5898,5,structural decline?
4469088,526,2786.6699,2788.26,5,how has that changed at all?
4469088,527,2788.26,2789.47,5,Or what does that sort of numbers telling at?
4469088,528,2789.47,2789.79,0,No no.
4469088,529,2789.79,2790.9399,0,Uh ba based on…
4469088,530,2791.4199,2799.6799,0,Uh our initial our initial thoughts on this was that COVID would cause a haircut of about twenty percent.
4469088,531,2800.1399,2804.78,0,And then we were gonna subsequently resume a five percent roughly decline.
4469088,532,2805.3601,2809.8501,0,Um things have subsequently transpired to be better than that.
4469088,533,2809.8501,2810.6201,0,And you and you had.
4469088,534,2810.6201,2811.29,0,The numbers are…
4469088,535,2811.6499,2813.51,0,Market numbers are are actually ninety.
4469088,536,2814.3101,2816.03,0,Um a little bit of that yes.
4469088,537,2816.29,2820.03,0,Maybe uh uh a catch up in terms of demand.
4469088,538,2820.3899,2832.3899,0,But in terms of the way we are looking forward we we we are we are presuming that the five five percent to six percent decline will resume as we go uh through twenty two and beyond.
4469088,539,2834.4299,2843.04,0,But what I will say is that if you look at operating rates certainly in the US there are theoretically uh a hundred percent.
4469088,540,2843.6399,2844.73,0,And no with…
4469088,541,2845.1399,2850.3901,0,Uh even in Europe with the capacity that's come out those are now healthy and in the nineties as well.
4469088,542,2852.9099,2853.27,5,Perfect.
4469088,543,2853.4399,2853.76,5,Thanks.
4469088,544,2854.3799,2856.0901,5,Um and then Steve just two more quick ones.
4469088,545,2856.0901,2859.25,5,Just in terms of uh the opportunities around uh sales of specialty packaging in Europe.
4469088,546,2861.8501,2866.8799,5,Um I mean looks like pretty decent uh volume growth suggested uh in one of the slides.
4469088,547,2867.48,2870.6299,5,Um and then you obviously alluded to the US now as well.
4469088,548,2870.6299,2872.52,5,Maybe it gets expanded a little bit more next.
4469088,549,2872.52,2878.76,5,It looks like it's a bit of paperboard in the US and perhaps at the more container board and then where that's coming out of uh Europe waste.
4469088,550,2879.8799,2892.73,0,Uh at first in the US obviously now we are substantially full now and on our Somerset machine that we converted.
4469088,551,2892.97,2900.52,0,We we look for optimization opportunities and and and uh uh hopefully being able to improve margins further.
4469088,552,2900.52,2904.52,0,But essentially um they're that that machine is full.
4469088,553,2904.52,2912.46,0,There's a little bit of uh opportunity on on on the other machine and uh at at Somerset and our Cloquet mill but it's not…
4469088,554,2912.72,2915.54,0,we uh it it it's not big capacities.
4469088,555,2915.76,2919.6401,0,In Europe obviously we've got um some opportunities.
4469088,556,2919.6399,2922.7202,0,And I'll I'll let Marco talk further but we have do…
4469088,557,2922.72,2927.5701,0,We do have opportunities obviously at Maastricht first and foremost because we've we've talked about that.
4469088,558,2927.8401,2947.4001,0,But what Marco and the team are doing is looking for opportunities to um redirect uh some of the capacity on our graphics machines to certain uh packaging grades and specialty grades that um would not involve a lot of CapEx.
4469088,559,2947.3999,2951.54,0,And and Marco very briefly maybe you just you you just want to give examples.
4469088,560,2951.8501,2954.8201,0,Uh obviously Ehingen is one of them but you maybe just want to…
4469088,561,2954.8201,2954.8901,4,Yeah.
4469088,562,2954.8899,2955.8201,0,briefly talk about that.
4469088,563,2956.99,2957.21,4,Yeah.
4469088,564,2957.21,2957.6299,4,Thanks Steve.
4469088,565,2957.6299,2966.0,4,Um apart from the uh the full specialty Mills uh it is indeed so that we are looking at um at at ways to to create hybrid mills.
4469088,566,2966.53,2968.9202,4,And um that is Maastricht for Steve.
4469088,567,2968.9199,2969.98,4,We've already uh spoke about.
4469088,568,2969.98,2980.6199,4,it is aiming in uh for the container board uh grades that we have there uh which is taking more and more capacity uh out of the uh out of the Ehingen uh graphic portfolio.
4469088,569,2981.1399,2994.2798,4,And um uh recently we we have announced to the market uh as well uh our commercial plans for uh further label paper production in um in Gratkorn which looks uh which looked very promising indeed.
4469088,570,2997.45,2997.8999,5,Okay great.
4469088,571,2997.8999,2998.4199,5,Thanks very much.
4469088,572,2998.75,3001.5801,5,And then Glen just in terms of um…
4469088,573,3007.49,3010.0601,5,Um how are they thinking about this?
4469088,574,3010.0601,3012.95,5,And then I guess just a follow-on to that one question.
4469088,575,3013.3601,3017.78,5,I mean when should we sort of see CapEx uh dropping off in the years to come?
4469088,576,3017.78,3024.4299,5,cause I think uh at least from our perspective you know I was sort of hoping to see it coming a bit lower this year um and that's just great.
4469088,577,3024.4299,3024.8699,5,Thanks.
4469088,578,3026.24,3026.5601,0,Yeah.
4469088,579,3026.5601,3029.96,0,Just in terms of quarter one year you're right that is a cash outflow.
4469088,580,3030.5,3040.4302,0,Um it will be a bit more than that uh just because of the timing of our our year end uh a quarter end rather uh which is gonna be the second of January.
4469088,581,3040.5801,3043.5601,0,So we will have um some more creditor's payments in there.
4469088,582,3043.9399,3046.3699,0,But uh you're you are in the ballpark there.
4469088,583,3046.78,3053.0701,0,Um overall uh you're talking about the CapEx so we've given the guidance as far as this year is concerned.
4469088,584,3053.47,3057.1001,0,Um we'll we'll provide guidance later in terms of after that.
4469088,585,3057.25,3066.98,0,But uh the focus and I'll come back to what Steve said earlier is initially to to get the balance sheet uh stronger and and get the uh gearing lower.
4469088,586,3068.1399,3069.1299,0,may maybe just to…
4469088,587,3069.6899,3071.2,0,Maybe just to add to the CapEx.
4469088,588,3071.4199,3074.28,0,Um obviously we've got our maintenance CapEx.
4469088,589,3074.3101,3088.95,0,And then clearly there over the next few years there are gonna be sustainability investments that we have to make um both from a legislative point of view and to achieve our our our environmental targets that we've set ourselves.
4469088,590,3089.3301,3093.0898,0,Um you can see that that number in the current year is is eighty.
4469088,591,3093.3799,3095.0498,0,Um the other initiatives…
4469088,592,3095.98,3107.04,0,You know so if if if if you're talking maintenance just under the two hundred you add in the you add in the um the the environmental stuff you you're getting to about two eighty.
4469088,593,3107.73,3112.45,0,th the rest to get you up to the three sixty that are referred to is discretionary.
4469088,594,3112.96,3121.8,0,Um and uh some of it's linked to those smaller um those smaller cost initiatives that that I've referred to.
4469088,595,3122.0601,3122.8801,0,Some of it's linked…
4469088,596,3123.0701,3133.2798,0,Marco talked about um doing stuff at um Gratkorn and and Ehingen and and and various other mills.
4469088,597,3133.6201,3137.3,0,Uh these are not big projects they're small project but they're discretionary.
4469088,598,3137.8401,3144.25,0,So if we look beyond twenty two we haven't committed to any a any big projects.
4469088,599,3144.25,3148.5898,0,We we monitor the situation and then we make a decision whether it makes sense to invest.
4469088,600,3149.02,3166.5701,0,And um based on how how events are unfolding and and based on our positive outlook for twenty two we felt that we could um uh spend a little bit on these costs initiatives and and that's why we we we added it to the to the CapEx.
4469088,601,3166.5701,3170.21,0,And we'll monitor beyond um twenty two.
4469088,602,3170.21,3172.73,0,But at the moment we haven't committed to anything beyond that.
4469088,603,3174.1201,3175.1199,5,Okay thanks very much Steve.
4469088,604,3175.1201,3177.6501,5,I'm glad to hear your full full year.
4469088,605,3177.9299,3180.1699,5,<laugh> Thanks.
4469088,606,3181.3601,3181.78,2,Thank you.
4469088,607,3189.8799,3194.22,8,Just a couple questions from my side.
4469088,608,3194.77,3198.29,8,The first one for for clearly on on the balance sheet.
4469088,609,3198.54,3209.0198,8,Uh I appreciate the sort of leverage ratio is coming down as you're starting to to sort of move past the worst of the of the impacts of COVID and some of those very low EBITDA numbers.
4469088,610,3209.4399,3210.02,8,You know how do you…
4469088,611,3210.2,3215.0701,8,But uh how do you think about the balance sheet in terms of absolute net debt levels?
4469088,612,3215.8799,3223.7202,8,And when you would potentially start thinking about more discretionary capital capital or the dividend resumption et cetera?
4469088,613,3223.72,3225.8101,8,So I mean do you sort of have a number in mind?
4469088,614,3226.1799,3231.05,8,Or are we sort of thinking below net debt-to- EBITDA still below two times something along those lines?
4469088,615,3231.5801,3237.1099,8,Uh second question from me is really in South Africa and load-shedding do you…
4469088,616,3237.47,3238.9199,8,ha have that sort of impacted you?
4469088,617,3251.46,3254.8899,8,Again congratulations as an auditor I think it was a fantastic result.
4469088,618,3255.48,3258.98,8,Um but I mean what are the downside risks to North America?
4469088,619,3258.98,3262.45,8,Because it sounds largely positive for the time being.
4469088,620,3262.8,3267.8401,8,And I mean you and I both know that North America is not a twenty percent margin business.
4469088,621,3267.8401,3274.5701,8,Uh I mean how do you so how do you sort of think about this North American performance over the next twelve twelve months or so?
4469088,622,3274.95,3275.3198,8,Thank you.
4469088,623,3275.96,3276.21,0,Okay.
4469088,624,3276.24,3277.0598,0,Thanks for the questions.
4469088,625,3277.2,3284.8601,0,Glen Glen will talk about the um uh the absolute debt level targets and and and and our leverage levels.
4469088,626,3285.1799,3291.99,0,Um I'm gonna hand to Alex who can uh share our strategy around load load-shedding across our mills.
4469088,627,3292.6001,3298.8901,0,And then I'll briefly talk about North America but I'm gonna hand over to Mike um just to talk about some of those downside risks.
4469088,628,3299.95,3300.1199,9,Good.
4469088,629,3300.6299,3302.3,9,Thanks uh Thanks Wade for that.
4469088,630,3302.8301,3308.0698,9,Um our focus is more on on the leverage ratio as opposed to the absolute number.
4469088,631,3308.6299,3321.55,9,And that long-term target of of um getting towards the the the two times net debt-to-EBITDAs uh over the cycle because uh because of the fact that we're in a a cyclical business.
4469088,632,3321.55,3327.5601,9,So it will go above slightly below and and uh uh move move around that.
4469088,633,3327.5601,3333.3599,9,But our focus is to to have it over the cycle get closer to the two times uh net debt-to- EBITDA.
4469088,634,3333.5601,3334.3601,9,So we don't…
4469088,635,3335.3601,3340.5398,9,It's less of a focus on the absolute number and more of a focus on on the leverage target.
4469088,636,3342.51,3343.1899,0,Thanks Glen.
4469088,637,3343.25,3345.96,0,Um Alex load-shedding.
4469088,638,3348.1599,3354.6299,6,Uh as you are aware we've got um generation capacity at our three largest mills in South Africa.
4469088,639,3355.23,3357.9602,6,Um so we are able to manage this with es Eskom.
4469088,640,3357.96,3360.3401,6,We haven't had a significant impact.
4469088,641,3360.8501,3371.4399,6,But when it comes to the crunch what we do is we um prioritize and we uh do the load-shedding at the mills where we have the lowest margin in this case for Stanger and Lomati.
4469088,642,3372.49,3375.1899,0,And that that enables us um…
4469088,643,3375.9399,3377.1702,0,You know Alex will tell you that…
4469088,644,3377.2,3379.7102,0,You know and Ngodwana is long so we're okay.
4469088,645,3379.71,3388.3401,0,And and cycle is a bit short but we prioritize cycle to to the detriment of our less profitable month.
4469088,646,3388.55,3390.6401,6,And we would sell less into the grid for Ngodwana.
4469088,647,3390.8601,3391.28,0,Correct.
4469088,648,3393.02,3399.9299,0,And then on North America um business is in a good place and operating rates are very healthy.
4469088,649,3400.4199,3402.53,0,Uh you had close to a hundred percent.
4469088,650,3402.8899,3404.8601,0,So that that that should…
4469088,651,3405.3101,3412.6199,0,Uh even with uh a a declining graphic paper which we're we we've already talked about five percent six percent over the next couple of years.
4469088,652,3413.1101,3418.6299,0,Even even at those levels operating rates should uh continue to be healthy.
4469088,653,3419.0,3426.8899,0,Um but i will I'll hand it over to Mike just to talk about some of the what he sees as downside risks and how we are offsetting those.
4469088,654,3430.97,3431.46,7,Cheers Steve.
4469088,655,3431.46,3431.98,7,Thanks.
4469088,656,3431.98,3438.3701,7,Um I guess from my perspective you're asking for uh you know a bit of a an opinion here.
4469088,657,3438.8799,3441.1501,7,Uh you know obviously things have been strong.
4469088,658,3441.4299,3444.2998,7,Uh the the machines are full at this point.
4469088,659,3444.9199,3453.3601,7,The risk is I see them uh are really focused around the logistics particularly how how it impacts our graphics business with imports.
4469088,660,3454.1101,3465.0801,7,Uh you know if if the uh you know international logistics issues were uh quickly resolved uh that could potentially weigh on graphics with imports.
4469088,661,3465.72,3477.6001,7,Um other concerns would be uh around variable cost inflation continuing at extreme rates and and potentially impact the materials or uh additional logistics costs.
4469088,662,3477.8799,3481.2898,7,So uh I think those are the concerns as I see them right now in North America.
4469088,663,3485.77,3486.6001,0,Wade does that help?
4469088,664,3486.6001,3486.8901,8,Okay.
4469088,665,3486.9199,3488.97,8,Um yeah that that's great.
4469088,666,3488.97,3489.52,8,Thanks guys.
4469088,667,3490.8501,3492.6199,2,Thank you.
4469088,668,3492.97,3498.75,2,Ladies and gentlemen just a reminder if you'd like to ask a question you're welcome to press star and then one.
4469088,669,3499.6599,3503.76,2,The next question comes from James Twyman of Prescient Securities.
4469088,670,3506.05,3507.0901,10,Uh thank you very much.
4469088,671,3507.1201,3509.25,10,Um you've talked about Europe quite a bit.
4469088,672,3509.55,3517.0901,10,Um uh uh on on the round taking everything um that that you've said in terms of price increases and uh the surcharge.
4469088,673,3517.4199,3522.8401,10,It sort of implies you are saying that you should be um breaking even or starting to make some money this quarter.
4469088,674,3523.46,3528.7102,10,Um just wanted to check whether if these surcharge increases have come through whether that is the case.
4469088,675,3529.3401,3539.4001,10,Um second I just wanted to ask in terms of the cycle impact of the expansion whether whether there's a positive impact from <crosstalk>.
4469088,676,3539.72,3540.4299,2,Sorry James?
4469088,677,3540.71,3544.27,2,I'm not sure if your your sound is coming through clear to the speakers.
4469088,678,3545.22,3545.8101,0,Yes it's fine.
4469088,679,3546.6599,3546.9299,0,Fine.
4469088,680,3548.1299,3549.47,0,James carry on.
4469088,681,3551.4399,3551.6299,10,Okay.
4469088,682,3564.8,3571.3198,10,Um and then my third question was um lendings bringing its capacity on in sort of q two.
4469088,683,3571.72,3580.8699,10,Um that capacity will either offset some of your production or it'll be sold into the spot market um hopefully by by you maybe.
4469088,684,3581.1899,3585.4399,10,But could you just talk around what the impact you see of of that capacity when it comes on?
4469088,685,3585.4399,3587.45,10,cause it'll come on in in lumps.
4469088,686,3587.6499,3591.25,10,It may not be all right away but it'll come on in some fairly chunky lumps.
4469088,687,3591.28,3592.0298,10,So that was it for me.
4469088,688,3592.03,3592.4099,10,Thanks.
4469088,689,3593.3701,3593.6101,0,Yeah.
4469088,690,3595.5901,3595.8801,0,Okay.
4469088,691,3595.8799,3597.71,0,Just just coming back to Europe.
4469088,692,3597.8899,3601.2,0,The the first question that surcharge…
4469088,693,3601.8999,3605.51,0,Um bear in mind the surcharge is to offset the energy costs.
4469088,694,3606.6799,3610.6201,0,And you he you've heard from us that we are confident that it will do that.
4469088,695,3611.47,3616.3501,0,Obviously other other prices have been rising over the course of the year.
4469088,696,3616.8899,3624.0801,0,And our team have been announcing and implementing selling price increases that will offset that impact.
4469088,697,3624.55,3634.2302,0,Um so what I will say to you is that the market is tight at the moment.
4469088,698,3634.9199,3639.8198,0,And that's why we are more confident about being able to execute on selling uh price increases.
4469088,699,3640.29,3651.6199,0,If we get them through then um the margin deterioration that you will have you have we've experienced over the last year can begin to recover.
4469088,700,3652.99,3654.96,0,Um when exactly that will be?
4469088,701,3654.96,3660.5798,0,that that that's difficult to pinpoint but we are more optimistic about the outlook.
4469088,702,3663.55,3669.99,0,Um the cycle expansion I think you asked me when does the when does the profits from the cycle expansion start to flow.
4469088,703,3670.71,3671.1699,0,Uh it was…
4469088,704,3671.1699,3671.97,0,Is that right James?
4469088,705,3673.3401,3674.0298,10,Uh yes.
4469088,706,3674.23,3677.1301,10,Um because you've obviously got disruptions that come along as well and yeah…
4469088,707,3677.1599,3677.3601,0,Oh sure.
4469088,708,3677.3601,3678.8999,10,these things don't always stop perfectly.
4469088,709,3679.8,3680.25,0,No no sure.
4469088,710,3680.25,3681.1501,0,the there's a ramp up.
4469088,711,3681.1499,3683.9099,0,And that's why we were conservative about the ramp up.
4469088,712,3684.3999,3694.3,0,And clearly once we get the the the quality uh uh and we're confident that we will get the quality pulp through there is a process of um ramping up.
4469088,713,3694.48,3700.03,0,And ultimately as that volume flows it will contribute to the bottom line.
4469088,714,3703.3201,3711.72,6,Steve if I may add um essentially we'll ramp up from uh now the end of this month to February in terms of the additional volume.
4469088,715,3712.1101,3718.98,6,Then we have the calcium to magnesium conversion uh which will just then um uh help us on our cost position.
4469088,716,3719.3701,3719.5701,0,Yes.
4469088,717,3720.77,3721.0798,0,So yeah.
4469088,718,3721.0801,3728.26,0,We got a question earlier that would affect volumes but it won't effect volumes but it will improve our cost position.
4469088,719,3729.1201,3730.1501,0,And that's very important.
4469088,720,3731.2,3733.1499,0,And it improves our environmental footprint much.
4469088,721,3733.1499,3734.7002,0,That's that's obviously why we are…
4469088,722,3734.9399,3737.23,0,You know that that was part of the business case.
4469088,723,3737.95,3745.1201,0,Um in terms of lending you saw a slide earlier where we talked about where we expect our contracts or volumes to go.
4469088,724,3745.5901,3752.04,0,And we've indicated seventy two percent um overall contractual volumes.
4469088,725,3752.73,3762.21,0,Um so we we we we are not we we are not concerned about that volume coming onto the market and we're confident that we will be able to place that tons elsewhere.
4469088,726,3762.8301,3762.9502,10,Okay.
4469088,727,3768.04,3776.5098,10,Um so so in in in conclusion on Europe it sounds as though you probably won't be back to breakeven this quarter but hopefully next quarter.
4469088,728,3783.8999,3784.8801,0,When you when- when you say breakeven…
4469088,729,3787.1299,3788.8201,10,Uh very much e b i t EBIT level.
4469088,730,3789.3701,3789.55,0,Yeah.
4469088,731,3789.55,3790.24,0,Look we we…
4469088,732,3790.24,3792.0601,0,Obviously we are focusing on EBITDA.
4469088,733,3792.5601,3796.0901,0,Um uh you know I can't get too specific.
4469088,734,3796.5801,3797.79,0,You'll appreciate right?
4469088,735,3797.8201,3804.99,0,But what we are saying is that the energy surcharge will offset the energy higher energy costs.
4469088,736,3805.05,3805.8901,0,we are saying that.
4469088,737,3806.21,3808.73,0,Secondly we are saying that the markets are tighter.
4469088,738,3809.8301,3825.1599,0,And therefore we are growing in confidence in our ability to execute on the selling price increases that we've already announced which will uh help offset the margin erosion we've experienced in the last year.
4469088,739,3843.3301,3845.02,0,James I can't get too specific.
4469088,740,3845.02,3846.5701,0,Uh this is our our customer.
4469088,741,3846.6599,3852.1702,0,So all I'm gonna say to you is that we are going to reduce our contractual volumes to seven two.
4469088,742,3852.9199,3862.3398,0,We were happy with that and uh we're confident about being able to place the rest of the volumes into uh spot markets.
4469088,743,3865.22,3867.3901,10,Yep that's good.
4469088,744,3868.71,3872.5598,2,The next question comes from Miguel <unk> of u b s.
4469088,745,3875.4199,3875.9399,11,Thank you.
4469088,746,3876.52,3877.73,11,Good afternoon everybody.
4469088,747,3877.73,3877.8501,11,Yeah.
4469088,748,3877.8501,3882.96,11,I'd like to start off by by asking a question around the d w p markets.
4469088,749,3882.96,3891.3,11,If you could just talk a bit about the uh the current dynamics you see there uh overall in that market right now now.
4469088,750,3891.3,3896.8999,11,I mean how are the VSF prices trending uh as we sit here today?
4469088,751,3897.29,3899.3701,11,What are the inventory levels there?
4469088,752,3900.1499,3904.98,11,You know where are the DWP prices as of today and and so on and so forth?
4469088,753,3905.23,3905.9399,11,That would be great.
4469088,754,3907.55,3907.73,0,Okay.
4469088,755,3907.73,3911.1799,0,I'm gonna let mo uh Mohammed elaborate a little bit further.
4469088,756,3911.1799,3915.3198,0,But broadly speaking uh global markets are great.
4469088,757,3916.0801,3917.5898,0,China a little bit tougher.
4469088,758,3917.5901,3920.7102,0,Obviously impacted by this energy constraint.
4469088,759,3920.99,3928.77,0,And it's meant that viscose producers are not ab able to operate at full capacity and that has lowered their demand.
4469088,760,3929.5,3932.8201,0,Uh I'll let Mohammed go into more detail.
4469088,761,3933.95,3934.0601,12,Okay.
4469088,762,3934.1101,3934.6802,12,Thank you Steve.
4469088,763,3935.1899,3948.79,12,Uh just uh specifically in terms of China uh as a result of uh the energy constraints uh what what we have seen is the operating rates for VSF um in China has came down to around fifty percent.
4469088,764,3949.54,3956.8901,12,That uh in turn uh resulted in lower VSF inventories and lifted the VSF prices.
4469088,765,3957.3799,3962.98,12,Um over the last week or two uh there has been some easing of the energy constraint.
4469088,766,3963.3201,3970.0898,12,And what we have seen as a result of that the operating rates have now lifted a little bit more going from about fifty percent to sixty percent.
4469088,767,3970.5901,3983.27,12,And the inventory levels are close staying um staying down at around uh twenty twenty two days versus the uh sort of thirty day level that it was at before uh the energy constraints were were uh imposed.
4469088,768,3983.97,3989.3301,12,Uh I think with the VSF industry at the moment you also have a market inside of China and outside of China.
4469088,769,3990.0,3997.6602,12,Uh outside of China and as you know we have a big position with buyers of dissolving pulp outside of China.
4469088,770,3998.47,4000.29,12,Their markets are very very tough.
4469088,771,4000.47,4001.8999,12,Uh uh very very strong.
4469088,772,4001.9299,4005.5798,12,So you're seeing uh very very high operating rates.
4469088,773,4005.97,4008.3499,12,Uh you're seeing uh very very strong demand.
4469088,774,4008.3799,4020.78,12,And a big part of of that is is being driven by the fact that a lot of the retailers are also shifting now their demand um from China to places like India to uh Indonesia Thailand.
4469088,775,4021.0701,4029.6799,12,And then there's a big uh uh demand coming through from Turkey which is uh placing a high demand for fiber from European producers of viscose.
4469088,776,4030.2,4033.0601,12,So outside of chi outside of China very strong.
4469088,777,4033.3701,4040.5798,12,Uh inside of China right now uh somewhat restricted uh by the by the energy constraints as well as the logistics issues.
4469088,778,4042.46,4043.2,0,Thanks Mohammed.
4469088,779,4043.29,4044.95,0,Uh Miguel over to you.
4469088,780,4047.5901,4047.9802,11,Thank you.
4469088,781,4047.98,4053.47,11,And just to follow up on that I guess uh uh on the DWP pricing.
4469088,782,4053.47,4057.71,11,You mentioned the nine forty I think in the release uh in October.
4469088,783,4075.1101,4076.3901,0,Um so healthy price.
4469088,784,4076.8999,4081.7,0,It come down for the reasons that um Mohammed described.
4469088,785,4081.95,4086.2002,0,Uh and I think today's CCF is nine three eight.
4469088,786,4086.3799,4087.01,12,That's correct.
4469088,787,4087.4299,4089.9099,0,They're still at the nine basically the nine forty mo…
4469088,788,4089.9099,4092.24,0,nine three eight is the is today's price.
4469088,789,4094.8999,4095.72,0,But you know <crosstalk>.
4469088,790,4095.72,4096.6104,11,Oh good.
4469088,791,4096.6699,4096.8599,0,Yeah.
4469088,792,4096.9902,4097.1001,0,Yeah.
4469088,793,4097.3901,4099.6401,0,Uh vi viscose prices are obviously high.
4469088,794,4099.96,4109.8599,0,And if if those operating rates in uh China can continue to pick up then we uh that could be good for d w p prices.
4469088,795,4114.75,4118.77,11,Right but the VSF prices haven't yet started to increase again I guess.
4469088,796,4119.46,4121.2798,0,No they have significantly.
4469088,797,4121.2798,4123.6099,0,Uh th th…
4469088,798,4123.7002,4124.5698,0,Two months ago…
4469088,799,4124.6699,4125.54,0,Go go ahead Mohammed.
4469088,800,4125.71,4125.8398,12,Yeah.
4469088,801,4125.8701,4129.8101,12,Um the prices did go up uh by over I think twenty percent.
4469088,802,4129.8398,4139.8003,12,And uh you know from the uh from the time the energy constraints were imposed uh it went up to about in terms of renminbi levels to about fourteen thousand four hundred.
4469088,803,4140.1201,4145.8198,12,It has started to come off a little bit in the last couple of days as the operating rates have uh have picked up.
4469088,804,4146.1899,4152.3296,12,But at the same time I would add um you know you've got cotton prices still um uh moving upwards.
4469088,805,4152.5801,4156.2803,12,You've got uh oil prices driving the polyester prices upwards.
4469088,806,4156.4702,4163.6997,12,And you haven't I think seen the impact of those um um higher prices flowing into the VSF prices.
4469088,807,4163.77,4171.02,12,But it's it's it's uh a lot higher than what it was in uh in uh September and early October.
4469088,808,4171.1802,4171.52,11,Right.
4469088,809,4172.8701,4173.2002,11,Right.
4469088,810,4173.3198,4173.6196,11,Right.
4469088,811,4173.8301,4174.25,11,Okay.
4469088,812,4174.25,4175.6499,11,That's that's um that's fair.
4469088,813,4175.6499,4178.5698,11,I was just looking for that most recent price moment.
4469088,814,4179.2202,4179.4502,11,Good.
4469088,815,4179.4502,4186.5698,11,Then then just switching gears a bit to the to the uh to the European coated fine paper market in particular.
4469088,816,4186.5698,4198.5103,11,Now we we have seen um quite significant price increases across you could say publication paper grades in Europe uh both in October and November.
4469088,817,4209.9902,4220.27,11,So I was wondering what's the reason for that and and what are your expectations for the price gains towards the end of this year um uh and into the twenty twenty two.
4469088,818,4220.27,4225.2603,11,Uh I'll apprec appreciate your surcharges but that's that's I guess a separate topic.
4469088,819,4227.1099,4227.3799,0,Yeah.
4469088,820,4227.3799,4230.7197,0,i'll let Mohammed uh Marco talk in more detail.
4469088,821,4230.75,4237.04,0,But um obviously we've been going through uh announcing a series of of price increases.
4469088,822,4237.46,4239.8599,0,Um I I think when you were comparing…
4469088,823,4240.98,4246.8999,0,I think were you comparing it to uh coated mechanical paper when you were uh talking coated wood-free there?
4469088,824,4247.1899,4248.48,0,Because you said it was less than…
4469088,825,4248.48,4248.6802,11,Yeah.
4469088,826,4248.6802,4248.98,11,prox…
4469088,827,4249.2998,4250.9302,11,Well I said publication papers…
4469088,828,4250.9302,4251.0298,0,So <crosstalk>.
4469088,829,4251.0298,4251.2197,0,Okay.
4469088,830,4251.2202,4255.4399,11,basically comparing to to magazine papers and newsprint which are up double digits.
4469088,831,4255.4399,4255.6899,11,Yeah.
4469088,832,4256.3398,4256.6396,0,Yeah.
4469088,833,4256.8301,4257.3501,0,Yeah.
4469088,834,4257.3501,4270.0498,0,Uh i I'll let ma ma mar uh Marco talk further but what we did see is even more capacity coming outta the uh the publication paper space and those um those prices did pick up faster.
4469088,835,4270.5801,4278.6299,0,But we have been um implementing further price increases on the uh on on the coated wood-free front.
4469088,836,4279.02,4281.7397,0,Um Marco you want to just talk about that?
4469088,837,4281.77,4282.23,4,Yeah.
4469088,838,4282.23,4288.1997,4,Just just just one addition to that uh Steve is that we we started earlier on the on the wood-free coated side.
4469088,839,4288.2002,4293.6704,4,So if you uh if you take uh the longer period uh call it um the last six to twelve mon…
4469088,840,4293.6699,4298.4097,4,Uh six to nine months uh you will end up uh relatively similar levels.
4469088,841,4298.7202,4304.3501,4,Um the the first uh mechanical coated uh price increase was half year.
4469088,842,4304.7402,4312.3999,4,And um as Steve rightly said uh the market has uh has become very tight after the uh capacity closure announcements.
4469088,843,4312.3999,4317.8804,4,So there have been a a substantial uh additional crea increase uh has followed.
4469088,844,4318.2002,4323.4102,4,But over the longer term uh Michael the the uh the increases are are pretty similar.
4469088,845,4323.4399,4325.6597,4,We just started earlier with uh with wood-free coated.
4469088,846,4325.6602,4327.52,4,Or later if you want with mechanical.
4469088,847,4328.98,4329.2896,11,mm-hmm <affirmative>.
4469088,848,4329.4102,4329.8301,11,Yeah.
4469088,849,4329.8301,4330.9902,11,That that's a fair point.
4469088,850,4331.1699,4333.4399,11,Uh in going forward I mean do do you…
4469088,851,4334.1899,4337.6196,11,Have you announced further price increases towards the end of the year or early early 2022 for for any of your your grades?
4469088,852,4342.8101,4348.8101,4,Yeah there uh there has been uh uh further announcements during uh uh during this quarter.
4469088,853,4348.8398,4361.2598,4,Uh but also as as Steve already alluded uh with uh the the markets where they are and the the need for for margin improvement or the stop for uh for further deterioration uh there will be further increases.
4469088,854,4361.2598,4361.4497,4,Yes.
4469088,855,4363.1201,4363.3999,11,Okay.
4469088,856,4364.9702,4365.23,11,Great.
4469088,857,4365.3599,4365.9897,11,That's very helpful.
4469088,858,4365.9902,4366.6299,11,Thank you very much.
4469088,859,4368.7402,4369.1802,2,Thank you.
4469088,860,4369.48,4374.0996,2,We have a follow-up question from Brian Morgan of RMB Morgan Stanley.
4469088,861,4374.52,4376.2402,3,Thanks guys.
4469088,862,4376.2402,4378.4502,3,Just um sorry two two more things if I may.
4469088,863,4378.48,4385.4102,3,Um do you have update updated guidance on the calcium conversion um and in terms of uh what uh that does to unit costs?
4469088,864,4386.02,4386.8398,3,That's the one question.
4469088,865,4386.8398,4394.96,3,And the other question is give us an updates on your discussions around the um the dam at Somerset that we uh spoke about a couple of months ago.
4469088,866,4396.3999,4398.7397,0,Um okay.
4469088,867,4398.7402,4407.1899,0,Um specifically on on the calcium uh conversion and and and the lowering of the cost we we haven't got.
4469088,868,4407.3901,4414.54,0,Uh we we haven't made those numbers public uh yet but you know when we complete the project we'll we'll give an indication.
4469088,869,4414.9199,4425.5498,6,Maybe just to remind you what it means is we can recover that both the chemicals and the energy on those volumes and rather than having to put that um uh out to uh waste.
4469088,870,4427.1899,4438.3198,0,Um and then on the second one uh Mike do you want to just just just um talk about that issue uh of of a dam at Somerset?
4469088,871,4441.25,4442.1304,7,Uh sure Steve.
4469088,872,4442.2998,4445.0698,7,Um as far as uh th the…
4469088,873,4445.1001,4450.8804,7,The dam is owned uh by another entity and they're in the process of re-permitting.
4469088,874,4451.6602,4453.5801,7,Uh they have restarted that process.
4469088,875,4453.8999,4465.8101,7,Uh we have received uh written commitments by uh the local authorities and the governor uh supporting the operation and they continued uh…
4469088,876,4466.4702,4469.1499,7,You know they they continued support to have that dam in place.
4469088,877,4469.7998,4474.23,7,Uh that that process uh of the permitting could be up to another year.
4469088,878,4474.79,4481.6401,7,Uh we don't see that as a uh as as an issue and it's something we're we're we're monitoring at this point.
4469088,879,4484.6001,4485.1001,3,Okay cool.
4469088,880,4485.1499,4487.3896,3,Thank you.
4469088,881,4488.3301,4488.75,2,Thank you.
4469088,882,4489.0601,4495.0601,2,Ladies and gentlemen just a final reminder if you'd like to ask a question you're welcome to press star and then one.
4469088,883,4496.5098,4500.73,2,The next follow up comes from James Twyman of Prescient Securities.
4469088,884,4502.54,4510.1997,10,Yes thank you.
4469088,885,4511.2002,4519.04,10,Could you sort of give some idea of the split between the divisions whether it's higher in South Africa and uh the US and less than Europe?
4469088,886,4519.5,4523.6899,10,Um and and secondly the US price prices they're obviously high.
4469088,887,4534.21,4539.9302,0,Um on the packaging growth the uh…
4469088,888,4539.9302,4540.6904,0,It was predominant.
4469088,889,4540.7598,4544.7798,0,Uh it was mainly in in the US as as as you would expect.
4469088,890,4545.4199,4549.3901,0,Um that was where most of the volumes uh came through.
4469088,891,4549.6699,4558.75,0,Obviously you know in South Africa we've got our capacity and and uh uh we we are limited by our our capacity that we have in uh in in that space.
4469088,892,4559.25,4561.3101,0,So it was mainly in in in the US.
4469088,893,4561.8999,4567.0098,0,Um James on the second one I I lost you again on the uh…
4469088,894,4567.1602,4568.3999,0,wh which one was…
4469088,895,4568.3999,4569.9204,0,The selling price increases?
4469088,896,4570.7402,4570.8701,10,Yeah.
4469088,897,4570.8701,4571.9399,10,Just in in the US.
4469088,898,4575.3101,4577.5503,10,Um what…
4469088,899,4581.8799,4585.5498,0,Look I think that's gonna it's gonna be guided by our our costs.
4469088,900,4585.6802,4595.8398,0,Our costs obviously you heard from Mike earlier that that's one of the things that we um we we we have to offset that impact and we will continue to do that.
4469088,901,4595.8701,4599.8398,0,So if if costs continue to rise we we we we will…
4469088,902,4600.4199,4602.0098,0,You know we we we need to address that.
4469088,903,4602.3799,4607.8301,0,Um we we we are encouraged obviously because the the markets are tight.
4469088,904,4608.2002,4611.6401,0,Um so we we will monitor the situation as we move forward.
4469088,905,4613.5298,4614.1699,10,Thank you very much.
4469088,906,4616.8101,4621.3301,0,Okay operator I think that uh that's time up.
4469088,907,4621.4502,4632.8101,0,So I I just wanna take the opportunity to thank everybody for joining us on the call today and look forward to discussing our results at the end of q one in three months' time.
4469088,908,4632.8101,4633.4497,0,So thank you.
4469184,0,4.97,12.09,0,Good afternoon ladies and gentlemen and welcome to the Merlin Properties nine months two thousand and twenty one results call.
4469184,1,18.45,20.65,0,And instructions will be given at that time.
4469184,2,21.14,24.22,0,Just to remind you all this conference call is being recorded.
4469184,3,24.85,29.7,0,Um I like to hand over to Ines Arellano please bega- begin I'll be standing by.
4469184,4,30.88,31.42,1,Thank you.
4469184,5,31.84,33.5,1,Good afternoon ladies and gentlemen.
4469184,6,33.57,37.72,1,Welcome and thank you for joining Merlin's nine months twenty twenty one trading update.
4469184,7,38.09,45.76,1,We remind you that we will not be suing additional materials in today's call uh other than the executive summary that we published last night.
4469184,8,46.12,51.67,1,Our C E O Ismael Clemente will walk you through the main highlights and then we'll open the lines for q and a.
4469184,9,52.01,56.29,1,Miguel Ollero our C O O is also here with us for any questions that you may have.
4469184,10,56.56,58.85,1,With no further delay I pass the floor to Ismael.
4469184,11,58.85,59.4,1,Thank you.
4469184,12,60.76,61.54,2,Thank you Ines.
4469184,13,61.58,63.37,2,Uh good afternoon everyone.
4469184,14,63.83,76.07,2,Uh uh operationally uh the the quarter has been a relatively short one uh given others but the outcome uh has been very positive overall.
4469184,15,76.63,83.16,2,And uh we also have good visibility on the fourth quarter and uh year two thousand and twenty two.
4469184,16,84.2,97.17,2,The top line of the company is clearly improving uh following COVID uh of course we have a dragging effect of the first half that will only flatten a little bit towards the year end.
4469184,17,97.58,108.71,2,But in this quarter we are printing a negative like for like rental growth of minus one point two recovering one point from the situation in uh in uh June.
4469184,18,109.82,119.25,2,Our revenue figures are not yet capturing uh the inflation that we see uh which in Spain is significant also elsewhere in Europe.
4469184,19,119.87,134.54,2,Uh we might be entering a period in which for the first time in many years we we could have positive print in both uh indexation occupancy growth and release spread uh in the coming months.
4469184,20,135.31,156.35,2,Uh we have continued providing some rent reliefs uh linked to COVID uh that total now twenty three point seven million with four million uh recorded in the quarter Again as always uh uh not straight line but simply recorded as a one off expense.
4469184,21,156.49,167.34,2,Uh this is mainly uh given the fact that Barcelona is taking longer than expected to recover owing to the absence of tourism.
4469184,22,167.97,187.67,2,Uh Lisbon has been very slow in lifting the lockdown I mean we have had restrictive measures in shopping centers till well advanced October and we also have some lines of businesses like for example cinemas which continue heavily effected by the tail end of the pandemic fears.
4469184,23,187.91,203.4,2,So of course we have continued protecting those clients but uh well the uh absolute figures as you can see are significantly uh diminishing as compared to what we experienced uh last year.
4469184,24,204.14,207.26,2,Collection rates uh are fantastic.
4469184,25,207.31,223.44,2,Uh and when we see when we say non eventful levels that means two point three percent in shopping centers which comes significantly down from past figures uh given that the level of zombification now is minimal.
4469184,26,223.85,241.19,2,We have been very very successful in replacing zombies by new healthy tenants and we have done it in a more than one to one uh ratio because occupancy is is growing uh in offices and logistics when we say non eventful means close to zero.
4469184,27,241.46,268.04,2,So uh in terms of F F O per share the inaudible in the month has been slightly above fifteen cents uh which together with the thirteen cents we produced in the first quarter and the fourteen produced in the second total point four three uh as of September uh this year which is up two point three percent increase compared to the first nine months of two thousand and and twenty.
4469184,28,268.84,280.34,2,Uh when comparing apples to apples you should always take into account that uh the figures in two thousand and twenty didn't include uh the staff compensation in full.
4469184,29,280.34,297.06,2,So we are uh starting to remunerate back at least uh at the short term incentives uh level the middle management of the company we can not keep the same extraordinary measures we applied last year where everybody was simply receiving fixed salary.
4469184,30,297.06,305.39,2,I mean this year people is doing an extraordinary job and and you know and at least at the middle management level they deserve some recognition by the company.
4469184,31,305.39,314.35,2,So in the absence of that we're comparing apples to apples it'll have been point four five comparing nine months two thousand and twenty.
4469184,32,314.88,325.57,2,Um we are well on track to surpass the guidance for two thousand twenty one which uh we maintain at point six six per share.
4469184,33,325.74,334.94,2,Uh I know there has been some debate regarding this uh it will be simply very easy for us to uh to update this uh guidance.
4469184,34,335.37,350.17,2,The only reason why we don't do it is because while by signing contracts we have a very good visibility and can easily forecast uh occupancy levels in the three business areas in which the company operates.
4469184,35,350.46,370.11,2,In terms of cashflow we don't whether you know a new strain of the bug coming from the Far East or that gives us a very bad Christmas campaign or the bankruptcy of a tenant you know may eventually you know damage us in on on the on the uh cashflow generation capacity.
4469184,36,370.47,388.21,2,In the absence of any extraordinary uh effect it is clear to any you know uh uh observer that you know the the the final print of cashflow uh for the year should be more in the region of point five eight.
4469184,37,388.67,393.95,2,Uh so you know if if that serves as a new guidance uh happy to provide it.
4469184,38,394.49,395.13,2,No problem.
4469184,39,395.66,411.33,2,Um we haven't conducted any reevaluation in the period so the N P A per share stands at fifteen point six nine which is uh one and half percent uh year to day year to day uh above uh previous figure.
4469184,40,411.37,425.34,2,Um in terms of uh business performance in offices it's been uh relatively busy uh period with more than two hundred thousand square meters contracted.
4469184,41,425.9,435.83,2,Uh we have uh negative like for like of two point one mainly as commented given the dragging effect of a bad first half.
4469184,42,436.72,441.79,2,Uh but the release spread is uh continues to be quite healthy at four point eight percent.
4469184,43,442.28,457.36,2,Uh this is uh mainly a consequence of the um delta between our passing rents and and market as you uh all know because we are just getting out of the woods in terms of uh weakness of the demand.
4469184,44,457.39,473.3,2,I mean uh as as commented in a number of occasions given the COVID period the problem in at least in the Spanish market has not been a problem of oversupply has not been a problem out of in of indebtedness and distress of the office players.
4469184,45,473.34,494.59,2,It's been mainly a under demand which by the way seems to be correcting as we speak because we we have had a very busy third quarter we are having a very busy fourth quarter and the agents the market agents are telling us that two thousand twenty two is going to be year of uh very high activity in the office market.
4469184,46,494.59,520.82,2,I mean using Madrid as a proxy if the average take up in the city gross take up because you know for net take up we need to recover the pre COVID uh employment figures but uh for for gross take up if in a normal year we do four hundred and fifty thousand uh square meters next year people is uh forecasting between six hundred and seven hundred thousand square meters so it's going to be a a year of very significant activity.
4469184,47,521.35,529.07,2,And we hope to be um you know profiting from that activity in order to continue filling up our our portfolio.
4469184,48,529.67,546.12,2,Um the uh final occupancy of the quarter has been eighty nine point four thirty inaudible above uh previews and the visibility towards year end points uh to around ninety percent uh occupancy.
4469184,49,546.59,564.93,2,Uh in order to go back to ninety one uh that we posted in two thousand and twenty we need to wait to see what happens in two thousand and twenty one in tw in twenty two sorry but it is clearly our goal to go back in twenty two to the two thousand and twenty uh figures at least.
4469184,50,565.6,588.24,2,Um in uh in uh logistics uh we have contracted m again more than two hundred thousand square meters with a like for like of only zero point six percent but this is owing to the occupancy drop that we had in the first half and we cleaned up a number of temporary contracts we had and one bankruptcy that has uh happened in in in the portfolio.
4469184,51,588.59,597.63,2,Otherwise the release spread has been three point two percent occupancy stands at ninety six point five percent uh trending to around ninety seven towards year end.
4469184,52,597.63,607.15,2,So that is technically uh full occupancy because there is always uh tenants that are moving in and out of the portfolio.
4469184,53,608.29,626.6,2,In shopping centers uh I am very pleased to see what has happened in the quarter which no provides also some um insight and and and and gives value to the decisions that we took during the pandemic.
4469184,54,627.25,639.73,2,Um yes the like for like has been minus zero point six percent uh but the release spread has been five point nine people is accepting these step ups uh without significant problem.
4469184,55,639.78,650.04,2,And uh the um you know uh the inaudible you know inaudible with um with the uh retailers is positive.
4469184,56,650.07,663.67,2,I mean the occupancy cover ratio the O C R uh is very healthy at twelve point four percent I eman which you know quite comfortable compared to what we have seen uh other people reporting across Europe.
4469184,57,663.78,668.41,2,So people is happy and as commented previously is paying.
4469184,58,668.48,683.76,2,So we we are not having problems of collection in shopping centers and there is peace uh with all retailers also on the legal front because as you know we had very little litigation arising out of the COVID of the COVID period.
4469184,59,684.16,705.5,2,And the replacement of zombies that we have commented so many times with many of you know very worried about what is the level of cov of uh zombification and us providing you with figures wa with an analysis of the red flag the yellow flags the green flags and all that thank god it's it's becoming a thing of the past.
4469184,60,705.81,734.02,2,Uh of course uh like in normal retail activity we continue having concepts that do not fly and as they do not fly they need to close but uh you know we are replacing those concepts uh with uh relative ease uh and the shopping centers remain very well uh occupied uh and and functioning uh you know m I would say very close to normal run rate.
4469184,61,734.15,752.8799,2,Yes when you compare um September to September you are minus fifteen percent uh and minus uh nine percent in sales but you need to take into account that in September we still had uh restrictions in Catalonia and particularly in Lisbon.
4469184,62,753.28,764.91,2,So when we look at these figures in the new quarter in the fourth they are going to be more on the uh mid single digit uh area.
4469184,63,764.91,782.87,2,So very very interesting to see the you know it's the encouraging recovery of the physical commerce despite all what we have been talking for you know long uh um time in in this type in these calls.
4469184,64,782.9,792.21,2,Um every quarter occupancy has recovered to ninety three point eight percent it will trend to around ninety four percent by the end of the year.
4469184,65,792.82,808.39,2,Uh it is very very difficult to go significantly up from this figure because as you know we have one shopping center in the portfolio which is uh has a relatively low occupancy uh and drags the whole average down.
4469184,66,808.44,816.62,2,I mean in the absence of that shopping center uh we should be above ninety six and a half ninety seven so very close to to full occupancy.
4469184,67,816.62,823.07,2,And we have number of shopping center already in the portfolio which have waiting lists in terms of uh of tenants.
4469184,68,823.84,868.17,2,Um very importantly uh in offices there has been a silent effort to renew a number of big names a number of big clients uh this uh effort has resulted of course in has taken a toll in in terms of uh release spread because we have uh in some cases we have um you know uh given up a little bit in rent but what is clear is that the office world of the company has now been extended from three point four uh you know years in the six months uh first six months of two thousand twenty one to around three point seven in the in in a at present in nine months.
4469184,69,868.72,878.65,2,And m although this might look like uh like minimal uh when translated into office rent backlog that is a lot of money.
4469184,70,878.81,889.02,2,So we have moved from around seven hundred million backlog uh as of six months to more than nine hundred as of uh nine months.
4469184,71,889.22,900.02,2,So the the effort that the office team and the office leasing team has been doing during the year in very difficult circum circumstances needs to be praised.
4469184,72,921.79,932.68,3,Uh the board has decided that uh fifteen cents uh will be distributed uh against uh financial year two thousand and twenty one with immediate effects.
4469184,73,932.68,943.14,3,I mean that is a payment to be expected around beginning of December and the rest of the dividend uh will be paid after the shareholders meeting next year.
4469184,74,943.17,947.04,3,I mean when when when the final amount of dividend is approved.
4469184,75,947.71,968.93,3,We are guiding to around forty cents of of dividend in total which for us we as shareholders of the company is a good outcome because uh we have guided to two years of flat thirty cents but this year we do not see any longer uh significant pressure on valuations.
4469184,76,968.98,972.68,3,So we are not too much afraid in terms of l t v.
4469184,77,973.21,982.97,3,And as a consequence given that we are generating back a lot of cashflow it is fair that we share that cashflow with our with our shareholders.
4469184,78,983.6,988.23,3,Uh also you know that we operate under the Spanish SOCIMI regime the Red regime.
4469184,79,988.23,1005.0699,3,So uh for those of you who are complaining that you don't want to receive dividend you want us to reinvest everything in highly accreditive activities of the company which is something we'll love but you need to know that uh it's also good and healthy that are rate distributes dividend.
4469184,80,1005.14,1008.9901,3,So we we are going back to uh dividend distribution.
4469184,81,1010.05,1016.67,3,Um I know one of the questions that you will uh make is on non-core uh divestments.
4469184,82,1017.37,1031.3199,3,As you know um we were uh relatively early in the year we dispose of around fifty percent of our objectives for the year we guided to uh between one hundred and fifty and two hundred million of non-core disposals.
4469184,83,1032.05,1055.08,3,Uh we have already affected around one hundred and nine uh but there is more to come between now and year-end and we expect to be in the upper end of the range of probably above the range in terms of total amount of uh disposals moment in which we will move into more important disposals uh next year.
4469184,84,1055.8199,1060.8401,3,Um that is basically uh on my side.
4469184,85,1060.87,1063.9399,3,Um we are open to q and a.
4469184,86,1064.23,1066.48,3,I'm happy to entertain your your questions.
4469184,87,1066.64,1066.9299,3,Thank you.
4469184,88,1067.38,1067.77,4,Thank you.
4469184,89,1067.77,1070.61,4,Operator can you please open the line for our q and a?
4469184,90,1071.66,1072.0701,5,Yes.
4469184,91,1072.17,1072.91,5,Thank you.
4469184,92,1073.14,1078.7999,5,Ladies and gentleman if you wish to register for questions you can press star one on your telephone key pad.
4469184,93,1078.84,1082.73,5,Once again that's start star one your telephone key pad to register for questions.
4469184,94,1083.1,1085.37,5,And the hash or pound key to cancel.
4469184,95,1086.15,1091.86,5,Once again that's start one to register for questions and the hash and pound key to cancel.
4469184,96,1092.12,1096.4301,5,Our first question comes from the line of Fernando Avrid from Alantra.
4469184,97,1096.46,1097.88,5,Please go ahead with your question.
4469184,98,1099.03,1099.39,6,Hello.
4469184,99,1099.42,1101.42,6,Um thank you very much for the presentation.
4469184,100,1101.42,1102.9,6,I have three questions if I may.
4469184,101,1103.73,1107.78,6,Um first is on um occupancy in in in offices.
4469184,102,1107.78,1108.5701,6,So I don't know…
4469184,103,1108.74,1111.85,6,So you've you improved uh your outlook for the year.
4469184,104,1112.34,1115.2899,6,I would like to know the drivers uh behind this.
4469184,105,1115.61,1127.9601,6,I dunno if existing clients uh wanted to increase their lease space or new clients or any specific market that is outperforming um I dunno and the drivers uh would would be very helpful.
4469184,106,1158.61,1164.5701,6,So I don't know if you can comment a bit on this topic both on the top-line and and cost side.
4469184,107,1164.61,1167.36,6,No I dunno if you have uh rental caps or not.
4469184,108,1206.73,1219.2999,3,Um notably uh and it'll be more visible next year we see uh some increased activity in the uh so much demeaned a one corridor.
4469184,109,1220.0,1220.6901,3,Why is that?
4469184,110,1220.6899,1221.7201,3,Is this a mystery?
4469184,111,1222.24,1233.87,3,No I believe there is people who is already acting in advance of the major infrastructure works which are being carried as we speak by the Municipality of Madrid.
4469184,112,1233.87,1239.84,3,So uh the the a one corridor is clearly uh improving.
4469184,113,1239.84,1246.65,3,I mean just in in this year we have been able to sign close to four thousand four-
4469184,114,1246.87,1248.6,3,fourteen thousand square in the A1 corridor.
4469184,115,1250.87,1260.7999,3,So uh you know it's um it's quite encouraging because uh this is an area which has caused us many headaches in the past.
4469184,116,1261.45,1273.3199,3,Uh we have always bet on that area because we thought uh the future of Madrid was revolving around that area when the foreign language Martin was carried out.
4469184,117,1274.04,1278.29,3,The future of the foreign language Martin is closer and closer in the horizon.
4469184,118,1278.74,1297.15,3,Uh the municipality has started to re-infrastructure the area and this is provoking much more tenant interest in the area because you know uh it is evident to any external observer that is the area in which there is more office conce concentration around Madrid.
4469184,119,1297.15,1305.91,3,And office concentration is an attractive point in itself because it provides the possibility of meeting other people that works in other offices.
4469184,120,1305.91,1314.64,3,So you know it's you know being completely uh dispersed in the city is not necessarily what what tenants uh like.
4469184,121,1315.96,1334.73,3,Uh in terms of of uh retail uh well the m the uh rents that we are renewing uh forward two thousand and twenty two to two thousand and twenty five uh we commented and the situation remains the same that the gross-to-net had worsened.
4469184,122,1335.17,1344.53,3,I mean we we used to have a gross-to-net of four percent uh you know that's that has seen a relatively stable historical average.
4469184,123,1344.99,1359.9501,3,And uh as of today the contract that we are signing forward twenty two are starting with uh already with some incentives that have taken uh those contracts to a gross-to-net leakage of around fourteen percent.
4469184,124,1359.95,1381.5701,3,So this is why we were commending on a number of locations that we see a real rent reduction in the region of ten percent as we speak but in the form not of lower nominal rent in the form of bonus which as you know if you are familiar with shopping centers those can be withdrawn over time.
4469184,125,1381.71,1407.35,3,So we like what we see cause remember in many occasions when we have been discussing about what would be the effect of uh eCommerce on the physical retail we have in many in many uh occasions uh talked about um uh mi future or new new uh new normal in the future of around minus twenty percent.
4469184,126,1407.8,1422.6799,3,Uh it it looks at least for now it looks that this new normal is more in the region of minus ten and in the form of bold modifications of rent which you know may point toward a lower number as the tenant sales stabilize.
4469184,127,1422.9399,1424.3,3,And they are stabilizing.
4469184,128,1424.3,1436.02,3,I mean we are seeing a number of our shopping centers fa fall in this quarter but more to come in the next quarter which are already selling more than in two thousand and nineteen which is extremely positive.
4469184,129,1436.0699,1450.63,3,It looks it looks like the um lion share of the effect of the biggest bigger um eCommerce penetration uh is being taken uh by uh high street retail.
4469184,130,1450.73,1467.64,3,So shopping centers particularly good old-run shopping centers or good dominant shopping centers are defending themselves uh reasonably better than we uh all expected from the threat of um online online commerce.
4469184,131,1468.16,1473.12,3,Um regarding inflation uh top-line versus cost.
4469184,132,1473.75,1500.27,3,Uh look in a company like this uh I don't want to uh be too positive uh because of course inflation is not a nice thing in itself but in a company like this um inflation has a big effect uh because on the top-line one thing I can tell you is that one hundred percent of the rents of the company are uh indexed to inflation.
4469184,133,1501.1899,1513.95,3,Uh many people these days is now starting to ask What is the um elasticity of uh of the tenant to accept um inflation hikes?
4469184,134,1515.21,1526.5699,3,This is same people that thought we will only collect fifty percent of our rents and the same people who probably thought uh that work-from-home would be fifty percent and the retailer armageddon will hit hard.
4469184,135,1527.0601,1541.8401,3,Um I mean the reality is that uh it is much more dangerous to get inflation in your top-line when you are operating in a city where rents are already significantly inflated.
4469184,136,1542.21,1553.78,3,So in Madrid as compared to base one hundred two thousand and seven we are currently at seventy five eight oh taking prime as a proxy of the average of the market.
4469184,137,1553.78,1562.41,3,So being at seventy five eighty most of the effect of inflation will be a catch-up effect compared to the previous peak.
4469184,138,1562.83,1576.1699,3,In the cities where rents are already one hundred and thirty percent of the previous peak I worry more about inflation because that will create a very significant effect in the uh in the rental levels.
4469184,139,1576.65,1583.26,3,But uh we think it's going to be uh at at least we are going to enjoy.
4469184,140,1583.26,1589.91,3,For the first time in many years we are going to enjoy a positive effect from indexation in the coming months.
4469184,141,1589.9399,1602.8401,3,We have been always uh obtaining real growth in rent uh with positive release spread but almost uh for the last two three years we have always posted negative inflation prints.
4469184,142,1603.11,1609.73,3,So for the first time we are going to start let's say enjoying if I can use the word um inflation.
4469184,143,1610.6,1629.4399,3,Well in the case of uh the b b v a contract which is also the subject of many questions by analysts uh well you have seen the inflation print of the advanced indicator provided by Eurostat of the h i c p um of October which is four point one percent.
4469184,144,1629.47,1662.0601,3,I mean unless this figure is uh changed when they released the the final uh data on the seventeenth of November uh that will mean an adjustment in rent to b b v a uh in the region of six point one percent six point one five percent which is moving from seventy nine million to around eighty four million uh which is one cent of extra uh cashflow for for the company uh next uh next year.
4469184,145,1662.74,1665.3,3,In terms of how this is affecting our costs.
4469184,146,1665.99,1675.78,3,Yes there is there is being a big problem with utilities but uh as you know uh utilities are one hundred percent rechargeable to tenants.
4469184,147,1676.0,1681.42,3,So in reality the net effect you suffer is only the effect of your vacancy.
4469184,148,1681.71,1689.65,3,So the of course the utilities applied to your vacant space you have to swallow that uh effect.
4469184,149,1689.65,1705.48,3,But this is minimal as compared to the fact that you know for the rest of your space and remember the portfolio overall overall uh cause you always tend to uh focus only in offices but the portfolio overall is occupied at ninety four percent.
4469184,150,1705.71,1712.54,3,So we tend to recharge uh the extra um energy cost to to clients.
4469184,151,1713.8199,1718.66,3,There is also inflation in CapEx but and this is just by chance.
4469184,152,1718.66,1727.49,3,I mean it's not that we saw that inflation coming but we are lucky because most of the CapEx uh we have to do is already behind us.
4469184,153,1727.71,1732.78,3,I mean we have finished with the very expensive flagship program.
4469184,154,1732.97,1735.37,3,We have finished CapEx in all of our incentive.
4469184,155,1735.65,1740.35,3,We have finished finished with most of our office building uh refurbishment.
4469184,156,1740.35,1744.3201,3,There is only one which is uh being done at at present.
4469184,157,1744.6,1764.64,3,And yes in uh in uh logistics we were a little bit scared because we saw hiking price in steel but since uh the peak they have significantly receded and now you know the cost of construction in logistics is back to more normal levels.
4469184,158,1764.67,1770.14,3,So um you know it is not very highly intensive in in man hours.
4469184,159,1770.14,1778.0,3,So you know if if if there is salary inflation there will not be so much translation into the um logistic construction cost.
4469184,160,1778.3,1784.1001,3,So we are in principle uh okay uh in terms of of inflation.
4469184,161,1784.1,1795.2799,3,The top-line of the company will clearly grow and we will create a very significant cushion as compared to our debt service because our debt service as you know is flat.
4469184,162,1795.37,1798.62,3,I mean we have it hedged for the next uh six years.
4469184,163,1810.01,1818.38,7,So you know um not not so bad of course you need to take in to account that at the end rent tend to be linked to productivity.
4469184,164,1818.38,1824.98,7,So when there is a high inflation period normally there are some rental adjustment following that inflationary period.
4469184,165,1824.98,1827.9401,7,But we we have managed those situations in the past.
4469184,166,1827.9399,1840.84,7,I mean we we know that all in all net net net you normally end up being winner in those situations and there is abundant uh well particularly very good uh research in this regard.
4469184,167,1840.84,1855.8301,7,I was recently reading um Morgan Stanley inaudible providing some clarity on the behavior of companies in the last uh fifty years with very interesting uh data collection of the last fifty years and you know.
4469184,168,1856.13,1863.27,7,Uh yet you have a problem at the beginning but normally people uh gets uh cast on to the new to a new situation.
4469184,169,1865.59,1867.37,8,Thank you very much.
4469184,170,1867.86,1869.0,7,It's a pleasure.
4469184,171,1879.01,1886.73,9,Ladies and gentlemen once again to register for questions is the inaudible and the number one to register for questions.
4469184,172,1886.73,1888.7001,9,So star one to register for questions.
4469184,173,1889.34,1895.41,9,Hmm we have a new question and it comes in line of Pot Kastens from Morgan Stanley.
4469184,174,1895.4399,1895.98,9,Please go ahead.
4469184,175,1897.96,1899.86,10,Hi Ismael it's Pot from Morgan Stanley.
4469184,176,1899.9399,1903.0901,10,Um thank you for um the presentation.
4469184,177,1903.12,1906.98,10,I just wanted to follow up on your comments uh on the bank branches.
4469184,178,1906.98,1913.0,10,You highlighted how um you'll be able to increase the rent probably by more than six percent in January.
4469184,179,1913.51,1920.9,10,Um this must be the most opportune time um that we've seen for a long time to sell these assets.
4469184,180,1921.1801,1927.8101,10,And if they are indeed not very core to your portfolio and you haven't really spoken much about it in the release.
4469184,181,1928.03,1931.3099,10,They are not very core to you as you've highlighted in the past.
4469184,182,1931.78,1936.27,10,Um you've mentioned before that you've had received some interest from potential buyers.
4469184,183,1936.89,1943.51,10,Um what is your what is Merlin strategy around those assets for the next six to twelve months?
4469184,184,1943.66,1944.02,10,Thank you.
4469184,185,1945.9399,1946.58,7,Okay Mark.
4469184,186,1947.27,1955.53,7,Um uh we have been receiving now sufficient and very credible interest on the portfolio.
4469184,187,1956.3101,1959.5599,7,So uh yes we are we are going to get serious.
4469184,188,1959.5601,1964.01,7,I mean we are finishing a number of disposals between now and year end.
4469184,189,1964.1,1974.75,7,Uh there is some work to do in order to make sure we uh achieve the disposal total disposal goal of uh two thousand and twenty one.
4469184,190,1975.4399,1981.25,7,And following that we are going to move into uh full focus uh regarding this portfolio.
4469184,191,1981.25,1989.83,7,As you know that portfolio uh vocationally uh because it's bank branches is not one hundred percent call to us.
4469184,192,1990.6899,1998.13,7,Uh we have received um significant interest and very serious on on on this portfolio.
4469184,193,1998.54,2002.89,7,And we now have enough data points to know more or less where the pricing could be.
4469184,194,2003.54,2010.7,7,We have been working also on a number of um things that might you know be uh too much of a detail.
4469184,195,2010.7,2027.0,7,But in reality one thing we discovered is that the people who is very good at discounting cash flows very very I would say competitive at discounting cash flows normally has no clue or what to do with the real estate at the end and vice versa.
4469184,196,2027.27,2037.3199,7,The people who does want the real estate because they think the real estate is great normally it is not very competitive in terms of um discounting cash flows.
4469184,197,2037.74,2045.52,7,So now uh we have uh besides let's say the normal way of execution which is fire and forget.
4469184,198,2045.83,2049.72,7,Which is sell the whole thing and uh go fishing.
4469184,199,2050.1399,2060.3901,7,Uh we have also uh created a structure which allows a certain decoupling of both situations.
4469184,200,2060.4199,2061.8599,7,So deep…
4469184,201,2062.55,2075.8999,7,The entity that buys cash flows from the entity that launched the real estate so they can team up in one single buyer and buy from us with each party taking what they need.
4469184,202,2076.3999,2080.05,7,Um so with that now hmm…
4469184,203,2080.51,2092.3101,7,Fully developed and tested uh tested with tax authorities tested with the auditor and text tested uh with the market we are going to move into execution mode.
4469184,204,2093.3701,2102.73,7,I won't um nail down myself by providing any date of execution and or figures.
4469184,205,2102.98,2117.71,7,Uh because we have painfully learned in the past that this creates a lot of tension and in all calls people is discussing whether we should be getting this or this plus three percent or this minus five percent.
4469184,206,2117.71,2123.0801,7,And you know we don't want to uh entertain uh such discussions.
4469184,207,2123.1101,2126.46,7,Uh it's a very important sale for the company.
4469184,208,2127.0701,2135.4402,7,On the positive and on the negative side because we are saying we will be saying goodbye to a very significant source of stable income.
4469184,209,2135.99,2149.1001,7,But on the other side it is a fantastic opportunity to deleverage the company to the level absolutely unseen by us in the past and more in line with our uh UK peers.
4469184,210,2149.52,2165.26,7,Uh which I believe makes sense in the current uh environment because it will also provide the company with the freedom and the flexibility to execute on any project it might need to execute in the future.
4469184,211,2165.5801,2173.6001,7,Uh most notably we will have enough muscle to develop all of our data center uh program.
4469184,212,2173.98,2191.4302,7,Which is a lot of money that have very hefty returns and you know it will provide us with a possibility to continue developing our Greenfield Logistics program till the end till we run out of of um land bank for suitable for logistics.
4469184,213,2191.4299,2196.9399,7,So now we are uh now seriously considering this.
4469184,214,2197.6001,2202.4202,7,We should be expected to move into execution at some point.
4469184,215,2203.04,2211.7402,7,UH I will not provide any date or target figures because it will be simply suicidal on my on my side.
4469184,216,2211.74,2218.97,7,So that you know I know that this is uh very important for you.
4469184,217,2219.0,2230.8301,7,I I I know your uh your stance regarding this and I know your critics about the glacial pace at which we uh take decisions.
4469184,218,2231.3,2241.45,7,But uh be assured that the only reason why we take decisions at glacial pace it is because we want to ensure the best execution possible.
4469184,219,2241.8,2244.29,7,We cannot run this company you know.
4469184,220,2245.6001,2249.9099,7,Now left then right then center then forward.
4469184,221,2249.9099,2259.8101,7,I mean we we we need to make sure that we obtain the best possible execution from this asset uh which is a very very important asset for for the company.
4469184,222,2261.53,2262.25,10,That's very clear.
4469184,223,2262.25,2263.1001,10,Thank you very much.
4469184,224,2263.6899,2264.4399,7,you are welcome Mark.
4469184,225,2265.25,2270.1899,9,Uh next question council line of Clark inaudible from Clarence Capital.
4469184,226,2270.1899,2271.6799,9,Please go ahead with your question.
4469184,227,2272.9199,2273.8601,11,Hi there good afternoon.
4469184,228,2273.9099,2276.6499,11,Um I've I also had a question on b b v a.
4469184,229,2276.6499,2278.8801,11,So uh it's already been answered very clearly.
4469184,230,2324.98,2325.3,7,Okay.
4469184,231,2326.24,2328.73,7,Um fantastic.
4469184,232,2329.4299,2343.8198,7,Look regarding the LTV goal uh our two l t v goal the one that we were ambition to get was something below thirty six percent more or less.
4469184,233,2343.8201,2352.3,7,This is what we were trained into when we were caught by uh by the covid nineteen uh pandemic.
4469184,234,2352.8401,2363.26,7,Um we were going little by little uh of course uh this transaction would allow us to get there in one split second.
4469184,235,2363.78,2369.9202,7,Uh but certainly um we like to uh be leveraged between…
4469184,236,2370.6499,2374.4001,7,At this point in the cycle between thirty five thirty six percent max.
4469184,237,2374.8701,2377.4302,7,Uh certainly with the transaction will go below.
4469184,238,2378.04,2388.2002,7,But that would give us also some extra muscle to do some other things which in turn would generate new value that will also help reduce our our our leverage.
4469184,239,2388.6101,2391.8601,7,In terms of what would be the effect on rating?
4469184,240,2393.1001,2394.5598,7,Frankly speaking I have no idea.
4469184,241,2394.71,2403.6199,7,I mean uh we live in Spain uh and rating agencies tend to be a little racist in that uh respect.
4469184,242,2403.6201,2412.48,7,So you know uh with similar KPIs to us uh we have many peers in Europe which score triple B plus.
4469184,243,2413.1799,2424.6902,7,So I hope that with uh the injection of capital that that sale will provide we should go at least to triple B plus but you never know.
4469184,244,2424.8401,2432.3501,7,Because in reality you know uh blaming the Spanish macro blaming the sovereign cap or blaming…
4469184,245,2432.3799,2433.0798,7,I don't know.
4469184,246,2433.5,2435.7302,7,Uh sometimes you get where you want.
4469184,247,2436.0801,2437.55,7,Sometimes you don't get there.
4469184,248,2437.55,2448.9199,7,But in any case whether uh rating or not rating at least I believe the market will appreciate the fact that our debt inaudible level goes down very significantly.
4469184,249,2448.9199,2453.6299,7,Helping it goes down uh interest cover would significantly improved.
4469184,250,2453.6299,2457.73,7,So you know at the end this is always important uh for the market.
4469184,251,2458.3,2464.3601,7,Regarding the debt maturity in May two thousand and twenty two it'll be paid in cash.
4469184,252,2464.6499,2468.6101,7,I mean we have the cash ready at the bank account.
4469184,253,2469.24,2474.4302,7,And are also piling up cash for the upcoming one in two thousand and twenty three.
4469184,254,2474.46,2484.3,7,So we told the market that we will be um paying those maturities uh in the case of twenty two.
4469184,255,2484.78,2490.0601,7,Um we'll pay it as soon as we can because cash cash today is costing us money.
4469184,256,2490.6299,2499.0901,7,And the one in twenty three eventually particularly if we improve our rating uh we will certainly look uh to refinancing it.
4469184,257,2499.0901,2509.46,7,Because you know the last refinancing that we have done even in the in the middle of the pandemic has represented an advantage of more than one hundred bits in financial cost.
4469184,258,2509.6899,2511.96,7,Which is already noticeable in in this quarter.
4469184,259,2511.96,2517.6899,7,I mean many people is asking us why the financial uh burden has gone so low?
4469184,260,2523.6101,2527.1501,11,Okay great.
4469184,261,2536.55,2537.9099,9,Please go ahead with your question.
4469184,262,2549.1699,2552.48,9,And our next question comes from the line of Alvero Sogliano from inaudible.
4469184,263,2555.3101,2557.49,13,Hello um thank you for the presentation Ismael.
4469184,264,2557.74,2565.7,13,Um thinking twenty twenty two uh what sort of cap ex uh quantum is budgeted uh for for next year?
4469184,265,2565.8201,2567.02,13,Also including basement.
4469184,266,2587.45,2592.74,13,Or you plan to dispose D V A even if you don't get um those plots.
4469184,267,2593.3,2607.1299,13,And also linked with the DVA disposal what what sort of buyers are interested on on that asset in terms of um our pension plans or what what sort of uh money is looking for those assets?
4469184,268,2607.52,2614.96,13,Having in mind that DVA also has the right to match the offer that any potential buyer will make on the portfolio.
4469184,269,2615.3501,2615.71,13,Thank you.
4469184,270,2616.5701,2616.9001,7,Okay.
4469184,271,2618.24,2631.0398,7,inaudible regarding the two thousand and twenty two CapEx UH we are currently in the process of defining the exact amount that will be um uh budgeted for next year.
4469184,272,2631.0801,2642.6199,7,Uh I can tell you that it will be matched exactly with the uh proceeds that we expect to receive from sales of non core.
4469184,273,2643.1201,2645.6499,7,In some cases the negotiations are already on their way.
4469184,274,2646.1699,2652.8499,7,Uh so we'll make sure that uh sources and uses much as we have always uh done.
4469184,275,2652.96,2656.9299,7,In fact this year we are going to have slightly more sources than than users.
4469184,276,2656.9299,2665.6699,7,So we will carry on to the next year uh certain extra amount that can be employed in further CapEx uh for for the company.
4469184,277,2666.3501,2671.3101,7,Regarding the inaudible plot uh the process is highly competitive.
4469184,278,2671.3501,2678.21,7,And for us in reality it has nothing uh to do with the inaudible decision.
4469184,279,2678.21,2679.4302,7,I mean that inaudible…
4469184,280,2679.49,2688.28,7,Maybe you are referring to this end to inaudible uh in in uh which is somehow linked also to DVA.
4469184,281,2688.8401,2692.9399,7,In the case of inaudible uh there are no news.
4469184,282,2692.9399,2701.5601,7,I mean on the operation on the operational side we continue to work hand in hand with the DVA uh to our satisfaction.
4469184,283,2705.1699,2718.3301,14,In July we obtained uh the signature of the infrastructure convention with the framework agreement with all the public authorities which are involved in the in the in the development.
4469184,284,2718.79,2742.3999,14,So after that which was the second condition precedent according to the contract with the National Railway Authority uh we moved into formally requesting the transmission of the land from the uh National Railway Authority uh the term to obtain the transmission of the land will be by year end.
4469184,285,2742.3999,2752.6199,14,Uh however with a high probability we believe the National Railway Authority will will request a little extension till May next year.
4469184,286,2753.1399,2759.1301,14,And uh if that is the case that transmission of the land would operate in May next year.
4469184,287,2759.54,2768.8901,14,Uh as soon as we receive the land uh from the National Railway Authority the process or the project will uh will start.
4469184,288,2769.52,2781.9399,14,And at our current participation level which is fourteen point five percent capex in this project as we have demonstrated in a number of occasions is relatively meaningless to us.
4469184,289,2782.1001,2797.01,14,So shouldn't be a concern for investors because you know the the transmission or the purchase of the land uh needs a capex uh usage on our side of forty million more or less a little less.
4469184,290,2797.2,2799.28,14,Uh with soft costs etc.
4469184,291,2799.47,2813.1199,14,the capitalization of the vehicle company should be forty five forty seven million which is something that we have in our budget and we will take into account of course when considering capex floor for next year.
4469184,292,2813.3601,2830.76,14,And this is completely um not not linked to uh to the um decision on the branch uh portfolio disposal because at the end you know both things are not necessarily related.
4469184,293,2830.76,2856.4399,14,I mean the only reason why we wanted to increase a little bit our uh percentage in the transaction is because uh we feel uh we are bringing some value added to the table and we thought it would be good in in view of that value added to have a certain more outside return.
4469184,294,2856.4399,2861.6699,14,I mean so you know bringing out a value added and getting fifteen percent return is one thing.
4469184,295,2861.8999,2869.02,14,Uh get you know bringing value add to the table and getting thirty five percent return is a completely different thing.
4469184,296,2869.02,2876.3101,14,So that was all of our let's say ambition in the in in that uh regard.
4469184,297,2876.74,2883.3599,14,Um the many people ask us about the arbitration process.
4469184,298,2883.3601,2888.23,14,Well the arbitration process is pending the final appointment of an arbitrar.
4469184,299,2888.5701,2898.02,14,And uh when this happens which will happen before year end the arbitrar will have five months to issue the bigger decision.
4469184,300,2898.05,2908.0198,14,So you know by end of first half next year this will be resolved uh whether in favor of b b v a or in favor of us.
4469184,301,2908.02,2914.9199,14,You know it is the law so we'll abide by whichever decision is taken by the arbitrator.
4469184,302,2915.3999,2924.55,14,For the time being at least we obtained the injunction so at least the modification of the values couldn't be ins inscribed in the in the mercantile register.
4469184,303,2924.73,2934.23,14,So we are protected for the time being but we will wait till the finalization of the arbitrage to uh to see what is the final outcome.
4469184,304,2934.6001,2942.05,14,Uh the situation or the relationship with b b v a remains uh professional.
4469184,305,2942.0801,2950.5,14,Uh we continue working together in the subject matter which is the one that really matters in in the development of of DCN.
4469184,306,2950.78,2960.1201,14,And we continue working with them to our satisfaction with them and with the and with the company in which you know the investment piece is vehicled.
4469184,307,2960.49,2963.1899,14,So this is what I can what I can tell you.
4469184,308,2963.1899,2967.3,14,And then you asked me about potential buyers uh for b b v a.
4469184,309,2967.51,2974.6199,14,Look uh expanding on what I told uh Bart we will not enter into this kind of discussion.
4469184,310,2974.9199,2984.3098,14,Uh you can imagine which kind of investors we are talking about particularly when I said about separating the cash flows from the ownership.
4469184,311,2984.6599,2995.78,14,So you know why we are doing this to obtain the best execution possible of the transaction because we know the intrinsic value of the real estate.
4469184,312,2996.03,3011.3799,14,And you know if need be one of the potential outcomes that we have in some cases considered is simply keeping the ownership of the asset ourselves cause we have no problem with that and it will be a gift to whoever manages this company in year two thousand and forty.
4469184,313,3011.79,3023.5701,14,But uh the reason why we have separated is precisely to facilitate execution by a certain type of investors who are particularly competitive in terms of cash flow discount.
4469184,314,3024.77,3025.01,15,Okay.
4469184,315,3025.1001,3025.3301,15,Thanks.
4469184,316,3025.73,3025.96,15,Is my…
4469184,317,3025.96,3032.6199,15,Maybe maybe I didn't ask the question in the right way I'm um regarding b v a disposal.
4469184,318,3033.1101,3038.6899,15,I was trying to understand how Merlin will recycle that proceeds from that portfolio when it eventually comes.
4469184,319,3039.2,3047.5898,15,And the three options to me are RN upload increasing your stake on DCN or going full speed in that data centers.
4469184,320,3047.79,3053.8,15,So between those three options leaving aside the debt repayment which one is your preferred one?
4469184,321,3055.49,3057.7898,14,Uh datacenters and greenfield logistics.
4469184,322,3057.8999,3064.4299,14,I mean basically our biggest uh yield on cost uh fields of activity.
4469184,323,3064.8401,3071.0,14,Uh temporarily of course that lump sum will be used to reduce debt.
4469184,324,3071.3501,3087.0801,14,But over time as we can start with leveraging a little bit uh the ultimate uh use of that money will be uh mainly the data center program which for us is crucial for the future of of the company.
4469184,325,3087.54,3101.9202,14,Uh there will also be uh some extraordinary distribution to shareholders because as you know there is this spani the Spanish legi legislation the Spanish for senior legislation uh is clear in that respect.
4469184,326,3102.05,3112.0,14,So there will also be some you know no extraordinary dividend to shareholders arising from that um from that uh disposal.
4469184,327,3113.3501,3113.7002,15,Perfect.
4469184,328,3113.7,3114.9099,15,Now very clear.
4469184,329,3114.9399,3115.5601,15,Thank you very much.
4469184,330,3116.1201,3116.74,14,Thank you Abaro.
4469184,331,3120.9099,3126.47,16,Once again ladies and gentlemen to register your question can you press star one on your telephone keypad.
4469184,332,3127.01,3130.73,16,Once again it's star one on your telephone keypad to register for questions.
4469184,333,3131.3601,3135.0801,16,I think we have a follow-up question coming from the line of Fernando Alvaro from Alantra.
4469184,334,3135.0801,3135.75,16,Please go ahead.
4469184,335,3137.1499,3137.5,17,Now uh…
4469184,336,3137.9199,3140.49,17,Sorry my my question was has already been answered.
4469184,337,3141.1299,3141.3801,17,Thank you.
4469184,338,3142.3301,3143.0898,14,No problem Fernando.
4469184,339,3143.8201,3145.1101,16,Thank you Fernando.
4469184,340,3145.5601,3149.96,16,Uh our following question comes from line of Bertram Para Polo from Santa Lucia.
4469184,341,3150.01,3150.54,16,Please go ahead.
4469184,342,3152.3601,3152.7002,18,Hello.
4469184,343,3152.7,3157.3201,18,Good afternoon everybody and congratulations for your hard work on the nice numbers.
4469184,344,3157.8201,3162.3398,18,Uh just regarding uh I think you were answering Ismail regarding capital recycle.
4469184,345,3162.3401,3168.0398,18,You said it was a question inaudible inaudible data centers or greenfield logistics.
4469184,346,3168.52,3176.96,18,Maybe uh seeing that you're that let's say your values of all your assets are resisting quite well and put in place or maybe they'll start going up some time.
4469184,347,3177.3701,3180.0701,18,It's no no questions about buybacks.
4469184,348,3180.5701,3184.1499,18,It's you're talking about greenfields and the logistics and data center.
4469184,349,3184.1499,3184.99,18,That's very good.
4469184,350,3185.51,3191.71,18,But how about buying your your share at forty percent discount and really showing that your assets are not going down but maybe up?
4469184,351,3192.1399,3198.8501,18,And then let's say it's it's so no brainer when when is this company going to start talking about their share buybacks?
4469184,352,3199.76,3217.77,14,Bertram uh look first this is a decision um of our both actors but the problem is that in Spain it is not irrelevant like it would be in an Anglo-Saxon country to do a special dividend for a buyback.
4469184,353,3218.1299,3233.99,14,So in our case uh the eventual sale of a large number of assets like for example the portfolio we were commenting will generate the need to distribute to shareholders a certain amount of money.
4469184,354,3235.05,3240.98,14,If we were to use that certain amount of money to do a buyback it would be a monster buyback.
4469184,355,3241.6699,3244.23,14,Fantastic but it cannot be done legally.
4469184,356,3245.0601,3252.02,14,So we will need to distribute that amount of extra dividend to investors by way of law.
4469184,357,3252.6001,3273.9099,14,So uh it is arguable whether it is better to distribute uh a lot of money to your shareholders loyal shareholders who are with you in the shareholding list of the company or it is better to do a share buyback to the shareholders who want to exit the company.
4469184,358,3274.1599,3281.3701,14,So that yes you are create the figures of the one who remain yes but legally it's not…
4469184,359,3281.48,3282.4102,14,I mean there is no point.
4469184,360,3282.7,3283.72,14,We cannot do it.
4469184,361,3283.75,3285.78,14,We have we have to distribute an extra dividend.
4469184,362,3313.1699,3331.9202,14,Bertram uh look uh our non-core disposals have already shown to the market that assets are fairly valued because even in the middle of the pandemic and in even the worst moment we have been disposal at or above uh g a v figures.
4469184,363,3331.95,3337.5898,14,So the market for some reason is you know inaudible to to that information.
4469184,364,3338.05,3347.9199,14,Uh even if we dispose now a large amount of uh assets of the company and we do it above book value do you think the market will really care?
4469184,365,3348.1599,3349.3298,14,Maybe they don't care.
4469184,366,3349.3601,3357.53,14,So we can't continue cannibalizing the company till we end up with zero assets and selling everything above NAV.
4469184,367,3357.6899,3361.8401,14,And still I don't know whether the market will notice or not notice.
4469184,368,3362.02,3363.9302,14,So what we are trying to…
4469184,369,3364.22,3370.8,14,I frankly speaking if I have to give you my opinion the share price re-rating will be immediate.
4469184,370,3371.1599,3376.77,14,I mean there will be no need to artificially increase the price which is at the end what you are referring to.
4469184,371,3377.5601,3382.4199,14,But you are asking me why don't you artificially raise the price of the shares through a buyback?
4469184,372,3382.8101,3398.23,14,And look I what I tell you is that I believe that if I do what i am telling you we should be capable of doing the re-rating in the share price would be immediate with no need to do it through a buyback.
4469184,373,3399.79,3411.5,18,Well in my opinion as well all the shareholders pay pay the management team money to to add value to let's say the industrial way as you always have done uh but also to to add value in a financial way.
4469184,374,3421.0,3427.01,18,And let's say maybe in ten years instead of having let's say a one point five percent maybe I have a three percent so so it's…
4469184,375,3427.5801,3428.6401,18,I I I don't know.
4469184,376,3430.05,3430.96,18,Maybe you you want to…
4469184,377,3437.3999,3443.01,18,I think that they deserve to really to really let's say have more more piece of the cake without putting more money.
4469184,378,3459.8201,3467.4399,14,Bertram uh I have all my net worth invested in this company and I have been a financial investor for many many years.
4469184,379,3467.73,3472.9402,14,So I have I I know the business of depleting the capital figure of companies.
4469184,380,3473.22,3475.0898,14,Uh I know this business.
4469184,381,3475.4299,3479.29,14,But you know I believe it will be unnecessary.
4469184,382,3479.6899,3482.95,14,Anyway it's opinionable like everything and we can…
4469184,383,3482.95,3484.5801,14,I am happy to discuss with you.
4469184,384,3484.8301,3487.8699,14,I know you particularly like the buybacks.
4469184,385,3488.3999,3495.47,14,I am happy to discuss with you one-on-one whenever you want because we live in the same city so we can meet and discuss.
4469184,386,3495.72,3503.7,14,And probably there is no need to enter into a theoretical discussion about buybacks in this forum cause it will be uh I will be…
4469184,387,3503.7,3505.45,14,I I think it's it doesn't make sense.
4469184,388,3506.96,3507.3,18,Okay.
4469184,389,3507.4299,3507.78,18,Thank you.
4469184,390,3518.3101,3520.6799,16,Uh we appear to have no further question at this point.
4469184,391,3521.6799,3522.3298,19,Okay.
4469184,392,3522.51,3525.45,19,Well in that case we thank you all for joining today.
4469184,393,3525.45,3528.52,19,It's uh nine months twenty twenty one trading update.
4469184,394,3528.79,3532.8201,19,Uh as always we remain at your disposal for any further questions.
4469184,395,3532.8201,3538.46,19,And you know if if somebody needs a one-on-one meeting please do not hesitate to come back to us.
4469184,396,3538.79,3539.5,19,Thank you very much.
4469184,397,3539.6699,3540.48,19,Have a good weekend.
4469184,398,3542.22,3546.96,16,Ladies and gentlemen thank you for your participations today and this concludes with this conference.
4469184,399,3546.96,3548.3599,16,You may now disconnect your lines.
4469184,400,3548.3899,3549.01,16,Thank you.
4469208,0,3.89,4.47,0,Good morning.
4469208,1,65.66,68.72,0,Today after the initial remarks there will be a q and a session.
4469208,2,159.32,177.76,1,Additionally the strategic geographic location of our network of ports and our own fleet of vessels facilitating the raising of the Cartagena plant which is one of the most efficient in the Americas with the grinding station ready-mix operations in the US and the Caribbean.
4469208,3,220.04,236.32,1,Our successful track record on developing green products such as the inaudible in Colombia together with our ambitions projects under development of new technologies leave us well-positioned to achieve these new business goals.
4469208,4,237.25,265.64,1,Now referring to our consolidating results I would like to mention that all the reference made to inaudible the ready-mix and cement volumes and the percentage evolution versus last year are made on a comparable basis excluding the adjustments that are explained in more detail in the presentation that is currently being displayed and in the report that is available on our ir IR website.
4469208,5,312.24,334.58,1,The adjusted EBITDA for the period was four hundred and seventy three million pesos increasing two point four percent on a like-for-like basis versus the third quarter of 2020 benefited by the strong performance of revenues and partially affected by one-off adjustments in the US and the inflationary pressure on cost in all three regions.
4469208,6,358.9,360.58,2,Thank you Juan and good morning everyone.
4469208,7,361.24,378.17,2,I would like to start by highlighting the outstanding commercial performance in our markets as evidenced by the increase of our cement and ready-mix volumes by eleven point six percent and one point five percent respectively versus the third quarter of twenty twenty on a like-for-like basis.
4469208,8,378.98,392.59,2,These results are particularly positive taking into account the challenging weather conditions that we experienced in our Houston and Georgia markets where we faced during the quarter the highest number of bad weather days in the last four and five years respectively.
4469208,9,393.63,402.89,2,The improving economic conditions particularly in the oil industry and the tourism sector were the main drivers behind the positive volume evolution of the quarter.
4469208,10,403.56,422.82,2,On the cement business the Carolinas were the best performing states with a twenty point four percent growth in volume when compared to last year while the City of Houston and the State of Florida were the best performing areas on the ready-mix segment with a year-over-year growth of eight point two percent and three point one percent respectively.
4469208,11,423.75,431.32,2,Prices have behaved accordingly increasing one point one percent in cement and two point three percent in ready-mix versus the same quarter of last year.
4469208,12,432.95,443.94,2,The EBITDA of the quarter remains strong but was affected by one-off adjustments related to process of assets and inventories clean up that the company has been carrying out for the last eighteen months.
4469208,13,444.49,455.5,2,Particularly on the third quarter this generated a non-recurring expense of four point six million dollars that affects the EBITDA but does not represent any cashflow for the company.
4469208,14,456.39,467.4,2,This clean up process that involves a physical count of inventories and assets was concluded during the quarter for the ready-mix business and will be concluded before the end of the year for the cement business.
4469208,15,467.83,475.88,2,It's important to highlight that these write-offs are carried out amidst our initiatives of continuous improvement and are normal in a company like ours.
4469208,16,476.86,482.6,2,That is the result of several process of acquisitions and divestitures over the last fifteen years.
4469208,17,483.43,494.34,2,The worldwide economic reactive inaudible activation on the cost per cubic meter in fuels is even higher increasing thirty two percent when compared to the same quarter of last year.
4469208,18,495.44,511.2,2,As a result the quarterly EBITDA of the US stood at sixty two million dollars decreasing year-over-year nine point seven percent on a like-for-like basis affected by weather conditions non-cash adjustments and cost headwinds as explained before.
4469208,19,511.7,521.98,2,Year to date our adjusted e b i t d a stands at a hundred and ninety one million dollars which represents a two point one percent improvement on a comparable basis versus the same period of twenty twenty.
4469208,20,523.07,532.11,2,The approval of a bipartisan infrastructure deal as Juan previously mentioned is a constructive announcement for the presence of Argos in the US.
4469208,21,532.99,548.81,2,Preliminary market expectations indicate that the incremental demand will add around four to five percent of con cement consumption per year that in already tight supply conditions will set out to proper market environment for improved profitability over the coming years.
4469208,22,549.38,565.74,2,Additionally increased investment arising from this deal which is significantly higher than the previous infrastructure program known as the FAST Act will also boost employment as well as other macroeconomic indicators ending in additional benefit for our company.
4469208,23,567.08,587.18,2,In terms of market dynamics the evolution of the indicators surrounding the construction industry is the US suggests further growth in the midterm uh together with efficiencies implemented in our operations and the strategic divestitures carried out recently should translate into additional improvements in profitability for the coming periods.
4469208,24,588.03,605.7,2,On the residential segment housing starts and building permits increased during the quarter eight point seven and six point two percent respectively year-over-year which combined with the decrease in unemployment and the general positive outlook for the US economy should continue to perform well in the short term.
4469208,25,607.13,619.23,2,The commercial segment on the other hand continues to reactivate as evidenced by the Architecture Billing Index that in September stood at fifty six point six points one of the highest scores seen in twenty twenty one.
4469208,26,619.85,631.69,2,Similarly the Dodge Momentum Index posted solid gains in September in both commercial and institutional components after slowing planning activity reflected on readings from previous months.
4469208,27,632.58,642.34,2,On this segment during the quarter Argos started to supply a large manufacturing campus project for the global compact equipment manufacturer Doosan Bobcat.
4469208,28,642.87,650.82,2,That would represent a volume of around seventeen thousand cubic meters with the majority of the concrete expected to be poured by March of twenty twenty two.
4469208,29,651.41,672.29,2,In this same line we were recently awarded with the ready-mix supply contract for a new Cinemark theater in Jacksonville that will use around four thousand cubic meters of a special blend of concrete where we use a specific fly ash blend to create a low carbon environmentally friendly product reinforcing our commitment towards sustainability.
4469208,30,673.11,683.74,2,We expect this constructive trend to continue in the midterm followed by a suitable international environment that the continuation of the cement super cycle in the US.
4469208,31,684.26,702.36,2,The concentration of our US cement and ready-mix operations around big urban areas together with the ability to integrate our Cartagena plant with a portion of these operations and the import capacity of our ports will be our main strategic advantages to capture all the growth derived from this upcoming cycle.
4469208,32,705.68,706.53,1,Thank you Bill.
4469208,33,1318.0699,1327.13,6,This positive evolution caused by the combination of recovering local markets and the increase in import parity prices are strong signals of the economic recovery in the region.
4469208,34,1888.88,1892.4801,14,And that's why we did announce a second increase this year.
4469208,35,1892.5699,1898.15,14,Um you know we're monitoring that closely and also going into next year and our goal will be similar.
4469208,36,1910.0,1912.14,14,But we do expect to stay ahead of that.
4469208,37,1927.33,1927.5499,14,Yeah.
4469208,38,1931.28,1949.97,14,So you know like I said I mean our goal is to stay ahead of inflation and you know we expect that you know pretty strong demand next year and I think we've done a pretty good job this year on the the pricing side so our expectation is to you know stay in that same ballpark and let's just stay ahead of cost.
4469208,39,1966.99,1967.65,15,Good morning.
4469208,40,1967.65,1970.72,15,Uh thank you very much for the uh presentation.
4469208,41,1978.71,1989.83,15,I would like to know how much dispatches you are expecting from this segment in the three regions compared to what uh we have been seeing in twenty twenty one?
4469208,42,1990.22,1994.24,15,Um the second question is regarding metal prices.
4469208,43,2427.95,2428.8,19,Thank you very much.
4469208,44,2518.6899,2538.1499,22,On the on the US side I mean I think a couple things that we've been doing that we're mainly focusing on now is because of the increase in natural gas we've uh begun I guess a month or so ago shifting some of our plants back to using coal which has reduced our cost uh to some degree.
4469208,45,2803.72,2812.76,24,And if that might imply additional CapEx in your plans and perhaps uh more more more CapEx in certain regions compared to others?
4469208,46,2893.53,2903.3501,22,Um you know as of now you're you brought up uh the challenge of acceptance and I think there's been a lot of movement towards accepting blended cements in the US.
4469208,47,2903.5,2907.1299,22,Most of the states now have moved towards full acceptance.
4469208,48,2907.1299,2916.45,22,There are a few none of which are in our current footprint um that are still questioning it to some bit so we think there's a lot of opportunity there.
4469208,49,2916.8899,2920.73,22,Um and we're moving our strategy very quickly to that effort.
4469208,50,2921.3,2934.9299,22,Um as of right now we feel like next year somewhere between maybe upwards of just over thirty percent we could end up uh blending which I think would be a big benefit to the company and our results.
4469208,51,2934.9299,2937.5,22,And again it stays in line with our overall strategy.
4469291,0,1343.36,1381.48,13,Uh we have been able to uh post double-digit growth so the uh…
4469291,1,1392.46,1487.47,13,our last year uh represents a high base effect and uh even against that we're showing very high growth rates.
4469291,2,1487.47,1501.1799,13,So our intention is to maintain that.
4469291,3,1501.1801,1511.83,13,The analyst continues.
4469291,4,1515.0699,1575.1,13,Can you please uh share your view uh about your main competitors?
4469291,5,1575.1,1575.1899,13,Answer.
4469291,6,1869.74,1870.6801,13,That's factor number one.
4469291,7,1870.6801,1881.8,13,Factor number two is seasonality which uh relates uh to uh recognition of uh major projects uh in uh data centers and uh cybersecurity.
4469291,8,1882.65,1899.41,13,Again uh because uh these contracts also happen in phases uh the final phase in uh a false for the uh fourth uh uh quarter and uh that is why we are showing the breakdown that you can see in uh our presentation.
4469291,9,1899.41,1903.7899,13,So we're confident that we'll be able to deliver on our goals set in our strategy.
4469291,10,1904.38,1905.54,13,The analyst continues.
4469291,11,1913.65,1917.96,13,Uh all the other segments are making progress as planned and that is the main source of volatility.
4469291,12,1917.96,1918.08,13,Answer.
4469291,13,1919.1801,1920.5499,13,That's because in uh…
4469291,14,1920.73,1921.6,13,yes that's correct.
4469291,15,1921.6,1932.3199,13,Uh uh and uh uh the reason again is that uh in twenty twenty a lot of contracts were reflected in the third quarter and in twenty twenty one uh they are reflected in a smoother fashion.
4469291,16,1932.62,1933.75,13,Okay thank you says the analyst.
4469291,17,1940.23,1940.5699,13,Russian.
4469291,18,1940.5699,1942.41,13,we're ready to take our next question.
4469291,19,1949.3101,1951.9301,14,Just in case you have a follow up question your line is open.
4469291,20,1954.3,1964.6801,15,Uh Russian once again but uh uh I have no questions uh at the moment.
4469291,21,1965.48,1965.8401,15,Thank you.
4469291,22,1966.02,1966.29,14,Thank you.
4469291,23,1976.17,1976.78,13,Speaking.
4469291,24,1977.23,1980.38,13,Thank you colleagues for participating in this conference call.
4469291,25,1980.38,1981.75,13,Thank you for your question.
4469291,26,1981.97,2008.13,13,We would like to once again so invite us to participate in our online event of on the 16th November where we'll update you about uh our plans developments about our strategy about uh how we are going to create value and we'll update you about our strategy and we'll introduce you to some of the leaders of our clusters.
4469291,27,2015.2,2016.0699,13,Thank you once again.
4469528,0,2.82,11.63,0,Good morning everyone I'm Santiago Donato investor of relations officer of and I welcome you to the first quarter of peace inaudible two thousand twenty two results conference call.
4469528,1,12.2,23.7,0,First of all I would like to remind you that both audio and the slideshow may be access through company's investor relations website at www dot cre sud dot com ar by clicking on the banner webcast link.
4469528,2,24.53,28.9,0,The following presentation and the inaudible release is also available for download on the company website.
4469528,3,29.6,33.84,0,After management remarks there will be a question and answer session for analyst and investors.
4469528,4,34.16,38.67,0,If you want to make a question please click the bottom label for raise hand or use the chat.
4469528,5,39.48,49.24,0,Before we begin I would like to remind you that this call is being recorded and the information discussed today may include forward look in the statements regarding the companies financial and operating performance.
4469528,6,49.64,54.74,0,All projections are subject to risk and uncertainties and actual results may defer materially.
4469528,7,55.42,60.14,0,Please refer to the little note in the companies admins release regarding forward look in the statements.
4469528,8,60.74,63.04,0,I will now turn the call over to Mr.
4469528,9,63.07,65.08,0,Alejandro Elsztain c e o.
4469528,10,65.52,66.57,0,Please go ahead sir.
4469528,11,68.34,69.55,1,Good morning everyone.
4469528,12,70.15,74.27,1,We are beginning our first quarter of first year a new campaign for Cresud.
4469528,13,74.83,79.78,1,And we are planting an uh in very good conditions in the region.
4469528,14,80.15,86.9,1,Similar size of last years and we are going to show you a little later about the four countries and the size of plantation.
4469528,15,87.4,98.83,1,Uh we um in this year we are budgeting and we are seeing better prizes than last year and higher markings comparing to last year.
4469528,16,99.0,105.45,1,Having some bigger input costs in some like fertilizers much more bigger.
4469528,17,105.8,111.26,1,Uh but margins since comparing this year to last year are a little higher.
4469528,18,111.93,123.76,1,Um we related to the real estate business so remember that we have three lines of businesses one is reproduction size and the yields on the production.
4469528,19,124.13,127.78,1,The second is the real estate and the third is services in agriculture.
4469528,20,128.13,133.42,1,Relating to the real estate in the first quarter we have on news in Brazil.
4469528,21,133.59,137.72,1,In this quarter we have no news in Argentina and in the rest of the countries.
4469528,22,138.24,144.94,1,A lot of sales in there and a lot of liquidities in in Brazil related to the real estate business.
4469528,23,145.79,152.21,1,About our segment through Ilsa the Yurban segment it's recovering a lot.
4469528,24,152.47,154.41,1,This quarter was all open.
4469528,25,154.71,164.17,1,Uh we saw the shopping centers open the hotels beginning to open and the inaudible receiving a lot of the local tourism.
4469528,26,164.59,178.75,1,Uh so there is a lot of recovery and we are going to see very much better numbers in the real estate uh and their occupation suffered something but comparing to last year numbers they're much better.
4469528,27,179.41,210.33,1,Uh related to the quarter of production we were driven by the sugar cane activity and here the dark activity gave us much better research and was mainly explained by the the frozen than the country received in the winter that made a big lost in the southern regions of of Brazil and that made an increase a very important increase in the sugar cane prices combined with the the oil prices in increase.
4469528,28,210.49,216.11,1,So the combination of the two made a big jump in the prices of the ethanol and the sugar cane.
4469528,29,216.43,225.87,1,And in our case our plantations were in regions that they were not affected in production so that combination made us a big gain and in the others a good quarter too.
4469528,30,226.96,242.35,1,Uh related to the m oil effect on our balance sheet we see a net gain that was mainly explained by this gross profit financial result and income tax and there is a loss related to the fair value of i Ilsa.
4469528,31,242.54,247.48,1,The investment property received a lost and Mathius will explain later about this loss.
4469528,32,247.96,254.3,1,Finally we had a gain of close to two billion Pesos attributable to controlling chair-holders.
4469528,33,254.53,258.27,1,So this is the main explanation of the of the quarter.
4469528,34,277.23,280.43,2,The area we are planting now is two thousand-
4469528,35,280.43,287.76,2,two thousand uh two hundred sixty two thousand hectors inaudible around the full country you can see in the graph.
4469528,36,287.76,289.03,2,Similar to the last year.
4469528,37,289.68,290.63,2,forty…
4469528,38,290.89,299.98,2,fourteen thousand Paraguay fourteen thousand inaudible a hundred eleven thousand Brazil and a hundred twenty three thousand in Argentina.
4469528,39,300.94,303.09,2,About the cropters uh breakdowns.
4469528,40,303.41,346.37,2,Uh the crops uh this year remain to some of the last three years for a for a six percent soy bean twenty seven percent corn nine percent sugar cane three percent wheat and the other inaudible 8% for a total inaudible Moving to the next slide about farming activity inaudible Uh in the graph to the left uh about store consumptions the soy bean and the corn is tout remaining globally low uh having soy bean about twenty seven point seven percent and corn twenty five point four percent.
4469528,41,347.22,354.79,2,In case of inaudible in this graphic show you that there's inaudible are even lower than of the rest of the world.
4469528,42,354.97,362.68,2,Having soy bean of about seven point three percent and corn ten point one percent respectively.
4469528,43,364.24,369.72,2,This start-up consumptions have a relation about the inaudible prices.
4469528,44,370.59,374.7,2,In relation about that we can see a a up-surge in the graph.
4469528,45,375.28,376.61,2,inaudible prices probably…
4469528,46,376.61,388.07,2,previously went up to reaching reaching the tops in inaudible twenty twenty one uh about soy beans sixty four percent and corn a hundred thirteen percent.
4469528,47,388.29,395.16,2,However along the following five months there was a moderate corrosion in the biases drop in.
4469528,48,400.54,403.56,2,inaudible in corn.
4469528,49,403.56,411.19,2,Now the current version on Hit precissions uh is uh in in in prices similar as the budget.
4469528,50,421.28,424.22,2,About climate condition and showing process.
4469528,51,425.4,433.76,2,It's showing the bottom ride of the graph the climate condition of Argentina and Brazil categorically in comparison to the inaudible season of the last year.
4469528,52,434.27,439.12,2,Currently the focus mark neutrality as they inaudible move away.
4469528,53,440.5,453.34,2,Regarding to the current inaudible in process November twenty twenty one the total soy bean is twenty three percent Bolivia sixty four percent Brazil forty percent and Argentina two percent.
4469528,54,453.94,461.44,2,Total in corn is thirteen percent Bolivia ninety nine percent Brazil thirty percent and Argentina twenty percent.
4469528,55,462.11,470.52,2,And the last one wheat we have a hundred percent uh of the planting because now we are adjusting and starting to harvest in Argentina.
4469528,56,471.9,472.77,2,Thank you everybody.
4469528,57,474.74,475.22,1,Very good.
4469528,58,475.22,482.63,1,The next page we can see what happened in the farmland sales and these two operation transactions were done in Brazil.
4469528,59,483.37,489.01,1,Uh none of them was reflected on the balance sheet uh because they…
4469528,60,489.01,489.9,1,We are going…
4469528,61,489.93,492.95,1,We are putting transactions a day of…
4469528,62,493.03,501.01,1,surpassing some level of payment and giving possession and uh that was not accomplished on the thirty of September in the…
4469528,63,501.01,502.84,1,none in the n two crisis.
4469528,64,503.35,506.83,1,Uh the two sales are in two different regions.
4469528,65,506.88,510.72,1,The first one Rio de Mayo uh it was done in September.
4469528,66,511.06,523.33,1,Uh productive area that we sold is twenty nine hundred hectors uh but we bought for forty million Reals and we sold for a hundred thirty million Reals in a nominal sale.
4469528,67,524.21,530.59,1,Remember inaudible in Brazil we sell in installments relating to sa to tax of soy beans.
4469528,68,530.79,538.98,1,So when we put the gain we discount that nominal value to the present value and we might the internal rate of return is the…
4469528,69,539.01,540.21,1,with the present value.
4469528,70,540.54,548.58,1,I'm giving us in the first case an internal rate of returning Real is of fifty six percent and in the case of tourist forty percent.
4469528,71,548.99,558.3,1,That was a transaction done when we did the merge with Agrifirma that we merged through paying through shares of Brasilagro.
4469528,72,558.62,565.15,1,And in this case uh all is telling the third of the farm will recover what we paid for the whole farm.
4469528,73,565.44,571.65,1,So it was a big gain it is a very important gain for the first quarter doing this small transaction.
4469528,74,572.39,574.97,1,The second one uh that it will…
4469528,75,575.09,583.07,1,It was done in October twenty one still not recog recognized and it probably will be on the third thirty of December thirty one of December.
4469528,76,583.54,588.07,1,Uh in here we are selling a productive area of twenty seven hundred hectors.
4469528,77,588.5,593.03,1,For a total number of five hundred eighty nine million Reals.
4469528,78,593.58,601.76,1,This is uh bigger than the first i p o the company did only selling twenty seven hundred hectors.
4469528,79,602.06,609.37,1,So a small a look at what is that price per hector it is depending in a present value or nominal value.
4469528,80,609.75,616.02,1,thirty thousand or more or forty thousand or more Reals per he Dollars per hector sorry.
4469528,81,616.41,622.18,1,So forty thousand dollars or thirty thousand bucks are inaudible more in the present or nominal value.
4469528,82,622.4,626.28,1,So give us the rea the the real valuation of the land in Brazil.
4469528,83,626.62,630.12,1,This is a transaction that will be recognized in two steps.
4469528,84,630.42,647.95,1,Uh first step it is more than half twenty five hundred uh uh one five oh oh sorry hectors of yo uh of productive area in the first trudge and the second trudge will be like one thousand one hundred hectors in twenty twenty four.
4469528,85,648.15,654.92,1,So this is a big transaction uh giving us a big gain for this year uh for the twenty four-
4469528,86,654.92,656.02,1,twenty twenty four too.
4469528,87,656.38,662.23,1,And internal rate of return this farm was bought in two thousand seven if I don't remember incorrectly.
4469528,88,662.48,665.55,1,So a a long story giving is a…
4469528,89,665.55,669.73,1,like twenty percent in Reals or twelve percent in Dollars a big gain.
4469528,90,669.79,678.2,1,And again when we see a farm has a three percent return we sell it and we begin to invest it in another area or in another activity.
4469528,91,678.48,685.5099,1,So first semester or first quarter with activity in Brazil but still not reflecting in our balance sheets.
4469528,92,686.86,688.65,1,We can move now to page number six.
4469528,93,689.08,690.9,1,Um we would like to…
4469528,94,690.93,692.8,1,ever quarter to be mentioned in some of…
4469528,95,693.13,695.42,1,What our agricultural services are doing.
4469528,96,695.73,699.61,1,Here in this page we're reflecting the two field on Agrifi.
4469528,97,700.0,707.6,1,Uh field inaudible owns fifty point one percent And lets see what is the common satisfaction status.
4469528,98,708.02,711.88,1,This company became the first of the country by far.
4469528,99,712.29,732.16,1,Commercializing the grains inputs future inaudible services so this company that today this year surpassed six point four percent uh we can see the breakdown of uh what is our participation on the on the on the corn wheat and soy beans.
4469528,100,732.44,757.5,1,This company became by more than two million tons bigger than the competitors and this is really making a gain the e the eft eft e b t Evolution we see that uh we are achieving close to fifteen million dollars record of the company coming five six years ago close to break-even so this company is becoming relevant to Cresud.
4469528,101,758.01,772.05,1,i'm to give an idea of this company that has close to zero debt went to the market and raised twelve point three million dollars at a zero interest rate through the local capital market in two years period.
4469528,102,772.16,776.12,1,So this will be for the investment in fixed asset and working capital.
4469528,103,776.12,788.53,1,But this company is mainly employees this year is passing more employees than Cresud feel it's close to three hundred employees Chris with agriculture in Argentina is something like that.
4469528,104,788.82,797.05,1,This company's is pure services to farmers from the input to the experts from the commodities and the specialities.
4469528,105,797.38,801.97,1,This company is growing not only in Argentina they gaining their expansion in the region.
4469528,106,802.33,805.86,1,Growning to the inputs to the rest of South America.
4469528,107,806.0,809.45,1,In the outward it's beginning in Brazil through Filho in Brazil.
4469528,108,809.77,812.86,1,So this company is beginning to be very inaudible onto our strategy.
4469528,109,813.43,819.32,1,And on the other slide in the right we can see the evolution of Agrifi were pursuit stake is twenty percent.
4469528,110,820.0,828.72,1,Agrifi not only expanding to Argentina but Uruguay Brazil Bolivia Paraguay Chile and going to Columbia.
4469528,111,828.83,833.37,1,So growing in revenues growing the last year in eighty seven percent.
4469528,112,833.59,836.77,1,They give him the first transaction of farmers in the…
4469528,113,836.98,840.3,1,This is the A-commerce for the agriculture business.
4469528,114,840.51,843.03,1,And this is the leading country in the region.
4469528,115,843.46,848.84,1,With annual basis of thirty one million per per participants with a monthly contacts.
4469528,116,849.4,851.5,1,Finishing a capital race this stage.
4469528,117,851.77,854.71,1,Raising more capital to expand information.
4469528,118,854.86,858.58,1,So this is becoming the marketplace of the agriculture business.
4469528,119,858.77,861.82,1,So the two were in lot in the whole region.
4469528,120,861.95,866.53,1,we're seeing much more result of Cresud through these two companies.
4469528,121,867.33,873.14,3,Thank you Alejandro good morning everyone.
4469528,122,873.55,884.98,3,If we move to page seven we can see the different performance of our segments in the Yuban side through our participation in Ilsa.
4469528,123,885.54,902.76,3,Our shopping malls we are happy that for first time in the last one year and a half we are running without restrictions that uh all the pandemic restrictions were clear by the inaudible So now we can run on the normal uh on the normal operation.
4469528,124,903.28,914.63,3,We can see that after the affect of the pandemic we have an occupancy of almost ninety percent if we leave aside the of Valerela that left the country.
4469528,125,914.78,919.14,3,We have ninety four point three percent the acute policy is grouwing.
4469528,126,919.48,924.79,3,Quarter by quarter so we expect to have better numbers by going forward.
4469528,127,924.79,935.66,3,When we see the real sales of course when we compare with the previous year now the operation was closed we see uh uh a inaudible number three hundred and twenty two percent above last year.
4469528,128,935.98,938.07,3,When we compare with pre-pandio-
4469528,129,938.11,938.43,3,oh.
4469528,130,938.43,949.28,3,So we help to to see better numbers going forward as well.
4469528,131,951.92,958.52,3,For those at the offices we remain with the same size of the portfolio.
4469528,132,958.55,963.67,3,Size of the portfolio inaudible 114.000 square meters.
4469528,133,963.67,973.22,3,After selling some properties And with in our relation of Catalinas building that we did during the December.
4469528,134,975.77,979.24,3,The Cubans say service levels of seventy seven point nine percent.
4469528,135,979.24,985.83,3,The average rent per square meter remains stable at the levels of twenty five percent for square metter.
4469528,136,986.25,992.42,3,We saw companies are back to the officers with a inaudible morality.
4469528,137,992.42,997.6201,3,But our operation never close in the in the office portfolio.
4469528,138,997.96,1009.55,3,Uh after the closing of the quarter we announced a new sail of some Florest of the two hundred and sixty one inaudible building.
4469528,139,1009.92,1020.59,3,We saw three floors for thirty two million dollars um beut we already collected all the inaudible on the way here are you saying that moeey who relvelas the leve.
4469528,140,1020.59,1030.5601,3,Uh inaudiblehotels they from inaudiblein Argentina just opened for foreigners in November.
4469528,141,1030.5601,1043.97,3,In the city of inaudible we're really affected by this situation in the south of the country since the local started traveling around their country they're brave even the inside shower was very good.
4469528,142,1044.78,1049.8101,3,And we hope to see the recover in the city of inaudible going forward.
4469528,143,1050.54,1065.5,3,Uh one important announcement on Ilsa side was the announcement of the merge or the proposal of the merge that was ounch of something in September.
4469528,144,1065.83,1074.1799,3,Uh we should call for the shareholders meeting that will take place on December twenty two.
4469528,145,1074.45,1083.4299,3,So after this they are If the merch sis approved inaudible will reuse the stake in Urss from sixty two percent…
4469528,146,1083.4301,1087.2999,3,This is cuz we don't hany issuest.
4469528,147,1087.5601,1096.02,3,This is because we will issue shares for minorities shareholders of years of shats.
4469528,148,1100.35,1106.45,3,Going to our final sheet and the results of the quarter in page nine.
4469528,149,1106.75,1123.7999,3,We can see that we are finishing the quarter with a gain of two point eight million Peeoz compared with eleven point four billion peso last year inaudible two million pesos against four point four billion pesos last year.
4469528,150,1124.02,1128.1201,3,We have here several different drivers.
4469528,151,1128.3101,1135.6599,3,If we see on the left side in the agribusiness we have results that are in line with a previous year.
4469528,152,1136.23,1147.4801,3,We are finishing with an operating income of almost two point three million pesos and that's the same number last year we will see more details in the in the next page.
4469528,153,1147.84,1158.12,3,In the Yuban business we are showing a loss of four point six million pesos against a important gain of thirty five point one million pesos.
4469528,154,1158.59,1162.6599,3,Last year this is related to the change in the fur value.
4469528,155,1162.6899,1175.75,3,If you see in line six there you have the results that last year we posted a gain of thirty six million pesos and this year a loss of six point four million pesos.
4469528,156,1176.14,1180.9399,3,This is related to the macro economic drivers of Argentina.
4469528,157,1180.9399,1186.72,3,We are running our properties basically at Dollar chance similar with the previous quarter.
4469528,158,1187.12,1197.4199,3,But when we convert that into pesos and then compare with inflation inflation was let us hope nine percent during the quarter.
4469528,159,1197.64,1204.2,3,And the evaluation of the official exchange rate was only three percent of or the inaudible swap was seven percent.
4469528,160,1204.52,1209.9299,3,So that effect generate losses in pesos terms in the balance sheet.
4469528,161,1211.58,1223.1,3,Um so we can move to the next page page inaudible that here we have the great inaudible segment.
4469528,162,1223.48,1226.26,3,We can see very good results of the agribusiness.
4469528,163,1226.38,1235.46,3,Um we campaign different with the previous year was the sugar cane line line four.
4469528,164,1235.88,1241.8199,3,That this is related to better price um um um better production so…
4469528,165,1242.99,1248.4,3,Also adjusted by inflation we have a much better gain than the previous year.
4469528,166,1248.87,1251.3101,3,And then in the rest of the land…
4469528,167,1251.35,1262.15,3,Lines we are similar with the previous year the first quarter is not the most inaudible on quarter for grapes um so we will see the results going forward.
4469528,168,1262.1801,1274.0,3,In the capital we have the fact of inflation that price is adjusted inaudible inflation so we are recognizing a loss here but after the quarter we see a uh the increasing prices of a…
4469528,169,1274.0,1277.1901,3,where will we go in the following quarter.
4469528,170,1278.08,1288.7599,3,And the results of inaudible as Alejandro mentioned it was very good results so we we keep increasing the inaudible gap of that segment.
4469528,171,1289.83,1299.0699,3,inaudible farmer says all that inaudible that Alejandro mentioned will be recognized in the balance sheet probably in the next quarter.
4469528,172,1299.36,1300.9801,3,But will inaudible in steps.
4469528,173,1301.23,1303.8199,3,But we will see better results going forward.
4469528,174,1303.8199,1322.7,3,In the previous year we we have again related to inaudible some- some farms that we sold are payable at max of soy beans so we last year also the increasing prices we see recovery in that line and that that doesn't happen this quarter.
4469528,175,1323.53,1325.09,3,Regarding the Yuban segment.
4469528,176,1325.54,1327.5599,3,Here is more difficult to compare.
4469528,177,1327.5601,1334.14,3,We are comparing with an operation in the malls that was closed uh uh during the previous year.
4469528,178,1334.29,1338.7899,3,So here you can see that last year we inaudible that loss.
4469528,179,1339.08,1353.97,3,This year we are recovering with almost normal operation in terms of revenues we'll have some concessions but going forward that uh that will disappear so we are now running that complete normal operation.
4469528,180,1354.5,1391.5601,3,In the case of the offices we seeing stable results here we have different drivers on increasing score meals because of the inaudible and some that will increase because of the inaudible And the hotels with inaudible again positive numbers uh and inaudible development during the quarter that was now significant inaudible In page eleven we see the uh the other important effect that we have in the financial statements.
4469528,181,1391.5601,1403.3101,3,We have a net financial results of three million pesos positive against a loss last year of three point nine million pesos of loss.
4469528,182,1406.15,1428.7101,3,Um the recent theory is basically the facts and we see last year we have uh real evaluation of zero point four percent inaudible evaluation of eight point one percent and this quarter we have a nominal evaluation of three point two and appreciation in real terms of five point six percent.
4469528,183,1428.89,1455.2999,3,That generate that when we value our debt in dollars into pesos we are recognizing again inaudible line to the next exchange inaudible Uh finally in page twelve we have the breakdown inaudible and um that remain stable compared with the previous quarter.
4469528,184,1455.54,1476.8099,3,What we did during the quarter was to issue around sixty million dollars in the local market through two different transactions one was related to the central bank regulation that force companies to refinance part of the debt in order to have access uh to buy dollars.
4469528,185,1477.73,1482.23,3,So we did the transaction very successfully in July twenty twenty one.
4469528,186,1482.5699,1497.3099,3,And then in September twenty one we issued forty one point eight million dollars uh to refinance uh a bond that that expired in December at three point five percent interest rate that will will…
4469528,187,1497.47,1500.98,3,with a maturity in December twenty twenty four.
4469528,188,1501.85,1511.03,3,Uh last week we also announced that related to our bond that expire in December twenty one the fifty three…
4469528,189,1511.1,1513.34,3,fifty three point six million bucks.
4469528,190,1513.85,1529.6,3,We call that bond uh in advance so we will cancel this week uh all the amount in order to reduce our exposure to dollars and also to use the leverage.
4469528,191,1531.15,1537.0601,3,So with this we finish the formal presentation now we open the line to receive your questions.
4469528,192,1537.1899,1538.02,3,Thank you very much.
4469528,193,1538.88,1541.13,0,Thank you nows the time for the Q and A session.
4469528,194,1541.16,1546.9701,0,If you got uh if you have a question you can use the the chat or uh the bottom label raise hand.
4469528,195,1547.04,1549.63,0,we'll take the questions in the order we receive them.
4469528,196,1562.5699,1566.5,0,If there is a question you can use the chat or the raise hand.
4469528,197,1574.21,1579.0,0,If there are no questions we conclude this presentation and we turn back to Mr.
4469528,198,1579.0,1582.13,0,Alejandro Elsztain C E O for his closing remarks.
4469528,199,1583.13,1584.0901,1,Thank you Santi.
4469528,200,1584.12,1598.9099,1,Uh we are beginning uh very good season big size inaudible uh having capital for buying more land in the region too after the capital increases that we did last year.
4469528,201,1599.3199,1607.08,1,Um we are growing uh so we think that's it's a very good mine too for agricultural division.
4469528,202,1608.66,1614.89,1,Prizes have been much better terms than in the past and the margins are much higher.
4469528,203,1615.1899,1624.4099,1,So we expect a very good season and in the combination of real estate having closed in the first quarter two big transactions.
4469528,204,1624.73,1634.3,1,Give us a big really good forcast of the annual result for the agricultural business operation.
4469528,205,1634.6,1647.71,1,And in the case of the services in the two cases in the field inaudible having the capital and the group inaudible its a team of more than three hundred employees too.
4469528,206,1648.11,1652.7101,1,So we have the challenge of developing that e-commerce in the region.
4469528,207,1652.95,1656.38,1,So really we are optimistic on the twenty one twenty two now.
4469528,208,1656.95,1662.2899,1,So I would like to thank everyone and deserving to everyone have a very good week.
4469528,209,1662.7,1663.6899,1,Thank you very much.
4469590,0,4.88,10.55,0,Good day and welcome to today's third quarter twenty twenty one financial results conference call.
4469590,1,11.02,14.13,0,At this time all participants are in a listen only mode.
4469590,2,14.49,23.64,0,There will be presentation followed by question and answer session at which time if you wish to ask a question you will need to press star and one on your telephone keypad.
4469590,3,24.19,31.99,0,I also must advise you that this conference is being recorded today and I would now like to hand the conference over to your first speaker today Arman Arutyunian.
4469590,4,32.81,33.13,0,Thank you.
4469590,5,33.13,34.01,0,Please go ahead sir.
4469590,6,36.17,36.57,1,Thank you.
4469590,7,37.64,43.13,1,Uh hello everyone and welcome to HeadHunter Group third quarter two thousand twenty one earnings call.
4469590,8,43.96,55.23,1,Joining me today to discuss our results are Mikhail Zhukov our Chief Executive Officer Dmitry Sergienkov our Deputy Chief Executive Officer and Grigorii Moiseev our Chief Financial Officer.
4469590,9,56.23,61.98,1,Before we begin we would like you to remind that today's discussion will contain forward-looking statements.
4469590,10,62.66,73.26,1,Actual results may differ materially from the results predicted or implied by such statements and forward-looking statements made today speak only to our expectations as of today.
4469590,11,74.02,79.39,1,We undertake no obligation to publicly update or revise these statements.
4469590,12,79.98,90.25999999999999,1,For a discussion of some of the risk factors that could cause actual results to differ please see the Risk Factors section in our most recent Annual Report on Form twenty f filed with the S E C.
4469590,13,91.18,95.04,1,During this call we'll we will be referring to some non i f r s financial measures.
4469590,14,95.25,99.6,1,Uh these non i f r s financial measures are not prepared in accordance with i f r s.
4469590,15,100.48,113.3,1,A reconciliation of the non i f r s financial measures to the most directly comparable IFRS measures is provided in the earnings release we issued today and the slide presentation each of which is available on our website at investor hh ru.
4469590,16,114.6,117.51,1,Now I'd like to call uh to turn the call over to Mikhail.
4469590,17,122.85,124.09,2,Thanks for joining us today.
4469590,18,124.7,129.52,2,This was an exceptionally solid quarter for our product and business development.
4469590,19,130.01,143.38,2,Uh Dmitry and Grigorii will walk the this through in detail later on but we have yet again managed to double our revenue base compared to twenty twenty and hit all major business KPIs.
4469590,20,144.38,155.64,2,As our user base strikes new historical records it's essential to stay laser-focused on product innovation and adaptation of our platform to distant customer segments.
4469590,21,156.7,164.21,2,One of our key product priorities continues to be seamless and enjoyable experience for non-recruitment professionals from SMAs.
4469590,22,165.55,173.74,2,This customer category has been the key driver of our business growth and foreign candidate migration to mobile devices.
4469590,23,174.03,177.02,2,We are now observing similar trends in that area.
4469590,24,177.65,185.4,2,That is why we decided to come up with fully reworked employer mobile application built on predictive interfaces.
4469590,25,185.86,203.29,2,It's still early to draw any strong conclusions but at the moment we see that the key conversions to use a target actions in the new app have improved by ten percent to twenty percent thereby delivering high recruitment efficiency and business results for our clients.
4469590,26,203.97,217.92,2,On the job seeker sites we launched wide experiments with employer review functionality integrated with our strategic partner Dreamjob and that showed very encouraging engagement from both candidates and employers.
4469590,27,218.76,234.88,2,Even though it's in experimental phase yet uh circa fifteen percent of our vacancies already have cooperator use and we plan to scale the functionality across uh the entire customer base in the next few quarters.
4469590,28,235.45,250.22,2,On the investment side we have finally made reviews YouDo and now we're institutionally ready to move along our joint strategy in a self-employed market where we continue to see major growth opportunities for us.
4469590,29,250.74,255.59,2,Now I'll turn it to Dima to walk you through the key highlights of the third quarter.
4469590,30,255.69,256.19,2,Thank you.
4469590,31,257.74,258.56,3,Thank you Mikhail.
4469590,32,259.52,260.44,3,Uh good afternoon.
4469590,33,260.56,262.2,3,Uh thank you for joining us on this call.
4469590,34,262.92,273.71,3,Uh this quarter our revenue was four point seven billion RUB and we managed to sustain as Mikhail said a triple-digit revenue growth despite a much higher comparison base than in in second quarter.
4469590,35,274.45,276.59,3,Uh market conditions remained very strong.
4469590,36,276.67,285.05,3,We have uh significantly expand our business across the key strategic areas including acquisition of small and medium businesses and monetization of key accounts.
4469590,37,285.7,293.81,3,Uh despite a significant increase in marketing spend our other cost items are significantly behind the top-line expansion leading to elevated profitability.
4469590,38,294.4,298.37,3,In q three our adjusted EBITDA margin came at uh sixty point four percent.
4469590,39,299.16,304.27,3,This year we follow conservative capex policy resulting in strong cash generation for shareholders.
4469590,40,304.48,308.83,3,Our capex in q three as a percentage of revenue came in just circa one percent.
4469590,41,309.74,311.89,3,Uh in terms of performance by operating segments…
4469590,42,312.56,320.68,3,In Small and Medium Accounts revenue increased by one hundred six percent year-on-year driven by both increase in number of paying customers and A R P C growth.
4469590,43,321.34,326.83,3,Acquisition of new clients explained circa fifty six percentage points of revenue growth in small and medium segment.
4469590,44,327.55,333.89,3,Our total customer base reached four hundred fifty thousand clients and this quarter already exceeding full-year twenty twenty.
4469590,45,334.89,341.35,3,In Key Accounts segment uh average consumption growth and monetization initiatives were the key drivers to our strong performance.
4469590,46,341.93,352.14,3,Notably average check in this segment increased by seventy one percent year-on-year and that is largely explained by new monetization model for subscriptions gaining pace across the customer base.
4469590,47,353.23,355.54,3,Geographically revenue from Moscow and St.
4469590,48,355.54,366.1,3,Petersburg increased by ninety eight percent year-on-year while revenue from other regions of Russia went up by one hundred ten percent which is totally in line with our expansion strategy in uh Russian regions.
4469590,49,367.28,371.24,3,Uh product dynamics this quarter is somewhat similar to what we've seen in second quarter.
4469590,50,371.7,377.46,3,Uh job postings remained the fastest growing area on the back of increased consumption in Small and Medium and Key Accounts.
4469590,51,378.09,384.9,3,In this uh competitive environment clients utilized advertising tools more intensively leading to ever-growing consumption per client.
4469590,52,385.57,389.46,3,As a result the total number of vacancies on the platform reached historical record to one.
4469590,53,389.66,392.93,3,one million of which over one million are paid vacancies.
4469590,54,394.17,407.7,3,A CV Database Access and Bundled Subscription demonstrated ninety four percent and eighty nine percent growth year-on-year respectively as you can see the growth in subscriptions is uh kind of converging with leasing products thanks to monetization enhancements of the former.
4469590,55,409.05,420.09,3,Apart from our core products we are very satisfied with the solid dynamics of our value-added services including recruitment automation branding products our performance-based solutions ClickMe and Virtual Recruiter.
4469590,56,420.89,435.36,3,Skillaz demonstrated yet another strong quarter of customer base expansion with revenue came close to three hundred RUB uh inaudible million RUB representing uh uh two hundred percent growth year-on-year and reaching EBITDA break-even level first time in company history.
4469590,57,436.48,443.4,3,Um this group of value-added services generated over oh dot five billion revenues in q three yielding growth of one hundred thirty six percent.
4469590,58,443.87,449.39,3,th this just underscores market openness for innovative HR tech solutions in today's uh challenging environment.
4469590,59,450.41,453.2,3,Now turning to our full-year twenty twenty one outlook.
4469590,60,454.03,458.64,3,Uh this year as you understand is particularly difficult to make uh precise projections.
4469590,61,459.05,463.45,3,Uh from the one hand our business performance exceptionally strong and market backdrop is bit robust;
4469590,62,464.17,467.81,3,but on the other hand the pandemic stat in Russia is far from being stable yet.
4469590,63,468.76,482.38,3,Uh taking those factors into consideration we've decided to upgrade our full-year twenty twenty one outlook to eighty one eighty four percent revenue growth range indicated over uh fifteen billion revenues uh for HeadHunter Group inaudible.
4469590,64,483.13,486.03,3,Now here's Grigorii to talk about our profitability and cash flow metrics.
4469590,65,486.47,491.31,4,Yeah thanks Dima and um good afternoon everyone.
4469590,66,556.74,566.15,4,Historically over the last two years margin in the fourth quarter was four to one oh percentage points lower compared to the third quarter.
4469590,67,567.6,581.78,4,Our total operating expenses excluding depreciation and amortization were circa two billion RUB in the third quarter of twenty twenty one which was the increase of sixty nine point five percent compared to the third quarter of twenty twenty.
4469590,68,582.68,597.16,4,Adjusted for equity-settled awards s p o and m and a-related costs operating expenses were around one point nine billion which was an eighty five percent increase compared to the third quarter of twenty twenty.
4469590,69,598.15,603.85,4,And let me briefly discuss the uh growth drivers in the key expen expense markets.
4469590,70,604.94,612.37,4,First of all personnel expenses adjusted for equity-settled awards and SPO-related costs increased by sixty one percent year-on-year.
4469590,71,613.02,615.73,4,About one-third of this growth is explained by consolidations of Zarplata and Skillaz.
4469590,72,618.32,633.45,4,The other factors were the increase in our headcount by circa fifteen percent or a hundred twenty six people over the last twelve months and increase in our sales team bonuses on the back of exceeding revenue targets and wages inflation.
4469590,73,634.45,655.09,4,As a percentage of revenue personnel expenses excluding equity-settled awards and SPO-related costs have decreased to nineteen point three percent in the q three of twenty twenty one from twenty four point three percent in the third quarter of twenty twenty improving margin by uh five percentage points.
4469590,74,656.56,669.08,4,We think that in uh in the fourth quarter we'll sustain this operating leverage and personnel expenses will be the key contributor to our margin expansion in the full-year twenty twenty one.
4469590,75,670.78,685.26,4,Speaking of personnel expenses our equity-settled awards increased to one hundred thirty six million RUB in the third quarter of twenty twenty one compared to fifty six million for the third quarter last year or by circa eighty million.
4469590,76,714.42,723.86,4,The increase in marketing was mostly due to our decision to increase spending on both performance and brand awareness marketing in twenty twenty one on the back of the increase…
4469590,77,742.03,752.21,5,Going forward for the full year twenty twenty one we think that the operating leverage potential in this bracket will be offset by our decision to increase spending.
4469590,78,754.75,764.37,5,On the general and administrative expenses adjusted for S P O and MNA-related costs increased by ninety percent compared to the third quarter of last year.
4469590,79,765.16,782.43,5,The key drivers of this growth were the additional inaudible which contributed almost half of the growth in the bracket as well as an increase in subcontractor costs in our Russia segment due to the increase in revenue from other related services and the increasing professional services.
4469590,80,783.43,795.88,5,As a percentage of revenue other general and administrative expenses adjusted for s p o and MNA-related costs they're eight point four percent relatively flat compared to nine percent in the third quarter of twenty twenty.
4469590,81,797.63,807.21,5,In the full year twenty twenty one results we expect this expense bracket to remain relatively flat as percentage of revenue compared to last year.
4469590,82,808.25,821.94,5,Now moving on to other key indicators our capex in the third quarter of twenty twenty one has decreased to forty nine million compared to seventy million in the third quarter last year as we completed our most costly renovation project last year.
4469590,83,822.6,834.15,5,On the back of increasing revenue as inaudible said capex decreased to circa one percent of revenue in the third quarter this year compared to around three percent in the third quarter of twenty twenty.
4469590,84,835.48,847.89,5,The net worth in capital at the end of q three was negative five point one billion rubles compared to negative three point eight billion as of the end of twenty twenty and the change was primarily due to customer advances we received.
4469590,85,848.98,858.29,5,Income tax expense in the third quarter of twenty twenty one was five forty eight million compared to two hundred sixty four million in the third quarter of twenty twenty.
4469590,86,859.12,864.28,5,The increase was driven by the increase in revenues and consecutive increase in the taxable profit.
4469590,87,865.2,873.12,5,The effective tax rate in the q three was twenty three point seven percent compared to the thirty one point one in the third quarter last year.
4469590,88,873.69,882.29,5,This decrease was mainly attributed to a non deductible SPO-related expense last year not occurring in this third quarter.
4469590,89,883.39,887.29,5,Now turn into cash generation methods in the third quarter of twenty twenty one.
4469590,90,887.6,899.02,5,We generated significant two point five billion rubles from appraisal activities compared to nine hundred and two million in the third quarter last year primarily driven by the increase in sales.
4469590,91,900.83,911.02,5,We generated sixteen million rubles from investment activities compared to fifty million used in the third quarter last year mainly on the back of the increase in interest income on cash deposits.
4469590,92,912.21,929.68,5,In financing activities we used two point four billion rubles in the third quarter twenty twenty one most efficient way and earlier announced dividends for the year twenty twenty compared to two point one billion we used on third quarter last year which was also mostly attributable to a dividend payout.
4469590,93,930.61,940.85,5,Our net debt decreased from five billion as of the twenty twenty year round to two point three billion as of the end of q three twenty twenty one primarily due to the increase in cash.
4469590,94,941.84,956.28,5,On the back of this increase in the debt and the increase in adjustment to be done our leverage is now zero point three times adjusted EBIT compared to one point two times adjusted EBIT as of the twenty twenty year end.
4469590,95,958.23,968.2401,5,Finally starting from October twenty twenty one we are making inaudible repurchases of our EDRs through our broker in a forum on a Domino's buyback program.
4469590,96,969.26,980.83,5,The program stipulates that during nine months until June twenty twenty two our broker should purchase EDRs for approximately twenty seven million dollars in more or less equal daily installments.
4469590,97,981.69,995.98,5,Accordingly as of November eight twenty twenty one the most recent date of the brokers report obtainable when we prepared this release we have repurchased twenty sorry fifty two thousand EDRs for circa three million dollars.
4469590,98,997.26,1004.58,5,This concludes our presentation of the results of the third quarter of twenty twenty one and we're now opening the floor to your questions.
4469590,99,1004.87,1005.25,5,Thank you.
4469590,100,1007.85,1008.34,6,Thank you.
4469590,101,1008.34,1010.73,6,we'll now begin the question and answer session.
4469590,102,1010.99,1019.55,6,And as a reminder for those who want to ask a question just press star and one on your telephone keypad and wait for your name to be announced.
4469590,103,1040.47,1042.1799,6,We have questions that came through.
4469590,104,1042.6801,1047.79,6,The first question comes from the line of inaudible from Goldman Sachs your line is now open please go ahead.
4469590,105,1053.13,1055.4401,7,Yes thank you very much for the call couple of questions.
4469590,106,1055.4399,1059.61,7,So firstly how do you directionally think over twenty twenty two budgeting?
4469590,107,1059.95,1066.83,7,Obviously I know it's probably too early but what are the key moving factors to keep in mind over the growth and margins for the next year?
4469590,108,1067.33,1068.99,7,Obviously the base is quite high.
4469590,109,1068.99,1079.11,7,But uh what are the key drivers that will be having a lasting effects in the medium term and maybe how would you split them uh for the next year between volumes and pricing?
4469590,110,1080.23,1087.92,7,And my second question would be with regards to the mobile product for employers that can you elaborate what are the user cases there?
4469590,111,1088.27,1089.3101,7,How popular is that?
4469590,112,1092.76,1097.39,7,And maybe broadly uh your other product initiatives that are in the pipeline?
4469590,113,1106.95,1107.15,7,Thank you.
4469590,114,1107.15,1108.04,6,Sorry inaudible go ahead.
4469590,115,1109.09,1118.6699,5,Yeah sure I can quickly answer the first part of the first question on the on the budgeting and ho how we think about next year.
4469590,116,1119.13,1130.87,5,Obviously you you're not going to be unduly surprised that in this point of time it's quite hard to give a precise or official guidance for next year.
4469590,117,1131.04,1145.89,5,And there are definitely certain moving parts mostly with regard to the kind of customer base growth next year will be that will be a function of overall mockery level market situation development.
4469590,118,1146.78,1161.4199,5,Uh I think we are having pretty at this point of time if you look into the two thousand twenty two we have our quite optimistic view on health we're gonna mix between monetization and then the customer base expansion.
4469590,119,1162.52,1175.88,5,On monetization it's it's more kind of visible already and predictable because there are certain initiatives that already kind of kicked in this year and we can more or less precisely calculate the impact for next year.
4469590,120,1176.8,1185.6599,5,Obviously one of the major initiatives would be the kind of the continuous uh rollout our uh new subscription model.
4469590,121,1186.26,1191.4301,5,As we said this year this product has been performing exceptionally well.
4469590,122,1191.8101,1212.1801,5,And uh actually above our original expectation the guidance we gave uh and I think next next year therefore we also kind of upgrading our expectations we believe that this one single kind of monetization is that could define after seven percent of revenue growth next year.
4469590,123,1212.8199,1223.55,5,And on on top of that you have the other pricing initiatives we're gonna inflate prices starting from January not April like this year.
4469590,124,1223.55,1225.9,5,So we'll be some timing difference effect as well.
4469590,125,1226.54,1237.37,5,And so the price increase we expect at least ten percent growth and subscriptions in bigger packages of job postings we expect the sort of twenty percent growth plus.
4469590,126,1237.37,1243.1699,5,And of course all these these components will go on top of those uh I already mentioned in the subscription model.
4469590,127,1243.75,1251.77,5,And we actually made good progress upgrading our back end infrastructure uh and business logic for monetization this year.
4469590,128,1252.46,1268.14,5,And next year we are gonna be going more in depth on the differentiation by professions roles regions that should also give us the incremental inaudible growth and also may actually help us to gonna differentiate between small medium businesses and key accounts.
4469590,129,1268.14,1271.3501,5,So on monetization is it looks very robust next year.
4469590,130,1271.91,1273.03,5,On a customer base.
4469590,131,1273.03,1276.27,5,I think it's again it's a bit probably premature to guide.
4469590,132,1276.27,1282.29,5,At the moment it looks quite strong but again these situations evolve quite quickly so it'll be hard.
4469590,133,1282.71,1289.75,5,And I will defer to command on expenses to inaudible.
4469590,134,1289.75,1311.48,6,Yeah uh from me we are kinda in the middle of the budget session right now and as we as we discuss we definitely see uh uh several areas for growth.
4469590,135,1346.88,1363.4401,6,Uh what I can say is that the budget will definitely contain uh certain investment components in terms of uh in terms of the expenses.
4469590,136,1364.01,1371.54,6,I think mmh I think also important to kind of understand again that the twenty twenty one was the year of very steep revenue growth.
4469590,137,1371.5699,1377.3201,6,And sometimes in some areas we struggled for resources.
4469590,138,1377.6,1386.88,6,So probably uh kind of uh not the best reference points as well uh for the future planning.
4469590,139,1400.4,1408.73,5,I think we can move on to the the second question from inaudible on our on our new mobile product.
4469590,140,1409.52,1420.2101,5,Um I could say that we historically were a little bit dismissive on kind of mobile platform for employers cause we saw very limited use cases.
4469590,141,1420.84,1438.6699,5,And most of our most of our clients extra prefer to use either mobile uh mobile interface wire or actually just wired mobile devices but not in in any app functionality or they just continue use desktop.
4469590,142,1438.67,1443.38,5,So historically we didn't invest much in that area and…
4469590,143,1451.63,1460.3,8,we we saw some pick up in in demand in usage and uh predominantly from overseas small and medium businesses from non uh recruitment professionals.
4469590,144,1460.74,1483.11,8,And this is how actually we we designed it this new app so that that's clearly designed for a very uh easy and simplified uh workflow with the kind of call to action approach when we order predictive actions when you don't need to fill out the details and the machine using some machine learning instruments and back-end are trying to kind of predict these answers.
4469590,145,1483.45,1485.97,8,And then they're gonna minimize the questions we ask.
4469590,146,1486.39,1489.98,8,So that that that's clear target that that they uh estimate usage.
4469590,147,1490.67,1502.4399,8,Uh with the same time we we try to kind of uh factor in the incorporate the functionality that that is usually very popular among the key accounts as well.
4469590,148,1502.55,1523.0,8,Like for example working with uh with archive and the integrations with their e-tiers and uh for example communication platforms that we introduced in our job-seeker uh platform earlier this year we actually uh did the same for our employer app uh it's cause it is becoming kind of core from the functionality.
4469590,149,1523.88,1543.11,8,And also our belief that our new app especially on Android platform going to be much more stable and uh the kind of old metrics that we collected over the last uh one and half months since the launch of the Android platform shows us that uh that's actually the case.
4469590,150,1543.83,1545.2999,8,And we look at the…
4469590,151,1545.3,1562.13,8,Again it's it's it's early to draw some small conclusions yet I don't there's a lot of product works required for this new app uh but uh we already see uh up to twenty percent improvement in in conversions especially in registration in uh purchases et cetera.
4469590,152,1562.62,1571.4299,8,And for small and medium business support we believe that that should be quite helpful for for all key k key metrics and efficiency level of the platform will grow for the for this category.
4469590,153,1579.25,1586.2101,10,And the next question comes from uh Ivan Kim from Xtellus Capital your line is now open please go ahead.
4469590,154,1658.37,1675.13,12,Um the first uh on the November lockdown um no of course we saw a deceleration in uh in billing and with billings and bookings so that week of uh non-working days luckily was just uh just a week for the majority of regions.
4469590,155,1675.55,1688.77,12,Of course in certain certain regions uh extended the term so we saw certain under performance in uh in the shorter term products especially short subscriptions more packages of job postings so…
4469590,156,1689.88,1700.4801,12,Telegraph day on in rough rough terms uh we lost that week circa twenty five percent uh percentage points of growth compared to the previous the week before the lockdown.
4469590,157,1701.1899,1711.0,12,Uh that is clearly uh a better picture that we observed uh last year when we're in a constant non-working mode right?
4469590,158,1711.0,1712.49,12,In June and in in May.
4469590,159,1713.29,1717.4301,12,And that that just shows that the business has been uh adapted to a large extent.
4469590,160,1717.4301,1720.8101,12,It's been operating in this environment for more than a year already.
4469590,161,1721.05,1727.9301,12,And um especially in key accounts we saw very little uh disruption uh and we…
4469590,162,1727.96,1733.76,12,Most of our uh clients and our big enterprises just continued uh operations as normal.
4469590,163,1734.7,1744.2999,12,But of course in uh in small medium businesses there was enough impact um but it was n n not as severe as as we saw it in in previous lockdowns.
4469590,164,1746.2,1758.2,12,Um that's on the on the uh lockdown uh I think on the fourth quarter otherwise it's yeah this is so far quarter to date performance is quite quite encouraging.
4469590,165,1759.04,1763.0701,12,Uh but no one knows actually what to expect in the next uh one month and half right?
4469590,166,1763.1,1770.21,12,So the the risk of uh uh restrictive measures uh is quite high and uh it's not binary.
4469590,167,1770.29,1772.91,12,It's not that it is uh either there are or not.
4469590,168,1773.08,1777.9199,12,it's It's certain regions they're talking some local decisions so that should have im impact on certain regions.
4469590,169,1778.51,1782.84,12,As such it's h it's quite hard to predict exact uh impact in first quarter.
4469590,170,1783.9399,1787.6899,12,On the Skillus uh the fourth quarter traditionally is the strongest quarter.
4469590,171,1788.02,1802.9,12,Uh you you expect that this uh rush counters the design uh they tend to be kind of signed uh that they kind of last last minute uh when the the budgets allocated to the department kind of go off.
4469590,172,1803.76,1809.77,12,And uh it's story the same two three years uh in a row the fourth was was strongest.
4469590,173,1810.62,1824.4601,12,Uh generally we believe that this should post uh circa four hundred million revenues this year um but there are certain big contracts um with very large enterprises.
4469590,174,1825.0601,1830.23,12,They're underway uh that actually may kind of be a slim factor here right so of course anxiously.
4469590,175,1830.8199,1845.28,12,Next uh next quarter uh therefore it's I think Skillus at this point of time uh when they acquired new customers uh quite intensively they're a bit of a less kind of predictable and um compared to inaudible.
4469590,176,1846.5601,1847.65,12,But we expect a strong quarter.
4469590,177,1848.97,1875.22,12,And the the last one I think is is quite uh the right one it's exactly in line with our thinking that in in today's environment we see a lot of opportunities in in adjacent areas and many of them could be uh actually tackled kinda quicker in more efficient way via some small stage acquisitions um and uh actually we're currently active in on the search out for this type of…
4469590,178,1875.6801,1878.6899,12,That is why uh Skillus Trimjob uh Usel et cetera.
4469590,179,1878.73,1887.53,12,So we I would say we are guided on quite high uh like acquisitions uh will come over the next uh two three years pursuing these returns.
4469590,180,1888.25,1891.96,11,Hmm good thank you very much.
4469590,181,1894.88,1900.7,10,Thank you and the next question comes from the line of Luke Hobart from Morgan Stanley.
4469590,182,1900.7,1902.6001,10,Your line is now open please go ahead.
4469590,183,1938.16,1947.13,12,Um well regional business is performing uh stronger than in terms of uh growth than uh in the capital cities uh in Moscow and in St.
4469590,184,1947.13,1964.5099,12,Petersburg it's uh one one oh percentage growth and uh in particular in the Zaplat region and the Urals and Siberia it's one of the strongest uh areas where we have the probably the biggest market share even compared to Moscow.
4469590,185,1965.65,1986.89,12,We recently made inaudible and that actually kind of resulted in the qui quite astonishing fact that recently over over ninety five percent of all applications in uh in foreign language for example and so it's like the the whole market delivers just five percent if you take out the uh us and Zeporten.
4469590,186,1987.37,1990.37,12,So it's a very very strong uh strong regions.
4469590,187,1990.87,2005.4299,12,Also Zaplat is uh slightly underperforming HeadHunter and I think it we were always guided this because they're deprived of certain benefits of uh nationwide very assertive marketing that we are enjoying.
4469590,188,2006.1899,2010.4701,12,Therefore their revenue's not growing as fast as uh as HeadHunter's.
4469590,189,2010.47,2024.21,12,So we've kind of grabbing share from Zaplata but uh combined with Zaplata collectively we definitely in uh an ever strong position so and I think that that actually kind of inaudible a lot of inaudible potential as well for us.
4469590,190,2041.79,2042.96,12,Yeah your question is quite right.
4469590,191,2043.59,2060.45,12,Uh were we are I don't think I can give you the um uh kind of details by by marketing total or by segment because for kind of competition reasons we prefer not to go into the uh uh so much uh the detail right?
4469590,192,2060.49,2078.1699,12,But um what I probably could tell you is that um in uh in the second quarter this year and the third as well we are strengthening uh marketing and this um uh brand awareness for more sections uh outdoor campaign for instance.
4469590,193,2078.1699,2091.3599,12,And uh performance marketing uh uh as well um as we see uh kind of high demand for candidates uh and uh also on the back of kinda low activity of job seekers.
4469590,194,2093.3,2110.97,12,So we think it makes all the sense to um to uh spend more for audience acquisition to balance with demand uh for inaudible efficiency for customers who are essentially paying extra nowadays uh to get their recruitment going.
4469590,195,2110.97,2117.8298,12,Um so uh we are frankly increasing across across the board.
4469590,196,2118.79,2138.74,12,For instance we have a significant outdoor campaign in uh Moscow recently and we saw uh a sizable increase in uh top of mind brand awareness by thirty eight percent um for I'd say eight percentage points probably to uh six six percent.
4469590,197,2139.6799,2144.3,12,Um according to our last uh merger uh.
4469590,198,2144.3,2158.6699,12,We also see traffic going up at around uh between twenty and thirty percent as we increase more in digital in digital channels so um it's across the board and rather successful.
4469590,199,2171.73,2172.8301,15,Your line is now open.
4469590,200,2172.8301,2173.51,15,Please go ahead.
4469590,201,2174.75,2174.8701,16,Uh.
4469590,202,2174.8701,2175.1501,16,Yes.
4469590,203,2175.1499,2177.6001,16,Thank you very much for the opportunity to ask question.
4469590,204,2177.6299,2178.52,16,I have two please.
4469590,205,2178.9399,2179.1199,16,Uh.
4469590,206,2179.1201,2184.7,16,The first one uh could you please break down the revenue growth for fourth quarter of two thousand twenty one.
4469590,207,2200.0,2200.3,16,Uh.
4469590,208,2200.3,2206.0,16,If you could maybe comment on um how big do you see the total inaudible market opportunity here?
4469590,209,2206.52,2217.55,16,Uh like what's the uh opportunity now and uh how big could it become once the transition from the gray market to the legal one uh will occur?
4469590,210,2221.0701,2221.3101,16,Thank you.
4469590,211,2221.3101,2221.6301,17,inaudible.
4469590,212,2221.74,2222.4199,17,i'll handle both.
4469590,213,2223.02,2223.75,17,Um.
4469590,214,2223.78,2274.8298,17,On on on the first one uh if we try to decompose this uh the growth in in the third quarter a hundred three percent or in absolute terms two point four billion um yeah we can actually inaudible organic growth and kinda more sustainable organic right so uh in terms of inaudible we it is it is obviously it's arbitrary right cause it's it it depends on what inaudible your set is based from last year uh but we estimate that it's around fifteen percent of the a hundred three percent um which is equal to uh three hundred fifty million that is inaudible so the percentage is uh obviously going down compared to q two for obvious reason.
4469590,215,2275.73,2291.53,17,Then um more or less equal uh impact uh game or drive from inorganic growth around fifteen percent or three hundred fifty million uh that's our collect impact from inaudible consolidation this year.
4469590,216,2292.48,2306.8101,17,And then uh so effectively if you would take out this two buckets thirty percent then remaining seventy percent or one point seven billion rubles could be also broken into three major guiding group inaudible consideration.
4469590,217,2307.0601,2312.4199,17,First monetization second client based expansion and the third consumption growth right?
4469590,218,2312.9299,2326.4099,17,So the first uh explains circa forty percent of that one point seven billion uh that's monetization or client based inaudible and coupled with inaudible new subscription model.
4469590,219,2326.9199,2332.51,17,The key contributors are inaudible products performing exceptionally well this year.
4469590,220,2333.6299,2340.9099,17,Um then twenty five percent uh of one point seven billion relates to increased uh consumption of services.
4469590,221,2341.27,2350.5,17,That that's uh if impact of the market situation then labor force shortage and the general low candidate activity in the market.
4469590,222,2350.8799,2365.1899,17,Uh we discussed last time some part of it probably diminish over time so it's inaudible semi-sustainable uh cause we see that uh for example a small inaudible businesses they consume twice twice bigger uh product packages then we usually do.
4469590,223,2366.02,2381.3599,17,And the remaining thirty five percent is the the customer based expansion predominant to small medium businesses predominantly regions so that that inaudible our our marketing and investments and b two b channels our product adoption platform adoption et cetera.
4469590,224,2381.8999,2389.74,17,And uh that's the most encouraging number cuz it's just helping us to grow the base which we can monetize in uh in the future.
4469590,225,2390.49,2400.6101,17,So generally if you compare q two uh the inaudible the monetization sect uh went up the the other buckets uh more or less the same.
4469590,226,2402.8999,2435.8601,17,And the the second the second question was on inaudible economy uh yeah I think we we touched upon this uh but yeah inaudible um that generally we will see uh globally that the independence will inaudible workforce constitutes up to thirty percent or not up to on on average thirty percent uh of labor forces quite stable um measure if you look at so the inaudible including that unofficial uh gray market that's only fifteen percent.
4469590,227,2436.71,2466.7998,17,And uh of course the like ninety five percent of that uh fifteen percent uh currently in the gray zone and cause they are very limited and since it's created uh and upon the legislation change and inaudible we saw huge intake and the registration of uh like self-registered so we we believe at the moment there are uh inaudible around two million uh self-employed.
4469590,228,2467.5701,2477.1802,17,And we expect actually this number to grow uh say ten ten x up to twenty million and in the next three to five years.
4469590,229,2477.9099,2480.5901,17,So that that's a huge emerging market all right for us.
4469590,230,2481.3,2498.9602,17,It it's highly dynamic and uh not only uh the inaudible matter but also the business model that could be applied to matters cause it's uh if you compare results additional kind of permanent work it's much easier in this market to inaudible the transaction all right because it's more frequent frequent market.
4469590,231,2498.99,2501.99,17,It's it's quite similar to what we see in inaudible equipment.
4469590,232,2502.8301,2515.8801,17,And uh before they it's much easier to inaudible so it is very sticky potentially if if you are if you'll have it if you are successful in a inaudible especially big enterprises.
4469590,233,2516.5,2531.4099,17,And so that's our strategy together with uh inaudible um we kind of officially declared this uh strategic inaudible in June then we tried to kind of test this solution with uh with the clients.
4469590,234,2531.4099,2533.1501,17,Interaction was exceptional.
4469590,235,2533.8501,2542.23,17,So we decided to invest uh in inaudible as a kind of minority partner at this stage but of course it's a strategic type transaction for us.
4469590,236,2542.23,2547.24,17,We were having and securing all the necessary best best to control in future.
4469590,237,2547.24,2551.1799,17,You can consult it as business should it actually take off in the end.
4469590,238,2551.3401,2562.03,17,But we are very optimistic and it seems in the end it seems uh temporary market contingent market could be bigger in monetary terms than the permanent uh source of market.
4469590,239,2566.29,2566.9202,16,Thank you very much.
4469590,240,2566.98,2567.3999,16,Very clear.
4469590,241,2569.98,2573.1699,15,Thank you and uh no further questions have came through.
4469590,242,2581.51,2582.53,17,Yeah thank you operator.
4469590,243,2582.6001,2584.79,17,Um yeah there's just a few few remarks.
4469590,244,2585.3899,2591.8899,17,The first inaudible thanks for your participation uh this is the last uh quarterly call for for this year.
4469590,245,2592.04,2593.52,17,Eh time flies by quickly.
4469590,246,2594.3201,2603.3799,17,Uh needless to say that this has been an outstanding quarter for us in terms of financial results it's probably the best quarter we've had since we've gone public.
4469590,247,2604.2,2615.22,17,Uh it's really nice to see how a strategic execution of holding we we show just how we can really continue to grow clients while concurrently rolling out differentiated monetization.
4469590,248,2615.8899,2619.29,17,So it speaks of the inaudible of the inaudible of the market right?
4469590,249,2619.29,2623.8799,17,It speaks of the kind of pricing power rising of our competitive position.
4469590,250,2624.76,2632.8298,17,But what what's even more encouraging I think that it kind of stamps from the the question uh we just received from from inaudible on the inaudible markets.
4469590,251,2633.3301,2654.1001,17,In in in this challenging kind of inaudible we can clearly see uh that the process of kind of rethinking and upgrading the role which are function and HR funding within organizations so coupled with the inaudible interactions uh inaudible online inaudible opportunities uh beyond our traditional market boundaries.
4469590,252,2654.99,2671.3899,17,Uh this is already evident in our results in uh inaudible service performance including skill dynamics uh in our experiments with inaudible jobs and inaudible so we just want to stress that for us as the market leader uh in traditional market it's really important.
4469590,253,2671.55,2674.0999,17,We have the best position to kind of catch this opportunity.
4469590,254,2674.53,2679.1699,17,It it's important strategic task to to lead the next wave inaudible Russia.
4469590,255,2679.97,2682.5601,17,That's our mission and a goal for years to come.
4469590,256,2683.1599,2684.0,17,Thanks for attention.
4469590,257,2684.03,2684.6499,17,Have a great week.
4469590,258,2684.8,2685.1401,17,Bye-bye.
4469590,259,2688.0701,2688.48,15,Thank you.
4469590,260,2690.99,2692.71,15,Thank you all for participating.
4469590,261,2692.71,2702.9299,15,You may now disconnect.
4469669,0,5.85,6.81,0,Now it's time.
4469669,1,7.14,15.66,0,May I start the presentation uh on transforming Toshiba to enhance shareholders' value and f y twenty one second quarter consolidated business results.
4469669,2,16.17,19.23,0,We are organized this presentation session on online basis.
4469669,3,19.54,27.33,0,From four to five o'clock we will be presenting from our side and followed by thirty minutes questions session for the mend uh the media.
4469669,4,28.62,34.19,0,The questions from allies and the investors will be accepted from five thirty to six o'clock Japan time.
4469669,5,34.32,35.67,0,Please be aware of that.
4469669,6,36.09,39.86,0,Now we will be collecting questions via telephone conferencing system.
4469669,7,40.21,47.27,0,As is informed to you beforehand the conference call system uh will require the pre-registration beforehand.
4469669,8,49.29,52.52,0,Let me introduce the presenters today.
4469669,9,53.4,60.43,0,President and c e o Satoshi Tsunakawa.
4469669,10,60.77,64.2,0,Corporate Senior Executive Vice President Mamoru Hatazawa.
4469669,11,67.81,73.53,0,Representative Executive Officer Corporate Executive Vice President and C F O Masayoshi Hirata.
4469669,12,82.37,87.42,0,We have uh Chairperson of the Strategic Review Committee Outside Director uh Paul Brough.
4469669,13,87.96,91.18,0,He is joining from Hong Kong uh on online.
4469669,14,92.28,95.83,0,My name is Hara of Communications Corporate Communication Department.
4469669,15,96.27,98.07,0,We are providing simultaneous translation.
4469669,16,98.2,104.51,0,So if you are watching the live uh str streaming in Japanese you'll be able to hear translation's voice.
4469669,17,104.88,105.9,0,Please be aware of that.
4469669,18,106.28,110.23,0,First before going into transforming Toshiba to enhance shareholders' value.
4469669,19,110.66,118.14,0,May I have Mister Tsunaka to say a few words uh upon the receipt of the report from Governance Enhancement Committee today.
4469669,20,118.52,120.04,0,Mr Tsunakawa please.
4469669,21,121.36,128.99,1,Now first of all uh I would like to say a few words on behalf of the uh the company uh upon the report of the Governor Enhancement Committee.
4469669,22,129.37,147.68,1,First off I would like to express profound appreciation to the members of the Governor Enhancement Committee uh who have made tremendous efforts and time since their appointment to investigate the root cause of the issue uh raised in the investigation report clarify where the responsibility lies and compile recommendations for formulating the measures to prevent recurrence.
4469669,23,149.13,160.24,1,I recognize that the Toshiba's Governance Enhancement Committee based on the strong belief that restructuring of the governance is essential for the revival of the Toshiba has compiled report for our future.
4469669,24,163.03,170.03,1,In fact no issue of illegality was uh discovered um according to the report of the Governor Enhancement Committee.
4469669,25,170.3,188.22,1,Having said that though I feel as a part of the senior management of the company I am extremely ashamed and embarrassed that the um the uh senior members of the company uh and their actions uh was concluded that an act uh as a whole uh violates the corporate ethics demanded by the market.
4469669,26,188.5,202.81,1,We have just received a final report of the Governance Enhance Committee that uh we will continue to discuss the governance seriously within the company based on the contents of the report including recommendations for the formulation of the recurrence prevention measures.
4469669,27,203.16,214.25,1,We believe that this recurrence prevention measures will form the very first step to restore the trust of the shareholders who have which have been restored so far.
4469669,28,214.78,219.14,1,Now one of the group's philosophy is uh doing the right think.
4469669,29,219.7,226.22,1,Uh many employees on the front lines of the operations are working uh day to day uh based on this value.
4469669,30,226.6,237.13,1,On the other hand I believe that uh some of the members of the senior management were acted uh quite uh differently from this mostly and that should be uh sincerely remorsed over.
4469669,31,237.73,242.99,1,The corporate management is established based on the trust relationship with all stakeholders.
4469669,32,243.04,252.68,1,The Governance Assessment Committee also pointed out that the importance of top <inaudible> and organizational leaders demonstrating their commitment to value ethics and integrity.
4469669,33,253.81,264.32,1,Until now um the culture to recognize the mistakes and the very uh good communication so that uh anyone can raise opinions escalated uh just to the higher level.
4469669,34,264.54,269.55,1,But also uh we need to ensure the psychological safety of all employees.
4469669,35,269.77,274.1,1,Uh we will make um strict uh persistent efforts in this regard.
4469669,36,274.82,282.41,1,As i'll announce today our group decided to separate the energy infrastructure business and storage device businesses.
4469669,37,282.41,288.3,1,There will be a f uh the separate companies and aim for the IPOs are set independently.
4469669,38,288.65,300.29,1,This is a drastic change but because this business will be separated and being independent and therefore uh the um committed to people and committed to the future based on this philosophy.
4469669,39,300.48,305.98,1,Under the new uh corporate culture each business is poised to grow uh and this is a great opportunity.
4469669,40,306.26,313.07,1,But beforehand uh it is a critical uh mission of the senior management to enhance governance beforehand.
4469669,41,313.61,318.03,1,I appreciate your continued support and asking for your cooperation.
4469669,42,318.24,319.22,1,Thank you very much.
4469669,43,321.06,327.72,0,Next we'd like to uh present on the transforming Toshiba to enhance our shareholders' value.
4469669,44,327.75,328.6,0,And uh Mr.
4469669,45,328.6,331.09,0,Tsunakawa will m make presentations.
4469669,46,331.5,340.92,1,Next I would like to explain on our new management policy titled as Transforming Toshiba to Enhance Shareholders' Value.
4469669,47,341.25,347.09,1,Uh the uh Corporate Executive Vice uh President Hatazawa will also uh be uh uh presenting.
4469669,48,347.12,351.08,1,And also on online uh Chairperson of Strategic Review Committee Mr.
4469669,49,351.15,354.15,1,j Paul uh will also be attending as well.
4469669,50,354.83,361.58,1,Now uh to today Toshiba Group has decided on its significant transformation to further leap forward for the future.
4469669,51,361.84,369.77,1,Let me first introduce why this is the best path forward for Toshiba uh and our shareholders and what it what it means for our business going forward.
4469669,52,370.04,371.95,1,And then we would like to invite Mr.
4469669,53,371.95,375.8,1,Brough to explain on the evaluation made by the Strategic Review Committee.
4469669,54,375.83,376.55,1,After that Mr.
4469669,55,376.55,382.1,1,Hataza will talk on what the business outlook will be for the standalone companies after separation.
4469669,56,382.61,388.14,1,First uh about uh our path to unlocking the value uh that I'd like to explain.
4469669,57,388.56,396.95,1,Now at the Board of Director meeting held this morning decision was made for Toshiba's strategic reorganization to separate the business into two businesses.
4469669,58,397.14,401.79,1,As a result uh there will be three standalone companies to be um formulated.
4469669,59,401.92,406.55,1,One an infrastructure service company second is device company and the third is Toshiba.
4469669,60,407.59,425.08,1,As we concluded this strategic reorganization to be the best path forward for Toshiba and their stakeholders we took into account the view of our important shareholder stake shareholders and other casto stakeholders as well as the business characteristics and the value chain of uh each of our diverse businesses.
4469669,61,426.99,433.15,1,Over our history of over one hundred and forty years Toshiba has constantly evolved to stay ahead of the times.
4469669,62,434.68,436.2,1,Today's announcement is no different.
4469669,63,436.23,440.02,1,Toshiba has built a portfolio of leading the businesses.
4469669,64,440.15,448.62,1,But in order to enhance our competitive positioning each business needs greater flexibility to address its own market opportunities and challenges.
4469669,65,448.94,453.8,1,The official names for the new companies will be announced in due course.
4469669,66,454.39,457.53,1,Here is an overview of the three independent businesses.
4469669,67,459.4,476.45,1,Infrastructure service company will uh consist of Toshiba energy systems and solutions infrastructure systems and solutions building solutions digital solutions and battery businesses and become a company with the forecasted net sales of two point one trillion yen according to this fiscal year's forecast.
4469669,68,476.84,493.72,1,Its increased focus combined with its innovative technological solutions will enable it to play a leading role in driving the transition to renewable energy to meet ambitious global carbon neutrality goals and advancing infrastructure resilience as a leading player.
4469669,69,495.87,505.79,1,Device company will com be comprised of to Toshiba electric device and storage solutions business and become a company with forecasted net sales of eight hundred and seventy billion yen.
4469669,70,506.18,516.03,1,Its products will be including power semiconductors high-capacity hard disk drives h d d for data centers and semiconductor-manufacturing equipment.
4469669,71,517.93,523.1,1,It will be a global leader in supporting the evolution of social and IT infrastructure.
4469669,72,523.59,529.52,1,Toshiba will continue to hold the company's on ownership stake in Kioxia Holding Corporation and Toshiba Tec Corporation.
4469669,73,530.15,535.48,1,co Toshiba will seek to monetize the share of Kioxia at an appropriate timing.
4469669,74,538.46,545.44,1,The separation this time enables us to better align each new companies by its unique business characteristics.
4469669,75,547.84,557.84,1,Infrastructure service company relate um business focus on the direct sale of equipment and the provision of solutions to specific customers.
4469669,76,559.15,567.79,1,It has long business cycles that are more heavily dependent on negotiations between business parties than the market conditions at large.
4469669,77,569.06,578.79,1,In addition it will be a capital-light business and there are also major differences in to the extent in which we conduct customized production.
4469669,78,579.24,585.46,1,In contrast device company primarily manufacturers and sells devices such as semiconductor's and other materials.
4469669,79,585.66,590.79,1,Its business cycles are shorter and can be impacted significantly by the market conditions.
4469669,80,591.31,598.52,1,It will be a capital-intensive business that requires scale of a continuous production across multiple customer orders.
4469669,81,599.35,605.61,1,And relatively speaking the uh large capital investment need to made in a very flexible manner.
4469669,82,608.06,611.01,1,So objective of a spinoff there are three reasons.
4469669,83,611.47,616.43,1,First the separation will unlock immense value by removing complexity.
4469669,84,618.45,625.62,1,Second it enables us to have a much more focused and agile decision-making and their management.
4469669,85,625.81,630.51,1,And the third separation naturally enhances choices for our shareholders.
4469669,86,632.02,646.65,1,Our Board and management team firmly believe that this strategic reorganization is the right step for sustainable profitable growth for each of the businesses and the best path to create additional value for our stakeholders.
4469669,87,649.99,657.52,1,For our shareholders we will unlock value by having dedicated and well-skilled management teams.
4469669,88,659.81,668.81,1,We will be able to provide our customers more innovative and ti tailored services and solutions to meet their evolving needs.
4469669,89,671.46,684.02,1,Our employees will have the opportunities to work at mo more focused companies where they can gain more technical expertise and self-growth opportunities and have greater growth potential in their f chosen field.
4469669,90,686.48,698.01,1,And a separation will benefit our communities by providing more frequent solutions to solve social issues of carbon neutrality and infrastructure resilience that we are all facing.
4469669,91,698.81,702.57,1,We believe that there are three main benefits of the business separation.
4469669,92,702.83,707.33,1,First the standalone companies will have improved management and governance structures.
4469669,93,708.24,719.17,1,Infrastructure service company and device company are expected to have dedicated management teams that bring deep industry knowledge with clear growth strategies.
4469669,94,724.15,730.91,1,We will of course consider candidates from outside of the company for building new management structure.
4469669,95,735.5,747.57,1,The new structures also will facilitate more agile decision-making with greater focus and knowledge of their respective companies customers and employees.
4469669,96,747.66,756.89,1,In addition new structure creates optionality for both new pa companies to own their make own separate and informed decision regarding potential strategic partners.
4469669,97,757.21,767.59,1,Second the standalone companies will have more effective efficient and tailored capital allocation policies more closely matching uh their industry peers.
4469669,98,770.75,793.45,1,This will enable them to better explore options to optimize their cost of capital by managing their leverage and provide more direct engagement with the capital markets and increase the ability to target that in equity investors which could drive additional cost savings.
4469669,99,795.48,800.69,1,And the third and certainly not least we will be able to increase shareholders' return.
4469669,100,801.0,818.42,1,Toshiba intends to monetize shares in Kioxia while maximizing the shareholders' value and return the net proceeds in full to shareholders as soon as uh pract practicable possible uh to ex to the extent that uh doing so does not interfere with the smooth implementation of this separation.
4469669,101,819.73,829.47,1,This will increase uh the return to Toshiba shareholders while allowing them to participate in the continued upside of the two standalone companies.
4469669,102,832.63,841.81,1,In addition this will facilitate fair value by providing compelling investment opportunities that meet different preferences of the shareholders' investors.
4469669,103,843.0,848.27,1,Toshiba has recently built up a strong track record of creating return to the value of the shareholders.
4469669,104,849.1,862.41,1,Based on the targeted dividend payout ratio of thirty percent as committed over the last four years we have steadily increased our dividend payment from thirty yen per share in f y twenty eighteen to an expected eighty yen per share in fy twenty one.
4469669,105,862.98,871.12,1,In addition the special dividend of a hundred and ten yen per share had already been uh provided during fy twenty twenty one.
4469669,106,871.63,876.67,1,Toshiba has also maintained a commitment to return excess capital to shareholders.
4469669,107,877.86,888.75,1,We buy bought back seven hundred billion yen worth of the shares in twenty nineteen and another a hundred billion yen in twenty twenty one.
4469669,108,891.17,901.92,1,Capital in excess of appropriate level of capital will be used to provide shareholder's return including the share buyback in fy twenty two as well as in fy twenty three.
4469669,109,902.1,907.47,1,To the extent that it will not interfere with the smooth execution of our business and business separation.
4469669,110,907.89,911.13,1,The expected amount is going to be about one hundred billion yen.
4469669,111,911.75,920.6299,1,In addition we will utilize appropriate level of leverages and continue reviewing our business portfolio including consideration of the divestiture opportunities.
4469669,112,921.29,926.97,1,Our strategic reorganization this time is the last step in Toshiba's commitment.
4469669,113,927.02,932.12,1,la latest step in Toshiba's commitment to creating and returning shareholders' value.
4469669,114,935.72,952.3,1,And the spinoff we are working with the relevant authorities and advisors to determine the best and the most effective and efficient way to spin off the businesses with an intention of effective transaction in a tax-qualified spinoff structures pursuant to the recent tax reform legislation in Japan.
4469669,115,952.87,956.72,1,We will continue to keep you updated as we move through this process.
4469669,116,960.85,973.3,1,The timeline is that a reorganization is expected to be completed in the second half of the fiscal year twenty twenty three subject to our shareholders' vote uh and in obtaining approval from the relevant authorities.
4469669,117,973.54,978.58,1,However we will make an effort to speed up the processes to the extent that is feasible.
4469669,118,978.94,990.92,1,Moreover we are considering of seeking uh for our shareholders to vote on it at the proposed extraordinary general meeting of the shareholders expected in the first quarter of the next calendar year if possible.
4469669,119,991.62,1004.98,1,A s board steering committee is expected to be formed which will include strategic review committee members uh in order to provide continuity and accountability for the succession comple successful completion of the business operation.
4469669,120,1005.2,1011.12,1,In terms of the cost associated with the spinoff we expect to incur ten billion yen from fy twenty one and onwards.
4469669,121,1011.27,1018.63,1,The spinoff costs are expected to be offset by reducing sg and a expenses in each business is based on peer benchmarks.
4469669,122,1020.07,1028.91,1,Now over the past nearly five months or so we have proactively evaluated a full range of options to enhance shareholders' value.
4469669,123,1031.09,1041.98,1,Following the strategic review committee's thorough evaluation the board concluded that the strategic or reorganization is the best path forward for Toshiba and its shareholders.
4469669,124,1043.95,1051.65,1,Representing the Toshiba's management I would like to express my sincere gratitude to Mr.
4469669,125,1051.65,1056.76,1,Brough and chairperson of the strategic committee review committee.
4469669,126,1057.48,1068.66,1,On behalf of the board member I would like to once again express the profound appreciation uh for your efforts and time spent through the evaluation of the wide-ranging value-enhancing options over the years.
4469669,127,1068.92,1071.5601,1,I would uh uh now I would like to uh call upon Mr.
4469669,128,1071.5601,1073.39,1,Brough to comment directly on this plan.
4469669,129,1073.42,1073.7001,1,Mr.
4469669,130,1073.7,1074.61,1,Brough please start.
4469669,131,1285.9399,1327.2001,2,Thank you.
4469669,132,1344.38,1355.12,0,Now going back to the uh presentation material transforming Toshiba to enhance shareholder value I would like to call upon Mr.
4469669,133,1355.12,1357.8,0,Hatazawa to explain the strategy.
4469669,134,1359.28,1360.91,3,Good afternoon I am Hatazawa.
4469669,135,1361.09,1362.15,3,As Mr.
4469669,136,1362.23,1371.9301,3,Tsunakawa just explained Toshiba will spin off its two business operations to infrastructure service company and the device company for evolution into the future.
4469669,137,1373.55,1386.11,3,The next three years will be an important three years to ensure spinoff and uh to the groundwork for growth after spinoff and to transform ourselves for the future.
4469669,138,1388.5,1392.41,3,I would explain on this important plan for the next three years.
4469669,139,1392.78,1402.25,3,Please note that figured shown under this section are based on the current organizational structure and only cover the period of three years from twenty…
4469669,140,1402.42,1406.0,3,fiscal year twenty twenty one to fiscal year twenty twenty three.
4469669,141,1406.4301,1411.5,3,We expect financial improvements will further accelerate once the separation is completed.
4469669,142,1411.96,1419.9,3,We intended to announce a more refined management plan for each new company on a separate occasion at a later date.
4469669,143,1421.37,1423.38,3,First infra services company.
4469669,144,1424.53,1430.7999,3,Infrastructure service company will help our customers and partners achieve their ambitious sustainability goals.
4469669,145,1431.33,1444.12,3,We are ideally positioned to address two important social issues carbon neutrality and infrastructure resilience and related needs of our customers.
4469669,146,1445.98,1458.02,3,Infrastructure service company will utilize its customer knowledge and the technological expertise to exploit such business opportunities in order to enhance shareholder value.
4469669,147,1458.46,1465.0701,3,In fact we already have many customers and partners asking us to assist them in these areas.
4469669,148,1465.6801,1476.03,3,And we understand that the key to growth in energy and infrastructure lies in the intersection of AI security and the platform technologies.
4469669,149,1477.22,1485.8199,3,The conversion to cyber uh physical solution to business is what we refer to as X digital.
4469669,150,1487.86,1501.5601,3,By working closely with our customers and then partners we will consolidate our domestic leadership in Japan and expand our global market share with focus in Asia.
4469669,151,1504.33,1513.24,3,In the energy multiplied by digital domain the realization of carbon neutrality is an urgent global issue for our customers.
4469669,152,1525.45,1542.9401,3,Further growth will result from the advancement of efficient use of energy through energy matting and energy management services.
4469669,153,1640.86,1650.41,3,We are eyeing to pursue a capital-light business model for the instructure infrastructure service company with a medium to long-term strategy.
4469669,154,1650.85,1656.62,3,The Infrastructure service company shows a solid financial profile and a strong growth outlook.
4469669,155,1657.3199,1675.1399,3,The company expects net sales to grow at three point three percent compound annual growth rate c a g r from two trillion ninety billion yen in fiscal year twenty twenty one to two trillion two hundred thirty billion yen in fiscal year twenty twenty three.
4469669,156,1675.52,1689.4299,3,It also expects to improve operating income at five percent level ma And regarding free cash flow we plan to improve free cash flows steadily and to maintain double digit ROIC at ten percent.
4469669,157,1693.17,1694.11,3,Device company.
4469669,158,1695.0601,1702.7201,3,Device company will lead the evolution of social and information infrastructure through its semiconductor and storage businesses.
4469669,159,1704.04,1711.4399,3,Our leading products are significantly contributing to the wider society including the realization of carbon neutrality.
4469669,160,1712.55,1726.5801,3,The strength of the business lies with its customer relationships years of experience with technology development and capacity creation of production facilities which we intend to expand with a sharper focus on its fast business cycle.
4469669,161,1728.08,1737.35,3,We are well-positioned as a global provider of leading products to transfer our technology further into profits and sustainable growth.
4469669,162,1739.5699,1753.16,3,In the field of power semiconductors we will actively invest in the growth markets including the development of three hundred millimeter line facilities and compound semiconductors silicon carbide and gallium nitride.
4469669,163,1754.9,1763.5,3,This will enable us to drive the acceleration of power efficiency improvements in equipment and social infrastructure.
4469669,164,1764.14,1772.73,3,We are targeting net sales of a hundred twenty billion in f y twenty twenty three compared with a ninety five billion yen in f y twenty one.
4469669,165,1773.67,1777.83,3,Equilavent to an average annual growth rate of thirteen percent.
4469669,166,1780.55,1792.1,3,With expanding demand for data centers along with the evolution of society's digitization information infrastructure significant market growth uh expected in storage business.
4469669,167,1793.1899,1810.2999,3,Nearline HDDs through collaboration in the development of key components advanced development in specialized areas and productivity improvement rapidly expand the development of the high-capacity products and also strengthen support systems for data center customers.
4469669,168,1811.1,1825.0901,3,For nearline HDDs we have set a sales plan of two hundred billion yen in fy twenty one and two hundred eighty billion in f y twenty twenty three equivalent to an annual growth rate of eighteen percent.
4469669,169,1826.4399,1833.75,3,Prior to the separation device company will invest to bolster its technological strengths in selected areas.
4469669,170,1834.59,1845.46,3,In addition to expanding this power semiconductor production facilities device company plans to increase the capacity of its semiconductor development facilities and the supply capacity of nearline HDDs.
4469669,171,1846.37,1851.6801,3,In addition its r and d focus will be on expanding its lineup and developing new models.
4469669,172,1853.35,1861.4399,3,We expect total investment of more than three hundred billion yen in the three years till f y twenty twenty three.
4469669,173,1863.66,1876.3,3,For the device company as a whole net sales at compound annual growth of three point three percent from eight hundred seventy billion in f y twenty one to eight hundred and eighty billion yen to f y twenty three.
4469669,174,1877.85,1892.77,3,And excluding the growth for the transfer of memory it has a c a g r of three point three percent and operating income changes from seven point one percent to six point one percent.
4469669,175,1893.52,1914.59,3,However if we take into consideration that the forex premise is a hundred five yen to the dollar in twenty two and twenty three and plan large investments during twenty twenty one and twenty twenty two for the growth beyond twenty twenty four this needs to be considered and the the actual profitability is likely to improve.
4469669,176,1916.98,1931.89,3,For the combined Toshiba Group in f y twenty three we are targeting net sales of three point five trillion operating margin of five point seven percent ROIC of ten percent free cash flow of a hundred billion yen.
4469669,177,1937.74,1942.89,3,As you can see from our remarks today we are excited about the future.
4469669,178,1944.34,1960.08,3,We look forward that through our spinoff plan separation plan that we will be able to deliver to all the share stakeholders and that we will be transformative through this separation plan.
4469669,179,1960.5699,1973.21,3,Based on our management philosophy are committed to people committed to our future we will continue to contribute broadly to society by creating succession of new values and providing them to our customers.
4469669,180,1987.97,1988.51,0,Uh Mr.
4469669,181,1988.51,1991.51,0,Hirata uh will be presenting on the results.
4469669,182,1994.8101,2000.1801,4,Now I Hirata will present on the second quarter results for fy twenty twenty one.
4469669,183,2000.85,2003.12,4,Now first if you could turn to page three.
4469669,184,2005.04,2006.73,4,This is the key points of this result.
4469669,185,2007.66,2009.95,4,Now there are five key points.
4469669,186,2010.2,2021.71,4,First point is regarding the fact that for example in the semiconductor's business continuously from this first quarter it has performed quite well in the second quarter and there is an improvement in energy business as well.
4469669,187,2021.71,2027.67,4,As a result during the first half of twenty twenty one we were able to mark positive growth in revenue and income.
4469669,188,2027.86,2035.98,4,Compared to that same period of last year the sales revenue was one trillion five hundred forty six point four billion yen with what's…
4469669,189,2036.24,2040.87,4,and one hundred and seventy five billion yen increase uh of the revenue year over year.
4469669,190,2041.16,2048.51,4,Now operating income was forty five billion which was forty one point nine billion in increase compared to uh the same period last year.
4469669,191,2049.0801,2062.48,4,Now the second point is regarding free cash flow which has improved due to the improvement of the uh e b i t d a and improvement in working capital due to uh the f factors such as receipt of advanced payments.
4469669,192,2062.72,2065.6799,4,And year over year we were able to see a great improvement.
4469669,193,2065.71,2069.0601,4,For the first half was positive one hundred thirty one point four billion.
4469669,194,2069.28,2073.6702,4,That was an increase of uh one twenty four point three billion yen year over year.
4469669,195,2075.47,2087.3899,4,The third point is regarding order taking uh for orders uh which was increased very uh uh robustly uh due to a large a scale project.
4469669,196,2087.3899,2090.53,4,And it has increased by nineteen percent year over year.
4469669,197,2091.1799,2096.49,4,Fourth point is regarding the forecast uh for the full year twenty twenty one.
4469669,198,2096.9399,2103.8401,4,Uh there are uh the surge and material and logistics costs as well as the shortage uh of uh semiconductor uh products.
4469669,199,2104.05,2107.27,4,And uh such impact is uh gradually visible.
4469669,200,2107.45,2111.2102,4,However the semicondutor business of our company is performing quite well.
4469669,201,2111.46,2121.03,4,It is offsetting uh the negative impact as a result of that operating income uh that remains uh to uh be the same as the previous forecast at one hundred se seventy billion yen.
4469669,202,2121.46,2124.3601,4,Next is the shareholders' return policy.
4469669,203,2124.8401,2132.7898,4,Now a hundred billion yen of uh uh stock buyback as well as special dividend distribution of a hundred and ten yen was completed.
4469669,204,2133.0,2139.26,4,In addition as the board organized today we have approved over forty yen per share of the interim dividend.
4469669,205,2140.1299,2147.3899,4,At the year end dividend the dividend forecast was already been announced at forty yen per share.
4469669,206,2148.3301,2153.6899,4,So the full year dividend forecast of one ninety yen remained unchanged.
4469669,207,2156.2,2158.1099,4,If you could turn slide six.
4469669,208,2161.1699,2165.6199,4,This is the total uh picture of profit and loss statement.
4469669,209,2166.1599,2174.8401,4,The first the revenue for the first half was one trillion five hundred and forty six point four billion yen and uh that was an thirty percent of increase in revenue.
4469669,210,2175.54,2179.1699,4,Now the infra systems uh had a slight decrease in revenue.
4469669,211,2179.1699,2185.46,4,However for all the other segments uh all the segments besides infrastructure system uh was increased its revenue.
4469669,212,2185.74,2188.2002,4,Uh operating income was forty five billion yen.
4469669,213,2188.48,2190.3599,4,There were the revenue increase on top of that.
4469669,214,2190.46,2195.1001,4,Weaker yen had positive impact at forty one point nine billion increase year over year.
4469669,215,2196.3401,2205.1499,4,The non-operating income and loss related to for example equity member companies such as Kioxia there is a positive of us at thirty seven point one billion yen.
4469669,216,2205.6101,2212.77,4,And uh in total income before income taxes was eighty two point one billion yen which had an increase of sixty two billion yen.
4469669,217,2213.3899,2225.8701,4,And after that uh income ta uh taxes were deducted and the net profit for this year it's f fifty eight fifty nine point eight billion yen which it was an increase of fifty six point three billion yen year over year.
4469669,218,2227.5,2229.0798,4,Moving on to page seven.
4469669,219,2230.78,2235.2,4,This is the operating income analysis compared to a year ago.
4469669,220,2236.1699,2250.6799,4,Far left is the first half uh operating income of fy twenty twenty which was three point one billion yen uh during the first half of uh fy twenty uh the uh restructuring cost of seven point eight billion was posted.
4469669,221,2250.6799,2257.7898,4,So we reversed back this amount and the operating income without the impact of restructuring costs towards about eleven billion yen.
4469669,222,2258.3101,2267.51,4,And uh there are recovery from COVID pandemic and there are forty million yen of the revenue will be added and uh assumably the revenue is approximately fifty billion yen.
4469669,223,2268.4099,2278.6899,4,And according to our business plan uh in order to streamline the overseas uh uh offices and locations uh we have posted about five billion yen worth of restructuring costs.
4469669,224,2279.0701,2284.71,4,And therefore as a result operating income for the first half of uh fy twenty one was forty five billion yen.
4469669,225,2285.49,2294.1599,4,I just mentioned at the outset there are more visible impact arising from the soaring material and logistics costs as well as semiconductor shortages.
4469669,226,2294.9399,2305.9302,4,And as this uh uh boxes are uh on top of the chart explained that uh a shortage of the semiconductor products is affecting as a reduction of revenue.
4469669,227,2306.4099,2310.2898,4,As a result the revenue negative impact was about six billion yen.
4469669,228,2310.8899,2315.6501,4,On the other hand the soaring material and logistics costs considered as a part of the cost increase.
4469669,229,2315.6899,2320.6702,4,As a result the cost increase was about fourteen billion yen.
4469669,230,2321.28,2325.9199,4,At a total there was the uh income reduction impact of twenty billion yen also.
4469669,231,2329.02,2333.04,4,On page eight.
4469669,232,2333.8201,2345.2002,4,Non-operating income as I said uh earlier the equity earnings of uh affiliate uh improved to become mainly due to the uh Kioxia the increase of profit by sixteen point eight billion yen.
4469669,233,2345.5701,2355.96,4,And therefore uh they've for the first half in uh fiscal year twenty twenty one that thirty seven point one billion yen was recorded up twenty point one billion yen from a year earlier.
4469669,234,2356.04,2361.9302,4,Page nine free cash flow positive uh a hundred and thirty one point four billion yen.
4469669,235,2361.96,2371.3,4,As I said at the outset and that there was a cash out of the uh negative fifty three point one billion cash flow from investing activities.
4469669,236,2371.3,2385.8499,4,Uh however uh due to that collection on AR at the end of the previous uh fiscal year and a receipt of the advances of large projects that cash flow from operating activities was positive one hundred eighty four point five billion yen.
4469669,237,2386.27,2396.5801,4,And the bottom half it provides the equity attributable shareholders of the company uh which decreased by eighty one point uh seven billion yen.
4469669,238,2398.1399,2415.3799,4,Last year equity at w the uh due to the uh share repurchase of one hundred billion yen and year end special dividend payout of uh eighty one point seven billion yen and one-trillion and the forty five point two billion yen was recorded.
4469669,239,2416.1899,2419.8,4,And the shareholder equity ratio was thirty point five percent.
4469669,240,2420.6101,2425.72,4,And the page ten is the breakdown of what uh we have already explained.
4469669,241,2426.0701,2433.9202,4,And the shareholders' equity ra uh the net uh interest-bearing debt was uh forty seven point five billion yen.
4469669,242,2434.45,2438.23,4,And page eleven explanation by uh segment.
4469669,243,2438.26,2441.1399,4,And twelve page twelve is also by segment.
4469669,244,2441.1799,2449.47,4,As I explained earlier excluding infrastructure system most uh increased in both uh sales and the profit.
4469669,245,2450.02,2452.8101,4,And here is the energy system on page thirteen.
4469669,246,2453.22,2458.71,4,And its sales was two hundred thirty six billion yen operating income was four point five billion yen.
4469669,247,2459.28,2466.49,4,Net sales increased by forty five point nine billion yen a y from a year earlier as you can see here.
4469669,248,2467.6599,2473.52,4,The next sales increase in both power generation system transmission and distribution.
4469669,249,2474.74,2482.6201,4,Given this increase in net sales operating income also improved uh by twelve billion yen from the previous year.
4469669,250,2486.0901,2490.99,4,Page fourteen the top half provides infrastructure systems and solutions.
4469669,251,2491.21,2497.6099,4,Net sales were two hundred seventy two point one billion yen operating income was zero point three billion yen.
4469669,252,2500.6101,2506.5698,4,Public infrastructure netting uh sales increased.
4469669,253,2506.7,2521.6399,4,However in industrial systems with impact of uh pandemic still remaining and the net sales in the entire segment decreased by nine point nine billion yen and the operating income as well.
4469669,254,2521.73,2528.6599,4,And on top of the decrease because of the decrease in net sales and of course of the restructuring industrial systems.
4469669,255,2528.71,2534.0999,4,And recently there was an increase in cost in overseas project in railways.
4469669,256,2534.1299,2535.73,4,Therefore a segment as a whole.
4469669,257,2536.0801,2541.9299,4,So the decrease in operating income by six point two billion yen for the first half.
4469669,258,2542.1699,2545.3501,4,The bottom half provides the results for building solution.
4469669,259,2545.3799,2551.55,4,Net sales were uh two hundred eighty five point eight billion yen and operating income was ten point two billion yen.
4469669,260,2552.5801,2559.9202,4,Uh next sales uh recovered mainly in the air conditioning business.
4469669,261,2560.22,2564.05,4,And therefore net sales increased by twenty six point five billion yen.
4469669,262,2564.49,2569.73,4,And on the other hand the operating income due to the increase in net sales.
4469669,263,2570.02,2580.0601,4,And although there were uh negative impacts of the material cost increase and logistic cost increase and a sh impact of a shortage of uh semiconductors.
4469669,264,2581.4299,2583.48,4,Elevator-escalator business in particular.
4469669,265,2584.3101,2587.3901,4,And also impacts of uh the uh forex.
4469669,266,2587.4199,2591.49,4,And the all in all operating income was almost flat.
4469669,267,2592.0601,2594.75,4,On page fifteen device and uh storage.
4469669,268,2594.9399,2603.1001,4,Net sales were four hundred thirty two point nine billion yen which was up eight one hundred and eight point nine billion yen from a year earlier.
4469669,269,2603.29,2609.0,4,Operating income was thirty four point seven billion yen which was up thirty point one billion yen year on year.
4469669,270,2609.8799,2631.24,4,Semiconductors and hard disk drive net increase uh net sales increased mainly due to the recovery from the impact of pandemic and driven by the increase in sales and the impacts of the forex and also effects of the uh restructuring which was conducted last fiscal year income increased.
4469669,271,2631.5601,2644.6599,4,And in others and uh it hard disk in the same period last year uh the operation ratio of the plant in the Philippines was reduced significantly due to mainly due to pandemic.
4469669,272,2645.03,2652.8101,4,Therefore there was an increase of uh sales uh to data centers uh during this fiscal year.
4469669,273,2653.02,2655.1199,4,The growth ratio has been significant.
4469669,274,2656.79,2657.75,4,Slide sixteen.
4469669,275,2657.8899,2661.1602,4,The upper half is retail and printing solutions.
4469669,276,2661.99,2668.1899,4,Net sales two hundred twenty one point seven billion yen and operating income four point three billion.
4469669,277,2668.6499,2672.78,4,So it is in black compared to loss-making last year.
4469669,278,2673.53,2679.71,4,Similarly recovery from the COVID and also last year we conducted the restructural reform.
4469669,279,2680.1799,2686.1599,4,With this retail and both printing has achieved an increase in sales and also income.
4469669,280,2686.47,2688.3799,4,The bottom half is digital solutions.
4469669,281,2690.79,2700.02,4,Mainly by the increase of the public sector projects revenue a hundred three point five billion which is an increase by three point six billion.
4469669,282,2700.3301,2705.5298,4,Also operating income was eight point five billion which is a three point nine billion increase.
4469669,283,2707.6599,2714.5598,4,Page seventeen amount of orders received and also the order backlog for p three years the trend is given.
4469669,284,2714.74,2717.25,4,On the left is the amount of orders received.
4469669,285,2717.9399,2728.01,4,For the first half the orders received compared year on year nineteen percent increase mainly in the energy system similar to f y nineteen.
4469669,286,2728.6399,2733.47,4,In f y twenty t one as well there were orders of large scale projects.
4469669,287,2734.22,2740.8301,4,And if you move to the right part which is the order backlog order backlog also is steadily increasing.
4469669,288,2746.5801,2749.3599,4,Then please take a look at page nineteen.
4469669,289,2750.27,2752.5598,4,It is the equity earnings from Kioxia.
4469669,290,2755.26,2770.96,4,And for the figures I already mentioned earlier if you take a look at the right part bit growth and also a s p difference change is given in the bold font is uh for the bit growth.
4469669,291,2771.1001,2772.5701,4,Higher ten percent range.
4469669,292,2773.6899,2775.3799,4,We are seeing quite a growth.
4469669,293,2775.5701,2780.01,4,And for a s p mid-single digit increase.
4469669,294,2782.6499,2792.05,4,Compared to three months before first quarter the price increase is becoming more slower.
4469669,295,2797.96,2801.8599,4,Page twenty explains about how we completed our share repurchase plan.
4469669,296,2803.4399,2808.0398,4,fy twenty one and beyond is about the full year forecast.
4469669,297,2812.02,2813.6902,4,For f y twenty one full year.
4469669,298,2815.3899,2819.3401,4,For net sales three trillion three hundred fifty billion yen.
4469669,299,2821.0601,2827.26,4,And compared to what we announced three months before it is an upward revision of a hundred billion.
4469669,300,2829.4299,2842.25,4,For income before tax and net income as Kioska Kioxia's portion is unknown for the six months ahead so this is just as a reference.
4469669,301,2843.24,2845.73,4,In the first half there was a two hundred…
4469669,302,2845.9199,2846.4102,4,excuse me.
4469669,303,2846.4099,2850.24,4,twenty billion upward revision from Kioxia equity earnings.
4469669,304,2851.6799,2856.27,4,So we have made an upward revision for the income before tax and also net income.
4469669,305,2856.98,2862.4399,4,For operating income and free cash flow we maintain the previous forecast and there is no change.
4469669,306,2863.1001,2866.76,4,Slide twenty three is a forecast by segment.
4469669,307,2869.1201,2877.3801,4,At the very right column it gives the difference between the previous forecast announced three months before.
4469669,308,2879.95,2882.72,4,A little lower than the middle device and storage.
4469669,309,2884.99,2890.78,4,For the revenue eighty billion upward revision for net sales.
4469669,310,2892.04,2904.98,4,However having said that out of this eighty billion Kioxia Memory resale is still included which accounts for about half.
4469669,311,2906.8601,2917.6599,4,So in real terms semiconductor or hard drive-related growth increase and revenue is about forty billion.
4469669,312,2919.3899,2922.4399,4,And one column above retail and printing solutions.
4469669,313,2924.6699,2940.0601,4,As Toshiba Tec already announced their figures and their overseas retail is very strong also with the weaker yen we have made an upward revision of twenty billion.
4469669,314,2941.01,2944.8301,4,As they made this upward revision we also reflected the same.
4469669,315,2945.3799,2950.29,4,And as I mentioned for the company-wide operating income no change.
4469669,316,2951.4299,2953.8601,4,But by segment building solutions.
4469669,317,2955.0,2970.0801,4,Especially retail printing Toshiba Tec because of the soaring material and logistic costs lack of semiconductors each segment compared to the previous announcement made a downward revision by five billion.
4469669,318,2970.71,2975.3999,4,On the other hand in the first half device and storage has been very strong.
4469669,319,2976.47,2981.77,4,So in net it is a fifteen billion increase in profit.
4469669,320,2982.97,2989.3301,4,Slide twenty four similar to first half analysis.
4469669,321,2990.4299,3003.8901,4,On the left is f y twenty a hundred and four point four billion operating profit and we had seventeen point five billion restructuring cost.
4469669,322,3004.28,3010.0898,4,So this is reversed that will mean that we have an operating profit income of a hundred twenty billion.
4469669,323,3011.04,3015.02,4,In addition to this if you go a little to the right.
4469669,324,3017.9399,3028.04,4,On a planned basis we have the restructuring and twenty one billion also…
4469669,325,3030.0901,3030.6001,4,Excuse me.
4469669,326,3030.6001,3038.4102,4,Restructuring cost of ten billion and also fixed cost increase for twenty one billion a half of is depreciation and also half is for r and d.
4469669,327,3039.9299,3042.2,4,With these expenses costs increasing.
4469669,328,3044.0701,3059.51,4,But with the increased in revenue and also with the effect of the restructuring which will offset the increase of a cost and a hundred and seventy billion profit is achievable.
4469669,329,3061.55,3070.01,4,The lack of semiconductor and also the soaring material price as I mentioned earlier that is illustrated in the balloon.
4469669,330,3071.4299,3074.75,4,So that was about the second quarter results explanation.
4469669,331,3074.75,3075.7,4,Thank you very much.
4469669,332,3078.6699,3083.23,0,Oh that concludes the presentation part of the session.
4469669,333,3083.29,3085.5,0,Now we'd like to move do the q and a session.
4469669,334,3085.96,3088.8201,0,And uh question uh will be take by Mr.
4469669,335,3088.8799,3089.51,0,Tsunakawa Mr.
4469669,336,3089.6799,3097.0,0,Hiratana as well as uh the board members um joining uh via uh online.
4469669,337,3097.3799,3102.5,0,And uh uh when there are um questions please state uh your uh name.
4469669,338,3103.8999,3110.1799,0,Now we will have thirty minutes uh questions to be uh picked up from the members of the field media.
4469669,339,3110.47,3113.72,0,And let me elaborate on the method of taking questions.
4469669,340,3114.25,3119.0801,0,The questions are only to be collected from the people who were registered beforehand.
4469669,341,3119.4199,3122.9001,0,And if you have any questions please press asterisks and one.
4469669,342,3124.01,3128.8101,0,it's not the po not the pound but it is the asterisk.
4469669,343,3129.51,3134.9202,0,And uh the moderator will collect your name and therefore uh please start your question.
4469669,344,3135.4099,3141.0701,0,And uh if you would like to retract your question and please press as uh asterisk and two.
4469669,345,3142.01,3148.3098,0,Now during the q and a uh please stop uh the uh audio from the Internet.
4469669,346,3148.8799,3156.25,0,And uh uh there might be some uh feedback uh if your phone picks up uh the audio from the uh website.
4469669,347,3156.6899,3168.0,0,If you are not speak uh uh and hearing the answers uh please mute yourself in order to um in order not to disrupt by the noises from your end such as typing keyboards.
4469669,348,3170.0801,3172.26,0,Now we'd like to enter the questions for Mr.
4469669,349,3172.26,3174.7698,0,Hya-o of Nippon uh Nikkei.
4469669,350,3174.77,3174.9399,0,Mr.
4469669,351,3175.8501,3178.1799,0,Hya-o of Nikkei can you hear us?
4469669,352,3179.3701,3181.5,6,Thank you very much for the presentation.
4469669,353,3182.03,3192.3101,6,First off now regarding the separation into three entities what are the flows of discussion that resulted in this uh conclusion?
4469669,354,3192.78,3204.24,6,Well for between the SRC and the Board of Directors uh I think that discussion was uh ongoing and uh the who was um first um came up with the idea of separation?
4469669,355,3204.27,3209.9299,6,And what type of other choices that we have discussed other than the separation of the entities?
4469669,356,3213.54,3213.8401,1,Now…
4469669,357,3214.0701,3214.28,1,Mr.
4469669,358,3214.28,3214.47,1,Tsunakawa.
4469669,359,3215.23,3216.75,1,May I answer to your question?
4469669,360,3218.6001,3230.6499,1,Now as is mentioned earlier executive side and also uh the uh board meeting have had uh the uh meetings uh almost every week uh for the last five months.
4469669,361,3230.9199,3238.01,1,There were many strategic options that we uh discussed and also that were reviews of the medium-term plan that we have compiled.
4469669,362,3238.01,3247.6799,1,And also we uh uh we at the SRC had had a discussion about the potential privatization with a a partner.
4469669,363,3247.6799,3250.05,1,So we have uh compared uh many options.
4469669,364,3250.5601,3255.0698,1,Now we came uh the in regards to the ideas of tax-free uh spinoff.
4469669,365,3255.3401,3263.74,1,While we were discussing um uh and after the end of the discussion between SRC and uh the board we came up with this idea.
4469669,366,3264.2,3275.5,1,And uh as PowerPoint had mentioned uh the executive team and management side have uh had a very confident in uh pursuing this option of a tax-free spinoff.
4469669,367,3275.6499,3280.1499,1,I believe that uh this is the best possible path forward for Toshiba.
4469669,368,3280.1799,3280.52,1,That is all.
4469669,369,3280.52,3281.4202,1,Thank you very much.
4469669,370,3282.6599,3285.3301,6,Are there any other options that we have discussed?
4469669,371,3285.4199,3286.8401,6,Could you elaborate on that?
4469669,372,3287.1201,3288.3301,1,Could you repeat the question?
4469669,373,3290.0,3298.55,6,So when the spinoff idea uh surfaced and uh SRC or the senior management who was the first one to say?
4469669,374,3298.8601,3300.7798,6,And were there any other options?
4469669,375,3302.5901,3305.04,1,Regarding other options.
4469669,376,3305.5601,3318.4399,1,Well SRC will uh issue a report at the later date about how the discussion has developed it was about ten pages long.
4469669,377,3318.4399,3321.7,1,A document that we intend to publish in due course.
4469669,378,3322.0801,3327.1099,1,But it was several months ago that uh the this particular idea surfaced.
4469669,379,3327.3201,3335.3799,1,And uh uh SRC we at the management and advisors all parties involved and made the discussions.
4469669,380,3335.4199,3342.1702,1,In the course of the whole discussion we came up with the idea of uh a tax-free spinoff.
4469669,381,3342.3601,3347.52,1,And the feasibility of that idea uh was recognized as a viable option.
4469669,382,3347.52,3356.04,1,And ultimately we've uh uh came up with the idea of uh a s a separation into three companies and executive side had proposed this idea.
4469669,383,3356.4099,3358.3201,1,May I move on to the second question then?
4469669,384,3359.05,3364.96,6,Second question is now uh regarding the future growth.
4469669,385,3365.29,3367.8699,6,Now spinoff is just talking about the institution.
4469669,386,3367.8701,3375.1399,6,It is means but how are you going to make growth in real term basis that i had like to explore with you?
4469669,387,3376.8101,3390.4102,1,Reason is that in regard to the Toshiba next plan um in f y twenty five four trillion yen of the net sales and four hundred t billion yen of operating income and ten percent of operating income margin that was the target.
4469669,388,3390.8101,3398.4299,1,And uh a total of the three entities uh will you be able to uh to exceed that uh initial target.
4469669,389,3398.5901,3405.1101,1,And uh in the case of the Toshishiba are the source of uh growth is coming from the technology uh developed by r and d.
4469669,390,3405.47,3410.3699,6,And uh what is the source of the development and how are you gonna separate that into three entities?
4469669,391,3410.3701,3411.5598,6,Could you elaborate on that?
4469669,392,3412.23,3417.0598,1,I think answer of that the question is to talk about the growth potential.
4469669,393,3417.1399,3422.55,1,And as page eight describes uh there are uh three um uh rectangles.
4469669,394,3422.73,3434.75,1,And from left and right uh relatively speaking that that these are uh considered as shareholders where we are changing the entity structures and simplify the operations so that we can materialize the values.
4469669,395,3435.46,3439.8401,1,And uh thereby uh providing more options for the uh shareholders.
4469669,396,3439.8401,3443.0901,1,But in regard to the growth uh this square in the middle.
4469669,397,3444.0601,3452.22,1,Where uh the uh focused and agile management that will be the largest difference um vis a vis uh other ideas.
4469669,398,3452.47,3456.05,1,To give you some specific ideas and for example as Mr.
4469669,399,3456.1699,3459.9099,1,Hatazawa mentioned earlier the power semiconductor to be growth.
4469669,400,3460.3701,3464.6499,1,And then uh the uh investment into three hundred millimeter was made.
4469669,401,3465.0901,3470.6599,1,And uh that is something that I reflect upon now that uh semiconductor is in shortages nowadays.
4469669,402,3470.7,3482.9199,1,And in retrospect probably a year before our decision or at least six months before our actual decision that the investment had had to be made.
4469669,403,3483.1699,3487.8999,1,But there were headquarters and subsidiaries and there are uh the top executive meetings and others.
4469669,404,3487.8999,3491.8599,1,And therefore uh it took a quite long time to make final decisions.
4469669,405,3491.97,3495.8999,1,And in terms of agility there are something that we have personally reflect upon.
4469669,406,3496.1899,3506.26,1,And therefore looking at each market at the competition uh situation and the peers or competitive landscape that we need to carefully um um look at.
4469669,407,3506.49,3515.45,1,And um the focused and um the very small management will have to make very agile decisions so that we can compete well in the global market.
4469669,408,3515.48,3518.21,1,So that's why we decided to separate entities in this way.
4469669,409,3518.3999,3519.78,1,I personally believe that thought.
4469669,410,3520.23,3522.8701,6,And uh in regard to your next uh Toshiba next plan.
4469669,411,3522.8999,3524.8701,6,How the number will play out?
4469669,412,3525.1101,3536.2202,1,In regard to the specific targeted numbers when we uh discussed with shareholders as uh SRC has mentioned it earlier that uh Toshiba always make the three-year medium-term plan.
4469669,413,3536.22,3541.75,1,And that Year three Toshiba had never had achieved the uh results and the target.
4469669,414,3541.8999,3545.8401,1,And uh that was actually uh criticisms that uh we have to face up.
4469669,415,3546.1899,3551.5999,1,And uh we think I was thinking about feasible number and we incorporate that into this presentation.
4469669,416,3551.6001,3553.9802,1,I just wanted to add that to my comment.
4469669,417,3553.98,3554.9402,1,Thank you very much.
4469669,418,3555.49,3556.5398,6,Thank you very much.
4469669,419,3556.8601,3557.7102,6,Thank you very much.
4469669,420,3560.01,3561.1899,0,As explained by Mr.
4469669,421,3561.1899,3581.8501,0,ma Tsunakawa earlier regarding the statement by the board has been already released on our uh new press release uh web page titled The Processes Leading to the Spinoff Plan by the Board of directors of the company.
4469669,422,3582.5701,3585.46,0,And that is already released on our website.
4469669,423,3587.02,3588.52,0,Bloomberg uh Mr.
4469669,424,3593.1899,3593.95,7,Can you hear me?
4469669,425,3595.22,3596.0698,0,Yes we can.
4469669,426,3596.4399,3597.6699,7,I have two questions.
4469669,427,3597.6699,3600.47,7,Uh may I ask two questions at once?
4469669,428,3600.97,3601.72,0,Yes please.
4469669,429,3602.78,3607.1299,7,I have questions to Tsunakawa-san regarding this reorganization.
4469669,430,3607.8,3617.9102,7,I understood uh advantages very well but changing the organization of the company there will be risks incurred and uh potential demerits as well.
4469669,431,3618.3401,3628.0999,7,And in reorganization process uh in uh I think that you were going to explain this to employees and uh other stakeholders uh like uh business partners.
4469669,432,3628.1001,3632.22,7,So do you think that uh all stakeholders will understand this and accept this?
4469669,433,3632.49,3638.5999,7,And the second press uh point is about the c conversion of the stake in Kioxia into cash.
4469669,434,3639.1799,3643.3899,7,Uh the shares that will be partly purchased and the net…
4469669,435,3643.51,3647.6902,7,most of the uh net proceeds will be returned to the shareholders.
4469669,436,3648.21,3653.03,7,And this time are you going to divest all the shares uh held by the company?
4469669,437,3653.3601,3658.1599,7,And and uh could you please explain whether the plan stays unchanged?
4469669,438,3658.26,3669.47,7,And and i p o uh policy related to Kioxia uh do you still keep the uh strategy or policy to keep the Kioxia i p o?
4469669,439,3670.6201,3682.95,1,And regarding merits and demerits and in the competitive landscape uh there are advantages regarding the creative capabilities of Toshiba as in the question asked by the nik reporter from Nikkei.
4469669,440,3682.99,3684.26,1,I couldn't respond to that.
4469669,441,3684.3101,3689.53,7,And regarding the research laboratories were there any concerns about that?
4469669,442,3691.1599,3692.5901,1,He asked that question as well.
4469669,443,3692.6201,3701.3899,1,And researchers and staffers in principle are going to be divided into two companies standalone companies.
4469669,444,3701.9299,3707.6899,1,There needs to be a system or process uh allowing the exhibition of uh capa uh creativities.
4469669,445,3708.0901,3714.53,1,And we would like to uh c work out the details related to the basic research at the research laboratories.
4469669,446,3714.53,3718.1001,1,And that is a remaining challenge for us we have to work on that.
4469669,447,3718.52,3726.8301,1,But uh in principle uh staffers uh will be divided into two standalone companies uh to promote the individual uh companies.
4469669,448,3726.8301,3726.9299,1,Uh semihondustor…
4469669,449,3726.9299,3735.53,1,semiconductor energy and the infrastructure the core uh weight of the uh sert uh management strategy will be changed.
4469669,450,3736.1001,3741.5,1,But uh we believe that the disadvan uh advantage will outweigh the disadvantages.
4469669,451,3741.8501,3752.01,1,And as you said that uh uh we would like to come up with a system to uh improve the situation related to any potential disadvantage in your uh question.
4469669,452,3752.05,3759.6001,1,Regarding your second question about Kioxia whatever which will exceed the appropriate level of capital will be returned to shareholders.
4469669,453,3759.97,3764.5,1,And earlier majority of stake uh that net seeds…
4469669,454,3765.26,3770.24,1,proceeds from the sale of the Kioxia sa shares will be returned to shareholders.
4469669,455,3770.8501,3780.4199,1,And considering the current uh financial uh position the everything in excess of the appropriate capital well we thought that the…
4469669,456,3780.5801,3791.0598,1,even if when we return all the uh proceeds from the sale to shareholders uh uh we would be able to sustain the financial structure.
4469669,457,3791.95,3796.3599,1,So this time we said that the all the proceeds will be returned to shareholders.
4469669,458,3796.99,3798.0901,1,Of course uh they…
4469669,459,3798.0901,3801.1599,1,Well anything related to the spinoff uh will be kept.
4469669,460,3801.53,3805.3398,1,But IPO's policy which stays unchanged.
4469669,461,3805.3401,3809.8501,1,Uh and this is uh to be determined by Bain.
4469669,462,3809.8501,3812.3,1,Therefore this is not something we are able to determine.
4469669,463,3812.5801,3813.22,1,But base…
4469669,464,3813.3201,3818.8701,1,following the decision by Bain we like to be cooperative uh with them so that we can be prepared.
4469669,465,3822.8601,3823.3401,0,Thank you.
4469669,466,3825.22,3826.3201,0,Next NHK.
4469669,467,3826.3201,3827.3201,0,Shimai-San please.
4469669,468,3830.3201,3832.03,8,This is Shimai from n h k.
4469669,469,3832.03,3833.0901,8,Do you hear me okay?
4469669,470,3833.6299,3833.96,0,Yes.
4469669,471,3838.01,3841.1201,8,I wanted to ask Tsunakawa-San.
4469669,472,3842.72,3850.8701,8,It's about disadvantage of the separation planned and there was a mention about the r and d.
4469669,473,3852.3301,3857.04,8,So three trillion yen sale size by splitting that separating that.
4469669,474,3857.3899,3860.7,8,So size-wise it will be smaller first of all.
4469669,475,3861.04,3864.96,8,So but still do you believe that you will be viable with a smaller size.
4469669,476,3865.4099,3868.1799,8,And also I would like to ask Mr.
4469669,477,3868.1799,3874.5,8,Brough is that privatization has been often mentioned.
4469669,478,3874.6399,3877.24,8,And this time…
4469669,479,3878.74,3880.49,8,So the three entities being listed.
4469669,480,3881.3799,3884.6399,8,So that is quite the contrary with privatization.
4469669,481,3885.6899,3888.9399,8,So d Have you given up with the privatization?
4469669,482,3888.98,3894.1099,8,And if you have given up with the privatization so what was the reason and the cause?
4469669,483,3894.22,3895.3499,8,So can I hear from…
4469669,484,3897.25,3898.3201,0,So first Mr.
4469669,485,3898.3201,3906.73,0,Tsunakawa will respond and then we will be switching the image camera and also the voice to connect to Mr Brough.
4469669,486,3906.73,3914.24,0,So the question was about three trillion being split and separated if whether uh we are concerned about that.
4469669,487,3915.9099,3927.4402,1,For energy energy infrastructure business two trillion worth of business and such and semiconductor device storage one trillion a little less than one trillion.
4469669,488,3930.95,3933.8401,1,So this is sizable quite sized.
4469669,489,3933.8701,3936.55,1,And we are aiming for a fresh start.
4469669,490,3937.71,3947.7,1,And s so we are willing to start a very fresh start for with the financial position so we do not have any concerns.
4469669,491,3948.5,3958.29,1,On the other hand the two entities will be able to have a very agile management in their business and a very focused manner that is in large advantage.
4469669,492,3958.29,3960.5901,1,So I think I will switch to Mr Brough.
4469669,493,3961.8301,3965.1401,0,Switching the image and also the voice.
4469669,494,4080.1201,4087.3301,2,It is in the report but SRC with the strategic partners in a very deep manner.
4469669,495,4087.79,4090.25,2,First stage second stage third stage.
4469669,496,4090.6799,4107.6196,2,In many layers there was discussion and each partner for example regulatory risk also about the anti-trust also Kioxia that the price is difficult and unclear.
4469669,497,4107.8501,4113.54,2,And we did not come to a very clear cut pricing and that is also mentioned in the report.
4469669,498,4113.54,4116.71,2,So I hope that you will read through the report.
4469669,499,4116.7402,4118.0601,2,That is all for myself.
4469669,500,4118.8101,4128.3101,8,So did you s Did you say that with the partners you already had discussion with about the general shareholder meeting?
4469669,501,4132.1401,4134.8198,8,Do you believe that it'll be approved at the EGM?
4469669,502,4138.2798,4138.6597,1,Right.
4469669,503,4138.9102,4156.3799,1,And the disclosure and the announcement between January and March about the separation plan into three entities we are confident in what we have announced and explaining and we are asking for the endorsement and to seek the opinions from the shareholders.
4469669,504,4156.4102,4160.6099,1,we're expecting to hold uh e g m during January and March.
4469669,505,4164.3799,4165.2998,0,Thank you very much.
4469669,506,4167.6099,4171.1699,0,Next Murakami-San of Asahi Shimbun please.
4469669,507,4171.77,4173.6401,9,This is Murakami of the Asahi Shimbun.
4469669,508,4173.6401,4174.6001,9,Can you all hear me?
4469669,509,4174.6299,4175.1899,0,Yes.
4469669,510,4176.1699,4177.3599,9,Thank you for the opportunity.
4469669,511,4177.3901,4179.5298,9,May I ask question to um Mr.
4469669,512,4179.5298,4179.9199,9,Tsunakawa.
4469669,513,4180.8701,4182.48,9,Separation into three entities.
4469669,514,4183.1699,4190.2798,9,Well when we looked at from different point of view general comprehensive uh electric company uh that idea has already been given up on.
4469669,515,4196.0698,4197.6401,1,Well let me answer that.
4469669,516,4197.8501,4207.29,1,Being a comprehensive electroci- electronic company be it a TV a personal computers and uh home appliances and the medical that I used to belong to.
4469669,517,4207.5898,4209.9897,1,Uh there's nothing of the business already.
4469669,518,4210.4199,4213.2798,1,And therefore we are no longer comprehensive electronic player.
4469669,519,4213.2798,4218.5903,1,However social infrastructure and device business in semiconductors these two entities…
4469669,520,4218.9702,4223.79,1,You mentioned that that this is a disbundlement but in my opinion this is a evolution for the future.
4469669,521,4223.79,4228.6499,1,So it's not the the dismantlement but it is a uh evolution for the future.
4469669,522,4228.6499,4231.5898,1,So we would like to be very confident in moving forward into the future.
4469669,523,4232.0601,4234.21,9,May I ask second question if I may?
4469669,524,4234.7402,4238.6797,9,Now the reorganization plan uh this time.
4469669,525,4238.8101,4243.1201,9,What is the impact of the employment as well as a closure of your operating sites?
4469669,526,4244.7202,4255.9199,1,Well impact on the employment I would not expect so but uh that also requires a further uh explanation to the society at large.
4469669,527,4256.1899,4258.6899,1,So that's the policy that we'd like to take going forward.
4469669,528,4258.9199,4269.3301,1,In regard to the closure of the operating sites the plan does not complete with the announcement of the plan.
4469669,529,4269.5,4273.1797,1,Announcement of plan is the starting point for the future evolution.
4469669,530,4273.2202,4276.46,1,This is the starting point for further um development.
4469669,531,4276.6099,4283.46,1,And therefore uh we will continue with a portfolio review capital allocation policies and we are poised to do that going forward.
4469669,532,4283.5801,4293.98,1,And on top of that if necessary there's nothing to be decided at this point in time but we may um uh conclude that uh perhaps the closure of the site is uh more rational.
4469669,533,4293.98,4298.0601,1,But we have started our path toward evolution.
4469669,534,4298.3398,4303.4004,1,And therefore in the midst of our course of actions there will be um other opportunities as well.
4469669,535,4303.8599,4309.0601,9,Last question if I may the governance enhancement committee report that I'd like to ask about.
4469669,536,4309.1899,4316.6001,9,In that report the former senior executive officers have engaged in acts uh in violation of the corporate ethics.
4469669,537,4316.8701,4324.0703,9,And based on that well although uh the uh duty was already um relieved from the former executive.
4469669,538,4324.2202,4334.52,9,Uh and still you are asking for them to pay back their um ren uh remuneration and also uh the um uh some damages of lawsuits to be made.
4469669,539,4334.52,4335.8003,9,And what do you think of that?
4469669,540,4336.3198,4348.5601,1,Well first the reason of the report was compiled that perhaps uh induced by the independent investigator report that perhaps the EG um M uh wasn't organized in the fair um manner.
4469669,541,4348.71,4353.25,1,Um such as uh interfering with the uh voting activities of the shareholders and so forth.
4469669,542,4353.3398,4362.46,1,And then uh we uh as a company committed to uh the uh receipt of the independent uh investigative report in the very serious and sincere manner.
4469669,543,4362.73,4367.8999,1,And uh uh it is not the legal decision whether that was acceptable or not.
4469669,544,4368.2998,4377.1099,1,It is just the fact that we received the report from investigators and also some of the boards uh uh traits were resisted by the uh shareholders.
4469669,545,4377.2402,4382.8501,1,And um we believe that the pressure issue was the governance issue of this company.
4469669,546,4382.8799,4383.77,1,That is awareness.
4469669,547,4383.77,4387.1099,1,So it wasn't about what we ha what uh what had uh…
4469669,548,4387.4302,4389.4199,1,um what had happened in the past.
4469669,549,4389.4199,4391.9302,1,It was about the evolutions for the future.
4469669,550,4392.3901,4399.98,1,And without having the redevelopment of the governance structure of this company this spinoff plan will not be executed quite well.
4469669,551,4400.1802,4405.6699,1,And therefore as soon as possible we'd like to reorganized or re uh developed the governance structure of this company.
4469669,552,4406.2002,4412.77,1,And the full report of uh uh governance uh enhancement committee was now published.
4469669,553,4412.77,4420.4102,1,And I look at the fourth quarter regarding the um uh suggestions uh to the recurrence prevention measures.
4469669,554,4420.5098,4424.6001,1,And there were uh four uh major points was were raised.
4469669,555,4424.9102,4429.3804,1,And uh uh how we are going to rebuild the governance of this company.
4469669,556,4429.8101,4431.5903,1,How are we gonna rebuild the governance?
4469669,557,4432.0698,4435.4502,1,That I'd like to highlight in my expertise going forward in the company.
4469669,558,4436.0898,4442.0,1,I do not intend to um to uh just reflect upon what had happened in the past.
4469669,559,4442.3501,4446.1001,1,We just make um very sincere uh reflection about this.
4469669,560,4446.23,4453.9302,1,And it'll always uh the case that the company would say that uh we thought uh uh something had bad had happen and we will change going forward.
4469669,561,4454.1802,4455.6201,1,That's not what we are going to do.
4469669,562,4455.8398,4460.5801,1,We will do a serious exercise of such as brainstorming and uh discussions.
4469669,563,4460.6201,4467.7603,1,And we would like to be very strenuous of implementing uh the recurrence prevention manner m matters prevention measures.
4469669,564,4467.7598,4470.0498,1,And I'd like to spend a lot of time for that.
4469669,565,4470.79,4475.0298,9,Um are you suggesting that what had happened has a bygone so bygones be bygone?
4469669,566,4475.1201,4478.5801,9,And you are going to focus on more forward-looking actions going forward?
4469669,567,4478.6099,4479.27,9,Is that the case?
4469669,568,4481.2598,4490.0698,1,Well um compensation committee as uh uh Miss Watahiki um mentioned of the uh of uh mentioned.
4469669,569,4490.1099,4495.0098,1,Uh perhaps a a compensation committee may discuss something about what had happened in the past.
4469669,570,4495.04,4500.3101,1,But personally I've actually just count on the uh compensation committee for the decisions to come in the future.
4469669,571,4500.48,4501.6499,1,Thank you very much.
4469669,572,4503.0498,4504.6299,0,From Kyoto News uh Ms.
4469669,573,4504.6299,4505.9697,0,Inoue please have the floor.
4469669,574,4506.1602,4507.8403,10,Yes this is Inoue of Kyoto.
4469669,575,4508.7002,4509.8301,10,I have question to Mr.
4469669,576,4509.8301,4513.25,10,Tsunakawa regarding this decision.
4469669,577,4516.6401,4525.1997,10,Uh in the process leading to this decision the composition of the board has been reduced from thirteen by five members.
4469669,578,4525.5898,4533.5498,10,And uh Tsunaka-San you are serving as the pre president as well and on the board as well.
4469669,579,4533.5498,4538.3198,10,So I wonder uh how this uh decision was reached.
4469669,580,4538.3198,4541.8101,10,Uh so uh could you please uh give us your take on this?
4469669,581,4542.3101,4546.04,1,Yes chairperson of the board is served as a temporary position.
4469669,582,4546.04,4551.2202,1,And also for the president position we needed to find a successor as soon as possible.
4469669,583,4551.2202,4555.96,1,Of course uh uh the successor plan is uh being formed by any companies uh.
4469669,584,4556.4399,4561.0,1,And so anyway this is something that should be det determined by the nomination committee.
4469669,585,4561.1602,4563.2695,1,So I will follow the decision by the committee.
4469669,586,4563.54,4571.6001,1,And but uh for the current position and the duties and responsibility I would like to dedicate myself to fulfill these duties.
4469669,587,4572.3501,4578.98,10,So do you have the idea that you are going to continue to serve in order to com accomplish this spinoff?
4469669,588,4580.75,4583.75,1,Well at the board the current board serving…
4469669,589,4584.0898,4584.8999,1,Well I think that the…
4469669,590,4585.7998,4590.9302,1,By when I'm going to serve on the board uh this is to be determined by the nomination committee.
4469669,591,4590.9302,4591.3604,1,So…
4469669,592,4591.5698,4596.8799,1,But as far as we have this plan for the spinoff and we uh I would like to continue to dedicate myself.
4469669,593,4598.4902,4599.0298,10,And Mr.
4469669,594,4599.0298,4600.6597,10,Kurumatami resigned.
4469669,595,4603.3501,4604.9399,10,And the…
4469669,596,4605.7202,4611.2998,10,He was engaged in saying that uh he will respect the engagement with shareholders.
4469669,597,4611.2998,4611.9399,10,And I think that…
4469669,598,4611.9399,4612.8301,10,Do you think that there were…
4469669,599,4612.8599,4621.2998,10,If there was no uh influence by the activists uh do you think that we you didn't you had been reaching this decision this time around?
4469669,600,4621.9399,4623.9805,1,Well when you say activists…
4469669,601,4625.1899,4630.3301,1,And in this process uh we could learn a lot from the engagement with shareholders.
4469669,602,4630.3301,4635.3203,1,Particularly in relation to governance there are many things that uh we could learn.
4469669,603,4637.0498,4648.0498,1,Irrespective of whether or not the shareholders are activist or not but this time in order to enhance the value of the company and uh to enhance the shareholders' value we believe that this was the right decision.
4469669,604,4648.3398,4652.4697,1,Three years ago in twenty eighteen Toshiba next the plan was formulated.
4469669,605,4652.9302,4663.4102,1,And at that time the company's goal was to through maximization of com corporate value TSL t Total Shareholder Return is to be enhanced.
4469669,606,4663.7998,4664.7798,1,This is what we said.
4469669,607,4664.8701,4668.6196,1,So TSR or shareholders' value to be maximized.
4469669,608,4668.7998,4669.96,1,That was what we said.
4469669,609,4671.27,4674.7803,1,And this policy has not changed at all.
4469669,610,4675.2202,4681.3398,1,And at this time uh for the purpose of increasing the shareholder value or expanding the CSR.
4469669,611,4681.3999,4686.29,1,And this uh separation plan is very reasonable uh towards the future.
4469669,612,4686.4102,4688.25,1,We need to make evolution.
4469669,613,4688.2998,4692.0601,1,We believe that uh this is a very important one step towards that.
4469669,614,4692.0898,4692.98,1,Thank you very much.
4469669,615,4694.96,4697.1602,0,From Diamond Sanbogi-San please.
4469669,616,4699.0698,4701.21,11,From Diamond my name Sanbogi speaking.
4469669,617,4701.6699,4707.52,11,On a related note I would like to ask is about the top management positions.
4469669,618,4707.75,4710.04,11,And I do have several questions.
4469669,619,4711.8398,4719.6201,11,Within the year to find a successor and also the chair of the board meeting.
4469669,620,4720.5698,4724.98,11,And I understand that it'll be difficult to find a successor within the calendar year.
4469669,621,4725.02,4726.7998,11,I would like to know whether that is correct.
4469669,622,4726.7998,4729.8398,11,And also what are the reason?
4469669,623,4730.7998,4732.3296,11,And perhaps Mr.
4469669,624,4732.3301,4737.21,11,Brough from the nomination committee or anyone who is suitable to answer.
4469669,625,4737.5801,4738.8403,11,I hope that would be answered.
4469669,626,4739.1099,4743.4102,11,And also my next question is about the separation plan into three entities.
4469669,627,4744.3599,4747.1899,11,About the President c e o and the…
4469669,628,4747.46,4751.6899,11,Would that impact the finding the successor of the chairman.
4469669,629,4751.8799,4758.8296,11,And also when do you want to decide on the new management?
4469669,630,4761.8301,4766.1001,0,So at the first question we would like to ask Mr.
4469669,631,4766.1001,4771.71,0,Brough to And Please wait as we will be switching the image and also the line.
4469669,632,4857.0098,4862.6704,0,Excuse me the e g m should be March and the translator mistakenly announced that it was May.
4469669,633,4862.6699,4873.25,1,But the outside board directors deciding by December that plan.
4469669,634,4873.8301,4877.1899,1,And uh there there was a question on that point and the reason.
4469669,635,4878.5801,4884.8203,1,So this time this much strategic options and we had this change in the course.
4469669,636,4885.2798,4890.3604,1,And within the process unless it was fixed…
4469669,637,4890.8301,4895.4902,1,And as we were not able to recruit and appoint someone.
4469669,638,4895.4902,4898.5298,1,So that was what was mentioned at the nomination committee.
4469669,639,4898.5698,4909.4204,1,I am not a member of the nomination committee so the first priority was placed onto creating and specify the separation plan that was the priority.
4469669,640,4911.8901,4913.9502,1,That was the supplementary explanation.
4469669,641,4915.6802,4920.4302,0,Sanbogi-San we will move to the next question.
4469669,642,4921.9702,4925.4097,0,Next Takahashi-San of Toyo Keizai please.
4469669,643,4926.1099,4926.8198,12,Can you hear me?
4469669,644,4927.7598,4928.0,0,Yes.
4469669,645,4928.0298,4928.7603,0,Hear you well.
4469669,646,4929.79,4931.2998,12,This is Takahashi of Toyo Keizai.
4469669,647,4931.2998,4933.1104,12,Thank you very much for this opportunity.
4469669,648,4933.3398,4936.3101,12,I would like to follow up the previous question.
4469669,649,4936.3101,4938.4297,12,May I ask once again and confirm?
4469669,650,4939.02,4946.4697,12,Now the chairperson of the company uh for your uh uh company where uh…
4469669,651,4946.4702,4947.8501,12,What is the selection process?
4469669,652,4948.7598,4955.77,12,Well the question is that Tsunaka-San are you going to serve as an interim chairperson to um until this sp separation of the companies?
4469669,653,4955.9902,4957.48,12,May I confirm once again?
4469669,654,4957.9302,4960.6704,12,And I'd like to ask another question at this juncture.
4469669,655,4960.96,4963.3398,12,That the company will be separated into three entities.
4469669,656,4963.9102,4969.0498,12,And uh uh the third one which is considered to be the current Toshiba portion.
4469669,657,4969.4199,4975.6304,12,That that Kioxia's uh stake will be uh owned and also Toshiba Tec shareholder is going to be Toshiba.
4469669,658,4975.6299,4979.3301,12,But do you think that Toshiba will disappear in the future?
4469669,659,4979.3599,4984.1396,12,I just wonder uh the what is the continuation or existence of Toshiba entity going forward.
4469669,660,4984.6201,4988.8501,1,Regarding who will be uh the Chairperson and c e o in the future.
4469669,661,4989.02,4995.5898,1,Regarding that outside directors are comprising the nomination committee.
4469669,662,4995.5898,4998.1299,1,So it is up to the nomination committee's decision.
4469669,663,4998.3198,5001.8901,1,So at this point in time there's nothing that we know of.
4469669,664,5002.1401,5005.6401,1,And therefore it is up to the nomination committees to discuss going forward.
4469669,665,5006.1099,5009.7803,1,Now regarding what would happen to the legacy Toshiba.
4469669,666,5010.1099,5013.1499,1,Um uh what would happen on that entity.
4469669,667,5013.4902,5018.4097,1,Well uh the Toshiba will own the uh ownership stake of Kioxia.
4469669,668,5019.1401,5024.3701,1,And therefore Kioxia's ownership we would like to monetize uh into the cash as soon as possible.
4469669,669,5024.79,5027.9897,1,And uh for Toshiba Tec positioning is completely different.
4469669,670,5028.04,5037.3896,1,While Kioxia is equity method applicable company and uh Toshiba Tec is fully uh uh consolidated listed as subsidiary.
4469669,671,5041.98,5046.2803,12,What we call databases for that there's nothing decided at this point.
4469669,672,5046.7798,5049.3301,12,Uh we are working on digitalization of the databases.
4469669,673,5049.4399,5057.4004,12,And uh to Toshiba Tec earns many data and uh Toshiba Tec's business is dispen indispensable for uh Toshiba overall.
4469669,674,5057.6802,5059.27,12,So what would happen for that entity?
4469669,675,5059.6001,5064.1201,1,Currently there are uh the heavy uh debt and also brand management issue as well.
4469669,676,5064.3901,5069.23,1,Uh we need to um discuss about the details going forward so that is the current situation.
4469669,677,5071.0601,5071.5703,12,Thank you.
4469669,678,5072.02,5075.9497,12,Now do you have clear pathways for divestors and so forth?
4469669,679,5076.2402,5077.1304,1,No none.
4469669,680,5077.3999,5078.8799,1,Are are you asking about Tec?
4469669,681,5079.5698,5080.1196,12,Correct.
4469669,682,5080.3599,5081.2002,1,Uh the Tec…
4469669,683,5081.3901,5083.3701,1,For the Toshiba Tec nothing is decided.
4469669,684,5085.2202,5088.29,12,May I ask a further question?
4469669,685,5089.2402,5091.2798,12,Relationship of the three entities.
4469669,686,5091.3701,5097.9897,12,Once these are spinoff and it'll be different independent entities I'm not sure it is legally uh allowable or not.
4469669,687,5097.9902,5101.6699,12,However for example cross-holding those shares for example among the three entities.
4469669,688,5101.71,5102.9697,12,Would that be a viable option?
4469669,689,5104.1899,5109.1602,1,Uh under the laws and regulations in Japan cross-shareholding of three entities is impossible.
4469669,690,5109.52,5113.1997,1,So we will not own uh we will not have a cross-sharing of the shares.
4469669,691,5113.2998,5114.0996,0,Thank you very much.
4469669,692,5114.4302,5115.4297,0,Next is TV Tokyo.
4469669,693,5115.6099,5116.1997,0,Abe-San please.
4469669,694,5118.73,5120.5698,13,This is Abe of TV Tokyo.
4469669,695,5120.6001,5121.6304,13,Can you hear me?
4469669,696,5121.71,5122.3501,0,Yes.
4469669,697,5125.8999,5135.7197,13,In this press conference that materials are titled The Transforming Toshiba to Enhance Shareholder Value.
4469669,698,5138.3701,5145.27,13,And it used to be 'to enhance corporate value but it has been changed to enhance shareholder value.
4469669,699,5145.4399,5146.7598,13,Is it correct?
4469669,700,5147.8301,5149.4497,1,Oh I don't know.
4469669,701,5149.48,5150.2896,1,I'm not sure.
4469669,702,5151.0098,5154.3999,1,The common uh shareholder value should be enhanced.
4469669,703,5154.3999,5163.21,1,Uh that uh was the word we finalized uh and by maximizing corporate value and then shareholder value will be also enhanced.
4469669,704,5163.7402,5167.4897,1,So in the end ultimately shareholder value will be enhanced.
4469669,705,5167.9302,5171.8501,1,As the means to do that and then corporate value should be increased.
4469669,706,5171.8501,5174.2798,1,And so TSR should be expanded.
4469669,707,5174.2798,5179.27,1,So as the final point to reach we uh wrote shareholder value.
4469669,708,5180.6899,5182.8501,13,The reason why I asked this question.
4469669,709,5182.8799,5194.5498,13,According to what I heard from the company's people and uh the current management team maybe people are looking only towards the shareholders within the management team.
4469669,710,5194.8198,5198.5898,13,And that is the criticism that we have heard from the people in the company.
4469669,711,5198.6299,5200.02,13,Activists so particularly.
4469669,712,5200.77,5204.3203,13,In particular shareholders are and considered most.
4469669,713,5204.3198,5213.8003,13,Uh and in preparation of this material Tsunakawa-San you mentioned that uh there are a lot of discussions management team and uh top executives of the subsidiaries and so forth.
4469669,714,5214.46,5216.4702,13,So uh have you…
4469669,715,5216.8999,5222.96,13,I believe that uh there was only limited discussion with the top executives of the subsidiaries or operating companies.
4469669,716,5222.96,5224.9697,13,And it was uh out of the blue for them.
4469669,717,5225.3999,5230.1099,13,Do you think that uh you have obtained understanding from the internal people about this plan?
4469669,718,5233.5,5242.5498,1,We have been continuing to say uh since three years ago when uh Toshiba next the plan was announced and TSL should be enhanced.
4469669,719,5242.5498,5244.6899,1,We have been keeping to say the same thing.
4469669,720,5244.8301,5247.0498,1,But of course our shareholders stakeholders.
4469669,721,5247.3501,5253.3599,1,But uh of course uh the society at large and employees all the stakeholders uh should be valued.
4469669,722,5253.7202,5256.5098,1,And uh this is our policy which had stayed unchanged.
4469669,723,5256.5098,5264.75,1,And at this time uh again we do not uh change this policy at all by having this separation into three companies.
4469669,724,5264.7798,5278.4004,1,And then we believe that we will be able to provide appropriate services to customers and there will be uh incentives and various benefits and merits for employees as well based upon the business cycle of each company after separation.
4469669,725,5278.6499,5286.3501,1,And as uh overall for all the stakeholders we believe that uh this decision is going to be the best option.
4469669,726,5290.9102,5298.25,13,Current shareholders will obtain the shares of uh the two standalone companies which will be listed on the market.
4469669,727,5299.1802,5309.71,13,That regarding the percentage the mix or percentage of the shares to be allocated do you think that this will be reflecting the current values?
4469669,728,5311.8301,5315.8101,1,Well I think that would be determined when the spinoff is completed.
4469669,729,5315.9199,5318.3599,1,We do not have anything that has been clarified.
4469669,730,5318.8599,5320.71,1,Well no nothing clarified.
4469669,731,5321.25,5327.0903,1,Then the structure of the uh shareholding ownership structure is different.
4469669,732,5327.5098,5331.5098,1,But I think there will be uh option for shareholders to choose.
4469669,733,5331.7202,5338.2402,1,expe Well based upon the same ratio I think maybe I should defer this question to CFO.
4469669,734,5340.9902,5352.29,1,So in two years sometime in two years from today the ownership structure uh will be divided.
4469669,735,5352.5601,5357.4502,1,I mean shares of the Toshiba held by shareholders will be uh divided.
4469669,736,5357.71,5364.4702,1,And shareholders will be provided with the uh different uh shares in each uh company each entity.
4469669,737,5364.7598,5371.0,1,So it'll depend on the decision of shareholders regarding what to do with those allocated uh shares.
4469669,738,5374.0801,5383.0601,1,And I think there is a s uncertainty whether or not you the company will be able to maintain r and d functions.
4469669,739,5383.0601,5390.6196,1,For example in the case of infrastructure company infrastructure business and q k d business.
4469669,740,5390.6201,5397.1001,1,Of course quantum encryption uh it'll cost a lot of money in r and d activities.
4469669,741,5398.23,5404.79,13,So after separating into two entities and the research laboratories will be also divided into two.
4469669,742,5405.1099,5413.6597,13,So do you think that you can you will be able to maintain such capabilities uh that Toshiba that um cutting-edge technology can be really maintained?
4469669,743,5414.5,5421.6401,13,I think uh there needs to be more clearer uh forecast or outlook regarding this.
4469669,744,5425.04,5425.3501,1,Okay.
4469669,745,5425.3501,5426.4199,1,I would like to defer to Hatazawa-san.
4469669,746,5428.04,5436.1797,3,Within the numbers represented CapEx r and d expenditures are explained for the coming three years.
4469669,747,5438.0898,5449.6196,3,And according to the current plan the gross plan to be supported by the gross funds as you know to be spent in the r and d and the CapEx.
4469669,748,5450.7002,5455.3398,3,So these are estimated to be more aggressively spent.
4469669,749,5456.2002,5467.0601,3,r and d expenditures in addition to the ratio of r and d expenditure in the total sales uh which has been increased by one percent or two percentage points.
4469669,750,5467.0601,5471.5103,3,So overall we are going to put more focus on the r and d.
4469669,751,5473.4302,5491.1299,3,And in terms of division into device and the infrastructure and uh contents of that research uh it'll depend on the uh where in the business activ areas uh such activities can be allocated to and then the expenditures or efforts will be divided.
4469669,752,5491.1802,5497.5898,3,As Tsunakawa mentioned and the basic research we would like to avoid the negative impacts of the spinoff.
4469669,753,5497.8901,5500.8501,3,Uh we will consider that in the process of spinoff uh completion.
4469669,754,5500.8501,5504.6802,3,And r and d is uh continues to be important for the company.
4469669,755,5504.6802,5510.46,3,So we will continue to be even more aggressive in spending in the r and d.
4469669,756,5510.71,5514.2397,13,Lastly have you already reported this plan to METI?
4469669,757,5514.5298,5516.5098,13,If so what was the feedback?
4469669,758,5516.6602,5518.3701,13,What was the reaction from METI?
4469669,759,5520.9502,5527.3203,3,Yes we went to explain this to them in advance.
4469669,760,5527.3198,5530.0498,3,I don't think there was any negative feedback from them.
4469669,761,5530.98,5531.9102,13,Thank you very much.
4469669,762,5534.3901,5535.21,0,So it is about time.
4469669,763,5535.21,5537.5098,0,So we would like to take the last question.
4469669,764,5537.5801,5539.23,0,Nikkei business Kuda-San please.
4469669,765,5541.6699,5543.3003,14,This is Kuda-Ji from Nikkei Business.
4469669,766,5543.77,5544.6602,14,Do you hear me okay?
4469669,767,5545.2998,5545.7603,14,Thank you.
4469669,768,5546.52,5550.1099,14,So I have three last questions two to Tsunakawa-san.
4469669,769,5550.9502,5552.3701,14,So about the Kioxia shares.
4469669,770,5553.3999,5559.5,14,So in order to solve the n excessive net operating loss I believe that it was being used.
4469669,771,5559.8701,5560.1201,14,So…
4469669,772,5562.23,5564.1001,14,So we have the device company.
4469669,773,5565.4302,5570.8496,14,So I don't think you need to be desperate to sell sell the shares.
4469669,774,5571.1499,5574.5098,14,And if you keep the shares and stake perhaps you can save some energy.
4469669,775,5574.8701,5578.9302,14,So but are you still willing to determine to sell the stake?
4469669,776,5579.1299,5581.3799,14,And the second one is about the separation plan.
4469669,777,5582.23,5587.02,14,So uh t I think there's a sepa special resolution will be required at the E G M.
4469669,778,5587.4399,5592.9102,14,But I think that the special resolution to be attained is going to be ver uh uh hard hu hurdle.
4469669,779,5610.2002,5623.7803,14,And also s I believe that the split the opinion is quite split if that is what I heard.
4469669,780,5625.5,5634.77,14,Within the s r c so why not sell to the PE fund but this separation plan was supported?
4469669,781,5635.1699,5641.8096,14,So could you reiterate the reason because I did not find in the explanation the reasoning.
4469669,782,5642.0601,5643.7397,14,So could you could that be answered?
4469669,783,5644.5601,5648.46,1,So myself Tsunakawa with these Kioxia stake shares.
4469669,784,5649.3799,5652.3203,1,So why not seek synergy with the semiconductor business?
4469669,785,5653.21,5656.4697,1,Memory business will require massive investment.
4469669,786,5657.1401,5663.98,1,And even with the current financial position we have decided no longer to continue.
4469669,787,5664.0298,5667.75,1,And so instead to monetize the stake.
4469669,788,5667.7798,5669.5801,1,So that has been already decided from the…
4469669,789,5670.1001,5670.6299,1,before.
4469669,790,5670.8599,5672.5596,1,And there is no change to this policy.
4469669,791,5673.02,5676.4102,1,And about the two-third special Resolution twenty twenty three.
4469669,792,5677.1802,5678.8501,1,So until that point.
4469669,793,5681.6602,5689.3799,1,As I mentioned earlier this reform is just the beginning and it is sort of a declaration.
4469669,794,5689.5801,5697.79,1,And so in the meantime there will be further reform that is going to come and will be executed also capital policy as well.
4469669,795,5698.2798,5703.04,1,And also for the shareholders that we will be endorsed and be supported.
4469669,796,5703.0698,5704.2397,1,We will make the effort.
4469669,797,5706.77,5707.77,14,And Mr.
4469669,798,5707.77,5709.3501,14,Brough could you respond please?
4469669,799,5793.0898,5799.2202,0,Uh so those of you who were not picked up other questionnaire and please uh retract your questions by pressing two.
4469669,800,5799.7002,5808.4199,0,Now we'd like to uh open the sessions for the analysts and uh the um investors and please uh enter your question by pressing asterisk and one.
4469669,801,5809.3901,5811.0498,0,Citigroup Aizawa-san please.
4469669,802,5813.8799,5815.9897,15,This is Aizawa of Citigroup.
4469669,803,5815.9902,5817.0303,15,Can you all hear me?
4469669,804,5817.71,5818.6699,15,Thank you very much.
4469669,805,5818.6699,5820.1099,15,Two questions at this point.
4469669,806,5822.4702,5838.7397,15,Um until recently now uh the uh clearly identify the newer core business or the divestitures of some part of the business were uh possibly be discussed at the company it seems.
4469669,807,5838.98,5844.1299,15,And now the company have a uh concluded that the spinoff is uh correct option.
4469669,808,5844.8198,5849.0996,15,But uh in terms of the divestitures compared to spin off…
4469669,809,5851.02,5860.1797,15,Well compared to the divestitures versus spinoff why did you conclude that spinoff generates the larger upsides in the c uh company shareholders' value?
4469669,810,5860.4502,5863.98,15,And uh what is the benefit of having a split?
4469669,811,5863.98,5865.8999,15,So could you elaborate on that specifically?
4469669,812,5865.8999,5866.8301,15,That is the first question.
4469669,813,5867.21,5878.3398,15,Second question is pertaining to the presentation about Tsunakawa-san at the outset that uh business portfolio will opt for the further revi revisions and uh portfolio reali realignment going forward.
4469669,814,5878.6499,5881.1899,15,Uh that's how I understood your presentation.
4469669,815,5881.4902,5889.5503,15,Ultimately being Toshiba Group what would be the desirable ways of uh how Toshiba would be like in the future?
4469669,816,5890.0098,5896.23,15,I think it would be beyond what you have decided on in two years time beyond that as a result of the spinoff.
4469669,817,5897.8198,5903.04,15,Do you think that um a complete and separate industry entity would be ultimate form of the company?
4469669,818,5903.04,5906.1196,15,Or do you see further realignment of the companies?
4469669,819,5906.2598,5909.0601,15,Uh do you have any visions beyond uh two years time?
4469669,820,5909.9702,5914.4097,1,Now um question one and two I think some parts are interlinked.
4469669,821,5914.6499,5926.3301,1,So at the beginning in the medium-term plan inclusive non-core and core it is true that uh the management has uh discussed about a possible segregation of the core and non-core.
4469669,822,5926.6602,5932.2197,1,But uh we uh tried to focus on what the companies they are would be in the near future.
4469669,823,5932.2202,5934.46,1,So that was a focal point this time.
4469669,824,5934.8501,5945.23,1,And therefore uh the identifying core versus non-core uh that is actually on the ongoing discussion at this moment as well and we will continue that discussions going forward as well.
4469669,825,5945.7002,5951.7598,1,So uh what we have announced this time is just a starting point of improving the uh value going forward.
4469669,826,5952.0498,5954.0,1,So there will be two new core.
4469669,827,5954.9399,5968.0898,1,And as soon as possible uh they will prepare the business plan on their own and we'd like to provide opportunity so that new two new goal will be able to present their own business plan for the future.
4469669,828,5968.4902,5977.23,1,Going back to the first question what is the strength and what was the advantage of the split idea versus the uh divestitures?
4469669,829,5977.2598,5982.5596,1,There are three squares uh uh in the previous uh uh uh presentations.
4469669,830,5982.5601,5987.6597,1,And I am c e o of this company and therefore cash flow from the main;
4469669,831,5987.7002,5990.7402,1,s business is the core challenge for me.
4469669,832,5990.79,5993.6802,1,And that is the main thing uh in my opinion.
4469669,833,5993.7202,5999.5898,1,And the fore forecast and agile business management is the very important point in my view.
4469669,834,5999.8198,6002.0,1,Uh sorry I'm talking too lo too long.
4469669,835,6002.21,6003.0098,1,But if uh to…
4469669,836,6003.0098,6007.9399,1,re in retrospect I've been serving as CEO and C O O for a very long time for this company.
4469669,837,6008.3999,6011.3901,1,And what I remorse about is that we were able to…
4469669,838,6011.5698,6014.9399,1,We were not able to exercise the growth strategy properly.
4469669,839,6015.2202,6018.8096,1,So at the right timing we'd like to make an investment at appropriate timing.
4469669,840,6019.0098,6020.1401,1,We'd like to be very agile.
4469669,841,6020.8501,6027.1304,1,And um we have a very good technology uh at the uh highest or top in the world.
4469669,842,6027.48,6033.5103,1,And and uh uh will we be able to use our marketing capabilities in a very quick and agile way?
4469669,843,6033.7402,6035.9399,1,The question remains um as is.
4469669,844,6036.2998,6049.96,1,So um because of the split at this time I hope that uh our senior management who are um uh very um uh have a specialized knowledge about this area will be able to make a very agile decision.
4469669,845,6050.29,6056.8599,1,And I hope that this particular shortcoming of by myself will be resolved in that uh separation of the businesses.
4469669,846,6056.9102,6059.4805,1,So I tried to answer two questions at once.
4469669,847,6059.7002,6059.8701,1,It…
4469669,848,6060.0698,6061.4502,1,Did it satisfy yourself?
4469669,849,6061.8999,6063.0601,15,Thank you very much.
4469669,850,6066.1802,6067.1802,0,Thank you very much.
4469669,851,6070.3101,6070.79,0,Next.
4469669,852,6071.6299,6074.7803,0,From SMBC Nikko Securities Yoshizumi-San.
4469669,853,6074.7798,6080.8999,16,This is Yoshizumi of SMBC Nikko Securities.
4469669,854,6080.8999,6081.6201,16,Can you hear me?
4469669,855,6081.6499,6082.4399,0,Yes we can.
4469669,856,6082.8799,6083.8301,16,Thank you very much.
4469669,857,6084.5098,6085.7603,16,I have two questions.
4469669,858,6086.2998,6099.5,16,First question is through separation to unlock value what is the concrete image of unlocking value through s spinoff conglomerate discount will be resolved?
4469669,859,6101.0298,6102.5996,1,I think that was the basis.
4469669,860,6103.3301,6103.8203,16,So the…
4469669,861,6103.8999,6108.8003,16,Are you sure that uh this conglomerate uh demerit uh uh discount can be resolved?
4469669,862,6108.7998,6111.1499,16,So could you please give us your specific opinion?
4469669,863,6111.7002,6123.4399,16,In fiscal year uh twenty twenty three the operating income of uh two hundred billion yen which is rather conservative and infrastructure service ROIC is still ten percent.
4469669,864,6123.9102,6130.3701,16,I think earlier infrastructure service uh will achieve thirty percent infrasystem ten percent.
4469669,865,6130.3701,6134.0796,16,So in total at least twenty percent can be secured.
4469669,866,6134.0801,6138.1001,16,So I think that that there will be the uh improvement uh room.
4469669,867,6138.1401,6142.02,16,But uh the after this split and then ten percent ROIC.
4469669,868,6142.02,6146.96,16,And then do you think that the the conglomerate discount can be really cleared or resolved?
4469669,869,6147.0098,6151.4902,16,So uh this is my first question about your expectation on these points.
4469669,870,6152.7998,6155.5703,1,Okay I would like to respond first.
4469669,871,6155.5698,6157.9502,1,And I would like to ask Hatazawa-san to supplement.
4469669,872,6158.75,6161.1499,1,And this time I'm looking the value.
4469669,873,6162.1499,6169.9902,1,This is the headline but the purpose uh itself is not to resolve uh the uh conglomerate discount.
4469669,874,6169.9902,6179.3398,1,We needed to clarify the structure so that each individual standalone company will be able to manage their business respectively in an easy to understand manner.
4469669,875,6179.6001,6181.7197,1,As a result the performance will be better.
4469669,876,6182.2598,6186.2598,1,So it'll lead to that resolution of the conglomerate discount.
4469669,877,6186.2998,6188.2397,1,This is what i am s uh feeling.
4469669,878,6189.79,6207.5703,1,Regarding numbers I said earlier the numbers that can be achievable because we have been pointed out uh about the lack of achieving whatever commitment we have been making in the past.
4469669,879,6207.5698,6211.5,1,And so there was the criticism from the uh sources on the market.
4469669,880,6211.5,6216.4897,1,So that's why we came up with these numbers which are seemed to be sure to be achieved.
4469669,881,6217.0498,6219.3203,1,Hatazawa is going to supplement.
4469669,882,6219.5601,6222.0801,3,And in twenty twenty five and towards two oh three-
4469669,883,6222.0801,6228.2603,3,twenty thirty we a presented a plan towards those uh years.
4469669,884,6228.2998,6232.71,3,And uh internally we have that uh forecast or targets for twenty twenty five.
4469669,885,6233.23,6241.8804,3,And based upon the opinion from external parties uh we were asked to secure the delivery on the committed numbers.
4469669,886,6241.8799,6244.8296,3,So that's why we came up with the conservative plan.
4469669,887,6245.1602,6248.5,3,And we are showing the plan for the coming three years alone.
4469669,888,6249.5601,6261.0898,3,And in fiscal year twenty four twenty five uh we have a plan in in inside the company I would like to disclose those plans at the appropriate uh opportunity.
4469669,889,6261.1401,6271.3599,3,And uh we talked about the importance of investing in r and d activities and the results will be realized in fiscal year twenty four and twenty five.
4469669,890,6274.1401,6288.7598,3,And external parties particularly listening to the voices of shareholders and within the short period of time until fiscal year twenty three uh what can be secured to be achieved and uh what can be achieved in the short term it should be presented.
4469669,891,6288.7598,6293.5503,3,So you may think that these numbers seem to be a little weak but uh I'm sorry.
4469669,892,6293.8101,6294.0303,3,We…
4469669,893,6294.0601,6296.7397,3,That was the basis for coming up with this uh number.
4469669,894,6297.1499,6299.6499,3,And we wanted to incorporate some risk buffers.
4469669,895,6300.0,6302.0098,3,And so that's why we came up with this plan.
4469669,896,6302.2998,6302.7002,3,That's all.
4469669,897,6302.7002,6303.2402,3,Thank you.
4469669,898,6303.9199,6304.8101,16,Thank you very much.
4469669,899,6305.7002,6308.52,16,My second question is for CFO.
4469669,900,6309.4302,6317.96,16,In the coming two years share buyback in the level of one hundred billion yen you said.
4469669,901,6318.1201,6329.6802,16,And uh is it related to that sale of the shares in uh Kioxia or it is not included in the uh buyback plan and utilizing NOL?
4469669,902,6330.46,6337.1499,16,And then what will be the advantage benefits of the tax uh issues at a time of uh a sale?
4469669,903,6339.2402,6343.6802,16,So uh qua qualitative comment will be okay.
4469669,904,6343.6802,6345.4297,16,So could you please give us your comment?
4469669,905,6346.3198,6348.21,4,Thank you very much for your question.
4469669,906,6349.3198,6352.8296,4,Regarding your first question as Mr.
4469669,907,6352.8301,6362.5596,4,Tsunakawa mentioned at our company we have a yardstick of so-called appropriate level of capital.
4469669,908,6362.79,6368.6099,4,So uh capital exceeding that appropriate level will be returned to shareholders.
4469669,909,6368.6099,6370.0298,4,That's what we have been saying.
4469669,910,6370.0698,6378.8501,4,As Hatazawa-San mentioned earlier in twenty two or twenty one this current uh fiscal year and uh this coming twenty two.
4469669,911,6379.7202,6386.46,4,In these years we came up with this rather sure plan.
4469669,912,6386.4902,6390.6597,4,Therefore we will be able to achieve this uh net income number.
4469669,913,6391.2798,6401.3101,4,So considering all these and according to our calculation we'll be able to uh return in the order of about one hundred billion yen to shareholders.
4469669,914,6402.7402,6403.9004,4,So uh the…
4469669,915,6404.0098,6408.6104,4,Regarding the gains from the sale of Kioxia shares is outside of this number.
4469669,916,6409.2002,6426.1001,4,And regarding the n o l net operating loss you s Well as you know according to the tax law uh for the current fiscal year uh half of uh the uh amount recorded in current fiscal year can be utilized.
4469669,917,6426.1001,6431.52,4,So based on their balance sheet that there is NOL in the amount of about three hundred billion yen.
4469669,918,6431.9399,6441.0601,4,So how and when Kioxia Kioxia uh stake and sh Kioxia can be sold at any point.
4469669,919,6441.48,6444.5801,4,So if at that time if we still have the NOL.
4469669,920,6445.1201,6452.4497,4,And then the about half of the gains obtained through the sale of Kioxia shares will be offsetted by NOL.
4469669,921,6452.8301,6453.7603,4,Thank you very much.
4469669,922,6453.7998,6454.3198,16,Understood.
4469669,923,6456.75,6457.2197,0,Thank you.
4469669,924,6458.8799,6459.3398,0,Next.
4469669,925,6460.0,6460.52,0,u b s.
4469669,926,6461.23,6462.3701,0,Yasu-Sama please.
4469669,927,6465.1602,6465.6104,17,Thank you.
4469669,928,6465.6699,6466.21,17,UBS.
4469669,929,6466.21,6467.3403,17,This is Yasu speaking.
4469669,930,6468.3501,6469.1997,0,Yes we hear you.
4469669,931,6471.8301,6478.3198,17,I have one question but there are three aims in asking my one question.
4469669,932,6481.1802,6488.9702,17,So this announcement about how management is done also how the business exists.
4469669,933,6489.02,6492.7397,17,I i'm sure that there was a lot of discussion on these matters.
4469669,934,6493.1899,6498.5103,17,So the ideal state of Toshiba.
4469669,935,6499.27,6502.1499,17,What do you believe is the most ideal?
4469669,936,6502.7798,6511.02,17,I know that it could be something unrealistic but could you explain about the ideal state of Toshiba?
4469669,937,6511.0498,6513.6997,17,The reason i am asking there are three reasons.
4469669,938,6515.8799,6518.8999,17,What do you think the issue of Toshiba is?
4469669,939,6519.2798,6530.04,17,And the process not how you've reflected but if there's anything an event that has led to you to the process?
4469669,940,6530.1899,6545.27,17,And also second part is that when selecting the management of the new separated company when you want to hand over to the new management what is your ambition?
4469669,941,6545.27,6549.0498,17,What is your hope that the new management to realize?
4469669,942,6549.0801,6554.6602,17,And also the three part is that the u s g e also have decided the separation.
4469669,943,6555.1001,6562.3999,17,So I believe that separation spinoff is now being questioned and this is something beyond shareholders.
4469669,944,6562.8398,6566.6802,17,So what is the significant meaning of separation?
4469669,945,6566.6802,6574.4902,17,I understand being agile that is the one of the advantage but also this has been said from the early two thousands.
4469669,946,6574.79,6581.3203,17,And so why now today separation spinoff is being decided?
4469669,947,6581.5898,6583.8799,17,Does that reflect something in society?
4469669,948,6583.8799,6585.6899,17,So these are my questions.
4469669,949,6587.79,6589.3101,1,I would like to respond.
4469669,950,6589.8701,6594.7197,1,And if any of the two of my colleagues have anything to add.
4469669,951,6594.7202,6596.8301,1,So what is the ideal state?
4469669,952,6597.2798,6607.6904,1,So I know that this will differ but for myself well we have a business and we are trying to solve the social issues around us.
4469669,953,6607.73,6612.5098,1,And it that is what is happening on a daily basis and the repetition.
4469669,954,6613.3999,6618.9897,1,Personally the company brand that is nothing.
4469669,955,6619.1802,6621.3999,1,That is not where I am particular about.
4469669,956,6622.0801,6627.3999,1,Well medical social medical some went to kinda medical.
4469669,957,6627.3999,6630.5298,1,And with this given the COVID situation.
4469669,958,6631.8799,6639.2002,1,And MRI for example they're very well and if well-positioned in Japan globally which is very…
4469669,959,6640.9702,6643.8701,1,And although I'm sad the Toshiba name is gone.
4469669,960,6644.8599,6649.3203,1,But what I have done is contribute to society and seeing it growing.
4469669,961,6649.6299,6651.6899,1,That itself make me very happy.
4469669,962,6652.1201,6664.5498,1,So in the same sense in the same note that what we are doing in our business that our employees being satisfied and also contributing to society I think that is the ideal way ideal state.
4469669,963,6665.25,6677.6499,1,So even in the form that it is split into two or more with the name changes but our mission itself how we execute and realize the mission I think that is the important part.
4469669,964,6678.1001,6681.0698,1,And so I was questioning myself what is the ideal state.
4469669,965,6681.0698,6685.9302,1,I know that I'm talking a lot so perhaps this will be my response.
4469669,966,6685.9302,6696.2002,1,And also to ask what I expect towards the future management especially the largest issue is governance.
4469669,967,6697.8901,6702.9102,1,So when it comes to governance this is going to be the fundamentals and management.
4469669,968,6703.3501,6712.04,1,And governance enhancement committee has pointed out that although it may take some time that we want to reconstructure reconstruct the governance.
4469669,969,6712.2002,6719.5801,1,And also with the new company management there was a mention about what type is suitable.
4469669,970,6719.6499,6726.6802,1,And it is mentioned sometimes we will uh seek talent from the outside of the market.
4469669,971,6726.7402,6735.4302,1,And also something with the capability of the governance perspective that is going to be some of the basics requirements qualifications.
4469669,972,6735.7002,6741.1699,1,And it was just by chance that GE also announced that Nikkei's leak.
4469669,973,6741.3101,6747.29,1,With that we were a little earlier in uh with our scheme to be known.
4469669,974,6747.71,6751.0498,1,I don't know if this answers Yasu-San's question but that is my impression.
4469669,975,6751.0498,6752.48,1,Do you have do you have anything to add?
4469669,976,6754.9502,6756.6699,1,Has uh also responding.
4469669,977,6756.6699,6761.0801,3,I think that what each individual will be answering will be differ.
4469669,978,6761.0801,6763.0498,3,So this is my personal view.
4469669,979,6765.7002,6777.8398,3,Myself I believe that Toshiba's mission and philosophy is that what is asked for by Toshiba and we have the responsibility to execute our responsibility.
4469669,980,6778.1099,6782.4004,3,So that is what we are required of and that is the reason of existence.
4469669,981,6785.8901,6786.7002,3,So that is one thing.
4469669,982,6786.7002,6790.71,3,On the other hand what clients customers request us.
4469669,983,6791.75,6796.3604,3,Sometimes the time is different and also the requirement is different.
4469669,984,6796.6401,6803.8398,3,Meaning that sometimes we cannot make a management decision which has been pointed out as an issue.
4469669,985,6803.8901,6805.5601,3,I think this applies to GE.
4469669,986,6806.0498,6808.5,3,The management environment has changed.
4469669,987,6808.9902,6810.1201,3,Speed is required.
4469669,988,6810.3901,6823.29,3,So not like a time in the past with a lot of things mixtured in between we will not be able to catch up and we cannot make a pure decision in order to survive.
4469669,989,6823.29,6828.5898,3,So that is why I believe that spinoff or separation could be one of the trend.
4469669,990,6829.7402,6844.3999,3,We have the infrastructure energy and serve the clients in this industry and we believe that Toshiba may have only the answer and for the device and this and also for the future information society.
4469669,991,6845.0498,6846.5,3,What is required of Toshiba?
4469669,992,6847.6401,6852.6299,3,We need to create the solutions in a quickly manner that is requested by our clients.
4469669,993,6852.77,6861.5801,3,I think that is what we exist for and that is the reasoning for why we have decided on this decision and also it matches the needs.
4469669,994,6865.1201,6872.2402,4,Also let me also say a few words from a fi financial position perspective.
4469669,995,6873.1899,6877.0103,4,From a shareholder we have the equity.
4469669,996,6877.1899,6882.1396,4,And also we want to steadily increase the value.
4469669,997,6882.1401,6884.21,4,That is also the mission of the company.
4469669,998,6884.7998,6893.3804,4,For this to happen as Hatazawa-san mentioned we need to win the trust of our clients' customers.
4469669,999,6893.3799,6897.8003,4,And also we have to deliver the products and services that is required of.
4469669,1000,6897.7998,6907.8301,4,And what is most important is that the employees also share the same missions look at the same direction be aligned in the same mission.
4469669,1001,6908.0601,6913.7002,4,So eventually that will lead to increase the value for the shareholders and unlock of values.
4469669,1002,6916.5601,6918.8599,4,There are various means to realize this.
4469669,1003,6919.27,6934.2998,4,And given the current situation of Toshiba what we have been discussing and what we are trying to execute this framework is going to be the best path forward for the shareholders.
4469669,1004,6934.3301,6936.4297,4,I personally believe so strongly.
4469669,1005,6936.4302,6936.8901,4,Thank you.
4469669,1006,6941.8301,6942.8501,0,Thank you very much.
4469669,1007,6946.0698,6949.2803,0,Next we would like to invite from Goldman Sachs Mr.
4469669,1008,6949.2798,6950.1201,0,Harada please.
4469669,1009,6953.0601,6955.1396,19,This is Harada speaking from Goldman Sachs.
4469669,1010,6955.1401,6955.6699,19,Thank you.
4469669,1011,6956.29,6957.2896,19,Can you all hear me?
4469669,1012,6958.3101,6958.7798,19,Thank you.
4469669,1013,6959.6001,6962.0,19,Now I would like to ask one question.
4469669,1014,6962.6201,6967.0498,19,Now my question may sound a very similar to other previous questions.
4469669,1015,6967.2402,6971.7202,19,Now infra services and device uh that you are going to separate into.
4469669,1016,6972.0498,6980.5,19,And infra services company itself is considered a conglomerate in my opinion when we look at the business structure.
4469669,1017,6980.8901,6988.1099,19,On the global basis for example elevators uh could be divestitures going forward or carved out going forward.
4469669,1018,6988.6001,6996.8301,19,And uh going forward do you think that further realignment of <inaudible> services and in scope or in your vision at this point?
4469669,1019,6997.5801,7001.9102,19,And uh in addition there are many conglomerate-based companies in Japan.
4469669,1020,7003.0898,7008.29,19,Be it good or bad your company is having a col connection connection with METI.
4469669,1021,7010.0298,7022.1201,19,Then in order to enhance competitiveness uh of the overall corporate Japan perhaps the realignment of the company's uh uh involving whole or corporate society in Japan is perhaps is considered.
4469669,1022,7022.3999,7024.0898,19,Was that a part of discussion with them?
4469669,1023,7024.4902,7034.3501,19,And also uh being a part of a concept from the side of a senior management would that be also something that you would consider uh if a good opportunity arises?
4469669,1024,7034.3999,7037.8301,19,Uh are you conscious of this type of uh operation or opportunity?
4469669,1025,7039.8101,7043.8501,1,So infrastructure c company there are a variety of business included.
4469669,1026,7044.29,7047.3101,1,However there are some common denominators.
4469669,1027,7047.54,7050.75,1,For example be it services and subscription models.
4469669,1028,7051.0601,7057.6401,1,And uh it is a quite a high potential of sharing the commonality across the different businesses and infrastructure services.
4469669,1029,7057.9399,7065.1304,1,But like I mentioned earlier portfolio review exercise will continue and there's nothing that we have decided at this point in time.
4469669,1030,7065.4502,7068.48,1,And yet we've got to continue to discuss going forward.
4469669,1031,7070.6299,7083.2798,1,Now regarding the reament- realignment of industries in Japan my position is at least that uh we've reviewed all possible opportunities and options exhaustively.
4469669,1032,7083.77,7092.3203,1,Uh think about all the stakeholders such as shareholder employees and society our large customers and we'd like to review from that point of view.
4469669,1033,7092.3198,7093.3096,1,That is my position.
4469669,1034,7094.71,7095.6699,1,Thank you very much.
4469669,1035,7095.8901,7097.2803,19,Thank you very much for your comment.
4469669,1036,7097.2798,7097.7998,19,That is all.
4469669,1037,7099.2402,7100.3203,0,Thank you very much.
4469669,1038,7101.8701,7105.7798,0,Now uh we'd like to entertain one last question at this point in time.
4469669,1039,7105.8301,7107.27,0,s b i Itzumi-San please.
4469669,1040,7109.3501,7110.23,20,Thank you very much.
4469669,1041,7111.02,7112.2402,20,I have two questions.
4469669,1042,7113.2998,7118.8799,20,Regarding spinoff to list span of companies on the market.
4469669,1043,7120.1299,7131.0298,20,I'm not experienced in this area so could you please give us timeline for NewCos including their balance sheets?
4469669,1044,7131.8799,7138.9199,20,The uh treatment of such accounting uh will be starting from the third quarter of this fiscal year twenty one.
4469669,1045,7139.1299,7143.4102,20,And then in two years from today and the spinoff will be completed.
4469669,1046,7144.8101,7146.2603,20,This is my understanding.
4469669,1047,7146.2598,7147.1997,20,Is this correct?
4469669,1048,7147.98,7153.7998,20,And second question is about the company names of the NewCos.
4469669,1049,7154.8599,7159.6699,20,Do you plan to name with Toshiba in the company's name?
4469669,1050,7159.6699,7161.6699,20,Like Kioxia or rather…
4469669,1051,7162.0298,7170.1196,1,I think that in this uh uh scheme I think the new company's name wi will be like the ones as Kioxia's.
4469669,1052,7170.4302,7182.1797,1,Regarding the timeline for uh the companies to be listed on the market that there needs to be a two fiscal years' uh financial results uh to be audited.
4469669,1053,7182.21,7187.98,1,So therefore our target is in the second half of twenty three fiscal year twenty three.
4469669,1054,7188.3398,7189.3301,1,Hirata will supplement.
4469669,1055,7189.3301,7192.73,1,And regarding the company names there is nothing that has been determined yet.
4469669,1056,7192.7598,7194.5601,1,We are going to work out the details.
4469669,1057,7194.8398,7196.6704,1,Regarding timeline could you please supplement?
4469669,1058,7196.9102,7197.3203,4,Yes.
4469669,1059,7197.4502,7198.4399,4,Hirata speaking.
4469669,1060,7199.0498,7200.79,4,Uh let me supplement a little bit.
4469669,1061,7201.6001,7205.0498,4,I think on page twelve uh there was this schedule for timeline.
4469669,1062,7209.1299,7213.9399,4,We would like to observe and follow this timeline as much as possible.
4469669,1063,7214.23,7220.1299,4,And with some better ideas or devising the ideas we would like to shorten this duration.
4469669,1064,7221.8398,7230.0601,4,As you can see here uh there is a necessity for two fiscal years uh of financial numbers to be audited.
4469669,1065,7231.3799,7233.6499,4,require this is a requirement by TSC.
4469669,1066,7233.6899,7243.3003,4,And for this fiscal year and twenty two uh the numbers uh operation is just based upon the assumption that the current uh organizational structure will continue.
4469669,1067,7243.8999,7246.96,4,And of course there are uh lots to be worked out with the auditors.
4469669,1068,7248.25,7257.1797,4,And for fiscal year twenty twenty one the financial results to be closed uh based on the current uh Toshiba's organization and then that will be the basis for the NewCos.
4469669,1069,7257.1802,7259.9004,4,And then we would divide the numbers into two companies.
4469669,1070,7260.02,7268.6201,4,Some point in fiscal year twenty twenty two we would like to finalize the numbers for the uh new companies to be established in parallel.
4469669,1071,7268.6201,7279.1196,4,For fiscal year twenty twenty two uh based on the current consolidation under the Toshiba Group and financial statement will be prepared and based upon the three NewCos.
4469669,1072,7279.1201,7289.6104,4,So we are going to create three separate financial statements so that we will be working in line with the current uh timeline.
4469669,1073,7289.8101,7295.1299,4,And regarding the internal control examination to be conducted by auditors as well.
4469669,1074,7295.9199,7307.7002,4,So of course uh for Toshiba Corporation on the current consolidation basis uh of course we would continue operation for fiscal year twenty twenty two.
4469669,1075,7307.8799,7319.27,4,So in parallel with that based upon the new organizational structure which will be uh created and so that the internal control will be uh functioning.
4469669,1076,7319.3101,7325.9897,4,So we will check whether internal control will be working well in those uh certain new organization structure.
4469669,1077,7325.9902,7329.6304,4,So it'll t going to be complicated during twenty twenty two.
4469669,1078,7330.2998,7335.7202,4,Until the end of fiscal year twenty twenty two current organization structure will be maintained.
4469669,1079,7336.0698,7343.0498,4,But in parallel uh we will prepare gradually the uh separate balance sheets for three new companies.
4469669,1080,7344.5098,7349.5298,4,Of course there are a lot to be done but roughly speaking this is our current plan.
4469669,1081,7350.2402,7350.71,4,Thank you.
4469669,1082,7352.25,7353.2202,20,Thank you very much.
4469669,1083,7355.79,7362.21,0,So all although I said that this will be the last but there was one question left from the media.
4469669,1084,7362.21,7363.7798,0,So we would like to take the last question.
4469669,1085,7365.4902,7365.8003,0,Mr.
4469669,1086,7365.7998,7367.6001,0,Washio Duichi are you still connected?
4469669,1087,7378.3301,7380.5298,0,So we will close the questions.
4469669,1088,7380.8999,7390.5898,0,So there is one correction Tsunakawa mentioned is that about the spinoff r uh related is that there was a leak from the Nikkei article.
4469669,1089,7391.8701,7394.6997,0,It is not a leak by the company.
4469669,1090,7394.7002,7396.23,0,So I want to make a correction.
4469669,1091,7397.3301,7403.29,0,So thank you very much for all the participants coming to the press release and also those participating through the phone.
4469669,1092,7403.6899,7405.3901,0,Please make sure that you hang off.
4469836,0,0.4,1.82,0,This is Eduardo San Miguel.
4469836,1,2.37,12.06,0,Welcome to the Third Quarter twenty twenty one Results Presentation that will be conducted as always by our Chairman Juan Llado.
4469836,2,12.06,19.55,0,It will take something like twenty minutes and you can post your questions in the q and a session that comes after the speech.
4469836,3,19.82,21.22,0,And now I give the room to Mr.
4469836,4,21.22,24.33,0,Juan Llado.
4469836,5,24.39,24.64,1,Hi.
4469836,6,24.64,25.52,1,Hello everyone.
4469836,7,25.52,30.34,1,I have a presentation that if I want to make it in twenty minutes I'd like to make it in twenty minutes.
4469836,8,30.68,32.9,1,I have to go fast and be precise.
4469836,9,33.57,35.89,1,So I'll try to go fast through my slides.
4469836,10,36.42,44.27,1,And then if you need some color to this presentation I'm sure you will be get it through the uh q and a session at the end.
4469836,11,46.25,46.62,1,Okay.
4469836,12,46.62,50.41,1,This presentation is structured basically in two points is where are we today?
4469836,13,50.73,58.03,1,You know where are our third quarter results that you've already gone and read that we are giving a guidance of end of the year of a breakeven?
4469836,14,59.4,62.67,1,And and and and that that breakeven how it has been impacted…
4469836,15,62.7,65.68,1,which I think we've we've always talked about COVID and non COVID.
4469836,16,65.74,72.27,1,But I think now that as we see it you know in the back of us I think it was an analysis and what…
4469836,17,72.27,82.46,1,and what was the impact you know of our operations and how it has been impacted our sales margin and and obviously cash position?
4469836,18,83.07,94.21,1,Once we go through that which are the numbers and the analysis of those numbers we'll we'll go to what I think is extremely important how do I see twenty twenty two inaudible and and we move moving forward?
4469836,19,94.24,94.7,1,What…
4469836,20,94.7,102.92,1,Why are we well positioned and very well resourced to benefit from these new awards and the market you know?
4469836,21,103.12,106.18,1,And and and a brief summary we have to go through awards.
4469836,22,106.62,115.91,1,I mean we're well-positioned because we have strong awards quality excellent quality and well de-risk.
4469836,23,118.13,126.47,1,You know we came with the problems and excuses that started towards the end of twenty twenty with all of the big factor that we had had been reprogrammed.
4469836,24,126.47,127.8,1,Now we cease the opportunity.
4469836,25,127.8,139.14,1,We're speaking with our customers how we can bring you know all those jobs again to twenty twenty two for many of the jobs they have moving forward to twenty twenty three.
4469836,26,139.9,143.21,1,So all those restarting you know jobs…
4469836,27,143.44,150.07,1,which is close to four billion you know it is it's a big figure are being reprogrammed back to reality.
4469836,28,152.03,158.93,1,And positively let's talk about future because we're really you know extremely well positioned in what we call energy transition.
4469836,29,159.4,160.86,1,We have we have customers.
4469836,30,160.89,163.49,1,We have contracts and we're taking a very proactive role.
4469836,31,164.29,167.39,1,And taking a proactive role is good and we'll talk about that later.
4469836,32,168.13,174.76,1,And very important because now with the SEPI agreement that we do expect the funds to come in shortly.
4469836,33,175.38,187.33,1,We're financially back where we were at the end of you know two thousand nineteen where we had you know organized TR to grow with the big backlog that we had.
4469836,34,187.94,206.03,1,So in all these four points allow me to be positive and and say that we're extremely well positioned and well-resourced you know to go back to benefit you know growth and margin trends and that that will be summarized on my outlook and guidance.
4469836,35,209.42,214.58,1,The first part as I said inaudible is impacted of of of COVID.
4469836,36,214.65,222.67,1,You know sometimes I was a bit bored you know about this slide because it is one of those things that all all all of us think you know we…
4469836,37,223.29,225.14,1,But I think it is worth it to do an analysis.
4469836,38,226.28,227.87,1,You know some companies have more impact.
4469836,39,227.87,229.19,1,Some others had less impact.
4469836,40,229.4,239.07,1,You know we happen to be the ones that had more cause of the stage of the backlog that we've got and the stage of our projects and where we had our project which in most cases were the Middle East.
4469836,41,239.94,245.47,1,So we had big impact in the managing of the site mobilization and demobilization.
4469836,42,246.07,247.65,1,I'll come out with an example afterwards.
4469836,43,248.67,268.84,1,Obviously a big impact in managing the manpower and logistics you know lack of flights visa problems delays of equipment quarantines was to give you some examples and obviously the managing of subcontractors with the delays in claims.
4469836,44,269.19,276.11,1,And that translates into how do we manage the project which is starting on the days are we able to uh progress?
4469836,45,276.35,278.09,1,Are we reaching the milestones?
4469836,46,278.38,279.78,1,Are we getting paid?
4469836,47,280.66,282.57,1,Well billing has been difficult.
4469836,48,282.74,289.74,1,Billing at construction stage with the delays and not being able to reach milestones that we have by contract.
4469836,49,290.09,291.07,1,It was very difficult.
4469836,50,291.07,295.51,1,Some cases we have been successful in restructuring the inaudible some others not.
4469836,51,296.74,297.06,1,But up…
4469836,52,297.21,311.93,1,Well today progress is back to the trend that it was before and obviously that those difficulties can always be resolved if we have good customers in face-to-face negotiations.
4469836,53,312.35,323.85,1,But extremely difficult through Zoom or through Teams or through all you know all those new means that we're very proud of which is good but not to resolve conflicts.
4469836,54,325.36,326.55,1,It's same with change orders.
4469836,55,326.55,332.04,1,We have agreed lot of change orders with customers and we are moving forward quite successfully with them.
4469836,56,332.77,336.98,1,But those change orders will be translated in cash at the end of the project.
4469836,57,337.35,338.2,1,They always are.
4469836,58,338.75,345.56,1,So there is all the impacts of our of our balance sheet and of our projects and working capital and cash.
4469836,59,346.07,349.85,1,So site problems manpower and logistics and project management.
4469836,60,349.85,354.8,1,And I think this is extremely well explained with one example.
4469836,61,355.7,357.11,1,Let's let's look at these graphs.
4469836,62,357.11,357.96,1,And and these…
4469836,63,358.11,360.88,1,To give you an idea I don't want to put the name of the you know the…
4469836,64,362.0,368.86,1,customer's not here and the name of the project but I can tell you it's in the Middle East and it's a billion plus project size.
4469836,65,370.22,387.67,1,And uh it is a project that it was planned and this is the yeah the first graph that it was planned by uh early twenty twenty one to have manpower working on the site above twenty thousand workers.
4469836,66,388.09,394.8,1,The reality is at that time we only had five thousand and probably many of them under quarantine.
4469836,67,395.89,397.28,1,Let's move on on on…
4469836,68,397.32,399.6,1,If you have such few people what was the progress?
4469836,69,400.28,403.95,1,Let's look into the blue line again and let's go to the next slide.
4469836,70,404.75,413.2,1,If you go to the same date you know early twenty twenty one obviously the progress on that job should have been close to eighty percent.
4469836,71,414.26,419.4,1,With you know with a billion you know and the cash comes behind the progress.
4469836,72,420.12,426.08,1,Obviously the progress at that stage early twenty one was only twenty percent.
4469836,73,428.12,428.99,1,You know and that is…
4469836,74,429.74,432.69,1,And with those two figures we had to manage the progress.
4469836,75,432.99,438.2,1,We have to negotiate obviously with our customer suppliers and subcontracts.
4469836,76,438.93,440.38,1,And let me give you some quick data.
4469836,77,440.38,441.29,1,What does that mean?
4469836,78,442.13,444.28,1,It means that we had to manage in…
4469836,79,444.32,450.69,1,on that very specific job more than one thousand seven hundred positive cases on site.
4469836,80,451.72,457.38,1,We had to manage quarantines of close to six thousand workers in that same site.
4469836,81,457.74,459.1,1,And this is a realistic case.
4469836,82,459.29,475.98,1,This is not theory which translates in more than seventy thousand manned days lost through those quarantines and and and why so many quarantines because we had to do more than five hundred PCRs a day.
4469836,83,476.87,479.66,1,Well we have to go through that and this is one example.
4469836,84,479.69,484.93,1,But if you do an analysis I do want to do it now in public about the jobs that we had in the Middle East.
4469836,85,485.94,490.16,1,What was the backlog of the jobs that we had in the Middle East?
4469836,86,490.54,491.97,1,You know and we had in Kuwait.
4469836,87,492.03,498.18,1,We had in South Arabia we had in Emirates and we had in Oman.
4469836,88,498.87,503.08,1,You know you may imagine you know we've gone through difficult time.
4469836,89,503.25,511.17,1,But let me tell you difficult times extremely successfully managed by our team and with a good relationship with our customers.
4469836,90,512.07,512.95,1,But with an impact.
4469836,91,513.01,516.66,1,An impact in sales an impact in cost and an impact in cash.
4469836,92,518.31,522.21,1,An impact in sales that is extremely well seen in this uh…
4469836,93,522.24,523.74,1,because the backlog is what it is.
4469836,94,523.97,526.8199,1,And you've known and some of people saying why you have so many…
4469836,95,527.11,529.24,1,such few sales with such a big backlog?
4469836,96,529.99,533.14,1,Well I think it is very well explained in this in this slide.
4469836,97,533.14,539.59,1,If you go to uh end of two thousand nineteen we have the level of sales which was close to one.
4469836,98,539.59,540.8,1,three billion Euros.
4469836,99,541.89,547.53,1,inaudible You know we went to bed let me tell you at the end of that quarter quite happy.
4469836,100,547.59,548.5,1,You know TR was…
4469836,101,548.59,551.95,1,had gone through the oil and gas crisis and was back to growth.
4469836,102,553.45,554.4901,1,If you go to next…
4469836,103,554.82,568.09,1,the last the the the last two quarters we haven't reached seven hundred million Euros which is give or take sales figure you know close to forty to forty five percent lower.
4469836,104,568.25,577.41,1,It's not easy to manage your business when your sales figure you know you know lowers down to uh forty percent what you had before.
4469836,105,577.96,578.93,1,And we've done it well.
4469836,106,578.98,581.61,1,And that's why the breakeven figure.
4469836,107,582.33,585.2,1,That translates in lower sales.
4469836,108,585.63,587.13,1,It has an impact in margin.
4469836,109,587.17,592.8,1,And obviously it makes the management of our working capital quite tight.
4469836,110,593.63,597.89,1,Quite tight as I think is reflected in the next next slide.
4469836,111,598.85,604.49,1,This quarter we had a negative ninety one million Euros at the end of September.
4469836,112,606.57,607.53,1,It was it was…
4469836,113,608.11,611.78,1,September it is true that it was already a month of recovery.
4469836,114,611.89,622.66,1,It was a month or a plan with using all the collection from our customers and we were already back on business to pay our suppliers.
4469836,115,622.69,630.2,1,We needed to run through progress on construction and to reach those desirable milestones with all our customers.
4469836,116,631.16,636.76,1,And our suppliers continues to be in our plan as COVID the real COVID is behind us.
4469836,117,637.68,648.36,1,And obviously with that plan you know if it's tight and we need to run and the level of sales hasn't reached the level that we had before obviously you…
4469836,118,648.36,651.58,1,we can run through mismatches and we run into mismatch.
4469836,119,651.58,664.71,1,A mismatch of one day that you know cash collection of one day ninety million dollars that we readjusted as as as you see right below the negative ninety one you know you know…
4469836,120,664.71,671.73,1,There was a collection of ninety million that we would've we would've shown a figure an adjusted figure so to speak…
4469836,121,671.73,682.67,1,I don't I don't want to use the name or the term adjusted anymore because I want to go back to reality of practically having a you know the breakeven cash figure.
4469836,122,688.98,691.74,1,And that translating to the third quarter results.
4469836,123,692.03,701.1,1,Third quarter results of a level of sales quite low quite low as I explained before you know despite of the backlog and despite of the awards.
4469836,124,702.66,705.36,1,You know as as as progress was slow…
4469836,125,705.36,715.49,1,has been slow through September improving now little by little but improving and an EBIT and a real EBIT therefore of zero.
4469836,126,715.61,717.44,1,And this is a breakeven quarter.
4469836,127,718.11,721.92,1,And and we do expect next month to have similar figure.
4469836,128,722.01,723.03,1,I guess we we like to…
4469836,129,723.24,728.65,1,you know we do expect to finish the year with the with the two breakeven quarters.
4469836,130,730.49,731.52,1,This is you know…
4469836,131,731.62,741.92,1,With that level of sales this is this is this is the reality and this is the real non-adjusted a a a account.
4469836,132,741.98,744.59,1,And this is not adjusted EBIT result.
4469836,133,745.62,753.52,1,Good news that that you know market has picked up and the level of sales we go through them afterwards.
4469836,134,753.66,756.07,1,The level of sales has improved…
4469836,135,756.18,757.39,1,I'm sorry the level of sales…
4469836,136,757.39,762.2599,1,the le the le the level of of awards order intake has improved substantially.
4469836,137,762.81,763.65,1,And year-to-date…
4469836,138,764.36,766.34,1,And we do think we are going to grow up a little bit.
4469836,139,767.21,783.86,1,We have seven point seven billion uh um awards which is way above four billion bucks which is very much you know the positive number the the good set of the number that I was expecting to…
4469836,140,783.9,785.95,1,you know you know at the very beginning of the year.
4469836,141,786.04,786.78,1,You know you…
4469836,142,786.84,788.7,1,we thought that the market was good.
4469836,143,789.25,792.14,1,I don't see had much credibility one of the same period market.
4469836,144,792.79,803.11,1,That was challenging but I would reach in the four billion and those four billion are here which gives us the backlog a very healthy backlog of ten point four billion.
4469836,145,803.37,811.66,1,So we have a breakeven two quarters but the pullback in business with a good order intake and a very strong backlog.
4469836,146,812.24,817.27,1,The backlog that I think is worth you know to do some um some analysis.
4469836,147,819.39,833.18,1,And with that with that backlog uh let's go with with the second part of the presentation Why are we well-positioned and well-resourced to benefit from this backlog and to benefit from this new market?
4469836,148,834.09,841.44,1,First of all because TR franchise is healthy is very healthy as has been reflected in the four billion of new awards.
4469836,149,842.12,850.19,1,If you go one by one you can see the quality and how those inaudible awards in some cases extremely de-risked.
4469836,150,852.81,856.23,1,Two because obviously it was difficult when you have awards…
4469836,151,856.23,860.73,1,And we had in two thousand nineteen and and and to reprogram.
4469836,152,860.99,862.71,1,It has an impact in our balance sheet.
4469836,153,862.76,864.43,1,It has an impact in our resources.
4469836,154,864.43,865.68,1,It has an impact on our cash.
4469836,155,866.36,868.25,1,Well now we are speaking with those customers.
4469836,156,868.41,875.22,1,With some of them we have already concluded and we'll be starting the four billion Euros of reprogrammed projects.
4469836,157,875.83,876.69,1,That's good news.
4469836,158,876.94,882.1,1,That's the second reason that allow me to say that we're very well positioned.
4469836,159,883.39,892.53,1,Third cuz probably twelve months ago you know uh uh energy transition was more a…
4469836,160,893.47,895.87,1,you know was more an idea than a reality.
4469836,161,896.99,897.84,1,Now it is a real…
4469836,162,897.84,912.18,1,It's it's a reality and and if I was telling twelve months ago that we were well positioned because we had the know-how we had the skills we had engineers now I can tell you that I have the customers and as those customers…
4469836,163,912.18,916.62,1,And I have this project and very soon I have the sales and the margin.
4469836,164,918.15,921.02,1,And for that growth we have the Spanish government.
4469836,165,921.24,929.39,1,We have the Spanish government that confirms that they want to help us to grow and put us back to where we were in two thousand nineteen.
4469836,166,929.64,930.55,1,That's the message.
4469836,167,931.05,945.73,1,So those those are the four main reasons why I'm positive and why I'm telling you that we are well positioned to grow and go back to what is more important to a real benefit you know to real profit.
4469836,168,950.64,951.68,1,we're talking about…
4469836,169,951.82,954.1299,1,We're we're we're talking about awards.
4469836,170,955.23,956.5,1,Why i am positive of awards.
4469836,171,956.5,960.91,1,And I think this is like I think I think it's it's it's it's a good one.
4469836,172,960.91,961.48,2,It it is it's it's a good one.
4469836,173,961.48,963.58,2,it is one it's one of the ones that I really like.
4469836,174,964.05,970.52,2,What with the of all business is really difficult to measure on on on quarterly sales.
4469836,175,971.27,971.85,2,We've done it.
4469836,176,972.02,979.45,2,We've done it and we and and this is like what see with the quarterly sales started two thousand seventeen that we were having in this business.
4469836,177,979.45,983.41,2,And in there obviously we have an average of way above one billion Euro.
4469836,178,984.03,990.5699,2,You know I mean having you know sales of one point two one point three very high level of sales.
4469836,179,991.14,992.48,2,Way above one billion.
4469836,180,992.48,992.94,2,One point…
4469836,181,994.03,994.44,2,very good.
4469836,182,995.06,995.47,2,Awards.
4469836,183,995.47,997.68,2,I'm not I'm sorry I'm saying sales but awards.
4469836,184,997.81,1000.98,2,Obviously that simple.
4469836,185,1001.01,1002.04,2,We're getting awards.
4469836,186,1002.86,1010.14,2,If pandemic came and you see that at especially over two thousand twenty twenty and early twenty twenty one the level of awards.
4469836,187,1010.58,1012.71,2,Were near practically nothing.
4469836,188,1014.04,1021.73,2,And if you see now where are we today what are the level of awards that we getting and we getting now these large first quarter very important last six quarters.
4469836,189,1022.66,1026.11,2,If we back to our best years of awards.
4469836,190,1026.73,1028.23,2,To our very best years of awards.
4469836,191,1028.38,1029.89,2,So we're back on the market.
4469836,192,1030.83,1039.3099,2,But uh when we getting awards with old customers new customers very much is you know very much welcome inaudible.
4469836,193,1039.73,1041.1599,2,Very well positioned in that.
4469836,194,1042.15,1044.0699,2,And uh and then analysis of the jobs.
4469836,195,1045.28,1046.5701,2,Very healthy the risk.
4469836,196,1047.85,1050.29,2,And let's let's do an analysis of those awards.
4469836,197,1050.5,1052.23,2,This is this is an old slide.
4469836,198,1052.97,1057.92,2,It has been you know putting in green all the jobs that originally…
4469836,199,1058.24,1063.46,2,two quarters ago was presented to you in the job site we thought we could be awarded to us.
4469836,200,1063.6899,1065.92,2,Not they were awards but that we were well positioned.
4469836,201,1066.17,1074.23,2,Either because we were selected by customers but not award or because we thought in the competition we is not strong enough.
4469836,202,1074.58,1079.5699,2,I mean and that it we were only competing and the likelihood of us is quite high.
4469836,203,1079.9301,1083.3401,2,If you go to all of them the ones in red are the ones we've lost.
4469836,204,1084.15,1089.3301,2,And we had put with no color uh previous presentation that we got them.
4469836,205,1089.91,1095.71,2,You see here are four point seven billion Euros of awards.
4469836,206,1096.76,1099.4099,2,four point seven billion with new customers.
4469836,207,1101.0,1105.3,2,Uh in a in a market which is very important.
4469836,208,1105.3,1108.2,2,Very much focused in gas and petrochemicals.
4469836,209,1109.14,1111.8401,2,Which are they're gonna grow and we're going to grow with that market.
4469836,210,1112.27,1118.61,2,And with everybody understands now that it's a big big mismatch between supply and demand of gas and petrochemicals.
4469836,211,1119.1,1119.77,2,And we are there.
4469836,212,1119.97,1122.88,2,We're there with an old customers and with the new customers.
4469836,213,1124.4399,1128.9401,2,And what likely in the few weeks we'll have good news.
4469836,214,1128.9399,1139.1801,2,We do expect that some of the jobs that we're very well positioned for the end of the year and first half of next year will will will happen soon.
4469836,215,1140.6,1144.35,2,So this is this is what I told you before that it could happen.
4469836,216,1145.15,1145.89,2,And it has happened.
4469836,217,1146.04,1146.9,2,This is very important.
4469836,218,1147.21,1149.4199,2,So that's that's why I like to I don't I don't…
4469836,219,1149.42,1150.86,2,it's a bit complicated it's like.
4469836,220,1151.5699,1160.01,2,And this is a trend of awards that have occurred give or take as we've announced to the market that could take place.
4469836,221,1163.08,1164.54,2,So let's go to the next slide.
4469836,222,1164.73,1167.34,2,Which give us an analysis of the backlog.
4469836,223,1167.47,1176.66,2,In an analysis the backlog which justifies and explain why I say that we're back to benefit we're back to a healthy level of sales.
4469836,224,1177.53,1183.39,2,We have a backlog that forty two percent of the backlog all of we program jobs.
4469836,225,1183.78,1187.22,2,That we are negotiating with the customers to start again.
4469836,226,1187.39,1188.5499,2,And to start soon.
4469836,227,1189.3199,1195.73,2,That's that puts us late in sales into twenty into twenty two.
4469836,228,1196.54,1200.89,2,thirty five percent is another four billion give or take of new products.
4469836,229,1201.62,1206.8201,2,Some of them have already come into force and some other we are already works have been awarded.
4469836,230,1206.8199,1210.6699,2,We started with engineering so far they have not come fully into force.
4469836,231,1210.9301,1217.62,2,And they're starting to come into force and we start finishing engineering and move into inaudible in sales.
4469836,232,1218.1,1220.09,2,And sales which are taking inaudible.
4469836,233,1221.34,1226.25,2,A and it will be back in a profitable inaudible.
4469836,234,1226.25,1237.1699,2,And twenty three percent of the three billion of of of of jobs that are that are that have been executed on the very much most of them in infrastructure.
4469836,235,1237.2,1240.05,2,The ones that were engineering is easy to manage.
4469836,236,1240.05,1243.53,2,Very easy to manage a job if if it was non-engineering job.
4469836,237,1244.12,1252.66,2,Engineering companies have manage to many well the uh the uh the uh moving to a non inaudible engineering.
4469836,238,1253.3,1256.15,2,But if you have to manage construction it was a different story.
4469836,239,1256.27,1260.21,2,And and fortunately we work very heavily at that.
4469836,240,1260.79,1274.22,2,And with this inaudible I think we are I'm very comfortable to say that these sales ramp up you know due to uh we program jobs and new sales is is done this year.
4469836,241,1275.4,1279.27,2,And therefore we're back into a profitability.
4469836,242,1279.97,1280.85,2,With a good bite length.
4469836,243,1281.03,1282.11,2,So let's talk about reality.
4469836,244,1282.11,1283.42,2,Let's talk about we already stand.
4469836,245,1286.9399,1290.78,2,And now let's talk about you know the little bit that everybody wonders.
4469836,246,1290.86,1295.1899,2,What what is <unk> strategy in this…
4469836,247,1295.6899,1296.7999,2,energy position.
4469836,248,1299.28,1304.87,2,I can hear the message and I don't want to go through all all those lines you know go forever.
4469836,249,1304.9301,1314.0499,2,And I'm I'm not good at it is that today we can confirm that we starting to be that we are a relevant actor in this transition.
4469836,250,1315.0,1317.7999,2,We have real projects and you and real customers.
4469836,251,1317.96,1323.27,2,Not only you know not not not only proposals that we have real projects.
4469836,252,1324.46,1338.88,2,With GDynamic with Swiss Bank with inaudible with Repsol with inaudible within our grasp we have real projects and we becoming a real actor in this transition.
4469836,253,1339.17,1340.84,2,So we've done this and accomplished it.
4469836,254,1340.9,1341.5399,2,Let me tell you.
4469836,255,1341.9,1350.63,2,When management had to focus on managing profit had to focus managing jobs had to focus in trying to collect from customers.
4469836,256,1351.26,1360.37,2,So in this transition we has we have placed ourselves and positioned ourselves very close already to of of a profitable business.
4469836,257,1362.28,1364.01,2,And we move a step forward.
4469836,258,1364.2,1368.13,2,And that step forward is now we we want to be and we are proactive.
4469836,259,1369.04,1371.71,2,It's to be proactive in this market.
4469836,260,1372.3101,1379.48,2,We know as we sit in with customers we know as we've been in with infrastructure funds and helping and supporting them.
4469836,261,1380.53,1381.24,2,And there is money.
4469836,262,1381.3,1385.51,2,There is money that our customers and ourselves we need to capture.
4469836,263,1386.48,1389.6801,2,And we put in together an strong and aggressive strategy.
4469836,264,1390.62,1399.59,2,A strategy trying to design with customers how to inaudible their industries and their plants.
4469836,265,1399.59,1409.23,2,Sitting with customers and sitting with uh with uh with new companies in developments doing ammonia low inaudible shipping.
4469836,266,1410.03,1410.7001,2,Technology.
4469836,267,1411.48,1420.88,2,Sitting with customers and sitting with the infrastructure fronts in developing technologies that are helping with technologies monetarize inaudible.
4469836,268,1420.88,1431.97,2,And obviously sitting with customers old customers and new customers and fronts in developing the technology of the the inaudible.
4469836,269,1433.8,1436.4099,2,You know uh technology.
4469836,270,1437.21,1441.0299,2,You know trying to develop with the some new and fresh companies.
4469836,271,1441.49,1444.91,2,Because they're to get probably the bright idea and got inaudible.
4469836,272,1445.24,1454.29,2,So the action we are taking is very proactive activity we have a structure of sales we have a very strong divisions.
4469836,273,1455.1,1467.0499,2,And the message and I'm quite sure that we we can we want and we will be very important catalyzer you know to develop these technologies.
4469836,274,1467.59,1475.13,2,So I'm I'm I'm truly positive that very soon and sooner than later it'll be a very important division of GR.
4469836,275,1478.86,1483.88,2,And now let's talk everybody's wondering you know the fourth reason why i am positive.
4469836,276,1483.88,1487.9,2,I'm positive because we have the support of the Spanish government.
4469836,277,1488.38,1500.99,2,And the support of the Spanish government and back what it was in two thousand and nineteen when I was ready to capture a market and have a inaudible of above five billion Euros.
4469836,278,1502.08,1511.2,2,So you know inaudible she's inaudible in the Spanish government through the uh supports scheme.
4469836,279,1511.26,1518.88,2,And what with the help of the European Union you know confirms that we strategic for the Spanish family and supports us.
4469836,280,1519.23,1532.13,2,And supports us with one hundred seventy five million of inaudible equity uh uh loan and with another inaudible loan of one hundred sixty five million.
4469836,281,1533.1,1542.75,2,And we do expect that as we're working very closely day to day with the Spanish government that those funds will be dispersed you know before year end.
4469836,282,1543.34,1544.45,2,So it is good news.
4469836,283,1544.58,1557.61,2,You need the balance sheet you need the strength you need give comfort to investors and customers and and uh and and you need a backup.
4469836,284,1557.61,1558.4199,2,And we've got it already.
4469836,285,1560.08,1566.3199,2,So that that was the fourth reason why you know we are well prepared to go back to profit.
4469836,286,1569.27,1571.25,2,And this translate in inaudible.
4469836,287,1572.34,1582.47,2,Obviously we are fifteenth of November and on fifteenth of November I cannot say that we gonna you know this is going to happen include include in in in a few weeks.
4469836,288,1583.12,1584.9399,2,I mean nothing is happening few weeks.
4469836,289,1584.9399,1589.4399,2,That is why I'm giving to you a guidance of we're given from now to the end of the year.
4469836,290,1590.8,1593.99,2,With sales we just come to be in the neighborhood of three billion.
4469836,291,1593.99,1603.35,2,We've if if if you cannot accrued an new backlog if you cannot accrue it because you still sitting with the customers then we program jobs.
4469836,292,1603.97,1609.9501,2,Obviously you cannot it is not just editing sales yet and you cannot it will not translate in margins.
4469836,293,1610.65,1615.8199,2,In two twenty one it will definitely translate into margins.
4469836,294,1616.33,1618.6901,2,You know as we move forward into twenty two.
4469836,295,1618.77,1624.1101,2,The first quarters at it's lower pace which much stronger pace to the end of the year.
4469836,296,1624.33,1628.03,2,Which will give us an average margin above two percent.
4469836,297,1628.26,1633.1,2,An average sales year of above two billion.
4469836,298,1634.11,1636.08,2,So that means you know a new award.
4469836,299,1636.35,1638.98,2,That's true I mean it's not a challenge for me.
4469836,300,1638.98,1644.78,2,I don't think it's too challenging having you know again repeating awards of another four billion.
4469836,301,1647.17,1650.1599,2,So uh that's the guidance for two twenty two.
4469836,302,1650.96,1657.3199,2,Is not it's not a it's it's it's not a it's not that challenging.
4469836,303,1657.38,1665.5701,2,It's doable and we'll see the progress of these guidance as we move forward you know towards the second third and fourth quarter of the year.
4469836,304,1669.99,1672.8101,2,And obviously you might be wondering at what where will you go forward.
4469836,305,1672.84,1683.36,2,You know as as as you get the new awards of you know and move forward with stabilize the business on a sales figure of five billion.
4469836,306,1683.46,1687.5701,2,We had it before awards of five billion we've done it before.
4469836,307,1687.6,1696.62,2,And that means the market and the pipeline is much stronger and far more demanding today than it was in two thousand seventeen eighteen and nineteen.
4469836,308,1696.67,1697.3,2,Much stronger.
4469836,309,1697.59,1699.14,2,Far more far much stronger.
4469836,310,1699.79,1702.49,2,And it and and let me tell you.
4469836,311,1702.96,1704.4,2,And and probably less risky.
4469836,312,1704.95,1707.33,2,Less risky because of the pace of the demand.
4469836,313,1709.67,1713.0699,2,And an and an average edit above four percent.
4469836,314,1714.6,1721.78,2,You might be wondering if I'm and if I'm being uh you know stingy mean or too prudent.
4469836,315,1722.0699,1727.0699,2,Well you know we've the level of uncertainty's still is great.
4469836,316,1727.53,1730.15,2,I've been managing this business for twenty years.
4469836,317,1730.83,1737.01,2,And I think it's prudent to say that uh about four percent margin is doable.
4469836,318,1738.1,1742.38,2,But I would not like to give guidance uh above that.
4469836,319,1742.91,1748.5699,2,You know the the uh the uh it is true that we have new awards that have a good margin embedded.
4469836,320,1749.88,1754.1499,2,But uh but uh I think two twenty three is really far too long.
4469836,321,1758.58,1760.91,2,And I think I'm done.
4469836,322,1761.61,1763.27,2,This is my last slide.
4469836,323,1764.25,1768.11,2,They have taken me well twenty five close to thirty minutes.
4469836,324,1768.54,1769.76,2,I wanted to do in twenty.
4469836,325,1771.21,1776.89,2,But uh now you know any questions you may pose you know with inaudible answer them.
4469836,326,1778.25,1781.74,2,You know and give some color to this presentation.
4469836,327,1781.96,1783.24,2,I'll answer them the better I can.
4469836,328,1783.6801,1784.5399,2,Thank you very much.
4469836,329,1786.54,1787.0,3,Thank you.
4469836,330,1787.0,1790.13,3,And ladies and gentlemen the q and a session starts now.
4469836,331,1790.13,1795.21,3,So if you wish to ask a question please dial zero one on your telephone key pad.
4469836,332,1807.09,1807.8,3,Please go ahead.
4469836,333,1809.21,1810.95,4,Yes hello Juan and inaudible.
4469836,334,1810.95,1812.39,4,Thank you for taking my my questions.
4469836,335,1812.51,1814.8501,4,And a couple of questions to start at least.
4469836,336,1814.85,1822.59,4,Question one is about the mid-term uh target of guidance of five billion dollars Euros and four percent inaudible.
4469836,337,1823.3101,1827.59,4,Which is the inaudible for this for this kind of uh business environment.
4469836,338,1827.59,1831.21,4,twenty four months eh more than that yes yes.
4469836,339,1862.63,1864.36,4,If you if you can elaborate on on that.
4469836,340,1869.8199,1872.8401,4,And when could this uh be executed?
4469836,341,1873.16,1873.46,4,Thank you.
4469836,342,1875.74,1883.75,2,Let me go one by one cause I think you're asking all the questions that everybody wants to hear with with your three questions.
4469836,343,1884.25,1885.41,2,Alejandro thank you.
4469836,344,1885.73,1887.1,2,Thank you very much for being here.
4469836,345,1887.1,1888.36,2,Thank you for your questions.
4469836,346,1888.45,1890.66,2,First question mid-term guidance.
4469836,347,1891.1899,1902.0601,2,I mean I'm talking about inaudible at at at the pace that we get in the new and fresh backlog the quality of the backlog.
4469836,348,1903.12,1911.9501,2,And and bringing forward you know uh uh the uh the uh all those jobs that had been reprogrammed.
4469836,349,1912.89,1915.87,2,You know you know if if the number of two twenty three.
4469836,350,1915.9,1922.65,2,I mean we have to target a two two three to go back two numbers and two margins.
4469836,351,1923.62,1923.84,2,that…
4469836,352,1923.84,1926.24,5,to numbers and to margins that is different inaudible.
4469836,353,1938.09,1942.3,5,it it's gonna have an impact that is truly weaker but it's it it it is not gonna be a volume business.
4469836,354,1942.34,1943.52,5,There's gonna be very much…
4469836,355,1943.5601,1949.4301,5,It it it's going to impact in terms of margin I don't know how much small ten percent fifteen percent.
4469836,356,1949.84,1961.55,5,It would allow us to improve the margin but it's going to be very much a service business as a inaudible the customer inaudible at at everything having to do with new technologies new projects.
4469836,357,1961.55,1968.6801,5,It cannot be structured as an e p c you know inaudible It cannot you cannot.
4469836,358,1969.33,1984.02,5,I mean you you you cannot put a a price on a new technology having to do with uh hydrogen or inaudible So it will be either cost plus or sales.
4469836,359,1984.02,1999.9401,5,So it would allow us to manage the business to develop our engineers to catalyze the business and improve our margins as you see you know profit and low level of sales but it would would not signify a large percentage of sales.
4469836,360,2008.6899,2012.67,5,inaudible was three forty and not two ninety we have had before.
4469836,361,2013.73,2021.17,5,You know two ninety was you know you know in in July we decided to make it public and we decided with our governments to make it to make it pu- public.
4469836,362,2023.28,2025.0701,5,That was the number we were analyzing.
4469836,363,2025.0699,2035.62,5,That was the number that we were analyzing and we needed that was the best number we could come out to to put us back where we were before because we wanted to be back equity wise where we were before.
4469836,364,2037.63,2058.0801,5,And and for the same reason that the virus and the different variants are live we announced we were doing you know very much with uh inaudible it seemed like a good number was not two ninety it was closer to two four oh.
4469836,365,2058.0801,2061.9102,5,You know those things were alive were alive cost had been alive.
4469836,366,2063.0801,2082.79,5,You know we have we have gone through extra cost and therefore the number has grown and has been this since the time of inaudible So it's it's a it's it's a it's a it's a it's an analysis so they're like the two last figures cost with virus and then government support.
4469836,367,2085.78,2097.1499,5,Yeah equity conversion as the catalyzer it had nothing to do with our equity conversion or we had to do with the catalyzer.
4469836,368,2097.1499,2097.24,5,it's…
4469836,369,2097.8701,2115.1301,5,You know we have we are gonna inaudible as a inaudible with a hybrid for four years hybrid inaudible for four years we have talked when we talk to customers and we have talked to customers in other September October and November.
4469836,370,2115.8,2126.4399,5,That is good that is good to seek inaudible of the government and here what we have is the option in the near or future more likely in the future term.
4469836,371,2127.05,2141.9299,5,Once we pay back once we're back by all means where we were before to continue having a government partner with a small percentage with a small equity because some of our competitors have it.
4469836,372,2143.05,2146.6201,5,It's because the thing that commercially speaking may count as a lot.
4469836,373,2148.9299,2155.4202,5,Especially in a in a in a in a in a world that um that is changing extremely rapidly.
4469836,374,2155.79,2160.6899,5,And we have competitors in France competitors in Italy competitors in Korea comp…
4469836,375,2160.8101,2161.0999,5,You know.
4469836,376,2161.9399,2162.6501,5,And it's an option.
4469836,377,2162.98,2168.2002,5,So it's an option that we have today and we don't want to have it in in four year times.
4469836,378,2168.98,2177.8599,5,And it's it's a good option that we get from uh from the government to support the growth uh of inaudible if we happen to need it.
4469836,379,2178.95,2187.8401,5,You don't you don't you don't solve any inaudible with thirty five million dollars but it give us the health and the strength of having the support of this inaudible government.
4469836,380,2187.8701,2192.1299,5,lemme tell you many of our customers you know appreciate that.
4469836,381,2194.3899,2194.73,6,Okay.
4469836,382,2194.73,2207.28,6,So so this is just um sorry to to follow on this it's it is not that you're planning you know um a capital increase it's just an option in the long term for SEPI to to be part of this potential uh capital increase?
4469836,383,2209.1799,2214.6899,5,It is it's it is obviously the fund the pure fund has to go to hybrid.
4469836,384,2215.6799,2226.5601,5,But if we have to and and and as per the terms we have to and we are planning to and we are quite comfortable that it will be paid back in four years as I as I explained before.
4469836,385,2227.77,2228.97,5,But but we have…
4469836,386,2229.0,2236.1602,5,we like to have the option and then government agrees to it to continue having SEPI as a fund.
4469836,387,2236.6001,2236.8301,6,Okay.
4469836,388,2236.9099,2246.1001,5,crosstalk we do we lose credibility and it put us in similar position to some of our competitors.
4469836,389,2247.27,2247.6301,6,alright.
4469836,390,2247.95,2248.3699,6,Understood.
4469836,391,2248.3701,2249.03,6,Thank you very much.
4469836,392,2252.25,2256.4502,7,And the next question comes from the line of James Thompson from JP Morgan.
4469836,393,2256.6799,2257.49,7,Please go ahead.
4469836,394,2258.6001,2259.3401,8,All right.
4469836,395,2259.3701,2260.3601,8,Uh good afternoon Haan.
4469836,396,2260.45,2262.75,8,Thank you very much for your uh presentation there.
4469836,397,2289.1101,2306.26,8,Um so I just wondered if you could conver confirm that that is just uh right at the end of the period type decision firstly.
4469836,398,2306.26,2310.0,5,We just inaudible We have an idea when are we going to convert it if ever.
4469836,399,2310.8601,2312.1599,5,But uh we have four years.
4469836,400,2313.1499,2313.24,8,Okay.
4469836,401,2313.6699,2317.6301,5,It could be months or it could be in four year time.
4469836,402,2318.7,2320.01,5,But uh today we are…
4469836,403,2320.01,2325.6099,5,we haven't got inaudible in our structure but it is very well known we are gonna have it.
4469836,404,2325.73,2338.8298,5,And let me tell you it's it is it it's quite nice and healthy to visit our customers and you have to go through how many awards we've got in August September October and November.
4469836,405,2339.8201,2343.05,5,And we we came to the conclusion they could be good.
4469836,406,2343.3201,2344.1902,5,Could be good we don't know.
4469836,407,2344.1899,2349.01,5,le le Let's see what happens to continue having them as a shareholder.
4469836,408,2349.21,2350.77,5,Small shareholder but it's a shareholder.
4469836,409,2357.3601,2366.5999,5,national oil companies and uh and uh very often they're requesting public finance structural finance export finance.
4469836,410,2367.26,2371.8999,5,Well it I think w- it- it- inaudible but it's not very well developed.
4469836,411,2372.1499,2376.8298,5,We thought it could give some color to inaudible balance sheet.
4469836,412,2379.9399,2380.9299,8,Okay okay.
4469836,413,2381.1699,2381.6201,8,Thank you.
4469836,414,2382.0,2388.5,8,Um yeah my question really was I just wanted to talk about this kind of in uh y you know firstly improvement in margins.
4469836,415,2388.8799,2401.4399,8,You know when you were giving the presentation obviously you know four and a half billion euros of projects there or thereabouts are obviously or have been reprogrammed uh or stopped and now need to be restarted.
4469836,416,2402.04,2405.01,8,Um so I mean I guess the question is how have you…
4469836,417,2405.01,2416.4102,8,or what confidence can you give us that that that that inaudible has managed to um negotiate to offset things like inflation and e that we're facing at this point in times in these projects?
4469836,418,2416.4099,2430.4902,8,You know what sort of confidence can you give us that these four and a half billion are actually going to be able to generate margins as you head into kinda later part of 2022 and into into twenty twenty three?
4469836,419,2430.8999,2439.76,8,And you know alongside that you know maybe you could give us a bit of a flavor in terms of kind of the working capital side of things or or how cash has progressed.
4469836,420,2439.76,2460.04,8,I mean if this is the case that these projects have stopped and are now restarting um so you know probably quite a long way from potential milestone payments um is it sort of fair to assume that you know we shouldn't really see much of an improvement in net cash until kind of twenty twenty three type timeframe?
4469836,421,2460.0701,2465.7698,8,Or maybe just some color about how you think that may well evolve over the coming quarters that would be great.
4469836,422,2465.8799,2466.29,8,Thank you.
4469836,423,2477.8899,2498.9402,5,So obviously I mean we are reprog- we're sitting in in this space with all the customers customers for projects in Asia customers for projects in Italy customer for projects in North America.
4469836,424,2499.73,2500.1399,5,And in…
4469836,425,2500.21,2522.1699,5,with some of them we have already reached agreements with a embedded cost and the embedded cost which has been transferred to them obviously has to do with the inflation has to do with material has to do with extra cost of having to uh reprogram again and launch the job.
4469836,426,2523.3899,2529.7598,5,With others we're very close and with others we're just beginning cuz we've just been announced that they like to sit with us.
4469836,427,2530.49,2531.02,5,And you know it's…
4469836,428,2531.1599,2532.53,5,And and it's and it's for…
4469836,429,2533.5,2543.28,5,So let me let me tell you it's much easier to sit down with a customer in today's market that w you have a real job and that has been reprogrammed to their benefit.
4469836,430,2544.4299,2566.1099,5,It's much easier to sit down with them and see how you can accelerate that job and and and and and and negotiate a contract or some payment terms milestones and cost you know that it would than than than going to the market and trying to bid for a new for a new job.
4469836,431,2566.48,2575.8599,5,You know this is something that both customer I'm not gonna name it and supplier inaudible have to sit down and agree.
4469836,432,2577.28,2587.48,5,And I'm quite confident that in some cases I already reach an agreement inaudible and some others sooner than later we'll reach an agreement and accelerate.
4469836,433,2589.3701,2590.6799,5,But uh but but but that's…
4469836,434,2591.8701,2593.22,5,You know it's a it's a you know…
4469836,435,2593.78,2609.96,5,Having reprogrammed jobs and having to restructure yourself with an un you know with with with a program with an unwanted problem that we had now all we do we have another problem that we have to sit down and we renegotiate with them.
4469836,436,2610.02,2612.24,5,But it's w you know it's it's it's a bit of both.
4469836,437,2613.79,2615.1799,5,It's a it is an easier solution.
4469836,438,2619.7,2637.3699,5,And we happen to be successful and we will reprogram jobs and new jobs come into force will translate into far better working capital towards the second half of next year o o o o you know a as year was before.
4469836,439,2641.72,2642.75,8,Um okay.
4469836,440,2642.75,2652.23,8,So sort of second half of next year I mean that seems relatively uh relatively quick I suppose if you've got kind of eight million if you include the new projects sort of just starting up now.
4469836,441,2653.48,2658.28,5,I mean you have to realize this project this project has been awarded from a…
4469836,442,2658.51,2661.77,5,from being awarded you have to you know have to…
4469836,443,2661.77,2663.2898,5,y y you know you have to…
4469836,444,2663.6001,2664.9302,5,they have to come into force.
4469836,445,2665.01,2668.0701,5,When the first comes into force it's a inaudible engineering inaudible impact.
4469836,446,2668.1001,2673.4099,5,But you start engineering in terms of working capital very little because you are inaudible driven.
4469836,447,2675.27,2688.47,5,And as as you move forward you start reaching milestones you have to place orders and it translates into a far better working capital structure you know a a a a on that on that is a very inaudible job.
4469836,448,2689.3,2695.54,5,And the same is going to happen with the jobs that we reprogram that we take to the customers to see how to…
4469836,449,2695.54,2695.8301,5,Anyway.
4469836,450,2697.9399,2700.73,5,That's why I say it's quick money it's quick.
4469836,451,2700.73,2705.5698,5,We've been starting to work with them in October and I'm talking about second half of next year.
4469836,452,2705.5701,2708.4399,5,It takes eight nine months.
4469836,453,2709.96,2710.8801,8,mm-hmm <affirmative>.
4469836,454,2711.3999,2711.76,8,Okay.
4469836,455,2722.73,2723.48,7,Please go ahead.
4469836,456,2728.3999,2731.6301,9,The the first one is is is still on on the cash position.
4469836,457,2732.0701,2750.1399,9,So do do you think that with the current cash and and inaudible have just said talk about in the second uh half of of next year will be enough to to finance the uh strong inaudible that you're gonna have with the four billion sales next year five billion sales uh on the following?
4469836,458,2750.48,2751.25,9,Or could b be…
4469836,459,2751.3301,2757.72,9,would be easier to make a a capital increase right now in order to be more comfortable to finance uh this expansion?
4469836,460,2758.6599,2773.3201,9,Um and the second question if you could tell us uh if you have any significant impact from this scarcity of of material due to the the cycles or how you are gonna deal with the raw materials inflation for the…
4469836,461,2773.3201,2774.4202,9,in the coming quarters?
4469836,462,2782.5701,2782.96,5,Okay.
4469836,463,2783.1799,2784.9399,5,Thank you uh Francisco.
4469836,464,2787.6299,2794.28,5,That decision obviously will get into inaudible of cash no liquidity cash pure cash.
4469836,465,2794.28,2803.1001,5,And I think that put us in a very comfortable position to manage the growth in inaudible and sales.
4469836,466,2803.95,2805.6101,5,It's good and that's that's the analysis.
4469836,467,2805.6101,2810.29,5,That's why we've inaudible set up from uh two ninety towards three forty.
4469836,468,2811.21,2826.3301,5,So that's it and that's why I think the full point that g gives us the comfort that today I had the awards new awards are coming and I'm back with a worse you know with a huge backlog at the end of uh two thousand nineteen.
4469836,469,2827.5601,2834.8,5,So well if the answer is is this enough to achieve the year twenty twenty two guidance?
4469836,470,2835.0701,2835.8799,5,The answer is yes.
4469836,471,2838.1699,2839.78,5,Inflation of raw materials.
4469836,472,2840.53,2843.9001,5,Uh you know i I'd show you the backlog.
4469836,473,2843.8999,2853.05,5,Uh the backlog is is you know the uh the uh the uh the uh all jobs the ones that were impacted there is no inflation of raw materials around the construction.
4469836,474,2855.1899,2865.3401,5,The ones that that uh that i that are being awarded that just seem fine and and and there is no impact or very little impact of raw materials.
4469836,475,2866.2,2878.1099,5,And obviously in some o in in in in in in and the jobs that have to deal with structure or that have to be uh renegotiated there is impact that were sleeping one by one customer by customer.
4469836,476,2878.1101,2883.28,5,Didn't have that many customers and there are not that many jobs to a to accommodate…
4469836,477,2890.6599,2891.9001,10,And the equipment was bought.
4469836,478,2892.49,2894.28,10,And they're being preserved in the site.
4469836,479,2895.0,2899.0701,10,And some other bought materials which is something you buy at the very beginning was bought.
4469836,480,2899.0701,2900.4102,10,And some equipment was bought.
4469836,481,2901.1399,2903.95,10,And then you know inaudible was was brought.
4469836,482,2904.8799,2913.7102,10,So uh even even in the inaudible jobs a very large percentage of the impact in raw material was already you know…
4469836,483,2913.71,2914.6399,10,It was part of job.
4469836,484,2914.6399,2918.47,10,It was already paid or was already agreed was already closed or hatched.
4469836,485,2919.23,2924.99,10,And the remaining one now we're speaking with the customers to see inaudible.
4469836,486,2924.99,2925.1101,14,Okay.
4469836,487,2925.8,2932.28,14,inaudible thank you very much.
4469836,488,2938.6201,2941.8701,11,The next question comes from the line Kevin Roger from Kepler Cheuvreux.
4469836,489,2942.1399,2942.79,11,Please go ahead.
4469836,490,2944.8301,2945.7,12,Um yes.
4469836,491,2946.04,2946.5999,12,Good evening.
4469836,492,2968.55,2989.1399,12,So can you share with us some metrics in like say this week uh compared to uh to two months ago to to show what is the trend in your uh activity right now?
4469836,493,2989.9099,2991.03,12,And the second question…
4469836,494,3006.8899,3011.1001,12,So far away from what you you were expecting previously.
4469836,495,3011.1899,3012.55,12,Um so what do you…
4469836,496,3045.3,3046.0,10,Hi Kevin.
4469836,497,3047.8999,3050.48,10,You know you're talking about metrics.
4469836,498,3050.6699,3069.3201,10,And I think in the presentation the the reason that I give you an example of one single job where we had to manage reduction uh from twenty thousand to five thousand workers with uh you know six thousand workers under quarantine that's one job.
4469836,499,3069.9299,3071.28,10,And do an analysis?
4469836,500,3071.51,3077.05,10,I don't think I'm going to start naming the different jobs that we have in the Middle East inaudible situations.
4469836,501,3077.71,3079.6399,10,So it's very difficult to come out with metrics.
4469836,502,3079.6399,3081.1099,10,This is the real metrics.
4469836,503,3081.3701,3083.3899,10,And the important metric is we managed that.
4469836,504,3084.29,3088.3301,10,And we managed that and we are successfully progressing in those jobs.
4469836,505,3088.71,3091.1199,10,And we are successfully delivering those jobs.
4469836,506,3091.47,3093.3,10,That's the important about these metrics.
4469836,507,3093.7,3100.1699,10,And it it is very different to uh to come out with the real figure of a inaudible basis in this business.
4469836,508,3100.1699,3104.78,10,And it has been extremely difficult for us to inaudible gonna happen.
4469836,509,3105.4399,3116.3298,10,So the metric for guidance of two twenty one is that this whole thing is past or is passing and that uh our jobs are progressing at a adequate pace.
4469836,510,3117.5601,3122.3999,10,And our customer we are negotiating with them to accelerate milestones inaudible getting paid.
4469836,511,3123.3701,3128.5601,10,So uh that allows me to say okay obviously I have six months to finish the year.
4469836,512,3128.8999,3134.3601,10,And with those metrics I can finish this next quarter you know at a break-even basis.
4469836,513,3134.47,3136.01,10,And thi and this is the important thing.
4469836,514,3136.01,3140.78,10,And inaudible Kevin my message it is a positive break-even.
4469836,515,3140.8999,3148.8101,10,I mean it's positive to finish at break-even with sales level as low as we've got.
4469836,516,3149.72,3150.8801,10,So it's uh uh it is…
4469836,517,3151.9099,3154.3201,10,Take it or at least I take it as good news.
4469836,518,3155.1499,3160.9099,10,Some analysts may not like it because there are inaudible euros way above or below.
4469836,519,3161.3601,3163.1499,10,But this is this is good news.
4469836,520,3163.1499,3168.3401,10,We've managed it this business under incredible uncertainty and stress.
4469836,521,3174.8899,3182.0,10,And the second and the second question is yeah quality of the backlog the quality is very good.
4469836,522,3182.4199,3185.1001,10,And the margin embedded in the backlog is good.
4469836,523,3185.75,3191.54,10,But the sales figure would not increase inaudible you know in the in the next…
4469836,524,3191.6899,3196.27,10,In the last two quarter of two twenty one inaudible we cannot go to four.
4469836,525,3196.3999,3198.4902,10,It will increase little by little.
4469836,526,3198.49,3200.1399,10,Our sales will increase.
4469836,527,3200.3401,3202.73,10,And we are inaudible the new jobs.
4469836,528,3203.3101,3204.6902,10,They have to come into force.
4469836,529,3205.8799,3209.28,10,To give you an example inaudible job that was awarded to us.
4469836,530,3209.28,3212.8301,10,And it's going to be bigger than than announced because there are a lot…
4469836,531,3213.28,3224.78,10,We've already announced there are there are a lot of uh uh options that have to be included uh as the customer you know works with the other engineering companies.
4469836,532,3226.01,3226.77,10,You know it's it is…
4469836,533,3226.8799,3240.51,10,We are getting paid starting of inaudible fully into force because all the option have to be uh ha have to be precisely inaudible into the contract.
4469836,534,3241.45,3247.3101,10,So uh the inaudible job came into force you know at the end of September.
4469836,535,3248.76,3251.3899,10,So uh you have to you know…
4469836,536,3251.46,3253.6899,10,Jobs take a while to come into force.
4469836,537,3253.9299,3254.6501,10,They're are good jobs.
4469836,538,3255.0901,3256.05,10,They're good projects.
4469836,539,3256.9399,3261.3799,10,But I will will not able to inaudible those jobs their embedded margin.
4469836,540,3261.3799,3267.2,10,And let me tell you they are good margins inaudible the risk until you know second half of next year.
4469836,541,3267.2,3268.26,10,So it's gonna take a while.
4469836,542,3269.0901,3270.4099,10,The good thing is we've got it.
4469836,543,3270.5801,3271.53,10,We have the backlog.
4469836,544,3271.77,3278.3,10,And uh QR franchise has remained as as strong as before with with a good level of awards.
4469836,545,3285.1399,3285.3398,12,Okay.
4469836,546,3287.01,3289.6001,10,crosstalk me Kevin but I try my best <laugh>.
4469836,547,3289.8201,3290.24,12,<laugh>.
4469836,548,3290.24,3292.46,12,inaudible thanks a lot for that.
4469836,549,3293.73,3294.0598,10,Thank you.
4469836,550,3295.8501,3300.22,11,And we have one question left from Alvaro Lenda from Elantra Equities.
4469836,551,3300.3601,3301.1401,11,Please go ahead.
4469836,552,3302.04,3302.7,13,Hi.
4469836,553,3302.7,3304.02,13,Thanks for taking my question.
4469836,554,3313.9099,3324.6699,13,What what makes you confident that you can reach these inaudible you stated that uh energy transition contracts will likely come with a lower size but higher margin?
4469836,555,3324.74,3326.6401,13,Uh so that would be my first question.
4469836,556,3378.22,3380.78,13,That would be already included in the working capital.
4469836,557,3388.1399,3397.6699,13,So whether you could provide some more color on whether you are paying some of the provisions that you've done during the year or what explains this decline in the in the net cash position?
4469836,558,3398.47,3399.1802,13,Thank you very much.
4469836,559,3399.1799,3399.29,13,<silence>.
4469836,560,3457.22,3457.8401,10,Okay Alvaro.
4469836,561,3457.8401,3466.27,10,So sorry to keep waiting but I think it's you know inaudible I'm trying to organize how to answer you cuz um you know you know inaudible.
4469836,562,3466.27,3470.5701,10,The first one you asking you know…
4469836,563,3470.5701,3482.5,10,m you know you're talking about our Transforma plan and uh our project with Seppi or strategy with Seppi whether it is the same or not.
4469836,564,3483.5801,3484.71,10,I'm not sure what the question is.
4469836,565,3484.71,3485.4502,10,So let me tell you.
4469836,566,3485.45,3492.1699,10,Transforma plan is something we worked very hard in two thousand nineteen continued work in two thousand twenty and and two thousand-
4469836,567,3492.1699,3492.78,10,two twenty.
4469836,568,3493.52,3497.77,10,And our agreement with Seppi obviously Seppi liked it.
4469836,569,3498.3201,3499.98,10,Obviously we liked it.
4469836,570,3500.7,3507.3701,10,And and and in our strategy with Seppi everything that we had working on Transforma plan is alr- already inaudible.
4469836,571,3507.3701,3510.54,10,But it's no difference between Transforma and Seppi.
4469836,572,3510.5901,3520.6702,10,I mean Transforma is the plan of QR you know being able inaudible to grow and to become a far more cost effective company.
4469836,573,3521.02,3531.1799,10,And at the same time provided that in that that we have some auditors how we could capture inaudible risk part of the business capture some other markets and the risk part of the business.
4469836,574,3531.6201,3532.79,10,It's not an obligation.
4469836,575,3533.05,3533.8799,10,It's a good plan.
4469836,576,3534.3601,3539.1399,10,And it's a plan that we had before and we have improved inaudible Seppi as we always do.
4469836,577,3539.5801,3541.49,10,That's the natural way of managing a business.
4469836,578,3543.3999,3549.22,10,The second question you were talking about guidance guidance of the five billion dollars inaudible.
4469836,579,3551.3701,3560.52,10,Obviously if you crunch numbers we have awards and they come into force this year above four billion inaudible four billion.
4469836,580,3561.22,3562.6201,10,And we have uh awards.
4469836,581,3562.8601,3566.3,10,Only we have awards slightly above four billion.
4469836,582,3567.51,3573.6301,10,Next year by the time inaudible accrued we are going to be reaching five billion inaudible sales.
4469836,583,3574.8301,3583.1199,10,You know it's it's it's just a inaudible you know o o o only with the with the remaining backlog and the awards.
4469836,584,3583.3899,3590.9202,10,So five billion inaudible levels awards five billion we are gonna be very very close if not above.
4469836,585,3591.8301,3592.9102,10,We've done it before.
4469836,586,3592.98,3595.6201,10,And we've done it before for several periods.
4469836,587,3596.1399,3598.45,10,We have the backlog to do it.
4469836,588,3598.45,3609.96,10,Just just you only have to look at the level of sales that we had at the end of two thousand and nineteen and try to play with those number and to see what w had been our level of sales with that backlog in two thousand twenty.
4469836,589,3609.96,3611.1499,10,It would have been…
4469836,590,3611.1799,3613.1702,10,And that's what I said many months ago.
4469836,591,3613.1699,3614.2998,10,We have put the business…
4469836,592,3614.75,3619.95,10,We've organized some sales for business for a level of sales w way above four billion.
4469836,593,3620.1799,3626.8799,10,So uh it is a guidance but it's a guidance that I do feel comfortable to reach.
4469836,594,3628.97,3635.3999,10,And the last question has to do with the falling cash nine oh million falling working capital.
4469836,595,3635.3999,3636.48,10,I'm a little confused.
4469836,596,3637.3301,3640.05,10,So all I can tell you those ninety million they're…
4469836,597,3640.1699,3645.4399,10,It's a down payment that should have come in to you know during the month of September.
4469836,598,3646.3101,3651.5598,10,And for some reason inaudible came in on the first of October.
4469836,599,3652.3501,3654.8101,10,So I think it's part of yeah working capital.
4469836,600,3654.8101,3662.5999,10,It's just a ninety million cash payment having to do with a down payment of a job have that has just started.
4469836,601,3663.97,3682.0701,10,But uh but uh if if if you want to get into detail in numbers I would advise to you to call you know our investor relations and then uh you get into details cuz uh probably I'm not the right person to give you uh the best and detailed answer.
4469836,602,3690.1399,3694.1101,11,And as there are no further audio questions I'll hand it back for any closing remarks.
4469836,603,3701.02,3701.6101,10,Okay.
4469836,604,3701.75,3708.75,10,Uh thank you thank you to all of you for listening to the to the uh presentation a bit longer than expected.
4469836,605,3708.8999,3711.0801,10,I tried rush but I was not able to.
4469836,606,3711.96,3721.53,10,And thank you for all the uh questions which we do inaudible you know which should help us be me in particular to inaudible presentation.
4469836,607,3721.5601,3722.22,10,Thanks a lot.
4469836,608,3722.22,3725.97,10,And I'll see you for sure in a few months' time February.
4470010,0,22.59,52.83,0,e n o.
4470010,1,805.7,1204.98,1,V-shape recovery will continue.
4470253,0,2.87,3.52,0,Good morning.
4470253,1,3.7,4.54,0,Good afternoon.
4470253,2,4.73,7.82,0,Welcome to our online uh conference.
4470253,3,7.85,14.61,0,We will discuss the results of the k g h m for the third quarter and for the first nine months of twenty twenty one.
4470253,4,14.97,16.73,0,Apologies for the delay.
4470253,5,16.76,32.88,0,Uh unfortunately due to technical constraints um uh we have w w- w- we had to make sure that everything runs seamlessly and we deliver the best quality transmission that's why it took us a little bit longer.
4470253,6,33.23,38.35,0,We'll start with uh quick comments on the results they will be commented on by Mr.
4470253,7,38.35,42.82,0,Marcin Chludzinski the President of uh k g h m Mr.
4470253,8,42.82,47.36,0,Adam Bugajczuk Vice President for Development Mr.
4470253,9,47.36,53.42,0,Pawel Gruza Vice President for Foreign Assets and Mr.
4470253,10,53.42,56.44,0,Andrzej Kensbok Vice President for Finance.
4470253,11,60.32,82.36,0,As I said we would very l very much like to be here with you hmm uh face to face but for um uh for concern for the health of ourselves and our people we had to reduce the number of live meetings and and choose online events instead.
4470253,12,82.77,93.17,0,Nevertheless um after the presentation uh during the commentary uh we will also move on to a Q and A session.
4470253,13,93.71,99.34,0,Uh feel encouraged to submit your questions to er ir@kghm.com.
4470253,14,103.4,113.83,0,All the questions that have been or will have been submitted will be answered on our website as soon as possible.
4470253,15,114.14,118.17,0,Also the transcript of this conference will be available as well.
4470253,16,118.8,123.49,0,I hope that we will manage to answer as many questions as possible today.
4470253,17,125.24,129.08,0,So now uh let me give the floor to to the C E O.
4470253,18,130.58,131.37,0,Uh hi.
4470253,19,131.37,132.3,0,Hello everyone.
4470253,20,132.7,143.32,0,Uh welcome from Lubin uh on this charming uh charming autumn afternoon.
4470253,21,143.8,145.57,0,Oh actually midday.
4470253,22,146.54,149.72,0,Uh but let's not talk about weather.
4470253,23,150.21,155.69,0,Let's talk about uh climate uh which is somehow related.
4470253,24,156.15,157.47,0,Uh why climate?
4470253,25,157.86,162.68,0,This week we have adopted k g h m climate policy.
4470253,26,163.91,177.36,0,That's a sign of the times uh it's somehow related to EU regulations but it's also uh a matter of of market requirements.
4470253,27,177.36,178.75,0,We want to be transparent.
4470253,28,178.78,185.34,0,We want our production to be transparent in terms of our climate agenda.
4470253,29,186.01,189.95,0,And we want to be in line with um the European climate agenda.
4470253,30,190.29,203.95,0,That's why we adopted this document that defines what k g h m should do in response to climate change and what is the the footprint of the company.
4470253,31,204.22,215.4,0,What is the impact of k g h m on the climate what we want to do what initiatives we want to take to reduce that f footprint and to to change the impact.
4470253,32,215.79,219.52,0,So that's the essence of the newly adopted document.
4470253,33,221.6,230.21,0,There is one quite important goal in twenty fifty k g h m um is to be climate neutral.
4470253,34,230.34,234.47,0,There will be two intermediate goals in twenty thirty.
4470253,35,234.6,239.99,0,We want to reduce our emissions by thirty percent versus twenty twenty.
4470253,36,241.82,245.66,0,And we are talking about two k two kinds of emissions.
4470253,37,246.49,255.09,0,We have hmm the range two uh emissions that's emissions related to electricity production.
4470253,38,255.58,267.77,0,So where c o two emissions are related to power generation we want to run a number of initiatives to to reduce those emissions.
4470253,39,268.08,281.74,0,And the other area is the so-called uh range one which is our impact uh sorry our production um which of course generates c o two.
4470253,40,282.05,289.49,0,So we want to hmm become hmm c o two neutral by twenty fifty.
4470253,41,293.74,303.29,0,Hmm the agenda includes such measures as buying green energy or uh deployment of our own renewable energy sources.
4470253,42,303.79,307.38,0,We want to be a more responsible consumer of energy.
4470253,43,307.63,315.75,0,We want to use less energy and we want to use as um we want to maximize the share of green energy that we use.
4470253,44,318.13,326.37,0,In twenty fifty we also want to become uh uh independent in terms of energy supplies.
4470253,45,327.32,338.29,0,Hmm when it comes to our production cycle there are a number of initiatives such as add the mixture of h hydrogen to our smelting processes.
4470253,46,338.69,344.69,0,We want to use electro mobility in um in our mining operations.
4470253,47,345.02,351.83,0,We want to use C C U and C C U and S uh so carbon capture and storage technologies.
4470253,48,352.38,356.58,0,So the technologies that are already in place and can be deployed.
4470253,49,356.98,365.97,0,There are also some technologies that are still in the development stage and we hope they will be developed and they will become viable in a few years.
4470253,50,366.94,369.51,0,So this is what we want to do.
4470253,51,369.55,378.39,0,Hmm the these are the challenges of the European regulations and hmm requirements of of uh uh uh of our clients.
4470253,52,383.77,393.41,0,So in in a nutshell uh i am talking about the the here and now so nine months into twenty twenty one.
4470253,53,393.41,397.11,0,There are Q uh a number of key uh facts and figures.
4470253,54,397.23,410.89,0,So the EBITDA year on year uh is seven point seven three billion which is greater than last year uh which is a reflection of um greater revenues.
4470253,55,410.89,416.1,0,We we sell at better prices uh so our revenues grew by thirty one percent.
4470253,56,416.21,420.36,0,That's twenty one over twenty one billion that is.
4470253,57,421.92,429.33,0,And higher prices the better prices are not the only factor that hmm has contributed to this improvement.
4470253,58,429.91,434.8,0,We also have a ten percent greater uh production of copper.
4470253,59,435.18,445.2,0,Um we have been following our um our uh plans our strategy uh with greater production.
4470253,60,445.25,451.59,0,We are immune to lower prices but we are very happy to have the tailwind we have greater prices.
4470253,61,452.05,457.03,0,In twenty nineteen or twenty eighteen the prices were very low.
4470253,62,457.33,469.81,0,In uh April twenty nineteen it was four thousand six hundred dollars per ton and we still managed uh we reduced our cost or we we increased our production.
4470253,63,470.49,475.13,0,But hmm these figures are the most important findings.
4470253,64,475.49,481.31,0,Now i'll give the floor to Andrzej Kensbok who will tell you more about the finance.
4470253,65,483.13,491.86,0,The production vice president is not with us today um because he has some health concerns.
4470253,66,492.19,495.21,0,So hmm we won't be talking about production in detail.
4470253,67,495.83,496.89,0,Uh thank you very much.
4470253,68,496.92,498.53,0,Good day to all of you.
4470253,69,498.56,504.68,0,Hmm let me start with a quick uh summary of our production output for metals.
4470253,70,505.04,512.74,0,The good news is that pay copper has grown by ten point one percent three quarters of…
4470253,71,513.13,520.9,0,Compared to the same period of twenty twenty all three segments of our operations have made a contribution.
4470253,72,520.9,536.45,0,So that's domestic production from fourteen twelve to forty four hundred forty thousand tons k g h m International forty nine thousand tons to fifty five thousand tons and Sierra Gorda from um sixty to seventy eight thousand tons.
4470253,73,540.17,551.25,0,I will give you the details in a second but before I do that let me mention silver production which is very important to us.
4470253,74,552.28,556.01,0,Last year uh hmm and the production was very high.
4470253,75,556.57,567.08,0,We didn't actually assume such a great performance this year hmm looking at the geological uh parameters and the richness of the ore.
4470253,76,567.57,579.71,0,Um but the results uh um have been very good both in terms of mining output and the content of silver in in hmm in the ore.
4470253,77,580.54,587.91,0,And also in terms of um hmm uh the recovery performance in the the smelting operations.
4470253,78,588.66,598.02,0,So the combined production of the whole group is one thousand and eight tons of silver in the first three quarters of twenty twenty one.
4470253,79,598.64,600.75,0,Last year uh…
4470253,80,601.28,611.28,0,Well when you compare this to last year figures we can hope that w we will solidify our uh leading position globally.
4470253,81,611.28,614.72,0,We are the second largest silver producer in in the world.
4470253,82,614.72,615.98,0,We are very happy about that.
4470253,83,616.01,625.14,0,We want to uh we want to maintain this top two position when it comes to precious metals.
4470253,84,625.86,633.64,0,We have a slight decline which is most of all related to the quality of ore in the US and Canada.
4470253,85,633.98,636.31,0,Moly production has not changed.
4470253,86,636.98,642.26,0,Um moly content in the ore in Chile remains stable.
4470253,87,649.49,653.79,0,Now let's take take a look at k g h m Poland.
4470253,88,653.79,658.6,0,Um the other uh other operations will be discussed by Mr.
4470253,89,658.6,659.18,0,Gruza.
4470253,90,659.58,662.33,0,Here we look at mining uh or extraction.
4470253,91,663.0,666.83,0,In terms of tonnage we have increased our output.
4470253,92,669.82,685.02,0,Also in terms of processing ore processing operations uh the output is h has been quite stable uh over last year.
4470253,93,689.96,694.18,0,The copper content in the ore is slightly lower.
4470253,94,694.18,714.78,0,Uh hmm this is related to the fact that we keep uh continuing our prospecting operations and uh th the prop uh the co copper content cannot be predicted to a very fine um hmm degree of detail to three decimal places.
4470253,95,715.15,720.63,0,Uh but we hmm we are pretty much satisfied with what we get.
4470253,96,721.06,730.75,0,We are we keep finding new ore deposits and we keep mining those areas that are most uh economically viable.
4470253,97,731.17,737.1,0,Now smelting operations there are two important elements.
4470253,98,737.77,747.26,0,That's maintain m m maintenance of um smelting operations and refinery operations at last year's level.
4470253,99,748.63,752.5,0,Hmm all the figures are presented in in the presentation.
4470253,100,752.99,762.38,0,Uh quite importantly uh we have more uh copper production from third party ores.
4470253,101,763.06,774.63,0,Uh this is relat- or third party sources um because we have improved the efficiency of um of scrap uh scrap copper processing.
4470253,102,775.2,779.29,0,And this is also the direction we want to go for in the future.
4470253,103,779.58,787.71,0,Also in the context of our hmm climate policy and we want to keep improving our operations in this area.
4470253,104,787.71,794.57,0,And the main growth driver in silver year on year is k g h m Polska Miedz.
4470253,105,795.93,805.25,0,Here we have a growth from nine hundred seventy five tons up to nine hundred eighty three tons in the first three quarters of twenty twenty one.
4470253,106,812.41,816.47,0,Now let's take a look at Sierra Gorda International.
4470253,107,816.72,818.66,0,So I'll give the floor to Mr.
4470253,108,818.66,819.46,0,Gruza.
4470253,109,819.99,821.13,0,Thank you Andrzej.
4470253,110,821.67,828.74,0,Uh ladies and gentlemen we are happy to present these results.
4470253,111,829.2,839.16,0,Thanks to uh favorable macroeconomic uh situation we focused on maximizing production in all our international assets.
4470253,112,841.46,848.26,0,Also geology has been favorable and has been a positive contributor to our results.
4470253,113,848.54,854.45,0,As a result uh payable copper in Sierra Gorda has grown by nearly a third.
4470253,114,855.26,857.64,0,Also silver has gone up.
4470253,115,865.51,881.74,0,Obviously we have been trying to uh to optimize our processing operations and uh and the costs uh that we uh that we pay in Sierra Gorda.
4470253,116,888.38,891.29,0,Now let's move on to k g h m International.
4470253,117,892.99,898.83,0,Here we also have a thirteen percent growth in payable copper production.
4470253,118,899.63,906.89,0,Here the main driver is the efficiency of our mining uh operations in Robinson.
4470253,119,910.0,918.89,0,In Robinson's w we've also been trying to extend the lifetime o of the mine.
4470253,120,919.22,923.49,0,So we want to keep mining in that area for the years to come.
4470253,121,923.75,927.92,0,And production results uh are very good when it comes to silver.
4470253,122,930.31,944.85,0,Hmm some mines produce less but because of their relative share their contribution to the overall um international results is negligible.
4470253,123,945.53,946.28,0,Thank you very much.
4470253,124,950.13,953.17,0,So let's move onto the financial results of the group.
4470253,125,953.49,956.99,0,The first piece of news is the revenues.
4470253,126,979.2,986.56,2,But there are a number of other factors uh that are less favorable that's a slight decrease in sales.
4470253,127,987.62,991.13,2,First of all in in k g h m International.
4470253,128,992.07,1012.15,2,And that's related to certain logistic problems in US ports also in dry docks there have been so delays and transportation resources are less available than they used to but this we believe is temporary.
4470253,129,1012.68,1020.07,2,We also had a um foreign exchange differences between the Polish zloty and the dollar.
4470253,130,1020.07,1027.88,2,Uh um it was three ninety four uh the average three ninety four last year now it's a three eighty seven.
4470253,131,1028.49,1041.86,2,Uh of course we keep track what's going on on the zloty and the Euro and the dollar uh we uh are looking closely at what's going on in foreign exchange.
4470253,132,1041.86,1064.8,2,Another negative factor was the adjustment of derivi- revenues on derivatives in the first three quarter the adjustment was in the area of one 1zł billion but there is a slight difference hmm you know cuz of the first three quarters of the last year.
4470253,133,1065.04,1079.8201,2,So the year and year difference is one point four billion and the positive change the two hundred million that greatest sale of materials other than silver and copper.
4470253,134,1080.27,1089.2799,2,The the quiet leader here is the sulfuric acid that we sell we sell more of that acid and at a higher price than last year.
4470253,135,1089.71,1105.84,2,But there's also lead uranium selenium a number of other derivative products at that sell greater volumes and or at greater prices than in the first three quarters of twenty twenty.
4470253,136,1110.03,1113.16,2,Now let's move on to unit cost.
4470253,137,1114.63,1151.24,2,As you can see in the slide the unit cost is significantly higher but when you look at the group level if you um take into account uh the the the copper tax and then the c one cost would actually be lower in the first three first nine months of twenty twenty one than in twenty twenty because the what we all know what the uh the the the copper tax it is we know the formula and you just can't beat the formula.
4470253,138,1151.27,1156.0699,2,It is rigid uh there is no work around.
4470253,139,1156.83,1175.0699,2,But when you look at the k g h m Polish Copper then the growth of the c one cost net of the uh the copper tax is in the range of uh three cents per pound.
4470253,140,1175.83,1187.8999,2,And this is this small growth is mostly related to growing power prices c o two emission rights and uh the the cost of of uh of diesel.
4470253,141,1188.5601,1198.5,2,So these were the main cost drivers in k g h m International well the c one cost is comparable.
4470253,142,1198.67,1211.79,2,We have have a significant growth in Sierra Gorda we have greater volumes and higher prices of um additional metals that actually bring our c one cost down.
4470253,143,1212.26,1230.14,2,When it comes to our operating results uh first of all our inaudible uh is significantly higher seventy five percent greater year on year oh actually nine months over nine months.
4470253,144,1230.87,1238.01,2,And here you can uh this is an aggregate for all the segments.
4470253,145,1238.01,1247.4399,2,So k g h m Polish copper international and Sierra Gorda and the main driver here is higher metal prices.
4470253,146,1248.0,1252.7001,2,And it does uh higher sales prices.
4470253,147,1255.11,1275.0699,2,It's not in this slide but let me mention one more thing when you were when you look quarter by quarter you'll see that our quarter by quarter performance has been very stable very constant and the contribution of each quarter to the aggregate results for the three quarters has been pretty much the same.
4470253,148,1275.53,1286.7301,2,So consistently we have been building our results and also the third quarter has made a very good contribution to the the results after nine months.
4470253,149,1290.04,1305.62,3,Now the profit or net result it's significantly higher more than three times higher for the whole group compared with the three quarters of the the previous year.
4470253,150,1307.5601,1316.6599,3,This is uh mainly linked to the change in metal prices and higher revenues.
4470253,151,1316.66,1354.0599,3,But what I also mentioned during the previous uh revenue conference it was related to the the evaluation of loans we provided to other entities including Sierra Gorda and also the measurement of interest accrued as well as the contrast between the negative result uh last year and the positive result achieved this year and joint ventures one million nine hundred thousand zero oh oh that is the profit on involvement in joint ventures.
4470253,152,1355.04,1376.42,3,What is also important is higher profit from sales by more than one billion from s one billion 165 million with with higher copper prices slightly lower silver sales and an increase in services.
4470253,153,1377.17,1389.5601,3,So we have been watching this especially the net uh profit on the sales uh because uh uh this is the core of our operations.
4470253,154,1392.23,1423.12,3,There's also one thing that oh I'd like to mention that is the drop uh in our result on derivatives it is related to the measurement of derivatives by sixty seven million but als million but also in the the low evaluation value of a hundred fifty million is derivatives had uh the impact by minus eight to one million on the net result.
4470253,155,1423.12,1436.1799,3,Uh change in uh C I T exchange differences that I mentioned previously and the C I T is Corporate Income Tax so we have high higher profits so the taxes are also high.
4470253,156,1436.48,1469.42,3,So the net um the result or the profit that remains is strong and robust uh and uh with each quarter we've seen a significant contribution to the overall profit but we have to mention that uh the increase in the costs of energy uh those prices accelerated uh uh in the last quarter by seventeen percent quarter to quarter that is how energy prices have increased.
4470253,157,1469.42,1485.96,3,Uh we have been offsetting these higher energy prices by uh conservational energy savings but uh it's not possible to offset um such an increase in energy prices by reducing the consumption only.
4470253,158,1487.13,1490.86,3,And now let me move on to our cash flows.
4470253,159,1493.89,1497.1001,3,So there are three important factors here.
4470253,160,1498.77,1505.04,3,So the first one there is the the a allocation of the profit home.
4470253,161,1506.23,1520.74,3,The second is a change in the working capital and that was related to I say knowingly abandoning the use of some of the factoring contracts.
4470253,162,1520.74,1523.37,3,So it's one billion zloty.
4470253,163,1523.98,1534.5699,3,We see no need to use factoring in these areas and this is how we can save on the costs uh financing costs of these contracts.
4470253,164,1534.86,1550.5,3,the contracts remain valid uh they're in full force and in effect uh as our credit agreements are we can use them but we are not using them at the moment because uh we don't see any reason to do so and we can save the cost.
4470253,165,1551.15,1568.3099,3,And another area area uh is increase stock by one point six billion zloty compared with the beginning of this year uh the that is uh related to two factors the one um planned downtime and repairs.
4470253,166,1568.95,1579.38,3,So we are planning to have a downtime downtime of uh the suspension uh furnace which is really a huge project.
4470253,167,1579.38,1591.11,3,So we need to prepare our company to have the stock at every um stage of the process uh for the downtime of that important time flash furnace.
4470253,168,1591.48,1610.5599,3,We also preparing for other repairs other work uh we are going to do um like the uh Arnold uh carousel filling machine and other the major work uh we're going to perform.
4470253,169,1610.85,1615.49,3,And the other area is the uncertainty surrounding supply chain.
4470253,170,1615.66,1637.1699,3,We have seen that a over the last couple of months where we were confronted with a serious breakdown in one of our concentrate suppliers uh very important supplier and you know how uh uh unavailable um ve vessels are for transportation.
4470253,171,1637.51,1659.4501,3,And in order to ensure continuous production of copper we are keeping uh our stock at a slightly higher level uh because uh uh we made a commitment in that respect um in the sense that we would like to test the possibility of increasing our production volume from one year to the other.
4470253,172,1659.76,1690.03,3,And in order to do so we need to optimize all production areas including no the smelting operations uh uh so that uh we can optimize that process in terms of the selection of the material and in terms of the the processes themselves so that we need to make sure that this melted plants as well as the inaudible plant have the resources to optimize production this year and next year.
4470253,173,1690.7,1714.37,3,But looking at Stockholm we not only thinking about long uh short term one year horizon we looking forward long term and would like to um uh streamline our production uh make it more efficient that that um has not changed uh at the end of quarter three.
4470253,174,1716.26,1718.12,3,That that's not changed really.
4470253,175,1720.54,1738.13,3,We um received cash from k g h m International as I've mentioned but we also um had a um well a situation which is uh stable really not much changed.
4470253,176,1738.13,1745.0,3,Uh the only change was a slightly lower cash position.
4470253,177,1745.0,1753.1399,3,The net debt increased but the debt um in terms of backing debt uh it's cha it's not changed.
4470253,178,1753.14,1761.66,3,Uh so we repaid uh these borrowings in the second quarter and this is why we not mentioning them.
4470253,179,1762.79,1765.37,3,Let me give the floor to Adam should know.
4470253,180,1768.29,1770.47,3,Thank you ladies and gentlemen.
4470253,181,1770.6899,1775.03,3,Now let me focus on advancement of develop initiatives.
4470253,182,1778.25,1789.52,3,Well as for the projects fulfilled uh well it's not so impressive maybe but we doing that uh on budget and on time.
4470253,183,1790.08,1801.8201,3,So for example the Southern quarter was finished uh uh six months ahead of the schedule which shows that we coping with the present situation.
4470253,184,1802.24,1825.46,3,We all aware of the broken supply chains uh inava- unavailable materials and uh that all these uh minor challenges that we are facing in some smaller projects but we really trying to resolve the problems as they arise and uh fulfill uh our objectives on time.
4470253,185,1827.62,1854.5499,3,As for the role of inaudible uh g g p uh the role is increasing uh by thirty percent years year in all areas of our production extraction and also you know the um copper content um of the head grade and silver is also becoming more and more important in that area.
4470253,186,1856.45,1883.2101,3,We have also began drilling an exploratory borehole uh for inaudible our license the and uh at end of the third quarter we were drilling exploratory boreholes at inaudible so well these are the results of our projects.
4470253,187,1884.0699,1895.01,3,So the Southern quarter that I've mentioned which is like the dual in our crown and uh this is a very complex operation.
4470253,188,1896.17,1901.1899,3,Well it's lasted more than three years and has been completed successfully.
4470253,189,1901.64,1920.0701,3,You know we have um sent or deposited uh the first waste and uh we've really managed to complete that very successfully as for the access program inaudible has sank to one thousand two hundred and ninety five meters.
4470253,190,1923.9399,1928.13,4,And comments shaft thinking procedures are on the way for gg two.
4470253,191,1930.5,1943.55,4,We have also the central air cooling system uh on the surface and so all uh our key projects here are being delivered on time and on budget.
4470253,192,1947.02,1950.9,4,Now the energy development program including renewables.
4470253,193,1952.13,1961.88,4,So we are showing the work which is underway to increase our renewables potential you know energy potential including renewables.
4470253,194,1964.3199,1972.46,4,We uh continue our work to increase the share of renewables and we have been doing that con very consistently.
4470253,195,1973.53,1985.6,4,As for the share of renewables in our own energy production uh that's uh what's uh inaudible said about our climate policy.
4470253,196,1985.96,2013.8099,4,All of these are tools to implement our climate policy to bring us closer to our neutrality target uh ambitious parameters so that in twenty thirty a half of our energy consumption is met by our own energy sources including renewables in in two thousand thirteen what Sierra Gorda will be supplied one hundred percent from renewables.
4470253,197,2014.41,2016.2001,4,Uh so that's the situation.
4470253,198,2029.47,2037.91,4,We would like to thank you for the uh positive comments and feedback we've received from you on our climate policy.
4470253,199,2038.22,2046.14,4,Before I give the floor to Janusz Krystosiak let me read one question about the climate policy and not the results.
4470253,200,2046.14,2062.6399,4,The question we received is about page ten in the presentation which uh says that de carbonization program for the group will be adopted will we uh hear about the details of that publicly?
4470253,201,2062.8899,2066.21,4,it'll be presented the program I'm in in twenty twenty two.
4470253,202,2066.95,2079.6499,4,And then according to our information and disclosures policy information which is significant for uh investors will be made public.
4470253,203,2081.8999,2099.1899,4,So now uh uh we we have also a presentation which is inaudible uh detailed presentation which is a discussion of our climate policy.
4470253,204,2099.1899,2106.8298,4,So we can also uh read that it's important not to uh to make a mistake here.
4470253,205,2106.8301,2111.0601,4,And so the question was about the de carbonization of the group.
4470253,206,2111.71,2133.75,4,So in our document we assumed how much we emitting in our smelting and mining operations we know what to do uh to achieve the right targets in twenty thirty and also to meet the zero emissions target and also to take a comprehensive approach uh and tackle all aspects.
4470253,207,2134.73,2156.7998,4,and and we would like to have a big picture of the whole group uh including our companies uh and subsidiaries and also to implement the right uh measures to achieve the zero emissions target in our subsidiaries.
4470253,208,2156.8,2164.0798,4,We know what's happening in the parent company and twenty twenty two will be about the subsidiaries in our grip of companies.
4470253,209,2165.0,2171.27,4,Thank you Janusz Krystosiak head of uh investors relations will have the q and a.
4470253,210,2172.1001,2172.49,6,Thank you.
4470253,211,2173.8101,2181.54,6,Let me begin with a number of questions which will be about our foreign operations.
4470253,212,2185.8501,2209.0,6,And uh these will be directed first to inaudible who inaudible investment expenditure on a big target project have been growing noticeably last quarter uh what is the scale of spending in twenty twenty two and onwards?
4470253,213,2214.0801,2225.8298,6,Well uh we not uh projecting that we are in the middle of our budgeting work and some of the things have not been finished.
4470253,214,2225.8301,2229.51,6,So I don't think we can tell you everything right now.
4470253,215,2230.96,2232.1399,6,Uh it's clear.
4470253,216,2232.1799,2234.1699,6,Okay thank you for that question.
4470253,217,2235.8401,2246.5601,6,So the CapEx on Victoria uh has a different nature there are different uh kinds of CapEx.
4470253,218,2246.5601,2270.24,6,Some of the spending is to meet the local regulatory requirements in Canada and the other expenditures are to ensure for our k g h m uh that we have the flexibility in our Victoria project contracts.
4470253,219,2273.25,2284.8201,6,And that is uh why we have embarked on investment projects this year but talking about twenty twenty two we preparing uh the budget session.
4470253,220,2284.8799,2302.4399,6,So it's really hard to tell at this point in time we looking at several options that uh uh well I mean the options for the Victoria budget and these decisions who will be made at the board level.
4470253,221,2303.52,2310.51,6,And that is why i am not in a position to comment on that question in precise terms at this moment.
4470253,222,2312.6699,2328.04,6,And a question from inaudible could we uh ask you for an update on the information concerning the extraction uh tax uh mining tax in Chile?
4470253,223,2329.29,2331.72,6,Well there's been no significant change.
4470253,224,2331.72,2335.2,6,So far we are waiting for the situation to develop in Chile.
4470253,225,2335.8799,2340.01,6,Um we have been watching these uh developments.
4470253,226,2341.71,2361.73,6,As I've told inaudible what Sierra Gorda there are some tax and legal security measures to ensure that the effects of uh these changes if they happen will be deferred in time for Sierra Gorda.
4470253,227,2362.46,2362.8398,6,Thank you.
4470253,228,2363.3401,2370.6702,6,And two more questions uh our foreign operations and market inaudible.
4470253,229,2372.5601,2378.6399,6,So what are the order levels from Chinese customers?
4470253,230,2378.76,2384.6702,6,And what are the expectations uh for demand uh from China in twenty twenty two?
4470253,231,2385.4199,2401.23,6,Uh do they fear a slowdown um on uh how the housing markets and what about green energy development in China and are they foreseeing any constraints in the use of energy?
4470253,232,2402.4399,2404.47,6,Well uh that's a good question.
4470253,233,2405.9299,2420.24,6,Well we are in touch with the Chinese market by a by uh being in touch with a company which inputs anodes copper anodes uh to China directly.
4470253,234,2421.29,2437.79,6,And we've not seen any significant slowdown in Chinese economy uh judging by that trading relationship uh the other areas is a concentrate market but we've not seen any problems uh either.
4470253,235,2438.54,2450.23,6,Uh and we have seen that the the demand for that term material from the smelters and we've not seen any significant slow down there.
4470253,236,2452.52,2461.71,6,Is the increase of premium um copper related to higher demand or maybe it's to offset the energy prices which have increased.
4470253,237,2462.1899,2465.3301,6,Are you talking about the premium in China?
4470253,238,2468.24,2470.1499,6,Uh yes I think so.
4470253,239,2474.3899,2477.3701,6,I think there are a number of reasons for this.
4470253,240,2481.03,2495.1299,6,Generally there are there is a need to supply high quality concentrate for smelters and that is what is driving the premium and the prices up.
4470253,241,2495.4099,2513.8,6,I don't know which which uh premium the question is about uh um okay I see we will ask about that and uh provide the answer to that question on our website when we clarify with the asker.
4470253,242,2514.52,2538.29,6,And a question from inaudible Rudnick uh pull the business newspaper the question is about the period for the decision of the um the preemptive right to buy a uh block in shares in Sierra Gorda.
4470253,243,2542.05,2556.22,6,Well um the periods are uh for the board well the board has time until end uh of November to announce that decision.
4470253,244,2558.98,2565.1101,6,So i i I would not expect a comment any comment uh from the board at this moment.
4470253,245,2565.1101,2573.51,6,Uh all the information will be provided uh on the decision of the board in accordance with all the information procedures.
4470253,246,2573.72,2576.3298,6,Yes we've not come to the decision yet.
4470253,247,2577.3101,2592.4399,6,Uh the energy prices uh energy uh from gas and the grid for inaudible Are they hedged for next year?
4470253,248,2592.8101,2613.9299,6,And what is the scale of the cost with the same production volume for k g h m Poland inaudible Most of our demand for gas and elec and electricity has been fixed for next year.
4470253,249,2614.4299,2617.1299,6,I wouldn't actually say hedged.
4470253,250,2617.1899,2624.98,6,We don't use hedging or derivative instruments on energy we simply use forward prices.
4470253,251,2628.55,2632.02,6,So that's in the bag so to speak.
4470253,252,2633.03,2636.78,6,Obviously we never buy one hundred percent in advance.
4470253,253,2637.52,2643.5701,6,Uh we leave some space for spot deals because of our balancing needs.
4470253,254,2643.9399,2651.5698,6,And cause of bargains on the spot deals and what was the second part of the question?
4470253,255,2674.04,2686.1301,6,Um electricity production from our own gas uh resources well then here the gas price is lower than when we buy energy from the grid.
4470253,256,2686.1299,2692.3,6,That's where we maximize our own energy uh production uh assets.
4470253,257,2692.3501,2704.26,6,And we also keep running a prediction of energy prices both uh from third party providers and from our own assets.
4470253,258,2704.26,2711.3999,6,And here the um there are no clear answers because price gas prices may change as they did last month.
4470253,259,2712.1799,2722.8799,6,And when they do um electricity production from coal was lower than from gas despite the c o two emission costs.
4470253,260,2723.4099,2725.24,6,But the situation is volatile.
4470253,261,2725.24,2726.73,6,It changes rapidly.
4470253,262,2727.1101,2732.8499,6,But we uh keep analyzing this and we we decide as and when necessary.
4470253,263,2734.1899,2735.8401,6,Okay thank you very much.
4470253,264,2735.8401,2738.3599,6,We spoke about hedging.
4470253,265,2739.0,2746.3701,6,Uh could I ask you to comment on uh another question?
4470253,266,2746.3701,2757.1001,6,And that's the question about what is the volume of copper production that are secured with contracts for twenty twenty two and twenty twenty three.
4470253,267,2757.1001,2758.6499,6,And what is the average price?
4470253,268,2759.29,2766.98,6,Well we do hedging transaction uh transactions in accordance with our hmm our hedging policy.
4470253,269,2767.3,2770.27,6,Uh and this is work in progress.
4470253,270,2770.9099,2777.76,6,We keep um keep signing a hedging transactions in the third quarter.
4470253,271,2778.5701,2782.5901,6,Most of those transactions were adjustment transactions.
4470253,272,2783.0801,2800.5898,6,We took advantage of uh high prices so increase at the bottom uh the bottom line of um of transactions to secure higher prices.
4470253,273,2801.9099,2819.1699,6,For silver we open the top at the top line waiting for possible uh increases on silver prices which have been expected for a few years and have materialized to some extent uh the next year is still being analyzed.
4470253,274,2819.5601,2822.5498,6,We've made some range transactions.
4470253,275,2825.03,2835.8999,6,The average um level of um uh hedging of our volume is in the area of thirty five percent.
4470253,276,2835.8999,2838.6401,6,But don't take my word for it.
4470253,277,2838.6399,2841.4001,6,Maybe we'll we'll provide a written answer.
4470253,278,2842.46,2843.49,6,Okay thank you very much.
4470253,279,2843.49,2846.4402,6,Now question from Pablo inaudible from inaudible.
4470253,280,2846.96,2851.6199,6,When can we expect uh refreshment of KGHM's strategy?
4470253,281,2855.47,2878.4199,6,We've actually done that at the the Economic Forum in inaudible We presented new business as initiatives uh or en energy policy uh initiatives those that were either impossible in twenty eighteen or were not identified in twenty eighteen.
4470253,282,2879.05,2883.0198,6,So the strategy update is an ongoing process.
4470253,283,2883.71,2883.8799,6,Uh.
4470253,284,2888.6201,2893.6799,7,We also have a certain um perspective that we follow.
4470253,285,2895.3501,2901.97,7,And an extension of the strategic perspective is also also possible.
4470253,286,2902.0,2913.6702,7,Some processes some projects take ten years or more and uh they're um that's a living thing and and the process is always ongoing.
4470253,287,2914.3201,2915.03,7,Thank you very much.
4470253,288,2915.03,2919.04,7,A question from Paul Biznesu in the context of Belarus.
4470253,289,2919.3899,2926.0698,7,If Belarus decides to uh suspend gas supplies will this affect k g h m?
4470253,290,2926.0701,2932.9099,7,Do you have any other um and do you have any other uh goods that you input from Belarus?
4470253,291,2934.3701,2940.1301,7,Well this is uh difficult situation from the perspective of state security but it doesn't affect us.
4470253,292,2940.1599,2947.47,7,Uh the gas uh that we use comes from deposits that are present locally.
4470253,293,2949.1899,2957.1699,7,Uh so our gas supplies are different than than than the country average so to speak.
4470253,294,2958.5901,2972.0398,7,Of course the volume of those deliveries is very high uh but there are no key um no key volumes that would be imported from Belarus whether it's gas or anything else.
4470253,295,2974.4299,2975.3601,7,Thank you very much.
4470253,296,2980.02,2980.45,7,Okay.
4470253,297,2980.48,2983.1899,7,So let me go back to Mr.
4470253,298,2983.1899,2985.71,7,Gruza a question from Santandra.
4470253,299,2986.5701,2991.3101,7,How would you explain the excellent results of k g h m International in the third quarter?
4470253,300,2997.71,3011.3301,7,Well let me say that again in the beginning of the COVID crisis we managed to renegotiate a number of cost contracts.
4470253,301,3012.1399,3024.76,7,We optimized we optimized many investments and this reduced our cost.
4470253,302,3025.27,3031.8,7,On the other hand we maintained or sometimes we even improved our production.
4470253,303,3033.3401,3046.1799,7,So when you combine these two factors with one more factor that is the macroeconomic climate and uh metal prices.
4470253,304,3046.6001,3055.8198,7,So when you do the maths uh you will get the the results uh that you can see on k g h m International and Sierra Gorda.
4470253,305,3061.46,3076.0701,7,And Until this favorable microeconomic situation continues we will be enjoying uh the benefits of it.
4470253,306,3082.47,3092.48,7,twenty twenty one has been very favorable in terms of uh geology both for International and for Sierra Gorda.
4470253,307,3093.1899,3101.9099,7,Next year there will be more challenges uh related to tripping uh in Robinson.
4470253,308,3105.51,3111.73,7,We will have to remove a lot of overburden to get access to new oil deposits.
4470253,309,3113.76,3123.6099,7,But it seems that our operations have been optimized in terms of our uh deposit management policy.
4470253,310,3124.5,3125.6899,7,Thank you very much.
4470253,311,3132.4399,3133.7202,7,Uh apologies.
4470253,312,3134.04,3144.0898,7,I'm trying to to to eliminate duplicate questions.
4470253,313,3144.3999,3155.6401,7,Here comes another inaudible what wage increases and bonus increases can be expected next year?
4470253,314,3155.6399,3159.7302,7,What are the demands of trade unions as of now?
4470253,315,3160.6399,3165.74,7,Well nothing extraordinary has been in happening in this regard.
4470253,316,3166.48,3182.3701,7,Uh and I think in addition to our collective bargaining so we uh adjust wages to to the average uh average industrial wages uh coefficient.
4470253,317,3183.01,3190.22,7,We don't know they're coefficient for the next year because it's published uh after the end of of the year.
4470253,318,3190.22,3204.6499,7,So we we don't actually try to project it but year after year we uh we increase the wages by uh what is required in collective bargaining.
4470253,319,3205.1499,3220.0701,7,And we will be able to calculate that increase when it's published by the the statistical office of Poland and what will be the CapEx related to the climate policy other than the SMR uh project.
4470253,320,3221.1201,3223.5701,7,So another budget question isn't it?
4470253,321,3223.9399,3248.4802,7,Some of the those uh Hm CapExes are already included in um in our budget because these are the things that have been going on regardless of our climate policy for instance in twenty eighteen we uh assume that fifty percent of our energy sources will be renewable.
4470253,322,3248.99,3260.5601,7,There are some projects that that uh need to be counted or calculated um some of them are experimental such as carbon capturing storage.
4470253,323,3261.1201,3270.1699,7,So only after we investigate these technologies in indeed they will be able to to calculate the related cost.
4470253,324,3270.3101,3288.6699,7,So we know some of the cost and they are included in our annual CapEx budgets other costs uh especially those that we're looking at in the context of twenty fifty still need to go through the R and D phase.
4470253,325,3289.01,3297.0298,7,Then we need to select the practical solution and only then we can calculate the related cost.
4470253,326,3297.97,3298.9099,7,Thank you very much.
4470253,327,3299.24,3305.3298,7,inaudible Scopic as the group asks a question to Mr.
4470253,328,3305.3301,3305.9302,7,Bujaiguk.
4470253,329,3306.97,3325.26,7,Could you give us some detail details about the the suspension furnace uh renovation in Głogow I and Głogow II What is the period what is the expected downtime of the furnace?
4470253,330,3325.51,3340.4402,7,That's about uh Głogow II melting plant and um um we have been discussing about the uh how to optimize the downtime.
4470253,331,3340.8301,3345.74,7,it'll be seventy something days uh where we dunno how much exactly.
4470253,332,3347.3401,3347.7102,7,Okay.
4470253,333,3347.78,3363.6399,7,Another question from inaudible Scopic have you seen any uh problems uh in terms of supplies of rare metals uh in the context of um limited supplies from China?
4470253,334,3364.1001,3392.6401,7,Well as I mentioned when I spoke about our investments we do have some minor uh problems but we've been in the marketplace for for sixty years and we have a very good understanding of the marketplace and we are pretty much immune to those to those minor problems and everything has been going on as planned.
4470253,335,3393.46,3393.8799,7,Thank you.
4470253,336,3395.8501,3399.7898,7,A few more questions from inaudible Monica Barkoska.
4470253,337,3403.76,3414.6299,7,Actually two of them have been answered and they were about uh the transformation costs and the expected uh copper price levels.
4470253,338,3414.6599,3417.8401,7,We don't do expectations or or projections.
4470253,339,3420.27,3427.1899,7,We also don't make any projections with regards to the supply and demand situation.
4470253,340,3429.4399,3434.72,7,Uh so I think we can skip at that.
4470253,341,3435.49,3439.6599,7,And Monica Barkoska also asks the following questions.
4470253,342,3439.9099,3447.3,7,The following question what is the twenty twenty two perspective when you look at growing energy prices?
4470253,343,3447.8799,3460.6599,7,And maybe let's merge this question with another one what other import and challenges other than energy prices uh k g h m will have to face?
4470253,344,3460.8899,3473.8699,7,So uh the twenty twenty two perspective in the context of uh growing energy prices and what other major challenges will have to be faced by the company?
4470253,345,3476.3501,3483.1602,7,Well um we've been uh discussing energy at length.
4470253,346,3483.1899,3489.8398,7,Um we know that gas prices and diesel prices are going up.
4470253,347,3490.3899,3499.8301,7,We know uh what the reason for for higher prices is that's geopolitical situation and regulatory framework.
4470253,348,3500.3799,3503.29,7,So that's essentially beyond our control.
4470253,349,3503.29,3515.2,7,What we control is adherence to our long term energy transformation strategy and also our climate policy.
4470253,350,3515.2,3523.01,7,So we uh we do uh we do that year after year month after month and we want to stick to that.
4470253,351,3523.8201,3531.6899,7,Uh we want to increase our energy production our energy generation assets.
4470253,352,3532.04,3538.1399,7,We want to optimize uh the price of energy we purchase from third party suppliers.
4470253,353,3540.71,3544.9199,7,You know we also reduce energy consumption whenever possible.
4470253,354,3549.23,3555.8999,7,Well twenty twenty two um well it's actually hard to say what it's going to look like.
4470253,355,3557.3401,3563.26,7,The world is changing at a very rapid pace and that pace is only increasing.
4470253,356,3563.9299,3573.0601,7,So if you want to be a responsible manager you can't actually um make predictions for for the next year.
4470253,357,3573.0601,3576.1799,7,Well maybe the prices will go up maybe they will go down.
4470253,358,3576.3601,3578.73,7,Hmm uh that's anybody's guess.
4470253,359,3579.7,3584.8599,7,Uh but we can respond uh to any changes we can increase production.
4470253,360,3584.8601,3590.98,7,We can um keep our cost under control.
4470253,361,3591.3601,3605.1001,7,And that's how we deliver the financial results which as you can see uh it's uh still pretty much okay despite the growing energy prices.
4470253,362,3605.3101,3613.0698,7,And the other question was the other part of the question I guess you answer uh actually answered it.
4470253,363,3613.0701,3615.02,7,That was perspectives and challenges.
4470253,364,3615.49,3615.74,7,Okay.
4470253,365,3615.74,3617.29,7,Thank you very much.
4470253,366,3618.28,3636.54,7,There's a question from inaudible uh inaudible securities but actually we answered that question because it's a question about the cost of energy transformation in the context of SMRs.
4470253,367,3639.54,3641.51,7,That's Robert's question.
4470253,368,3641.5801,3643.3201,7,So let me answer it actually.
4470253,369,3645.1399,3648.8,7,We will keep reporting the next steps.
4470253,370,3649.1599,3668.51,7,Uh so um the agreement with new scale on SMRs oh actually it's a letter of intent um has been uh signed and it defines a timeline in our obligations.
4470253,371,3669.03,3672.48,7,Uh we will report this as and when required.
4470253,372,3672.8401,3685.7998,7,it'll cost um um cost aspects have been mentioned uh when we spoke about energy transformation.
4470253,373,3686.54,3690.8201,7,Now let me quickly skim through the questions.
4470253,374,3691.6699,3693.5798,7,Do we have any other questions?
4470253,375,3695.52,3697.4202,7,It seems that we do not.
4470253,376,3699.8701,3705.6699,7,Um actually there are more questions but they are about the things we spoke about.
4470253,377,3705.6699,3706.6899,7,So that's it for me.
4470253,378,3706.8201,3707.8301,7,So thank you very much.
4470253,379,3708.1799,3708.9202,7,Thank you.
4470253,380,3709.0601,3713.1702,7,Uh feel free to keep submitting your questions to ir@kghm.com.
4470253,381,3714.8799,3722.21,7,All the questions and all the answers will be submitted at our website as soon as possible.
4470253,382,3722.51,3724.04,7,Now let me give the floor to Mr.
4470253,383,3724.04,3725.4099,7,Chludzinski for a quick summary.
4470253,384,3726.1001,3727.3401,8,inaudible.
4470253,385,3729.3401,3740.3201,9,I uh believe that uh today presentation has shown you direction in which we have been going in terms of our financial performance and the challenges.
4470253,386,3740.9299,3747.4102,9,Uh we have the answers to these uh challenges and how we know how to cope with them.
4470253,387,3747.71,3753.8398,9,It's not possible to eliminate some of them in uh months time over a year.
4470253,388,3754.1399,3761.54,9,Some of them require to act or act consistently over ten years.
4470253,389,3762.04,3765.8101,9,This is the project of small nuclear reactors.
4470253,390,3766.1499,3777.3901,9,All these uh challenges we are aware of have been strategically and noticed in twenty fifty zero emissions in climate policies.
4470253,391,3777.3899,3791.8601,9,So we uh uh assume that we can achieve that by twenty fifty and we see the possibilities for continued operations and uh that's very important.
4470253,392,3791.8899,3796.8301,9,Uh so let me thank the board for the presentation and thank you for your attention.
4470253,393,3797.3,3805.1301,9,And uh we will uh meet next time when we will be presenting the results for twenty twenty one.
4470253,394,3806.0,3806.48,9,Okay.
4470253,395,3806.48,3807.6702,9,So thank you very much.
4470253,396,3808.1399,3809.47,9,Thanks for your attention.
4470253,397,3809.51,3817.1199,9,And we will meet uh uh next quarter or next next time for the presentation of the results.
4470253,398,3817.1201,3817.4602,9,Thank you.
4470290,0,2.1,8.07,0,Good morning and welcome to the Despegar third quarter twenty one earnings conference call.
4470290,1,9.06,18.99,0,A slide presentation is accompanying today's webcast and is available in the investor's section on the company's website investor dot despegar dot com.
4470290,2,19.91,24.22,0,There will be an opportunity for you to ask questions at the end of today's presentation.
4470290,3,25.11,27.17,0,This conference is being recorded.
4470290,4,28.27,31.68,0,As a reminder all participants will be in listen only mode.
4470290,5,32.76,37.59,0,Now I would like to turn the call over to Miss Natalia Nuremberg investor relations.
4470290,6,38.05,38.7,0,Please go ahead.
4470290,7,203.29,214.59,5,These were driven by first of all capturing the pick up in Brazil Argentina and Chile countries that were impacted in the prior quarter with the second wave of the virus.
4470290,8,215.14,220.83,5,Second another strong quarter in Colombia where we observed significant pent up demand.
4470290,9,221.46,235.17,5,Mexico was the standout in the prior quarter but had a weaker performance in July and August and some of inaudible could not open due to the restrictions that impacted some tourist destinations.
4470290,10,235.65,243.37,5,On a positive tone our Mexican operations began to recover in September and this has continued into October.
4470290,11,243.93,249.77,5,Our geographic diversification has allowed us to turn to growth across the region as the market recovers.
4470290,12,251.3,258.14,5,We continue to closely monitor the deliveries of the company mainly price market and expenses and installments.
4470290,13,258.76,274.96,5,After improvements in our management revenue toolkit we have been able to report stronger takeaways than pre-pandemic reaching twelve point seven percent as reported and thirteen point seven percent excluding extraordinary cancellations.
4470290,14,276.06,297.21,5,Similar to past quarters our take rate benefited from the investments we have made in technology and analysis which allowed us to price more accurately improving algorithms to capture more process development sections and the positive impact from that day which has the highest take rate were also the contributors.
4470290,15,298.88,306.72,5,At the same time on a quarter on quarter basis revenue growth was more than double the increase in cost of revenues.
4470290,16,307.58,323.59,5,Lastly operating expenses increased only three percent sequentially even as the investments in selling and marketing during the quarter was thirty six percent up sequentially and in line with increase in gross bookings.
4470290,17,324.39,329.27,5,Our business leverages the actions taken last year to improve profitability.
4470290,18,330.44,337.21,5,This has allowed us to be very close to achieving adjusted EBITDA we were given when excluding extraordinary charges.
4470290,19,337.71,344.92,5,Even with gross bookings at fifty six percent on the third quarter of two thousand eighteen levels.
4470290,20,345.58,352.78,5,Importantly for the month of September we achieved positive adjusted EBITDA excluding extraordinary charges.
4470290,21,371.37,379.74,5,As various geographies have reopened post-pandemic consumers have shifted some trends towards travel and entertainment.
4470290,22,380.22,387.56,5,Along these lines Brazil and Colombia posted the highest level of gross bookings since the start of the pandemic.
4470290,23,411.65,420.73,5,For the month as of November the eighth fully vaccinated Brazilians are now allowed to travel to the US showing proof of full vaccination.
4470290,24,421.97,431.6,5,In Mexico although borders remained open for flights activities in the main cities were particularly restricted to control an increase in COVID cases.
4470290,25,432.11,437.03,5,These restrictions affected inaudible offline stores performance in July and August.
4470290,26,438.14,447.87,5,On a positive note those bookings have been increasing month over month since August and international travel was stable on a sequential basis.
4470290,27,449.14,465.97,5,Regarding the rest of LATAM inaudible Colombia was thirty two percent above the third quarter of two thousand nineteen pre-pandemic levels reflected pent up demand as travel restrictions were lifted earlier in the year.
4470290,28,466.47,471.85,5,In Argentina we observed a sequential a hundred and fifty percent increase in gross bookings.
4470290,29,472.97,480.72,5,Finally in Chile gross bookings nearly doubled sequentially and the significant growth trend continues in October.
4470290,30,481.68,488.52,5,As we entered the fourth quarter October continued with its positive trend across the regions.
4470290,31,489.81,497.88,5,Just to summarize our geographic diversification has been key in providing a more consistent overall performance the company.
4470290,32,499.5,507.86,5,Turning to slide five we have two really strong initiatives that we continue to deliver on and that I will discuss today.
4470290,33,508.33,516.05,5,First our loyalty program has been widely accepted and we have reached the one million milestone.
4470290,34,516.72,519.33,5,Today the support of Despegar available in Brazil Argentina and Mexico.
4470290,35,539.01,543.75,5,It's time to travel again and can be seen across all media in Latin America.
4470290,36,544.37,548.07,5,In Brazil we have been offering more financial options to customers.
4470290,37,548.76,560.3,5,Accordingly we have further deepened penetration in the Colares accounting for six point five percent of all transactions in the third week of October with a record total purchase volume.
4470290,38,561.04,573.82,5,Additionally five point five percent of the Colares transactions October were paid through inaudible which results in much lower cost of revenue for the Colares given that these transactions are processed internally.
4470290,39,575.25,585.87,5,We also completed implementation of risk based pricing in the travel vertical which allows us to match the interest rates charged to the rich profile of these end customers.
4470290,40,586.63,597.5,5,On Colares b two b business we continued expanding the number of merchants in the eCommerce sector which we now provide alternative means for customers to pay the foreign language.
4470290,41,598.72,601.14,5,They can now pay by their payment solutions.
4470290,42,602.09,611.09,5,We now have thirty merchants signed up we also have at least four new merchants in payments and fraud bringing the total number of merchants to ten year to date.
4470290,43,611.55,616.03,5,Notably current total purchase value for the quarter tripled sequentially.
4470290,44,616.57,622.58,5,As we look ahead we expect to be adding more industries to our two verticals in the very near future.
4470290,45,623.54,637.52,5,We see a very attractive potential for coin services buy now pay later and fraud prevention which have a total addressable market of between fifteen and twenty boards in Latin America.
4470290,46,638.56,644.25,5,i'll now turn the call over to Alberto to discuss this quarter's financial results.
4470290,47,645.69,648.18,3,Thank you Damian and thank you also for joining us today.
4470290,48,649.24,665.7,3,Turning to page six as reported revenues increased thirty two percent sequentially to thirty seven percent below third quarter nineteen pre-pandemic levels compared with thirty nine percent below second quarter nineteen levels in the current quarter.
4470290,49,667.65,677.87,3,Excluding extraordinary considerations in connect in connection with the covid nineteen pandemic revenues would have been thirty two percent below third quarter nineteen levels.
4470290,50,679.48,683.37,3,Note that this quarter we also saw lower cancellations.
4470290,51,684.33,689.72,3,The ratio of cancellations to gross bookings decreased thirty three basis points quarter on quarter.
4470290,52,691.65,702.18,3,Importantly our take rate remains strong reaching twelve point seven percent as reported and 13.7% when excluding extraordinary cancellations.
4470290,53,704.63,717.65,3,These factors and this development were a contribution from building and improvements in revenue management implemented since last year which have allowed us to further optimize pricing through more advanced algorithms.
4470290,54,719.43,722.09,3,Now please turn to slide seven.
4470290,55,746.36,752.04,3,This is proof of the initiatives launched new in the this period particularly in terms of cost reduction.
4470290,56,754.41,770.59,3,Excluding extraordinary charges comparable adjusted EBITDA neared break even reaching a loss of three point six million improving from losses of ten and a half million in the third quarter and nearly seventeen million in third quarter two thousand twenty.
4470290,57,772.53,778.71,3,This compares with a comparable adjusted EBITDA gains over nine million dollars in third quarter nineteen.
4470290,58,781.22,798.91,3,Note that one time charges were nearly seven million bucks in the quarter mainly in connection with extraordinary cancellations resulting from the surge in covid nineteen cases compared to non-regarding charges of twelve million in second quarter t twenty twenty one.
4470290,59,801.91,814.3,3,We are confident that Despegar will be coming outta the pandemic as a more profitable company very diversified from both a geographic and product mix perspective backed by a more sustainable business model.
4470290,60,816.16,817.86,3,Now please turn to slide eight.
4470290,61,820.09,825.87,3,We closed the quarter with a sold cash position of two hundred and seventy six million dollars.
4470290,62,827.29,833.31,3,As travel conditions improved use of cash during the quarter increased to nearly forty million.
4470290,63,834.62,844.76,3,Recall that in the second quarter we had granted a higher number of vouchers to customers who's travel plans were impacted by a spike in COVID cases mainly in Brazil.
4470290,64,846.57,861.07,3,While this resulted in a lower use of cash of close to ten million in second quarter two one with better travel conditions in this past quarter we saw a pick up in demand with customers redeeming travel vouchers.
4470290,65,862.79,870.7,3,The redemption of these vouchers added fifteen million to the cash burn that we have been posting recently of twenty five million.
4470290,66,872.54,878.51,3,In turn our net payable position decreased nearly twenty million bucks in the quarter.
4470290,67,879.93,883.34,3,Now please turn to slide nine for the key takeaways of the quarter.
4470290,68,885.36,892.95,3,First we delivered a strong sequential recovery driven by better performance across our key markets except for Mexico this quarter.
4470290,69,894.2,903.97,3,Brazil led the recovery with gross bookings up a hundred and twenty six percent sequentially but still sixty percent below nineteen levels.
4470290,70,905.12,912.38,3,Colombia also showed a show inaudible with gross bookings exceeding third quarter nineteen levels by thirty two percent.
4470290,71,914.63,932.55,3,Second EBITDA excluding cancellations we neared break even even with gross bookings still forty four percent below nineteen levels as the initiatives implemented since the start of the pandemic have significantly strengthened the earnings power of the company.
4470290,72,934.09,943.23,3,This positive trend in profitability continued into September with adjusted EBITDA reaching break even levels when excluding extraordinary cancellations.
4470290,73,945.41,955.26,3,Fourth we continued to deepen customer engagement with our loyalty program reaching the one million member milestone in Argentina Brazil and Mexico combined.
4470290,74,956.75,964.31,3,As demand has picked up we also launched our first offline marketing campaign since second quarter last year.
4470290,75,965.84,976.37,3,Finally on the e s g front we launched our materiality survey and look forward to sharing the results in our next e s g report.
4470290,76,977.52,980.91,3,Now please turn to slide ten for final remarks.
4470290,77,982.55,989.88,3,Despite ongoing volatility and some macro inaudible our longterm vision is if anything in sharper focus.
4470290,78,991.43,1000.72,3,The initiatives required to realize it are pulling away even as we work through near term macro challenges and consumer behavior continues to adjust.
4470290,79,1002.97,1014.02,3,Looking at the fourth quarter the strong recovery observed in gross bookings in September continued into October reaching seventy two percent of nineteen booking levels.
4470290,80,1015.37,1028.78,3,In addition we expect November and December to continue with these positive trends benefiting from industry marketing events such as the Buen Fin campaign in Mexico and Black Friday in Brazil.
4470290,81,1030.45,1038.3301,3,December also marks the start of the summer season in LATAM which would also contribute to higher demand in the region.
4470290,82,1040.55,1047.23,3,In this context we're stepping up our marketing efforts while keeping a heightened focus on profitability.
4470290,83,1048.85,1058.0701,3,To illustrate the point on a weekly basis we're launching a minimum of four unbeatable deals by country while carefully balancing the price financing perception.
4470290,84,1060.28,1073.4501,3,With respect to inaudible we are on track with integration of the in destination activities segment and expect to fully finalize the integration of this acquisition as planned by first quarter next year.
4470290,85,1076.13,1089.97,3,We are also making steady headway in expanding coins acquisitions operations in addition to adding new logos in the b two b business segment in Brazil we're taking the first steps to launch coin in Mexico early next year.
4470290,86,1115.4399,1131.9299,3,We believe that while forecasting future performance did present some challenges due to the ups and downs of the pandemic we expect that the developments in vaccination front will generate the confidence to go back to normal travel levels.
4470290,87,1131.9301,1142.13,3,The third quarter and year to date results bring forth our confidence in our strategy and represent focus on discipline in executing our longterm strategic plan.
4470290,88,1143.76,1151.3899,3,This concludes our prepared remarks we're ready to answer your questions operator please open the line for questions.
4470290,89,1153.52,1153.9,0,Thank you.
4470290,90,1154.4399,1156.6899,0,We will now begin the question and answer session.
4470290,91,1157.1801,1161.0599,0,To ask a question you may past star then one on our touch type phone.
4470290,92,1161.89,1166.6899,0,If you are using a speaker phone we ask that you please pick up your handset before pressing the keys.
4470290,93,1167.62,1172.6699,0,If your question has been addressed and you'd like to remove yourself from the queue please press star then two.
4470290,94,1173.52,1183.0801,0,Once again ladies and gentleman that's star then one if you have a question and today's first question comes from Ed Uromo with Key Bank please go ahead.
4470290,95,1184.92,1189.26,4,Hey good morning thanks for taking the question and nice to see the sequential improvements.
4470290,96,1189.5601,1190.96,4,I guess a couple of things from me.
4470290,97,1190.99,1198.61,4,Um first I think you guys have done a really good job of you know inaudible business during the pandemic and making yourselves more efficient.
4470290,98,1199.04,1207.39,4,Is there a way that we should think as bookings rebuild from an incremental margin perspective and how the shape may differ than what we've seen previously?
4470290,99,1207.87,1214.79,4,And second um kind of as expected you you are going to draw down on the cash a bit I guess as people redeem vouchers.
4470290,100,1215.09,1220.09,4,How should we think about the cash usage progression over the next couple of quarters and when will that trough?
4470290,101,1220.38,1220.75,4,Thank you.
4470290,102,1225.03,1226.6699,3,Ed Alberto good morning.
4470290,103,1227.02,1228.0701,3,Thanks for your question.
4470290,104,1231.0601,1239.2599,3,On cash I think allow me to reiterate what we discussed in prior calls uh I r actually re recall your question.
4470290,105,1239.65,1248.46,3,Okay we are looking at the similar levels to what we have discussed let's say like a minimum cash value for the year of around two hundred and fifty okay?
4470290,106,1248.46,1253.4299,3,In particular driven for the same reasons that you highlighted.
4470290,107,1254.87,1264.6801,3,With regards to margins clearly we are in the trajectory that we are actually break even point.
4470290,108,1265.84,1278.11,3,We already in the month of October that we are closing those figures okay we are seeing um um already um blue lines when it comes to at an EBITDA level that is particularly encouraging.
4470290,109,1279.91,1291.14,3,When you start looking at margins let's say top to bottom okay we we are seeing um take rate at similar levels to to the ones we have been discussing.
4470290,110,1291.14,1301.0699,3,Okay let's recall what we have mentioned in prior calls about having let's say a a longterm trajectory on ticket at around uh uh twelve percent.
4470290,111,1301.16,1306.5499,3,Okay twelve percent plus that is higher in around fifty basis points we will discuss uh pre-pandemic.
4470290,112,1307.9399,1321.92,3,With regards to um uh structural cost uh while we are what we have said is that the structural cost uh should actually benefit from let's say a uh around sixty percent uh operating leverage.
4470290,113,1321.92,1329.36,3,Meaning that if orders were to grow around a hundred okay structural cost should be growing no more than than forty percent.
4470290,114,1329.36,1337.3101,3,Uh and that uh I would say points to a picture uh on what could be the profitability of the company going forward.
4470290,115,1337.3101,1342.0499,3,That is should be in excess of what we were discussing pre-pandemic in the long run.
4470290,116,1344.9399,1346.61,4,Got it and maybe one other followup.
4470290,117,1346.7,1353.16,4,Um you indicated you're looking to kind of rebuild inventory for packages given some of the demand signals you're seeing.
4470290,118,1353.49,1361.96,4,Um I guess how quickly can that happen and do you expect that you'll be able to um to have enough kind of capacity for the peak travel seasons?
4470290,119,1361.99,1362.4099,4,Thank you.
4470290,120,1364.41,1370.29,3,We currently see um I think that that answer has maybe t two two two different ideas.
4470290,121,1370.8101,1383.5699,3,Number one is uh the company uh um continues to be let's say on the sidelines when it comes to uh let's say secured inventory uh as we have done pre-pan- pandemic okay?
4470290,122,1383.5699,1400.33,3,Remember that uh we were actually at around let's say five percent uh on n n n no uh between five to ten percent no more than that uh of all the gross bookings we're selling were actually secured occupying advance on capacity at hotels uh and or airlines okay?
4470290,123,1425.39,1425.55,3,Okay?
4470290,124,1425.55,1440.76,3,Of course we see that as a profitable business and that will be uh will put the the um um our our foot on on on on the gas pedal uh as the uh we are fully recovered because we see there's there are there's opportunity to gain extra margin.
4470290,125,1440.8,1443.1901,3,But for for the time being we will not do it.
4470290,126,1443.1899,1458.9099,5,In uh region in and in regional inventory what we are seeing is that uh airlines are uh increasing their network significantly Latin America for the upcoming two to three months.
4470290,127,1459.22,1470.39,5,So everything that's uh available from the airlines and the inaudible is gonna be in Despegar and we are seeing in increases levels of uh of inventory on both areas.
4470290,128,1470.39,1475.9399,5,So we are confident that the pace of this recovery will be sustainable the next few months.
4470290,129,1477.49,1487.54,4,Very good thanks so much.
4470290,130,1491.3101,1492.0,0,Please go ahead.
4470290,131,1494.33,1495.24,6,Uh good morning.
4470290,132,1495.27,1498.39,6,This is Emily on for Kevin thanks for taking my question.
4470290,133,1498.97,1514.29,6,Um you mentioned a new marketing campaign uh launching in q four focused on affordability and I was just wondering if you could help us understand how that will affect um revenue take rate installments and sales and marketing expenses in the quarter?
4470290,134,1514.77,1515.0801,6,Thanks.
4470290,135,1516.04,1518.23,5,Hi Emily thanks for your question.
4470290,136,1518.23,1519.0601,5,This is Damian.
4470290,137,1519.45,1539.29,5,Um uh t the new campaign was uh extremely this has been extremely successful inaudible and uh what we are pointing towards is uh getting back to travel and being able to afford the travel uh as as always have been positioned in the market section.
4470290,138,1540.51,1545.4399,5,We do not expect that this will represent or be reflected in any lower take rate.
4470290,139,1545.95,1553.25,5,Remember that as we mentioned during the observed remarks uh we have a higher significant r revenue margin capabilities.
4470290,140,1554.16,1564.84,5,So we're being much more effective than in the past in increasing uh demand without having to give up uh significantly on the take rate.
4470290,141,1565.48,1574.3301,5,So the numbers that Alberto referred to in this question should be uh sustained over the next few months.
4470290,142,1577.8199,1578.9199,6,Very clear thank you.
4470290,143,1594.63,1595.36,5,Thank you very much.
4470290,144,1596.3199,1601.35,5,Um just wanted to thank all of you uh for your participation and interest in this regard.
4470290,145,1601.62,1609.55,5,We hope you all uh remain healthy and safe and thanks for joining us today looking forward to seeing you on our next call bye.
4470290,146,1611.6899,1612.53,0,Thank you.
4470290,147,1612.61,1614.3099,0,This concludes today's conference call.
4470290,148,1614.49,1619.39,0,We thank you all for attending today's presentation you may not disconnect your lines and have a wonderful day.
4470570,0,1.12,6.58,0,Good morning and welcome to the s q m third quarter twenty twenty one earnings conference call.
4470570,1,7.22,9.34,0,All participants will be in listen-only mode.
4470570,2,10.13,15.37,0,Should you need assistance please signal a conference specialist by pressing the star key followed by zero.
4470570,3,16.47,20.11,0,After today's presentation there will be an opportunity to ask questions.
4470570,4,20.91,26.67,0,To ask a question you may press star then one on your touch tone phone on your touch tone phone.
4470570,5,27.53,29.78,0,Again that is star then one to ask a question.
4470570,6,30.62,33.28,0,To withdraw your question please press star then two.
4470570,7,34.45,36.3,0,Please note this event is being recorded.
4470570,8,36.94,41.28,0,I'd now like to turn the conference over to Irina Axenova investor relations.
4470570,9,41.92,42.52,0,Please go ahead.
4470570,10,45.55,46.1,1,Thank you Grant.
4470570,11,46.66,47.32,1,Good morning.
4470570,12,47.52,51.58,1,Thank you for joining SQM's third quarter inaudible twenty one earnings conference call.
4470570,13,52.04,55.02,1,This conference call will be recorded and is being broadcast live.
4470570,14,55.57,62.12,1,Following this call you'll be able to access the webcast at our website www sqm dot com.
4470570,15,62.63,70.38,1,Our earnings inaudible presentation inaudible have been uploaded to our website where you can also find a link to the website.
4470570,16,71.36,82.89,1,Speaking on the call today will be Ricardo Ramos chief executive officer Geraldo Ilanes chief financial officer and Pablo Altimiras inaudible vice president lithium and iodine business.
4470570,17,83.17,87.29,1,He will be uh available to help answer any questions following the prepared remarks.
4470570,18,147.25,151.34,1,And this forward looking statement should be considered in light of those factors.
4470570,19,151.91,160.74,1,inaudible no obligation to update such statements whether a result of new information future developments or otherwise except as required by law.
4470570,20,161.51,165.04,1,I now will link with our chief executive officer Ricardo Ramos.
4470570,21,166.23,166.55,2,Thank you.
4470570,22,166.55,167.1,2,Irina.
4470570,23,167.53,170.36,2,And good morning and thank you for joining the call today.
4470570,24,170.64,178.5,2,Our earnings during the thing quarter of two thousand twenty one were significantly higher than earning reported during the same period last year.
4470570,25,179.0,186.64,2,These results were driven by considerably higher sales volumes and prices across almost all our business lines.
4470570,26,186.94,193.0,2,We continue seeing very positive market conditions in all of the markets in which we participate.
4470570,27,193.52,197.28,2,inaudible lithium market is exceeding our previous expectations.
4470570,28,197.57,206.57,2,The iodine market has recovered from the pandemic faster than anticipated while we are also seeing a positive change in the fertilizer markets.
4470570,29,207.22,219.04,2,We're now expecting that the lithium market demand should grow close to fifty percent this year driven by strong sales of electric vehicles in all relevant markets especially in China and Europe.
4470570,30,219.63,231.16,2,inaudible expansions we have been working on are are allowing us to grow even more than the market inaudible reached close to a hundred thousand metric tons in sales volume this year.
4470570,31,231.71,241.27,2,By the middle of next year our expansion two hundred and eighty thousand metric tons should be ready allowing us to keep on growing our sales volumes.
4470570,32,242.01,245.68,2,This accelerating lithium market growth is pressuring prices.
4470570,33,245.92,250.59,2,At the same the contracts we signed last year are expiring.
4470570,34,251.01,261.47,2,This allow us expect an average sales price a hundred and twelve thousand dollars per metric ton during the fourth quarter and probably even higher during the first quarter next year.
4470570,35,262.19,267.53,2,In the meanwhile the iodine market demand has already reached the pre-pandemic levels.
4470570,36,267.67,269.99,2,This quick recovery has had a positive impact on prices.
4470570,37,269.99,274.1,2,Our supply has not been able to respond.
4470570,38,274.1,286.87,2,we're now expecting total sales in two thousand twenty one around twelve thousand five hundred metric tons uh with average sales prices increasing from prices seen over past few quarters.
4470570,39,287.58,304.57,2,As we're working on expanding our iodine capacity we expect to ramp up additional a thousand metric tons in the beginning of two thousand twenty three followed by approximately twenty five hundred metric tons in two thousand twenty four all part of our early inaudible growth plan.
4470570,40,305.43,310.14,2,We have seen some very interesting developments in the fertilizer markets globally.
4470570,41,310.46,322.17,2,Supply has been impacted by expert restrictions and logistic interruption inaudible prices for both inaudible fertilizer have reached levels not seen in more than a decade.
4470570,42,322.66,334.02,2,We now expect our potassium and potassium nitrate average prices to reach almost seven hundred dollars and over a thousand per metric ton inaudible during the fourth quarter this year.
4470570,43,334.59,343.76,2,Considering all the positive factors we now anticipate a record performance during the fourth quarter this year with a significantly higher e b i t d a.
4470570,44,344.13,355.36,2,We remain confident in our ability to deliver future growth while continuing to operate in a sustainable way creating value for our customers communities and all our stockholders.
4470570,45,363.77,365.36,1,inaudible now open the line for questions.
4470570,46,369.14,371.47,0,We will now begin the question and answer session.
4470570,47,372.07,375.54,0,To ask a question you may press star then one on your touch-tone phone.
4470570,48,375.54,380.03,0,If you are using a speakerphone please pick up your handset before pressing the keys.
4470570,49,380.61,383.11,0,To withdraw your question please star then two.
4470570,50,383.95,386.97,0,At this time we will pause momentarily to assemble our roster.
4470570,51,391.27,395.49,0,Our first question today comes from Joel Jackson with B M O Capital Markets.
4470570,52,395.57,396.2,0,Please go ahead.
4470570,53,397.79,403.41,3,Ricardo um I'm gonna ask a few questions one by one.
4470570,54,403.52,410.74800000000005,3,Um when we look into your production for next year for lithium um you got to one twenty already L C E.
4470570,55,411.09,413.19,3,you will get to one eighty at some point in next year.
4470570,56,413.86,416.49,3,What do you think will be your ability for production next year?
4470570,57,417.01,419.05,3,And inaudible your level of sales?
4470570,58,419.63,421.26,3,Presumably you want to build some inventory.
4470570,59,421.37,424.24,3,But what could be your maximum production or maximum sales next year?
4470570,60,424.24,424.59,3,Thanks.
4470570,61,427.89,428.14,2,Okay.
4470570,62,428.78,429.49,2,Hi Joel.
4470570,63,429.61,431.14,2,Ricardo Ramos speaking now.
4470570,64,431.25,442.99,2,About production uh as to total production assuming that we are ramped up to the a hundred and eighty during next year we think it's reasonable to expect a production in the a hundred and forty thousand metric tons next year.
4470570,65,443.63,454.55,2,Maybe it's gonna be inaudible higher than that but a hundred and forty inaudible my estimates today of the total lithium and lithium inaudible total production in Chile.
4470570,66,454.55,457.57,2,About sales volumes Pablo what's your opinion?
4470570,67,457.88,458.05,4,Yeah.
4470570,68,459.11,459.73,4,Hello Joel.
4470570,69,459.73,462.74,4,inaudible to continue growing uh according to the demand.
4470570,70,462.74,468.47,4,Uh if we inaudible that with inaudible for the next year inaudible between twenty or thirty percent.
4470570,71,468.92,471.82,4,We expect to grow inaudible in that same percentage.
4470570,72,475.82,476.17,3,Okay.
4470570,73,476.59,479.58,3,Now I appreciate your pricing guidance.
4470570,74,479.86,487.2,3,Now you know when I look at October Chilean customs data your pricing in October seems well less than twelve thousand.
4470570,75,487.2,489.96,3,You're gonna average about twelve thousand you say for the quarter.
4470570,76,490.43,494.67,3,So I wanna know you know if you expect to place so much more volume next.
4470570,77,495.51,498.55,3,And presumably you're now pricing volumes now for next year.
4470570,78,498.75,499.93,3,Like like you're pricing volume…
4470570,79,500.21,501.27,3,Pricing ahead for next year.
4470570,80,501.91,504.44,3,How much you know how much of our pricing…
4470570,81,504.44,509.56,3,How much of your volume in twenty twenty two are you locking in now or will you expect to lock in by Christmas let's say?
4470570,82,510.38,512.47,3,And would you expect that pricing that…
4470570,83,512.52,516.5699,3,Any pricing you're locking in now for twenty two is that all inaudible twelve thousand?
4470570,84,521.08,521.17,4,Okay.
4470570,85,525.63,530.67,4,Well you know that today we're in the middle of the negotiation for inaudible for the next year.
4470570,86,531.0,536.74,4,However what I can say because you already that we we have inaudible contract.
4470570,87,537.21,538.95,4,But before the next year we have uh…
4470570,88,546.86,551.17,5,So that's the percentage of the total volumes that is open for the next for the next year.
4470570,89,552.17,557.19,6,So right now today eighty percent of your anticipated volume next year is open.
4470570,90,557.19,557.85,6,Is that what you're saying?
4470570,91,560.99,568.76,5,to Today for the next year okay twenty percent is already negotiated inaudible different kind of contract with our customers.
4470570,92,569.03,569.1201,6,Right.
4470570,93,569.39,573.07,5,And eighty percent is still open to have…
4470570,94,573.07,576.07,5,uh open to the conditions that we are uh uh uh…
4470570,95,576.34,578.01,5,that we need to discuss with our customers.
4470570,96,579.26,579.65,6,Okay.
4470570,97,579.68,580.86,6,And I appreciate that.
4470570,98,580.89,588.67,6,And we can all see stock pricing from different Chinese and Asian benchmarks be it twenty thousand on carbon twenty thousand on carbon twenty five thousand on carbon.
4470570,99,589.38,601.37,6,Are those real prices that you can achieve at scale in the market for twenty twenty two or is the answer you know it's much less than twenty five thousand but it's much more than twelve thousand?
4470570,100,601.66,608.95,6,Like help us understand how real some of those prices are we see in the twenties for real volume real large volume like you offer.
4470570,101,612.38,634.01,5,You know that inaudible I know it's a question regarding prices but what we need to remember is that depending of what you negotiate with your con with your customers it means shorter contracts longer contracts depending of the quality of the product if it goes to battery uh uh applications industrial applications then you have uh different prices.
4470570,102,634.34,642.53,5,What I comment today is that because of the huge demand of lithium and lack of supply the inaudible prices is today high.
4470570,103,642.74,652.66,5,But it doesn't mean uh that we will see these kind of prices for the average price because again it's it is depending of the conditions that we negotiate with each each customer.
4470570,104,655.58,656.31,6,Thank you very much.
4470570,105,662.34,665.38,7,Our next question comes from Ben Isaacson with Scotiabank.
4470570,106,665.57,666.21,7,Please go ahead.
4470570,107,689.48,695.7599,8,Um how much of that eighty percent should be uh contracted by the end of this year?
4470570,108,696.26,702.49,8,And um h h how do those contracts get renegotiated in each of the next kind of four or five quarters?
4470570,109,724.07,724.16,5,Okay.
4470570,110,724.16,728.6,5,Well uh it is a difficult question because we are under negotiation.
4470570,111,729.1,735.28,5,For sure that we know that when you are uh selling this amount of lithium we need to secure that amount but at…
4470570,112,735.28,737.79,5,and also it is up to each I mean every customer.
4470570,113,737.79,752.34,5,Some customer I mean the the rest of the eighty percent then will be a combination of closed shorter contracts and for sure something that we are looking for if we are able to to sign good contracts we are also thinking to sign inaudible contracts.
4470570,114,752.77,763.77,5,And normally when you sign a inaudible contract the negotiation process is longer than when you negotiate a shorter contract so at the end everything will depend how fast we can we can do that with our customers.
4470570,115,763.77,769.94,5,So today I cannot really give you a fact uh number of how much of those contracts we will we'll inaudible.
4470570,116,770.04,780.39,5,Anyhow we are very close to the end of the year so for sure inaudible is picked up by the end of the year at least the first quarter should be you know already negotiated with our customers.
4470570,117,781.74,784.5099,8,Will a hundred percent be finished by the end of q one?
4470570,118,785.7,789.64,5,i I cannot say one hundred percent huh?
4470570,119,789.87,796.87,8,But uh but m m most of it should be finished by the end of q one is that right?
4470570,120,796.91,801.27,8,I mean just based on the timing of uh the previous contracts and when they expire.
4470570,121,806.33,818.88,5,Well again I mean it depends for the inaudible market but for sure because of of the period of the year that we have today by the end of the year we should have uh an important percentage already negotiated for q one.
4470570,122,819.92,820.01,8,Okay.
4470570,123,820.82,821.5601,8,That's that's helpful.
4470570,124,821.56,822.14,8,Thank you for that.
4470570,125,868.44,868.72,5,Okay.
4470570,126,868.72,876.49,5,Well you know that uh I mean in the industry we need to consider different uh things so one of them is inaudible demand.
4470570,127,876.54,882.87,5,Uh you know that this year the recovery of the demand will be higher than expected close to twelve percent.
4470570,128,883.74,894.35,5,Then we need to consider the answer of the supply so at the end everything will depend of the inaudible of the lithium players in the supply uh uh in the supply side.
4470570,129,894.35,899.59,5,Uh in that regard uh what we have seen is not a uh…
4470570,130,899.73,908.03,5,I mean e we have not seen uh uh enough response of the supply in order to be able to supply all the demand that is today in the market.
4470570,131,908.67,921.2401,5,Uh so price if you know we struggle the supply and demand um everything will depend around how the different players will act with the supply plans uh in order to accomplish the demand that that that we have.
4470570,132,944.83,952.35,8,Are you seeing that um already or is that something that we should expect and be modeling uh uh uh for over the next few quarters?
4470570,133,952.35,956.9,9,Uh Ben it is Ricardo Ramos speaking.
4470570,134,957.16,967.63,9,Uh if you if you review our numbers during the first three quarters of this year you'd see uh cost is slightly higher during third quarter than compared to the previous quarters.
4470570,135,967.89,984.97,9,And I think that core costs today are are affected by the exchange rate for example the exchange rate in Chile are affected by the increased cost of raw material a significant increase in cost of raw materials on o on our production process the additional cost of the energy as you may know.
4470570,136,985.53,992.69,9,Contractors of course the contractors we have they reflect the the exchange rate increased cost of raw materials the energy and everything.
4470570,137,993.08,1001.03,9,Plus we have to make sure of any cost in the last I don't know eighteen months related to the covid nineteen pandemic that affected some way our cost.
4470570,138,1001.27,1004.8,9,I think that it it it's already reflected.
4470570,139,1004.83,1014.04,9,Some of it yes it will be some additional probably cost if if situation of the raw materials and energy continue during the next few quarters yes.
4470570,140,1014.39,1023.49,9,But it seems that we are doing on the right thing in order to increase productivity to increase the yields of our process in order to control the cost allocation.
4470570,141,1023.49,1028.03,9,But but so far we are seeing uh every single product…
4470570,142,1028.03,1034.87,9,producer in the world these increased cost that it's been affecting our production in the last twe- two or three quarters.
4470570,143,1039.61,1046.96,8,Um last quarter you said that lithium demand was looking like it was gonna be up forty percent uh and next year was…
4470570,144,1047.14,1049.0299,8,you know you were thinking of around twenty percent.
4470570,145,1049.4301,1053.6,8,Now you're saying lithium demand is gonna be up fifty percent this year and that makes sense.
4470570,146,1067.26,1071.0299,8,Uh and and and then maybe as a followup how do you think twenty five will look?
4470570,147,1071.03,1080.6799,8,Are are we still looking like it will exceed uh one million uh tons uh or or could it be a little bit higher?
4470570,148,1080.6801,1080.88,5,Okay Ben.
4470570,149,1087.66,1093.6299,10,We know that the demand was lower because of the crisis so that explains why we have this big growth this year.
4470570,150,1094.12,1102.0,10,And we are growing from forty to fifty percent the gross like we have seen with electric vehicles well between very good and very positive.
4470570,151,1102.0,1109.72,10,Actually today our our forecast is inaudible it's the end of the year safe we be between six point three or six point six million.
4470570,152,1110.14,1112.35,10,Which is bigger that what than one expected.
4470570,153,1112.35,1112.9299,10,That's inaudible.
4470570,154,1112.99,1129.27,10,And the other thing because we need to consider that some part of the lithium that we mine today is for the cars that we produce next year also we are uh uh we have a a more positive feel from the growth of the of the next year when I said today to you between twenty or twenty or thirty percent.
4470570,155,1129.89,1133.25,10,That view is a little bit bigger than the view that we have uh before.
4470570,156,1133.65,1137.5701,10,So we have some very a positive outcome yeah at least in the short term.
4470570,157,1138.03,1140.35,11,You got inaudible two thousand and twenty five?
4470570,158,1140.35,1153.3,10,Well we have different scenarios and we're basis values is one million inaudible of L C A which is bigger to to to s uh to some indications that we gave the uh son a month ago.
4470570,159,1153.6,1159.8601,10,Uh honestly we are working on a course that we are following up the market and potentially we could see better result.
4470570,160,1190.1899,1204.54,14,If you could share me in terms of the pricing that we are seeing on the market place and what do you expect uh going forward for the next year and all?
4470570,161,1204.91,1206.76,14,Thank you.
4470570,162,1213.9,1216.22,15,Hello Viamoto Gatoramo speaking.
4470570,163,1216.48,1226.2999,15,First of all the the fire we had in our uh facilities in the north uh three month ago I think uh the impact in production was not more than forty-
4470570,164,1226.3,1230.5399,15,forty tons because most of the production works was over and the next month.
4470570,165,1231.02,1233.86,15,Um finally about the uh about the cost yes.
4470570,166,1233.86,1235.0701,15,We had some additional cost.
4470570,167,1235.0699,1237.17,15,Probably in the range of two hundred thousand bucks.
4470570,168,1237.37,1241.14,15,That arrangement uh means the improvement of the facility.
4470570,169,1241.14,1245.76,15,Replacements of o o of aci er uh remove and replacement of equipment.
4470570,170,1245.76,1250.8099,15,Somebody in the two hundred two hundred fifty thousand total cost involving the fire.
4470570,171,1251.3199,1253.59,15,Uh that's why it was not so relevant.
4470570,172,1254.02,1259.16,15,And we have taken all the measures that they've kind of sufficient we not happen again.
4470570,173,1259.37,1263.88,15,So very important it is a it's a significant issue for us having a fire in the facility.
4470570,174,1263.88,1270.54,15,That's why we're we really need to tell the situation and now we're better prepared for this kind of situation.
4470570,175,1270.92,1276.7,15,About the fertilizer uh it is difficult to give you an outlook after the fourth quarter.
4470570,176,1276.7,1282.55,15,We know now that fourth quarter unit is is is very unusual.
4470570,177,1282.74,1288.3301,15,Price levels that th that we are observing price levels that have not been recorded in previous years.
4470570,178,1289.12,1294.1,15,Um as I mentioned you we're reaching inaudible hundred dollars for inaudible the potash.
4470570,179,1294.1,1296.16,15,Close to one thousand dollars in potassium nitrate.
4470570,180,1297.12,1299.87,15,I do not have uh a long term view.
4470570,181,1299.97,1306.12,15,It's important today it's important to consider that in the potash industry we are relatively small.
4470570,182,1306.9301,1314.88,15,Uh current prices that th the th that we're observ that we have today reflect I think a temporary supply and demand situation.
4470570,183,1315.51,1321.45,15,One good news in my opinion is that the demand demand of the potash industry remains very strong.
4470570,184,1322.22,1327.7799,15,And that is as s su stated with the very prices of inaudible products.
4470570,185,1328.03,1337.1901,15,On the other hand if the dif difficulties of shipments push the prices up it is very difficult for us to predict prices for next year.
4470570,186,1337.67,1340.7201,15,Definitely prices for fourth quarter is gonna be very strong.
4470570,187,1341.55,1345.66,15,Um the situation is very difficult to predict in the long term.
4470570,188,1346.28,1352.0099,15,Anyway it's important to consider that the case of potassium nitrate is different from the case of potassium chlorate.
4470570,189,1361.33,1377.3201,13,Our next question comes from Corinne Blanchard with Deutsche Bank.
4470570,190,1377.4399,1378.12,13,Please go ahead.
4470570,191,1380.4,1381.65,16,Hey good morning everyone.
4470570,192,1388.28,1397.1899,16,The first one on um potassium and so your raise uh 2021 volume guidance to um close to nine hundred kilotons.
4470570,193,1397.5,1404.26,16,Uh which uh imply a significance uh catch up in four Q so if you could just comment on on that catch up of four Q.
4470570,194,1404.65,1412.5,16,And also how should we be thinking um in term of volume for twenty twenty two like given the market conditions.
4470570,195,1412.5,1415.04,16,Do you do you still expect volume to decrease?
4470570,196,1433.6899,1440.17,15,Today we are doing our best uh in order to increase the volumes due in fourth quarter.
4470570,197,1440.17,1444.5699,15,We're using some inventories of son in order to increase the volume dued in first fourth quarter.
4470570,198,1444.8101,1450.9301,15,That's why probably if you put the numbers together fourth quarter total volumes is close to three hundred thousand metric tons.
4470570,199,1450.9301,1455.2,15,Uh very strong number with back to delivered dued in one quarter.
4470570,200,1455.46,1458.11,15,That's an even lower probably depending the shipments.
4470570,201,1458.11,1464.05,15,They s they they they uh sometimes you have a delay of one or two shipments from fourth quarter to first quarter.
4470570,202,1464.05,1468.75,15,You don't know yet because uh it it will be decided at the end of the month.
4470570,203,1468.78,1470.87,15,Depending the conditions at the port.
4470570,204,1471.5601,1476.6001,15,But anyway it's gonna be a really strong quarter because the price condition which had to push everything forward.
4470570,205,1477.29,1482.6,15,it it about next year I don't have now a forecast of volumes potash.
4470570,206,1482.6,1491.8199,15,Remember that we have a loss of production in inaudible and we use up some of the potash m most of the potash in the production of potassium nitrate.
4470570,207,1491.8199,1494.5699,15,Either for fertilizer or solar soles business.
4470570,208,1495.14,1510.2,15,That's why depending what's gonna be our strategy en specialty for fertilizer and solar soles next year and the total production from the Solar Atacama at the end you have a at the end there's the the remaining is gonna be the potash we will sell to the market.
4470570,209,1510.95,1523.0701,15,Anyway as you may know we are reducing ith our commitment from the company to reduce the panting of solutions of the Solar the most important reduction will be two thousand twenty two as compared to two thousand twenty one.
4470570,210,1523.51,1527.42,15,twenty three twenty four twenty five we'll wa we will have a small reductions every year.
4470570,211,1527.42,1529.5,15,But the most important one is gonna be next year.
4470570,212,1529.8101,1545.29,15,Um probably total production of potash at the Solar Atacama will be between a hundred and a hundred and fifty thousand tons lower ne from a total level close to one point two five thousand me one t one point two five million tons.
4470570,213,1545.96,1549.84,15,We will move to one point one million tons probably production for next year.
4470570,214,1550.1899,1557.25,15,If you move forward with all the reductions because the the the reductions in panting will be in the range of forty thousand metric tons per year.
4470570,215,1557.5601,1560.05,15,But the first year is an important one it's the a hundred fifty.
4470570,216,1560.79,1564.25,15,Uh a hundred and a hundred a hundred fifty we don't know yet exactly.
4470570,217,1565.33,1566.1,15,We're improving.
4470570,218,1566.27,1568.64,15,we are improving a lot the deal for the Solar level.
4470570,219,1568.64,1573.37,15,That's why we expect it's gonna be closer to to two hundred thousand reduction.
4470570,220,1573.8199,1584.9199,15,Um most of it of course will reflected in the potash industry because our first priority is to supply the potash for our nitrates and solar pol uh eh potassium nitrate and solar soles business.
4470570,221,1586.03,1588.25,16,All right.
4470570,222,1588.25,1588.7101,16,Thank you.
4470570,223,1589.04,1590.77,16,Um and just to come back maybe.
4470570,224,1590.77,1610.85,16,I say we come on um I need some pricing um what's your expectations to going forward and maybe twenty two but maybe even beyond that that time in term of you know considering maybe using you know a little bit of contract like short term a little bit of long term and maybe switching to some sales um sort.
4470570,225,1610.85,1617.99,16,Like do you do you consider maybe switching at some point to a more hybrid model uh for pricing like some of your peers are doing that?
4470570,226,1631.89,1641.01,18,What we inaudible the expectation of profits for the next year eh we see a strong demand a as we already said.
4470570,227,1641.53,1648.35,18,Uh however you know the inaudible supply and demand so everything else will depend on the reaction of the supply.
4470570,228,1648.35,1656.3201,18,We know that there are other projects eh under development so everything at the end will depend on how uh the supply can react to the demand.
4470570,229,1656.88,1659.0801,18,Anyhow we are really positive on the demand side.
4470570,230,1659.26,1666.7599,18,Uh but we need to see what happens within the next year but w we should expect pos a positive uh trend.
4470570,231,1667.4301,1671.13,18,Regarding to the to the strategy of contract inaudible is something that we have we have said before.
4470570,232,1671.13,1682.35,18,Eh we're open inaudible with our customers inaudible which is to give to our customers the solutions that they they need.
4470570,233,1682.7,1686.0701,18,Uh in the past we have announced inaudible agreements.
4470570,234,1686.46,1694.77,18,We are under discussions of different contract with our customers but at the end what we are looking for always is to have good contracts for both sides.
4470570,235,1695.28,1701.86,18,So we are open finally to have a mixed strategy between short and long term uh long term contracts.
4470570,236,1702.78,1705.1,17,Okay thank you.
4470570,237,1705.1,1705.78,17,That's inaudible.
4470570,238,1718.01,1726.12,18,Yeah well um well as you know at the end of the year we announced we finally met with officials so from there we are doing a good project.
4470570,239,1726.47,1730.6899,18,We have started the early uh construction stage in both sites.
4470570,240,1730.78,1735.6,18,That means the refinery in inaudible and the Mulholland where we inaudible plan.
4470570,241,1736.0699,1739.2999,18,And so far so good according to the to the plan.
4470570,242,1739.62,1741.5699,18,So everything is is going well.
4470570,243,1750.58,1755.2201,19,Our last question today will come from Cesar Perez-Novoa with BTG Pactual.
4470570,244,1755.86,1756.5199,19,Please go ahead.
4470570,245,1758.27,1761.88,20,Yes um good morning uh or good afternoon to everyone.
4470570,246,1761.9301,1765.3899,20,Um some of my questions have already been answered.
4470570,247,1765.39,1783.95,20,Perhaps I have uh weak connectivity here but uh m my questions would be what supply conditions uh does s g m c and the lithium market in general uh for for next year considering that new volume won't come on stream for several producers including yourself?
4470570,248,1784.02,1788.27,20,Uh second I am fully aware management provides n no pricing outlook.
4470570,249,1788.76,1798.89,20,However most uh lithium benchmarks are hovering uh a around two times uh SGM's indicated uh fourth quarter price.
4470570,250,1798.95,1821.76,20,The question being in in terms of direction uh where would your uh realized price be or if that should come uh closer to that already embedded in the spot market uh considering that uh if I if I heard correctly eighty percent of your contracts are yet to be u uh closed uh possibly in the first quarter of next year?
4470570,251,1822.22,1825.42,20,Any qualitative assessment there would be greatly appreciated.
4470570,252,1835.58,1835.87,20,Hello?
4470570,253,1837.97,1838.4099,18,Okay.
4470570,254,1838.4399,1838.73,18,Yeah.
4470570,255,1839.05,1841.0701,18,Okay Cesar eh Pablo speaking.
4470570,256,1842.29,1848.6801,18,Regarding to your question about conditions in lithium markets eh as I said before we are we are really positive about that.
4470570,257,1849.71,1856.8,18,Uh as I told you we see uh uh growth for the next year between twenty and thirty percent and that mainly explained inaudible penetration.
4470570,258,1856.8,1866.4501,18,Eh as I said before uh the inaudible for the year we expect they'll be between six point three and six point six million.
4470570,259,1867.61,1874.46,18,For the next year we see that the number will be close to nine million so we see that the inaudible will continue growing.
4470570,260,1874.46,1878.4,18,So we are really positive eh ab- about the market.
4470570,261,1878.5699,1883.73,18,Uh em and we don't have any any doubts about that.
4470570,262,1883.73,1886.38,18,We see strong fundamentals of the lithium demand.
4470570,263,1903.42,1909.4901,18,So we expect that important players will continue with expansion plans that they also have announced.
4470570,264,1909.58,1910.22,18,Like us.
4470570,265,1910.45,1912.76,18,So that that's what we see.
4470570,266,1913.42,1932.16,18,And finally regarding to the to the project well it is really again it is really difficult to to inaudible any forecast about that because you see that the market is is is moving so fast it is changed so fast that any price prediction I could say that it is difficult to to do.
4470570,267,1932.16,1944.7,18,Eh what we gonna do is to try again to secure volumes with our customers negotiating good conditions from uh each party in order to secure you know a long term offer to our customers.
4470570,268,1946.99,1948.0801,20,All right thank you very much.
4470570,269,1948.08,1957.51,20,And then if I may uh squeeze one more question there um maybe maybe you answered this before but have you given any cap ex guidance for twenty twenty two?
4470570,270,1963.99,1977.3601,21,Yeah eh inaudible cap ex for next year inaudible to say w- we we did not inaudible the cap ex in the last three oh days or 60 days inaudible forecast we had at the beginning of the year.
4470570,271,1977.59,1982.63,21,And if I'm not wrong it's close to five hundred million bucks those for two thousand twenty two.
4470570,272,1985.62,1986.72,20,mm-hmm <affirmative>.
4470570,273,1999.65,2002.79,19,Ladies and gentlemen this concludes our question and answer session.
4470570,274,2003.59,2006.9,19,I'd like to turn the conference back over to Irea…
4470570,275,2006.9,2009.65,19,Irena Acshonova Investor Relations for any closing remarks.
4470570,276,2011.47,2015.8201,22,Um thank you for joining us today and we look forward to having you at our next call.
4470570,277,2015.98,2016.8201,22,Have a great day everyone.
4470570,278,2017.0,2018.59,22,Good bye.
4470570,279,2019.36,2021.01,19,The conference has now concluded.
4470570,280,2021.47,2023.4501,19,Thank you for attending today's presentation.
4470570,281,2023.7,2025.0699,19,You may now disconnect.
4470570,282,2026.48,2028.1699,19,The conference has now concluded.
4470570,283,2028.62,2030.6801,19,Thank you for attending today's presentation.
4470570,284,2031.08,2032.39,19,You may now disconnect.
4470570,285,2033.99,2035.72,19,The conference has now concluded.
4470570,286,2036.25,2038.21,19,Thank you for attending today's presentation.
4470570,287,2038.5699,2039.9301,19,You may now disconnect.
4470570,288,2041.76,2043.41,19,The conference has now concluded.
4470570,289,2043.84,2045.72,19,Thank you for attending today's presentation.
4470570,290,2046.14,2047.4401,19,You may now disconnect.
4470663,0,30.87,31.13,0,Okay.
4470684,0,1.68,2.48,0,Is mic on?
4470684,1,2.48,3.94,0,Yeah our mic is on.
4470684,2,7.12,9.75,0,Initially we go to um that yeah.
4470684,3,11.71,12.17,0,Thank you.
4470684,4,13.24,15.46,0,Ladies and gentlemen let's take our seats.
4470684,5,18.27,20.73,0,Um let's take our seats please.
4470684,6,23.29,23.89,0,Hello Ruby.
4470684,7,23.89,24.01,1,Hello?
4470684,8,26.02,29.88,0,I like your new suit <laugh>.
4470684,9,30.96,30.99,1,<inaudible>.
4470684,10,32.19,34.37,0,I can see you <laugh>.
4470684,11,34.68,36.84,0,You're gonna have to wait for a few minutes all right?
4470684,12,39.54,42.86,0,Um at eleven o'clock we will go onto the webcast.
4470684,13,42.86,45.18,0,So we are not going to to start yet.
4470684,14,82.13,123.03,0,<silence> Ladies and gentlemen good morning and uh welcome to uh a hundred Grayston here in Sandton and welcome to any of our shareholders analysts and colleagues who are joining via the webcast.
4470684,15,123.03,132.36,0,How wonderful it is that after eighteen months of significant struggle with COVID we can once again get back together in one room.
4470684,16,132.36,137.96,0,Obviously we are socially distanced but it is fantastic to welcome you to a hundred Grayston.
4470684,17,138.55,147.52,0,Um before I start let me just say that uh uh we are going to talk about numbers today which which are obviously quite important.
4470684,18,148.05,157.29,0,Um but this business is not only about numbers our business is fundamentally about our clients and about how our people serve our clients.
4470684,19,157.29,173.14,0,So I would like to acknowledge both for our clients and for our people that covid nineteen has been devastating a great challenge but I'm glad that we have survived covid nineteen and that we are now somewhat at the backend of it.
4470684,20,173.14,184.69,0,So thank you to our clients for your support and thank you to all our eight thousand two hundred colleagues for delivering out of the ordinary uh to our clients.
4470684,21,185.08,189.19,0,Our business is obviously about profit but we are also about impact.
4470684,22,189.19,193.89,0,And at the end of the day hopefully you will see both profit and impact coming through.
4470684,23,195.0,213.15,0,So at the end of today I hope that you will appreciate that uh our business is fundamentally strong after a period where we went through a strategic simplification and refocus of the business.
4470684,24,213.92,229.41,0,And also that you will agree that we have a set of client franchises that are high quality and very resilient and that resilience will come through in the performance that we will be reporting today.
4470684,25,229.41,239.18,0,I'm very very proud to stand here on behalf of my colleagues and present these fantastic results that we're going to be talking about today.
4470684,26,239.62,255.65,0,We've made significant progress over the last two years or so and at the end of the presentation I hope you will agree with me that we are well poised to capture the opportunity for growth that we think lies ahead for our business.
4470684,27,258.61,270.74,0,If we start by focusing for the next few minutes on the journey that we have uh traveled over the last two years the journey to simplify and to focus the business.
4470684,28,270.74,277.94,0,This journey started with the demerge of asset management in March twenty twenty.
4470684,29,278.41,288.2,0,The idea was to give each of Investec in Ninety One the freedom to pursue their strategies and growth prospects.
4470684,30,288.47,293.11,0,And what a fantastic story it has been uh since March twenty twenty.
4470684,31,293.17,297.35,0,Ninety One continues to fly and Investec has flown even higher.
4470684,32,297.6,303.4,0,Uh so we are particularly pleased about the decision to demerge uh Ninety One.
4470684,33,303.4,311.73,0,Um and of course Hendrick and the team had a fantastic set of results on Tuesday and we're very happy as a twenty five percent shareholder at those results.
4470684,34,312.2,316.65,0,We exited as part of this journey to simplify our business.
4470684,35,316.98,323.68,0,Uh a number of subscale businesses we we exited territories also where we thought we couldn't compete.
4470684,36,323.99,331.3,0,We also exited businesses where we thought the risk profile is no longer appropriate for us as we go forward.
4470684,37,331.3,344.07,0,So today I'm particularly pleased that in our journey to simplify the business the board has now taken a decision to distribute a fifteen percent holding in Ninety One.
4470684,38,344.07,349.14,0,We can do so because our business continues to generate strong capital.
4470684,39,349.37,355.1,0,Our business has uh the power through its franchises to continue to do well.
4470684,40,355.1,362.13,0,And we also did commit to you that we will continue to optimize uh our capital stack.
4470684,41,362.42,364.37,0,This is an important step.
4470684,42,364.58,367.66,0,There will be o other steps that will come in future.
4470684,43,367.92,376.19,0,Just to put this in context we've now distributed seventy percent of uh Ninety One.
4470684,44,376.79,388.51,0,At current market values that represents a return to our shareholders of £1.7 billion or approximately thirty four billion Rand.
4470684,45,389.11,395.71,0,Very proud that we can uh bring this to to to the conclusion that we have brought it uh today.
4470684,46,396.34,402.62,0,In addition to simplification we said to you that we will uh give the business greater focus.
4470684,47,403.62,418.36,0,We will be focused largely on two geographies on bank and wealth and we will compete only in those niches where we can excel because we did not intend to be a bulge bracket bank as it were in our international markets.
4470684,48,418.65,422.07,0,So we have to be excellent where we choose to perform.
4470684,49,422.13,431.77,0,That focus will be evidenced today by a growth and revenue of thirty point five percent which we believe is quite fantastic.
4470684,50,432.54,440.09,0,We also will be able to demonstrate through the results that we continue to exercise significant cost discipline.
4470684,51,440.77,458.7,0,Our fixed cost grew by three point three percent and the rest of the increase of eleven point seven percent obviously reflects variable uh expenses in particular variable remuneration in line with the growth of thirty point five percent uh in in revenues.
4470684,52,458.7,471.23,0,Lastly we are now at a point where we have a platform that is neat and tidy a people that is motivated and we look to capture the opportunity that lies ahead of us.
4470684,53,473.2,475.14,0,So going now to the results.
4470684,54,475.34,484.48,0,Firstly it is quite clear that there has been a significant rebound uh in the economies in which we operate and this has been uh quite helpful.
4470684,55,484.51,487.48,0,Although we do have some uncertainty as we look forward.
4470684,56,488.9,500.51,0,Looking at financial markets again we we have had uh supportive financial markets so this will reflect in some of uh the growth that you will see uh in uh uh funds and the management.
4470684,57,500.51,503.37,0,And uh that also will be helpful in certain valuations.
4470684,58,504.4,513.24,0,But if we look forward global interest rates have been at record lows but we now are beginning to see the specter of inflation on the horizon.
4470684,59,513.52,526.06,0,So going forward inflation is going to be quite a big uh item on the agenda with uh uh central banks having hoped that uh the size of inflation that we saw were transitory.
4470684,60,526.33,532.2,0,I think there is now uh a real sense that this inflation may be anchored as we go forward.
4470684,61,532.2,535.67,0,Therefore we expect rates to go up as we go.
4470684,62,537.03,547.71,0,Looking at the results we are at a point where our operating profit at an adjusted level adjusted operating profit is now at pre-pandemic levels.
4470684,63,547.97,553.43,0,So the recovery has been swift showing the resilience of our client franchises.
4470684,64,553.43,554.73,0,So we've seen good growth.
4470684,65,555.11,566.35,0,In uh the loan books we've seen uh significant growth in funds under management driven both by markets uh net in flows and good investment performance.
4470684,66,567.67,576.33,0,At an adjusted earnings per share level we've seen growth growth of a hundred thirty five percent to twenty six 3P.
4470684,67,576.6,578.98,0,Very pleasing uh performance indeed.
4470684,68,579.22,589.57,0,Uh net asset value has grown at an annualized nine point three percent to four hundred and seventy nine point two pens relative to a share price of around three sixty p.
4470684,69,589.85,599.68,0,There is still a gap that you uh we we still need to uh to eliminate over the next little while as we execute on our current strategy.
4470684,70,600.09,604.1,0,Our return on equity uh has been printed at eleven point two percent.
4470684,71,604.36,611.16,0,We are now coming very close to our medium term range of twelve percent to sixteen percent.
4470684,72,611.16,616.17,0,Remember we've had uh an interruption uh that has been cost by the pandemic.
4470684,73,616.72,636.6,0,Pleasingly our cost to income ratio came in at sixty four percent relative to the prior period of seventy two percent driven by obviously a significant increase in revenue but also characterized by the fact that our cost control has been excellent.
4470684,74,636.6,642.51,0,As we go forward cost discipline remains an important factor in the work that we do.
4470684,75,643.83,652.9,0,If you look at the credit loss ratio at seven basis points obviously a historic low driven by low specific impairments.
4470684,76,652.9,665.96,0,The experience on the ground uh is is that uh we are not seeing uh much uh come through or be that we still see that the environment remains uh particularly uncertain.
4470684,77,665.96,676.62,0,We also saw significant recoveries in this period on a net basis while there was some release in provisions given uh the the the improvement in the economic scenario.
4470684,78,676.9,686.15,0,We did have a net increase in covid nineteen overlays given as uh we can see uh some of the uncertainty in the markets.
4470684,79,686.73,699.01,0,The interim dividend doubled from five 5P to eleven p to reflect uh the confidence that we have in the performance that we have seen.
4470684,80,699.47,703.75,0,I've spoken about the distribution of fifteen percent of our holding in Ninety One.
4470684,81,704.11,715.61,0,On a pair share basis that adds thirty five p to the five point five sorry to the eleven p uh dividend that has been declared.
4470684,82,715.72,722.57,0,Obviously there are a number of uh uh regulatory and other approvals that we still need to procure.
4470684,83,722.89,729.97,0,And we do expect that within this financial year we will be able to execute on uh uh this uh distribution.
4470684,84,729.97,733.82,0,Very pleased with as I said the return of capital to our shareholders.
4470684,85,735.33,742.2,0,If we move to the next slide this is a depiction of the recovery in performance.
4470684,86,743.21,751.03,0,And given the news on Ninety One we've also separated the contribution of Ninety One to our earnings.
4470684,87,751.3,757.8701,0,As you can see the blue that is in Investec has performed particularly well in terms of recovery.
4470684,88,757.87,764.34,0,So our confidence in our business and in our people is at an all time high.
4470684,89,764.49,769.07,0,The momentum in the business continues so we look forward with a lot of confidence.
4470684,90,770.66,780.67,0,Looking at uh uh how this performance has been achieved it is pleasing that we are firing on all cylinders.
4470684,91,781.11,789.92,0,Starting off with the specialist banking business in South Africa adjusted operating profit increased by sixty nine percent in rent.
4470684,92,789.92,790.78,0,Well done Richard.
4470684,93,791.2,797.09,0,And if you look at the wealth business in SA 18% up uh in Rands.
4470684,94,797.09,799.79,0,Henry is uh on his way flying from uh…
4470684,95,800.11,801.4,0,Oh I think he's in Switzerland actually.
4470684,96,801.4,803.31,0,He comes in uh back tomorrow.
4470684,97,803.34,808.04,0,Well done Henry and team uh group investments up significantly.
4470684,98,808.4,821.01,0,And if you look at South Africa as the geography uh we saw uh adjusted operating profit up ninety four percent in pounds and seventy six percent in rent.
4470684,99,821.34,832.98,0,That is a fantastic achievement in an economy that has been struggling because we haven't seen economic reforms that we require to unlock the potential of the economy.
4470684,100,832.98,838.31,0,So we are outdoing the metrics so I'm really proud of our team uh in SA.
4470684,101,838.77,847.44,0,The r o e in pounds for our South African business is now a twelve percent versus September twenty r o e of eight point one percent.
4470684,102,847.44,849.56,0,Significant improvement uh overall.
4470684,103,849.56,864.47,0,If you look at our UK business um we saw the specialist bank increase its profit massively but in truth this is just a continuation of the growth momentum that was in the business.
4470684,104,864.7,872.41,0,And this momentum as you know in the prior period was interrupted by the losses that we experienced in our fin prod business.
4470684,105,872.41,880.83,0,As we said in these results uh the cost associated with uh both management of that risk and reduction of that risk were immaterial.
4470684,106,880.83,886.26,0,So we can see a resumption of uh growth uh in in that business.
4470684,107,886.61,894.95,0,Our wealth business grew adjusted uh um earnings uh o operating profit rather by forty six percent.
4470684,108,895.33,900.08,0,Again a fantastic achievement uh by Kiran uh and the team.
4470684,109,900.29,907.68,0,I forgot to acknowledge Ruth and her team for this stellar performance in the um bank uh in the UK.
4470684,110,908.11,920.47,0,In this area of our business we are still very small within the UK context so the road forward is really rich uh with opportunity.
4470684,111,920.47,922.56,0,In South Africa we are a a big player.
4470684,112,922.86,933.15,0,We have a strong brand and a strong presence so we can fight our way even in an environment where the economy is not growing um as we would like it to grow.
4470684,113,933.15,938.43,0,So a pleasing performance by all our businesses at the same time.
4470684,114,940.67,946.59,0,I'm not going to cover the next slide that goes into the exact details of the performance of each of the businesses.
4470684,115,946.59,952.46,0,I will leave that to our group uh finance director Nishlan uh to take as through that.
4470684,116,952.8,966.11,0,Um as I prepare to hand the mic to Nishlan to take us through the results I want to stress again that we manage for profitability but we also manage for impact.
4470684,117,966.49,990.34,0,We've just had cop twenty six over the last two weeks and I'm pleased to see that the path to net zero has become a lot more accepted around the world even though uh the transition from a climate perspective will probably be a bit slower and a bit more uh costly than uh uh we we may have uh uh desired.
4470684,118,990.66,1001.42,0,As that transition occurs we also have to make sure that the transition is just and the social impacts of the transition on poorer communities is well understood.
4470684,119,1001.42,1014.33,0,At Investec we continue to embed the thinking around climate uh change around sustainability goals there fundamentally into our business.
4470684,120,1014.33,1027.8301,0,Uh we have we have a policy on coal we have disclosed uh both uh exposures on coal which as you can see is quite minimal at point one one percent of uh of of of our loan book.
4470684,121,1028.04,1030.1699,0,We also have disclosed fossil fuel.
4470684,122,1030.17,1033.0601,0,We are very proud of what we have achieved.
4470684,123,1033.0601,1045.51,0,We've also committed that going into the next A G M we will give our scope three targets around uh the issues relating to climate change.
4470684,124,1045.51,1047.37,0,So sustainability is core to us.
4470684,125,1047.8101,1056.6,0,As you know at Investec we've always said we are committed to creating enduring worth living in society and not of it.
4470684,126,1056.92,1061.39,0,Nishlan do you want to come up uh to uh just unpack the results in more detail.
4470684,127,1063.0699,1063.5701,0,Thanks Nish.
4470684,128,1070.3,1080.3999,2,Wow it's actually amazing just to be up here hey and to see so many familiar faces across uh let's hope it uh long may it last and let's head in the right direction.
4470684,129,1083.72,1087.0,2,So if we get into some of the detail I think just a reflection.
4470684,130,1087.22,1093.38,2,Um you know again as Fani had highlighted we did have some interruptions uh over the last financial year.
4470684,131,1093.77,1101.76,2,we are not totally through all of those interruptions and we've gotta recognize uh that the journey ahead is still a journey that one has to navigate through.
4470684,132,1102.38,1108.0601,2,But we are quite proud of the fact that both our geographies have contributed strongly in terms of these results.
4470684,133,1108.0601,1117.6901,2,With South Africa um contributing fifty nine percent of the operating profit and the UK contributing fifty five percent of overall revenue.
4470684,134,1118.4399,1129.25,2,I think when we talk about the distribution of fifteen percent of Ninety One when we look at the divisional contribution the overall contribution from our group investment portfolio is about five percent of revenue.
4470684,135,1129.9301,1136.38,2,The actual portion of Ninety One that we will be distributing accounts for about two and a half percent um of that revenue.
4470684,136,1136.38,1141.73,2,And we you know we strongly have the view that we will grow into that uh as we move through time.
4470684,137,1142.64,1156.96,2,I think through this period both our wealth businesses and our specialist banking business which I know we set we we represent as a single bond this which has multiple diversified business streams and and and revenue streams within it.
4470684,138,1157.41,1169.2999,2,Uh you know with that business contributing seventy two percent of revenue and seventy five percent of operating profit and our world business twenty three percent of revenue and seventeen percent of operating profit.
4470684,139,1174.78,1179.52,2,Now if we dig a little deeper let's start off with our wealth and investment business in South Africa.
4470684,140,1180.5601,1188.84,2,I think the first point to note is a net ten point one billion Rand of discretionary funds under management inflow in the period.
4470684,141,1189.54,1205.25,2,Which has really underpinned uh the growth in operating income of twenty two point six percent in the period representing higher average annuity income and discretionary funds under management and the contribution from uh that particular base.
4470684,142,1205.9399,1219.7999,2,In the period we did experience increased brokerage as trading activity on the markets picked up over the period and overall adjusted operating profit increased by seventeen point eight percent to three hundred eleven million Rand.
4470684,143,1220.22,1231.88,2,With the operating margin being achieved at thirty one point five percent which yes it did come in a little and that's really driven by investments uh investment in terms of the the platform and people.
4470684,144,1232.38,1239.4301,2,Uh but still a relatively strong and and respectable uh operating margin across the industry.
4470684,145,1240.42,1247.0,2,Um I think it's also worthwhile noting that we've got continue to have sustained inflows into our offshore offerings.
4470684,146,1250.35,1259.4,2,From the wealth and investments UK perspective funds under management grew to £44.7 billion over the period with net inflows of £627 million.
4470684,147,1260.4301,1270.1,2,We saw the operating margin improve for our UK domestic business from twenty point six percent twenty point five percent to twenty six percent um over this period.
4470684,148,1270.46,1284.5599,2,And that's not withstanding increased uh discretionary spend as well as uh continued investment in terms of the platforms and uh variable costs obviously uh following the improvement in in profitability.
4470684,149,1285.58,1300.64,2,I think again net organic uh growth in funds under management of three percent really supported by higher market levels over the period organic growth in funds under management and favorable investment performance across the portfolio.
4470684,150,1304.99,1313.8401,2,Moving on to the bank in South Africa um core loans and adva advances grew by three point four percent or close to seven percent on an annualized basis.
4470684,151,1314.41,1320.73,2,Um and that experience is across our private banking business as well as our corporate business over this period.
4470684,152,1321.2,1335.77,2,Um the private banking business obviously uh benefiting from the lower interest rate environment and the opportunistic nature of the client base but again continued good growth in terms of client acquisition uh which builds well for the future.
4470684,153,1336.4,1352.2899,2,In terms of our corporate and lending book which grew by close to a seven percent annualized rate uh over this period that is within an environment in which we continue to see a higher repayments as corporates continue to manage their excess liquidity on the balance sheet.
4470684,154,1355.22,1368.9399,2,Deposits growing by six point six percent in the period and I think you know some of the defensiveness that has uh that has been on the balance sheet through the COVID period we will continue to grow into uh some of that uh defensiveness.
4470684,155,1370.8199,1379.04,2,It's very pleasing to report a twenty two percent growth in overall revenue from five point eight billion to seven point one billion over the period.
4470684,156,1379.65,1385.51,2,And I think if we look at where that growth has come from net interest income is a key driver in terms of the growth.
4470684,157,1385.67,1395.6201,2,With net interest margin really uh improving and and us getting through the sharp decreases in interest rates that we saw impact the first three months of the prior year.
4470684,158,1396.41,1408.62,2,That coupled with book growth uh and continued effort in terms of managing the cost of funds and obviously a favorable environment uh that is that that continue to assist around that.
4470684,159,1409.33,1415.9601,2,Fees and fees and commissions as well and and that's a split between annuity and deal fees and commissions or healthy growth.
4470684,160,1416.35,1425.88,2,And that's really a a a a return of activity and and and and a drive through in terms particularly around our private client uh businesses.
4470684,161,1426.37,1430.35,2,Investment income in this period actually had a slightly negative return.
4470684,162,1430.9,1438.05,2,Um and that's really on the fact that we did not have any significant realizations uh in this particular period.
4470684,163,1440.01,1462.4401,2,The cost to income ratios improve from fifty five point four percent to forty nine point seven percent and that's off the back of continued management of fixed costs which increased by three point seven percent um and operating costs overall increasing by nine point one percent well offset by a twenty one point six percent growth in revenue.
4470684,164,1469.85,1477.36,2,When we look at our UK bank we are particularly pro uh proud of the growth in the in core loans that we've experienced over the period.
4470684,165,1477.36,1486.65,2,And yes there have been some tailwinds that have assisted that but the client acquisition remains constant and contributing to the underlined platform.
4470684,166,1487.34,1503.6901,2,With core loans and advances increasing to £13.7 billion or around about a twelve point four percent growth if you adjust for the fact that we had disposed of our Australian book back in March uh twenty uh March twenty one actually.
4470684,167,1504.15,1513.08,2,Our private client lending uh activity and book is actually up nineteen point six percent and that's largely driven by client acquisitions.
4470684,168,1514.52,1525.4401,2,Demand for corporate credit was strong over the period and that's really tantamount to the economic recovery that we have seen in the market and in particular in the client spaces that we operate in.
4470684,169,1525.8,1529.95,2,And around of about nine point five percent again adjusting for Australia.
4470684,170,1530.86,1549.38,2,From a customer deposits perspective you've seen that customer deposits haven't necessarily kept up with the growth in loans and advances and that's really intentional uh dealing with some of the conservatism that we built into the liquidity base to navigate the choppy markets that we've obviously operated through.
4470684,171,1554.04,1559.67,2,Again looking at revenue overall revenue increasing by twenty percent from £273 million to £328 million.
4470684,172,1563.7,1578.2699,2,As Fani had alluded to you know if we uh factor in that our structure uh structured products cost of last year in terms of hedging and managing that particular portfolio was £53 million it was relatively immaterial at just over a million pounds in this period.
4470684,173,1579.05,1593.63,2,And looking forward you know we we continue to expect that that portfolio now which has ha which has significantly reduced because of positive markets and active management will continue to be immaterial as we look through the full year.
4470684,174,1595.0,1603.6,2,The cost income ratio has improved from eighty point seven percent to seventy two point eight percent with overall operating costs increasing by eight point one percent.
4470684,175,1604.27,1621.37,2,Now if you unpack the operating cost increases and i'll do so a little later you will see that um fixed personnel cost has actually reduced as we have gone through quite a significant restructure in the business and uh we continue to see the benefits of the steps taken earlier.
4470684,176,1622.3,1643.63,2,Operating um the cost income ratio I've I've spoken through and I think if we just unpack a bit of the the the revenue uh aspect net interest income increasing by twenty four point six percent over the period is fundamentally driven by growth in the book as well as net uh reduction in the cost of funds uh in that business as well.
4470684,177,1647.45,1657.24,2,I think again one has to adjust uh for the fact that we have exited our Australian business so there will be an impact on revenue and costs and really adjusting for that.
4470684,178,1657.24,1660.39,2,You see a still of performance in terms of the underlying business.
4470684,179,1662.5699,1673.66,2,Our group investments portfolio in terms of an overall caring value of £834 million uh generated um income yield in the period of about eight percent.
4470684,180,1674.5699,1686.8,2,Ninety One which represents about twenty five percent is in our books at around about £1.60 which represents the equity accounted uh value of that investment relative to market value.
4470684,181,1686.8,1695.54,2,And therefore you do see um that the current market value of our overall investment portfolio sits well above uh the book caring value.
4470684,182,1696.62,1711.6899,2,Um from a distribution perspective if we use the relative value that is on here from an accounting perspective that's £240 million much more significantly when you factor in the fact that it has a market value of just over £2.60 per share.
4470684,183,1713.04,1729.6101,2,So again a pleasing um uh recovery in terms of the return uh with return on equity for the overall investment portfolio at ten point one percent with us seeing an improvement in profitability in the underlying portfolio as anticipated in i p f.
4470684,184,1729.99,1741.62,2,As well as uh Investec property fund also generating reasonable returns in this period with reduced momentum in terms of property write-downs uh that we had experienced before.
4470684,185,1744.27,1746.6699,2,So coming back to the overall picture.
4470684,186,1748.08,1757.1899,2,If we look at revenue growing from £729 million to nine hundred and fifty one million over the period you can see the drivers coming from three key areas.
4470684,187,1757.6,1764.8099,2,And that is our net interest income growing by thirty percent really underpinned by the performance in our specialist banking businesses.
4470684,188,1765.21,1768.03,2,Net fees and commissions improving by nineteen percent.
4470684,189,1768.34,1778.35,2,There are elements of moving parts in it but the underlying momentum coming back into the business investment and associate income growing by thirty six percent.
4470684,190,1778.72,1783.17,2,Um and that's really the contributions coming from our investments in our associates.
4470684,191,1783.62,1792.59,2,Um and trading income really represents the recovery of a non-repeat of the structured product costs that we carried uh in the prior period.
4470684,192,1794.08,1799.04,2,Our overall annuity income uh closing at about seventy eight point one percent.
4470684,193,1799.29,1809.2799,2,So if I go back to the you know the graph obviously we we have demerged our asset management business which brings in capital light businesses uh capital light revenue.
4470684,194,1809.6,1821.63,2,But within the specialist banking business as well as uh with uh you know the the wealth business there is still a healthy element of capital light revenue in in in the in the platform.
4470684,195,1822.0601,1829.6901,2,But to the extent that we we seek to utilize our excess capital I think the focus will continue to be on capital light.
4470684,196,1832.5699,1841.26,2,Overall cost income ratio for the group really driven by two factors improving to sixty four percent and that's an improvement in revenue.
4470684,197,1841.84,1851.2899,2,Fixed costs increasing by three point three percent and an element of variable costs picking up which has driven operating costs increasing by eleven point seven percent.
4470684,198,1851.91,1855.67,2,A breakdown of our cost premises has cost a bit more in the period.
4470684,199,1856.11,1863.8,2,Uh with some of our restructures we have about £3 million of excess costs that will uh not repeat as we move forward.
4470684,200,1864.25,1867.53,2,Uh personnel costs is really driven by variable remuneration.
4470684,201,1867.53,1876.9099,2,If we had to split that between fixed and and variable the fixed personnel costs is has reduced uh over the period and variable following the revenue improvement.
4470684,202,1877.38,1884.48,2,Business and marketing costs obviously following the path that we are following post uh post COVID environment.
4470684,203,1887.13,1896.35,2,From a an earnings driver's perspective I think we are very encouraged in both funds under management growth as well as our core loans and advances.
4470684,204,1896.88,1904.28,2,With funds under management growing by eight point five percent to £63.4 billion over the period with net inflows of £1.5 billion.
4470684,205,1906.01,1911.66,2,And that again driven by favorable markets investment performances in both our geographies.
4470684,206,1912.8101,1920.38,2,Core loans and advances has increased by seven point two percent to twenty eight point three billion with customer accounts following closely.
4470684,207,1923.23,1924.6699,2,Breaking down our loan book.
4470684,208,1925.45,1934.4601,2,In South Africa our core loans and advances um has seen growth of three point four percent or six point eight percent on an annualized basis.
4470684,209,1935.05,1946.26,2,One will have to unpack the detail between the these various components but the corporate book really experiencing growth of around about seven percent in this particular period and our high net worth book.
4470684,210,1946.5699,1956.27,2,Uh that's on an annualized basis our high net worth and private client book continuing with uh elements of growth as we had seen in the second half of the financial year.
4470684,211,1959.86,1975.52,2,From a UK perspective again the growth in terms of core loans and advances has been experienced across the portfolio strongly supported by seventeen percent growth in in the mortgage book um six percent growth in our high net and sp specialized uh lending book.
4470684,212,1975.87,1987.97,2,And again good experience of our corporate lending uh portfolios across the portfolios including our asset finance and corporate and acquisition finance as well as power and infrastructure finance books.
4470684,213,1991.6801,2004.2201,2,Coming to expected credit loss uh ratios yes we do have quite a a a low credit loss ratio in this period of seven basis points that hasn't been primarily dri driven by releases of impairments.
4470684,214,2004.67,2010.2001,2,It's really driven by the fact that we don't have momentum in the current period on new impairments being raised.
4470684,215,2010.63,2030.02,2,And that's two factors number one is uh the the the the level of specific impairments remain low um and that's reflective of the performance of our underlying client po uh client portfolios uh and the strength of uh of um you know the um the underlying portfolios themselves.
4470684,216,2031.38,2048.1101,2,The second is we did have some heightened recoveries over the period and that that recovery has really driven post uh write-offs over the last uh couple of years and continued effort in terms of uh recovery of assets has paid off during the uh this curr current period.
4470684,217,2048.3999,2052.4202,2,And again with some clients recovering uh as markets opened up.
4470684,218,2053.3401,2063.99,2,We also have uh you know from a macroeconomic perspective the pressure of raising impairments as we saw in the second half of uh twenty twenty has completely disappeared.
4470684,219,2064.3601,2073.9001,2,And that's as the forward look in terms of the macroecono- econo- economic environment has turned from negative significantly ne negative to positive.
4470684,220,2074.47,2087.05,2,Now like anything in life I think we still in a period in which trying to measure what the outcome is and to try to get to specifics on different portfolios is it's it's it's not a simple task of simply modeling.
4470684,221,2087.6101,2100.6699,2,So we've continued to maintain post model adjustment overlays and in certain instances we've increased some of our post model adjustment overlays to take account of risks that are still prevalent.
4470684,222,2101.1399,2110.4502,2,Uh you know if one has to you know understand that there has been interventions in markets and as those interventions work out the system there may be elements of risk.
4470684,223,2110.8301,2114.5801,2,The pleasing aspect to report on is we don't see any evidence of that yet.
4470684,224,2115.29,2122.77,2,Uh and you know we continue uh to experience a good overall outcome in terms of asset quality.
4470684,225,2123.6299,2135.74,2,From a South African perspective our our credit loss ratio was four basis points with a hundred and eight million uh Rand worth of charge uh impairment charges relatively low over the period.
4470684,226,2136.1399,2151.9102,2,Um I think if we go back to a pre um COVID environment our credit loss ratio was about eighteen basis points and that again was significantly driven up as we provided for risk on the balance sheet on a forward looking basis.
4470684,227,2152.52,2157.8,2,In South Africa again we have to some degree retained protection on the balance sheet.
4470684,228,2158.1399,2164.6599,2,Um and we'll continue to do that as long as there are levels of uncertainty which are not necessarily easily modeled.
4470684,229,2166.48,2170.8701,2,From a UK perspective our overall credit loss ratio at nine basis points.
4470684,230,2171.24,2177.76,2,Um in this book we did raise some of our uh post model overlays to account for economic uncertainty.
4470684,231,2178.3999,2186.21,2,Um there have been model releases over the period and I think that's a a consistent experience a across uh the book.
4470684,232,2186.21,2192.9202,2,And when we get to asset quality you will see a continued strong momentum in terms of uh overall quality.
4470684,233,2193.5601,2198.9402,2,The annualized credit loss ratio you know coming down from sixty basis points in the prior period.
4470684,234,2198.97,2207.9199,2,So both in South Africa and the UK the material impact on the uh positive im impact on the income statement um over this period.
4470684,235,2208.8601,2219.3901,2,From a balance sheet perspective it's never easy to give you a simple uh analysis of the balance sheet because of the moving parts particularly around uh certain write-off that we pass.
4470684,236,2219.3899,2231.0901,2,So for example um in the PLC balance sheet the decrease of a hundred one million to seventy three million of uh stage three provisions is really driven by write-offs over the period of about £40 million.
4470684,237,2232.01,2238.95,2,Overall um the level of impairments uh raised on balance sheet rela staying relatively intact.
4470684,238,2239.52,2261.6001,2,And from a South African perspective again some migration between stage two and stage three influences the analysis but you can see from our overall coverage ratios um you know there are there are uh movements in terms of coverage ratios particularly for stage three and that's really driven by specific assets and the relationship with collateral.
4470684,239,2264.0601,2284.5701,2,From an ROE perspective um we report an overall ROE of eleven point two percent with South Africa producing a twelve percent r o e and PLC to ten point five percent with both balance sheet u utilizing around about two point one uh to £2.2 billion of capital.
4470684,240,2285.3999,2299.72,2,The return on uh tangible equity at twelve point one percent representing really the return uh from our wealth businesses that provide quite a kicker uh into the r o t analysis.
4470684,241,2303.1499,2311.5999,2,Coming to the balance sheet and to our capital positions um I think both Investec PLC and Investec limited reporting robust capital positions.
4470684,242,2312.0601,2330.7102,2,I think let's just take a note that uh Investec PLC reports under standardized basis and the eleven point one percent uh cet one ratio is is measured on a relatively conservative basis if one has to look at the density of risk weights um to overall asset uh positions.
4470684,243,2330.71,2337.76,2,And total capital ratio for PLC at fourteen point eight percent with a leverage ratio of seven point eight percent.
4470684,244,2338.4199,2345.5,2,From a South African perspective we did see the cet one ratio improve from twelve point eight percent to thirteen point nine percent.
4470684,245,2346.04,2349.6299,2,Part of that is a continued completion of our journey to ARB.
4470684,246,2350.27,2358.48,2,Uh we still have one material element which we refer to as our capital required on our income producing real estate which is not in this measure yet.
4470684,247,2358.98,2365.21,2,Um so South Africa continues to operate uh quite a significantly heightened c e t one ratio.
4470684,248,2365.21,2368.4102,2,And that to some degree does have a challenge on ROE.
4470684,249,2371.3899,2384.3101,2,But from an overall position perspective uh strong capital ratios and strong position uh you know looking forward in terms of both supporting growth and potential acquisitions.
4470684,250,2384.7,2395.4399,2,Um and at the end of the day the distribution of Ninety One in our in in our view will have an immaterial impact on the overall uh capital position uh of the group.
4470684,251,2399.03,2405.9299,2,This slide just effectively takes stock off where we are against our medium term targets and I think I'm not gonna repeat through all of it.
4470684,252,2406.29,2415.3699,2,Um just to note that our distribution uh or the eleven uh eleven p dividend amounts to about a forty one point eight percent uh payout ratio.
4470684,253,2418.6101,2427.0701,2,Now if we look forward and again I think you know one's gotta recognize that we are looking forward in November to a March year end.
4470684,254,2427.7,2437.6299,2,The macroeconomic environment is improving and and we've seen that on all fronts whether it's uh in in the geographies that we operate in or the businesses that we operate in.
4470684,255,2437.99,2440.55,2,However that that recovery remains uneven.
4470684,256,2442.3101,2443.9102,2,Will be continue to be tested.
4470684,257,2444.1699,2457.46,2,Um I think in South Africa the risk of a fourth wave uh related to covid nineteen the level of vaccine rollout and the the the the general socioeconomic challenges uh remain concerns.
4470684,258,2457.79,2472.3301,2,And in the UK as we see the effects of Brexit and the continued play out in terms of uh the repositioning of the United Kingdom relative to Europe we may see some impact across um some of our portfolios.
4470684,259,2473.77,2498.3999,2,From an earnings perspective I think we are we are very pleased to report that we have in increased our expected reported EPS targets or um projections from uh from forty one p at the upper end uh that we had delivered uh you know as some guidance into the market um to forty eight to fifty three p for the full year.
4470684,260,2500.05,2507.1699,2,And that guidance has taken into consideration the low impairments that you've seen in this particular first uh first half.
4470684,261,2507.51,2513.9102,2,But generally a continuation of the momentum of the business uh as we have seen in the first half.
4470684,262,2514.47,2519.6799,2,And the group remains um committed to the targets that we have raised.
4470684,263,2520.6201,2522.0801,2,So that's the finance section.
4470684,264,2522.28,2525.27,2,And Fani back to you to wrap it up for us.
4470684,265,2529.76,2530.6501,0,Thank you Nishlan.
4470684,266,2530.6499,2536.76,0,I'm sure as a finance director this must have been the easiest set of results uh to present.
4470684,267,2536.79,2541.3,0,The results are fantastic uh representing an an incredible business.
4470684,268,2541.3501,2554.8401,0,Um that's why Nishlan can uh today revise upwards the guidance for the year uh in terms of uh adjusted APS to um forty eight uh P to fifty three p.
4470684,269,2554.8401,2555.5701,0,Well done Nish.
4470684,270,2556.28,2567.21,0,Um just in closing um it is important to note that we have strategic clarity about the business.
4470684,271,2568.01,2577.95,0,We are an international banking and wealth management group with two home geographies of the UK and South Africa.
4470684,272,2578.9199,2592.1101,0,Uh we are fundamentally committed to supporting our clients in their journey uh of growth and that growth uh over time uh is transformational.
4470684,273,2592.8101,2602.9299,0,We have a rich history um and heritage in private banking in wealth management in corporate banking in investment banking.
4470684,274,2603.55,2605.5801,0,We are a niche player.
4470684,275,2605.96,2612.54,0,We excel in what we do uh and we continue in our two geographies to see significant opportunity.
4470684,276,2613.0701,2623.1101,0,In South Africa we operate at uh large scale in all the businesses that we operate and we are a standard set in terms of the businesses that we operate.
4470684,277,2623.1101,2633.9299,0,And in the UK we have refined our business and the niches we operate in and we continue to see significant scale buildup.
4470684,278,2634.23,2639.75,0,As I said earlier uh during the day we have significant uh opportunity for growth.
4470684,279,2640.1499,2645.1899,0,Three years ago we committed to investing in the private banking offering in the UK.
4470684,280,2645.51,2651.6101,0,You have now seen the level of growth that we have achieved uh in that business.
4470684,281,2651.6499,2666.46,0,Um when Ruth presented in in in uh in May she through those areas of that market where we have chosen to compete and the path to growth is particularly significant.
4470684,282,2666.76,2678.01,0,On the wealth side in the UK as I said uh both bolt-on uh at the lower end and uh um consolidation um type opportunities remain.
4470684,283,2678.48,2691.99,0,And we have a people that is empowered uh by a culture that gives them a freedom to operate high levels of trust for our people and our people have a spirit of enterprise.
4470684,284,2692.27,2700.76,0,They act like owners of the business and deliver innovative nimble solutions uh to our client.
4470684,285,2702.4299,2711.6101,0,And as I say we offer out of the ordinary both in terms of service in terms of product uh and uh and innovation.
4470684,286,2712.9299,2716.27,0,So as we move forward we have strategic clarity.
4470684,287,2716.6499,2720.45,0,We have a focus business resulting out of that.
4470684,288,2720.48,2727.7,0,We are confident as a people and we have a level of ambition uh that drives our outlook.
4470684,289,2727.76,2729.46,0,The next slide I'm not going to cover.
4470684,290,2729.46,2732.5,0,It goes uh over the same uh factors.
4470684,291,2732.53,2738.8599,0,Over the last two years we have looked at a framework to drive improved business performance.
4470684,292,2739.27,2749.7698,0,Despite the fact that we were interrupted by COVID we have been able to show significant traction in our identified growth ini ini growth initiatives.
4470684,293,2750.1101,2755.27,0,We have made significant progress with respect to a cost discipline.
4470684,294,2755.3,2760.3999,0,Nishlan spoke about what we have done there in terms of these results and that journey continues.
4470684,295,2760.7,2774.02,0,We've also have been significantly making progress around capital discipline the distribution initially of uh fifty five percent of Ninety One now today um fifteen percent as announced.
4470684,296,2774.3401,2783.6301,0,Um and uh the re uh the the the path toward ARB which will uh see us have even higher levels of capital in South Africa.
4470684,297,2783.6299,2788.24,0,The reduction in the uh uh uh investment portfolio in SA.
4470684,298,2788.8401,2801.45,0,Uh so we're excited about our ability to grow and as I said earlier on we can distribute a fifteen percent because we have an engine that generates uh uh strongly uh capital.
4470684,299,2801.6399,2806.23,0,And we are allocating that capital in the best way uh we know how.
4470684,300,2806.23,2810.22,0,As we go forward we have to continue to invest in our operating platform.
4470684,301,2810.5701,2829.4099,0,So the idea of uh investing more in both our technology and digitalization to make sure that we can provide continued high tech packed uh and supported at the same time by high touch that Investec is known for is really important.
4470684,302,2829.4099,2841.6401,0,So we are going to be investing in the business and we will deliver as we do so a connected ecosystem from a client perspective but also a leveraged operating platform as we move forward.
4470684,303,2841.6399,2846.3501,0,So we are excited about the work we have done and you can begin to see the results.
4470684,304,2846.5901,2849.9202,0,Just taking stock o of what we have been doing.
4470684,305,2850.21,2859.6702,0,When we started uh in uh FY twenty nineteen in March we recorded four eight 7P of uh adjusted earnings per share.
4470684,306,2859.6699,2865.1099,0,Of course uh we had for eleven months uh IAM now Ninety One.
4470684,307,2865.46,2872.8401,0,We are now guiding uh to forty eight to fifty three p in terms of adjusted EPS.
4470684,308,2872.8401,2875.75,0,Significant progress uh as we go forward.
4470684,309,2875.79,2884.3201,0,Obviously in the forty eight to fifty three p we've made some assumptions about when we will distribute the fifteen percent of Ninety One.
4470684,310,2884.76,2887.4199,0,Our total operating income is now at nine fifty one.
4470684,311,2887.4199,2893.1299,0,Again you can see that progression total costs at just under six hundred now.
4470684,312,2893.3101,2901.01,0,You can see that uh if you double that you will actually be better than you were in FY uh twenty nineteen.
4470684,313,2901.01,2921.47,0,If you look at our weighted average number of shares we committed in twenty nineteen uh at uh our market day that we will reign in any issues of shares that overall the direction of travel will be to maintain if not reduce uh the number of shares out in the market.
4470684,314,2921.5801,2929.1699,0,We've grown uh ordinary shareholders equity as you can see and uh we continue to make…
4470684,315,2929.4099,2941.8499,0,Uh we haven't made a SMU progress in terms of uh um uh reducing the investment portfolio given the environment but Nishlan indicated to you uh what distributing Ninety One means to that.
4470684,316,2941.8501,2943.3601,0,Our capital levels are strong.
4470684,317,2943.6699,2956.3201,0,In South Africa once we get uh uh the remaining uh uh portfolio on onto advanced Richard will not cease to complain about the drag of excess capital uh on returns in the business.
4470684,318,2956.3201,2960.6199,0,But that's a good uh problem to have Rich uh I will say.
4470684,319,2960.8999,2963.1301,0,Um in the UK we are on standardized.
4470684,320,2963.1299,2967.8298,0,Uh we are now setting our sites as we go forward uh on looking to go on advanced.
4470684,321,2967.8301,2982.26,0,As Nishlan says uh if you look at our risk density you will see that we have a capital base that is particularly con uh conservative um and and and both liquidity and capital are very strong to support our growth going forward.
4470684,322,2982.26,2988.3601,0,So in conclusion we see the business being positioned to capture opportunity as we go forward.
4470684,323,2988.3601,2996.3899,0,There are identified organic growth opportunities that we have talked about before and uh Richard can talk about those.
4470684,324,2996.3899,3002.71,0,Uh next time we have the opportunity to showcase the our brilliant uh South African business bank and wealth.
4470684,325,3003.01,3008.55,0,Uh I made an example of uh uh investment in the UK uh banking business.
4470684,326,3008.55,3014.7102,0,We can talk about uh the invested life opportunity that we have here in South Africa that we have invested in.
4470684,327,3014.71,3020.1699,0,So we've got executable and scalable uh growth opportunities within our current business.
4470684,328,3020.6399,3038.8601,0,We obviously are leveraging our client ecosystem as I indicated and we also are looking at strategic partnerships where we could uh work with partners uh to provide um our service and products uh to the relevant part of of their client basis.
4470684,329,3039.0901,3042.1899,0,There will always be some opportunities for bolt-on acquisitions.
4470684,330,3042.45,3052.3198,0,And in particular in the UK on the wealth side uh that particular space will continue to uh to to develop and and and provide opportunity.
4470684,331,3052.78,3067.45,0,With the advent of the demerge of asset management uh in uh from twenty twenty March we did say that the composition of our revenues shifted significantly more into capital intensive banking revenues.
4470684,332,3067.71,3079.45,0,So strategically we would like to rebalance that so both on the banking side and uh uh the wealth side we would look for uh the opportunities that are capital light.
4470684,333,3079.45,3082.0898,0,And there are lots of those uh on banking.
4470684,334,3082.0901,3092.0701,0,For instance transactional banking services in South Africa that we are uh ramping up on the um on the business side would be one uh such example.
4470684,335,3092.0701,3100.1599,0,So the rebalance of uh the revenue mix is an important strategic driver of the work we do as we go forward.
4470684,336,3100.5601,3111.04,0,Also because uh Ninety One was larger uh in the UK than it was in in SA our geographic mix has also changed somewhat.
4470684,337,3111.04,3116.5898,0,So as we go forward we will look uh to drive a a better geographic mix.
4470684,338,3116.5901,3126.53,0,As I said uh as we go forward we've got invest for growth and our investment in technology will reflect not only business as usual but more how we support growth.
4470684,339,3126.8101,3140.1001,0,So we feel uh confident given uh the results given the momentum in the business and given uh what our people are feeling and the level of engagement with our existing clients and our ability to attract new clients.
4470684,340,3140.3999,3142.8,0,Uh to my colleagues proud of what you have achieved.
4470684,341,3143.1799,3144.8198,0,Happy to take questions.
4470684,342,3145.1299,3149.9099,0,Nishlan you want to come up take a seat and then we can uh bet on questions.
4470684,343,3150.22,3154.25,0,Uh where's uh where's um Tess?
4470684,344,3154.25,3155.27,0,Where do we start Tess?
4470684,345,3155.27,3156.8899,0,We start in in this building right?
4470684,346,3158.79,3163.28,0,Ruby you are back so I'm gonna uh give you the opportunity to go first.
4470684,347,3163.6201,3166.1401,0,As I said earlier today I really like your new suit.
4470684,348,3167.8799,3168.46,0,You shoot.
4470684,349,3170.51,3171.48,0,Yeah thanks ru Ruby.
4470684,350,3171.48,3173.02,1,Thank you.
4470684,351,3175.03,3175.5801,1,Thanks Mr.
4470684,352,3175.5801,3176.01,1,Titi.
4470684,353,3176.01,3181.6499,1,I have one question please regarding the page operating cost analysis.
4470684,354,3181.8601,3182.1301,0,Uh-huh <affirmative>.
4470684,355,3182.48,3186.6599,1,It states that costs increased by eleven point seven percent-
4470684,356,3186.8,3187.1501,0,mm-hmm <affirmative>.
4470684,357,3187.5801,3194.03,1,and the one of the reasons refers to increased discretionary spend.
4470684,358,3196.53,3203.3999,1,There is a component there called business which went up eleven million.
4470684,359,3203.3999,3206.02,1,Exactly what is business?
4470684,360,3213.1399,3216.0601,2,At the end of the day business is a combination of co cost.
4470684,361,3216.0601,3227.8301,2,So it'll include travel um it'll include some of the the the spend in in in in managing the buildings and managing the infrastructure um that we have across the geography.
4470684,362,3230.54,3232.6001,2,is a little separate from it.
4470684,363,3232.6001,3232.6799,0,mm-hmm <affirmative>.
4470684,364,3236.1101,3244.23,2,really represents the supportive uh expenses uh you know and it it includes to some extent audit fees and other aspects of running the business.
4470684,365,3244.8999,3245.55,1,Thank you.
4470684,366,3250.1499,3251.04,4,Yeah good morning.
4470684,367,3251.48,3252.4399,0,Hi hi morning.
4470684,368,3252.5701,3253.1201,4,Thank you.
4470684,369,3253.1699,3254.8398,4,So I I can't hear myself.
4470684,370,3255.4099,3257.23,4,Um my name is Barry.
4470684,371,3257.3501,3262.6101,4,I just like to know on on a financial management you are distributing the Ninety One shares.
4470684,372,3263.3899,3267.6001,4,Would you not use those funds to reduce the shares in PLC?
4470684,373,3267.6001,3277.6001,4,Because the business in in UK is much reduced and there's a fortune of shares outstanding that has you know basically be fed from South Africa.
4470684,374,3277.8601,3280.54,4,In all days it was meant to be e even.
4470684,375,3281.47,3282.3799,4,That was one.
4470684,376,3282.45,3290.6899,4,The second question Investec wealth and management is run as a separate company as I understand it's not wholly owned by Investec.
4470684,377,3290.99,3296.04,4,And then I'd like to know what the net asset value of the loss staff trade was of each share?
4470684,378,3296.25,3296.6699,4,Thank you.
4470684,379,3297.6201,3303.6902,0,Okay um I'm not sure why you say that Investec uh wealth and investment is run as a separate business.
4470684,380,3303.6899,3308.23,0,In South Africa starting off there uh we have an integrated platform.
4470684,381,3308.3,3313.78,0,Uh Richard is the country head Henry obviously runs uh the wealth business.
4470684,382,3313.8201,3317.5801,0,We have the same uh operating uh platform as it were.
4470684,383,3317.8101,3332.3101,0,Um the client uh facing part of it obviously will will always be uh be separate uh in the UK which is probably where you may be referring to uh the wealth business we own a hundred percent of it.
4470684,384,3332.6799,3341.79,0,Uh there's a also it used to operate completely independently in terms of uh infrastructure marketing HR uh and the like.
4470684,385,3341.79,3345.1501,0,So the client facing part of it still operates separately.
4470684,386,3345.1499,3347.5901,0,The investment business not a banking business.
4470684,387,3347.8501,3370.79,0,What we have done is uh the the infrastructure side uh HR um the buildings um marketing we've centralized those because those you can you can actually centralize uh certain uh spending on technology around uh uh telephone systems and the like.
4470684,388,3370.79,3372.6299,0,You used to for instance have different ones.
4470684,389,3372.97,3383.97,0,You used to have uh essentially if you uh phoned in from the bank in the UK <laugh> to the world business you would be uh regarded as as an external one.
4470684,390,3384.29,3397.3901,0,So the operational side of it we have rationalized without uh closing off the strategic possibility that we could merge that business at another stage with uh with another business.
4470684,391,3397.6201,3402.8899,0,So um very very uh happy with uh the quality of that business as we go forward.
4470684,392,3403.21,3407.49,0,Uh again on both sides of the scale we uh we own a hundred percent of it.
4470684,393,3407.8701,3417.9202,0,If we were to consolidate obviously we could either buy uh completely um on a bolt-on basis or we could uh merge with another party.
4470684,394,3417.9199,3425.4399,0,In which case we could uh uh be below a hundred as we did with <inaudible> Shepherds but we are an owner of the wealth business.
4470684,395,3425.6699,3434.8101,0,It's integral to our strategy uh so we wouldn't uh be selling and we would overtime hope to uh go back to uh a hundred percent control.
4470684,396,3435.1799,3437.79,0,With respect to the DLC structure Nish do you wanna take that?
4470684,397,3437.8501,3443.6101,2,Yeah so a a couple of quick points is number one is we've remained active in terms of acquiring shares.
4470684,398,3443.6101,3449.4402,2,So our our for example our treasury stock has increased from just over eighty odd million to about ninety odd million.
4470684,399,3450.29,3459.73,2,Um I think if we look at the distribution of Ninety One we've been quite clear that the level of surplus capital in South Africa uh is much higher.
4470684,400,3459.73,3467.49,2,So that distribution will have a skewed impact on South Africa which will be well supported by the underlying uh capital base.
4470684,401,3467.78,3476.4399,2,Um and to an extent we we will retain uh the majority of the remaining stake uh from a UK balance sheet that gives us optionality.
4470684,402,3491.54,3496.1199,0,Um as you say two thirds of the shares uh are PLC.
4470684,403,3496.1201,3504.9001,0,Being a third uh if you think of our total um share register a third limited two thirds PLC.
4470684,404,3504.8999,3514.8501,0,But in the PLC you've got uh um uh i INPs and you have uh those PLC shares owned by South Africans a third a third a third.
4470684,405,3517.05,3518.26,0,But there are certain restrictions.
4470684,406,3518.26,3527.4199,0,Uh a as you can imagine as a management team we continue to apply our minds uh as to how we could address uh the fundamental logic behind your question.
4470684,407,3527.4199,3534.5,0,So generally a agree with the fundamental logic behind your question they're structural and legal impediments to that.
4470684,408,3538.8601,3539.23,4,Thank you.
4470684,409,3539.23,3540.45,0,Any further question?
4470684,410,3542.22,3543.3,0,Okay nothing in the building.
4470684,411,3543.3,3546.23,0,Steven I'm not giving you a a chance to ask a question <laugh>.
4470684,412,3546.53,3549.1599,0,Um I can see you getting excited a bit.
4470684,413,3549.55,3552.5,0,Um we're gonna go to the chorus call I think.
4470684,414,3562.01,3563.45,0,Shall we go to the webcast?
4470684,415,3564.1799,3564.5801,6,There's one.
4470684,416,3565.1499,3567.28,0,Oh sorry <laugh>.
4470684,417,3567.6101,3570.45,0,Clearly my hearing is not as good as as I would like it to be.
4470684,418,3572.5901,3580.1099,0,Yeah let's hear it.
4470684,419,3627.28,3627.3501,0,mm-hmm <affirmative>.
4470684,420,3627.6001,3638.2798,2,Um I think our audit uh committee drilled us on why we were so off <laugh> our our forecast because we delivered that forecast to you on the eighteenth I think of uh September.
4470684,421,3638.8301,3641.95,2,Um and it it was really a factor of all the businesses.
4470684,422,3641.98,3645.8601,2,So you had certain transactions that closed out ahead of expectation.
4470684,423,3646.1699,3661.1799,2,Um credit losses you know to the extent that we had factored in certain thought processes the economics actually continue to improve and head in a direction that we had to factor in in terms of uh finalization.
4470684,424,3661.21,3672.3398,2,And the reality was you know th this happens now and again but every single business had contributed to the the the the push above um our our particular guidance.
4470684,425,3672.3401,3678.79,2,So there's nothing specific to pull out as a as an absolute um uh driver.
4470684,426,3679.3701,3688.8,2,And then if you're looking forward in terms of uh in terms of ro uh you know ROE uh yes I agree with you in terms of the credit loss ratio.
4470684,427,3688.95,3693.24,2,Um but I do think one's got a factor in the nature of Investec's business.
4470684,428,3693.6399,3708.76,2,Um and um at the end of the day uh the expectation that will continue to operate at you know whether that's thirty to forty basis points or twenty five to thirty five basis points we'll finalize that calibration as we look forward.
4470684,429,3708.76,3714.1799,2,Because our asset quality is talking to a low impairment expectation as we look forward.
4470684,430,3714.6001,3721.9102,2,But what's fundamentally gonna drive us moving forward is number one is the slide that uh Fani had highlighted at the very end.
4470684,431,3722.4399,3729.6199,2,Which is the organic growth in the business where and that's really the funds under management as well as client acquisitions.
4470684,432,3729.6201,3741.75,2,And there are particular drivers within both our banking businesses and our wealth businesses that are targeting particular growth areas that are spread across the client pools that we operate in.
4470684,433,3742.3601,3747.8098,2,Um and we'll continue to engineer and work in terms of uh driving those.
4470684,434,3748.1399,3764.1201,2,Number two is you know we we we've we've we we're starting to move out of the pandemic environment and the world is obviously with challenges but we we anticipate seeing the momentum of the business to continue to to to tick in.
4470684,435,3764.3899,3769.6401,2,Number three is probably an element of capital efficiency that we are gonna have to bring in.
4470684,436,3770.04,3783.1001,2,Uh and whether that is uh deployment in terms of acquisitions or whether that is um as you alluded to in terms of managing the total number of shares and issue that's an exercise that we continue to apply ourselves across.
4470684,437,3784.1299,3790.1599,0,I think what we had said was uh with the habit of COVID we had said um medium term.
4470684,438,3790.1599,3793.48,0,I think that was in May would've been two to four years.
4470684,439,3793.51,3810.73,0,Given the recovery um in the uh economic landscape despite the uncertainty I think you would be looking at these um medium term targets more to closer to the lower end of the two to four range.
4470684,440,3810.8,3812.04,0,Given the interruption of COVID.
4470684,441,3812.04,3817.3599,0,I think our businesses have uh proven to be very resilient uh a high quality.
4470684,442,3817.3601,3823.3701,0,And as I said in each of the markets we have uh executable opportunities uh for growth.
4470684,443,3823.8501,3841.4099,0,Um and as I said watch uh that UK bank uh as as it uh continues to build scale and relevance uh with with clients and watch uh also the improvements that we have seen um in in the UK wealth business.
4470684,444,3841.4099,3848.0598,0,And uh as I said in South Africa you have uh standard setting businesses across across the piece.
4470684,445,3848.0601,3854.6699,0,And uh yeah we we are confident about where we are uh and thank you for your congratulations on this set of results.
4470684,446,3855.05,3859.23,0,As I said our our people bust their guts uh to se to serve clients.
4470684,447,3859.23,3862.28,0,And these results are a consequence of what we do for clients.
4470684,448,3864.54,3867.9099,0,Any further question from uh the webcast?
4470684,449,3874.1899,3876.8101,3,So there's um three questions on Ninety One.
4470684,450,3876.8101,3878.28,3,I'm going to combine them.
4470684,451,3878.6699,3881.25,3,The first one is from Chris Stewart Ninety One.
4470684,452,3883.4099,3893.3398,3,Please can you give some insight as to the impact on the capital adequacy ratio of the proposed distribution of the fifteen percent of Ninety One?
4470684,453,3893.8501,3904.3501,3,The next one is from Mark Detoy um will there be any tax payable by Investec on the distribution of the fifteen percent in Ninety One?
4470684,454,3904.76,3916.6001,3,And the last one is from Jonathan Berry he's a private investor concerning the distribution of fifteen percent of Ninety One quoted as being worth around thirty five p per share.
4470684,455,3917.6201,3922.25,3,Will this di distribution be made in the form of shares or cash?
4470684,456,3924.2,3925.8901,2,Fani are you happy for me to get through it?
4470684,457,3925.8899,3937.4402,2,I think the first point I would make is that we will issue a circular which will detail uh all of the steps there to be followed and whether that's tax consequences or the actual structure.
4470684,458,3937.96,3948.8599,2,Uh from an overall perspective given the regulatory treatment of Ninety One in a banking balance sheet uh we carry significant deductions against uh the underlying investment.
4470684,459,3949.3201,3957.6501,2,So particularly in the UK we will see virtually no impact in terms of the underlying uh uh c e t one ratio.
4470684,460,3957.6499,3965.8901,2,And in South Africa um you know that will be a a a number that is well managed uh within our overall uh capital base itself.
4470684,461,3966.8301,3974.1399,2,Um in terms of the question around the nature of the distribution well the way I think of it is we demerge fifty five percent.
4470684,462,3974.53,3976.71,2,we are now adding fifteen percent on top of it.
4470684,463,3976.8501,3984.48,2,And when we finalize it it'll follow through the similar process um that we had gone through um at that point in time.
4470684,464,3984.8601,3991.6799,2,But it's it's going to be in shares and the consequences of uh how you deal with that as a shareholder is in your hands.
4470684,465,3992.3899,3994.1699,2,Uh there is a part to follow.
4470684,466,3994.3101,3998.4199,2,Uh there are certain things that we have to get right in terms of how it's structured.
4470684,467,3998.71,4006.4299,2,So as I've highlighted in due course um there will be a circular and a process that will be followed in terms of the distribution.
4470684,468,4006.73,4020.5601,0,We did consider whether we should uh um sell the stake uh to distribute cash but that was not uh the most uh beneficial uh to our shareholders.
4470684,469,4020.5601,4023.6899,0,So we did consider that as a uh as an option.
4470684,470,4023.72,4029.54,0,Uh the option that we that we're looking at uh in our view having done the work will be the most beneficial.
4470684,471,4029.54,4044.74,0,But there's a lot of detail still to be uh processed um uh for uh us to get to a point where we can give you uh chapter and verse in terms of the mechanics of the impacts around um uh tax um etc.
4470684,472,4044.74,4045.28,0,etc.
4470684,473,4045.6599,4047.1299,0,But we're doing a lot of work with it.
4470684,474,4047.1299,4069.26,0,I mean obviously with a distribution uh shares going back into the market we will work with our colleagues um at Ninety One to make sure that uh if uh um any shareholders uh have uh uh as much as they want of of Ninety One we can help uh in in uh working with them to absorb any overhang that may develop.
4470684,475,4069.29,4073.0598,0,So uh and and by the way we will remain a shareholder in Ninety One at ten percent.
4470684,476,4073.4099,4082.47,0,So it is uh in all our our interest in the shareholders of Ninety One to make sure that we can manage the distribution as effectively as possible.
4470684,477,4082.6299,4084.9199,0,Nish capital impact uh from Chris Stewart.
4470684,478,4085.4399,4087.2002,2,Um I thought dealt with it earlier.
4470684,479,4088.22,4090.75,2,there's actually no impact from a PLC perspective.
4470684,480,4091.3201,4091.4302,0,Yeah.
4470684,481,4091.4299,4093.53,2,And well you know I can mention it.
4470684,482,4093.53,4098.2002,2,I think we expect around about a one percent impact on the South African uh capital ratio.
4470684,483,4099.1299,4099.6797,0,Okay thank you.
4470684,484,4099.6802,4101.8799,3,There a few more questions.
4470684,485,4101.9302,4104.5103,3,<unk> from Risk Insights.
4470684,486,4104.5498,4108.71,3,Investec has taken a number of initiatives towards improving on ESG.
4470684,487,4108.96,4116.4697,3,However from a competitive advantage perspective how do you see yourself using ESG to differentiate from the market?
4470684,488,4116.9102,4122.6499,3,How long will it take for the market to see this differentiation and where would it be reflected?
4470684,489,4123.71,4131.25,0,Yeah I think we we generally in uh in the South African environment seen as a leader uh in the space.
4470684,490,4131.2798,4158.5601,0,Uh obviously uh there are risks associated with uh in particular climate uh which uh every uh financial services group in fact every uh business has to understand um and uh economies and industries have to understand the risks and opportunities that are attended uh uh to climate change and uh uh ESG specifically.
4470684,491,4158.9302,4173.3599,0,Uh so um in a in our banking business there are specific opportunities in terms of uh either raising um certain funds or investing in certain renewable um uh assets.
4470684,492,4173.6499,4175.8003,0,Uh and we do have exposure already.
4470684,493,4176.0498,4180.9102,0,Um and over time uh uh reducing uh uh fossil fuels.
4470684,494,4180.9102,4184.8301,0,The way we see it is obviously coal is the highest carbon content.
4470684,495,4184.8301,4201.5,0,a at the moment uh our policy would be to support coal only to the extent uh in South Africa that uh we are dealing with uh uh Eskom because without Eskom and electricity the social site of ESG uh would be a problem for the country.
4470684,496,4201.5,4203.4497,0,In fact the economy would collapse anyway.
4470684,497,4203.4502,4219.2397,0,So we are looking there for transition uh and we would look at uh at gas as a transition fuel uh better than coal but in the long term uh steel high carbon and obviously renewals uh will be uh the the the final solution.
4470684,498,4219.27,4229.9502,0,On the uh so so th there's a lot we can do uh on the bank side in terms of opportunity with respect to um our investment business.
4470684,499,4230.25,4236.9399,0,Even there we have a number of opportunities in terms of um related products.
4470684,500,4237.2402,4250.2798,0,By the way um on on the funding side of the business uh there are certain advantages that are beginning to arise depending on your level of uh ESG uh progress.
4470684,501,4250.52,4255.4502,0,Uh we have raised uh a a number of sustainability linked loans as an example.
4470684,502,4255.4502,4260.1899,0,So this is a this is a big issue uh for the world in terms of risk.
4470684,503,4260.1899,4268.8799,0,But from a business opportunity uh those businesses that do not take this stuff seriously are likely to suffer some disadvantage as we go forward.
4470684,504,4268.8799,4279.6602,0,Excited about the opportunities I said in the presentation we are looking to embed even further uh sustain sustainability thinking um uh inside of our business.
4470684,505,4281.2002,4283.2998,3,Mark Detroit from Oystercatcher.
4470684,506,4283.2998,4287.3901,3,What are the growth opportunities in wealth UK business?
4470684,507,4287.3901,4297.3701,3,Do you expect the contribution to profit from banking versus wealth to be closer to fifty fifty in in time from the current seventy two twenty eight?
4470684,508,4298.6299,4306.1001,0,Look it'd be of a a fool hardy of me to try to predict uh composition of profits uh uh in the long term.
4470684,509,4306.1001,4313.9399,0,The strategic intent is to increase capital light revenues as we go and we really focused uh on that.
4470684,510,4313.9702,4320.3398,0,We had a board meeting yesterday and some of our directors were saying Let's see how we can measure that progress as we go forward.
4470684,511,4320.3398,4328.1104,0,So it's something that the board uh has a significant interest in but it's it's progress that we will report uh as we go.
4470684,512,4328.1099,4335.7202,0,With respect to specific opportunities I'm sure Mark uh will know that uh we couldn't uh uh comment on that.
4470684,513,4335.7202,4338.8101,0,I said specifically there are two types of opportunities in wealth.
4470684,514,4339.1001,4345.5996,0,One being uh bolt-on £1 to £5 billion pounds of asset data management and the other being at the larger scale.
4470684,515,4346.0,4350.9399,0,Um where obviously uh consolidation has to happen.
4470684,516,4350.9399,4361.6499,0,That's driven by uh uh opportunities of the benefits of scale driven by certain cost drivers like technology uh reg regulatory uh etc.
4470684,517,4361.6499,4362.1797,0,etc.
4470684,518,4362.1802,4370.1099,0,Driven by business model changes for instance they need to go more into into financial planning as opposed to just investment management.
4470684,519,4370.1099,4376.0601,0,So there are industry trends that work in favor of consolidation.
4470684,520,4376.5801,4380.1602,0,Uh so we will stay close to those developments.
4470684,521,4380.4702,4390.8901,0,Uh we will always uh make sure that if we do participate we will do so on a basis that uh uh is uh strategically and commercially sensible uh to our business.
4470684,522,4391.3701,4393.5698,3,Okay so there's two final questions.
4470684,523,4394.0,4402.9302,3,Um Chris again from Ninety One any guidance on progress as to the disposal of the i e p equity investment portfolios?
4470684,524,4403.6201,4410.04,0,We continue to work on uh the overall uh uh reduction of the investment portfolio.
4470684,525,4410.2998,4414.9399,0,We are not uh we are not going to dump any assets.
4470684,526,4414.9399,4427.46,0,These assets are valuable and as the environment improves I think the opportunity for us to um realize uh a specific asset for good value uh will increase.
4470684,527,4427.7202,4442.2603,0,Uh so patience uh with our high quality assets uh but also understanding the need from where we sit uh to um allocate capital much more uh effectively.
4470684,528,4442.2598,4446.4702,0,So I won't talk about a specific asset I'm I'm sure uh Chris will appreciate that.
4470684,529,4448.5801,4452.98,3,Last question Siphelele Mdudu from Matrix Fund um Managers.
4470684,530,4453.29,4461.3501,3,While done on the great set of results given these low credit loss ratios are you not worried at all about the consumer environment?
4470684,531,4461.5898,4464.8696,3,Which sectors are still much more in your watch list?
4470684,532,4464.8701,4468.3403,3,How soon do you wish to get to your ROE target?
4470684,533,4468.8901,4476.7803,3,What would what would it take you to get these sooner and how do you plan to keep these ROEs within your targets <laugh>?
4470684,534,4476.7798,4483.8398,0,Uh maybe he wants to come to the board meeting next time around <laugh> cuz these are just too uh detailed.
4470684,535,4483.8398,4494.73,0,We said uh to get to our targets we uh said medium term two to four years uh while we were still uh um uh looking at a different scenario around COVID.
4470684,536,4495.3799,4500.6099,0,I said earlier probably more to the lower end of that range in terms of timing.
4470684,537,4500.9902,4510.21,0,There are many initiatives that uh both myself and Nishlan talked about around where we think we can improve uh performance as such.
4470684,538,4510.21,4521.1802,0,I mean the questions are a a bit too detailed uh uh for uh to address uh in uh uh in an an announcement of this nature.
4470684,539,4523.9302,4524.3203,3,One more.
4470684,540,4524.3198,4524.7202,0,One more.
4470684,541,4524.7202,4525.4097,0,My goodness me.
4470684,542,4525.7202,4529.5601,0,Uh we are firing on all cylinders from a questions perspective.
4470684,543,4534.3198,4537.8696,3,Well aren't you fully disposing of your interest in Ninety One?
4470684,544,4537.8701,4541.3203,3,What is the merit of having a minority holding of ten percent?
4470684,545,4541.8398,4546.48,0,Okay if I could just remind Miles about uh the strategic logic behind this.
4470684,546,4546.8501,4555.8398,0,We said that we wanted to sell ten percent of Ninety One to bolster our capital stack in the UK.
4470684,547,4555.9399,4559.8198,0,Uh that is what we said very clearly um at the time.
4470684,548,4559.9902,4570.3198,0,Um when we demerged uh markets were very volatile Ninety One is at at about uh uh I think traded around one forty.
4470684,549,4570.3198,4574.1602,0,We took the view that uh it was too cheap we wouldn't…
4470684,550,4574.1899,4580.23,0,As I said about uh assets in the investment portfolio we are not into dumping assets or selling assets cheap.
4470684,551,4580.8701,4593.0298,0,So we took the view that we will not sell so the strategic intent around the ten percent remains that it is part of the capital stack of of of the UK business.
4470684,552,4593.0298,4602.6299,0,In saying that i i I've almost given you too much information around the structure of how we intend to distribute <laugh> the the fifteen percent.
4470684,553,4602.6299,4606.6797,0,I mean you can do uh some arithmetics not even maths.
4470684,554,4607.0098,4609.79,0,So um our intent hasn't changed.
4470684,555,4610.3198,4614.8901,0,Um we are not looking to be uh to do anything that we haven't said.
4470684,556,4614.9302,4621.46,0,We had clearly signaled that fifteen percent is access to uh to our requirements.
4470684,557,4621.4902,4630.2397,0,And now that we are emerging uh significantly from COVID we think the time is right to return um that fifteen percent to our shareholders.
4470684,558,4630.8301,4631.8203,0,I hope that makes sense.
4470684,559,4634.0898,4637.8101,0,Okay I think that's uh that's uh the end of uh of the presentation.
4470684,560,4637.8101,4641.21,0,Again just to repeat we are excited about where we are.
4470684,561,4641.25,4646.0498,0,I'm very proud of uh my colleagues uh for producing this level of results.
4470684,562,4646.0498,4650.29,0,And as I said our business is about clients uh fundamentally.
4470684,563,4650.6099,4662.0,0,Uh and while we manage for profit we also manage for impact and we look forward to the next six months and the next six years the next fifteen years.
4470684,564,4662.0,4667.1001,0,Although Richard and myself may not be there in that time uh Steven you had forty years to run.
4470684,565,4667.3301,4669.23,0,I don't think we have that much ahead of us.
4470684,566,4669.23,4683.3198,0,So we are looking for a fundamentally strong business that has high levels of profitability and returns but lives in society not of it and makes uh good impact.
4470684,567,4683.3501,4685.7202,0,Thank you so much for your interest and attendance.
4470684,568,4685.98,4688.2896,0,See you in another six months.
4470684,569,4688.29,4688.9502,0,Is that it Nish?
4470684,570,4689.3799,4689.9902,2,Yep in March.
4470684,571,4689.9902,4690.73,0,Thank you so much.
4471586,0,6.96,11.78,0,Good day and welcome to the polis third quarter twenty twenty one financial results conference call.
4471586,1,12.39,13.92,0,Today's call is being recorded.
4471586,2,14.34,17.92,0,At this time I'd like to turn the call over to Victor Drostdof please go ahead.
4471586,3,21.1,21.47,1,Thanks a lot.
4471586,4,21.91,22.45,1,Hi everyone.
4471586,5,22.59,28.24,1,Uh welcome to our uh conference call for the third quarter uh financial results.
4471586,6,28.66,32.84,1,Uh today we have uh our uh c C F O uh here with us.
4471586,7,33.23,45.24,1,Uh so Mihale will uh provide uh valuable comments on uh uh the financial results for the third quarter uh as well as will be answering your uh questions.
4471586,8,45.67,49.47,1,Uh with that in mind Uh I'll pass the floor uh to Mihale.
4471586,9,50.64,50.96,1,Go ahead.
4471586,10,52.08,52.29,2,Yes.
4471586,11,52.29,52.73,2,Hello.
4471586,12,52.8,55.2,2,And uh thank you for joining our call.
4471586,13,56.16,61.48,2,So I'll take you briefly uh through the he for the key uh highlights of the quarter.
4471586,14,62.37,68.27,2,So the revenue in the third quarter was one point four billion which is a twelve percent increase on the uh proceeding quarter.
4471586,15,68.85,83.5,2,That's a reflection of the uh underlying operational performance because uh all of the deposits and uh our total gold output has increased over the spear by approximately uh fifteen percent to seven seventy thousand ounces.
4471586,16,84.01,95.74,2,Now looking at our sales in the third quarter we sold approximately uh seven six zero oh oh oh ounces of refined gold which implies a fourteen percent increase on the uh previous quarter.
4471586,17,96.57,103.39,2,And we also sold approximately eleven thousand ounce of gold contained in inaudible concentrate during the period.
4471586,18,104.02,110.83,2,Now our quarterly EBITDA uh increased approximately uh one billion inaudible which is up ten percent quarter and quarter.
4471586,19,111.26,122.2,2,In terms of our quarterly cost performance as expected we saw a step up in uh T C C uh figure as we uh highlighted during the uh previous calls.
4471586,20,122.73,128.37,2,T C C uh rose by nine percent quarter and quarter to four twenty seven dollars pounds.
4471586,21,128.69,137.19,2,In terms of key factors which I would like to underscore that's gonna be a seasonal increase in output at the uh legal operations.
4471586,22,137.58,143.81,2,Uh secondly uh inflation high cost consumables and uh uh spare parts.
4471586,23,144.44,155.07,2,Uh th uh next would be lower byproduct credit which amounted to uh five dollars inaudible in the third quarter versus ten inaudible in the second quarter.
4471586,24,155.51,164.33,2,And uh also finally a cessation of the regional lasting project regime at inaudible square from August uh twenty twenty one.
4471586,25,164.64,169.83,2,And that increased applicable annuity rate from two point four percent to six percent.
4471586,26,170.7,179.24,2,Now in terms of uh positive developments I would like separately highlight the remarkable cost performance at Natalka uh on a standalone basis.
4471586,27,179.69,188.32,2,T C C was uh approximately three forty bucks inaudible and that's the lowest number in cost operations uh during the period.
4471586,28,188.75,207.58,2,And also inaudible throughput add the mail reached the uh racket high of fifteen fifty five tonnes per hour in the uh in the reporting period which is mainly driven by operational enhancements uh and the reduced uh circulation load at the uh combination circle.
4471586,29,208.32,220.63,2,Now moving on to the uh cost performance for the first nine months uh T C C stood at inaudible three dollars pounds that's a ten percent increase over respective period of twenty twenty.
4471586,30,221.3,246.7,2,So in terms of uh sort of uh major factors leading to um a cost increase year on year that would be uh a temporary decline in head great at Olimpiada uh inflation of our consumables um substantially a lower maintenance uh spending in twenty twenty given the uh COVID nineteen restrictions and also changes in the mill extraction tax at Natalka and inaudible.
4471586,31,248.41,256.99,2,Now uh we uh previously guided the range of of four twenty five to four fifty uh as a T C C for uh the fiscal year.
4471586,32,257.38,259.94,2,And that remains unchanged at this time.
4471586,33,260.46,266.11,2,Uh just to remind you that's based on sixty five as an exchange rate and gold price of thirteen hundred.
4471586,34,266.8,284.09,2,Now moving on to CapEx we accelerated capital spending in the quarter as uh again uh we highlighted to you at our calls so we spent approximately two thirty million arrears compared to approximately one eighty million in the preceding quarter.
4471586,35,284.61,298.44,2,Um just to uh sort of uh to point out a few important developments required nine to a hundred to a hundred twenty thousand uh caterpillar trucks for Olimpiada uh during the period.
4471586,36,298.44,302.86,2,And we also completed the construction of the pit stop for trucks uh maintenance on site.
4471586,37,303.25,318.71,2,And we also implemented a range of initiatives targeting our achievement of fifteen million annualized capacity at Olimpiada from next year onwards and also uh initiatives aimed at improving efficiency of the bike station complex.
4471586,38,319.7,328.08,2,In terms of our uh CapEx guidance for entire year it remains unchanged at uh between uh one and one point one billion.
4471586,39,328.48,332.26,2,Here to date we spent approximately four approximately five inaudible a mill.
4471586,40,332.78,338.73,2,And uh um we are counting on a strong catch up in the fourth quarter and we're comfortable it'll take place.
4471586,41,339.63,352.65,2,Uh we are also advancing our growth mergers in accordance with the schedule in terms of our developments at mill number five our larger advancer project we signed an agreement with a major contractor after construction.
4471586,42,352.93,359.36,2,It's a Turkish company that has a proven track record of successfully operating the major projects in Russia.
4471586,43,359.86,369.48,2,And in terms of onsite our activities we uh completed the site preparation for the conveyor system and we're progressing with the construction of the crushed oil stockyard.
4471586,44,370.73,384.95,2,We also on tra also on track with the uh uh with the uh expansion initiatives at other operations namely at Olimpiada we will uh reach a stable input capacity of fifteen million tonnes in twenty twenty two.
4471586,45,384.95,388.78,2,And at inaudible we are on track to uh reach seven-
4471586,46,389.1,394.25,2,seven point five million ton in capacity from uh twenty twenty four onwards.
4471586,47,395.04,401.46,2,Now in terms of balance sh the balance sheet uh figures the cash on balance was up to almost one point seven billion.
4471586,48,401.84,409.87,2,Our inaudible that came down to one point nine five billion and our net uh to inaudible to the oh point five times.
4471586,49,410.87,421.94,2,In terms of free cashflow uh free cashflow was approximately four seventy mil of laboratory cashflow during the uh period which is um basically flat over the second quarter uh number.
4471586,50,422.55,433.42,2,Now as I mentioned at our uh previous call we completed a whole uh number of uh proactive debt management uh initiatives after the close of the reporting period.
4471586,51,433.72,443.54,2,So we issued Euro bonds uh in the overall amount of seven hundred mil and that's twenty twenty eight maturity and uh the coupon rate is uh three point two five.
4471586,52,444.47,455.25,2,Secondly we also uh launched a tender for approximately six hundred million dollars worth of outstanding Euro bonds and we also repaid some of the uh bilateral uh lines.
4471586,53,455.77,459.97,2,Now in terms of uh COVID nineteen uh related uh developments.
4471586,54,460.4,470.49,2,We allocated approximately fourteen million to uh COVID uh prevention measures in the quarter and overall the uh annual tally will be approximately one hundred million.
4471586,55,471.39,480.68,2,So in terms of the impact of the uh COVID uh related interruptions there was indeed uh a shortage of uh shipping containers in China.
4471586,56,481.15,493.24,2,We are facing uh extended uh twenty times uh given the congestion of sea ports uh the Russian uh far east that's increasing uh lead times for the consumables and spare parts.
4471586,57,493.61,500.4,2,However we are not seeing anything critical and anything that will uh substantially affect our cost line.
4471586,58,501.2,507.89,2,Uh now in terms of um sort of a quick update on uh on the E S G uh fund.
4471586,59,508.26,513.28,2,So our scores uh continued uh to improve across all key uh ratings.
4471586,60,513.83,522.98,2,So in November we received the score of fifty seven an s and p global C S A and sustainability E S G risk rating of twenty five point zero.
4471586,61,523.52,528.81,2,And also m s c i confirmed our m s c i E S G rating at A.
4471586,62,529.7,536.12,2,That's that's uh all uh as for the uh management comments and we are ready to take your questions.
4471586,63,537.87,539.44,0,tha thank you.
4471586,64,539.57,543.91,0,If you would like to ask a question you may signal by pressing one on your telephone keypad.
4471586,65,544.63,550.09,0,If you're using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment.
4471586,66,550.82,556.92,0,Once again one for questions we'll take our first question from Dan Shaw with Morgan Stanley.
4471586,67,558.58,560.17,3,Hi thanks for taking my questions.
4471586,68,560.17,561.51,3,Just a couple for me.
4471586,69,561.51,567.84,3,Um the first one just on on the guidance um just a quick clarification in in the uh press release there.
4471586,70,567.84,571.76,3,You know that the inaudible assumption underpinning your your guidance numbers is sixty five.
4471586,71,571.76,578.76,3,So is it fair for us to assume that CapEx and costs um will come at the lower ends uh of those ranges?
4471586,72,578.82,584.4,3,Uh that's the first question and then just one second one on on E S G as you just mentioned it.
4471586,73,584.4,593.35,3,But um when can we expect to the next um sort of major update in terms of uh setting out your your uh medium or longer term targets?
4471586,74,594.94,595.2,3,Thank you.
4471586,75,595.2,602.05,2,Hey hello there.
4471586,76,602.05,608.55,2,So in terms of uh Forex assumption which underpins our guidance that's indeed uh sixty five.
4471586,77,609.18,617.52,2,So in terms of factual figures given the uh spot or near spot durable rate which as you're quite aware is fairly volatile.
4471586,78,618.21,632.14,2,Um you can reasonably expect that our uh T C C factual T C C will be below four twenty five and our uh CapEx figure uh will be at the lower end of the guidance.
4471586,79,632.99,640.3,2,Again uh assuming the uh sort of factual uh uh exchange uh rate.
4471586,80,640.79,656.54,2,Now at sixty five um our T C C will be closer to the lower end uh and our CapEx fi figure will be right in the mid of the uh provided guidance of one to one point one billion.
4471586,81,658.24,667.87,2,Now in terms of sort of major E S G uh announcements uh I think we will provide uh an update to the market around second quarter of next year.
4471586,82,671.03,671.32,3,Great.
4471586,83,671.32,672.01,3,Thanks very much.
4471586,84,674.76,677.61,0,As a reminder one if you would like to ask a question.
4471586,85,682.36,686.42,0,we'll take our next question from Boris Sinitsyn with Ren Cap.
4471586,86,688.54,689.02,4,Hi inaudible.
4471586,87,689.02,689.4,4,Thanks.
4471586,88,689.4,691.61,4,Uh just one question from uh my side please.
4471586,89,691.98,699.53,4,Uh you mentioned uh the some uh disruptions on the supply chain not affecting your uh costs uh so far.
4471586,90,699.85,705.61,4,Uh the question is do you expect those to be continued in 2022?
4471586,91,715.32,715.91,2,Hello boys.
4471586,92,715.91,726.12,2,Well uh first of all we need to separate the uh sort of the interruptions in terms of uh transit time and the shipments and uh uh pricing effects.
4471586,93,726.93,738.19,2,So uh and I said that you know the the interruptions related to uh shipment uh transit times are not materially affecting our cost line.
4471586,94,738.57,743.33,2,They are obviously bearing a certain effect but again it's fairly small.
4471586,95,743.74,749.32,2,We are seeing an increase in the uh delivery uh uh timelines.
4471586,96,749.92,758.12,2,Um but we are seeing some delays for uh for spare parts but again there is nothing critical that we are seeing at this point.
4471586,97,758.5,766.9,2,And obviously there is nothing which can uh to any extent affect the continuity of the of the operations.
4471586,98,767.75,785.3,2,Uh that said the cost inflation per se is a is a major uh is a major challenge for the sector um and that pertains to consumables that pertains to labor uh domestically and that pertains to equipment and spare parts.
4471586,99,786.16,816.25,2,Uh now that is being offset by by the fact that we have uh long term uh contracts for all of the consumables and they have uh fixed uh they have a mix of fixed and variable pricing which is uh uh providing an important buffer against the recent market developments that that's still a certain part of the uh ongoing cost escalation will have to be absorbed by us as the uh as the consumer.
4471586,100,816.79,842.78,2,So I would say that in terms of uh twenty twenty two uh projections uh CapEx is uh CapEx uh spending is not a factored to the same extent as uh as our OPEX because for uh capital spending uh we have contracted most of the equipment and also most of the uh outside uh construction services.
4471586,101,843.37,845.78,2,So uh we're fairly safe there.
4471586,102,846.76,861.91,2,And uh the brand of cost inflation will be uh felt through the p and l but again that is offset by the uh by the optimization initiative and uh will be uh mitigated at least partially.
4471586,103,863.64,863.95,2,Thank you.
4471586,104,864.17,864.8,4,Very clear.
4471586,105,864.85,865.41,4,Thank you so much.
4471586,106,868.35,872.36,0,We'll take our next question from Uri inaudible with Silver Capital.
4471586,107,875.25,876.0,5,Many thanks.
4471586,108,876.57,878.5,5,Um two very quick questions from me.
4471586,109,878.56,889.35,5,Um first um could you give us um any uh breakdown of your um mill fiber uh inaudible that now um how is it stretched across the years?
4471586,110,889.39,898.51,5,And um remind us what's the timing on inaudible visibility side of that.
4471586,111,909.13,914.01,5,Well well could you give us uh CapEx breakdown on inaudible across the years?
4471586,112,914.3,919.88,5,So how it's spread across uh next uh three four years roughly in very rough estimates.
4471586,113,921.86,926.45,2,And the talk about inaudible you obviously uh you are talking about mill five obviously.
4471586,114,926.65,927.19,5,Yeah yeah yeah.
4471586,115,927.19,927.54,5,Mill five.
4471586,116,927.54,928.46,2,Not about mill four.
4471586,117,930.09,930.93,5,mm-hmm <affirmative>.
4471586,118,931.09,938.74,2,Well the uh the bulk of expanding will be uh will be taking place in twenty twenty three and twenty twenty four.
4471586,119,939.71,942.02,2,Uh expanding rates in twenty-
4471586,120,942.05,946.93,2,uh uh in twenty twenty two will be broadly comparable to twenty twenty one.
4471586,121,948.49,957.53,2,Now secondly in terms of uh inaudible uh visibility I think the major development will be obviously the the approval of uh feasibility study.
4471586,122,958.48,965.83,2,That is uh slated to uh take place uh towards the end of the uh towards the end of the next year.
4471586,123,966.24,968.3,2,And we are confirming that we are on track.
4471586,124,968.74,977.55,2,Now if there are any important developments uh that sort of take place until that date that warrant market retention we will immediately inform you.
4471586,125,978.22,990.43,2,But uh what we can what we can relate to you at this point is that we are on track in terms of all of the milestones that we uh set previously.
4471586,126,991.21,1000.3,2,That pertains to engineering and that pertains to uh geological studies and that pertains to the study of the requisite infrastructure.
4471586,127,1000.79,1001.11,2,Thank you.
4471586,128,1002.07,1002.58,5,Uh thank you.
4471586,129,1002.58,1002.98,5,Sorry.
4471586,130,1002.98,1003.74,5,Quick follow up.
4471586,131,1003.78,1008.34,5,Uh have you done have you completed your drilling on the inaudible or is it still in the process?
4471586,132,1013.73,1015.26,2,Uri can you repeat that again?
4471586,133,1015.29,1015.64,2,Sorry.
4471586,134,1015.72,1017.53,2,Uh what's the question inaudible?
4471586,135,1017.53,1017.66,5,Sorry.
4471586,136,1018.09,1024.99,5,Have you completed the drilling on um um drilling crosstalk The the question yeah.
4471586,137,1024.99,1027.02,5,Is it still work process?
4471586,138,1028.78,1039.1801,2,Well the majority of the drilling that is required for the feasibility study has been complete uh with the perfectly reconciliation against the uh uh resource model.
4471586,139,1039.58,1048.1801,2,We have some outstanding uh drilling which is being done the inaudible uh but that's not required for the feasibility study.
4471586,140,1049.3,1058.51,2,That is basically for the uh for the uh for sort of for the operations well beyond twenty uh thirty five.
4471586,141,1059.66,1060.76,5,Oh thank you.
4471586,142,1060.8101,1061.61,5,Many thanks.
4471586,143,1064.1899,1064.5801,0,Thank you.
4471586,144,1064.58,1068.92,0,We'll take her next question from Nina Dergunova with Goldman Sachs.
4471586,145,1070.09,1070.71,6,Good day.
4471586,146,1077.9,1091.1799,6,Um first one on uh consolidated CapEx guidance for next year um at the C M D you mentioned that CapEx could increase about ten percent and uh you also said now that um for inaudible mill five spending is stable.
4471586,147,1116.47,1116.76,6,Thank you.
4471586,148,1116.76,1120.7599,2,small uh bit of items but nothing particularly material.
4471586,149,1124.45,1125.7401,6,What sweeping do you expect?
4471586,150,1125.74,1129.5599,6,And I acknowledge that this guidance that you provide doesn't includes sweeping.
4471586,151,1132.5699,1137.3,2,This is not uh does not uh incorporate uh sweeping expense.
4471586,152,1137.7,1141.22,2,Now in terms of uh sort of projections.
4471586,153,1141.3,1154.26,2,The fourth quarter uh figure will be very much comparable to the average uh quarterly uh number during the first nine months and twenty twenty two figure will be comparable to twenty twenty one figure.
4471586,154,1154.8,1155.24,2,Thank you.
4471586,155,1157.01,1157.47,6,mm-hmm <affirmative>.
4471586,156,1157.47,1157.99,6,Understood.
4471586,157,1158.27,1170.73,6,And the second question from my side um uh this year is uh a challenging year for inaudible business units with lower grades recoveries can I give a scale of improvement in uh grades and recoveries next year?
4471586,158,1173.87,1186.9301,2,Yeah well um I think we'll uh we'll be able sort of to uh to provide a more precise uh guidance uh when we announce our figures for the twenty twenty one uh fiscal year.
4471586,159,1187.37,1206.6,2,Now uh what regarded previously is that there will be uh a substantial rebound uh in uh grades in uh twenty twenty two and there will be further increase in uh head grade in twenty twenty three and that remains uh that remains the case.
4471586,160,1207.76,1212.21,2,So inaudible we'll see uh the stronger performance next year.
4471586,161,1222.0,1224.5601,0,Once again one if you would like to ask a question.
4471586,162,1230.6801,1233.01,0,At this time there are no additional questions in the queue.
4471586,163,1236.28,1236.4501,1,Yeah.
4471586,164,1236.45,1239.6801,1,Thanks a lot guys for attending our conference call.
4471586,165,1239.8199,1244.49,1,Uh once again if you have any further follow up questions uh just drop us a line.
4471586,166,1244.86,1248.15,1,So we are we we're gonna be waiting uh for those questions.
4471586,167,1248.4301,1248.84,1,Thanks a lot.
4471586,168,1249.1,1249.99,1,Uh cheers bye.
4471586,169,1251.36,1253.71,0,That will conclude today's call.
4471586,170,1253.76,1255.37,0,We appreciate your participation.
4471606,0,3.56,5.5,0,I'm Myrtle your Chorus Call Operator.
4471606,1,19.49,22.18,0,The presentation will be followed by a question-and-answer session.
4471606,2,32.31,37.36,0,Helin Celikbilek you may now proceed.
4471606,3,38.96,39.97,1,Thank you operator.
4471606,4,40.3,45.71,1,Thank you for joining us today for HepsiBurada third quarter twenty twenty one earnings call.
4471606,5,46.15,51.18,1,I'm pleased to be joined on the call today by our c e o Murat Emirdag and our C F O Korhan Oz.
4471606,6,51.92,57.77,1,The following discussion including responses to your questions reflects management views as of today's date only.
4471606,7,58.21,63.7,1,We do not undertake any obligation to update or revise this information except as required by law.
4471606,8,64.27,71.32,1,Certain statements made on today's call are forward-looking statements actual results made for material from these forward-looking statements.
4471606,9,72.05,81.86,1,The earnings release has been filed with the A C C on a Form six k and is currently available on the A C C website and only our on our Investor Relations website.
4471606,10,82.43,88.92,1,Please refer to today's earnings release as well as the risk factors described in the safe harbor slide of today's presentation.
4471606,11,89.38,95.54,1,Today's press release the six k are prospects filed with the A C C on July first twenty twenty one.
4471606,12,95.87,103.41,1,And other A C C filings for information about factors which could cause our actual results to defer material from these forward-looking statement.
4471606,13,104.39,108.39,1,Also we'll reference certain non-IFRSs measures during today's calls.
4471606,14,108.95,122.17,1,Please refer to the appendix of our supplemental slide deck as well as today's earning release for a presentation of the most directly comparable IFRSs measure as well as the relevant IFRSs to non-IFRs reconciliation.
4471606,15,122.82,128.48,1,As a reminder a replay of this call will be available on the Invest Relations page or HepsiBurada website.
4471606,16,129.06,132.38,1,With that I will now hand this over to our c e o Murat.
4471606,17,135.49,137.3,2,Thank you Helen and welcome everyone.
4471606,18,138.03,144.16,2,Before we dive in we require some updates some of which we shared in our pre-announcement on November twelfth as well.
4471606,19,144.16,149.51,2,lemme start by saying that we the HepsiBurada team acknowledge the concerns on the market.
4471606,20,150.5,158.09,2,Given the headlines we previously reported on we had a challenge in q three and fell behind our expectations in G M V and e b i t d a.
4471606,21,158.83,162.51,2,Today we will share the actions that raise those challenges in the market.
4471606,22,162.96,167.68,2,Also we will share with you positive news on the progress we have been making.
4471606,23,168.57,176.38,2,With that before passing over to Korhan for a more detailed look at our financials let me provide some context around the third quarter.
4471606,24,177.58,187.7,2,Since our IPO there have been strong headwinds on multiple fronts in the Turkish market which has presented significant challenges.
4471606,25,188.61,191.4,2,There are three things that particularly stand out.
4471606,26,191.88,201.57,2,Firstly following the full listing of covid nineteen restrictions on July first mobility increased and customer behavior began changing dramatically.
4471606,27,202.38,211.85,2,The change was so drastic that the quadral quarter market growth slow to its lowest third quarter growth rate in the past four years in Turkey.
4471606,28,212.37,218.01,2,According to Turkey Statistics Institute TUIK and Interbank Card Center B K M.
4471606,29,218.82,227.7,2,In response to the slowdown they increase the customer discount to stimulate customer demand during that period in particular in July and August.
4471606,30,229.8,238.23,2,Secondly the competition further intensified in Turkey as evidenced by the fundraising announcement of our main competitor following our I P O.
4471606,31,239.24,244.25,2,And thirdly there was the impact of the overall macroeconomic environment in Turkey.
4471606,32,244.86,253.13,2,In particular the exchange rate becoming more volatile since September could have affected customers consumption decisions in various ways.
4471606,33,254.25,260.21,2,In light of these macroeconomic headwinds customer discounts and competitive pricing became more essential.
4471606,34,261.91,268.23,2,In response to this headwinds we include spending on total customer discounts marketing and advertising.
4471606,35,269.05,273.9,2,As a result we continue to generate strong G M V growth despite significant headwinds.
4471606,36,274.52,279.89,2,But this came at the cost of lowering our growth contribution margin and flat revenue growth.
4471606,37,281.29,288.3,2,Finally as you know we already informed the market with a pre-announcement on November twelfth prior to this call.
4471606,38,289.01,293.07,2,We now want to share with you the context regarding the timing of the announcement.
4471606,39,294.0,297.78,2,Our business has always shown a strong and load of seasonality.
4471606,40,298.49,303.60900000000004,2,Historically the second half of the year is higher than the first half in terms of G M V.
4471606,41,304.18,319.72,2,And within the second half the last four months of the year generally make approximately forty percent of annual g m v due to these shopping occasions such as back-to-school legendary November shopping month and new year season.
4471606,42,320.95,330.48,2,Taking this seasonality into account we made the pre-announcement after we had full visibility on the business performances in the months of September and October.
4471606,43,333.55,341.92,2,Despite these major headwinds in the third quarter we also have posted news regarding the progress being made in multiple prompts including as follows.
4471606,44,343.0,349.31,2,Accelerating our growth drivers such as increase in customer order sequences merchant and selection.
4471606,45,350.21,358.32,2,Strengthening our key differentiators such as N P S performance unique services like frictional return merchant and customer experience.
4471606,46,359.55,366.69,2,Scaling our new strategic assets including our wallet companion HepsiPay and our own demand grocery delivery service HepsiExpress.
4471606,47,367.18,369.96,2,And also expanding our logistics footprint.
4471606,48,371.18,376.82,2,Before we move into details on business updates please let me reemphasize two things.
4471606,49,377.93,392.73,2,Firstly with a sharpened focus on key differentiators and drivers of sustainable G M V growth managing customer discounts marketing spend and cash flow more efficiently we'll deliver our long-term value propositions.
4471606,50,393.81,401.22,2,Secondly following our I P O the market conditions have changed but the attractive bid opportunity did not.
4471606,51,401.99,416.92,2,ninety percent of total retail is still offline and the remaining online ten percent is expected to double its penetration within total retail by twenty twenty five offering a sizeable and timely market opportunity ahead.
4471606,52,417.82,422.23,2,This keep our equity story intact and we remain fully committed to it.
4471606,53,423.16,430.08,2,Now I would like to share a few highlights from our financial and operational performance in the third quarter.
4471606,54,432.48,440.06,2,Total number of orders in the third quarter marked an all time quarterly high at thirteen point eight million.
4471606,55,450.31,459.32,2,Considering the strong baseline effect last year our two year CAGR growth rate was eighty four percent.
4471606,56,460.77,477.57,2,While increasing our active customer base we also noted that we had particularly engaged our customers in terms of G M V per active customer across the platform as it grew by thirty three percent year-on-year compared to the same period last year.
4471606,57,478.73,487.37,2,On the other hand the fifty percent G M V growth came in more costly than the anticipated given the market headwind I briefly mentioned.
4471606,58,488.43,498.1,2,In the third quarter we gain more customer discounts in total and spend more advertising to stimulate demand and also cope with the intensified competitive environment.
4471606,59,499.24,517.87,2,This is visible in the e b i t d a as a percentage of G M V reaching a negative ten point two percent in the third quarter compared to the same period of last year taking a EBITDA to a negative 5.7% of GMV in the nine months cumulative period in twenty twenty one.
4471606,60,519.2,523.92,2,Korhan will address our financial performance in more depth in his section.
4471606,61,524.9,529.83,2,Let's move into the next slide that I would like to discuss our performance in key growth drivers.
4471606,62,532.54,537.22,2,Experiencing our drivers of sustainable G M V growth is an important focus area for us.
4471606,63,537.88,546.26,2,This means we aim continuously to attract more customers drive further order frequency and add more merchants and enrich our selection.
4471606,64,547.36,550.63,2,Over the past year we continue to progress in this drivers.
4471606,65,551.17,563.33,2,Our investment in growth brand marketplace and customer experience paid off given the strong momentum in our active customer base order frequency active merchant base and selection.
4471606,66,564.65,566.55,2,Let me now share a few data points here.
4471606,67,567.33,573.0601,2,Active customer base grew by twenty six percent reaching ten point seven million in the third quarter.
4471606,68,574.26,579.34,2,Order frequency grew by twenty one percent reaching four point four in the q three.
4471606,69,580.5,587.03,2,Active merchant base grew by eighty seven percent reaching sixty seven thousand in the third quarter.
4471606,70,588.08,595.17,2,The rise in the number of merchants facilitate a wider selection with improved availability across long tail product and services.
4471606,71,596.06,604.75,2,As a result our total number of SKUs more than doubled by reaching seven seven million at the end of the third quarter.
4471606,72,605.74,611.11,2,These robot trends in IT growth drivers give us confidence for our path ahead.
4471606,73,612.49,619.5,2,Let's move to the slide that I would like to highlight how we continue to develop our and benefit from our key differentiators.
4471606,74,620.68,633.96,2,As a household brand name in Turkey with ninety nine percent total awareness we had welcomed two hundred forty million sessions on a monthly average in the third quarter.
4471606,75,635.05,645.91,2,In September based on the study conducted for our company our n p s performance marked the highest in the Turkish eCommerce market at sixty five percent.
4471606,76,646.78,657.34,2,This call this call shows our experience customer experience but also underlying our robot logistics capabilities as key differentiation in customer experience.
4471606,77,658.81,668.2,2,Friction is return service where we pick up returns from customers' doors at the preferred schedule across the country is unique to HepsiBurada in this sector.
4471606,78,668.9,677.77,2,With this service we were awarded with the golden award at the International Business Awards in the Best User Experience category in October.
4471606,79,678.82,684.49,2,With its coverage of eighty one cities and eighteen hundred carriers HepsiPay is…
4471606,80,685.01,688.91,2,Sorry HepsiJet is highly focused on increasing its delivery speed.
4471606,81,690.08,697.0,2,In this third quarter HepsiJet delivered seventy five percent of one p orders on the next day.
4471606,82,698.22,706.97,2,In addition HepsiJet expanded its city coverage for its two-man cargo handling called HepsiJet XLarge.
4471606,83,707.59,712.91,2,And began offering scheduled return pick-up for such oversized product as well.
4471606,84,714.14,731.15,2,Offering a high quality and reliable service in that particular segment has suggest XLarge has made a significant difference in customer experience and achieved over ninety seven percent customer satisfaction score in September according to our internal reporting.
4471606,85,732.32,748.84,2,While we are encouraged by the strong progress in our growth drivers we will certainly keep on differentiating with our best-in-class customer experience powered by our robust logistics reaching over a hundred and ninety thousand square meters at this point.
4471606,86,749.87,754.74,2,Another important opportunity for us to further differentiate is merchant experience.
4471606,87,757.7,760.91,2,We regard our merchant as our long term partners.
4471606,88,761.46,769.64,2,As such we pursue a constructive approach with our value proposition which has helped us to significantly grow the number of active merchants.
4471606,89,770.47,775.79,2,I would like to share some data points that will shed light on the level of integrated offering.
4471606,90,776.64,786.22,2,In the third quarter our last mile delivery service HepsiJet delivered around fifty three percent of our total marketplace parcels.
4471606,91,787.21,793.92,2,This corresponds to the largest share in delivered parcels volume on a quarterly basis by HepsiJet.
4471606,92,795.12,802.77,2,HepsiLojistik our fulfillment services has increased its focus on scaling its volume from merchants on our platform.
4471606,93,803.53,809.63,2,It has significant room for growth and is running its operations at our six fulfillment centers.
4471606,94,811.19,823.45,2,Our advertising service has been increasing its popularity nearly plus a thousand merchants used our sponsored ads through our advertising platform HepsiAd in the third quarter.
4471606,95,835.37,840.74,2,Moreover we continued our merchant training to accelerate a integration onto our platform.
4471606,96,841.54,850.99,2,As such in the first nine months of twenty twenty one around thirty nine thousand training sessions were completed on our training portal HepsiAkademi.
4471606,97,866.2,875.6,2,Since its debut in June twenty twenty one HepsiPay has made strong progress reaching two point seven million HepsiPay Wallet base.
4471606,98,876.71,884.05,2,As of the end of October two point four billion Turkish Euro G M V passed through HepsiPay Wallet.
4471606,99,885.13,903.56,2,With its license to operate as an open wallet HepsiPay aspires to evolve into best-in-class payment companion enabling friction of experience across payment money transfers and other incremental finTech capabilities across online and offline roles.
4471606,100,904.95,919.13,2,Accordingly in November HepsiPay agreed with PayCell which is a finTech stuff to do of Turkey leading telecom operator TurkCell to enable direct carrier billing capability at HepsiPay Wallet.
4471606,101,920.01,926.78,2,By doing so TurkCell customers will be able to shop at HepsiBurada without a credit or debit card.
4471606,102,928.06,935.02,2,With HepsiPay we are extremely excited about the future report opportunities ahead across online and offline.
4471606,103,936.75,940.07,2,Another asset we are excited about is HepsiExpress.
4471606,104,940.95,947.22,2,HepsiExpress is our on-demand grocery delivery service with instant and slotted delivery options.
4471606,105,948.05,959.77,2,We regard HepsiExpress as a strategic asset as we believe it's value positions to drive third order frequency and new customer acquisition for the platform.
4471606,106,960.92,967.87,2,HepsiExpress we are focused on enhancing our customer experience selection and ecosystem synergy.
4471606,107,969.19,973.55,2,Accordingly we develop a new cross service search capability.
4471606,108,974.11,984.55,2,This allows customers to discover products and compare prices among different stores in frictionous way which is an essential part of the multi-store model.
4471606,109,985.34,991.66,2,Further HepsiExpress began accepting payments via debit cards which enlarge it addressable audience.
4471606,110,992.7,1008.16,2,In addition to internal development HepsiExpress expanded to over fifty retailer brands and roughly nineteen hundred fifty stores including regional retailers as well as national retailers such as Carrefour and Sok.
4471606,111,1009.2,1016.42,2,And just this month HepsiExpress made a new partnership deal with Migros a leading national retailer.
4471606,112,1017.14,1020.91,2,We can't wait to welcome the legal shop on our platform moving forward.
4471606,113,1046.01,1081.14,2,I want to wrap up here by reassuring you that with our strong customer and merchant base our hybrid one p and three p model our differentiated services for customers and merchants our robots logistics network our continued investment in technology and data science alongside with the talent and our strategic asset emerging from our ecosystem such as HepsiPay HepsiExpress HepsiJet and HepsiAd we are one positioned to capture the business opportunity ahead.
4471606,114,1082.05,1086.87,2,We believe that our equity stories intact and we remain fully committed to it.
4471606,115,1087.97,1099.8,2,Regarding twenty twenty one in light of current market conditions we are forecasting a full year twenty twenty one G M V to be around two four billion Turkish Euro as previously disclosed.
4471606,116,1100.6899,1105.98,2,With this I would like to thank you for listening and leave the floor to our C F O Korhan.
4471606,117,1110.3101,1112.5,3,Thank you Murat and welcome everyone.
4471606,118,1114.0601,1136.14,3,As Murat liberated in his section our value proposition for our customers has been instrumental in driving our growth drivers across the number of active customers with twenty six percent growth order frequency with twenty one percent growth active merchants with eighty seven percent growth and number of SKUs with more than a hundred percent growth.
4471606,119,1137.45,1145.1799,3,Accordingly with a seventy two percent yearly order growth we generated around fifty percent G M V growth in the third quarters.
4471606,120,1146.11,1149.85,3,This performance was achieved against an a only strong pay of last year.
4471606,121,1150.75,1157.12,3,On a two year compound on the basis our growth momentum continued in the third quarters at eighty four percent.
4471606,122,1158.0699,1163.4701,3,On the next slide I would like to discuss how certain factors impacted our financial performance.
4471606,123,1166.46,1170.78,3,There are three factors that we have we we need to discuss in that.
4471606,124,1170.8101,1176.99,3,So better understand the dynamics affecting our revenue and gross contribution margin in the third quarters.
4471606,125,1177.6899,1180.38,3,lemme start by commenting on our commission rates.
4471606,126,1181.21,1190.97,3,Our commission rates that we charged to our merchants on the marketplace remained at around the same level in the third quarters compared to the same period last year.
4471606,127,1191.95,1197.49,3,Our average commission rate that we are able to charge to our merchants is in the high single digits.
4471606,128,1198.64,1201.8501,3,Another factor is the one p three p mix.
4471606,129,1202.55,1211.17,3,The thirteen percentage point year-on-year G M V share Ship from retail to marketplace in the third quarter resulted in lower revenue.
4471606,130,1211.86,1217.62,3,And yet this ship was in line with the continued expansion of our merchant base and selection.
4471606,131,1218.66,1226.27,3,Another key factor is as already discussed by Murat the third quarters was impacted by major headwinds.
4471606,132,1226.84,1235.01,3,Our response to this new environment was to increase total customer discounts significantly in particularly uh July and August.
4471606,133,1235.8,1241.13,3,Starting from September onwards we did gradually lower such customer discounts.
4471606,134,1241.67,1249.15,3,And in October we continued on generating efficiencies on our total spending with some encouraging results.
4471606,135,1249.9399,1263.49,3,However q four is not the best quarter to realize the full impact on efficiencies due to existence of peak occasions such as the legendary November shopping month as well as the new year's season.
4471606,136,1264.8199,1278.97,3,Overall these were the most instrumental factors to our performance of newly flat revenues at around one point seven billion Turkish Lira and four point three percent gross contribution margin in the third quarters.
4471606,137,1280.05,1291.39,3,It is worth mentioning that our gross contribution margin is not a direct reflection of the commission rate but it reflect our marketplace commission net of customer discounts.
4471606,138,1292.26,1298.7101,3,On the next slide I would like to discuss revenue performance further along with gross contribution performance.
4471606,139,1303.47,1310.5599,3,Before further discussing gross contribution I would like to give some color on our revenue breakdown compared to the same quarter of last year.
4471606,140,1311.65,1322.8301,3,Revenue generated from retail operations remain flat while marketplace revenues declined eighty percent mainly due to higher customer discounts as I have touched upon.
4471606,141,1323.78,1335.71,3,Meanwhile our delivery service revenue increased by eighty three percent driven by the rise in the number of orders and higher delivery service revenue from services provided to third parties.
4471606,142,1337.0,1344.67,3,In the first nine months total revenues grew by around fifteen percent compared to the first nine months of twenty twenty.
4471606,143,1345.6899,1352.9299,3,Now with the gross contribution level our gross contribution was two hundred eighty million TL in the third quarters.
4471606,144,1353.73,1361.7999,3,This is reflected as a four point five percentage point decline in gross contribution margin compared to the third quarter of last year.
4471606,145,1363.24,1375.41,3,In the first nine months gross contribution grew by around eleven percent compared to the first nine months of 2020 with a 7.1% gross distribution margin.
4471606,146,1376.5699,1379.9401,3,Now let's have a look at our operating expenses in the next slide.
4471606,147,1383.9399,1394.3501,3,Our net operating expenses as a person- percentage of GMV reach 14.5% in their third quarters up from eight point six percent a year ago.
4471606,148,1395.15,1406.8199,3,Around five point nine percentage point drive was mainly due to three point nine percentage points rise in advertising expenses as we continue to invest in our growth drivers.
4471606,149,1407.39,1414.87,3,These advertising expenses unfortunately became more costly under intensified competitive environment in the third quarters.
4471606,150,1415.97,1426.41,3,one point three percentage points rise in our g and a expenses due to rise the number of full-time and outsource employees along with the impact annual seller rep.
4471606,151,1427.15,1435.72,3,The impact of share based payment expenses booked in q three twenty twenty one was zero point eight percentage points within the total increase.
4471606,152,1437.42,1446.42,3,zero point seven percentage points rise in shipping and packing expenses driven by the seventy two percent increase in number of orders.
4471606,153,1446.59,1451.9299,3,And around twenty two percent drive in unit prices applied by our delivery partners.
4471606,154,1453.35,1456.49,3,Let's move to e b i t d a margin bridge on the next slide.
4471606,155,1460.09,1474.24,3,As function of a formation drivers e b i t d a in the third quarter was negative five hundred six hundred fifty nine point four million TL compared to positive eight point nine million TL in q three twenty twenty.
4471606,156,1475.04,1491.1,3,This corresponds to a negative ten point two percent e b i t d a as a percentage of G M V in q three twenty one and negative five point seven percent e b i t d a as a percent of G M V for the nine months cumulative as of q three two one.
4471606,157,1492.3,1501.38,3,The increase was driven by four point five percentage point decreasing gross contribution margin due to customer discounts.
4471606,158,1501.89,1505.89,3,three point nine percentage point rise in advertising expenses.
4471606,159,1506.51,1520.45,3,one point two percentage point rise in payroll and outsource staff expenses and zero point eight percentage point rise in other OpEx item excluding the cost inventory sold and depreciation and amortization.
4471606,160,1521.88,1531.4199,3,These results indicate that cost of growth was higher primarily driven by the increase in customer discounts advertising spend and unit cost of marketing.
4471606,161,1535.73,1552.46,3,Net cash used in operating activities increased from negative forty seven point eight million TL in q three twenty twenty to negative five hundred eighty two point four million TL in q three twenty twenty one.
4471606,162,1553.2,1556.83,3,Which is mainly driven by the increase in net worth for period.
4471606,163,1557.8199,1566.78,3,Free cash was negative six hundred thirty nine million TL mainly driven by the decrease in cash flow from trading activities.
4471606,164,1567.4301,1574.9401,3,And this way mainly due to six hundred ninety point eight million TL increase in our net worth for the period.
4471606,165,1576.53,1591.37,3,We continue to operate with negative networking capital which reached two point one billion TL as of q three two one increasingly by twenty three point four million TL in q three q two twenty twenty one.
4471606,166,1592.86,1597.4199,3,CapEx was fifty seven million TL in the third quarter of twenty twenty one.
4471606,167,1598.1,1608.98,3,Our investments were mainly for the product development across app website and mobile platforms given our growing operations and pure purchase of property and equipment.
4471606,168,1610.46,1624.9299,3,Before I end my presentation I would like to highlight that we feel comfortable with the liquidity we currently have and therefore we have no plans to go to the capital markets to raise in funds in the next eighteen months.
4471606,169,1625.95,1628.3199,3,With this I end our presentation.
4471606,170,1628.5699,1629.99,3,Thanks uh for listening.
4471606,171,1630.38,1633.27,3,Operators please open the floor for questions.
4471606,172,1634.39,1635.59,0,Thank you.
4471606,173,1635.59,1639.37,0,Ladies and gentlemen at this time we'll begin the question and answer session.
4471606,174,1640.08,1644.52,0,Anyone who wishes to ask a question may press star follow by one on the telephone.
4471606,175,1669.38,1671.5,5,Hi uh good morning or good afternoon everyone.
4471606,176,1671.5,1672.89,5,It's Cesar from Bank of America.
4471606,177,1672.96,1677.0299,5,Thanks so much for the uh presentation the call and the opportunity to to ask questions.
4471606,178,1677.52,1679.34,5,I have four questions if that's okay.
4471606,179,1679.89,1694.0601,5,Um the first one um would really be on the uh competition and probably if you can um uh explain a little bit more how does it impact uh the business being specific both about online and offline players?
4471606,180,1694.4399,1708.4,5,And given that TL capital raise uh was known since uh twenty twenty one did you maybe react uh a little bit with the lag to this uh incremental competition and that's why we're seeing uh this incremental spend in uh q three?
4471606,181,1708.73,1709.75,5,So that's the first question.
4471606,182,1710.36,1711.88,5,Uh second question.
4471606,183,1712.75,1719.5599,5,Uh what is your what was your three p take rate in three q and how much was it done sequentially?
4471606,184,1721.21,1721.9301,5,Third question.
4471606,185,1722.7,1729.6801,5,Uh you seem to have stimulated G M V growth through a uh much larger than expected advertising spend in the quarter.
4471606,186,1730.36,1741.98,5,What do you think happens when you reduce advertising spend or are you planning on keeping advertising to gd to g m v at um high single digit uh mark going forward?
4471606,187,1742.7,1754.89,5,And then on the the fourth question uh relates to your comments on uh on the liquidity and uh no need to raise capital uh in the next eighteen months is that is that only valid for the next eighteen months?
4471606,188,1754.92,1764.2301,5,So uh should I consider that the uh that the cash burn of the company could be similar to to q to q three uh going forward for the next couple of quarters?
4471606,189,1769.9399,1770.77,5,Thank you so much.
4471606,190,1771.76,1774.85,2,Actually we appreciate the opportunity to address those as well.
4471606,191,1774.88,1790.25,2,In terms of the competition and actually how we react to it I guess it is fair to to say when actually Alibaba raised the fundraising after our i p o uh that was an intense by competitive landscape in the market and also we we discuss.
4471606,192,1790.64,1798.0801,2,There is also market headwind cause of this market slow down in the growth rate and other macrodynamics as well.
4471606,193,1798.36,1809.09,2,So all these combined we uh needed to stimulate the customer demand to address the challenges which means actually the heavily used customer discounts.
4471606,194,1809.58,1819.41,2,Then we also increased amount of advertising to ensure we also get a fair sha share of voice and more access to our customers.
4471606,195,1819.73,1827.4299,2,And also finally the unit cost of marketing also got impacted because of this intense wide competitive landscape.
4471606,196,1827.65,1832.6801,2,Also it also actually uh increased the total mix in terms of cost structure.
4471606,197,1832.71,1837.4199,2,So in other words we heavily use customer discounts to estimate the demands in the market.
4471606,198,1837.99,1844.4701,2,We increased the amount of marketing advertising we use but also the unit cost of marketing advertising also went up.
4471606,199,1844.8199,1855.1801,2,This is the combination of the actually like the structure you referred in terms of the competitive landscape and how we are advertising and why it was increasing the cost of marketing.
4471606,200,1856.28,1858.16,2,Now maybe let's shift to the second question.
4471606,201,1860.63,1861.0,3,Yes.
4471606,202,1861.03,1862.65,3,Thank you Cesar for your question.
4471606,203,1863.0,1868.79,3,Uh our take rates are the commissions that we are able to charge to our merchants.
4471606,204,1868.83,1876.98,3,So with between Q uh q two and q three there's no significant change in our uh commissions that we charged to our merchants.
4471606,205,1877.27,1884.4399,3,But if your question refers to gross contribution margin it is down by four point three percent and as I explained.
4471606,206,1884.4399,1892.53,3,This is mainly driven by the um discounts that are given to our um customers uh during the intensive competition period.
4471606,207,1892.78,1910.2999,3,Uh for uh the high advertising span I am I can say uh during um um well during September as as we mentioned before we reduced uh C R M spendings that are given to our customers.
4471606,208,1910.65,1918.9401,3,And we continued this uh reduction during October and we see some um encouraging results during October.
4471606,209,1919.36,1926.54,3,However q four is not the right period to make this uh assessment because it's the heavily discount period.
4471606,210,1926.85,1934.99,3,So um we will be continuing this reduction starting from next year onwards and we believe we will see some encouraging results going forward.
4471606,211,1935.8,1949.2101,3,On the liquidity for the next eighteen months yes in our in our initial plans uh we uh we see that our liquidity is sufficient enough and we don't need any liquidity for the next eighteen months.
4471606,212,1949.6899,1952.87,3,And we have a plan for the next twenty four months.
4471606,213,1953.29,1960.01,3,And by the end of this years we might need to revise those plans because of the multi-economic environment in Turkey.
4471606,214,1960.26,1971.9501,3,However um it's not so easy to make uh plans above twenty four months for the time being but for the next twenty four months we feel comfortable in terms of the liquidity.
4471606,215,1972.59,1978.1801,2,And I guess Cesar you to also I guess just to make sure we are not missing up any questions answers.
4471606,216,1978.51,1980.85,2,So you also refer what you are asking right?
4471606,217,1980.85,1982.7899,2,If you increase the retu return if I'm not wrong.
4471606,218,1991.23,1991.7,2,Exactly.
4471606,219,1991.7,1993.15,2,So I guess this is a very fair question.
4471606,220,1993.15,2002.65,2,Also like Korhan said We're already began testing some efficient uh tools and tactic uh with the increasing muscle of our data science and marketing assets.
4471606,221,2002.95,2009.6901,2,But also let me remind you in our key differentiators and strongholds we are not just relying on marketing as you know.
4471606,222,2009.85,2013.6,2,All the four components of our growth drivers are growing you saw the numbers.
4471606,223,2013.84,2016.9301,2,Customer frequency merchant and selection.
4471606,224,2017.26,2020.96,2,It is a very healthy dynamic in terms of the growth and this been happening.
4471606,225,2021.3101,2032.46,2,So basically when I refer to our other areas that are supporting our growth I want to emphasize fact like we are a household brand name ninety nine percent total awareness.
4471606,226,2033.1801,2038.08,2,We only uh we're the only one that is strong hybrid model one p and three p.
4471606,227,2038.92,2047.8,2,We actually the operators so I don't wanna replicate but the customer and merchant experiences experiences and we can discuss in more depth in other questions.
4471606,228,2048.02,2056.8401,2,As you know like return is unique to us and minimal services for customers and many more unique services for merchants uh like we offer in a package.
4471606,229,2057.21,2066.4001,2,And then we are as you saw leading in terms of NPS which is a great actually uh asset for us in our differentiate our experience.
4471606,230,2067.0,2077.5701,2,And of course our nationwide robust logistics coupled with our assets like pay grocery on-demand HepsiExpress HepsiJet and advertising and so on.
4471606,231,2077.6399,2084.95,2,We feel we have many actually levers to drive the growth across the platform but not just marketing.
4471606,232,2085.27,2090.6499,2,And also it's definitely gonna introduce more efficiency as the go forward.
4471606,233,2093.77,2094.2698,5,Thank you so much.
4471606,234,2094.27,2094.75,5,Very helpful.
4471606,235,2095.76,2096.29,2,Thanks so much.
4471606,236,2109.55,2112.5801,6,Um firstly just another question on on competition.
4471606,237,2112.98,2125.0601,6,Uh so I think you mentioned that you've lowered the discounting in in September in October is that because that the market is becoming slightly less competitive or is it more you are just focusing more on profitability and and getting better efficiency?
4471606,238,2125.3899,2128.9102,6,If you could just comment on what you're seeing in the last couple of weeks that would would be great.
4471606,239,2129.51,2131.2698,6,And then also on competition as well.
4471606,240,2131.55,2144.1699,6,Are you seeing that it's mainly just competition around marketing spend and then also discounting but uh are there any other gaps that you you are seeing that's emerged in terms of your proposition versus peers aside from just the discounting and and high marketing spend?
4471606,241,2144.76,2156.4099,6,Uh and and then finally if you could just comment on on the customer behavior that you you're seeing at the moment in terms of order frequency and particularly the cohorts that you've acquired over COVID how are those cohorts comparing to to your prior cohorts?
4471606,242,2156.74,2157.03,6,Thank you.
4471606,243,2159.1101,2159.7,2,Thanks so much.
4471606,244,2159.7,2169.51,2,Uh maybe uh maybe I can start from the uh maybe last question first which is referring to the customer behavior in terms of like the project frequency I guess if I'm not mistaken.
4471606,245,2170.1101,2183.77,2,Um so basically in terms of the the the drivers of our uh customer dynamics you can see both the customer numbers active customer numbers and the order frequency increase.
4471606,246,2184.3301,2186.5901,2,And this is continue in a healthy way.
4471606,247,2201.8501,2211.3499,2,And also going back to the uh customer uh behavior uh in this dynamics right now uh actually uh right now…
4471606,248,2212.05,2214.72,2,Can you please scroll on I can I want to see the questions first?
4471606,249,2215.0,2219.3801,2,Yes because you ask about the qu cuz my I wanna make sure I get all the questions you asked.
4471606,250,2219.6499,2225.98,2,The other question you actually asked was lowering discounts is actually uh are we getting better efficiency?
4471606,251,2225.98,2227.1802,2,So I also want to get it.
4471606,252,2227.29,2235.5601,2,In terms of the customer behavior in July and August actually we saw a very drastic slowdown which which already mentioned invest in the other early score.
4471606,253,2235.8899,2247.6499,2,Uh as you can see from the public data from the the Interbank Card Center and TUIK Turkish uh Turkish uh Institute there was a drastic drop in this q three this year Q-on-Q.
4471606,254,2247.6499,2257.3999,2,So basically um moving on with this seasonality we expect that the customer behavior will get better normalized.
4471606,255,2257.76,2263.05,2,However given the macroeconomic headwind also we want to be cautious about it.
4471606,256,2263.5,2280.23,2,In the first uh piece so far at this uh up to this point we can see uh we've been actually also on locking a lot of efficiencies in our uh marketing practice growth practice and and so on across the board which is actually very uh encouraging.
4471606,257,2280.5601,2290.5601,2,However we want to be also remain very cautious and realistic given this major macroeconomy headwinds we need to closely the monitor the customer behavior moving forward.
4471606,258,2304.78,2306.8899,2,So far we are monitoring very closely.
4471606,259,2307.3999,2314.3101,2,And the second part you asking about actually are seeing any other area uh where you see any gap between us and competition?
4471606,260,2314.54,2324.54,2,I guess uh the good news is we are seeing that we are actually leading the n p s scores and we are making significant differences in many areas.
4471606,261,2324.54,2331.24,2,Like for instance our expenses like HepsiJet uh like the next-day-delivery uh friction return.
4471606,262,2331.3701,2337.25,2,As you know it is unique we can pick up your return at your door at your preferred schedule at no additional fee across the country.
4471606,263,2337.48,2338.4199,2,No one else can do it.
4471606,264,2338.6499,2344.0398,2,Our HepsiJet XLarge leverage again now offering the two-man handing cargo service.
4471606,265,2344.3201,2350.8098,2,And as you saw we are seeing like very strong numbers like ninety seven percent plus customer satisfaction scores.
4471606,266,2351.23,2357.5601,2,In other words actually we are making significant progress in areas where we are differentiating from customer.
4471606,267,2357.5601,2363.25,2,These are the areas we see the actually gap between us and others where we are in our favor.
4471606,268,2363.5601,2370.5701,2,And also in terms of like the HepsiPay you saw numbers we are making a strong progress along with the other assets like ad and so on.
4471606,269,2370.8301,2377.2798,2,So our goal actually is to make sure we remain differentiated and get more efficient and smart uh moving forward.
4471606,270,2377.47,2386.8,2,As you can see we are already taking the actions to make sure we run and manage our marketing span customer discounts and cash flow more efficiently.
4471606,271,2387.03,2400.3201,2,So all this combined we believe we are going to actually uh increase the gap in our favor when you look at all these perimeters I described.
4471606,272,2401.45,2406.71,6,So is it that you're you're not seeing competition let up in the last couple of weeks or you are <crosstalk>-
4471606,273,2408.0601,2409.2798,2,Oh the competition…
4471606,274,2409.97,2411.3699,6,to to lower the discounts.
4471606,275,2412.53,2414.1599,2,Oh thank you Miriam for reminding me.
4471606,276,2414.1599,2415.8699,2,Actually the competition is still intense.
4471606,277,2416.0701,2419.5901,2,I mean we should uh be definitely I guess clear about this.
4471606,278,2419.8701,2423.95,2,So intense uh competitive landscape remains as we speak in q four as well.
4471606,279,2423.98,2428.1199,2,And as you can imagine this is the quarter where the season is high.
4471606,280,2428.1201,2433.3501,2,We described like how actually major uh to roll this quarter place in the total year.
4471606,281,2433.6399,2439.05,2,And therefore from offline or online it is I guess fair to expect increased competition this quarter.
4471606,282,2439.29,2447.46,2,But despite that we are both delivering and trying to get more efficient and also uh try to differentiate our key differentiators.
4471606,283,2447.46,2457.9199,2,So basically uh we are trying to not just uh differentiate also gets more efficient and and increase the gap between us and competition in our favor.
4471606,284,2458.3,2461.6199,2,All these things happening at the same time and the competition remains intense like.
4471606,285,2463.1899,2463.4099,6,Great.
4471606,286,2463.4099,2463.6401,6,Got it.
4471606,287,2463.6799,2464.02,6,Thank you.
4471606,288,2465.1299,2465.52,2,Thank you.
4471606,289,2511.8799,2515.2,7,And my second question uh is also related to the first one.
4471606,290,2515.77,2524.5801,7,Uh do you see any slow down uh due to volatile such environment and how it's been affecting the merchants and their pricing capital ability on the product?
4471606,291,2524.5801,2532.6599,7,They say obviously volatile uh such bureau can affect this negatively which might result in uh slowdown due to lack of availability.
4471606,292,2533.47,2540.1301,7,And finally my third question um uh my third questions relates to the market share of HepsiBurada.
4471606,293,2540.51,2562.8301,7,Um so uh even if from the as eCommerce data system in Turkey exits announced year-on-year growth numbers uh in first of two one for the eCommerce market in Turkey on a year-on-year basis where the market grew by seventy five percent year-on-year in first half while HepsiBurada GMV growth was at sixty percent year-on-year in the same period.
4471606,294,2563.6499,2573.3098,7,We know that this is not an i addressable market uh addressable market for HepsiBurada as it includes many other parts like sports betting lottery gaming cross quarters.
4471606,295,2573.76,2579.3799,7,Uh but do you have any insight in your market share either year year to date or in the first half at least?
4471606,296,2594.8,2602.1101,2,In terms of market share actually we share your concerns in terms of uh lack of resources that everyone can actually leverage and use.
4471606,297,2602.4399,2608.9399,2,Because as you know we are the only public company in such market and no one else is close publicly the numbers.
4471606,298,2609.3201,2615.1699,2,And it's also hard to get real time uh access to market competition and competitive landscaping that's done.
4471606,299,2615.46,2620.25,2,So we are kind of also expecting the same challenge you described.
4471606,300,2620.3799,2626.24,2,However we try to refer to public sources to kind of get some e extra some insight.
4471606,301,2626.6499,2636.5601,2,Maybe what we can share with you is to referring to those latest trend uh is the again the BKM like the Interbank Card Center public data which which you can also access.
4471606,302,2636.9299,2649.8101,2,What we actually also shared in the deck when you look at the at least similar addressable sectors reported by uh BKM uh in terms of online card transaction volume.
4471606,303,2650.5701,2664.52,2,And if you look at those numbers from q three over q two perspective it looks like the most relevant sectors in BKM grew only seven percent Q-on-Q.
4471606,304,2665.3401,2673.4001,2,And if you look at our g m v again this is not exact apple step but trying to just find uh uh insight as you said.
4471606,305,2673.6699,2680.6899,2,If you look at our GMV Q-on-Q you'll see almost kind of a ten percent plus ten percentage growth.
4471606,306,2680.9199,2688.5601,2,Which means in this case looking at seven percent versus our ten percent it might give us some signals regarding the q three trend.
4471606,307,2688.9399,2698.3,2,However again I'm emphasizing this it is not a direct market share measurement but the way of actually trying to understand a pulse in the market.
4471606,308,2699.51,2704.3398,2,In terms of the other question of this slowdown or the volatility and the slowdown is correlated.
4471606,309,2704.6599,2713.3601,2,This is actually a very tough question uh because hard to actually hard to understand the dynamic in the Turkish market uh because it could be affecting the customer delivery two different ways.
4471606,310,2713.6699,2721.8899,2,One could be that people actually see this time and top shopping season as an opportunity uh an affordability solution and opportunity for them.
4471606,311,2721.97,2729.1201,2,And they they can also see eCommerce as a uh transparent platform or price comparison selection and convenience.
4471606,312,2729.23,2731.5,2,And so they can actually increase their online behavior.
4471606,313,2731.6101,2732.55,2,This could be option one.
4471606,314,2732.8,2738.22,2,Option two could be you've seen this volatility they can also uh reduce their overall consumption.
4471606,315,2738.52,2746.3201,2,So again these are the two extremes of the various potential trend and we are closely monitoring what is gonna be the case for q four.
4471606,316,2746.5601,2747.6399,2,It is too early…
4471606,317,2747.98,2750.3401,2,And I'm also not going to your first question address.
4471606,318,2750.6201,2760.29,2,It is too early to mention but if you look at our current trading as of this month at least we can uh maybe share some high level insight with you guys to make sure we understand.
4471606,319,2760.6201,2767.7998,2,So basically yes the shopping high in this season but there's also out of headwind as we discussed uh in the market.
4471606,320,2768.02,2780.4099,2,When we see at least so far uh in the current dynamic we can say what we try to achieve in November in terms of our execution seem to resonate resonate fairly value our customers.
4471606,321,2780.96,2787.1499,2,What we are doing also positive uh visible we very focused on affordability solutions.
4471606,322,2787.1499,2793.03,2,As you know we did somehow like a some sort of buy up a later solution with leading banks in Turkey.
4471606,323,2793.1399,2795.71,2,So people can purchase now and pay in January.
4471606,324,2796.0601,2804.97,2,And also we emphasize our customer experience and convenience with uh unique services like friction return and also emphasize others like uh as we discuss.
4471606,325,2805.3,2810.8999,2,And also we try to differentiate our uh approach to social commerce.
4471606,326,2811.2,2816.4099,2,We introduced this wider shopping list that actually regular people also can become authentic influencers.
4471606,327,2816.71,2822.3801,2,So this kind of dynamics seem to resonate well based on the early high level observations we have.
4471606,328,2822.3799,2831.8699,2,Even in the eleven eleven actually I guess we recorded like the all time high daily orders uh maybe over a half a million orders to share for you guys.
4471606,329,2832.28,2841.01,2,Uh this is the trends we see in terms of the first part of November but we get to see the big time in the month which is the legendary Friday part of the month.
4471606,330,2841.3201,2849.8799,2,So it is gonna be um uh interesting time for us together to closely monitor but we are seeing our execution and seems to resonate with our customers.
4471606,331,2849.9199,2851.6802,2,This the answers to your first question.
4471606,332,2852.0701,2856.7,2,Now going to the GVM profitability in twenty twenty two I refer to Korhan.
4471606,333,2857.0,2857.74,3,Thank you Murat.
4471606,334,2857.8799,2862.1401,3,Um we as I mentioned we have a plan for uh 2020.
4471606,335,2862.6499,2871.3699,3,However this is the most uh intense uh period for us in November December is the uh main shopping season.
4471606,336,2871.6001,2878.4302,3,So we would like to see the closure of November and December to understand if we need to make small adjustments in our plan.
4471606,337,2878.4299,2883.8501,3,And we'll come back to with our guidance uh with our q four announcements.
4471606,338,2883.8501,2888.5798,3,So as you can expect a guidance in the in the next year's first quarter or end of quarter.
4471606,339,2890.8501,2894.97,3,Uh about I would like to add um one thing on the profitability.
4471606,340,2895.49,2901.7102,3,Yes uh um we are taking certain precautions to improve uh gross contribution margin.
4471606,341,2901.99,2917.0,3,We have done uh certain tests during October but uh November and December is not the time but we believe going forward starting from q one almost we will be able to improve our gross contribution margin which will help our for our profitability.
4471606,342,2917.3101,2923.25,3,But I mean for the guidance for the whole twenty twenty um we will come back to you with q four announcements.
4471606,343,2924.22,2924.51,3,Thank you.
4471606,344,2927.1599,2927.48,7,Okay.
4471606,345,2930.5,2931.02,3,Thank you.
4471606,346,2932.6001,2936.9199,0,The next question comes from line of Kilickiran Hanzade with jp Morgan.
4471606,347,2937.1201,2937.76,0,Please go ahead.
4471606,348,2938.5801,2942.2,8,Uh Murat and Korhan thanks for the presentation.
4471606,349,2942.26,2944.97,8,Uh I have some follow-up questions and also new questions.
4471606,350,2945.1001,2952.1399,8,Uh the first one is about your take rates.
4471606,351,2954.3701,2959.04,8,Uh so can you please also help us to understand the change in GMV uh per category?
4471606,352,3051.6799,3061.03,3,That has been an investment period during q one q two but those are improved and we are back to our original uh commission levels.
4471606,353,3061.45,3071.1301,3,Uh on the uh on the shift in the GMV I can say our share of marketplace is seventy percent and uh one p is thirty percent.
4471606,354,3071.48,3080.4102,3,In terms of electronic sales uh the last year it was sixty five percent electronics and thirty five percent non-electronics.
4471606,355,3080.73,3087.7998,3,And this year q three is sixty two percent electronics and thirty eight percent uh in uh non-electronics.
4471606,356,3088.0601,3095.6301,3,However uh there has been some shift from uh one p to three p uh between last year and this year.
4471606,357,3095.6299,3105.1902,3,Around thirteen percentage points which affected uh our uh our results for the shift 15 those categories.
4471606,358,3105.6799,3113.5798,3,On the inventory level uh as a starting point I can say yes we have enough inventory to benefit from the price increases.
4471606,359,3113.8701,3130.1602,3,We started uh onboarding many u inventory from September onwards that is one of the reason that uh our negative networking capital uh could have been higher but only improved around thirty forty uh million TL for the q three uh closing.
4471606,360,3130.3899,3135.8801,3,That is uh the reason that the purchase many <inaudible> uh for the deadness for q four.
4471606,361,3136.25,3149.8201,3,Uh however at the same time we uh somehow paid the the shorter uh payment terms or even be made some advanced payments to secure those products uh to be to make them available for q four.
4471606,362,3150.0601,3153.0898,3,But now we will be enjoying available to those products.
4471606,363,3153.5801,3167.1899,3,In terms of CapEx yes it hasn't increased significantly uh in um two one because we have uh seen some operation exchange and we spent less on the uh uh perfect plan from equipment.
4471606,364,3167.3701,3178.8799,3,However going forward especially uh for the next years we are making a plan uh between three hundred fifty to four hundred million uh Turkish uh spending on the CapEx side.
4471606,365,3179.1299,3187.99,3,Uh with this uh for exchange increases uh we need to make a a detailed uh plan for those uh purchases.
4471606,366,3188.1499,3193.46,3,However the initial plan is something around three hundred fifty to four hundred million Turkish lira.
4471606,367,3193.97,3201.0701,3,Uh on the actions uh about the gross contribution margin improvement.
4471606,368,3201.54,3208.0801,3,Yes we are not happy with the gross contribution margin and we believe we definitely need to increase the margin.
4471606,369,3208.5601,3219.6699,3,Um um we have we have to uh I mean during q three we had to increase the customer discounts due to uh market dynamics as we explained.
4471606,370,3219.6699,3228.5901,3,Uh there was a intense fight competition in the market and the markets uh growth was slowdown so we had to make those customer discounts.
4471606,371,3229.01,3243.0698,3,We realized that those are not sustainable and we made the uh uh decision to sharpen our focus on our growth contribution margin key differentiators uh and uh drivers of sustainable GMV growth.
4471606,372,3243.51,3254.99,3,Uh while optimizing our our customer discounts marketing spent and cashflow uh more efficiently we believe we will be able to improve our uh margins going forward.
4471606,373,3256.0,3260.3101,3,Uh Murat would you like to take over this uh over frequency?
4471606,374,3260.75,3261.05,2,Yes.
4471606,375,3261.05,3269.8,2,Before I go there actually Hanzade I want to address actually add on to Korhan answers for two questions specifically and I can answer to your last question.
4471606,376,3270.26,3277.5999,2,The one actually invented level I want to add on the fact that we actually were very aware of the global supply chain challenges as well.
4471606,377,3277.6001,3280.9399,2,That's why we want this time it is with well prepared.
4471606,378,3281.23,3290.51,2,And as you know we had a model from last year during the COVID where we also successfully were able to uh plan and manage our inventory uh as you know in one p.
4471606,379,3290.78,3309.5601,2,So basically using our one p as a strong model uh during this period of time despite the global supply chain challenges and also leveraging and um benefiting from our long lasting strong supply relationships uh we were able to actually get that prepared these seasons with our inventory and one p.
4471606,380,3310.1899,3313.6899,2,So this was uh just to make sure I that I add color as well.
4471606,381,3313.96,3317.8,2,The other uh question I wanted add on actually is the gross contribution margin P.
4471606,382,3318.01,3323.78,2,Uh successfully address the cost part and efficiency part of it and I also want to add the other side of the story.
4471606,383,3324.1101,3330.55,2,One actually is as you know as you move forward with three p is getting stronger this is exactly what you observe right?
4471606,384,3330.6699,3342.1699,2,Year-over-year we have a stronger one uh three p now which actually also uh kind of uh distort the comparison but actually uh moving forward this three p uh strength will remain as this right?
4471606,385,3342.22,3344.29,2,It's gonna be always a strong part of our platform.
4471606,386,3344.49,3353.03,2,And as this happens we're also expecting to continue to see more long tail products adding a more long merchants coming to our platform.
4471606,387,3353.23,3361.51,2,Which will inherently uh by nature also perhaps with overall uh uh mix and margin of the uh platform.
4471606,388,3361.8301,3371.74,2,Other two uh aspect I wanna also emphasize is how our value proposition with customers and merchants would also help us improve our profitability moving forward.
4471606,389,3372.1699,3374.3301,2,Just for sake of time briefly mentioned this.
4471606,390,3374.6499,3378.8701,2,As you remember our HepsiJet now actually cross fifty percent.
4471606,391,3378.8701,3384.0098,2,Right now fifty three percent of marketplace parcels are delivered in by HepsiJet in q three.
4471606,392,3384.01,3385.75,2,it is gradually growing as you know.
4471606,393,3397.6399,3402.1199,2,We also are going to have our nurses save time and money and also increase the customer experience.
4471606,394,3402.48,3413.72,2,And also advertising we briefly mentioned some numbers with the recent analysis I am sure you saw with Google and Facebook we are making like innovative ad tech tools helping merchants.
4471606,395,3414.1001,3427.1702,2,And also mix training and potentially with also other merchant financing tools like stuff like that we are trying to make sure we become the most uh preferred platform for our merchants.
4471606,396,3427.1699,3427.8601,2,These are A.
4471606,397,3428.22,3436.0601,2,And also uh the second part of the story which is our customers we also try to be their ultimate choice right?
4471606,398,3436.0601,3441.7102,2,That's why uh we are also seeing a do a lot of actually room for that improvement as well.
4471606,399,3441.9299,3455.5801,2,With our strong brand with our unique services like which we discussed like friction return next day delivery and like the XLarge delivery and service and so on with our ecosystem play which I'm gonna also step-on to shortly.
4471606,400,3455.75,3462.04,2,All this coming together you also believe that our margin and profitability will improve over time.
4471606,401,3462.24,3466.25,2,So these are actually gonna be a function of multiple uh improvements.
4471606,402,3466.6799,3470.3801,2,Now I'm going to address to your HepsiExpress question.
4471606,403,3470.4399,3479.6902,2,HepsiExpress for us is very strategy because to your question it improves and helps us improve both frequency and also uh customer growth.
4471606,404,3479.6899,3490.55,2,Because we now realize HepsiExpress is a great tool to bring on new customers with a different profile and demographic and also triggers frequency cause of the nature of the product.
4471606,405,3490.9199,3493.46,2,And as you know it also offers instant and slotted.
4471606,406,3493.5601,3498.1599,2,And now we have Migros as I mention briefly the uh previous section of the call.
4471606,407,3510.1699,3518.1902,2,So the selection is getting larger and we aim to offer the wider selection with our service and with multiple options that instant and slotted.
4471606,408,3518.4299,3525.5898,2,And also finally we are improving our own experience like with technological experience wise development on our uh app.
4471606,409,3526.26,3532.2798,2,All this together I also want to give you maybe one uh kind of indication how we are seeing this business.
4471606,410,3532.72,3540.74,2,We are very overly focused on the customer experience the selection and as well as uh sustainable opt model.
4471606,411,3540.74,3543.95,2,That's why you'll see us moving forward uh onwards cuz this is still the early phase this years to invest in that business.
4471606,412,3543.98,3551.0,2,But moving forward you'll see us more focusing on sustainable opt the model as well.
4471606,413,3551.0901,3557.5901,2,And also we are very uh internally focused on uh actually perfect order such as ratio.
4471606,414,3557.5901,3567.8499,2,So this actually a number and metric we carefully watch and monitor which uh means for us it is the order that there is no delay no return and no actually translation because of availability.
4471606,415,3568.0601,3572.1299,2,We take it very seriously cuz we know it uh ten of these output customer experience.
4471606,416,3572.45,3580.47,2,And right now we are seeing just you an idea around like sixty percent uh uh perfect of ratio which is uh very strong.
4471606,417,3580.7,3588.5901,2,So we are going to hopefully focus on this moving forward more and gradually increase this strong number already strong number ahead.
4471606,418,3590.22,3593.1099,2,Maybe this was all the answers to your question.
4471606,419,3593.5901,3594.8301,2,Just lemme know to more.
4471606,420,3595.78,3596.8,8,Yeah thank you very much.
4471606,421,3598.5801,3618.4099,2,So honestly the the nature of the partnership the ship doesn't actually force any exclusivity on other either side cuz as you know our value proposition is actually slightly unique.
4471606,422,3618.6499,3621.6899,2,We believe we are going to grow with our retail partners together.
4471606,423,3622.02,3622.9102,2,Uh this is our model.
4471606,424,3622.9099,3626.0898,2,It's much more inclusive uh than other models.
4471606,425,3626.0901,3627.75,2,You know we are not running dock stores.
4471606,426,3627.75,3635.7,2,We work with our retailers and we're kind of uh see this as an incremental growth opportunity with our partners retail partners.
4471606,427,3635.9199,3636.98,2,Therefore with Migros…
4471606,428,3636.98,3659.6899,2,This is example cuz you ask it is nothing like uh there is no equipment involved but we believe because of our kind of uh experience that we offer on our platform and because we are hopefully going to deliver a strong mutual increment to the growth for both sides this is going to be uh a kind of a uh sustainable long term partnership with both sides.
4471606,429,3660.0,3665.79,2,Uh because this is also uh an area we are working with retail partners not just them but others as well.
4471606,430,3677.8799,3678.1799,8,Okay.
4471606,431,3678.22,3678.96,8,Thanks very much.
4471606,432,3679.7,3680.0298,2,Thank you.
4471606,433,3682.8101,3688.03,0,As a reminder if you would like to register for a question please press star and one on your telephone.
4471606,434,3695.0901,3697.6501,0,Ladies and gentlemen there are no further questions at this time.
4471606,435,3697.9199,3700.0701,0,i'll now turn the conference over to CEO Mr.
4471606,436,3700.0701,3702.3499,0,Murat Emirdag for any closing comments.
4471606,437,3702.5,3702.8999,0,Thank you.
4471606,438,3704.79,3708.47,2,Thank you so much uh everyone.
4471606,439,3708.78,3714.5901,2,Uh before we end the call I want to reiterate that we acknowledge your concerns and take them very seriously.
4471606,440,3715.21,3723.6599,2,And really remain confident in our market opportunity and long term value proposition cause we know the opportunity and the fundamental of the business remain uh strong.
4471606,441,3724.1399,3732.6699,2,And actually uh following our IPO while competition and near term market conditions have become more challenging two things have not changed.
4471606,442,3733.9199,3737.7598,2,The significant long term market opportunity in digitalization of the Turkish market.
4471606,443,3738.3601,3740.76,2,And the other one actually is our firm built in our business model.
4471606,444,3741.3201,3755.5498,2,So we are committed to deliver on our drivers of sustainable growth key differentiators strategic assets that we discussed and varies of services for customers and merchants with a disciplined cash management creating long term value for our company and shareholders.
4471606,445,3756.0901,3759.1301,2,We look forward to speaking with you again in the next quarters call.
4471606,446,3759.6201,3760.0598,2,Thank you all.
4471606,447,3762.6899,3766.3,0,Ladies and gentlemen the conference is now concluded you may disconnect your telephone.
4471606,448,3766.5,3767.2002,0,Thank you for calling.
4471606,449,3767.2,3768.1301,0,Have a pleasant evening.
4471809,0,60.18,60.67,0,Thank you.
4471809,1,61.36,62.7,1,Good afternoon ladies and gentlemen.
4471809,2,62.7,70.25,1,Thank you for joining us today for this conference call on LUKOIL's results for the third quarter and nine months of twenty twenty one.
4471809,3,71.63,73.73,1,On today's call we have Mr.
4471809,4,73.73,75.8,1,Alexander Matytsyn C F O Mr.
4471809,5,75.8,80.21,1,Pavel Zhdanov Vice President for Finance as well as our colleagues from the Accounting Team.
4471809,6,81.17,101.03,1,Before we move on to the presentation I would like to draw your attention to the fact that some of the comments during this call constitute forward-looking statements involving risks uncertainties and other factors that may cause our actual results to be materially different from what is expressed or implied by these forward-looking statements.
4471809,7,101.48,104.04,1,You may find more detailed information on the slide.
4471809,8,104.49,106.27,1,Now I would like to hand over to Mr.
4471809,9,106.27,108.25,1,Alexander Matytsyn.
4471809,10,109.27,110.08,2,Thank you Alexander.
4471809,11,110.08,111.54,2,Good afternoon ladies and gentlemen.
4471809,12,111.54,120.18,2,In the third quarter the market environment continued its recovery which alongside an increase in production volumes had a positive impact on our financial performance.
4471809,13,120.21,129.81,2,Higher oil prices were underpinned by fast moving recovery and demand which led to a decline in global oil inventories on the back of strict opec plus compliance.
4471809,14,130.3,136.25,2,Additional support for oil demand came from record high prices for other energy sources.
4471809,15,137.67,142.91,2,Amid the easing of external limitations we kept ramping up oil production in the third quarter.
4471809,16,165.61,169.62,2,Refining margins went back to their pre-crisis levels in the third quarter.
4471809,17,169.92,180.57,2,We swiftly responded to the improved market environment and in the third quarter recovered our oil d refinery capacity utilization back to the average twenty nineteen level.
4471809,18,182.86,187.22,2,In the third quarter we hit all-time highs for EBITDA and free cash flow.
4471809,19,213.86,220.48,2,Free cash flow totaled two hundred and tw eighte- twenty-two billion rubles and more than doubled quarter-on-quarter.
4471809,20,220.48,227.76,2,This remarkable improvement was driven by a strong increase in working capital in the second quarter.
4471809,21,227.76,233.41,2,The increase in free cash flow before changes in the working capital amounted to ten percent.
4471809,22,236.05,245.37,2,Let me note that in cos that in contrast to previous periods our third quarter results saw almost no impact from one-off or carrying over factors.
4471809,23,245.66,246.91,2,In other words our results…
4471809,24,278.18,291.27,2,<silence> We decided to capitalize on the extremely favorable debt market environment and in October successfully placed two Eurobond tranches with maturities of fi- 5.5 years and ten years for a total of two point three billion US dollars.
4471809,25,292.07,294.93,2,This is the largest ever single placement for the Company.
4471809,26,297.24,306.84,2,In October the Board of Directors recommended paying an interim dividend for twenty twenty one in the amount of three hundred and forty rubles per share fully in line with our existing dividend policy.
4471809,27,308.52,317.92,2,We keep improving our sustainable development management system as we recognize its importance for the effective implementation of the company's strategy and LUKOIL investment story.
4471809,28,319.7,328.67,2,One of our recent achievements is an improved position in the Transition Pathway Initiative or T P I rating which assesses the quality of the climate management.
4471809,29,331.96,335.01,2,Over the past uh year the company also climbed up in other leading sustainability ratings.
4471809,30,335.63,346.81,2,We always keep going beyond uh what we have achieved and are currently focusing on improving our practices in the areas of human rights supply chain management and other important aspects of sustainable development.
4471809,31,359.5,359.77,2,Thank you.
4471809,32,359.77,361.54,2,Now i would like to hand over to Pavel Zhdanov.
4471809,33,364.16,364.97,3,Thank you Alexander.
4471809,34,365.34,368.08,3,Um i'll now present our results in the upstream segment.
4471809,35,368.35,369.88,3,Let me begin with the price environment.
4471809,36,369.88,373.31,3,In the third quarter the average Urals oil price went up by six percent quarter-on-quarter.
4471809,37,374.64,384.39,3,However the Urals net ruble price dropped by two percent quarter-on-quarter due to the positive effect of the tax lag declining almost to zero and due to ruble appreciation.
4471809,38,386.18,390.46,3,In the third quarter the Company continued to recover um its oil output.
4471809,39,390.76,412.47,3,The Group's hydrocarbon production excluding West qurna two exceeded two-point- uh one million barrels of oil equivalent per day up uh three point two percent quarter-on-quarter as external limitations on oil production related to the opec plus agreement were eased up and gas production in Uzbekistan recovered after scheduled maintenance in the second quarter.
4471809,40,413.72,416.05,3,We also carried on with our priority projects.
4471809,41,416.38,420.79,3,For the nine months of twenty twenty one their share in the total output grew by one percentage point.
4471809,42,422.86,431.98,3,As part of oil production management under external limitations we continued to increase oil production at our mature fields in Russia as instructed by the Ministry of Energy.
4471809,43,433.11,447.05,3,In the third quarter oil production in Russia increased by three point seven percent quarter-on-quarter um recovering by nearly ninety percent in November as compared to May twenty twenty.
4471809,44,448.25,454.52,3,The relaunch of shut in wells was fast with no extra material cost or technological challenges.
4471809,45,455.15,467.9,3,As at the beginning of November our spare capacity in Russia stood at around thirty thousand barrels per day which means we are close to its full utilization and will employ additional drilling to ensure further production ramp-up.
4471809,46,469.49,476.29,3,As a reminder we started to gradually increase drilling volumes in Russia as early as in the second quarter of twenty twenty one.
4471809,47,476.67,488.09,3,If the favorable environment persists and ex and external uh production limitations are further lifted we plan to keep expanding our drilling program further to deliver stable output growth.
4471809,48,490.27,494.44,3,The upstream segment was the key contributor to our EBITDA growth in the second quarter.
4471809,49,494.44,497.24,3,The segment's EBITDA was up by eleven percent quarter-on-quarter.
4471809,50,497.8,503.22,3,Despite lower net oil price in ruble figure of the Russian upstream segment increased by seven percent.
4471809,51,503.74,507.45,3,The growth was due to output recovery and superior production mix.
4471809,52,508.78,524.26,3,Upstream EBITDA outside Russia went up by thirty eight percent quarter-on-quarter driven by higher gas production in Uzbekistan and higher gas prices coupled with stronger EBITDA of the West qurna two servicing project in Iraq on the back of higher costs.
4471809,53,526.02,530.11,3,For the nine months uh upstream EBITDA increased more than two-fold year-on-year.
4471809,54,530.83,538.27,3,The growth was driven mostly by the Russian upstream segment thanks to higher oil prices ruble devaluation and a positive tax lag effect.
4471809,55,539.51,544.61,3,Abolished uh tax incentives for high-viscosity oil projects were a headwind.
4471809,56,545.38,552.46,3,EBITDA outside Russia went up by seventy one percent supported by a rise in oil prices and increased gas production in Uzbekistan.
4471809,57,554.89,556.82,3,Now let me move on to our key projects.
4471809,58,556.82,564.83,3,We continued production drilling in the Caspian Sea to maintain production at the Vladimir Filanovsky and Yuri Korchagin fields at the project levels.
4471809,59,565.39,576.97,3,In the third quarter the Vladimir Filanovsky field saw the launch of another high rate intelligent two-bore t a m l five well with an initial flow rate of over thirteen thousand barrels of oil per day.
4471809,60,577.81,584.73,3,As part of the Valery Grayfer field development we finished cabling works and are now laying subsea pipelines.
4471809,61,585.2,590.74,3,Shipyards are completing the construction of topsides of fixed ice-resistant and living platforms.
4471809,62,591.59,598.47,3,they're almost ninety percent complete and slated for offshore installation in the second quarter of next year.
4471809,63,615.35,622.8,4,The manufacturing of offshore platform ja jacket and topside along um with uh onshore works have now started.
4471809,64,624.62,628.61,4,We continue to show impressive results in developing low-permeability reserves.
4471809,65,630.43,642.19,4,At our key fields in West Siberia we are running an intensive an extensive drilling program with one hundred and forty six wells drilled in the nine months and production up by fourteen percent year-on-year.
4471809,66,643.53,646.54,4,We keep working to enhance the efficiency of field development.
4471809,67,648.14,659.16,4,Thanks to the optimized well design roll out of unique technologies and individual approach to each well we have been able to ramp up drilling speed while drastically cutting per-unit drilling costs.
4471809,68,660.58,673.23,4,At the Imilorskoye field in the third quarter we increased the drilling speed of multi-hole wells by over forty percent year-on-year reducing their per-unit drilling costs uh by almost a quarter over the same period.
4471809,69,673.81,683.72,4,In the third quarter the Sredne-Nazymskoye field saw the horizontal well drilling speed increase by a third year-on-year with the per-unit drilling costs dropping by nearly a quarter.
4471809,70,685.42,693.06,4,Our advanced expertise in developing low-permeability reserves provides us with new opportunities for our asset portfolio expansion.
4471809,71,694.1,709.38,4,In September we signed an agreement with Gazprom Neft to create a joint venture based on the assets of Gazprom Neft subsidiary Meretoyakhaneftegaz with geological reserves total over one billion tons of oil and around five hundred billion cubic meters of gas.
4471809,72,709.84,713.59,4,A considerable portion of the reserves lies within the Achimov formation.
4471809,73,733.49,741.01,4,In the third quarter however daily production fell by four percent due to scheduled maintenance at the Usinskoye field.
4471809,74,742.25,752.74,4,Let me remind you that before the start of this year we worked to consistently increase output at the Yaregskoye and Usinskoye fields by making considerable investments in these projects.
4471809,75,753.74,761.96,4,This year we had to we had to uh have a significant downscale of our investments as a result of canceled tax incentives.
4471809,76,762.25,772.26,4,Still we maintain a dialogue with the government and hope for a decision to reinstate tax incentives for this category of reserves so that we continue their full-scale economically efficient development.
4471809,77,773.03,775.34,4,lemme m let me move on to our projects abroad.
4471809,78,775.34,777.66,4,I would like to start with our gas projects in Uzbekistan.
4471809,79,778.15,786.91,4,You may remember that in the second quarter we conducted scheduled maintenance at production facilities which led to a temporary decline in output from our gas projects in the country.
4471809,80,787.37,791.28,4,In the third quarter production recovered back to the level of q four twenty twenty.
4471809,81,791.88,801.2,4,For the nine months of twenty twenty one Uzbekistan projects saw a seven six or nearly eighty percent increase in production compared to the same period of twenty twenty.
4471809,82,801.74,808.2401,4,Our production target for twenty twenty one is around fourteen billion cubic meters of gas which is in line with the pre-pandemic level.
4471809,83,810.24,817.51,4,i in October we signed an agreement to acquire um an interest in uh Shah Deniz gas project in Azerbaijan.
4471809,84,817.78,823.37,4,Please be reminded that we are going to hold a ten percent share and that has been the case since nineteen ninety six.
4471809,85,824.05,835.8,4,As the Caspian region is of strategic importance for LUKOIL the increased share in Shah Deniz a project which boasts growing output and a strong access to sales markets naturally complements our portfolio of Caspian production assets.
4471809,86,836.19,842.32,4,On top of that a larger share of gas in our production mix is perfectly aligned with our climate strategy.
4471809,87,844.64,856.42,4,With a value of two point two five billion US dollars the deal will be closed subject to conditions precedent including approvals from our partners from the consultation.
4471809,88,857.1,860.93,4,Yesterday we announced a discovery of a new oil field Block at…
4471809,89,861.61,866.29,4,a new oil field at Block twelve offshore Mexico after drilling the first exploration well.
4471809,90,866.76,872.2599,4,According to preliminary estimates the initial oil in place reaches two hundred and fifty million barrels.
4471809,91,872.48,877.4,4,To remind we are the project operator with sixty percent share while Eni holding…
4471809,92,877.4,880.14,4,i wi holds the remaining forty percent.
4471809,93,880.97,883.78,4,Earlier a successful wells were drilled at Block ten.
4471809,94,883.78,888.65,4,Having said that we successfully carry on with build-up of new production cluster in this region.
4471809,95,888.65,890.4901,4,Now let me hand over back to Mr.
4471809,96,890.49,893.12,4,Alexander Palivoda who will present our results in Downstream.
4471809,97,895.41,896.03,5,Thank you Pavel.
4471809,98,896.13,900.06,5,In the third quarter the refining market environment continued to rapidly recover.
4471809,99,900.64,904.36,5,In Europe the benchmark margin added uh one point five percent…
4471809,100,904.69,919.36,5,uh sorry one point five times um grew one point five times quarter-on-quarter driven by an increase in in the crack spreads of light products primarily diesel fuel on the back of declining global inventories and d demand growth caused among other things by high gas prices.
4471809,101,919.47,924.91,5,As a result for the first time since the beginning of the pandemic crack spreads for diesel fuel returned to their historical range.
4471809,102,925.21,928.9,5,The margins were also reflect a higher Urals discount versus Brent crude oil.
4471809,103,929.83,936.66,5,The Russian benchmark refining margin nearly doubled quarter-on-quarter even exceeding the pre-pandemic levels.
4471809,104,937.6,945.5,5,This came as a result um of both the growth of the European benchmark margin and higher export duty differentials.
4471809,105,947.24,955.68,5,In the third quarter we continued uh increasing capacity utilization at our refineries flexibly responding to improvements in the market environment.
4471809,106,955.72,961.37,5,The average daily refining throughput grew by nine percent quarter-on-quarter to reach the twenty nineteen average.
4471809,107,961.78,976.07,5,Our domestic refineries increased their average daily throughput by seven percent quarter-on-quarter as uh capacity utilization at Perm and Nizhny Novgorod refineries recovered after their maintenance in the second quarter this year.
4471809,108,976.07,984.29,5,The increase in utilization uh was offset by scheduled maintenance at Ukhta and Volgograd refineries.
4471809,109,984.73,993.69,5,At European plants average daily refining volumes grew more significantly by twelve percent quarter on-quarter as all our overseas facilities increased utilization.
4471809,110,994.24,1009.2,5,The biggest contributors um in absolute term terms were the ISAB uh refining facility in Italy which optimized utilization amid improved market environment and the Burgas refinery in Bulgaria which recovered capacity after maintenance in the second quarter.
4471809,111,1034.01,1046.6899,5,The third-quarter daily sales of motor fuels at our overseas filling stations reached the pre-pandemic Q3 2019 levels while domestic uh retail sales even surpassed the numbers for the period.
4471809,112,1050.1,1059.72,5,Aircraft fueling in the airports where we operate continued to actively recover in the third quarter demonstrating robust quarter-on-quarter growth.
4471809,113,1060.85,1074.7301,5,While in the second quarter daily jet fuel sales went down thirty percent compared to the same period of twenty nineteen the gap reduced to less than twenty percent in the third quarter.
4471809,114,1078.01,1091.8301,5,In the third quarter improved refining margins led to a considerable increase in uh the Russian downstream margin which is the difference between the netback for oil to be refined and sold in Russia through all sales channels and export netback.
4471809,115,1096.35,1101.74,5,The maximized capacity utilization resulted in lower oil exports despite higher production volumes.
4471809,116,1102.0699,1106.9601,5,Yet exports of oil subject to a lower-rate export duty remained flat quarter-on-quarter.
4471809,117,1111.0699,1117.36,5,As for our financial performance in the downstream segment EBITDA remained virtually flat quarter-on-quarter.
4471809,118,1119.5699,1127.16,5,Downstream EBITDA in Russia grew by twenty seven percent quarter-on-quarter mostly on the back of higher refining margins and throughput volumes.
4471809,119,1128.3199,1135.9199,5,The growth was uh constrained by a weaker positive inventory effect at our refineries and weaker results of petrochemical and retail businesses.
4471809,120,1136.29,1149.45,5,Downstream EBITDA outside of Russia declined by fifty seven percent quarter-on-quarter fully offsetting the growth in Russia mainly due to weaker results of international trading business and lower positive inventory effect at our overseas refineries.
4471809,121,1150.4,1164.51,5,The impact of these factors was partially offset by accounting specifics of hedging operations in our international trading business higher refining margins and throughput volumes as well as improved results in the retail segment.
4471809,122,1165.1801,1172.61,5,In the nine months of twenty twenty one downstream EBITDA nearly doubled year-on-year with the bulk of this growth coming from operations in Russia.
4471809,123,1173.23,1186.87,5,The EBITDA in Russia was driven mostly by stronger refining margins and throughput volumes a positive effect from inventories at refineries and better results in the petrochemical segment though partially offset by weaker results in retail business.
4471809,124,1188.25,1198.39,5,Downstream EBITDA outside of Russia was up ninety one percent on the back of a positive inventory effect at refineries improved performance of the retail segment and higher throughput volumes.
4471809,125,1199.08,1202.9,5,This year we are completing several refinery upgrade projects in Russia.
4471809,126,1218.36,1224.3199,6,These projects are set to contribute to to a better and wider product slate along with quality improvements.
4471809,127,1226.4301,1231.86,6,By the end of the year the Nizhny Novgorod refinery plans to complete the construction of a delayed coker.
4471809,128,1233.48,1239.8501,6,Now that construction and installation operations are almost over we keep testing process pipelines and equipment.
4471809,129,1240.9399,1246.26,6,The launch of the delayed coker will bring our fuel oil yield down to below four percent.
4471809,130,1247.86,1266.92,6,In August we started a project to construct a catalytic cracking unit at the Perm refinery which will enable the group to increase the output of high-octane motor gasoline and commence production of polymerization-grade propylene to be used as feedstock at our petrochemical facilities.
4471809,131,1293.6801,1299.53,6,Higher um sales volumes were the key factor driving revenue.
4471809,132,1301.4301,1304.01,6,Um this comes uh in company with high prices.
4471809,133,1304.01,1308.76,6,So uh with inaudible increased of eighteen percent quarter-on-quarter.
4471809,134,1311.47,1318.45,6,an and then again uh it is both own production and uh larger trading volumes.
4471809,135,1319.24,1324.1901,6,Our EBITDA hit an all-time high of three hundred and fifty five billion rubles up five percent quarter-on-quarter.
4471809,136,1325.5601,1329.15,6,We have already spoken in detail on EBITDA drivers for each segment.
4471809,137,1330.65,1351.35,6,I would also like to note that EBITDA increase was dragged by the effect of inventory release in the second quarter as we sold part of our inventory back then hence the uh contribution of this driver in the third quarter was immaterial.
4471809,138,1352.48,1363.9199,6,Let me once again remind you that for the first time since the beginning of the pandemic our quarterly results saw almost no impact from one-off or carrying over factors owing to the normalized market environment.
4471809,139,1364.99,1370.3101,6,The company posted a net profit of one hundred and ninety two billion rubles nearly flat quarter-on-quarter.
4471809,140,1372.05,1386.52,6,The EBITDA growth was uh partially offset by the effective income tax rate rising from 17% to 20% which was due to intra-group asset sales as we streamlined our business in the second quarter.
4471809,141,1386.99,1391.8301,6,The profit growth was also constrained by higher depreciation on the back of rising production volumes.
4471809,142,1392.64,1412.49,6,Free cash flow in the third quarter hit an all-time high of two hundred and twenty eight billion rubles up more than two-fold quarter-on-quarter as the working capital expanded by about uh one bil one hundred billion rubles in the second quarter.
4471809,143,1412.89,1418.27,6,In the third quarter the working capital change was minimal only standing at six billion rubles.
4471809,144,1418.72,1426.36,6,Free cash flow before changes in the working capital totaled two hundred thirty four billion rubles up ten percent quarter-on-quarter.
4471809,145,1428.99,1442.0299,6,The key driver behind this growth was stronger operating cash flow on the back of rising business margins driven by an improved market environment um and also high production and throughput volumes.
4471809,146,1442.03,1446.5801,6,Before I conclude let me briefly talk about our expectations for this year.
4471809,147,1447.86,1466.83,6,Given the existing decisions of the opec plus to increase oil output we expect hydrocarbon production to grow by about by about uh four percent year-on-year excluding the West qurna two project in Iraq.
4471809,148,1467.3101,1477.0699,6,In Downstream we expect our refining volumes to grow up to um to go by up to five percent year-on-year.
4471809,149,1477.5699,1487.63,6,As for our investment activities we expect the twenty twenty one capital expenditures excluding the West qurna two project to be within four hundred and fifty billion rubles.
4471809,150,1488.05,1496.3201,6,The lower figure compared to our previously announced plans is explained by uh savings achieved and partial cost transfer to twenty twenty two.
4471809,151,1496.72,1504.55,6,With its unique set of competitive advantages LUKOIL continues to boast a strong and appealing investment story in the global oil and gas sector.
4471809,152,1505.21,1517.1699,6,Thanks to our superb flexibility and high-quality asset mix we have been able to maximize the benefits from the market recovery transforming it into shareholder returns using our effective dividend policy.
4471809,153,1517.47,1532.46,6,We are optimistic about the prospects for oil demand and believe that we are in a position to continue developing our business across the board in terms of quantity and quality with due account for climate change and sustainability agenda at large.
4471809,154,1533.26,1540.5699,6,We plan to present the company's updated strategy in March of next year along with the fourth quarter financial results.
4471809,155,1541.49,1542.03,6,Thank you!
4471809,156,1542.17,1545.15,6,Now for your attention and we are ready to take your questions.
4471809,157,1554.33,1558.76,7,If you change your mind and wish to withdraw your question please press one again.
4471809,158,1560.08,1564.02,7,I would like to remind you that questions from the press will not be expected.
4471809,159,1565.2,1567.96,7,Please ask questions in the corresponding language.
4471809,160,1594.41,1595.34,8,I have two questions.
4471809,161,1595.34,1598.13,8,One pertains to only high viscosity oil.
4471809,162,1598.5601,1599.9401,8,Now when are you expecting…
4471809,163,1601.5601,1609.0901,8,when you expecting um an out come from your arrangements with the government if this um agreement is achieved.
4471809,164,1610.34,1617.6,8,By how much would you intend to increase your kboepds and the output of oil in the fields in question?
4471809,165,1617.6,1620.95,8,And my other question uh pertains to Sredne-Nazymskoye.
4471809,166,1622.39,1630.3999,8,Um uh not sure but whether uh you have mentioned um that but when are you expecting the first oil to be coming?
4471809,167,1633.74,1636.04,6,Uh okay let me handle the first question.
4471809,168,1636.26,1641.54,6,On the eleventh of November this year the Russian Prime Minister Mr.
4471809,169,1642.98,1650.76,6,Mishustin signed uh the government instruction to the Minister of Finance and the Minister of Energy.
4471809,170,1651.03,1659.5599,6,In q one the two Ministers are to prepare uh proposals of how high viscosity oil fields are to be treated.
4471809,171,1659.85,1661.89,6,Several options are being discussed currently.
4471809,172,1661.95,1669.61,6,One option suggests that from twenty twenty two onwards high viscosity uh oil could be involved in production again.
4471809,173,1669.65,1675.6001,6,But the company's working at the same time to uh fast track uh that timeframe.
4471809,174,1677.35,1685.91,6,We could be assisted uh if opec plus quota is increased with less of a constraint so that we could increase the total oil output.
4471809,175,1695.9,1704.8099,6,What's most important is that there is a decision pending so q one uh will see some parameters defined and then we'll be able to discuss those.
4471809,176,1705.04,1710.23,6,This has definitely approved situation as compared to situation of total accounts or tax incentives.
4471809,177,1712.5601,1730.48,6,And regarding uh your second question um Sredne-Nazymskoye um we have not provided any of the parameters but inaudible to be closed in early next year and and a lot of work is still pending to prepare the production plan.
4471809,178,1730.67,1731.8099,6,we'll update you accordingly.
4471809,179,1731.9399,1732.26,6,Thank you.
4471809,180,1733.03,1733.34,8,Thank you.
4471809,181,1761.73,1773.0601,9,Previously you mentioned um a number of around five hundred billion but now you have suggested some of the kboepds from this year will be transferred to next year so can you update the next year's figure?
4471809,182,1773.15,1773.48,9,Thank you.
4471809,183,1778.4399,1778.71,6,Mr.
4471809,184,1778.71,1788.3899,6,Pavel Zhdanov speaking considering our v uh outlook for twenty twenty two we are finalizing our inaudible uh for twenty twenty two and the Board of Directors is to approve it in December.
4471809,185,1789.59,1803.23,6,Um the basic kboepds target is five hundred and fifty billion rubles excluding West qurna two and again we have the flexibility depending on the market environment.
4471809,186,1810.01,1810.37,10,Thank you.
4471809,187,1839.48,1840.38,10,That's question one.
4471809,188,1861.25,1867.8201,10,And um uh my third question um has a more philosophical nature.
4471809,189,1867.8199,1887.98,10,Now if one assumes that the market environment is favorable price wise and the OPEC+ um constraints are lifted with no negative developments of the taxation side so what would be your um estimate of the production growth potential for Lukoil in Russia?
4471809,190,1889.29,1899.08,10,I understand that your strategy may uh be different uh from the actual opportunities um that you see in the market.
4471809,191,1899.08,1906.62,10,But what's your thinking uh what's your organic growth of production based on these inputs?
4471809,192,1906.62,1906.95,10,Thank you.
4471809,193,1916.46,1917.78,10,inaudible speaking.
4471809,194,1917.88,1921.76,10,Uh on question one the inaudible field uh is expected to be launched at the end of 2022.
4471809,195,1923.76,1924.51,10,That's our estimate.
4471809,196,1924.98,1931.5,10,Second question um well uh one field the Tazarsky field has been launched.
4471809,197,1933.0699,1939.6001,10,Uh that's the anchor field and there is a number of other fields uh which would be part of the JV uh to be launched for them.
4471809,198,1940.04,1963.6201,10,Regarding the production growth potential if I follow your question um you are asking about uh specific plans uh of production growth rather than some exit plans because if you consider our resource base that's large scale and our mid term and long term plans are there uh with uh major changes to those plans given the constraints of the opec plus agreement.
4471809,199,1964.3,1969.2899,10,That agreement is still in place and we cannot know for how long these would last in the future.
4471809,200,1969.29,1976.67,10,However as part of our mid term plan we would intent to ramp up back to the pre-crisis production numbers.
4471809,201,1977.13,1981.4,10,In terms of daily inaudible that um would be next year.
4471809,202,1981.67,1984.62,10,In terms of the full year that would be twenty twenty three.
4471809,203,1986.3101,2000.5601,10,We have very specific uh plans how to grow it further from that level onwards based on the pre-crises plans to eighty three eight four million tons within three years in Russian.
4471809,204,2002.48,2003.21,10,Thank you very much.
4471809,205,2053.1699,2063.4399,10,Construction um is going to be finished pretty soon in q one twenty twenty two so we would expect the unit to ramp up uh to the design capacity in the first half of the year.
4471809,206,2075.1699,2075.51,10,Thank you.
4471809,207,2096.3201,2098.03,10,Thank you very much for the presentation.
4471809,208,2098.26,2102.04,10,My question relates to your CapEx for twenty twenty one this year that is.
4471809,209,2102.04,2107.96,10,You have suggested the number of up to four hundred and fifty billion Roubles excluding the West inaudible project.
4471809,210,2115.99,2123.9399,10,Maybe you could um realistically assume a number of up to four hundred billion Roubles rather than four hundred and fifty.
4471809,211,2124.71,2128.3101,10,And uh how much of the cost have been transferred over to next year?
4471809,212,2128.3101,2130.1399,10,Is that about fifty billion?
4471809,213,2130.25,2135.8701,10,Thank you.
4471809,214,2142.47,2143.48,10,inaudible speaking.
4471809,215,2143.48,2151.4199,10,Indeed some of the costs have been transferred um and we su suggest it would be um somewhat more than two twenty billion.
4471809,216,2152.3201,2156.8201,10,So uh we still maintain our guidance and then is there is the savings of course.
4471809,217,2156.8201,2162.7998,10,So um we would um still maintain our guidance for twenty twenty one at four hundred and fifty billion.
4471809,218,2163.0801,2167.22,10,Uh there is seasonality and uh one would suggest that q four will be slightly higher.
4471809,219,2168.0,2168.3201,10,Thank you.
4471809,220,2173.8601,2175.0098,10,Alexander inaudible speaking.
4471809,221,2175.01,2177.29,10,We see there are no further questions on the line.
4471809,222,2177.29,2179.1101,10,Thank you for taking part in this call.
4471809,223,2179.1399,2180.5901,10,Um so see you next time.
4471809,224,2184.05,2187.04,11,Ladies and gentlemen thank you for joining today's conference.
4471809,225,2187.04,2188.6199,11,You may now replace your handset.
4471961,0,0.56,7.89,0,Good day and welcome to the RusHydro three q and nine m twenty twenty one i f r s Results and Management Conference Call.
4471961,1,7.89,11.16,0,For your information this conference is being recorded.
4471961,2,11.52,12.05,0,At this time.
4471961,3,12.09,15.96,0,i will turn the conference over to Mr Dmitry Yakovlev please go ahead sir.
4471961,4,19.42,30.43,1,So dear ladies gentlemen good afternoon and thanks for joining us on this call following the release of our consolidated financial results uh for the third quarter and nine months of two thousand twenty one.
4471961,5,30.75,33.81,1,Um most recent developments and outlook throughout the rest of the year.
4471961,6,34.26,41.71,1,Participating on the call today is Deputy c e o Sergey Terebulin as well as line managers from sales business planning and operations.
4471961,7,42.36,48.55,1,The report as well as the presentation are available on our IR website and in the Bloomberg terminal.
4471961,8,48.9,59.18,1,Please note that some of the information announced during the call may contain projections or other forward-looking statements regarding future events or future financial performance of RusHydro Group.
4471961,9,59.54,62.89,1,Please refer to the beginning of the presentation for a full disclaimer.
4471961,10,63.28,67.31,1,Now I will give the floor to our speaker Deputy c e o Sergey Terebulin.
4471961,11,69.59,79.39,2,Thank you uh thank you everybody for joining us uh on this call dedicated to RusHydro Group uh consolidated financial statements for nine months of two thousand twenty one.
4471961,12,79.74,85.92,2,Uh traditionally I will briefly go through the presentation and leave more room for your uh for your questions and our answers.
4471961,13,85.95,94.35,2,So uh in terms of key figures and highlights uh over the last nine months our revenue increased by seven point three percent.
4471961,14,94.74,104.22,2,Uh operating expenses remained pretty uh under control uh and operating profit uh as a result increased by two percent up to ₽71 billion.
4471961,15,105.15,117.31,2,EBITDA uh increased by one point six percent so it remains at the pretty stable uh level of ₽92 billion so the net profit uh decreased by thirteen percent.
4471961,16,117.34,123.33,2,Uh later on I will uh describe the factors that affect this uh this issue.
4471961,17,123.36,133.32,2,So total debt uh declined at the moment we have uh one point six uh total leverage in terms of net leverage it's at level of one point zero.
4471961,18,133.66,138.98,2,So the next slide number four is dedicated to uh our revenue.
4471961,19,138.98,144.83,2,As you can see here the uh the breakdown uh the composition of our revenue stream remains pretty stable.
4471961,20,145.16,151.43,2,Uh and the the revenue dynamics is uh shown also here if you have any further questions you'll be able to ask them.
4471961,21,152.23,159.31,2,Then slide number five uh shows you uh the EBITDA and net profit uh bridges.
4471961,22,159.68,189.21,2,As you see here uh the main factors uh that dr that driven uh increase of EBITDA by one point six percent were uh increased operating revenue uh increase of uh governmental grants uh a little uh bit decline in fuel costs and also a little bit increase in fuel costs increase in purchase to electricity uh and capacity it was completely covered by an increase in revenue and uh other factors.
4471961,23,189.24,209.04,2,So uh in terms of net profit it was mainly affected by uh two uh two key factors uh revaluation of V T B forward uh minus ₽9 billion that was only driven by uh by changes in the market uh in our stock prices.
4471961,24,209.5,219.78,2,And uh divestment of JSC that gave us ₽2.2 billion of uh of uh net profit in in the last period.
4471961,25,219.92,231.5,2,So in terms of uh our inaudible in twenty twenty one and key drivers for further further financial performance we keep our pretty stable uh operational outlook.
4471961,26,231.5,240.86,2,We do believe that our uh production on our hydropower hydropower plants will be pretty much in line with the forecast.
4471961,27,241.21,249.14,2,We expect that uh consolidated revenue for two thousand and twenty one will be circa ₽460 billion.
4471961,28,249.14,257.09,2,We also expect that consolidated EBITDA will uh increase ₽110 billion for the year 2021.
4471961,29,257.3,270.34,2,In terms of the uh six new power plants in the Far East region we do expect that the governmental decree uh on D P M will be issued pretty shortly.
4471961,30,270.34,276.37,2,So we are simply it's now in the government so we do expect that the paper will be uh will be issued.
4471961,31,276.99,295.6,2,Uh in terms of uh our dividend policy uh via right today uh the board should decide on the amendments to the dividend policy to make it to adjust it in line with the latest governmental decree um number fifteen eighty nine.
4471961,32,295.6,308.44,2,So the key uh ideas of the existing dividend policy remain uh in place uh so we uh completely uh okay if you have any further questions so we'll just uh address them.
4471961,33,308.98,323.31,2,Uh and in terms of leverage we do expect that by the end of two thousand twenty one uh net debt to EBITDA will be at a level of uh one point two that is uh pretty lower than our original forecast of one point seven.
4471961,34,323.69,327.86,2,I think these are actually the key the key figures uh that we wanted to highlight.
4471961,35,327.93,330.49,2,So if you have any questions please go on.
4471961,36,330.49,330.88,2,Thank you.
4471961,37,332.52,343.99,0,If you wish to ask question…
4471961,38,349.76,353.26,0,And if you're using your speaker phone please ensure that your mute function is turned off.
4471961,39,353.48,355.35,0,Again it is star one for a question.
4471961,40,355.56,356.98,0,we'll now pause just one moment.
4471961,41,358.99,368.1,0,And the first question comes from Sergey Beiden from Renaissance Capital.
4471961,42,368.9,369.4,0,Please go ahead.
4471961,43,371.52,372.27,3,Yeah um.
4471961,44,372.43,372.75,3,Thank you.
4471961,45,372.75,373.25,3,Good morning.
4471961,46,373.29,376.68,3,Uh I have actually two questions.
4471961,47,376.83,397.22,3,First one if i if I look at your personal cost in the third quarter I see that it rose five point seven percent to understand it correctly that it really relates to the indexation of salaries in the middle of this year or uh with something else?
4471961,48,397.86,412.59,3,And the second question uh given your uh kind of uh guidance for full year e b i t d a it means that your- you expect fourth quarter to be uh really dreadful in terms of profitability?
4471961,49,413.09,430.82,3,Um do you expect that the um higher prices in uh gas and um coal really affect your profitability in the Far East in the fourth quarter that significantly or it just means that your guidance is too conservative?
4471961,50,431.33,431.65,3,Thank you.
4471961,51,434.39,434.76,2,Thank you.
4471961,52,434.76,438.5,2,So the answer to the first question is yes your understanding is correct.
4471961,53,438.91,443.73,2,And as uh as for your second question uh I think there are two factors here.
4471961,54,443.76,455.74,2,Uh first of all certainly increase in uh coal and gas prices is affecting uh our uh our results and we do expect it happened in two thousand four.
4471961,55,456.02,461.15,2,Moreover there is uh always a shift uh in this factor.
4471961,56,461.15,467.83,2,So you first buy the fuel and then uh to the extent you consume it you just show it on your books.
4471961,57,467.83,473.67,2,So uh yes in the fourth quarter this factor will uh affect it.
4471961,58,474.09,489.38,2,And uh the second uh factor is just uh a usual seasonal factor because the fourth quarter is typically the one where you just sign all the papers when you uh accept all the all the works.
4471961,59,489.66,495.81,2,And it means that you always have the fourth quarter high in terms of expenses as compared to the first half of the year.
4471961,60,496.13,496.46,2,Thank you.
4471961,61,497.61,497.67,3,Yeah.
4471961,62,498.4,498.74,3,Thank you.
4471961,63,516.73,521.28,0,Next question comes from Roman Filkin from Prosperity Capital Management.
4471961,64,521.59,522.1,0,Please go ahead.
4471961,65,525.06,525.67,4,Yes hello.
4471961,66,531.1,550.14,4,Um I have a question about um the um taxation and some I guess a few weeks ago maybe months ago there was some news that uh nature minister uh suggested to increase the water tax quite considerably by multiple times.
4471961,67,569.15,569.63,2,Thank you.
4471961,68,569.66,580.82,2,Well actually as long as I uh have been working with RusHydro uh I've been hearing this initiative uh coming I think every two years.
4471961,69,580.82,583.38,2,So maybe uh sometimes even every year.
4471961,70,583.41,589.81,2,So uh somebody always wants to increase water tax driven driven by different reasons.
4471961,71,590.2,593.68,2,At the moment uh we do not see any potential harm.
4471961,72,593.68,598.86,2,We do not expect these initiatives will be uh supported by uh by the government at the end of the day.
4471961,73,599.26,616.62,2,At the moment uh it has not been supported neither by uh the Minister of inaudible nor by Vice Chairman inaudible nor by uh any other uh involved uh agencies or ministers.
4471961,74,616.65,619.93,2,So we expect that the it will uh it will be discussed.
4471961,75,620.4,627.81,2,And then no significant or any increase at all will happen on the back of this initiative in fact.
4471961,76,627.81,628.22,2,Thank you.
4471961,77,630.77,631.15,4,Thank you.
4471961,78,663.57,669.65,2,Well frankly speaking I can't give you any uh any projection for the fourth quarter at the moment.
4471961,79,669.65,677.35,2,I can give uh I can say that because actually we use a huge variety of of uh coal types.
4471961,80,677.67,681.16,2,So an average price is not is not applicable here.
4471961,81,681.86,695.3,2,The uh general effect of the uh of the fuel increase uh that we expect in two thousand and twenty one is ₽6.2 billion generally.
4471961,82,695.52,703.47,2,but in terms of again in terms of prices themselves it's you know impossible to give you any guidance because of a huge variety of them.
4471961,83,704.17,704.5,2,Thank you.
4471961,84,713.25,723.14,5,A few questions from my side.
4471961,85,723.14,736.84,5,The first one um is related to the D P M two project in the Far East uh in this presentation you have stated 15-year payback period while uh last time you told us about the consideration of twelve years.
4471961,86,736.98,742.13,5,So uh what is uh actually the final uh expectation please?
4471961,87,743.35,765.0,5,Uh the second relates to the subsidies also recently we've seen the initiative for uh for uh proposal for the annual reduction uh in the next years.
4471961,88,766.03,772.84,5,Uh probably you could um update us on this and um probably you could comment on um anything related to the inaudible deal and the anti-flooding expertise that were also announced before the previous call?
4471961,89,773.11,773.59,5,Thank you.
4471961,90,777.93,779.23,2,So uh thank you.
4471961,91,779.26,788.44,2,Uh so the first question uh well uh what we expect to see in the uh final decree is is shown in the presentation.
4471961,92,788.44,800.64,2,So we expect the percentage of investments will be fifteen years and the expected return would be uh twelve point five percent that means that effective return would be uh kind of eleven percent.
4471961,93,806.06,816.06,2,Okay uh so as for the anti-flooding uh inaudible and stations actually there is no uh there are no uh significant changes since the last call.
4471961,94,816.43,820.24,2,Uh a couple of 'em are now being considered.
4471961,95,820.24,830.07,2,So uh we actually cannot give you any you know uh any guidance here at the moment cause uh there are no final decisions on that.
4471961,96,830.07,835.23,2,Not in terms of uh near in terms of timing nor in terms of of pricing.
4471961,97,835.35,841.73,2,So once we have uh any any better understanding of that we'll certainly disclose it.
4471961,98,841.87,842.24,2,Thank you.
4471961,99,843.38,843.41,5,Uh.
4471961,100,845.43,845.91,5,Thank you.
4471961,101,860.38,861.03,2,Uh.
4471961,102,906.94,910.86,0,Next question comes from Igor Goncharov from Gazprombank.
4471961,103,911.09,911.6299,0,Please go ahead.
4471961,104,915.22,915.62,6,Um.
4471961,105,915.69,917.83,6,Yes thank you very much for the opportunity.
4471961,106,917.83,923.85,6,I just wanted to clarify on the uh on the potential CapEx in twenty twenty one.
4471961,107,923.85,936.9,6,you you have shown um little on slide on the inaudible of the CapEx schedule of the plan CapEx of one twenty four when including v a t.
4471961,108,937.98,938.57,6,Um.
4471961,109,938.79,946.2,6,At the same time for the nine months the CapEx exclusion rate was about ₽47 billion.
4471961,110,946.64,957.63,6,You mentioned several times that the the the uh the plan that you have on the slide twelve is maybe too uh aggressive in terms of CapEx.
4471961,111,957.63,962.3,6,So basically wanted to ask what what's the expectations in terms of CapEx for twenty one?
4471961,112,962.3,967.01,6,Which figure looks reasonable um for CapEx this year?
4471961,113,967.8,968.3,6,Thank you.
4471961,114,969.9,985.34,2,Thank you for asking I think that uh the reasonable figure would be kind of ten percent below the uh the figure in the business plan or something around it.
4471961,115,990.13,1009.57,6,So we should still expect pretty significant CapEx in the fourth quarter inaudible if it's 10% below business plan and we exclude like V A T it's probably coming to somewhere around ₽90 billion excluding um VAT.
4471961,116,1011.27,1013.08,6,Is that a reasonable number?
4471961,117,1014.31,1017.4399,2,You mean for the fourth quarter or you mean uh you mean generally?
4471961,118,1017.44,1018.55,6,No I mean for the year.
4471961,119,1024.5601,1034.95,2,Yeah like that you are right.
4471961,120,1035.47,1037.7,2,Excluding V A T it should be circa ninety billion.
4471961,121,1038.42,1038.7301,6,alright.
4471961,122,1039.96,1041.28,6,mm-hmm <affirmative> Okay.
4471961,123,1041.41,1042.0701,6,Thank you very much.
4471961,124,1048.8101,1051.74,0,Next question comes from Sergey Beiden from Renaissance Capital.
4471961,125,1052.65,1053.16,0,Please go ahead.
4471961,126,1054.91,1055.38,3,Uh.
4471961,127,1055.86,1056.3,3,Thank you.
4471961,128,1056.35,1064.6001,3,I'm just uh returning to the Far East uh and it's given that currently tariff campaign for the next year.
4471961,129,1065.22,1065.52,3,Uh.
4471961,130,1065.62,1083.0801,3,Do you uh expect uh or do you see any kind of uh government inclined inclined to to uh to compensate you for the current growth in fuel prices in the Far East in the next year?
4471961,131,1083.08,1087.7899,3,Or probably in medium term uh tariffs in the Far East?
4471961,132,1088.4301,1088.75,3,Uh.
4471961,133,1089.01,1089.37,3,Thank you.
4471961,134,1089.37,1108.67,3,I mean wh- wh- are you trying to incorporate that increase currently in the next year tariff there or they- you basically you are uh seeing there no possibility for for compensation of the excessive growth we saw this year uh in fuel prices?
4471961,135,1108.84,1109.1499,3,Thank you.
4471961,136,1111.3199,1111.72,2,Thank you.
4471961,137,1112.28,1136.5601,2,Well uh certainly we submitted our proposals and ideas for consideration by the government but in fact I do not expect that next year anything might be compensated because it uh you know it takes quite a time for uh for the officials to take a decision and to understand the uh ultimate implications on the uh on the end tariff on the uh on the consumers and and everything.
4471961,138,1136.5601,1143.45,2,So I would rather expect this decision to compensate as a stake and it should happen in the in the medium term perspective.
4471961,139,1143.72,1144.0499,2,Thank you.
4471961,140,1145.12,1145.4,3,Okay.
4471961,141,1145.4,1159.64,3,But do I understand it correctly that by law uh with the on that long-term uh tariffs in the Far East the government uh is allied to compensate you it cannot basically reject it's just a question of when?
4471961,142,1163.34,1167.24,2,Why are you talking about projections maybe I'm not understanding you correctly.
4471961,143,1187.1899,1198.91,3,So basically by by law any increase in fuel has to be compensated it's just a question of when when that should happen that's what I meant.
4471961,144,1199.3,1224.03,2,Well uh what we uh are discussing now with the officials is kind- is kinda you know changes in regulation that will let us get whole compensation that we have to because according to if we are just living in the long-term um regulation it cannot be uh reflected completely and um and right now we're in a short period of time.
4471961,145,1224.48,1230.36,2,So we submitted our ideas how this uh regulation should be you know altered.
4471961,146,1231.78,1232.1801,3,Okay.
4471961,147,1232.35,1232.6599,3,Thank you.
4471961,148,1240.01,1242.2,0,Next question comes from Anastasia Tikhonova from VTB Capital.
4471961,149,1244.3,1244.7999,0,Please go ahead.
4471961,150,1262.89,1263.21,5,Thank you.
4471961,151,1266.3199,1266.6901,2,Thank you.
4471961,152,1266.6899,1271.12,2,Frankly speaking I don't have at the moment the figures for those particular projects.
4471961,153,1271.12,1275.41,2,So I think we can just send you uh send you the figures a little bit later on okay.
4471961,154,1275.41,1288.8701,2,it it wouldn't be significant uh if you uh so it wouldn't it wouldn't be significant figure in our investment uh general investment activities but if you need the actual figures i will or we will just send it over to you.
4471961,155,1295.9,1299.88,5,Thank you.
4471961,156,1302.26,1302.61,7,Uh.
4471961,157,1302.64,1304.9401,7,Hello thank you for this presentation.
4471961,158,1346.34,1346.88,7,Thank you.
4471961,159,1348.21,1350.73,2,Yes that principal will remain in place.
4471961,160,1351.72,1351.86,7,Okay.
4471961,161,1352.6,1360.5399,2,So the dividend policy will be in line with the decree but uh additionally there with there will be that principal that you mentioned.
4471961,162,1401.13,1401.45,8,Thank you.
4471961,163,1401.45,1402.6699,8,That's my first question.
4471961,164,1402.67,1422.84,8,The second question on dividends um do the basically gains and losses on the forward contract uh should these gains or losses be excluded from the dividend based on I do consider the dividend non-cash is my second question?
4471961,165,1477.36,1479.64,2,Okay thank you for the questions.
4471961,166,1479.6801,1490.6901,2,So first again uh our expectations in terms of EBITDA for two thousand twenty one it's showing less light number of seats we expect it to be over ₽1.10 billion.
4471961,167,1491.75,1495.58,2,I can't give you any you know better uh figure right now.
4471961,168,1495.6899,1512.8,2,So uh so your second question uh forward uh revaluation will not affect the dividend base because no uh non-monetary issues uh should affect it as to the uh latest governmental decree.
4471961,169,1513.12,1520.36,2,And to your third question well actually this is just you know a simple uh a simple mathematics it's a math issue.
4471961,170,1520.36,1546.52,2,So you take the uh stock price uh by the end of the year as uh by the end of uh last year you take the stock price by the end of nine months and the differential give you the uh the figure because what we've shown it was the effect for uh the effect not for the third quarter it was a figure for uh nine months.
4471961,171,1547.6801,1547.7401,8,Um.
4471961,172,1549.5601,1550.5901,8,Yes I understand.
4471961,173,1550.74,1551.0699,8,Uh.
4471961,174,1551.13,1565.89,8,But I'm looking uh at three q results so I'm not looking at the effects for nine months I'm just looking at the effects for Q3 it stood at- uh in the range at about ₽2 billion or ₽3 billion.
4471961,175,1597.38,1598.46,8,Okay thank you.
4471961,176,1602.01,1602.38,8,Okay.
4471961,177,1603.45,1614.21,8,And last question I'm sorry if anybody already asked that but could you guide for the current coal price growth you see for nine months?
4471961,178,1615.8199,1616.13,8,Thank you.
4471961,179,1620.51,1641.5601,2,Uh at the moment uh we see the increase in coal prices in the range of one hundred percent to three hundred percent depending of the uh of the uh coal type that we use.
4471961,180,1643.24,1645.74,2,This is what we face at the moment what we are facing at the moment.
4471961,181,1647.61,1647.97,8,Okay.
4471961,182,1647.97,1648.17,8,Got it.
4471961,183,1656.22,1658.49,8,Thank you very much.
4471961,184,1664.09,1664.22,2,Okay.
4471961,185,1669.08,1674.25,2,So should no one have uh any further questions again thank you everybody for joining us.
4471961,186,1674.25,1677.7301,2,We hope that we met all your uh all your questions.
4471961,187,1677.73,1683.4301,2,If you have any further just uh don't hesitate to contact our IR we'll be glad to answer.
4471961,188,1683.67,1684.04,2,Thank you.
4471961,189,1684.04,1684.8201,2,Thank you very much.
4471961,190,1684.86,1685.36,2,Bye-bye now.
4472403,0,2855.9299,2875.78,17,Thank you.
4472895,0,0.2,6.96,0,Good day and ladies and gentlemen welcome to Quhuo's third quarter twenty twenty one earnings conference call.
4472895,1,6.96,10.74,0,At this time all participants are in a listen-only mode.
4472895,2,11.19,14.89,0,After the management's prepared remarks there will be a q and a session.
4472895,3,15.58,17.76,0,Today's conference call is being recorded.
4472895,4,18.14,21.34,0,If you have any objections you may disconnect at this time.
4472895,5,21.92,26.53,0,I would now like to turn the conference over to your host for today's conference call Mr.
4472895,6,26.56,27.31,0,Eric Yuan.
4472895,7,27.59,28.27,0,Please go ahead.
4472895,8,30.79,31.01,1,Okay.
4472895,9,31.04,32.05,1,Thank you Operator.
4472895,10,32.13,33.1,1,Hello everyone.
4472895,11,33.15,37.91,1,Uh welcome to Quhuo's third quarter twenty twenty one earnings conference call.
4472895,12,38.41,43.11,1,The company's results were released earlier today and are available on our our website.
4472895,13,43.73,47.34,1,Uh on the call today are Leslie Yu Chairman and CEO;
4472895,14,47.37,49.08,1,Co-Founder Barry Ba;
4472895,15,49.33,51.49,1,and uh C F O Sandra Ji.
4472895,16,52.12,59.11,1,Leslie will review business operations and the company highlights followed by Sandra who will discuss financials and guidance.
4472895,17,59.77,63.46,1,they'll be available to answer your questions in the q and a session that follows.
4472895,18,63.94,74.86,1,Before we begin I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of nineteen ninety five.
4472895,19,75.56,102.04,1,Such statements are uh based on management's current expectations and current market and operating conditions and may relate to the events that involve known or unknown risks uncertainties and other factors of which are difficult to predict and many of which are beyond the company's control which may cause the company's actual results performance and achievements to differ materially from those in the forward-looking statements.
4472895,20,102.56,111.29,1,Further information regarding these and other risks uncertainties and factors is included in the company's filings with the u s s e c.
4472895,21,111.98,122.33,1,The company does not undertake any obligation to update any forward-looking statements as a result of the new information future events or otherwise except as required under law.
4472895,22,149.59,162.58,2,All of our three main business lines on-demand delivery mobility and housekeeping solutions all enjoyed continued strong demand with our top line growth outpacing that of the industry.
4472895,23,163.57,167.54,2,Now let me walk you through our key business performance in q three.
4472895,24,168.81,178.16,2,First let's look at our biggest revenue contributor the on-demand delivery business.
4472895,25,178.16,185.65,2,Its revenue reached RMB1 .05 billion up 38% year-over-year exceeding the rmb one billion mark for the first time.
4472895,26,194.82,201.83,2,This growth rate was clearly faster than the industry average showing our ability to quickly gain market share.
4472895,27,215.7,232.65,2,By Q3 we provided our on-demand delivery services in twelve hundred thirty one business circles across eighty seven cities nationwide compared with a thousand and sixty seven business circles across seventy cities in the same period in two thousand twenty.
4472895,28,233.76,241.68,2,In addition we expand our coverage of serving chain merchants directly including supermarkets and the chain restaurants.
4472895,29,242.28,247.7,2,This so-called new retail business gaining the strong momentum in q three.
4472895,30,267.66,286.72,2,This positions Quhuo were very well in capturing new business opportunities in this burgeoning segment as evidenced by our community and the grocery delivery enjoying explosive growth in Q3 with revenue up 262% year-over-year.
4472895,31,288.0,301.56,2,Furthermore our expanding network is enabling Quhuo to sustain our leading position on business scale and service quality while also improve our operational efficiencies and cost structure.
4472895,32,314.97,343.4,2,For our Mobility business this strategic segment continued its strong growth in q three with revenues reaching rmb thirty four .6 million up three hundred and sixty four sixty five percent year-over-year and thirty five percent quarter-over-quarter.
4472895,33,344.57,357.55,2,Besides shared bike ride hailing starting July this year we launched our freight service for industry customers by fulfilling end-to-end intra-city and the long distance transportation orders.
4472895,34,358.6,363.59,2,We believe this is a very promising business with huge market potential.
4472895,35,364.4,373.69,2,All above reflected our growing brand awareness and the resulting in market share gains in this lucrative category.
4472895,36,376.08,390.5,2,Let me now provide another update on our exci exciting multi-scenario deployment wh which enables gig workers to have multiple jobs on our platform to optimize their overall income.
4472895,37,391.14,400.25,2,In q three the cumulative number of workers we engaged in two or more types of jobs on our platform reached about two-
4472895,38,400.8,406.18,2,twenty two thousand seven hundred increasing twenty eight percent quarter-over-quarter.
4472895,39,407.06,413.9,2,Female workers accounted for 16% of the total group increasing from 10% in the previous quarter.
4472895,40,414.45,429.58,2,"For riders with an average monthly income of at least rmb five ,000 they represented more than fifty four thousand workers accounting for fifty one percent of total group flat with the previous quarter."
4472895,41,431.54,445.98,2,In q three we would like also to highlight the importance of our aggressive investment in Quhuo's technology platform reflected by doubling of our r and d research and development expenses from a year ago.
4472895,42,446.41,457.8,2,We believe these expenditures will enhance our competitiveness by improving operational efficiency and service quality while expanding our services to more sectors.
4472895,43,460.1,473.33,2,A clear illustration of our progress on the technology front is the low out this quarter of our new Laizhenge platform including our new family-oriented housekeeping services.
4472895,44,474.24,488.8,2,Our goal is to extend our world-class housekeeping service capabilities from hotels and the restaurants to directly to home and the communities the market size of which is expanded to reach the trading r and d level.
4472895,45,526.58,543.34,2,Meanwhile through cooperation with more property management companies we can also mobilize our existing housekeeping workforce and our infrastructures to engage in the community housekeeping services creating a win-win solutions for all parties.
4472895,46,545.36,551.79,2,Finally let me talk about our continued efforts in driving profitability in q three.
4472895,47,552.82,573.95,2,In spite of operating constraints from the strains of covid nineteen containment measures and with heightened competition we were still able to achieve r m b nineteen million net income result in q three compared with a net loss of rmb ten million in the same period last year.
4472895,48,575.06,579.6,2,Adjusted net income for q three was rmb twenty eight million.
4472895,49,580.36,588.87,2,The results reflected our commitment to sustainable profitability as we continued to advance our lucrative business model.
4472895,50,590.63,592.37,2,This concludes my prepared remarks.
4472895,51,592.79,598.91,2,I will now turn the call over to our C F O Sandra and who will discuss our financial results for the third quarter.
4472895,52,599.15,599.52,2,Thank you.
4472895,53,601.69,607.31,3,Thanks Leslie.
4472895,54,608.0,608.39,3,Hello everyone.
4472895,55,608.39,611.5699,3,Welcome to Quhuo's third quarter 2021.
4472895,56,613.81,619.06,3,Please be reminded that all amounts quoted here will be r m b unless stated otherwise.
4472895,57,620.16,635.64,3,For this quarter our total revenues were one thousand one hundred and five point five million representing an increase of forty three point seven percent year-over-year primarily due to the rapid growth of our major business lines.
4472895,58,636.27,664.4,3,Revenues from on-demand delivery solutions were one thousand and forty seven million representing an increase of thirty eight percent from seven hundred fifty eight point eight million in the third quarter of twenty twenty primarily due to the increase in the number of delivery orders were fulfilled as a result of the industry growth as our continued penetration and expansion into new geographic markets.
4472895,59,665.05,696.53,3,Revenues from mobility service solutions consisting of shared bike maintenance ride hailing and the freight service solutions were thirty four point six million representing an increase of three hundred sixty four point five percent from seven point four million in the third quarter of twenty twenty primarily due to our enlarged customer base as a service scope for shared bike maintenance solutions and uh the commencement of freight service solutions in July twenty twenty one.
4472895,60,697.11,723.4301,3,Revenues from housekeeping and accommodation solutions were twenty one point nine million representing a significant increase of five hundred thirty eight percent from three point four million in the third quarter of twenty twenty primarily because we enlarged our customer base for housekeeping and accommodation solutions to include hotels and the b and bs following our acquisition of Lailai and the Chengtu Home.
4472895,61,724.11,763.46,3,Our cost of revenues were one thousand and fifty five point one million representing an increase fifty three point two percent year-over-year primarily due to our business expansion which resulted in increased costs prop proportionate to our revenue growth as the the incremental hiring expenses and the higher and equipment costs to expand the workforce on our platform and to secure additional resources in preparation for the anticipated increased demand of our solutions and our continuous business expansion plan in the first quarter.
4472895,62,763.99,779.28,3,General and administrative expenses were fifty six point two million representing a decrease of forty five point six percent from one hundred and three point two million in the third quarter of last year.
4472895,63,779.66,811.71,3,The decrease was primarily due to the decrease in share-based compensation expenses from seventy two million in the third quarter of last year to nine point one million in third quarter of this year primarily because we incurred substantial share-ba share-based compensation expenses in the third quarter of twenty twenty as we satisfied the performance conditions of our share incentive award upon completion of our initial public offering offering them.
4472895,64,812.2,834.68,3,Excluding share-based compensation expenses general and administrative expenses increased by fifty one percent year-over-year primarily due to the increase in staff cost in line with the rapid growth of our housekeeping solutions and the professional service fees and expenditures in connection with our business expansion plan.
4472895,65,835.56,862.3,3,Our research and development expenses were six point three million representing an increase of one hundred eight point nine percent from three million in the third quarter of twenty twenty primarily due to the incurrence of outsourcing expenses to develop a new SaaS system for our housekeeping solutions and the increase in staff cost as we enlarged our our research and the development team.
4472895,66,863.18,870.66,3,The operating loss was nineteen point three million compared to operating loss of twenty four million in the third quarter of last year.
4472895,67,871.27,884.58,3,Excluding share-based compensation expenses the adjusted operating loss was ten point two million compared to adjusted operating profit of forty eight million in the third quarter of twenty twenty.
4472895,68,885.04,900.2401,3,We recorded other income net of thirty nine point two million compared to other income net of thirty two point one million in the third quarter of twenty twenty primarily due to the increase in fair value change of investments in mutual funds.
4472895,69,900.99,920.41,3,We also recorded income tax benefit of zero point eight million compared to income tax expenses of fifteen point eight million in the third quarter of twenty twenty primarily due to the lower estimated annual effective tax rate for the third quarter of twenty twenty one.
4472895,70,921.16,931.32,3,Net adjusted EBITDA was thirty five point one million compared to adjusted e b i t of eighty five point one million in the third quarter of twenty twenty.
4472895,71,931.7,942.46,3,The adjusted net income was twenty eight point two million compared to adjusted net income of sixty one point three million in the third quarter of twenty twenty.
4472895,72,943.26,958.45,3,For the balance sheet as of September thirty twenty twenty one we had cash short-term investments and the restricted cash of two hundred fifty seven point one million and short-term debt of one forty point six million.
4472895,73,959.06,962.63,3,Now move to our financial outlook for next quarter.
4472895,74,963.01,980.39,3,For the first quarter of twenty twenty one we expect the total revenues to be in the range of one thousand and fifty million to one thousand one hundred and fifty million representing an increase of twenty point six percent to thirty two percent year-over-year.
4472895,75,980.84,989.91,3,The forecast reflects our current and preliminary views on the market and its operational conditions which is subject to change.
4472895,76,990.53,993.21,3,I think this concludes our prepared remarks.
4472895,77,993.54,994.82,3,Thank you for your attention.
4472895,78,994.82,996.75,3,we're now happy to take your questions.
4472895,79,997.08,998.54,3,Operator please go ahead.
4472895,80,999.68,1000.2,0,Thank you.
4472895,81,1000.68,1003.0,0,We will now being the question and answer session.
4472895,82,1003.43,1010.0099,0,If you wish to ask a question please press one on your telephone keypad and wait for your name to be announced.
4472895,83,1010.52,1014.05,0,If you wish to cancel your request please press the pound or hash key.
4472895,84,1018.64,1028.59,0,Once again if you wish to ask a question you may press one on your telephone keypad.
4472895,85,1045.96,1047.6499,4,Hi good morning good afternoon.
4472895,86,1049.0699,1050.8201,4,Um thanks for taking my questions.
4472895,87,1051.63,1066.61,4,Um first I know some of the other gig economy companies in China talked about some weakness in consumer demand from both the COVID variant of Delta and then some some flooding and other macro impacts.
4472895,88,1067.23,1076.0801,4,Um or did you guys see anything similar in three q um and if so has any of have any of those trends normalized for four q?
4472895,89,1097.14,1098.01,2,This is Leslie.
4472895,90,1098.01,1110.08,2,And uh even though the covid nineteen containment measures across the overall China we can see we capture the business opportunity and we have very strong growth.
4472895,91,1110.95,1123.4901,2,So compared with our uh according to our growth we consider that the the market for on-demand delivery and for housekeeping and for mob for mobility is still very strong.
4472895,92,1124.02,1137.6,2,And we expect that the q four as indicated by Sandra in the uh uh financial outlook we are still expanding that there will be huge demand and we will maintain this growth.
4472895,93,1138.34,1144.96,2,Uh although there will be uh like a spring festival followed up by uh q four.
4472895,94,1145.12,1156.9,2,So we mainly focused on the profitability driven in q four but we expected that the demand for the service and for the revenue growth is still strong.
4472895,95,1157.12,1157.51,2,Thank you.
4472895,96,1161.79,1162.1901,4,Thanks.
4472895,97,1162.24,1175.7101,4,Um and secondly uh your gross margins were a little bit under pressure again in three q um down a bit more from two q versus what they were last year.
4472895,98,1176.3199,1186.26,4,How much of that is one-time in nature from some of the platform expenses you incurred to grow in terms of like technology and hardware?
4472895,99,1186.4,1194.0399,4,And then what sort of like a steady state forward gross margin outlook for four q and beyond?
4472895,100,1197.77,1205.17,2,Um I would I would like to explain uh the reason why the gross profit is a little bit little bit down in q three.
4472895,101,1205.17,1221.14,2,That is because uh uh we uh we have recruited a lot of staff um preparing for this q four because uh we already expecting uh very strong growth compared with last year.
4472895,102,1221.28,1224.42,2,And overall it is about eighty percent growth compared with last year.
4472895,103,1224.7,1244.2101,2,So for this coming winter we need to prepare uh people in advance because in this year particularly in the market the labor is uh more um the supply of the labors compared with the last few years is uh relatively limited.
4472895,104,1244.58,1249.4,2,So we have to get more people on board with us uh prepared for the q four.
4472895,105,1249.4,1257.98,2,And also be cuz uh uh we are facing uh some extreme weather according to the forecast uh for this winter.
4472895,106,1257.98,1262.86,2,So we are prepared for our winter equipment uh a little a little bit early.
4472895,107,1262.86,1266.0,2,And uh it is a full preparement in q three.
4472895,108,1266.4,1280.67,2,Uh that's the reason why why we and a little a little cost has been increased in our operational cost but it is one-off investment in the winter equipment and also in the labor recruitment cost.
4472895,109,1297.05,1300.98,3,We expect the margin will be better than this quarter.
4472895,110,1301.87,1302.2899,3,Thank you.
4472895,111,1306.0699,1306.37,4,Got it.
4472895,112,1306.37,1306.63,4,Thank you.
4472895,113,1306.63,1307.1699,4,That's helpful.
4472895,114,1307.46,1309.13,4,Um one more if I may.
4472895,115,1309.84,1317.26,4,Can you sort of talk a little bit more about the multi-city deployment?
4472895,116,1317.62,1320.6901,4,Um what's your go-to-market strategy there?
4472895,117,1320.6899,1333.51,4,Like how do you select which which city I'm not I'm sorry not multi-city multi-service uh which cities get the multi-service and and how do you how do you onboard some of your workers onto that platform?
4472895,118,1350.15,1362.9601,2,Uh for multiple jobs completed and uh also we consider a multi-scenario deployment actually that we this is a national-wide uh strategy.
4472895,119,1363.14,1370.1799,2,And we basically will provide uh for our workers for multi-job opportunities.
4472895,120,1370.49,1386.0599,2,But for these workers possibly and uh this does not have this kind of skill or capability so we have online training system and the schedule uh equipped with inside purchase.
4472895,121,1386.35,1397.86,2,So with these two systems we'll help them to adapt them to the new job uh opportunities and help them to get the income uh more income.
4472895,122,1398.3199,1410.0601,2,Uh besides of that I know we have uh called this um uh foreign language.
4472895,123,1410.17,1411.13,2,Screen system.
4472895,124,1411.21,1411.59,2,Yeah.
4472895,125,1411.62,1414.25,2,We have a screen system on Quhuo platform.
4472895,126,1414.61,1427.2301,2,This screen system will help to record and uh uh this uh this personnel and their qualification and their skill set and their work record in the system.
4472895,127,1427.49,1435.96,2,And we use a kind of like the algorithms to help us to identify and match the people to the right jobs.
4472895,128,1436.72,1454.5699,2,And when these people in the system being matched and we will encourage them and provide them with the training program and uh some kind of encouragement and they will be better easier and also be encouraged uh to work in the new job opportunities.
4472895,129,1454.6801,1470.26,2,That's how we can uh uh keep uh the more workforce in our platform to uh have uh more job opportunities and increasing about twenty eight percent quarter-over-quarter.
4472895,130,1470.39,1471.0,2,Yeah thank you.
4472895,131,1475.79,1476.34,4,Okay thank you.
4472895,132,1476.45,1476.99,4,That's it for me.
4472895,133,1481.16,1483.5199,0,There are no further questions at this time.
4472895,134,1483.87,1487.25,0,Ladies and gentlemen that does conclude our conference for today.
4472895,135,1487.28,1488.63,0,Thank you for participating.
4472895,136,1488.63,1489.8199,0,You may now all disconnect.
4473238,0,3.95,5.04,0,Hello ladies and gentlemen.
4473238,1,13.96,17.01,0,At this time all participants are in listen-only mode.
4473238,2,18.02,21.26,0,After management's remarks there will be a question and answer session.
4473238,3,38.98,40.0,1,Thank you very much.
4473238,4,40.49,47.27,1,Hello everyone and welcome to R L X Technology's third quarter twenty twenty one earnings conference call.
4473238,5,48.19,57.91,1,The company's financials and operational results were released through PR Newswire services earlier today and have been made available online.
4473238,6,59.23,68.87,1,You can also view the earnings press release by visiting the IR section of our website at ir dot relx tech dot com.
4473238,7,70.87,80.95,1,Participants on today's call will include our Co-Founder Chairperson of the Board of Directors and Chief Executive Officer Ms.
4473238,8,80.95,81.74,1,Kate Wang;
4473238,9,82.97,85.28,1,Chief Financial Officer Mr.
4473238,10,85.28,86.07,1,Chao Lu;
4473238,11,86.97,91.68,1,and myself Sam Tsang Head of Investor Relations.
4473238,12,93.58,107.61,1,Before we continue please note that today's discussions will contain forward-looking statements made under the Safe Harbor Provisions of the u s Private Securities Litigation Reform Act of nineteen ninety five.
4473238,13,109.3,124.08,1,These statements typically contain words such as may will expect target estimate intend belief potential continue or other similar expressions.
4473238,14,125.52,129.28,1,Forward-looking statements involve inherent risks and uncertainties.
4473238,15,129.97,147.23,1,The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated many of which factors are beyond our control.
4473238,16,148.98,163.64,1,The company its affiliates advisors representatives and underwriters do not undertake any obligations to update this forward-looking information except as required under the applicable law.
4473238,17,165.77,179.54,1,Please note that R L X Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non GAAP financial measures.
4473238,18,180.39,190.72,1,RLX's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited GAAP measures.
4473238,19,191.64,194.79,1,i'll now turn the call over to Ms.
4473238,20,194.79,195.53,1,Kate Wang.
4473238,21,196.31,197.17,1,Please go ahead.
4473238,22,200.09,201.12,2,Thank you Sam.
4473238,23,201.4,206.93,2,And thanks everyone for making time to join our conference call today.
4473238,24,208.61,219.92,2,Since the second half of the third quarter there have been proactive regulatory developments through the global e-vapor space including in China.
4473238,25,221.5,264.65,2,Last Friday November twenty sixth two thousand twenty one the State Council announced its decision to amend the detailed invitation regulations of the Tobacco Monopoly Law of the People's Republic of China by adding rule sixty five which states that implementation rules for next generation tobacco products including e-cigarettes shall be referred to as relevant tools with respect to cigarettes on Brazil's implementation regulation of the Tobacco Monopoly Law.
4473238,26,266.38,299.91,2,On Tuesday November thirtieth two thousand twenty one the State Tobacco Monopoly Administration released a consultation paper entitled Electronic Cigarettes A National Public Service inaudible For Standards Information under the state's administration for market regulation seeking public comment regarding na national electronic cigarette product standards.
4473238,27,301.74,340.12,2,Yesterday December second two thousand twenty one the State Tobacco Monopoly Administration released a consultation paper entitled Administrative Measures for Electronic Cigarettes seeking public comment regarding administrative measures on electronic cigarettes covering various aspects including production distribution and retail sales import and export and inspections.
4473238,28,340.94,361.19,2,Uh we firmly support this amendment to the detailed implementation regulations and have begun making any required change to fully comply with the new regulations and administrative measures.
4473238,29,363.02,371.96,2,We believe the amendment will pave the way for long-term and sustainable growth in this sector.
4473238,30,374.34,384.42,2,We are also aware of meaningful worldwide regulatory developments which reflect similar trends globally.
4473238,31,386.6,411.28,2,In the United States the F D A has made substantial progress reviewing P M T A applications and granted its first e-vapor product authorization in October demonstrating its reclamation of certain e-vapor products' harm reduction effect.
4473238,32,413.97,434.71,2,We closely follow global regulatory developments and view regulation of e-vapor products as a global trend and view growth as countries worldwide recognize e-vapor products' harm reduction benefits for adult smokers.
4473238,33,437.27,465.78,2,With these regulatory developments especially in China we believe the sector will enter a new era of development an era marked marked marked by enhanced productivity and qualities augmented social responsibilities and an improved electoral property protection.
4473238,34,468.19,487.29,2,As some of you may be aware the third quarter was challenging on the commercial front for the entire industry value chain which had been reflected in our key value chain partners' financial results previously.
4473238,35,489.23,519.61,2,Misinformation from inaudible e-vapor sector and the Walgreen covid nineteen restrictions in response to outbreaks in China which we discussed during last quarter's earnings call has had a significant adverse impact on the retail sales and product procurement of our branded stores since the latter half of the second quarter.
4473238,36,521.91,529.57,2,As a result we have record uh thirty four percent quarter-over-quarter decline in our net revenue.
4473238,37,530.8,544.57,2,But we believe this revenue decline to be temporary and have a clean plan clear plan to achieve long-term healthy growth which Chao will explain in detail later.
4473238,38,548.04,557.22,2,Despite those industry impediments we continue to focus on building a solid foundation for sustainable success.
4473238,39,558.33,572.57,2,In the third quarter we redoubled our scientific research efforts and continue to attract and recruit top talent to strengthen our sales supply chain and r d capabilities.
4473238,40,574.46,582.44,2,We are committed to providing adult smokers with innovative harm reduction products of the highest quality.
4473238,41,585.06,589.87,2,Also at R L X we also plan and act for the long-term.
4473238,42,590.79,597.67,2,Corporate social responsibilities have been an integral part of values since day one.
4473238,43,599.54,615.12,2,In the third quarter we unveiled our two thousand twenty to twenty twenty one corporate social responsibility report wherein we shared our progress with respect to our C S R initiatives.
4473238,44,616.84,629.64,2,Some highlights include our industry-leading age verification system Sunflower System three point oh with enhanced features to prevent under eighteen use.
4473238,45,631.39,639.79,2,Our RLEX Care community service program to promote role revitalization and common prosperity.
4473238,46,641.74,650.22,2,These accomplishments are a testament to our dedication to fulfilling our social responsibilities.
4473238,47,651.87,659.27,2,We strive to positively impact our users employees and communities in which we live.
4473238,48,666.78,676.75,3,he'll elaborate on some of our last quarter's initiatives and go over our operational and financial results in more detail.
4473238,49,677.99,679.08,3,Chau please go ahead.
4473238,50,681.97,682.72,4,Thank-you Kate.
4473238,51,683.04,683.93,4,And hello everyone.
4473238,52,684.67,692.94,4,I will start by sharing some of the quarter's major initiatives and developments and then walk you through our key financial metrics.
4473238,53,694.15,704.02,4,We believe that offering the right products to the right user segments through the optimal route to market will be the key to our sustainable high quality growth.
4473238,54,705.57,718.23,4,To this end we continue to expand our product offerings to meet the needs of diverse user segments and optimize our distribution and retail networks to ensure quality growth.
4473238,55,719.96,732.34,4,With respect to products we are focused on offering better and more tailored vaping products for various user groups to help engage new users with the right products.
4473238,56,732.65,740.67,4,This quarter we introduced Yixiyun a new brand targeting adult smokers with a long history of smoking.
4473238,57,742.95,752.53,4,Our goal is to recreate an authentic smoking experience for adult smokers by launching eight tobacco flavored cartridges in our initial stage.
4473238,58,753.43,761.8,4,At the same time we further upgraded Qinfeng a more accessible product line catering to price sensitive users' needs.
4473238,59,763.58,778.54,4,We also recently relaunched Stella or Xinghe in Chinese a premium device line with upscale st styling including leather lace and other fashionable materials.
4473238,60,779.75,787.6,4,We will continue to monitor users experiences very closely and launch innovative targeted products at the right time.
4473238,61,791.53,796.21,4,We also made several advancements in user retention and engagement during the quarter.
4473238,62,798.16,805.65,4,We successfully upgraded our membership system enabling members to enjoy more benefits as they accumulate rewards points.
4473238,63,806.58,819.93,4,A growing number of users are scanning the QR code on their cartridges to collect reward points which will allow us to empower users with instant product authentication.
4473238,64,821.88,833.24,4,Separately we have established more effective communication channels to provide unbiased fact-based scientific e-vape product information to our users and the community.
4473238,65,836.24,842.15,4,Finally we are concentrating on distribution and retail channel optimization.
4473238,66,844.19,855.19,4,Instead of engaging more distributors and extending the number of our RELX branded stores this quarter we prioritized our existing distributors organizational upgrade.
4473238,67,857.77,864.82,4,We encouraged our distributors to hire exceptional talent and refine their team structure within each department.
4473238,68,866.56,878.93,4,We optimized existing RELX branded partner stores' location by identifying areas with high retail sales potential and encouraging store owners to adjust their operations accordingly.
4473238,69,881.63,900.29,4,In addition we provided online and off-line trainings for store owners and sales personnel to enhance their communication skills and enrich their product knowledge in order to counter the adverse effects from misinformation regarding from periodic negative publicity in all categories.
4473238,70,902.82,917.86,4,We have also upgraded our digitalization system for branded partner stores provided improved fun functionality and additional user portals to assist store owners and sales personnel in their daily operations.
4473238,71,920.65,929.44,4,For our other retail outlets our focus in the third quarter was to identify prime outlets for expansion through trials and various channels.
4473238,72,931.13,939.13,4,These trials resulted in several initial successes including some momentum in lifestyle channels and other key accounts.
4473238,73,944.44,951.3,4,In addition to our emphasis on high quality growth we are deeply committed to fulfilling our corporate social responsibility.
4473238,74,952.66,963.33,4,We believe a healthy relationship between our products users shareholders and the community has been essential to the growth we have achieved over RELX's four year history.
4473238,75,965.33,971.16,4,With this in mind we'll work tirelessly to introduce new technologies to tackle industry pinpoints.
4473238,76,972.28,977.61,4,For example minor protection is one of uh RELX's highest priorities.
4473238,77,978.73,988.11,4,We spare no effort in our minor protection initiative from product labels to trade channels and technology innovation.
4473238,78,989.87,1004.86,4,In June two thousand twenty one we began upgrading Sunflower Systems our technology driven minor protection system to version three point oh and currently equipped all of our branded store with the upgraded software.
4473238,79,1006.87,1018.48,4,On the Sunflower Systems three point oh all users are required to complete name plus ID number plus face recognition three step verification before purchasing.
4473238,80,1021.17,1029.2,4,After the amendment to China's National Standards become effective we will strictly comply with any upgraded product requirements.
4473238,81,1030.17,1043.2201,4,For example we are prepared to include minor protection features such as child safety locks similar to the feature which we have incorporated into our RELX i product line back in two thousand nineteen.
4473238,82,1043.22,1054.83,4,As a company that values long term high quality growth our commitment to social corporate responsibility is at the core of our daily operations.
4473238,83,1057.1801,1062.0699,4,To echo what Kate has pointed out previously our game has entered the second half.
4473238,84,1063.09,1099.14,4,With the state council's decision to amend the detailed implementation regulations of the tobacco monopoly law and the subsequent release of a consultation paper regarding national electronic cigarette product standard by the state tobacco monopoly administration as well as last night's release of a convul- consultation paper regarding an administrative measure on electronic cigarettes covering various aspects including production distribution and retail sales import and export and inspections.
4473238,85,1119.62,1131.3199,4,The investment we made in product talent research and compliance in the third quarter and beyond will place us in an advantageous position on the new regulatory paradigm.
4473238,86,1133.3101,1141.83,4,We expect these investments to yield steady and sustainable growth soon and to reward us and our shareholders in the long term.
4473238,87,1144.6801,1167.33,4,Turning to our financial results for the third quarter of two thousand twenty one net revenues decreased by thirty four percent to rmb one .368 billion equivalent to u s two hundred sixty point two million in the third quarter of two thousand twenty one from rmb two .54 billion in the second quarter of two thousand twenty one.
4473238,88,1170.3101,1179.13,4,The decrease was the result of watered down market conditions including one negative e-vaping industry publicity since the latter half of the second quarter.
4473238,89,1180.11,1193.63,4,Two the fact that the new draft new rules announced on March twenty two two thousand twenty one had not been formally confirmed and no new information implementation details had been revealed during the quarter.
4473238,90,1195.03,1205.15,4,And three evolving restrictions in response to covid nineteen outbreaks in China which had adverse impact on our sales and channel inventory management.
4473238,91,1209.52,1224.63,4,Gross profit decreased by forty two point eight percent to rmb six hundred fifty six million equivalent to u s one uh one hundred and one point eight million in the third quarter of two thousand twenty one.
4473238,92,1225.04,1228.7999,4,From rmb one .15 billion in the second quarter of two thousand twenty one.
4473238,93,1229.85,1243.99,4,Gross margin was 39.1% in the third quarter of two thousand twenty one compared to fifty four sorry forty five point one percent in the second quarter of two thousand twenty one.
4473238,94,1245.99,1255.1399,4,The decrease was primarily due to one an increase in direct costs related to promotional activities and two an increase in inventory provisions.
4473238,95,1257.09,1277.3899,4,Operating expenses were positive r m b two hundred forty one .3 million equivalent to u s thirty seven point five million in the third quarter of two thousand twenty one representing a decrease of two hundred forty four point four percent for rmb a hundred sixty seven .2 million in the second quarter of two thousand twenty one.
4473238,96,1279.01,1308.9399,4,This significant decrease in operating expenses was primarily due to a recognition of share-based compensation expenses of positive rmb five hundred and twenty three .7 million equivalent to u s uh eighty one point three million consisting of one share-based compensation expenses of positive rmb ninety .8 million equivalent to us fourteen point one million recognized in some expenses.
4473238,97,1309.55,1318.49,4,Two share-based compensation expenses of positive RMB320 .1 million equivalent to us $49.7 million recognized in general…
4473238,98,1319.6899,1323.36,5,Equivalent to US dollars 49.7 million recognized in general and…
4473238,99,1324.34,1326.1901,5,and administrative expenses.
4473238,100,1327.27,1340.47,5,And three share-based compensation expenses of positive r and d one hundred and twelve point eight million equivalent to US dollar seventeen point five million recognized in research and development expenses.
4473238,101,1343.53,1344.71,5,The signif-date…
4473238,102,1344.71,1360.1899,5,The significance fluctuation in share-based compensation expenses were primarily due to the changes in fair value of the share in inaudible that the company granted to its employees as effective by significant fluctuation of the company's share price.
4473238,103,1366.1,1378.1901,5,Some expenses decreased sixty five point one percent to r d fifty six point five million equivalent to US dollar eight one eight million in February of two thousand twenty one.
4473238,104,1378.97,1383.28,5,From R&D in the second quarter of two thousand twenty one.
4473238,105,1384.5601,1399.38,5,The decrease was primarily driven by first the fluctuation of share-based compensation expenses and second a decrease in salaries and well-fare based benefits partially offset by an increase in branding materials expenses.
4473238,106,1401.65,1423.5701,5,General and administrative expenses decreased by six hundred and forty nine point eight percent to positive r and d two hundred fifty three point two million equivalent to US dollar thirty nine point three million in the third quarter of two thousand twenty one from r and d forty six point one percent in the second quarter of two thousand twenty one.
4473238,107,1424.99,1434.4199,5,The decrease was primarily driven by the fluctuation of share-based compensation expenses and a decrease in salaries and well-fare benefits.
4473238,108,1439.8,1458.5901,5,Research and development expenses decreased by eight hundred and eight point three percent to positive r and d forty four point six million equivalent to US dollar six one nine million in the third quarter of two thousand twenty one from positive r and d four one nine million in the second quarter of two thousand twenty one.
4473238,109,1459.71,1473.12,5,The decrease was mainly driven by the fluctuation of the share-based compensation expenses and a decrease in salaries and well-fare benefits partially offset by an increase in software and tech…
4473238,110,1473.5,1478.66,5,and technical expenses and second an increase in software expenses.
4473238,111,1481.15,1494.62,5,Income from operations was r and d eight hundred and ninety seven point three million equivalent to US dollar a hundred thirty nine point three million in the third quarter of two thousand twenty one compared with r and d nine hundred…
4473238,112,1494.6801,1498.5901,5,nine hundred and seventy nine point three million in the second quarter of two thousand twenty one.
4473238,113,1501.97,1517.41,5,Income tax expenses was r and d a hundred twenty one point four million equivalent to US dollar eighteen point eight million in the third quarter of two thousand twenty one compared to r d two hundred four point two million in the second quarter of two thousand twenty one.
4473238,114,1519.09,1523.25,5,The decrease was primarily due to a decrease in taxable income.
4473238,115,1524.1801,1536.3401,5,US Gap Net Income was r and d nine hundred seventy six point four million equivalent to US dollar a hundred fifty nine…
4473238,116,1536.64,1537.79,5,a hundred fifty one sorry.
4473238,117,1537.8199,1547.0701,5,a hundred fifty one point five million in the third quarter of two thousand twenty one compared to r and d eight hundred twenty four point three million in the second quarter of two thousand twenty one.
4473238,118,1549.67,1567.12,5,Long Gap Net Income was r d four hundred fifty two point seven million equivalent to US dollar seventy point three million in the third quarter of two thousand twenty one representing a decrease of thirty point five percent from r and d six hundred fifty one point eight million in the second quarter of twenty twenty one.
4473238,119,1570.01,1594.4701,5,US Gap uh Basic and Diluted Net Income for A D X were r and d zero point seven two four equivalent to US dollar zero point one one two and r and d zero point seven one seven equivalent to US dollar zero point one one one respectively in the third quarter of two thousand twenty one.
4473238,120,1595.51,1607.76,5,Compared to US Gap basics and Diluted Net Income for ADX of r and b zero point five nine five and r and d zero point five nine one respectively in the second quarter of two thousand twenty one.
4473238,121,1612.77,1633.0499,5,Long Gap Basis and Diluted Net Income for ADX were r and b zero point three three six equivalent to US dollar zero point zero five two and r and d zero point 333m equivalent to US dollar zero point zero five two respectively in the third quarter of two thousand twenty one.
4473238,122,1633.65,1647.0801,5,Compared to Non-Gap Basic and Diluted Net Income per ADX of r and d zero point four seven zero and r and d oh point four six seven respectively in the third quarter of two thousand twenty one.
4473238,123,1650.59,1678.96,5,As of September thirtieth two thousand twenty one the company had cash and cash equivalent with crypto-cash short-term bank deposits short-term investments and short-term bank deposits of r and d fourteen point seven two billion uh equivalent to US dollar two point two eight billion compared to r and d fourteen point eight eight billion as of June thirtieth two thousand twenty one.
4473238,124,1682.38,1693.52,5,As of September thirtieth two thousand twenty one approximately US dollar one point six four billion equivalent to r and d ten point five nine billion was it…
4473238,125,1693.52,1695.4501,5,was denominated in US dollars.
4473238,126,1698.58,1710.88,5,When the third quarter ended in September thirtieth two thousand twenty one Net Cash used in work-creating activities was r and d a hundred forty two point nine million equivalent to US dollar twenty two point two million.
4473238,127,1710.88,1716.7799,5,This concludes our compared remarks today.
4473238,128,1717.21,1719.0901,5,We will now open the call to questions.
4473238,129,1719.67,1721.15,5,Operator please go ahead.
4473238,130,1723.91,1724.58,6,Thank you.
4473238,131,1724.7,1726.85,6,We will now begin the Question and Answer Session.
4473238,132,1727.61,1731.0601,6,To ask a question you will press star then one on your touch tone phone.
4473238,133,1731.95,1736.27,6,If you're using a speakerphone we ask you to please pick up your handset before pressing the keys.
4473238,134,1737.1,1739.65,6,To withdraw your question do press star and then two.
4473238,135,1740.37,1748.9501,6,And for the benefit of all participants on this call if you wish to ask your question to the management in Chinese please immediate-ly repeat your question in English.
4473238,136,1762.04,1779.6801,7,Uh I have two questions um my first question is Um given the recent regulation uh of inaudible developmental uh would you like to uh share with us how will your product's portfolio involve going forward and what changes can we expect to see in your existing product portfolio?
4473238,137,1780.01,1799.63,7,And my second question is So we saw the slow-down for uh the first inaudible in the third quarter so could you actually share more color on your first quarter to date operations um trends and also your outlook for next year given the current uh uh regulation update and and also the…
4473238,138,1799.63,1800.63,7,the COVID situation?
4473238,139,1800.73,1801.14,7,Thank you.
4473238,140,1803.2,1804.6499,5,Uh thank you very much Lydia.
4473238,141,1805.2,1814.1,5,Um so regarding your first question regarding our product portfolio so we do have a very clear product development strategy as mentioned in the opening remarks.
4473238,142,1814.27,1820.86,5,We try to offer device products to the right future inaudible for the optimal route to market channel.
4473238,143,1821.58,1845.4601,5,So we are full aware of the press conference uh held by the State Tobacco Monopoly Administration yesterday and also the announced product consultation of the National Electronic Cigarettes Cross-Standards so we've been in the transition period of our new requirements to become effective they'll strictly comply with regulatory guidelines.
4473238,144,1845.92,1862.8,5,So regarding uh what will be changed to our current product offerings uh if and or uh when the draft National Electronic Cigarettes Cross-Standards become effective we anticipate we may need to modify some of our current offerings;
4473238,145,1863.66,1877.08,5,However we're very confident that such changes won't be complex for our company thankfully and we believe inaudible will still continue to seek out and use our products at harm-reduction or current use.
4473238,146,1878.23,1893.24,5,So regarding your um second question uh about market outlooks at twenty twenty so the current state does not have any um guidance for the quarter together with next year so we hope uh to share more when have the comparative.
4473238,147,1906.96,1907.64,6,Please go ahead.
4473238,148,1931.48,1932.61,8,So that's the first question.
4473238,149,1951.8101,1952.9,8,Thank you very much.
4473238,150,1953.47,1961.09,5,So I mean there are two questions one is on the um comparative landscape and the other one is on our inaudible stores.
4473238,151,1961.75,1971.4501,5,So I mean on the first one um as mentioned before uh during the latter half of the second quarter um we do see that the industry developed…
4473238,152,1971.45,1973.1801,5,did not progress as expected.
4473238,153,1974.0601,1983.73,5,So indeed this has carried into the third quarter and we still see that there are external factors affecting the entire industry including our company and also…
4473238,154,1987.24,1996.5701,9,But in this uh regarding inaudible landscape we have observed reduced industry competition as compared to this first half of twenty twenty one.
4473238,155,1997.59,2002.4199,9,So um regarding like retail price that you have mentioned.
4473238,156,2002.89,2013.0,9,So we do have increase our promotional access in the first quarter uh trying to drive our retail sales and reduce inventory pressure uh of our chain.
4473238,157,2014.54,2024.1799,9,And we have also seen that given the fourth quarter decline in general consumer spending in China many other companies similarly in inaudible.
4473238,158,2024.1801,2035.79,9,For the overall inaudible of our subsidies our promotional efforts described inaudible compared to our consumer inaudible company in China.
4473238,159,2036.83,2040.62,9,And we have start already uh reducing this further.
4473238,160,2041.58,2056.23,9,So going forward we'll continue to monitor our inventory inaudible uh together refuse demand and adjust our promotional efforts promptly to maintain uh reasonable retail price of our end users.
4473238,161,2057.0801,2065.2102,9,So regarding your second question about the uh single store sales and also how we mention uh healthy as an indicator.
4473238,162,2066.0601,2076.71,9,So in these single store sales um together with the profitability and accurately operating metrics has been a really core focus in our day to day operations.
4473238,163,2077.46,2086.0999,9,Uh as we are also aware of the industry-wide lead in retail sales starting in the second half on twenty twenty one.
4473238,164,2087.55,2093.3601,9,But however we also see that there have been recovery for many of our stocks in recent months.
4473238,165,2095.6101,2107.72,9,As our store's operating in a wide variety of location some Arden in in shopping malls and some Arden is on the streets and they also face different local environments.
4473238,166,2108.3,2110.76,9,We believe each store situation is very unique.
4473238,167,2111.3999,2119.03,9,So indeed the inaudible having healthy uh parameter for single store sales as we look at it one by one.
4473238,168,2120.0,2145.5798,9,So um for a um privately paid for company we have been devoting resources and tools to assist store owners and sales personnel in their daily operations including providing branding materials t o s m training resources digital organization tools and and inaudible store site selection assistance.
4473238,169,2146.54,2156.3801,9,So indeed for this quarter we have also launched several new products and also upgraded our membership system to drive user engagement and retention better.
4473238,170,2218.74,2228.8601,9,Um so based on preliminary inaudible data we do see sequential improvements um in retail sales and also channel inventory managements.
4473238,171,2229.3201,2232.01,9,So we could share more about our strategies in the inaudible.
4473238,172,2241.78,2246.78,9,And up until now we do see that initial success.
4473238,173,2247.78,2258.3699,9,And for our retailers uh we do see stronger momentum in store counts in multiple channels and our retial inaudible has become more diversified from inaudible dates.
4473238,174,2259.6201,2271.54,9,But of course we are also keenly aware of the recent developments uh in the regulatory fronts especially after they inaudible tobacco monopoly administration.
4473238,175,2273.1599,2277.4099,9,So we strictly follow to any new regulations and administrative measures.
4473238,176,2278.5601,2279.26,9,Thank you very much.
4473238,177,2282.48,2282.98,10,Thank you.
4473238,178,2283.51,2287.9102,10,Our next question today comes from inaudible with C I C C.
4473238,179,2287.9099,2288.4902,10,Please go ahead.
4473238,180,2290.8201,2293.5898,12,Hi good management and inaudible at CICC.
4473238,181,2293.8799,2294.6799,12,I have one question.
4473238,182,2299.9399,2300.8198,12,Thank you very much.
4473238,183,2302.52,2304.3401,9,Um thank you very Jun-How.
4473238,184,2304.79,2312.25,9,So I believe uh you are uh actually referring to the inaudible cigarettes inaudible tenders.
4473238,185,2312.8899,2315.54,9,So indeed um as a global…
4473238,186,2315.5701,2322.55,9,as a um inaudible company we have been long been aware of product requirements globally.
4473238,187,2323.1799,2328.9299,9,Including in the European union and also the initial draft of national product vendors.
4473238,188,2330.21,2339.8098,9,So looking at the well-developed markets and operations we believe lowering nicotine concentration will affect some users inaudible satisfaction.
4473238,189,2340.6499,2348.48,9,However most of the inaudible could still satisfy with such nicotine content or limits in the long run.
4473238,190,2349.5,2361.26,9,So from the perspective of product developments or technology developments we have inaudible progress rate to low nicotine concentration inaudible since twenty nineteen.
4473238,191,2361.9299,2365.3401,9,And we do have inaudible and product research.
4473238,192,2368.3899,2386.1099,9,So currently uh as you many know most of our cartridge nicotine concentration is three percent if such uh national standards become affected we'll inaudible comply with all the requirements inaudible on the national product standards including our nicotine content.
4473238,193,2386.8999,2387.6201,9,Thank you very much.
4473238,194,2390.6399,2391.24,10,Thank you.
4473238,195,2391.24,2394.1799,10,And ladies and gentlemen this concludes our questions and answers session.
4473238,196,2394.21,2397.3899,10,I'm going to turn the conference back over to the company for final remarks.
4473238,197,2403.73,2405.6499,9,Thank you once again for joining us today.
4473238,198,2406.24,2412.5498,9,If you have further questions please feel free to contact RX Technologies investor relations team.
4473238,199,2413.1899,2418.3198,9,For the contact information provided on our websites inaudible relations.
4473238,200,2422.3301,2422.98,10,Thank you.
4473238,201,2422.98,2425.6099,10,Ladies and gentlemen this concludes today's conference call.
4473238,202,2425.8601,2428.1001,10,You may now disconnect your lines and have a wonderful day.
4473837,0,0.74,1.56,0,That's the disclaimer.
4473837,1,1.56,2.93,0,If you could all quickly read it.
4473837,2,4.61,5.2,0,Well done.
4473837,3,5.61,7.13,0,Um so I…
4473837,4,7.31,9.9,0,We're gonna cover a brief introduction by me.
4473837,5,10.37,13.23,0,Um David will then take you through the financial performance.
4473837,6,13.26,19.13,0,A bit like the half year there are some complexities and comparators and so on because of the restatement.
4473837,7,19.61,25.57,0,Um and then I'll put a bit of color around our strategic priorities and strategic direction.
4473837,8,26.91,37.19,0,But if I was to if I was to summarize the six months from my perspective um actually it's gone largely to plan or a bit better than plan.
4473837,9,37.68,42.01,0,Um and um that's true across all dimensions.
4473837,10,42.01,53.86,0,So the inorganic the portfolio alignment the organic um the reset of the operating model um and the uh E S G agenda.
4473837,11,54.51,61.26,0,Um on the E S G agenda I think it's probably the most encouraging thing uh i…
4473837,12,62.1,72.99,0,the there's lots of noise around ESG in our industry but the people who work in it are committed and our business are committed to pulling it to the center of the organization.
4473837,13,72.99,83.48,0,So if I look at how we go about bids now it's gone from being a kind of thing you check off at the end to how we c how we gonna execute the business from the beginning.
4473837,14,84.04,93.7,0,Um uh uh uh if you look at the FAcT program in Canada um the way in which we are now embracing First Nation work is not a compliance issue.
4473837,15,93.7,98.26,0,It's a genuine commitment uh to the strategy of the Canadian government.
4473837,16,98.53,106.78,0,So so I I just think we're seeing across the company a complete change in mindset on E S G on the societal on the environmental and on the governance.
4473837,17,106.78,107.71,0,I think that's great.
4473837,18,108.55,109.49,0,Business development.
4473837,19,109.99,113.78,0,Um some really interesting orders in the period which we'll come to.
4473837,20,114.26,119.62,0,Um and particularly I'll put a slide later on Defense Digital where we've made significant progress.
4473837,21,120.24,126.51,0,Uh so that kind of enthusiasm could lead you to a really positive view on the outside world.
4473837,22,126.88,129.01,0,Uh inaudible is a bit difficult.
4473837,23,129.21,135.05,0,Um we are still seeing um a lot of volatility around COVID.
4473837,24,135.09,138.75,0,I would say that compared with eighteen months ago we kind of know how to manage that.
4473837,25,139.29,143.23,0,Uh our agile working strategy helps mitigate some of it.
4473837,26,143.23,153.02,0,But we are a people-based business and we employ thirty thousand people and therefore restrictions on how those people can operate and behave undoubtedly have an impact.
4473837,27,153.02,159.21,0,So uh COVID and exactly how it plays out over the next period is uncertain.
4473837,28,159.9,161.35,0,There are inflation pressures.
4473837,29,161.43,163.7,0,David will touch on that a bit.
4473837,30,163.86,168.8,0,Um we do have some decent protection in some of our contracts but not a a hundred percent.
4473837,31,169.42,170.24,0,And supply chain.
4473837,32,170.24,176.0,0,We have strengthened our corporate supply chain capability and we are now taking a much broader view.
4473837,33,176.36,182.29,0,But uh it is a fact that um supply chain pressures do exist.
4473837,34,182.32,187.06,0,Because we're not a product business it's l we are less susceptible but but we are taking it very seriously.
4473837,35,189.83,196.14,0,So I'll come back to most of that later but I didn't want to delay your opportunity to see David.
4473837,36,197.76,198.36,0,Thank you David.
4473837,37,201.62,202.48,1,Good morning everyone.
4473837,38,203.95,210.68,1,Uh before we go into the results a recap on the contract profitability and balance sheet review.
4473837,39,212.0,223.78,1,Hopefully everyone has seen the slides we published yesterday covering the restatements and the presentational changes of last year consistent with the uh March twenty one C P B S.
4473837,40,224.22,230.25,1,There's more detail in the interim statement uh this morning so I'll just summarize four points.
4473837,41,231.14,242.56,1,The total restatement of h one last year is £885 million and I've split the adjustments out in the same buckets as the year end uh on this slide.
4473837,42,243.27,257.2,1,Uh secondly the biggest of these buckets is specific adjusting items and this is dominated by £760 million uh over goodwill adjustments as I said on the twenty twenty.
4473837,43,259.26,276.08,1,Third underlying operating profit for h one last year was restated by £26.8 million of which £21 million were one-offs and £5 million uh recurring using the same terminology we used at the year end.
4473837,44,277.3,281.84,1,And four we don't restate for changes in uh estimates.
4473837,45,281.84,286.96,1,We only restate for prior period errors or accounting policy changes.
4473837,46,287.27,293.11,1,And you'll remember there were a significant number of estimate changes at the end of last year.
4473837,47,293.5,299.95,1,So those estimate changes will be a variance when we look at first half profit on second half profit cuz we haven't restated.
4473837,48,300.34,305.11,1,And that's the £7 million uh box at the bottom of this slide.
4473837,49,308.96,313.72,1,So uh the key financial headlines for the period as set out here.
4473837,50,314.41,316.8,1,Organic revenue growth was ten percent.
4473837,51,317.2,332.24,1,Uh approximately four inaudible recovery of activities curtailed in the prior year due to COVID restrictions and six percent was assisted by the ramp-up of existing programs yeah in marine uh and nuclear.
4473837,52,333.63,344.79,1,The underlying operating profit increase was caused by several items I'll come onto in a moment but the largest of these was the lower COVID impact compared to the prior period.
4473837,53,346.94,361.47,1,As expected uh operating cashflow and free cashflow were negative as a result of the partial unwinding of historic working capital stretches higher CapEx and the catch-up pension deficit payments.
4473837,54,362.84,376.72,1,Resulting net debt is £1.3 billion including all leases or £938 million on a pre high for our sixteen bases which is the start point for the covenant ratios.
4473837,55,377.5,390.3,1,And on covenants uh the gearing ratio is two point eight times at the period inaudible would've been two point one times if the Frazer Nash disposal proceeds had been received in September.
4473837,56,390.48,392.47,1,They actually came in in October.
4473837,57,395.86,408.508,1,So to group revenue if we skip over the foreign exchange effects and the revenue lost on disposals the main categories of the revenue variances against last year are firstly C P B S.
4473837,58,408.54,419.01,1,Uh the impact on revenue was fifty two million and this largely uh are the reassessments of contract progress and profitability across the group outlined at the year end.
4473837,59,419.88,421.01,1,Next COVID.
4473837,60,421.79,432.31,1,Last year the biggest revenue impacts from COVID were the shutdowns in South Africa the cessation of activities in civil training and lower flying hours in aviation.
4473837,61,432.99,437.55,1,These activities have broadly recovered hence the revenue variance here.
4473837,62,439.27,453.21,1,After these impacts the £155 million variance was a result of the organic growth in all four sectors inaudible driven by the ramp-up of existing programs in nuclear and marine which we'll see in a moment.
4473837,63,458.48,459.25,1,On to profit.
4473837,64,459.28,465.77,1,We've touched on the uh C P B S £21 million uh and £7 million movements.
4473837,65,465.95,470.92,1,So I'll cover just the last three variances here over towards the right hand side.
4473837,66,471.35,479.44,1,Um the COVID variance of £25 million has the same caveat as to estimation and judgment as before.
4473837,67,480.14,496.41,1,We've estimated this to cover the revenue deltas due to activity level changes from site closures and staff absence as well as direct costs like testing and equipment purchases and also any indirect impacts such as inefficiency.
4473837,68,497.09,512.15,1,So the £25 million is caused by the recover of many of the impacted activity levels and also we have been able to recover many of the additional costs of keeping sites open and safe.
4473837,69,512.94,517.34,1,Whether recovery of these costs continue in h two uh is uncertain.
4473837,70,519.96,523.26,1,The pension charge increase is as we flagged at the year end.
4473837,71,523.62,530.56,1,This is an I A S nineteen charge and has no direct impact on the funding profile of the schemes.
4473837,72,531.6,549.4,1,And the other variance of £6 million is largely down to lower margins on projects including the first year of f m s p and higher sg and a costs relating to increased bidding activity and improving the control environment that we began in the second half of last year.
4473837,73,550.59,561.99,1,So the resulting profit for the period is a £115 million uh and the overall margin of five point two percent is something we plan to improve over time with the new operating model.
4473837,74,565.36,568.14,1,So now we move on to the sectors with marine first.
4473837,75,568.18,570.4,1,Again I'll pick out just the key points.
4473837,76,570.8,581.07,1,Uh six percent organic revenue growth was largely due to the ramp-up of the inaudible and warship support programs as well as growth in the liquid gas business.
4473837,77,582.04,593.63,1,Within h one there was approximately a £120 million of low or zero margin program revenue which as we've said before we'd aim to get back to sector average margins over time.
4473837,78,594.68,604.41,1,And the profit uh impacts which are set out on the slide result in a six point two percent margin for marine similar to where it finished last year end.
4473837,79,608.94,617.27,1,The main points to note on nuclear are the contract backlog is significantly increased due to the new f m s p contracts signed in h one.
4473837,80,618.05,626.48,1,The fourteen percent organic revenue growth reflects the ramp-up of infrastructure work and hire activity in submarine support.
4473837,81,627.01,631.2,1,We had about £60 million of infrastructure work in h one.
4473837,82,632.65,646.23,1,On margin f m s p is a five year contract and will be a lower margin early on until the transformation is delivered and infrastructure work as well is a slightly lower margin than the sector average.
4473837,83,651.39,653.94,1,Moving to land which also includes South Africa.
4473837,84,653.97,666.42,1,The key points are COVID had a very material impact on this sector in the early months of last year with the South African business and civil training as well as the airports contracts affected.
4473837,85,666.96,668.5,1,Hence the recovery this year.
4473837,86,669.57,676.206,1,The C P B S adjustment here is the reduced profitability on programs the largest of which was D S G.
4473837,87,678.25,692.2401,1,The resulting sector margin is only four point nine percent but note there is around a £100 million of pass through revenue in the h one number and a further £80 million of low or zero margin revenue on programs.
4473837,88,695.8,696.92,1,Onto aviation.
4473837,89,697.87,710.76,1,In the prior period COVID also had a large impact on this sector with reduced flying hours and additional costs required to maintain the services and those couldn't be recovered from customers uh for the most part.
4473837,90,711.38,716.68,1,The flying hours broadly recovered this year uh but the additional costs remain.
4473837,91,717.81,724.07,1,Revenues also grew as a result of the h one sixty program in France which had only just begun a year ago…
4473837,92,735.29,748.99,2,Moving to the cash flow as we said at the year-end cash flow was expected to be significantly negative this year as we started to clear up the uh the build-up of creditors and continue to invest uh in CAPEX.
4473837,93,749.42,777.36,2,So within operating cash flow in the period the main two impacts therefore are the higher CAPEX due to investment in type thirty one uh and other infrastructure investment within the nuclear sector and two the working capital outflow which included about seventy five inaudible reversal of the year-end creditor stretch that we disclosed uh last year as well as an increase in contract assets mainly in aviation.
4473837,94,779.47,787.86,2,Below operat operating cash flow the pension contributions included the first catch-up payment into the recites scheme uh in the period.
4473837,95,788.43,792.42,2,And the interest and tax cash flows were as expected.
4473837,96,792.87,796.62,2,Uh I've also included some guidance for the full year on this slide.
4473837,97,797.66,803.04,2,Regarding exceptionals as you know we're going to restrict the use of this category significantly in future.
4473837,98,803.53,807.82,2,Uh the restructuring cash flow to date was nine million pounds.
4473837,99,808.08,817.24,2,Um and that's the start of the operating model uh restructuring impact and some of the operating model reductions are being achieved through national uh…
4473837,100,817.27,818.43,2,natural attrition.
4473837,101,819.12,834.84,2,Um of the amounts this year uh there's up to fourteen million pounds of restructuring cost which we'll go into exceptionals as we said uh and potentially the settlement of the Italian inaudible is estimated at twenty million pounds.
4473837,102,838.05,851.55,2,Below free cash flow are the impacts of disposals uh the oil and gas disposal was completed within the period and the net proceeds were eight million pounds but it took with it a hundred thirty million pounds of leases.
4473837,103,852.11,860.05,2,Uh and again I've included some fullier guidance on here repeating that there'd be no dividend paid uh in f y twenty two.
4473837,104,860.57,867.68,2,And our near term priority is to strengthen the balance sheet and get the gearing ratio below uh two times.
4473837,105,869.86,875.37,2,So to liquidity this slide shows that we've ample liquidity in place over the medium term.
4473837,106,875.99,886.16,2,In the period we signed a uh new three hundred million pound three-year R C F facility and extended the bulk of the main r c f out to twenty twenty six.
4473837,107,886.71,898.3701,2,Uh and note again that the net debt numbers on this slide as stated before the receipt of the Fraser Nash disposal proceeds and the inaudible proceeds uh which should come in in h two.
4473837,108,901.52,911.46,2,So to finish the outlook for f y twenty two from the announcement this morning is copied verbatim on this slide and you'll be pleased now I won't read it I'll just summarize three points.
4473837,109,912.23,915.4,2,First our fullier expectations are unchanged.
4473837,110,915.61,922.0,2,There's a range of outcomes due to the macro uncertainties um of COVID and increasing inflation.
4473837,111,922.47,926.59,2,And we are in the first year of a turnaround uh but we are on track.
4473837,112,927.6,933.39,2,Second uh we continue to expect free cash flow to be significantly negative for f y twenty two.
4473837,113,933.84,940.73,2,As the pension contributions and restructuring costs go out and we unwind the historic working capital stretches.
4473837,114,940.99,943.9301,2,This is the same guidance we gave uh at the year-end.
4473837,115,944.64,952.34,2,And third we are confident that we can significantly improve profitability and cash flow generation of the group uh in the medium term.
4473837,116,953.44,957.04,2,So with that I'll now hand back to David for the progress update.
4473837,117,958.44,958.68,3,Thank you.
4473837,118,958.68,963.28,3,I lost my notes.
4473837,119,967.89,969.49,3,Uh completely lost my note so well.
4473837,120,972.17,975.14,3,So align the portfolio…
4473837,121,977.37,980.09,3,what we said a year ago was…
4473837,122,980.37,986.61,3,six months ago was the portfolio alignment was a strategically driven thing.
4473837,123,986.61,987.41,3,We wanted to…
4473837,124,987.76,994.32,3,We identified the markets we wanted to serve and the capabilities we wanted to deliver and that led to a disposal program.
4473837,125,995.04,1007.76,3,We did do a sense check because we needed a minimum of four hundred million proceeds to also make the balance sheet uh in a safe place to get below two times as David said we're on probe uh…
4473837,126,1007.76,1009.64,3,and we're on track to do that.
4473837,127,1010.05,1016.91,3,So having got that we still are going to complete the disposal program.
4473837,128,1017.23,1022.01,3,Clearly uh people always ask what else is on the list.
4473837,129,1022.01,1026.46,3,And we will say inaudible that it's commercially sensitive not good for the business.
4473837,130,1026.9399,1044.79,3,Um but the aim is to be finished um substantially in this financial year that will enable us to then define the group define there for what the right risk profile of the group is capital structure and everything and talk about that at the full year as we said we would uh when we did the full year results this year.
4473837,131,1046.38,1047.51,3,The new operating model.
4473837,132,1048.09,1057.3999,3,Um as I said at the beginning this is about being a better business as much as it is about delivering forty million savings.
4473837,133,1057.8101,1064.38,3,It's about uh how the business can operate much more globally with less layers better communication.
4473837,134,1064.38,1069.7201,3,How I have line of sight of all the people who do all of the important work in the business.
4473837,135,1070.21,1074.8199,3,Uh so I won't say that the four hundred mi the forty million is a byproduct of that.
4473837,136,1075.53,1084.3999,3,But the most important thing to drive an international operating model for this company is to have the right shape of business so that the company can join up.
4473837,137,1084.97,1086.3,3,Uh that's going well.
4473837,138,1086.78,1110.42,3,Uh it also inaudible makes us more resilient against the COVID uncertainties cause the business is cleaner with shorter lines of communication if we have to implement short-term actions to deal with uh how government might respond to a new variant whatever we are in a much better place to respond and whether with a with a less streamlined organization.
4473837,139,1111.35,1123.2101,3,Uh in a alongside that we've implemented a number of new processes the one I've picked out here is the new approach to project management and bidding.
4473837,140,1123.41,1127.3,3,It's much simpler i it it's much more proactive.
4473837,141,1127.9301,1143.66,3,So um I once said to someone a a risk register is one of two things it's either something that you actively manage and drives our program out turns both operationally and financially or it's a list of pending excuses.
4473837,142,1144.95,1149.87,3,And uh we are very much culturally operationally driving the former.
4473837,143,1149.87,1163.11,3,And I'm not suggesting inaudible or anything but just we're really driving in uh and the way we bid and run um programs is is is to make it something we proactively drive.
4473837,144,1164.42,1173.2,3,People strategy I'm actually gonna use the principles slide in a minute to talk about the Australia uh downselect uh on Monday so I won't touch on it now.
4473837,145,1173.5,1174.8101,3,We've we've gone through this thing.
4473837,146,1174.8101,1176.25,3,We've called it agile working.
4473837,147,1176.53,1182.1801,3,We don't call it flexible working because that has connotations in some of our union agreements.
4473837,148,1182.1801,1189.63,3,So agile work is two things agility in terms of location where work is conducted and that doesn't just mean home.
4473837,149,1189.63,1210.79,3,It can be more than one workplace and agility on timing cuz the other thing we have discovered is by being flexible on when people work not only where they work means that it's easier for um people particularly without you know ca caring either for elderly people or for children caring responsibility is easier for them to commit to the company if we can be flexible.
4473837,150,1211.26,1219.54,3,So this is this this is identifying ways of inaudible good for us and good for employees.
4473837,151,1219.8101,1220.9701,3,That's been rolled out.
4473837,152,1221.3,1234.53,3,It's uh it's been an interesting journey because typically if you if you attend offices you pay for attendance you clock people in and clock people out you pay for their attendance if they're working in a more agile way you pay for output.
4473837,153,1234.99,1242.27,3,So it's forced us to think a lot about not wor uh about what people actually deliver as much as their attendance.
4473837,154,1242.27,1244.55,3,That's been a great great journey for us culturally.
4473837,155,1246.066,1248.7699,3,E S G I've got a slide on someone touch on it here.
4473837,156,1249.23,1251.42,3,Growth opportunities we've got three up there.
4473837,157,1252.46,1273.12,3,Um Indonesia type thirty one uh the M O I with Ukraine and the mental program in France we can now add the downselect in Australia three key non-UK order wins a ship build a total program pilot training and HF Comm.
4473837,158,1273.12,1278.16,3,So across the across the gamut of what we do uh all outside the UK.
4473837,159,1278.98,1282.2101,3,So these are our new principles.
4473837,160,1282.41,1289.25,3,Um they are quite a shock to the system for some in the company but but they really matter.
4473837,161,1289.25,1301.22,3,So if I look at the HF Comms business that we won in Australia this was driven by a massive collaboration between our Australian business and the UK business.
4473837,162,1301.8,1307.0701,3,So they certainly start with be curious how might we beat a very strong incumbent.
4473837,163,1308.0601,1309.59,3,So how will we do it differently?
4473837,164,1309.74,1312.49,3,How ca wh what is our what is what…
4473837,165,1312.49,1313.0299,3,why would…
4473837,166,1313.13,1315.14,3,how would we make the customer change?
4473837,167,1316.41,1318.61,3,Be kind that is not be nice.
4473837,168,1318.61,1321.36,3,That is do things in a respectful way.
4473837,169,1321.36,1323.73,3,There's a lot of challenges working at distance.
4473837,170,1324.0601,1326.09,3,It's very easy to point fingers.
4473837,171,1326.15,1332.4601,3,And and that's what really well be coura be believe me building this at all was courageous.
4473837,172,1332.52,1336.7,3,Um be courageous really go for it.
4473837,173,1336.83,1347.4,3,Um outcomes sounds obvious but actually uh i- in the inaudible success of a meeting can be planning the next meeting.
4473837,174,1348.0601,1350.74,3,Um this is about actually getting stuff done.
4473837,175,1351.46,1353.91,3,Uh and that's been a real thing to drive to the schedule.
4473837,176,1353.91,1359.23,3,And I would say John Howie who sitting just there whose chair the group board review to to make…
4473837,177,1359.38,1361.4,3,has really driven through outcomes.
4473837,178,1363.24,1365.86,3,Collaborate where it's a given given what I've just said.
4473837,179,1366.2,1376.0601,3,And then own and deliver this is not just the the lead in Australia but in particular the ownership of the delivery in the UK to support successful collaboration.
4473837,180,1376.5601,1381.16,3,Persuading and convincing the Australian customer that that technology…
4473837,181,1381.16,1394.1901,3,the technology transfer that we committed will happen that we'll have full capability in country fast um with hard evidence not just words uh was a really compelling.
4473837,182,1394.1899,1401.04,3,So the principles uh which were launched midway through this bid undoubtedly people started referencing him and the calls I were on…
4473837,183,1401.22,1409.9701,3,I was on started referencing them and calling out bad behavior using them uh inaudible really helped drive an international business.
4473837,184,1412.22,1417.9301,3,E S G so the three of them net-zero scope one and two by twenty forty.
4473837,185,1418.4301,1422.61,3,Um we have quite significant aviation business in our current perimeter.
4473837,186,1423.12,1435.89,3,That's one of the things that drives the date because um we have to estimate when the aviation business um and technology in aviation is such that you can head towards net-zero.
4473837,187,1436.24,1439.9399,3,Obviously other parts of the business will get there earlier.
4473837,188,1454.24,1459.5,4,And not not opportunity as in climate change creates opportunity but opportunity to differentiate ourselves.
4473837,189,1459.84,1465.66,4,So we now have a portal where where people load up their ideas su su…
4473837,190,1465.7,1482.3199,4,for example in the support business in the infrastructure support about how you can do it in a more environment environmentally um beneficial way so so that there's now a sharing of environmental opportunities for the group in a way which we've never had before.
4473837,191,1484.1801,1501.62,4,Social I touched on it with the with the inaudible but we are in um a war for talent and our people care and not just the young people the whole organization cares about how we are regarded.
4473837,192,1502.27,1508.95,4,You know we are fourteen percent of the econ direct economy in Plymouth and probably double that direct and indirect.
4473837,193,1509.28,1518.47,4,So we have a huge opportunity to influence the west southwest of the UK's agenda across a range of things and that's what our people expect.
4473837,194,1518.96,1527.39,4,If we are gonna recruit the thousands of people we need over the next five to ten years people are gonna want to join a company that is playing its role.
4473837,195,1527.39,1529.05,4,So this isn't just being nice.
4473837,196,1529.05,1533.86,4,This is about about delivering social impact for business reasons.
4473837,197,1534.35,1536.1901,4,I've touched on inaudible.
4473837,198,1536.3,1542.09,4,The other thing we're starting to do is set ourselves some hard targets on i and d.
4473837,199,1543.26,1547.64,4,So for example thirty percent of senior managers to be female by twenty twenty five.
4473837,200,1547.64,1553.8101,4,We're currently at twenty one um so that's fifty percent increase.
4473837,201,1554.37,1571.2201,4,Um we've just appointed our first two female managing directors which is a step in the right direction because this this is not only about the number thirty percent but at the risk of getting this wrong…
4473837,202,1571.53,1577.8701,4,Not just in the places where you might typically expect females to be so comms or finance or HR but also in…
4473837,203,1578.0601,1582.99,4,So our new group head of um programs is uh a lady…
4473837,204,1583.11,1584.25,4,inaudible is a woman a female.
4473837,205,1585.09,1586.49,4,I'm not allowed to use the word lady.
4473837,206,1586.52,1588.01,4,Oh I was doing so well.
4473837,207,1589.26,1590.3199,4,It's Donna okay.
4473837,208,1590.3199,1591.0,4,She's Donna.
4473837,209,1591.42,1594.3,4,Um so we want we want to act…
4473837,210,1594.33,1595.14,4,it it it's…
4473837,211,1595.14,1598.9399,4,We want a balanced representation across the organization not clusters.
4473837,212,1600.09,1602.0599,4,And finally governance matters a lot.
4473837,213,1602.54,1608.26,4,Improved internal controls um so that we actually do what we say we're gonna do.
4473837,214,1609.3199,1615.22,4,Delegations of authority's totally aligned with the delayering so that delayering empowers at the front.
4473837,215,1615.22,1617.03,4,That's where best decisions are made.
4473837,216,1617.63,1620.9501,4,Um and things like a new sustainable procurement policy.
4473837,217,1621.79,1630.4701,4,I thought I'd touch on here the the kind of commentary that's around our sector on E S G and the defense sector.
4473837,218,1630.65,1647.1,4,my my view particularly for a company like Babcock which is so people driven is that those countries which have the capacity to address E S G issues properly are strong and robust countries and they need strong and robust defense to do that.
4473837,219,1647.87,1653.39,4,Uh I think with thirty thousand people we can lead the way on the whole gamut of this agenda.
4473837,220,1653.6899,1657.0701,4,So I don't see being a defense company as anti E S G.
4473837,221,1657.0699,1667.15,4,I see it as quite the reverse and I think it's our job to make that case not to shy away from defense and E S G.
4473837,222,1667.15,1678.6699,4,i i I think we are a key component of an ESG of a global E S G strategy not an enemy of it and if I didn't believe that I wouldn't be here.
4473837,223,1682.83,1685.27,4,So defense digital we…
4473837,224,1685.78,1692.9299,4,This currently sits in the marine business a very important and growing part of our business and I've just picked out three different areas.
4473837,225,1692.9301,1709.3401,4,So the music program is catchily named Maritime Electronic Warfare Systems Integration Capability um is a major win displacing a longterm incumbent in the UK providing uh electronic warfare for the Navy over an extended period.
4473837,226,1710.08,1719.35,4,Um LE TacCIS which is tactical comms in the UK again um is an entry point into the program which has lots of growth potential.
4473837,227,1720.09,1733.9301,4,And then high frequency comms where we are a provider in the UK and New Zealand and now downselected in Australia with major opportunities in the other two inaudible countries Canada and the USA.
4473837,228,1734.74,1759.47,4,So uh a a a very significant capability taking microwave management from the electronic warfare through tactical comms into str strategic comms uh where we play a critical role for governments perhaps slightly un underplayed by us in the past um but where we're seeing real and exciting growth.
4473837,229,1763.92,1796.4501,4,So finally um back to the first slide as always uh my my summary would be that we're on track as David said that we are managing quite volatile external environments actually increasingly well um where business development is is going well both in the UK and outside um and you know on track for um a successful turnaround in a volatile world.
4473837,230,1797.41,1803.7,4,So with that we'll take questions on anything really.
4473837,231,1804.6801,1807.8401,4,Uh I've gotta point people as there are roving mics I think.
4473837,232,1810.3,1812.72,4,Well actually why don't you just pick people who've got their hands up Debbie.
4473837,233,1812.72,1813.71,4,That gives you the power.
4473837,234,1817.48,1817.86,5,Inaudible.
4473837,235,1818.88,1821.4399,5,Can you add a U S I without a business there?
4473837,236,1822.97,1832.77,4,So almost certainly to do anything in comms in the US you'd have to partner so we are partnered with Lockheed Martin outside the States for example.
4473837,237,1832.77,1844.7101,4,So these are typically collaborations so i I can't imagine in comms we would be the prime but we can certainly partner kind of with with people to bring through the technology we've got.
4473837,238,1849.27,1870.34,4,So we talked about that I think at the full year so it's <unk> of the addressable market um but for what we do it's less addressable than if you are a product business so it's a it's a big bet and at the moment there's plenty to go at in what we already have before we think about that big bet.
4473837,239,1876.24,1876.5601,6,Thank you.
4473837,240,1876.5601,1877.04,6,Ah good morning.
4473837,241,1877.04,1878.28,6,Joe Grant from inaudible.
4473837,242,1878.28,1880.34,6,Can I ask three questions maybe one at a time if that's okay?
4473837,243,1880.61,1880.85,4,Sorry?
4473837,244,1884.5,1889.58,6,Um the first one on on the sales proceeds it seems to me you're pretty much at your target four hundred million.
4473837,245,1889.96,1895.23,6,Would you consider at some stage raising that target to maybe five hundred million given those other things you can potentially sell?
4473837,246,1895.5699,1898.97,4,So what we said was we we would…
4473837,247,1899.23,1901.77,4,we had a strategically led sales process.
4473837,248,1902.24,1906.6899,4,The first four hundred million proceeds of which would be used to pay down debt.
4473837,249,1907.25,1918.48,4,Clearly once you've done that and got the balance sheet to a safe place you then have choices about how to use the remainder of the proceeds and therefore we don't kind of need to speculate on what that number might be.
4473837,250,1920.02,1923.5399,4,Um so it doesn't have to just be debt paydown for the rest of the proceeds.
4473837,251,1924.61,1932.01,7,Yeah and and as we've said before we we wouldn't trail future disposals um for all sorts of reasons.
4473837,252,1932.28,1935.2001,7,So we will keep the market up to date at the appropriate time.
4473837,253,1935.23,1944.1399,7,As David said we'll be we'll be finished uh around the time of the yearend results anyway so so we will know what the perimeter of the group is then.
4473837,254,1945.39,1945.6899,6,Thank you.
4473837,255,1945.77,1952.1799,6,Uh the second question if I may on inflation um clearly it's a it's a a hot topic at the moment generally.
4473837,256,1952.67,1959.04,6,Uh others have given guidance on what percentage of contracts by number or value have inflation protection clauses.
4473837,257,1959.26,1962.76,6,Can you give us a little bit more of the science around inaudible?
4473837,258,1962.76,1962.95,7,Inaudible.
4473837,259,1962.95,1973.26,4,Yeah so uh very approximately two-thirds of our contracts have some form of inflation protection and that varies obviously cuz there are many of them.
4473837,260,1973.76,1982.87,4,Um so so some of them would be very well protected some of them have indices escalators and and a variety of that.
4473837,261,1982.87,1985.59,4,Um so two-thirds of contracts.
4473837,262,1985.8199,1993.63,4,Uh where we buy we generally try and uh fix the prices of supply chains um so…
4473837,263,1993.66,2006.7899,4,And often we're back to back so even when we take inflation risk uh off uh the customer on the end contract we would look to make sure that we are not uh absorbing that from the supply chain too.
4473837,264,2007.25,2010.24,4,And then for the remainder of it obviously we are a people business.
4473837,265,2010.5601,2019.64,4,Uh we need to manage the inflation such as it is uh as we do the rest of our cost base with efficiency uh and productivity.
4473837,266,2021.9301,2027.99,6,And then finally in the first half you've particularly done a good job of recovering some of the uh overhead costs.
4473837,267,2028.6,2031.16,6,Are you confident of being able to do that in the second half?
4473837,268,2031.16,2035.8999,6,And how how how and when will we know whether you can do that?
4473837,269,2036.96,2037.7999,4,Sorry again?
4473837,270,2038.02,2039.1599,4,COVID or overhead?
4473837,271,2039.46,2040.16,6,COVID overhead.
4473837,272,2040.25,2040.89,4,COVID overhead.
4473837,273,2040.89,2041.86,8,COVID overhead okay.
4473837,274,2042.65,2044.5499,4,So should I go or you go?
4473837,275,2044.59,2044.8999,4,You go.
4473837,276,2044.9399,2046.0901,8,I'll go first and then you do it.
4473837,277,2046.12,2046.42,4,alright.
4473837,278,2048.03,2048.2,4,alright.
4473837,279,2048.2,2058.54,8,So the only thing I'd say as David said H1 last year was the bottom of the COVID cost issue uh it…
4473837,280,2058.75,2072.3999,8,or the worst part in in that the the lockdowns were the hardest and we were all learning how to cope so that the comparator year-on-year is is the most stark.
4473837,281,2073.51,2085.98,8,h two to h two is more difficult to predict because in h two not only have we started to all understand how we were going to live with this for this period but also governments were funding uh quite a lot of that cost.
4473837,282,2086.01,2095.8201,8,In h two this year we don't know exactly what the risk is and we dunno exactly how much governments will fund which is why you create an uncertainty when you try and compare the two.
4473837,283,2097.1899,2098.2998,4,Yeah so the…
4473837,284,2098.4199,2104.46,4,just to remind you and everyone else uh I think three components of the COVID impact.
4473837,285,2104.8301,2113.1399,4,There's the revenue impact from activity level so if something shuts or curtailed or slowed down that inaudible to profit.
4473837,286,2113.49,2123.9199,4,Secondly are the extra costs of keeping activities and sites open whether they be testing or cleaning or equipment or what have you then efficiency etc.
4473837,287,2123.9199,2126.3499,4,so costs incurred to keep sites open.
4473837,288,2126.77,2139.78,4,And thirdly is the recovery of those costs which as we've said historically in the early stages and until recently obviously through the first half largely but not entirely were recoverable.
4473837,289,2140.3301,2144.1599,4,So all of those three things are what we need to think about going forward.
4473837,290,2144.1599,2150.46,4,So when we said at the full year we didn't expect a material boost in profits because of COVID.
4473837,291,2150.8701,2160.1001,4,Obviously we can't predict the revenue the the activity levels so that's bound to local country's conditions and new variants and what have you.
4473837,292,2168.1001,2176.04,9,So and over time will governments around the world expect companies to pick those up more than they probably were able?
4473837,293,2176.27,2176.9099,9,Possibly.
4473837,294,2177.25,2180.1501,9,So they're they're the three things we think about.
4473837,295,2186.55,2186.78,11,Morning.
4473837,296,2188.3201,2189.6899,11,Uh it's Kim Martin from Geoffrey's morning.
4473837,297,2189.9199,2194.1001,11,Um can I first of all ask a few question on the um the nuclear infrastructure expense.
4473837,298,2194.1001,2197.71,11,thank thanks for for detailing the um the amount in in the first half.
4473837,299,2198.05,2199.9099,11,Um it's quite lumpy.
4473837,300,2200.04,2205.3398,11,Um and obviously um which on a forecast for that division is quite an important swing factor.
4473837,301,2205.6101,2221.6699,11,it is it right um given sort of your um uh sort of interactions with suppliers um that um in Devonport over the last sort of few months where you've basically been I think looking for a indication of people for the work that that revenue number may may build up.
4473837,302,2221.6699,2227.02,11,So I think as Dock ten and some of the other docks basically start to the work starts to ramp up that that sixty million potentially gets bigger?
4473837,303,2228.02,2229.26,10,Um so yeah.
4473837,304,2229.5801,2235.9402,9,During the second half of the year it probably will be that level or it could be higher depending on how things go.
4473837,305,2236.3201,2237.24,9,Uh so you're right.
4473837,306,2237.24,2237.8398,9,It does…
4473837,307,2237.8701,2244.4399,9,It is it is a bit of a a bubble on top of the rest of the business which is why I called out the sixty million in the first half.
4473837,308,2244.4399,2246.8201,9,And of course that is higher than it was this time last year.
4473837,309,2247.4099,2247.5898,10,Yeah.
4473837,310,2247.74,2251.0701,10,and and and as well you there are there is quite a lot planned.
4473837,311,2251.24,2261.6099,10,There are limitations in all the sites about how much work can actually physical and how many people can you get out onto a site how much material can you get onto a site.
4473837,312,2261.6101,2266.8201,10,So um there are physical limitations in terms of how much civils we can actually do.
4473837,313,2267.8401,2271.8101,11,do does that suggest therefore that the physical twenty three maybe flat crosstalk.
4473837,314,2271.8101,2274.6201,10,I think it's too early to too early to say at the moment.
4473837,315,2275.0701,2275.27,11,Okay.
4473837,316,2275.8,2283.73,11,Um and then secondly um can you just provide us with an update on recent trading in South Africa where obviously the COVID wave may have impacted your business again.
4473837,317,2285.47,2288.9001,9,so so to date South Africa's been open and and going well.
4473837,318,2289.54,2292.78,9,Uh and it has been open well since I've been here twelve months.
4473837,319,2292.78,2297.0898,9,So it was particularly acute in the first half of last year the shutdowns et cetera.
4473837,320,2297.5,2298.96,9,so so open and going well.
4473837,321,2299.5701,2299.6602,11,Okay.
4473837,322,2300.1201,2302.5,11,Um and then finally I appreciate yo- you don't- don't disclose inaudible.
4473837,323,2304.01,2314.46,11,It sort of feels with the additional bid activity cost that's going in um and just looking at sort of the underlying so activity of the business the the you know actually your growth opportunity sets is expanding.
4473837,324,2314.46,2318.8501,11,I'm just wondering if you can help us think about that or scale it uh in some way.
4473837,325,2318.8501,2322.6599,11,do does it feel like the opportunity is bigger than probably you thought twelve to eighteen months ago?
4473837,326,2323.1101,2332.8201,10,So I would say that the opportunity is clearer whether it's bigger or not.
4473837,327,2334.0,2338.27,10,I kind of always one of the reasons I took this job is cause I just kind of had this feeling it was big.
4473837,328,2338.27,2340.02,10,is I think the opportunity is clearer.
4473837,329,2341.26,2345.4502,10,The nature of our business is you could end up with six silver medals and no business.
4473837,330,2345.8401,2347.78,10,Or two golds and lots of business.
4473837,331,2347.8899,2363.3899,10,And as we saw recently on the the Greek decision to bar to to abandon their procurement and buy three French frigates um there's a lot of geo-political stuff in being a major prime contractor.
4473837,332,2364.1899,2369.74,10,Uh some of which falls in your favor and some of which of falls against you but I'd say the bottom line is clearer.
4473837,333,2370.73,2373.1799,10,Uh and now we need to make sure we win some gold medals.
4473837,334,2379.28,2381.2798,12,Uh morning.
4473837,335,2381.28,2382.49,12,Chris Bamberry Peel Hunt.
4473837,336,2382.8799,2387.27,12,Could you please elaborate on some of the current opportunities in the pipeline across the four divisions please?
4473837,337,2387.8,2394.52,12,And secondly c could you give us the comparator numbers for the past low margin revenues in the first half of last year thanks.
4473837,338,2395.3101,2409.4399,10,So wh so in marine um within the UK the FSS program remains an opportunity however it finally plays out.
4473837,339,2410.2,2414.6001,10,cause I just think there's so much work to do on that that most major yards would do something.
4473837,340,2415.4299,2421.8101,10,Um in international um we are in a number of competitions.
4473837,341,2421.8101,2425.27,10,We've proved in Indonesia we can win which is good.
4473837,342,2425.6899,2427.6299,10,We now have to prove that isn't a one-off.
4473837,343,2428.3701,2434.73,10,Um but there are significant opportunities as I said digital also is in there and we've won the three programs that inaudible.
4473837,344,2434.73,2440.51,10,All recently so there's definitely and this we're definitely very competitive in that world.
4473837,345,2440.97,2445.8101,10,w we probably at the moment need to make sure we don't overtrade the little that we've got.
4473837,346,2446.6201,2458.46,10,Um in civil nuclear um we keep calling the bottom and then it goes down so I'm always really nervous in civil nuclear.
4473837,347,2458.8101,2476.6499,10,But one would have thought that with new build at Hinkley with the SMR work that is being planned in the UK and outside uh with the decommissioning work that needs to be done with that we ought to have found the bottom soon.
4473837,348,2477.3101,2483.0999,10,So I can always do a big strategic overlay on civil nuclear and then I look at the numbers and there seems to be this disconnect.
4473837,349,2483.6799,2496.2,10,but but we are very well positioned as the UK's only nationally owned uh civil nuclear contractor to take advantage of that in the UK and then outside in places around like Canada.
4473837,350,2497.0601,2512.2898,10,Um in in naval nuclear obviously w it's very very early days in the in the g two g discussions on Orcas the Australian nuclear submarine program but but you'd like uh to believe we have a role to play there.
4473837,351,2513.6101,2528.8201,10,In aviation um we've proved in Mentour that we can do pilot training outside the UK and clearly the FAT program there in Canada is which we've talked about before is a major opportunity very digital.
4473837,352,2529.4299,2544.1101,10,Uh and then finally inland I would say we are in more of a reset mode but there are opportunities um in life after DSG and and the broader support environment.
4473837,353,2544.6201,2553.1501,10,So uh and that kind of puts aside the kind of incremental stuff that you get in the underlying support business.
4473837,354,2554.05,2557.45,10,I think that's my have you got anything more on growth or do you wanna do pass through?
4473837,355,2557.5901,2560.73,9,No I'll do pass through because it's inaudible it's very similar.
4473837,356,2560.95,2564.3899,9,So the pass through levels which are particularly inland they they're pretty flat.
4473837,357,2588.1001,2589.97,13,Um Sash Tusa from Agency Partners.
4473837,358,2590.26,2592.9399,13,Um just a quick question about Ukraine.
4473837,359,2593.5801,2611.2302,13,Could you just clarify is your relationship direct with the government of Ukraine cuz clearly there's some risk as to whether that actually is a is there to be a client in the uh medium term or is your relationship through a government to government relationship where the UK government effectively covers at least some of your downside risk?
4473837,360,2612.1799,2628.95,10,So at the risk of crossing a confidentiality line the co program is funded by UK Export Finance so the the f- the financial relationship is essentially with the UK government.
4473837,361,2630.1599,2633.1799,10,The operational relationship is with the Ukrainian government.
4473837,362,2647.6201,2648.8899,10,Do we have any online?
4473837,363,2649.52,2650.3699,14,We can now move to the line.
4473837,364,2650.3701,2655.2102,10,Are you gonna read them out or are they gonna come from the heavens?
4473837,365,2656.8899,2657.3101,10,All right.
4473837,366,2706.5801,2720.1799,10,So um I think whenever you make a change as you build up things like the operating model change whenever you finally implement it you always ask yourself the question why you didn't do it the week before.
4473837,367,2720.9399,2725.1199,10,So I guess on the operating model stuff you always want to have done it sooner.
4473837,368,2725.73,2731.75,10,Uh and I've never done a change like it when um I haven't thought I wish I had done it sooner.
4473837,369,2732.1499,2737.4399,10,So um uh you know we're online with that plan but you always want to go faster.
4473837,370,2738.1299,2745.26,10,Um but and I think what's gone well is the disposals program.
4473837,371,2745.3201,2755.55,10,I think um I was probably nervous that we'd have that we couldn't do the deals for the four hundred million in Euro I wasn't certain we'd have the cash.
4473837,372,2756.48,2758.28,10,So I think that's gone better.
4473837,373,2759.6001,2760.4099,10,What do you think on that?
4473837,374,2761.0901,2769.74,9,Yeah it it has cuz um we said we'd do it within twelve months in the full year and and we've signed them now and uh Frazer-Nash has completed.
4473837,375,2769.74,2780.0,9,Then on margins uh in building blocks the obvious building blocks are firstly the operating model and our share of it and we haven't split that out by sector but you can take a guess at at that.
4473837,376,2780.5901,2794.6799,9,Secondly with flight there's a a hundred and twenty million of uh low or zero margin program uh revenue in that sector which over time um there's no reason why that shouldn't be at normal margins.
4473837,377,2794.9199,2799.3301,9,It will take time these things don't turn in months uh or quickly.
4473837,378,2799.6399,2805.6499,9,but but you know there's no reason why those programs shouldn't be at uh at a good margin.
4473837,379,2806.0801,2814.95,9,Um and then thirdly of course there's the normal sort of productivity and continuous improvement that we would look uh to do every year uh over time.
4473837,380,2829.49,2832.01,14,Okay well thank you all for your time.
4473837,381,2832.1599,2838.1499,14,Um and uh I'm sure we will be speaking before we stand up on full year.
4473837,382,2839.97,2840.2998,10,Thank you.
4474229,0,6.64,9.42,0,Just please simply type in your question at any time and press send.
4474229,1,9.89,17.71,0,The company may not be in a position to answer every question it receives during the meeting itself however the company review all questions submitted today and publish responses where it's appropriate to do so.
4474229,2,66.59,70.96,1,So uh Chris could you lead us through the uh the interim results please?
4474229,3,72.13,74.24,2,Yes of course and good good evening everybody.
4474229,4,74.6,76.39,2,Um the uh…
4474229,5,76.42,83.16,2,as as you're aware we publish the results uh on Monday and i'll just very briefly take you through those results.
4474229,6,444.65,451.06,2,Um so that's the that's the sort of the the the main part of uh of the uh um uh the numbers um so i will uh I'll had you back to Neill uh to take you through some other things.
4474229,7,451.59,466.38,1,Thanks Chris so in terms of operation <inaudible> high lives obviously we are known to be uh the investment from uh Graphene Lab Limited in South Korea of uh just short of £2 million uh that includes also a royalty agreement and uh the trademark agreement.
4474229,8,466.91,478.68,1,Uh that's kind of part of our strategy moving forward which is to add these uh key key kind of uh associations with uh our customers and our suppliers.
4474229,9,517.17,529.33,1,uh and also Superdry and I was very fortunate to go with the designers and the senior management to the opening of their new store where we talked about the impact of graphene uh on their garments moving forward.
4474229,10,529.8,553.31,1,Uh in terms of uh uh other things that are going on within the business although we are focused on uh the textiles and the c and the construction uh we also have a number of other agreements in place where we are developing uh through Steve's team uh things like uh materials for the packaging industry and uh we're very pleased to be working with some of the large dispatching companies that are ou are out there.
4474229,11,553.31,559.03,1,So it shows that the business has a huge amount of traction now and is moving forwards in a very focused way.
4474229,12,560.06,577.84,1,In terms of the post period highlights uh we obviously uh secured uh under uh Steve's leadership uh a grant with a member of uh key uh partners uh in terms of developing our Gnanomat technology outta Spain into Pseudo-Capacitors.
4474229,13,583.41,625.66,1,Uh I've already talked about Superdry and how we're working with uh Superdry on uh multiple projects uh and um lastly we uh managed to sneak into the interims there a royalty agreement that's been signed with Gerdau who are one of the largest steel manufacturers uh if not the largest steel manufacturer in Brazil who have started up a graphene production um graphene exploitation plan uh to look at replacing their steel business uh and we're working closely with those on a number of projects but the first one which has come out as a royalty agreement is around using our mask predominantly in Latin America where unfortunately COVID is still um very prevalent.
4474229,14,627.11,652.22,1,I think that's uh a great um kind of step for the business in terms of uh getting Gerdau on board and working very closely both at the graphene engineering innovation center up at Manchester which is where our m- our some of our graphene development happens but also looking at our global footprint which now includes s uh South Korea uh North America uh Europe the UK and also now Latin America.
4474229,15,654.12,660.2,1,One of the things that shareholders uh asked about during the uh pre-submitted questions was you know what's happening at Longhope.
4474229,16,660.34,665.11,1,Uh this is the very latest picture of our innovation center which is being constructed at the moment.
4474229,17,665.72,674.94,1,Uh that's about a ten thousand square foot facility and includes a state of the art uh laboratory uh using some of the equipment that was purchased in Spain.
4474229,18,675.44,681.16,1,Uh we'll also be doing our own materials testing uh people have asked you know what's the main focus of that?
4474229,19,713.9,719.88,1,You know how do we get it into uh a bigger variety of materials as the business continues to expand?
4474229,20,720.64,735.24,1,Within the Longhope facility we've actually moved our graphene production from about a two thousand square foot footprint up to about an eighteen thousand square foot footprint and that includes the seventeen innovation area where our robot uh will be based.
4474229,21,753.15,770.88,1,Uh we already have uh uh have some work to do uh and we'll be learning how to use that machine developing this brand new technique and if we get time towards the end of this presentation we'll run the full video that we showed last time just to give you and indication of the capability of that machine.
4474229,22,771.64,785.79,1,At Longhope we've increased our ink production as Chris said uh so the ink uh used in not only our textiles but our construction we use graphene nanoplatelets also in construction and we've increased the capacity used in the Spanish assets.
4474229,23,786.3,800.54,1,That's uh in the process of commissioning as I said last time so we've got the first machine set up uh and we are now doing the electrical installation and the control systems set up so that we can meet the UK uh regulations now as well.
4474229,24,801.05,814.53,1,We're increasing the ability for us to be able to test the materials that we are producing and we're looking at uh a range of standard materials uh utilizing the graphene reinforcement but we're also you know increasing this research area.
4474229,25,823.19,832.84,1,So this'll be a real place to be able to demonstrate and hopefully you know COVID permitting we'll be able to uh invite shareholders along to see some of these facilities.
4474229,26,867.48,871.73,1,So uh moving on uh I'm gonna pass over now to uh Steve.
4474229,27,885.7,894.93,3,Um so as Neill mentioned uh just to give a overview it's almost been one year now since the uh acquisition of assets from Hanwha Techwin.
4474229,28,895.82,909.72,3,So just to go through the hi the history of of where it all started um and so Samsung Techwin uh back in two thousand nine they they initiated uh the graphene business uh under their semiconductor parts operation department.
4474229,29,1056.17,1066.46,3,We're also involved in a Innovate UK Global Business Innovation Program g b i p uh focused on advanced materials and again that led to new collaborations and partnerships in South Korea.
4474229,30,1067.24,1089.6,3,Uh in October twenty eighteen we appointed uh Rachel Kim as our Korean representative who's who's uh still with the business and in the in those uh years leading up to the the first discussions myself and and Matt Walker again since he joined the business we we visited to to again build networks build collaborations um and that was all supported by Rachel Kim.
4474229,31,1141.39,1156.59,3,Obviously before we we even start the graphene growth we need to uh use a metal substrate and also though those substrates depending on their cleanliness and the quality and the size of the the metallic crystals uh that really affects the graphene growth.
4474229,32,1156.59,1164.37,3,So there's lots of know how and and IP based on what we do to that metal before it even goes in the furnace before we even switch on the machines.
4474229,33,1165.26,1175.38,3,Um once we actually make the the single layer graphene lots of things you can do after the process because naturally once it's exposed to the environment it's picked up certain molecules.
4474229,34,1175.87,1184.02,3,It can have what we call doping so it can be p doped or n doped and that might then affect the the final application that you're trying to develop.
4474229,35,1184.02,1196.78,3,So there's lots of things post treatment-wise you can add certain chemicals to the graphene surface to get electrons to either move move into graphene or move outta graphene so that you can you can start from a clean platform.
4474229,36,1197.58,1223.58,3,Um obviously we're growing on a metal and that ha the graphene if you want to make a semiconductor device that has to be transferred so one of the key processes is looking at how we can get rid of that metal and so there's a range of uh both wet chemical processes and also dry processes to get the graphene from the copper or or metal onto the substrate of your choice whether that's plastic that's glass um or could even be a textile substrate.
4474229,37,1225.0699,1239.2401,3,Um l lots of uh uh IP there was also on that metal removal and that's that's the chemical process and also looking at um end electronic devices and and so several application IP there that we can we can look to harness.
4474229,38,1240.1,1242.25,3,Um so moving onto the next slide.
4474229,39,1242.66,1256.3501,3,This is really the story of the last year so um month by month once we did that acquisition last December um the first few months were looking for a new facility for all of the equipment and looking for strategic partners out in South Korea.
4474229,40,1256.35,1277.1001,3,So that took about three months we were searching uh different provinces in South Korea uh looking and making sure that we fit in with all of the local environmental policies um and yeah three months later and following strategic investment from Graphene Lab uh in in Korea we moved into a new facility in May.
4474229,41,1277.1,1279.66,3,And I'll go onto the next slide where that's based.
4474229,42,1295.96,1308.15,3,so we've we've had new technical business development staff join the company uh and they've moved across from Hanwha Techwin so they've got all of that know how and expertise uh that was critical to continuing the business.
4474229,43,1309.5,1320.16,3,In August and September we were involved in a a Korean news program y t n one of the one of their most famous news channels and that was with myself and Matt Walker taking part from the UK.
4474229,44,1320.92,1339.02,3,And then probably uh and quicker than I'd expected uh we were producing first samples by October so first quite good quality single layer graphene samples um and then obviously we we've needed to continue optimizing and and improve that process not just the graphene growth but the transfer processes as well.
4474229,45,1339.7,1349.91,3,Um so I visited the beginning of November for around ten days and that was a great opportunity to meet the new staff to look at what progress has been made uh meet Graphene Lab.
4474229,46,1356.37,1367.3401,3,And also I had the opportunity to go and visit several academic institutes meet uh other commercial uh partners that we that we want to work with and or- and also sign some collaboration agreements.
4474229,47,1368.11,1384.4701,3,Um while I was there um we also installed a a class one thousand cleanroom um and that basically means we have a a very low number of particles of of dust and contamination in the room so that will enable us to provide uh even even higher quality graphene materials.
4474229,48,1384.96,1402.98,3,And then end of November we've even see our first sales of C V D graphene material so that's that's a huge step um and now we're we are looking to uh really uh create high quality data sheets that we can supply to the market and and provide samples to both academic and and commercial partners.
4474229,49,1407.41,1438.55,3,So here's a map of South Korea um so y the orange point is is our new location so we are in the Gyeonggi province that's just south of the center of Seoul we're about one hour south of <unk> uh we're about one and a half hours from Incheon Airport and about thirty minutes south of where Hanwha Techwin were formerly based so that's in a in a city called Seongnam so it's quite a convenient location good for getting around Korea and a as I say traveling to and from the city center or uh outerlying areas.
4474229,50,1451.3199,1456.0699,3,Um and probably a one hour er in in the south er c- city called Daejeon.
4474229,51,1456.59,1460.5701,3,Many many large companies and academic institutes are based in that city as well.
4474229,52,1460.5699,1464.24,3,So we're we're quite well p well placed uh uh at the moment.
4474229,53,1464.35,1473.0,3,So couple of pictures uh of the the building you may have seen some of these before um and some photos here.
4474229,54,1473.0,1489.02,3,We've we've posted some of these on Twitter unfortunately I can't have uh videos for you today but uh you you may have seen o me posting some uh images and videos of uh machinery being moved from a a basement level building up and onto uh onto these large vehicles.
4474229,55,1489.08,1507.0399,3,Um and also another piece of kit that required actually shutting down one of the the highways uh in in South Korea uh was was the installation of the scrubber so that's that's a piece of equipment which sits outside the building which is taking all of the extracts from our processing cleaning it and then uh e- emitting cleaner cleaner air.
4474229,56,1511.22,1518.26,3,So plenty going on um here's a few snapshots from our y t n TV news channel uh with myself.
4474229,57,1518.26,1526.39,3,As I said uh due to COVID we weren't able to travel at the time but we were able to uh to film and this is uh uh Mr.
4474229,58,1526.39,1536.8401,3,<unk> who's the c t o of uh of Graphene Lab and we have quite quite frequent get togethers to again discuss collaborations and and to discuss what the future holds.
4474229,59,1538.84,1540.6,3,Here's a few pictures of of the cleanroom.
4474229,60,1540.6,1547.78,3,So I mentioned we've we've recently had a class one thousand uh room installed so the the square room in the background.
4474229,61,1548.45,1557.66,3,Uh we probably won't show you inside that but that's where the graphene is being synthesized and that's where we do some of the other processes called uh lamination transfer and and stacking.
4474229,62,1558.47,1572.0701,3,Uh the rest of the room is hosting uh quite a lot of chemical uh testing and graphene characterization so m measuring electronic properties measuring things like the e the environmental tolerance of of the graphene that's produced.
4474229,63,1572.6801,1585.83,3,Uh there's a a a room in the back which I'll I'll show a picture of in a second which is another characterization suite and uh off the page to the right hand side we actually have a a wet chemical etching sys uh system.
4474229,64,1585.83,1598.13,3,So as I mentioned there's two two routes to to remove copper from the process and that can be through a chemical dissolution and so there's uh different systems here for doing on a batch.
4474229,65,1598.16,1607.3999,3,r uh on the left hand side is a batch scale um on the right hand side is doing more roll to roll processing so you can do much larger larger scale uh high throughput.
4474229,66,1608.17,1627.8099,3,Um um here's a a final snapshot of the of the characterization lab so not everything uh here but just you can see a <inaudible> spectr- spectrometer on the left we have a scanning electron microscope in the center and that has other uh X-ray characterization capabilities for elemental analysis and uh things like that.
4474229,67,1627.8101,1637.9299,3,So um yeah very well tooled up now with uh tools which also can can help support uh activities in the UK because there's equipment there that we don't have in the UK.
4474229,68,1643.7,1655.24,3,Um so uh c a customer wanting uh four inch squares of uh of graphene on different substrates so eventually we've supplied it with a what we call a thermal release film.
4474229,69,1655.24,1665.79,3,So this this means you can transfer the graphene from that copper using uh a thermal release tape and so it's it's a dry dry process doesn't involve d any uh any chemistry.
4474229,70,1666.26,1683.8,3,But what we also do uh we we are growing the graphene as a single atomic uh single layer of atoms but then we can actually stack this up uh and we do that uh stacking these layers one by one um because for certain applications you you might need a lower sheet resistance so you want something that has a bit more conductivity.
4474229,71,1684.38,1699.5599,3,Um and obviously steel is is optically <inaudible> um so we have a lot of expertize in not just the growth but also this this stacking and transfer process which is is crucial to to many of the uh applications being developed.
4474229,72,1700.99,1721.5601,3,So there's me in the lab with uh one of our technical guys and uh uh uh again wu one of on the right hand side signing a collaboration agreement with uh one of our partners SD Lab uh and so that again is uh possibly more focus for uh the UK business but but would involve technology from uh Versarien Korea.
4474229,73,1722.01,1734.36,3,Uh so SD Lab are are developing a novel uh antimicrobial devices and coatings that uh all sit nicely alongside our existing technology developed with uh with Gnanomat.
4474229,74,1734.79,1746.63,3,So so that should be a good collaboration and there's further uh potential there to work on uh different kinds of sensor to detect antimicrobial species um which will go alongside some of some of their intended products.
4474229,75,1747.22,1768.3401,3,So that's that's really exciting and uh I think one of the questions uh o on the on the channel was you know i is is Korea just going to be focusing on c v d graphing and and the answer is no definitely not because uh obviously we want to further establish and and push what we're doing in the UK out into into Asia.
4474229,76,1854.6801,1858.98,3,So I think that's it for me Neill I'll pa I'll pass back uh to yourself to to finish up.
4474229,77,1859.79,1874.28,1,Yeah just going back to that last line actually Steve we've already started that uh er th- those conversations with our standard range of uh pro products and processes so um you know that's uh that's something that we're continuing to brief our people on.
4474229,78,1874.8,1888.13,1,Last line to the presentation is really about our environmental statement which is you know Versar- we believe that Versarien's in a unique position to deliver you know substantial environmental gains by using the key technologies that we've developed.
4474229,79,1957.85,1961.3501,0,So uh thank you to you all for for your uh for your presentation.
4474229,80,1989.62,1994.26,0,Um Neill not a lotta time to to look at those questions but I guess you've had a bitta time throughout the presentation.
4474229,81,2063.24,2074.9099,3,Yeah it it's very application dependent so if if you are wanting to go into the display market you obviously need to make graphene as big as possible and this as uh high throughput as possible.
4474229,82,2075.45,2078.3899,3,However there's there's tons of applications if you want to make a sensor.
4474229,83,2079.1201,2094.99,3,Uh you can make thousands of sensors with just like one centimeter square of material so um yeah it it it really depends on application but we we have uh everything in place to to be able to make uh graphene useful in a range of applications.
4474229,84,2255.71,2272.27,1,There was a question a pre-submitted question actually which is quite interesting which is you know do you see you know what's your business model ar around the production of graphene uh and and I kind of think that um at the moment we would uh look towards uh following both.
4474229,85,2319.22,2344.8098,1,Um Paul Denney who uh is working on a lot of our G SCALE projects er is our head of sustainability and that's part of his um his role to look at our sustainability policies uh and to make sure that um that that we're we're minimizing the impact not only of our factories but also working with our customers to minimize the CO2 impact of their processes as well.
4474229,86,2447.6101,2450.3301,1,Uh we're not gonna talk about uh our competitors.
4474229,87,2461.8301,2476.53,1,Uh she comes from a background of taking a business uh very similar to ours in terms of its size through to a main uh um a main exchange listing uh and being involved in that whole scale up.
4474229,88,2476.53,2518.7998,1,So f I've worked with Diane and known Diane for uh a while I like the way that she works I you know she's very challenging as a chairperson uh she's very good at corporate governance and uh for me it's about not only exploiting her relationships and ah her experience but um you know for the good of the company but um also you know learning from some of the mistakes and um uh and uh looking and reflecting on how we can do things within the company much better and I and Diane is is very good at that she uh comes from an operational background where the business had to scale very quickly and I think um that that experience it will be absolutely key to us.
4474229,89,2588.95,2595.25,1,Brian looks like he's been busy in the US which is true uh we've got a number of uh good opportunities in the US.
4474229,90,2595.3401,2599.3699,1,Uh have you got plans for a manufacturing base?
4474229,91,2702.1201,2705.73,1,Uh uh how much of the loan is due in twenty twenty four?
4474229,92,2715.8101,2728.8901,2,Yeah I think uh I think we said um back when we uh issued the <unk> we gave the details of that which was it's repayable quarterly over three years um so uh th- th- and that's you know that's the capital.
4474229,93,2728.99,2733.8,2,Um we're already paying interest on on this as well so yep.
4474229,94,2735.0901,2735.5601,1,Um <crosstalk>-
4474229,95,2735.5601,2736.5798,2,<crosstalk> than the r n s.
4474229,96,2737.3701,2740.3499,1,Uh there's a question here from from Andy.
4474229,97,2741.51,2743.97,1,Uh did you enjoy Puzzle X on the panel you were on?
4474229,98,2743.97,2759.54,1,Yes I I did enjoy Puzzle X it gave me a great opportunity to sit down with uh <unk> who came as part of the the Spanish assets and uh and Roberto uh to to talk about our plans for uh Versarien Europe.
4474229,99,2792.8401,2804.04,1,Um well that's always an interesting thing we always keep a a a an eye out on what's happening we're monitoring the competitive environment in which we we work.
4474229,100,2804.04,2811.75,1,We've seen a lotta people fall by the wayside we've seen some new entrants and we keep our eye and we support as many people as possible.
4474229,101,2812.0801,2830.0901,1,The reason that we support them is that it's very important for the industry to have uh options you know uh if you have an m- monopoly it's very very difficult uh for large companies to actually um uh to actually you know build a competitive supply chain.
4474229,102,2830.0901,2838.75,1,So yeah I actually look forward to having uh good competitors in the market cuz it drives development and it uh it keeps everybody honest.
4474229,103,2872.9299,2885.05,1,Uh unfortunately you have to kiss a…
4474229,104,2894.4199,2906.03,1,That's advancing well uh the mechanical side of the first machine is now complete and as I said earlier we are looking at the control systems because it came from Europe we need to <inaudible> compliant with the UK.
4474229,105,2914.74,2924.9099,1,Uh in terms of um uh in terms of communication we're trying to communicate as as much as we can.
4474229,106,2925.75,2934.0701,1,Unfortunately myself Chris and Steve are actively involved in the business as well so that limits the amount of uh communication sometimes we can do.
4474229,107,2934.0701,2953.97,1,We work uh quite long hours uh but we try to keep the business as uh uh or the shareholders as informed as possible through every channel we can so that includes podcasts that includes uh uh social media where we have a very tight policy and um and also uh events like this.
4474229,108,2989.7,3000.8499,0,Um Neill I'll shortly redirect investors to provide you with their thoughts and expectations and give you their feedback uh but I guess before <laugh> uh doing so if you've got a few last words that'd be great and then I'll uh redirect everybody.
4474229,109,3042.7,3045.6201,1,Uh and so um that's that's all from me Mark.
4474229,110,3046.1799,3046.6501,0,That's great.
4474229,111,3046.76,3050.3501,0,Neill Chris Steve thank you once again for updating investors this evening.
4474229,112,3050.72,3060.2,0,Could I please ask investors not to close this session as I'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations?
4474229,113,3060.51,3064.1599,0,This will only take a few moments to complete but I'm sure will be warmly welcomed by the company.
4474229,114,3065.4199,3068.6799,0,On behalf of the management team of Versarien PLC we'd like to thank you for attending today's presentation.
4474229,115,3068.71,3071.6299,0,That now concludes today's session and good evening to you all.
4474327,0,10.57,15.51,0,Welcome to our presentation on the results for the six months to the end of October.
4474327,1,16.25,23.57,0,I'm Miles Roberts the group's chief executive and I'm joined by my colleague Adrian Marsh our group finance director.
4474327,2,24.45,34.8,0,The half year show continuing good progress right across the company as a solely fiber based business that's with no plastics.
4474327,3,35.53,43.45,0,We continue to benefit from a very dynamic market a market we positioned ourselves to benefit from.
4474327,4,44.09,54.6,0,Different retail channels are developing quickly and continue to change and there's a different relationship between consumers and packaging.
4474327,5,55.05,65.89,0,And of course cop twenty six has intensified the debate and the demand for circular solutions as well as carbon reduction.
4474327,6,66.34,73.21,0,So all of this has positioned us not only to grow in the last six months but for continued good growth.
4474327,7,75.07,81.4,0,With this background we've seen our volumes go strongly up nine point four percent.
4474327,8,82.29,98.67,0,But we're also seeing good pricing momentum when combined with our financial hedging and long term deep supply arrangements has allowed us to mitigate the increasing operating costs.
4474327,9,100.98,110.28,0,Consequently our operating profits has risen by twenty six percent and our earnings per share by thirty three percent.
4474327,10,110.57,126.38,0,And I'm very pleased to see how the u s has continued to perform with operating profits up sixty four percent really benefiting not only from excellent pricing momentum but strong volume growth.
4474327,11,128.09,139.0,0,And our cash flow's been strong and has brought a leverage to one point nine times net debt to e b i t d a well inside our medium term target.
4474327,12,140.41,144.55,0,And looking ahead to the second half it started well.
4474327,13,145.79,149.82,0,We also have new investments coming on stream later in h two.
4474327,14,151.11,163.32,0,And we expect to make a significant further improvement in profitability and progress towards our medium term targets in the second half.
4474327,15,164.17,168.55,0,So Adrian would you take us through the detail of the financial results?
4474327,16,170.14,172.19,1,Thank you Miles and good morning everyone.
4474327,17,173.42,178.77,1,By way of my normal reminder I'll describe the performance of the business on a constant currency basis.
4474327,18,179.79,181.19,1,Here are our financial highlights.
4474327,19,182.37,189.89,1,Revenue is up twenty two percent reflecting record box volume growth and higher prices across packaging paper and recycling.
4474327,20,190.84,208.37,1,Together these more than offset significant cost increases with operating profit up twenty six percent including a sixty four percent increase in the u s Return on sales before exceptional or adjusting items increased thirty basis points.
4474327,21,209.25,221.96,1,The extent that our increased input costs are matched almost pound for pound in our revenue line then mathematically we have a small optical margin dilution which is more than offset by a volume growth.
4474327,22,222.86,237.01,1,Clearly our margin becomes much more accretive as the rate of price recovery in the second half of the year and into our next financial year overtakes the rate of input cost inflation driving a return to our target range.
4474327,23,286.61,289.29,1,I now go through the main moving parts with the usual bridges.
4474327,24,290.01,295.93,1,Record box volume growth of nine point four percent contributed a hundred and seventy two million pounds to revenues.
4474327,25,297.0,304.56,1,Other volumes is a mix of increased volumes of other packaging and recycling offset by less external paper sales as we use more internally.
4474327,26,388.83,392.71,1,Energy labor and distribution have also increased significantly.
4474327,27,401.52,408.0,1,That said we've not been immune from year on year costs equally on the unhedged ten percent of our exposure.
4474327,28,409.26,412.05,1,Without this hedging our results would've been severely impacted.
4474327,29,412.84,422.84,1,Given our level of forward hedging in particular this year we don't expect our energy cost to be materially worse than flat year on year with an opportunity to improve if prices fall.
4474327,30,424.32,440.47,1,Overall group margin has increased albeit as I noted before there's still a short term dilutive impact from the input cost versus price inflation dynamic which um unwinds itself as a rate of price pass through exceeds the rate of input cost inflation.
4474327,31,441.31,449.07,1,But the short term effect we remain but confident that margins return to our target range with more paper capacity being added in Central Europe.
4474327,32,449.39,461.82,1,Our short paper strategy will continue we believe to offer the most efficient return on capital employed profile for our business by allowing us to allocate more capital to our higher value adding packaging opportunities.
4474327,33,462.71,471.32,1,Regionally there are always variances depending on the level of our own paper production which gets exaggerated when paper prices are either rising or falling sharply.
4474327,34,472.0,483.21,1,Eastern Europe is the area we're a short of paper and until the usual lag in pass through to packaging completes the effect on return on sales is therefore greatest in that region in this period.
4474327,35,519.2,536.58,1,Of an exceptional working capital performance last year I think we've done well to essentially keep it flat during a rising pricing environment albeit whilst receivables have risen in line with selling prices we've also benefited from the risk management of our energy hedges which has positively benefited our creditors.
4474327,36,537.6,540.71,1,For the full year I still expect a small working capital outflow.
4474327,37,609.8,611.22,1,Finally my technical guidance.
4474327,38,629.01,635.4,1,I'll now hand you back to Miles to take you through some of the operational highlights and some of the opportunities that we are really excited about.
4474327,39,637.06,641.41,0,Thank you Adrian for taking us through the detail of the financial results.
4474327,40,642.58,649.32,0,But I'd like to now to spend a bit of time just talking about why we are succeeding with our customers.
4474327,41,649.64,658.24,0,To harness some of the background behind that well gives us the confidence that that the future growth the future opportunities for us.
4474327,42,659.28,665.74,0,But firstly I would just like to recap on some of the operational highlights from the first half.
4474327,43,667.32,677.43,0,Turning to our people everybody who works in DS Smith once again we've seen a huge level of commitment and responsiveness throughout the whole company.
4474327,44,677.94,681.2,0,Well there have inevitably been some local issues.
4474327,45,681.54,693.26,0,These have been very short lived and many covered to our scale and our flexibility combined with all of our plants being fully operational throughout the whole period.
4474327,46,695.29,697.09,0,I'm looking at our supply chain.
4474327,47,697.86,699.54,0,This has remained very secure.
4474327,48,700.62,723.45,0,Our group wide procurement and sourcing function combined with long term deep relationships with many of our suppliers particularly in critical areas such as starch energy chemicals and of course paper has resulted in good security of supply and good levels of supplier service.
4474327,49,725.12,734.27,0,And with our customers we stayed really close to them listening to 'em understanding their challenges and responding to them.
4474327,50,735.0,739.55,0,And this has enabled us to maintain good levels of service.
4474327,51,740.59,753.35,0,We've had good agility in meeting these changing needs often supported by our extensive use of new digital technology helping us to really adapt quickly.
4474327,52,754.19,762.16,0,And of course all of this has supported good pricing momentum to recover our increasing costs.
4474327,53,763.91,767.79,0,So throughout h one we've seen good volume growth.
4474327,54,768.38,774.31,0,We've been taking market share said previously the growth at nine point four percent.
4474327,55,774.63,779.35,0,The F M C G sector has remained very strong and very robust.
4474327,56,785.15,789.67,2,This is a relatively small part of our business probably around sixteen percent.
4474327,57,798.77,802.49,2,And with our large customers we've continued to grow strongly.
4474327,58,803.8,820.16,2,Over the last six months they've of course been looking for a shorts on the security of supply which we can give 'em strong governance but also leasing their needs on innovation and meeting their sustainability objectives.
4474327,59,821.8,824.77,2,And in the u s we've been particularly strong.
4474327,60,825.42,837.21,2,Once again with our global accounts being perfectly honest we could have grown even more strongly in the u s if it wasn't for the labor market being so tight.
4474327,61,839.47,851.39,2,inaudible in h two have started well we have a healthy order book and a number of really exciting opportunities give us confidence in the outlook for the year.
4474327,62,884.05,899.4,2,And of course it's on carbon where we have a science based target and a commitment to net zero by 2050 but it's also a work on the circular economy about the closed loop the reuse the recycling.
4474327,63,900.03,915.56,2,And about plastic replacement at every opportunity and this replacement is being supported by new legislation which is now has come in and will continue to come in across the EU and also in the UK.
4474327,64,917.27,925.23,2,I show here our performance across a whole range of e s g uh indices over a number of years.
4474327,65,926.57,931.89,2,And you can clearly see constant good strong steady progress.
4474327,66,934.05,943.61,2,And with m s c i where they have a AA rating that is particularly relevant for shareholders and providers of capital.
4474327,67,944.5,953.81,2,When we talk to our customers they remain very interested in the C D P score and they're delighted with our continuing progress there.
4474327,68,953.81,959.1,2,Just reaffirmed this week with a further improvement in our ranking.
4474327,69,960.69,966.33,2,And turning to some practical examples of sustainability in action.
4474327,70,967.27,976.08,2,The first is around the circular economy about recyclability and the actual recycling of packaging.
4474327,71,976.87,1008.9,2,As your largest fiber recycler with extensive recycling operations across Europe with a hundred percent recyclable products and our our approach to a fully closed loop where we collect waste product from our customers and convert it into packaging we're seeing a number of customers awarding new long term contracts on the basis of a closed loop.
4474327,72,1009.71,1020.98,2,I show here an example with Leitz Wein the the wine supplier where we pick up waste from them we convert it into packaging within fourteen days to bring it back to them.
4474327,73,1041.33,1056.0599,2,And of course in plastic replacement that new legislation the new taxation on plastics combined with consumer awareness is seeing an acceleration in the conversion of plastic to fiber.
4474327,74,1056.96,1065.1,2,There was last in the whole of the last financial year we replaced fifty four million plastic products with fiber products.
4474327,75,1065.97,1075.28,2,In the first six months of this year we've converted a hundred eighteen million and we expect this rate of change to increase over the coming years.
4474327,76,1077.21,1079.84,2,And we continue to invest behind this growth.
4474327,77,1080.53,1086.2899,2,We've seen strong consistent demand coming to our business.
4474327,78,1087.13,1093.4199,2,The the the structural tailwinds and also our our deeper conversations with our customers.
4474327,79,1094.09,1109.98,2,Since we continue to invest in new technology new capacity often it is much more efficient carbon neutral providing very attractive returns on capital between fifteen and twenty percent.
4474327,80,1115.1801,1118.39,2,Both will be online in in uh in h two.
4474327,81,1136.58,1156.0,2,When we combine these deep customer relationships with the structural tailwinds our market offers and our supply chain and operational capabilities we can see good volume growth going forward increasing productivity and pricing momentum.
4474327,82,1156.49,1162.0699,2,And all of this underpins our confidence in achieving our medium term targets.
4474327,83,1164.15,1168.23,2,So as a summary we are pleased with the progress in h one.
4474327,84,1185.17,1191.64,2,And looking ahead we've had a good start to h two both in volume and pricing momentum.
4474327,85,1192.91,1204.76,2,So in h two we do expect there to be a significant improvement in profitability and strong progress towards achieving all of our medium term financial targets.
4474327,86,1205.59,1206.63,2,Thank you very much.
4474327,87,1207.23,1211.0801,2,Now myself and Adrian are very happy to take any questions you may have.
4474327,88,1215.86,1216.25,3,Thank you.
4474327,89,1216.25,1223.5601,3,So if you would like to ask a question or make a contribution on today's call please press star one on your telephone keypad.
4474327,90,1226.9,1230.6499,3,We ask that you initially limit each contribution to one question wherever possible.
4474327,91,1250.83,1253.74,4,Um just a couple of questions.
4474327,92,1254.0,1294.3201,4,Um one that stands out you know there's been talks about energy surcharges uh in container board in particular so I just wanted to hear your thoughts how you deal with that in the downstream corrugated activity if you can pass such on or if you're even exposed to it.
4474327,93,1294.54,1294.8199,4,Thank you.
4474327,94,1296.83,1305.63,2,Um we have we have seen some we've read about some announcements from some suppliers who have put on eh energy surcharges.
4474327,95,1309.52,1315.29,2,Um we haven't actually really experienced that ourselves from our supply chain.
4474327,96,1333.42,1345.91,2,Um as I said we've got extensive hedging and uh in place and I think it's not just the hedging it is the other solutions they used in our more bio mass and different types of uh of energy solutions have helped us uh mitigate that.
4474327,97,1346.6,1351.75,2,But nevertheless for a variety of reasons the price of paper has um has risen very strongly.
4474327,98,1387.4399,1395.96,2,And just monitoring the importance to environmental issues where they place them the ability to replace plastics is one of them.
4474327,99,1397.0601,1399.78,2,We'd go back a few years we've monitored for quite a long time.
4474327,100,1399.78,1403.73,2,You go back a few years it was just one of the issues but now it's right up there.
4474327,101,1403.73,1412.9199,2,It's uh often it's the first thing that uh that they want to talk about they want to discuss uh about that long term innovation How can we take plastic out?
4474327,102,1413.1899,1414.6201,2,What are the opportunities there?
4474327,103,1414.86,1417.0701,2,How can we improve our environmental footprint?
4474327,104,1417.4301,1428.1,2,As you know we have our design metrics which we use with all our customers that really show 'em the environmental impact of their product and how we are performing there.
4474327,105,1428.1,1431.4399,2,I think that's really taken now as a an industry standard.
4474327,106,1432.15,1438.2999,2,Um so it is becoming much more important but we put the plastic there because there's been a…
4474327,107,1438.3,1443.41,2,The example of plastic plates and a hundred and a hundred and eighty million.
4474327,108,1461.78,1470.15,2,But I think in terms of what we feel quite uh excited about is it's just part of that overall debate but the rate of increase.
4474327,109,1471.33,1481.4501,2,fifty four million units last year one eighty million in the first six months and we know the effect of the legislation that's coming on.
4474327,110,1481.89,1488.3501,2,We know this taxation on plastics and said we don't produce plastic products so we don't have any conflict in our business on this.
4474327,111,1489.35,1496.8,2,Um we we we can see what our customers are saying to us and we expect that rate of increase to continue to grow.
4474327,112,1497.24,1505.17,2,And um you know let let's see where it gets to but it's just another one of those uh tailwinds that are there but uh but thank you for your question.
4474327,113,1512.98,1517.75,3,You are now in muted.
4474327,114,1522.51,1525.8,5,I mean you you've talked about the second half starting well.
4474327,115,1526.01,1529.9401,5,Um can I just start thinking about you know how how this progresses?
4474327,116,1529.9399,1533.25,5,I mean we've you do have tougher comps.
4474327,117,1533.59,1535.9801,5,Are you kind of looking at that kind of demand trends?
4474327,118,1535.98,1545.04,5,Yes you'll have tougher comps so your your volume growth are obviously slow but demand is staying at a at a high level and you're talking a little bit about industrial recovery.
4474327,119,1545.04,1550.78,5,So I'm just wanting to to understand how you think about that that volume progression through the year and into next year.
4474327,120,1551.35,1558.24,5,And then secondly on the North America division you talked about um good recovery there eh and there is recovery.
4474327,121,1558.27,1562.02,5,But export prices in the u s have been really strong.
4474327,122,1562.51,1573.7,6,Um will that benefit be seen in the second half results for your business for for your export prices that really starts to be realized and you see that recovery in that North America division?
4474327,123,1573.7,1578.55,6,How should we see the the second half phasing of the North America division?
4474327,124,1578.66,1578.95,6,Thank you.
4474327,125,1581.22,1582.2899,7,Thank you Collum.
4474327,126,1583.21,1591.14,7,Uh in in the demand uh you are absolutely right we have a much stronger um tougher comparative in the second half of last year.
4474327,127,1596.48,1599.3,7,Three and a half percent over over the full year.
4474327,128,1600.49,1608.49,7,Um but nevertheless the demand it remains strong um uh we remain very busy.
4474327,129,1609.41,1617.65,7,We've obviously got the lead up to uh Christmas at the moment and eCommerce you know continues to be uh to move ahead very well.
4474327,130,1619.0699,1629.54,7,Uh the outlook when we look over the the second half we we've got a number of uh o of new contracts and the whole environmental debate continues.
4474327,131,1629.54,1638.2899,7,So we actually see the absolute level of demand are are our forward order book is um i is strong.
4474327,132,1638.66,1642.72,7,It's uh it it's uh it's strong it's very uh it's very encouraging.
4474327,133,1643.51,1664.4199,7,You have these two new sites coming on and we are looking forward to 'em coming on they're fifty percent pre sold they're all on track and there's uh and I think the rest of their their capacity could be could be taken um probably in a bit earlier than we originally planned.
4474327,134,1664.42,1670.65,7,It's um it it looks it it does look uh it does look good and that looks set to continue to next year now.
4474327,135,1671.13,1676.17,7,Obviously the whole economy's uncertain and what's gonna happen and all of these things.
4474327,136,1676.17,1686.1899,7,So you know we we can't give exact numbers but it it does feel continuing to be uh continue to be uh continue to be strong.
4474327,137,1687.1801,1699.1899,7,Um you you're absolutely right in North America export prices have been strong the amount that we export has reduced quite significantly over the um since we opened the new uh Lebanon facility.
4474327,138,1700.36,1715.5599,7,That continues to grow and develop very nicely it's uh i it it is doing very well and we are we are much less exposed to those certain export prices but nevertheless domestic pricing in the u in the US has also uh been strong.
4474327,139,1716.2,1720.2,7,The price recovery has been uh has been very good.
4474327,140,1721.0699,1729.2699,7,Um but we'll see more of the effect of this I think as Adrian spoke about we'll see more of the effect of this in the second half.
4474327,141,1730.4,1739.85,7,Uh the outlook for North America in the second half is is we are going to see further ongoing improvements in that uh in that business.
4474327,142,1740.37,1750.2,7,Also the first half again as Adrian said we did have a shut in a big paper mill there um but uh which won't happen in the second half.
4474327,143,1806.15,1806.4199,9,Thank you.
4474327,144,1806.77,1811.35,7,Um I'll take the first and have Adrian talk to you about the uh the leverage.
4474327,145,1811.63,1813.24,7,Um you you're absolutely right.
4474327,146,1813.48,1824.3099,7,We've got the the index deals these are working on ave on averages it could be the last three months uh they do tend to take a little bit and therefore then a bit longer to come through.
4474327,147,1824.3101,1826.49,7,They're now freely negotiated.
4474327,148,1827.1899,1841.9401,7,Um at the moment we are running at about the high f higher between forty five and fifty percent of our contracts on are on indexed um are on indexed uh deals.
4474327,149,1842.59,1846.91,7,And sort of fifty to fifty five percent are on on freely negotiated.
4474327,150,1847.4399,1859.67,7,Uh there are key index points the next one is um uh I mean they happen all the time but you get some big events will be on the first of January and you are absolutely right.
4474327,151,1859.67,1877.9299,7,We would expect to see uh we certainly do expect to see a further very good automatic recovery of the paper price increases that really have come through over um October uh November and uh and December and now and they are quite considerable.
4474327,152,1878.3,1882.4399,7,So the they will come through there as they as they have been doing the first half.
4474327,153,1882.8199,1883.92,7,But Adrian on the leverage?
4474327,154,1884.4,1885.24,10,Yeah so thanks Sam.
4474327,155,1885.24,1886.33,10,On on leverage you're right.
4474327,156,1886.5,1896.5701,10,Um very pleased now it is now um below our target level and and as you rightly say mathematically if you look forward you know one easily expects to see further improvement.
4474327,157,1899.62,1901.52,10,Um but it's just at our um below our target now.
4474327,158,1902.05,1904.78,10,Um we're very encouraged with the the forecast though.
4474327,159,1905.6801,1914.13,10,But we we're making two you know very very big um capital pro projects that that come online as Miles described in the second half.
4474327,160,1914.13,1924.4501,10,The Polish greenfield and the Italian greenfield it's two huge state of the art facilities um chasing the organic growth there very very well.
4474327,161,1924.45,1931.23,10,Very good returns um and and we continue to look at opportunities going forward as you would expect.
4474327,162,1931.23,1941.67,10,I mean clearly we we we've got a limited number of choices we can invest behind road capital to deliver you know ahead of our um target return on capital.
4474327,163,1942.41,1945.99,10,Um we can continue to deleverage or we can return capital.
4474327,164,1946.12,1959.6699,10,They're effectively the options and as you would expect you know Miles and myself and the board are evaluating that very carefully and and likewise you know we we're having ongoing discussions with shareholders about you know what the expectations are.
4474327,165,1995.24,1999.76,11,Are you are you streaming in a in any particular grade to to get paper at the moment?
4474327,166,1999.8,2006.34,11,Um are there grades where you're where you are quite short um or potential regions where you are short on paper at the moment?
4474327,167,2009.1801,2025.2,7,Look we um so we we do have a short paper position and that's really looking at all that that capacity that independent capacity in Germany that keeps on coming online.
4474327,168,2025.2,2034.9,7,In fact inaudible just opening now and rather than us investing in and around that uh region uh we prefer to buy the paper.
4474327,169,2034.9,2042.1101,7,We we don't think the returns on those assets are um are are attractive for our our shareholders.
4474327,170,2042.77,2046.12,7,But we don't do this um obviously light heartedly.
4474327,171,2046.12,2067.98,7,We we enter into longterm supply agreements with many of those large independent paper producers and n and quite a bit of the new capacity that's coming online and has been announced will come online we entered into arrangements with those suppliers over the last one two three years to take the paper that they're producing.
4474327,172,2101.6499,2105.3501,7,So so no real issues.
4474327,173,2105.4199,2106.24,11,Not an issue on access?
4474327,174,2106.6799,2108.24,7,No no.
4474327,175,2108.3999,2110.0898,7,Not not not not not not particularly.
4474327,176,2112.47,2113.1699,7,But but thank you.
4474327,177,2135.9299,2147.72,12,Firstly is that allowing you to achieve or do you think it'll allow you to achieve a price premium in the near term which is something you know over the years that that the industry has struggled t to uh to really achieve?
4474327,178,2147.8999,2151.99,12,And I guess you also touched on one of the contracts being very longterm.
4474327,179,2185.27,2190.2,7,Some uh very uh very very uh very important um questions.
4474327,180,2190.3201,2210.1699,7,On the on on the sustainability you look in the graph that Adrian put up about the price uh on the e b i t d a bridge and you can see the raw material cost increase and actually slightly over over recovered them and it's called price mix.
4474327,181,2211.4399,2243.8801,7,Um w we're able to pass on our increasing prices and if we actually look at the the the profitability in terms of the sense or the the sense per square meter it's um it for the more sustainable products where there's there's more of a there's more engineering in them then it's certainly better.
4474327,182,2283.46,2297.7102,7,Um but there's clearly more more work to do and I do think it'll become a little bit more polarized over the coming years inaudible claim these credentials and various consumer groups who all pay that premium and I think there'll be some others.
4474327,183,2297.71,2301.01,7,But it it is moving in it's moving in the right direction.
4474327,184,2338.8401,2343.8499,7,We have made huge progress over the last um ten fifteen…
4474327,185,2372.8501,2387.8,13,So they're tied into the existing uh replacement program but obviously they they those new facilities have to be far more efficient and they also have to use um some new technology.
4474327,186,2388.8301,2394.1401,13,So there's more about uh waste to energy there's more about biomass there's more about biogas.
4474327,187,2395.6399,2403.3701,13,we are using known technology again with good uh supply chains for the uh for the energy source.
4474327,188,2404.1699,2409.1702,13,Um and I think we are going to get to twenty thirty with those targets.
4474327,189,2409.1699,2411.9102,13,We actually discussed on another date again in detail.
4474327,190,2412.4099,2423.6299,13,Um but we we're on track to uh we're on track uh to achieve them at at um you know at a at a at a fair cost.
4474327,191,2423.6299,2427.28,13,We're not gonna see some sort of explosion in capital expenditure here.
4474327,192,2427.55,2431.75,13,Simply so much is tied into uh essential replacement anyway.
4474327,193,2440.1699,2442.27,13,But thank you thank you for your question.
4474327,194,2456.75,2462.24,15,Um in recent days I've spoken with several of your leading shareholders many of whom are delighted to be on the call with you today.
4474327,195,2468.9099,2483.6501,15,Your shareholders were sold a vision that DS Smith's short paper strategy would deliver both firstly secure returns and secondly a nicer balance on returns than your more vertical integrated peers such as Smurfit Kappa or Mondi in Europe or International Paper and WestRock in the US.
4474327,196,2484.6799,2499.9402,15,Sadly the factual reality has proved very different to that you know firstly this morning your reporting sequentially declining even margins which were eight point eight percent in the six months to April two one and declined to eight point two percent in the six months to October twenty one.
4474327,197,2509.27,2510.8301,15,They're vertically integrated you are not.
4474327,198,2510.99,2511.73,15,You sell paper.
4474327,199,2512.47,2527.4202,15,Now sadly this is not a one off event of the last six months the factual reality is that each of the last five years DS Smith even margins returning capital employed have been consistently lower and consistently more volatile than your vertical integrated peers.
4474327,200,2528.0801,2547.55,15,So my question is can you please explain to your shareholders particularly those on the call with us today why does the DS Smith board persist with this short paper strategy which is condemning your shareholders to endure firstly lower returns and more importantly more volatile returns than your vertically integrated sector peers such as Smurfit Kappa and Mondi?
4474327,201,2549.21,2561.3801,13,Justin thanks for that question um so the first first thing I would say is you know that's that's not the feedback we get but fine I mean if uh if if you've got it good.
4474327,202,2561.98,2567.8301,13,The reality is yeah we set out and we've been very clear our primary target is return on capital employed.
4474327,203,2568.1899,2577.6499,13,We've made a couple of very significant acquisitions which ahead of those acquisitions or at the point we announce them we describe the dilutive effect on return on capital employed.
4474327,204,2578.0,2580.96,13,we are now seeing those returning to our targets.
4474327,205,2581.48,2605.3298,13,With respect to margins actually this is exactly what I set out in in our presentation you know our margins will um yeah will mathematically be diluted as we as as we recover costs and then as our rate of price recovery exceeds that level inflation they become accreted back to our target again so there's no issue there.
4474327,206,2605.52,2614.4102,13,In terms of short or long paper we've described before it is about the amount of capital employed that we want to have in paper manufacturing.
4474327,207,2614.9399,2628.6401,13,If we buy in or if we make it we're no different to a comparable competitor um that that's fully integrated because you will still have the the input cost of OTC and energy.
4474327,208,2628.99,2634.53,13,Unless of course the super benefits to be made out of recycled paper at the moment.
4474327,209,2634.8301,2640.1499,13,What we've seen is actually the opposite of that the added value on recycled paper being compressed.
4474327,210,2640.6599,2642.49,13,Obviously that's different for Kraftliner.
4474327,211,2643.1699,2646.72,13,The other point I'd say is I don't see a comparative.
4474327,212,2646.72,2655.27,13,I mean one of the companies you described is a long paper company so of course when paper prices are rising they'll make a better a better margin.
4474327,213,2655.27,2659.3,13,Likewise they'll make a much reduced margin when it's falling.
4474327,214,2659.6599,2664.8298,13,Um the other one you described has a number of similarities but also has a significant plastics business.
4474327,215,2665.1499,2682.6499,13,We don't split out we don't see what those different moving parts are so all I can describe is our business our strategy we've been very clear about it we believe it is the right one we want to deploy capital where it's adding the most value and we're gonna get the best return out of it.
4474327,216,2683.1001,2694.6499,13,Historically that's been through some significant a acquisitions which have had goodwill attached you strip the goodwill out you'll obviously you can work out different different results too so we're quite comfortable with that.
4474327,217,2694.8701,2701.8699,13,We've confirmed our medium term target we can see the bridges to those but I appreciate the question thanks.
4474327,218,2705.22,2709.3601,14,So our next question comes from the line of Harry Phillips from Peel Hunt you are now unmuted please go ahead.
4474327,219,2717.96,2745.4399,16,Just flicking back through history have had g d p plus 1% for a decade now and Miles you alluded to the sort of plastics getting towards one percent in terms of substitution E-commerce obviously is accelerating um so I just wonder what point do you sort of think that target is too conservative and you might think about nudging that up um a little bit?
4474327,220,2745.4399,2756.48,13,Harry it's is a is a is a is a question and a challenge that we have been giving a lot of thought to.
4474327,221,2757.71,2762.8398,13,There's clearly been a disconnect between our business and the GDP look at last year.
4474327,222,2782.47,2793.0298,13,It's quite clear in the medium term that those drives we we've be spoken about we should expect growth to be higher than it has been in the past.
4474327,223,2794.24,2808.4099,13,Um w- we can see that in our customers you can see the way they're talking to we can see how he's taken share we can see overtaken share within our existing customers we can see the length and the duration of the contracts that we are with them so we feel quite positive.
4474327,224,2809.3601,2819.1799,13,Um the thing that sort of holds us back a little bit is just like Eddie you know it is just an uncertain uh it's just an uncertain uh uncertain environment.
4474327,225,2820.25,2825.0701,13,Um but what we can see is is good growth going forwards.
4474327,226,2825.0701,2838.0701,13,Maybe it's at a more sort of absolute level maybe we are sort of decoupling a bit from g d p as we get so much more in the FMCG and and those tailwinds that we've spoken about.
4474327,227,2838.73,2849.04,13,But but we do actively look at it and when we're ready we'll come back and um we'll look at that um we'll look at that um we'll look at that target uh a again.
4474327,228,2858.47,2860.46,13,Uh it will come back in the medium term target.
4474327,229,2879.0701,2880.78,14,Hi Cole are you on mute locally?
4474327,230,2887.3899,2892.2998,14,Miles it seems that we've lost Cole so I'll just turn it back to uh you for any closing remarks.
4474327,231,2893.5701,2896.5601,13,Thank you everybody uh for your time listening to us uh this morning.
4474327,232,2896.5601,2921.05,13,We we uh we are very grateful for that but just as a summary we are pleased with the volume growth we are pleased with the price momentum North America's coming strongly the balance sheets are in good condition and just looking into the second half as I said we expect to see a significant improvement in profitability and a and a significant move back towards our medium term targets.
4474327,233,2921.26,2922.23,13,But thank you again.
4474506,0,2.52,7.16,0,Good day and thank you for standing by and welcome to the q one Earnings Call.
4474506,1,7.6,10.41,0,At this time all participants are in the listen only mode.
4474506,2,10.54,14.56,0,After the speaker's presentation there will be a question and answer session.
4474506,3,14.95,19.43,0,To ask a question during the session you will need to press star one on your telephone.
4474506,4,19.93,23.98,0,I would now like to hand the conference over your speaker today Richard Galanti.
4474506,5,24.32,24.72,0,Thank you.
4474506,6,24.87,25.6,0,Please go ahead.
4474506,7,26.59,28.81,1,Uh thank you Sadie and good afternoon to everyone.
4474506,8,29.38,37.27,1,Uh I'll start by stating that these discussions we'll include forward looking statements within the meaning of the Private Securities Litigation Reform Act of nineteen ninety five.
4474506,9,37.76,45.46,1,These statements involve risks and uncertainties that may cause actual events results and or performance to different materially from those I indicated by such statements.
4474506,10,45.92,55.87,1,The risks and uncertainties include but are not limited to those outlined in today's call as well as other risks identified from time to time in the company's public statements and reports filed with the S E C.
4474506,11,56.52,63.45,1,Uh forward looking statements speak only as of the date they are made and the company does not understate to update these statements except as required by law.
4474506,12,64.37,68.48,1,In today's press release we reported operating results for the first quarter of fiscal twenty two.
4474506,13,69.16,71.57,1,Uh the twelve weeks ended November twenty first.
4474506,14,72.22,84.38,1,Net income for the quarter came in at one point three two four billion dollars or two dollars and ninety eight cents per diluted share compared to one point one six six billion dollars or two dollars and sixty two cents per diluted last year.
4474506,15,85.1,97.56,1,This year included a tax benefit of ninety one million dollars or twenty one cents per share related to stock-based compensation and a right off of certain IT assets of a hundred eighteen million pre-tax or twenty cents per share.
4474506,16,98.32,115.1,1,Last year included tax benefits of a hundred forty five million dollars or three three cents per diluted share sixteen cents of which was due to the deductibility of the ten dollars per share special cash dividend received by the company's four oh one <unk> plan participants and seventeen cents related to stock-based compensation.
4474506,17,115.68,124.68,1,As well an incremental expenses for COVID nineteen premium wages of two hundred twelve million pretax which was a hit last year in the quarter of thirty five cents per share.
4474506,18,125.8,135.35,1,Uh net sales for the quarter increased sixteen point seven percent to forty nine point four two billion dollars up from forty two point three five billion dollars a year earlier in the first quarter.
4474506,19,136.03,148.09,1,Uh same store-sales for the first quarter uh were as follows in the US on a reported basis for the twelve weeks up fourteen point nine percent and excluding gas inflation and the impacts of FX up nine point nine percent.
4474506,20,148.76,154.23,1,Canada reported seventeen point two X <inaudible> and FX plus eight point three percent.
4474506,21,154.98,162.07,1,Other international reported thirteen point four uh <unk> and inflation in FX up ten point nine.
4474506,22,162.63,176.57,1,Also the company reported a fifteen percent increase on a comp basis and nine point eight percent up uh <unk> and FX and e-commerce which was reported at a fourteen point three X uh FX was thirteen point three.
4474506,23,177.33,185.6,1,In terms of q one comp sales metrics traffic for shopping frequency increased six point eight percent worldwide and up five point nine percent in the US during the quarter.
4474506,24,186.29,204.0,1,Our average transaction or ticket was up seven point seven percent worldwide and eight point five percent US during the quarter excluding positive impact from gas inflation FX the average ticket was up uh X that uh plus two point five percent worldwide and plus three point five percent in the US.
4474506,25,204.78,216.02,1,Uh foreign currencies relative to the US dollar positively impact sales by about ninety basis points and gasoline price inflation positively impacted sales by approximately four hundred and thirty basis points.
4474506,26,216.79,228.01,1,Next on the income statement uh membership fee income reported in the quarter nine hundred and forty six million dollars up eighty five million dollars or nine point nine percent from last year's eight hundred sixty one million dollars figure.
4474506,27,228.67,236.82,1,Uh X FX the uh the eighty five million dollars increase would've been eighty million and the nine point nine percent increase would be nine point three percent.
4474506,28,237.94,240.4,1,In terms of renewal rates at q one…
4474506,29,240.67,249.4,1,at first quarter end our US and Canada rate came in at ninety one point six percent up three tenths of a percent from the twelve week earlier figure at q four end.
4474506,30,250.18,258.6,1,As well the worldwide rate came in at eighty nine point oh percent also up three tenths of a percent from uh twelve weeks ago at q four end at at q four end.
4474506,31,259.97,271.7,1,Uh the renewal rates are continuing to benefit for more members auto-renewing as well as increased penetration of executive members who on average renew at a higher rate than the non-executive members and first year renewal rates which have improved a little.
4474506,32,272.98,287.47,1,In terms of number of members at end of first quarter in terms of member households as well as total card holders at q one end uh total paid holds was sixty two point five million up eight hundred thousand from sixty one point seven a quarter ago.
4474506,33,295.74,305.3,1,At q one n paid executive members totaled twenty five twenty six point five million an increase eight hundred thirty six thousand during the twelve weeks since q four end.
4474506,34,305.91,311.19,1,Executive members represent forty two percent of our members and a little over seventy percent of our sales.
4474506,35,312.19,322.95,1,Moving down to the gross margin line our reported gross margin for the first quarter was lower year-over-year by forty nine basis points and excluding gas inflation lower year-over-year by six basis points.
4474506,36,323.88,326.94,1,Uh as I normally do I asked you to jot down a few numbers.
4474506,37,327.56,334.08,1,Uh there are two columns both reported year-over-year and q one and then without gas inflation year-over-year and q one.
4474506,38,334.61,345.13,1,First line item would be core merchandise minus three minus sixty three basis points year-over-year on a reported basis and minus twenty six basis points without gas inflation.
4474506,39,345.89,352.24,1,Ancillary and other businesses plus two on a reported basis and plus twelve X gas inflation.
4474506,40,352.93,355.81,1,two percent reward plus three and minus one basis point.
4474506,41,356.13,362.2,1,<inaudible> minus three in both columns other plus twelve basis points in both columns.
4474506,42,362.69,370.89,1,Total then on a reported basis margins were down forty nine basis points year-over-year and X gas inflation down six basis points.
4474506,43,371.84,386.0,1,In terms of the core merchandise component of gross margin being lower by sixty three year-over-year and twenty six basis points X gas inflation recall last year in q one the core reported uh was up eighty three basis points and X gas up sixty six basis points.
4474506,44,386.34,390.0,1,So we've retained a good portion of the improvement from uh two years ago in the core.
4474506,45,391.2,403.41,1,In terms of the core margin on their own sales in the first quarter our core on core margins were lower by eight teen basis points with non-food slightly up and food and sundries slightly lower year-over-year.
4474506,46,404.14,409.18,1,Also lower year-over-year fresh foods was the primary driver of the core on core being lower in the quarter.
4474506,47,409.7,420.1,1,Fresh continues to lapse except to lap exceptional labor productivity and low product spoilage that occurred from the outside sales that began the year that were that happened a year ago in the quarter.
4474506,48,421.07,425.2,1,Ancillary and other business gross margin was higher by two basis points on a reported basis.
4474506,49,425.2,428.31,1,And again plus twelve basis points X gas inflation.
4474506,50,428.82,437.79,1,Gas and travel were better year-over-year as the anniversary of soft <inaudible> quarter a year ago offset by e-com which was particularly strong a year ago and also related to the pandemic.
4474506,51,438.2,442.23,1,<inaudible> LIFO we had a three basis point of fourteen million dollars LIFO charge in the quarter.
4474506,52,443.03,450.62,1,Uh two percent reward higher by three on a reported basis and lower by one excluding gas inflation a reflection of slightly higher pene…
4474506,53,450.65,454.59,1,sales penetration going to the uh increased number of executive members.
4474506,54,455.21,457.25,1,And other was up twelve basis points.
4474506,55,457.6,465.09,1,Uh this is related to COVID-related costs from a year ago that portion of the COVID-related wages that go into the cost of sales like manu…
4474506,56,465.09,467.77,1,our manufacturing businesses and our meat and bakery departments.
4474506,57,468.69,479.16,1,Given the inflationary pressures and our ongoing efforts to mitigate price increases to our members in the face of inflation as best we can our q one gross margins results all in all I think were pretty good.
4474506,58,480.32,482.06,1,Moving to uh sg and a.
4474506,59,482.34,492.21,1,Our reported sg and a and the first quarter was lower or better uh year-over-year by sixty six basis points and twenty nine basis points excluding uh gas inflation.
4474506,60,492.64,509.76,1,Again joting down two columns of numbers first column being reported and the second column being X gas inflation uh operations was better or uh lower by forty basis points uh and X gas inflation better or lower by eleven basis points.
4474506,61,509.99,516.09,1,Central uh reported better by ten without inflation gas inflation better by six.
4474506,62,516.7,525.0099,1,Stock compensation uh better by two and worse by one and two columns and other better by fourteen and better by thirteen year-over-year.
4474506,63,525.55,535.43,1,Total then again on a reported basis uh our sg and a was better or lower by sixty six basis points and X gas inflation lower or better by twenty nine basis points.
4474506,64,536.92,562.57,1,Um the uh keep in mind uh in terms of the core again better by forty or better by eleven X gas inflation keep in mind this result includes the permanent dollar an hour wage increase that began in March of twenty twenty one and four weeks of additional starting wage increases that we just took uh this past October uh going from sixteen to seventeen dollars and from 16.50 to eighteen dollars for our two main categories of hourly employees.
4474506,65,563.23,572.56,1,These latest changes in the starting wages went into effect October twenty fifth just six weeks ago and four weeks of those uh six weeks included in q one and q one.
4474506,66,573.34,580.01,1,Uh central no surprise is there um again our X gas inflation basis uh better by six.
4474506,67,580.32,599.06,1,Stock comp as I mentioned a little better uh a little worse by one X gas inflation and other the fourteen and the thirteen basis points numbers uh this consisted of the COVID expense of a hundred fifty million one hundred fifty nine million last year uh and the a hundred eighteen million dollars writeoff of the impacted It assets that I mentioned earlier.
4474506,68,599.95,602.74,1,Uh next on the income statement is pre-opening expense.
4474506,69,603.32,608.9,1,Uh this year in the quarter twenty eight million dollars last year in the quarter twenty two or six million higher.
4474506,70,609.66,620.41,1,Also reporting operating income in the first quarter increased eighteen percent coming in coming in at one point six nine three billion dollars this year in the quarter compared to one point four three billion dollars last year.
4474506,71,621.39,628.04,1,Below the operating income line interest expense was thirty nine million dollars each of the first quarters of fiscal twenty one and twenty two.
4474506,72,628.77,630.85,1,Interest income interest expense rather.
4474506,73,631.16,637.05,1,Interest income and other for the quarter was higher by thirteen million year-over-year primarily due to favorable FX.
4474506,74,638.98,649.2599,1,Overall reported pre-tax income in the first quarter was up nineteen percent coming in at one point six nine six billion uh this year compared in the first quarter of last year of one point four two billion.
4474506,75,650.14,658.5,1,In terms of income taxes our tax rate in the first quarter of twenty two was twenty point seven percent compared to sixteen point eight percent in q one last year.
4474506,76,658.93,668.45,1,Again both years tax rates benefited from the tax treatment of stock based compensation as mentioned earlier uh ninety one million this year and seventy five million last year in the quarter.
4474506,77,668.79,676.66,1,Additionally last year's tax rate benefited from the tax deductibility of the special dividend that portion payable to the company's four oh one <unk> plan participants.
4474506,78,677.48,685.03,1,The fiscal twenty two effective tax rate excluding these discrete items is currently projected to be between twenty six and twenty seven percent.
4474506,79,686.04,693.81,1,A few other items of note in terms of warehouse expansion as you know for fiscal twenty one we opened uh twenty two units including two relos.
4474506,80,693.81,703.32,1,So a net increase of twenty units during fiscal twenty one and this quartered that ended a couple weeks ago we opened nine units including one relo So a net openings of eight.
4474506,81,703.7,714.35,1,For the remainder of the year we planned to open twenty three new units and also uh uh planned to open twenty three units four of which would be relocations.
4474506,82,714.35,716.98,1,So a net of nineteen if all goes as planned.
4474506,83,718.19,719.9,1,It's been a busy past seven days.
4474506,84,719.93,734.87,1,Uh we opened our second Costco in France last Saturday on December fourth followed by our second building in China which opened yesterday as well as two buildings opening this morning opening today one in the US in Florida and our fourth unit in Spain.
4474506,85,735.84,741.71,1,Regarding CapEx uh our first quarter fiscal twenty two spend was approximately one point oh five billion.
4474506,86,742.27,746.25,1,Our full year CapEx spend is estimated to be just about four billion dollars.
4474506,87,746.73,752.79,1,This would represent an increase of more than four hundred million over last year's entire CapEx figure of three point six billion dollars.
4474506,88,753.21,760.84,1,The largest areas of increase coming from international spending for new warehouse expansion and increased investment in our logistics and e-com fulfillment operations.
4474506,89,761.82,773.21,1,In terms of e-commerce uh sales in the quarter x f x increased thirteen thirteen point three percent year-over-year that's of course on top of an eighty six percent plus increase a year ago in the first quarter.
4474506,90,773.81,788.1,1,Strong departments in terms of year of percentages include jewelry tires and home furnishings our largest merchandise department in terms of sales majors which is everything from consumer electronics and TVs to appliances et cetera was up in the high single digits.
4474506,91,788.14,791.04,1,Also on a very strong sales increase a year earlier.
4474506,92,792.06,806.95,1,Uh in terms of an update on Costco logistics a continues to drive our big and bulky sales uh for the quarter Costco logistics deliveries were up over fifty percent and now represent about seventy percent of our US e-com uh big and bulky shipments.
4474506,93,807.66,811.89,1,Uh average we've averaged during the quarter more than fifty thousand stops per week.
4474506,94,812.42,821.81,1,And uh for the year we project more than three million stops which would be everything from dropping something off to installing and taking away the old uh appliance for logistics in the full year.
4474506,95,823.04,833.66,1,Our e-com mobile app we continue to improve uh the site with additional features thus far as I've talked about in the last few quarters quarterly calls.
4474506,96,834.1,837.7401,1,We've redesigned the app header and footer we've updated and improved the menu layout.
4474506,97,838.24,843.08,1,Our members now have the ability to view warehouse receipts online uh via both the app and desktop.
4474506,98,843.67,849.81,1,Our co-brand city visa card is now linked can now be linked to the digital membership card and can be used for payment.
4474506,99,850.46,854.69,1,Our members are now able to much more easily reschedule e-com deliveries in the US and Canada.
4474506,100,855.31,863.12,1,Same goes for rescheduling returns uh returns pickups and delivering in the first half of the of the new upcoming new calendar year.
4474506,101,863.49,870.14,1,Uh labeling of fulfillment uh a better labeling of fulfillment methods members will be easily be can e…
4474506,102,870.14,872.55,1,will be able to easily see fulfillment options.
4474506,103,873.04,879.51,1,Be it e-com sa same day and even nearby warehouse availability of a particular item at a particular item level.
4474506,104,880.3,895.53,1,We're rolling out new e-com kiosks in the warehouse with video signage and easy touchscreen uh ordering as well we're rolling out e-commerce lockers currently in the US we have a hundred twelve locations uh with more and we plan to more than double that number during calendar year twenty twenty two.
4474506,105,896.34,901.77,1,In terms of e-commerce there's a program that received some press yesterday just yesterday called Costco Next.
4474506,106,902.5,913.08,1,In a way it's like our warehouse road shows but online currently they're thirty four suppliers and growing but it's still quite small offering just under a thousand items uh curated items with Costco values.
4474506,107,913.08,915.35,1,So please check it out when you have a chance.
4474506,108,915.91,939.83,1,Uh from a supply chain perspective similar issues that we outlined in uh in the twelve weeks ago on the last quarterly call uh each issue ebbs and flows a little bit but overall the factors pressuring supply chains and inflation include port delays container challenges uh COVID disruption shortages of vary <inaudible> components raw materials ingredients and even packaging supplies labor cost pressures and truck and driver challenges.
4474506,109,940.39,953.9,1,Overall we feel we've dealt pretty well with the supply chain challenges in terms of delayed container arrivals uh on the uh Pacific coast about seventy nine percent of our import containers are late an average of fifty one days.
4474506,110,954.37,959.61,1,Uh a few percentage of those are actually a few days early and many of them are a few days more than fifty one late.
4474506,111,960.32,961.88,1,Virtually all departments are impacted.
4474506,112,962.04,972.23,1,Uh we've ordered early in many cases as I mentioned I think earlier on earlier calls given the lo longer lead times uh less product and packaging challenges but still quite a bit.
4474506,113,972.77,976.68,1,Still some limitations on key items but improving uh again it ebbs and flows.
4474506,114,977.13,980.58,1,Uh chip shortage is still impacting many items some more than others.
4474506,115,981.01,984.09,1,In some instances delayed inventory simply extends the season.
4474506,116,984.09,994.18,1,Uh an example might be lawn and garden and patio uh as soon as the product arrives it sells pretty quickly uh but it may extend into uh beyond the normal seasonal time.
4474506,117,994.83,997.07,1,Uh toys and seasonal in fact uh same thing.
4474506,118,997.07,1003.12,1,Some inventory in fact won't make it before Christmas but we've mitigated that as best as possible and feel pretty good about it.
4474506,119,1003.79,1017.74,1,Um and in terms of uh moving on to uh oh despite all the supply chain issues again I we're pretty um feel pretty good about staying in stock and continuing to work to mitigate cost and price increases as best we can.
4474506,120,1018.5,1019.77,1,Uh moving on to inflation.
4474506,121,1019.87,1023.93,1,Uh again it's pretty much the same story that we told during each of the last two quarters.
4474506,122,1024.3,1040.47,1,There have been there have been in our variety of inflationary pressures that we and others are seeing uh from labor costs to freight costs to higher demand uh to container shortages and port delays uh to increased demand on certain product categories uh much of what you see and read out there.
4474506,123,1040.96,1048.08,1,Uh various shortages on everything from chips to oils and chemicals supplied by facilities uh hit by the Gulf storms a while back.
4474506,124,1049.23,1061.12,1,Uh higher commodities prices uh for q one twenty two in talking with our merchants senior merchants we estimate that overall year-over-year price inflation to be in the four and a half to five percent range.
4474506,125,1061.52,1069.4099,1,That's a little bit higher of an estimated inflation rate that I discussed a quarter ago but um I think pretty consistent with what you what you read out there.
4474506,126,1070.3,1088.9301,1,All of this said uh much kudos to the job that our merchants and our traffic department and our operators have all been able to do in order to get the products that we need uh you know pivot when and where necessary and keep our warehouses full um while keeping you know uh prices low for our members and continuing to show value versus our competitors.
4474506,127,1089.76,1091.65,1,Look I think overall this is reflect…
4474506,128,1091.78,1097.05,1,this is best reflected in the operating results that we continue to achieve despite these many challenges.
4474506,129,1098.13,1102.28,1,Uh anecdotally on merchandising uh you know holiday stuff has been strong.
4474506,130,1102.28,1105.0601,1,Again sometimes it depends on when the merchandise gets in.
4474506,131,1105.51,1108.51,1,Uh baking items more people seem to be getting together strong.
4474506,132,1108.9301,1112.86,1,Uh gift are up dramatically from a year ago but it was weak a year ago.
4474506,133,1113.05,1118.0,1,Pet products as you might expect are strong with the benefit of increasing pet population over the past couple of years.
4474506,134,1118.39,1122.6901,1,Alcohol and spirits are strong including gift boxes of various items.
4474506,135,1123.01,1123.45,1,And con…
4474506,136,1123.51,1127.9,1,of course continued strength and consumer electronics appliances furniture and mattresses and the like.
4474506,137,1128.55,1134.74,1,Apparel actually has enjoyed much stronger sales growth this year albeit compared to relatively flat apparel sales a year ago.
4474506,138,1135.52,1143.0601,1,Uh one last comment um uh our sustainability commitment website received a major refresh this week.
4474506,139,1143.52,1153.04,1,Um so please feel free to visit the site it's linked directly from our homepage under uh the column about us and then click on sustainability commitment.
4474506,140,1154.0601,1165.4399,1,Finally in terms of upcoming releases we will announce our December sales results for the five weeks ending Sunday January second on Wednesday January fifth uh after market close.
4474506,141,1165.54,1169.8199,1,With that i'll open it up to questions and uh turn it back over to Sadie.
4474506,142,1170.05,1170.42,1,Thank you.
4474506,143,1182.47,1183.97,0,Michael your line is open.
4474506,144,1184.38,1186.27,2,Good evening.
4474506,145,1186.3,1188.33,2,Thanks a lot for taking my question.
4474506,146,1188.74,1191.9501,2,Richard your point about uh four to five percent inc…
4474506,147,1192.05,1195.47,2,uh inflationary increase uh across the assortment.
4474506,148,1196.6801,1201.1599,2,Typically Costco's been slower to raise prices than than everyone else.
4474506,149,1201.16,1205.6801,2,That that seems to be a number that's in line with others across the retail sector.
4474506,150,1206.46,1211.6799,2,So <unk> has the posture changed with respect to passing along price increases?
4474506,151,1212.25,1213.54,2,Why is that the case?
4474506,152,1213.85,1221.9301,2,And does Costco have more pricing power today than it ever has in the past given the pricing gaps between you and others in the market?
4474506,153,1223.22,1237.76,1,Well I I I think as it relates to you passing on we've always said we want to be the you know the last to raise the price and the the and uh the first to lower the price recognizing there's a limit to what you can do based on these cost increases.
4474506,154,1237.76,1248.84,1,First and foremost I think because of our relative purchasing power and and our relationships with our vendors we with our suppliers work to mitigate those increases in any way shape or form we can.
4474506,155,1249.29,1255.87,1,Uh ultimately that may include us taking a little more less markup and and and maybe them taking a little less markup.
4474506,156,1256.23,1263.46,1,There's no complete consistent answer throughout as you might expect but overall I think we've done a a relatively good job of that.
4474506,157,1263.46,1265.0701,1,And there is inflation in those numbers.
4474506,158,1265.34,1273.11,1,Uh those numbers are are are uh kind of a combination of our cost increases as well as our some price increases.
4474506,159,1273.11,1274.5601,1,And again it fluctuate.
4474506,160,1274.5601,1281.9801,1,There are you know for every few examples of something going up there may be an example of something flatter going down a little bit for unrelated reasons.
4474506,161,1282.04,1285.02,1,And uh so again it's it's the best guess it's fluid.
4474506,162,1285.46,1294.3101,1,Um you know we saw inflation starting several months ago in a bigger way I think in our fiscal q four this summer and continuing into this this fiscal year.
4474506,163,1294.63,1304.75,1,And as we all have read articles general articles out there about certain different major consumer product manufacturers announcing increases and continuing to do so.
4474506,164,1304.75,1306.03,1,So I think it's gonna continue.
4474506,165,1306.35,1310.6801,1,Hopefully we're getting towards the top and it'll it'll start flattening out in subsiding but we'll see.
4474506,166,1312.48,1328.2699,2,My follow up question is with the core merchandise margin X fuel and the core on core gross margin getting less bad or declining at a lesser rate this quarter than last is this a sign that the margin here is stabilizing?
4474506,167,1328.61,1346.4,2,And do you think the Costco exits the pandemic with a structurally higher gross margin than it's had in the past or are all these dynamics simply a function of what you've often said which is when overall retail margins go up so do Costco's but just a little less than others?
4474506,168,1346.96,1347.3201,2,Thank you.
4474506,169,1348.23,1350.08,1,I think on the last comment yes.
4474506,170,1350.08,1352.2799,1,Uh in terms of that last comment you made.
4474506,171,1352.5699,1359.1,1,Look I think at the end of the day uh I think we in many ways have benefited from mar…
4474506,172,1359.1,1363.24,1,from market share gaina hopefully some or most of which will be sticky.
4474506,173,1363.6,1384.3401,1,Uh the biggest thing that impacts margins many often is not only on the buying power side and arguably I can't think of any company that has the buying power per item that we do because we do our roughly two hundred billion in sales with you know four thousand ish items uh versus anybody else that's doing it with hundreds of thousands of items or fifty thousand items.
4474506,174,1384.64,1392.9,1,Uh but I think that uh uh ha having higher levels of sales productivity particularly in things like fresh foods helps your margin.
4474506,175,1393.21,1399.8301,1,Uh we'll keep some of that and we'll use some of it to to to be even more competitive and hopefully build a bigger mode a little bit.
4474506,176,1400.1801,1409.9299,1,But I I I think that uh some of it is probably structurally there but you know as some famous TV actress said once It's always it is always gonna be something.
4474506,177,1410.24,1421.11,1,And uh uh you know we'll keep fighting that battle out there but we feel pretty good about some of the structural things that have occurred that hopefully will help us in the future but we will have to wait and see.
4474506,178,1423.0,1424.5,2,Thank you very much and have a good holiday.
4474506,179,1425.9399,1426.26,1,Thank you.
4474506,180,1428.16,1431.76,0,For our next question we have Simon Guttman from Morgan Stanley.
4474506,181,1431.84,1433.15,0,Simon your line's open.
4474506,182,1434.26,1436.76,3,Hey everyone I'll be uh <unk> in for this call.
4474506,183,1436.8199,1442.23,3,Um my first question is actually a follow up to Michael's second question.
4474506,184,1442.74,1444.35,3,Maybe I'll ask it a different way Richard.
4474506,185,1444.35,1448.88,3,The the two year core on core looks like it's actually getting better.
4474506,186,1449.37,1453.61,3,And you said it yourself you thought you did a pretty good job on it and it looks like you are.
4474506,187,1454.09,1461.13,3,So if we're kind of getting it feels like you're managing through the worst of it and the environment may be getting better at the margin.
4474506,188,1461.13,1471.75,3,I don't want to go too far and say that why shouldn't be this be the worst for the core on core not withstanding you know comparisons but they um which they get harder but then they start to get easier.
4474506,189,1472.65,1472.86,1,Yeah.
4474506,190,1472.86,1476.0601,1,Look I think that's hopefully how the storybook goes.
4474506,191,1476.38,1486.78,1,Uh it's always gonna be something but no look we we jokes aside we feel pretty good about structurally what we've been able to accomplish and part of that's market share with higher sales levels.
4474506,192,1487.0601,1496.29,1,And you know we've not stopped the what I'll call the buyer creativity of working with suppliers to figure out how to to continue to drive greater value.
4474506,193,1496.6899,1517.5701,1,Um I could think of fifty examples but at the end of the day uh you know we're continuing to drive value in lots of ways and whether it's changing packaging or uh you know using our volume moving certain production to different parts of the world uh and uh to to take again to make that that more deep and a little bigger.
4474506,194,1517.5699,1525.11,1,So I I agree with you that so far the the story that you suggested is is playing out and hopefully it'll continue to play out.
4474506,195,1526.13,1526.66,3,Fair enough.
4474506,196,1526.6899,1530.6599,3,Um my second question is more on sg and a and the businesses leverage point.
4474506,197,1531.15,1538.6801,3,We used to chat about you know Costco always doing mid-single digit comps and that's good enough to cover the the uh the sg and a dollar growth.
4474506,198,1539.21,1543.46,3,I think this quarter the business did about six and a <unk> percent dollar growth adjusted.
4474506,199,1543.95,1550.13,3,And you're gonna have some of these wage investments that'll annualize well maybe not to the middle or to closer to the end of the year.
4474506,200,1550.59,1560.73,3,So I'm trying to get at what a normal post COVID sg and a rate may look like and then you know does that mean it's sort of that mid-single digit comp rate that leverages those expenses?
4474506,201,1561.9399,1563.75,1,Uh I think this relates to the be…
4474506,202,1564.7,1570.0801,1,probably the best guesstimate and I say guesstimate not estimate on where do you start?
4474506,203,1570.08,1573.6801,1,Where's the inflection point of of leveraging uh sg and a?
4474506,204,1574.05,1579.78,1,Probably still is in that mid-single digit range um beyond that who the heck knows.
4474506,205,1579.78,1585.24,1,I mean we've been able you know notwithstanding some of these increases uh we've been ab-…
4474506,206,1585.34,1598.76,1,particularly in wages we've been able again strong comps have helped helped these numbers but I think we feel pretty good about having the sales volumes that continue to be able to uh to leverage those expenses.
4474506,207,1598.76,1605.72,1,So um as soon as we find out we'll let you know but uh again we're feeling pretty good about things of this juncture.
4474506,208,1606.05,1612.24,1,Um you know and at some point I would assume comps have to come back to a hopefully better than av…
4474506,209,1612.24,1618.2001,1,better than pure average but you know something back to where they had been pre COVID but on a higher base.
4474506,210,1618.49,1619.74,1,And even that helps you a little bit.
4474506,211,1621.27,1622.02,3,Okay great.
4474506,212,1622.0601,1622.3,3,Thanks.
4474506,213,1622.3,1623.3199,3,Happy holidays everyone.
4474506,214,1624.27,1624.62,1,You too.
4474506,215,1626.29,1629.7101,0,For the next question we have Christopher Horvers from JPMorgan.
4474506,216,1631.0,1632.14,0,Christopher your line's open.
4474506,217,1633.6899,1634.0699,4,Thanks.
4474506,218,1634.36,1635.4301,4,Good evening everybody.
4474506,219,1635.84,1659.0499,4,So um I wanted to ask a little bit about your thoughts on holiday pull forward obviously you saw an acceleration and and trend on a two year basis in October and then you know November it uh you know things obviously still an amazing comp and ga gaining share but you know trends decelerated and you know it was sort of a against a what was a a weaker I think end of the month last year.
4474506,220,1659.05,1665.36,4,So can you talk about like what do you think is driving that uh how do you think about the rest of the holiday a season?
4474506,221,1665.36,1675.7599,4,And as you think about a consumer that's gonna you know <inaudible> lap a a bunch of stimulus in the first half of next year uh what are your initial thoughts on on how that all could play out?
4474506,222,1677.02,1685.79,1,Well I I I I think you know again as you just mentioned November's comps were a shade under outside expectations still very good.
4474506,223,1686.05,1692.24,1,Uh you know a couple percentage points different than what we had been enjoying a couple of months prior to that.
4474506,224,1692.87,1696.4,1,Probably the view is a little bit of that was pulling forward.
4474506,225,1696.88,1712.4601,1,Uh but even within even within last month's number the weeks varied and overall were good uh but you know just when you know when it comes is reduced a little the next day it's it's it's better than you expected.
4474506,226,1712.51,1723.96,1,So I I think the one thing that I feel good about uh is is our in stocks um you know our senior merchant the other day had indicated his his view is is that…
4474506,227,1724.8101,1728.8,1,his feeling is is that we're better are in stock than anybody out there.
4474506,228,1729.2,1731.91,1,And I think part of that is the fact of limited selection.
4474506,229,1732.35,1733.55,1,We are an item business.
4474506,230,1733.55,1737.2,1,We could put something else in place of something but we've done a pretty good job.
4474506,231,1737.2,1746.38,1,Uh I mean I had a you know a little bit of a chuckle at a call just yesterday from a reporter asking about uh how are we doing on cream cheese?
4474506,232,1755.62,1761.87,1,We actually got as the buyer said it took a little extra work but we've got all the cream cheese we need.
4474506,233,1761.87,1764.1,1,So I think we've done a good job in merchandising.
4474506,234,1766.3,1766.59,4,Got it.
4474506,235,1766.59,1789.99,4,And so I I guess as you you know as you think about last year and and the stimulus I mean do you think that I mean actually I think the consumer should get closer to Christmas and New Year's probably comes back if people are are entertaining more like you said on the baking side but as you get into you know January and stimulus and stimulus in the spring uh do you think your business lifted off a stimulus last year?
4474506,236,1790.63,1793.13,1,Uh look it it it couldn't hurt it.
4474506,237,1793.13,1793.34,1,It pro…
4474506,238,1793.34,1794.54,1,it probably helped a little bit.
4474506,239,1794.76,1809.9299,1,I know historically when when when there's been some stimulus out there uh factors our view is that we have not been impacted as as much as other but directionally we've been impacted the same.
4474506,240,1810.4301,1822.0199,1,Um look if next year there's a a reduction in stimulus Lord knows what's gonna happen with the stock market in general and how people feel about where their they how they feel financially.
4474506,241,1822.48,1839.15,1,Uh that may all change a little bit but I I feel we feel pretty good around here that in you know one of the things that we've shown over the years that in both in good and bad times we tend to do well in good times because people wanna spend more and even in less good times people wanna save more.
4474506,242,1839.36,1848.4299,1,And uh so I I think uh from a merchandising stand and in in tougher times there's additional products and services that might be willing to sell us for the first time.
4474506,243,1848.4301,1854.52,1,So in in our own perverse way we we we sometimes benefit from good and bad.
4474506,244,1854.52,1858.1399,1,And right now we're feeling pretty good about what the future looks like.
4474506,245,1860.28,1873.5,1,Oh oh by the way the the other thing I've just mentioned that even if certain things head south in some way shape or form like reduction or lack elimination of certain stimulus items uh supply chain at some point is gonna get better.
4474506,246,1873.89,1891.26,1,Uh as good as our members are uh we could do better if we had more supply of certain of those items even in some categories in non-food up that are up twenty and thirty thirty plus percent uh the buyer's view we're still running outta stuff or uh could do better if we had more.
4474506,247,1891.29,1892.2301,1,And that's not just us.
4474506,248,1892.23,1901.9099,1,I mean that's that it rains on everybody but I I think some improvement in supply chain will be an offset to any other things that are are detrimental to that thought.
4474506,249,1903.5601,1903.88,4,Got it.
4474506,250,1903.88,1904.5601,4,Thanks very much.
4474506,251,1904.5601,1907.36,4,And enjoy the run on cream cheese at the clubs this weekend.
4474506,252,1907.76,1908.1599,4,Take care.
4474506,253,1909.59,1917.8099,0,For our next question we have Chuck Room from Gordon <inaudible> Chuck your line's open?
4474506,254,1918.6899,1921.15,5,Hey um Richard Bob Tim you guys are doing well?
4474506,255,1921.1801,1933.03,5,Um the question on leverage you know if we back up the one time charges quarter looks like you enjoyed over a hundred basis points um of improvement uh year-over-year at sixty five basis points last quarter.
4474506,256,1933.47,1941.99,5,Now fully realizing the comps on a stack basis were better but wondering if some investments or or other costs may have rolled off um just some thoughts on that front?
4474506,257,1944.74,1951.04,1,Um I I think more of it uh is is just the leverage of sales growth frankly.
4474506,258,1951.41,1969.14,1,Um again taking out the the the specific COVID-related charges that we talked about in fact what we did talk about in terms of separating in the press release was that dollar an hour increase we did in in March and the new one that had a small impact in q one because it started six weeks ago.
4474506,259,1969.48,1975.6599,1,Uh but in that regard uh there there's nothing that stands out in my view uh in my guestestimate.
4474506,260,1976.47,1978.4401,1,Uh I'm looking at my guys here.
4474506,261,1980.77,1983.65,1,It it was strong strong sales would be the number one factor.
4474506,262,1984.71,1984.96,5,Okay.
4474506,263,1985.36,1985.63,5,Okay.
4474506,264,1985.67,1986.29,5,Fair enough.
4474506,265,1986.4,1991.58,5,And then just on on the storefront um you know fourteen opened thus far in uh twenty two.
4474506,266,1992.01,1994.97,5,Um so you're more than halfway to the goal which is great.
4474506,267,1995.0699,2010.4,5,Um I'm just wondering you know bigger pitch has has there been any more discussions to to back fill some of your existing markets you know your higher density areas where perhaps some stores you know just can't handle any more productivity more you know any more throughput just because of the volumes?
4474506,268,2011.04,2020.9801,1,I think that's the answer is yes and I think that'll be uh you know small methodical increases in that thought uh over the next several years.
4474506,269,2021.34,2039.76,1,I mean it used to be that we talked about when we had four hundred warehouses and the average I'm making those numbers up but the average was you know one eighty and and now the uh you know I think we have an average several years later in the high two hundred s in in in the US at least.
4474506,270,2040.97,2041.24,1,What?
4474506,271,2043.98,2048.72,1,And uh and uh and we have a number of units in the three hundred or four hundred range.
4474506,272,2049.29,2064.6599,1,Uh not I mean not hundreds but uh you know tens of and so we are we're we are looking for more infill but we've been doing that and you know if it was three to five a year or three to seven three to five a year in the last five years is it gonna be five to eight a year?
4474506,273,2064.8899,2065.3899,1,Could be.
4474506,274,2065.3899,2067.24,1,I I don't have that kind of detail in front of me.
4474506,275,2069.0,2069.4199,5,Okay great.
4474506,276,2069.4199,2072.3699,5,And then my last one is just the follow on Christmas on November.
4474506,277,2072.75,2079.0601,5,I believe you guys did call out that there was some moderation in retail inflation you know maybe a hundred fifty basis points or so.
4474506,278,2079.5601,2085.7,5,I'm just wondering if you could provide any color on I guess on what air that retail inflation came in and and I guess why that happened?
4474506,279,2085.7,2086.96,5,Was was it self-inflicted?
4474506,280,2087.5,2089.6699,5,Just uh wanted to get get some color there.
4474506,281,2092.0801,2103.0901,1,One thing that was a little lower was from the increases in food and sundries and some food and sundries items and fresh um that had spiked even more it's still up year-over-year but it spiked a little…
4474506,282,2103.0901,2104.75,1,it came down a little bit from where it had been.
4474506,283,2107.5901,2110.24,1,And then we we haven't quantified anything specific beyond that.
4474506,284,2111.1699,2111.4199,5,Okay.
4474506,285,2111.7,2111.9399,5,alright.
4474506,286,2113.5801,2119.6599,1,And and by the way as you might expect there there are suppliers out there that are saying Hey you know come January February you'll see some more increases.
4474506,287,2119.6599,2122.4199,1,And again this is not inconsistent with what you…
4474506,288,2122.6899,2126.6899,1,what I've read in general articles and the various business periodicals.
4474506,289,2127.74,2128.01,5,Okay.
4474506,290,2128.01,2129.4299,5,So just a lot of timing differences.
4474506,291,2129.5801,2129.8701,5,Okay.
4474506,292,2130.3,2130.51,1,Yeah.
4474506,293,2134.8501,2135.1301,5,Great.
4474506,294,2139.0701,2139.8799,0,John your line's open.
4474506,295,2140.97,2157.3999,7,So so Richard how is KS performing and what happens or how do you think about it in an inflationary environment in terms of how you take price versus like items on the on the uh national brand side and does KS do better uh in an inflationary environment?
4474506,296,2160.47,2165.3799,1,Um look many of our KS items are at such large volumes.
4474506,297,2165.6699,2171.5198,1,It's not unlike dealing with the comparable large volumes we do in a branded c p g item.
4474506,298,2171.95,2178.21,1,And so we're out there you know fighting with both of 'em uh to you know to try to mitigate those cost increases.
4474506,299,2178.5901,2188.52,1,Um KS still grows at a little faster rate than others uh but nothing discernible.
4474506,300,2188.8799,2194.78,1,Uh I think we keep finding new items to do KS with and for a variety of different reasons.
4474506,301,2194.78,2198.6299,1,And so it it continues to drive that brand but no I I don't think there's a…
4474506,302,2198.8201,2201.4299,1,we don't see a big difference of of how that's changing.
4474506,303,2202.49,2202.77,7,Okay.
4474506,304,2218.4099,2230.4402,1,Uh it is it is in the fifty range and maybe it is slightly higher than that based on our when we originally you know bought uh what's now Costco Logistics a year and a half ago.
4474506,305,2230.9199,2232.75,1,We've moved over a bunch of volume.
4474506,306,2233.1499,2236.7102,1,We've grown it as well you know grown our our total base of need.
4474506,307,2237.1599,2246.77,1,And uh I think we're a slightly above the fifty percent that we felt we had capacity for at the time and uh certainly have plenty of capacity over the next few years.
4474506,308,2246.99,2248.3801,1,Mind you we're spending money on it.
4474506,309,2248.3799,2266.51,1,Part of our fulfillment and logistics is uh I I think I mentioned on the last quarterly call uh in within CapEx we had spend three hundred and forty or so million dollars on a multi-acre million one point six million square foot uh distribution facility in Southern California.
4474506,310,2266.9199,2268.8098,1,Uh that's for a variety of needs.
4474506,311,2269.3101,2298.03,1,Uh uh some of the uh much of what we bought uh in the Innovel acquisition in March or April of twenty twenty uh more than ten million square feet of space around the country uh much of its leased much of it's fine by the way but we're uh not all of it was geographically particularly the big sites the million square foot sites were in areas where we're stronger relative to where uh Sears is stronger or or where they had most of their business at the time.
4474506,312,2298.0801,2300.8298,1,So uh we're still spending money on it and upgrading it.
4474506,313,2300.8601,2307.53,1,And uh but we're you know again from a merchandising standpoint we're very excited about it and it's helped us grow that business in a big way.
4474506,314,2307.53,2317.05,1,And given our small market share of many of those items particularly on the appliance side uh we feel there's a lot of growth potential for us.
4474506,315,2318.04,2318.29,7,Okay.
4474506,316,2322.1101,2324.27,0,We have Karen Schwartz from Berkeley.
4474506,317,2324.48,2325.71,0,Karen your line's open.
4474506,318,2330.8601,2346.97,8,So US ticket um at three point five percent can you kind of parse that out on um know per transaction well versus <unk> but but also tie that into the inflation numbers that you called out for the quarter and or your expectations on inflation?
4474506,319,2347.96,2349.3799,1,Uh honestly I can't.
4474506,320,2349.3799,2351.9299,1,I don't have that detail or thought in front of me.
4474506,321,2351.96,2362.8501,1,Um you know generally speaking you've got electronics that like TVs and what have you that are going down and price maybe a little less this year because there's less promotions because of shortages.
4474506,322,2363.24,2377.4399,1,Um um I mean at every budget meeting every four weeks were presented examples of items where we're taking down the price uh of of high volume key items by changing the packaging.
4474506,323,2377.75,2385.8799,1,Uh by moving some uh some aspect of manufacturing to to another part of the world.
4474506,324,2386.3101,2390.3899,1,Uh and uh so I I don't have the detail Karen in front of me for that.
4474506,325,2390.3899,2390.7998,1,Sorry.
4474506,326,2391.55,2391.73,8,Okay.
4474506,327,2391.8701,2401.0999,8,And then I wanted to I don't think this has been asked for a while but um can you give an update maybe on what the average ticket is for executive members versus gold?
4474506,328,2401.3,2408.78,8,Um and then you know I know you gave the obviously you've given the percent of sales but frequency of executive versus gold.
4474506,329,2408.78,2413.04,8,How how maybe that's changed over the last you know almost two years of the pandemic?
4474506,330,2413.98,2414.6699,1,Uh I will…
4474506,331,2414.6699,2419.8201,1,Uh somebody's just running outta the room to see if they can grab that sheet and I'll answer it as soon as they get back.
4474506,332,2419.8201,2424.75,1,If you want to ask another question or move on to the next one and but I'll I'll intervene when he gets back.
4474506,333,2425.46,2430.3899,8,Well my standard question would be just on your cash balance in terms of thoughts on special dividend?
4474506,334,2431.26,2436.2,1,Oh well as soon as we know you'll know uh or the day after.
4474506,335,2436.4199,2438.8401,1,The uh look our cash position is strong.
4474506,336,2439.26,2443.97,1,Uh one of the things I pointed out is our CapEx is also increasing in a conscious way.
4474506,337,2444.3799,2451.8899,1,Um notwithstanding that our our our cashflow from operations is growing at a at quite a a a stronger rate as well.
4474506,338,2452.21,2454.46,1,It's something that we've done four times in eight years.
4474506,339,2454.8,2459.8101,1,Uh we uh you know we and the shareholders seem to like it when we do it.
4474506,340,2460.1799,2463.5901,1,So I'm not trying to be cute but we haven't made that decision at this juncture.
4474506,341,2464.48,2469.3999,1,It's probably a when not if but you know when will be when we do it.
4474506,342,2470.5901,2470.8401,8,Okay.
4474506,343,2488.46,2491.76,1,I could be wrong a little bit but it it contracted.
4474506,344,2492.1499,2496.49,1,Now recognizing with contracts we might do one two and three year contracts.
4474506,345,2496.49,2504.21,1,So we're still benefiting on three year stuff and benefiting a little on two year stuff and have now gone beyond the benefit of the one year stuff.
4474506,346,2504.5801,2515.8599,1,Uh and uh so it it it's a it's over a two or three year period but our assumption is is it'll take less than that time to start to normalize somewhat.
4474506,347,2517.29,2517.48,8,Okay.
4474506,348,2518.1299,2518.5698,8,Great.
4474506,349,2519.73,2520.1899,1,Yes.
4474506,350,2520.6399,2521.3298,8,Right.
4474506,351,2521.3301,2535.6902,1,But yeah but it's it's I think we again we probably with other large users of of freight and containers have probably done a a pretty good job of at least staggering that and not having to do a lot of spot stuff so far.
4474506,352,2536.78,2537.02,8,Great.
4474506,353,2537.1101,2537.27,8,Yeah.
4474506,354,2545.1101,2547.96,1,What they came back with right now is we don't have…
4474506,355,2547.96,2556.47,1,I don't have I don't have quickly average ticket changes but the total spend per executive member compared to a gold star member is almost three X.
4474506,356,2558.3101,2558.49,8,Okay.
4474506,357,2558.76,2559.1299,8,Thank you.
4474506,358,2561.3601,2561.6602,1,Thank you.
4474506,359,2561.6599,2561.8899,8,Okay.
4474506,360,2566.27,2571.01,1,For our next question we have Greg Melich from Evercore ISI.
4474506,361,2571.0601,2572.22,1,Greg your line's open.
4474506,362,2573.45,2573.9202,9,Hi thanks.
4474506,363,2573.9199,2575.5498,9,Um I had two questions Richard.
4474506,364,2575.55,2579.5498,9,One is uh digging little bit into the uh the margins the gross margins.
4474506,365,2579.77,2585.1401,9,You said gas and travel had had helped but then offset by e-commerce.
4474506,366,2600.1799,2600.4199,6,Correct.
4474506,367,2600.8101,2601.1201,9,Got it.
4474506,368,2601.1201,2606.1101,1,So you still might have more pennies per gallon but the margin itself was down.
4474506,369,2606.8701,2607.2,9,Got it.
4474506,370,2613.1899,2613.54,1,Yeah.
4474506,371,2613.54,2617.02,1,And again I wouldn't read a lot into any of that description.
4474506,372,2617.02,2621.28,1,We're just trying to share with everyone directionally what helps it and hurts it a little bit.
4474506,373,2621.6101,2638.2202,1,Uh e-commerce uh just given all the activity we've gotten expenditures on fulfillment and expansion and doing what we can you know over time when we're pulling tickets if we if something else happened uh I don't view as a big issue from a…
4474506,374,2638.3999,2651.8298,1,it's not whatever whether the margin's up a little or down a little it's less about competition and more about what's the product mix that month or week and what else is going on with this rapid expansion and investment in it.
4474506,375,2652.96,2653.3198,9,Got it.
4474506,376,2653.3201,2659.3501,9,And and then maybe to tie back your discussion on the logistics big and bulky if we look at…
4474506,377,2659.51,2666.0601,9,if e-commerce is roughly eight percent of sales is big and bulky a quarter of that is is that the kind of scale we're talking about?
4474506,378,2666.99,2667.8899,1,It's over a third.
4474506,379,2669.4199,2669.74,9,Great.
4474506,380,2671.04,2682.7302,9,Uh and then last but not least um the renewal rates you know continuing to to pick up I guess uh impressive.
4474506,381,2682.96,2683.8899,9,How how do we…
4474506,382,2686.28,2692.8101,9,Shouldn't that come off at some point just just given that you have more first year members?
4474506,383,2709.4399,2720.1199,1,As we get more people on a credit card both in the two big co-branded in the US and Canada uh that's a no-brainer to help a little bit as we convert people to executive member.
4474506,384,2720.1201,2720.6699,1,And as we…
4474506,385,2720.6699,2727.29,1,For every hundred new people signing up a a slightly higher number of them sign up as executive members they are more likely to renew.
4474506,386,2727.29,2728.6599,1,So those things help as well.
4474506,387,2729.04,2747.1401,1,Um uh the thing I mentioned about new warehouses in in markets around the world uh tend to be while they have a very a much lower renewal rate in their first year of renewal or year two uh then that'll continue to grow as more people have renewed the prior year.
4474506,388,2747.47,2752.45,1,Um those are starting at generally those are starting at higher rates than they were.
4474506,389,2752.45,2754.0,1,So all those things help a little bit.
4474506,390,2754.3101,2762.8601,1,Um I'd like to think all the wonderful things we do and the the value proposition and uh but certainly auto renew is probably a a good help there.
4474506,391,2763.75,2764.0701,9,Got it.
4474506,392,2764.0701,2771.45,9,And then last cuz someone has to ask it just fee increase I guess back half next year is when will be five years since the last one.
4474506,393,2772.48,2780.23,9,Um what are the thoughts on that just given that that seem to be self-selecting a fee hike already through the executive uh membership?
4474506,394,2780.8,2783.78,9,Does that change your thought process as to when you might hike the fee?
4474506,395,2784.79,2785.6001,1,Uh no.
4474506,396,2785.71,2789.8201,1,Uh and our only thought is is we'll probably start getting questions about now.
4474506,397,2790.95,2802.99,1,So but it is it's still a while away and um but we certainly feel good as I've said in the past you know renewal rates strong renewal rates and loyalty help that process in that thought process.
4474506,398,2803.4099,2808.25,1,Um and uh we'll see but you know it's it's still a little bit of time to think about it.
4474506,399,2808.78,2810.3801,9,Have a great holiday season everyone.
4474506,400,2811.21,2811.52,1,Thank you.
4474506,401,2813.98,2817.99,0,For our next question we have Rupesh Parikh from Oppenheimer.
4474506,402,2818.3401,2819.6401,0,Rupesh your line's open.
4474506,403,2820.29,2820.73,11,Good evening.
4474506,404,2820.73,2821.98,11,Thanks for taking my question.
4474506,405,2822.23,2824.5801,11,So I wanted to touch on Canada and other internationals.
4474506,406,2824.5801,2828.8501,11,We saw a strong and accelerating two year conference for both Canada and other international.
4474506,407,2829.1699,2833.25,11,Is there any more color you can provide in terms of maybe what you're seeing in those in those geographies?
4474506,408,2834.47,2838.7,1,Uh I'm getting a little help here.
4474506,409,2838.73,2846.78,1,Uh it's more it is probably most I agree it's probably most about how COVID impacted different countries differently uh timing wise.
4474506,410,2847.1399,2859.5,1,I remember a a year ago and a year and a half ago you know uh some of the foreign countries uh did better while we were being locked down and then a little later they got locked down.
4474506,411,2859.5,2867.6201,1,And so part of it is you know one of the reasons I think everybody's picked up on the two year stack concept but I think that's as much as anything that that's the reason.
4474506,412,2869.1699,2869.7,11,Okay great.
4474506,413,2869.7,2876.75,11,And then as you look at your ancillary busi businesses is there a way you can find an update in terms of how they're trending now versus pre-pandemic?
4474506,414,2877.1599,2885.8201,1,Um I don't have that detail with me but generally speaking um uh you know tires are picked up as an example.
4474506,415,2885.8201,2891.52,1,It's not an ancillary business uh but you know the Costco auto program is down because there's a shortage of cars out there.
4474506,416,2891.9099,2895.54,1,Um travel is up not where it was pre.
4474506,417,2895.6699,2905.4299,1,It was almost back to where it was pre uh COVID and then uh Delta variant hit and then it was coming back again and then Omicron Omicron hit.
4474506,418,2905.8301,2908.1001,1,And so it fluctuates pretty quickly.
4474506,419,2908.6799,2909.5898,1,Omicron.
4474506,420,2910.8,2918.0601,1,And um I'm trying to think of the other of things uh food courts have come back uh not I don't think they're quite where they were but they're almost there.
4474506,421,2926.1699,2927.25,1,Optico is doing great.
4474506,422,2928.8501,2929.95,6,Pharmacy is doing great.
4474506,423,2930.26,2932.8101,1,Helped frankly by uh the shots.
4474506,424,2934.0901,2938.49,1,We like other retail pharmacies uh are providing plenty of uh vaccines.
4474506,425,2941.1899,2941.6599,11,Okay great.
4474506,426,2941.6599,2942.51,11,Thank you for all the color.
4474506,427,2944.8301,2944.9202,1,Okay.
4474506,428,2945.4399,2950.5,0,For our next question we have Stephanie <inaudible> from Jeffrey.
4474506,429,2950.73,2951.9702,0,Stephanie your line's open.
4474506,430,2954.4199,2955.04,12,Good afternoon.
4474506,431,2955.04,2956.45,12,This is Blake on first Steph.
4474506,432,2956.45,2959.3201,12,Uh first question will be higher level.
4474506,433,2959.3501,2963.1499,12,You know you guys are a big proponent of the in-store shopping experience.
4474506,434,2963.8,2967.99,12,It seems like store sales have been fairly strong as of late for retailers.
4474506,435,2967.99,2984.8198,12,So wondering you know how have your you know how's your in-store shopping compared uh versus e-com versus your expectation uh recently and then maybe if you can share any uh e-com pilots you might have that uh you've been working on.
4474506,436,2984.8201,2987.74,12,I know you mentioned you did a pickup test but you discontinued that.
4474506,437,2988.0701,2989.79,12,Anything maybe in the works that you can share?
4474506,438,2990.9399,3008.8999,1,Well you know both in-store and online have picked up um uh you know the pickup from buy uh from things like Instacart for same-day fresh skyrocketed during the lockdowns in mid to summer you know mid to late summer uh twenty twenty.
4474506,439,3009.3501,3013.2,1,Came down from those peaks but is still way above where it was uh pre COVID.
4474506,440,3013.6299,3025.7102,1,Um e-commerce is you as you know cause we talk about it every quarter is you know eight or nine percent of our sales uh on a company that a hundred ninety two billion in sales for the year ended this last August.
4474506,441,3025.71,3029.1799,1,So that's you know a lot bigger than it was you know two years ago.
4474506,442,3029.1799,3033.96,1,It's the last I think the last three or four quarters the two year stack is a hundred plus percent.
4474506,443,3034.4399,3044.1399,1,Um but notwithstanding that um and part of that is the big and bulky that has helped that number which we really weren't driving that kind of business in store anyway.
4474506,444,3044.8,3054.48,1,Um the fact that I think that uh as as we've heard occasionally that notwithstanding some people don't like our mask requirements when we first put 'em back in May of twenty twenty.
4474506,445,3055.23,3066.53,1,I think overall people felt if I've gotta go out I'm gonna go out to one place and bulk up on stuff and with taller ceilings and wider aisles and all those things I gotta believe that psychologically that's helped a little bit.
4474506,446,3066.8999,3083.6101,1,At the end of the day uh we were all surprised by uh if I go back to you know March of twenty twenty uh were surprised by the strength in non-foods categories uh summer and fall of twenty twenty much less now um um much the same now.
4474506,447,3083.8201,3089.4202,1,Uh it was because people weren't traveling and they weren't going to games and concerts but they were buying things for their home.
4474506,448,3089.8501,3094.2,1,And we certainly had on top of all the food items all the other things they could buy for their home.
4474506,449,3094.2,3097.95,1,So that was a a a pleasant surprise to us.
4474506,450,3098.26,3099.8999,1,And and uh and that's continued.
4474506,451,3101.8701,3104.3301,1,And in terms of other tests uh not a whole lot.
4474506,452,3104.3301,3107.7,1,I mean we did have that small test in New Mexico would buy online and pick up in store.
4474506,453,3108.51,3120.26,1,<inaudible> as I mentioned on the call you know have a over a year from now have over two hundred of our US warehouses with lockers um uh in terms of buying online and pick up in store we're not quite sure about that.
4474506,454,3120.9199,3122.6301,1,Um we have very busy locations.
4474506,455,3122.6299,3126.1899,1,There's not a lot of room for it and it doesn't seem to be a lot of people clamoring.
4474506,456,3126.1899,3134.29,1,In fact half or over half the people that come in and do that on a few things that we buy online and and the lockers they come in and shop while they're there.
4474506,457,3134.8101,3136.27,1,And so and that's what we want.
4474506,458,3136.78,3147.6201,1,So uh beyond that I don't think uh I think some of the things we're doing that I mentioned briefly about mobile and digital uh some of these things everybody else have we are sometimes late to the game on some of these things.
4474506,459,3148.03,3151.4099,1,Uh but those are should be all that additive to what we do.
4474506,460,3154.1699,3155.0701,12,That's super helpful.
4474506,461,3155.27,3167.52,12,Um I was also wondering on your inventory positioning uh how much are you getting ahead of you know any seasonal items or any challenges you made foresee for q two and q three for the spring and summer?
4474506,462,3169.29,3171.51,1,Um I don't know exactly.
4474506,463,3171.51,3179.1499,1,I know that consciously they the buyers when they presented the budget meetings are talking about those issues and we are bringing in things early.
4474506,464,3179.3799,3188.8701,1,We certainly have you know you think about it our our what we call our depo our view of distribution system in the US uh was something like ten million square feet.
4474506,465,3189.3799,3198.1399,1,And we essentially slightly more than doubled that with the Innovel acquisition aside from other things that helps us with a little storage if we needed or bringing in things early.
4474506,466,3198.51,3206.1501,1,Um and recognizing we start with you know we are somewhat fees <inaudible> no but historically we've always brought things in early anyway.
4474506,467,3206.6101,3207.0801,1,So we've…
4474506,468,3207.0801,3217.05,1,whatever it may be we certainly have the cash as somebody mentioned earlier uh to to have a you know some extra billion dollars invested in inventory even if it hangs around for a little bit.
4474506,469,3217.3601,3231.54,1,But I think overall some of our items are still a little later than they would be pre COVID but better than they would be if we were not doing as good a job as I think we are doing on on on on on forward buying.
4474506,470,3233.8101,3234.21,12,Perfect.
4474506,471,3234.26,3240.6499,12,Um if I could sneak one last one in I might have missed it but I think you said for the net new openings this year you said nineteen.
4474506,472,3240.9399,3244.46,12,I thought the last quarter you were aiming more towards twenty five.
4474506,473,3244.46,3246.25,12,Is there anything uh to call out there?
4474506,474,3255.3999,3255.7798,12,Perfect.
4474506,475,3255.97,3256.9099,12,Thank you very much.
4474506,476,3260.3601,3264.0798,1,For our next question we have Paul Lewis from City.
4474506,477,3264.1799,3265.2898,1,Paul the line's open.
4474506,478,3266.6699,3269.0601,13,Hey everyone this Brandon Peterman for Paul.
4474506,479,3269.55,3273.51,13,I was um I was wondering if we could talk about the increase in CapEx.
4474506,480,3273.51,3280.9399,13,I think last we spoke we thought you know CapEx would have a three in front of it now it sounds like it's it has a four in front of it.
4474506,481,3280.98,3287.9199,13,I'm just wondering you know was there a change in the strategy there and specifically on the on the e-com investments?
4474506,482,3287.9199,3292.9099,13,You know do you feel like you're playing some catch there or or you know laying the groundwork for growth?
4474506,483,3295.95,3296.4199,1,Sure.
4474506,484,3296.4199,3300.9399,1,I I think <inaudible> sort previous as it relates to this year we had talked about I think three eight to four two.
4474506,485,3302.1201,3303.3699,1,Now we're saying about four.
4474506,486,3303.6699,3311.4199,1,Um and these numbers are up from the from the mid threes over the last couple years low to mid threes over the last years.
4474506,487,3311.4199,3329.3201,1,In fact last year's three six included a three hundred forty or three hundred forty five million dollars uh asset purchase that I mentioned earlier in in in the Southwest in Southern California which is basically a million and a half plus square foot facility with lots of acreage uh to help with our fulfillment as well as our import stuff.
4474506,488,3329.78,3338.8501,1,Um and so I think there's if you said what what are the big things taking you from the low threes to the low fours over a few years of period?
4474506,489,3339.25,3344.8999,1,Um it's uh more international expansions which tends to be a little more expensive for location.
4474506,490,3345.25,3361.78,1,More expansion you know we in uh in fiscal twenty we were down to thirteen net new units because uh some with COVID I think we were twenty and uh twenty one and we're gonna be twenty seven net new units this fiscal year plus five relos which is six relos planned.
4474506,491,3362.1699,3366.6699,1,Um uh we might miss that a little bit but at the end of the day so there's more warehouses.
4474506,492,3367.03,3385.96,1,Uh clearly more in the whole fulfillment concept starting with the billion dollar acquisition a year ago uh of what's now Costco Logistics starting with adding uh additional uh square footage uh to that uh as well the international things.
4474506,493,3385.96,3395.45,1,And even even on the distribution side or what we call our cross <unk> depots uh spending money overseas now in some of these countries to do some of that in a in in a better way.
4474506,494,3395.6799,3400.6201,1,Actually building a mini depot in Hawaii uh where we have five locations?
4474506,495,3401.3301,3401.6501,6,Seven.
4474506,496,3401.9099,3402.6702,1,Seven I'm sorry.
4474506,497,3403.1001,3405.6501,1,seven locations but huge volume locations.
4474506,498,3405.8899,3407.72,1,And with a uh uh…
4474506,499,3407.72,3412.8801,1,So we've gotten to the volume and efficiency there that these are good investments.
4474506,500,3412.8799,3414.3201,1,So it's it's a lot of those things.
4474506,501,3414.5701,3420.77,1,Mind you we still spend all in uh uh you know close to a billion dollars a year in IT.
4474506,502,3423.3501,3423.96,13,Got it.
4474506,503,3423.96,3427.48,13,And and and that's how we should kind of think about it going forward long-term.
4474506,504,3428.95,3432.1001,1,That's by the way that's not all CapEx that's expenses as well.
4474506,505,3432.53,3432.74,1,Go ahead.
4474506,506,3432.74,3433.1902,1,I'm sorry.
4474506,507,3434.6599,3439.8601,13,And and <unk> four billion range is is what we should think about CapEx for the long-term?
4474506,508,3441.1499,3469.22,1,Um I don't know for the long-term I think four sounds about right for the next year or two and if things continue to grow well go well and grow well um maybe it goes up from there a little bit but uh you know we're not looking to spend it if we don't think we have good things to spend it on just because our cashflow has been exceeding net income plus you know cash has been exceeding regular dividend plus capital expenditures uh and the like.
4474506,509,3470.55,3470.8401,13,Got it.
4474506,510,3471.75,3478.6499,13,Um and and you also mentioned that you know you're able to change out products when you're you know faced with shortages.
4474506,511,3478.98,3494.54,13,Um yeah I was wondering if you could quantify that versus you know kinda a normal quarter and then you know if you are switching out you know more than usual you know what impact does that <unk> you know consumer behavior there and and anything on the logistics side as well?
4474506,512,3495.22,3503.1299,1,I think it is it's it is I don't have the exact number but my guess is it's a small you know low to mid single digit percentage.
4474506,513,3503.5,3512.1199,1,Uh what it means though is is when back going all the way back to spring of twenty twenty uh and there were people were hoarding goods.
4474506,514,3512.45,3523.1199,1,We were going out to additional suppliers to see what we can get recognizing from their perspective it creates new relationships which will honor uh going forward not just for the three months that we needed it then.
4474506,515,3523.4399,3531.99,1,And so I think there were opportunities to just expand product uh brands by necessity uh uh to some things.
4474506,516,3532.3899,3549.22,1,And uh and with I think the in going into last summer and fall with that advent of uh of uh all the things for the home both you know patio furniture and lawn garden and barbecue grills and indoor furniture and electronics and gadgets for the kitchen.
4474506,517,3549.6001,3552.6602,1,Uh we took advantage of that and brought in additional items.
4474506,518,3552.8601,3558.05,1,And uh uh so it's more that than anything and the treasure hunt.
4474506,519,3558.55,3558.8201,1,Yeah.
4474506,520,3559.1799,3572.0901,1,So it it's it's still a small piece but I think it's when I sometimes when I go into uh some retailers I'm not gonna any names but you'll see a a shelf half empty or some spaces first of all why don't you put something there?
4474506,521,3572.1201,3577.7002,1,And uh but at the end of the day I think our buyers have done a very good job of of keeping the warehouses uh full.
4474506,522,3579.52,3579.6799,13,Great.
4474506,523,3580.46,3580.76,13,Thanks.
4474506,524,3580.76,3584.6401,13,And uh good luck for the holiday.
4474506,525,3585.1599,3588.5798,1,For our next question we have Edward Kelly from Wells Fargo.
4474506,526,3588.8601,3589.8301,1,Edward your line's open.
4474506,527,3613.8701,3616.6599,1,Uh you're you're you were breaking up entirely during that call.
4474506,528,3616.6599,3619.3499,1,So I heard about every other word if you wanna repeat yourself.
4474506,529,3620.6001,3620.8701,14,Yeah.
4474506,530,3620.8701,3621.27,14,Sorry.
4474506,531,3621.72,3623.6201,14,So I wanted to ask you about the gross margin.
4474506,532,3623.6499,3638.28,14,Um you know as you said pretty good things considered any additional thoughts uh you can share on the current quarter you know comparisons in the core look similar I think um just wondering if there's any reason we should expect uh any incremental pressure?
4474506,533,3640.3501,3642.9199,1,From a competitive standpoint I mean there's lots of com…
4474506,534,3642.95,3643.8901,1,everybody's competitive.
4474506,535,3644.3799,3648.6401,1,Um again I think structurally our model allows us to better from that.
4474506,536,3649.01,3655.0801,1,Um we talked about you know more pennies per gallon of profit that allows us to do some other things.
4474506,537,3655.5601,3657.4299,1,Uh I think we've got a…
4474506,538,3658.1499,3676.3201,1,I think we have a lot of le levers to pull here and uh we feel pretty good that we are able to uh to hold the prices on key items and to uh I don't really think that we consider the challenge of achieving a margin.
4474506,539,3676.3501,3682.7698,1,Uh we're pretty good at figuring out how to get there while still being you know the company we are in terms of competitiveness.
4474506,540,3683.0701,3686.3999,1,So no no big changes of what we see out there.
4474506,541,3688.9299,3694.3,1,just there's a lot of changes every month and you know some things go up and some things go down but overall we feel pretty good about it.
4474506,542,3695.28,3695.8198,14,All right.
4474506,543,3695.8201,3700.01,14,And then just one for <unk> a little bit more big picture just around um you know customer data.
4474506,544,3700.0901,3708.5798,14,Uh I was hoping maybe you could just provide an update on you know things like personalization um and then media is something that you know we hear a people talk about.
4474506,545,3708.6101,3712.5,14,Um you know maybe just any thoughts on you know what you're doing with that opportunity as well?
4474506,546,3713.55,3717.23,1,I think there's still you know <unk> fruit on the tree here.
4474506,547,3717.54,3719.21,1,Um we've talked about it a little bit.
4474506,548,3719.21,3723.4299,1,We've done a little bit more targeting than we have ever done but very little.
4474506,549,3723.72,3725.4199,1,Uh there is more to come.
4474506,550,3725.6599,3736.1099,1,Um you know it was just uh a year and a half ago that we hired uh someone at a relatively senior level in terms of you know data analytics.
4474506,551,3736.5,3740.22,1,Uh but that's not the only thing they're working on and there that the group that he is dev…
4474506,552,3740.22,3746.22,1,that he is put together but uh you know so I I think those are things that'll come over time in the next few years.
4474506,553,3746.5,3750.72,1,Um uh that's pretty much what I can tell you about that.
4474506,554,3752.3501,3752.6401,14,Okay.
4474506,555,3752.73,3753.1199,14,Thank you.
4474506,556,3753.6399,3753.8799,1,Okay.
4474506,557,3753.8799,3756.02,1,I'm gonna take uh two more questions Sadie.
4474506,558,3758.1399,3764.23,0,And for the next question we have Laura Champaign from <unk> Laura line's open.
4474506,559,3764.8799,3765.6799,15,Um thanks Richard.
4474506,560,3765.6799,3766.5,15,Mine will be quick.
4474506,561,3766.5,3767.72,15,It's a follow on.
4474506,562,3767.75,3775.1499,15,You'd mentioned that renewal rates are still headed higher in part because of uh likely because of the auto renew.
4474506,563,3775.1899,3779.0,15,What percentage of your membership is is on auto renew at this point?
4474506,564,3783.74,3786.1301,6,A little over five oh a little under six oh.
4474506,565,3786.1299,3792.6201,1,It's uh it's about fifty in the US and Canada which would imply and that's where we where we have it where we have the co-brand cards.
4474506,566,3792.95,3799.73,1,Uh and and US and Canada is about eighty percent of our company so that fifty becomes a forty if you rough numbers.
4474506,567,3799.77,3801.6799,15,mm-hmm <affirmative> Got it.
4474506,568,3810.5601,3811.0701,15,Understood.
4474506,569,3811.1299,3811.8301,15,Thank you so much.
4474506,570,3815.1499,3816.5901,0,And for our last question.
4474506,571,3816.5901,3819.9302,0,We have Kelly Bania from BMO Capital.
4474506,572,3820.75,3821.79,0,Kelly line's open.
4474506,573,3823.26,3825.1201,16,Oh thanks for squeezing me in here.
4474506,574,3825.6299,3835.71,16,Um just wanted to talk uh Richard about the just the inflationary environment and um you've talked a little bit in the past couple quarters about how your price gaps have widened.
4474506,575,3836.2,3842.1799,16,Um do you think this kind of magnitude of inflation is just good for Costco's business?
4474506,576,3842.26,3848.9299,16,I mean have you seen anything like this in the past where it could possibly just drive you even more volume into your doors?
4474506,577,3850.3899,3862.04,1,I mean from an argument that things are more costly on the one hand maybe it reduces demand overall on the sense that we're the extreme value proposition that helps us.
4474506,578,3862.51,3864.3,1,Uh so you know who the heck knows?
4474506,579,3864.3,3872.0801,1,I I you know I think when I was reading this morning in the paper was this is the highest inflation in so many years.
4474506,580,3872.45,3879.6499,1,Um it wasn't that long ago though you know ten plus years ago that uh regular inflation was two or three percent a year.
4474506,581,3879.6499,3888.6799,1,And of course it's gonna be a little more for a year but at the end of the day uh I I think it helps us a little uh because of the value proposition that we have.
4474506,582,3892.3,3893.0801,16,That that makes sense.
4474506,583,3893.0801,3901.3301,16,And and a lot has been asked here but just wanted to also just check on self-checkout and where you are with that.
4474506,584,3901.54,3912.74,16,Um and if there's any color you can help us understand on the savings or the impact on the cost structure when when you um put in some self-checkout and and the potential for that initiative going forward?
4474506,585,3913.6499,3917.01,1,Um we pretty much have it now in most locations.
4474506,586,3917.47,3930.7698,1,Uh and I'm speaking in the US and Canada and I know even across the street in many locations we've expanded it from originally you know two lanes of three or six to three lanes of three or even four lanes of three.
4474506,587,3931.2,3935.02,1,Uh uh so in a in a four lane area you could have twelve people checking out.
4474506,588,3935.3601,3942.9299,1,Uh and uh so my guess is it is still gonna grow a little as we expand existing units to offer a little bit more of it.
4474506,589,3943.23,3945.0898,1,Uh and it's been a it's been a positive.
4474506,590,3950.0601,3950.3,16,Okay.
4474506,591,3950.3,3950.75,16,Thank you.
4474506,592,3955.04,3956.1399,1,Well thank you everyone.
4474506,593,3956.1899,3960.9001,1,And uh have a good holiday season and uh we're around to answer additional questions.
4474506,594,3962.6699,3963.1699,1,Have a good day.
4474506,595,3966.1699,3969.0601,0,And ladies and gentlemen this concludes today's conference call.
4474506,596,3969.0601,3970.6001,0,Thank you all for participating.
4474955,0,2.9,4.18,0,Hello ladies and gentlemen.
4474955,1,4.18,9.89,0,Thank you for standing by for Qudian's Third Quarter twenty twenty one Earnings Conference Call.
4474955,2,10.28,12.99,0,At this time all participants are listen-only mode.
4474955,3,13.41,17.33,0,After management's prepared remarks there will be a question-and-answer session.
4474955,4,17.74,20.24,0,Today's conference is being recorded.
4474955,5,20.46,23.73,0,I will now turn the call over to our host from Qudian.
4474955,6,23.84,24.68,0,Please go ahead.
4474955,7,26.45,31.36,1,Hello everyone and welcome to Qudian's Third Quarter twenty twenty one Earnings Conference Call.
4474955,8,31.69,36.95,1,The company's results were issued via Newswire Services earlier today and were posted online.
4474955,9,37.33,45.2,1,You can download the earnings press release and sign up for the company's distribution list by visiting our website at ir quid i an com.
4474955,10,45.74,46.03,1,Mr.
4474955,11,46.03,50.5,1,Min Luo our founder chairman and chief executive officer and Ms.
4474955,12,50.5,55.73,1,Sissi Zhu our VP of investor relations will start the call with prepared remarks.
4474955,13,55.92,57.96,1,And then we'll open the call to q and a.
4474955,14,58.63,71.0,1,Before we continue please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of nineteen ninety five.
4474955,15,71.75,75.4,1,Forward-looking statements involve inherent risks and uncertainties.
4474955,16,75.97,81.1,1,As such the company's results may be materially different from the views expressed today.
4474955,17,81.73,91.86,1,Further information regarding these and other risks and uncertainties is included in the company's twenty f as filed with the US Securities and Exchange Commission.
4474955,18,92.45,99.77,1,The company does not assume any obligation to update any forward-looking statements except as required under applicable law.
4474955,19,100.44,111.05,1,Please also note that Qudian's earnings press release and this conference call includes discussions of unaudited GAAP financial information as well as unaudited non GAAP financial measures.
4474955,20,111.76,120.24,1,Qudian's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures.
4474955,21,120.87,127.77,1,We also posted a slide presentation on our i IR website providing details on our results for the quarter.
4474955,22,128.46,135.2,1,we'll reference those results in our prepared remarks but will not refer to specific slides during our discussion.
4474955,23,135.66,138.47,1,I will now turn the call over to our C E O Min Luo.
4474955,24,138.69,139.38,1,Please go ahead.
4474955,25,142.63,143.42,2,Hello everyone.
4474955,26,144.04,146.79,2,Thank you for joining us on today's call.
4474955,27,147.72,163.1,2,Amid fast-evolving market conditions in the third quarter we continued to execute prudent operational strategy in our cash credit business ensuring our asset quality at a a stable level.
4474955,28,163.95,178.32,2,The transactions volume for our loan book business decreased sequentially by two point one percent to three point four billion R M B in t this quarter.
4474955,29,179.52,193.0,2,And our on-balance sheet loan balance decreased sequentially by fourteen point four percent to three billion R M B.
4474955,30,194.27,202.62,2,During the quarter we continued to make steady progress with our W L M KIDS business.
4474955,31,203.19,230.33,2,As of December twelve twenty twenty one we had seven centers operating in Xiamen Fuzhou Shanghai and Shenzhen all deli delivering high-quality extracurricular activities services and the products to children and families.
4474955,32,231.87,244.37,2,The ramp-up of W L M KIDS center is slower than expected due to covid nineteen resurgence.
4474955,33,245.52,270.06,2,We are continuing to closely monitor ongoing covid nineteen conditions and proactively taking precautionary measures as our highest priority to ensure the safety and healthy of the children families and staff in our centers.
4474955,34,271.07,290.16,2,We also fully support the recent government regul regulatory changes announced announced for the supple supplemental learning industry and will strictly comply with the applicable regulations.
4474955,35,293.05,306.7,2,Moving forward we will continue to focus on improving the quality of our products and service while also exploring new investment and business opportunities.
4474955,36,308.03,313.0,2,Now I would like to turn the call over to Sissi for more details in…
4474955,37,313.37,314.22,2,on our results.
4474955,38,315.48,316.27,3,Thank you Min.
4474955,39,316.56,318.57,3,And good morning and good evening everyone.
4474955,40,319.26,327.02,3,Echoing Min on our loan book business we continued to uphold rigorous standards for credit approvals in the third quarter.
4474955,41,327.96,340.35,3,We focused new loan origination on better quality borrowers with stronger credit profiles and our d one delinquency rate continued to remain below five percent at the end of the quarter.
4474955,42,341.79,353.31,3,Additionally more than ninety nine percent of our outstanding loans balance were funded by our own capital and our M1+ Delinquency coverage ratio remained high at two point three times.
4474955,43,354.83,363.35,3,Looking ahead we'll continue to prudently operate our cash loan business while simultaneously pursuing new potential growth channels.
4474955,44,364.28,374.48,3,Supported by our strong balance sheet we believe we can continue to grow our overall business and deliver sustainable value to our shareholders over the long term.
4474955,45,375.97,378.68,3,Now let me share with you some key financial results.
4474955,46,379.39,383.31,3,In the interest of time I will not go over them line by line.
4474955,47,383.88,390.94,3,For a more detailed discussion of our third quarter two thousand twenty one results please refer to our earnings press release.
4474955,48,392.03,407.16,3,Our total revenues for the third quarter were RMB 347.4 million representing a decrease of fifty nine point one percent from R M B eight hundred forty nine point four million for the third quarter of two thousand twenty.
4474955,49,408.62,426.42,3,Our financing income totaled R M B two hundred and eighty five point five million representing a decrease of forty one point four percent from R M B four hundred eighty seven million for the third quarter of twenty twenty as a result of the decrease in the average on-balance sheet loan balance.
4474955,50,428.38,445.98,3,Loan facilitation income and other related income decreased by ninety five percent to R M B eight point eight million from R M B one hundred seventy seven million for the third quarter of twenty twenty as a result of the reduction in transaction volume of off-balance sheet loans during this quarter.
4474955,51,446.95,460.92,3,Transaction services fee and other related income increased to R M B twenty point nine million from R M B six point six million for the third quarter of last year mainly as a result of the reassessment of variable consideration.
4474955,52,462.22,477.57,3,Sales income and others decreased to R M B seven point three million from R M B one hundred thirty nine million for the third quarter of twenty twenty mainly due to the decrease in sales related to the Wanlimu e-commerce platform which we are in the process of winding down.
4474955,53,478.98,492.4,3,Sales commission fee decreased by fifty five point five percent to R M B eight million from R M B eighteen million for the third quarter of twenty twenty due to the decrease in the amount of merchandise credit transactions.
4474955,54,493.63,514.88,3,Our cost of revenues decreased by forty seven point four percent to R M B one hundred and and four point six million from R M B one hundred and ninety eight point eight million for the third quarter of twenty twenty primarily due to the decrease in costs associated with the loan book business and a decrease in cost of goods sold related to Wanlimu e-commerce platform.
4474955,55,516.06,531.73,3,Sales and marketing expenses decreased by forty nine point three percent to R M B thirty two point nine million from R M B six sixty four point eight million for the third quarter of last year primarily due to the decrease in marketing promotional expenses.
4474955,56,532.9,550.65,3,General and administrative expenses increased by a hundred seventy point four percent to R M B one hundred fifty seven point seven million from R M B fifty eight point three million for the third quarter of twenty twenty as a result of the increase in staff salaries primarily relating to WLM KIDS business.
4474955,57,552.12,565.1,3,Research and development expenses decreased by twenty one point six percent to R M B forty million from R M B fifty one million for the third quarter of last year as a result of the decrease in staff salaries.
4474955,58,566.76,572.19,3,Net loss attributable to Qudian's shareholders was R M B ninety four point two million.
4474955,59,572.52,580.09,3,a And our non GAAP net losses attributable to Qudian's shareholders was R M B ninety nine million for this quarter.
4474955,60,581.22,583.87,3,With that I will conclude my prepared remarks.
4474955,61,584.46,586.06,3,we'll now open the call to questions.
4474955,62,590.93,598.49,0,Participants who wish to ask a question please press star one on your telephone and wait for your name to be announced.
4474955,63,598.84,603.9,0,If you would like to withdraw your question please press the pound or hash key.
4474955,64,604.74,614.61,0,For the benefit of all participants on today's call if you wish to ask your question to the management in Chinese please immediately repeat your question in English.
4474955,65,615.0,618.3,0,It's star followed by one to ask your question.
4474955,66,618.46,619.07,0,Thank you.
4474955,67,626.97,631.04,0,Your first question comes from the line of Frank Zheng from Credit Suisse.
4474955,68,631.04,631.73,0,Please go ahead.
4474955,69,634.41,636.71,4,Thank you management for taking my questions.
4474955,70,636.97,638.51,4,Uh this is Frank Zheng from Credit Suisse.
4474955,71,638.54,640.15,4,I have two questions.
4474955,72,640.49,643.64,4,The first one is on the WLM KIDS program.
4474955,73,644.08,647.55,4,Uh could you please provide more color on what's uh…
4474955,74,647.55,650.2,4,How many more in the pipeline maybe in the next year?
4474955,75,650.51,655.87,4,And also how is the payback period apply currently a as well as the unit economics?
4474955,76,656.46,659.39,4,And the second question is on cost revenue.
4474955,77,659.77,668.36,4,Uh I noticed that on sequential basis cost revenue increased can you maybe uh break down a little bit on what's driving the increase?
4474955,78,668.76,669.15,4,Thank you.
4474955,79,672.17,673.0099,3,Thank you Frank.
4474955,80,673.01,674.26,3,Thanks for the questions.
4474955,81,674.99,679.77,3,Um so to address your first question with regard to our W L M KIDS business.
4474955,82,680.57,685.4,3,Um we actually had three centers in operation during the third quarter and seven centers now.
4474955,83,685.77,689.39,3,There will be over ten centers in the pipeline for next year.
4474955,84,690.21,700.21,3,Um the performance as we mentioned in our prepared remark re remarks it's not as good as we expected because of the on and off regional COVID breakout.
4474955,85,701.15,709.5099,3,Um you know when we see positive COVID cases in the city kids' activity centers are the first ones to be shut down and the last ones to be reopened.
4474955,86,710.34,719.21,3,And therefore our centers um have been shut down for almost uh two-month period during the third quarter um because of COVID.
4474955,87,720.6,724.12,3,Um so um our um…
4474955,88,724.16,730.67,3,a and once a center g got closed down um because of COVID we need another two or three months to heat it up again.
4474955,89,731.18,739.25,3,it is really hard to answer the question regarding to payback period and um the the stabilized UE because we we are not in that stage yet.
4474955,90,740.06,751.55,3,Um and um and our our current imminent goal is to bring our centers to breakeven points as soon as possible before we do any further expansion.
4474955,91,752.12,753.88,3,Um I hope that answers questions.
4474955,92,754.44,757.06,3,With regard to our cost of revenues…
4474955,93,757.59,759.1299,3,Uh just one moment moment please.
4474955,94,763.78,774.68,3,So the cost of revenues because we didn't provide um the breakdowns in in our um uh earnings as the segment reporting is not required under certain accounting rules.
4474955,95,775.32,785.32,3,But um the the majority of the um increase of uh cost of revenues is because of uh you know we um…
4474955,96,785.4,791.86,3,w when we when we when we do the W L M KIDS business we have to hire teachers and instructors in our centers.
4474955,97,792.3,795.56,3,So their costs are are in the cost of revenue.
4474955,98,795.59,797.85,3,I hope that answers question.
4474955,99,810.82,815.34,0,Once again if you wish to ask a question please press star one on your telephone.
4474955,100,815.34,837.87,0,<silence> Thank you.
4474955,101,839.99,845.56,0,As there are no further questions now I would like to turn the call over to the company for closing remarks.
4474955,102,845.74,846.08,0,Thank you.
4474955,103,847.9,850.89,1,So thank you everyone once again for joining us today today.
4474955,104,851.09,852.86,1,Um it's a relatively short call.
4474955,105,852.86,857.15,1,If you have further questions please feel free to contact our investor relations team.
4474955,106,857.38,857.77,1,Thank you.
4474955,107,862.04,862.5,0,Thank you.
4474955,108,863.28,864.96,0,This concludes the conference call.
4474955,109,865.08,866.92,0,You may now disconnect your line.
4474955,110,867.12,867.69,0,Thank you.
4474955,111,867.95,868.56,0,Thank you all.
4475486,0,6.13,12.29,0,Thank you for standing by and welcome to the trip dot com twenty twenty one q three Earnings Conference Call.
4475486,1,13.34,15.48,0,All participants are in a listen only mode.
4475486,2,16.17,19.35,0,There will be a presentation followed by a question and answer session.
4475486,3,20.19,25.84,0,If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.
4475486,4,27.0,31.85,0,I would now like to hand the conference over to Michelle <unk> trip dot com IR director.
4475486,5,32.34,33.07,0,Please go ahead.
4475486,6,35.24,35.91,1,Thank you Darcy.
4475486,7,36.5,38.27,1,Thank you all good morning.
4475486,8,38.4,39.09,1,And the evening.
4475486,9,39.56,44.23,1,Welcome to trip dot com twenty twenty one q three Earnings Conference Call.
4475486,10,44.85,47.14,1,Joining me today on the Call are Mr.
4475486,11,47.14,50.91,1,James Liang Executive Chairman of the Board Ms.
4475486,12,51.01,54.68,1,Jane Sun Chief Executive Officer and Ms.
4475486,13,54.83,57.4,1,Cindy Wang Chief Financial Officer.
4475486,14,58.49,70.83,1,During this Call we'll discuss our future <unk> and performance which are forward looking statements made and are the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of nineteen ninety five.
4475486,15,71.94,76.06,1,Forward looking statements involve inherent risks and uncertainties.
4475486,16,76.81,81.85,1,As such our results may be materially are different from the views expressed today.
4475486,17,83.08,91.27,1,A number of potential risks and uncertainties are outlined in trip com Group's Public Filings with the security and exchange commission.
4475486,18,92.07,101.33,1,trip dot com Group does not undertake any obligation to update any forward looking statements except as required under applicable law.
4475486,19,117.05,120.6,1,After the prepared remarks we will have a q and a session.
4475486,20,121.5,124.38,1,With that I will turn the Call over to James.
4475486,21,125.26,125.95,1,James please.
4475486,22,128.65,132.33,2,Thank you Michelle.
4475486,23,137.55,166.38,2,Thank you everyone for joining us to come call today.
4475486,24,422.6,424.43,3,Uh our strategic focuses.
4475486,25,425.61,442.07,3,In a third quarter our total net revenue remained stable year over year and decreased by nine percent quarter over quarter mainly due to natural disasters and in new rounds of infections which affect multiple provinces in China.
4475486,26,442.86,449.51,3,we're glad to see the world moving ahead in normalizing international tourism.
4475486,27,450.21,455.02,3,Yet the road to global recovery is not without ups and downs.
4475486,28,455.92,461.6,3,The performance of travel markets in major economies has been divergent.
4475486,29,462.74,469.86,3,The China travel market has been frequently interrupted by the resurgences of COVID cases.
4475486,30,471.07,481.13,3,It has witnessed a strong recovery in July until natural disasters and the Delta variant emerged to slow it down.
4475486,31,481.84,496.96,3,Industry wise the hotel occupancy rate and air ticket bookings in q three were done by around thirty percent when compared to the pre c o v i d twenty nineteen level for market performances.
4475486,32,497.97,505.85,3,Nevertheless our domestic hotel business was able to <inaudible> the market by twenty to twenty five percent.
4475486,33,506.61,512.55,3,And our domestic air ticket booking recovery was much higher than the market levels as well.
4475486,34,514.03,525.03,3,The global market on the other hand has been making great progresses in returning to normalcy especially in Europe and United States.
4475486,35,526.02,534.12,3,Air ticket bookings in these markets made some major stride towards pre pa pandemic levels in the past month.
4475486,36,535.18,554.3,3,While the global flight volume was still below twenty nineteen level trip dot com overall international air ticket booking have increased by around forty percent quarter over quarter with air ticket bookings in Europe growing by one seventy percent.
4475486,37,555.75,566.42,3,Sky scanner also saw air ticket bookings increased by approximately one hundred percent year over year and around thirty five percent quarter over quarter.
4475486,38,568.16,579.14,3,While COVID nineteen pandemic has negatively affected the travel industry there is no doubt the industry will emerge out from the trenches and come back stronger.
4475486,39,579.75,597.06,3,We hope to see the travel industry take off in mid twenty twenty two as vaccination level rise in the key markets and travelers become used to some level of travel restrictions and feel more comfortable booking trips again.
4475486,40,598.06,607.96,3,Looking beyond twenty twenty one our long term mission is to pursue the perfect trip for a better world in a path never changed.
4475486,41,608.9,620.34,3,As James just mentioned we'll continue to stick to our strategy of local focus global vision and focus on the following areas.
4475486,42,621.39,628.62,3,First building strong user cases and make traveling part of our daily lives.
4475486,43,629.9,646.59,3,As the pandemic and result in a resulting health and the travel measures make people shy away from long distance trips weekend regional and vacation travel have become more popular and frequent.
4475486,44,647.47,666.0099,3,In q three we were glad to see our intra province hotel booking grew by approximately thirty five percent and our local hotel bookings grew by more than sixty percent compared to the same period pre c o v i d in twenty nineteen.
4475486,45,666.98,685.79,3,In order to build strong user cases to attract and motivate users we collaborated with more than six thousand High star hotels to provide value added packages which included catering and many other in hotel services.
4475486,46,686.69,693.23,3,Such packages contributed around thirty percent to ourselves of these partner hotels.
4475486,47,694.7,705.1,3,We strive to seize this opportunity to attract young generations and to help users embrace trouble as part of their daily lives.
4475486,48,705.93,716.86,3,In response to addressing the need for inspiration for short haul and the local trips we continue to make solid progress in our content strategy.
4475486,49,717.68,725.53,3,The total amount of content published on our platform increased by one hundred percent year over year.
4475486,50,726.47,733.47,3,Compared to q two our number of K L S have sequentially increased by thirty five percent.
4475486,51,734.41,748.0,3,The amount of users who interacted with our content increased by twenty percent and the monthly content to transaction conversion rate reached thirty percent in July.
4475486,52,749.41,759.71,3,Second tightening our relationship with partners by empowering them to optimize customer structure and improve efficiency.
4475486,53,760.8,779.15,3,Not only as an inspiration hub for users our content channels also serve as the go to platform where suppliers are empowered to improve making efficiency and gain tractions with trip dot com Group's high quality users.
4475486,54,780.26,792.99,3,As an important part of our content strategy startup aims to help improve suppliers conversion rate and info feet to increase their exposure.
4475486,55,793.63,809.04,3,We have seen the number of the professionally generated content content exposure and content G M E increases by monthly average of fifty percent for past consecutive seven months.
4475486,56,810.65,826.74,3,In order to help expand our partner's customer base we are also able to uh pushing forward with multiple co-brand membership programs where users are entitled to benefit from both parties.
4475486,57,828.23,837.03,3,There are now more than thirty million co-branded members between trip dot com Group and our hotel partners.
4475486,58,837.89,843.37,3,And this number has grown by about six times since twenty nineteen.
4475486,59,844.43,857.3,3,We also strengthened our partnership with airlines to help them with operating efficiencies and enhance our our growth in the first and business class bookings.
4475486,60,858.71,870.67,3,Third strengthening the synergy among open of our group of trip dot com Group to increase our market response to global pa spaces.
4475486,61,871.42,892.05,3,In strengthening the synergies among our group companies globally uh the the strengthening of the synergy among our group companies globally has continuously earned the goal for the past quarters leveraging the strong combined brand awareness and a global presence.
4475486,62,892.57,913.4,3,We're able to establish closer relationship with local suppliers and the to fill the sky scanner and trip dot com with improved competitiveness enhanced product offerings and service reliability grasping the opportunity presence by the pandemic.
4475486,63,913.71,923.01,3,We launched a serious value added services to address our global clientele uh for user friendliness and a flexibility.
4475486,64,923.52,933.38,3,We believe these will enable us to better respond to the post pandemic travelers evolving demands and a further game market share.
4475486,65,934.38,944.63,3,A strong local supply chain bolstered product capabilities were enabled trip dot com to better utilize sky scanners strong traffic in Europe.
4475486,66,945.82,964.03,3,Fourth corporate to responsibility following up uh our rural revitalization initiatives on top of these trip dot com Group country retreats that were already opened in a business in q two two more were opened this quarter.
4475486,67,965.11,977.22,3,Our facility in any provinces has now grown into a foundation of our rural revitalization academy co-created with the local government.
4475486,68,978.14,990.83,3,Through online and offline channels we provide local talents with professionally training and developed skills and contribute to improved global services quality.
4475486,69,991.49,1007.69,3,On top of the developing rural tourism that the country retreats also help facilitate the sales of local products the young vicinity as a means to improve local economy and the livelihoods.
4475486,70,1008.84,1018.87,3,With a strong diverse workforce trip dot com Group also strive to create an inclusion inclusive and friendly working environment.
4475486,71,1019.66,1028.22,3,We adopt a a clear code of conduct to support working mothers and a cure for pregnant employees.
4475486,72,1029.09,1044.3799,3,In October we were happy to receive the Women's Empowerment Principles Award by UN Woman China as a recognition of our efforts in promoting gender equality and a female empowerment.
4475486,73,1045.86,1052.5399,3,The travel industry has proven its resilience over the time from nine eleven to SARS.
4475486,74,1053.01,1057.77,3,And it will definitely weather the storm of covid nineteen as well.
4475486,75,1058.61,1079.17,3,With crisis comes opportunity remaining agile in the face of the challenge will help us to seize opportunities and come back stronger and reestablish uh confidence in travelers and to pursue the perfect trip for a better word as our mission stated.
4475486,76,1080.45,1083.85,3,With that I will now turn the call over to Cindy.
4475486,77,1085.05,1087.62,4,Uh thanks Jane Good morning everyone.
4475486,78,1088.02,1116.16,4,For the third quarter of twenty twenty one trip dot com Group reported net revenue of R M B five point three million billion representing a two percent decrease year over year and nine percent decrease quarter over quarter primarily due to the influence of natural disasters and new rounds of pandemic outbreaks in multiple regions of China.
4475486,79,1117.11,1137.66,4,Accommodation reservation revenue for the third quarter of twenty twenty one was r m b two point two billion representing a eleven percent decrease year over year and a eleven percent decrease quarter over quarter recovering to fifty three percent of the twenty nineteen level.
4475486,80,1155.29,1169.36,4,Our China domestic hotel booking have been have seen high single digit growth year over year while A D R and blended take rate are both affected by the depressed the demand.
4475486,81,1170.83,1217.42,4,Transportation ticketing revenue for the third quarter of twenty twenty one was R M B one point eight billion representing a an five percent decrease year over year and the twelve percent decrease quarter of a quarter recovering to forty nine percent of the twenty nineteen level among which domestic transportation's recovery momentum was disrupted by ndem natural disasters and resurgence of COVID cases in summer while international air ticket bookings increased by approximately forty percent when compared to the previous quarter mainly contributed by the recovery in Europe.
4475486,82,1219.0,1240.2,4,Package tour revenue for the third quarter of twenty twenty one was R M B three hundred ninety two million representing a twenty percent increase year over year and a seven percent increase quarter over a quarter recovering to twenty four percent of the twenty nineteen level.
4475486,83,1240.97,1249.33,4,This was contributed by an increase of leisure travel demand in July before the new round of pandemic outbreak.
4475486,84,1250.65,1270.2699,4,Corporate travel revenue for the third quarter of twenty twenty one was r m b three hundred thirty eight million representing a twenty percent increase year over year and a thirteen percent decrease quarter over quarter slightly higher than twenty nineteen level.
4475486,85,1270.9,1282.27,4,This segment continues to gain momentum as a result of the expanding user base and improving cross selling from transportation to accommodation.
4475486,86,1284.9399,1301.33,4,Gross margin was seventy seven percent for the sub quarter of twenty twenty one decreasing from seventy nine percent in the previous quarter mainly due to reduce the top line recovery interrupted by new ways of infections.
4475486,87,1302.65,1315.16,4,Excluding share based compensation charges our adjusted our pretty expenses decreased by thirty two percent compared to the same period in twenty nineteen.
4475486,88,1316.59,1337.84,4,Adjusted Product Development Expenses for the sub quarter increased by twenty percent from the same period in twenty twenty and increased by two percent from the previous quarter mainly reflecting the general increase in salary of product development personnel.
4475486,89,1339.03,1343.37,4,We continued to run lean and maintain a stable <unk> count.
4475486,90,1343.88,1353.4099,4,Uh in the in the in the team it is a saving of nineteen percent when compared to the same period in twenty nineteen.
4475486,91,1354.76,1376.4199,4,Adjusted sales and marketing expenses for the third quarter decreased by ten percent from the previous quarter as we swiftly adapt to the changing market conditions and followed a more prudent spending protocol in response to the uncertainty brought about brought about by the pandemic.
4475486,92,1377.71,1385.0399,4,This reflects a saving of forty nine percent when compared to the same period in twenty nineteen.
4475486,93,1386.65,1406.86,4,Adjusted D N A expenses for the third quarter decreased by five percent from the previous quarter it also increased by eighty three percent year over year primarily due to a reversal of bad debt provision in the third quarter of twenty twenty for the company's travel suppliers.
4475486,94,1407.64,1414.3199,4,And it is a saving of twenty percent when compared to the same period in twenty nineteen.
4475486,95,1415.67,1429.35,4,Adjusted EBITDA for the third quarter with R M B five hundred thirty seven million compared to r m b nine hundred and sixteen million in previous quarter.
4475486,96,1430.3,1439.6801,4,Adjusted e b i t d a margin was ten percent for the sub quarter compared to sixteen percent in the previous quarter.
4475486,97,1441.3199,1452.99,4,Diluted loss per ordinary share and per A D S were r m b one point three two or twenty cents for the third quarter.
4475486,98,1454.22,1476.6799,4,Excluding share based compensation charges and fair value changes of equity securities investments and exchangeable senior notes non gap diluted earning per ordinary share and per a d s were r m b uh eighty one cents or thirteen cents for the third quarter.
4475486,99,1502.0,1526.2599,4,We redeemed early uh five hundred million of the twenty twenty five booking and <unk> house notes in <inaudible> quarter and another five hundred million of the same convertible notes in December reducing a potential dilution of fourteen point six million ordinary shares.
4475486,100,1528.87,1536.59,4,Turning to the fourth quarter of twenty twenty one we would like to share some color of our uh business.
4475486,101,1537.39,1553.9299,4,In China during the national day holiday our domestic hotel reservation reached the double digit growth during uh during the beginning of the holiday while transportation reservations close to the pre co COVID level.
4475486,102,1555.13,1567.92,4,Multiple rounds of COVID cases that began in mid October as spread to more than twenty provinces largely impact the entire China domestic travel industry.
4475486,103,1569.04,1585.75,4,In November the industry level hotel occupancy rate was down by thirty to forty percent and air ticket passengers down fifty to sixty percent both compared with the same period in twenty nineteen.
4475486,104,1587.0,1595.9601,4,trip dot com Group was also affected but we continue to lead market performance by at least ten to twenty percent.
4475486,105,1597.84,1602.04,4,Onboard travel remain rather muted in current conditions.
4475486,106,1603.37,1621.1399,4,Uh while outside of China the recovery momentum in Europe and the US continues to carry over to October with increased the fried segment benefiting from the relaxation of travel restrictions and vaccine roll outs.
4475486,107,1622.77,1628.12,4,The path to global recovery is set but not without ups and downs.
4475486,108,1628.76,1642.38,4,We will continue to be adaptive and responsive to changing market conditions and be flexible and agile to seize opportunities to create value for our users and partners.
4475486,109,1643.48,1646.95,4,With that operator please open the line for questions.
4475486,110,1649.97,1650.38,0,Thank you.
4475486,111,1650.95,1656.01,0,If you wish to ask a question please press one on your telephone and wait for your name to be announced.
4475486,112,1656.8199,1659.73,0,If you wish to cancel your request please press two.
4475486,113,1660.63,1664.2201,0,If you are on a speaker phone please pick up the handset to ask your question.
4475486,114,1670.02,1672.92,0,Your first question comes from Thomas Chung from Jeffries.
4475486,115,1673.4301,1674.14,0,Please go ahead.
4475486,116,1676.4,1678.35,5,Hi James Jane Cindy.
4475486,117,1678.45,1679.29,5,Uh good morning.
4475486,118,1679.58,1681.1801,5,Thanks for taking my questions.
4475486,119,1681.6899,1686.5599,5,Can you share some color about the company's plan for the international business?
4475486,120,1686.98,1692.9,5,Uh how do you think about the pace of recovery in open travel as the restrictions are lived?
4475486,121,1693.2,1693.67,5,Thank you.
4475486,122,1711.53,1760.17,2,Under normal conditions we may see China gradually relaxing inbound and outbound travel policies in the second half of 2022.
4475486,123,1789.12,1789.85,0,Please go ahead.
4475486,124,1791.74,1792.09,6,Great.
4475486,125,1795.61,1796.4901,6,Uh hi Jane.
4475486,126,1796.52,1811.62,6,Uh how should we think about maybe the travel activity heading to Chinese new year that being first and second for a think outbound travel to Hong Kong any early read that you are seeing on consumer demand and behavior there.
4475486,127,1811.83,1812.21,6,Thank you.
4475486,128,1813.91,1814.0701,3,Sure.
4475486,129,1814.29,1814.9401,3,Thanks James.
4475486,130,1815.37,1825.8099,3,Um the opening up of uh Macau really provide a very good uh leading indicator for for the consideration of Hong Kong.
4475486,131,1826.16,1838.0499,3,Uh so we were just in Macau holding our global partnership meeting and the control of the virus over there uh is uh being conducted very well.
4475486,132,1838.3199,1846.33,3,Uh so that provides uh everyone in the travel industry some experience as to what will happen if Hong Kong opens up.
4475486,133,1846.33,1853.77,3,So we're very much looking forward uh to a very good control of the virus in Hong Kong continuously.
4475486,134,1854.09,1867.2101,3,And with that uh condition uh there might be a a good uh consideration for opening up of Hong Kong and that also connects to our uh plan for the Chinese new year.
4475486,135,1867.8101,1881.34,3,Historically uh these uh uh Hong Kong is a very popular travel destination uh for Chinese new year as people try to uh go visit uh different cities and doing some shopping in Hong Kong.
4475486,136,1881.6801,1900.6899,3,Uh so hopefully there will be uh uh enough supporting uh evidence as to the well controlled environment uh both in uh mainland China and in Hong Kong uh which give us the support to further consideration of opening up Hong Kong in addition to Macau.
4475486,137,1901.28,1901.76,3,Thank you.
4475486,138,1902.91,1903.2101,6,Great.
4475486,139,1903.21,1903.6101,6,Thank you.
4475486,140,1906.17,1907.64,0,mm-hmm <affirmative>.
4475486,141,1908.59,1908.7999,0,Thanks.
4475486,142,1908.8,1909.21,0,Thank you.
4475486,143,1909.47,1912.37,0,Your next question comes from Brian Gong from Citi.
4475486,144,1912.63,1913.39,0,Please go ahead.
4475486,145,1915.79,1919.87,7,Uh thanks James uh Jane Cindy and Michelle for taking my question.
4475486,146,1920.26,1924.5,7,So my question is about domestic travel uh expectation.
4475486,147,1924.59,1930.3501,7,So how does management see the travel performance outlook in first quarter?
4475486,148,1930.38,1943.5801,7,Uh two one and uh next year for first quarter next year with some local government right now encouraging people not to travel across regions and uh winter Olympic hill in March.
4475486,149,1943.87,1959.6799,7,Should we still expect domestic performance to be directed by uh travel restriction and also with the low base in the second half of this year should we see uh more normal last year on year growth in the second half next year for domestic market?
4475486,150,1959.95,1960.37,7,Thank you.
4475486,151,1961.53,1961.5901,3,Yeah.
4475486,152,1963.16,1975.6899,3,So what we have seen uh for the domestic travel uh is four S uh by saying four S I we have seen people are paying more attention to safety.
4475486,153,1975.91,1989.73,3,Uh so we encourage our suppliers to make sure uh they have uh very good safety measures such as providing um the uh hand sanitizers masks to our travelers.
4475486,154,1990.21,1997.45,3,Uh the second S is uh uh people prefer to travel with much smaller groups uh rather than big groups.
4475486,155,1997.83,2001.5699,3,So normally our customized the tool is selling very well.
4475486,156,2001.72,2015.95,3,Uh our customers prefer to hire car and a tool guide uh with uh family then uh to take their family around.
4475486,157,2027.72,2032.16,3,In the last four uh one of the four S is short distance.
4475486,158,2032.59,2047.0701,3,So what we have seen is people prefer to travel uh nearby their hometown uh anywhere with in the three hundred kilo uh becomes the <unk> people feel more comfortable to travel to.
4475486,159,2047.0699,2053.78,3,Uh and also we have seen young generation uh prefer to travel uh much more.
4475486,160,2054.02,2063.9302,3,Uh so we have seen uh the young uh spenders uh who are born in uh nineties and general Z uh trouble quite a lot.
4475486,161,2064.3101,2066.5598,3,So these are the trend that we have seen so far.
4475486,162,2066.8701,2091.0,3,Again I think a lot of it will be uh depending on how well uh the virus is being controlled uh during the first quarter and the second quarter however these demands are not disappearing uh from our data of the search customers pandemic demand is accumulating and very strong just as what we saw in May holiday this year.
4475486,163,2091.26,2095.49,3,Uh the search of the uh demand is very strong.
4475486,164,2107.51,2110.9001,3,And then uh gradually the market will uh increase.
4475486,165,2111.27,2119.28,3,So your your assessment the second half of twenty twenty two uh will be stronger than first half uh will very much hope so.
4475486,166,2120.1499,2120.6599,3,Thank you.
4475486,167,2124.23,2124.6599,0,Thank you.
4475486,168,2125.1001,2128.3398,0,Your next question comes from Ronald Kung from Goldman Sachs.
4475486,169,2128.73,2129.48,0,Please go ahead.
4475486,170,2131.6799,2132.1599,8,Thank you.
4475486,171,2132.1599,2135.05,8,Thank you James Jane Cindy uh Michelle.
4475486,172,2135.1101,2154.5298,8,Uh my question is uh more on if if the recent travel patterns uh that we saw in recent months last for longer and with omni Omicron and government's dynamic zero COVID strategies then how how does management see the trajectory for domestic and international travel in twenty twenty two?
4475486,173,2154.8701,2164.1799,8,Uh if if the recent trends last longer and how will we plan our costs accordingly and implications to either cash flows or margins in the next one to two years.
4475486,174,2164.6001,2164.8701,8,Thank you.
4475486,175,2166.1799,2167.8901,4,Uh thank you.
4475486,176,2167.8899,2168.2898,4,Yen.
4475486,177,2168.52,2169.48,4,Uh thank you Ron.
4475486,178,2170.8,2180.4199,4,Uh our margin actually decided by both the top line as well as the uh cost to control our cost to control uh on the top line on the revenue side.
4475486,179,2180.98,2189.47,4,Um uh of course we are in the travel industry so our performance will be pretty much decided uh by the industry growth.
4475486,180,2189.5,2220.01,4,However uh as always we will uh do our best to continuously outpace the industry growth for example uh in the third quarter uh this year uh we outpaced the uh ten to twenty percent at least uh for different segment compared with the industry growth uh um in the travel industry uh on the cost side uh we will continuously uh to weather the uh the the COVID to weather the storm.
4475486,181,2220.4099,2229.3301,4,Uh we have to have a very disciplined cost uh uh policies cost structures uh to weather the stone.
4475486,182,2229.73,2250.51,4,Um uh first firstly we have uh very strong cash position uh at the end of the uh q three we have about ten point five billion dollars uh uh in a cash balance uh which uh probably is the best amount one of the best in the travel industry.
4475486,183,2251.02,2277.5698,4,Um but secondly on the cost side um our total Adjusted Cost and operating expenses actually decreased by more than thirty five percent in q three compared with the uh uh co uh before COVID level um next to our very largely flexible cost expensive structure and as well as efficient operating management.
4475486,184,2278.4299,2290.77,4,Um during the past few quarters we streamline streamlined our operation across uh uh different business lives in addition to certain adjustments related to the COVID.
4475486,185,2291.76,2301.3401,4,And in addition our improvements on the content cross selling and technology have further lifted the our marketing efficiencies.
4475486,186,2302.1799,2329.24,4,Um in terms of the cost trend um going forward uh we uh we will expect a very modest increase in the personnel expenses only on our international uh uh markets and for the domestic market uh we expect our total hack count will be uh uh pretty much uh stable especially for our co businesses.
4475486,187,2329.46,2345.4399,4,Uh but uh we need to add uh some investment uh just to capture the pan of demand uh that has already been seen uh in the in the in the in the international market uh especially in the Europe market.
4475486,188,2346.3101,2371.27,4,Uh on the sales marketing expenses uh we will continuously to adapt adopt an ROI driven uh strategy and um uh we will have a very disciplined uh uh uh uh policies in terms of uh sales and marketing uh spendings um both for the domestic China market as well as uh for the international market.
4475486,189,2382.3999,2385.6099,0,Your next question comes from Alex Yao from JP Morgan.
4475486,190,2386.04,2386.79,0,Please go ahead.
4475486,191,2389.03,2390.5701,9,Uh hi good morning management.
4475486,192,2419.78,2420.03,3,Yeah.
4475486,193,2420.03,2421.5898,3,So thanks Alex.
4475486,194,2421.75,2427.8501,3,Uh in terms of uh investment strategy uh historically we're very disciplined.
4475486,195,2428.27,2437.6499,3,Uh there are three principles uh we adhere to uh first of all it needs to be very closely related to our core competence.
4475486,196,2438.3,2448.49,3,And secondly uh we need to uh really look for uh the companies that is uh uh number one or number two in their verticals.
4475486,197,2449.04,2452.1001,3,And thirdly the valuation needs to be very reasonable.
4475486,198,2452.3501,2458.9502,3,So historically we are very very uh selective and very careful in terms of our investment.
4475486,199,2459.5801,2482.1799,3,However in terms of our organic investments in our core competence uh for the long term investment such as technology and services and products uh we are taking advantage of this uh slow season to make sure uh we focus on the projects which were strengthening uh our competitiveness in the long term.
4475486,200,2482.72,2496.6001,3,So with limited resources uh we are also prioritizing our internal uh projects to make sure uh we give the priority uh for the projects which which will extend our competence in the long run.
4475486,201,2497.1799,2497.6199,3,Thank you.
4475486,202,2503.3799,2503.8499,0,Thank you.
4475486,203,2504.28,2506.0901,0,There are no further questions at this time.
4475486,204,2506.54,2508.21,0,I'll now hand back for closing remarks.
4475486,205,2510.8799,2511.54,1,Thank you.
4475486,206,2511.72,2519.9202,1,Thank you everyone for joining us today you can find a transcript and webcast of today's call on investors dot trip dot com.
4475486,207,2520.29,2525.28,1,We look forward to speaking with you on our fourth quarter two thousand twenty one Ernest call.
4475486,208,2525.6599,2527.3401,1,Thank you and have a good day.
4475486,209,2527.6599,2528.5898,1,Thank you very much.
4475486,210,2528.5901,2529.0801,0,Thank you.
4475486,211,2531.8401,2532.3,0,Thank you.
4475486,212,2532.6101,2534.3999,0,That does conclude our conference for today.
4475486,213,2534.9099,2536.0801,0,Thank you for participating.
4475486,214,2536.3,2537.3401,0,You may now connect.
4475604,0,2.94,16.77,0,On today's call we will be referring to the form twenty s and press release filed this morning that detailed the company's fiscal year-end two thousand twenty one results which can be downloaded from the company's web website at ar qik uk.
4475604,1,17.37,22.49,0,You'll also find the latest earnings presentation that supplement the information discussed on today's call.
4475604,2,23.01,31.54,0,Please note that listeners that would like to ask a question in the q and a session will need to dial in to the call rather than joining through the webcast link.
4475604,3,32.05,37.79,0,Finally a recording of the call will be available on the investor section of the company's website later today.
4475604,4,38.65,41.65,0,Please note that this webcast includes forward looking statements.
4475604,5,42.09,55.97,0,Statements about the company's beliefs and expectations containing words such as may will could believe expect anticipate and similar expressions are forward looking statements and are based on assumptions and beliefs as of today.
4475604,6,56.58,78.17,0,The company encourages you to review these safe harbor statements risk factors and disclaimers contained on this slide and in today's press release as well as in the company's filings with the Securities and Exchange Commission which identifies specific risk factors that may cause actual results or events to differ materially from those described in our forward looking statements.
4475604,7,78.92,85.7,0,The company does not undertake to publicly update or revise any forward looking statements after this webcast.
4475604,8,86.22,92.9,0,The company also notes that on this call it will be discussing non i f r s financial information.
4475604,9,93.34,104.86,0,The company is providing that information as a supplement to information prepared in accordance with International Financial Reporting Standards or i f r s.
4475604,10,105.35,116.32,0,You can find a reconciliation of these metrics to the company's reported i f r s results in the reconciliation tables provided in today's earnings release and presentation.
4475604,11,116.79,122.87,0,And now I'll turn the call over to David Williams the company's Founder Chairman and Chief Executive Officer.
4475604,12,123.18,123.52,0,David?
4475604,13,125.8,126.63,1,Thank you very much.
4475604,14,127.35,129.81,1,Hello and welcome to Arqit Quantum Inc.
4475604,15,129.93,132.82,1,debut fiscal year-end conference call.
4475604,16,135.44,140.23,1,It was a transformational year for Arqit and we're very excited to discuss our performance and notable achievements with you.
4475604,17,424.83,435.09,1,Mainstream legacy Arqit's a- a- architecture commonly called PKI was developed in the early '90s to meet the security needs of the nations eCommerce world.
4475604,18,927.22,931.85,1,I'll then conclude with a few thoughts on our expectations for two thousand twenty two.
4475604,19,932.6,932.9,1,Nick?
4475604,20,941.85,965.23,2,And good morning or afternoon everyone.
4475604,21,1137.0,1147.9,1,So I now turn the call back to the operator to open the lines for questions.
4475604,22,1148.63,1149.13,1,Operator?
4475604,23,1151.59,1152.08,0,Thank you.
4475604,24,1152.08,1156.22,0,As a reminder to ask a question you'll need to press star one on your telephone.
4475604,25,1156.67,1158.74,0,To withdraw your question press the pound key.
4475604,26,1159.24,1161.53,0,Please stand by we compile the q and a roster.
4475604,27,1171.15,1173.91,0,As a reminder that's star then one to ask a question.
4475604,28,1188.6801,1191.39,0,And speakers I'm not showing any questions at this time.
4479524,0,16.77,20.05,0,At this time all participants are in a listen-only mode.
4479524,1,20.77,25.27,0,After management's prepared remarks there will be a question and answer session.
4479524,2,26.11,28.42,0,Today's conference call is being recorded.
4479524,3,29.09,33.01,0,Now I will turn the call over to your speaker host today Ms.
4479524,4,33.01,35.87,0,Cynthia Tan IR Director of the company.
4479524,5,36.42,37.65,0,Please go ahead ma'am.
4479524,6,39.37,44.62,1,Hello everyone and welcome to TuanChe's third quarter twenty twenty one earnings conference call.
4479524,7,45.12,51.91,1,We released our earnings results earlier today and it is now available on our IR website as well as on Newswire services.
4479524,8,52.39,62.73,1,Before we continue please note that discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the u s Private Securities Litigation Reform Act of nineteen ninety five.
4479524,9,63.26,66.32,1,Forward-looking statements involve inherent risks and uncertainties.
4479524,10,66.67,70.77,1,As such our future results may be materially different from the views expressed today.
4479524,11,71.17,79.1,1,Further information regarding this and other risks and uncertainties is included in our earnings release and our Registration Statement filed with the s e c.
4479524,12,79.33,84.71,1,TuanChe does not assume any obligation to update any forward-looking statements except as required by law.
4479524,13,85.19,86.57,1,Today you'll hear from Mr.
4479524,14,86.57,94.69,1,Wei Wen the company's Chief Executive Officer who will provide an overview of our growth strategies and business developments who will be followed by Mr.
4479524,15,94.69,103.67,1,Chenxi Yu Ronnie the company's Deputy Chief Financial Officer who will provide additional details on the company's financial results and discuss the financial outlook.
4479524,16,104.13,107.32,1,Following management's prepared remarks we'll open up the call to questions.
4479524,17,107.83,111.77,1,With that said I would now like to turn the call over to our c e o Mr.
4479524,18,111.77,112.29,1,Wei Wen.
4479524,19,112.45,113.49,1,Please go ahead sir.
4479524,20,114.43,115.45,2,Thank you Cynthia.
4479524,21,115.5,116.45,2,Hello everyone.
4479524,22,116.76,121.61,2,Thank you for joining us today on our third quarter twenty twenty one earnings call.
4479524,23,122.73,136.41,2,In this quarter we've pre preserved against a challenging macro environment with covid nineteen flare-ups and a global chip supply shortage that constrained auto production.
4479524,24,137.02,182.1,2,While our revenue contracted by thirty eight point nine percent year-over-year to RMB61 .1 million primarily due to cancellations cancellations of a number of our offline auto shows in response to pandemic conditions we forged ahead with our online initiatives streamlined our cost base and narrowed our net loss attribut- attributable to the company's shareholders by ten point seven percent year-over-year to rmb thirty six .8 million.
4479524,25,183.76,205.16,2,Before we discuss our third quarter results in more detail let's first talk about our strategic plan to expand our business into EV manufacturing catering to the rising consumer demand of electric vehicles leveraging our existing platform.
4479524,26,205.87,215.58,2,We're esta we are establishing a new EV business line including a design r and d and a man and a manufacturing team.
4479524,27,216.51,233.27,2,While holding open discussions with potential strategic partners we will announce the progress of major business transactions if any in a timely man in a timely manner.
4479524,28,234.78,253.11,2,China is the largest EV market in the world with sales reaching over one point three million in twenty twenty representing close to forty four percent of all EVs sold globally.
4479524,29,254.18,277.25,2,In 2021 our EV retail sales penetration in China rose to fourteen point eight percent throughout the year and uh twenty two point six percent in December from five point eight percent in the year twenty twenty.
4479524,30,278.1,329.66,2,According to the China Passenger Car Association in twenty twenty two EV sales in China are expected to reach five point five million growing at a CAGR of one hundred six percent much faster than the overall passenger vehicle market supported by the expe uh expedited uh establishment of EV infrastructure and technological advancements that have lowered vehicle costs as well as improved interactive smart features features.
4479524,31,330.18,367.43,2,While government regulation and the industry standard on environmental protection and the emission continue to be favorable many of the emerging EV O E M are building a direct sales network so that so they can interact firsthand with their users to shape their purchase experience and efficiently receive feedback on our user needs and preference to con to continuously enhance their products and services.
4479524,32,368.58,381.43,2,In this context we believe we are well-positioned to capit- capitalize on consumers' rising demand for EVs given our tremendous customer base.
4479524,33,415.89,432.67,2,Furthermore we have extensive sales operations covering one hundred and twenty five cities as of September thirtieth twenty twenty one to enable the success of our EV manufacturing.
4479524,34,433.85,445.5,2,We will harness our leading auto sales capabilities and the sales network spanning from first-tier cities to provincial countries na- nationwide.
4479524,35,445.66,483.45,2,Through seamless- seamlessly integrating our existing platform with the top-tier electric vehicle design r d and the manufacturing team we are building and uh in-depth cooperation with potential strategic partners we are confident this strategic expansion will drive significant synergistic value and ensure we secure and secure our important stake in the EV revolution.
4479524,36,485.3,490.54,2,Now let me provide third quarter highlights from our business segments.
4479524,37,491.63,509.77,2,First we further enhanced our solid leadership positions in offline marketing service by creating new retail consumption scenarios through innovative platforms and strategic cooperation with partners.
4479524,38,510.6,542.94,2,Due to resurging covid nineteen cases and the industry-wide chip shortages that affected the production schedule of many OEMs many OEMs the number of auto shows we organized were reduced to sixty five across fifty five cities compared to a hundred and fifty two auto shows in one hundred and seven cities in the third quarter of twenty twenty.
4479524,39,544.43,559.55,2,These shows generated net revenues of RMB33 .1 million representing representing a fifty nine point nine percent year-over-year decrease.
4479524,40,561.1,592.69,2,Looking ahead we will continue to enhance our offline marketing services by leveraging our proprietary data ana- analytics capabilities and continuing to strengthen our collaboration with strategic partners and diversify diversify our retail events and scenarios scenarios with more creative marketing solutions.
4479524,41,593.57,616.51,2,we'll also conduct further in-depth studies to identify in granular detail areas with relatively high higher potential R O I and to fine-tune our offline pre presence and a mix of offline and online marketing services accordingly.
4479524,42,617.73,625.06,2,Next let's move on to our growth initiatives in virtual dealership and online marketing services.
4479524,43,626.05,646.94,2,During the third quarter of twenty twenty one we extend extended our online marketing services penetration by providing best-in-class user management online training and events management services to OEMs and the dealers.
4479524,44,648.18,663.92,2,These improvements led to a seven uh seven two point uh seventy two point six percent year-over-year increase in net revenues from virtual dealership and online marketing services.
4479524,45,664.96,682.02,2,Going forward we will further build on our existing business as an integrated automotive marketplace while leveraging our innov uh innovative uh innovative foundation to expand into EV manufacturing.
4479524,46,683.16,713.42,2,Following our announcement on January five twenty twenty two to expand our strategic focus to EV manufacturing we continue to open discussions with potential strategic partners and are on track to identify candidates with highly complementary strengths that will allow the creation of substant substantial synergistic value.
4479524,47,715.29,756.88,2,We're optimistic that that as China's auto market undergoes structural changes toward uh smarter and more energy efficient mobility solutions our innovative business model massive customer base strong customer insights and our leading auto sales network coupled with the top-tier design r and d and the manufacturing teams we're building as well as well as the in-depth operation with potential strategic partners will unlock significant value and lay a solid foundation for success.
4479524,48,758.59,767.26,2,Now i'll turn the call over to Chenxi our deputy C F O for a closer look at our financial performance in the third quarter.
4479524,49,769.27,769.87,3,Thank you Mr.
4479524,50,769.87,770.22,3,Wen.
4479524,51,770.53,771.27,3,Hello everyone.
4479524,52,771.4,772.76,3,Thank you for joining us.
4479524,53,772.95,787.18,3,Our third quarter results were in line with our expectations given the weakening auto markets and the impact from the pandemic with net revenues of rmb sixty one .1 million.
4479524,54,788.66,801.48,3,To navigate the challenges in the third quarter we remained squarely focused on cost management cutting our net loss attributable to the company's shareholders to RMB36 .8 million from r m b forty one .2 million in the same period last year.
4479524,55,802.31,817.96,3,We are excited our our decision to enter the EV manufacturing and are ready to chart a new path forward while continuing to pursue innovation and positioning the company to capitalize on future consumer demand.
4479524,56,817.96,824.12,3,Next i would like to walk through our third quarter twenty twenty one financial results.
4479524,57,824.73,831.55,3,Before I start please note that all numbers stated in my following remarks are in r m b unless otherwise noted.
4479524,58,852.86,870.13,3,As we progressively resumed our offline auto shows offline marketing services revenue generated from these auto shows decreased by fifty nine point nine percent to rmb thirty three .1 million from rmb eighty three .6 million in the third quarter of twenty twenty.
4479524,59,870.72,880.75,3,Revenues from special promotional events in the third quarter of twenty twenty one were RMB1 .3 million compared with rmb two million in the third quarter of 2020.
4479524,60,881.62,902.7,3,Revenues from our virtual dealership services online marketing services and others increased by seventy two point six percent to rmb twenty six .6 million during the quarter compared with RMB15 .4 million in the third quarter of 2020 primarily due to con the continuous expansion of our of our collaboration with WeBank.
4479524,61,904.71,916.97,3,Our gross profits in the third quarter decreased by thirty five point one percent to forty eight r m b forty six .8 million from RMB72 .1 million in the third quarter of twenty twenty.
4479524,62,917.74,931.73,3,Gross margin was seventy six point six percent in the third quarter of twenty twenty one compared with seventy two point one percent in the same period last year primarily due to the change in revenue mix.
4479524,63,945.27,959.1,3,The year-over-year decrease was primarily due to the decrease in promoter expenses and stock compensation expenses as a result of decreased volume of offline events.
4479524,64,994.63,1011.2,3,Our loss from continuing operations were RMB39 .3 million in the third quarter lower compared with rmb forty two .6 million in the same period last year and higher compared with r m b nine .3 million in the second quarter of twenty twenty one.
4479524,65,1012.43,1027.0801,3,Excluding the effects of share-based compensations adjusted net loss attributable to the company's shareholders was RMB34 .4 million in the third third quarter compared with r m b thirty eight .3 million in the same period last year.
4479524,66,1027.9301,1038.65,3,Adjusted basic and diluted net loss per ordinary share were both r m b oh .11 in the third quarter compared with rmb oh .13 in the same period last year.
4479524,67,1039.92,1049.51,3,Adjusted EBITDA was a loss of RMB33 .5 million in the third quarter compared with a loss of rmb thirty seven million in the same period last year.
4479524,68,1051.54,1052.91,3,Now turning to our balance sheet.
4479524,69,1053.39,1061.29,3,At the end of September twenty twenty one we had cash and cash equivalents and restricted cash of rmb a hundred thirty four .3 million.
4479524,70,1062.3101,1069.79,3,For further details regarding our twenty twenty one third financial results please refer to our earnings press release.
4479524,71,1070.37,1086.91,3,In the fourth quarter of twenty twenty one we expect our net revenues to be between approximately rmb seventy million and rmb eighty million representing a year-over-year decrease of approximately fifty seven point eight percent to fifty one point seven percent.
4479524,72,1087.52,1108.9301,3,This is primarily attributable to the estimated decline in the expected number of offline events to be held in the fourth quarter of twenty twenty one including auto shows and pro special promotion events due to the covid nineteen pandemic as well as the impact of global microchip supply shortage on the auto industry.
4479524,73,1110.41,1123.67,3,This forecast reflects the company's current and preliminary views on the market and operational conditions as well as the influence of the covid nineteen pandemic all of which are subject to change.
4479524,74,1124.6,1127.04,3,This concludes our prepared remarks for today.
4479524,75,1127.25,1129.92,3,Operator we are now ready to take questions.
4479524,76,1130.22,1130.66,3,Thank you.
4479524,77,1132.34,1135.7999,0,We will now begin the question and answer session.
4479524,78,1136.62,1142.6599,0,To ask a question you may press star then one on your telephone keypad.
4479524,79,1143.42,1149.39,0,If you are using a speakerphone please pick up your handset before pressing the keys.
4479524,80,1174.3101,1179.2,0,At this time we will pause momentarily to assemble our roster.
4479524,81,1186.24,1202.87,0,<silence> This as there are no further questions now I'd like to turn the call back over to the company for closing remarks.
4479524,82,1204.66,1206.8101,1,Thank you once again for joining us today.
4479524,83,1207.0699,1209.9,1,If you have any questions please feel free to contact.
4479524,84,1212.9399,1215.14,0,This concludes this conference call.
4479524,85,1215.61,1217.2201,0,You may now disconnect your line.
4479524,86,1220.6899,1220.88,0,Thank you.
4479741,0,5.28,7.08,0,Good morning and welcome everyone.
4479741,1,7.76,17.06,0,Together with our C F O Lisa Mortensen inaudible team we would like to wish everybody a happy new year and hope you and your families are healthy and safe.
4479741,2,17.78,23.27,0,As always we'll start this conference call with a short presentation on our recent quarter's results.
4479741,3,24.17,32.44,0,In addition this time we would like to also take the opportunity to present our new science based climate targets that were published in November.
4479741,4,33.0,37.29,0,This will take approximately twenty minutes and then we'll move on to q and a.
4479741,5,38.58,43.44,0,Before we begin please take notice of the Safe Harbor statement on Slide two.
4479741,6,48.44,49.86,0,Let's turn to Slide three please.
4479741,7,51.8,52.09,0,Chr.
4479741,8,52.09,60.97,0,Hansen delivered a solid start to the fiscal year twenty two with nine percent organic growth with Euro growth reached ten percent.
4479741,9,61.93,70.84,0,Growth was fully volume driven and supported by solid growth in food cultures and enzymes as well as a strong rebound in health and nutrition.
4479741,10,71.78,79.53,0,Our EBIT margin before special items was twenty four point four percent compared to twenty five point two percent last year.
4479741,11,80.33,97.55,0,Excluding H M O which was not fully reflected in q one last year we both have seen a margin improvement a scalability from solid sales performance more than offset the inflationary pressure and the general ramp up of activities.
4479741,12,99.21,109.17,0,Absolute e b i t before special items amounted to EUR sixty five million up seven percent from the E U R sixty one million in q one last year.
4479741,13,110.5,118.22,0,Free cash flow before acquisitions and special items was EUR sixty five million compared to minus EUR seven million last year.
4479741,14,119.29,122.93,0,Let's turn to Slide four for the strategic and operational highlights.
4479741,15,125.59,135.1,0,During the first quarter in-person engagement with customers picked up again and we saw good traction on our commercial pipeline and strategic initiatives.
4479741,16,136.12,148.53,0,Our core businesses food cultures and enzymes human health and animal health grew seven percent for our growth areas which account for approximately ten percent of group revenue.
4479741,17,149.09,155.46,0,Buyer protection fermented plant basis plant health and H M O grew thirty five percent.
4479741,18,156.3,167.02,0,Lighthouses are expected to outgrow the core business for the year but please note that the very strong growth in q one was in part positive due to other timing.
4479741,19,168.29,181.96,0,In line with our twenty twenty five strategy we continue to reinvest in our core business and lever our tech technology platforms to expand into new areas while further reaping the benefits of our recent acquisitions.
4479741,20,182.48,186.06,0,Let me briefly comment on the key highlights for the quarter.
4479741,21,187.15,201.07,0,In food cultures and enzymes we saw very good sales project execution in EMEA as well as continued strong growth in the cheese market in North America which led very solid volume growth in q one.
4479741,22,202.19,218.64,0,Human health exceeded our expectations for the first quarter and deliver a very strong start to the year supported by a rebound in the traditional sales channel in Europe and North America and positive order timing from q four.
4479741,23,219.99,236.63,0,Further I am pleased that with our expanded strength to solution offering and our strong supply chain performance we were able to mitigate supply strength successfully and win new business which will have a positive impact in the first half of the year.
4479741,24,237.75,241.62,0,Our H M O business also reported good progress in the first…
4479741,25,241.94,253.85,0,uh with the first launches of the five H M O mix in the u s market which had an extraordinary impact in q one as customers ramped up ahead of their product launches.
4479741,26,255.35,265.83,0,And lastly plants have entered into a partnership with the Indian act player U P L to develop and commercialize microbial crop protection solutions.
4479741,27,266.91,272.4,0,Another highlight during q one was related to Bacthera our joint venture with Lonza.
4479741,28,273.17,274.44,0,Please turn to Slide five.
4479741,29,278.93,284.38,0,In November Bacthera signed a commercial manufacturing agreement with Seres Therapeutics.
4479741,30,284.93,290.97,0,It's an important milestone and therefore allow me to say a few words about the agreement.
4479741,31,292.14,317.58,0,After we have successfully established our setup in h rsholm and Basel to service customers in the clinical supply market we are now accelerating investments into commercial manufacturing capabilities based on the long-term commitment from Seres Therapeutics whose lead candidate Seres one oh nine has the potential to become the first ever live biotherapeutic products in the market.
4479741,32,318.45,327.57,0,As part of the agreement we will build a new production site in Visp Switzerland which is expected to be inaugurated in twenty twenty four.
4479741,33,328.95,344.03,0,Once the commercial supply market is materializing faster than we expected we are seeing that the clinical supply market is developing slower due to delays in clinical trials and patient intake during the COVID pandemic.
4479741,34,344.82,360.11,0,These developments will require additional funding into Bacthera but we are very confident in our ability to establish a living player in the field which can count on our expertise and capabilities from both JV partners.
4479741,35,361.09,367.98,0,With these words let's turn to Slide six to dive a bit more into the sales performance during the first quarter.
4479741,36,370.31,373.4,0,If we look at the top line performance across the sexment…
4479741,37,373.4,376.88,0,the segments growth was fully volume driven.
4479741,38,377.5,388.46,0,Food cultures and enzymes delivered seven percent organic growth in q one driven by volume and with solid growth in dairy and very strong growth in food and beverages.
4479741,39,389.16,392.33,0,The contribution from Euro pricing was insignificant.
4479741,40,393.94,400.21,0,Health and nutrition recovered after a very soft quarter reaching thirteen percent organic growth in q one.
4479741,41,401.16,404.12,0,Human health and h m o delivered very strong growth.
4479741,42,404.7,412.35,0,As already mentioned the inaudible was largely driven by human health while inaudible H M O was in line with expectations.
4479741,43,438.48,447.22,0,Across our businesses we are in close collaboration with our customers to implement price adjustments to reflect the current inflationary prof…
4479741,44,447.42,447.8,0,pressures.
4479741,45,448.62,455.9,0,The implementation is progressing as planned and we will start to see the impact here from the beginning of q two.
4479741,46,457.84,466.46,0,If we look at the regional picture please turn to next slide uh Slide seven growth was largely driven by developed markets.
4479741,47,467.31,481.05,0,Europe Middle East and Africa delivered ten percent organic growth supported by good execution of the sales pipeline in food cultures and enzymes and our recovering of the traditional dietary supplement channel in Europe.
4479741,48,482.36,486.35,0,North America uh grew strongly with twelve percent.
4479741,49,486.99,493.05,0,Growth in health and nutrition was positively impact by order timing as q four was very soft.
4479741,50,493.32,502.37,0,I already mentioned launches in H M O while fc and e continued to benefit from continued solid momentum in the cheese market.
4479741,51,503.53,510.84,0,Latin America reported eight percent organic grown of which approximately one three came from Euro pricing.
4479741,52,511.57,521.54,0,Food cultures and enzymes grew solidly despite continued soft fermented milk markets and health and nutrition was driven by very strong inaudible plant health.
4479741,53,534.6,552.4,0,The fermented milk market in China though is still not developing favorably and our outlook for China is still to be flat to slightly positive in fiscal year twenty two driven by the low comparable from last year and specific customer projects.
4479741,54,553.51,556.38,0,Health and nutrition was on par with last year.
4479741,55,556.86,562.36,0,Both human health and animal health face a tough comparable baseline from last year.
4479741,56,563.09,567.84,0,In total these resulted in four percent organic growth for Asia Pacific.
4479741,57,568.68,573.45,0,And with these comments I would like to hand over to Lisa for the financial review.
4479741,58,576.18,578.9,1,Thank you Mauricio and welcome also from my side.
4479741,59,579.11,580.66,1,Uh please turn to Slide eight.
4479741,60,582.82,592.49,1,Looking at the development um profitability the EBIT margin ended at twenty four point four percent for q one down from twenty five point two percent last year.
4479741,61,594.08,606.33,1,The drop was in line with our guidance driven by first the full inclusion of H M O which was only partly reflected in last year's numbers as the acquisition closed mid-October.
4479741,62,607.34,621.89,1,Secondly the general ramp up of activities including travel and thirdly higher input costs from the inflationary pressure which we only expect to see recovered in sales price increases as we progress through q two.
4479741,63,623.89,635.11,1,This was in partly offset by positive contribution from production efficiencies and scalability from the sales growth combined with synergies from our probiotics acquisitions.
4479741,64,637.62,646.8701,1,If we exclude the impact uh from H M O then the EBIT margin would have been above last year by approximately half of the inaudible.
4479741,65,649.85,651.32,1,Total e b i t before special amo…
4479741,66,651.32,666.938,1,items amounted to EUR sixty five million which is seven percent up compared to last year driven by food cultures and enzymes while e b i t in health and nutrition was at the same level as in q one of last year due to the negative impact from H M O.
4479741,67,669.62,690.35,1,If we look at the segments food cultures and enzymes EBIT margin before special items was 30.8% and on par with last year with production efficiencies and scalability effects from volume growth being offset by higher input costs not yet reflected in the sales prices and a general ramp up of activities.
4479741,68,692.64,702.688,1,Health and nutrition's e b i t margin before special items was eleven point nine percent which is one point seven percentage points below last year driven by H M O.
4479741,69,704.41,709.35,1,Excluding H M O our health and nutrition EBIT margin would've been above last year.
4479741,70,711.33,722.15,1,The profitability improvements were driven by scalability effects and acquisition synergies that were partly offset by higher input costs and the general ramp up of activities.
4479741,71,723.62,726.6,1,Let's look at the cash flow on the next slide Slide nine.
4479741,72,730.4,740.2,1,The free cash flow before acquisitions and special items came in at EUR fifty five million compared to a negative of EUR seven million in q one of last year.
4479741,73,742.0,749.29,1,The increase was due to both an improved cash flow from operating activities and lower operations investments.
4479741,74,751.17,760.18,1,The increase in the operating cash flow as driven by improved operating profit and a positive impact from working capital compared to q one of last year.
4479741,75,761.97,770.38,1,And cash flow use for operational investing activities was EUR eighteen million down from EUR fifty two million in FY 21.
4479741,76,771.52,776.4901,1,The decrease in spending was driven by the acquisition of the cannonball facilities last year.
4479741,77,779.15,798.92,1,The return on invested capital excluding goodwill was twenty point zero percent compared to twenty point six percent last year and the decrease was driven by health and nutrition due to the inclusion of H M O while the return on invested capital in food cultures and enzymes was on par with q one from last year.
4479741,78,800.61,805.79,1,And with these remarks let's move to next slide Slide ten to recap our guidance for the year.
4479741,79,809.15,813.18,1,Following the encouraging first quarter we keep the outlook for the year.
4479741,80,814.71,826.52,1,Group organic growth is expected to be in the range of five percent to eight percent and will inaudible volume driven but with some positive impact from pricing to reflect the inflationary development.
4479741,81,853.14,861.88,1,As already mentioned plant health ben plant health benefited from early orders in the first quarter which will negatively affect q two.
4479741,82,863.78,875.97,1,For H M O as q one benefited from customers ramping up for the u s launches the growth momentum will be lower the rest of the year though still in a range above twenty percent.
4479741,83,877.87,887.67,1,And for human health our ability to serve customers has resulted in some extraordinary wins in q one and we also see good momentum going into q two.
4479741,84,891.06,919.44,1,When it comes to EBIT margin before special items this is still expected to be around the same level as last year between twenty seven percent and twenty eight percent as cost synergies from the probiotics acquisitions production efficiencies and a small positive impact from the u s dollar exchange rate will be offset by continued ramp up of activities investments into H M O business and the inflationary pressure on certain input costs.
4479741,85,921.02,927.77,1,The latter we expect to largely recover during the course of the year as price adjustments become effective.
4479741,86,930.0,948.9,1,The free cash flow before special items is expected to be around EUR a hundred and forty million to EUR a hundred and seventy million as improved operating profit is expected to be more than offset by significant increases in taxes paid as FY two one was positively impacted by acquisition-related one-offs.
4479741,87,950.96,955.57,1,The free cash flow outlook assumes a CapEx in line with FY twenty one.
4479741,88,969.21,982.75,2,And I would like to emphasize once more that Christian Hansen remained committed to delivering industry-leading profitable growth under strong cash flow with focus on spending discipline and capital efficiency.
4479741,89,984.33,993.6801,2,Until f y twenty five we aim to deliver mid to high single-digit organic growth average over the period.
4479741,90,995.41,1008.72,2,An increase in epic margin before special items over the period to above thirty percent and average growth in free cash flow before special items to grow faster than eBid before special items.
4479741,91,1010.73,1015.73,2,And with this I would like to hand back over to Mauricio to present our new climate target.
4479741,92,1017.39,1018.15,5,Thank you Lisa.
4479741,93,1018.87,1026.1801,5,I'm very happy to present Christian Hansen's new carbon reduction targets that were published in November twenty twenty one.
4479741,94,1026.37,1030.1801,5,Following the validation by the Science Based Target initiative.
4479741,95,1030.72,1032.0699,5,Please turn to slide eleven.
4479741,96,1033.5601,1045.05,5,Christian Hansen's microbial solutions enable healthier living for humans animals and plants leaving a positive hand print in society and our planet.
4479741,97,1045.63,1049.09,5,At the same time we are committing to reducing our footprint.
4479741,98,1050.23,1058.53,5,Taking climate action that is rooted in the lesser scientific census is a natural next step for Christian Hansen.
4479741,99,1059.35,1070.0701,5,By twenty thirty Christian Hansen aims to reduce its scope into emissions by forty two percent and its scope free emissions by twenty percent.
4479741,100,1071.45,1077.8201,5,To reach these ambitions goals we have launched a new program called Think Climate Naturally.
4479741,101,1078.83,1103.3201,5,Under which we will pursue a number of initiatives including converting local uh electricity supply to renewables reaching a a hundred percent recyclability of our key packaging materials and a hundred percent circular management of our bio waste working smarter with heat supply and switching to refrigerants with limited climate impact.
4479741,102,1103.78,1115.3,5,Engaging with suppliers to address low carbon practices and renewable energy and by minimizing air freight and moving to sea freight and pursuing partnerships on low carbon fuels.
4479741,103,1116.36,1123.4401,5,Some of these initiatives are already paying off not only on our footprint but also on our cost.
4479741,104,1124.1801,1132.4601,5,Converting to renewable energy sources like solar panels here in Denmark for example has kept a negative impact from the…
4479741,105,1132.88,1134.72,5,in energy prices down.
4479741,106,1136.76,1140.77,5,And with this let me wrap up this presentation and summarize.
4479741,107,1141.39,1149.0699,5,That Christian Hansen delivered an encouraging start to the fiscal year twenty two and will keep our outlook unchanged.
4479741,108,1149.91,1159.21,5,twenty one twenty two is a year of execution for Christian Hansen and will remain focused on advancing our twenty twenty five strategic agenda.
4479741,109,1159.84,1179.01,5,Driving commercialization of new innovations and delivering synergies from our recent acquisitions while mitigating any potential disruptions from supply chain constraints and implementing price adjustments in close collaborations with customers to offset inflationary pressures.
4479741,110,1180.22,1200.7899,5,Times continue to be uncertain with high volatility from covid nineteen increased focus from customers on business continuity and cost savings potentially new travel restrictions which could impact our ability to advance our commercial pipeline and low visibility to end market demand.
4479741,111,1201.49,1207.6,5,But I am optimistic that as a company Christian Hansen is well positioned to deal with these challenges.
4479741,112,1207.98,1210.75,5,Thanks to our robust and resilient business model.
4479741,113,1211.83,1212.6599,5,Thank you for the…
4479741,114,1212.66,1217.34,5,For your attention and with this I would like to hand over to the Q and A.
4479741,115,1218.87,1219.4,7,Thank you.
4479741,116,1219.84,1226.17,7,If you have a question for the speakers please press zero one on your telephone keypads now to enter the queue.
4479741,117,1226.85,1229.0,7,Once your name is announced you can ask your question.
4479741,118,1229.72,1235.9299,7,If you find your question has been answered before it's yours turn to speak you can dial zero two to cancel.
4479741,119,1236.8199,1241.4299,7,Uh in the interest of fairness and time please limit yourselves two questions per turn.
4479741,120,1242.29,1246.53,7,You can then rejoin the queue to ask further questions if you need to.
4479741,121,1246.53,1248.0601,7,Please hold for the first question.
4479741,122,1249.8101,1254.7,7,And our first question comes from the line of Soren Samsoe of s e b.
4479741,123,1254.74,1256.3301,7,Please go ahead your line is open.
4479741,124,1258.58,1259.01,8,Yes.
4479741,125,1259.01,1259.9,8,Good morning everyone.
4479741,126,1259.9,1263.76,8,Uh two questions first regarding uh the input cost.
4479741,127,1263.76,1269.4399,8,If you could say what is the negative impact uh of input cost in q one versus last year.
4479741,128,1269.47,1273.2,8,And then secondly if you can comment on the price increases.
4479741,129,1273.2,1285.0601,8,You're seeing the level of price increases which you'd expect um and uh what will be the effect of that uh down on the eBid will that all be absorbed by you can say by input cost increases?
4479741,130,1285.0601,1286.0599,8,Uh how do you see it?
4479741,131,1286.24,1288.2201,8,Thank you.
4479741,132,1289.01,1292.23,5,Thank you Soren and um good um good morning.
4479741,133,1292.64,1294.4801,5,Um i'll pass some of the…
4479741,134,1294.48,1300.62,5,Just recapping your question is about the input cost our process for price increases.
4479741,135,1301.0,1317.74,5,And um I would you say we uh have a very strong methodology overall to reflect uh price increases um uh with customers and we expect to uh fully pass on the inflationary price increases uh to customers.
4479741,136,1317.74,1320.26,5,So we have no margin dilution.
4479741,137,1320.6,1328.38,5,Uh I will pass it on to Lisa to comment on you know your specific question about uh our input uh costs.
4479741,138,1329.8,1337.85,2,Well so on in input cost and the inflationary pressure is so obviously something uh that is unprecedented and that we are observing very closely.
4479741,139,1338.27,1343.9301,2,Uh we have seen a higher cost and it's also uh impacted our results for q one.
4479741,140,1344.41,1358.9399,2,Uh we do not wish at this point in time to be very specific on it uh but it is uh it is part of the you know uh the view that we look at uh landing the twenty four point four percent uh uh for for q one.
4479741,141,1358.9399,1376.66,2,And it's also important to say that uh we are actually very happy to see that if we exclude H M O we have been able to offset uh inflationary pressure and other uh cost coming from the higher activity level uh through our uh productivity and and scalability efforts.
4479741,142,1380.75,1381.0601,8,Okay.
4479741,143,1381.09,1381.42,8,Thank you.
4479741,144,1383.9301,1385.88,2,Thank you.
4479741,145,1388.96,1393.2001,2,And our next question comes from the line of Las Toppan of Carnegie.
4479741,146,1393.3,1394.99,2,Please go ahead your line is open.
4479741,147,1396.8,1397.03,4,Yes.
4479741,148,1397.03,1397.23,4,Hello.
4479741,149,1397.23,1414.4601,4,Congrats with the a very strong quarter uh uh quite impressive and good to see a couple of questions on on on on my side so uh looking at your unchanged full year guidance you need to grow four to seven percent for the rest of the year.
4479741,150,1415.15,1423.84,4,And given you probably get one one to two percent from pricing that means organic growth will only have to be of of…
4479741,151,1424.03,1426.89,4,The volume growth will only have to be two to six percent.
4479741,152,1427.4399,1436.38,4,so so I just wonder when you don't lift the lower end of your guidance range is there any specifics we simply can't see?
4479741,153,1436.41,1446.84,4,Or is it more function of you uh preferring to be conservative in a in a scenario where where visibility might not be so big.
4479741,154,1447.1801,1455.87,4,And then I have a question on HMOs because uh Abbott has launched their five H M O uh similar product.
4479741,155,1455.87,1464.4401,4,Uh which you supply as upload cost that's the the the-the big thing for for your h m o business in the quarter.
4479741,156,1464.4399,1482.2101,4,Uh first of all I would like to understand when you sell to a product that contains two f l and then instead sell to a product that contain all five HMOs eh how much does your…
4479741,157,1482.64,1488.4,4,Uh what do you say you your revenue proportion uh increase?
4479741,158,1488.4,1493.9901,4,Is it five times up or is two 'fl still the main revenue contributor?
4479741,159,1493.99,1501.05,4,And then I wonder what this implies for uh the H M O revenue in the quarter.
4479741,160,1501.05,1505.3199,4,You mentioned lighthouses are ten percent of sales.
4479741,161,1506.63,1515.78,4,Uh if we assume bioprotectants and plant health is is uh sorry uh plant health is ten percent of of food process and enzymes.
4479741,162,1516.3,1525.9,4,That means uh p- p- plant health and HMO has to be ten percent of uh health and nutrition.
4479741,163,1525.9,1531.4701,4,Uh I just wonder how that is split between plant and and HMOs.
4479741,164,1532.15,1532.52,4,Thank you.
4479741,165,1534.3199,1536.95,5,Good morning uh Lash.
4479741,166,1536.98,1540.92,5,Thanks for your uh positive comments on the encouraging start of the year.
4479741,167,1540.92,1545.48,5,so so two questions you had on guidance and on H M O.
4479741,168,1545.48,1549.29,5,Uh let me try to provide some uh light into those.
4479741,169,1549.5699,1556.5601,5,so so for sure an encouraging start of the year with good momentum across our two business areas.
4479741,170,1556.9301,1562.27,5,And as I stated in the call we also see good momentum going into q two.
4479741,171,1562.7,1572.38,5,But uh but you are right it's still a very volatile environment so I think uh we're only uh uh let's say three months into the year of uh twelve months.
4479741,172,1572.66,1584.1399,5,And I think it is good to recognize that while we are in a good position in q one we maintain our guidance uh uh for the uh for the year and and and that is the position.
4479741,173,1584.1801,1611.52,5,Yes you know pricing um uh we expect the uh uh the uh growth to be mainly volume driven pricing will contribute uh you know north of the uh uh one point five percent or around the two percent that you mentioned but we um uh expect to continue to see a good uh performance of our business and hope that provides some uh visibility into um into our uh current uh guidance.
4479741,174,1612.4301,1625.42,5,Now on um on H M O so um uh H M O the h m o mix tries to reflect more the physiological level of the five uh different HMOs.
4479741,175,1625.63,1628.35,5,So um uh you know without getting…
4479741,176,1628.35,1637.25,5,Going into confidentiality or distortion we expect the different H M O mixes for different customers may have a slight different component.
4479741,177,1637.5,1649.91,5,Uh uh two 'fl is is the largest component of the uh of the mixes but we see good presence of the other um uh uh H M O ingredients uh there.
4479741,178,1650.36,1673.0801,5,and and and talking about the um about the lighthouses uh you know all of them contributed to these strong performance of thirty five percent in in uh q one but obviously as we mentioned uh uh particularly plant health and H M O benefited from all the timing in q one.
4479741,179,1674.9399,1675.0699,4,Yeah.
4479741,180,1675.11,1686.8199,4,that that that I understand Maurice but my my my question is if uh plant health and h m o is ten percent of health and nutrition turnover that is nine million euros combined.
4479741,181,1686.8199,1695.7899,4,If it's fifty fifty then uh HMOs contributed four point five million euros and you have a big product launch from from Abbott.
4479741,182,1696.3101,1718.36,4,so so given that uh in q two and q four last year uh HMOs were six and seven million in revenue respectively I just wonder if sort of the underlying run rate for HMOs was in fact weak given that uh you you you have this big uh product launch fro from Abbott.
4479741,183,1720.24,1721.5499,4,to understand the the numbers.
4479741,184,1722.48,1728.83,5,So a couple of comments I think I think your calculation of H M O is um uh not a hundred percent correct.
4479741,185,1728.874,1739.0499,5,H M O was was more than that but also consider that while we had the launch of um H M O in the US Abbot has not yet done a a national launch.
4479741,186,1739.4,1744.62,5,Is it was launched online and it was let's say what would be called a prelaunch.
4479741,187,1744.9399,1759.51,5,So um we we do not consider the um you know h m o performance to be uh below expectation is on target and we are confident to deliver the above twenty percent growth uh for the year based.
4479741,188,1759.83,1763.95,5,Uh most of those orders being secured by our long term contracts.
4479741,189,1765.08,1767.27,4,That's very clear Maurice so thank you very much.
4479741,190,1768.26,1768.92,5,Thank you Lash.
4479741,191,1770.96,1771.4299,4,Thank you.
4479741,192,1772.04,1776.7799,4,Our next question comes from the line of Christian Reim of Nodia markets.
4479741,193,1776.78,1778.48,4,Please go ahead your line is open.
4479741,194,1779.08,1781.86,6,Hi good morning and and thank you for taking my questions.
4479741,195,1781.86,1782.7101,6,I have two as well.
4479741,196,1782.74,1786.48,6,The first is is the clarification on the H M O topic that we just touched on.
4479741,197,1787.6,1796.4601,6,Uh can you can you clarify whether uh in terms of absolute revenues uh q one here was your best quarter yet for HMO uh revenues.
4479741,198,1797.24,1803.66,6,Uh and then my second question goes to the uh sort of guidance for uh the health and nutrition business where's…
4479741,199,1803.97,1809.7201,6,Where I understand that you say that the growth will now be more front and loaded for the full year.
4479741,200,1810.41,1819.49,6,Um should we understand that to uh be a reflection of some pull forward uh of demand for uh the…
4479741,201,1819.49,1823.99,6,For the following quarters uh or from the following for the next quarters.
4479741,202,1844.0,1844.4301,4,Yes.
4479741,203,1844.46,1852.47,4,so so um first question on on uh H M O uh um I will pass them on to Lisa.
4479741,204,1853.23,1863.8899,4,I think it'll be important to clarify if you're talking sort of the absolute in absolute Terence being the largest quarter in invoicing that we uh have had.
4479741,205,1864.23,1868.01,4,and and then to um health and nutrition I will take that on.
4479741,206,1868.01,1876.1001,4,So you know health nutrition had a a strong start of the year uh thirteen percent uh stronger than we expected.
4479741,207,1876.14,1884.79,4,Uh basically driven by the uh good momentum reopening of the traditional sales channel in North America and Europe.
4479741,208,1885.13,1895.3201,4,And also by our ability to um uh win new project based on the good uh execution of our supply chain.
4479741,209,1895.8101,1901.23,4,As I said we go into q two with a good momentum in health and nutrition.
4479741,210,1901.48,1911.97,4,And that's why we said that the um you know growth will be front and loaded because we expect a solid uh first half of the year for health and nutrition.
4479741,211,1912.36,1923.95,4,Um while some people think there are low comparables in the second half of the year I would just remind everyone that the low comparables in the second half of the year was for our.
4479741,212,1938.0,1940.77,10,Lisa onto you for the uh question of uh H M O.
4479741,213,1940.8,1941.1001,11,Yes.
4479741,214,1941.63,1942.2,11,Um.
4479741,215,1942.23,1944.04,11,And let's let's be clear.
4479741,216,1944.04,1950.2899,11,We we we we would like to avoid to give you absolute numbers on the revenue from from H M O.
4479741,217,1950.29,1960.64,11,What what we can confirm is that uh the ambition for this year is at twenty percent plus organic growth on on the baseline from last year.
4479741,218,1961.1,1966.49,11,And yes we do we did see some impact some positive order timing in in in q one.
4479741,219,1968.04,1976.14,10,Okay but but you cannot say whether say q one was better than q four in terms of revenue for the H M O business?
4479741,220,1977.29,1977.54,11,No.
4479741,221,1978.77,1979.04,10,Okay.
4479741,222,1979.24,1979.5699,10,Thank you.
4479741,223,1983.3101,1988.12,12,inaudible next question comes from the line of Georgina Frazer at Goldman Sachs.
4479741,224,1988.12,1989.8099,12,Please go ahead your line is open.
4479741,225,1990.6899,1992.86,13,Um thank you for taking my questions.
4479741,226,1992.92,1993.41,13,Morning.
4479741,227,1993.9,2003.55,13,Um so my first question is um if you're able to quantify to any extent just how much of the organic growth in human health was front end loaded in the first quarter?
4479741,228,2003.91,2006.26,13,Think it can be quite helpful to have that kind of aggregate number.
4479741,229,2007.14,2019.77,13,Um and then my second question is um I noticed that you have reduced your market expectations for human health over the course of twenty twenty to twenty twenty five on the back of lower infant formula outlook.
4479741,230,2020.5,2026.6,13,Can you explain why that assumption has not changed your expectations for the total addressable market for HMO's?
4479741,231,2027.37,2027.5599,13,Thanks.
4479741,232,2030.41,2031.21,10,Hi Georgina.
4479741,233,2031.5,2032.9501,10,Good good morning.
4479741,234,2033.51,2051.5701,10,Um i'll take the first part of your question in relation to what part of the uh growth on health and nutrition was sort of underlying growth vs um a one off and then I'll pass it on to Lisa in relation to the uh infant formula uh in market potential.
4479741,235,2051.9199,2060.26,10,So you know most of our growth in in human health as I said came from the strengthening of the momentum.
4479741,236,2060.6201,2070.6702,10,Uh given the uh uh positive development we saw in the traditional sales channel in North America in Europe as well as the new wins.
4479741,237,2071.04,2081.4199,10,So you know order of magnitude less than uh uh one third of the health and nutrition growth would be related to one off benefits.
4479741,238,2081.76,2089.5801,10,Um um related to q four orders that we were able to fulfill in q one or or other non repeatable.
4479741,239,2089.6101,2097.8,10,And most of the growth came from this momentum that we have seen in q one and we see maintained going into q two.
4479741,240,2098.3701,2098.9001,10,Uh Lisa.
4479741,241,2099.6101,2100.8601,11,Yeah um.
4479741,242,2101.02,2109.5398,11,You know when when we think about H M O I think it's important to to uh to recognize that the penetration is very very low.
4479741,243,2109.74,2115.26,11,Uh this is a business and and the market that only growing and emerging now as we speak.
4479741,244,2115.8601,2127.97,11,Uh and and we do still believe that as this is you know uh the secret ingredient that the IF players are definitely looking into with high high interest.
4479741,245,2128.3999,2132.78,11,it'll be uh the ingredient that creates the premium product.
4479741,246,2133.0901,2135.1101,11,We still believe in in the full potential.
4479741,247,2135.1101,2138.3701,11,But it is you know coming from a very low penetration.
4479741,248,2140.2,2141.24,13,Okay that was really helpful.
4479741,249,2141.3101,2141.6602,13,Thank you.
4479741,250,2142.1499,2147.01,10,And that is for inaudible Georgina with what we have said both for HMO and probiotics.
4479741,251,2147.01,2164.49,10,That obviously you know a better momentum in in infant formula growth will always be positive but let's say the um our business plans are based on the penetration of probiotics and H M O into the existing volumes of infant formula.
4479741,252,2165.4099,2166.3501,13,Great thank you both.
4479741,253,2169.0601,2169.6299,12,Thank you.
4479741,254,2169.74,2174.8201,12,Our next question comes from the line of Heidi of Exane BNP Paribas.
4479741,255,2174.8501,2176.4001,12,Please go ahead your line is open.
4479741,256,2177.8301,2178.6101,14,Good morning.
4479741,257,2180.8101,2188.02,14,Um we see that milk and animal production is slowing relative to last year and bird flu is emerging.
4479741,258,2188.05,2190.5798,14,Is this a concern at all in either segments?
4479741,259,2190.79,2192.28,14,What are your expectations?
4479741,260,2193.0,2200.3101,14,Um and then secondly we saw that um pricing was negative in health and nutrition.
4479741,261,2200.3401,2207.6699,14,Could you explain why that was and um will that uh improve you know as you lift pricing in the coming quarters?
4479741,262,2207.8301,2208.1902,14,Thanks.
4479741,263,2210.1399,2211.95,10,Hi good good morning.
4479741,264,2212.1599,2224.46,10,So I'll take the first one on animal health and then pass it to Lisa on the pricing for health and nutrition that was more related to uh to a one off uh situation that she cane explain.
4479741,265,2224.8601,2226.6599,10,But good good questions.
4479741,266,2226.6599,2227.4199,10,Thank you for that.
4479741,267,2227.6499,2233.4399,10,So you know we have seen pretty strong development in dairy farming.
4479741,268,2233.9099,2248.51,10,So we have not seen that impact our business in cattle and particularly in dairy farming for animal has been strong and I think it is driven basically by uh uh the innovation and the products we have put out.
4479741,269,2248.77,2254.0698,10,Particularly you know uh uh in in in our probiotics solutions.
4479741,270,2254.72,2258.4402,10,I I think on Asian swine fever there you are right.
4479741,271,2258.4399,2276.7,10,You know animal um animal health had a very strong quarter in the q one last year as the population of swine in China was you know growing again under better health conditions where our probiotics have played a role.
4479741,272,2276.96,2287.51,10,And and now face a larger comparable to that with uh uh definitely an effect of the um African swine fever.
4479741,273,2287.8401,2291.6799,10,Um Lisa on to you on the pricing question on health and nutrition.
4479741,274,2293.0601,2300.97,11,Yes Heidi it is related to the agreement we have on plant health with our with our partner F M C.
4479741,275,2301.6499,2307.1899,11,Uh it's just a consequence out of the regular kind of settlements that we make with them.
4479741,276,2307.29,2311.0198,11,Um an agreement um in regards to how we recognize the revenues.
4479741,277,2311.8501,2314.23,11,So it's a one off uh for this quarter.
4479741,278,2316.99,2336.02,10,So I would definitely not read that not read from that uh anything in relation to our pricing ability or pricing pass through for our business uh as Lisa said it is more related to a one off in connection to the uh settlements in plant health with FMC.
4479741,279,2337.8201,2343.52,14,Just just just on my first question um also we see milk production is slowing.
4479741,280,2343.7,2348.1501,14,Um you know cheese has been very strong for you in recent quarters.
4479741,281,2348.6699,2354.28,14,Um could that have an impact in f c n e or um is that not a concern for this year?
4479741,282,2356.4299,2369.8601,10,We don't view that as a concern for this year Heidi but we closely monitor um you know the trends uh uh uh in dairy development both for cheese and for the fermented segment.
4479741,283,2371.4299,2371.8999,14,Thank you.
4479741,284,2373.8799,2374.45,12,Thank you.
4479741,285,2374.48,2378.0098,12,Our next question comes from the line of Alex Sloan at Barclays.
4479741,286,2378.04,2381.1401,12,Please go ahead your line is open.
4479741,287,2381.1399,2382.1799,15,Yeah hi good morning all.
4479741,288,2382.51,2386.1301,15,Congrats on the solid start and two two questions from me.
4479741,289,2386.1299,2391.1599,15,The first one just on uh pricing of the input cost inflation.
4479741,290,2391.1599,2403.4299,15,I guess given the you know the small cost uh percentage and strategic nature of your ingredients it wouldn't be uh you know too much trouble price increases with customers.
4479741,291,2403.95,2419.45,15,But on the other side I wonder you know what is your base case expectations in terms of your customers pricing action to offset inflation and could that uh have any drag on f c n e and market volume growth um for this year.
4479741,292,2419.45,2424.8,15,Are you are you expecting any pockets of slowdown due to this in inflation at all?
4479741,293,2425.29,2431.6099,15,Um and the second question just going back to HMO's and the five HMO uh mix.
4479741,294,2431.6101,2443.8101,15,I wonder I mean it's obviously early days but if you could give uh any color on how that product is actually performing on shelf in in the US where it has been launched.
4479741,295,2444.0801,2455.3398,15,Um and more broadly on HMO's are there any regulatory milestones that we might expect globally uh this year um that we should be looking out for?
4479741,296,2455.3401,2462.1401,15,And any prospect of that five HMO mix you know being launched in further new markets uh over the next twelve months?
4479741,297,2464.3799,2464.5298,15,Thanks.
4479741,298,2464.8899,2467.77,10,Thank you um thank you Alex for your um your questions.
4479741,299,2467.77,2469.8699,10,I'll i will take those two myself.
4479741,300,2469.8999,2474.1299,10,So you know on on your question around pricing.
4479741,301,2474.3501,2499.98,10,Uh yes we have a very strong pricing methodology and in close collaboration with our customers uh all all I would say is like uh the pricing negotiations are advancing as planned and on target and we track those to you know conclusion of the negotiations and uh completion of the uh uh price increases and that is tracking on plan and and on target.
4479741,302,2500.1899,2502.01,10,Uh you know I don't want to mislead you.
4479741,303,2502.01,2516.52,10,I mean pricing negotiations with customers are never easy but I think we have uh a very good positive collaboration with customers on the understanding of the input cost and how then price led into uh into price increases.
4479741,304,2516.8,2528.53,10,But uh uh pleased very pleased on how our organization is managing that and confident that we will deliver on the price increase targets that we have internally.
4479741,305,2529.8,2534.1299,10,On HMO indeed too early too early to tell on sell through.
4479741,306,2534.8999,2538.2,10,i probably um um you follow that market very closely.
4479741,307,2538.2,2542.5901,10,You'll be able to get a better read from the reports from our customers.
4479741,308,2542.77,2570.4399,10,I think what we are very pleased from the um five h m o mix is that everything that we expected on this being a front panel ingredient and positioned as the um let's say important ingredient to make infant formula closer to mother's milk that has been uh uh very clearly communicated in the product launches which I think is positive for the HMO market uh uh overall.
4479741,309,2570.99,2577.8101,10,On regulatory I think the bigger the biggest next step would be the regulatory approval of HMO's in China.
4479741,310,2578.1799,2585.55,10,Um we are working on that but as we have faded we expect that to take place in twenty twenty three-
4479741,311,2585.55,2586.71,10,twenty twenty four.
4479741,312,2589.0801,2589.46,15,Thank you.
4479741,313,2591.6599,2592.1499,12,Thank you.
4479741,314,2592.26,2596.6399,12,Our next question comes from the line of Mathias of Handelsbanken.
4479741,315,2596.6699,2598.3,12,Please go ahead your line is open.
4479741,316,2600.21,2600.6501,17,Good morning.
4479741,317,2600.8799,2601.97,17,Uh two questions please.
4479741,318,2602.25,2611.0701,17,Uh so first coming back to the uh dynamics in the global probiotic supplement market which benefited from the rebound which you mentioned.
4479741,319,2611.0701,2615.5298,17,So obviously consultants expected two percent organic growth for health and nutrition.
4479741,320,2615.53,2618.47,17,In the quarter you come up strong as thought ten percent.
4479741,321,2618.5901,2627.3901,17,You talk about volatility to remain but you also said if I heard you correct that momentum from human health into q two remains strong.
4479741,322,2627.78,2632.9399,17,So so what of this ability do you have and maybe help me frame what volatility here means.
4479741,323,2632.9399,2637.3999,17,For example can we rule out another negative quarter as we saw in q four last year?
4479741,324,2637.6799,2639.8599,17,You have to put volatility into perspective.
4479741,325,2640.6001,2647.78,17,And then secondly if you can shed some light of historical growth rate for the lighthouses you have to put a thirty five percent growth rate into context.
4479741,326,2647.78,2654.74,17,You talked about that not being representative for the full year but inaudible seen as a specific number for this.
4479741,327,2654.74,2657.5198,17,So maybe help me understand how strong that number is.
4479741,328,2658.45,2658.7302,17,Thank you.
4479741,329,2660.6599,2662.6199,10,Absolutely thank you Mathias.
4479741,330,2662.8301,2669.24,10,So um you know health and nutrition uh indeed we had we had a strong quarter.
4479741,331,2669.51,2672.51,10,We see good momentum going into the second quarter.
4479741,332,2672.79,2688.1802,10,But when we talk about volatility it's usually because it's a more concentrated business and the way that orders fall into one quarter or another can sometimes make a quarter you know stronger or weaker.
4479741,333,2688.4099,2693.29,10,I would not I would not mention specifically could you you know see a negative quarter.
4479741,334,2693.55,2701.6001,10,I think the benefit that we have now that the acquisitions are integrated into our organic growth.
4479741,335,2702.22,2723.9399,10,If we definitely have a much better balance in our total portfolio of um you know end markets um portfolio strengths end channels but you would still see uh more volatility in health and nutrition as compared to food cultures uh en enzymes.
4479741,336,2728.1001,2729.6699,11,Maybe maybe adding to it.
4479741,337,2729.6699,2743.1501,11,Uh uh it's also important again to highlight that the very strong situation we were able to deliver on supply in q one uh was also part of the success formula so to say of human health.
4479741,338,2743.73,2754.5898,11,And when we look back at it in q four one of the things we were caught by was a raw material shortage so that we actually kind of left the business on the table that we couldn't execute on.
4479741,339,2754.5901,2756.55,11,And that's a part of our upside now.
4479741,340,2757.0801,2761.3298,11,So we do have a dependency on our ability to supply.
4479741,341,2762.3701,2765.49,11,During COVID in general we have been quite successful.
4479741,342,2766.26,2770.29,11,But also we are not immune uh in the world we are operating in.
4479741,343,2770.6899,2780.6301,11,And I think that's also talking a little bit to the uncertainty uh that we are looking into for the rest of the year but we are not having any concrete pointers.
4479741,344,2780.6299,2783.5601,11,It's just that this is in the environment we are operating in.
4479741,345,2788.8701,2794.23,10,Just remind me uh uh Mathias was there a second part to your question that we haven't addressed?
4479741,346,2794.46,2795.03,10,Uh sorry.
4479741,347,2800.45,2801.3201,10,Oh the lighthouse question.
4479741,348,2802.0601,2813.3801,10,So you know what we have always shared is that the lighthouses um have a potential to reach in a a hundred million and when will grow faster than the core business.
4479741,349,2813.6299,2819.6599,10,So that you know if if you gotta make if you wanna make an assumption on the lighthouses.
4479741,350,2819.6599,2825.74,10,I always talk about the lighthouses being double digit growth rate initiatives for us.
4479741,351,2826.0901,2829.8999,10,And if you see um you know for example bio protection.
4479741,352,2830.1499,2835.98,10,Bio protection is something that has consistently been growing above ten percent.
4479741,353,2836.3501,2844.9001,10,Um I dunno that I would go and you know qualify a specific quarter on um um on the lighthouses.
4479741,354,2845.1201,2847.8999,10,Because these are very still very small businesses.
4479741,355,2848.1699,2853.3799,10,So uh you know percentage on a quarterly basis can be um can be misleading.
4479741,356,2853.6499,2861.2402,10,But we are you know focused on delivering double digit growth for our lighthouses year over year.
4479741,357,2863.1201,2863.71,17,That's very clear.
4479741,358,2863.8601,2864.1599,17,Thank you.
4479741,359,2866.99,2872.23,10,Thank you our next question comes from the line of inaudible of Bank of America.
4479741,360,2872.3,2873.9302,10,Please go ahead your line is open.
4479741,361,2874.6799,2875.8901,18,Yeah morning everyone.
4479741,362,2875.8899,2877.3599,18,Thanks for my question.
4479741,363,2877.3601,2880.4199,18,So just a clarification on on my side if you can.
4479741,364,2880.71,2883.52,18,You you've mentioned benefits from timing of orders in in.
4479741,365,2887.0601,2894.27,19,So if you can clarify if there is any unwind here to be expected in q two or if it was just no repeatable benefits in q one?
4479741,366,2894.5801,2901.1899,19,So plant health and HMOs as I understand human health is is just a one-time benefit there.
4479741,367,2901.5701,2907.9199,19,Uh and Lisa if you can give us an indication on the performance of bioprotection in the quarter it would be great.
4479741,368,2908.5,2908.79,19,Thanks.
4479741,369,2911.96,2922.51,20,I will uh take the one on uh on bioprotection and uh pass it on to um uh Lisa to comment on the one-offs uh uh timing of orders.
4479741,370,2922.75,2950.4402,20,Um so so bioprotection grew around fifteen percent in in the first quarter uh which is uh which is only uh I would uh remind you that even though we launched in spring the uh Generation Tree we are working in projects with customers and we should not expect a larger contribution for the first generation for the third generation of bioprotection before our second half uh of the year.
4479741,371,2952.6499,2952.9199,21,Yes.
4479741,372,2952.9199,2964.8599,21,And and and building on your first question Miru um you know if we look at what was the one-offs in in uh in in in human health in q one that will impact the rest of the year as we said.
4479741,373,2965.3501,2973.3701,21,Plant health was definitely uh a one-off in q one uh and we expect to see uh a negative side of that in q two.
4479741,374,2974.45,2985.8401,21,For HMO uh there was some order timing benefiting in q one which will just level out over the year but ending the full year the the twenty plus percent uh that we talked to.
4479741,375,2986.5801,3002.97,21,Uh and apart from that I would say from from the rest of the rebound of human he of human health uh it was a lot of uh new business uh opportunities that uh materialized and where we don't uh anticipate uh the negative side of it uh the rest of the year.
4479741,376,3004.04,3004.9302,19,Understood thanks.
4479741,377,3004.9299,3006.21,19,And and just following up on this.
4479741,378,3006.21,3015.8701,19,So on on the plant health i I think you mentioned overall the one-offs were one third of the performance in uh in uh health and nutrition.
4479741,379,3016.21,3019.9299,19,How much of that one third was the one-off in plant in plant health?
4479741,380,3020.22,3023.1499,21,Uh it's it's not big it it is it's not big.
4479741,381,3023.1499,3031.1802,21,And then I also think when you think about one-offs also think about into that we also include the benefit we have from from q q four uh right?
4479741,382,3031.8401,3036.6299,21,So um it's not uh the largest plant health.
4479741,383,3036.73,3037.8801,19,Oh okay.
4479741,384,3038.1699,3038.4602,19,Thank you.
4479741,385,3040.3899,3040.8699,22,Thank you.
4479741,386,3040.96,3044.7798,22,Our next question comes from the line of Charles Eden at UBS.
4479741,387,3044.78,3046.2,22,Please go ahead your line is open.
4479741,388,3047.9199,3050.6101,23,Hi good good morning uh Misha and good morning Lisa.
4479741,389,3088.75,3089.01,23,Thank you.
4479741,390,3091.27,3095.0698,20,Thank you Charles for the um uh for the group uh questions.
4479741,391,3095.0701,3105.47,20,So on um on China China had a had a solid growth against uh uh uh low comparable uh from from last year.
4479741,392,3105.47,3106.1499,20,I uh…
4479741,393,3106.1499,3115.4502,20,And and and that was mainly because you know uh q one of last year for s c n e was particularly uh soft.
4479741,394,3115.78,3146.6301,20,So so um uh i i I wouldn't read um much more into that from China but I do believe uh uh our feeling is consistent with what we communicated in q four saying that um we expect China to be uh you know flat to slightly positive for us for the year despite the continued uh uh negative development of the fermented category in um in China.
4479741,395,3146.97,3162.22,20,Um I will I will pass it on to Lisa to comment on on margin but just to clarify my comment I said when we passed uh prices with inaudible p price uh uh uh passed on prices to make sure that we protect our profitability.
4479741,396,3164.47,3174.3,21,So if if if we think about the pricing impact and and looking at our financials for this year I think it's important to also call out that our price increases does come with some delay.
4479741,397,3175.72,3187.3301,21,The ambition is that uh we can increase the prices to offset uh not only just the cost but also uh the margin impact but it will come with some delay this year.
4479741,398,3188.6499,3190.22,21,And what do we base this on?
4479741,399,3190.22,3196.1802,21,We base this on that this is what we have usually done and we are in a very good collaboration with the customers on it.
4479741,400,3200.1399,3200.7002,23,Okay thank you.
4479741,401,3214.0,3219.0798,21,Well it it of course depends on whether we know the full magnitude of the headwinds at this point in time.
4479741,402,3219.0801,3220.8799,21,It is very unprecedented times.
4479741,403,3221.0701,3234.3301,21,Um so i i I think you know uh the overall conclusion is that what we are doing here is back into our EBIT guidance for the year uh which is uh a landing corridor between twenty seven and twenty eight percent.
4479741,404,3235.1799,3235.6199,21,Um.
4479741,405,3237.1299,3245.8298,20,And we see around the quarter delay between you know our uh uh inflation cost input and our negotiations with customers.
4479741,406,3254.3701,3263.5999,20,As inflation development continues to be more um uh fluid at this year we may have several negotiations of pricing uh with customers.
4479741,407,3265.6399,3266.0698,23,Understood.
4479741,408,3269.54,3274.1201,22,Our next question comes from the line of Andre Tauman of Danske Bank.
4479741,409,3274.1799,3275.5498,22,Please go ahead your line is open.
4479741,410,3277.25,3280.2,24,Yeah hello uh both of you and thanks a lot for taking my question.
4479741,411,3316.6699,3317.1499,20,Yes.
4479741,412,3317.2,3321.8499,20,Uh so um let let me start with the uh with human health.
4479741,413,3321.8799,3326.0701,20,Uh Andre not not much more that I can add to what we said.
4479741,414,3326.0701,3339.0,20,I mean the strong performance in human health was really driven by the reopening of the uh traditional sales uh channel in North America and Europe.
4479741,415,3339.03,3357.0898,20,Uh we are benefiting from our strength inaudible solution uh uh strategy and the broader portfolio that we have in uh human health where we are now uh able to commercialize uh uh across the combined units.
4479741,416,3357.3201,3369.4199,20,Uh inaudible legacy are highly documented probiotics and the addition of the uh strength from both um h s o and uh UAS labs.
4479741,417,3395.8201,3405.49,20,And and that combination puts us also in a strong position with human health into uh the second quarter of inaudible.
4479741,418,3405.49,3409.96,20,Um in SCNE um uh you know the…
4479741,419,3409.96,3416.23,20,it it was mainly volume driven and uh uh mainly volume driven and mainly in the inaudible market.
4479741,420,3416.23,3438.2,20,So very strong performance of pros of uh projects uh in Europe where by the way we were able to be more present with customers and uh the chief market in North America partly driven by you know uh uh a larger presence in in food service as well but where we see some chief types like mozzarella continue to perform very strongly.
4479741,421,3450.3999,3455.1799,22,There is only one further question in the queue that's from the line of uh Sarinon Samsa at s u b.
4479741,422,3455.21,3456.75,22,Please go ahead your line is open.
4479741,423,3482.49,3486.25,25,Maybe you can elaborate a little bit more on what we should experience in the long term.
4479741,424,3510.5701,3537.1299,20,So Sarinon on uh animal health animal health basically saved a uh difficult comparable and the only thing uh that we uh I mentioned as well was that in swine particularly uh we had a high comparable from q one last year because of the strong momentum of rebuilding the uh swine uh um uh population in China versus now a little bit of return of uh African swine fever.
4479741,425,3537.3701,3544.3899,20,But I think you could expect a normal momentum from animal health uh um you know going into q two.
4479741,426,3544.5901,3551.6599,20,And and we have seen a strong performance on animal health throughout the last um uh uh uh couple of years.
4479741,427,3551.9099,3559.8401,20,So I'm very pleased with the um you know how the team has turned the innovation into market execution and commercialization.
4479741,428,3560.21,3575.9299,20,On on the lighthouses uh uh Sarinon uh in in our capital market toady we basically provided what we view as the potential of those uh lighthouses and then left it open to what our inaudible uh would be.
4479741,429,3576.1699,3593.8301,20,And and I think that is a much better way to um you know present these that are really business development opportunities where we leverage microbial and fermentation technologies that we know very well into new commercial spaces.
4479741,430,3594.1101,3599.6499,20,So uh it is business building it's bus business building from a very uh slow…
4479741,431,3599.6499,3602.0398,20,low base and and…
4479741,432,3602.26,3606.77,20,but w areas where we see a large opportunity and we're very excited about.
4479741,433,3607.0801,3625.0601,20,So you know uh i I would repeat what I just said that the best way to think about out lighthouses is businesses that will grow faster than our uh core business and where we can expect you know double digit uh growth rates uh um uh year year-on-year.
4479741,434,3625.3501,3639.78,20,For sure you may have quarters that are higher or or lower but I hope that you know provides some uh some perspective otherwise you know we'll be able to um uh uh elaborate on this uh further as we uh uh talk going forward.
4479741,435,3642.24,3642.49,25,Okay.
4479741,436,3642.6899,3646.03,25,Thank you for that.
4479741,437,3646.76,3647.1201,20,Thank you.
4479741,438,3647.1201,3651.8601,20,So with that uh this concludes today uh conference call and q and a session.
4479741,439,3651.8899,3658.05,20,Thank you for joining and uh we look forward to continue our dialogue during the or upcoming virtual roadshows.
4479741,440,3658.3401,3659.0701,20,Uh thank you all.
4479944,0,58.61,64.95,1,You all know about the activity indicators faring better in q three like the P M I G S T collections e-waybills etc.
4479944,1,64.95,65.38,1,etc.
4479944,2,65.71,70.88,1,but also up to date about the c p i or R B I policy rate stance and the liquidity conditions.
4479944,3,71.31,75.04,1,Now in that backdrop the equity capital market was robust in the quarter.
4479944,4,81.4,87.26,1,Indian bond market also saw a total fundraise of approximately INR one point eight seven lakh crores in the quarter.
4479944,5,97.71,107.38,1,One the bank's balance sheet continues to get stronger for instance the capital adequacy ratio is at nineteen point five percent cet one at seventeen point one percent.
4479944,6,107.79,112.0,1,Liquidity is strong as reflected in our average L C R for the quarter at one twenty three percent.
4479944,7,112.62,114.05,1,Balance sheet remains resilient.
4479944,8,114.24,123.32,1,The G N P ratio is at one point two six percent floating and contingent provisions aggregating to INR ten thousand one hundred crores has been de-risking the balance sheet and positioning for growth.
4479944,9,124.41,128.54,1,Two investments in key enablers are picking up in executing our strategy.
4479944,10,128.94,133.97,1,We opened ninety three branches in the quarter a hundred and seventy one branches year-to-date nine months period.
4479944,11,134.38,142.8,1,To give additional context we have added five hundred and twenty five branches over the past two one months that is during the COVID period positioning us for capitalizing the opportunity.
4479944,12,143.17,149.56,1,We onboarded little more than five thousand people in the quarter fourteen thousand three hundred plus people during the nine months period.
4479944,13,150.0,158.78,1,We have onboarded about seventeen thousand four hundred people over the past twenty one months during the COVID period to get the people ahead on the productivity curve as the economy accelerates further.
4479944,14,159.55,161.43,1,There is a growing impetus on digital.
4479944,15,161.69,168.33,1,We have taken the steps necessary to ensure our customers have great and consistent experience in whatever channel they choose to bank with us.
4479944,16,168.82,177.17,1,Key initiatives like a streamlined modern customer experience hub allowing access to content across channels and devices will be introduced soon.
4479944,17,177.54,183.56,1,We are also committed to continuously enhancing the digital experience for our customers through a fully revamped payment offering.
4479944,18,184.08,191.93,1,We have taken multiple steps to ensure robust scalable and secured technology setup to strengthen even further.
4479944,19,192.14,207.03,1,Some key initiatives include capacity for u p i has been tripled net banking and mobile banking capacity has been doubled to manage ninety thousand users concurrently a significant step as most of our customers now rely on digital channels for banking needs.
4479944,20,207.47,211.64,1,The bank has migrated <inaudible> four data centers in Bangalore and Mumbai to state-of-the-art facilities.
4479944,21,211.94,219.41,1,The bank is moving to the next level of disaster recovery with DR automation and implementation of hot DR active <inaudible> asset setup for key application.
4479944,22,219.85,225.57,1,Significant upgrades and network and security infrastructure to support our exponential growth in digital transactions.
4479944,23,227.74,242.68,1,Our digital capability is coupled with rich data on customers' behavior take for instance the traditional retail product wherein close to eighty percent new loans go through digital scorecards or automated underwriting.
4479944,24,243.1,251.76,1,In q three we received a total of two hundred and forty five million visits on our website averaging thirty one million unique customers per month.
4479944,25,252.17,264.12,1,As per our analysis we had thirty percent to 70% more visits on our website with vis-a-vis public-private sector sales close to 60% of the visits were through mobile device indicating the mobile simplicity of the footfalls.
4479944,26,264.63,273.36,1,Three on customers acquiring new liability relationship with setting new high preparing for broad basing and deepening relationship in times to come.
4479944,27,273.81,285.9,1,During the quarter we opened about two point four million new liability relationships six point four million new liability relationships during the nine months period of this financial year exhibiting a growth of twenty nine percent over the same period last year.
4479944,28,286.52,290.12,1,Four our market leadership in digitizing the economy is setting new high.
4479944,29,290.61,295.97,1,In q three we achieved the highest ever issuance with nine point five lakh card issuances.
4479944,30,296.37,302.54,1,Since late August when we recommenced issuance of new cards we have so far issued thirteen point seven lakh cards.
4479944,31,303.38,309.23,1,Credit cards spends for the bank has grown twenty four percent year on year and debit card spends has grown fourteen percent year on year.
4479944,32,309.66,315.97,1,The spend growth reflects both increased customer engagement and economy improvement from a consumption perspective.
4479944,33,334.62,342.18,1,We have further scaled emerging growth segments such as easy E M I consumer durables targeting our preferred customers through segmented sales and marketing.
4479944,34,342.65,346.73,1,Consumer finance business has one lakh-plus active distribution points.
4479944,35,347.08,350.07,1,We have over five million customers with easy E M I options.
4479944,36,350.5,355.63,1,The bank merchant offering is scaling to provide enhanced value-added services across various segments.
4479944,37,355.9,361.8,1,The bank has two point eight five million acceptance points as of December with a year-on-year growth of thirty five percent.
4479944,38,362.15,371.49,1,The bank's acquiring market share stands at approximately 47% with a 19% share in terminals processing about three hundred million transactions per month.
4479944,39,372.94,379.0,1,Bank has been focusing in SURU locations and investing in training and offering segment-specific solutions.
4479944,40,379.4,383.64,1,Over fifty percent of new merchant sourcing is from SURU locations.
4479944,41,384.09,391.33,1,Five asset volumes are gaining momentum to reach new high driven through relationship management digital offering and breadth of products.
4479944,42,391.74,397.68,1,In the wholesale segment corporates continue to generate strong cash flows across sectors presenting in fair degree of prepayments.
4479944,43,398.02,400.51,1,Trade continued to be an opportunity for credit growth.
4479944,44,400.97,406.59,1,factoring invoice financing export financing import financing are some of the products we participated into growth.
4479944,45,406.91,411.2,1,We are also making progress in M N C segment with our ambition to be the largest player in the space.
4479944,46,411.69,418.5,1,Corporate banking and other wholesale loans grew by seven point five percent over prior year and four point four percent over prior quarter.
4479944,47,418.91,433.58,1,On the retail assets front the momentum pickup observed during q two continued its stride in q three as well witnessing a robust sequential asset growth of four point seven percent and year-on-year growth of thirteen point three percent.
4479944,48,433.97,438.65,1,This has been on the back of a strong incremental disbursals during the quarter.
4479944,49,439.22,442.37,1,Commercial and rural banking businesses saw robust growth this quarter.
4479944,50,442.61,452.48,1,This is seeing a sequential growth of six point one percent and year-on-year growth of twenty nine point four percent reflecting underlying economic activity and continued market share gains.
4479944,51,452.99,455.2,1,Now let's start with net revenues.
4479944,52,488.4,494.06,1,This is also represented in our ratio of net interest income to R W A which is consistent at around six percent.
4479944,53,495.28,504.85,1,Moving on to details of other income which is at INR eight thousand one hundred and eighty four crores was up nine point nine percent versus prior year and up ten point six percent versus prior quarter.
4479944,54,506.2,517.02,1,Fees and commission income constituting about two-thirds of other income was at INR five thousand seventy five crores and grew by two percent compared to the prior year and 2.6% compared to prior quarter.
4479944,55,517.37,522.46,1,Retail constitutes approximately ninety three percent and wholesale constitutes seven percent of fees and commission income.
4479944,56,523.06,538.81,1,Fees excluding payment products grew year-on-year by seventeen percent and fees on the payment products degrew year-on-year due to lower fees on card loan products cash advances over-limit fees reflective of a cautious approach to card-based lending as well as customer preferences.
4479944,57,539.19,550.0,1,However card sales a n r and interchange have come out robustly which positions us for future growth and the customer propensity to use card product for loans and revolver increases.
4479944,58,550.39,555.47,1,In addition during the festive period we offered certain fee waivers to incentivize customer engagement.
4479944,59,556.05,563.94,1,FX and derivatives income at INR nine hundred and forty nine crores was higher by sixty nine percent compared to prior year reflecting pickup in activities and spreads.
4479944,60,564.34,572.54,1,Trading income was INR one thousand forty six crores for the quarter prior year was at INR one thousand one hundred and nine crores and prior quarter was at INR six hundred and seventy six crores.
4479944,61,572.76,575.83,1,Some of the gains from investments were monetized in line with our strategy.
4479944,62,577.53,583.86,1,Other miscellaneous income of INR one thousand one hundred thirteen crores includes recoveries from written-off accounts and dividends from subsidiaries.
4479944,63,584.25,591.83,1,Now moving on to expenses for the quarter at I N R nine thousand eight hundred and fifty one crores an increase of fourteen point nine percent over previous year.
4479944,64,592.23,597.82,1,Year-on-year we added two hundred and ninety four branches bringing the total branches to five thousand seven hundred and seventy nine.
4479944,65,598.26,606.31,1,Since last year we added one thousand six hundred and ninety seven A T M cash deposit and withdrawal machines taking the total to seventeen thousand two hundred thirty eight.
4479944,66,606.7,613.27,1,We have fifteen thousand four hundred thirty six business correspondents managed by common service centers which is higher by about one thousand nine hundred-
4479944,67,613.27,616.55,1,slightly over a thousand nine hundred compared to the same time last year.
4479944,68,617.58,622.72,1,Cost-income ratio for the quarter was at thirty seven percent which is similar to the prior-year level.
4479944,69,623.05,635.7,1,As previously mentioned in technology investments are further stepped up and retail segments pick up further we anticipate the spend levels to increase driven by incremental volumes sales and promotional activities and other discretionary spend.
4479944,70,636.18,639.07,1,Moving onto asset quality.
4479944,71,639.61,649.85,1,g n p a ratio was at 1.26% of gross advances as compared to 1.35% in prior quarter and 1.38% on a pro forma basis in prior year.
4479944,72,658.65,662.94,1,These are included by us in N P A as one of the other facility of the borrowers in N P A.
4479944,73,663.35,667.03,1,Net N P A ratio was at zero point three seven percent of net advances.
4479944,74,668.34,670.21,1,Preceding quarter was at zero point four percent.
4479944,75,670.43,686.72,1,"The annual slippage ratio for the current quarter is at one point six percent about INR 4,600 crores as against 1.8% in prior quarter."
4479944,76,691.72,702.45,1,"Agri seasonally has contributed approximately INR 1,000 crores to slippages or about 25 basis points annualized rate."
4479944,77,705.76,708.9,1,Now looking at check bounce and restructuring and so on.
4479944,78,732.56,741.6,1,The better improvement in bounce and non-resolution rates at aggregate level amongst other things illustrates the overall portfolio quality.
4479944,79,742.29,749.04,1,The restructuring under r b i resolution framework for covid nineteen as of December end stands at a hundred and thirty seven basis points.
4479944,80,750.24,759.29,1,This is at the borrower level and includes approximately twenty eight basis points of other facilities of the same borrowers which are not restructured but included here.
4479944,81,759.85,768.57,1,To give some color on restructured accounts forty percent are secured with good collateral and the predominant good CIBIL score which we feel is comfortable.
4479944,82,769.04,776.33,1,Of the unsecured portion approximately two-thirds are salaried customers and about forty percent have good CIBIL scores more than seven hundred.
4479944,83,776.68,778.88,1,The demand resolution is showing encouraging trends.
4479944,84,779.32,784.64,1,COVID restructuring has been an enabler for our customers to tide over the uncertainty in the last few quarters.
4479944,85,785.15,792.69,1,The initial indicators suggest that most of these customers are now pushing to resume their payments with minimal impact to overall quality of the advances of the bank.
4479944,86,793.26,801.76,1,As mentioned previously impact of restructuring on our g n p a ratio can be ten basis points to 20 basis points at any given quarter.
4479944,87,802.36,804.45,1,We talked about it last quarter and mentioned that.
4479944,88,806.23,815.45,1,The core-specific loan loss provisions for the quarter were INR one thousand eight hundred and twenty one crores as against INR two thousand two hundred and eighty six crores during the prior quarter.
4479944,89,815.9,823.21,1,Total provisions reported were INR two thousand nine hundred ninety four crores against INR three thousand nine hundred twenty four crores during the prior quarter.
4479944,90,823.72,829.17,1,Total provisions in the current quarter included additional contingent provisions of approximately INR nine hundred crores.
4479944,91,831.45,834.41,1,The specific provision coverage ratio was at seventy one percent.
4479944,92,834.7,838.35,1,There are no technical write-offs our head office and bank books are fully integrated.
4479944,93,838.89,850.53,1,At the end of current quarter contingent provision toward loans were approximately INR eight thousand six hundred crores the bank's floating provisions remained at INR one thousand four hundred crores and general provisions were at INR six thousand crores.
4479944,94,851.12,857.66,1,Total provisions comprising specific floating contingents and general provisions were a hundred and seventy two percent of gross nonperforming loans.
4479944,95,857.96,860.94,1,This is in addition to security held as collateral in several of the cases.
4479944,96,865.09,884.01,1,The core credit cost ratio that is the specific loan loss ratio is at fifty seven basis points for the quarter against the seventy six basis points for the prior quarter and a hundred and sixteen basis points on a pro forma basis for prior year.
4479944,97,884.4,892.5,1,Recoveries which are recorded as miscellaneous income amount to twenty five basis points of gross advances for the quarter against twenty three basis points in the prior quarter.
4479944,98,893.17,902.03,1,Total annualized credit cost for the quarter was at ninety four basis points which includes impact of contingent provision of approximately thirty basis points.
4479944,99,902.46,907.63,1,Prior year was at one hundred and twenty five basis points prior quarter was at a hundred and thirty basis points.
4479944,100,908.12,913.72,1,Net profit for the quarter at INR ten thousand three hundred forty two crores grew by eighteen point one percent over prior year.
4479944,101,924.3,930.04,1,This is an addition of approximately INR forty thousand crores in the quarter and INR one hundred seventy five thousand crores since prior year.
4479944,102,930.46,936.5099,1,Retail constituted about eighty three percent of total deposits and contributed to the entire deposit growth since last year.
4479944,103,968.72,973.25,1,CASA deposits comprised forty seven percent of total deposits as of December end.
4479944,104,983.62,989.68,1,This is an addition of approximately INR sixty two thousand crores during the quarter and INR one hundred seventy nine thousand crores since prior year.
4479944,105,991.91,998.63,1,Moving on to CAPAD which I covered at the beginning total according to Basel III guidelines total capital adequacy at 19.5%;
4479944,106,1000.97,1002.9,1,Tier one 18.4% CET at 17.1% which I covered previously.
4479944,107,1002.9,1010.28,1,Now getting on to some highlights on HDBFSL this will be on IndAS basis.
4479944,108,1011.6,1019.8701,1,The total loan book as on December thirty one stood at INR fifty thousand four hundred seventy eight crores with a secured loan book comprising 74% of the total loans.
4479944,109,1020.8,1030.1699,1,Conservative underwriting policies on new customer acquisition which was implemented during COVID continues to be in place and will be reviewed in due course based on external environment.
4479944,110,1030.5699,1035.5,1,The investments have picked up in q three growing nine percent quarter-on-quarter and eleven percent year-on-year.
4479944,111,1036.1,1044.53,1,For the quarter HDBFSL's net revenues were INR one thousand nine hundred and eighty two crores a growth of fifteen percent.
4479944,112,1045.0601,1054.6001,1,Provisions and contingencies for the quarter were at INR five hundred and forty crores including INR nine seven crores of management overlays against INR one thousand twenty four crores for prior year.
4479944,113,1055.02,1066.4601,1,Profit after tax for the quarter was INR three hundred and four crores compared to a loss of INR a hundred and forty six crores for the prior-year quarter and a profit after tax of INR a hundred and ninety two crores for the sequential quarter.
4479944,114,1067.15,1072.7201,1,As of December end gross stage three stood at six point zero five percent flat sequential quarter.
4479944,115,1073.24,1080.87,1,eighty percent of the stage three book is secured carrying provision coverage of about forty one percent as of December end and is fully collateralized.
4479944,116,1081.96,1087.2201,1,twenty percent of the stage three book which is unsecured had a provision coverage of eighty four percent.
4479944,117,1101.09,1113.0599,1,With markets opening up and customer accessibility improved to near pre COVID levels we believe the company is well poised for a healthy growth from here and subject to any impact on further waves of COVID.
4479944,118,1114.34,1117.23,1,Now a few words on H S L again on IndAS basis.
4479944,119,1117.864,1131.87,1,H S L H D F C Securities Limited with its wide network presence of two hundred thirteen branches in a hundred forty seven cities and towns in the country has shown an increase of fifty eight percent year-on-year in total revenue to INR five hundred thirty six crores.
4479944,120,1132.73,1138.4401,1,Net profit after tax of INR two fifty eight crores in q three with an increase of fifty eight percent year-on-year.
4479944,121,1138.85,1142.4399,1,HSL's digital account opening journeys are running successfully.
4479944,122,1142.86,1150.25,1,There has been a significant increase in overall client base to three point four million customers as of end December an increase of thirty percent over prior year.
4479944,123,1151.63,1161.25,1,In summary we have reasonably overcome the effects of pandemic over the past twenty one months across broad counters of balance sheet p and l and human capital.
4479944,124,1161.87,1172.23,1,While the effect of the latest COVID wave is not clear which we'll have to watch out over the next few weeks to see where it turns we are confident of navigating through this applying our learnings from past waves.
4479944,125,1172.64,1176.5801,1,Our growth is accelerating leveraging on our people product distribution and technology.
4479944,126,1176.97,1195.1,1,The quarter results reflect deposit growth of fourteen percent advances growth of sixteen percent profit after tax increased by eighteen percent delivering return on asset over two percent earnings per share in the quarter of INR eighteen point seven book value per share increased in the quarter by INR nineteen point four to INR four hundred and fourteen point three.
4479944,127,1196.41,1197.1901,1,Thank you very much.
4479944,128,1197.47,1200.77,1,With that may I request the operator to open up for questions please.
4479944,129,1299.87,1300.98,1,Thanks for asking that.
4479944,130,1301.91,1313.25,1,See we're coming from a COVID cycle where our bookings have been from a retail point of view have been benign.
4479944,131,1314.05,1320.52,1,Second from a wholesale point of view which we have shown very highly rated context right?
4479944,132,1320.52,1324.62,1,So we come through the cycle and now starting to begin to get the retail.
4479944,133,1325.63,1339.51,1,The recent vintages when we look at the recent vintage performance they're far superior both the entry-level scores and the customer profile in terms of how we opened up and started ah they are superior right?
4479944,134,1340.04,1346.27,1,And whether ah this is a new norm ah I would not say that this is a new norm right?
4479944,135,1346.5601,1354.27,1,Ah this is you have to look at credit cost normally over a cycle over period of a few years you have to look through a cycle.
4479944,136,1354.71,1356.36,1,And that's how you need to look at it.
4479944,137,1356.36,1364.85,1,But if you look at our N P A one point two six percent can bounce around at any time ten twenty basis points up and down two quarters ago 1.47% now 1.26%.
4479944,138,1365.76,1369.59,1,So it can go up and down within a small range that's where it can come.
4479944,139,1370.01,1376.35,1,From a credit cost point of view well we have not given a particular outlook as such.
4479944,140,1376.35,1387.91,1,But we have averaged in the past call it 1.2 1.3 thereabout that's the kind of range at which the total cost of credit total provisions that have come up with.
4479944,141,1388.29,1390.11,1,Current quarter is at about ninety five.
4479944,142,1390.11,1393.7,1,So that we call it a little lower than that right?
4479944,143,1393.97,1408.73,1,So in a broad range if you think about one hundred to a hundred and fifty kind of a basis points that's wherein last go back to pre COVID that's the kind of range at which we are operating right?
4479944,144,1408.73,1410.9501,1,And the credit costs are lower.
4479944,145,1411.74,1416.79,1,Then you know the way we look at it is it calls for experimenting a few things.
4479944,146,1417.0699,1419.95,1,It calls for opening up policy.
4479944,147,1419.95,1422.3401,1,So there is a policy reaction that comes in right?
4479944,148,1422.34,1426.9,1,There's always that the pull and pressure between the business and the credits that happen.
4479944,149,1427.4399,1439.92,1,So I wouldn't take that five oh or six zero basis points total credit cost or the specific clauses or the total cost of nine five basis points as a good standard for a long time to come.
4479944,150,1490.27,1500.53,1,We have consistently set the way to think about the fees is somewhere where it should settle mid- to high-teens kind of places where it can settle right normally?
4479944,151,1501.0601,1508.1801,1,And again this quarter if you think about excluding the payment product it is at about seventeen percent.
4479944,152,1508.99,1511.2699,1,Payment products has been unusually low.
4479944,153,1511.55,1514.25,1,There are a few things to think about on the payment products.
4479944,154,1514.63,1521.41,1,One as I alluded to we offered certain fee waivers to incentivize customer engagement right?
4479944,155,1521.41,1529.42,1,So that's one thing which doesn't need to recur every quarter but it can happen every other quarter depending on what programs we run right?
4479944,156,1529.42,1532.49,1,But that's part of running the business and the sort of growing the franchise right?
4479944,157,1533.4399,1535.04,1,So that's one thing to think about.
4479944,158,1535.4301,1550.4,1,Second even from cards point of view from a credit I think I alluded to in terms of how customer behavior from a late payment point of view right is that the customers are paying very much on time.
4479944,159,1550.4,1551.9399,1,So that is reflected there too.
4479944,160,1552.08,1558.48,1,So the opportunity that we used to get from a late payment definitely doesn't come through.
4479944,161,1558.48,1561.5601,1,Customers used to take cash advances that is on the lower end right?
4479944,162,1561.5601,1567.87,1,So the cycle has to turn a little more on that and so we see some cash advances coming through right?
4479944,163,1568.3101,1574.2799,1,And from a policy point of view until recently we were tight on the credit limits right?
4479944,164,1574.28,1582.37,1,So when there is a credit limit over the credit limit there is some fees that will come that was also lower because from a policy point of view we've been cautious on that right?
4479944,165,1582.71,1590.36,1,But as we speak now the policy review has taken place and we are getting to business as usual subject to another wave of what it does and so on right?
4479944,166,1599.34,1604.52,1,So if you think about the customers itself particularly I'm talking about the payment products the cards customers right?
4479944,167,1604.9399,1610.1599,1,The credit line utilization is at a low it is like <inaudible> of the pre-pandemic level.
4479944,168,1611.04,1625.67,1,So while the spend levels are up twenty four percent and the interchange is quite robust and good with a good yield that we get on that but the credit line utilization has got much more to go to get back to the pre-pandemic level.
4479944,169,1625.88,1628.83,1,So that's one thing on the people who are spending.
4479944,170,1628.96,1635.2201,1,So they think they have paid and then if you think about this they're all paying what is happening to the revolver size right?
4479944,171,1635.22,1639.88,1,That is all sort of oh point seven to oh dot eight of the pre- COVID levels in terms of the revolving on cost.
4479944,172,1639.88,1645.4701,1,So there is much more room for people to get into those revolver type.
4479944,173,1646.12,1657.04,1,So that's part of what the strong quality of the book that exists use today right and that is part of what some of the fees that come are also muted which are connected to that.
4479944,174,1657.25,1662.55,1,I'll give you another perspective to think about on the cards business right on the customers liquidity.
4479944,175,1663.6899,1669.9199,1,Deposit balance most of our card customers have liability relationships with us right?
4479944,176,1678.78,1687.23,1,If x is the advance x is the a n r of card which is the card loans on both at an aggregate level.
4479944,177,1687.5601,1692.5199,1,At an aggregate level the liability balances of the card customers were typically four x.
4479944,178,1692.9301,1694.29,1,Right now it's five x.
4479944,179,1694.36,1700.8301,1,So which means customers are sitting in a good amount of deposits and liability balances with that.
4479944,180,1700.83,1704.0901,1,So this is the economy has come down.
4479944,181,1704.09,1709.78,1,Now with the huge amount of liquidity and cash at disposal with people now it is starting to pick up on growth.
4479944,182,1709.89,1714.21,1,And so this is part of the cycle growth that we expect to come back to a reversion right?
4479944,183,1714.21,1722.05,1,So from a long-term point of view mid-teens to high-teens is what we have said in the past but that's what one should expect from a cards use point of view.
4479944,184,1724.04,1724.39,2,Thanks.
4479944,185,1744.8199,1753.86,1,Could be two three four quarters I would expect that I don't want to venture to predict exactly what it's cuz there's no exact times that tell where it is.
4479944,186,1753.86,1759.89,1,But typically that is what you will see that it takes for a maturity model to operate.
4479944,187,1761.7,1769.41,1,And similarly the same thing applies to if you think about the p p o p it is very similar right?
4479944,188,1769.71,1775.5699,1,Whether as the loan growth get back the p p o p should more or less mimic the loan growth.
4479944,189,1775.5699,1780.3201,1,That is what historically that we have shown that is where historically we have performed right?
4479944,190,1780.52,1788.84,1,That is the kind of what the loan growth is the headline that's what most of the lines operate tend to be similar as we go along.
4479944,191,1791.46,1791.61,2,Okay.
4479944,192,1795.3,1795.6001,2,Thanks.
4479944,193,1822.49,1825.17,2,That was helpful.
4479944,194,1826.52,1827.26,1,Thank you.
4479944,195,1867.51,1868.6901,1,So that's something different.
4479944,196,1868.98,1870.35,1,And so it's a good point that you raised right?
4479944,197,1870.35,1882.0199,1,The INR two five oh oh oh what was there is what did you grant as a restructuring in r one and r two when you add up that is what it's.
4479944,198,1882.02,1887.6801,1,And if you eliminate the double count it is like INR two two oh oh oh right?
4479944,199,1887.6801,1890.91,1,This originally as granted in several points in time.
4479944,200,1891.1899,1894.2799,1,That means whenever it was granted at those points in time right?
4479944,201,1894.5699,1895.6101,1,What was the number?
4479944,202,1895.61,1896.8199,1,That is what you see there.
4479944,203,1897.64,1901.9801,1,Last September we reported INR eighteen thousand crores right last September.
4479944,204,1902.38,1922.39,1,And currently we say i n r one point three seven crores that is i n r one seven five oh oh crores or so.
4479944,205,1931.51,1941.4401,1,"But between the INR 22,000 crores to what we reported in September INR 18,000 crores that is a net of whatever happened before September which is between what happened to NPA what happened to various recoveries and adjustment around that time right as we speak in September."
4479944,206,1995.24,1995.5699,3,Okay.
4479944,207,2033.45,2036.9301,1,So whatever was mandated to show in the notes that's what we showed.
4479944,208,2114.05,2123.5398,1,Then on the unsecured portion we said about call it roughly about two-thirds or so are salaried customers where we feel quite comfortable right?
4479944,209,2123.8899,2132.27,1,And then on the balance where we keep watch about 40% or so have good CIBIL score CIBIL score more than 700 or so right?
4479944,210,2132.5,2144.1599,1,So based on various these kind of analysis that's where we said we feel comfortable that ten twenty basis points at any particular point in time that can be within our tolerable range right?
4479944,211,2144.78,2152.8901,1,And from a restructuring point of view generally the restructuring can run up to two years right?
4479944,212,2157.5901,2158.78,3,Is that the number correct now?
4479944,213,2188.73,2192.22,1,No.
4479944,214,2264.6399,2265.28,3,Thank you.
4479944,215,2265.3101,2269.1201,1,A long question but I'll try to be short and crisp as possible.
4479944,216,2270.6799,2293.0801,1,If you think about the loan growth and the market share one thing is that you know our loan growth is consistent right consistently growing including during the COVID period and one has to look at it in not one quarter two quarters but over a longer period of time one has to look at how we are growing rather than the one period.
4479944,217,2293.1101,2296.5698,1,So essentially looking at the consistency of growth over a longer period.
4479944,218,2296.5701,2300.29,1,For example you can take a two-year growth right a longer period.
4479944,219,2300.71,2304.8799,1,And that includes the COVID period too we've grown at thirty five percent right?
4479944,220,2304.8799,2309.23,1,But call it high-teens annual that kind of a growth rate that's why.
4479944,221,2309.23,2321.1702,1,And similarly you can go back for five-year period between two thousand sixteen to twenty one or something like that again about two plus that will be a little more than double call it IP type of growth.
4479944,222,2321.48,2322.5498,1,That's what we had in that time.
4479944,223,2323.2,2330.3701,1,So one has to evaluate in the current circumstances one also has to evaluate based on an incremental basis right what we have grown.
4479944,224,2331.1399,2339.0901,1,We believe based on an incremental basis we have a share of more than twenty five percent or so on an incremental basis right from what has happened.
4479944,225,2339.9299,2347.6699,1,If you think about it INR a hundred seventy nine thousand crores in the past twelve months a INR three hundred twenty five thousand crores in twenty four months right?
4479944,226,2347.6699,2355.53,1,And again we focus on appropriate products we touched upon the categories of commercial and rural or wholesale and retail.
4479944,227,2356.3,2362.6299,1,Yes at some point in time we did grow good amounts of wholesale with a good demand.
4479944,228,2362.6299,2367.25,1,We were there for the customers to support 'em in terms of the wholesale very highly rated.
4479944,229,2367.77,2373.6499,1,And now we see a lot of prepayments happening that's about seven odd percent is what year-on-year we see in the wholesale.
4479944,230,2374.1201,2379.47,1,On the commercial and rural enormous opportunity and very fast growing.
4479944,231,2379.77,2384.5,1,About one-third of the country's GDP is contributed by that kind of a segment right that segment.
4479944,232,2384.78,2392.8499,1,And we want to participate more vehemently in that group in that segment and we will continue to bounce on that one.
4479944,233,2393.28,2403.4099,1,On the retail we were subdued rightfully so from a policy point of view we are back and that is what we are seeing in the sequential growth at four point five percent or so.
4479944,234,2403.5801,2414.8501,1,So net-net I mean coming back to the same summary which is now one quarter or two quarters doesn't establish what the growth is it's about the consistency of growth and over a period of time.
4479944,235,2415.28,2421.05,1,And that's how we must look at it in terms of our growth and we will continue to capture market share.
4479944,236,2486.24,2487.9502,1,But then the paydowns and other things that happened.
4479944,237,2529.6201,2546.05,1,But you know as a bank we don't give one particular outlook or our forecast in terms of how to look at as a credit but all I can point you to historical to say that in the recent COVID time period we operated one point two percent one point three percent kind of thing.
4479944,238,2546.28,2557.8401,1,If you go to a little before the COVID period a hundred to a hundred and twenty basis points somewhere there we operated currently including the COVID the contingent provisions about ninety five basis points.
4479944,239,2558.6001,2568.6201,1,But yes over a period of time again when you look at it we should revert to that kinda what was the pre COVID mean type of a mean reversion should happen towards there right?
4479944,240,2568.6201,2586.04,1,And current quarter is reflective of what we have booked because the recent vintages call it the eighteen months or fifteen eighteen twenty one months type of vintages that we have booked across various segments right across various segments they are of very good quality.
4479944,241,2586.3101,2592.27,1,Retail book is typically two years on an average retail book and it was of a very good quality.
4479944,242,2592.6699,2598.9399,1,And our innovation lab is working on several things including opening up new to bank right?
4479944,243,2598.9399,2608.5601,1,So that means what previously that we had about call it eighty percent of existing to bank personal loan or call it two-thirds to 70% existing to bank card loans.
4479944,244,2608.77,2627.9199,1,So now our innovation lab is making progress toward using alternative data from the market to see how new to bank could be as efficiently scored and passed through the muster on the scoring models together.
4479944,245,2628.3101,2639.6001,1,So yes I wouldn't ask you to project based on the current quarter but if you think about it from a pre COVID non what it's and that's the kind of.
4479944,246,2639.6001,2643.8799,1,So your second aspect of the question on the building of the provisions and so on right?
4479944,247,2644.4199,2649.8999,1,See our buildup of the contingent provisions goes back several quarters and much before the onset of the COVID period right?
4479944,248,2694.3799,2695.75,1,So that's how we should think about.
4479944,249,2696.23,2698.2798,1,We evaluate it quarter to quarter.
4479944,250,2698.28,2702.27,1,There is no preplanned type of how this runs.
4479944,251,2702.7,2729.25,1,We take it as it comes in a quarter and evaluate.
4479944,252,2743.48,2743.8499,4,Got it.
4479944,253,2763.4099,2765.3,1,So that is something that has happened.
4479944,254,2765.8101,2775.0198,1,And the next thing as the spend goes up the credit line utilization needs to go up as I said the credit line utilization due to the spend coming down over a period of the COVID came down.
4479944,255,2775.23,2780.0,1,Now it needs to go up but still credit line utilization is at about point eight of the pre-pandemic level.
4479944,256,2780.3999,2782.0,1,So that should start to go up.
4479944,257,2782.0,2787.9099,1,And then along with that gets to the revolving and so on and so forth everything else that comes right?
4479944,258,2787.9099,2807.0798,1,And from a fee-charging point of view it's various fees the penal type of fees or incentive type of fees or loan origination kinda fees those are routine and will happen moves on as the volumes come up right?
4479944,259,2807.0801,2812.3499,1,Any other type of fees where that can be a regulatory constraint also comes with a cost right?
4479944,260,2812.3501,2817.77,1,So that means you need to think about not just the fees also you need to think about the cost that goes with the fee.
4479944,261,2818.04,2823.53,1,For example there are certain fees that goes out there has to be a certain cost also that goes out right?
4479944,262,2823.8301,2826.6902,1,And what are the type of costs that can go out?
4479944,263,2826.8701,2836.6599,1,You see that there is a balance between what you earn on the fees and what you spend on the expenses call it the rewards call it the cashback call it the sales promotion the marketing promotion.
4479944,264,2837.0601,2842.76,1,They all have some linkages across the p and l right from top to bottom these are the kind of linkages.
4479944,265,2843.1699,2846.96,1,One cannot look at only one isolation as a structural change right?
4479944,266,2846.96,2848.22,1,There's no such structural change.
4479944,267,2848.51,2856.26,1,But if there were to be a structural change one has to look at it across all p and l lines in terms of what is discretionary and what supports what right?
4479944,268,2856.5701,2858.6299,1,And then accordingly one has to model.
4479944,269,2904.95,2916.1001,1,Maybe it is the time i will take two or three minutes or so to describe right how we think about it and you can see whether it fits in with what you're all thinking.
4479944,270,2916.1001,2925.3699,1,In a bank you like to look at things in three different kinda activity call it like that right?
4479944,271,2925.3701,2931.73,1,One is the customer acquisition the second one is customer servicing and third one is the relationship management.
4479944,272,2932.26,2937.01,1,So this is the continuum of how one engages with the customer on WhatsApp.
4479944,273,2937.9099,2945.1299,1,The various Fintechs and the partnerships that we are all talking about is on the front end there on the customer acquisition side right?
4479944,274,2945.1299,2953.8501,1,We have several channels for acquisition branch we have a virtual relationship model we have a feet on street model we have a physical DSA model right?
4479944,275,2954.0901,2959.25,1,And then now we have a digital marketing model developed over the last three years based on analytics.
4479944,276,2959.55,2967.01,1,And now we have a partnership model where call it a fintech partnership or any other type of partnership that we think about that is another model.
4479944,277,2967.6599,2974.1301,1,And we do get I gave you some time ago in terms of regarding two point four million liability relationship.
4479944,278,2974.1299,2980.0,1,That's a key ingredient that comes in based on which every other product starts to work on that right?
4479944,279,2980.6001,2983.0598,1,And so that is the kind of inflow of customers.
4479944,280,2983.3401,2987.3599,1,So you get a little more accelerated customer acquisition.
4479944,281,2987.4399,3005.1399,1,At the end of the day you measure the effectiveness of that through the better cost of acquisition which is the optimal cost of acquisition that's where it gravitates to if a branch brings in accounts brings in relationships at a cost that is much better than the fintech or better than a partnership that is where things gravitate to right?
4479944,282,3028.3,3038.3699,1,That's where you measure that to a cost to income whether are you at an optimum level in a cost to income where you're able to support the customers activity in an optimum manner.
4479944,283,3038.73,3042.96,1,So that you measure through how we are executing on that aspect of it right?
4479944,284,3044.1101,3060.1802,1,Now on the relationship management which is where the most of the money right which somewhere in the past we have done we said last year I think we mentioned it call it about a third less than a third little less than thirty percent of our customers provide little more than two-thirds of value to the bank right?
4479944,285,3060.1799,3064.9399,1,And 30% of the customers are the ones where we have a relationship management.
4479944,286,3065.46,3078.04,1,So at the end of the day you can bring in any customers through any channel optimum cost of acquisition you service them through physical approach through any way at the end of the day the value it comes to relationship management right?
4479944,287,3085.26,3088.1799,1,Now there are certain things in relationship management.
4479944,288,3088.48,3125.6699,1,For example in the relationship management we implemented we've talked about over the last twelve months actually during the c o v i d period the analytics-based engagement with the customer the next best action that we implemented right in terms of how it rank orders customer preferences based on products behavior and intent to purchase and that the recommendations that come we have for twenty million customers we have recommendations that we have an engagement with again it is digitally driven proprietary driven internally through analytics technology helps there but the delivery is through relationship management.
4479944,289,3125.6699,3133.6699,1,So this is it can't be delivered through a mobile banking or an Internet banking or a fintech partnership or any other partnership can't be delivered right?
4479944,290,3133.8201,3138.47,1,It gets delivered through because that's where the value comes through a relationship approach right?
4479944,291,3138.47,3142.0798,1,So that is something that the capability is coming from there.
4479944,292,3142.47,3147.27,1,So that's probably I'll leave it there I've taken a minute or two more than what I've said i'll do.
4479944,293,3255.3999,3260.1499,1,So it comes with higher risk rating on those right as that comes there.
4479944,294,3261.1101,3267.8201,1,We brought that down and it's in mid forties and it is starting to take its own legs and start to grow right?
4479944,295,3268.03,3274.3101,1,So one is that it needs to take its time to grow back to what it was call it two years ago right?
4479944,296,3274.4199,3275.46,1,So that's the journey.
4479944,297,3275.6799,3284.24,1,And the journey if you look at the sequential that you have seen about 4.5% call it 18% or so with the growth on the retail portfolio right?
4479944,298,3284.24,3297.77,1,And the next part of that could also be on the retail front itself the mix of the retail front right whether in the current rate scenario what sort of loans that yield right it also depends on the segment in which we operate.
4479944,299,3298.47,3301.47,1,In the recent past we have had a good growth in retail.
4479944,300,3301.47,3302.8401,1,This quarter four point five percent.
4479944,301,3302.8401,3304.5999,1,Last quarter also it was four something right?
4479944,302,3304.8501,3308.4102,1,So it's going to take a few quarters for that to come back to life.
4479944,303,3308.72,3319.6702,1,But within that as we came out of COVID and starting to focus on this we have five categorization for the corporate salaries segment which where many of our high-yield products are targeted to right?
4479944,304,3320.3,3322.47,1,Category A B C D E right?
4479944,305,3359.4099,3362.96,1,So that is something also we are focused and continuing to focus on that also.
4479944,306,3363.3,3374.5598,1,So at the end of the day it'll take a few quarters for the mix of retail and within the mix of retail to be much more broad-based across all the segments within the retail that we are talking about to come up.
4479944,307,3374.5601,3378.5698,1,So that is one aspect of what we can think about the NIM coming up.
4479944,308,3379.0601,3382.72,1,The other aspect of the NIM is also about the rates itself right?
4479944,309,3383.54,3399.27,1,If you think about the REPO rate loans linked to REPO rate slightly under a third right now right about thirty one thirty two slightly under one-third of our loan book is linked to REPO rate and about little mid-single-digit or so is linked to T-bills right?
4479944,310,3399.6599,3407.6301,1,And so which is if you go back two to three years ago when we were in the mid to high end of that NIM range the components-
4479944,311,3408.01,3412.6602,1,that means the composition of these two they were very meagre right?
4479944,312,3412.6599,3413.53,1,We're very low.
4479944,313,3413.8899,3416.98,1,I wouldn't call it single digit but very low it was.
4479944,314,3417.1699,3422.1799,1,So it has moved up and now the rate starts to move up that is going to give something.
4479944,315,3422.51,3426.6902,1,And of course the cost of as the rate starts to move up that will have an impact on the cost of funds too.
4479944,316,3426.8701,3428.8801,1,But the cost of funds can come with a lag.
4479944,317,3428.8799,3435.74,1,I'm saving deposits not necessarily on the time deposits it can come with a lag right?
4479944,318,3435.9199,3444.6799,1,So that's the kind of way you think about it saying one is the rate environment and another is the mix of retail that can come and bring in that.
4479944,319,3446.49,3446.9399,5,Got it Srini.
4479944,320,3470.55,3475.0,1,And when you make those continuous investments then that is where you get to the long term.
4479944,321,3475.0,3478.3799,1,So in a static book what you say is right right?
4479944,322,3478.3799,3481.75,1,If you look at it in the short term say don't make any other change.
4479944,323,3482.01,3492.53,1,Just allow these two changes change the mix from the loans and change the segment to be between retail get a higher-yield segment and should that be yes it will be.
4479944,324,3492.8201,3496.6699,1,But you know that it is not a unidimensional model right?
4479944,325,3496.6699,3500.2302,1,It should be a dynamic model where you invest for the future.
4479944,326,3510.9199,3513.3499,1,You will see the return on it in a couple of years' time right?
4479944,327,3513.3501,3522.3198,1,Because the branch maturity model takes anywhere from two years to three years to be in a reasonable state and between five years to ten years to get to be a robust state right?
4479944,328,3522.6101,3523.8499,1,There is people productivity.
4479944,329,3524.3401,3527.3,1,And so we need to make those continuous investments on those.
4479944,330,3537.0601,3541.9099,1,That's how historically we've been cuz continuously we have added branches.
4479944,331,3541.9099,3547.6301,1,So if you think about in the last five to ten years we've added two thousand six hundred branches in the last five years to ten years.
4479944,332,3548.04,3552.8101,1,In the last one years to three years we've added a thousand one hundred branches right?
4479944,333,3553.29,3561.0901,1,And so that these are the kind of investments continuously we do to model so that it's dynamically maintained for a longer term to come.
4479944,334,3562.71,3564.2002,5,Got it.
4479944,335,3573.3401,3573.9102,6,Yeah hi.
4479944,336,3575.6201,3585.3501,6,Srini I have a question on these on the fees for the payments products in the sense that are you seeing pressure on interchange fees are the MDR levels coming down?
4479944,337,3585.6499,3590.1401,6,So the reason why I'm asking this question is that as of course you can just tell us what has been the experience?
4479944,338,3590.4399,3597.5601,6,And secondly from a from the new digital payments paper I know it's always difficult to second guess what the regulator is thinking.
4479944,339,3597.8899,3604.21,6,But you really think there can be further reduction with respect to MDRs and debit cards?
4479944,340,3604.21,3606.48,6,Can there be something on credit cards?
4479944,341,3607.01,3608.55,6,Can u p i be monetizable?
4479944,342,3608.5801,3612.76,6,I'm just asking all these questions because everything has got to do with the payment-related fees.
4479944,343,3612.76,3619.3999,6,So if the regulator is thinking only in one direction as to bring down the transaction cost then this is not gonna be one-quarter phenomenon.
4479944,344,3619.3999,3621.8398,6,You're going to be prepared for subsequent several quarters.
4479944,345,3621.8401,3625.5398,6,How is the management thinking about taking care of some of the regulatory challenges here?
4479944,346,3625.8101,3626.5601,6,Thanks so much Srini.
4479944,347,3627.54,3633.8799,1,Thank you Suresh and it's indeed important to address it and think about and say about what we think right?
4479944,348,3636.97,3642.6501,1,One is we experience itself in terms of what we see on the interchange or the MDR.
4479944,349,3645.72,3650.9299,1,There has been no pressure on interchange or MDR from a rate point of view right?
4479944,350,3650.9299,3653.26,1,It has been quite steady and quite nice.
4479944,351,3653.29,3661.6799,1,So that is something from our recent experience that has not been inhibiting our kind of a fee line.
4479944,352,3661.6799,3663.2898,1,The rate is quite all right.
4479944,353,3665.29,3669.6301,1,Now when the MDRs we will address that cause it is easy to address we'll come to interchange.
4479944,354,3670.99,3677.8701,1,See MDR we don't make on a net basis we don't make much we don't make anything on MDR for that matter.
4479944,355,3677.9099,3689.8901,1,That means if it's an internal customer that means we have an issuing card where m d r business stays interchanged to the issuing card right?
4479944,356,3689.9199,3699.29,1,So and if it is a third-party card <inaudible> card our MDR business case interchanged through a third-party issuer.
4479944,357,3724.51,3737.8301,1,We still have to do a lot to grow there but that's part of that strategy so that MDR as such there is nothing to take it away on MDR because it is nothing there to take it away.
4479944,358,3738.51,3739.0698,1,So that's one.
4479944,359,3741.03,3756.3699,1,If there is any other pressure on interchange Suresh I have alluded to little earlier in some other context of the question which is interchange in isolation for us it should not be looked at.
4479944,360,3756.4299,3768.8,1,Interchange should be looked at in the context of what is the rewards that is offered on the card right what are the rewards cost of the reward funds cost of the cashback funds cashback cost which is there.
4479944,361,3769.2,3772.8301,1,Cost of the sales and promotion marketing type of costs that are there right?
4479944,362,3773.0701,3780.01,1,So these when you draw a p and l only on the sales so that means keep the revolver to the side.
4479944,363,3780.3701,3791.22,1,keep those people who do the cash advances and who do the limit enhancement or spend more than the limits and habitually pay late keep them to the side right?
4479944,364,3792.76,3800.6899,1,And so pure transactors if you see and you draw a p and l on the transactors it's like that MDR sandwich strategy.
4479944,365,3809.1499,3826.74,1,So if they interchange for any reason right which you can't predict for any reason that has to move up or down then you get the other levers on the p and l gets operated right which is when you look at rewards when you look at your cashback then you look at your marketing and sales promotion.
4479944,366,3853.7,3865.23,1,And if you do have nothing more that we could help you from your understanding Ajit Shetty in our investor relations will be available to talk at some point of time in the future.
4479944,367,3865.78,3866.9902,1,Please stay in touch with us.
4479944,368,3867.04,3867.4299,1,Thank you.
4480850,0,1.31,6.76,0,Welcome to Investors annual accounts twenty twenty one presentation.
4480850,1,7.21,19.66,0,we are glad that you're joining us here today and you can join us uh over the phone or uh over uh over the web on our web uh site investor ab dot com.
4480850,2,20.19,28.61,0,We will soon hear our C E O uh Johan Forssell and C F O uh Helena Saxon present the annual accounts.
4480850,3,28.86,32.11,0,And after that we will have a q and a session.
4480850,4,32.35,39.42,0,Uh and you can pose your questions then over the phone as usual or also in the chat on the vet.
4480850,5,39.74,42.88,0,Warm welcome and by that I hand over to you Johan.
4480850,6,43.21,48.46,1,Thank you Viveka and uh welcome to this uh quarterly uh result presentation.
4480850,7,50.1,65.58,1,So if we start on the first page uh I think we despite all the challenges that we had during the past year we did in fact see uh gradual improvement of the global economy uh during the year.
4480850,8,65.86,76.05,1,And of course that in combination with the low interest rate environment also supported the stock market and the strong equity market of course benefited Investor.
4480850,9,76.22,83.32,1,But even adjusting for that I think it is fair to say that twenty twenty one was a very strong year for Investor.
4480850,10,86.33,93.61,1,Uh during the year our net asset value grew by more than forty percent and I was told to share the return was up fifty five percent.
4480850,11,93.61,98.12,1,And that can be compared with the stock market in Sweden being up thirty nine percent.
4480850,12,99.0,115.53,1,And if we look on the corresponding figure uh for the fourth quarter our net asset value was up twelve percent uh and uh our total share return was up twenty one percent and that can be compared with the stock market being up twelve percent.
4480850,13,117.47,125.44,1,Importantly I think that all overall that our companies are uh delivering good operational performance.
4480850,14,125.97,133.64,1,Uh they have been able to really manage the challenges out there not least the pandemic and the supply chain related challenges.
4480850,15,134.69,146.29,1,Uh on the listed companies a number of the companies have made important strategic uh uh acquisitions and investments during the year uh within Patricia.
4480850,16,146.49,152.11,1,A number of the companies have made sizeable add-on acquisition and I will come back to that later on.
4480850,17,153.58,163.47,1,Uh the investment in e q t developed strongly during the year and was up more than a hundred percent and the cash flow at four point eight billion was the second best in in the history.
4480850,18,182.76,198.16,1,Due to the strong uh performance during the year and also the strong financial position that we have uh with the leverage of less than two percent uh the board decided to increase the dividend per share from three point five oh to four Krona which is an increase of fourteen percent.
4480850,19,200.53,212.37,1,So a few words about the listed companies uh the total share of the return was up forty four percent in twenty one and it was up eleven percent in the fourth quarter.
4480850,20,213.21,225.31,1,The priorities the areas for these companies are sustainability including the energy transition innovation technology development and then talent management and succession planning.
4480850,21,225.57,232.75,1,And we are spending a lot of time of course on making sure we have the right people in the board in the management teams in our companies.
4480850,22,233.95,250.24,1,Uh I mentioned that uh there has been a number of important acquisitions in the listed companies a few examples or Ericsson's acquisition of uh Vonage uh expanding the the um uh business into the enterprise segment.
4480850,23,250.92,256.79,1,Uh we had Electrolux Professional uh that did an important acquisition in the US.
4480850,24,257.33,269.79,1,Uh and we also had uh Husqvarna that made uh the acquisition on Orbit Irrigation and together with the Gardenia division they would be uh a clear leader in that area globally.
4480850,25,271.12,279.18,1,Uh we had the bid on Sobi that was withdrawn uh we supported the bid in line with the the the board of Sobi.
4480850,26,279.72,287.17,1,But uh the fact is that the bidder came up to eighty seven percent and not ninety percent uh so it did not go through.
4480850,27,287.2,298.62,1,And now our focus is he has to work close with the company and really make sure that we maximized the long term value creation of these fine company.
4480850,28,299.35,306.63,1,We should not forget that Sobi has a very strong position within rare diseases and we will be fully behind to develop the company.
4480850,29,308.07,325.76,1,Uh during the quarter we invested one billion in Ericsson uh and we we basically took an opportunity after the announcement of the Vonage acquisition uh the stock took hit and we we we saw good value and invested in Ericsson.
4480850,30,328.94,340.1,1,Moving down over to Patricia uh the total return was three percent uh during the year it was down one percent in the fourth quarter and Helena will come back to that later on.
4480850,31,341.49,353.47,1,Uh after Atlas Antibodies uh became a new subsidiary for us in connection with the acquisition of Evitria uh and the it it is great to see that the start has been excellent.
4480850,32,353.57,359.46,1,And uh Evitria that was acquired has delivered a very good performance of the acquisition.
4480850,33,360.36,373.56,1,Uh during the year we diverted uh Grant Hotel and several of the subsidiaries made important add-on acquisitions uh that I will uh comment a little bit on the next page.
4480850,34,374.61,380.94,1,Uh we have advanced instruments that you have seen since we acquired the company uh roughly a year ago.
4480850,35,381.78,387.76,1,Have actually performed extremely well ahead of our expectations when we made uh the acquisition.
4480850,36,388.64,396.85,1,They recently acquired Solentim uh which has a very strong leading position in the niche of cell line development.
4480850,37,396.99,414.43,1,Uh and this company has has had a very strong quarter and the beauty here is that they both the old advanced instrument with the osmolality testing instruments and Solentim they have a significant exposure to the bio-pharma industry.
4480850,38,414.43,419.67,1,So it's a good opportunities to sell this to the same customers.
4480850,39,420.28,428.77,1,In addition we see significant potential to to develop on on the r and d side even stronger products for the future.
4480850,40,429.9,437.28,1,Atlas Antibody uh I mentioned the acquisition of Evitria has built a very strong position within antibodies.
4480850,41,437.82,446.39,1,Sonova acquired Elid-hundred uh which is active within AEDs or heart starters uh vulnerability require strength.
4480850,42,446.39,456.63,1,Uh they're uh they have a very strong market share when it comes to uh secure mental wheelchairs in in different kind of vehicles.
4480850,43,457.44,463.54,1,In total uh Patricia has invested uh six billion in add-on acquisitions.
4480850,44,463.89,471.12,1,And there of course cou uh couple of the other companies that have also made acquisitions uh smaller ones during the year.
4480850,45,471.77,483.23,1,Uh in the fourth quarter we announced that we have for example acquired air bus in China and with that acquisition they will significantly improve the market position in the Chinese market.
4480850,46,486.84,498.81,1,If we then move to the operational performance uh of the company uh during the quarter the organic sales for the subsidiaries was down ten percent and the profit was down twenty three percent.
4480850,47,499.4,511.7,1,If we exclude Molnlycke that I will come back to uh the major subsidiaries had very good development with an organic sales growth of eight percent and a profit growth of twenty four percent.
4480850,48,514.61,532.44,1,But uh saying a few words about them uh Molnlycke um uh I think it's fair to say that the development in the quarter was in line with our expectations and also in line with uh what we try to communicate in connection with the third quarter report.
4480850,49,533.46,549.72,1,Uh we have a situation where on the one hand inaudible which represents a little bit more than fifty percent of revenues in the quarter they continue to develop really well with an organic growth of eight percent and strong profitability.
4480850,50,551.18,558.84,1,On the other hand we have uh more challenges during the quarter in inaudible that was down forty eight percent.
4480850,51,559.63,566.93,1,And but that figure is heavily distorted by the p p e uh contracts that we have talked about many times.
4480850,52,567.36,577.88,1,And as you can see on the short the P P E contracts really peaked in the fourth quarter of twenty twenty and in this quarter is was uh basically zero.
4480850,53,578.56,585.94,1,That loss uh explains most of of the sales loss during the quarter compared to last year.
4480850,54,587.14,599.33,1,Uh the other challenge was gloves uh and and uh that is related to the fact that we previously had to close uh our plant in Malaysia that produces these gloves.
4480850,55,600.13,608.64,1,Uh and that has also affected uh the fourth quarter of last year uh this is a highly profitable product.
4480850,56,608.64,612.86,1,So this also had a significant impact on the profitability in the quarter.
4480850,57,614.06,624.02,1,If we then look forward uh we can split the different parts I think uh uh and and comment one by one.
4480850,58,624.88,633.01,1,Uh Womb care I mentioned good development and we hope and expect that it'll continue to develop uh well in the future.
4480850,59,633.51,651.76,1,When it comes to gloves uh the the plant is now up and running at a hundred percent capacity but there are still transportation challenges especially when it comes to transporting these gloves from the plant in Malaysia to the important market in the US.
4480850,60,651.79,657.07,1,So you have different kind of supply chain challenges import and transportation and so forth.
4480850,61,657.55,666.76,1,But overall we expect now that gloves gradually during the year will improve and there is a very strong backlog and strong demand for the products.
4480850,62,666.95,672.7,1,And then Rick have very strong products in this area so hopefully this should gradually improve during the year.
4480850,63,673.86,681.88,1,When it comes to the P P E contract as I mentioned uh the the peak was clearly in the fourth quarter of twenty twenty.
4480850,64,682.46,693.42,1,We also had some P P E sales in the first quarter twenty one so that will affect the next quarter but not to the same extent as in the fourth quarter.
4480850,65,693.65,704.6801,1,And then there is a very little small part remaining in the four second quarter of twenty one after that it has been zero so gradually this year of year effect should should diminish.
4480850,66,724.66,730.03,2,And you can see the profitability was at a very high level and improved slightly compared to last year.
4480850,67,731.13,736.43,2,Advanced Instruments had a very strong development with an organic growth of eighteen percent.
4480850,68,736.68,748.49,2,Ah the acquisition that I mentioned previously Solentim ah they are of course not part of the organic growth but they grew significantly faster than the eighteen percent.
4480850,69,749.35,759.44,2,Ah the underlying profit margin is down about three percent year over year and the main reason is that Solentim has a lower margin than the old Advanced Instruments.
4480850,70,759.77,774.06,2,Roughly on an e b i t d a level you can say that ah Advanced the old Advanced Instruments were rounding out call it fifty margin while ah um Solentim is rounding out to roughly thirty percent margin.
4480850,71,775.5,780.08,2,Laborie strong development ah organic growth of fourteen percent.
4480850,72,780.47,784.16,2,And as you can see also very sharp profitability improvement.
4480850,73,784.29,791.44,2,Here we've been able to see good growth in all areas both urology GI and also maternal and and child business.
4480850,74,792.66,799.01,2,Ah BraunAbility ah rec continued to recover and and grew by fourteen percent in the quarter.
4480850,75,799.47,804.83,2,Here we did see that the margin ah was actually slightly below last year.
4480850,76,805.47,810.45,2,And that is mainly related to supply chain challenges that is affecting BraunAbility.
4480850,77,811.29,815.89,2,Ah this was partly mitigated by price increases.
4480850,78,817.37,837.72,2,Ah Piab ah grew eight percent in the quarter and the profitability was down as you can see but that is mainly impacted by a write-down ah of a discontinued product line and the transaction costs related to the Chinese acquisition Arbest that I mentioned previously.
4480850,79,838.2,841.11,2,The underlying development in Piab is strong.
4480850,80,842.05,845.55,2,Permobil grew six percent organically in the quarter.
4480850,81,846.16,851.35,2,And this in this quarter it was mainly driven by Europe and the US while Asia was flat.
4480850,82,852.08,866.07,2,Ah here we did see that the margin was down ah and in Permobil this was impacted by investment in a strategic ah product development product that the company is driving.
4480850,83,866.3,869.16,2,And that was the key reason for the margin fall.
4480850,84,869.53,882.31,2,But even if we exclude that part the margin was actually down somewhat year over year and that is mainly related to to increased costs for supply ah and logistic challenges.
4480850,85,883.53,887.0699,2,Ah Sarnova ah was flat in the quarter.
4480850,86,887.92,890.18,2,Ah and there are two key reasons for that.
4480850,87,890.69,899.38,2,Number one emergency preparedness business was very strong in the fourth quarter twenty twenty due to covid nineteen.
4480850,88,899.56,902.45,2,That was not repeated to the same level this year.
4480850,89,902.84,913.78,2,And secondly in this quarter the A A D our heart starter business ah had significant supply chain challenges since they actually have chips in them.
4480850,90,914.19,915.58,2,So that is the reason.
4480850,91,915.61,922.88,2,The revenue cycle management business and acute business both grew in the quarter and you can see the profitability solely.
4480850,92,922.88,927.25,2,So Sarnova is also continuing to develop well underlying.
4480850,93,932.3,939.26,2,e q t ah of course fantastic return up more than a hundred percent during the year and thirty percent in the quarter.
4480850,94,940.64,946.3199,2,Ah of course to a large extent driven by the strong share price increase in in the listed company E Q T AB.
4480850,95,946.61,953.01,2,But as you can see also the funds developed very strong returns during the year up seventy percent.
4480850,96,954.49,960.36,2,Ah four point eight billion in cash with the investor as I mentioned before that's the second highest ever.
4480850,97,961.02,966.06,2,Ah and there has been a very high fund activity within E Q T during the year.
4480850,98,967.26,978.41,2,And during the year they made two strategic acquisition the biggest one was Exet- Exeter within the real estate market adding about nine billion Euro to asset under management.
4480850,99,978.85,990.45,2,And then they also did an acquisition in Europe ah Life Science Partners which is a healthcare venture cap business with about two billion Euro asset under management.
4480850,100,996.34,998.19,2,So ah looking forward.
4480850,101,1000.84,1006.52,2,I think that we are ah well positioned to continue to deliver ah good returns.
4480850,102,1007.09,1025.99,2,Ah and but if we try to frame it a little bit ah of course we know that that the tailwind that we had in twenty one with inaudible low interest rates that is of course feeding through now into the start of the year.
4480850,103,1026.36,1031.3999,2,But we are also seeing of course a number of of of challenges and uncertainties.
4480850,104,1031.9301,1035.9,2,Ah not the least the spiraling inflation that we have seen.
4480850,105,1035.9,1043.4,2,Ah and it's very clear that FED now has indicated that they will increase ah the interest rates.
4480850,106,1044.26,1050.95,2,In addition to that the supply chain challenges remain ah and they will remain in the first quarter.
4480850,107,1051.1,1054.58,2,Hopefully they will then gradually be be easing out.
4480850,108,1063.3,1069.25,2,And then we are in addition to that of course also seeing the geopolitical tensions increasing.
4480850,109,1069.25,1076.7999,2,Ah we have talked about China and and the US before and then of course we have the situation around Ukraine.
4480850,110,1078.26,1088.64,2,Ah so all in all ah it it is not unlikely I think that we will see some increased volatility entering twenty twenty two.
4480850,111,1089.48,1092.88,2,But for us as investors I think we are we have a strong position.
4480850,112,1092.88,1099.66,2,Ah we have a portfolio of very strong companies in attractive markets with strong market shares.
4480850,113,1099.6899,1104.67,2,Ah and we have a very strong ah financial position as investors.
4480850,114,1104.67,1112.9199,2,If there are if there will be volatility there will also be opportunities and and I think that we are ready to act.
4480850,115,1113.98,1116.12,2,Ah our strategy remains firm.
4480850,116,1116.3,1121.41,2,Ah we will have the focus on our prioritized areas that I talked about before.
4480850,117,1121.9399,1129.08,2,Technology developments sustainability inaudible ah to to mention the key areas.
4480850,118,1129.8,1147.49,2,And then even though we have a clear strategy clear ah and clear focus areas I think it's important to to highlight that we understand that we need to to work very hard every quarter on efficiency because of course the long term consists of many short terms.
4480850,119,1147.72,1155.34,2,So execution not the least with with all the supply chain challenges will be top of the mind ah during the year.
4480850,120,1158.46,1160.5801,2,And with that I hand over to Helena.
4480850,121,1160.58,1161.62,3,Thank you Johannes.
4480850,122,1162.14,1166.9399,3,Okay so ah let's first have a look at the adjusted net asset value.
4480850,123,1166.9399,1170.99,3,And this graph shows the development for the last ah five years.
4480850,124,1170.99,1178.1899,3,And we can see that the year ended at seven hundred and sixty one billion in adjusted net asset value.
4480850,125,1178.54,1187.4299,3,And ah we can also see that the average annual growth with dividend added back for this five year period amounts to twenty percent.
4480850,126,1189.14,1194.5,3,And looking at the total return by business area we can also see that it's quite a mixed picture.
4480850,127,1194.78,1205.85,3,Ah the smallest business area e q t delivered ah a total return of thirty percent in the fourth quarter as much as a hundred and eleven percent in the year as Johannes already mentioned.
4480850,128,1206.29,1216.4299,3,And ah the listed companies which is two-thirds of the portfolio had a strong year as well with eleven percent in the quarter and forty four percent for the full year.
4480850,129,1216.78,1220.8101,3,While at the same time ah Patricia had a tougher quarter.
4480850,130,1220.84,1228.2101,3,Ah the value development minus one percent and for the year the total return was three percent.
4480850,131,1230.16,1243.7699,3,So looking a little closer at listed companies we can see that the total amount ah of listed companies amounted to five hundred and fifteen billion at the end of the quarter.
4480850,132,1244.09,1256.8101,3,And while q four T S R was just below six rx the return for the year the total sharehold return of forty four percent beat six rx of thirty nine percent.
4480850,133,1257.5601,1281.67,3,And of course there was a mix of performances in that portfolio as well and while the Ericsson and Songfar prices development was flat we saw several companies not the least Nostech S C B A B B Atlas Corp Co and inaudible performing over fifty percent or more ah in the year.
4480850,134,1283.6899,1293.28,3,And then going over to Patricia Industries ah and the sequential development of the estimated market values in the quarter.
4480850,135,1294.3,1309.03,3,Well we already said that here was more of a flat development but still there were several companies' values that developed well and increased while Permobil and ah Molnlycke weighed on performance in this quarter.
4480850,136,1309.45,1312.74,3,And on the next slide we can see the major drivers.
4480850,137,1313.36,1319.62,3,So Molnlycke's estimated market value declined by two point two billion in the quarter.
4480850,138,1319.92,1325.41,3,Ah this was due to lower multiples lower earnings partly mitigated by cashflow.
4480850,139,1325.7,1331.2899,3,And there was also distribution in the quarter of fifty million Euros to Patricia Industries.
4480850,140,1332.36,1337.25,3,Permobil's value declined one point seven billion due to lower multiples and earnings.
4480850,141,1338.15,1347.7599,3,Laborie on the other hand was up half a billion due to higher earnings and currency effects that were also positive but also here multiples contracted.
4480850,142,1348.3,1358.4299,3,And Vectura's value increased by zero point seven billion and this was due to an increase ah of the value of the proper property portfolio.
4480850,143,1360.64,1369.9501,3,Our financial position at the end of the year was very strong and the leverage ah declined to below two percent.
4480850,144,1370.48,1376.58,3,And on the next slide ah I will show that we are also maintaining our financial flexibility.
4480850,145,1376.88,1387.98,3,And I know you've seen these graphs before but they are now updated with a sixth year and you can see that the sources of cashflow ah are several…
4480850,146,1387.98,1391.67,3,or actually all business areas contribute to the cashflow.
4480850,147,1391.7,1396.6001,3,And together they delivered a hundred and twenty two billion for the last six years.
4480850,148,1397.22,1400.3201,3,And then you might wonder what do we use this cashflow for?
4480850,149,1400.3199,1404.6,3,Well half of it is distributed to shareholders through dividends.
4480850,150,1405.0699,1411.3201,3,Ah a third almost a third is has been used to ah develop the Patricia portfolio.
4480850,151,1411.3199,1415.4301,3,And during this period six new subsidiaries have been acquired.
4480850,152,1415.8101,1424.79,3,We've also invested in the listed companies and during this period we've also reduced net debt by six billion.
4480850,153,1425.21,1434.35,3,And leverage is down from in the beginning of the period ah to just below two percent as I mentioned earlier from seven percent to two percent.
4480850,154,1464.55,1465.67,4,May and November.
4480850,155,1467.64,1490.15,4,So we will end on uh my favorite slide which shows the average annual total return to shareholders and you can see that in all these periods we have managed to achieve our internal return requirements uh but we have also managed to out perform uh inaudible uh both in the short and the long term.
4480850,156,1490.74,1496.23,4,And uh that concludes my part of the presentation and with that I hand over to you Vivica.
4480850,157,1496.45,1499.17,5,Thank you thank you Joan and thank you Helena.
4480850,158,1499.17,1503.0699,5,We will now move over to our Q and A session.
4480850,159,1503.48,1514.22,5,I know we have a few questions that have come in over the chat uh on the web uh but I thought we will start out with the if we have any questions over the phone.
4480850,160,1514.22,1517.8199,5,And by that I would like to hand over to our operator.
4480850,161,1519.92,1520.37,6,Thank you.
4480850,162,1521.16,1526.36,6,If you do wish to ask a question please press zero one on your telephone keypad.
4480850,163,1527.3101,1532.0,6,If you wish to withdraw your question by pressing 02 to cancel.
4480850,164,1541.13,1544.95,6,Our first question comes from Derek inaudible with A B G.
4480850,165,1545.16,1545.6599,6,Please go ahead.
4480850,166,1611.48,1622.61,8,Uh we had a very strong year and we believed that even though as I mentioned there are a lot of challenges and uncertainty out there but I think that our companies are generally in good shape.
4480850,167,1622.67,1628.49,8,Uh we have a strong year behind uh behind us and we have a very strong financial position.
4480850,168,1628.49,1633.59,8,Both when it comes to the leverage but we also have a very strong gross cash position of about twenty four billion.
4480850,169,1634.12,1640.36,8,So all in all the board concluded that this is the level that we believe is is justified.
4480850,170,1645.21,1645.51,7,Gotcha.
4480850,171,1675.3101,1686.45,8,But if I try to say a few words about what we do believe what we see right now and then of course what will happen in the coming months and and the coming year is always difficult to to predict.
4480850,172,1687.21,1710.09,8,But I I I think it's fair to say that if you look on the things that really put a weight on the margin in the quarter uh and starting with gloves uh over over the year we clearly expect to see a clear improvement on the both on the sales level and profitability on gloves.
4480850,173,1711.0699,1723.0701,8,In the first quarter there will remain challenges cause there are still even though the factory is up and running in Malaysia there are still challenges to get it out to the the customers.
4480850,174,1723.42,1727.86,8,And sometimes we will have to take more expensive routes to reach the customers.
4480850,175,1729.79,1738.9801,8,Uh but after that from the second quarter and onwards we expect to see clear improvements of course as long as the demand level stays firm.
4480850,176,1739.3,1741.91,8,But there is a good backlog when it comes to gloves.
4480850,177,1743.3199,1770.5801,8,Uh if you take away the P P E business or the contract the big P P E contract within surgical uh and you look on the remaining parts of what we call the O R S business clothes drapes trays and so forth uh I think it's fair to say that this business has been uh a little bit more than average or clearly more than average hit by the logistics challenges.
4480850,178,1770.62,1786.6,8,Uh and and that is something that the management team is working on working with efficiency finding new solutions and also in in a number of cases actually working on the pricing to adjust for the increased cost levels we are seeing.
4480850,179,1787.01,1795.58,8,So there are clear uh clear plans in place to address not only the top line but also the profitability.
4480850,180,1796.26,1804.63,8,Uh so so uh that is what we see and and uh the management uh is working on on all these areas.
4480850,181,1825.58,1827.0,8,No it it's not.
4480850,182,1827.23,1840.79,8,Uh but if if you take the O R S business excluding the P P E contracts it was down slightly in the quarter year over year.
4480850,183,1841.4301,1847.1,8,If you look on the gloves year over year it was down significantly compared to last year.
4480850,184,1847.28,1848.47,8,In terms of revenues.
4480850,185,1852.12,1852.59,7,Thank you.
4480850,186,1852.89,1853.05,7,Yeah.
4480850,187,1859.3,1863.0299,6,Our next question comes from Joachim inaudible with D M B Markets.
4480850,188,1863.4,1863.85,6,Please go ahead.
4480850,189,1865.5601,1866.5699,9,Thank you good afternoon.
4480850,190,1920.73,1937.03,8,The changed wording on the dividend policy was mainly related to the fact that we now more and more as you know we focus on the adjusted net asset value uh while the previous uh while the previous dividend policy referred to book values.
4480850,191,1937.23,1939.59,8,So that was the key reason for the change.
4480850,192,1940.05,1952.9,8,Uh so uh the increase of fourteen percent this year was more related to holistic uh judgment that as mentioned earlier that the board did based on our financial position and the overall performance.
4480850,193,1955.4399,1956.02,9,Worth a shot.
4480850,194,1956.14,1957.99,9,Well uh okay so that's fair.
4480850,195,1958.02,1978.12,9,And uh uh with regards to uh um I mean uh obviously very I mean well capitalized and have a solid financial position here but in regards to inaudible does this in any way call it have a any implications for your capital allocation framework or investment priorities going into this year?
4480850,196,1979.8199,1980.98,8,Sorry I didn't hear.
4480850,197,1980.98,1989.35,8,You mean that the situation that the fact that inaudible was not divested if that will affect uh our investments?
4480850,198,1990.6801,1990.88,9,Yes.
4480850,199,1992.97,1997.38,8,No uh I I don't think it will materially affect it.
4480850,200,1997.77,2024.13,8,Of course if inaudible would've been divested over a number of years we would have needed to step up the investment pace uh but even the strong financial position we have with a gross cash of twenty four billion and and a leverage below two percent we have ample of flexibility to act on the opportunities we see both in Patricia listed and and also opportunities within inaudible.
4480850,201,2026.6,2027.12,9,Understood.
4480850,202,2063.5,2078.6699,8,Uh if you take of course we have invested in a number of companies uh over the last couple of years and and uh uh we have we have actually been able to to to generate a very good return well about twenty percent on those investments.
4480850,203,2079.3799,2090.0801,8,Uh but if you take Ericsson as one example uh where we have increased our ownership from five percent to eight percent now over some five six seven years.
4480850,204,2091.9299,2103.5999,8,Uh the initial purchases we did we did at very attractive levels um I don't have the exact figures but it was probably in the fifty fifty five Krona per share a number of years back.
4480850,205,2104.3401,2118.3301,8,Uh then the second uh phase was actually in in in March or so two thousand twenty when we had the big setback in connection with the outburst of Corona.
4480850,206,2118.8999,2123.5701,8,And and at that time we probably bought at something like sixty five seventy.
4480850,207,2124.1499,2129.8701,8,And and in this case we have acquired shares for uh slightly below ninety four Krona per share.
4480850,208,2129.8701,2143.05,8,Uh and in this case uh we did it after the announcement of the inaudible acquisition uh the stock took a hit and we saw an opportunity and we saw good value uh so we took it.
4480850,209,2143.0901,2155.4399,8,Uh and the reason why we see good value is that we think that management has done a good job over a number of years to improve the market position taking a lead in on five g.
4480850,210,2155.8701,2163.7002,8,Uh also improved the profitability and now with the latest acquisition also expanding into new growth areas uh within the enterprise.
4480850,211,2164.23,2169.2202,10,So it's basically it's a good value and we we can be rather flexible to act on that.
4480850,212,2171.75,2172.9099,11,Thank you that's all from him.
4480850,213,2227.51,2227.77,10,Yeah.
4480850,214,2227.77,2241.1299,10,It it of course depends on both the length of the contracts in and out and it depends on the customers and and the uh the competitive situation how much you can act when it comes to pricing.
4480850,215,2241.8,2255.8699,10,Uh but but I think it's fair to say that that all our companies are working on this uh at the moment uh and in some cases of course it's easier to raise prices and in some cases it's more tough.
4480850,216,2255.95,2266.78,10,Uh in some cases you might have stronger bigger buyers uh and it might also be the fact that you have longer time horizon on existing contracts.
4480850,217,2267.1101,2277.6201,10,And if you have that of course you will you will have to eat uh the cost increases in the short term while it would take some time to get the price increases filled through.
4480850,218,2278.04,2284.2,10,In other cases you can act very quickly and you can raise prices to do a bit of compensation for it.
4480850,219,2284.23,2288.23,10,So it differs between companies based on these two aspects.
4480850,220,2295.46,2298.1201,10,But it price management is high on our our agenda.
4480850,221,2298.6299,2299.97,10,And the companies' agendas.
4480850,222,2300.76,2300.8501,12,Yeah.
4480850,223,2301.55,2324.03,12,Just a a followup and see if uh I mean are we gonna see uh that you in q one have raised prices so that there's sort of a you know a couple of the companies in your portfolio where we'll see this sort of step change in pricing or price mix if you will in q one versus um versus q four.
4480850,224,2324.52,2324.5901,10,mm-hmm <affirmative>.
4480850,225,2326.1499,2362.97,10,Yeah I I for sure there will be a number of our companies that will raise prices in in the first quarter but if I should uh guess how it will play out I would rather say that that supply chain challenges will for sure exist during the first quarter and some of the price increases will not filter through uh as early as first quarter uh so I think from a timing perspective first quarter we still we still need to work very hard on these issues but gradually over the year uh we should hopefully see an improvement when it comes to pricing out and and the and the cost side.
4480850,226,2364.6599,2365.3699,12,alright thank you.
4480850,227,2366.52,2369.3301,12,Second question from me is is on acquisitions.
4480850,228,2370.01,2409.75,12,And you've signaled um we listened to you uh last year or end of last year you were very interested in in making uh acquisitions uh as as uh you know the COVID pandemic was nearing its end and you you have a greater ability to to visit potential targets et cetera um has that interest in making acquisitions shifted in any way given what we've seen since then with you know more worries about higher interest rates increased geopolitical risk has that shifted or impacted in any way your your uh appetite for acquisitions?
4480850,229,2411.7,2450.25,10,Eh of course we we we need to follow the macro environment and how that can affect the the overall situation but I would say uh basically no because we have a very strong pipeline when it comes to the uh potential add-on acquisitions in in our subsidiaries and and uh we have a continued strong pipeline uh as I mentioned in this quarter uh they have executed on the inaudible acquisition and they have also executed uh just the other day a smaller uh company in uh lifting automation in France.
4480850,230,2450.25,2457.72,10,We have a inaudible that have acquired Panthera within manual wheelchairs which are the world leader on light manual wheelchairs.
4480850,231,2458.46,2462.79,10,Those kind of opportunities we have a rather big pipeline for many of our companies.
4480850,232,2462.79,2464.28,10,And also some larger ones.
4480850,233,2465.0701,2467.1599,10,Uh and we will continue to work.
4480850,234,2467.1599,2483.3899,10,If we believe uh they work in attracting niches that they are a leading player in these niches or can strengthen the position of our companies and that we can acquire the company at a reasonable price uh then we will hit it.
4480850,235,2485.9199,2486.7898,12,alright thank you.
4480850,236,2487.0,2487.4099,12,Good to hear.
4480850,237,2488.02,2488.9099,12,Those were all my questions.
4480850,238,2492.48,2499.3501,11,As a reminder if you do wish to ask a question please press zero one on your telephone keypad.
4480850,239,2502.1201,2506.1399,11,Our next question comes from Daniel Sward with Sword Invest.
4480850,240,2506.3999,2506.8899,11,Please go ahead.
4480850,241,2508.6399,2513.3699,13,Yes I would like to congratulate you on a great year and I only have one question.
4480850,242,2513.78,2524.5701,13,Uh can you count on a dividend increase of half a Krona as the new normal for the years to come or will you go back to raising the dividend by a quarter of a Krona like in previous years?
4480850,243,2525.3601,2538.2,13,So uh there was a lost crown so to say during to Corona in twenty twenty does that relate to this increase now or or is it the new normal this rise?
4480850,244,2539.0901,2539.55,13,Thank you.
4480850,245,2540.3999,2556.1499,10,Thank you Daniel and and and I cannot answer uh the question because what will happen of course is that when we are here a year from now the board will once again make a holistic view and determine what they believe is the right level on the dividend.
4480850,246,2557.2,2561.02,10,Uh our policy is to have a steady rising dividend over time.
4480850,247,2561.1899,2583.02,10,Exact how many percentage that corresponds to uh that that might vary over time uh but I I do believe that we have a strong underlying portfolio both on the listed side and on the private side that generates significant cash flow because normally we have capitalized or we actually have very capitalized companies.
4480850,248,2583.0801,2592.25,10,And that of course is a strategic benefit that we have that should support our dividend policy but the exact levels we will have to see where we are in a year from now.
4480850,249,2594.74,2595.1699,13,Thank you.
4480850,250,2596.0701,2596.5701,11,Thank you.
4480850,251,2600.05,2604.27,11,At this time there's no further questions I hand back over to our speaker.
4480850,252,2605.55,2606.1101,14,Thank you.
4480850,253,2606.1101,2611.6899,14,I know we have a few questions over the web and inaudible why don't you come and and you read them out uh…
4480850,254,2614.28,2614.9001,15,Thank you.
4480850,255,2615.3301,2615.75,15,Sorry.
4480850,256,2630.3899,2640.28,15,So there were several inaudible this year do you expect the same pace during twenty twenty two or inaudible change for anything in that that space?
4480850,257,2640.54,2652.9199,10,I can only say that we have a good pipeline uh when it comes to to potential add-on acquisitions and then it is as always it takes two to tango and the price needs to be be the right one.
4480850,258,2652.9199,2656.1299,10,So it it's actually impossible to give an answer on that one.
4480850,259,2656.51,2657.0,15,Thank you.
4480850,260,2658.26,2659.1201,14,No more questions?
4480850,261,2659.1201,2659.55,15,crosstalk.
4480850,262,2660.03,2660.5901,14,Okay.
4480850,263,2661.26,2676.3401,14,Thank you uh by that uh we would like to thank you for uh joining us here today and we will report our q one results on the twenty first of April so see you then if not before.
4480850,264,2676.54,2677.5,14,Thank you so much.
4481221,0,4.21,11.71,0,Good day ladies and gentlemen and welcome to the Sify Technologies Financial Results for third quarter and fiscal year twenty twenty one-
4481221,1,11.98,12.98,0,twenty twenty two.
4481221,2,13.84,21.14,0,At this time all participants have been placed on Listen Only mode and the floor will be open for questions and comments after the presentation.
4481221,3,22.06,25.98,0,It is now my pleasure to turn the floor over to your host Praveen Krishna.
4481221,4,26.39,27.8,0,Sir the floor is yours.
4481221,5,29.68,30.39,1,Thank you Holly.
4481221,6,31.14,31.7,1,Good morning.
4481221,7,32.24,36.56,1,I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited.
4481221,8,37.25,39.33,1,I'm joined on the call today by Mr.
4481221,9,39.33,41.65,1,Raju Vegesna Chairman Mr.
4481221,10,41.65,43.97,1,Kamal Nath Chief Executive Officer Mr.
4481221,11,43.97,46.5,1,MP Vijay Kumar Chief Financial Officer.
4481221,12,47.39,50.38,1,Following our comments on the results there will be an opportunity for questions.
4481221,13,51.31,63.98,1,If you do not have a copy of our press release please call inaudible Global at six four six two eight four nine four four oh and we will have one sent to you.
4481221,14,64.76,78.8,1,Alternatively you may obtain a copy of the release at the Investor Information Section on the company's corporate website at www dot sify technologies dot com slash investors.
4481221,15,79.61,93.28,1,A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investors Information section of Sify corporate website.
4481221,16,94.41,100.21,1,Some of the financial measures referred to during this call and the earnings release may include non GAAP measures.
4481221,17,100.86,106.87,1,So these results for the year are according to the International Financial Reporting Standards or i f r s.
4481221,18,107.23,111.27,1,And will differ somewhat from the gap announcements made in previous years.
4481221,19,111.99,125.83,1,A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non GAAP measures and of the differences between such non GAAP measures.
4481221,20,126.3,133.89,1,And the most compatible financial measures calculated and presented in accordance with GAAP will be made available on Sify website.
4481221,21,136.23,146.6,1,Before we continue I'd like to point out that certain statements contained in earnings release and on this conference call are forward looking statements rather than historical facts.
4481221,22,147.12,155.32,1,And are subject to risks and uncertainties that could cause actual results to differ materially from those described.
4481221,23,156.11,165.3,1,With respect to such forward looking statements the company seeks protection afforded by the Private Securities Litigation Reform Act of nineteen ninety five.
4481221,24,165.89,177.26,1,These risks include a variety of factors including comprehensive development and gross factors listed from time to time in the company's S E C reports and public releases.
4481221,25,178.44,195.54,1,Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward looking statements but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business.
4481221,26,196.26,198.73,1,I would now like to introduce Mr.
4481221,27,198.73,201.29,1,Raju Vegesna Chairman of Sify Technologies.
4481221,28,201.78,202.26,1,Chairman?
4481221,29,204.1,205.07,2,Thank you Praveen.
4481221,30,205.47,206.26,2,Good morning.
4481221,31,206.31,207.9,2,Thank you for joining all of you.
4481221,32,208.83,220.18,2,Given the proactive governance through the pandemic India is a better place through the third phase that we are currently experience experience.
4481221,33,221.59,232.74,2,Instill IT infrastructure across the country has been scaled up aggressively since the network and data centers are declared essential services.
4481221,34,234.18,244.31,2,Indian businesses are now convinced all the importance of the business processes continuity converge with services of seamless business output.
4481221,35,244.34,260.58,2,This has led to the both sides of the services from a cloud-based local startups cloud bond you know native cloud bond products local and growing hyper scalar investments in Indian I B M first section.
4481221,36,261.82,275.67,2,As you know this is digital at the core as the band we are seeing as the right time for s- Sify to scale up to capture all these opportunities.
4481221,37,276.3,285.14,2,Let me bring in Kamal Nath our CEO to expand on some of the business li highlight for the past quarter.
4481221,38,285.45,285.94,2,Kamal?
4481221,39,287.93,288.07,3,Yeah.
4481221,40,288.07,288.74,3,Thank you Raju.
4481221,41,289.66,300.82,3,Uh enterprises looking for cloud-based digital transformation services see our digital parts bouquet of services as a natural fitment for the revolving business demands.
4481221,42,302.49,308.5,3,We are seeing an upswing in demand for our cloud at core services as the right delivery model for these demands.
4481221,43,309.95,321.93,3,Our successful delivery for hyperscalers is a strong endorsement of our agility and capability on the data center front and increases the attractiveness of our data centers toward enterprise clients.
4481221,44,323.22,327.83,3,With the market learning to work around the pandemic these demands should continue.
4481221,45,329.37,334.75,3,As with previous quarters I would like to expand on the business highlights and summarize our business performance.
4481221,46,336.16,348.78,3,As part of our corporate venture capital initiative Sify's partner invested during the quarter US dollars a hundred thousand in the earlier announced startups in the Silicon Valley area.
4481221,47,350.24,359.94,3,Sify committed to a capital outlay of I N R ninety nine hundred million towards fresh capacity building for data center expansion in the Navi Mumbai region.
4481221,48,361.23,370.35,3,This is in addition to the capital outlay of i n r one thousand two hundred million for expansion of DC capacity in the same region.
4481221,49,371.91,380.61,3,Sify Technologies has been recognized as a niche player in the twenty twenty one Gartner Magic Quadrant for managed network services.
4481221,50,381.75,387.53,3,The recognition is for completeness of vision and ability to execute leading to superior quality of service.
4481221,51,389.13,392.23,3,The business continues to grow the reach of the network.
4481221,52,393.36,405.54,3,As of thirty first December twenty twenty one Sify provides services via seven hundred and sixty nine fiber nodes and one thousand eight hundred and ninety three wireless base stations across the country.
4481221,53,406.62,412.1,3,A six percent and eleven percent increase respectively over the same quarter last year.
4481221,54,413.55,422.91,3,As part of this digital experience project Sify completed full automation of service assurance asset management and service provisioning across this network.
4481221,55,424.0,428.74,3,This will accelerate the deployment of a streamlined customer experience in the coming quarters.
4481221,56,430.3,438.85,3,To summarize our business performance revenue from data center colocation services grew by forty four percent with the same quarter last year.
4481221,57,440.04,444.16,3,Revenue from digital services fell by eighteen percent or same quarter last year.
4481221,58,445.44,450.3,3,And revenue from network-centric services grew by eight percent with the same quarter last year.
4481221,59,452.1,464.94,3,The revenue split between the businesses during the quarter was data center colocation services at thirty percent digital services at twenty four percent and network centric-services at forty six percent.
4481221,60,466.08,470.14,3,A detailed list of our key wins is recorded in our press release.
4481221,61,470.69,472.64,3,Now live on your on our website.
4481221,62,474.15,479.45,3,Let me bring in Vijay our C F O to elaborate on the financial highlights for the past quarter.
4481221,63,479.98,480.29,3,Vijay?
4481221,64,482.24,483.4,4,Yeah thank you Kamal.
4481221,65,484.29,485.29,4,Good morning everyone.
4481221,66,486.52,493.86,4,Let me briefly some of the financial performance for the third quarter of financial year twenty twenty one-
4481221,67,494.17,495.06,4,twenty twenty two.
4481221,68,496.98,506.8,4,Revenue was I N R sixty seven eighty three million a growth of eight percent over the same quarter last year.
4481221,69,508.92,518.33,4,inaudible was I N R one five four million an increase of 22% over the same quarter last year.
4481221,70,520.66,529.84,4,Profit before tax for the quarter was I N R four seven seven million an increase of nineteen percent over the same quarter last year.
4481221,71,531.48,540.79,4,Profit after tax was I N R three four four million an increase of thirty six percent over the same quarter last year.
4481221,72,542.69,549.97,4,Capital expenditure during the quarter was I N R twenty eight eighty seven million.
4481221,73,552.15,558.5699,4,The customer demand for digital infrastructure services continues to be encouraging.
4481221,74,560.46,566.77,4,We will continue to expand on our data center and network capacity.
4481221,75,568.88,576.64,4,Uh fiscal discipline will continue right through our investment journey without impacting customer experience.
4481221,76,579.21,584.52,4,Cash balance at the end of quarter was I N R twenty three eighty one million.
4481221,77,586.31,590.2,4,I will now hand over to our chairman for his closing remarks.
4481221,78,593.03,593.88,2,Thank you Vijay.
4481221,79,595.79,604.04,2,India was already in the midst of the transformation of legacy systems through the adoption of automation.
4481221,80,605.13,608.67,2,The pandemic only accelerated that process.
4481221,81,610.5,622.48,2,In this process some of our services made sure through the adoption of enterprises several are by insured by the enterprise demand.
4481221,82,623.32,626.46,2,Some are more had to be completely overhauled.
4481221,83,638.58,639.59,2,i'll now operator…
4481221,84,639.89,642.68,2,Now I hand over to the operator for purchase.
4481221,85,643.1,643.78,2,Operator?
4481221,86,646.38,649.44,0,Ladies and gentlemen the floor is now open for questions.
4481221,87,649.91,654.38,0,If you have any questions or comments please press one on your phone at this time.
4481221,88,655.12,662.76,0,We ask that while posing your question you please pick up your handset as listening on speakerphone to provide optimum sound quality.
4481221,89,663.49,665.5,0,Please hold while we poll for questions.
4481221,90,675.78,679.17,0,Your first question for today is coming from Greg Burns.
4481221,91,679.37,682.29,0,Please announce your affiliation then pose your question.
4481221,92,683.94,686.07,5,Good morning Greg Burns uh with SIDOTI and Company.
4481221,93,686.33,690.61,5,Um I just wanted to ask about the first about the Kotak investment.
4481221,94,690.78,703.36,5,Um what was the rationale behind um taking that investment in the uh the contact center business and you know what benefits do you see from from their involvement?
4481221,95,703.46,703.86,5,Thank you.
4481221,96,711.52,712.09,1,Select?
4481221,97,712.37,713.61,5,Yeah foreign language.
4481221,98,714.4,714.56,4,Yeah.
4481221,99,715.57,716.87,4,Uh thank you Greg.
4481221,100,716.9,739.23,4,Uh Kotak is the ultimate investment fund which is managed by one of the most established uh bankers in India where uh the fund has LPs which include sovereign wealth funds uh which are among the best names who participate in data center investments across the globe.
4481221,101,741.06,762.76,4,As you're aware Sify has a very active uh business presence in the data center services and we have been continuously investing and expanding our data center capacity considering the highly increasing demand for data center colocation services.
4481221,102,764.58,785.87,4,So this investment from Kotak is uh through a compulsorily convertible instrument where it is meant for financing or rather park financing some of our green field data FinTech capacity expansion over the next three years.
4481221,103,787.6,793.28,4,So that's the background of the investment and the investment uh house.
4481221,104,796.67,797.02,5,Okay.
4481221,105,797.06,803.39,5,Um in in terms of um I guess the does it acce accelerate your ability to invest?
4481221,106,803.39,804.83,5,Has it given you greater flexibility?
4481221,107,804.83,812.04,5,I'm just trying to understand um a little bit better you know what what advantage has taken that that outside capital has for you?
4481221,108,814.08,818.49,4,Yeah so it actually uh does multiple things.
4481221,109,818.74,839.53,4,One is it helps us uh fast track our data center capacity expansion as we tend to raise about um one oh oh oh cores which in terms of I N R million is ten thousand million amount of capital which will be accessible to us for our expansion needs.
4481221,110,840.97,845.94,4,Along with the debt financing which we can raise from the banking system.
4481221,111,846.33,855.21,4,Approximately with a debt equity ratio of two one it helps us to create substantial capacity over the next uh three years.
4481221,112,856.16,872.31,4,And lastly participation by an established banker and the sovereign wealth funds who are globally respected LPS also validate our data center business model and our competences in this business.
4481221,113,873.29,884.18,4,So it places before uh capital for expansion and also gives us access to raise capital beyond what we have already contracted.
4481221,114,886.69,887.08,5,Okay great.
4481221,115,888.0,898.64,5,Um I guess and then you you mentioned also um committing to uh nine thousand nine hundred million uh incremental investment in data centers.
4481221,116,898.64,900.73,5,Is that is that all part of this like…
4481221,117,902.22,903.0,5,With um…
4481221,118,903.0,903.1,4,Yeah.
4481221,119,903.1,906.42,5,incremental capital you raised from Kotak or is that is that separate from that?
4481221,120,906.42,907.97,5,Is that is that incremental and new?
4481221,121,907.97,909.76,5,Or how how should we read into that?
4481221,122,909.76,915.77,5,And what's the the timeframe on kind of when you expect that investment to be made?
4481221,123,917.42,924.62,4,Uh the numbers which are being communicated to the press release are for the exist…
4481221,124,924.62,930.11,4,Are for the data center projects where there is currently work in progress.
4481221,125,931.03,937.36,4,Those will be financed by internal accruals and debt from the banking system.
4481221,126,938.22,952.94,4,What we are raising from Kotak special Kotak fund is for new greenfield projects for which uh the projects will be taken up effective from March of this calendar year.
4481221,127,956.39,958.03,5,Okay okay.
4481221,128,958.4,974.6,5,Um and then in terms of um I guess your reclassified um the way you report your your segments with within digital services could you just give us an idea of um the the growth of the different pieces?
4481221,129,974.9,978.97,5,Um I'm assuming cloud and managed services was continuing to grow.
4481221,130,979.09,983.98,5,But if you just gimme a a little breakdown of that eighteen percent decline?
4481221,131,985.78,986.1,4,Yeah.
4481221,132,986.48,996.12,4,So as far as the Sify digital services are concerned uh as you rightly observed the cloud and managed services continues to grow.
4481221,133,997.26,1012.55,4,Whereas the in this particular quarter our technology integration services where we had a couple of large projects to be executed those project's execution is work in progress.
4481221,134,1013.37,1025.63,4,And given the pandemic associated supply chain issues those projects will get uh completed hopefully in this calendar quarter in this quarter four.
4481221,135,1026.27,1030.6901,4,So the cloud and managed services grown during the quarter.
4481221,136,1031.24,1036.29,4,And the others particularly the technology integration services there's a de-growth.
4481221,137,1037.78,1038.0701,5,Okay.
4481221,138,1038.74,1045.58,5,Um I guess since you brought it up in terms of the pandemic a w where…
4481221,139,1046.5,1057.3501,5,I guess what's the status of the the conditions in India like are are you are you constrained by like um mandates or lockdowns anymore?
4481221,140,1057.35,1061.4301,5,Is is business getting back more back to normal there?
4481221,141,1061.46,1069.89,5,And you know uh uh what's your view I guess looking forward in terms of maybe some of the constraints on the business in terms of the pandemic?
4481221,142,1073.17,1083.8401,4,Getting back to normal normal except that uh with this Omicron there are uh lockdown specified in a few states for the weekend.
4481221,143,1084.76,1099.4,4,Otherwise the business continued to work as 'em almost limping back to normal except that many organizations are still pursuing work from home as a model.
4481221,144,1100.33,1112.02,4,From a business perspective as far as the chairman observed in his opening remarks the network and data center services demand continues to be high and growing.
4481221,145,1112.88,1121.15,4,And on the digital transformation services the customers are uh a having extensive conversations.
4481221,146,1121.78,1132.25,4,And these conversations we expect to get converted into tangible uh orders and revenue conversion in the foreseeable uh future.
4481221,147,1135.11,1135.86,5,Okay great thank you.
4481221,148,1137.35,1140.9801,4,Thank you.
4481221,149,1142.11,1147.0299,0,Once again if there are any questions or comments please press one on your phone.
4481221,150,1159.15,1161.3101,0,There are no questions in queue at this time.
4481221,151,1163.1801,1163.5399,1,Thank you.
4481221,152,1163.54,1165.86,1,We appreciate your time on this call.
4481221,153,1165.91,1168.49,1,We look forward to interacting with you inaudible.
4481221,154,1168.73,1169.5399,1,Thank you very much.
4481221,155,1169.73,1170.41,1,Have a great day.
4481221,156,1174.47,1175.02,3,Thank you everyone.
4481221,157,1175.02,1175.66,0,Thank you ladies…
4481221,158,1177.17,1178.5801,0,Thank you ladies and gentlemen.
4481221,159,1178.6801,1180.72,0,This does conclude today's conference call.
4481221,160,1181.13,1184.38,0,You may disconnect your phone lines at this time and have a wonderful day.
4481221,161,1184.9301,1186.74,0,Thank you for your participation.
4481552,0,5.24,7.54,0,Vipul Hi.
4481552,1,16.1,20.24,0,How are you?
4481552,2,23.06,24.46,2,Hi sir.
4481552,3,24.83,26.6,0,How are you?
4481552,4,28.53,30.28,2,Good good.
4481552,5,30.28,30.48,0,Good.
4481552,6,30.7,31.05,0,Thanks.
4481552,7,31.83,34.76,0,So we we will have moderator joining us right Lutchee?
4481552,8,37.14,39.38,2,I am the moderator sir.
4481552,9,82.71,83.92,2,Yes sir.
4481552,10,85.68,85.84,0,Okay.
4481552,11,85.84,86.04,0,Okay.
4481552,12,107.47,107.8,0,Right?
4481552,13,128.45,128.63,2,Yeah.
4481552,14,131.36,134.43,2,Approx thirteen as of now.
4481552,15,134.78,137.88,0,So we can wait and then we can just uh go live.
4481552,16,137.88,140.36,0,So go live uh signal.
4481552,17,140.36,141.22,0,Will you give us?
4481552,18,144.31,144.57,0,Yeah.
4481552,19,144.57,145.41,0,Yeah because yeah.
4481552,20,145.41,146.51,0,Otherwise how would we know?
4481552,21,146.51,148.85,0,I mean how would how would Vipul know when to start?
4481552,22,149.33,149.59,2,Okay.
4481552,23,151.63,157.05,0,Just uh cause it's seven minutes um to six right now.
4481552,24,158.17,178.62,0,So let's just see how many can you read out the names who all have joined?
4481552,25,190.07,196.09,0,Oh is that right?
4481552,26,253.37,263.24,1,So so yeah.
4481552,27,266.69,408.96,2,Yeah yeah.
4481552,28,413.0,414.09,0,Yeah yeah yeah.
4481552,29,416.97,419.01,0,So I guess we'll just just start at six.
4481552,30,420.18,420.67,4,Sounds good.
4481552,31,424.4,425.34,0,Are you in office Rajesh?
4481552,32,426.09,426.36,4,No.
4481552,33,426.36,470.06,4,No it almost looks like <laugh>.
4481552,34,480.26,480.34,0,Yeah.
4481552,35,486.69,486.76,0,Yeah.
4481552,36,580.01,589.1201,1,As a reminder um this live event is being recorded and the uh recorded by the company and will be made <crosstalk>-
4481552,37,605.2,620.39,1,Uh furthermore certain uh statements made during today's event may be considered uh forward looking uh in in uh statements within the meaning of Safe Harbor provision of us private securities litigation reform act of nineteen ninety five.
4481552,38,662.36,666.5,1,With that I would like to now turn the call over to Deep over to Deep.
4481552,39,667.79,668.14,3,Thank you Vipul.
4481552,40,1032.38,1038.12,0,With high rate of vaccination and less hospitalization there is hope of this wave subsiding soon.
4481552,41,1038.8,1053.29,0,While essential travel is continuing even in the middle of this wave our growth oriented performance in the reported quarter is a strong indicator that as the situation eases India will jump back to traveling for the leisure trips.
4481552,42,1053.91,1059.4,0,We continue to stay watchful of the situation on a daily basis and are managing the business accordingly.
4481552,43,1060.1,1062.5699,0,Now let me share some highlights from the previous quarter.
4481552,44,1063.36,1070.9299,0,I'm happy to share that we recorded one of the most profitable quarters over the years linked to strong business growth coming in from pent up demand.
4481552,45,1071.66,1082.39,0,On gross bookings we grew ninety five point one percent over the same quarter in previous year and fifty eight point five percent over q two in constant currency terms.
4481552,46,1083.1,1092.24,0,In our air business we continue to stay on an upward recovery trajectory following the momentum picked up during July to September quarter last year.
4481552,47,1092.91,1103.12,0,The good news is that we have managed to recover faster than the market in our domestic air ticketing business touching sixty eight percent year on year growth in passengers flown.
4481552,48,1104.13,1111.78,0,Festive travel season further propelled demand with November reco- recording highest daily segments during the pandemic.
4481552,49,1112.77,1122.42,0,Huge surge in demand came from domestic leisure destinations that accounted for ninety four percent increase in volume of the curves as compared to the same quarter last year.
4481552,50,1123.12,1132.79,0,On the other hand international travel demand recovery continued to be slow overall with exceptions of Maldives and Dubai where we saw robust growth.
4481552,51,1133.45,1149.01,0,On the product side we launched MakeMyTrip bundles a customer custom fair option that allows customer customers to bundle various convenience based offerings such as zero cancellation travel insurance airport meals and cabs in one booking.
4481552,52,1149.83,1152.3101,0,Moving on to our hotels and packages business now.
4481552,53,1153.4399,1159.8501,0,Our domestic hotel and packages business saw a robust quarter on quarter and year on year growth during the third quarter.
4481552,54,1160.6,1166.39,0,We recorded year on year growth of about a hundred and twenty five percent in constant currency terms in cross bookings.
4481552,55,1166.98,1171.5601,0,We also recorded highest check-ins during the pandemic for the Christmas weekend.
4481552,56,1171.92,1177.28,0,Although the bookings had started to dip by the by that time as the third wave was setting in.
4481552,57,1177.9,1189.3101,0,While b two c platforms showed solid recovery growth was also partly aided by our corporate platforms namely my biz quest to travel and my partner b two b platform.
4481552,58,1190.0601,1204.0199,0,I shared earlier my partner platform aims to deliver on its promise of empowering travel agent partners with quick and easy access to our wide range of inventory across hotels and flights and more products in future.
4481552,59,1204.8,1211.1399,0,We are now ramped up to currently about twenty two thousand plus registered travel agents on my partner.
4481552,60,1211.66,1216.11,0,And we are adding around fifteen hundred um agents every month.
4481552,61,1235.23,1240.03,0,On our home stay segments bookings for villas managed to surpass pre pandemic numbers.
4481552,62,1240.83,1244.9801,0,On the product side we continue to strengthen our offerings for the hotel segment.
4481552,63,1245.72,1254.28,0,We have scaled our packages across four hundred and fifty plus premium hotels and are beginning to see great traction on both supplier as well as consumer side.
4481552,64,1255.05,1262.8,0,We have further refined the user generated content content collection flows mobile site and post-sale flows.
4481552,65,1263.3,1270.8301,0,On Goibibo we introduced daily steal deals to make booking through the platform more value driven and rewarding.
4481552,66,1271.58,1280.2699,0,In q three we also introduced assurance driven products to help make travel planning very free amid the ongoing uncertainty.
4481552,67,1280.91,1285.74,0,These included zero cancellation fee on any last last minute cancellations and more.
4481552,68,1286.72,1295.14,0,On our home stays product I'm excited to share that we simply launched the beta version of our in-app host feature called become a host.
4481552,69,1296.05,1304.14,0,The feature allows accommodation owners to list their villas apartments and other independent properties on the platform in just a few clicks.
4481552,70,1304.64,1308.3201,0,We are already seeing early wins here since its soft launch.
4481552,71,1308.8101,1315.08,0,In parallel we continue to stay focused on enhancing our products to further improve the booking experience.
4481552,72,1315.46,1326.65,0,We've also ramped up home stays inventory further and closed the quarter with about thirty thousand properties recording at sixty six percent increase in supply over pre pandemic.
4481552,73,1327.53,1336.0599,0,On the holiday packages side of the business we saw two X bookings in domestic packages sold when compared with same quarter in two thousand nineteen.
4481552,74,1336.75,1350.38,0,On the other side while bookings for international des destinations remain muted Maldives that was open for vaccinated travelers registered three hundred percent growth over same quarter during pre COVID times on our platform.
4481552,75,1351.48,1356.12,0,Now I would like to share updates on our bus ticketing business led by RedBus brand.
4481552,76,1356.83,1363.33,0,This business has been a has seen a significant quarter on quarter growth of seventy seven percent in gross bookings value.
4481552,77,1364.02,1379.4301,0,During the quarter as the festive season added to the travel demand along with well timed fuel price reductions we saw ninety three percent private supply and a hundred and two percent regional transport corporation operators supply coming back online.
4481552,78,1379.98,1393.5599,0,Apart from bringing back supply our focus remained on driving personalization and customization of booking experience on the platform such as introduction of boarding point dropping point uh feature.
4481552,79,1394.26,1406.89,0,We also introduced customized nudges persuasion triggers based on parameters such as on time performance and ratings from similar cohort of travelers to help customers choose the right bus service.
4481552,80,1407.46,1413.24,0,Furthermore our Primo program for top rated sellers is taking shape nicely.
4481552,81,1413.73,1423.8099,0,We now have close to eighteen hundred Primo branded buses across the length and breadth of the country and this is already helping build good top of the mind awareness.
4481552,82,1424.39,1433.48,0,It is encouraging to note that about eighty five percent of customers who took a Primo service say that their next trip would also be on a Primo bus.
4481552,83,1434.0601,1444.78,0,We have launched a number of new initiatives to differentiate a Primo experience including an ongoing Primo lounge pilot at one of the popular bus boarding point in Bangalore.
4481552,84,1445.61,1455.99,0,I'm also happy to share some exciting news coming from overall ground transport business while MakeMyTrip and Goibibo platforms have been offering real booking services for a while.
4481552,85,1456.71,1463.85,0,We have now launched red rail on our RedBus web platform and have plans to have a red rail app soon as well.
4481552,86,1465.39,1475.41,0,Through Red rail we aim to leverage the customer overlap between bus travel bus bus travelers on RedBus who also happened to be a part of India's large train passenger base.
4481552,87,1520.03,1528.36,0,Moving on to our corporate and S M E travel business while business travel overall saw sluggish recovery uh pattern.
4481552,88,1528.4,1535.79,0,But for us the growth was robust this quarter partially aided by new accounts acquired over the past few quarters.
4481552,89,1536.3199,1547.01,0,We recorded a hundred and twenty two percent recovery in comparison to same period in fiscal year nineteen /' twenty.
4481552,90,1550.76,1554.11,0,On quest to travel also we celebrated some big wins.
4481552,91,1562.84,1567.0601,0,Now sharing updates for from some of our recent strategic initiatives.
4481552,92,1567.53,1578.75,0,We continue to invest in our FinTech initiative called Trip Money after having launched successful products including travel loan or book now pay later and insurance offerings.
4481552,93,1578.9301,1583.0499,0,we're ready to launch Forex card on MakeMyTrip and Goibibo.
4481552,94,1583.67,1592.1899,0,As international travel picks up in the coming months we are confident that this card will make its way into wallets of Indian outbound travelers.
4481552,95,1593.0,1606.74,0,In g c c during the last quarter our focus was on building supply modes and products for best in class booking experience for Indian nationals other experts and local Emirati uh population.
4481552,96,1607.29,1616.25,0,Happy to share that there was a ninety six percent quarter on quarter increase in new user equi acquisition in q three albeit at a low base.
4481552,97,1616.87,1622.3301,0,Our focus will continue to remain on increasing app penetration in the region.
4481552,98,1622.77,1630.14,0,Considering that ninety three percent of UA population uses the internet on a daily basis as per research estimates.
4481552,99,1631.46,1635.66,0,Lastly allow me to give a short update on our loyalty programs.
4481552,100,1636.34,1648.86,0,To continue extending value to our loyal customers we organized an MMTBlack Fest a sale campaign ran in partnership with key hotel and flight partners which received positive feedback from our customers.
4481552,101,1649.38,1664.72,0,Since the launch of the program about one like users have been added to the top tier top two tiers of MMTBlack and seventy two thousand users were able to upgrade their tiers by transacting for more than one leg gross booking value on the platform.
4481552,102,1665.48,1677.4701,0,For Goibibo loyal consumers and the Go tribe we further simplified the flow of tribe coin or Go cash redemption helping improve usage by ninety four percent in the quarter.
4481552,103,1678.33,1688.42,0,We also launched personalized instant cash cashback engine on Goibibo to reward consumers with instant go cash to offer more value against a single booking.
4481552,104,1689.0699,1694.1799,0,With this let me now hand over the call to Mohit for financial highlights of the quarter.
4481552,105,1695.5699,1696.29,4,Thanks Rajesh.
4481552,106,1696.46,1697.39,4,Hello everyone.
4481552,107,1697.92,1699.73,4,I hope you are all staying safe and healthy.
4481552,108,1700.7,1711.4399,4,The report for the third quarter of the fiscal year started on a positive note with customers more confident than ever to step out of their homes and plan a much-needed holiday break.
4481552,109,1711.95,1718.29,4,Strong supply side recovery across all travel segments further boosting demand side momentum during this high seasonality quarter.
4481552,110,1735.87,1747.5,4,Over the last few updates we have spoken about our cost optimization efforts through structural reductions in fixed costs and building efficiencies in variable costs like marketing and sales promotional expenses.
4481552,111,1748.4301,1759.86,4,In Quarter three we could see the multiplier effect of these cost efficiencies which aided by demand recovery led to a doubling of the adjusted operating profits compared to the last quarter.
4481552,112,1760.26,1773.13,4,Our adjusted operating profit for this quarter stood at thirteen point two million dollars which is almost two times compared to six point six million in q two and almost two point six times compared to five point two million dollars reported in the same quarter last year.
4481552,113,1774.1801,1786.39,4,Adjusted further for non cash depreciation and amortization expenses the current quarter's adjusted operating cash profit reached nearly seven point six million dollars the highest in a quarter achieved by years 'til date.
4481552,114,1787.78,1807.5,4,Our q three total gross bookings stood at one thousand one hundred fifty five point seven million dollars which was the highest since the pandemic representing a strong growth of fifty eight point five percent over the previous quarter and about ninety five percent growth over the same quarter last year in constant currency terms.
4481552,115,1808.28,1827.2999,4,Moving on to our business segments the air ticketing adjust margin stood at fifty two point nine million dollars representing a hundred and five point nine percent growth over the same quarter a year ago and thirty eight point four percent growth over the previous quarter in constant currency terms.
4481552,116,1828.04,1839.3,4,We continue to be one of the most preferred air ticketing platforms with a market share of about thirty percent in the domestic air ticketing business including both the online and offline modes of booking.
4481552,117,1840.24,1861.3501,4,The adjusted margin for our hotels and packages business increased to fifty four point one million dollars during the quarter reported which is an increase of a hundred and seventeen point six percent over the same quarter a year ago and a fifty three point six percent increase over the adjusted margin reported in the previous quarter in constant currency terms.
4481552,118,1862.09,1883.28,4,As for our bus ticketing business the adjusted margin stood at over fourteen point one million dollars and represented a fifty eight point four percent increase over the same quarter last year and a very robust seventy nine point one percent quarter-on-quarter improvement led by supply recovery in the domestic bus business.
4481552,119,1883.75,1887.63,4,Our redBus brand continues to lead in the bus ticketing segment in the country.
4481552,120,1887.63,1894.6499,4,And in the future we'll be expanding the redBus brand franchise to intercity cabs and rail bookings as mentioned by Rajesh earlier.
4481552,121,1895.35,1909.61,4,Lastly the adjusted margin in other businesses was five point nine million dollars an increase of forty four point four percent over last year's same quarter and an increase of thirty three point three percent over the previous quarter in constant currency terms.
4481552,122,1910.66,1914.15,4,Let me now share some details around the operating costs during the quarter.
4481552,123,1915.04,1926.77,4,During the reported q three after a lull of almost two years we finally returned with our Jo Hoga WOW Hoga campaign on the MakeMyTrip brand on the Indian television.
4481552,124,1927.35,1934.36,4,The campaign was targeted at boosting confidence while highlighting the convenience and flexibility offered on the MakeMyTrip platform.
4481552,125,1934.51,1946.05,4,Goibibo's new marketing theme Apna Rule Toh Paisa Vasool was centered around the brand's promise to always offer best value and value adds on travel bookings.
4481552,126,1946.66,1958.74,4,Even with the increased brand spending of overall marketing and promotional expenses during the quarter it stood at five point six percent of gross bookings marginally higher than the five point four percent reported in the previous quarter.
4481552,127,1959.39,1978.59,4,Adjusted personnel costs and SGA costs for the quarter stood at about thirty four point seven million dollars compared to the pre-pandemic run rate of about forty five million dollars per quarter aided by significant long-term fixed cost acceleration and efficiencies in our customer acquisition spends built during the last six quarters.
4481552,128,1979.98,1985.85,4,Under the pandemic we could witness the impact of scale economics filtering down to adjusted operating profit.
4481552,129,1986.73,2001.42,4,During this quarter we have increased our stake in quest two travel as part of the acquisition framework and are excited about the strong future prospects of this business which is directed toward facilitating travel bookings for large corporate customers.
4481552,130,2002.12,2005.46,4,Within the corporate segment we have surpassed pre COVID levels.
4481552,131,2005.79,2009.1799,4,And it remains one of the key demand segments for our company.
4481552,132,2010.27,2015.1,4,It also gives some color on a few non operating p and l elements.
4481552,133,2015.53,2026.6101,4,During this quarter we recorded a profit of about two point five million dollars from exchange of our shareholding in Inspirock which was acquired by Klarna a Swedish fintech company.
4481552,134,2027.3199,2044.49,4,We have also additionally provisioned for eight point four million dollars to fully provide for all the travel and awards in the ongoing litigation with the founders of the HT Group on a conservative basis while we will continue to take all available legal remedies in the matter.
4481552,135,2045.4301,2050.4001,4,During the ongoing quarter we continue to focus on tight cost control amid muted demand.
4481552,136,2052.28,2065.2002,4,However with the reports that many of the key cities in India have already seen the big of the third wave we believe there is a good possibility of a sharp recovery in demand in the coming months.
4481552,137,2065.6799,2076.8799,4,As Indians plan their next summer vacations soon we will be with them with the most trusted brands MakeMyTrip Goibibo and RedBus to make their travel more connected and convenient.
4481552,138,2083.6899,2084.0701,1,Thank you.
4481552,139,2084.0701,2087.8999,2,Vijit wants to ask a question.
4481552,140,2091.28,2097.71,2,Vijit you can speak now.
4481552,141,2111.6001,2114.6799,6,Um my question is just from the uh business.
4481552,142,2115.02,2124.0,6,Uh now I know that international has barely recovered in q three and then omicron probably is a dampener for the ongoing quarter.
4481552,143,2142.77,2142.98,0,Yeah.
4481552,144,2142.98,2143.72,0,Hi Vijit.
4481552,145,2143.72,2144.48,0,This is Rajesh.
4481552,146,2144.48,2145.73,0,Good question.
4481552,147,2145.8301,2146.9402,0,Let me just take this.
4481552,148,2147.49,2148.8198,0,Um you're right Vijit.
4481552,149,2148.8201,2165.74,0,Um you know October-November-December quarter the quarter that we are reporting now we did see uh on a run-rate basis few days where um you know actually even for uh ticketing business we had seen uh recovery up to ninety percent 95% on some days as well.
4481552,150,2184.54,2195.1501,0,So so you know I I guess that was a good indication of overall demand sentiment improving across the board and recovery coming very close to us.
4481552,151,2195.1499,2211.3098,0,But as domestic travel is concerned um you know I think with an exception of I would say business travel to an extent um leisure segment was definitely back you know in some uh uh you know visiting friends and relatives but in any case happening.
4481552,152,2211.78,2221.54,0,Um so with an exception of I would say business travel which was taking a little bit more time to come back I mean for us it was a good story given that we had acquired a lot of accounts.
4481552,153,2222.03,2232.5801,0,But at an overall uh basis business travel was lagging behind a little bit but all of the segments were coming very close to uh pre-pandemic level on a run-rate basis.
4481552,154,2232.79,2234.0698,0,I think that will be fair to say.
4481552,155,2234.8,2236.9199,6,Thanks uh thanks Rajesh.
4481552,156,2249.8799,2252.72,6,So any further update on that side of the business?
4481552,157,2252.99,2256.3398,0,<crosstalk> Yeah.
4481552,158,2256.3401,2256.5801,0,Sure.
4481552,159,2260.6001,2260.8401,0,Sure.
4481552,160,2270.3201,2270.75,0,Sure.
4481552,161,2270.75,2270.95,0,Okay.
4481552,162,2270.95,2272.79,0,Let me just take the first one first.
4481552,163,2273.5701,2273.8901,0,Yes.
4481552,164,2273.8899,2280.23,0,So the platform that we had built which was a third-pa- third-party advertisement platform we've been making continuous investments on that.
4481552,165,2280.77,2285.4399,0,Uh in fact uh we've been just improving the product offering also on that.
4481552,166,2285.4399,2307.4802,0,So you know more recently we've scaled up the sponsored link um you know sort of uh ads that any any partner can come in and uh and you know advertise on our platform um fur further from what it was in the um in the last quarter in terms of just the product enhancements that we've uh we've been able to do.
4481552,167,2307.8501,2319.7,0,And we've been continuously getting good traction from uh you know all our partners uh especially in the uh you know on the on hotel side but also on ground transport.
4481552,168,2320.1101,2329.7,0,Um you know and in some cases even some of the airlines have been very very interested uh interested in participating and and advertisement advertising on our platform as well.
4481552,169,2330.1899,2333.6399,0,So uh you know this is a long-term initiative.
4481552,170,2333.78,2340.6099,0,Uh we are continuously going to keep making our platform far more robust with additional features.
4481552,171,2340.6101,2360.9001,0,So you know we do have plans to add uh you know a lot more analytics as times uh in the in the coming quarters uh for our partners and keep making their product uh you know far more sort of attractive and robust um you know from uh you know people who would come and advertise on our platform uh standpoint.
4481552,172,2361.23,2374.8301,0,And so it is going to be a continuous sort of uh investment area from our point of view and and you know like I said it is already um giving us good traction um you know on on on the number of advertisers who are increasing quarter on quarter.
4481552,173,2375.6799,2394.6501,0,Um now talking about the civil aviation market share I think Mohit just called out as part of his uh speech we continue to to be close to about thirty percent of the um you know of the total market both online and offline put together um as far as domestic air ticketing business is concerned.
4481552,174,2395.0601,2406.4001,0,Uh and as far as bus uh segment is concerned we continue to be uh the market leader I I guess uh um you know by far from the online booking space standpoint.
4481552,175,2429.54,2447.6101,6,Uh with the cab uh business that you called on ground uh transport uh that that's that's part I guess of the of the bundled offering I noticed from the ad that it's really a marketplace right where you are showing uh availability of cars on range from third-party partners and stuff like that.
4481552,176,2454.71,2458.0498,6,And uh I'm assuming this will be housed under other revenues right?
4481552,177,2459.2,2459.5,0,Yeah.
4481552,178,2459.9199,2466.51,0,So lemme just um tell you a little bit more about uh this you know the whole car business that we are trying to build.
4481552,179,2467.0,2471.0,0,Uh you know it has two sort of um products out there.
4481552,180,2471.0,2483.4399,0,One is airport transport which is effectively an attached to a flight uh customer you know who would be at the airport and he would like to just uh you know come to the airport or go from the airport to the destination.
4481552,181,2483.8601,2487.4099,0,And the other one is the intercity cab uh product.
4481552,182,2508.54,2509.7002,0,Uh and we had…
4481552,183,2509.7,2510.1501,0,if you…
4481552,184,2510.1499,2533.3,0,if if I miss um sort of um uh you know also or argued that we had mentioned it in the past that we had made an investment on the supply side um you know a software uh where we were trying to just uh you know provide the the supply side uh you know technology platform for the operators as well or the or the or the cab aggregators.
4481552,185,2533.78,2535.8301,0,So that's one model on the intercity cab.
4481552,186,2536.23,2544.6401,0,What I was trying to highlight in the uh in the script early on was also there is one more initiative that we have launched.
4481552,187,2544.78,2552.28,0,Um you know we are already pilot testing it out in the two markets Delhi NCR and Bangalore.
4481552,188,2552.6699,2564.0498,0,And that is that is called Ride which is a slightly different model where we are signing up partners uh you know who already have a pool of cabs.
4481552,189,2564.05,2568.0,0,Um we're uh you know sort of branding the car cars on the on the road.
4481552,190,2568.0,2582.5698,0,We are um you know taking uh better control of the inventory to improve the overall product experience like the actual ride experience uh and trying to position it to more like uh you know differentiated experience.
4481552,191,2583.1399,2585.98,0,Uh so there's a set of partners that we are going to have.
4481552,192,2585.98,2591.24,0,I mean we are calling it um Ride franchisees who who are the partners who would work with us.
4481552,193,2591.76,2600.46,0,The model for either the aggregator model or the Ride model is going to be either the commission model or a revenue share revenue share model.
4481552,194,2600.6299,2602.98,0,So that's really the monetization plan on that.
4481552,195,2603.53,2606.3699,0,Um but but it's early days in in this market.
4481552,196,2606.8601,2614.03,0,We're we are right now doing some strategic investments in this area uh but we definitely see this as a very big opportunity.
4481552,197,2614.03,2617.0698,0,And we are going to sort of scale this up uh in the coming quarters.
4481552,198,2617.8101,2618.4001,6,Got it.
4481552,199,2618.3999,2620.5598,6,And uh thank you so much.
4481552,200,2620.5601,2621.7,6,I'll just jump back into the queue.
4481552,201,2621.8799,2622.1301,6,Thank you.
4481552,202,2622.6001,2628.5,0,Thanks Vijit.
4481552,203,2630.46,2631.49,1,Uh thank you Vijit.
4481552,204,2688.45,2690.79,4,You know there are two reasons.
4481552,205,2691.52,2724.49,4,Uh clearly one you know that these skews kind of you know being more towards you know the premium sort of hotels.
4481552,206,2725.0801,2731.3401,4,And also during this specific quarter you know the mix change was also in favor of the holiday packages.
4481552,207,2731.3401,2741.3101,4,So you know a lot more growth is what we have seen coming through our holiday packages as customers have chosen the comfort of a package product instead of you know doing stand-alone bookings.
4481552,208,2742.01,2759.04,4,Uh and since the holiday uh package product is more like a uh slightly muted margin business compared to hotels cuz it is a combination of hotels as well as you know air tickets et cetera therefore the uh the segment kind of margins have come down a little bit.
4481552,209,2759.04,2765.0198,4,But the hotel margins per se haven't really seen any significant contraction but for the mix change toward premium.
4481552,210,2766.1399,2766.23,7,Okay.
4481552,211,2783.8799,2785.6101,7,Or what is driving that?
4481552,212,2821.48,2823.9502,4,What we report is booked passengers.
4481552,213,2844.0701,2846.25,0,I think we have a question on chat as well.
4481552,214,2846.8999,2852.48,0,Maybe we can take that because I think Saurav's mic is not working so he is not able to speak.
4481552,215,2852.48,2858.5698,0,So uh maybe very quickly before we go to Kushagra I can just quickly respond to that question.
4481552,216,2858.95,2867.1902,0,And the question for everybody's benefit is how has your initiatives translated into improvement in client stickiness and LTV over the years in different businesses?
4481552,217,2867.6399,2869.98,0,Um yeah no it's a great question Saurav.
4481552,218,2870.3101,2875.6199,0,So I-I- I'll tell you one sort of uh metric where we very um closely track.
4481552,219,2876.1599,2884.9001,0,You know I think the short answer to this question is it has played out quite well uh especially for our majority of you know lines of products and the offerings.
4481552,220,2885.4199,2887.97,0,Um and we measured it through the repeat rate.
4481552,221,2888.52,2906.05,0,Uh and uh you know on on any given quarter uh you would have uh you know anywhere between sixty or depending on the quarter that you uh specifically look at anywhere between sixty five percent to seventy percent of their transactions will actually come from the existing customers.
4481552,222,2906.53,2909.6501,0,And the rest will come from the new customers in that particular quarter.
4481552,223,2910.1899,2912.04,0,So it's a pretty healthy repeat rate.
4481552,224,2912.4299,2927.71,0,Uh in fact it's a very sort of uh good balance between um you know uh the repeat uh transactions coming from the existing consumer base um but also the new users every quarter quarter after quarter that keep that keeps coming our way.
4481552,225,2928.2,2945.5999,0,Um so overall uh uh you know uh given that we've been in the business for many years uh it has been playing out all these investments have been really playing out in a manner um you know that uh uh you know sort of uh it helps the overall p and l as well.
4481552,226,2953.73,2955.98,0,I think we can go to Kushagra now.
4481552,227,2958.0701,2958.25,2,Yeah.
4481552,228,2995.21,3006.1301,8,So just a broader sense on uh on uh if I have to look at it on the operating profit base uh which of the segments probably uh is taking a higher share in the overall uh uh spend?
4481552,229,3007.0601,3007.3801,8,Yeah.
4481552,230,3021.8799,3026.45,4,And a lot of customers come in and kind of transact across you know business segments.
4481552,231,3026.8999,3033.3699,4,Uh and therefore it's kind of very difficult to allocate you know these these customer acquisition costs by the segment.
4481552,232,3033.3701,3042.4299,4,However broadly uh at a high-level sense what we've always been calling out that you know the air ticketing business has been kind of profitable for a very long time.
4481552,233,3042.4299,3045.52,4,You know almost since the time of our IPO in two thousand ten.
4481552,234,3045.9199,3053.47,4,And therefore the the the the overall kind of you know uh customer acquisition expense in that business are very well-optimized.
4481552,235,3055.23,3061.97,4,Uh clearly we have been calling out that you know the the accommodation space you know uh specifically hotels.
4481552,236,3061.97,3069.1902,4,And within hotels the budget segment of hotels has been an area of investment over the last few years in 2016 onwards.
4481552,237,3069.1899,3073.5898,4,And therefore a large part of these spends have been directed toward that particular segment.
4481552,238,3074.1201,3083.73,4,The good part is you know are kind of you know uh pretty much on investment cycle even on this you know uh segment or in this space also has pretty much played out now.
4481552,239,3084.29,3087.21,4,And therefore the unit economics kind of you know started looking much better.
4481552,240,3088.1001,3094.5901,4,And overall therefore if you see our marketing and commercial expense have trended down uh very well over the last five or six years.
4481552,241,3094.5901,3096.8,4,You know they used to always be at a peak.
4481552,242,3096.8,3100.1799,4,They used to be almost close about fifteen odd percentage points of gross booking.
4481552,243,3100.5601,3103.47,4,And we are now closer to about five six percentage points of gross bookings.
4481552,244,3103.47,3121.0801,4,So we've seen that significant efficiency coming in as the entire accommodation you know business has got built uh so much so that if you see on a normative basis pre-pandemic you know the hotels business uh you know accounts for almost like you know half of the business mix.
4481552,245,3121.4399,3125.79,4,Uh it used to be a very small contribution until about seven years back.
4481552,246,3197.6399,3209.53,4,And you know when it comes to you know this particular business any room night which goes unoccupied is actually you know kind of a wasted room night or is a it's almost like a perishable room night right?
4481552,247,3209.53,3210.1299,4,And therefore…
4481552,248,3228.6499,3234.7,4,Um but like I said you know overall at an industry level also you know the occupancy rates used to be kind of you know in the sixties.
4481552,249,3235.76,3257.8699,4,Therefore compared to a lot of the other you know the overall market or the mature markets where the occupancy rates are much higher and the fact that you know the hotel industry is extremely fragmented in India with more and more of you know independent mom-and-pop kind of properties rather than chains of hotels the landscape per se does offer a slightly better margins compared to the mature markets.
4481552,250,3259.7,3268.8301,4,However from our own kinda you know uh point of view we've always kind of looked at you know creating long-term sustainable economics with all our suppliers irrespective of the line of business.
4481552,251,3269.3201,3281.8,4,And therefore over the last few years we have actually brought down our overall margins in the hotels business uh from being in the early twenties to kind of being more in the high-teens now.
4481552,252,3282.1001,3290.8398,4,And that we believe is kind of you know sustainable uh both in the short term and to the longer-term period for the reasons that I called out.
4481552,253,3291.4099,3291.8699,8,Yes.
4481552,254,3305.51,3305.75,0,Yes.
4481552,255,3331.3701,3331.4302,0,Yeah.
4481552,256,3332.4299,3336.47,0,No happy to uh uh happy to just give you our directional sense of this area.
4481552,257,3336.77,3347.6501,0,And it's obviously a good question given the fact that uh the next level of growth um has already been sort of coming in from the smaller cities now.
4481552,258,3347.6499,3350.48,0,And more and more in the future it's going to come in from there.
4481552,259,3350.96,3368.48,0,Uh you know as we all know as Deep also mentioned as part of his speech uh that you know thanks to pandemic uh you know the the uh you know the penetration on the adaptability of internet and even e-commerce sort of accelerated uh you know in in these cities as well.
4481552,260,3368.8,3370.3401,0,So we are taking a bunch of initiatives.
4481552,261,3370.3401,3371.9199,0,Some of them we've already called out.
4481552,262,3372.3401,3382.8501,0,Um but I think it'll be fair to say that uh the new user acquisition uh for instance for our rail uh bookers or for that matter even bus bookers.
4481552,263,3383.28,3392.74,0,Um we've been getting uh you know out of the new users as I called out about thirty percent of their transactions in the quarter come from uh new users.
4481552,264,3435.1499,3445.3101,0,So all the regional small sectors um uh you know the all those bookings at Uran sectors are effectively Tier two Tier three cities in fact even beyond.
4481552,265,3445.73,3449.74,0,Uh and in the future also the expansion of the airports are also going to be like that.
4481552,266,3450.6899,3454.97,0,And and we've been actually more than line share of all those sectors even on the air ticketing business.
4481552,267,3454.97,3461.72,0,So all in all we you know good traction coming in from <inaudible>.
4481552,268,3464.26,3507.25,0,I think this is <inaudible>.
4481552,269,3509.29,3515.05,4,You know like I just called out you know on the hotels business we do expect margins to kind of largely remain stable in the high-teens.
4481552,270,3566.5,3572.3298,4,And therefore that kind of gives us confidence that we kind of should kind of remain on a profitable path.
4481552,271,3572.8,3584.2,4,I mean just to kind of you know give a little bit of color on how you know give kind of an affair at least over the last two years if you see last year which was a high pandemic hit kind of in your…
4481552,272,3584.2,3586.8901,4,We were kind of almost cash breakeven.
4481552,273,3587.25,3593.1099,4,Uh and this year we expect to be kind of you know officially you know have a profitable year.
4481552,274,3593.79,3596.03,4,And therefore that gives us even more confidence.
4481552,275,3596.03,3607.9802,4,And if you see in this particular quarter also you know a bit bit of volumes kind of you know recovering and with kind of you know a good recovery in the in the in the couple of months of the quarter coming through.
4481552,276,3626.1799,3626.28,9,Sure.
4481552,277,3688.4099,3695.28,4,Uh and I also just kind of mentioned that we should probably be cash accretive and not be kind of you know deploying cash for operations.
4481552,278,3695.9199,3702.78,4,We also don't believe there is any large investment opportunity requiring a significant amount of you know capital infusion.
4481552,279,3703.27,3712.1099,4,And so therefore keeping all of that in mind I think the focus right now is in terms of making sure that uh you know the recovery on the travel side kind of comes through.
4481552,280,3712.1101,3721.21,4,We see through the you know end of the pandemic and kind of have a much better kind of you know cost structure and and continue to be on the path to profitability.
4481552,281,3725.1499,3727.3201,9,That's all for me.
4481552,282,3727.3201,3727.99,9,Thanks.
4481552,283,3727.99,3747.2102,0,Mohit maybe we can take that.
4481552,284,3747.21,3754.53,0,And Vipul uh there is a uh I can see one more question from Vikas on the uh on the chat and then there's an anonymous and a similar question.
4481552,285,3755.1899,3758.4001,0,And I guess uh uh you know the question on profitability.
4481552,286,3758.8201,3766.6699,0,Uh because we are already profitable we actually called out that it's the best-ever profitable quarter that we just reported out.
4481552,287,3767.2,3783.1902,0,Uh and as we've been sort of recovering out of the year whenever there has been recovery on the quarter based on all the measures that we've taken um you know historically just to uh restructure our cost base uh we've been profitable and profitable at scale.
4481552,288,3783.6101,3788.03,4,I guess Rajesh that also answers the anonymous question that we have on the <crosstalk>-
4481552,289,3789.54,3789.8701,0,Yes.
4481552,290,3790.0,3790.28,0,Yes.
4481552,291,3791.73,3792.3701,4,Sounds good.
4481552,292,3792.3701,3796.76,4,I mean if you have any last questions we could take that now.
4481552,293,3797.8401,3801.4099,4,As uh you know we'll kind of look at wrapping up the call.
4481552,294,3806.1499,3811.8401,1,Uh I think uh Mohit uh uh we can we can we can end the call for now.
4481552,295,3829.03,3829.79,4,Thank you everyone.
4481552,296,3830.22,3830.6799,1,Thank you.
4481552,297,3833.04,3833.54,0,Thanks.
4481552,298,3836.3501,3836.75,0,Thank you.
4481601,0,2.32,3.57,0,Maybe we can start uh Simon?
4481601,1,4.92,5.41,1,Uh.
4481601,2,5.41,5.65,1,Yeah.
4481601,3,5.65,6.95,1,I just admit two more.
4481601,4,6.95,7.94,1,I think we're uh…
4481601,5,7.94,9.4,1,Yeah inaudible we have uh…
4481601,6,9.44,10.53,1,We can start definitely.
4481601,7,12.01,12.42,0,Perfect.
4481601,8,13.21,13.6,0,All right.
4481601,9,13.6,15.49,0,So I will do the introduction.
4481601,10,15.73,18.03,0,Thank you everyone for being with us today.
4481601,11,18.06,20.62,0,I'm recognizing a lot of names that we uh…
4481601,12,20.62,25.32,0,That have been following Urbanimmersive for uh quarter to quarter.
4481601,13,25.39,28.07,0,So uh it is a pleasure to uh see you again today.
4481601,14,28.7,31.36,0,Uh for those who don't know me my name is Ghislain Lemire.
4481601,15,31.36,33.21,0,I'm the c e o co-founder of Urbanimmersive.
4481601,16,33.94,40.71,0,Welcome to our fourth quarter financial result end of year investors' conference call.
4481601,17,41.51,51.02,0,Um French.
4481601,18,51.02,56.55,0,For a reason of being efficient inaudible efficient and respect our time we'll be doing this uh call in English.
4481601,19,56.59,60.18,0,Uh but we will take both English and French questions at the end.
4481601,20,61.11,67.01,0,Joining me today uh as usual uh I have uh Simon Bedard our C F O.
4481601,21,143.99,152.82,0,In regards of the how the management is seeing Urbanimmersive how we describe it and what is you know our focus and goals uh going forward.
4481601,22,153.46,157.55,0,So without further ado I will turn the call to Simon.
4481601,23,157.62,157.99,0,Simon.
4481601,24,159.23,160.68,1,Hi good afternoon everyone.
4481601,25,160.71,164.49,1,Uh we see have a lot of uh participants investors today.
4481601,26,164.49,169.75,1,So thanks for uh your interest in being uh present on that uh on that call today.
4481601,27,170.37,184.24,1,Um so what I'd like to do is similar to what I've done in the last quarter just maybe put some uh some color into uh the uh the uh financials that were uh published in the press release morning.
4481601,28,184.73,186.96,1,Um I want to apologize.
4481601,29,186.99,187.9,1,The i…
4481601,30,187.9,189.83,1,We don't have the the SEDAR filing yet.
4481601,31,189.86,197.01,1,But the French version should be available uh within the next hour from uh my friend inaudible telling me.
4481601,32,197.5,201.96,1,Uh sorry they had some some quality issues uh quality control issues this morning.
4481601,33,202.45,207.31,1,And the English version should follow uh within forty eight uh hours.
4481601,34,207.53,217.91,1,That said if you have more detailed questions with regards to those financial statements wer once they're available in SEDAR really feel free to contact me uh by my phone or email.
4481601,35,217.91,223.48,1,And I will answer uh all questions you have uh with regards to our uh our financials.
4481601,36,223.48,229.96,1,So um in terms of uh our our uh Q4 and 2021 uh financial result.
4481601,37,229.96,235.02,1,To start with uh if we talk about revenues uh for the next year we end up uh…
4481601,38,235.39,241.9,1,We closed the year at slightly above four million in revenues compared to four four point six uh last year.
4481601,39,241.9,244.49,1,So it's a eleven percent uh decrease.
4481601,40,244.67,253.85,1,Uh that decrease is uh I would say i is explained in most cases by the uh the decrease in sales of three d uh photography equipment.
4481601,41,253.99,257.93,1,Uh that was expected uh by the way by by by six hundred thousand.
4481601,42,257.93,265.08,1,If you remember last year uh well we were pretty happy to have to have acquired uh ImmerSolution uh and benefit from the good…
4481601,43,265.66,270.14,1,A a solid year of demand for c three d cameras uh at at the beginning of the pandemic.
4481601,44,276.2,276.42,1,Sorry.
4481601,45,284.54,285.34,1,Uh yeah.
4481601,46,285.34,291.27,1,So uh so that was expected uh that of course we'll we'll go back to a a normal level of sales.
4481601,47,291.7,293.33,1,Uh what is this normal level?
4481601,48,307.81,309.12,1,But that was a onetime thing.
4481601,49,309.12,310.58,1,So we don't expect this to continue.
4481601,50,311.11,320.4,1,Um uh uh on the side uh if we look at the SaaS uh SaaS sales we're uh we're down seven percent uh compared to last year.
4481601,51,320.95,323.15,1,But uh of course we we…
4481601,52,323.54,324.87,1,You may know that we are uh…
4481601,53,325.46,329.68,1,Our company's still today uh uh mostly transactional uh driven.
4481601,54,345.99,358.83,1,And and and the fact that the market is uh in terms of number of transaction in terms of number of listings uh is down just this year compared to last year thirty near to thirty percent or twenty three percent.
4481601,55,358.83,361.23,1,That's in uh Canada with Centrist.
4481601,56,361.46,365.42,1,But in the US it's also in that range so between twenty five to thirty percent.
4481601,57,365.89,368.45,1,And if you remember last year we were down thirty percent.
4481601,58,410.0,412.66,1,But just to um to uh put things in perspective I was talking about Centrist.
4481601,59,412.83,413.29,1,we are uh…
4481601,60,413.32,419.95,1,Right now I think we have around thirty five thousand listings um uh on uh on Centrist.
4481601,61,419.95,422.17,1,We used to have a hundred twenty at that time usually.
4481601,62,422.17,422.73,1,So it's uh…
4481601,63,423.24,424.96,1,Of course we we are affected by this.
4481601,64,424.96,430.92,1,But the fact that we're seven percent down uh in that type of market uh I think it's it's positive.
4481601,65,431.37,433.55,1,We uh we're even gaining customers.
4481601,66,433.55,439.64,1,We're not losing customers inaudible we're gaining customers uh with our new subscription package inaudible all different fronts.
4481601,67,439.64,447.22,1,So uh so uh that's why uh it's important to understand uh the the market here when we uh we look at the at our uh at our numbers.
4481601,68,447.99,450.36,1,Also uh also what you have…
4481601,69,450.39,451.34,1,What's important this…
4481601,70,451.56,456.86,1,In the last quarter is that you'll see that we have our first quarter of uh s photo service.
4481601,71,457.43,460.6,1,Uh we have revenues of three oh seven three hundred-
4481601,72,460.79,463.46,1,uh seven thousand of uh photo service.
4481601,73,463.46,464.3,1,We had uh…
4481601,74,464.3,467.2,1,Those acquisition if you remember were on June thirtieth.
4481601,75,467.2,470.34,1,So we only one quarter uh this year.
4481601,76,470.83,475.63,1,But uh but the ones that were uh acquired in June have maybe uh uh…
4481601,77,476.07,502.99,1,Represent approximately one point eight million on an annual basis of revenues plus uh of course the one that you've seen that we acquired in Q1 2022 in November and December meaning that today uh I'm not here to to make guidance of what's gonna be our revenues next year but based on what the those all those company that we acquired has done in the twelve months we're…
4481601,78,503.35,510.6,1,As we posted on our website we uh we are at uh run rate revenues of approximately uh eleven million.
4481601,79,511.16,515.29,1,And out of this eleven million we have roughly three million in SaaS.
4481601,80,515.92,523.09,1,Uh as I said half a million maybe in hardware uh and uh and the seven and a half million remaining is uh is is photo service.
4481601,81,523.66,538.17,1,Uh so even q one uh two thousand twenty two you can expect that we'll have maybe uh two to four weeks of revenues of those uh new acquisitions that were done in November December we we have the full inaudible do have in uh in Q2.
4481601,82,540.82,546.52,1,So um and if we uh and if we talk about Q4 Q4 we're uh…
4481601,83,547.07,550.48,1,Our revenues were one point one million compared to one point four last year.
4481601,84,550.48,553.72,1,So we're down uh twenty four uh percent on q four.
4481601,85,554.09,557.67,1,But we've seen number of the listing have decreased more in q four this year.
4481601,86,557.67,561.19,1,But overall over the year as m as mentioned we are we uh…
4481601,87,561.19,561.49,1,There was…
4481601,88,561.49,565.28,1,In terms of the number of listing and inventory that was down thirty percent.
4481601,89,565.28,570.53,1,So still I think we're doing pretty good uh in this very challenging market.
4481601,90,571.29,579.08,1,Um talking about uh three d tours uh that's that's a positive thing uh on our end is that uh we see…
4481601,91,579.08,582.41,1,We experience a lot a lot of growth in the number of three d tours.
4481601,92,582.96,588.71,1,Uh in fact two 237% compared to Q4 last year.
4481601,93,588.74,595.41,1,Uh we're talking maybe in dollars around uh roughly around seventy to eighty thousand on new uh uh…
4481601,94,595.41,597.5601,1,Of revenues of three d tours this year.
4481601,95,598.0,601.19,1,And that should continue to grow fast because we uh…
4481601,96,601.53,604.03,1,You may have seen a few uh few updates.
4481601,97,609.26,614.09,1,Uh that should scale up uh and deploy uh m and more cities over over the month.
4481601,98,614.54,621.2401,1,So we should uh that trend should continue to uh in terms of number of 3D tours to grow uh fast in the next in the next month.
4481601,99,621.24,622.19,1,That's what we expect.
4481601,100,622.62,628.87,1,Uh talk in terms about gross margin uh we're pretty stable compared to last year.
4481601,101,628.9,636.49,1,Uh for the three months period we were at sixty one percent overall compared to sixty three uh last year.
4481601,102,636.96,641.23,1,And for the year uh we are at sixty five compared to sixty eight.
4481601,103,641.23,642.37,1,So pretty stable.
4481601,104,642.37,651.84,1,Of course it depends on the mix of the revenues uh because on the SaaS SaaS portion our our gross margin is somewhere eighty two and eighty seven percent.
4481601,105,652.39,656.42,1,And on the service photo service uh more thirty five to forty.
4481601,106,656.89,658.38,1,And on the equipment it's a bit lower.
4481601,107,658.38,662.96,1,So depending depending on the uh the uh the mix of course that will affect our gross margin.
4481601,108,667.56,670.01,3,And even probably we could improve that a little bit.
4481601,109,670.44,680.62,3,Uh when we gonna talk about uh some efficiency gains that we'll we'll have uh with the uh synergies and acquisitions that you say will cover a bit more uh a bit more or later.
4481601,110,681.39,711.55,3,Um in terms of uh net income uh there's a lot of noise this year uh on the uh you know we can see we have a a loss of three point seven uh million for a year but uh uh including three point two million of other expenses and out out of that 3.2 there's three million or 2.9 in fact that comes from uh all the adjustment made with regards to the conversion of the the venture the the convertible ventures that are all done as you know uh as of today.
4481601,111,711.55,728.33,3,So uh this is is none a recurring so uh won't be there next year but uh there was just a one time uh uh uh journal entries this year but of course that uh uh that explained most of why we uh we have that that loss for uh for the year.
4481601,112,729.53,732.53,3,Um in terms of uh balance sheet.
4481601,113,732.81,736.25,3,Uh we're uh we're we're still in pretty good shape.
4481601,114,736.25,740.83,3,In fact uh as you know we we did a a three million private placement in April.
4481601,115,741.18,746.35,3,Uh we uh that we use for uh for in part for our acquisitions.
4481601,116,754.04,759.93,3,So we use that uh an additional one million for the acquisition that were done completed in November and December.
4481601,117,760.5,764.56,3,Uh so we're uh we're pretty we we're still in good shape.
4481601,118,764.59,767.91,3,We have enough to operate and execute our our uh our business plan.
4481601,119,767.91,772.8,3,No problem there of course with that one million that will serve as a as a as a cushion going forward.
4481601,120,772.8,783.56,3,So uh we don't expect to use more than that on on acquisition unless we uh we we we we we uh you know raise additional capital or or or debt or or or some external funding.
4481601,121,784.43,792.4,3,Um uh and other than that uh as you know throughout the year we've uh we've eliminated our convertible debentures.
4481601,122,792.43,801.21,3,That was uh we reduce our debt in fact by four point seven million uh throughout the year including four point five uh just for the convertible debentures.
4481601,123,802.02,811.5699,3,Uh so so basically again I think our balance sheet is in good shape and uh yeah that's pretty much the point I wanted to cover.
4481601,124,812.03,820.0,3,Um there's in dm D N A and financial you'll have some information by segment uh where we now track three different segment.
4481601,125,820.53,822.25,3,Uh one is the software.
4481601,126,822.35,826.58,3,Uh one is the uh photo equipment and one it is the service.
4481601,127,845.07,845.7,4,Absolutely.
4481601,128,845.7,845.93,4,Yeah.
4481601,129,845.93,855.49,4,Simon but just before we jump to the next point on the agenda uh is there anyone would like to ask a specific questions about financial that uh Simon just covered?
4481601,130,856.54,860.57,4,Or uh you still think about your questions and you're going to keep it for the end.
4481601,131,860.68,871.11,4,It's like you want you know we can take a couple of minutes just to go over and uh clear the uh the financial side of it if you want otherwise you know we're just going to keep in continuing.
4481601,132,871.11,877.44,4,So we are seeing any question right now I will say raise your end but you are just everybody is kind of uh closing his camera.
4481601,133,896.43,901.73,5,So um how should we think about the the acquisition strategy going forward?
4481601,134,920.92,931.37,3,Uh yeah but I mean we're not uh as you've seen with closed eight acquisition uh or six acquisition just in December so right now we're on the interg integration phase.
4481601,135,931.37,934.36,3,It's going very well as you say we'll cover that in the in the sec.
4481601,136,934.83,942.16,3,Uh so we're we're not we're not a week or two to basically uh uh uh announce a new uh acquisition.
4481601,137,942.16,954.92,3,So and we we do have a lot of uh things on our plate really so we're pretty optimistic about what's coming and and of course hopefully the uh uh the the market will also be uh more on the red than on the green.
4481601,138,954.92,964.86,3,So basically all to say is that we uh by that time we uh we're back on track with acquisition we we think and we hope that uh our our stock price would be at higher levels.
4481601,139,981.08,983.65,4,Any other question or we move forward to uh…
4481601,140,985.25,991.19,4,just open your mic if you wanna ask the question to uh Simon and uh just ask your question you are more than welcome.
4481601,141,993.31,997.46,4,And like I said you know we are gonna keep answering questions uh at the end.
4481601,142,997.46,999.7,4,So I promise right?
4481601,143,999.73,1001.34,4,I'm gonna go into a deck.
4481601,144,1001.65,1005.11,4,It's very seldom that we're doing that on the conference call investor conference call.
4481601,145,1005.11,1010.64,4,I think it might be the first time if I do uh remember but I promise we'll be short.
4481601,146,1010.79,1012.13,4,I'll try to do it in ten minutes.
4481601,147,1012.71,1018.0699,4,Hopefully I will not lose everyone but uh ten to fifteen minutes just covering fifteen twenty slides.
4481601,148,1018.77,1033.11,4,And the reason why we wanted to do it is that we were getting a lot of calls Simon and I uh and uh through those calls we are realizing that um we often have to um uh kinda realign the storytelling with some investors.
4481601,149,1033.11,1037.0299,4,We think we're uh some investors think we are middle business.
4481601,150,1037.03,1040.5299,4,Some investors think that we're just a path business and so on and so forth.
4481601,151,1040.53,1047.27,4,So I think that uh the goal of this uh this deck is is kind of a redefining for uh for everyone.
4481601,152,1047.27,1053.64,4,You know I see defining for everyone you know on the same page uh what it is Urbanimmersive and where we're going.
4481601,153,1053.64,1057.21,4,So I'm going to share my screen in a second.
4481601,154,1058.85,1067.63,4,Hopefully you all going to see it except if you you on your cell phone and what's um on a smaller device you might have some problem seeing it so I'm gonna comment those slides here.
4481601,155,1068.33,1072.14,4,Just gonna click on the part presentation.
4481601,156,1072.2,1079.9301,4,So like Simon said this is um the way we describe Urbanimmersive on on the the share specs on our website.
4481601,157,1080.79,1090.6399,4,Um we're basically a technological business a te- a technology business that provides services in the market of real estate precise.
4481601,158,1120.4,1121.53,4,We based in Montreal.
4481601,159,1132.58,1135.8199,4,I mean we've been in this business for uh more than ten years.
4481601,160,1135.97,1148.03,4,And the first thing that my brother and I did uh ten years ago was to design this spaceship kind of prototype of mill to end camera but it was a real prototype by the way.
4481601,161,1148.11,1153.76,4,And in two thousand nine we tried to um raise money to commercialize business.
4481601,162,1153.91,1158.77,4,And uh this is why two thousand twelve to kind of jump in a tears adventure at that time.
4481601,163,1158.77,1172.6899,4,And here in Canada and inaudible per clearly we were adding access to a a tax kind of advantage for an investor called Ryan so to uh to raise money but uh this camera never s the light.
4481601,164,1172.75,1178.39,4,So we kind of uh um create all the software uh surrounding three d tour.
4481601,165,1178.39,1180.1901,4,But you know we're not in newcomers.
4481601,166,1180.1899,1187.92,4,We've we've been trying a lot of things in the real estate supply business uh from developing camera software business solutions so on so forth.
4481601,167,1187.92,1190.27,4,So we know you know the business pretty well.
4481601,168,1191.4,1199.1699,4,And some of the engineers working with me to develop those software I've been working with them for more than twenty five years.
4481601,169,1210.12,1223.0699,4,And our market is real estate or core market of course at the end of the deck we'll talk about addressable markets but our core market is real estate photography for the purpose of marketing.
4481601,170,1223.0699,1225.11,4,So basically you know to sell a house.
4481601,171,1225.6899,1242.04,4,So when we considering that activity for residential commercial and rental we are estimating that this is a a niche market of four billion dollars just in the uh in North America potentially in our estimation something about seven to eight billion dollars worldwide.
4481601,172,1242.85,1256.2,4,Here in north America we're estimating about thirty million shoots a year shoot for us as photographer taking a star and go and shoot a house and bring back twenty five thirty five uh images with all the uh media that comes with that.
4481601,173,1256.9399,1260.96,4,And roughly that provide generates one billion images per year.
4481601,174,1261.63,1263.58,4,So that's our this is our market.
4481601,175,1264.9,1268.0,4,Like Simon said this is a transactional market.
4481601,176,1268.0,1271.71,4,I mean our business is linked to the housing inventory.
4481601,177,1271.71,1285.6399,4,So if the housing inventory ramp up we're gonna ramp up if it's going down because our business model as we going to see in this slide is mostly nine percent transactional-based we're gonna follow the trend.
4481601,178,1285.98,1291.6,4,And unfortunately right now the trend is a history actually it historic.
4481601,179,1292.0699,1297.3,4,Uh they uh most of the unless we talk with they never saw such a low inventory of house for sales.
4481601,180,1297.96,1303.3199,4,Uh you know I'm not sure I like those numbers the way I'm presenting it today but those are real.
4481601,181,1309.1899,1314.9199,4,And our new acquisition or are just coming to you know our pipeline of revenue in the last quarter.
4481601,182,1315.02,1321.8199,4,So if you take just the stats like Simon said minus 7% overall we feel we're winning clients.
4481601,183,1330.78,1341.29,6,So this is why I mean you know it's kind of um uh of a uh a bad place to be right now but you know I'm a positive person and um I don't think it's gonna get worse.
4481601,184,1341.76,1345.67,6,Uh and uh we're hearing that you know the interest rate should increase.
4481601,185,1345.75,1358.35,6,So that will kind of uh uh hopefully uh slow down a little bit you know the um uh some of the interest of the buyers uh or people sending our house in any cases.
4481601,186,1358.35,1361.89,6,I think we kind of the uh where the bottom the of the barrier right now.
4481601,187,1361.92,1366.8401,6,So I think it that dissertation will just come go start and ramping up again.
4481601,188,1367.42,1380.01,6,And of course like uh Simon said you know we potentially sixty percent uh down compared to what numbers should usually be in terms of uh listings in terms of house for sales.
4481601,189,1380.4399,1393.7,6,So inaudible should follow the trends and and potentially just you know uh beat the transaction because we believe right now we're beating you know we are kind of uh succeeding in that very very difficult market.
4481601,190,1402.98,1403.3201,6,All right.
4481601,191,1403.3199,1412.59,6,So the stock business in itself it's a it's a business that is transforming a lot and it's definitely shifting to a technology driven high volume business.
4481601,192,1413.02,1422.2,6,So basically you have to do a lot of transactions per day because it's a highly competitive landscape and you need to bring a lot of value in terms of technology.
4481601,193,1422.2,1429.05,6,So basically we kind of you know spread all the parts that we need to succeed in product business.
4481601,194,1429.05,1431.21,6,Like you need to have online booking system.
4481601,195,1431.21,1436.25,6,You need to have the capture hardware not just the camera but the you might need the three d camera.
4481601,196,1436.25,1437.95,6,You might need a a drone.
4481601,197,1438.29,1440.49,6,So you need to have those visualized hardware.
4481601,198,1441.13,1453.1799,6,You need to uh post it di images to increase you know the the the the the wide balance to put a blue sky on on the external uh facade uh images.
4481601,199,1453.1801,1454.5299,6,So you need to have this service.
4481601,200,1454.71,1461.01,6,You need to create YouTube video slideshow because YouTube is one of the the most popular search and giant in real estate.
4481601,201,1461.45,1463.3201,6,Of course you need to provide three d tours.
4481601,202,1463.3199,1464.4399,6,It's the must have today.
4481601,203,1464.75,1470.52,6,And floor plan is kind of I will say basically more important in the three d tours right now in the market.
4481601,204,1470.52,1476.1801,6,There's a lot of interest even in some states like here in Canada floor plans are mandatory.
4481601,205,1477.08,1479.0199,6,Uh this is a common product.
4481601,206,1479.02,1482.34,6,It's a you know you definitely need to provide website.
4481601,207,1482.71,1484.09,6,We call it Property Website.
4481601,208,1484.09,1487.9701,6,So it's a website data to showcase one house for sale.
4481601,209,1488.52,1492.8401,6,You need a system to deliver one hundred images high quality images.
4481601,210,1492.84,1495.4901,6,You know it images cannot be just transferred by emails.
4481601,211,1495.92,1502.79,6,So you need to have some sort of a study system to transfer your image and you need a very performance uh payment system to get paid.
4481601,212,1503.42,1518.9399,6,When you look at all those things that you need to run a photography business today Urban Asset is the only company offering and owning every part of uh the uh the every every portion every technology required to the business right now.
4481601,213,1520.1,1525.0601,6,And that's giving us uh a lot of advantages over over our competition.
4481601,214,1525.6899,1526.86,6,I will start from the bottom.
4481601,215,1527.01,1532.25,6,Of course the after sale support is easier for Urban Assets to do because we're providing each part.
4481601,216,1532.25,1539.01,6,We're not relying to third party for three d tours for floor plans for photo editions everything is done internally.
4481601,217,1539.63,1543.95,6,So of course we have a pretty difficult to beat turnaround every time.
4481601,218,1543.95,1549.5699,6,We can deliver uh faster than our competitors because they're fewer uh parties involved.
4481601,219,1549.9301,1552.6,6,We can we have more flexibility in our packages.
4481601,220,1552.6,1554.88,6,We can offer and deal with our our clients.
4481601,221,1555.45,1558.26,6,We keep our margins pretty high for the value we bring.
4481601,222,1558.26,1568.41,6,And and you know we we like to tell the market that we uh we are one of the most competitive uh business right now in terms of pricing.
4481601,223,1568.4399,1597.61,6,So being a one stop shop is definitely bringing a lot of value to our clients and it's positioning or been immersive for winning uh many deals many contracts with real estate agents and other offers The business model when you look at each of the parts there's some portion of those um those uh required um elements that you need to run a a photo business that are not technology like you know taking a picture you need to have a human doing that you need to have a photographer.
4481601,224,1598.15,1611.11,6,Uh photo is ed editing and image is you know even if AI is super well advanced and you know a lot of people tell that they are photo editing images with computer you still have some human the human will do a better job.
4481601,225,1611.5699,1618.5601,6,And the floor plans you need to dr somebody draw to draw floor plans w- and put furnitures write the rooms name and stuff like that.
4481601,226,1619.2,1622.5701,6,Those services we offer bring it to our clients.
4481601,227,1622.5699,1626.88,6,So we call them Service on Demand and it's transactional based.
4481601,228,1626.88,1636.4399,6,So each time somebody wants to have a photographer on on on site uh the the the client pay send a photographer sending for photo edition and floor plan.
4481601,229,1637.12,1639.26,6,And the rest is mostly technology.
4481601,230,1639.26,1644.11,6,So and we still offering it every part even if there's no uh line with the booking system.
4481601,231,1644.11,1650.14,6,We we are offering it and it's still transactional uh most of uh for most of the parts.
4481601,232,1650.21,1662.64,6,So we're charging for example five dollars to render a slide to bill four dollars to render a three d tours uh fifteen dollars to trade a property website and uh three dollars to transfer the images.
4481601,233,1662.64,1669.59,6,So think about this part here as a Dropbox Dropbox kind of uh platform to transfer the high quality images.
4481601,234,1670.29,1677.9,6,We added this year a new service that Simon that briefly talked during the financial ally what we call the Prime Subscription.
4481601,235,1677.9,1680.7899,6,So the Prime Subscription is basically for dollar thirty a month.
4481601,236,1681.1801,1684.22,6,Agents can subscribe to that plan.
4481601,237,1684.52,1691.3201,6,And each time we order one of our photographers we are gonna bundle all the technologies uh we can offer to them.
4481601,238,1691.35,1698.7699,6,So this is a very popular um subscription right now where it's uh and well will talk a little bit later in the deck about it.
4481601,239,1700.23,1702.78,6,Simon briefly talked about the distribution of revenues.
4481601,240,1702.9399,1706.22,6,So three million in stock eight million dollars in uh services.
4481601,241,1706.22,1714.1,6,I just want to add uh for the stock is still um serving around seventeen hundred uh real estate photographers.
4481601,242,1714.1,1724.75,6,So this number here is our end end photographers using our technologies to serve their agents their clients is generating around two hundred six thousand probably website per year.
4481601,243,1725.16,1728.04,6,In terms of services so we're talking about our photographers.
4481601,244,1728.74,1734.35,6,We're serving around one two oh oh oh real estate agents and doing around fifty thousand shoots a year call it shoots a year.
4481601,245,1734.35,1739.83,6,So basically this is including our acquisition that we've done uh during two thousand twenty one.
4481601,246,1741.29,1754.0901,6,When we talk about technology and new site from the uh history uh the timelines of urban immersive you know we started with the three sixty camera design we still passion passionate hi highly passionate about three d technology.
4481601,247,1754.09,1762.49,6,We're always kind of keep that uh in our products and and and really kind of uh hope that someday you know three d tours will will get back on the market.
4481601,248,1762.49,1767.65,6,And this is definitely what COVID-19 has created generated a demand for three d tours.
4481601,249,1768.02,1769.22,6,This is our core technology.
4481601,250,1769.6,1779.14,6,And we believe that we have right now um one of the most complete three d tour solution on the market.
4481601,251,1779.1801,1790.4701,6,If you look at uh the all the features we are offering uh few companies can um can uh uh state that they have have all this in their three d solution.
4481601,252,1790.47,1795.1699,6,So of course we're each time we're doing a three d tour we are providing a dollhouse…
4481601,253,1801.13,1812.34,6,We can measure uh um on the floor and and with tape uh we're having our own builtin floor plan drawing software built in in the three d tour itself.
4481601,254,1812.34,1817.16,6,So even our clients can play with it and can change the uh the four plan if they want.
4481601,255,1817.16,1819.41,6,So there it we are not using other card.
4481601,256,1819.41,1822.1901,6,We're not using a third party software to create a floor plan.
4481601,257,1839.4,1843.6,6,Uh we you have those tag also that you can put some uh graphic and links.
4481601,258,1843.99,1847.76,6,Um some are calling that hotspot three d hotspot.
4481601,259,1848.23,1849.9301,6,This is pretty unique to urban immersive.
4481601,260,1849.9301,1853.33,6,So we are showing an interactive map of people within a room.
4481601,261,1853.6899,1856.7899,6,This is not picture of people actually it's a real video.
4481601,262,1856.79,1861.52,6,So you can see you know people in their um in their livestream video on the map.
4481601,263,1862.5,1864.4301,6,And of course we have the avatars.
4481601,264,1864.46,1869.8201,6,So the three d social spaces where you can visit with friends and interact with them.
4481601,265,1869.85,1874.9401,6,So whether you can interact uh by chatting or you can interact with video conferencing.
4481601,266,1875.63,1883.22,6,Um the next slide is uh something pretty special for us because you know we are we are running a photography business.
4481601,267,1883.61,1888.5399,6,Uh we are offering uh photography services and we want to be highly efficient.
4481601,268,1888.74,1898.2001,6,And the only way you can achieve um profitability and keep your margins by going fast you need to do a shoot super fast.
4481601,269,1899.14,1903.45,6,Being two hours in the house you know it's uh it is it's too long.
4481601,270,1903.48,1907.0,6,So we want our photographer to do six to seven shoots per per day.
4481601,271,1907.72,1917.5601,6,And in order to do that we develop our own capture app that is three times faster than anything else that we've seen on the market to to uh scan a house.
4481601,272,1918.2,1920.1699,6,It works on iPhone iPad.
4481601,273,1920.22,1926.4,6,It use advanced computer vision alignment system to uh create those map when you shoot.
4481601,274,1926.86,1929.34,6,It's fully integrated within our workflow.
4481601,275,1929.88,1948.0,6,So it's definitely uh improving uh the productivity of our people and it so we also add some features uh that enables offers to add uh additional uh information on the map uh for uh adding value um improve production.
4481601,276,1956.96,1965.3101,6,So for every tour we uh providing with our Prime Subscription people will receive a detailed report about the property.
4481601,277,1993.0,1998.64,7,So basically it's uh the added side is you know you can see people visiting the home with you in the three d space.
4481601,278,1999.13,2005.1499,7,And we just opened the video camera so it becomes some sort of three d video conference.
4481601,279,2005.15,2019.86,7,And i will tell you uh that we're presenting inaudible to many um uh industry leaders and uh it's making a lot of noise right now and we're expecting to have some um significant uh partnership to announce soon.
4481601,280,2020.39,2033.01,7,Um many of the people within the industry and as you see I'm not using that word today but we've been told and people are telling us that it might be the Verkshum one point zero after all of Metaverse.
4481601,281,2033.4,2044.12,7,You know being able to be all together within an environment visually interacting uh where you are within the space.
4481601,282,2044.12,2056.7,7,What you're looking at and with the view system uh it is uh definitely something that um has a lot of value for our clients partners inaudible brokers and so on.
4481601,283,2077.1299,2084.1899,7,So so far uh we have four provisional patents on that.
4481601,284,2084.24,2095.9399,7,We're working on a fifth one and basically related so we were presenting inaudible when there are multiple people on the inaudible the way we controlling uh user control user loop experiences so far.
4481601,285,2098.8301,2109.0701,7,And um about a three d tour uh we have today what we believe one of the most complete three d marketing websites suite on the market.
4481601,286,2109.0701,2116.8501,7,So basically those are websites dedicated to show to showcase the best way possible three d tours.
4481601,287,2117.3999,2120.22,7,Uh we have more than twenty customizable designs.
4481601,288,2120.6599,2124.9099,7,Uh act upon the media like stills still pictures video and so on.
4481601,289,2124.9099,2131.6899,7,So if it's uh so we understand that it's highly appreciated by our clients.
4481601,290,2132.02,2137.4099,7,cuz once you have a three d tour you need to distribute it you need to promote it and we have complete solutions for that.
4481601,291,2139.0801,2154.97,7,The way you know we run inaudible business we uh we're years inaudible actually we started developing our own business solution e r p or CRM whatever you want to call it it's a system that helps managing uh the inaudible business.
4481601,292,2155.6001,2158.8601,7,And today we're using it to manage our own inaudible business.
4481601,293,2171.1699,2172.0601,7,What does it mean?
4481601,294,2172.0601,2178.54,7,It means that we can in real time without any delays find a inaudible with the next shoot.
4481601,295,2178.6201,2191.1399,7,So when an agent comes our platform and you wanna book a photographer at two o'clock Saturday the system will find the right photographers for the right services for the right client at two o'clock and the booking is confirmed.
4481601,296,2191.1399,2193.0,7,There's no other communication.
4481601,297,2193.4299,2196.1802,7,They will be assured that the photographers will be there.
4481601,298,2196.21,2209.1799,7,So the system calculates the uh the uh the the travel time calculate the service time and at the end of the day give us you know the possibility to uh to uh improve the productivity of the businesses we are acquiring.
4481601,299,2209.1799,2219.1599,7,To give you an example one of the business we acquired were doing three point five shoots a day uh and today they were running at seven shoots a day with this system.
4481601,300,2219.1599,2224.52,7,So we feel radically the difference uh using our system.
4481601,301,2226.6201,2229.0901,7,Oh and I'd like to say this is a autonomous algorithm.
4481601,302,2229.46,2234.5,7,You know behind that we don't we don't use Google uh Map or any other uh software.
4481601,303,2234.8,2237.8601,7,It's uh it's our own business intelligence.
4481601,304,2261.8401,2268.02,7,But they're offering the uh complete package of uh you know visual conference capturing three d planning.
4481601,305,2281.99,2284.3799,7,Most of the floor plan drawing is done in Paris.
4481601,306,2285.1201,2287.8499,7,Uh um I wanna say most maybe fifty fifty.
4481601,307,2287.8501,2305.71,7,fifty percent is done here in Quebec using our own software and uh we like to say that we've deblocked some sort of a marketplace where we can engage really rapidly new people to work on our system and to help you know with the volume.
4481601,308,2316.26,2331.29,7,Um the reason is that because uh some of the businesses that we have acquired uh we currently are paying with uh offshore uh companies three times what it cost us to uh inaudible.
4481601,309,2331.4099,2339.6399,7,So we expect to increase the margins of the uh of our uh one some of our biggest acquisitions that we've done recently.
4481601,310,2371.5901,2415.52,7,It looks like you succeeded to shut it down and we're terribly sorry about that.
4481601,311,2415.52,2416.76,7,It's the first time it's happening.
4481601,312,2416.76,2419.6099,7,We've been hacked uh on that call.
4481601,313,2420.3799,2421.95,7,Uh are you hearing me?
4481601,314,2423.1499,2423.73,7,Yeah okay.
4481601,315,2424.03,2425.97,7,So first time first experience.
4481601,316,2425.97,2428.9399,7,So it's not us it's not inaudible so at least you know that.
4481601,317,2429.3701,2432.24,7,And hopefully those young guy that had a lot of fun.
4481601,318,2446.8201,2447.1301,7,Yeah.
4481601,319,2449.6201,2451.1299,7,So sorry for that.
4481601,320,2451.1299,2453.1001,7,We're gonna try to get back to our meeting.
4481601,321,2453.1001,2454.8899,7,Otherwise we're gonna have to terminate that.
4481601,322,2466.3999,2469.51,7,So are we good to continue or are we gonna have other people…
4481601,323,2487.1201,2487.26,8,Yeah.
4481601,324,2496.24,2499.46,7,So all right let's close it uh Simon let's close the call.
4481766,0,15.66,61.0,0,Good morning and good evening.
4481766,1,72.63,76.24,0,That is star and one on your phone during the Q&A.
4481766,2,76.24,83.97,0,Now we shall commence the presentation on the fiscal year 2021 fourth quarter earnings results by LG Display.
4481766,3,83.97,84.2,1,foreign language.
4481766,4,84.2,85.08,2,Good morning.
4481766,5,85.08,89.84,2,This is Brian Ha in-charge of LG Display's IR.
4481766,6,90.27,90.59,1,foreign language.
4481766,7,90.59,97.3,2,On behalf of the company lemme thank all the participants at this conference call.
4481766,8,97.3,98.12,1,foreign language.
4481766,9,99.14,102.47,2,Today I'm joined by the C F O Sang-Don Kim;
4481766,10,103.13,106.29,2,Hian Gin Senior Vice President of Corporate Strategy Group;
4481766,11,106.99,109.73,2,Seung Min Lim Vice President of Corporate Planning;
4481766,12,110.32,113.21,2,Hee-Yeon Yi in-charge of Business Intelligence;
4481766,13,113.58,116.67,2,Daniel Lee in-charge of Large Display Marketing;
4481766,14,117.39,121.18,2,He Young Kwan Vice President of Medium Small Display Marketing;
4481766,15,121.69,124.93,2,and Yu Han Soon Vice President of Auto Marketing.
4481766,16,127.39,127.94,1,foreign language.
4481766,17,128.55,146.31,2,The conference call will be conducted in both Korean and English.
4481766,18,146.7,156.94,2,Please refer to the provisional earnings release today or the IR Events section in the company's we website for more details on the financial results of q four twenty twenty one.
4481766,19,171.46,172.66,1,foreign language.
4481766,20,175.4,179.69,2,Before presenting the company's earnings there will be a presentation on OLED.
4481766,21,179.75,182.76,2,EX a new technology for large OLED.
4481766,22,183.3,190.48,2,It can be viewed via mobile devices or a video webcast through an IT device as well as on the IR website.
4481766,23,200.25,201.37,1,foreign language.
4481766,24,205.3,217.57,2,The oled ex presentation will last for about five minutes followed by a briefing on the financial results of q four twenty twenty one and the company's outlook for q one twenty twenty two and q and a.
4481766,25,221.82,222.87,1,foreign language.
4481766,26,222.87,242.16,2,The technology presentation will be led by Min Yu Jin in-charge of Life Display Promotion.
4481766,27,242.79,250.17,2,The company's large OLED has been evolving and developing ever since its launch culminating in the oled ex technology.
4481766,28,256.78,257.02,1,foreign language.
4481766,29,257.05,265.1,2,This presentation is in English with Korean subtitles at the bottom of the screen.
4481766,30,266.44,269.85,3,Hi I want to appreciate all of you for joining us today.
4481766,31,291.65,313.12,3,Are we introduced to EX technology the core of oled ex which enables um evolved experience EX technology improves product efficiency and brightness by increasing the stability of organic light emitting devices which are the most important elements in creating great picture quality of OLED.
4481766,32,313.54,319.62,3,And the two key step enable this technology are deuterium and personalized algorithms.
4481766,33,320.21,323.39,3,Deuterium is an element also known as heavy hydrogen.
4481766,34,323.86,334.1,3,And as the name implies it return returning as a similar structure to inaudible hydrogen but it has an extra neutron.
4481766,35,334.72,336.99,3,It is not artificially synthesized.
4481766,36,337.34,339.45,3,It is a real natural element.
4481766,37,340.06,345.89,3,However there is only one item of deuterium for every six thousand atoms of hydrogen.
4481766,38,346.87,353.6,3,We developed the technology to extract deuterium from water to replace hydrogen in existing OLED materials.
4481766,39,354.27,372.7,3,Our OLED materials maintain their original shape but become more stable through our deuterium substitution process meaning that they are stronger against electrical stimulation and heat which means they remain more reliable for longer even at high brightness.
4481766,40,373.31,377.92,3,In the end we developed a highly stable device that emit brighter light.
4481766,41,378.88,387.11,3,Using deuterium oled ex can be realize a higher level of natural brightness and detail similar to what we've seen in real life.
4481766,42,387.96,392.06,3,The second key to EX technology is personalized algorithms.
4481766,43,392.76,403.36,3,We use personalized algorithms to control OLED's brightness and enhanced performance by predicting usage for each device according to viewing patterns of each user.
4481766,44,404.08,409.1,3,I often display places I want to travel to after the pandemic on my OLED TV.
4481766,45,409.73,410.64,3,This is one of them.
4481766,46,411.12,420.52,3,It is an aerial view of granted prismatic spring or hugely hot spring in Yellowstone National Park in the u s It looks almost like the sun blazing.
4481766,47,420.77,421.28,3,Doesn't it?
4481766,48,422.58,431.12,3,Some days I live this scene for a long time and the blue pixels on my OLED TV are of course used a lot for the blue part.
4481766,49,431.59,434.64,3,The green parts use mostly green cell pixels.
4481766,50,434.95,439.07,3,And as you can guess the OLED parts use mostly lesser pixels.
4481766,51,439.91,453.01,3,This is where our personalized hydrogen technology comes into play intelligently predicting usage and optimizing each w r g and B element to maintain stable use.
4481766,52,453.75,461.01,3,These personalized algorithms combined with deuterium which we just talked about give our OLED panels their strength.
4481766,53,461.67,472.31,3,With EX technology our OLED has evolved to become stronger than ever with thirty percent increased brightness and natural colors we produce with greater detail.
4481766,54,473.64,478.24,3,oled ex decrease details actually the way content creators intended.
4481766,55,479.06,483.56,3,Design is also no exception when it comes to the evolution of oled ex.
4481766,56,484.06,494.4,3,oled ex Introduces a new bezel that's about thirty percent thinner than before making this the most aesthetically pleasing design of any existing OLED.
4481766,57,495.46,506.11,3,We took innovative evolution a step further to satisfy the most and many consumers without making any compromises to OLED's image quality or slim design.
4481766,58,506.97,517.94,3,We can sum up oled ex philosophy of evolution with the word's great detail meaning detailed innovation to bring our customers' perfect picture quality.
4481766,59,519.14,533.94,3,The reason why we bet on and focus the tenures of technical expertise on developing the detail is simple because every detailed innovation results in the details in the content our customers experience.
4481766,60,534.69,546.01,3,This is not only important for Hollywood filmmakers and other professionals is also very important for everyone who wants to capture get most in and fill every last detail.
4481766,61,546.96,555.4,3,oled ex panels with EX technology will be used in all of our OLED TV panels from the second quarter of two thousand twenty two.
4481766,62,555.99,564.63,3,And we will continue to showcase new innovative products with pursuing natural reality the philosophy that guides us.
4481766,63,565.33,573.9,3,With oled ex we will bring our customers evolved experience with OLED and show evolved leadership in the global OLED market.
4481766,64,574.39,574.87,3,Thank you.
4481766,65,585.31,585.94,1,foreign language.
4481766,66,587.26,588.56,2,Thank you for your attention.
4481766,67,589.03,591.26,2,Before we begin the presentation please take…
4481766,68,610.52,611.24,1,foreign language.
4481766,69,612.49,621.71,2,Please note that today's results are based on consolidated i f r s standards prepared for your benefit and have not yet been audited by an outside auditor.
4481766,70,638.82,639.51,1,foreign language.
4481766,71,641.12,647.35,2,There has been a revision to the k i f r s number one thousand and sixteen on property plant and equipment.
4481766,72,647.95,655.04,2,In applying the revision the company modified how we account for prototypes that are sold during a planned test operation.
4481766,73,661.14,661.9,1,foreign language.
4481766,74,661.9,681.47,2,It used to be that the net selling price of the goods produced during test operation would be deducted as P P E as the acquisition cost.
4481766,75,681.96,686.24,2,But with the amendment the cost has to be recognized as profit or loss.
4481766,76,692.42,693.31,1,foreign language.
4481766,77,695.27,708.82,2,Early application of the amendment has caused some changes from our earnings in two thousand twenty.
4481766,78,710.82,716.2,2,With that said we'll now start with the presentation on q four twenty twenty one earnings results.
4481766,79,717.6,722.04,1,foreign language.
4481766,80,722.04,724.65,2,lemme start off with our business performance in q four.
4481766,81,725.73,726.39,1,foreign language.
4481766,82,747.3,751.8799,2,Revenue in q four was eight point eight eight one trillion Yuan.
4481766,83,752.34,762.6,2,It was driven by the higher share of large and medium and small OLED and increase in IT panel shipment following the business structure upgrade.
4481766,84,763.4,770.43,2,It was the highest ever for a quarter up twenty two percent q o q and up eighteen percent y o y.
4481766,85,787.41,788.54,1,foreign language.
4481766,86,792.18,795.86,2,Operating profit was four hundred seventy six billion Yuan.
4481766,87,796.33,804.84,2,It was down ten percent q o q due to continued decline in L C D TV panel price and year-end one-off costs.
4481766,88,805.57,811.39,2,In terms of actual performance excluding the one-off factors it was in line with market expectation.
4481766,89,820.73,821.45,1,foreign language.
4481766,90,822.9,828.9,2,Operating profit margin in q four was five percent with EBITDA margin at nineteen percent.
4481766,91,829.45,832.4,2,Net profit was one hundred eighty billion Yuan.
4481766,92,834.25,834.8,1,foreign language.
4481766,93,834.8,841.2599,2,lemme now go over our business performance for the year.
4481766,94,857.26,858.2,1,foreign language.
4481766,95,860.41,870.35,2,Revenue in twenty twenty one was twenty nine point eight seven eight trillion Yuan and operating profit was two point two three one trillion Yuan.
4481766,96,871.3,881.23,2,Revenue was the highest ever while profitability was also considerably improved thanks to the turnaround in OLED and upgrade in our business structure.
4481766,97,890.93,891.31,1,foreign language.
4481766,98,891.31,893.78,2,was up twenty three percent y o y.
4481766,99,896.72,901.35,2,We turned around to profit with operating profit margin of seven percent.
4481766,100,903.45,904.19,1,foreign language.
4481766,101,906.19,915.39,2,area shipment and area inaudible a s p.
4481766,102,929.18,931.19,1,foreign language.
4481766,103,931.19,939.82,2,Area shipment in q four was nine point three six million square meters increasing twelve percent from the previous quarter.
4481766,104,940.47,948.97,2,IT panel shipment remained solid and large OLED panel shipments grew on the back of strong demand for high-end TV.
4481766,105,956.38,960.9,1,foreign language.
4481766,106,960.9,980.54,2,Area panel price was eight hundred six dollars up eight percent q o q thanks to shipment growth in large and medium small o l e d.
4481766,107,980.74,981.66,1,foreign language.
4481766,108,983.2,993.95,2,The company's production capacity in q four decreased three percent q o q owing to line adjustment to prepare for new models and additional allocation to r and d.
4481766,109,997.28,997.7401,1,foreign language.
4481766,110,1000.12,1003.33,2,Next is q four revenue breakdown by product segment.
4481766,111,1034.72,1035.59,1,foreign language.
4481766,112,1038.34,1044.72,2,IT panel our standout among competition maintained the biggest portion at forty two percent.
4481766,113,1045.41,1057.4199,2,TV panels came in next with twenty seven percent down five percent points q o q despite higher shipment of large OLED due to declining L C D TV panel price.
4481766,114,1058.36,1068.6599,2,Mobile and others accounted for thirty one percent up eight percent points q o q thanks to growth in shipment of p OLED smartphones and wearables.
4481766,115,1071.86,1072.7101,1,foreign language.
4481766,116,1073.55,1076.7201,2,Next is the company's financial position and ratios.
4481766,117,1082.08,1082.53,1,foreign language.
4481766,118,1082.53,1095.16,2,The company's cash and cash equivalents at the end of q four was four point three trillion yuan.
4481766,119,1095.78,1103.1,2,Inventory was three point three five trillion yuan decreasing by two hundred thirty billion yuan q o q.
4481766,120,1106.63,1107.22,1,foreign language.
4481766,121,1107.22,1128.6,2,The inventory is kept at a higher level than usual as a safety stock to prepare against supply chain uncertainties such as commodities and logistics issues.
4481766,122,1142.35,1143.1699,1,foreign language.
4481766,123,1143.17,1166.4701,2,Liabilities to equity ratio was one hundred fifty eight percent and current ratio was ninety four percent both almost flat q o q.
4481766,124,1167.12,1173.6599,2,Net debt-to-equity ratio came in at fifty seven percent improved by six percent points q o q.
4481766,125,1174.55,1180.72,2,It was down twenty percent points y o y showing meaningful improvement in financial soundness.
4481766,126,1194.59,1195.35,1,foreign language.
4481766,127,1195.35,1196.8401,2,Next is cash flow.
4481766,128,1197.26,1204.42,2,The company's cash and cash equivalents at the start of q four was four point two oh nine trillion yuan.
4481766,129,1205.0,1212.99,2,It increased by seventy five billion yuan and stood at four point two eight five trillion yuan at the end of q four.
4481766,130,1222.54,1222.9301,1,foreign language.
4481766,131,1224.26,1230.49,2,Next is presentation by the company's new C F O Sang-Don Kim on business performance and strategy.
4481766,132,1235.14,1235.9,4,foreign language.
4481766,133,1238.13,1243.1899,2,Good afternoon and good evening to shareholders investors and analysts from home and abroad.
4481766,134,1245.71,1246.58,4,foreign language.
4481766,135,1247.37,1250.51,2,This is LG Display's C F O Sang-Don Kim.
4481766,136,1251.79,1252.5801,4,foreign language.
4481766,137,1252.58,1261.97,2,I went from being…
4481766,138,1262.49,1270.8099,5,I went from uh being in charge of finance uh to C F O last year and I greet you for the first time today through this conference call.
4481766,139,1271.33,1312.6899,5,As the new C F O I feel the responsibility of having to deliver on the company's strategic tasks under an increasingly volatile business environment with the persistent pandemic and intensifying competition.
4481766,140,1313.5601,1325.37,5,But I also harbor expectations of new opportunities as we see our strategic push in the past few years to upgrade the business structure and better prepare for the future bear fruit.
4481766,141,1326.92,1352.87,5,So with the sense of heavy responsibility being the C F O at such a critical juncture I will play an active role in improving corporate performance while balancing opportunities and risks.
4481766,142,1353.87,1368.4501,5,With that now let me move on to the guidance for q one twenty twenty two as well as the company's business strategy.
4481766,143,1371.96,1373.8201,5,First is q one guidance.
4481766,144,1381.7,1387.04,5,In q one area shipment will decline by mid to high single digit q o q.
4481766,145,1387.45,1412.87,5,But the pace of seasonal decline will not be as much as in other years.
4481766,146,1413.29,1431.11,5,Although shipment of panels of all sizes is expected to fall due to seasonality IT panel continues to enjoy b two b demand coming from the increasing trend of work from home online education and general changes in the office environment.
4481766,147,1435.51,1452.65,5,But area price is expected to fall by mid to high teen digit q o q due to seasonal decline in shipment of mobile panel.
4481766,148,1459.53,1462.62,5,Next is operational strategy for each business.
4481766,149,1478.54,1488.51,5,Looking back on the past year we were able to show meaningful results in our core strategic tasks even as COVID-related volatility and uncertainty continued.
4481766,150,1496.84,1502.4,5,More importantly OLED is now at a stage where it can produce substantive results.
4481766,151,1503.66,1547.2101,5,Although the TV set market saw negative growth of over ten percent last year sales of OLED TV sets grew over sixty percent driving the expansion in the overall high end TV market.
4481766,152,1548.01,1559.1001,5,The high end TV market grew at a thirty percent level y o y with OLED TV's share in this market surpassing thirty percent as of q four last year.
4481766,153,1590.79,1605.85,5,Panel shipment recorded a remarkable growth of more than seventy percent y o y and the business turned around to profit in the second half of last year reaching the B E P level for the year.
4481766,154,1606.46,1612.1299,5,Continuing from last year shipment growth for this year is planned at twenty percent for the year.
4481766,155,1612.9399,1618.2899,5,We also plan to keep improving profitability based on the stronger business performance.
4481766,156,1618.9399,1663.87,5,In the case of small and medium OLEDs we became capable of ensuring consistency in development mass production and quality.
4481766,157,1664.5601,1669.7999,5,It is now in a stable growth path based on stronger relations with strategic partners.
4481766,158,1670.52,1676.9,5,In mobile business we aim to further improve profitability by expanding new models in the second half.
4481766,159,1677.75,1689.78,5,We will leverage our unique competitiveness to broaden outside the mobile preempt medium size OLED premium market and expand to the mobility industry including automobiles.
4481766,160,1694.22,1703.89,5,The L C D sector also achieved outstanding results by proactively responding to market changes.
4481766,161,1705.0,1722.38,5,In L C D we are maintaining the select and focus approach centered on high end IT in line with our strategic positioning.
4481766,162,1730.7,1735.14,5,This year is expected to see demand adjustment after covid nineteen.
4481766,163,1735.9301,1767.8301,5,The company continues to secure stability in business operation by minimizing volatility.
4481766,164,1768.59,1782.01,5,We are gradually reducing the portion of supply-demand businesses that are highly susceptible to market conditions while increasing the businesses that can produce consistent results in strategic collaboration with customers.
4481766,165,1797.86,1808.49,5,Going further anchored on OLED we will continue to expand our business to deliver new experience and values to customers going beyond existing product areas.
4481766,166,1810.54,1818.59,5,Last is our investment and financial management activities.
4481766,167,1820.51,1846.87,5,CapEX last year was KRW three point two trillion.
4481766,168,1847.89,1856.78,5,It is expected to increase this year as we go go ahead with the investment in small and medium OLED that was decided last year.
4481766,169,1857.54,1864.3,5,The company will keep to the principle of keeping CapEx within EBITDA while trying to improve our financial soundness.
4481766,170,1865.3,1903.5,5,The company announced today a predictable and sustainable midterm dividend policy with the view to improve shareholder value.
4481766,171,1904.27,1914.51,5,We will maintain a dividend payout ratio of twenty percent of the consolidated net profit from the business years of twenty twenty one to twenty twenty three.
4481766,172,1915.28,1924.48,5,Accordingly the b o d today decided on KRW six hundred fifty per share in cash dividend for the twenty twenty one business year.
4481766,173,1925.95,1939.46,5,The company will keep looking for ways to improve shareholder value from a long-term perspective.
4481766,174,1951.33,1963.77,5,Pandemic lingers we inaudible will bolster our responsiveness to the external environment to minimize risk and ensure stability in business operations.
4481766,175,1972.4301,1977.96,5,We will spare no effort to continuously heighten market confidence and create higher values.
4481766,176,1978.63,1979.03,5,Thank you.
4481766,177,1979.03,1999.27,6,That brings us to the end of earnings presentation for q four twenty twenty one.
4481766,178,1999.63,2001.72,6,we'll now take questions inaudible session.
4481766,179,2130.0,2135.98,8,Uh I have two questions uh one on large OLED and another on l c d.
4481766,180,2136.46,2144.8298,8,Now first about the large OLED so what was the performance in twenty twenty one and the outlook for twenty twenty two?
4481766,181,2145.29,2154.5,8,So are there any differences between the guidance last time about the twenty twenty one performance and the expected shipment in twenty twenty two?
4481766,182,2155.1201,2159.1001,8,And also what was the profitability for this business division?
4481766,183,2159.3999,2163.4199,8,So for twenty twenty one and also the outlook for twenty twenty two.
4481766,184,2164.1101,2166.6501,8,And the second question is on l c d.
4481766,185,2167.3301,2186.3501,8,So the L C D panel price has been falling for the seven seventh month now but then we are also now seeing some signs of the price decline stopping for thirty inch and forty inch LCD panels then what is the uh panel price outlook for l c d this year?
4481766,186,2186.3799,2193.6299,8,So for IT we see that the i IT LCD panel price also started to decline last month.
4481766,187,2193.8899,2200.3601,8,So what is uh similar question so what is the price outlook for IT panel this year?
4481766,188,2203.0701,2220.96,9,Now regarding the first question about the large OLED uh this is Daniel Lee in charge of large display marketing responding to that.
4481766,189,2245.99,2267.76,9,Now first of all as the CFO had highlighted earlier the overall TV set market showed negative growth of over ten percent last year but uh among them the OLED uh TV in other words the high end TV uh continued to grow and OLED TV solidify its position in the high end TV market.
4481766,190,2268.1899,2275.9299,9,So in the fourth quarter of last year the OLED TV took up over thirty percent in the high end TV market.
4481766,191,2290.4299,2294.0898,9,To give you more highlights uh what we see as the…
4481766,192,2294.1201,2306.9102,9,some uh meaningful uh performances so in the developed markets like the North America market for the year it took up over a thirty percent market share and in Europe it was over forty percent for the year.
4481766,193,2326.8501,2336.72,9,Now not only the sales of the TV set but uh accordingly uh the company's panel shipment also grew by over seventy percent y o y.
4481766,194,2337.24,2342.99,9,So in the second half it turned around to profit and for the year it reached B E P.
4481766,195,2345.05,2370.23,9,Now in terms of the specific shipment uh we did fall a little bit short of the target in terms of the shipment but then in terms of the area we did uh come in line with the target as we had focused more on the large OLED.
4481766,196,2371.75,2391.29,9,This year as the CFO had reported earlier we uh our guidance is uh over twenty percent of increase in panel shipment.
4481766,197,2411.01,2422.97,9,And the more recent numbers show although they are for the weekly sales but uh so in the month of January we see that the actual sales uh remain similar to the fourth quarter level.
4481766,198,2423.4299,2429.1301,9,And based on our strong uh stronger business structure we will continue to improve our profitability.
4481766,199,2430.1799,2455.79,7,The following question will be presented by inaudible from HI Investment Securities.
4481766,200,2456.05,2457.47,7,Please go ahead with your question.
4481766,201,2457.47,2467.3201,9,Uh we apologize for the inconvenience we had not finished the response to the first question by Mr.
4481766,202,2467.3201,2472.5,9,Kim Hong-sik so allow us to uh complete the response and then we'll take the next question.
4481766,203,2499.8601,2507.6799,10,Now this is inaudible in charge of business intelligence responding to your question about the outlook for IT panel price.
4481766,204,2508.3101,2516.6001,10,Now for the IT panel compared to the TV the decline in price was lagging behind by about a quarter.
4481766,205,2516.99,2523.76,10,So we believe that in terms of the stabilization of the prices it will also come later than the TV…
4481766,206,2526.3401,2535.53,11,of the prices it'll also come later than the TV price.
4481766,207,2583.3201,2593.99,11,And uh just now regarding the IT market outlook there was explanation by uh inaudible from business intelligence but I would like to just add some additional explanation.
4481766,208,2642.01,2646.3601,11,uh the demand outlook for IT now as the pande…
4481766,209,2646.3601,2656.6702,11,so since the uh onset of the pandemic there was the trend of working from home as well as online education which uh drove the demand for IT products.
4481766,210,2657.0701,2668.8499,11,But now as covid nineteen continues to be prolonged we are also seeing the easing of restriction in different parts of the world and now are increasing outdoor activities by the citizens.
4481766,211,2669.26,2690.52,11,So uh this means that the b two c demand is likely to go down but then for the b two b now because of the back to office trend as well as the uh recovery in the economy throughout the world we believe that the b two b demand in twenty twenty two will remain strong.
4481766,212,2734.1599,2737.53,11,So a flat demand between twenty twenty one and twenty twenty two.
4481766,213,2737.9399,2757.8201,11,But then when it comes to supply uh because of the soft TV market last year starting in the second half of last year much of the supply on the TV side has been shifted to IT which had prompted the decline in IT prices in starting in the uh last part of last year.
4481766,214,2804.3301,2815.6702,11,But then in terms of the pace of the decline now that is mostly concentrated in the mainstream products whereas the company is strong in the high end products.
4481766,215,2815.95,2821.1599,11,So we do believe that uh our business will remain stable compared to the overall market.
4481766,216,2841.45,2842.8701,13,Please go ahead with your question.
4481766,217,2895.22,2906.1201,11,First is what has actually been uh reported through media coverage extensively recently and that is about the uh cooperation between Samsung Electronics and LG Display.
4481766,218,2906.6001,2910.7,11,Uh Samsung Electronics deciding to adopt LG Display's white OLED.
4481766,219,2911.55,2914.52,11,Now uh so if you could give us an update on this front.
4481766,220,2914.6001,2915.74,11,And if you…
4481766,221,2916.3101,2922.95,11,and this probably means that we you are in the uh last stage.
4481766,222,2923.27,2926.02,11,So can you give us uh comments regarding this?
4481766,223,2926.6699,2931.8999,11,And the second question is uh Samsung Display also recently uh got ready for the…
4481766,224,2931.8999,2934.95,11,or started the mass production of qd OLED.
4481766,225,2935.5901,2941.2002,11,Now then compared to the qd OLED uh what does the company believe are the advantages of white OLED?
4481766,226,2974.75,2986.6599,11,Uh given that this involves not only the company but a specific customer please understand that it we are not in the position to give a comment on it or share our plan or update.
4481766,227,3016.72,3029.46,11,So in the high end TV the uh OLED achieved uh outstanding performance and the company's plan is to continue with this growth trend based on the existing customer base.
4481766,228,3113.1799,3131.3398,11,And as had been explained earlier now the launch of the OLED products by other players is a a welcome development for our part because it would help mainstream the premium OLED products and will also have a positive uh impact on driving sales.
4481766,229,3158.2,3162.46,11,So uh any comparison would have to wait until it's been launched.
4481766,230,3188.8301,3193.9202,11,So I believe that uh what is important is the overall quality as well as the overall competitiveness.
4481766,231,3194.3301,3199.1399,11,And I do believe that the market will be able to make that decision after the launch.
4481766,232,3247.8501,3251.0,11,uh we intend to maintain this uh competitive edge.
4481766,233,3371.3201,3381.76,11,So it was explained that for the fourth quarter financial performance excluding uh one-off factors or the one-off cost then the performance was actually not…
4481766,234,3381.76,3388.51,11,believe I heard about the the one off factors so maybe I missed it.
4481766,235,3388.51,3391.8599,11,But uh if you could clarify what the one-off factors were.
4481766,236,3392.3601,3396.26,11,And then uh the next question is uh we have been hearing…
4481766,237,3396.3,3401.8801,11,hear more about the the outlook.
4481766,238,3402.1899,3405.54,11,So if you could give us some more high highlights about the auto display.
4481766,239,3406.0901,3416.0,11,And uh if you believe that there are uh growth drivers for auto display then do you believe that they'll come from applications or the display form or from the customers?
4481766,240,3416.78,3426.1399,11,And the last question is now since the pandemic we see many of the panel makers enjoying uh higher sales as well as profitability.
4481766,241,3426.6499,3435.6399,11,But then we see that uh like Taiwanese uh panel maker is enjoying like over twenty percent up rate in profit margin in the third quarter of last year.
4481766,242,3436.03,3442.3899,11,And of course the company has also done quite well but then I'm just uh wondering about the difference.
4481766,243,3442.3899,3452.2,11,And also uh when it comes to the company strengthening its competitiveness then what do you believe uh its implications will be uh with regards to the margin as well?
4481766,244,3507.4199,3515.53,11,Now when it comes to business performance we have a way of sharing the good performance with investors in the form of dividend.
4481766,245,3516.0901,3525.26,11,Likewise we also have a way of sharing our performance with those who made it possible in other words the executives and the uh employees of the company.
4481766,246,3587.8301,3601.5701,11,So please understand that uh it's a bit too early for us to give you further details but once we do go through the process then we will uh create opportunities where we will be able to communicate with you on a one to one basis.
4481766,247,3633.8501,3640.96,11,As is well known LG Displays enjoys leadership in the auto business in terms of both sales and technology.
4481766,248,3684.24,3695.79,11,And as a result of this for LG Display the uh order backlog for the LTPS l c d and OLED remains at ninety percent as of the end of twenty twenty one.
4481766,249,3721.01,3729.4102,11,Now LG Display uh intends to have a customized platform for the different market segments as well as the customers.
4481766,250,3754.6699,3765.72,11,Now in terms of the extreme conditions that are required for the auto display now the LG Display uh will uh center it's uh marketing on the tandem OLED.
4481766,251,3766.1201,3772.3298,11,So for the customers that uh value design then we will provide our plastic OLED.
4481766,252,3806.4099,3815.75,21,So based on these two technologies we will be able to continue to broaden our market as well as the customer base uh utilizing our OLED platform.
4481766,253,3882.3999,3890.6399,21,uh the profitability uh difference in the l c d business comes from the differences in the customer structure as well as the product lineup.
4481766,254,3927.72,3928.76,21,And then visa versa.
4481766,255,3928.76,3933.24,21,When the market is not doing well then there could be big losses.
4481766,256,3967.4199,3971.4001,21,we see that they have benefited more than other players during the pandemic.
4481766,257,4002.7,4008.77,21,And we believe that uh we will be r ready to have a more uh stable business down the road.
4481766,258,4084.49,4094.0701,21,Because we see that the uh OLED capacity is almost uh to the full and the new uh ramp up can come only like in a year's time.
4481766,259,4094.6499,4102.2598,21,Then in twenty twenty two do does the company believe that there is still room for more top line growth to come fro OLED?
4481766,260,4102.73,4111.7402,21,Perhaps maximizing utilization rate and also enhancing productivity uh could help uh pull up the growth rate but then it would also limitations.
4481766,261,4111.7402,4114.9302,21,So what is the company's outlook for the…
4481766,262,4114.9302,4116.25,21,for the growth of OLED?
4481766,263,4143.1401,4148.5601,21,Now regarding this we see that uh recently the market is moving more towards convergence.
4481766,264,4191.48,4208.1602,21,So for example based on the w r g b technology uh we can supply to the TV market not only that but IT in their gaming side and then also utilizing our unique uh transparent feature for OLED we can also get ready to move into the mob…
4481766,265,4208.3101,4209.6499,21,the uh mobile market.
4481766,266,4210.3701,4216.9297,21,And in this market for these products the ASP would be higher than the TV.
4481766,267,4217.3198,4225.5098,21,So it is from both uh the revenue growth and also higher profitability that we are seeking to achieve top line growth.
4481766,268,4257.3599,4269.5801,21,So for example there's going to be the CAPEX on the um begin from twenty twenty four so there is going to be a higher sales from here.
4481766,269,4269.9199,4280.4702,21,And also even without CAPEX uh spend uh from the gaming and the transparent OLED side the a s p is going to be higher than other applications.
4481766,270,4282.7798,4285.0903,21,So um let me make one correction.
4481766,271,4285.0898,4287.04,21,So about the uh transparent display.
4481766,272,4287.04,4291.73,21,So it's not uh getting ready to enter the mobile but it's the mobility market.
4481766,273,4340.1299,4342.8198,21,And then this question is to the CFO.
4481766,274,4343.0698,4348.1396,21,So you did emphasize the company's intent to keep the CAPEX within EBITDA.
4481766,275,4348.6001,4360.6001,21,But then given the fact that the EBITDA has grown considerably from the past uh from the investor's perspective perhaps uh keeping it in line with depreciation and amortization would be more reasonable?
4481766,276,4361.4102,4367.75,21,Uh because now the dividend payout is likely to be around two hundred billion three hundred billion won.
4481766,277,4368.1499,4375.5,21,So there is the EBTIDA and then there is also the taxes to be paid and then the setting aside the working capital.
4481766,278,4375.8701,4379.4102,21,Uh after all this then the cash is likely to be quite tight.
4481766,279,4379.4102,4383.23,21,So uh what is the company's uh view on this comment?
4481766,280,4491.9502,4507.8296,21,But then uh for the company uh to make sure that we get the right returns on our investment uh we have and I also have uh five rules and one additional rule.
4481766,281,4531.6401,4540.0801,21,w we look at whether there is alignment between the planned investment and the company's mid to long term strategy.
4481766,282,4581.3101,4587.4302,21,In other words we also look at the fit between ou our current condition and the planned investment.
4481766,283,4615.8701,4624.9902,21,In other words between the time of making the investment until the mass production then will the production be in time for the market?
4481766,284,4625.4102,4630.3901,21,And also whether it is the right time for the company to make this kind of investment;
4481766,285,4630.3901,4633.4097,21,whether the company has the fundamentals to withstand this.
4481766,286,4671.1499,4677.9297,21,In other words whether the company has the right technology and the technological sophistication befitting this investment.
4481766,287,4701.6899,4709.8901,21,And then uh the one additional rule for the finance side and that is whether we have the financial resources to make this investment at this time.
4481766,288,4710.2798,4715.6802,21,And if uh we lack such financial resources then how are we going to finance that from the market?
4481766,289,4733.8701,4736.5,21,uh we intend to keep it within EBITDA.
4481766,290,4776.4399,4783.8501,21,So I hope for your uh patience for a bit and I do hope that you'll be able to share in the good performance out of it.
4481766,291,4784.1299,4787.2402,21,And I also hope that the time until then will become shorter.
4481766,292,4817.0698,4821.8403,21,I thank all the participants and uh if you have further questions then please contact the IR team.
4481904,0,3.62,7.56,0,Dear all thank you very much for joining Nidec conference call.
4481904,1,7.89,13.98,0,I am inaudible General Manager Joseph brands of Mitsubishi U F J Morgan Stanley Securities.
4481904,2,14.94,21.41,0,As we kick off the conference I'd like to ask you to make sure all the materials are already in front of you.
4481904,3,21.87,26.6,0,If not please download the files on Nidec's homepage right now.
4481904,4,29.07,42.42,0,Please note this call is being recorded and the conference materials will be posted on Nidec's homepage for the coming week for investors and analysts who are not able to join today's call.
4481904,5,43.36,48.65,0,Now I'd like to introduce today's attendees from Nidec Corporation.
4481904,6,49.53,49.95,0,Mr.
4481904,7,66.31,69.84,2,This is Hitotoshi Yokota.
4481904,8,70.26,71.0,0,First Mr.
4481904,9,71.0,72.43,0,Yokota will make a presentation.
4481904,10,72.72,78.58,0,After his presentation then we move to move on to a Q and A session and the Mr.
4481904,11,78.58,83.18,0,Saki and Mr.
4481904,12,83.18,85.71,0,Yokota will answer your question.
4481904,13,85.71,85.92,0,Mr.
4481904,14,85.92,93.13,0,Yokota now present Nidec Q3 fiscal year 2021 results future outlook and management strategy.
4481904,15,93.13,93.23,0,Mr.
4481904,16,93.23,94.6,0,Yokota please go ahead.
4481904,17,95.78,96.52,2,Thank you inaudible-son.
4481904,18,96.94,100.69,2,Uh good day everyone and welcome to today's conference call.
4481904,19,101.54,105.48,2,My name is Hitotoshi Yokota you Chief Financial Officer of Nidec.
4481904,20,106.6,107.64,2,Today Mr.
4481904,21,107.64,117.63,2,June Seki Representative Director President and Chief Executive Officer of Nidec and myself will be your main speakers and answer your questions.
4481904,22,118.35,120.16,2,Joining us also is Mr.
4481904,23,120.16,121.41,2,Masahiro Naga Yasa.
4481904,24,121.97,124.03,2,General Manager of Nidec i r t.
4481904,25,125.4,131.9,2,For a well-looking statement please see slider two of our presentation material for details.
4481904,26,132.58,141.27,2,Now I'm going to read you the key features precisely for the fiscal year twenty one nine months result.
4481904,27,142.36,155.3,2,As shown on slide four nine months net sales to a record high of one trillion forty seven point two billion eighteen point eight percent higher year on year.
4481904,28,156.68,180.27,2,Nine months operating profit and profit before income tax increase sixteen point six percent year on year to one hundred thirty four point six billion nineteen point four percent year on year to one hundred thirty point six billion respectively also at a record high.
4481904,29,181.52,196.05,2,q three uh quarterly net sales increased by seven point two percent quarter on quarter to now four hundred ninety six point five billion marking our record high for three consecutive quarters.
4481904,30,197.43,214.43,2,Based on this result we have made an upward revision on IR and dividends focused by variant developing in the period projected aggregate annual dividend of sixty five yen per share for fiscal year twenty one.
4481904,31,216.34,231.65,2,For slide five and six you have a picture showing the net sales and operating profit year on year and quarter on quarter respectively by product group will exchange late effect elimination and structural reform expenses.
4481904,32,232.72,250.21,2,As you can see on slide six all of the segments increase their net sales quarter on quarter with levers to operating profit appliance commercial and industrial or A C I declined due to increased material costs.
4481904,33,250.6,257.55,2,However small precision motor and automotive increase despite this adverse uh backdrop.
4481904,34,259.09,271.44,2,Machinery decline as the September quarter had a one-off profit increase related to the acquisition and factory and optical components and others made an increase.
4481904,35,273.3,274.35,2,Please see slide ten.
4481904,36,275.48,290.15,2,We are aiming to become number one automotive hardware manufacturer by anticipating the strong uh electrification demand boosted by case which means connected autonomous and shelling and A F D.
4481904,37,291.22,308.16,2,In the EV structure motor-related business mass production of EXO at the joint venture with uh inaudible is expected to start in the second half of fiscal year twenty two in addition to those being mass produced in China.
4481904,38,309.92,326.18,2,We are also receiving new orders from Chinese European and Japanese OEMs as well as US EV startups and um newcomers from other industries and the turning point of fiscal year twenty five gets close.
4481904,39,328.47,344.06,2,In other motors and the auto parts we have prepared and continued to prepare highly competitive product lineups in Adas or Advanced Driver Assistance System for our inaudible Shashi and body area.
4481904,40,344.88,358.77,2,With those product group we are aiming to achieve one to one yen net sale organically and three hundred billion yen additional net sales through M and A in fiscal year twenty five in the automotive segment.
4481904,41,360.6,361.72,2,Please see slide eleven.
4481904,42,362.53,378.07,2,The Chinese party EV or battery electric vehicle market the largest in the world achieved dramatic growth of over one hundred fifty percent entering into explosive high growth period.
4481904,43,379.19,393.45,2,In calendar year twenty twenty one not only domestic sales in China but also exports from China to oversea overseas countries progressing quite rapidly and supporting increase of overall shipments.
4481904,44,394.79,413.41,2,With regard to the Made in China high in B E V landscape on the left hand side of the slide that US company P is expanding sales through exporting their mai main product models made in the Shanghai factory to Europe.
4481904,45,413.7,421.91,2,And the Chinese company ENS has announced to export vehicles to over twenty five countries and regions by twenty twenty five.
4481904,46,423.93,425.03,2,Please see slide twelve.
4481904,47,425.7,447.0,2,The total sales volume of the ten EV model using our E-axles has exceeded along twenty six fifty seven units on a cumulative uh basis as as of the end of last December and the sales volume in calendar year twenty twenty one doubled compared to the previous year.
4481904,48,448.26,454.19,2,The monthly product production is exceeding twenty thousand units uh from last November.
4481904,49,456.14,457.59,2,Please see slide thirteen.
4481904,50,458.35,467.63,2,We are going to invest around three hundred million to enable vertical startup to prepare for the EV turning point of fiscal year two five.
4481904,51,468.61,484.83,2,In addition to the six factories that are up and running or being built we are planning a more global production site and we are going to prepare double the production capacity of expected sales volume in fiscal year twenty five.
4481904,52,487.15,488.5,2,Please see slide fourteen.
4481904,53,489.64,505.58,2,The profitability of quarter three fiscal year twenty five twenty one form a bottom as a result of lost sales due to uh chip shortage and high low material price as inserted illustrated on the right hand side of the slide.
4481904,54,508.15,509.66,2,Please see slide fifteen.
4481904,55,513.31,523.35,2,Another emphasis from us on internal combustion engine vehicle to EV is rapidly accelerating in two wheel and compact cars as well.
4481904,56,524.58,537.77,2,In the mobility area the electric motorcycle uh formed mainly in India China and ASEAN country is expected to enter high growth period due to environmental measures.
4481904,57,538.63,548.14,2,We are currently focusing on two major markets of India and China and have already studied mass production of models for major customers.
4481904,58,549.43,559.52,2,In the mini EV area we have already received orders from major customers in the Chinese market and sturdy mass production from fiscal year twenty two.
4481904,59,560.84,569.9,2,We consider these business areas as one of the most important growth drivers in small precision motors in vision twenty twenty five.
4481904,60,571.91,573.44,2,Please see slide sixteen.
4481904,61,574.41,587.93,2,Nidec small precision motor division start a shift to mobility in fiscal year twenty two with launching multiple project project for electric motorcycle and the mini EVs.
4481904,62,589.27,601.31,2,As illustrated on the left hand slide side of the slide our motors have been adopted by China's largest electric motorcycle manufacturer Yadea.
4481904,63,601.7,618.4,2,For the first time and actual shipment study last September the annual global market size of motorcycle is estimated at around sixty million unit the largest market being in India followed by China and Indonesia.
4481904,64,619.78,631.07,2,As ever electrification of motorcycles is progressing electric motorcycle are expected to become rapidly uh widespread mainly in these countries and regions.
4481904,65,632.46,651.34,2,As shown on the right hand slide side of the slide we are receiving increasing orders from motors used in electric motorcycle and mini EVs that are under thirty kilowatt and in in mass production within fiscal year twenty two for around ten percent.
4481904,66,653.55,654.79,2,Please see slide seventeen.
4481904,67,655.77,673.97,2,We are implementing business portfolio transformation in H D D motor market structural change that sales of other small motors in quarter three has achieved record high as H D D sales decline due to reduced H D D shipment foreign.
4481904,68,675.9,677.11,2,Please see slide eighteen.
4481904,69,677.83,707.17,2,In A C I uh we are uh executing structural reform in overseas pieces and looking to enter a new phase open log while estimating CAGR of the market at the three percent to five percent we aim to grow A C I sales to CAGR of ten percent to eleven percent by creating new demand through solution proposal in markets such as inaudible where structural change is occurring.
4481904,70,709.75,710.94,2,Please see slide nineteen.
4481904,71,711.74,728.04,2,In A C I we are continuing to aim for fifteen percent operating profit ratio even though profitability improvement slowed down after progressing for six consecutive quarters uh since q four fis fiscal year nineteen.
4481904,72,730.33,731.67,2,Please see slide twenty.
4481904,73,732.89,741.15,2,In other product groups operating profit ratio is keeping high level after bottoming out in quarter four fiscal year nineteen.
4481904,74,743.67,745.06,2,Please see slide twenty one.
4481904,75,746.57,769.37,2,Nidec board of directors has approved the resolution to purchase the share of o k k corporation or o k k through a third party allocation of common shares in the meeting of Board of Directors held last November and we have executed a capital Alliance agreement with o k k regarding this share purchase.
4481904,76,770.55,782.31,2,This share purchase enable um um mutual uh complement of products in the area of machine two which is an existing area of Nidec business.
4481904,77,783.66,798.69,2,Synergy uh is expected especially in such areas uh element technology development manufacturing and sales over machine to business by Nidec manufacturing to the corporation which joined the Nidec group last August.
4481904,78,800.65,821.84,2,By joining Nidec via uh the share power just o k k will make a a fresh restart as a comprehensive machine two market maker and enhance its product lineup as well as a sales capability while quickly e e enforcing its production capacity as well.
4481904,79,823.36,841.09,2,After the share purchase we entered into further expand Nidec machine two business and believe that it can grow globally at a faster pace by making necessary investments where they are needed on timely basis.
4481904,80,842.94,860.8,2,We hope to mutually explore our groups and o k k respective technological capability brand power and the customer base to contribute to the development of the machine two market on global global scale.
4481904,81,862.96,875.85,2,Last but not least on behalf of the entire management team we would like to thank our customers partners suppliers for their support and commitment as well as our shareholders.
4481904,82,876.57,880.8,2,At this time we would like to open up the call for questions.
4481904,83,881.07,881.41,2,Thank you.
4481904,84,882.24,883.15,0,Thank you very much Mr.
4481904,85,883.15,883.71,0,Yokota.
4481904,86,884.11,887.0,0,Now we'd like to turn to the Q and A session.
4481904,87,917.96,920.84,0,We now pause for questions from the participants.
4481904,88,927.55,934.22,0,Okay our first question today is from Arma Capital uh James inaudible.
4481904,89,934.68,940.59,0,Uh uh James please go ahead.
4481904,90,940.59,943.3,3,inaudible thank you very much for your uh your presentation.
4481904,91,943.64,961.0,3,Uh can I ask about the uh a little bit more detail about the margin decline in uh in A C I and also on a in your materials it was different but on a reported basis in uh in autos margins also slipped a little bit.
4481904,92,968.34,981.91,4,But if you could if you could perhaps break that down a little bit and also comment on uh what you are trying to do to offset that and the degrees in which you may be able to recover that in pricing for some of the products but perhaps not other ones.
4481904,93,982.3,988.67,4,Uh and so we get a better feel for what we think's likely to happen over the next uh six months in that area.
4481904,94,988.8,989.11,4,Thank you.
4481904,95,992.34,994.63,5,Okay uh this is inaudible speaking.
4481904,96,994.66,1001.85,5,Uh let let me respond uh the question uh for the uh material cost and uh maybe shipping cost James.
4481904,97,1002.48,1006.25,5,For uh the shipping costs yes uh we are impacted.
4481904,98,1006.28,1015.2401,5,Especially the uh the shipment cost in the inaudible of between uh China and uh US or China and Europe.
4481904,99,1016.08,1027.7999,5,Uh we uh estimated the impact to A C I in quarter three is inaudible and uh maybe automotive for inaudible.
4481904,100,1028.34,1032.48,5,Uh those are the uh impact of uh uh inaudible cost increase.
4481904,101,1033.72,1038.1901,5,For the uh uh material market uh material price increase.
4481904,102,1038.1899,1045.36,5,This happens mainly mainly uh the magnetic steel uh price increase in this period.
4481904,103,1045.53,1063.1899,5,Even though the price increase uh is still con continence trend uh from uh our last quarter or last last quarter but uh this time q three we tried to uh offset uh this uh price increase by asking customer to absorb the impact by increasing supply.
4481904,104,1063.8199,1070.15,5,But uh we have it took a little bit longer than expected and we can not absorb uh the cost uh completely.
4481904,105,1070.28,1070.92,5,So that's why.
4481904,106,1071.35,1081.89,5,Uh normally uh we say uh one percent uh impact uh is still inaudible after all the uh negotiation with customer.
4481904,107,1082.27,1089.45,5,But this time q three is estimated two percent remain because of the delay in the uh negotiation with the customer.
4481904,108,1090.11,1098.03,5,Uh we especially the magnetic steel uh it is typically there is no um surcharge contract.
4481904,109,1110.55,1130.0601,5,The reason why maybe you you you know very well in the situation but magnetic steel especially in the Europe area all the steel manufacturer all the capacity is almost occupied by European uh automotive O E M due to increase increasing the spike in the uh EV production.
4481904,110,1151.78,1159.6801,5,So that's why our uh uh purchase price increase and inaudible mainly in the A C I area.
4481904,111,1159.9,1170.0901,5,Of course uh we use uh uh magnetic steel in the automotive area as well but uh A C I is main mostly impacted uh by magnetic steel impact.
4481904,112,1174.96,1193.51,5,That is a impact so that which is almost double than regular- regular quarter due to the uh delay in the in the price negotiation with the customer.
4481904,113,1195.05,1195.3,5,inaudible.
4481904,114,1195.3,1198.4299,5,I also want to answer the last question.
4481904,115,1198.86,1200.64,5,Uh how do we see the market?
4481904,116,1200.64,1209.91,5,Of course we don't have crystal ball uh in in the in the market supply but uh at this point uh for quarter four this trend is still there.
4481904,117,1210.24,1215.91,5,Uh for example uh there is no solution for the capacity and inaudible steel manufacturer in the Europe.
4481904,118,1217.27,1219.5599,5,Uh China situation is a little bit easy.
4481904,119,1219.97,1226.47,5,So the the we see a little bit of stability in the uh steel price in China.
4481904,120,1227.0,1233.99,5,But the still the European uh the type of situation continue so we still need to fight against this price increase.
4481904,121,1234.37,1236.85,5,And other commodity uh it it depends.
4481904,122,1236.97,1241.12,5,Uh some uh it is steel high price and some start declining.
4481904,123,1241.3101,1243.75,5,But some climbing again.
4481904,124,1244.29,1246.74,5,So it's a bit difficult for us to foresee.
4481904,125,1246.74,1252.3099,5,But uh we we expect that q four is still going through the pressure than q three.
4481904,126,1252.41,1256.0599,5,Now that's a general uh assumption for us.
4481904,127,1256.13,1256.51,4,That's great.
4481904,128,1256.51,1290.49,4,And just as a as a follow up in terms of these price increases uh shipping raw materials things you've got coming through uh what what proportion of those obviously there may be a lag of three months or or even sort of longer but what proportion of those do you think is it realistic for you to pass onto your customers or is there a is there a proportion of that maybe a half or uh a third that you won't be able to pass on and you will have to you'll have to sort of find through internal cost savings and rationalization?
4481904,129,1291.62,1308.3301,5,Yeah uh lastly uh normally we try to absorb or uh put in the price than try to absorb uh sixty to seventy percent or even more uh outta a total uh materiel cost increase.
4481904,130,1338.5699,1343.73,5,So we say three percent outta four percent to be absorbed.
4481904,131,1344.08,1348.9601,5,But this time q three uh we couldn't absorb three percent let's say two percent only.
4481904,132,1349.38,1361.1,5,And that inaudible it depends on the material but uh in short short short uh one is like one quarter inaudible one quarter.
4481904,133,1362.05,1364.48,5,But maybe long one is uh maybe a half a year.
4481904,134,1365.22,1372.2201,5,So it depends on the customer and it depend on on our share in the market and the relationship with the customer.
4481904,135,1372.28,1379.91,5,So there's some range uh for us to cure the price absorption in- in- in those periods.
4481904,136,1380.88,1381.0601,4,Yeah.
4481904,137,1381.4301,1403.9,4,But if you you but you say you normally would internally absorb sixty to seventy percent so you would you would take the sixty seventy percent of the hit uh in this this environment where the increase is rather large do you still expect to to have to internally absorb sixty seventy and the the price increase will cover just just uh thirty to forty?
4481904,138,1403.9301,1405.4701,4,Will that be is that the plan?
4481904,139,1405.47,1406.83,4,Is that just crosstalk.
4481904,140,1406.83,1410.1,5,Uh James uh maybe let me precisely state it.
4481904,141,1417.17,1423.1801,5,So still the remaining piece to be absorbed in next quarter or or further negotiation with customer.
4481904,142,1424.2,1424.62,4,Okay.
4481904,143,1425.05,1447.02,4,But sorry inaudible in terms in price transfer as to uh well your supplies the price has gone up so what percentage how much is the the increase would you expect normally to pass onto customers and what do you expect to be the case uh on on this occasion when the increase is rather large?
4481904,144,1452.42,1461.02,7,This is inaudible speaking.
4481904,145,1461.88,1462.1799,4,Thank you.
4481904,146,1463.28,1466.86,7,to to answer that can we go page nineteen?
4481904,147,1467.86,1468.12,4,Yeah.
4481904,148,1469.66,1469.92,7,Yeah.
4481904,149,1472.8,1480.49,7,You know uh left hand side is sales and right hand side is profit.
4481904,150,1480.59,1482.11,7,we are talking about sales.
4481904,151,1482.61,1491.59,7,And then inaudible is a total appliance commercial in the industry and the green one is uh more like a inaudible.
4481904,152,1492.03,1498.4,7,And then uh both have the same tendencies keep increasing.
4481904,153,1499.51,1499.77,4,mm-hmm <affirmative>.
4481904,154,1499.86,1506.13,7,But you know uh why inaudible sales is increasing.
4481904,155,1506.9,1511.62,7,Reality was it was a bit difficult to tell customer we want to increase price.
4481904,156,1513.22,1513.54,7,You know.
4481904,157,1514.11,1528.17,7,Uh we we we inaudible to supply more and then uh also our profit is generated by increase over materials but we have more revenues.
4481904,158,1528.62,1537.25,7,And because we have more revenues inaudible goes down and then we can expect inaudible at least inaudible our profit amount is more.
4481904,159,1545.95,1567.2001,7,And then um actual damage getting bigger and bigger than q three cuz maybe uh we have a a December Christmas period and also uh we believe uh we feel uh saturation from like a fridge or you know air conditionings.
4481904,160,1567.65,1577.0599,7,So sales came down then we decided to tell customers now we need to compensations.
4481904,161,1577.74,1580.1599,7,Uh that was the the attitude.
4481904,162,1580.1899,1596.02,7,And then you know even we say q three you know November up up up to October to to beginning of November it was still inaudible and then we uh started to negotiate with customer but it was soft.
4481904,163,1597.85,1602.08,7,We see career downtrend from end of November til December.
4481904,164,1602.53,1607.11,7,So we became very uh aggressive attitude to customers.
4481904,165,1607.42,1618.63,7,And then finally uh we uh fully negotiated with most of the customer let's say ninety five percent of the customer by the end of December or beginning of January.
4481904,166,1619.26,1622.4301,7,So uh that was a a impact.
4481904,167,1622.71,1624.3199,7,If we go back to page six.
4481904,168,1633.8199,1636.29,7,Upper side is sales lower side is profit.
4481904,169,1636.76,1642.96,7,You see obvious impact in the middle uh appliance commercial industry.
4481904,170,1643.26,1647.46,7,Uh uh this is caused by that delay okay?
4481904,171,1648.03,1660.76,7,But as I said we finally negotiated inaudible and then this will come back in q four unless we have a extra extra increase and then we may have to push that out to q one.
4481904,172,1661.0699,1671.4,7,It may change but uh at least this big deficit we we created in q three that was uh already concluded inaudible in q four.
4481904,173,1671.92,1675.64,7,Then go back to your uh questions.
4481904,174,1676.41,1684.47,7,Uh usually uh this type of uh uh material increase doesn't last long.
4481904,175,1684.6801,1689.8401,7,Sometimes uh let's say six months sometimes even just one quarter.
4481904,176,1689.88,1693.7301,7,And then we have uh enough savings to absorb.
4481904,177,1693.73,1704.9,7,This uh magnetic steel increase started from almost one half year ago and then it's keep increasing with almost non-stop.
4481904,178,1706.08,1707.9,7,So you know general…
4481904,179,1707.9,1708.85,7,Answer to your questions.
4481904,180,1708.85,1711.65,7,We definitely absorb at least fifty percent.
4481904,181,1712.4,1719.1801,7,But because you know our savings is getting less and less because this continued long long.
4481904,182,1719.72,1728.46,7,So from now on probably we have to request customer to offset this increase uh very much.
4481904,183,1728.78,1729.95,7,that that way it continue.
4481904,184,1730.37,1749.1901,7,And then our forecast is this uh magnetic steel increase will not stop til like twenty three two four so uh discussion may become very harsh with customers but we also have to protect our profit at which we can not lose money to sales.
4481904,185,1749.1899,1779.8601,7,So uh that that what we are seeing but meanwhile you know uh we know this is not sustainable and then now I'm giving the pressure to our engineerings to uh choose alternative materials or reduce quantity inaudible magnetic steel or or manufacturing engineering can increase inaudible from one inaudible.
4481904,186,1779.86,1794.5801,7,You know usually to have a large motor core inaudible uh fifty five to sixty percent remain uh forty to forty five going to scrap.
4481904,187,1795.1801,1799.42,7,cause we get the money to scrap inaudible but not the original price.
4481904,188,1799.45,1808.74,7,So now I'm requesting them to increase this inaudible rate from current fifty five to sixty to like uh seventy to seventy five percent.
4481904,189,1808.8,1810.46,7,That will help a lot.
4481904,190,1811.21,1829.65,7,So end of the day not only magnetic steel but also magnetic itself coppers inaudible uh you know technology will define uh cost inaudible.
4481904,191,1829.7,1831.7999,7,Uh inaudible we strategically won.
4481904,192,1832.5699,1837.2799,7,So this time again we appreciate engineering to save the situations.
4481904,193,1837.58,1850.7,7,So uh to story short we want to go inaudible you know one more price negotiation with customer uh as long as this keep increasing.
4481904,194,1851.1,1856.61,7,And then two uh more technology to reduce quantity or increase inaudible.
4481904,195,1857.4301,1859.02,7,That's what we are going to most.
4481904,196,1860.41,1865.1799,7,That is uh very much painful.
4481904,197,1867.39,1867.6801,4,Right.
4481904,198,1867.99,1868.4399,4,Tremendous.
4481904,199,1868.4399,1870.02,4,Thank you for that very complete answer.
4481904,200,1870.1,1870.85,4,That's great thank you.
4481904,201,1872.26,1872.6599,7,Thank you.
4481904,202,1874.27,1875.7201,5,James thank you very much.
4481904,203,1876.77,1885.1901,5,For those who have just joined the conference call let me repeat how you can ask your question to the company senior management.
4481904,204,1885.9399,1891.8099,5,Today's q and a session is being conducted electronically.
4481904,205,1892.25,1898.65,5,If you would like to ask a question please press star key and one on your touch tone phone.
4481904,206,1898.98,1904.11,5,Again please press star and one if you'd like to ask a question.
4481904,207,1904.8,1909.8201,5,If you'd like to cancel your request please press star and two.
4481904,208,1910.58,1915.02,5,If you would like to cancel your request please press star and two.
4481904,209,1927.6899,1928.9301,8,Mark please go ahead.
4481904,210,1930.03,1931.8301,9,Uh thank you very much uh for that.
4481904,211,1931.87,1936.15,9,i I just wanna follow up on the previous um question about magnetic steel.
4481904,212,1949.5601,1950.1001,10,Thank you Mark.
4481904,213,1950.34,1954.0699,10,let let me reply from inaudible.
4481904,214,1954.0699,1956.49,10,Uh it it it's global actually.
4481904,215,1956.74,1959.11,10,But particularly from Europe.
4481904,216,1959.95,1962.59,10,Uh two reasons okay?
4481904,217,1963.1899,1965.97,10,Uh it's highly related with electrifications.
4481904,218,1967.21,1975.2999,10,You know electrifications are accelerating but uh uh particularly two major market one in Europe and one in China.
4481904,219,1976.02,1984.7799,10,If we look at the North America and Japan uh in other market it's not uh aggressive as Europe and China's.
4481904,220,1985.74,2001.26,10,Then Europe uh uh uh electrification inaudible hybrid uh December sales has already reached more than 20% among uh new car sales.
4481904,221,2011.4,2021.8,10,And then obviously you know inaudible and then naturally it required uh uh high quantity of magnetic steels.
4481904,222,2022.02,2035.7899,10,Uh that's one of the reasons but uh inaudible O E M in Europe want to go more for twenty two and twenty three and then there in…
4481904,223,2035.9399,2043.2001,10,they did start reserving uh you know uh magnetic steel for next year and after next year.
4481904,224,2044.34,2058.8201,10,Uh that makes a difficult difficult for appliance applications or industry applications to get uh magnetic steel cause uh automotive OEM is uh you know dominating force.
4481904,225,2059.8,2068.8899,10,And then uh of course uh for uh steel companies uh uh you know uh high sales brings a better profit.
4481904,226,2069.23,2069.8699,10,it is better.
4481904,227,2069.8701,2086.6899,10,And I think uh automotive application required uh you know very uh long process to make it thin thinner and then a good price and a good profit for them than appli uh appliance application or industry applications.
4481904,228,2087.46,2088.99,10,That happening in Europe.
4481904,229,2090.1299,2101.95,10,And then China supposed to be same but uh China has a a little more steel capacity than Europe against the demand.
4481904,230,2101.99,2104.1899,10,So that's what you inaudible.
4481904,231,2104.1899,2112.3401,10,It's similar but the capacity uh uh uh supply point of view uh China has little more inaudible than Europe okay?
4481904,232,2112.9399,2125.7898,10,Uh overall because of that demand uh in the case of demand in Europe and China uh globally this magnetic steel is showing a shortage but uh it's coming from uh uh Europe.
4481904,233,2126.49,2127.53,10,That is the background.
4481904,234,2129.0901,2130.4299,9,Uh thanks for that.
4481904,235,2130.73,2142.74,9,Just um a a are you e e expanding your suppliers of magnetic steel or or looking into um I dunno investment in that area yourself over the long term?
4481904,236,2144.73,2147.46,10,Uh uh we have a similar action for this.
4481904,237,2147.8301,2151.3201,10,Obviously we are not going to have a steel mill by ourselves.
4481904,238,2151.3201,2153.8899,10,We cannot control that but uh…
4481904,239,2153.99,2169.6699,10,One uh because globally China a little more room for adjustment we decided to have a a huge import from China to Europe for appliance applications and industry applications.
4481904,240,2170.24,2186.1201,10,Of course that cost a lot but cuz European cost is already very high uh even paying logistic cost and import duties uh im imported from China a a almost similar or a little less.
4481904,241,2186.8301,2195.4399,10,So uh we reserved up to uh inaudible uh we need to continue this for probably twenty three and twenty four.
4481904,242,2196.02,2196.8801,10,That's first one.
4481904,243,2197.47,2214.01,10,And second one uh this is has not been fully decided yet but uh uh generally speaking uh automotive application uh is thinner than uh industrial applications.
4481904,244,2238.0701,2242.73,10,That means uh automotive industry application needs uh more loading times.
4481904,245,2242.8899,2243.0798,10,Yeah.
4481904,246,2243.75,2260.26,10,And then because steel mill only making uh application for uh automotive side uh very difficult for industry and appliance to get uh it uh their standard thickness.
4481904,247,2260.9299,2277.2698,10,So what we have studied uh you know it may become uh expensive but supply is more important so that is inaudible studying if we can use automotive industry application for appliance and the industries.
4481904,248,2277.79,2281.3599,10,Then instead you know uh efficiency become a little higher.
4481904,249,2282.1201,2292.3599,10,So let's say while we usually use uh a hundred fifty we may be able to reduce to one thirty five uh with thinner uh magnetic steel.
4481904,250,2292.45,2294.3799,10,that that we are studying.
4481904,251,2294.3799,2306.8899,10,But uh now automotive is dominating and therefore uh minor users such industry applications or appliance application may have to follow uh automotive standard.
4481904,252,2307.3999,2308.49,10,Uh that we are studying.
4481904,253,2309.0901,2318.0601,10,But probably we have uh many other uh choice and uh way of adjustment we have to squeeze out to survive.
4481904,254,2320.29,2320.8501,9,Okay thank you.
4481904,255,2320.8501,2322.1799,9,And I'm sorry just one more question.
4481904,256,2322.3301,2324.0999,9,This is about your acquisition of o k k.
4481904,257,2325.1101,2326.8699,9,Can you explain the background of that?
4481904,258,2326.8999,2334.3,9,I know you have exposure to uh machine tools and you've uh m a in that uh area like with Mitsubishi.
4481904,259,2334.79,2339.52,9,Why o k k and what is your longterm plan for machine tools?
4481904,260,2341.1001,2349.9702,10,Okay um maybe I go first and them maybe uh- uh inaudible you can add a comment later.
4481904,261,2349.97,2363.49,10,Uh fi- first you know uh we believed uh electrification from uh automotive side will grow very rapidly.
4481904,262,2364.02,2367.9001,10,And then we are very strong to build motors.
4481904,263,2368.9299,2372.0901,10,But we are not so strong for gear.
4481904,264,2372.0901,2373.0601,10,You know?
4481904,265,2373.74,2384.9299,10,Uh when you you are thinking of gear for manual transmissions and a gear for ele EVs it's very different.
4481904,266,2385.1201,2385.46,10,You know?
4481904,267,2385.75,2393.2,10,Functionally the same you know transfer uh you know rotation power to wheels yeah.
4481904,268,2393.8,2405.1599,10,But you know uh as you have experienced before uh manual transmission vehicle is uh very you know uh uh fun to drive.
4481904,269,2405.77,2407.2,10,At the same time very noisy.
4481904,270,2407.46,2407.6799,10,Yeah?
4481904,271,2408.0601,2415.02,10,And no one cares when a manual transmission is noisy with sound from the engine too.
4481904,272,2415.2,2415.4199,10,Yeah.
4481904,273,2416.1101,2422.48,10,But once changing to EVs very quiet at least no combustion sounds.
4481904,274,2423.04,2427.5798,10,So sound from gear become very you know noisy.
4481904,275,2428.1399,2433.71,10,Actually same or much less noise and vibrations as a manual transmission.
4481904,276,2433.74,2442.1299,10,But because entire sounds and vibration become uh smaller uh that sound from gear become outstanding.
4481904,277,2442.9199,2444.7102,10,Then too control disks.
4481904,278,2445.1001,2448.99,10,We need a very precise machining and grinding for gear.
4481904,279,2449.6899,2458.1201,10,And then uh uh we we hired many experts from uh gear areas.
4481904,280,2458.1599,2465.6201,10,But we finally found that the best way is acquire the best quality machine builders.
4481904,281,2465.9199,2469.6301,10,That was Mitsubishi Heavy Industry Machine Tool Division.
4481904,282,2470.1001,2471.77,10,And now they're in our hand.
4481904,283,2472.6001,2499.9099,10,And then at the same time we found that you know uh to complete this machining area we need uh not only for gear machining or gear grinding but also standard machining centers uh then uh we also found that uh this uh segment uh way of competition is very soft.
4481904,284,2501.3401,2507.98,10,So usually they have a standard price depending on brand sales power.
4481904,285,2508.24,2510.9299,10,They have a plus minus ten perfect price gap.
4481904,286,2511.4299,2519.9299,10,But because many of time they have a trading company to reach final users.
4481904,287,2520.6399,2535.6101,10,And then uh because of those structures commercial and business uh they're ranking from number one to number ten has no change for forty years very very soft competition.
4481904,288,2536.22,2545.6199,10,So our chairman uh Mr Namori uh determined let's let's go into the uh segment.
4481904,289,2545.8301,2547.7,10,It's not difficult to get in.
4481904,290,2548.1699,2562.74,10,So while we had a machine machine tools uh which used to be a part of Mitsubishi Heavy Industry uh we decided to find a good machine machining center builders.
4481904,291,2563.3899,2571.8101,10,And then o k k has a very good engineering history and uh asset.
4481904,292,2572.5801,2574.3499,10,But their business was terrible.
4481904,293,2574.78,2575.7998,10,You know?
4481904,294,2575.8,2581.51,10,They had a huge negative profit for from twenty and possibly twenty one.
4481904,295,2581.6399,2585.6301,10,So uh therefore uh it's not expensive to purchase.
4481904,296,2585.8999,2589.29,10,So there was uh uh background we bought.
4481904,297,2589.3601,2600.02,10,And also this combination uh machine tool and OKK also help a lot to make a uh inaudible as well.
4481904,298,2600.79,2608.71,10,And then this is also another we believe extend uh very much from the future our future there.
4481904,299,2609.5701,2619.1501,10,So uh while we are making these structures uh you know our idea is expanding.
4481904,300,2619.3101,2622.05,10,Probably we need this company and we need this company.
4481904,301,2622.05,2625.6899,10,This company will help a lot to sell in China or USA.
4481904,302,2625.8799,2629.0,10,So we really inaudible and then uh Mr.
4481904,303,2638.9199,2657.8699,10,But to go back to your first questions you know original background and it's still background but uh not to sell outside but to uh help uh internal business such as uh uh inaudible that- that is background.
4481904,304,2658.23,2661.3398,10,Potentially we can expand this to very strong.
4481904,305,2663.3701,2666.47,10,inaudible if you have any additional comments.
4481904,306,2668.95,2676.27,11,Yeah just to uh just simple uh explanation on top of uh uh Mr.
4481904,307,2676.27,2677.02,11,Sake explained.
4481904,308,2677.54,2685.72,11,uh uh inaudible machine tool its uh lineup is for more like larger size of machining.
4481904,309,2686.3401,2691.3401,11,Of course uh one of the uh benefits that we get is uh gearing and technology.
4481904,310,2696.1399,2701.8701,11,Uh on the other hand o k k uh is very good at uh mid size or small size machining center.
4481904,311,2702.3899,2712.51,11,If we really uh try to be successful in the machining business we need a product lineup because we have to access all of the potential customers in everywhere.
4481904,312,2712.8601,2718.1802,11,We cannot compete only one product in a very very wide range of product uh competition.
4481904,313,2718.4399,2731.1702,11,So that's why o k k is uh very essential to add uh uh such variety of lineup on top on top of uh inaudible machine tool uh which is very good at large size uh machining center.
4481904,314,2731.52,2735.45,11,So this is also one of the biggest motivation for us to pursue o k k.
4481904,315,2738.8,2739.49,9,Thank you very much.
4481904,316,2745.8701,2750.4402,8,Uh we have a few more minutes to accommodate uh some questions.
4481904,317,2750.53,2758.6501,8,And uh there seems to be a new question from uh Zack inaudible Securities America.
4481904,318,2760.8401,2761.74,8,Zack please go ahead.
4481904,319,2762.8101,2764.8999,12,Oh good morning uh and good evening y'all.
4481904,320,2764.9299,2767.9199,12,Thank you for hosting uh this timely call uh once again.
4481904,321,2768.5601,2773.8101,12,Uh I have some questions on your production capacity for your E axle.
4481904,322,2774.24,2779.24,12,Uh first of all congratulations on reaching twenty thousand mile uh production last month.
4481904,323,2779.8999,2787.29,12,And on the inaudible thirteen I know you have the capacity to increase to sixteen million units in FI twenty four.
4481904,324,2787.8701,2794.6199,12,Uh so you know rough calculation that's about five hundred thousand units per month that's you know twenty five times greater than the last month.
4481904,325,2795.1001,2808.27,12,So my two questions from me uh one uh based on your current customer inquiries uh what is your ex expected or estimated order uh orders for E axle in FI twenty four?
4481904,326,2808.96,2816.25,12,And uh my second question is uh when do you think the orders from non Chinese auto companies uh will start to kick in?
4481904,327,2820.6699,2822.5901,13,Uh thank you Zack.
4481904,328,2822.5901,2824.1499,13,Uh this is inaudible speaking.
4481904,329,2824.1499,2824.6902,13,lemme explain.
4481904,330,2825.25,2836.1001,13,Uh first uh if you are on page thirteen you know uh please look at the uh uh graph on the right hand side.
4481904,331,2836.77,2845.8999,13,inaudible capacity that you are seeing and then uh green portion is actual current forecast of production volumes.
4481904,332,2846.3899,2849.95,13,So uh three point five million in twenty five.
4481904,333,2850.4299,2850.75,13,Okay?
4481904,334,2851.46,2856.0701,13,And then we are not showing uh this green for twenty four twenty three twenty two.
4481904,335,2856.0701,2863.46,13,Your question was two four but uh in twenty two uh we are seeing about one million.
4481904,336,2864.8101,2873.78,13,And then uh we are uh expecting a inaudible increase from 22 to twenty three twenty four and two five.
4481904,337,2874.51,2883.6899,13,So uh uh first question uh first answer to your question twenty four probably around two point eight or two-
4481904,338,2886.6699,2896.74,14,And then uh this three point five million was a number we announced uh at the last uh financial announcement in October.
4481904,339,2897.45,2900.8198,14,Actually this three point eight already increased to three…
4481904,340,2900.8201,2905.8601,14,three point five already increased to three point eight by three hundred thousand.
4481904,341,2906.3201,2910.1802,14,So you know uh after discussion with Mr.
4481904,342,2910.1799,2918.0601,14,Nagamori and we stopped to announce this volume increase because time by time it's not so impactful.
4481904,343,2918.3899,2924.8899,14,So instead probably we uh announced this volume increase by every half a year yeah?
4481904,344,2925.1399,2929.6499,14,So we didn't explain this time but probably in April in explain.
4481904,345,2930.1699,2949.6699,14,But time by time uh this volume will increase and then uh that's why we are aiming uh double of capacities because uh one day you know uh this uh prepared capacity will be fulfilled and maybe customer won't ask the suppliers.
4481904,346,2949.99,2951.0198,14,We have no room.
4481904,347,2951.3799,2958.4199,14,And then we know uh twenty five is uh uh breaking point you know?
4481904,348,2958.77,2970.1599,14,Uh it it looks very steep cut but uh for us this is still so after two five uh speed will increase for adaptation will be even more accelerated.
4481904,349,2970.6699,2975.4001,14,Therefore uh we need spare capacity to absorb all of those opportunities.
4481904,350,2976.04,2983.1899,14,So that that that we are aiming and then we set this as a strategy and this strategy is not a fast one.
4481904,351,2983.8899,2993.99,14,We uh had a very uh huge success for how would this drive by exact same strategies no?
4481904,352,2994.6101,2999.0698,14,Uh prepared capacity first and then demand come next yeah?
4481904,353,2999.55,3002.9502,14,Actually because we had capacity demand came.
4481904,354,3003.3601,3013.1599,14,If we didn't capacity you know uh everybody were slow and we are one of them and then we probably had to share those demands with our competitors no?
4481904,355,3013.75,3019.73,14,So uh to uh repeat that facts yet again we have this success okay?
4481904,356,3021.46,3024.8599,14,And then second questions European customers?
4481904,357,3025.26,3032.1101,14,Uh I don't know if your question is excluding uh strategies but uh we have strategies.
4481904,358,3033.01,3038.9302,14,Therefore uh our delivery to them start from uh this q two.
4481904,359,3039.24,3039.99,14,Coming to q two.
4481904,360,3040.4199,3041.73,14,twenty twenty two q two s.
4481904,361,3041.8701,3042.05,14,Yeah.
4481904,362,3042.8101,3065.1301,14,So uh that's first one and then uh I don't know uh we should really count strategy as one but uh uh we supply to push our inaudible and Fiat and inaudible uh uh and then now we are discussing with uh Chrysler as part of strategies and then uh that will come.
4481904,363,3065.3501,3071.28,14,And then uh apart from strategies uh two things I would like to explain.
4481904,364,3072.3799,3081.6001,14,I I cannot mention uh the other name but uh uh last time we explained uh uh type customer customer type A B C's.
4481904,365,3081.78,3082.03,14,You know?
4481904,366,3082.46,3088.8101,14,A is uh you know strict to be in house and then C is not strict.
4481904,367,3089.22,3091.8,14,Uh you know they automatically outsource.
4481904,368,3092.1299,3094.3699,14,And B is like hybrid.
4481904,369,3094.6899,3095.9199,14,Joint ventures yeah?
4481904,370,3096.3201,3101.6301,14,Uh strategy is also type B but we are talking about this type A customer.
4481904,371,3101.8799,3106.3298,14,Actually we don't see clear type C customer in Europe.
4481904,372,3106.8101,3108.5801,14,They're either type A or B's.
4481904,373,3108.5801,3114.1099,14,And then type A customer start drifting to type A-dash.
4481904,374,3115.6599,3126.95,14,A-dash means you know uh they stick for final assembly but they are abandoning to assemble multi-sales or inaudible sales for gear itself.
4481904,375,3127.0801,3136.0298,14,They purchase motor in that uh and they affect from outside and then they keep final assembly in their plant yeah?
4481904,376,3156.1201,3157.73,14,And then I don't know yes.
4481904,377,3159.1599,3175.8701,14,No uh I explain this partially last time as well but uh cuz uh most of European inaudible treating uh ED as core business I think uh they put aside a hybrid business.
4481904,378,3176.27,3180.29,14,So hybrid business becoming a non-core business from them.
4481904,379,3181.1001,3189.0698,14,And then they used to build a hybrid motor in house or at least like a inaudible suppliers.
4481904,380,3189.53,3191.2998,14,Uh those shifting to us.
4481904,381,3191.8401,3194.5601,14,So we are receiving a lot more of the hybrid.
4481904,382,3195.1699,3201.46,14,Hybrid is a bridging technologies but it's not disappear for another ten years at least.
4481904,383,3201.77,3215.0701,14,it'll not be increased but uh uh I think uh as long as it's continued at least five years or six years uh we can absorb it and then we can uh get the profit for those.
4481904,384,3215.45,3220.8101,14,So we are receiving many of hybrid motor hybrid in that uh in Europe.
4481904,385,3220.8101,3227.98,14,That uh uh good answering to your questions inaudible?
4481904,386,3229.5601,3231.27,15,Uh President Seki uh very clear.
4481904,387,3231.3,3232.29,15,Uh very exciting yeah.
4481904,388,3232.3201,3232.9102,15,Thank you so much.
4481904,389,3234.3401,3234.6499,14,Thank you.
4481904,390,3236.1399,3237.49,16,Yeah thank you very much.
4481904,391,3268.52,3270.23,16,Uh Mark please go ahead.
4481904,392,3271.26,3273.4402,17,Uh yes uh thanks again.
4481904,393,3274.24,3289.52,17,I know this is a difficult topic to to discuss but do you have any comments on the Bloomberg article that appeared on Monday uh about uh Chairman Nagamori and um uh President Seki?
4481904,394,3289.52,3290.25,14,Thank you Mark.
4481904,395,3290.8101,3301.8599,14,You know uh what I can tell is you know uh we don't have any gap uh between the uh Nagamori reasons or uh Mr.
4481904,396,3306.3501,3310.74,14,It it almost inaudible even one millimeters yeah?
4481904,397,3311.4099,3316.8501,14,So we are um fully aligning and personally I respect him a lot.
4481904,398,3317.25,3324.5601,14,You know and then you know uh he's very severe and then he's my master.
4481904,399,3325.3301,3327.4199,14,It's a very natural master train.
4481904,400,3327.4199,3331.29,14,he is uh you know pupil uh be very strong.
4481904,401,3331.6299,3338.72,14,So uh I think time by time he sometimes very harsh uh to me to put more output.
4481904,402,3339.4299,3341.02,14,And then uh i'm okay.
4481904,403,3341.1201,3341.6899,14,You know?
4481904,404,3341.6899,3369.6499,14,Uh you know he's not telling me any any wrong so we are fully aligning but you know first of all I don't know why Bloomberg made that as articles cause uh Bloomberg is inaudible you know medias and then uh I I think uh you know contents has uh many um um misleadings about our relationships and then you know company philosophies.
4481904,405,3370.23,3377.0701,14,So uh straight answer to your questions uh I think uh you know there are no worries you know?
4481904,406,3377.0701,3379.3201,14,We are still fully alignings.
4481904,407,3379.79,3388.8198,14,And then uh you know at this moment I request him to take care of uh uh every job in Japan.
4481904,408,3389.52,3403.1899,14,And then uh while we need a a you know a quick turnaround from automotive divisions he's uh uh turn around in operation in Germany and operations in Mexico.
4481904,409,3403.8101,3408.21,14,So I'm fully spending my time in uh Germany and Mexico.
4481904,410,3408.6799,3412.5798,14,Actually I'm attending this meeting from Germany yeah?
4481904,411,3413.1799,3422.9299,14,And then uh last week I was in Mexico so so he accepted uh uh me to spend more time in this uh Europe and Mexico.
4481904,412,3423.4099,3437.47,14,So uh maybe because I am so absent in Japan people may feel it may be strange but uh uh everything under agreement between Nagamori and myself uh no misalignment.
4481904,413,3437.71,3438.75,14,That I want to explain.
4481904,414,3440.6399,3442.6401,17,Okay just uh what's the issue in Mexico?
4481904,415,3445.1001,3446.03,14,Uh it's safe.
4481904,416,3446.03,3460.4399,14,It's uh automotive business and then we have a very you know slow operations uh in terms of uh overall efficiency and scrap plate and people's training and qualities and inventories.
4481904,417,3460.8301,3467.6099,14,Uh you know why do we have a very strong inaudible in Japan and China Southeast Asia?
4481904,418,3467.99,3472.0601,14,It's a bit slow uh to transfer to Europe and then Mexico.
4481904,419,3472.21,3485.5898,14,And then uh I've retrained my peoples and then enhancement of business and then uh you know built basic strengths as manufacturers that we are doing and then Mexico one operations.
4481904,420,3487.95,3489.1899,17,Very helpful indeed thank you.
4481904,421,3490.26,3492.1702,15,Uh Mark thank you very much.
4481904,422,3492.75,3495.49,15,Now we'd like to conclude the conference call.
4481904,423,3496.0701,3498.8599,15,I'd like to appreciate for your participation.
4481904,424,3499.1899,3510.8201,15,Should you have any further questions please do not hesitate to contact inaudible Corporation or your favorite representative at Mitsubishi Morgan Stanley Securities.
4481904,425,3511.5701,3512.6201,15,Again thank you.
4481904,426,3520.8401,3542.55,14,You know as <unk> explained uh you know our uh q three accumulated sales reaching one point four three billions and then q three sales itself is uh like .53 billions and then uh we updated our sales target last time to be uh one point nine three billions.
4481904,427,3543.01,3546.6599,14,Uh now it's become very uh positives.
4481904,428,3546.8899,3559.1799,14,And then also uh in July we announced uh Vision twenty twenty five to be a a inaudible in two five at a a very first milestones.
4481904,429,3559.46,3569.49,14,Uh I committed uh inaudible by twenty two which is another .5 .13 billion if we land one point nine this year.
4481904,430,3569.8701,3587.24,14,So two inaudible is very reachables and then as we explained through the uh uh educations and inaudible you know we had uh lots of source for further growth and you know cuz inaudible particularly uh machine toward building…
4481904,431,3587.24,3589.54,14,build ideas uh it's very active.
4481904,432,3589.54,3603.5601,14,So uh you know uh we would make a a committed growth from next year this year next year and then we will approach what we targeted in Vision twenty twenty five.
4481904,433,3604.3,3615.47,14,So uh thanks for your support but uh uh at this moment we have a a difficulty of uh material price and the material supply.
4481904,434,3615.9099,3617.3899,14,Uh it's a very small thing.
4481904,435,3617.48,3629.8398,14,If we look at uh two years' bills or three years' bills important point is we have enough strength to grow and then uh find strategy to execute.
4481904,436,3630.49,3636.3198,14,So we will be there and then we will not uh betray your exp expectations.
4481904,437,3636.6399,3638.8999,14,Uh that's final remark from me.
4481904,438,3639.1001,3639.6899,14,Sorry inaudible.
4481904,439,3639.6899,3639.95,15,Mr.
4481904,440,3641.3799,3644.8801,15,Seki thank you very much for your closing remarks.
4481904,441,3646.5701,3653.8499,15,Again uh i would like to thank you for uh your uh joining the conference call and you may now disconnect.
4481904,442,3655.5701,3656.5701,14,Thank you everyone.
4481952,0,1.56,9.36,0,Thank you for standing by and welcome to the Evolution Mining December twenty twenty one quarter results call.
4481952,1,10.21,12.08,0,All participants are in a listen only mode.
4481952,2,12.85,16.03,0,There will be a presentation followed by a question and answer session.
4481952,3,16.98,22.27,0,If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.
4481952,4,99.81,103.78,1,An exposure to any metal that ended up in a Tesla was highly sought after.
4481952,5,191.63,192.56,2,Thanks Martin.
4481952,6,192.63,193.61,2,Good morning everyone.
4481952,7,193.61,194.82,2,Welcome to the call.
4481952,8,194.92,197.16,2,Thanks for joining us and happy new year.
4481952,9,198.54,207.2,2,Despite the industry headwinds COVID labor shortages and unseasonal rainfall our teams did extremely well to manage the impact.
4481952,10,208.33,218.27,2,As planned and first articulated to you in July we anticipate the second half of the year to be materially better than the last six months and are on track to deliver our guidance.
4481952,11,220.03,228.21,2,Given the first half performance at Red Lake we expect to be in the bottom half of the production range in between the mid and top end of the cost guidance range.
4481952,12,230.01,237.72,2,Last quarter our portfolio was significantly improved by securing one hundred percent ownership of the iconic Ernest Henry copper-gold mine.
4481952,13,238.66,249.09,2,We also concluded the sale of Mount Carlton and Navarre Minerals and whilst retaining exposure to the future of the operation the sale allows us to focus in our larger higher margin assets.
4481952,14,252.38,266.64,2,We continue to be consistent and diligent in the implementation of our strategy of improving the quality of our portfolio and being laser focus about putting ourselves into a position where we can generate sector leading returns on the capital we deploy.
4481952,15,267.66,274.45,2,In our view this is the holy grail in our industry and is the true measure of a gold company's performance over the long term.
4481952,16,276.64,286.64,2,I visited Ernest Henry last week and left very confident that in the December quarter we concluded what is likely to prove one of the most transformative deals in Evolution's history.
4481952,17,288.25,292.55,2,It is an outstanding operation with a great team and terrific geological upside.
4481952,18,293.47,296.89,2,We look forward to hosting a number of you there for a site visit in due course.
4481952,19,298.89,305.82,2,The foundations for the transaction were put in place in two thousand and sixteen when we secured the economic interest in the assets.
4481952,20,306.2,318.76,2,And since then it built a strong and mutually respectful relationship with Glencore that allowed us to negotiate this deal on a bilateral exclusive basis over the course of of a few months last year.
4481952,21,320.25,324.81,2,Our economic interest delivered seventy nine point five million in cash flow last quarter.
4481952,22,325.27,332.64,2,And now with one hundred percent of the operation being included from one January we expect its impact to be even bigger going forward.
4481952,23,334.1,346.7,2,The cave extension prefeasibility study will be a priority and with intersections four hundred meters below the study area and still open below that Ernest Henry has a long and very exciting future.
4481952,24,348.23,355.02,2,Carl performed extremely well and managed to deliver to plan in spite of unprecedented rainfall and and COVID interruptions.
4481952,25,355.94,363.24,2,The underground project which will grow Carl's production to three hundred fifty thousand ounces per annum remains on schedule and budget.
4481952,26,365.06,368.77,2,I was also fortunate to be able to visit Red Lake in November last year.
4481952,27,418.96,421.08,2,This is our values created in our sector.
4481952,28,429.41,433.66,2,Last quarter we consistently achieved over twelve hundred meters of development each month.
4481952,29,434.18,441.67,2,And as a result of this and other improvements we have confidence of a material and sustainable improvement to production in the next two quarters.
4481952,30,442.72,450.29,2,We expect this higher production to drive the cost per ounce lower and I'm looking forward to visiting the operation again with Lawrie in the next few weeks.
4481952,31,452.33,458.28,2,Frustratingly Mungari remains the only asset in our portfolio that we cannot cannot currently visit.
4481952,32,459.22,464.4,2,We are fortunate to have a good team in Western Australia who've led the Kundana integration which has gone well.
4481952,33,464.76,469.25,2,And we are growing increasingly confident about the future and the potential of this operation.
4481952,34,470.93,471.19,2,Mt.
4481952,35,471.19,476.65,2,Rawdon was impacted by heavy rainfall and was forced to process low the low grade stock power material.
4481952,36,477.59,480.51,2,Strategically we continue to assess the potential of Mt.
4481952,37,480.51,490.62,2,Rawdon to be converted into pumped hydro generator which could be a significant contributor of renewable energy to the Southeast Queensland grid at the end of its mine life.
4481952,38,492.45,506.67,2,This last quarter the highlights for the discovery team were good intersections at Q and Western Australia and also more intriguing and exciting intersections at Red Lake where there is plenty of open space and interesting geology to discover another high grade zone.
4481952,39,507.72,511.97,2,Glen and his team are also plotting and planning the next phase of drilling at Earnest Henry.
4481952,40,513.9,519.66,2,Whilst we are managing industry headwinds we should not ignore the significant commodity price tailwinds.
4481952,41,520.4,528.73,2,"A gold price of over a twenty five hundred and a copper price which going forward will represent around twenty percent of our revenue of over A$ 13,500 per ton."
4481952,42,532.23,534.79,2,Evolution is well positioned to benefit from this.
4481952,43,535.7,539.56,2,I'll now hand over to Bob to provide some more detail on the operational performance.
4481952,44,541.49,543.27,3,Thanks Jake and uh good morning everyone.
4481952,45,560.13,568.03,3,The quarter's goal production was a hundred and forty eight thousand ounces with a five percent improvement in the oil in sustaining cost to thirteen hundred and forty seven dollars an ounce.
4481952,46,590.56,595.97,3,This included twenty four million on the i w l and thirty three point five million on the underground development.
4481952,47,596.96,601.59,3,Underground development rates will ramp up in the March quarter with a second jumbo commencing in December.
4481952,48,602.13,605.42,3,And the selection of the primary mining contractor is on track for the March quarter.
4481952,49,606.26,608.61,3,The project remains on budget and on schedule.
4481952,50,609.95,612.65,3,The <inaudible> stage two deposition has run smoothly throughout the quarter.
4481952,51,613.83,622.53,3,Ernest Henry produced twenty one thousand ounces of gold and 4. one thousand ounces of copper at an all in sustaining cost of a negative eight hundred and eighty two dollars an ounce.
4481952,52,623.48,634.77,3,The high i i s c compared to the September quarter is primary driven primarily driven by lower copper production due to a lower mining planned uh lower planned mining tons.
4481952,53,636.12,641.87,3,The net mine cash remains strong at seventy nine point five million another significant contribution to the portfolio.
4481952,54,643.4,647.1,3,i am pleased to say this will be the last quarter reporting Ernest Henry as an economic interest.
4481952,55,647.7,653.7,3,Integration activities are well underway and I'm excited to have the Ernest Henry team as part of the Evolution family.
4481952,56,654.77,661.21,3,The prefeasibility study for the mining extension below the eleven twenty five RL has commenced and will incorporate the recent drilling results.
4481952,57,661.85,666.14,3,Indicating mineralization extends further than assumed in the conce concept study.
4481952,58,667.2,670.63,3,Completion of the study is expected in h one f y twenty three.
4481952,59,672.32,676.67,3,Moving on to Red Lake over the past five months I've been on site three times.
4481952,60,677.6,682.14,3,Each time I've seen improvement in step change in performance and devel uh and delivering.
4481952,61,683.07,687.58,3,Although still work in progress pleasingly many key metrics are moving in the right direction.
4481952,62,688.71,691.06,3,Red Lake produced twenty thousand ounces for the quarter.
4481952,63,708.89,711.83,3,For the past couple of quarters I've been talking about development.
4481952,64,712.44,720.76,3,Pleasingly during the December quarter each month was above our long our our long term transformation goal of twelve hundred meters per month.
4481952,65,721.85,725.37,3,The December quarter was twenty one percent higher than the September quarter.
4481952,66,726.27,729.7,3,I expect this to continue allowing additional mining fronts to be opened.
4481952,67,731.01,744.38,3,Campbell Mill continues to do achieve new records and approval has been granted to lift the daily throughput restriction of two thousand tons per day for a limited trial in the second half of the financial year to support the Campbell Mill expansion.
4481952,68,745.74,749.5099,3,While still not where we want them to be there's been significant improvements through the quarter.
4481952,69,774.73,780.49,3,And in December <inaudible> grade lifted to four point nine grams per ton.
4481952,70,791.27,799.45,3,Notable improvements for the second half of the year our tons assessed will increase with the Red l Red Lake mill running and the Campbell Mill <inaudible> extension.
4481952,71,800.42,807.83,3,Grade mine mind is lifting as dilution reduces and plans for early ore from the c y d development continue.
4481952,72,808.91,810.0601,3,Increased tons from <inaudible>.
4481952,73,810.99,821.02,3,The transfer <inaudible> locomotion the locomotives performance has improved by forty three percent last quarter and replacement locomotives will be commissioned this quarter further reducing downtime.
4481952,74,821.73,829.76,3,And increased number of mining ho horizons in continuing the improvement in stoke design and execution to further enhance our all deliveries and quality.
4481952,75,832.1,834.39,3,Mungari is moving forward post integration.
4481952,76,857.67,861.78,3,Workforce integration is ongoing with a focus on establishing a one team approach.
4481952,77,862.71,875.35,3,The sharing of resources across the field has commenced and enabling better deployment of equipment and resources to priority areas which has been a been critical as a site navigates high vacancy rates and COVID related impacts.
4481952,78,876.71,876.96,3,Mt.
4481952,79,876.96,885.47,3,"Rawdon produced twelve thousand four hundred ounces at an only sustaining cost of $1,842 an ounce and operating mice cash precapital of eleven point nine million."
4481952,80,886.4,891.72,3,As previously mentioned weather significantly impacted access to the pit resulting in reduced all movements.
4481952,81,892.54,897.79,3,As a result stock pile feed increased directly affecting gold grade and production.
4481952,82,898.86,903.51,3,In summary some great improvements from red Red Lake and Mungari throughout the quarter.
4481952,83,903.82,911.89,3,The Cowal underground project continues to hit milestones and the official ownership of Ernest Henry mine has added additional opportunity for the portfolio.
4481952,84,912.74,914.5,3,Thank you for your time and I'll hand over to Glen.
4481952,85,917.82,918.57,4,Thank you Bob.
4481952,86,918.61,919.86,4,And good morning everyone.
4481952,87,920.82,931.84,4,Firstly at our Q joint venture in Western Australia we've advised our partner Musgrave Minerals that we will be taking full management and operatorship at the project which occurred on January first of this year.
4481952,88,933.02,944.27,4,Recent results from diamond drilling at the West Island prospect outlined on page fifteen of this morning's report importantly confirm the potential for high grade mineralization within individual loads.
4481952,89,945.48,953.4,4,Drilling has also identified multiple new load structures in the favorable diorite host in various locations along strike.
4481952,90,954.57,963.35,4,The geometric relationships between structures and diorite employee individual loads may be limited by their potential strike length that remain open at depth.
4481952,91,964.35,975.18,4,The airport drilling program has been very important in further delineating the favorable diorite host and associated golden golden nomism along strike from the original West Island drilling.
4481952,92,976.12,980.59,4,The res the results have unlocked new areas with the necessary geological ingredients.
4481952,93,981.09,984.63,4,The mineralization to occur up to five kilometers from West Island.
4481952,94,986.13,994.98,4,One of the challenges with all of our drilling programs is long delays waiting to receive assay result results in time to inform where to drill next.
4481952,95,996.43,1002.74,4,This is an industry wide issue and is holding back the ability to accelerate drilling programs in the ways we would like to.
4481952,96,1003.54,1012.55,4,At Q we are still waiting on results from five diamond holes and over seventy air core holes which restricts our ability to sensibly add additional drilling resources.
4481952,97,1014.61,1022.86,4,At Red Lake two deep holes were completed as wide space step outs from the original intercept reported last quarter on the ore zone extension.
4481952,98,1023.73,1032.1899,4,One of the holes intersected high grade mineralization two hundred meters away from the first from the first hole with the other hole drilling through the structure.
4481952,99,1032.55,1035.38,4,However it did not return significant mineralization.
4481952,100,1036.17,1045.96,4,The results reported on page twelve are encouraging because they'll unlock large area of real estate that has not been previously drilled along the extension of the ore zone structure.
4481952,101,1046.8199,1054.6801,4,Follow up drilling is currently stepping off the high grade intercept in hole sixty nine to expand the potential scale of minimization in this area.
4481952,102,1056.24,1067.9299,4,At Mungari drilling underground at Kundana and East Kundana continuous concentration on small resource extensions and classification upgrades on future mining areas adjacent to existing development.
4481952,103,1068.96,1078.2101,4,Step out drilling into the foot wall of the k two structure from the underground at Hornet has returned further promising intercepts of stacked load style mineralization at <inaudible>.
4481952,104,1080.1,1088.71,4,Follow up drilling is underway to understand the significance to eliminated vein in hole twenty one thirty reported on page fourteen of this morning's report.
4481952,105,1089.67,1097.22,4,The geology is similar to what would be expected on the main cases structure at <inaudible> which is where the priority follow up drilling.
4481952,106,1098.9399,1111.8301,4,At Ernest Henry we have assessed h two drilling priorities which will be focused on developing all body knowledge for the P F S along with de-risking areas of the resource that require additional data support before production is scheduled.
4481952,107,1112.64,1121.78,4,As Bob and Jake mentioned earlier strong copper gold mineralization has been intersected at the four hundred eighty meter RL and remains open down plunge.
4481952,108,1122.61,1124.23,4,With that I'll hand over the Lawrie.
4481952,109,1126.5601,1127.96,5,Thank you Glen and good morning everyone.
4481952,110,1141.8199,1150.89,5,This aligns without guidance where we said the production would increase over the year and the all in sustaining costs would trend down from around fourteen fifty per ounce in the first quarter.
4481952,111,1151.98,1156.0701,5,The i i s c was approximately five percent lower than the September quarter.
4481952,112,1156.0699,1168.73,5,Our focus on portfolio quality is evident in that on a light for light basis the divestment of Mount Carlton operation reduced our all in sustaining cost by twenty eight dollars per ounce this quarter.
4481952,113,1200.58,1206.01,5,In terms of cashflow we were fairly well in line with plan excluding the underperformance at Red Lake.
4481952,114,1206.83,1214.6901,5,We generated two hundred three million of operating cash flow which is up four point six percent and thirteen percent excluding Mount Carlton.
4481952,115,1214.6899,1220.2999,5,On a per ounce basis our operating cash flow was up ten percent quarter on quarter.
4481952,116,1221.26,1229.97,5,This was against a flat goal price and lower copper revenue where the higher copper price was offset by planned lower copper volumes at Ernest Henry.
4481952,117,1231.5601,1236.33,5,Net mine cash flow was fifty three million with our capital programs remaining on plan.
4481952,118,1237.0601,1247.78,5,We invested around thirty four million in sustaining capital where major project investment increased to a hundred and fourteen million as projects in Cowal and at Cowal and Red Lake progressed.
4481952,119,1249.6801,1259.2,5,Group capital guidance remains unchanged at a hundred and fifty to a hundred seventy five million for sustaining and four hundred forty to five hundred and five million for major projects.
4481952,120,1260.6801,1268.47,5,We'll see an immediate benefit of the acquisition of a hundred percent of Ernest Henry where i i s c will reduce materially in the second half of the year.
4481952,121,1269.51,1272.47,5,More importantly though our cashflow will be increasing.
4481952,122,1273.5,1283.4299,5,Based on our guidance and depending on the copper price achieved in the second half we expect to realize an additional eighty to a hundred thirty million of net mine cashflow at Ernest Henry.
4481952,123,1284.38,1287.78,5,This will be taken into consideration when determining our interim dividend.
4481952,124,1289.08,1301.0701,5,As previously announced during the quarter we successfully priced the US two hundred million US private placement for nine years at very attractive pricing to partially fund the Ernest Henry acquisition.
4481952,125,1301.86,1303.4299,5,This will be drawn down next month.
4481952,126,1304.63,1309.9,5,We ended December with one point one five billion of cash and net debt of four hundred and fifty million.
4481952,127,1310.61,1317.4,5,Now our <inaudible> is around twelve point six percent prior to the payment for Ernest Henry in early January.
4481952,128,1318.33,1329.6801,5,We are on track to be below the twenty nine percent projector at time of announcing the acquisition and we expect to quickly be back within our targeted gearing levels and maintain a very wrong balance sheet.
4481952,129,1336.6,1338.17,5,Thank you for your time this morning.
4481952,130,1338.2,1340.9501,5,And Darcy please open the line for questions.
4481952,131,1342.9,1343.3101,0,Thank you.
4481952,132,1344.04,1349.09,0,If you wish to ask a question please press star one on your telephone and wait for your name to be announced.
4481952,133,1349.92,1352.78,0,If you wish to cancel your request please press star two.
4481952,134,1353.78,1357.14,0,If you are on a speakerphone please pick up the handset to ask your questions.
4481952,135,1357.14,1361.9299,0,Your first question comes from David Radcliffe from Global Mining Research.
4481952,136,1362.33,1363.0,0,Please go ahead.
4481952,137,1364.55,1364.79,6,Hi.
4481952,138,1364.79,1366.03,6,Good good morning Jake team.
4481952,139,1366.8101,1368.61,6,So uh my question's on Red Lake.
4481952,140,1368.8,1380.95,6,The the commentary around mining rates does seem like you know more optimistic today which is great uh especially with respect to I guess the mine efficiencies and dilution and and opening up more mining freights up front.
4481952,141,1381.48,1389.1799,6,So just trying to think how we should think about you know the high development rates converting it to higher mine tons over sort of this year.
4481952,142,1389.63,1395.42,6,And if you could maybe provide some sort of quantum how that comes through over the next c- couple of quarters.
4481952,143,1395.88,1400.5601,6,Uh and then on grade how we should sort of think about those numbers over the year.
4481952,144,1416.76,1423.78,2,Um I mean I think we you know we are going through a transformation you know we've called it a three to five year transformation at Red Lake.
4481952,145,1424.11,1427.6901,2,Uh the six months have taught us a lot about the operation.
4481952,146,1428.01,1440.1899,2,Uh we've focused on the development and we've we've specifically taken the decision to I suppose sacrifice production over development and getting ready and setting the tra the transformation up.
4481952,147,1440.1899,1446.11,2,And we now feel that we've kind of bottomed and we're at a point where you really gonna see improvements in that.
4481952,148,1446.4,1448.0601,2,Um so the development rates are up.
4481952,149,1448.72,1452.51,2,Uh the improvements in in mining are are getting better.
4481952,150,1452.96,1458.02,2,Uh as Bob highlighted and he can talk further to it you know dilution has been reduced.
4481952,151,1458.37,1461.1699,2,Uh we are comfortable that the models are performing.
4481952,152,1481.15,1482.47,2,Bob do you wanna add to that?
4481952,153,1503.87,1507.08,3,We've started to see an increase in tonnages last quarter through the quarter.
4481952,154,1507.7,1511.86,3,Um although it's not a as high as we need it yet but it's still it is growing.
4481952,155,1525.72,1538.52,3,Uh as uh gr Jake said also on the grade um you know we are getting a lot better um with the reconciliations of of um dilution a and um and the like as I mentioned all the all the numbers.
4481952,156,1539.16,1546.02,3,Um I I expect that over coming quarters we'll see um that continue to to improve.
4481952,157,1546.54,1548.71,3,Glen did you want to comment on the models specifically?
4481952,158,1551.9399,1552.55,4,Sure Bob.
4481952,159,1552.55,1580.0499,4,I I think um you know one of the things that we're starting to see David is that um particularly with our reconciliations so our our <inaudible> control and our dome two or reserve um we're starting to see an upward tick um you know particularly on the grade front as as we improve particularly some of the you know the mining related factors as Bob has just described dilution recovery um and and we've improved our grade control system.
4481952,160,1606.03,1612.62,2,I just uh conclude um that David with a a comment around the fact that we've owned this asset for twenty one months.
4481952,161,1612.86,1617.29,2,Um it's only been in the last five months that we've been able to visit the the operation.
4481952,162,1617.72,1633.25,2,Uh but when we bought the asset in April twenty nineteen we said our three year goal was to get to a run rate of two hundred thousand ounces of gold uh and then a longer term five year um horizon of three hundred fifty thousand ounces a year.
4481952,163,1633.42,1640.5601,2,And uh we are uh committed to delivering that uh on both thirty six month and sixty month targets.
4481952,164,1642.63,1642.89,6,Great.
4481952,165,1642.97,1643.78,6,Thanks very much guys.
4481952,166,1643.78,1644.39,6,I'll pass it on.
4481952,167,1647.48,1647.99,0,Thank you.
4481952,168,1648.37,1651.65,0,Your next question comes from Earl Harvey from JPMorgan.
4481952,169,1652.02,1652.74,0,Please go ahead.
4481952,170,1655.77,1655.89,7,Yeah.
4481952,171,1655.89,1657.24,7,Morning Jake and team.
4481952,172,1657.4301,1659.05,7,Just um couple from me.
4481952,173,1659.62,1662.2001,7,Just with um Ernest Henry and and the study.
4481952,174,1662.2,1665.21,7,So we've got about eighteen months for the PFS.
4481952,175,1665.9301,1677.23,7,Um just wondering if if this was going to um take on much of the the work that Glencore did or if it'll be kind of a complete recut incorporating that those further depth extensions.
4481952,176,1677.23,1683.47,7,And I think Glen you mentioned it was going down to four hundred and eighty meters um and still open beyond.
4481952,177,1683.47,1691.6,7,So where potentially could you um would you kind of draw the line on on those depth extensions and and and where this study will kind of finish up?
4481952,178,1692.9301,1693.27,2,Yes.
4481952,179,1709.21,1715.6799,2,Um it will build on um the concept study which uh was completed by Glencore.
4481952,180,1716.09,1736.6699,2,Um I suppose one of the things which we found intriguing as we've looked at the concept study um is that it was determined really on the basis of um minimizing the capital expenditure which meant that the depth extent of the concept study went down to as far as the decline could go and you could truck material up.
4481952,181,1737.21,1741.33,2,Uh so it wasn't constrained or limit uh determined by geology.
4481952,182,1741.33,1755.84,2,It was more determined by you know how far can we develop how deep can we develop which was kind of four to five year mine life extension um uh with a decline development and not needing to uh spend significant capital.
4481952,183,1755.84,1766.35,2,So the priority was really minimizing capital expenditure and extending mine life um by which which constrained it to that forty five years.
4481952,184,1766.35,1769.51,2,So our pre fees will look at that as well.
4481952,185,1787.4301,1794.37,7,Um maybe just quickly on Red Lake um you got the approval for the higher throughput um trial.
4481952,186,1794.37,1800.6,7,How how long will that um trial last and then and then what are the permitting steps that will follow follow that there?
4481952,187,1802.2,1803.77,2,Bob do you wanna take that question?
4481952,188,1804.63,1804.87,3,Yep.
4481952,189,1804.87,1805.33,3,Thanks Earl.
4481952,190,1805.6801,1815.16,3,Um the um the trial is actually we've permitted for uh a a a six to eight week period of basically unlimited throughput through the Campbell Mill.
4481952,191,1815.73,1823.22,3,And the reason we want to uh we wanted the trial was to to determine uh how far we could actually push the uh the mill.
4481952,192,1823.67,1833.99,3,Um so uh really it's a it is a short period of time uh that will allow us to then uh be able to go and actually seek the the approvals for a permanent lift.
4481952,193,1856.42,1859.58,7,I thought we were kind of gonna expect that a little bit a little bit later.
4481952,194,1859.58,1868.86,7,So is this is this material a one off or can we kind of expect uh underground to start contributing more and and seeing that ramp up over the next few quarters?
4481952,195,1874.1899,1874.6,2,Bob.
4481952,196,1874.6,1874.64,3,<inaudible>.
4481952,197,1875.3199,1879.83,3,We're on track for the the timeframe that we've actually spoken about earlier uh Earl.
4481952,198,1880.34,1887.6899,3,There will be minor uh contributions coming through as we uh develop through uh different zones.
4481952,199,1888.15,1892.0699,3,Uh but it won't be significant in the imme immediate future.
4481952,200,1909.99,1912.2,2,It remains on on track and on schedule.
4481952,201,1914.61,1915.3,7,Yeah no worries.
4481952,202,1916.76,1917.0,7,Thanks.
4481952,203,1917.6899,1918.0199,7,Cheers.
4481952,204,1921.9301,1922.4099,0,Thank you.
4481952,205,1922.79,1925.7,0,Your next question comes from Daniel Morgan from Barrenjoey.
4481952,206,1925.97,1926.71,0,Please go ahead.
4481952,207,1928.11,1929.12,8,Uh hi Jake and team.
4481952,208,1929.15,1930.25,8,Uh just on Red Lake.
4481952,209,1930.4301,1937.36,8,Um can you just run through on why f y twenty two guidance is still achievable albeit at the low end of the ranch?
4481952,210,1937.98,1944.08,8,Um it does imply the next two quarters have got a very strong production run rate of over fifty thousand ounces.
4481952,211,1944.77,1947.71,8,I guess we're at the end of January so you should have visibility on that data.
4481952,212,1947.71,1950.3301,8,But um it just seems a big lift.
4481952,213,1950.8101,1955.03,8,You know what what is underpinning that do you have you know high grade stokes available?
4481952,214,1955.03,1960.9301,8,Is it you know running this trial um of the the plant you know does that give you more production?
4481952,215,1960.9301,1962.9,8,Just you know how is guidance achievable?
4481952,216,1963.6801,1964.86,2,Yeah Dan thanks.
4481952,217,1964.86,1968.25,2,I mean we've specifically said that group guidance is achievable.
4481952,218,1968.5699,1972.62,2,Um we're not gonna make the the asset guidance at at Red Lake.
4481952,219,1972.86,1987.8401,2,Um but you know we we are not feeling um that we wanna be granular enough to say you know how much we can produce cuz all these all these steps are in in on in place and are showing improvements um but on a group basis.
4481952,220,1987.84,1990.0599,2,And I think that's what investors should look at.
4481952,221,1990.27,1993.79,2,Uh you know we are confirming that we will make our guidance range.
4481952,222,1995.17,1995.5599,8,All right.
4481952,223,1995.5601,1998.5699,8,I must I might have misinterpreted the comment that it was a group comment.
4481952,224,1998.5699,1999.0599,8,Apologies.
4481952,225,1999.21,2002.0499,8,Um just on Red Lake maybe take taking a step back.
4481952,226,2003.05,2011.73,8,Could you maybe break out um what are the critical elements that need to be in place for the for the turnaround to occur?
4481952,227,2011.73,2022.7899,8,because obviously a lot of these are not in place at at current whether that's the equipment whether that's the um you know the access to the the upper Campbell or or or the mill through reports.
4481952,228,2022.79,2030.62,8,Can you just unpick you know when these pieces to the turnaround will be in place or expected to be in place and and you know when we can expect that?
4481952,229,2031.5601,2032.0701,2,Sure.
4481952,230,2049.1399,2070.77,3,Um but post that we've actually been working on uh the slope turnaround cycle um a and the the time to initial from initial development through to uh filling of <inaudible> so we can keep the sequence going for the next um uh for the next scope which comes along right right beside the previous uh field stokes.
4481952,231,2077.9299,2085.2,3,Uh we've been working on reentry times as well as um uh stooping and turnover of the actual stokes.
4481952,232,2085.72,2095.8999,3,So all those together is really is what is enabling the lift last quarter o of our <inaudible> by I think it's about 15% from the from the previous quarter.
4481952,233,2096.8701,2101.9802,3,So that comes around because we can actually get into the stokes quicker a a and and more regularly.
4481952,234,2103.0,2110.2,3,Um i if we actually look at the additional uh mining fronts what it enables us to do is actually spread the mining fleet out.
4481952,235,2110.9299,2118.9001,3,So that interruption a and uh the disruption uh from interacting activities i is limited even further.
4481952,236,2118.8999,2125.6599,3,So that allows us to actually turn the actual cycles quicker because we actually don't have the same uh disruption factors.
4481952,237,2126.46,2129.23,3,Um a big one for coming quarters is <inaudible>.
4481952,238,2130.1799,2143.5598,3,Uh and last quarter uh the the um the high spring trim or the uh the uh locomotive that takes the ore from <inaudible> across the <inaudible> that improves significantly from the previous quarter.
4481952,239,2143.98,2145.7898,3,And and that is one of the main things that allow us cuz <inaudible> has got uh a a good turnover cycle o- of its types already.
4481952,240,2145.8201,2153.79,3,Did I sort of try to answer it?
4481952,241,2182.55,2186.4402,3,First ore was always said to be around about twelve months after.
4481952,242,2186.95,2189.05,3,So a and that still is on on track.
4481952,243,2189.73,2195.8301,3,Um we will get minor amounts of of development or earlier uh the same as at Cowal.
4481952,244,2236.73,2246.6799,2,And you know I I still believe this is as I said in my commentary uh this is an amazing commercial opportunity where we've acquired assets that need transformation.
4481952,245,2247.03,2248.8601,2,Uh it's gonna take some time.
4481952,246,2249.2,2256.1101,2,Uh we've had a few hiccups in the last six months but you know there are no red flags with respect to delivery and transforming this operation.
4481952,247,2257.8601,2264.8098,3,Uh I guess Jake on that comment about the the ore tonnages or or the potential ore within that uh Campbell zones.
4481952,248,2275.77,2276.96,3,So that's what's taken the time.
4481952,249,2278.8,2279.1799,8,Thank you.
4481952,250,2279.1799,2281.8201,8,And last question is probably be a bit simpler.
4481952,251,2281.8201,2283.6299,8,Um just Mungari.
4481952,252,2284.46,2287.1499,8,Um just the numbers on page four.
4481952,253,2287.4399,2294.25,8,Can I just get a confirmation on whether these are equity numbers or or do they have JV production in them?
4481952,254,2294.25,2296.74,8,I just wanna make sure I'm treating like with like here.
4481952,255,2298.8799,2299.2598,2,Sorry.
4481952,256,2299.5,2299.78,2,Yeah.
4481952,257,2320.23,2320.53,8,Okay.
4481952,258,2320.75,2321.1099,8,Thank you.
4481952,259,2324.77,2325.26,0,Thank you.
4481952,260,2325.6399,2328.55,0,Your next question comes from Levi Spry from UBS.
4481952,261,2329.03,2329.78,0,Please go ahead.
4481952,262,2332.6599,2333.1799,9,Uh yeah.
4481952,263,2333.1799,2333.6602,9,Good day.
4481952,264,2336.6899,2341.3499,9,Um c- can can I just follow up on Dave and Dan's questions there around Red Lake.
4481952,265,2341.5701,2346.0,9,Um Bob can we get the tons and grades for the second half?
4481952,266,2346.0,2355.9502,9,And and do I assume that the three year two hundred thousand ounces means that we're going for a fifty thousand ounce per quarter run rate into the you know twelve months or whatever expect to be <inaudible>?
4481952,267,2358.72,2361.26,2,I think before Bob answers that I I'll have a go.
4481952,268,2361.5901,2362.55,2,Happy new year Levi.
4481952,269,2363.1399,2364.4202,2,Um yes.
4481952,270,2364.45,2368.0701,2,Is is the i is the answer to your last question.
4481952,271,2368.1001,2373.9202,2,You know to get to two hundred thousand ounces we need to get to consistently doing a run rate of fifty thousand ounces per quarter.
4481952,272,2374.6299,2384.2102,2,Um we'd prefer not to kind of break down into tons and grades for the next six months because we just feel we will wanna build confidence ourselves.
4481952,273,2384.45,2402.6099,2,Uh on a group guidance basis we are comfortable we'll make the the the guidance range uh but we'd prefer just to give us give us another you know couple of months um to just get comfortable that these that these changes that we're seeing are gonna be repeatable and consistently deliverable.
4481952,274,2406.3501,2406.48,9,Yep.
4481952,275,2407.8601,2408.1001,9,Okay.
4481952,276,2412.1001,2412.6501,9,Thank you.
4481952,277,2412.99,2416.01,0,Your next question comes from Alex Barkley from RBC.
4481952,278,2416.3999,2417.1201,0,Please go ahead.
4481952,279,2418.6101,2419.3801,10,Uh hi Jake team.
4481952,280,2419.8999,2422.3101,10,Um first a a quick one at Cowal.
4481952,281,2422.6699,2427.6001,10,It seems like sustaining CapEx is maybe running a bit low on an annualized basis.
4481952,282,2429.3701,2432.73,10,Is that um is there a reason for that or or should we be expecting a lift in second half?
4481952,283,2434.7,2435.1299,2,Lawrie.
4481952,284,2435.25,2439.9299,5,Yeah Alex it is just basically um timing more than anything.
4481952,285,2440.26,2443.0798,5,Um we expect that their second half will will lift.
4481952,286,2443.0801,2450.6899,5,I mean the primary focus in the first half was getting the the underground and the IWL um projects continuing.
4481952,287,2462.23,2467.99,10,So for for the second quarter can we confirm that there was no grade reconciliation issued?
4481952,288,2469.8101,2473.27,2,Uh yeah there there was dilution but that was improving.
4481952,289,2473.6899,2488.75,2,Uh and in the in in the months of December we felt very comfortable that it we'd we'd addressed some of the issues that we were getting in terms of both dilution um a and um and we feel confident that the models are performing to plan.
4481952,290,2489.8999,2490.0698,10,Yeah.
4481952,291,2490.0701,2490.3501,10,Okay.
4481952,292,2490.3799,2490.5698,10,Yeah.
4481952,293,2490.5701,2493.1199,10,I I was sort of talking about the model but you've answered me there.
4481952,294,2493.1499,2493.8699,10,Thanks very much guys.
4481952,295,2496.55,2496.6401,5,Yeah.
4481952,296,2497.4299,2497.96,0,Thank you.
4481952,297,2498.1699,2501.0901,0,Your next question comes from Matthew Friedman from Goldman Sachs.
4481952,298,2501.6299,2502.3201,0,Please go ahead.
4481952,299,2504.1399,2504.3899,11,Sure.
4481952,300,2504.3899,2504.6499,11,Thanks.
4481952,301,2504.6499,2505.8,11,Morning Jake and team.
4481952,302,2518.54,2520.8799,11,You know we can see mining rates lifting development rates lifting.
4481952,303,2521.3,2523.0801,11,But obviously grade keeps falling.
4481952,304,2523.1101,2526.1401,11,Um you've been underperforming the reserve grade for a year now.
4481952,305,2529.9099,2535.9001,11,Um is there a need to rethink some of the dilution assumptions and other factors that underpin that reserve grade?
4481952,306,2535.8999,2539.1099,11,You said you you know you're comfortable with the way the model was performing at the moment.
4481952,307,2539.1399,2551.24,11,But uh I guess there's another year of data on this asset um you know now uh I guess le lead to any sort of expectations or anything that we should think about at the next um mineral reserves uh…
4481952,308,2551.72,2551.98,11,Sorry.
4481952,309,2551.98,2553.55,11,Mineral resource or reserve update.
4481952,310,2553.6201,2556.8298,11,Um you know any any anything to think about in terms of that?
4481952,311,2557.97,2558.3699,2,Yeah.
4481952,312,2558.3701,2559.03,2,Thanks Matt.
4481952,313,2559.03,2561.05,2,I mean a good good question again.
4481952,314,2561.0901,2565.76,2,And Bob and his team have been doing a lot of work on understanding that.
4481952,315,2565.76,2571.02,2,And and again we came to the we are of the view and empirically that the models are performing to plan.
4481952,316,2571.02,2578.79,2,But Bob maybe you can give uh some color as to some of the issues and then hand over to Glen to just uh give some guidance on the o on the <inaudible>.
4481952,317,2580.47,2581.3901,3,Yeah no problems.
4481952,318,2581.3899,2582.1301,3,How you doing Matt?
4481952,319,2582.53,2587.96,3,Um the number that I quoted uh when I was speaking that was the December number.
4481952,320,2588.3899,2598.8699,3,So the number in the report is um i is an average for the quarter of three point nine five.
4481952,321,2612.4199,2615.1001,3,So it is actually starting to improve significantly.
4481952,322,2615.49,2618.7998,3,And that's why what Jake said about we are pretty confident on the on the models.
4481952,323,2619.4199,2620.8901,3,Um we are working on all those things.
4481952,324,2620.8899,2622.1001,3,Are we where we need to be?
4481952,325,2622.79,2624.54,3,I still think we've got improvements to be had.
4481952,326,2624.54,2627.55,3,So I still think that there's there's further uplifts to come.
4481952,327,2628.1101,2631.0999,3,Um but it is actually all moving in the right direction.
4481952,328,2631.1001,2632.6001,3,So it's pretty pretty pleasing.
4481952,329,2633.1299,2635.8201,3,Um Glen did you wanna talk uh comment on the model?
4481952,330,2637.72,2637.9099,4,Yeah.
4481952,331,2637.98,2638.5701,4,Thanks Bob.
4481952,332,2638.7,2649.9102,4,Yeah Matt um I think uh just a you know really I guess a bit of a a preview um you know on our MRR update which will uh come out with mid next month.
4481952,333,2650.6599,2667.77,4,Um as you'll recall when we when we when we did the sort of I guess the Evolution update to bring it in as compliance uh you know with with jock um we consolidated the models from over a hundred thirty to nineteen principal models.
4481952,334,2668.1799,2675.9302,4,Um in the last twelve months um we will we've had new data and mining from six of those models.
4481952,335,2675.9299,2683.0,4,So so they are the ones that um you know we're going to be revising you know into the MRR annual update.
4481952,336,2683.6499,2691.5601,4,We're not seeing you know really any material movement in in in the resource and that's from a tons and grade perspective.
4481952,337,2691.6001,2701.45,4,Um and and assuming that the same cutoff grades as we previously have which is around about three and a half grams per ton uh on you know on a minimal resource basis.
4481952,338,2713.78,2722.4602,4,There'll be swings and roundabouts you know in areas where we didn't have you know as much data support as we would've liked but that uh that's to be expected.
4481952,339,2722.9399,2736.5898,4,So I think you know all in all um we're not expecting to see you know any material change um um sort of you know year over year in terms of the actual geological model and how it informs the the the resource estimate.
4481952,340,2737.8501,2758.03,2,And I think from sort of looking at this in a great amount of detail Bob and the uh his technical team and Glen and the resource uh you know we are confident that you know we are addressing the mining issues um and you know with good mining practice uh we should be able to get the grade that is in the models.
4481952,341,2760.75,2761.0698,11,Got it.
4481952,342,2761.0701,2761.8301,11,Thanks Jake.
4481952,343,2761.8301,2763.1899,11,And and thanks for the context Glen.
4481952,344,2763.73,2771.9001,11,Um just secondly uh on Ernest Henry um and obviously congrats with the team on on closing that transaction over Christmas and and the new year.
4481952,345,2771.8999,2774.24,11,I hope they did manage to get some kind of a holiday.
4481952,346,2774.27,2782.8301,11,But um just wondering in terms of you mentioned that the the copper production during the quarter was a bit lower than than p Sorry.
4481952,347,2782.95,2790.7,11,The lower copper production during the quarter was I guess to to plan uh and potentially that's attributable to to lower grades quarter on quarter.
4481952,348,2791.3301,2796.1201,11,Um that asset is still mining above reserve grades for copper in particular.
4481952,349,2796.1201,2801.46,11,Just wondering when we should be thinking about uh a roll off back to reserve grades for that asset?
4481952,350,2801.46,2803.1802,11,You know did we see that in the December quarter?
4481952,351,2858.6399,2874.95,4,Um so that will obviously be rolled in to our MRR cycle as we go ahead uh you know this twelve month period uh to to really incorporate all that information in in addition to the the new drilling that'll be um that that that is in the plan for this year.
4481952,352,2877.5601,2881.2698,5,And Matt just on the production it was it was a combination.
4481952,353,2881.27,2890.3699,5,So in the in the quarter we had a shutdown uh which was a planned shutdown and it also um a shutdown in the mine.
4481952,354,2890.8501,2893.6399,5,So we we did end up with some lower grades coming through.
4481952,355,2894.0901,2904.2698,5,And as as we look at the the rest of the year you do see that the average grade being mined um is is coming back down certainly from where first quarter was.
4481952,356,2938.9299,2940.4099,11,And uh thanks for the comments Glen.
4481952,357,2944.3301,2944.8201,0,Thank you.
4481952,358,2945.1201,2947.73,0,So next question comes from Mitch Ryan from Jefferies.
4481952,359,2948.1599,2948.96,0,Please go ahead.
4481952,360,2950.25,2951.2,12,Uh good morning all.
4481952,361,2951.2,2953.0598,12,Uh thank you very much for taking out the questions.
4481952,362,2964.4299,2969.9001,12,Um part of the the rationale for that was was to potentially bring that that milling capacity online.
4481952,363,2997.99,3004.1099,3,We we are um replacing uh some parts that um uh need replacing.
4481952,364,3004.3301,3009.27,3,the the big issue at uh at the uh the Bateman plant in the TSF and we're working through that at the moment.
4481952,365,3009.8501,3018.6301,3,Um for the next sort of uh twelve odd ish months uh our capacity at Red Lake in Campbell uh are gonna be enough.
4481952,366,3018.6299,3025.5798,3,So that's what we're we are doing the permit and all the work to bring it in on time um when we actually need it.
4481952,367,3026.29,3032.28,3,Um from the rest of Battle North uh we're still doing work in the underground.
4481952,368,3032.3101,3036.1899,3,Um we're doing some drilling that uh Glen will talk about.
4481952,369,3060.6799,3071.4299,13,Um I was just intrigued by the um uh the mention in the quarterly about uh up to fifteen percent of your workforce being um quite effectively knocked out at Red Lake a a and Cowal at various times because of COVID.
4481952,370,3071.98,3081.2002,13,Um you know obviously uh you know COVID hasn't hasn't been sort of a wash in the community as it has in those those other places Canada and New South Wales.
4481952,371,3082.3301,3094.1899,13,Uh in WA are you expecting that you know eventually you're gonna have those <inaudible> the same challenges at your WA operations uh in terms of COVID and managing the workforce as you do at Red Lake and Cowal?
4481952,372,3094.53,3107.4299,13,And how much and more of an impact is that gonna be given that you know you are already sort of uh short on workers given the the you know the WA situation with the you know a labor market shortage just generally in in the resources industry?
4481952,373,3109.1899,3111.26,2,Yes Stuart that's that's a good question.
4481952,374,3111.5601,3126.5701,2,Um look we're obviously watching it and monitoring it as uh very closely um and you know trying to put in the contingency plans and the learnings which we've got from managing it and we've managed it effectively a at Red Lake and Cowal.
4481952,375,3126.8899,3146.8599,2,Um but you know unless there is uh some someone finds a cure uh for COVID which does not seem to be the case cuz people who are triple vacs still seem to to be catching the omicron uh variants uh in in New South Wales and Canada and around the world.
4481952,376,3147.23,3156.47,2,Uh then you'd have to think that at some point in time if West Western Australia opens up uh omicron is going to i is gonna spread through Western Australia.
4481952,377,3156.47,3170.4399,2,So we are going to do our best to put in contingency plans but if you couple that with uh a skill shortage uh it does put uh the whole mining industry in Western Australia at at some risk.
4481952,378,3172.5901,3172.8101,13,Great.
4481952,379,3172.96,3173.26,13,Thanks.
4481952,380,3173.52,3174.3899,13,Thanks for that Jake.
4481952,381,3178.22,3178.74,0,Thank you.
4481952,382,3280.3999,3292.6399,2,Um and certainly at our operations while it has been a big distraction uh we have been able to manage through it and uh we are getting more comfortable that we can we can manage it.
4481952,383,3292.8501,3304.8201,2,Um it has um distracted the management teams a lot um but with proper process and um proper protocols uh it can be managed effectively.
4481952,384,3344.1299,3345.53,2,Yeah Jim I think thanks.
4481952,385,3345.53,3349.4399,2,Um uh there are two areas which I'd say you should look out for.
4481952,386,3349.6101,3354.3101,2,Uh the one is Red Lake uh that was spoken about at length on this call.
4481952,387,3354.5701,3360.1699,2,Um we expect to see a material improvement in production and reduction in costs over there.
4481952,388,3374.9199,3375.3298,15,alright.
4481952,389,3375.3301,3375.5901,15,Good.
4481952,390,3375.5901,3377.8101,15,I wasn't going to ask.
4481952,391,3377.8101,3385.4202,15,Well I thought I'd be a little bit different and not ask any questions on Ernest Henry but thanks for uh including that answer.
4481952,392,3386.0,3398.1699,15,Um given the uh the rain problems you've had in in New South Wales and Queensland um just for example in uh at Mt.
4481952,393,3398.1699,3405.8899,15,Rawdon what uh what tonnage of material low grade material do you have stockpiled that you can keep the mill running on?
4481952,394,3407.4199,3410.51,2,I think we have very significant uh low grade stock piles.
4481952,395,3410.51,3411.5698,2,That's not the issue.
4481952,396,3411.5701,3418.1401,2,The issue is more uh we wanna access the more profitable um low cost uh ounces in the pit.
4481952,397,3420.1101,3420.5701,15,Right.
4481952,398,3420.6001,3426.3901,15,But uh the there's um if you had to depend um um this is a hypothetical question.
4481952,399,3426.77,3436.8599,15,If you had to depend a hundred percent on uh stock pile material you have many years ahead of you uh I assume uh many years life left.
4481952,400,3437.4399,3438.1301,2,Yes we do.
4481952,401,3439.21,3439.5601,15,Right.
4481952,402,3439.6101,3439.7102,15,Okay.
4481952,403,3441.0701,3443.9399,15,what's the sit what's the situation at Cowal?
4481952,404,3444.45,3449.73,15,Uh large stock piles there?
4481952,405,3450.46,3459.7002,2,Um that's what we are treating before the uh we got into the stage age cut back which we're now treating all grade materials so I'm very comfortable there as well.
4481952,406,3460.71,3460.9199,15,Yep.
4481952,407,3480.8,3484.7,15,What's what's the best way of uh uh her getting something to you?
4481952,408,3485.4199,3500.6802,2,I think if you go through the the website um we will respond that.
4481952,409,3504.22,3504.99,0,Please go ahead.
4481952,410,3530.49,3531.78,2,Yeah I'm very optimistic.
4481952,411,3531.78,3537.29,2,I mean we've repositioned our portfolio to be you know profitable right through the cycle as we've said.
4481952,412,3537.5601,3537.98,2,Um we've…
4481952,413,3537.98,3546.9202,2,You know if you take our portfolio 12 months on from the beginning of twenty twenty one to the end uh it's it's materially better.
4481952,414,3546.9199,3548.7998,2,We did the Mungari transaction.
4481952,415,3548.8,3551.25,2,We uh the Kundana consolidation.
4481952,416,3551.51,3555.0,2,Uh we we did the um the Ernest Henry transaction.
4481952,417,3555.0,3559.77,2,Then we did the um the Battle North transaction to consolidate Red Lakes.
4481952,418,3559.77,3569.6499,2,So from our perspective you know the the strategy remains the same uh focus on quality over quantity return on capital um and you know benefit.
4481952,419,3569.6499,3572.4202,2,The gold price is over a twenty five hundred an ounce.
4481952,420,3572.75,3577.99,2,Um I did reflect on the fact when I that when I started in the industry it was three hundred bucks an ounce.
4481952,421,3577.99,3584.6099,2,So you know if we're not happy at twenty five hundred dollars an ounce um we need to find another uh another sector to operate in.
4481952,422,3584.6101,3586.6699,2,We're we're excited and happy about it.
4481952,423,3587.1699,3593.55,2,Um yeah the Fed Reserve meeting this morning told everyone what they knew interest rates were gonna go up.
4481952,424,3593.8601,3598.29,2,Um I didn't see anything that people should have been surprised about in in that meeting.
4481952,425,3647.21,3655.98,2,And if I if I were someone and I uh who who needed uh insurance I'd be buying gold and gold stocks like Evolution.
4481952,426,3659.1201,3659.4202,16,Okay.
4481952,427,3661.6799,3662.1499,16,Thank you.
4481952,428,3662.6699,3664.5898,0,There are no further questions at this time.
4481952,429,3664.95,3665.99,0,I'll now hand back to Mr.
4481952,430,3665.99,3667.21,0,Klein for closing remarks.
4481952,431,3668.5901,3669.6599,2,Uh thanks.
4481952,432,3669.6599,3671.7998,2,Uh thanks everyone for participating.
4481952,433,3671.8,3672.5198,2,Appreciate it.
4481952,434,3672.52,3677.3599,2,Won't be long before you speak to us again uh with the release of our interim results in the middle of February.
4481952,435,3677.3601,3693.74,2,So look forward to updating you then um and look forward to being able to hopefully with travel restrictions reducing uh to be able to take you to Ernest Henry uh take you to Red Lake uh and uh and also visit Cowal where there are lots of changes happening because seeing is really believing.
4481952,436,3693.8899,3694.5601,2,So thanks.
4481952,437,3699.0,3699.47,0,Thank you.
4481952,438,3699.71,3701.4102,0,That does conclude our conference for today.
4481952,439,3701.97,3703.1301,0,Thank you for participating.
4481952,440,3703.3401,3704.3701,0,You may now disconnect.
4481967,0,3.05,4.41,0,Good morning and good evening.
4481967,1,4.62,6.96,0,Thank you all for joining this conference call.
4481967,2,7.04,14.04,0,And now we'll begin the conference of fiscal year twenty twenty one first quarter earnings resorts by Samsung electronics.
4481967,3,14.77,19.43,0,This conference will start with the presentation followed by your division of q and a session.
4481967,4,19.86,24.89,0,If you have a question please press star one that is star n one on your phone during the q a.
4481967,5,25.31,29.87,0,For cancellation please press start two that is start n two on your phone.
4481967,6,30.38,37.51,0,Now we should commence the presentation on the first year twenty twenty one fourth quarter earnings reserve by Samsung electronics.
4481967,7,40.2,40.98,1,Welcome everyone.
4481967,8,41.01,42.99,1,This is Bensoul from Investor Relations.
4481967,9,43.99,47.7,1,Thank you for joining our fourth quarter two thousand twenty one earnings call.
4481967,10,48.97,61.7,1,For additional details regarding our quarterly results please refer to our earnings presentation which is available on our IR website at www dot samsung dot com slash global slash ir.
4481967,11,63.68,88.89,1,On the call with me today representing each of our business units are E V P Han Jinman representing Memory VP inaudible for System L S I E V P inaudible for Foundry E V P Choi Kwan-Young for Samsung Display VP Kim Sung-koo for Mobile Experience or MX which is a previous mobile division and VP SD Chang for digital appliances.
4481967,12,91.13,98.08,1,I would like to remind you that some of the statements we'll be making today are forward looking based on the environment as we currently see it.
4481967,13,98.67,107.84,1,And all such statements are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion.
4481967,14,109.69,115.89,1,Also please note that last December we merged the IM and C divisions to form the DX division.
4481967,15,116.78,129.82,1,However as this was just announced in December we have maintained the IM and C distinction in our earnings call materials as well as in portions of this presentation for consistency with our q one to q three results.
4481967,16,132.28,136.16,1,With that I would first like to present the results for the fourth quarter.
4481967,17,137.86,146.93,1,I'm pleased to report that we once again delivered record results by leveraging our differentiated products and technology leadership despite the challenging micro environment.
4481967,18,148.25,161.35,1,Total revenue in the fourth quarter grew three point five percent sequentially to seventy six point six trillion won setting a consecutive all time quarterly high driven mainly by our finished product businesses.
4481967,19,162.67,171.0,1,We expanded sales of premium smartphones including foldables as well as TVs and home appliances amid year end peak seasonality.
4481967,20,173.04,183.58,1,We set records for total revenue in a respective quarter for each quarter in two thousand twenty one resulting in a record annual revenue of two hundred eighty Trillion won.
4481967,21,185.19,200.83,1,Gross profit increased by zero point five trillion won sequentially to thirty one point six Trillion won led by expanded sales of premium smartphones but gross margin decreased slightly primarily due to a decline in memory prices.
4481967,22,202.98,215.42,1,exDNA expenses were up two point five Trillion won quarter on quarter to seventeen point eight Trillion won mainly due to increased spending on r and d and advertising and promotional activities.
4481967,23,216.4,220.46,1,As a percentage of sales they increased by two point six percentage points.
4481967,24,223.18,237.25,1,Operating profit was thirteen point nine Trillion won down from the previous quarter due to a special bonus payment to employees a decline in memory prices and a seasonal rise in marketing costs for smartphones.
4481967,25,238.36,246.83,1,On a year on year basis however both operating profit and operating margin increased substantially driven by our semiconductor businesses.
4481967,26,249.04,252.18,1,I will now briefly review the results of each business unit.
4481967,27,253.45,258.98,1,In memory results declined versus the prior quarter as A S P edged lower.
4481967,28,259.97,270.7,1,Bit gross for the quarter came in below guidance as considering our low inventory levels in the market outlook we refrain from excessive bit shipment efforts.
4481967,29,272.41,284.09,1,Compared to last year results improved significantly driven by solid demand across overall applications as well as increases in our advanced node portion and a s p.
4481967,30,286.24,299.66,1,In Foundry even though increased overall supply resulted in a new high for revenue profitability decreased slightly quarter and quarter due to a rise in costs associated with advanced processes.
4481967,31,301.38,309.89,1,On a year on year basis results improved due to the start of operations at the s five inaudible in conjunction with price adjustments.
4481967,32,312.33,325.16,1,In display earnings continue to improve for the mobile panel business driven by a continuation of solid demand from key customers new smartphones and increased sales in new application areas.
4481967,33,326.51,336.96,1,However the large panel business saw its losses wide and considerably due to declines in L C D ASPs and initial costs related to QD display.
4481967,34,338.91,349.58,1,For the MX business revenue increased slightly led by expanded sales of premium products such as foldables and solid sales of device ecosystem products.
4481967,35,351.71,359.98,1,Profit decreased quarter on quarter due to an increase in year end marketing costs including for foldables but increased year on year.
4481967,36,361.39,366.91,1,The network results improved sequentially as revenue grew both at home and abroad.
4481967,37,369.09,388.03,1,In the sea business composed of visual display and digital appliances we delivered record high quarterly revenue on the back of strong sales of premium products during year end seasonality but profits declined slightly quarter on quarter amid rising costs including for logistics.
4481967,38,389.89,405.32,1,Regarding currency effects negatives from overall weakness and major emerging currencies against the Korean Wan mainly affecting the finished product businesses were eclipsed by positives from a strong dollar which mainly affects the DS division.
4481967,39,406.76,414.87,1,The net result was a positive impact of approximately three hundred billion won on operating profit compared to the previous quarter.
4481967,40,417.77,419.76,1,Next I would like to share our business outlook.
4481967,41,421.38,434.26,1,In the first quarter for semiconductor businesses Memory will actively address a projected recovery of demand and Foundry will push to stabilize yield and increase supply of key components for flagship products.
4481967,42,435.89,446.15,1,Our finished product businesses will focus on maintaining solid profitability by strengthening leadership in premium segments with launches of new smartphones and TVs.
4481967,43,448.26,467.23,1,In Memory although there are lingering uncertainties we will concentrate on optimizing our business for port portfolio including through increased sales of advanced node products to support the server and PC demand recovery and also via sales growth of high value add products.
4481967,44,469.38,476.63,1,For system L S I we will focus on supplying essential SOCs and CISs for our key customer flagship products.
4481967,45,477.42,485.02,1,And for Foundry we'll continue to prioritize is expanding supply by improving production and yield at advanced processes.
4481967,46,487.25,502.76,1,In Display despite weak seasonality for smartphones we expect the mobile panel business to deliver improved results year on year driven by releases of new smartphones by major customers and an expansion of the foldable display customer base.
4481967,47,504.51,510.96,1,In the large panel business losses are likely to be partially mitigated with the mass production of QD display.
4481967,48,512.93,531.82,1,In the MX business despite supply constraints we expect to deliver revenue and profit growth as well as solid margin led by releases of new flagship models expanded sales of five g smartphones for the mass market and increased sales of tablets and wearables.
4481967,49,532.9,538.28,1,For network we target to win new opportunities from European and other global customers.
4481967,50,540.27,558.28,1,Foresee businesses a midweek seasonality for TVs and a predicted dip in demand for home appliances we will endeavor to improve profitability by focusing on sales of premium products expanding our new category product lineup and increasing the portion of online sales.
4481967,51,561.24,564.64,1,Now let's move on to the outlook for two thousand twenty two.
4481967,52,567.18,580.2401,1,Under expectations of a recovery in global IT demand our component business this will increase their advanced node portion of production and enhance leadership in next generation products and technology.
4481967,53,581.3,596.0,1,And in the finished product businesses we will continue to strengthen our leadership and lineups in premium segments as we strive to create new user experiences by enhancing connectivity and synergies between our devices.
4481967,54,597.96,603.6,1,However challenges associated with supply issues and COVID nineteen are likely to persist.
4481967,55,605.52,606.32,1,During this year.
4481967,56,606.88,618.86,1,We will also promote partnerships secure technology and execute investments to gain leadership in future growth areas such as five g AI cloud IoT and the Metaverse.
4481967,57,621.48,631.6,1,For the Memory business we expect demand to increase as enterprises ramp up IT investments though there are uncertainties such as the extent to which supply issues will ease.
4481967,58,633.3,643.86,1,In accordance we will continue to enhance our leadership by expanding supply of high performance products an increasing application of our industry leading e u v technology.
4481967,59,646.4,653.74,1,System L C I will grow its business by reinforcing its lineup of SOCs including models targeting the five g volume zone.
4481967,60,654.76,666.6,1,And Foundry aims to outpace market growth by extending our technology leadership with mass production of the first generation G A A process along with increasing supply to global customers.
4481967,61,671.17,682.15,1,For display in the mobile panel business we expect demand for o l e d to continue to increase based on rising penetration of five g and growth of the foldable market.
4481967,62,683.77,690.69,1,And you'll further strengthen the foundation for stable growth by expanding o l e d into new application areas as well.
4481967,63,692.85,701.11,1,The large panel business will work to secure technology leadership in the premium segment with QD display while it closes the L C D lines as planned.
4481967,64,703.55,717.04,1,The MX business targets increasing market share by concentrating on innovations in flagship products further differentiating user experiences and also expanding our mass market five g smartphone lineup.
4481967,65,718.73,725.34,1,Moreover we will seek to grow sales of device ecosystem products by enhancing the value delivered to customers.
4481967,66,727.03,739.63,1,For network we will focus on capturing five g network demand and winning new global customer all as we continue to further strengthen our technologies including custom development of core five g chips.
4481967,67,741.82,752.86,1,Foresee businesses we'll further solidify our market leadership and pursue growth by continuing to expand sales of premium product lines such as inaudible and inaudible.
4481967,68,753.66,758.41,1,And by diversifying the overall lineup with lifestyle and new home appliances products.
4481967,69,761.21,766.64,1,Next I would like to share some of our key activities and achievements in sustainability management.
4481967,70,768.56,775.51,1,At a CS keynote address on January fourth we outlined our eco-friendly initiative is for a sustainable future.
4481967,71,778.07,785.31,1,We believe that cons consumers and companies together can contribute to a better future by embracing sustainable products.
4481967,72,786.64,791.23,1,To this end we unveiled a range of ambitious eco-friendly activities.
4481967,73,792.23,801.15,1,For example in manufacturing display including for TVs we are using thirty times more recycled plastic this year than we did last year.
4481967,74,802.8,810.38,1,And we are moving toward incorporating recycled materials in all mobile products and home appliances by two thousand and twenty five.
4481967,75,812.32,824.54,1,In addition our company ranked fourth in the digital inclusion benchmark as announced in December by the World Benchmarking Alliance a global Alliance dedicated to sustainability management.
4481967,76,826.43,846.05,1,We earned this accolade thanks to our strong support for the technology innovation ecosystem through C-Lab outside an initiative aimed at nurturing stuffs in Korean as well as disclosing our A I S principles centering on equity transparency and responsibility.
4481967,77,848.3,857.05,1,Furthermore we participated in a pilot project organized by Korea's ministry of environment to reduce work site waste.
4481967,78,858.35,876.95,1,And on December thirty first our team campus received top honors for its efforts which included strengthening recycling programs in offices establishing a standard for minimizing the packaging for raw and semi-processed materials and expanding recycling of waste materials.
4481967,79,878.95,886.04,1,Our work in this area demonstrates our commitment to creating environmental and social value in addition to achieving growth.
4481967,80,886.8,893.78,1,And we will continue to strengthen our E S G management by fulfilling our social responsibility as a leading global company.
4481967,81,897.21,899.16,1,Let me now move on to capital expenditures.
4481967,82,900.54,912.71,1,The annual CapEx for two thousand and twenty one was forty eight point two trillion won with forty three point six trillion won invested in semiconductor and two point six trillion won in display.
4481967,83,914.35,933.75,1,By business memory concentrated its investments on capacity expansions and process migrations at Fabs inaudible and Shian to address demand for advanced nodes including UV based fifteen nanometer DRAM and six generation VN as well as on infrastructure at p three.
4481967,84,936.16,949.35,1,Investments in memory increased year on year as we are at the lead of an inflection point in technology and results preemptively investing in application of next generation technologies such as e u v.
4481967,85,950.7,954.61,1,We are executing the investments with a focus on technology leadership.
4481967,86,955.03,963.32,1,And as a result we can maintain an efficient investment level when considering our bit share from a mid to long term perspective.
4481967,87,973.43,977.04,1,Display investments centered on mobile modules and QD display.
4481967,88,981.69,983.75,1,Finally let me address the shareholder return.
4481967,89,986.21,998.97,1,The board of directors today approved a quarterly dividend of three hundred sixty one won per share for common stock and three hundred and sixty three won per share for preferred stock.
4481967,90,1000.59,1011.52,1,The total payout for the fourth quarter is approximately two point four five trillion won which is in line with the totals in two thousand and twenty one previous quarters.
4481967,91,1013.62,1028.04,1,This represents one force of the annual total of nine point eight trillion won in accordance with the current shareholder return policy The dividend will be paid after final approval at the annual general meeting of shareholders.
4481967,92,1030.5601,1043.78,1,When we announced the current three year shareholder return policy in January of last year we said that we will disclose the annual free cash flow each year to enhance clarity on the shareholder return pool.
4481967,93,1044.97,1051.74,1,And if fifty percent of the free cash flow significantly exceeds the annual dividend we would consider an earlier return.
4481967,94,1053.6899,1063.8099,1,The total free cash flow for two thousand and twenty one was nineteen point six trillion won fifty percent percent of which is approximately nine point eight trillion won.
4481967,95,1065.21,1072.4301,1,Considering the annual projected annual dividend for two thousand twenty one is also nine point eight trillion won.
4481967,96,1073.3,1075.61,1,There was no additional pool for an earlier return.
4481967,97,1077.87,1080.72,1,While we achieved solid results in two thousand twenty one.
4481967,98,1081.36,1091.72,1,As I mentioned earlier we required a considerable amount of CapEx to accelerate migration to next generation technologies in memory and to secure competitiveness in Foundry.
4481967,99,1093.46,1102.8101,1,And there were also impacts of increased working capital such as a need to secure additional inventory amid uncertainties of component supply.
4481967,100,1104.88,1115.08,1,Although we did not generate a surplus in two thousand twenty one we believe our efforts will lead to significant future growth and contribute to increasing shareholder value.
4481967,101,1116.78,1132.48,1,In two thousand twenty two we will once again step up our efforts to improve our performance by extending our product and technology leadership increasing cost competitiveness and improving profitability while also enhancing capital management efficiency.
4481967,102,1136.8101,1146.5399,1,i'll now turn the conference call over to the gentleman from each business unit to present fourth quarter performances and outlooks for their corresponding business segment.
4481967,103,1147.76,1149.27,1,we'll start with the Memory business.
4481967,104,1149.66,1149.95,1,Thank you.
4481967,105,1156.47,1159.61,2,This is Han Jinman from Memory Global sales and marketing office.
4481967,106,1160.84,1177.7001,2,The fourth quarter Memory demand center on server remained solid but our performance declined summer compared to the previous quarter due to a continuation of global supply chain issues and slide driving in a s p and payment of one off special incentive.
4481967,107,1179.1801,1189.6901,2,We came in below initial bit growth guidance as refrained from making excessive bit shipments in consideration of our limited inventory conditions and also the market outlook.
4481967,108,1191.37,1199.3199,2,In DRAM impacts on set built from global supply chain issues differed by degree were felt throughout all applications.
4481967,109,1200.89,1211.9401,2,The server however remained remained strong thanks to an increase in DRAM content per box on increased adoption of high core C P U used amid continuation of solid end demand.
4481967,110,1213.8199,1224.58,2,The graphics graphics car supply shortage remained as demand state robust that by strong demand for gaming PCs along with rising demand for inaudible mining.
4481967,111,1226.39,1232.02,2,PC and mobile have felt relatively more effects of set build disruptions caused by component supply issues.
4481967,112,1233.15,1237.8201,2,For PC consumers continue their tendencies to just inventory.
4481967,113,1239.3199,1250.2999,2,In mobile major smartphone manufacturers released new five g models with concurrent risk such as the spread of a COVID variant impacted memory demand to some extent.
4481967,114,1253.16,1265.0,2,Based on preemptive product mix adjustment we actively address an increase in server and graphics demand and to enhance competitiveness we continue to increase our cutting edge portion of processes.
4481967,115,1266.0699,1275.0299,2,Even so we are below bit growth guidance as we try to optimize supply plan considering our inventory condition and market outlook.
4481967,116,1276.91,1278.61,2,Next i'll talk about the NAND market.
4481967,117,1279.8101,1290.1801,2,The survey s s d fundamental demand from major data center customers was robust but there was some market effects related into disruptions in the IC component.
4481967,118,1290.1801,1290.74,2,supply chain.
4481967,119,1292.42,1301.52,2,Demand for client S S D was somewhat stagnant because of inventory adjustment by some customers and set build disruptions caused by component supply issues.
4481967,120,1303.65,1317.01,2,In the case of mobile supply and demand of a p s were disrupted and memory demand fail slightly but the high density trend continued thanks to impacts of peak and inaudible seasonality.
4481967,121,1318.72,1337.21,2,We focused on optimizing sales such as reducing weight shipments as well as strengthening high value solution businesses in consideration of our inventory situation while identifying impacts and production caused by changes in line operation due to the lockdown in Shiang.
4481967,122,1339.11,1352.3201,2,In addition we continue to strengthen our competitiveness by increasing our cutting edge portion of processes and by expanding the server business we're actively addressing growth in high end high capacity demand.
4481967,123,1354.87,1356.84,2,Now let me share the outlook for the first quarter.
4481967,124,1358.35,1369.67,2,In the case of DRAM some un some uncertainties are likely to persist but we expect issues related to component supply and demand to dissipate gradually.
4481967,125,1370.5699,1375.27,2,We are seeing side of improvements in set bills mainly by server MPC.
4481967,126,1376.95,1385.79,2,For server we expect demand to remain strong thanks to the high density trend alongside increasing investment centering on data centers.
4481967,127,1386.46,1389.9399,2,While the high policy C P U portion continues to increase.
4481967,128,1391.86,1409.73,2,As demand for PC improves mainly for corp corporate oriented the high end laptops demand will increase for cutting edge products such as ddr five and as some customers complete inventory adjustment we think impacts of flow seasonality will partially ease.
4481967,129,1412.53,1424.2899,2,For mobile we expect the to be reasonably solid as major manufacturers launch products based on new foam factors and increase the portion of l p d d r five.
4481967,130,1425.22,1433.89,2,However risks such as operation restrictions at some production sites due to the spread of COVID variant need to be carefully monitored.
4481967,131,1435.5601,1450.17,2,we'll keep working to maximize the quality of our business portfolio by selling products of our cutting edge node and expanding also high value products while actively addressing customer demand from overall applications.
4481967,132,1452.38,1460.28,2,In end for server S S D we expect demand for server bills to be robust thanks to continuing investment mainly data centers.
4481967,133,1460.89,1465.63,2,We should keep an eye on corporate demand along with the spread of COVID variance.
4481967,134,1467.3,1475.5801,2,In the PC market we think build demand really cover mainly for laptops along with gradual improvements in component supply issues.
4481967,135,1476.9,1486.0601,2,And for mobile despite being a mid slow seasonality we expect the high density trend for storage to persist as manufacturers launch new five g models.
4481967,136,1487.62,1499.96,2,We plan to minimize risk of supply disruptions by securing a diverse product portfolio centered on high value products while returning to normal production operation after the lockdown in Shiang being lifted.
4481967,137,1501.72,1503.74,2,Now let's move on to the full year outlook.
4481967,138,1505.11,1515.88,2,Under the risk of demand flactuations such as ones related to the pace of mitigation of component supply constraint as well as chances of prolonged effects of a COVID nineteen variant.
4481967,139,1516.78,1522.26,2,We ask for your understanding in that it is difficult to provide specific annual bit growth guidance.
4481967,140,1524.15,1527.8,2,Therefore I'd like to share a view of the market situation for application.
4481967,141,1529.29,1541.77,2,First for server DM content for box is projected to keep rising thanks to the adoption of new C P U supporting ddr five and the expansion of AI oriented servers centered on data centers.
4481967,142,1543.05,1553.7001,2,In addition coupled with the expansion of investment by major companies set build demand defer by last year's component issues should lead to solid set build growth.
4481967,143,1555.3199,1575.9701,2,On the other hand for PCs we need to monitor detailed impacts on demand as a delayed return to daily life triggered by a new variant would impact demand from contactless services such as education gaming and others amid an expected increase in replacement demand and content per box due to spread of inaudible.
4481967,144,1575.97,1600.75,2,For mobile with the resumption of five g infrastructure investment by countries and the strengthening of five g line enough by manufacturers content per box is likely to keep rising focusing on major manufacturers and set shipments centering on low to mid price models are also anticipated to rise amid growth in emerging markets.
4481967,145,1642.6801,1643.2001,4,Good morning.
4481967,146,1663.8,1669.7999,4,However operating profit slowed slightly due to the the influence of a special bonuses.
4481967,147,1671.33,1685.3101,4,To improve our performance even further in the coming quarter we have started supply our flagship phone and meter SoC featuring an a m d g q for the first time as well as relay to you the products.
4481967,148,1686.61,1696.85,4,In addition our one hundred eight megapixel images sensors have been increasingly selected by our customers for adoption in their upcoming major models.
4481967,149,1698.23,1720.11,4,In the first quarter this year effects of year end weak inaudible for the mobile industry and inventory adjustment by Chinese set companies are likely to continue but inaudible DDI's N F C E F C and p m i c products is expected to stay strong.
4481967,150,1722.97,1738.42,4,As major customers launch flagship smartphones we plan to focus on expanding supply of SoC's with a signet country improved G P U N P U capabilities as well as ultra high resolution images sensors.
4481967,151,1739.95,1760.48,4,In two thousand twenty two by maximizing supply of volume drawn five g SoC's and technically leading one hundred eight and two one one inaudible sensors we expect revenue growth to accelerate on ear while probability should rise on the back of price adjustment.
4481967,152,1761.61,1761.9399,4,Thank you.
4481967,153,1767.46,1767.9399,5,Morning.
4481967,154,1768.55,1770.8099,5,This is Moon Sookyung from the Foundry business.
4481967,155,1772.54,1778.26,5,In the first quarter we outpace industry growth and set a new high for q four revenue.
4481967,156,1779.21,1793.24,5,In particular we continue to increase sales to large scale H P C customers and also establish the base for quintile growth by securing orders from new large customers in H P C application.
4481967,157,1795.05,1807.77,5,In addition we want to improve our response to customer demand with airports to stabilize the global supply chain confirming new type investments in tailor U S A and in Korea.
4481967,158,1809.61,1822.85,5,However there will also hazards as we were unable to fully satisfy customer demand amid the supply disruption and profitability paused slightly due to delay in retro advance note.
4481967,159,1825.08,1839.9401,5,In the first quarter of two thousand twenty two we expect the industry to remain in tight supply across all notes and our advance note portion which increased significantly from q four to keep driving.
4481967,160,1841.42,1849.7,5,Given this we'll focus on improving yield in advance processed notes to enhance our supply stability and profitability.
4481967,161,1852.1801,1871.7301,5,To strengthen our technology leadership we will complete the qualification of first first generation three AA process three G A E for mass production in the first half of this year and we will continue to develop the second generation three AA process three g a p as scheduled.
4481967,162,1874.4399,1876.8199,5,The Foundry market in two thousand twenty two.
4481967,163,1877.87,1893.24,5,We expect supply to remain tight due to rapid penetration of five g technology solid HPC demand growing outsourcing by I D M and a need to build up safety inventory on the prolonged pandemic.
4481967,164,1895.5699,1917.12,5,we'll continue our technology leadership through mass production of the three G A E process in the first half and we aim to exceed market growth on a two year basis by expanding capacity of advance notes normalizing process to ensure investment and adding new customers to our global client base.
4481967,165,1918.28,1918.6,5,Thank you.
4481967,166,1921.65,1923.33,6,Good morning.
4481967,167,1923.33,1927.5801,6,I'm Goo Nam Choi from the business planning department at Samsung Display.
4481967,168,1928.42,1951.95,6,In the fourth quarter the mobile display business sustained upward trend in earnings following the previous quarter backed by robust inaudible smartphones with the O A D display which are now mainstream in the premium segment and also by the competitiveness and the stability of inaudible supply chain management.
4481967,169,1953.76,1964.36,6,In addition to smartphones sales and revenues of product support notable PC's and gaming increased steeply quarter and quarter contributing to our earning scores.
4481967,170,1967.8101,1980.0299,6,Meanwhile in the inaudible display business we have a successfully mass produced and delivered our two d displays for TV's and monitors which have garnered positive reviews from our customers.
4481967,171,1982.54,1986.8199,6,Next uh let me share the outlook for the first quarter of twenty twenty two.
4481967,172,1987.51,2001.42,6,Uh for the mobile display business we project that release of our new product by major customers and increasing adoption of flexible displays will mitigate risk effects of weak seasonality.
4481967,173,2004.08,2014.63,6,However given persistent supply issues for some components concerns linger over potential short short supply of certain products such as DDI's.
4481967,174,2016.74,2027.47,6,With a larger display business where they clearly display TVs and monitors having made their official market debut we expect losses to narrow greatly.
4481967,175,2030.4399,2037.77,6,Finally I will I will share i'll i'll look for the display market in Samsung's Displays core strategies for twenty twenty two.
4481967,176,2040.51,2053.1201,6,For the mobile display business uh despite uh despite projected macro risk inaudible are ones related to fat tapering as well as the omnicron's variant of covid nineteen.
4481967,177,2053.8501,2058.6001,6,We expect adoption of already displays to keep expanding this year.
4481967,178,2059.5701,2065.6199,6,Driven by uh rising penetration of five g smartphones and the growth of portable display markets.
4481967,179,2067.3101,2072.99,6,Which market trend would should create it a favorable business environment for Samsung display.
4481967,180,2078.1001,2089.4602,6,As further IT markets we expect growth to slow compared to last year and rising sales in the pyramid segment are likely to accelerate penetration of OAD displays.
4481967,181,2093.6899,2101.1699,6,We plan to strike a balance in the mobile display business structure with both flexible and rigid O A D.
4481967,182,2104.3999,2118.73,6,To that end uh we plan to expand adoption of flexible O A D to more than the high end devices by providing it's astounding technological capabilities to the mid-range segments as well.
4481967,183,2122.75,2135.0999,6,we will also diversify application for rigid O A D ranging from IT to gaming to automotive based on our unrivaled production capacity and cost competitiveness.
4481967,184,2137.28,2156.3701,6,With the larger display business we expect with technology display and um differentiated products to drive solely demand for premium TV's and we are focused on securing leadership in the premium TV and monitor segments through two d displays.
4481967,185,2157.1001,2157.5798,6,Thank you.
4481967,186,2161.9399,2162.3401,7,Good morning.
4481967,187,2162.3701,2165.0,7,This is <unk> from the MX business.
4481967,188,2166.0,2171.9702,7,i'll like tot discuss the q four two thousand twenty one resource and outlook for the MX and network business.
4481967,189,2173.76,2179.5898,7,In q four two thousand twenty one the market grew compared to the previous quarter due to EON inaudible.
4481967,190,2181.6599,2188.1399,7,As for the MX business despite the components supply shortage revenue increased slightly q q.
4481967,191,2190.3401,2208.27,7,In particular in the new market that we created with an innovative form vector our four double G series model g forty three and G flip three have garnered positive feedback for their innovative design durability and user experience that are tailored to affordable.
4481967,192,2209.97,2216.1001,7,This contributed to increased sales and we believe foldables are smoothly entering the mainstream.
4481967,193,2217.8301,2228.8201,7,Also the Galaxy S series maintained sales momentum thanks to active marketing and even further advanced user experience with the new one UI four point zero.
4481967,194,2230.52,2235.8401,7,Equivalently our premium smartphone sales increased q q.
4481967,195,2236.5901,2247.54,7,Solely series of our device eco-system products including PC's tablets and wearable devices with their enhanced NC connected experience also contributed to the performance.
4481967,196,2248.95,2261.02,7,In the meantime investments in active market into mainstream foldables and preparations to launch new models in q one two thousand twenty two affected profitability to some degree.
4481967,197,2263.03,2270.0601,7,The network business improved it's performance compared to the previous quarter driven by the growth of domestic and overseas business.
4481967,198,2272.23,2275.27,7,Now let me give you the outlook for q one two thousand twenty two.
4481967,199,2276.6001,2284.1199,7,Demand for smartphone and tablets is expected to decrease due to siginality as well as uncertainties surrounding components supply.
4481967,200,2285.7,2305.3201,7,In our MX business we strive to expand the customer base for our flagship products by fulfilling customer needs with the Galaxy s twenty one FE which preserves core user experience of Galaxy s twenty one and comes in a diverse range of color options or add on affordable price.
4481967,201,2307.7,2317.54,7,Also our new Galaxy S series model featuring the best Galaxy performance and experience will enhance customer retention of our premium products.
4481967,202,2318.02,2330.51,7,In turn this will lift the standout for flagship products even higher and contribute to increased sales of our flagship smartphones as well as an increase in overall smartphone ASB.
4481967,203,2332.1899,2344.8,7,Also our competitive five g line for the mass market will act as a volume driver by addressing uh replacement demand and thus actively sees growth opportunities in the market.
4481967,204,2346.3101,2361.4199,7,In addition we will continue to focus on increasing sales of our device eco-system products such as wearable PC's and tablets by actively promoting the enhanced comet competitiveness and seamless connective experience across the product line.
4481967,205,2363.01,2371.72,7,With these efforts we'll strive to secure solid profitability in q one two thousand twenty two amid our unstable component supply situation.
4481967,206,2373.3301,2379.8,7,The network business aims to secure additional new contracts in the global market including from eu Europe.
4481967,207,2383.3501,2386.1099,7,Next let me provide an outlook for two thousand twenty two.
4481967,208,2387.47,2400.46,7,Despite current uncertainties including prolonged pandemic and component supply issues we expect the smartphone market to continue to grow in two thousand twenty two following substantial growth in two thousand twenty one.
4481967,209,2401.29,2405.7,7,While the wearable market is projected to see strong double digit growth.
4481967,210,2407.23,2415.4602,7,In our MX business we'll continue to pers pursue user experience driven innovation to solely define leadership in the flexi market.
4481967,211,2416.3,2431.6099,7,We also strengthened the tailored experience of each product including the ultimate flexi experience with the Galaxy S series and optimized Galaxy G series experience to cater to various lifestyles and needs of our customers.
4481967,212,2433.3799,2444.96,7,In the mass market we not only strengthen our five g lineup but also expand the application of our convenient and differentiated experience and enhance product completeness.
4481967,213,2446.3999,2449.8899,7,With these efforts we aim to increase our smartphone marker share.
4481967,214,2451.3799,2467.9299,7,Also we'll keep enhancing customer value by continually adding to our differentiated user experience which includes consistent and convenient connective experience across devices in our device eco-system and by further strengthening product competitiveness.
4481967,215,2470.21,2483.3599,7,Furthermore we'll expand such convenient connected experience beyond MX production to TV's and home appliances to enrich the value that our customer experience in daily lives.
4481967,216,2484.9099,2495.99,7,By doing so we strive to achieve material growth in two thousand twenty two and bolster profitability with an improved product mix and enhanced operational efficiency.
4481967,217,2497.9299,2507.7,7,The network busi business will focus on actively expanding it's overseas business while also responding to expansion of the five g network in the domestic market.
4481967,218,2508.8601,2518.8701,7,Also we'll thoroughly prepare for the future with continual efforts to strengthen our technology and competitiveness including our own five g chips.
4481967,219,2520.0701,2521.0298,7,Thank you for your attention.
4481967,220,2525.0801,2525.52,8,Good morning.
4481967,221,2525.5901,2529.71,8,I'm FT Chong from the savior marketing team of these internal appliances.
4481967,222,2530.6799,2534.1799,8,And I will authorize inaudible condition of CBDC's.
4481967,223,2535.78,2542.21,8,First I would like to review the market conditions and our performance in the first quarter of 2021.
4481967,224,2543.55,2554.0898,8,So TV market grew quarter on quarter amid inaudible but decreased compared to the previous year when you want to attack to the body through pent up demand.
4481967,225,2555.79,2569.2,8,By working closely with the inaudible partner in advance Samsung preemptively targets decision demands starting at end October and expanded inaudible mainly of high value products.
4481967,226,2570.0,2575.1702,8,Subject mercury D motors and inaudible.
4481967,227,2575.1699,2583.4099,8,Howe operating profit decreased slightly quarter on quarter due to cost operations such as global logistics issue.
4481967,228,2585.1499,2599.6799,8,For this type appliance in the fourth quarter markets grow so slow due to diminishing detect of the pent up demand and carrier and logistical to stay the on uptrend seen in the previous quarter.
4481967,229,2601.03,2613.4202,8,Samsung actively addressed to various to consumer needs we improved our mixed we are increasing sales with our focus on opinion products such as inaudible product.
4481967,230,2615.1001,2628.27,8,In addition through improving our operating efficient and reducing cost we achieved inaudible compared to the previous quarter despite numerous inaudible in the external environment.
4481967,231,2629.6699,2637.3301,8,Now let us look at the annual product first quarter of 2022 and twenty twenty two as a whole.
4481967,232,2638.6499,2651.4402,8,We expected of our TV market in q one to decrease quarter on quarter following the year end inaudible and also coming inaudible compared to the same period last year.
4481967,233,2651.4399,2658.3,8,inaudible affect by continuation of strong impact of pent up demand namely on advanced market.
4481967,234,2659.8601,2674.47,8,We plan to push expand inaudible by capturing demand mainly for premium products by actively leveraging on number of promotional opportunities such as those associated with a major sporting event.
4481967,235,2676.02,2690.1799,8,Furthermore we will lead the market by inaudible in the inaudible including the freestyle future of the released NCS decisions and improved our return.
4481967,236,2692.0,2707.0901,8,For distal inaudible in the first quarter we expect demand for home appliances to decline slightly year on year also we expect to continue peer detective increasing in logistics and the material cost.
4481967,237,2709.49,2719.4299,8,We will target the premium market more aggressively by expanding the inaudible lineup mainly in advanced market such as North America and Europe.
4481967,238,2721.05,2733.6201,8,Also we plan to expand said by providing our customer with our differentiated experience offering significantly expanded consumer contact point both online and offline.
4481967,239,2734.9099,2742.3699,8,In addition we will secure profitability by continuing to improve our cost efficients throughout our tradition.
4481967,240,2744.3401,2758.72,8,Regarding the TV market in twenty twenty two we expect to market uncertainties to consist including growth pre worldwide covid nineteen and external issue in driving supply and logistics.
4481967,241,2760.1599,2778.1899,8,However we also expect demands to keep rising for premium and inaudible TV's Samsung will focus on targeting demand for an increasing phase of innovative premium products including our massive and micro l e d and inaudible model.
4481967,242,2779.8501,2797.24,8,At the same time we will strength our sales of our inaudible screens our own differentiated product line and expand TV accessory eco-system while also providing differences user experience and creating new demand.
4481967,243,2798.26,2806.6001,8,Through various service fees and platform it is optimized for in-home active updates like media and gaming.
4481967,244,2808.78,2827.8499,8,In the digital appliance faction in twenty twenty two market growth of home appliances will probably be slow inaudible but we expect to see demand adjust for the new category products that will inaudible changing lifestyle trend also life demand growth in emerging market.
4481967,245,2829.73,2834.8701,8,We will continue grow by rendering global sales via expanding the areas of…
4481967,246,2836.3799,2843.05,8,We also we differentiated the stock product also by expanding lineup by region.
4481967,247,2844.8799,2853.9299,8,And to the retail market we'll keep launching new category product that reflect the change in consumer need expand.
4481967,248,2855.51,2872.6899,8,Furthermore by expanding user of model products and thus increasing productivity we'll enhance operation efficient and also secure supply continuity to preemptively inaudible future external risk.
4481967,249,2873.8799,2874.26,8,Thank you.
4481967,250,2878.74,2881.74,9,That sums up the fourth quarter results presentations.
4481967,251,2882.4399,2887.47,9,Before we move onto the Q and A session I would like to share several data points in key business areas.
4481967,252,2888.54,2894.2,9,Considering the heightened macro uncertainties we will not be providing annual guidance at this time.
4481967,253,2896.22,2905.1599,9,In the fourth quarter for d u m our bit growth decreased by a percentage in the mid-single digits and ASP declined by a similar magnitude.
4481967,254,2906.3501,2915.0901,9,In the first quarter of two thousand twenty two we expect market bit growth to fall by low single digit percentage and we should be similar to the market.
4481967,255,2916.45,2923.25,9,Demand in the fourth quarter both our bit growth and a s p declined in the low single digit percentage range.
4481967,256,2924.23,2934.2898,9,For the first quarter of two thousand twenty two we expect market bit growth to decrease by a low single digit and our bit growth should slightly outperform the market.
4481967,257,2936.3201,2948.02,9,In the display business in the fourth quarter our inaudible portion of sales was in the high ninety percent range and all l e d sales volume grew by a low single digit percentage.
4481967,258,2950.0801,2963.74,9,Turning to wireless sales volume in the fourth quarter was approximately seventy two million units for handsets and seven million units for tablets with a blended a s p of two hundred and fifty three US dollars.
4481967,259,2965.02,2970.3901,9,The smartphone portion of handsets sales volume was in the mid ninety percent range.
4481967,260,2971.2,2981.04,9,For the first quarter of two thousand and twenty two we expect to see sequential increases in handset and tablet sales volume as well as in blended a s p.
4481967,261,2981.97,2986.1899,9,The smartphone portion of handset sales should stay similar in the mid nineties.
4481967,262,2988.1201,2990.77,9,In the TV business in the fourth quarter of two zero two-
4481967,263,2990.77,3004.1399,9,in the fourth quarter of two thousand twenty one sales volume grew by a percentage approaching the mid teens and in this quarter we expect sales volume to decline by a low single digit percentage.
4481967,264,3007.22,3009.7,9,With that I will now move on to the Q and A session.
4481967,265,3010.6799,3013.48,9,First we will start taking questions from the conference call.
4481967,266,3032.8999,3033.1799,10,foreign language.
4481967,267,3035.3799,3037.01,10,Now Q and A session will begin.
4481967,268,3037.3401,3040.6301,10,Please press star one thirty star and one if you have any questions.
4481967,269,3041.0801,3044.99,10,Questions will be taken according to the order you have pressed star and number one.
4481967,270,3045.4299,3047.78,10,For cancellation please press star two.
4481967,271,3048.1201,3049.9001,10,thirty star and two on your phone.
4481967,272,3054.47,3055.5601,10,foreign language.
4481967,273,3055.5601,3062.8901,10,The first question will be presented by JJ Park from JP Morgan.
4481967,274,3063.26,3065.1199,10,Please go ahead with your question.
4481967,275,3120.6399,3123.1699,12,The first question is about the memory capex.
4481967,276,3123.2,3125.9399,12,Uh you said that the memory capex slasher increased.
4481967,277,3125.9399,3132.1699,12,Can you give us that uh that divided into the NAND verus the DRAM related capex spending last year?
4481967,278,3132.46,3135.8599,12,Uh also can you give us some guidance for capex uh memories this year?
4481967,279,3136.1499,3138.5701,12,Second question is about the shareholder return.
4481967,280,3138.5701,3165.02,12,During the presentation you mentioned that fifty percent of the free cashflow for last year is roughly the same as the distributable uh profits for this year and therefor there would not be any additional uh pool of funds available for shareholder return but I also noticed that the company does have on-hand within hundred trillion won of net cash and so maybe not last year but perhaps this year do can we expect any upside on the shareholder return?
4481967,281,3165.25,3171.23,12,Is this company considering it's net net cash size when it decides shareholder return for this year?
4481967,282,3195.8799,3201.5498,13,Yes as we mentioned the overall memory capex in twenty twenty one did increase year over year.
4481967,283,3201.8201,3210.3699,13,It's difficult to give uh you the breakdown between DRAM and NAND but overall there was an increase in the facility equipment related capex spending.
4481967,284,3230.97,3256.8901,14,foreign language Uh to explain the reasons why there was an increase in CapEx uh mainly it's explained by how we have expanded our uh advanced node uh related equipment and also invested more in the node migration in order to respond to the increasing demand.
4481967,285,3257.1299,3261.5498,14,Uh that was uh above what was e expected during the start of last year.
4481967,286,3261.8,3273.76,14,Also another main reason for our CapEx is our preemptive investments that we're making next generation technology such as e u v as we go through a technology inflection point.
4481967,287,3274.0801,3284.1099,14,But this all is consistent with our CapEx policy of executing CapEx equipment investments flexibly in mind with a market situation.
4481967,288,3285.6299,3319.5698,14,Uh and so we believe that the the supply bid goals that we are achieving is in line with the market demand levels because we uh execute flexibly or equipment related investments.
4481967,289,3319.8999,3325.3701,14,We do pursue bid growth uh around the leading technology node.
4481967,290,3325.6101,3333.46,14,And I think that is why compared to at least the bid share that we have our investments size in a mid to long term perspective is not high.
4481967,291,3335.5901,3373.4299,14,You've also asked for some guidance for CapEx this year.
4481967,292,3373.46,3381.74,14,Uh actually given the various uncertainties uh we are still actually discussing specific investment plans for this year.
4481967,293,3381.99,3390.47,14,But our basic approach is that we will tap both investments and uh productivity improvements in order to generate the bid growth this year.
4481967,294,3390.75,3402.9802,14,Also as we prepare the planning and execution of our investment plans we are aware that there is a tendency of equipment delivery lead times getting longer due to the supply chain issue.
4481967,295,3405.4299,3468.5,14,Uh to answer your second question uh when the the three-year shareholder return policy uh that was announced early last year covering periods of twenty twenty one to twenty twenty three actually took into account the global uncertainties and the expected increase of cash needs for the company.
4481967,296,3469.0701,3480.8298,14,Uh now looking back at the past one year uh the global uncertainty actually was more aggravated than we had anticipated and cash needs increases increase as expected.
4481967,297,3481.1001,3487.4299,14,And so even though last year the business results improved our net cash position has stayed almost the same.
4481967,298,3488.8899,3532.45,14,Uh on the other hand as you know we operate the largest uh and the highest level of a global production network in the IT industry which requires a large scale of operating capital.
4481967,299,3532.95,3538.1101,14,Last year we also went through some unexpected production disruptions in Austin and the inaudible.
4481967,300,3538.6299,3548.3401,14,Also we always need to keep the capabilities to execute inorganic growth opportunities uh in order to maintain uh consistent growth.
4481967,301,3549.47,3586.49,14,So considering all of those factors a company believes it is not appropriate at this point to bring any major changes to its shareholder return policy given the fact that conservative cash operation is necessary.
4481967,302,3586.74,3593.3098,14,Now that said it raising the efficiency of its capital management is something that the company continues to focus on.
4481967,303,3596.03,3608.8801,14,The next question will be presented by Sam inaudible from Daiwa Capital Market.
4481967,304,3609.25,3611.0298,14,Please go ahead with your question.
4481967,305,3628.96,3690.0999,14,So my first question is about the DRAM uh clean room space uh inaudible.
4481967,306,3690.1799,3696.1299,14,Looking at the information you may actually have a limited uh clean room space for your DRAM this year.
4481967,307,3696.1599,3699.1602,14,Also your inventory levels are relatively low.
4481967,308,3699.47,3707.54,14,Uh this may imply that you may actually in terms of this growth underperformed the market or your competitors on the DRAM side.
4481967,309,3707.8401,3710.98,14,Uh there was a change of management at the end of last year.
4481967,310,3711.1499,3719.8701,14,Uh considering all of that can you share your opinion uh regarding the clean room uh space limitations and how you plan to respond to that?
4481967,311,3720.2,3722.76,14,Second question is about the CE business.
4481967,312,3722.8799,3729.51,14,There is overall cost increasing factors including raw material prices and logistics cost increasing.
4481967,313,3729.8,3735.3,14,First of all can you share from the company's perspective until when do you think the situation will continue?
4481967,314,3735.6201,3740.29,14,What will be the implications to your CE business and how do you plan to respond?
4481967,315,3742.97,3789.78,14,Altogether the first question about the clean room uh of course securing enough clean room in order to meet uh the demand growth in the market is one of the key critical investment strategies for the memory division.
4481967,316,3790.3501,3796.5801,14,Uh clean rooms uh it's actually a quite large investment and many factors needs to be considered.
4481967,317,3796.5801,3804.72,14,So uh deciding a clean room investment is a decision that should be made based on a midterm at least a three to four-year horizon perspective.
4481967,318,3805.1599,3812.6602,14,Uh looking forward to this year at the current levels we do not expect any major problems in meeting the demand that's expected in the market this year.
4481967,319,3850.3701,3861.4001,14,Well to answer your question about the heightened cost base for the consumer electronics uh business of course there are many reasons that are driving the elevated level of raw material and logistic prices.
4481967,320,3861.54,3874.3201,14,There's a large demand for logistics but there's a shortage of workers to man the ships and the ports uh and there is overall inflation driving uh an an upward trend of raw material prices.
4481967,321,3874.6299,3884.25,14,As we mentioned during the presentation the company does expect this heightened level of raw material and logistics cost risk to continue throughout this year.
4481967,322,3886.1101,3939.8,14,Uh in in response to this assumption of heightened risk first of all we are thoroughly uh analyzing uh the situation of each of our key manufacturing hubs in order to improve the overall supply competitiveness uh by increasing the production efficiency for each region.
4481967,323,3939.8301,3944.04,14,And also uh executing overall operational improvements.
4481967,324,3944.6899,3955.8501,14,Also we are preparing to respond to this on the sales side by accelerating revenue growth through the increased sales of premium products such as inaudible and continuously launching new models.
4481967,325,3959.1599,3971.5901,14,The next question will be presented by Peter Lee from Citigroup.
4481967,326,3972.02,3977.5901,14,Please go ahead with your questions.
4481967,327,3977.95,4040.01,14,Uh my first question is uh my first question is about the memory side.
4481967,328,4040.3201,4050.6902,14,Uh even though overall memory demand was was quite solid last year fourth quarter we noticed that both your DRAM and NAND shipments actually performed under the guidance and competitors.
4481967,329,4050.8899,4053.51,14,Can you give us some explanations as to why this happened?
4481967,330,4053.51,4061.48,14,Which uh appears to be quite unusual especially given the given where the market and you were in the second quarter of last year.
4481967,331,4061.79,4066.1001,14,Uh we do notice that the company's management was changed at the end of the year.
4481967,332,4066.3401,4070.52,14,Uh is is this an implication of any strategy change on the part of the company?
4481967,333,4071.0601,4073.7,14,Second question is about the mobile side.
4481967,334,4073.9399,4080.78,14,Uh from the market we're also wondering what the exact demand would like look like for smartphones in year twenty two.
4481967,335,4081.1699,4085.47,14,Uh can you share with us your demand outlook for smartphones this year?
4481967,336,4085.76,4090.1001,14,And do you expect to increase your market share by outgrowing the market again?
4481967,337,4092.53,4144.25,14,Uh to answer your question of why our best growth was below market in fourth quarter as you mentioned yes uh in fourth quarter demand was solid but especially around the servers.
4481967,338,4144.4502,4154.3101,14,On the other side there were some uh downstream production disruptions due to the global supply chain issue even though the degree of the disruption varies depending on the customer.
4481967,339,4154.8901,4158.3398,14,And this did have an impact on memory demand in the fourth quarter.
4481967,340,4158.8799,4163.4502,14,A thing that we also considered that our inventory levels were not at high levels.
4481967,341,4163.6699,4168.29,14,We also wanted to prepare against any production impact due to the inaudible lockdown.
4481967,342,4168.52,4179.98,14,And so we actually refrained from any aggressive sales uh in the fourth quarter and this was the main reason why our bid growth uh was below guidance in uh fourth quarter.
4481967,343,4207.2202,4230.2202,14,Now the reason why we made that decision uh was because of our insight into a change in the nature of the the market that has been happening recently.
4481967,344,4230.4702,4234.8896,14,We do notice that the memory market uh actually is becoming more diversified.
4481967,345,4234.8901,4238.0801,14,The product lineup is much more diversified before.
4481967,346,4238.4502,4252.1299,14,And given the wide diversity of product lineup uh we thought that most critical capability was the ability to supply the products that the customer needs based on having an optimized product mix.
4481967,347,4252.5298,4267.02,14,And so I think the reason I think the best way of understanding what happened in fourth quarter was that it was our strategic choice in order for us to be able to supply the products that the customer needs stably from a long term perspective.
4481967,348,4269.9702,4312.1201,14,So to answer your question about the smartphone.
4481967,349,4312.1499,4320.2202,14,First our outlook for the smartphone ma market this year is that it will continue the growing trend uh continuing from last year.
4481967,350,4320.27,4327.9302,14,Main drivers being the mainstreaming of foldable phones and also the wider penetration of five g uh mobile phones.
4481967,351,4328.1699,4353.3804,14,Uh our strategy at the flagship level is to continue to expand the sales of flagships and to improve our product mix uh by first of all maximizing the user base uh through our joldable Z series uh which has been attracting not only the premium super premium users but the MZ generations of females as well as the uh customers of the competitors.
4481967,352,4353.7402,4370.7402,14,Uh also a part of our uh flagship strategy would be the S series the new model of the S series uh which will uh contribute to retention of existing customers and also to further widen the premium customer base through the s twenty one FE.
4481967,353,4373.71,4415.3301,14,Uh our strategy on the mass tier will be to actively absorb the the mass tier five g placement demand globally by preparing a wider five g full lineup.
4481967,354,4415.6602,4425.23,14,And also to continue to produce global mega hit models and the mass tier that provide core user experiences that the users appreciate.
4481967,355,4425.73,4435.5,14,Uh therefore we will use the mass tier models to become clearer volume drivers that can respond preemptively to mass tier brands.
4481967,356,4436.0698,4447.8701,14,Uh by these two strategies uh we plan to not only increase our entire market share in the smartphone market this year but also further increase the leadership we have in the premium market.
4481967,357,4450.2402,4462.8101,14,The next question will be presented by Do Yan Chen from China Investment.
4481967,358,4463.2998,4465.0303,14,Please go ahead with your question.
4481967,359,4495.8301,4500.77,14,Uh I have a question for the the mobile of the MX this division.
4481967,360,4501.0498,4508.6396,14,Uh last year you successfully uh mainstreamed the foldable form factor received a strong response from the market.
4481967,361,4508.9102,4511.3696,14,Uh but you also have the Galaxy series.
4481967,362,4511.5098,4516.75,14,And so combining the two can you share with us your overall strategy in the flagship this year?
4481967,363,4518.8999,4581.75,14,Uh to answer your question uh actually the the key point of our our flagship tier uh premium tier strategy would be to further concentrate on strengthening our user experience.
4481967,364,4582.02,4590.6699,14,Uh this will enhance the value of the flagship product by providing not only the best hardware but also software services and ecosystem.
4481967,365,4591.3901,4598.79,14,Uh also uh therefore we will further enhance the differentiated experience for each of our premium products.
4481967,366,4598.79,4612.0898,14,For example S series providing the best flagship experience Z series providing the optimized foldable experience in order to satisfy the diverse lifestyles and needs of the consumers.
4481967,367,4612.48,4633.7002,14,Uh also we will be refocusing our marketing strategy around customer uh experience and also continue a a a full year brand marketing campaign to make the brand more as fired and uh strengthen the premium brand position to maximize our flagship sales volume.
4481967,368,4635.1201,4647.9399,14,The next question will be presented by inaudible from KB Securities.
4481967,369,4648.4502,4650.2397,14,Please go ahead with your question.
4481967,370,4660.46,4715.98,14,Uh my first question is about the the DRAM prices after DRAM price being increased in first quarter.
4481967,371,4716.0098,4720.54,14,Uh now back to a downward trend uh in three quarter's time.
4481967,372,4720.8999,4723.9102,14,Uh there are different views as to where it will go further.
4481967,373,4723.9399,4727.6099,14,Some are expecting that DRAM prices will upturn again shortly.
4481967,374,4727.8999,4733.04,14,Others are saying it's not likely uh the prices to improve in the second half of this year.
4481967,375,4733.25,4739.5098,14,As a leader in this uh segment what is your outlook on DRAM movement going forward?
4481967,376,4739.7202,4743.3403,14,Also it it appears that the cycle itself is getting shorter.
4481967,377,4743.3398,4747.6201,14,Do you think the cycle will stay this way in the future?
4481967,378,4747.96,4750.6802,14,Uh my second question is about the QD display.
4481967,379,4750.8799,4756.1299,14,Uh I'm hearing that the customers have received the QD display uh uh supply.
4481967,380,4756.3398,4760.3501,14,Uh can you share with us your customer's response to the QD display?
4481967,381,4760.5698,4767.6699,14,And also can you share with us some details about where you think your technology level is and how you compare in terms of cost competitiveness?
4481967,382,4772.3599,4825.3301,14,Uh to answer your question about the market outlook of course there are still various variables that can impact supply and demand this year.
4481967,383,4825.3599,4836.0103,14,Including at what pace the uh part supply issue will be eased the possibility of additional increase in raw materials and various geopolitical risk.
4481967,384,4836.3398,4841.7798,14,But looking at the market there are many factors that uh support a strong demand side.
4481967,385,4842.0698,4854.52,14,Uh for example uh there will be increased adoption of high core CPUs uh launch of new CPU that supports ddr five and also expected increase of IT investment by major companies.
4481967,386,4854.7202,4862.6396,14,Also this uh this supports the view that there will be fundamental strong demand especially around servers.
4481967,387,4862.9102,4863.77,14,Also if we look…
4481967,388,4906.3901,4912.2603,15,Also it's becoming more and more challenging to maintain the node migration and investment efficiency.
4481967,389,4912.6099,4923.3901,15,And so given that I think it is much more important ever than before to maintain the ability to respond to customer demand in a timely manner by maintaining the right product mix.
4481967,390,4959.6899,4972.9302,15,Of course it's difficult for us to also predict price at this point but we also notice as you mentioned a clear tendency of the memory uh market cycle height and also the length getting shorter than before.
4481967,391,4973.29,4981.8799,15,Uh also considering that our inventory remains to be at fair levels uh these are all signs that indicate uh possible stabilizing of the market.
4481967,392,4982.1001,4991.2197,15,Also recently a a third uh party agency uh did uh announce its view that the market may actually change direction during the first half.
4481967,393,4991.2202,4994.5503,15,And so we are adding this as one of the possible scenarios.
4481967,394,5048.6499,5107.3696,15,We started mass production of the QD display uh fourth quarter last year and have made deliveries to the customers.
4481967,395,5107.6899,5115.5898,15,Uh the customer response is that the QD display has definitely advantages uh compared to competing products.
4481967,396,5116.0,5126.1196,15,Uh we are currently working with customers to have TVs and monitors using the QD display be positioned in the higher end of the premium uh product lineup.
4481967,397,5126.4502,5134.3901,15,Uh we believe that as our uh utilization improves we would also be able to increase the shipments of our QD display.
4481967,398,5134.7798,5140.7803,15,Uh we believe that uh the QD display definitely will take position as a premium display.
4481967,399,5141.0298,5167.8901,15,Uh and uh we believe that uh as uh we are able to increase our uh shipments uh with improving utilization towards the end of this year we will be able to uh see an increase in demand uh especially around the premium products by offering uh QD uh as a way of differentiating uh the performance in the ultra large size TV and monitor market.
4481967,400,5186.1201,5187.9102,17,Please go ahead with your question.
4481967,401,5223.8198,5230.6499,15,There is continuous noise regarding the the your Foundry Foundry a low yield in in the advanced nodes.
4481967,402,5230.6499,5234.79,15,Can you give us an update of the yield and how you plan to address this?
4481967,403,5235.1699,5244.98,15,Second question is about the flexible o l e d market in the small and midsize flex flexible o l e d market competition is becoming uh more intense.
4481967,404,5245.27,5250.0903,15,How do you plan to respond to this?
4481967,405,5272.6099,5272.8501,15,Yes.
4481967,406,5272.8501,5286.6504,15,As you know in response to global demand for the advanced node we have been going through unprecedented scales of investments and development and is maintaining the technology leadership in the advanced nodes.
4481967,407,5287.02,5296.7598,15,Uh as we move on to the advanced nodes uh the challenge of of maintaining and securing initial stable yield uh has increased.
4481967,408,5337.2002,5361.5698,15,Uh and in order to address this uh we are considering uh looking into of the for example establishing a multi-path faster than originally scheduled by securing the infrastructure space and making the optimized uh timing of investments for ramp up and also working with the research center dividing roles in order to establish plans of uh better achieving yield early on in the advanced nodes.
4481967,409,5478.1802,5482.6401,15,And we are continuing to focus from various angles to maintain that leadership.
4481967,410,5483.7002,5486.3696,15,We were the first company to succeed in mass production.
4481967,411,5486.4302,5494.6304,15,We pioneered the o l e d market and during the past several decades of investments in r and d we have accumulated a huge bo…
4481967,412,5494.6299,5497.1499,15,huge body of patents and knowhow.
4481967,413,5497.6001,5520.27,15,Also in order to uh protect or differentiated technology and further enhance the value we have actually branded our proprietary o l e d technology uh such as diamond pixel or the echo to display o l e d for low power technology in order to establish our position and also to actively communicate to the market.
4481967,414,5521.1899,5533.9902,15,Uh we also believe that receiving the the recognition for our IT and receiving the fair compensation for it uh is an important part of our obligations and responsibility.
4481967,415,5534.2002,5539.5703,15,And currently we're looking into various ways in order to get that guaranteed.
4481967,416,5541.0801,5553.2998,15,Uh under today's ESG environment it's important that proper business practices are honored and we will do our best to have that happen conference.
4481967,417,5570.3599,5572.1099,17,Please go ahead with your question.
4481967,418,5574.3101,5574.54,21,Yes.
4481967,419,5574.79,5575.2798,21,Good morning.
4481967,420,5575.2798,5576.7998,21,Thanks for taking my question.
4481967,421,5577.1201,5588.9102,21,Uh on non-flash there's been uh several announcements from your peers on seven generation uh free demand technology as well as QC for sales for products.
4481967,422,5589.27,5598.0298,21,Uh recently uh in that context could you update us uh on Samsung's uh strategy uh and roadmap uh for both please?
4481967,423,5598.7202,5599.0498,21,Thank you.
4481967,424,5601.5801,5602.1201,22,Uh yes.
4481967,425,5639.5601,5656.96,15,To answer your question actually uh we have uh been delivering for server and consumer applications uh starting from the fifth generation that actually adopt the CTF QLC technology.
4481967,426,5659.4399,5669.2197,15,And also uh we have uh actually maintained uh the technology leadership in the market especially for the enterprise Q L C SSDs.
4481967,427,5706.25,5714.0601,15,And another focus is actually creating an ecosystem through cooperation with partners in preparation of a wider adoption of QLC.
4481967,428,5751.27,5763.1802,15,For reference we're expecting uh at the PC application level the demands of customers uh for QLC products will become more visible and tangible after this year.
4481967,429,5808.8599,5820.3003,15,We have been accepting questions via our web page in advance of an earnings release as part of our efforts to strengthen communication with individual investors and to enhance understanding of the company.
4481967,430,5820.6499,5823.6899,15,A variety of questions were submitted this quarter as well.
4481967,431,5824.04,5829.54,15,I believe the majority of the submitted questions have already been sufficiently answered during the q and a session.
4481967,432,5829.75,5838.02,15,So we will answer two more questions on topic that garnered a high level of interest from shareholders but were not addressed during the q and a session.
4481967,433,5864.1899,5870.4897,15,The company has been uh treating the Foundry like a new business to nurture but the market is firstly competitive.
4481967,434,5870.8301,5878.0298,15,I would like to hear your opinion on what distinctive Samsung has over its competitors to accelerate growth.
4481967,435,5909.8101,5922.7402,15,Yes in order to do develop our Foundry business we have been executing a unprecedented scale of investments and also focused on developing technology.
4481967,436,5923.0601,5938.1597,15,Uh and in addition to securing the technology leadership through these efforts another focus of our Foundry business is to further expand the ecosystem by building strong partnerships with other companies within the Foundry industry.
4481967,437,5938.4902,5950.5903,15,We believe this will help alleviate customers concerns about uh Foundry source concentration and also will be able to provide meaningful so solutions for the entire Foundry industry.
4481967,438,5992.1499,6001.79,15,Also we're leveraging our collaborative relationship with the memory division in order to provide solutions that are differentiated from other companies.
4481967,439,6027.46,6032.4697,15,The global market demand for five g smartphones is expected to grow significantly this year.
4481967,440,6032.7798,6033.9502,15,Against this backdrop.
4481967,441,6033.9502,6039.3701,15,What are Samsung electronics strategy on the lineup and sales expansion?
4481967,442,6039.6099,6044.1499,15,This will be answered by VP inaudible of the MX division.
4481967,443,6078.6802,6081.02,15,Uh it is expected to continue this growth.
4481967,444,6081.3301,6088.8198,15,Uh market outlook is that this year uh five g smartphones would account for more than half of these smartphone shipments in the entire market.
4481967,445,6089.2202,6106.04,15,Now in order to actively absorb this mass of five g replacement demand we have prepared a full five g lineup across the entire price range starting from the flagship models of the S family and the foldable Z series as well as the mass entry level.
4481967,446,6140.5,6146.0898,15,Especially our focus in terms of strategy uh as we uh respond to the compete…
4481967,447,6146.4399,6153.9604,15,competition the intense competition and and the mass segment is to leverage the uh the Galaxy experience that we have.
4481967,448,6154.27,6168.1001,15,Uh we have uh the excellent S series experience which we will roll out even to the mass tier model so that all Galaxy users will be able to share and enjoy the premium Galaxy experience.
4481967,449,6168.6201,6188.3198,15,Also on the sales side we will be proposing five g handsets uh mass five g handsets to all of our channels and also look into collaboration with the carriers uh in order to increase five g handset sales which will also benefit the carriers in terms of further upside and they are approved.
4481967,450,6188.6899,6195.5,15,Through these initiatives uh we will focus on continuing the high growth momentum versus market this year.
4481967,451,6226.2002,6234.5601,15,However I would like to thank everyone who shared their opinion providing us with valuable information to refer in our decision making process.
4481967,452,6234.8799,6237.3901,15,And that completes our conference call this quarter.
4481967,453,6237.3901,6241.4399,15,We wish all of you and those close to you stay strong and in good health.
4481967,454,6241.6499,6242.0801,15,Thank you.
4482110,0,1.52,2.28,0,Good morning.
4482110,1,2.71,5.92,0,My name is Sherine and I will be your conference operator today.
4482110,2,6.52,14.25,0,At this time I would like to welcome everyone to the GasLog Partners Fourth Quarter two thousand twenty one Results Conference Call.
4482110,3,14.86,17.99,0,All lines have been placed on mute to prevent any background noise.
4482110,4,18.76,22.01,0,After the speakers' remarks there will be a question-and-answer session.
4482110,5,22.72,25.63,0,As a reminder this conference call is being recorded.
4482110,6,26.5,35.36,0,On today's call are Paolo Enoizi Chief Executive Officer and Achilleas Tasioulas Chief Financial Officer.
4482110,7,36.09,40.27,0,Joseph Nelson Head of Investor re Relations will you begin your conference?
4482110,8,42.75,48.46,1,Good morning or good afternoon and thank you for joining the GasLog Partners fourth quarter twenty twenty one earnings conference call.
4482110,9,48.93,59.41,1,For your convenience this webcast and presentation are available on the Investor Relations section of our website www dot gas log mlp dot com where a replay will also be available.
4482110,10,60.28,62.49,1,Please now turn to Slide two of the presentation.
4482110,11,63.38,65.69,1,Many of our remarks contain forward-looking statements.
4482110,12,65.83,72.27,1,For factors that could cause actual results to differ materially from these forward-looking statements please refer to our fourth quarter earnings press release.
4482110,13,72.75,77.3,1,In addition some of our remarks contain non GAAP financial measures as defined by the S E C.
4482110,14,77.56,81.35,1,A reconciliation of these measures is included in the Appendix to this presentation.
4482110,15,82.32,89.77,1,Paolo will begin today's call with a review of the partnership's fourth quarter and full-year highlights following which Achilleas will walk you through the Partnership's financials.
4482110,16,90.24,93.85,1,Paolo will then provide an update on the L N G shipping and L N G commodity markets.
4482110,17,94.08,96.9,1,We will then take questions on the pa Partnership's fourth quarter.
4482110,18,97.57,101.5,1,With that i'll now turn it over to Paolo Enoizi C E O of GasLog Partners.
4482110,19,104.3,109.84,2,Thank you Joe and welcome everyone to our fourth quarter conference call from a very snowy Athens.
4482110,20,110.91,115.79,2,Please turn to Slide four for GasLog Partners fourth quarter and full-year twenty twenty one highlights.
4482110,21,117.81,122.86,2,I'm pleased to report another quarter of strong operational and financial performance for the Partnership.
4482110,22,124.47,135.07,2,The fleet performed at approximately a hundred percent availability in the fourth quarter and for all of twenty twenty one despite the ongoing challenges created by covid nineteen.
4482110,23,136.16,143.1,2,Our focus on cost control along with a strengthening charter market last year saw stable cash innovation and improved profitability.
4482110,24,144.21,152.11,2,We repurchased another six million of our preference units in the open market bringing the total repurchase in twenty twenty one to eighteen million.
4482110,25,152.63,159.85,2,And finally we retired another seventeen million bucks of debt during the quarter bringing the total to a hundred and eight million for twenty twenty one.
4482110,26,162.36,167.41,2,Turning to Slide five and a summary of our financial performance in twenty twenty one.
4482110,27,169.27,183.36,2,As you can see from the charts on this slide rechartering four of our vessels on effective terms along with our strategy of reducing our debt and lowering our cost base improve our profitability.
4482110,28,184.91,192.46,2,Despite a two percent decline in revenue last year relative to twenty twenty our profitability increased eight percent.
4482110,29,194.25,204.76,2,As noted on our last call our capital allocation for twenty twenty two will continue to focus on debt repayment and reducing the breakeven rates of our fleets will improve its cash flow capacity.
4482110,30,208.05,213.33,2,Turning to Slide six which summarizes our operational upside to the strong shipping market.
4482110,31,215.94,220.98,2,As you can see from the chart on the left the Partnership has a balanced charter portfolio.
4482110,32,222.11,228.8,2,Our fixed charter coverage shown in dark blue more than covers our fixed expenses through at least twenty twenty two.
4482110,33,230.77,236.83,2,Meanwhile our open days shown in light gray display our significant leverage to the tight shipping market.
4482110,34,237.76,242.88,2,You'll note we also have one vessel on spot market and linked contract which will also benefit from higher spot price.
4482110,35,244.38,248.6,2,Our chartering team did a great job in fixing through the seasonal lows of quarter one.
4482110,36,249.5,254.15,2,The majority of our open days for twenty twenty two are in the seasonally strong period of the year.
4482110,37,254.45,262.76,2,And if a ten thousand bucks per day of revenue earned above our operating and overhead expenses will generate an incremental thirty million bucks of EBITDA for the Partnership.
4482110,38,265.84,270.29,2,With that I'll hand over to Achilleas to take you through the Partnership's quarter four financials.
4482110,39,272.06,272.78,3,Thank you Paolo.
4482110,40,273.84,278.25,3,Turning to Slide eight and the Partnership's financial results for the fourth quarter.
4482110,41,278.98,289.55,3,As Paolo mentioned earlier our financial performance in quarter four twenty twenty one improved significantly from both the third quarter of twenty twenty one as well as fourth quarter of twenty twenty.
4482110,42,290.31,297.83,3,Specifically revenue for the fourth quarter were eighty eight million a four percent improvement from the fourth quarter of twenty twenty.
4482110,43,298.61,306.56,3,The revenue improved year-over-year is primarily due to the four new term charter agreements that we signed in the second half of twenty twenty one.
4482110,44,307.46,316.96,3,Adjusted EBITDA was sixty four million an increase of nine percent from the fourth quarter of twenty twenty while adjusted earnings was forty five cents per unit.
4482110,45,317.81,338.48,3,The significant improvements in adjusted EBITDA and adjusted E P S were aided by the improved revenue performance our ongoing cost control initiatives and in addition in terms of E P S the lower interest expenses due to decline in debt balances and the preference share buyback that reduced the preference share distributions.
4482110,46,339.56,349.88,3,Looking forward the Partnership has charter coverage of twenty five percent in the first quarter of twenty twenty and seventy six percent charter coverage for all of twenty twenty two.
4482110,47,350.48,355.9,3,In addition we have not scheduled dry-dockings this year which provides good cash flow visibility.
4482110,48,358.24,361.36,3,Turning to Slide nine and a look at our cost base.
4482110,49,362.82,371.29,3,Our overhead expenses for twenty twenty one were approximately in line with our averages for the full-year and the guidance we gave on our last call.
4482110,50,373.15,387.02,3,As we look towards twenty twenty two we expect our unit operating expenses to average thirteen thousand seven hundred bucks per vessel per day while we expect our overhead expenses to average three thousand two hundred bucks per vessel per day.
4482110,51,388.29,397.36,3,The significant decline in our operating expenses for twenty twenty two is due to a reduction in the management fee we will be paying to our parent GasLog Ltd.
4482110,52,397.49,402.91,3,effective on January one twenty twenty two as well as no dry-docking expenses for the year.
4482110,53,404.45,412.63,3,This lower operating costs are offset by higher overhead expenses primarily related to an increase in the administrative service fee to GasLog Ltd.
4482110,54,412.9,420.83,3,effective from January one twenty twenty two as well as direct public company expenses which was previously shared between GasLog Ltd.
4482110,55,420.94,421.76,3,and GasLog Partners.
4482110,56,423.05,429.86,3,Public company expenditures are now borne by the Partnership alone following our parents take private transaction last year.
4482110,57,431.41,435.87,3,Our overall cost base has been declining significantly over the last several years.
4482110,58,436.45,445.87,3,Specifically our unit OpEx declined by nine percent since twenty nineteen and our unit g and a declined by ten percent as compared with our twenty twenty two guidance.
4482110,59,446.33,454.24,3,Fully absorbing every one of cost associated with COVID-related deduction and the changes in the GasLog Group mentioned above.
4482110,60,455.37,460.53,3,As we have previously stated we continue to look for ways to reduce our cost base further.
4482110,61,463.75,473.08,3,Slide ten shows the Partnership's debt balances and balance sheet metrics as well as the progress we have made towards our leverage targets in twenty twenty one.
4482110,62,474.34,476.29,3,The Partnership's balance sheet remains robust.
4482110,63,477.14,482.36,3,The Partnership ended the fourth quarter with one hundred forty six million of cash and cash equivalents.
4482110,64,483.88,490.13,3,Our capital allocation priorities since twenty twenty have focused on reducing our leverage and cost base.
4482110,65,491.09,497.13,3,Last quarter we presented our target leverage metrics which you can find on the left side of this slide.
4482110,66,497.93,512.07,3,I'm pleased to say that we have made progress towards these goals in twenty twenty one despite the non-cash impairment charge of one hundred and four million we took in the fourth quarter related to our five steam turbine L N G carrier book values.
4482110,67,513.23,536.87,3,Specifically we retired approximately one hundred eight million bucks of debt during twenty twenty one which reduced our debt to total capitalization to fifty four percent from fifty six percent in the fourth quarter of twenty twenty when combined with our one hundred forty six million of cash on the balance sheet our net debt to capitalization has been reduced to forty seven percent by the end of the fourth quarter from fifty one percent at the end of twenty twenty.
4482110,68,537.56,544.25,3,In addition our net debt to trailing twelve months EBITDA has declined to four point three times.
4482110,69,545.95,559.19,3,We expect to continue strengthening our balance sheet beginning with a scheduled retirement of approximately one hundred fourteen million of debt and lease liabilities in twenty twenty two which is covered by our contracted cash flow over this period.
4482110,70,559.85,567.08,3,Reducing debt balances will reduce the Partnership's cash flow breakeven levels over time improving further re-competitiveness of our fleet.
4482110,71,568.46,577.68,3,We believe that prioritizing debt reduction supports the Partnership's future growth in equity value and enhances the overall shareholders value.
4482110,72,580.32,588.65,3,Slide eleven discusses the Partnership's preference unit repurchase program which supports our strategic efforts to reduce our cost base.
4482110,73,591.73,605.02,3,During the fourth quarter we repurchased a total of approximately six million of our Series B and Series C preference units in the open market bridging our total for twenty twenty one to approximately eighteen million.
4482110,74,605.72,611.43,3,Our repurchases to-date were at an average price of twenty five bucks per unit which is a par value.
4482110,75,612.48,618.87,3,These repurchases reduce preference unit distributions by approximately one point five million on an annual basis.
4482110,76,620.1,625.78,3,We expect to continue opportunistically repurchase preference units in the open market as conditions dictate.
4482110,77,627.06,632.65,3,With that i will turn it over to Paolo to discuss the L N G commodities and L N G shipping markets.
4482110,78,634.2,634.97,2,Thank you Achilleas.
4482110,79,636.28,651.22,2,Turning now to Slide thirteen Poten registered forty four term charters greater than six months in quarter four twenty twenty one helping to set a new annual record of a hundred sixty five term charters for twenty twenty one.
4482110,80,652.63,660.7,2,The high-level of term chartering served last year was in response to strong L N G demand ton-mile growth and logistical bottlenecks around the world.
4482110,81,661.62,672.66,2,This dynamic along a wide arbitrage for delivering L N G to Asia from the United States during much of twenty twenty one led our customers and others to seek term coverage and security of shipping capacity.
4482110,82,674.12,677.91,2,On the right chart you'll know that headline spot rates have declined in recent weeks.
4482110,83,678.92,688.37,2,Although headline spot rates have inflected lower now around twenty eight thousand five hundred per day it isn't unusual for spot rates to decline as we approach the end of the northern hemisphere winter.
4482110,84,689.59,699.22,2,Despite the decline in spot rates term rates are relatively firm as the one-year time charter rate is currently assessed at eighty seven thousand bucks per day according to Clarksons.
4482110,85,701.37,705.39,2,This is indicative of charters expectations for a tight market in the months ahead.
4482110,86,706.55,711.99,2,In addition the forward curve for L N G spot rates indicates rising rates through the rest of twenty twenty two.
4482110,87,713.53,724.37,2,A result of these fundamental drivers and frictional challenges we expect the L N G carriers spot market to continue to perform strongly through the next winter as I'll discuss over the next several slides.
4482110,88,727.18,733.58,2,Slide fourteen presents L N G demand and supply during quarter four twenty twenty one.
4482110,89,735.48,744.97,2,L N G demand increased eight percent in the fourth quarter of twenty twenty one relative to the fourth quarter of twenty twenty according to Poten as shown by the left-hand figure.
4482110,90,746.39,748.67,2,Demand from Europe was strong in the fourth quarter.
4482110,91,749.58,765.91,2,The combination of over reliance on renewables low storage inventory and lower than anticipated imports from Russia and Norway pushed demand for L N G resulting a record high prices in the region underscoring the need for natural gas and L N G as a transition fuel in the evolving L N G landscape.
4482110,92,767.23,781.52,2,On the supply side US production grow by over twenty eight percent year-on-year to nineteen million tons due to less unplanned downtime and the ramp-up in production from the third train in the Freeport Cameron and Corpus Christi L N G facilities.
4482110,93,783.22,786.28,2,This continued the theme we witnessed throughout twenty twenty one.
4482110,94,786.55,790.07,2,US production increased it's net global demand growth for natural gas.
4482110,95,791.88,802.63,2,The shipping intensive nature of US supplies relative to end-user in Asia and Europe has propelled ton-mile growth up to sixteen percent in twenty twenty one more than twice that for the demand of the commodity.
4482110,96,804.88,811.08,2,Slide fifteen shows significant cost increases for natural gas in Asia and Europe since quarter four of twenty twenty.
4482110,97,812.77,822.3,2,The past few months have highlighted the danger of of lack of infrastructure investment in gas which kinda serve by noting the record high L N G crisis in Asia and Europe shown on this figure.
4482110,98,823.67,830.44,2,In recognition of this L N G crisis the European Commission is now considering adding gas and nuclear power to the green taxonomy.
4482110,99,831.63,838.85,2,This would accomplish the goal of reducing emissions from the determination of electricity while also securing a steady and competitive supply of energy.
4482110,100,840.24,850.14,2,L N G is the most versatile source of gas given its destination flexibility and will be needed in a long-term as it provides a stable platform for the transition to renewables.
4482110,101,851.9,864.91,2,High absolute gas prices in underworlds should ensure high-level of liquification utilization while the potential for a widening arbitrage between producers in US and consumers in Asia will have the additional benefit of lengthening from mild demand.
4482110,102,866.08,871.7,2,In addition Europe is anticipated to exit this winter with historically low inventories of natural gas.
4482110,103,872.69,877.6,2,This again has the potential to drive additional demand for L N G for inventorying restocking.
4482110,104,880.17,885.33,2,Slide sixteen displays the L N G carrier orderbook and delivery schedule according to Poten.
4482110,105,886.88,893.93,2,There are one hundred and fifty one L N G carriers in the orderbook at present but about twenty five percent of underwater fleets.
4482110,106,895.56,898.93,2,Over eighty percent of the orderbook has secured multi-year employment.
4482110,107,899.6,909.46,2,In addition the number of scheduled deliveries in twenty twenty two are less than half those delivered in twenty twenty one and there are no unfixed vessels scheduled this delivery in year.
4482110,108,911.22,921.71,2,Due to increase in demand for containership and other merchant vessels delivery time for the new building order today at approximately three years making the earliest delivery time in the first half of twenty twenty five.
4482110,109,923.04,932.92,2,Competition for bird flies at the yard as well as cost inflation have also pushed prices well above two hundred ten million up at least ten percent over the last year.
4482110,110,935.67,941.38,2,Slide seventeen illustrates our view of shipping supply and demand through the end of twenty twenty three.
4482110,111,943.13,950.43,2,Demand is partially based on the number of vessels needed to export one million ton of L N G per annum expensed as a shipping multiplier.
4482110,112,951.76,964.91,2,This analysis does not assume any vessel scrapping although there are currently twenty vessels for about three percent of the global fleet over the age of thirty and we saw nine vessels scrapped in twenty twenty one.
4482110,113,966.58,985.04,2,Although there's a relative strong addition to global shipping capacity we anticipate that the growth of inter-basin trading and likely accelerated the cycling of all the tonnage will more than offset the scheduled deliveries over the next couple of years projecting a relatively tight L N G shipping market through twenty twenty two and twenty twenty three.
4482110,114,988.04,990.37,2,Turning to Slide eighteen and end summary.
4482110,115,993.09,1002.35,2,I'm very pleased with the overall operation safety results as well as the Partnership financial achievement for quarter four twenty twenty one and for the full-year as well.
4482110,116,1004.6,1015.61,2,This latest energy crisis has once more shown the typical importance of L N G as cleaner fuel to supply the current energy needs and enable a sustainable transition to a carbon-free future.
4482110,117,1017.53,1025.09,2,Our fleet is well-positioned to the upside of this increasing demand for L N G and a tight shipping market expected in twenty twenty two and the years to come.
4482110,118,1026.66,1037.79,2,And we've made good progress on our capital allocation strategy with continuous deleveraging and opportunistically purchase a preference unit in the open market creating equity value to the unit holder.
4482110,119,1039.6801,1047.27,2,Finally the Partnership increase in competitiveness and strengthening balance sheet allows us to evaluate opportunities for growth and fleet modernization.
4482110,120,1049.17,1052.77,2,With that i would like to open calls for questions.
4482110,121,1054.08,1054.58,2,Operator?
4482110,122,1055.9399,1056.41,0,Thank you.
4482110,123,1056.41,1060.3201,0,To ask a question you will need to press one on your telephone.
4482110,124,1060.6899,1062.76,0,To withdraw your question press the pound key.
4482110,125,1063.35,1065.88,0,Please stand by while we compile the q and a roster.
4482110,126,1067.15,1070.25,0,Our first question will come from Randy Giveans with Jefferies.
4482110,127,1070.4,1071.3301,0,Please go ahead.
4482110,128,1080.09,1080.36,0,Mr.
4482110,129,1080.36,1081.65,0,Giveans your line is open.
4482110,130,1081.65,1082.5299,0,Please go ahead.
4482110,131,1083.77,1083.9301,2,Fine.
4482110,132,1102.21,1111.63,4,And then would the likely duration be one year and then specifically for steamships what are your thoughts on employment data for twenty twenty two and and twenty twenty three?
4482110,133,1115.84,1117.91,2,Thank you Randy for for the question.
4482110,134,1119.13,1124.6101,2,Yes indeed we have uh uh vessels that are you know being opened in in quarter two.
4482110,135,1125.1,1134.14,2,Um we're actually quite comfortable in in the twenty twenty two charter coverage I mean we are covered seventy six percent and our portfolio is quite balanced.
4482110,136,1134.74,1144.2699,2,Um we see opportunities in in in the opening of the vessels uh in quarter two and in quarter three ahead of of the winter.
4482110,137,1144.61,1152.54,2,And we expect uh high-level of L N G movements both in terms of capacity and in terms of shipping demand.
4482110,138,1153.23,1164.4301,2,Um we see uh as as we mentioned before we actually see that the term market is remaining quite strong even in the doldrums of the COVID quarter one.
4482110,139,1164.97,1175.42,2,So I think there's no indication that we will not be able to play a portfolio approach and actually fix the vessels throughout quarter two and quarter three much like we've done last year.
4482110,140,1177.98,1178.4199,4,Got it.
4482110,141,1178.55,1182.28,4,And then in terms of steam employment you know twenty twenty three and beyond?
4482110,142,1185.47,1192.63,2,I think the uh for the steams we actually see uh similar dynamics as we've seen uh uh for the TFDEs.
4482110,143,1192.99,1202.63,2,Term market seems to be the most interesting but there are many uh um sites and operator that seems to favor steam vessels over others.
4482110,144,1202.88,1208.8199,2,Uh some terminals are actually only accepting this uh this size uh and type of vessels.
4482110,145,1209.34,1215.74,2,And uh I think we have really no indication that there's gonna be otherwise for the steam vessels than it is for the TFDEs.
4482110,146,1216.26,1221.67,2,But we will be able to find uh longer-term than than one year is yet to be seen.
4482110,147,1221.67,1230.6801,2,But I think the indications for other uh uh chartering that has been done for similar vessels have also seen you know terms exceeding the one year.
4482110,148,1230.6801,1232.47,2,So we're quite confident on that as well.
4482110,149,1234.08,1237.25,4,Got it.
4482110,150,1237.25,1247.46,4,And then in terms of balance sheet and in capital allocation could we see some additional sale lease backs in in the near-term and what would that incremental cash proceeds be used for?
4482110,151,1247.49,1255.3099,4,Right you purchased I think it was $6 million of preference or preferred units during the quarter about eighteen million during the year.
4482110,152,1255.35,1260.75,4,So as you look at twenty twenty two could additional repurchases there uh via use of cash?
4482110,153,1263.34,1264.98,3,Yes this is Achilleas uh Randy.
4482110,154,1265.35,1273.36,3,Uh your <inaudible> uh uh with the with the improved uh uh charter market we have an improved liquidity position.
4482110,155,1273.65,1285.1901,3,So we will look for additional uh perhaps we start to see on an opportunity basis uh we have been buying back eighteen million bucks of price at par uh which is a good deal I think.
4482110,156,1285.61,1297.88,3,There is um the first series of operation uh is scalable uh in early twenty twenty three so that we don't really have any reason to to pay much above par to to buyback.
4482110,157,1297.88,1301.21,3,Uh so uh we will keep an eye on that.
4482110,158,1301.65,1315.14,3,I wanted to reiterate our capital allocation strategy that we are focusing on the uh debt repayment and the breakeven reductions which actually uh improve the equity value of um of our story.
4482110,159,1339.17,1343.17,4,Thanks so much.
4482110,160,1346.22,1346.5601,3,Thank you.
4482110,161,1346.6801,1347.12,2,Thank you.
4482110,162,1348.35,1348.8101,0,Thank you.
4482110,163,1348.8101,1351.74,0,Our next question will come from Ben Nolan with Stifel.
4482110,164,1351.74,1352.6699,0,Please go ahead.
4482110,165,1354.4399,1354.86,5,Yeah hi.
4482110,166,1354.86,1357.4399,5,Uh this is actually Frank Galanti I'm for Ben.
4482110,167,1357.4399,1358.87,5,And thanks for taking my question.
4482110,168,1359.11,1377.52,5,Um I wanted to start on on the steamships specifically around f s r u F S U conversion um it sort of seems like that market could be uh opening up I guess is that something that you guys are considering for those vessels?
4482110,169,1380.22,1380.8601,2,Hi Frank.
4482110,170,1380.97,1382.01,2,Um it's Paolo.
4482110,171,1382.3199,1384.33,2,Um yeah indeed.
4482110,172,1384.37,1400.05,2,Um I think it's as we discussed before on Randy's questions I think there there the good thing about having a portfolio approach is that really allows us to look opportunistically to uh short-term supply and also infrastructure development.
4482110,173,1400.54,1405.0399,2,Now this kind of project as you know they take quite a long time to develop.
4482110,174,1405.39,1420.8601,2,There are different stages from feasibility to uh uh to F I D and even post F I D just typically a certain amount of time before you are actually able to deploy the assets with a light or or um a heavier conversion if it's in f s r u.
4482110,175,1421.52,1423.79,2,I can confirm that we are looking at that.
4482110,176,1423.96,1442.7899,2,I think uh there has been also public announcement of the Venice Energy Venice Energy project in Australia where uh GasLog Partners has uh one vessel that is being held as the um as a sole uh proposal to the FSRU development there.
4482110,177,1442.79,1447.6901,2,So I think that's a public display of how our interest is materializing.
4482110,178,1448.04,1455.77,2,Again nothing that we uh we have put forth more than this um cuz you know time is uh is needed to come to a final development.
4482110,179,1455.86,1460.2401,2,But we'll provide further updates as this and maybe other opportunities come along.
4482110,180,1463.34,1464.48,5,Okay that's helpful.
4482110,181,1464.51,1471.64,5,Uh and then then uh switching gears a little bit um I wanted to ask more of a longer-term question.
4482110,182,1471.86,1477.52,5,I I sort of understand the current capital allocation strategies to focus on de-leveraging.
4482110,183,1477.63,1482.49,5,Um and so I I guess what's the endgame for that?
4482110,184,1482.49,1504.6799,5,When can the partnership start thinking about growth um sort of another way of thinking about it's like when you get below that four times leverage and forty percent net debt to cap um is that when you start to think about acquiring vessels or is that um just what are the thoughts on longer-term growth strategy?
4482110,185,1506.74,1507.0699,2,Yeah.
4482110,186,1507.13,1507.5199,2,Thank you.
4482110,187,1508.2,1513.38,2,Um I do understand that uh the you know the typical approach to this is asking when.
4482110,188,1513.72,1521.9199,2,I think for us is really what we're trying to achieve and what is our current strategy gonna do for the business and and the shareholder value.
4482110,189,1522.4399,1536.87,2,And if you look at it we are you know the target really there to sustain the GasLog Partners through the inevitable shipping cycles to be more competitive cuz we are actually uh reducing our cost level and we're becoming more profitable.
4482110,190,1537.3101,1539.8201,2,we are building a a stronger balance sheet.
4482110,191,1540.48,1552.9,2,And and I think these are really the priorities we we have given ourselves and we believe even in this call it transitional size this is a very tangible way to deliver shareholder value.
4482110,192,1553.4301,1569.28,2,Um the how this is gonna pan out when we get there I think it's really you know it's going to be seen on where the market will be uh on on new buildings on existing tonnage on other consolidation opportunities.
4482110,193,1569.8,1574.61,2,But I think you know the path uh there is very clear and that's what we are really focusing on now.
4482110,194,1581.36,1586.36,3,I mean today uh our share price we believe is quite low.
4482110,195,1586.36,1596.84,3,It's we believe we are <inaudible> I mean we have two hundred thirty million of uh of market cap and we pay down debt on an annual basis of one hundred fifty million.
4482110,196,1596.96,1598.92,3,So this is pretty much fifty percent.
4482110,197,1599.6801,1605.9601,3,We have a cash balance of a hundred forty six million which is again significant amount that's our market cap.
4482110,198,1606.47,1612.84,3,And uh our uh annual adjusted EBITDA was uh equal to our market cap.
4482110,199,1613.47,1637.09,3,So outside of this delivers significant equity value and uh we want to get our balances to the point that uh the board will be able to uh to review all alternative options on deleveraging um buybacks um you know dividend policy and growth and take the right decisions at the right time.
4482110,200,1641.46,1641.83,5,Okay.
4482110,201,1641.86,1642.7001,5,That's helpful thank you.
4482110,202,1645.51,1646.0699,0,Thank you.
4482110,203,1646.0699,1649.45,0,Our next question will come from Chris Wetherbee with Citi Group.
4482110,204,1649.49,1650.39,0,Please go ahead.
4482110,205,1651.89,1653.1299,6,Hey thanks for taking the call.
4482110,206,1653.16,1655.65,6,Um I guess a few questions here.
4482110,207,1655.71,1663.2899,6,First just on the fleet wanna make sure I understand the strategy in terms of the chartering activity that you're expecting um in two q and three q?
4482110,208,1664.0601,1667.5199,6,What do you expect is the duration that you think you can get on these open ships?
4482110,209,1667.52,1669.4299,6,I mean how how much can you cover?
4482110,210,1669.46,1671.1499,6,And and how much do you wanna cover?
4482110,211,1671.15,1678.35,6,So I guess what is the depth in the period market and you know would you be willing to go a little longer if the opportunity presents itself?
4482110,212,1678.35,1682.1499,6,or is this going to be you know a a strategy of keeping some exposure to the market?
4482110,213,1684.92,1685.4399,2,Hi Chris.
4482110,214,1686.12,1687.83,2,Um thanks for the question.
4482110,215,1687.87,1695.21,2,I I think that the the answer is that we are really open to uh to all the all the possibilities.
4482110,216,1695.8199,1703.0,2,And I think we wanna play to you know the strength of the market and where the market is gonna offer also with the assets that will will come open.
4482110,217,1703.49,1721.47,2,If you if you if we rewind back to twenty twenty one I think the choice of uh you know accepting uh term coverage um for us to be able to redeliver in quarter two and quarter three twenty twenty two has so far you know paid out.
4482110,218,1722.05,1737.5,2,Um and we believe that this is something that you know we'll basically use the same approach to see whether you know the y one year charter availability or the spot market is gonna show the strength that we look for then we'll definitely uh you know go for these opportunities.
4482110,219,1738.0,1745.09,2,We we are there's no let's say um there's no barrier barrier to uh look at other business.
4482110,220,1745.49,1755.52,2,But you know if we go longer then the guys will have to make sure that you know they they they compare well to the one year or or or the spot charter rate.
4482110,221,1756.1899,1771.05,2,And I think you know we have the size and and the amount of vessels uh that are you know that get opened uh sequentially through the year that will really allow us to uh to take a more an opportunistic approach and a portfolio approach as well.
4482110,222,1771.05,1778.91,2,So we might want to see coverage if the opportunity arises and then be more tactical if the opportunity comes towards the end of the year.
4482110,223,1780.22,1781.54,6,Okay okay that's helpful.
4482110,224,1781.54,1782.13,6,I appreciate that.
4482110,225,1798.34,1807.95,6,Um kind of to get a sense of where that number stands now and and where it may sort of be dislocated for um you know in the immediate future given the concerns going on around the world relative to supply?
4482110,226,1809.89,1810.22,2,Yeah.
4482110,227,1811.23,1811.4399,2,Yeah.
4482110,228,1811.47,1817.7799,2,Look the um the shipping multiplier is really an indication what has what has actually happened.
4482110,229,1817.78,1825.8099,2,And I think you know we all recognize the dynamics of of you know the large increase in US reductions and the and and the large imports in the far east.
4482110,230,1826.24,1839.79,2,Um I I I agree with you that in the in the past quarter we have seen you know a different balance coming up uh with JKM and and and TTS sometimes swapping positions on on the leading cost part.
4482110,231,1840.28,1844.3601,2,Um we you know actually we see that from two different angles.
4482110,232,1844.67,1854.5599,2,From one yes indeed the you know shipping multiplier will decrease if the if if the US to Europe will remain the leading side.
4482110,233,1854.79,1870.17,2,On the other hand we've also seen and some of our vessels have done it we have seen relapse and uh from Asia back in into Europe um in the last quarter which has you know has been another interesting boost of the whole ship multiplier.
4482110,234,1870.53,1882.84,2,The uh we typically have uh a graph part of our graph that actually shows this kinda imbalance we decided not to admit it because it has actually been flipped in the past uh week I think a couple of times.
4482110,235,1883.35,1903.14,2,The longer outlook anyway is for the Far East uh demand to be the the name of the game and and to absorb the majority part of the US production as we've also seen from the latest long-term contract signed for instance <inaudible> with uh with Far East companies.
4482110,236,1904.6899,1905.79,6,Okay that's very helpful.
4482110,237,1905.79,1906.8,6,I appreciate that clarity.
4482110,238,1907.29,1911.6,6,Um I I guess two more really just sort of wrap up in terms of model or dynamics.
4482110,239,1911.6,1919.6499,6,You know uh highlight unit OpEx um being down in twenty twenty two in the outlook obviously unit G&A is stepping up I guess.
4482110,240,1920.23,1924.97,6,On the OpEx side it sounds like there is no dry-docking expected.
4482110,241,1925.21,1933.1,6,I I guess what sort of a normalized rate you think you can achieve with you know typical dry-docking these accounted for.
4482110,242,1949.59,1954.8401,3,Uh listen I mean we don't have a dry-docking next year as you say.
4482110,243,1955.24,1960.89,3,Uh we have uh a dry-docking though in twenty twenty three.
4482110,244,1960.92,1964.77,3,So uh there is uh there is seasonality there.
4482110,245,1965.1801,1968.98,3,Uh the the dry-dockings are not reflected in the OpEx.
4482110,246,1969.3101,1971.2699,3,So it's a CapEx item as you said.
4482110,247,1971.59,1975.27,3,And um we do dry-dockings every five years.
4482110,248,1975.92,1983.23,3,And um in a normalized item I don't know it could be one thousand.
4482110,249,1983.23,1986.5801,3,But uh let's take it offline and just to help you modelize it.
4482110,250,1987.03,1987.26,2,Yeah.
4482110,251,1989.14,1989.34,6,Okay.
4482110,252,1990.41,1991.75,6,maybe g and a to step up there?
4482110,253,1994.45,2013.4501,3,"<inaudible> g and a uh is as we uh give it's uh 3,200 and uh this actually reflects an increase on the administrative fee which uh on the other side uh uh kind of balance from the decrease on the uh management fee."
4482110,254,2014.04,2022.52,3,We will uh present in our twenty f in detail the revised management fees but you said we uh <inaudible>.
4482110,255,2025.25,2025.54,6,Okay.
4482110,256,2026.03,2026.23,6,Okay.
4482110,257,2031.3199,2032.14,2,Thank you thank you.
4482110,258,2033.02,2033.5099,0,Thank you.
4482110,259,2033.51,2037.7,0,As a reminder if you have a question please press then one.
4482110,260,2047.8101,2050.96,0,Thank you for participating in today's question-and-answer session.
4482110,261,2050.96,2054.75,0,I would now like to turn the call back over to management for any closing remarks.
4482110,262,2062.04,2062.6301,2,Thank you.
4482110,263,2064.1599,2064.8599,2,Thank you Sherine.
4482110,264,2066.27,2068.2,2,Well thank you everyone today for listening.
4482110,265,2068.2,2072.28,2,And and thank you for your continued interest in GasLog Limited and in GasLog Partners.
4482110,266,2073.5601,2079.5,2,We certainly appreciate your questions today your time and we look forward to speaking to you in the next quarter.
4482110,267,2080.1001,2087.97,2,As hopefully traveling becomes safer and maybe hopefully maybe we'll be able to meet many of you in-person soon.
4482110,268,2088.55,2090.4102,2,In the meantime stay safe.
4482110,269,2090.8899,2096.3401,2,And again if you have any questions please contact us and contact the investor relationship uh team.
4482110,270,2097.05,2098.7002,2,And enjoy the rest of your day.
4482110,271,2098.9399,2099.3198,2,Bye.
4482110,272,2100.72,2103.5498,0,Ladies and gentlemen this concludes today's conference call.
4482110,273,2103.6001,2105.1599,0,Thank you for your participation.
4482110,274,2105.26,2106.55,0,You may now disconnect.
4482249,0,1.46,13.12,0,Thank you very much and welcome everybody to our conference call today on the preliminary numbers for fiscally two thousand twenty one for both the Sartorius Group as well as for Sartorius Stedim Biotech.
4482249,1,13.64,24.12,0,Uh as always uh I will run this call together with our C F O Rainer Lehmann who will walk you through the details of our financial result in a minute.
4482249,2,24.15,31.97,0,Before that I would like to start off by uh talking a little bit about maybe the highlights and the most important results of last year.
4482249,3,32.51,41.87,0,I think it's fair to say that two thousand twenty one has been an outstanding year for both divisions very strong growth rates that we have achieved in both divisions.
4482249,4,42.11,45.31,0,Um both top line as well as bottom line.
4482249,5,46.02,69.46,0,We also were able to further strengthen the portfolio of both divisions through acquisitions um acquisitions that have been very large but very relevant in innovative for uh certain applications that our customers that are also addressing new forms of therapies new modalities for such uh therapeutic areas.
4482249,6,69.88,80.16,0,We also made significant progress in regards to our uh number of uh capacity expansion initiatives across the uh world actually.
4482249,7,80.53,83.56,0,Uh also you'll hear some more information later on.
4482249,8,84.44,102.43,0,We are giving a forecast for two thousand and twenty two um that um is first of all uh leading to a significant double digit growth rate of course a lower growth rate than the one that we have achieved in two thousand and twenty one for very obvious reasons.
4482249,9,103.31,114.4,0,Um we are also guiding a profitability uh on the same high level uh that we have achieved for two thousand and twenty one more details uh later.
4482249,10,115.03,122.55,0,We as we talked about uh in the course of last year um we also looked into our guidance for the year two thousand and twenty five.
4482249,11,123.35,131.88,0,And uh here we are confirming our revenue targets that we have substantially upgraded just a year ago.
4482249,12,132.32,137.56,0,And we are now raising the profitability targets for both divisions and the group.
4482249,13,138.47,153.4,0,And uh we would also like to report on the ambitious targets that we have set for a continuous reduction of c o two emission intensity uh for the years to come through to two thousand and thirty.
4482249,14,153.8,159.93,0,Um and we will have a chart that uh provides quite some details on that later in the presentation as well.
4482249,15,159.93,162.42,0,And with that I would like to hand over to inaudible.
4482249,16,163.31,167.09,1,Thanks Joachim and also welcome everybody to today's call.
4482249,17,167.56,172.53,1,So if you have a look at uh some key figures overall you can say very successful year.
4482249,18,173.06,193.69,1,Revenues uh rose by uh almost fifty percent to three point four five billion Actually only a small portion roughly around five percentage points we attribute to mergers and acquisitions and the COVID related uh growth we um um amounts to roughly sixteen percentage points.
4482249,19,193.94,201.16,1,So basically uh leaving us was uh still a very solid um base growths uh for the overall group.
4482249,20,201.26,204.82,1,And we'll dig later into the different divisions as usual.
4482249,21,205.67,217.02,1,Order intake uh rose by fifty two percent to four point two seven billion here actually COVID uh related increase around thirteen percentage points for the order intake.
4482249,22,217.37,239.15,1,I would like to bring the attention a little bit due to the inaudible also um talk a little bit about the quarterly development of it because I think it's important not just to look at the year end figure which of course as I always pointed out in the last uh calls we still have the significant spread between order intake and sales revenue as of the year end cumulated around uh eight hundred million.
4482249,23,239.47,252.55,1,But if we look at the quarterly development of that book to build ratio we clearly see that we have quite an increase of that ratios quite a strong stronger order intake than revenue in the first three quarters.
4482249,24,252.55,257.09,1,And the fourth quarter we it dropped then to really normalize levels.
4482249,25,257.09,262.22,1,That's also important later on to keep in mind when Joachim talks uh about the guidance.
4482249,26,262.65,271.62,1,So it's really a high volatility that we see um by the uh behavior of our customers in uh when when they place orders.
4482249,27,272.65,282.57,1,Um coming to e b i t d a increase on uh four point five percentage points to thirty four point one percent an absolute value use one point one seven billion.
4482249,28,283.03,284.46,1,Um great result.
4482249,29,284.72,288.69,1,What is really the main drivers are here of course uh economies of scale.
4482249,30,289.06,298.15,1,Um we mentioned them beforehand um once attributed to really a deferred cost development especially in the first three quarters.
4482249,31,298.15,303.78,1,we're not increasing our cost based as we normally would've thought during a normal year.
4482249,32,304.12,306.92,1,Um we see actually a pickup in q four.
4482249,33,307.04,314.19,1,That's why you also see on a quarterly uh basis that our uh everyday margin uh did not continue to increase.
4482249,34,314.74,324.83,1,Uh in addition we also want to point out that actually the acquisitions um are um also contributing a little bit in our inaudible in twenty twenty one.
4482249,35,342.66,353.82,1,Um I have to say bio analytics of course here leading on the L P S side as well uh the growth we're very happy with that uh segment and the growth rates and profitability.
4482249,36,353.85,356.558,1,We'll talk about later on the when we look into the L P S.
4482249,37,357.08,365.57,1,In EMEA we see um the uh gross rate of uh around fifty one percent to one point four billion um euros.
4482249,38,366.3,372.37,1,Here we have to say um with the split b p s really with significant demand from the vaccine manufacturer.
4482249,39,372.37,385.55,1,So roughly half of the percentage point of the fifty percent are related really here to the um demand of uh vaccine manufacturers but also on the L T S side considerable growth in that area.
4482249,40,385.92,392.98,1,In Asia Pacific we also grew over fifty percent with two specific fifty two point three to eight hundred ninety seven million.
4482249,41,393.37,403.07,1,Here in this case B P S solid performance as an in the previous quarters and L P S we also see a strong recovery compared to a inaudible year.
4482249,42,403.07,409.9,1,Keep in mind that in twenty twenty this region was hit the hardest during affected by the shutdowns.
4482249,43,410.17,416.55,1,And we even had uh um a very yeah low nega um negative growth rates there.
4482249,44,417.29,423.81,1,If you look on the right hand side to the Doughnut chart there's really no major um uh movement in our regional distribution.
4482249,45,423.81,426.55,1,It may or still biggest regions with forty one percent.
4482249,46,426.89,430.29,1,America has thirty three and Asia Pacific with twenty six percent.
4482249,47,431.27,441.9,1,We're now looking on the B P S side um order intake fantastic development and constant currencies gross by fifty seven and a half percent to three point five billion.
4482249,48,442.27,451.07,1,Here we have uh roughly seven percentage points included from M N A and fifteen percentage points from uh from Corona.
4482249,49,451.23,455.02,1,The least still with a very high base um uh growth.
4482249,50,455.32,469.05,1,And here to be honest we also still have to factor in that there is this changed ordering pattern where we see customers placing orders for future periods which is um hard to grasp and attribute.
4482249,51,469.23,471.82,1,Is it now related to the COVID figures or or not?
4482249,52,471.82,480.57,1,So therefore the base number is very strong but we all know that the market growth rates are not um as strong in in that particular area.
4482249,53,481.51,487.71,1,Uh sales revenues rose to two point seven billion by almost fifty five percent.
4482249,54,488.08,494.8,1,COVID attributed here twenty percentage points and the new acquisition contributed around five percentage points.
4482249,55,495.32,506.8,1,Um so very strong performance that also is then reflected in a substantial increase of our e b i t d a margin from thirty two point three to thirty six point two percentage points.
4482249,56,507.15,514.53,1,So an increase of seventy one percent to almost uh almost a billion so nine hundred eighty six million euros.
4482249,57,514.66,529.54,1,Here driver again as I mentioned on the group level economies of scale but also keep in mind the um deferred cost development that really only fully uh hit the p n l in uh the fourth quarter.
4482249,58,529.93,543.56,1,Again here the acquisitions that we um did for example life uh turn ahead that's that we um uh purchased twenty twenty as well as other acquisitions are creative to the overall margin.
4482249,59,543.99,578.23,1,Um and we have a look at the L T S also very successful year uh let's start on the left hand side with the order intake grew by thirty two and a half percent to seven hundred and five million euros um is really nice performance by uh bio eight portfolio which um is very well performing in the Americas sales revenue at um increased by thirty two percent to seven twenty two million M N A playing here role of six percentage points and COVID also having a minor effect of six percentage points in this division.
4482249,60,579.24,588.2,1,The jump and the profitability from twenty one percent to now in twenty twenty one to twenty six point one percent great achievement.
4482249,61,628.3,646.49,1,And I want to comment a little bit on the financial result cause this one sticks out uh although below our EBDTA as a key performance indicator um it's really comprised of evaluation in conjunction with the uh run-out liability from the acquisition or from via separations.
4482249,62,646.86,649.97,1,So that one amounted to two hundred eight million.
4482249,63,650.34,656.66,1,Let's keep in mind though this is a non cash item and it's also not relevant for tax.
4482249,64,656.88,673.96,1,So this is really just evaluation entry that of course um as we have to earn out and we see that it's influenced not only by the increase in share price but also by the good business uh business performance from via separation um folks in twenty twenty one.
4482249,65,675.0,687.88,1,Underlying net profit increased by almost eighty five percent to five hundred fifty three million and our reported net profit for the year increased by fifty two percent to three hundred nineteen million.
4482249,66,688.49,692.24,1,The strong e b d t a of course contribute also to strong operating cash flow.
4482249,67,692.53,698.3701,1,We're able to increase it by almost seventy percent to eight hundred sixty six million euros.
4482249,68,699.48,711.78,1,The investing cash flow is not only um comprised by uh CapEx which is roughly around uh almost four hundred million but of course also by the two acquisition cell gene and scale…
4482249,69,711.88,721.18,1,Uh Excel and the capEx ratio we basically guided their twelve percent came in at the end of the day at eleven point eight percent.
4482249,70,721.53,735.21,1,If you look back actually at the last three years um investments you can almost say that we invested almost a billion over the last three years into the uh business and specifically they're mainly into production uh capacities.
4482249,71,736.6,764.53,1,In the next slide we'll have a quick look at some balance sheet figures equity ratio uh pretty much on last year's level um all those strong profitability of course an absolute values or equity increased by three sixty million but by the increase of our CapEx as well as our uh working capital mainly the inventory and the accounts receivable side and a little bit of the goodwill we increased our balance sheet some by one point two billion.
4482249,72,764.73,766.97,1,So therefore the ratio pretty much stayed the same.
4482249,73,767.17,770.05,1,Of course it strengthens our financial position nevertheless.
4482249,74,770.46,776.61,1,Net debt we're able to decrease it by roughly um a hundred fifty million to one point seven billion.
4482249,75,776.61,795.2401,1,And you see on the right hand side the development of the indepthness key figure net debt divided by underlying e b t d a where we see over the last quarters eight quarters a nice um let's say reduction of that key figure a year end of twenty twenty one it amounted to one point five.
4482249,76,795.61,806.93,1,Um and we're very happy with that because it allows us of course it gives us enough fire power for future acquisitions that as you know are still part and are going to be part of the roadmap going forward.
4482249,77,807.62,810.6,1,And with that actually um I'm gonna hand over back to you Joachim.
4482249,78,811.27,812.28,0,Thank you very much Rainer.
4482249,79,812.28,836.71,0,Uh before I talk about the c o two targets that I already announced that I would talk about I would like to briefly um refer to an acquisition that we have announced shortly before Christmas and closed beginning of January we acquired um Automated Lab Solutions um uh a business is located in Jena in Germany.
4482249,80,837.25,841.42,0,It is adding to our bio-analytics portfolio in the L P S division.
4482249,81,841.91,847.19,0,It's a yeah rather small company still but fast growing and highly profitable.
4482249,82,847.52,855.61,0,It has achieved a high single digit uh million Euro revenue uh last year and a significant double digit e b d t a margin.
4482249,83,855.64,858.48,0,Employees is just around thirty people.
4482249,84,858.81,866.54,0,Um has as I said some uh product development uh as well as manufacturing capacities in Jena.
4482249,85,867.66,876.57,0,The product is um a very interesting one differentiating one for automated analysis selection as relation of cells.
4482249,86,876.6,887.63,0,So addressing as I said uh earlier uh innovative areas uh for our customers in the fields of uh cell therapies for example gene therapies and some others.
4482249,87,888.28,900.14,0,It adds uh nicely and complementary to our existing portfolio in bio-analytics helps our customers to accelerate their um development processes particularly.
4482249,88,900.74,906.35,0,We acquired sixty two point five percent of the company for twenty four million euros.
4482249,89,906.4,911.95,0,The remaining shares we will acquire uh in four years from now in two thousand and twenty six.
4482249,90,913.06,917.57,0,Now I would like to talk about our climate targets.
4482249,91,918.23,931.71,0,We have uh defined uh therefore a performance indicator which is the R c o two emission intensity c o two here of course stands for all greenhouse gas emissions.
4482249,92,931.74,946.64,0,So we are talking about c o two equivalent emissions and the emission intensity is the emission or R of the emissions in proportion in relation to sales for the reference year which is two thousand and nineteen.
4482249,93,946.64,951.94,0,Because for that year we had all the necessary data available in the best manner.
4482249,94,952.24,955.89,0,Uh this number is two hundred fifty gram per euros.
4482249,95,956.02,961.73,0,So four hundred fifty thousand tons uh related to one point eight billion Euro sales revenue.
4482249,96,962.78,968.74,0,We have set the target to reduce these emissions by ten percent every year.
4482249,97,969.23,980.61,0,Uh this may not sound a lot but it will lead to a reduction of R c o two emission intensity uh by almost half to until the year two thousand twenty five.
4482249,98,980.65,984.9301,0,And by almost seventy percent until the year two thousand and thirty.
4482249,99,985.61,996.68,0,We have defined the intensity and not an absolute number here because of our uh very significant growth that we are intending to achieve also going forward.
4482249,100,996.84,1006.94,0,Um we have achieved more than fifteen percent uh average growth rate for the last uh ten years and you know our plans for the path forward.
4482249,101,1007.28,1014.05,0,So therefore an absolute reduction would not be possible regarding the gross emissions.
4482249,102,1014.05,1017.94,0,And we are talking about gross emissions here by intention.
4482249,103,1017.94,1046.6899,0,We are not excluding further measures in the future to also reduce the net reductions beyond what we are planning to achieve for the gross reductions but as in any other area uh where it is about you know waste or any resource consumption I think it's always important to first reduce and minimize the gross footprint before you think about compensation measures.
4482249,104,1047.61,1048.86,0,Of course this…
4482249,105,1049.03,1059.27,0,Um or by the way I maybe should also say that this number compares to other such numbers in a way that it is more ambitious.
4482249,106,1059.27,1062.3799,0,It's more ambitious than the fit for fifty five program by the EU.
4482249,107,1062.8199,1073.87,0,It's uh more ambitious than than the science based target and also made more ambition uh ambitious then the number that we know from uh customers and suppliers.
4482249,108,1074.12,1087.2999,0,Of course sometimes we are talking about uh absolute reduction targets that have been um uh have been defined and we have translated them into approximate intensity reduction target as you can see there on the right hand side.
4482249,109,1087.72,1092.73,0,So an ambitious targets that of course can only be achieved uh at a certain cost.
4482249,110,1092.73,1103.48,0,We are projecting uh those measures to cost around one percentage point of sales revenue going forward for the year two thousand twenty five.
4482249,111,1103.9301,1116.23,0,We rather anticipate half a percentage point we mentioned that on the two charts later in the presentation where we talk about our focus for twenty two and our ambition for two thousand twenty five again.
4482249,112,1117.33,1128.29,0,So first of all two thousand and twenty two um we are shooting for fourteen to eighteen percent growth in sales revenue in constant currency.
4482249,113,1129.11,1135.96,0,Uh this should include one percentage points of inaudible growth related to the acquisition set up we mentioned.
4482249,114,1135.99,1146.7999,0,So the two that we have closed in two thousand and twenty one Cell genes and Excel uh as well as the one of A L S that has closed at the beginning of this year.
4482249,115,1147.88,1152.65,0,Um of course it doesn't include any possible further acquisitions as always.
4482249,116,1153.27,1155.73,0,In such case we would update our guidance.
4482249,117,1156.34,1162.5,0,For the B P S division we are planning for sixteen to twenty percent topline growth.
4482249,118,1162.97,1176.76,0,Um and for the lab division six to ten percent of course both growth numbers are well below the very high growth uh numbers that we have achieved for two thousand and twenty one.
4482249,119,1177.1801,1185.0901,0,But they uh are based on the assumptions that we will not see any growth of the pandemic related uh business.
4482249,120,1185.52,1192.4501,0,We are planning for the same level of such business at around five hundred million is in euros in total.
4482249,121,1192.45,1198.85,0,So in other words we are talking about a portion of our business that we expect to not grow.
4482249,122,1199.46,1202.8301,0,That means that the let's call it the base business.
4482249,123,1203.3199,1207.0499,0,We expect to grow a bit higher than the number that you can see here.
4482249,124,1207.4399,1243.3,0,And we also believe um that the ordering pattern of our customers that has also influenced the development of our base business to some extent um will normalize one way or the other uh I'm saying one way or the other um which means uh we don't believe that this necessarily will be a very straight line but it's really difficult if not impossible to make any meaningful projection how this exactly will look like quarter by quarter or so but we believe that this will rather be the case in a full year's uh perspective.
4482249,125,1244.5,1255.98,0,Um as that uh the margin that we are projecting here includes half a percentage point of additional cost half a percentage point of sales as additional costs.
4482249,126,1256.47,1262.92,0,And we are planning to achieve thirty four percent for the group thirty six percent for B P S and twenty six percent for L P S.
4482249,127,1262.92,1277.84,0,So in other words the same significantly uh higher level uh um for both divisions and the group higher level in comparison to what we were starting off into uh back to into two thousand and twenty one.
4482249,128,1278.41,1295.52,0,Um the reason here is that we are not planning for further increase of margins is uh beside the additional spending for c o two emission intensity reduction measures um that we um have added significant personnel.
4482249,129,1295.52,1297.2799,0,We always were talking about that.
4482249,130,1297.3101,1318.75,0,Um during last year that um significant hirings in non-manufacturing functions like say it's in marketing product development and some some others largely only started after the last phase of lockdowns and therefore took place very much in the second half of the year even accelerated in q four in comparison to q three.
4482249,131,1319.08,1323.76,0,Therefore we will see the full year's effect of such cost development um.
4482249,132,1326.3,1349.99,2,So um how we would look on that is that we see a continuous um uh effectiveness of our business model and its um economies of scale and the deviation from that is that there is an additional profitability kicker in two thousand twenty one because of this deferred cost development.
4482249,133,1350.02,1359.8199,2,So I wouldn't consider two thousand twenty two to somehow represent a dip the opposite is that we saw uh an additional peak in two thousand twenty one.
4482249,134,1360.3,1369.4801,2,CapEx we are planning to be fourteen percent uh which would translate into a number somewhere around five hundred fifty million euros maybe slightly above.
4482249,135,1369.96,1386.1899,2,So another year of very uh significant investments into additional manufacturing capacities across the globe in also different product segments uh as you can imagine given this strong growth we uh had to pull forward a number of capacity expansions.
4482249,136,1386.1899,1409.04,2,We largely uh expand existing facilities be it in Yauco North America be it in Germany at uh diverse locations or be it in France uh or also in um in China for example in Korea we are planning to start at a a significant um investment as well as we see the market and also our market position there evolving very very positively.
4482249,137,1410.15,1417.12,2,Now I would like to shift the perspective towards uh the year two thousand and twenty five.
4482249,138,1417.85,1424.15,2,Um I said at the beginning that we are not changing our top line guidance here.
4482249,139,1424.15,1427.2201,2,We keep that at five billion euros.
4482249,140,1427.77,1449.9601,2,Uh quite some of you have asked for our perspective on that in the course of last year and we said well yeah we believe that we have to have an eye on the profitability target um but we believe um that for two thousand twenty five it's not meaningful at this point in time to plan for any pandemic related business.
4482249,141,1449.96,1468.5601,2,And we uh we stick to this perspective uh this is an assumption not necessarily a prediction but we simply believe it's too early to make any quantitative prediction uh regarding Corona related pandemic related business in the year two thousand and twenty five.
4482249,142,1469.11,1498.39,2,Uh I think as of now maybe one would say well yeah more more likely than not there will be a smaller number uh of Corona vaccine doses being produced and applied in the year two thousand and twenty five plus there will be maybe to some extent um vaccines available for both uh the ordinary flu and Corona so that the net effect of such uh business will be even lower.
4482249,143,1498.77,1511.0,2,So but because of the difficulty or the possibility to quantify that at this point we are basing our uh two thousand twenty five projection on the assumption that there will be no such business.
4482249,144,1511.36,1522.45,2,So and that means the best comparison to this goal for two thousand twenty five is the year two thousand and nineteen the last year before the pandemic.
4482249,145,1522.77,1535.0601,2,And as you can see from this chart that means that we are actually planning for a combined end year growth rate from nineteen to twenty five of eighteen percent on average.
4482249,146,1535.86,1549.77,2,So um and very obviously our growth excluding Corona uh therefore has been twenty seven percent for the two years on average for the two years from nineteen to twenty one.
4482249,147,1550.4399,1574.75,2,Um and this in our view is above the fundamental market growth partially driven by effects that we have uh mentioned today but also mentioned throughout last year already that we see uh kind of you know like second level or second round effect from the different um uh ordering behavior of customers that we uh don't think uh should be the basis of future projections.
4482249,148,1575.5601,1593.5901,2,So uh and what we therefore are planning for is a compound end year grow growth rate from twenty one to twenty five of fourteen percent which is pretty much uh the number that we have been growing at uh for the last as I said before ten years uh probably.
4482249,149,1593.88,1599.97,2,So that is the logic of our top line target setting for two thousand twenty five.
4482249,150,1600.54,1636.6699,2,And on the last chart for our presentation on the Ceteris Group you therefore can see that we stick to the target of three point eight billion for sales of the BPS division one point two billion for LPS in total the five billion I was talking about but for the margin we are uh now projecting thirty six percent for BPS and twenty eight for L P S that's an increase by two respectively three percentage points and for the group of thirty four percent which is a a shift by uh two percent uh percentage points upwards.
4482249,151,1637.39,1650.35,2,Um as mentioned before for the year two thousand twenty five we are expecting the additional expenses for reduction measures regarding greenhouse gas emissions to be around one percent of sales.
4482249,152,1650.35,1664.01,2,This is included here and we still expect as before some dilution rather to play a role from further acquisitions going forward.
4482249,153,1664.04,1676.9399,2,Of course that can be different uh as it has been for most of the more recent acquisitions like the businesses that we have acquired from Danaher and uh others that we have mentioned here today already.
4482249,154,1677.5699,1695.2899,2,Uh but our assumption uh for our two thousand twenty five profitability target is that there will be rather a dilution for maybe two years or something after acquisition until those businesses perform on the same level um as the group does today or the respective division does today.
4482249,155,1695.6801,1700.21,2,Um and and that's how we are setting up um this projection.
4482249,156,1701.47,1710.64,2,So I would now like uh to leave our presentation on the Ceteris Group and briefly talk about Ceteris state in biotech.
4482249,157,1710.64,1728.24,2,I would like to do this as usually uh in a quite lean way because most of the numbers are are very close to those that Erina was talking about for the B P S division and even some financial key figures are very similar except for a few that I will talk about in a second.
4482249,158,1728.65,1772.0199,2,So um sales revenue growth uh fifteen two point five percent for s s b or intake growth even three percentage points higher seventy percent increase of our a b d which has reached uh thirty five point eight percent and came in at at a bit more than one billion euros underlying earnings per share up to seven Euro forty six with an increase by seventy nine percent the pandemic related effective see in the two bullet points below um for sales revenue eighteen percent um and for for M and A uh for order intake thirteen and respectively seven percentage points.
4482249,159,1772.6801,1786.0699,2,We uh indeed have seen for this business uh very much the effect that Erina was elaborating on that the orders were particularly high uh around the mid of the year.
4482249,160,1786.0699,1802.7799,2,We have seen this increase kicking in towards the end of the year and acceleratingly kicking in towards the end of the year of two thousand and twenty peaking around mid of two thousand twenty one normalizing uh towards uh the end of two thousand and twenty one.
4482249,161,1803.24,1836.17,2,Um and uh that leads us to confirming what we were talking about for many quarters now when we were very much uh elaborating on and always uh insisting on the different ordering patterns of our customers um that this has played a role and that has to be expected that there will be a phase of normalizing or one could say a time of a phase out of this um of this behavior.
4482249,162,1837.14,1848.1901,2,Um yeah the very significant increase of the a b d a margin is is obvious and has been seen has to do with the economies of scale and deferred cost development as talked about.
4482249,163,1848.8199,1856.03,2,Um the geographical pattern of our growth is quite similar to what Erina has presented for the group.
4482249,164,1856.53,1861.79,2,Uh so I don't think that I should again talk about that very uh lengthy.
4482249,165,1862.13,1879.5299,2,The strong operating cash flow uh has has led to um yeah all this strong regards uh regarding um uh our um indebtedness ratio et cetera which I will show in a in a second.
4482249,166,1880.09,1901.52,2,Uh you can see here the underlying a b d a the not very uh high extraordinary items financial reside Erina made a comment on therefore a strong operating cash flow investing cash flow includes the two divisions that have been mentioned um and the significant uh investments and the CapEx ratio came in at where we basically projected it to come in.
4482249,167,1901.98,1915.04,2,Financial indicators uh remain on a very solid level these numbers of course look a little bit different than for the group particularly the net inaudible underlying a b d a ratio uh is on a very low level at oh point four as projected.
4482249,168,1916.0,1929.64,2,Guidance for two thousand twenty two um is um uh fourteen um to to eighteen percent for um uh for Ceteris in biotech.
4482249,169,1929.64,1946.09,2,This number should include um one percentage point uh of growth by the acquisitions of Cellzenex and Cell um and the underlying a b d a merger we project coming above thirty five percent.
4482249,170,1946.09,1962.85,2,So also here um all the comments that I've made before um are relevant both regarding c o two emission intensity reduction measures and there is related cost uh as well as the um the aspect of the deferred cost development.
4482249,171,1963.16,1971.5299,2,And also I would like to highlight that the around five hundred million euros of Corona related business we expect to remain on that level.
4482249,172,1971.58,1984.48,2,So therefore as rather a even though it sounds strange maybe uh or uh contra counter intuitive but this we expect to dilute growth uh in in the year two thousand twenty two CapEx.
4482249,173,1985.1801,1991.13,2,Uh ratio expectation fourteen and a half percent and the further reduction of our indebtedness ratio.
4482249,174,1992.2,2011.2999,2,Um for two thousand twenty five uh I don't want to show the same chart again rega regarding the uh mechanics uh that we don't uh anticipate as of today uh any um Corona related business um to play a role in two thousand and twenty five.
4482249,175,2011.75,2019.46,2,Um but of course the um the conclusion is the same that we don't change the sales revenue target for S S P.
4482249,176,2019.73,2039.2401,2,Uh we leave it at four billion euros um and we are also projecting therefore very much in sync with what we have talked about before uh an a b d a margin of above thirty five percent which is an increase uh um in comparison to the previous guidance by two percentage points.
4482249,177,2039.96,2055.27,2,Um and again uh I would like to remind you of the second bullet point here this includes already one percent of additional expenses related to the reduction of our c o two emission intensity um in the year two thousand twenty five.
4482249,178,2055.75,2056.05,2,Yeah.
4482249,179,2056.05,2062.99,2,And with that I would like to um uh finish our presentation and we are looking forward to your questions.
4482249,180,2069.9299,2074.76,3,Anyone who wishes to ask a question may press star followed by one on their touchstone telephone.
4482249,181,2093.1599,2096.77,3,The first questions is from Katrina Carcota with UBS.
4482249,182,2096.77,2097.52,3,Your question please.
4482249,183,2168.52,2168.78,2,Yeah.
4482249,184,2168.78,2172.54,2,Thank you very much for uh for these um two questions.
4482249,185,2173.24,2196.3999,2,Um I guess they're quite related to each other because they're um addressing the the same uh topic which is what we are you know like to to to to describe and a bit label by different ordering pattern uh that we are seen in partly already in two thousand twenty and and quite to some extent in uh the year two thousand twenty one.
4482249,186,2196.8999,2204.74,2,Uh and that both leads to these different growth expectations or a growth expectation that is lower than the most recent growth.
4482249,187,2205.25,2216.6399,2,Um and then of course the more near term question is the one that you have um then um uh yeah phrased by saying okay we we how could that look like by quarter?
4482249,188,2217.1299,2245.1899,2,So um as said before and before means we we started to talk about that in the course of two thousand and twenty even um that we said when we define our Corona related business then we really said okay what part of our business is with the developers and manufacturers of Corona uh vaccines or therapeutics or uh tests and test kits?
4482249,189,2245.8201,2249.48,2,So that is how we have defined that that is what our numbers tell you.
4482249,190,2250.4099,2258.1599,2,But then there are effects that are related very much to the longer lead times uh that we have seen in the market.
4482249,191,2258.8601,2261.5701,2,Uh we actually believe we have performed quite well.
4482249,192,2261.5701,2272.3301,2,We have we've got very positive feedback by customers that we were rather doing very well in the competitive landscape regarding keeping our lead times halfways under control.
4482249,193,2272.3301,2279.47,2,But when I say halfway is under control that means they are still and have been uh throughout the last couple of months longer than they usually are.
4482249,194,2279.6899,2301.27,2,And such a situation of course triggers then a different ordering patterns and ex and and and even emphasizes and amplifies um a a a certain uh risk averse behavior of customers who said Well let's rather make sure that we have higher stock levels probably uh than we had before.
4482249,195,2301.53,2311.4302,2,Uh and that may even mean across um the different um um uh the different levels on their stock.
4482249,196,2311.4299,2318.3,2,So even finished goods maybe or goods that they uh purchased from us be it filled as feedbacks and whatsoever.
4482249,197,2318.6101,2337.8201,2,So therefore um we believe that the growth rate that we have uh shown to you also therefore the growth rate twenty seven percent uh on average from two thousand and nineteen to two thousand twenty one doesn't really present the fundamental underlying market growth.
4482249,198,2338.6201,2347.51,2,Now how much of this temporary effect which is basically a pull forward effect uh did we see?
4482249,199,2347.96,2350.48,2,That is quite frankly hard to say.
4482249,200,2350.8201,2362.1201,2,Maybe five percentage points something like that which would total to something like ten percent of business in total because five percent per year roughly sums up to something like ten percent in total.
4482249,201,2362.52,2379.1401,2,So but those ten percent roughly have to be somehow you know like uh transpire out at some point along uh the the um yeah basically the time o o along the time horizon.
4482249,202,2379.3999,2382.1299,2,And that is what we are anticipating huh.
4482249,203,2382.6101,2389.3999,2,But it's really difficult to say to what extent that will play a role within the next quarters.
4482249,204,2389.6001,2415.0798,2,This has to do also with the overall supply chain situation even outside maybe our sector because I mean you can see this all over the place that people are behaving a bit more cautiously even though maybe the stress isn't so so you know like narrow but they see difficult and strained supply chains in other sectors.
4482249,205,2415.3101,2417.8201,2,So and that is what we see.
4482249,206,2417.8201,2441.2202,2,We simply would say twenty seven percent is not the underlying market growth and that's why uh we believe it wouldn't be the right yard stick for any assumptions going forward but rather the opposite one would've to deduct a certain number that has to be uh somehow got out of the system most likely at some point in time.
4482249,207,2441.55,2442.3,2,So that's all.
4482249,208,2442.47,2457.1401,2,But having said that what is really important to me um in our sector my observation at least we luckily have predominantly long term oriented investors.
4482249,209,2457.3899,2469.6499,2,And whenever you are long term oriented I can only advise you not to put too much emphasis on such a um short term relatively short term effect.
4482249,210,2470.1299,2473.5701,2,Uh we have seen that for completely different reasons before.
4482249,211,2473.8101,2486.7998,2,Um I mean now it sounds like like an old anecdote but fifteen years ago uh we have seen after a phase of high investments into capacities for monoclonal antibody manufacturing.
4482249,212,2487.1699,2501.8398,2,And then there was a very very um poor year in between because everybody realized that there was too much uh manufacturing capacity but you know in the long run this didn't play any role at all.
4482249,213,2502.1799,2522.27,2,Uh so what we try to do here is quite frankly manage short term expectation a little bit on an on the best level that we can but we cannot give nobody can give you more color regarding the different quarters even though our customers can't give this to us so therefore we can't share anything with you beyond this.
4482249,214,2523.0601,2532.77,2,Manage those short term expectations but I strongly would emphasize at the same time we have fully intact very positive fundamentals in this market for many reasons.
4482249,215,2533.8999,2547.8801,3,So the next the next question is from the line of Richard Foser with JP Morgan.
4482249,216,2548.0801,2548.8198,3,Your question please.
4482249,217,2550.4399,2551.7202,5,Thanks very much for taking my question.
4482249,218,2552.24,2557.23,5,Um so uh first question uh is on uh acquisition intensity.
4482249,219,2557.23,2570.4199,5,So just thinking about uh relatively limited acquisitions as you stated in in twenty two and probably twenty sorry twenty one and uh 20 uh so how should we think about that for 22 and the next few years?
4482249,220,2571.1599,2577.49,5,Uh are you still anticipating M and A generating about twenty percent of the growth on on on on your midterms?
4482249,221,2578.1499,2600.05,5,Um second question just on the COVID revenues um so uh beyond twenty two uh I know you've said nothing in the guidance for twenty five but should we anticipate twenty three being a uh a fade towards nothing uh in twenty five or a steep dropdown in twenty three?
4482249,222,2600.3999,2605.3,5,Any any color any thoughts you can give uh at the moment which would be useful?
4482249,223,2605.71,2614.4099,5,Um and then if I if I could as well just just back on the order book normalization so should we anticipate…
4482249,224,2614.99,2629.2,5,I think you said the order book is at a more normal level uh for q four so i is that the sort of order book level uh we should think for the rest of uh for the quarters going through twenty two?
4482249,225,2629.77,2634.1799,5,And then just on the timing of delivery of the order book is it is it still…
4482249,226,2661.9299,2665.5999,7,Yeah uh quite a number of um uh of questions.
4482249,227,2665.6001,2681.24,7,So on the on the acquis uh acquisition uh intensity as you called that um well I would say um we we did quite a number of acquisitions but I would agree those that we have closed in two-
4482249,228,2681.4099,2688.02,7,uh that we have agreed upon in two thousand and twenty and two one uh have been rather small ones.
4482249,229,2688.5901,2697.7002,7,Uh the closing of the acquisition of the businesses from Danaher has also been taking place in two thousand twenty uh and hasn't been that that small.
4482249,230,2698.0801,2706.3201,7,Um so it depends a little bit on the perspective but it's correct um that we are also planning for uh further acquisitions.
4482249,231,2706.8899,2726.52,7,Um we think that maybe the proportional um relevance of acquisitions could be a little bit larger in LPS than in BPS and I think you can read that also from the numbers that this is the uh current uh projection.
4482249,232,2726.8799,2731.99,7,But of course with uh m and a it's always difficult to make uh such projections.
4482249,233,2732.4099,2744.3401,7,Um this could then also be a little bit different and then mainly to of course maybe some updates regarding the uh the the outlook on the top line.
4482249,234,2744.5701,2754.9099,7,But that is the basis of of of how we are setting up this projection but definitely uh we believe to to continue making acquisitions going forward.
4482249,235,2755.6201,2762.74,7,Um yeah COVID-related business in two thousand and twenty three uh honestly too early to make any quantitative comment.
4482249,236,2763.1001,2775.28,7,Um it's not very likely that there is a sharp cliff uh like you know business as we project today in two thousand and uh twenty two and then no business in two thousand twenty three.
4482249,237,2775.28,2786.45,7,So I would rather expect that to be a a more transi uh transinient um uh transient um um you know effect uh and trend.
4482249,238,2787.0,2794.5601,7,But bear with us give us a little bit a few more quarters until we can talk about that in a more educated manner.
4482249,239,2795.0901,2814.1099,7,Uh on the requests regarding order book maybe just for to making sure that we are talking about the the same uh numbers uh Ron and I were talking about the order intake and then you of course can also translate that into an book to bill ratio if you will.
4482249,240,2814.6899,2822.03,7,Um and the order intake was normalizing very much uh in particularly q four has shown that.
4482249,241,2822.51,2827.05,7,Um and um and by the way not that wasn't a surprise.
4482249,242,2827.05,2832.05,7,I I yeah maybe that would be anyhow one headline for what we are talking about here.
4482249,243,2832.52,2833.45,7,No surprise.
4482249,244,2833.5701,2840.52,7,Uh even I mean maybe that sounds a little bit odd in the face of so many volatilities here but we were talking about that throughout last year.
4482249,245,2840.9299,2848.8499,7,Uh that we said we we do see this this uh different ordering pattern and this will change again uh that we have seen.
4482249,246,2849.0701,2850.4399,7,So no surprise at all.
4482249,247,2850.4399,2858.79,7,So but of course we still haven't accumulated order book that is higher than uh than it has been before.
4482249,248,2859.1899,2875.0801,7,So if you look on the book to bill ratio not on a quarterly basis but on a annual basis then our book to bill ratio is significantly higher for two thousand and twenty one than it has been for the years before the pandemic yeah?
4482249,249,2875.0801,2880.73,7,So therefore we are starting with quite a healthy order book uh into the year two thousand and twenty two.
4482249,250,2881.1599,2900.8101,7,But aga gain now it depends on how this exactly will materialize where we are expecting to happen at some point um and that is again that customers will r normalize also their stock level management for instance.
4482249,251,2901.1201,2914.51,7,And then we might see even quarters with um what could be perceived by some people as relatively soft order intake yeah?
4482249,252,2915.1399,2921.54,7,But that is incorporated in our projection to some extent so that is what is important for me to say here.
4482249,253,2921.5701,2937.6899,7,Uh we are expecting this normalization and that includes that in comparison to this very high order intake that we have seen in some quarters last year in particular as we talked about that order intake might be below that level.
4482249,254,2938.01,2946.21,7,But that would still support the guidance that we are sharing here with you for the year two thousand and twenty two.
4482249,255,2946.96,2947.5601,7,Lead time.
4482249,256,2948.5701,2956.27,7,Um um yeah lead times of course are a function of the book to bill ratio you could say.
4482249,257,2956.4199,2958.3,7,Uh when uh…
4482249,258,2958.3,2959.0801,7,And vice-versa.
4482249,259,2959.8601,2962.0901,7,Book to bill ratio partly is a function of the lead time.
4482249,260,2962.54,2978.01,7,Uh so and that is what I meant before there is this this self-amplifying effect to some extent um and um they are still uh for sure higher longer than they have been before the pandemic.
4482249,261,2978.74,2985.0801,7,Um they are partially influenced also by constraints um within the supply chains.
4482249,262,2986.03,3004.75,7,Um we believe that we will see such constraints for most of two thousand and twenty two but we also would anticipate nevertheless that by the end of the year two thousand and twenty two lead times are closer to normality again.
4482249,263,3005.8701,3024.5898,7,Because of what we are anticipating regarding order intake because of the significant expansions of of um uh of manufacturing capacities and because of hopefully also the lifting of some of the constraints uh in the supply chains.
4482249,264,3025.48,3049.4302,7,Um and regarding mix I can confirm what you said that we still are seeing very much a mix of two-thirds of um um r uh of of consumables and other uh recurring business twenty five percent of of non-recurring business which is largely uh instrument and equipment for bioprocessing.
4482249,265,3049.8101,3059.3,7,Uh when we talk about the bioprocess division uh when we talk about the lab division the ratio's a little bit different but uh also more than fifty percent is recurring turnover by now.
4482249,266,3069.25,3070.01,8,Your question please.
4482249,267,3088.5901,3093.8899,9,But I'm just trying to understand do you really think inventory rates of customers have have gone up that high?
4482249,268,3093.8899,3098.1499,9,I mean double ordering for for kind of forty eight months seems like quite a long time.
4482249,269,3098.6399,3108.9102,9,I mean maybe do you have any sorta KPIs around number of new customers or are you having conversations with some larger customers where they're accelerating the shift say in inaudible to single-use or…
4482249,270,3109.25,3118.6702,9,I'm trying to understand what are the moving parts other than just say inventory build uh might be able to account for it or do you really think it is just all sort of built up within the channel?
4482249,271,3118.6699,3119.8499,9,So that's the first question.
4482249,272,3120.01,3122.3101,9,Um and then second one's a little shorter.
4482249,273,3122.6799,3124.75,9,Um maybe just any comment on pricing?
4482249,274,3124.75,3131.2202,9,If you guys managed to push given you're so capacity-constrained any price increases through uh to the customers and how those have been received.
4482249,275,3131.4299,3131.6899,9,Thanks.
4482249,276,3132.8899,3135.55,7,Yeah um uh thanks Patrick.
4482249,277,3135.55,3139.3601,7,Indeed uh um two two relevant uh point.
4482249,278,3139.78,3161.1299,7,The first point um may be helpful to indeed um put a little bit more on o o spotlight on the growth of the non corona related uh uh business and um we were indeed talking about the effect that comes from this different ordering pattern by customers.
4482249,279,3161.6299,3167.4299,7,But that shouldn't mean at all that uh this is the only growth driver.
4482249,280,3167.8501,3168.1201,7,Yeah?
4482249,281,3168.3799,3173.9299,7,So we clearly are talking about a very healthy market uh for many reasons.
4482249,282,3174.21,3192.27,7,Uh and basically all the fundamental drivers uh that we usually are talking about a lot and have talked about a lot and predominantly before the corona um uh situation uh are fully intact and are more relevant and stronger than maybe uh five years ago.
4482249,283,3192.4399,3204.76,7,So therefore what we have seen during the last two years is indeed very healthy fundamental market situation and on top of that we got the pandemic with these two effects.
4482249,284,3204.8501,3216.3501,7,The very direct effect additional demand and then this like second-round effect triggered by lead time um uh lead time uh uh longer lead times uh and and so on.
4482249,285,3216.3501,3217.5601,7,I don't want to get into that again.
4482249,286,3217.9199,3229.01,7,So and the fundamental drivers that have played a role are um substantial investment into additional capacities needed for new drugs.
4482249,287,3229.74,3241.3501,7,We on average have seen throughout the last five years a n nice and relatively high number of new drug approvals higher than in the f five years before.
4482249,288,3241.78,3247.8098,7,We are seeing expansions of production volumes in established drugs by and large.
4482249,289,3247.8401,3252.5701,7,We have seen uh very successful launches of biosimilars.
4482249,290,3253.02,3265.8501,7,Uh hand in hand with most of those effects we have seen a uh substantial expansion let's say of the geographical footprint of the biopharmaceutical industry i e.
4482249,291,3265.8501,3272.51,7,much more manufacturing capacities now also in Asia in particular and respective investment.
4482249,292,3272.6001,3275.27,7,And respective of course of recurring business.
4482249,293,3275.6899,3280.3401,7,Uh that is particularly the case for China and also South Korea.
4482249,294,3280.9299,3297.23,7,Um then we see maybe to elaborate a little bit more on these newly-approved drugs we see of course very um uh promising pipeline of new drugs where partially all the clinical material isn't produced in in increasing uh volume.
4482249,295,3297.6299,3302.26,7,Some drugs have made it to the market in the area already of cell and gene therapy.
4482249,296,3302.51,3311.9102,7,So all those fundamentals are fully intact very strong uh and as of course led to quite a strong underlying market growth.
4482249,297,3311.9399,3337.1201,7,Maybe as a reminder the fundamental market growth when we always have said that should be the underlying growth of our end market we said and that is what all the most recent pre-pandemic projections have said should be in the very high single digit rage uh range.
4482249,298,3337.1899,3339.0498,7,Maybe max ten percent.
4482249,299,3339.4399,3343.3599,7,So let's say for simplicity ten percent.
4482249,300,3343.6899,3346.6101,7,Now we have achieved twenty seven percent yeah?
4482249,301,3347.0901,3351.8701,7,So and even if you exclude m and a it's a significantly higher number.
4482249,302,3352.29,3365.9202,7,So we believe that the underlying growth over the last two years has been significantly stronger than it has been before.
4482249,303,3365.96,3399.26,7,So we have seen really very strong development of the base business and on top of that as we said don't want to repeat myself here this additional effect that should have led to some buffer within the entire system be it stock levels of products from us and competition be it uh you know pulled forward capacity expansions be it maybe also a higher stock level in finished goods and so on and so forth.
4482249,304,3399.8101,3406.1301,7,Very difficult to quantify uh but that is how we would read those numbers.
4482249,305,3407.8501,3415.8401,7,On price um as a as a result of the uh stressed supply chains we do see some price increases.
4482249,306,3416.3999,3426.4001,7,Of course we do see it for uh logistics services but we also see it for uh some of the products materials and components that we are purchasing.
4482249,307,3426.8999,3436.5698,7,Um and uh we are have started to pass those price increases uh forward um uh to customers.
4482249,308,3437.04,3451.77,7,tha that hasn't played much of a role uh in the recent one or two years but it should play a role somewhere maybe around or close to the five percent mark uh in the year two thousand twenty two.
4482249,309,3460.6599,3461.46,8,Your question please.
4482249,310,3467.78,3468.6602,10,Hiya Joachim.
4482249,311,3478.6599,3490.1399,10,What's your outlook for that market and then lastly um does this broaden your acquisition opportunities those categories and new therapies emerge?
4482249,312,3490.48,3490.8398,10,Thank you.
4482249,313,3493.3201,3499.6802,7,Um so maybe on the on the on the last question first um i yes.
4482249,314,3500.03,3511.22,7,Um there are now additional s uh technological segments um certain types of innovation that are of interest for us.
4482249,315,3511.6599,3521.47,7,Uh and in that and from that perspective it has broadened also you know the the the the playing field the number of opportunities uh for acquisitions.
4482249,316,3521.47,3522.6001,7,That'd definitely be the case.
4482249,317,3523.22,3547.8899,7,Um does it or is it more interesting than monoclonal antibodies in regard to the consumption of product from us um uh when it comes to the manufacturing of mRNA uh or cell therapies uh that's a little bit more difficult to answer because now unfortunately what I have to say Oh now it really depends yeah?
4482249,318,3547.8899,3550.9402,7,Because the processes can look very different.
4482249,319,3551.4199,3554.5601,7,Um for mRNA the process is very very different.
4482249,320,3554.96,3562.3801,7,Um we have a significant footprint in the respective manufacturing hard to do a one-to-one comparison.
4482249,321,3562.71,3568.1702,7,I would say the business opportunity there is maybe by and large uh the same.
4482249,322,3568.45,3580.6101,7,For cell therapies it could be even larger going forward but that again depends very much on how those um uh production processes look like.
4482249,323,3580.6101,3590.76,7,The the variety of production processes uh can be very different will be or diverse uh and will be very diverse going forward.
4482249,324,3591.0701,3611.49,7,So therefore hard to answer but what one can say we do have relevant partially essential technologies uh for all those modalities um and um I guess that tha that that will remain being a very dynamic and and and promising uh area for us.
4482249,325,3613.4199,3613.78,10,inaudible.
4482249,326,3617.54,3622.1599,8,The next question is from the line of Delphine inaudible with Societe Generale.
4482249,327,3622.1599,3622.95,8,Your question please.
4482249,328,3664.9099,3667.5798,11,I know you've been talking a bit about China expansion.
4482249,329,3668.04,3670.3799,11,Uh is it just an increase in term of market share?
4482249,330,3702.3501,3705.28,11,Uh can you can you let us know uh your thoughts on that?
4482249,331,3705.3999,3705.76,11,Thank you.
4482249,332,3707.45,3709.9102,7,Yeah thank you for uh these two questions.
4482249,333,3709.9099,3713.48,7,Maybe on the second one first uh you are absolutely right.
4482249,334,3713.6399,3726.0698,7,Uh we started off into the year with a capex guidance of fourteen percent um and then we lowered it to twelve percent and that is also where we came in.
4482249,335,3726.3799,3741.5,7,But the fourteen percent related to the initial top line growth guidance uh which crosstalk um at the beginning of the year two thousand twenty one nineteen uh to twenty five percent.
4482249,336,3741.97,3754.95,7,Uh and therefore uh basically what we what we finished off the year with has been pretty much pretty much exactly uh the Euro number that we were started off uh into the year as well.
4482249,337,3754.95,3762.27,7,So so therefore i it has really has to do with the with the with the top line uh reference number so to say.
4482249,338,3762.8501,3781.26,7,Um and um and we could execute on a yeah all the initiatives pretty much to the extent that we that we plan for so really no impact through the through the pandemic also on all sites we were able to pretty much execute uh those projects.
4482249,339,3781.73,3787.0,7,And for two thousand and uh twenty two we would expect the same right?
4482249,340,3787.03,3793.96,7,As I've said before we even see a higher uh capex probably in two thousand and twenty two.
4482249,341,3794.3501,3810.1602,7,Um and the the the reason is um really that we uh are continuing to execute on our capacity expansion program at an accelerated spa uh speed.
4482249,342,3810.6499,3826.9602,7,Um we we had to pull forward capacity expansions particularly when it ca uh comes to filter manufacturing and vac manufacturing but also in the instruments and systems space really across the board.
4482249,343,3826.96,3839.6399,7,Because our growth we didn't talk about that much we didn't mention that but what is really a nice feature is all of our business segments all of our product segments are growing very very nicely.
4482249,344,3839.8501,3851.5598,7,So we don't have any you know there is no clustering of of demand so we we really see that all of our products are and product segments are relevant and attractive to customers.
4482249,345,3851.8101,3857.01,7,And that means that we really had to pull forward uh something such expansion plans.
4482249,346,3857.3701,3870.48,7,Maybe one last word what what also plays a role this year that we have started to invest significantly into own capacities for cell culture media which which will plays a plays a role here as well.
4482249,347,3870.9399,3896.26,7,So and then on APAC um maybe to to put some uh some some color to it um we we see an effect from um from the pandemic demand of around eighteen percent points for for APAC uh approx as well so that hasn't been uh particularly uh uh high.
4482249,348,3896.7,3923.8501,7,Um that means that the um that the like underlying growth indeed has been very strong um i in APAC and what we see here is substantial um investments by customers as you said in China but also in Korea a lot into additional capacities and also uh quite significant utilization of these capacities.
4482249,349,3924.3501,3937.03,7,China of course is very consequently executing on their uh agenda to become increasingly independent from import of uh medicines.
4482249,350,3938.28,3942.3201,7,Um that h is part of their uh agenda.
4482249,351,3943.04,3953.6301,7,You know they have their China for China agenda but they also have in particular or a specific agenda for for the healthcare sector and the biopharma sector in particular.
4482249,352,3954.0801,3963.8499,7,Um and Korea what plays here a role of course is that Korea has become the hub uh or one of the most important hubs to say the least…
4482249,353,3964.3,3967.98,12,uh or one of the most important apps to say the least uh for um uh contract manufacturing.
4482249,354,3968.55,3973.8098,12,Some some biologics has to be named here the first but also some others like stacksetrion on for example.
4482249,355,3974.26,3983.98,12,Um and um yeah and we see substantial growth of the business that we have uh in in those markets with such customers.
4482249,356,3986.3501,3986.6902,14,Thank you.
4482249,357,3990.78,3995.48,13,The next the next questions from the line of Edward Leday with Spectron your question please.
4482249,358,4034.25,4047.49,12,Yeah so um we our recurring revenue um is a good seventy five percent of our uh total revenue in the bio-processing domain.
4482249,359,4048.1599,4051.8201,12,Uh and most of that are consumable.
4482249,360,4051.8201,4058.4299,12,So roughly seventy five percent of our BPS sales are consumables.
4482249,361,4058.6001,4063.8,12,In the left domain this is around uh forty percent.
4482249,362,4064.2,4069.6799,12,And that means for the settle group in total this number is just a little bit below seventy percent.
4482249,363,4069.6799,4075.3198,12,So roughly two thirds of our sales revenue of the group are single use products.
4482249,364,4076.24,4085.03,12,Um and uh this number is not changing very much year and year.
4482249,365,4085.3501,4097.9497,12,That has to do with the fact that was still see and we expect that also going forward for the next couple of years still a lot of investments into additional and new manufacturing capacities in particular but partially also into new laboratories.
4482249,366,4098.3999,4111.8999,12,And then you always see these investments into uh systems and instruments yeah like front running and the utilization and consumption of of consumers only kicking in then later.
4482249,367,4113.8398,4114.27,12,Yeah.
4482249,368,4114.3198,4116.1504,12,And therefore there's no no big shift.
4482249,369,4116.8101,4140.6602,12,Um maybe one word I'm sure you are aware of that um besides the fact that we of course are um working quite intensively on uh numerous ends to make the uh let's let's say to limit and potentially reduce our what I would call plastic footprint.
4482249,370,4141.5498,4165.3501,12,Um for example when it comes to the packaging but also you know there are some some opportunities maybe regarding the design of the product and then in the long run but really only the long run uh hopefully also a substitution of of uh oil-based plastics by other uh plastic raw materials.
4482249,371,4166.1299,4179.3101,12,But besides that what is really important is to highlight that the overall ecological footprint in most applications is smaller for single use products than for stain the steel.
4482249,372,4179.77,4214.0,12,And not only because uh stainless steel is also a product that requires substantial uh consumption of diverse you know material and energy et cetera but o particularly the cleaning and sterilization of uh such system after each run um leads to very substantial uh emissions related emissions particularly energy but also a high level of water consumption which we believe will become an increasing focus of environmental concern going forward.
4482249,373,4214.3501,4238.5103,12,So I really would like to you know make the point that the plastic that we are using and particularly the use of our plastic product shouldn't be mixed up with maybe uh some other plastics where one could say well one should maybe reduce that uh that consumption going forward.
4482249,374,4238.8999,4259.25,12,Our market share um you know varies both for instruments as well as as as plastic-based or single use products uh depending on uh the um the area uh where we are or the type of product we are talking about.
4482249,375,4259.5498,4270.21,12,I think maybe it's fair to say that for most product segments our market share is somewhere in the twenty thirty sometimes up to forty percent range.
4482249,376,4270.21,4283.98,12,So that's basically the range where we typically have uh our market share but I wouldn't say that there is you know the one number for single use and the one number for multiuse that that makes a lot of sense to use here.
4482249,377,4284.48,4286.0103,12,Does that help you?
4482249,378,4286.0098,4286.6499,15,i No it does.
4482249,379,4286.6499,4287.4199,15,Thank you very much.
4482249,380,4291.9502,4297.1504,13,The next question is from the line of Yugo Solvet with b n p Paribas your question please.
4482249,381,4298.8999,4300.9902,16,Hi thanks for taking the uh my questions.
4482249,382,4301.0698,4314.7397,16,Um on the on the COVID guide for 2022 uh which has been left and changed uh at about five hundred million since uh you first uh laid that guidance in the three 3Q call.
4482249,383,4326.98,4333.6499,16,And have you started to see uh within your COVID sales mix uh shift of the mix towards more consumables?
4482249,384,4334.2002,4335.5498,16,That would give our first question.
4482249,385,4335.98,4343.2998,16,Uh and then a quick follow up on uh CapEx uh given that you've uh pulled forward several capacity expansion projects already.
4482249,386,4343.8799,4351.4497,16,What should we assume as um CapEx to sales ratio from 2023 um on what?
4482249,387,4351.8701,4352.1396,16,Thank you.
4482249,388,4353.6001,4354.48,12,Yeah thank you.
4482249,389,4354.6699,4356.3901,12,Thank you for for those questions.
4482249,390,4356.4199,4356.8599,12,Yeah.
4482249,391,4356.9199,4357.8101,12,Uh you are right.
4482249,392,4358.46,4369.1201,12,Um we were touching upon uh our view regarding our corona related business particularly of inaudible manufacturing already three months ago.
4482249,393,4370.1899,4380.6201,12,And um e liberating on our uh view that two thousand twenty two may look quite similar to two thousand twenty one overall.
4482249,394,4381.2202,4407.8604,12,Uh the reason why we didn't change that is because uh all what we have seen and heard from our customers um and also regarding you know the the orders that they have received from governments and whether there are changes uh leads us to the perspective that this is still the best and most realistic uh expectation.
4482249,395,4408.6001,4431.1104,12,The dominant manufacturer of vaccines in two thousand and twenty one in the Western world has been uh Pfizer BioNTech uh the guidance that they have given for example at the JP Morgan conference uh not very long ago uh basically also confirms this view.
4482249,396,4431.2202,4437.3901,12,They are planning very much with the same level of manufacturing at the same level of state revenue.
4482249,397,4438.04,4454.5898,12,Uh the only thing that might have changed is at what point in time they think they will shift towards the next generation in the sense of an uh whatever a an an adaptation to the Omicron variant end uh probably the same for Moderna.
4482249,398,4455.3398,4468.5801,12,We wouldn't anticipate as of now uh that uh the other vaccines that come on the market now should change this picture very much.
4482249,399,4469.3799,4500.5801,12,Um we also would not anticipate that once maybe this Omicron wave is over that then um you know the demand for uh vaccination completely implodes because that would mean even that maybe there's uh there's less business than uh particularly p by the way maybe for for for the manufacturers as such then for us uh then projected to so far.
4482249,400,4501.46,4512.3101,12,So long story short uh we still believe that this is the most meaningful um assumption for several reasons you know to the best of our knowledge um uh today.
4482249,401,4512.98,4532.4199,12,Um the mix um didn't change so much because also throughout two thousand and twenty one uh of course at the beginning of two thousand twenty one we have seen predominantly uh systems being ordered by by those manufacturers.
4482249,402,4532.4199,4542.8398,12,But other than in in other cases where you really see sometimes you know a gap between twelve and twenty four months between ordering and equipment then starting manufacturing.
4482249,403,4542.8398,4554.4399,12,This went hand in hand they got the inve uh uh invest uh the equipment and basically you know qualified it validated it went into manufacturing.
4482249,404,4554.4399,4561.0303,12,So we had subs sales of consumables already uh back in two thousand twenty one.
4482249,405,4561.2798,4571.9697,12,So there is no uh shift that is of any material relevance for for you know the overall business how we anticipated to be in two thousand twenty two.
4482249,406,4572.9502,4578.29,12,Um and um the then you were asking for the trend in CapEx.
4482249,407,4579.5,4593.27,12,Um well I would I would not like to give a number here um as as you know it it there would be anywhere a missing piece and that's the top line guidance for the year two thousand and twenty three.
4482249,408,4593.8101,4597.9102,12,Uh so therefore to say it's anything for two thousand twenty three now is difficult.
4482249,409,4598.4102,4609.5903,12,What we would expect is um that uh we should see more normal levels of CapEx ratio uh towards the end of this midterm cycle that we are talking about.
4482249,410,4609.9902,4613.1602,12,Uh so the one until two thousand twenty five.
4482249,411,4613.6602,4627.5298,12,And we typically say that there is like a heart a core of our CapEx that is related to capitalized r d and maintenance CapEx and this should add up to something like a good three percent.
4482249,412,4627.9702,4640.04,12,And so then there's a remaining uh like average level of CapEx related to capacity expansion which should be then maybe somewhere around the five percent points or so.
4482249,413,4640.3701,4656.1299,12,So so the sum then should be somewhere in the upper single digit uh range but that is uh that's even not a calculation that that is to try to give you a little bit of feeling for the composition and how I would think about that.
4482249,414,4656.73,4660.5503,12,But uh for two thousand twenty three I think the number will look a little bit different.
4482249,415,4662.4502,4663.1099,16,Thank you very much.
4482249,416,4674.79,4675.3804,17,Uh hi here.
4482249,417,4675.3799,4676.6797,17,Thanks for taking my questions.
4482249,418,4676.71,4687.0,17,Uh just to follow up from Paul's question on the cell and gene therapy opportunity um you seem to be getting a stronghold of this market particularly following your acquisitions over the past couple of years.
4482249,419,4687.6602,4696.0801,17,Um I know it's a hard question to answer but uh do you have a rough estimate at this point in time of what of this pipeline you're currently exposed to?
4482249,420,4696.8599,4701.9199,17,Uh I think hearing that the some areas like fermentation increment that we approximately currently have more than a sixty percent share.
4482249,421,4702.3198,4711.8101,17,Uh and the short follow on that uh a customer of yours recently mentioned that they are seeing the cell and gene therapy part of their business uh grow higher than initially expected.
4482249,422,4712.0898,4715.1001,17,Is that uh an impact you've been seeing on your side as well?
4482249,423,4715.5498,4715.8999,17,Thank you.
4482249,424,4718.2402,4739.4399,12,Um yeah we would share that view that the evolution uh of this segment has uh accelerated um and uh looks very promising and maybe even more promising than a few years ago pipelines uh have been filled.
4482249,425,4740.0298,4754.8901,12,Um so and that is one element of what we were we were talking about a little bit earlier today when we said that the market fundamentals all look very positive uh look positively and uh and promising.
4482249,426,4755.2598,4761.48,12,And that for sure holds true particularly for the uh cell and gene therapy uh segment.
4482249,427,4762.2998,4775.4399,12,Um a little bit more tricky is maybe um the first part of your question when you said okay how how well are we positioned basically in in in this very market segment in comparison to other market.
4482249,428,4775.4399,4790.1201,12,But then the reason why I find that that tricky to answer is because it's it's still a very young market and that means not only that there is a lot of growth to be expected but there is also a lot of innovation to be expected.
4482249,429,4790.29,4806.1299,12,And a lot of uh innovation not only regarding new therapy based on their technology but also new innovation regarding the technologies that are used to manufacture such therapeutics.
4482249,430,4806.6602,4825.2202,12,Um we believe we indeed have invested into very relevant um um uh technologies that are needed across different uh cell and gene therapies.
4482249,431,4825.7202,4866.1802,12,And that's really a reason why we think that to be in a space of um cell culture media and essential performance relevant ingredients of cell culture media is a very important um and also robust space to be but for sure I would find it too early to make any you know assessment to say and our position in this uh market is whatever stronger or whatsoever than in the more mature um uh market segment of monoclonal antibody uh bodies.
4482249,432,4866.2598,4873.0698,12,But I I you know but I don't want to sound negatively uh here.
4482249,433,4873.1899,4875.0298,12,I just want to say it's a bit too early.
4482249,434,4875.0801,4883.3999,12,We consider ourselves to be well positioned uh but uh for sure more innovation to come more activities to be taken by us.
4482249,435,4883.3999,4885.5898,12,And that might also include further acquisitions.
4482249,436,4887.2202,4887.9404,17,Understood.
4482249,437,4887.9902,4904.98,17,That's very clear and uh another small follow up uh so on your historical COVID vaccine contribution estimates for on the BPS business um I I'm thinking how easy it for you to exactly know what your customers are using your equipment for.
4482249,438,4905.1401,4914.8198,17,Basically if you had to add a margin of error to your twenty percent uh coronavirus vaccine related benefit to in twenty twenty one for the division uh what would that be?
4482249,439,4941.4502,4941.9102,17,Exactly.
4482249,440,4942.1401,4942.3403,12,alright.
4482249,441,4943.1201,4945.1201,12,For vaccine manufacturing.
4482249,442,4945.9399,4956.23,12,The visibility is um is I would say good but I wouldn't say it's like a scientifically precise number.
4482249,443,4956.23,4957.23,12,Let's put it that way.
4482249,444,4957.6201,4958.0703,12,Yeah.
4482249,445,4958.2998,4979.2598,12,Uh because you know um if if you sell a product to BioNTech that's simple when you sell a product to Pfizer it's not that simple when you sell a product to Lonza or um or other contract manufacturers then it's even more complicated.
4482249,446,4979.75,4986.96,12,Um and of course our c customers partially give us quite precise guidance.
4482249,447,4987.1299,4996.4399,12,And that has been particularly the case of course when everybody was working hard on ramping up vaccine manufacturing capacities as quick as possible.
4482249,448,4996.6099,5005.2002,12,And therefore it's a good visibility but I wouldn't say that this five hundred is a as I said a scientifically precise number.
4482249,449,5005.5498,5021.5,12,Um um and and that is even more the case uh as soon as we are talking about that but smaller portion uh that is related to for example you know test kits or therapeutic et cetera.
4482249,450,5021.8501,5026.9702,12,So uh good visibility but uh not one hundred percent.
4482249,451,5027.5601,5028.1299,12,Okay?
4482249,452,5029.52,5029.9302,17,Perfect.
4482249,453,5029.9302,5031.1997,17,Thank you for the clear answers.
4482249,454,5033.0898,5034.7202,12,tha th thank you very much.
4482249,455,5035.8198,5037.8501,12,Uh there is one follow up I obviously.
4482249,456,5038.71,5043.6704,13,The last question is from the line of Yugo Solvet with BNP Paribas your question please?
4482249,457,5045.4302,5045.6201,16,Right.
4482249,458,5045.6201,5049.02,16,Uh thanks for the quick follow uh uh on on the…
4482249,459,5050.1499,5060.3701,16,Based on the midpoint of your 2022 guidance uh and removing COVID from that uh that would imply your twenty twenty two 2025 sales cargo of about 12.5%.
4482249,460,5062.4102,5076.8501,16,Um if we remove uh MNA which is directly has been two to 3% point uh the at lowers that cargo to around a single digit or let's call that to ten percent which you mentioned earlier was the the the market growth.
4482249,461,5086.27,5091.4902,16,Uh is there only an impact from the stocking here that you are your focusing into your long term guidance?
4482249,462,5091.9199,5098.8999,16,Just just want to understand that uh what seems uh to be to be somewhat could choose uh expectations?
4482249,463,5099.1299,5101.6001,12,e e e Exactly Yugo.
4482249,464,5101.9102,5103.3799,12,Um that is in there.
4482249,465,5103.6001,5107.75,12,Yeah because in our two thousand twenty one base number or in the twenty-
4482249,466,5108.5298,5115.1001,12,had twenty two difficult like to say but in the twenty one base number that I would prefer to use here because it's an actual number.
4482249,467,5115.5,5131.3398,12,Um as I said there is this five hundred million our Corona-related business and that what we talked about a bit at the beginning of our call here today this this number that represents maybe a a a stocking ec et cetera et cetera.
4482249,468,5131.6001,5138.3301,12,So in that exactly then of course it's partially reflected in this ten percent that you were uh calculating here.
4482249,469,5138.6099,5158.7202,12,Um I I I would suggest and I'm sure we will talk about that in the next quarters and the next really very good reference point I guess we will have in twelve months from now um because uh then we will really see how two thousand twenty two will uh have worked out.
4482249,470,5159.0098,5174.6396,12,Um it will be interesting in regards to how the phase out hopefully it will be a phase out in the sense of that uh you know all those lockdowns and all this stuff will behind us by then but how this will have played out.
4482249,471,5174.6401,5185.1499,12,Um I have to admit it's my first pandemic uh hopefully also my last uh but um but we will really have to see and learn from that.
4482249,472,5186.0601,5201.27,12,One thing you can be sure we will be very transparent in sharing uh our views and the different bits and pieces of uh how things interact here and and how we base our our perspectives going forward on it.
4482249,473,5202.52,5203.1499,12,Okay.
4482249,474,5203.1499,5208.5898,12,Having said that I would like to thank everybody for your interest in Sartorius and Sartorius Stedim Biotech.
4482249,475,5208.6401,5209.9004,12,Great talking to you.
4482249,476,5209.8999,5211.4702,12,Thank you for your questions.
4482249,477,5212.2598,5224.4697,12,Um we hope that we have been able to to answer them and looking forward to uh our next call uh in three months from now on the q one numbers all the best.
4482264,0,5.92,10.9,0,<foreign> Good morning and welcome to Banco Sabadell's twenty twenty one Full Year Results Audio Webcast.
4482264,1,11.55,18.05,0,As from previous occasions the presentation will be run by our C E O Cesar Gonzalez-Bueno and our C F O Leopoldo Alvear.
4482264,2,19.01,26.24,0,They will present the main highlights and details of the commercial and financial performance of the bank both in the fourth quarter as well as throughout the year.
4482264,3,27.07,29.41,0,The presentation will be followed by q and a session.
4482264,4,30.04,33.71,0,We expect the presentation and the q and a to last one hour altogether.
4482264,5,34.41,37.92,0,Thank you again for your attendance and let me now hand it over to Cesar Gonzalez-Bueno.
4482264,6,39.54,44.67,1,Good morning everyone and thank you for joining Sabadell's annual result presentation.
4482264,7,45.98,52.09,1,Moving to slide four commercial activity remains strong across all segments.
4482264,8,52.12,59.87,1,Secondly we have made significant steps forward in Sabadell's transformation which is already yielding positive results.
4482264,9,60.46,70.49,1,In addition T S B has recorded a net profit of a hundred and thirty million pounds in twenty twenty one coming from a hundred sixty million pounds net loss in twenty twenty.
4482264,10,71.05,74.3,1,T S B continues to show good commercial momentum.
4482264,11,75.12,84.23,1,Finally Sabadell group recorded a net profit of five hundred and thirty million euros in the year with a return on tangible equity standing at five percent.
4482264,12,84.71,90.12,1,This figure for twenty twenty one shows that Sabadell is heading in the right direction.
4482264,13,91.22,97.84,1,In slide five our loan book grew by a solid six point seven percent in twenty twenty one.
4482264,14,98.43,108.9,1,We are meeting the objective set in our strategic plan which included growing in our core geographies Spain and UK and shrinking the loan book in our international geographies.
4482264,15,109.85,119.15,1,In terms of customer funds both on and off balance sheet funds grow in the year as customers continue to increase their savings and investments.
4482264,16,119.83,124.88,1,On the next few slides we will go through the commercial performance of the different segments and products.
4482264,17,126.25,127.24,1,Slide six.
4482264,18,127.52,136.7,1,In Spain mortgages performed remarkably well in the year with new lending in twenty twenty one growing by thirty eight percent versus twenty twenty.
4482264,19,137.18,142.08,1,Our mortgage slash market share is up by twelve basis points.
4482264,20,142.92,155.14,1,The good performance of mortgages has been driven by a strong demand throughout the year together with a product offering that includes an improved online simulator and a digital application platform for our customers.
4482264,21,156.05,167.73,1,However the most remarkable improvement in our value proposition has been the specialized relationship managers pilot launched in the last quarter of the year.
4482264,22,167.81,171.14,1,I will cover this in more detail later on my presentation.
4482264,23,172.15,178.55,1,Granting of new customer loans increased by eleven percent in the year as a result of the ongoing economic recovery.
4482264,24,178.98,183.81,1,This growth has enabled us to gain stock market share during the year.
4482264,25,184.23,195.76,1,In some the positive commercial momentum in mortgages and consumer loans is also evident in our market shares for new lending which keep growing and are ahead of our market shares for the existing stock.
4482264,26,197.61,203.73,1,New insurance production in twenty one was almost thirty percent larger than the one of the previous year.
4482264,27,204.28,211.82,1,These dynamics has resulted in an increase of seventy four basis points of our market share in life insurance premiums.
4482264,28,212.31,219.37,1,Growth is mainly driven by the evolution of mortgage origination and the induced life insurance business it generates.
4482264,29,219.88,234.27,1,Regarding mutual funds assets under management in Spain grew by eighteen point eight percent in the year and our market share grew eleven basis points in the same period mainly due to solid volumes of net inflows.
4482264,30,234.59,238.74,1,Here we keep benefiting from our partnership with Amundi.
4482264,31,239.88,248.74,1,Moving on to slide eight you can observe that payment related services are improving along with the economic recovery in Spain and easing of restrictions.
4482264,32,249.21,256.42,1,Looking at our cards business you can observe a very relevant increase in its turnover which grew by nineteen percent year on year.
4482264,33,256.86,260.32,1,However our market share declined in the year.
4482264,34,260.68,271.13,1,This was partly due to the fact that the switch from cash to cards has impacted less our customers than the market as they were already heavy users than the average.
4482264,35,271.77,278.11,1,Regarding payments through our point of sale devices turnover increased by eighteen percent in the year.
4482264,36,278.54,282.99,1,Despite being a very relevant increase we lost seventy five basis points of market share.
4482264,37,283.48,287.64,1,I will come back to this topic later in the presentation.
4482264,38,289.01,303.74,1,Slide nine as you can see in the upper right hand part of the slide the volumes of new lending are still subdued in twenty twenty one due to the excess of liquidity that companies accumulated in twenty twenty mainly through loans guaranteed by <unk>.
4482264,39,304.54,313.14,1,Nevertheless it is worth noting that we have gained stock market share and that our positioning in this segment of the market remains strong.
4482264,40,313.95,318.29,1,We expect demand for business lending to rise over the coming quarters and years.
4482264,41,318.66,324.51,1,Firstly the liquidity accumulated by companies through ECOL loans will go back to normal progressively.
4482264,42,324.99,333.93,1,And on top of that the deployment of next generation EU funds over the next few years will increase both private investment and bank financing.
4482264,43,334.66,345.59,1,In this regard a total of eleven billion euros have already been allocated in twenty twenty one to the regional and local authorities as well as to corporates and households.
4482264,44,345.62,353.31,1,However these fan funds have had very little traction over bank financing so far.
4482264,45,354.94,359.75,1,The Spanish government has included forty billion euros in its twenty twenty two budget.
4482264,46,360.81,370.48,1,Finally it is also worth mentioning that the government has announced its intention to request by twenty twenty three the full amount of the a hundred and forty billion allocated to Spain.
4482264,47,370.97,386.93,1,As a result Spain will be receiving not only the seventy billion of grants but also the additional seventy billion of loans in order to help companies individuals and public administrations navigate this crisis go digital and accelerate its transition towards a more sustainable economy.
4482264,48,388.32,389.11,1,Slide ten.
4482264,49,389.28,397.88,1,After having reviewed the origination and commercial performance of the year let's have a look at the detailed evolution of our performing loan book by segmented products.
4482264,50,398.38,410.88,1,Looking at the data in Spain which is on the left hand side of the slide you can see that we have managed to grow our loan book in our core segments which are mortgages consumer loans and SMEs and corporates.
4482264,51,411.46,424.22,1,In addition as the result of the action taken in our international businesses x t s b the international loan book continues to reduce its size as you can see on the right hand side of the slide.
4482264,52,424.63,430.77,1,This is in line with our strategy of optimizing capital allocation and leveraging on the overseas market.
4482264,53,431.86,438.21,1,A substantial part of this year on year reduction is driven by our di divestment in Andorra.
4482264,54,439.94,452.8,1,I would like to spend a bit of time in slide eleven sorry it's a busy one as it is useful to understand the rational behind our transformation and commercial initiatives.
4482264,55,453.61,458.78,1,In the chart to the left you can see the commercial performance of each product.
4482264,56,459.48,469.52,1,On the x-axis you can see that the percentual val- variation of business origination between twenty twenty one and two thousand nineteen.
4482264,57,470.43,476.87,1,This illustrates how much of our origination is growing for each product when compared to pre COVID levels.
4482264,58,477.62,483.24,1,On the y-axis you can see the stock market share variation for each product in twenty twenty one.
4482264,59,483.74,487.9,1,This illustrates where our stock growth is beating the market or not.
4482264,60,489.69,499.14,1,In the interest of time I won't go through the details of each product but let me share a brief summary of the graph and certainly it is informing the way we look at business.
4482264,61,500.29,503.44,1,As you can see there are four quadrants in the chart.
4482264,62,504.13,511.69,1,In the two upper quadrants we are gaining market share and that is where most of our products are.
4482264,63,512.68,519.88,1,With the products on the top right quadrant we are also increasing our origination volumes versus pre COVID levels.
4482264,64,520.35,522.33,1,So we will keep pushing there.
4482264,65,523.06,530.29,1,With the products on the top left quadrant we are increasing market share but with lower origination volume pre COVID.
4482264,66,530.78,534.5,1,We are ready there to grow when the market recovers.
4482264,67,535.28,538.92,1,The products on the bottom quadrants are losing market share.
4482264,68,539.55,544.04,1,On the bottom right quadrant we only have two products Cards and point of sale payments.
4482264,69,544.49,546.91,1,We are growing volumes but losing market share.
4482264,70,547.46,551.22,1,In cards we are assessing the situation and redefining our strategy.
4482264,71,551.62,558.22,1,While in point of sale payments we have been managing for profitability and not for volumes.
4482264,72,558.58,564.79,1,Our profitability in this business is increasing despite the loss of market share.
4482264,73,564.97,570.08,1,So there it is a very decided in advance strategy.
4482264,74,570.56,577.58,1,Finally it is worth noting that we don't have any products decreasing both origination volumes and market share in the bottom left quadrant.
4482264,75,579.38,580.39,1,Slide twelve.
4482264,76,581.5,592.7,1,You can see the details of how we're implementing a key element of our transformation in retail banking which is the deployment of specialized relationship managers.
4482264,77,593.4,604.32,1,As we have shared in the past customers required specialized support and handholding to understand and contrast three three key products Mortgages investments and insurances.
4482264,78,605.42,615.38,1,We are transforming a significant amount of our retail banking commercial team from being generalists relationship managers to being specialists in a specific product.
4482264,79,616.16,623.34,1,In the last quarter of twenty twenty one we launched a pilot with around four hundred and forty specialized relationship managers.
4482264,80,623.83,628.31,1,The results of these pilots have been very positive as you can see in the slide.
4482264,81,629.15,635.88,1,In insurance and investments we are observing a higher productivity of these specialized RMs.
4482264,82,636.57,641.9,1,In the case of mortgages the sales process takes longer than in insurance or investments around three months.
4482264,83,642.21,646.7,1,So it is still early to observe productivity improvements in terms of more sales.
4482264,84,647.26,661.19,1,However all mortgage leads generated ha have now been managed in less than twenty four hours while in the past the percentage was significantly lower and even over a longer periods of time.
4482264,85,661.87,671.82,1,These together with other conversion metrics allow us to be optimistic about mortgage productivity improvement as well as the other products I've mentioned in the coming months.
4482264,86,672.48,682.93,1,We are preparing the deployment at the higher scale of specialized relationship managers for these three products early in the second quarter of twenty twenty two.
4482264,87,684.8,697.81,1,we'll increase our specialized relationship managers from four hundred and forty people to one thousand two hundred by developing our current generalist relationship managers and converting them into product specialists.
4482264,88,698.37,704.28,1,This is a radical shift in the way we originate and manage our retail business.
4482264,89,705.47,712.05,1,Slide thirteen a brief recap on some recent E S G initiatives and financing activity.
4482264,90,712.6,720.92,1,In the left hand side you can see some relevant initiatives and milestones achieved in q four in the fields of environmental social and governance.
4482264,91,721.38,733.93,1,Regarding E S G finance in the year our volume sustainable new lending in Spain reached three point six billion euros while the new lending of social financing reached three point four million euros.
4482264,92,734.48,738.73,1,These initiatives and figures are sign of our commitment to sustainability.
4482264,93,739.27,748.64,1,In the next annual general meeting of Banco Sabadell we will be releasing Sabadell's sustainability report where we will share detailed information on the topic.
4482264,94,749.84,759.65,1,Looking at T S B in slide fourteen its new lending volumes have grown by fifty percent in twenty twenty one when compared to twenty twenty.
4482264,95,760.26,767.97,1,This has been driven by a booming property market in the UK as well as by an attractive value proposition from T S B with shareholders.
4482264,96,768.29,778.0,1,As you're all aware the mortgage market has partially support has been part reported by the stamp duty waiver in the first quarters of the year.
4482264,97,778.4,788.0,1,However on the left hand side you can see that origination volumes at T S B were still high in the fourth quarter once the stamp duty waiver had been suspended.
4482264,98,788.84,798.87,1,At the bottom of the slide you can see that these origination volumes contribute to the evolution of the stock of performing loans where the book grows by eleven percent driven by mortgage growth.
4482264,99,799.52,803.58,1,This growth in origination and stock volumes is reflected in our market shares.
4482264,100,805.75,816.75,1,T S B in slide fifteen delivered a remarkable performance across all p n l lines and achieved the net profit of a hundred and thirty million pounds in twenty twenty one.
4482264,101,817.51,824.41,1,On the right hand side of the slide N I I and fees grew substantially while cost showed a downward trend.
4482264,102,825.05,836.09,1,Regarding efficiency T S B will advance in its restructuring plan which will enable it to achieve a cost base of le less than seven hundred and thirty million pounds by twenty twenty three.
4482264,103,837.03,839.11,1,T S B continues to look for efficiencies.
4482264,104,839.18,845.17,1,In this regard it has recently announced that it will close further seventy branches in twenty twenty two.
4482264,105,845.95,853.86,1,In addition I would like to point out that T S B wrote back COVID provisions in the year due to an improved macroeconomic outlook in the UK.
4482264,106,854.67,859.07,1,In some T S B is focused on delivering on profitability and service quality.
4482264,107,859.43,862.21,1,We see positive outlook for the future.
4482264,108,863.83,871.34,1,Slide sixteen we see that group's recurrent core results grew by twelve point six percent in the year.
4482264,109,871.75,882.57,1,In the chart we have excluded the effect of non recurrent costs in twenty twenty and twenty twenty one in order to show the positive evolution of only the group's recurrent business.
4482264,110,883.3,889.69,1,Without excluding the one-offs these evolution will have been better but we thought that these analysis would be misleading.
4482264,111,890.55,897.28,1,The three components of recurrent cost results performed well in the year as you can see on the left hand side.
4482264,112,897.79,906.11,1,Moreover looking at the right hand side the quarterly results had also positive momentum.
4482264,113,906.36,910.37,1,They keep growing quarter by quarter as shown in the slide.
4482264,114,911.46,912.49,1,Slide seventeen.
4482264,115,912.64,922.84,1,And to finish with this part of my presentation I would like to summarize the good financial performance we have delivered in twenty twenty one which Leo will explain later in more detail.
4482264,116,923.59,926.63,1,Firstly N I I grew on a year on year basis.
4482264,117,927.24,937.66,1,Fees performed extremely well in the year while recurrent cost continued to follow a downward trend as a result of the restructuring plans undertaken in Spain and the UK.
4482264,118,938.38,942.41,1,As we just discussed the evolution of recurrent results was very positive.
4482264,119,942.41,948.69,1,Furthermore provisions in twenty twenty one were substantially lower than the ones of twenty twenty.
4482264,120,948.99,952.49,1,Since then we had the impact of the COVID pandemic.
4482264,121,952.98,961.55,1,These positive results bring us to an annual net profit of five hundred thirty million euros and a return on tangible equity of five percent.
4482264,122,962.48,972.02,1,Regarding capital we committed to maintain a ratio of above twelve percent with a solid M D A management buffer and we have accomplished that.
4482264,123,972.51,979.74,1,We closed the year with a sixteen basis points increase in our core tier one ratio which stood at twelve point one eight.
4482264,124,980.22,989.14,1,Furthermore and this is relevant this ratio has increased in a year in which our loan book grew by almost seven percent.
4482264,125,989.3,994.03,1,And with this I will hand over to Leo to cover our financial results in more detail.
4482264,126,996.07,997.74,2,Thank you Cesar and good morning everyone.
4482264,127,998.43,1001.25,2,Uh let's move on to the slide of uh financial results.
4482264,128,1001.37,1010.48,2,And first allow me to uh go through a quarterly p n l where we have recorded a net profit of a hundred and sixty one million euros a group level as you can see.
4482264,129,1010.86,1018.02,2,These obviously contributed positively to the five hundred and thirty million euros of net profit for the year that Cesar just presented.
4482264,130,1018.83,1021.62,2,Our quarterly results were mainly impacted by three elements.
4482264,131,1021.65,1029.2999,2,Uh on the one side we have the <unk> and deposit guarantee scheme annual payments which accounted to a hundred and forty nine million euros.
4482264,132,1029.41,1033.14,2,And these as you know are usually accounted for in q four each year.
4482264,133,1034.17,1042.55,2,Second we have the capital gain on the disposal of renting businesses which amounted as expected to forty one million euros in net terms.
4482264,134,1042.9,1046.0701,2,Remember these have has no impact in in taxes.
4482264,135,1046.6899,1052.89,2,And a positive of fifty six uh million euros in taxes as a result of fiscal assets uh reorganization.
4482264,136,1053.9301,1064.51,2,Additionally and although we'll later comment in more detail we have recognized nineteen million euros of extraordinary costs related to the closure of seventy branches at T S B as men Cesar mentioned before.
4482264,137,1065.8101,1074.9299,2,Now turning to the annual P N L we see n i i and fees growing in the year which allows to have a growth rate for uh three percent in core banking revenues at group level.
4482264,138,1075.46,1082.95,2,With regards to the cost line recurring costs excluding the resulting charges in Spain and UK have declined by two point three percent in the year.
4482264,139,1083.64,1108.6499,2,This reduction it's driven by the savings from deficiency plans launched back in nineteen at T S B and twenty twenty in Spain but they do not reflect yet as we would later see the a hundred and thirty million euros savings that we expect from our latest efficiency plan which was launched in three quarter last year twenty twenty one and it's expected to be finished by uh q one twenty two.
4482264,140,1109.03,1127.49,2,All in all the excluding the restructuring charges for both twenty twenty and twenty twenty one our core results this is the addition of uh N I I fees and costs increased by twelve point six percent in the year underpinned by the solid N I I and fee evolution as well as the cost savings already achieved.
4482264,141,1128.47,1133.27,2,Additionally it is worth mentioning that total provisions went down by forty six point two percent in the year.
4482264,142,1133.55,1141.48,2,This comparison obviously is affected by the extraordinary provisions made in twenty twenty related to COVID basically six hundred and fifty million euros.
4482264,143,1141.61,1144.89,2,That we'll dig uh a little bit deeper on this topic in the following slides.
4482264,144,1145.88,1154.4401,2,If we start with uh N I I in slide uh number twenty uh we can see that N I I decreased by one point six percent on a quarterly basis.
4482264,145,1154.85,1161.6799,2,This was impacted by the ALCO bond disposals carried out in q three as we anticipated and already share with you in that quarter.
4482264,146,1162.91,1167.99,2,The quarter revolution has been driven by different levers which we can see in detail in the right hand side of this slide.
4482264,147,1168.75,1174.83,2,Moving from left to right the number of contribution to N I I for the quarter has been three million euros higher.
4482264,148,1175.36,1176.53,2,We have different inputs here.
4482264,149,1176.5601,1194.2301,2,Front book yields have been pressured in the last quarter specifically in the last month and in the corporate uh banking space as creditors sought uh to meet net lending targets which was more than have said by tailwinds from FX and by higher loan volumes particularly at T S B.
4482264,150,1195.41,1204.1801,2,The low contribution of the ALCO bonds together with excessive liquidity generated have had a negative impact of seventeen million euros in line with our expectations.
4482264,151,1204.36,1211.4401,2,However we'll have the option to offset part of this impact by reinvesting excessive liquidity in government bonds through twenty twenty two.
4482264,152,1212.96,1222.63,2,Marginally we had lower wholesale fundings costs and some cover bonds matured during the quarter which has been offset by other moving parts on the N N I line.
4482264,153,1223.86,1232.49,2,We confirmed that we have met the E S B net lending target to benefit from the extra yield of the tlt zero three which as you know was already accrued in N I I.
4482264,154,1233.4,1239.1599,2,And finally as you can see on the bottom left part of this slide the customer spread remain broadly stable in the quarter.
4482264,155,1240.37,1246.8899,2,In the next slide we show the track record uh of N I I every quarter as well as obviously the full year accumulated.
4482264,156,1247.8101,1262.4401,2,We've seen a positive growing trend q and q building from bottom levels seen in q one and this has allowed us to achieve a positive growth of zero point eight percent in the year in line with our Investor Day's guidance of low single digit growth for twenty twenty one.
4482264,157,1263.6801,1270.39,2,We've had an average quarterly N I I of eight hundred and fifty six million euros which can be taken as a reference for twenty twenty two.
4482264,158,1271.24,1275.0599,2,And as you can see it's below um q four s uh numbers.
4482264,159,1275.89,1283.87,2,Going forward if we look at the expected evolution for twenty twenty two we identify the following as the main moving parts.
4482264,160,1284.35,1294.47,2,On the one hand we will have a lower contribution of the AlCO portfolio bonds due to the disposals carried out in q three but we're also short of over eight billion Euro bonds.
4482264,161,1294.52,1299.91,2,And therefore we have the option to reinvest enhance should offset most of this impact.
4482264,162,1299.91,1307.5,2,This impact for twenty twenty two uh uh only for the disposals made in q three was is going to be minus sixty million euros.
4482264,163,1307.96,1315.25,2,And as I said we should be able to uh offset most of these impacts by the reinvestment uh of these bonds.
4482264,164,1316.2,1322.62,2,On the other hand we have the end of tlt zero three benefits which should reduce N I I by around seventy five million euros.
4482264,165,1323.59,1329.0601,2,And this on the other hand we will should be offset by the positive mortgage market in the UK.
4482264,166,1329.7,1339.27,2,This market is supported by volume growth as well as interest rate hikes and should more than offset potential margin compressions and all in all the impact from tlt zero.
4482264,167,1339.84,1351.4299,2,It is also important to mention that we have not factored any rate change in twenty twenty two in Spain and we have only taken into account twenty five basic points in the Bank of England base rate.
4482264,168,1352.17,1365.49,2,With all this in mind we expect N I I to remain flourish in twenty twenty two with all positive elements especially T S B contributing to naturalize the biggest negative impact which will be tlt zero uh contribution.
4482264,169,1366.97,1378.91,2,Turning onto fees in slide twenty two uh group fees increased in the quarter by ten percent mainly driven by the positive seasonality related to asset management and insurance businesses success fees.
4482264,170,1379.9399,1384.86,2,The higher service income evolution is explained by the good performance of syndicated loans.
4482264,171,1384.89,1391.63,2,Also somewhat affected by seasonality and three million euros of non recurrent fees in T S B related to current accounts.
4482264,172,1392.09,1403.76,2,On the other hand asset management and insurance fees recorded a very positive quarterly performance with an increase of twenty five million euros of which as I mentioned before seventeen are related to success fees.
4482264,173,1404.71,1419.49,2,In any case as mentioned the quarterly evolutions is affected by positive seasonality but as we can see when comparing q four twenty one with q four twenty which had its own seasonal success fees figures are up thirteen point five percent.
4482264,174,1420.42,1425.24,2,Finally when looking at the full year amounts fees have grown north of eight percent year on year.
4482264,175,1426.27,1434.71,2,In the following slide as we previously did with the N I I we show the evolution of fees every quarter as well as the accumulated figure for the year.
4482264,176,1435.24,1439.8199,2,We've recorded a positive growth trend in fees as we saw the bottom levels in q one.
4482264,177,1441.03,1452.37,2,On the back of this evolution fees have achieved a growth of eight point seven percent in the year which allows to perform our investor days guidance of mid single digit growth for twenty twenty one.
4482264,178,1453.84,1469.15,2,As was the case with the quarterly N I I you can see that our average fees per quarter in twenty twenty one which should be the reference for twenty twenty two was three hundred and sixty seven million euros and is again below q four numbers.
4482264,179,1469.91,1480.03,2,For next year the continuation of the good performance in asset management and insurance fees as well as the positive trend in economic activity should be the main driver supporting this line.
4482264,180,1480.37,1483.04,2,We respect a low single digit growth.
4482264,181,1484.3101,1504.45,2,Now living the revenue line to one side and moving on costs in the following slide we can see the total record costs slightly increased in the quarter as we have not yet seen the savings for the second phase of the efficiency plan in Spain and last quarters of the year always have uh or come along with some extraordinary volatility in expenses.
4482264,182,1505.4301,1518.98,2,In addition to this seasonal impact this quarter total costs also reflect nineteen million euros of extraordinary expenses related to the closures of seventy branches at T S B that will take place during twenty twenty two.
4482264,183,1520.0,1531.96,2,On an annual basis and leaving twenty twenty and twenty twenty ones extraordinary costs aside the restructuring charges we can see that the underlying cost base is improving since it's decreasing by two point three percent.
4482264,184,1533.02,1545.34,2,This is explained by the fact that savings from the execution of the first phase of the efficiency plan in Spain as well as the restructuring plans at T S B have already yielded positive results as we have been seeing through the year.
4482264,185,1546.3,1556.63,2,These results can also be seen in the evolution of the group costs as a percentage of business volume where we have reduced the weight of costs on our activity by eight basic points in the year.
4482264,186,1557.76,1575.17,2,To end with the cost line as we shared with you last quarter we expect eighty five percent of the one hundred and thirty million euros in cost savings from the second phase of the efficiencies plan in the Spain to be already seen in twenty twenty two and of course one hundred percent of those savings to be seen in twenty twenty three onwards.
4482264,187,1575.79,1585.01,2,Taking these into account we expect total costs to reduce around one hundred and ten million euros in twenty twenty two.
4482264,188,1585.58,1592.85,2,In slide twenty five we look at the recurrent core results include as mentioned before N I I plus fees minus the recurrent costs.
4482264,189,1592.88,1598.5399,2,This is all cost but the restructuring charges of both twenty twenty and twenty twenty one.
4482264,190,1599.5,1609.91,2,As you can see this quarter group recurrent core results have increased by three point six percent while uh on an annual basis this number goes up to twelve point six percent.
4482264,191,1610.89,1616.35,2,The different elements that led to wide adjust in the quarter are included in the left hand side of this slide.
4482264,192,1617.228,1623.4199,2,N I I and costs contributed negatively but this was more than upset by the positive of evolution of fees.
4482264,193,1624.17,1637.41,2,In the case of NII as we've seen it shows a solid underlying evolution despite the lower contribution of the AlCO bonds while recurrent costs grew slightly as a consequence of the seasonal impacts that we mentioned uh before.
4482264,194,1637.99,1642.75,2,On the contrary as we saw too fees have had a very strong performance offsetting both effects.
4482264,195,1643.3,1647.0699,2,For twenty twenty two we expect this positive trend just to continue.
4482264,196,1647.16,1663.27,2,And this will be driven as mentioned before by a flattish expected N I I by growth in fees and more importantly by a significant reduction in costs the a hundred and ten million euros mentioned before therefore providing a high single digit growth in recurring core results.
4482264,197,1664.78,1671.8999,2,Now leaving the those aside and moving on to cost of risk the group's year to date credit cost of risk stood at forty nine basic points.
4482264,198,1672.34,1678.79,2,If you recall this was fifty one basic points as we closed q three and fifty three basic points in June.
4482264,199,1679.76,1697.9301,2,The group's total cost of risk including all the provisions in the quarter the before mentioned credit impairments with the provisions of foreclosed assets the NPA management costs and other provisions for many legal and fiscal risks risks reached seventy two basic points basically stable uh compared if compared with q three numbers.
4482264,200,1698.73,1717.79,2,Analyzing the q four in detail we see credit provisions amounted to a hundred ninety five million euros which is as slight decrease of one percent in the quarter where TSB released more provisions due to better macroeconomic UK uh uh or outlook in the UK driven by lower unemployment rates and higher house pricing index.
4482264,201,1718.4399,1722.6599,2,The release is similar to the one accounted in the second and third quarter of the year.
4482264,202,1724.55,1741.9399,2,Taking a view at the breakdown of total provisions at the top right hand side we booked the a fore mentioned a hundred ninety five million euros of loan loss provisions also twenty three million euros for charges on foreclosed assets whereas costs related to management of NPAs were booked at forty four million euros.
4482264,203,1742.39,1746.5701,2,And finally fifty two million euros were recognized for other provisions.
4482264,204,1746.95,1755.39,2,And these number is impacted by twenty five million euros in extraordinaries as a more cautious approach was accounted for contingent and litigation risks.
4482264,205,1756.0699,1768.38,2,And this should provide a lower pressure uh in these provisions for twenty twenty two especially taking into account and this is important in my opinion that no new sources of litigation risks have risen in twenty twenty one.
4482264,206,1769.5,1783.0901,2,As you have seen throughout twenty twenty one these three items foreclosed assets NPA management costs and other provisions have remained reasonably stable in the quarter or quarter on quarter just affected by extraordinary events that we have been sharing with you.
4482264,207,1783.9,1792.9399,2,These provision levels have allowed us to slightly beat our guidance and in the year with the cost credit cost of risk and total cost of risk slightly lower than h one levels.
4482264,208,1794.49,1806.01,2,In order to see how twenty twenty two could evolve in terms of cost of risk it is worth mentioning or reviewing first the part of the credit book that enjoyed or is still enjoying payment holidays or equal guarantees.
4482264,209,1806.8101,1815.55,2,Beginning with the loan portfolio benefited with payment holidays in Spain basically retail as of today one hundred percent of the total moratoria has granted has expired.
4482264,210,1817.48,1828.35,2,Of the total of three point five billion euros granted five hundred million euros have already been fully amortized while the remaining three billion are all back paying down principle as mentioned before.
4482264,211,1829.12,1836.41,2,On the total payment holidays granted or of the total uh payment holidays granted twelve percent are in stage three.
4482264,212,1837.2,1845.15,2,with within that stage three loans classified are unlikely to pay account for last minority almost or more a little bit more than eighty percent.
4482264,213,1846.14,1858.14,2,it's important to note that the percentages of loans in stage three have remained stable quarter on quarter while the percentage of payment holidays expired have been growing towards the current one hundred percent of the quarters.
4482264,214,1858.6899,1872.29,2,The starting point in q one sixteen percent of stage three was due basically to the fact that the first moratoria to expire were those based on consumer loans which by definition imply a higher risk than the mortgage loans.
4482264,215,1873.17,1881.01,2,Additionally as mentioned before fourteen percent of the total payment holidays granted have been already amortized the before mentioned five hundred million euros.
4482264,216,1881.95,1893.23,2,And this this portfolio is represented by a larger amount of consumer loans where two-third of the total loans granted consumer loans granted under this program have already been fully amortized.
4482264,217,1894.63,1908.65,2,Moving onto the eco state guaranteed loans this quarter we have granted two hundred and sixty million euros so the total outstanding amount drawn to date is eight point six billion euros where state guarantees cover an average of seventy six percent.
4482264,218,1909.85,1919.26,2,Once the deadline for the request of potential extensions has come to an end more than sixty percent of the eco exposures are already facing principle payments in twenty twenty one.
4482264,219,1919.89,1935.0801,2,Whereas the best part of the remaining forty percent approximately eighty percent will end their grace period and therefore start repaying principle in q two twenty twenty two as you can see in the graph at the bottom right hand side of a slide.
4482264,220,1935.8199,1943.38,2,From a risk quality perspective it is important to note that <inaudible> five percent of these eco loans are already classified in stage three.
4482264,221,1944.05,1948.0801,2,And out these five percent sixty percent are unlikely to pay.
4482264,222,1948.58,1952.34,2,This is they're not past due more than ninety days.
4482264,223,1952.8101,1961.03,2,Moving on to the next slide for twenty twenty two we expect some catalysts in cost of risk to provide a downward trend in provisions.
4482264,224,1961.78,1976.5,2,First let me briefly guide you through the evolution of cost of risk for this year as it's shown on the graph on the left hand side of the slide both credit cost of risk and total cost of risk end of the year converging to more normalized figure.
4482264,225,1977.59,1984.59,2,Looking at the breakdown of the loan book allow me to highlight the main drivers that we expect will support a positive trend in credit cost of risk.
4482264,226,1985.4399,1990.64,2,Through this we divide the book as we have shared before in three different sub portfolios.
4482264,227,1991.49,2003.16,2,The sub portfolio uh or the portfolio which has not been affected by either moratoria or payment holidays the portfolio covered with eco guarantees and lastly the portfolio which receive payments holidays.
4482264,228,2003.74,2009.6499,2,First let us share our views for the non-affected part of the book which is by far obviously the largest of the three.
4482264,229,2009.7,2013.08,2,It represents ninety two percent of the total.
4482264,230,2013.12,2016.3201,2,This is around one hundred and forty three billion euros.
4482264,231,2017.21,2022.8199,2,The portfolio this portfolio has had a very good performance in terms of credit quality in twenty twenty one.
4482264,232,2023.15,2025.41,2,We have not seen anything extraordinary.
4482264,233,2025.5699,2032.42,2,And as we have been sharing with you the net influence have remained at better than expected levels throughout twenty twenty one.
4482264,234,2033.2,2041.5199,2,We believe this tendency will continue in twenty twenty two on the back of an even better twenty twenty one better than twenty twenty ones macroeconomic outlook.
4482264,235,2042.5699,2048.6199,2,Secondly we have the eco loan portfolio where we have not seen any material deterioration today.
4482264,236,2049.0801,2059.8599,2,In fact we have taken a conservative approach this quarter to advance some loss recognitions for those cases where we have seen or anticipated any potential significant increase in risk.
4482264,237,2060.3501,2068.1602,2,The evolution of this book will be linked to the development of the loans that will start to face principle payments from q two onwards as explained before.
4482264,238,2068.8,2082.5701,2,In any case I think it's very important to remember that these exposures are covered with a state guarantee by seventy six percent therefore reducing any potential customer risk effort to just twenty four percent of the total exposure.
4482264,239,2083.71,2095.3298,2,And thirdly we have the payment holiday portfolio where as mentioned before one hundred percent of the payment holidays have already expired where the level of NPLs have remained stables since uh June basically.
4482264,240,2096.1599,2106.4099,2,This evolution as well as the more constructive microeconomic environments allow us to believe that this portfolio will not generate further NPLs nor obviously cost of risk in twenty twenty two.
4482264,241,2107.3201,2116.9502,2,Therefore considering all these drivers we believe that credit cost of risk for twenty twenty two should land between twenty twenty ones and twenty nineteens.
4482264,242,2118.8899,2125.3599,2,In terms of the total cost of risk trend for twenty twenty two lemme review different dynamics across the different comp concepts.
4482264,243,2125.8799,2131.0999,2,Keep in mind as we discussed earlier that excluding extraordinaries this land should be reasonably stable.
4482264,244,2132.0,2139.1401,2,In foreclosed assets we will not have the forty million euros of extraordinary provisions related to branch grocers that were booked for in twenty twenty one.
4482264,245,2140.0701,2144.54,2,NPA management I believe uh costs should remain reasonably stable in twenty twenty two.
4482264,246,2145.3899,2160.4302,2,And finally in terms of other provisions which are basically as I said as I mentioned before litigation and fiscal risks we believe that uh we performed significantly better than twenty twenty two among other things because we have front-loaded twenty five million euros in twenty twenty one.
4482264,247,2160.6499,2170.5298,2,And moreover on top of this as mentioned before we see uh no new sources of risks in twenty twenty one and therefore these lines should improve in twenty twenty two.
4482264,248,2170.9099,2179.03,2,In conclusion these drivers should allow uh for the total cost of risk to improve further also in twenty twenty two.
4482264,249,2179.3799,2184.5498,2,As always in the final section of the presentation we'll review the asset quality dynamics the liquidity and the capital.
4482264,250,2185.1399,2193.6299,2,Starting by asset quality we showed the evolution of our problematic assets and let's start with NPLs in uh slide number thirty.
4482264,251,2194.8,2204.3201,2,NPLs have had an increase in the year of three hundred and ninety five million euros but this has been impacted by one of items that we will see in detail in a minute.
4482264,252,2204.74,2217.02,2,And as a result our NPL uh ratio also went up by six basic points up to three point six five percent while the total coverage on NPLs remains uh stable at fifty six percent.
4482264,253,2218.1201,2223.5901,2,The outcome as we have been sharing with you over quarter has been significantly better than what we had budgeted at the beginning of the year.
4482264,254,2224.52,2233.0601,2,As per the increase of the three hundred ninety five million euros in NPLs I think it's worth taking into account that most of the movement has been due to non recurrent items.
4482264,255,2233.0901,2243.99,2,So on the one hand you might remember TSB in q one had an extraordinary increase of one hundred ninety million euros which was related to regulatory changes for the definition of default of their market portfolio.
4482264,256,2244.6799,2246.5798,2,The evolution since then has been very stable.
4482264,257,2247.4099,2253.49,2,And additionally we have had one hundred fifty million euros of NPL portfolio report changes throughout the year.
4482264,258,2254.0701,2259.6799,2,These report changes are linked to the portfolios that were sold in twenty nineteen and twenty twenty two.
4482264,259,2260.3101,2266.77,2,Therefore we don't expect any further impacts going forward because all the portfolios have been cleaned if you wish.
4482264,260,2267.77,2276.1702,2,In addition our exposures across stages have remained broadly stable Q on Q as well as our stage three coverage which stands at forty one point two percent.
4482264,261,2276.8999,2283.3599,2,And finally I think it's worth remembering that half of our current NPLs are classified as unlikely to pay.
4482264,262,2284.46,2296.77,2,Now in terms of foreclosed assets and foreclosed NPAs in slide thirty one you can see that the stock of foreclosed assets declined by eleven million euros in the year representing less than one point four uh billion euros.
4482264,263,2297.24,2302.4502,2,Coverage uh ratio for this portfolio slightly in increased up to uh thirty eight percent.
4482264,264,2303.4399,2315.8101,2,Regarding total NPAs the stock went up uh and amounts to seven point six billion euros which is explained by the previously mentioned increase in NPLs while the coverage remained uh steady at fifty three percent.
4482264,265,2316.54,2326.8298,2,Finally the gross and net n p a ratios stand at four point four percent and two point one percent respectively with a year on year and a quarter on quarter evolution that have remained properly stable.
4482264,266,2328.1699,2329.3401,2,Moving now into liquidity.
4482264,267,2329.79,2334.6699,2,Uh we see that the group ones again and that the quarter and the year with the record liquidity position.
4482264,268,2335.0,2346.1301,2,This can be reflected in an LCR of two hundred and twenty one percent on fifty seven billion euros worth of high quality liquid assets launch depot uh end the quarter at ninety six percent.
4482264,269,2346.3,2348.3799,2,So it's pretty pretty solid numbers in my opinion.
4482264,270,2349.01,2355.78,2,We have uh uh in terms of European Central Bank funding currently have thirty two billion euros of outstanding to tlt oh three.
4482264,271,2356.4199,2365.4402,2,And in terms of t f s m e for the UK we currently have five point five billion pounds outstanding of which two point five were uh drawn in the quote.
4482264,272,2367.0701,2373.98,2,And as per a capital opposition we continue generated capital even under a material non book increase environment.
4482264,273,2374.1399,2387.49,2,Our c d one fully loaded ratio stands at twelve point one eight percent at year end having increased by sixteen basic points in the year while our loan book has expanded over six billion euros.
4482264,274,2388.28,2405.23,2,Now when we look at the quota's evolution we see an increase derived basically by our organic capital generation despite the contributions to E-deck and the the bonds deposit guarantee schemes uh in the quarter and also accruing a thirty one point eight percent cash payout.
4482264,275,2406.21,2418.75,2,Another positive movement it's the strategic uh disposals that we have been sharing with you through the year uh basically renting business in Andorra who's contributed with seventeen basic points um as expected.
4482264,276,2419.8601,2430.8301,2,It also should be noted that this quarter we have front-loaded a big part of the impact that we shared with you in previous quarters that we were expecting for the EBA guidelines.
4482264,277,2431.3,2437.7998,2,We were expecting fifteen basic points for twenty twenty two and we have front loaded ten of those fifteen in twenty twenty one in this quarter.
4482264,278,2437.8301,2446.53,2,Therefore the only regulatory impact that we expect for twenty twenty two is just a minor five basic points coming from these EBI uh guidelines.
4482264,279,2447.3999,2461.8,2,From a regulatory perspective c t one ratio uh stood at twelve point four three percent on a phasing basis and consequently our MDA buffer now stands at three hundred ninety one basic points having increased by seventy eight basic points in the year.
4482264,280,2462.52,2466.72,2,This buffer as you might remember is above our target of three hundred fifty basic points.
4482264,281,2467.8201,2475.9099,2,And we see it increase in the future since what we've seen what we have for forecasted for twenty twenty two is an increase in c t one fully loaded.
4482264,282,2477.4099,2482.9399,2,To conclude this section the following slide shows you our current <inaudible> position and the requirements for twenty twenty four.
4482264,283,2483.77,2503.51,2,As we are already compliant with all targets uh the ones based on risk rate assets the ones based on leverage ratio and also the subordinated ones our issuance plan will be therefore focused on optimizing the funding costs and the funding sources as well as keeping our capital buckets full and a number of management buffer.
4482264,284,2504.49,2508.6799,2,And with this I hand over to Cesar who will conclude our presentation today.
4482264,285,2509.24,2509.8301,1,Thank you Leo.
4482264,286,2509.96,2515.3401,1,To finish our result presentation today I will like to recap on the targets achieved in twenty twenty one.
4482264,287,2516.3899,2522.25,1,Uh I would like to signal that twenty twenty one we have reached all targets set in our strategic plan.
4482264,288,2522.73,2540.73,1,On the strength of uh core results and perspective for cost of risk as per the guidance Leo just provided we are bringing forward our twenty twenty two the more than six percent return on tangible equity target.
4482264,289,2540.9099,2554.8401,1,Finally the board has approved to propose at the next annual general meeting a cash dividend payment of three cents per share which implies a slightly higher than thirty percent payout and a dividend yield of around five percent.
4482264,290,2555.21,2560.1399,1,And with this I will hand over to Geraldo to kick off our q and a.
4482264,291,2560.5901,2560.9001,1,Thank you.
4482264,292,2562.6899,2563.49,0,Uh thank you Cesar.
4482264,293,2563.49,2566.1501,0,Uh we'll now begin the q and a session.
4482264,294,2566.3999,2570.95,0,Uh we will love to take questions from all of you and there are already many of you in line.
4482264,295,2571.25,2577.1599,0,So I would currently ask you to uh try to to uh make a reduced number of questions if possible please.
4482264,296,2578.3501,2581.0601,0,Operator could you please open the line for the next question?
4482264,297,2592.6101,2595.73,4,Um my question really about NII.
4482264,298,2648.8101,2651.6001,4,What what do you think uh could be computed away?
4482264,299,2651.6299,2652.1101,4,Thank you.
4482264,300,2652.1101,2652.3801,1,Okay.
4482264,301,2652.53,2656.27,1,Let let me give it the first shot and then i will I'll let uh Leo.
4482264,302,2656.27,2680.5798,1,Uh when we look um forward we we yes think uh that uh NII should be flattish because uh uh although the AlCO portfolio uh disposal of uh this year will be partially mitigated by reinvestment in government bonds and there the higher yield curve will help.
4482264,303,2681.45,2685.54,1,And also it will be helped by wholesale uh funding costs.
4482264,304,2685.54,2687.72,1,T he net effect should be negative.
4482264,305,2688.1599,2717.3901,1,Also the TL uh uh tlt zero that ends in June two two uh there we think that it will be more than offset and this links to your second question more than offset by TSB because uh t s b although margins are going to have some pressure will benefit from two significant factors which here which are higher volumes and higher interest rates by the Bank of England.
4482264,306,2717.8301,2733.04,1,And our Bank of England rates in our numbers are relatively conservative and we might see some further tailwind In Spain as you have seen we are gaining market share across all products basically.
4482264,307,2733.7,2743.6299,1,And uh therefore we consider that the volumes will continue to be healthy and will be offset somewhat by marching corporation.
4482264,308,2743.6299,2752.6501,1,So overall uh our guidance and you are writing reading uh Leo's message our guidance is more or less uh flattish.
4482264,309,2753.0901,2758.25,1,I think I have kind of answered the the volumes uh response.
4482264,310,2758.25,2759.3699,1,We spend uh…
4482264,311,2759.5901,2773.6899,1,we are expecting volumes in Spain low single digit growth across the different segments continuing hopefully to gain market share in all products that's mortgages consumer loans SMEs and corporates as we did in twenty one.
4482264,312,2774.73,2785.0798,1,The tailwind of the next generation EU fund will come more in the second part of the year uh the forty billion that we were mentioning before.
4482264,313,2785.29,2790.7102,1,And in UK we are foreseeing a mid single digit growth in in volumes.
4482264,314,2791.4299,2792.8401,1,Leo I don't know if you want to add.
4482264,315,2793.8401,2795.4302,2,Uh I think you you answered most of it.
4482264,316,2795.4299,2801.46,2,lemme just put some numbers if you wish uh onto that note so so that we are as clear as we can.
4482264,317,2801.8301,2808.6602,2,So basically um for the ALCO book as we mentioned in third quarter and I can refresh now uh we…
4482264,318,2808.7,2832.9099,2,I mean if we compare our current outstanding balances and the yield that we had in twenty twenty one versus the one that we would have with those outstanding balances in twenty twenty two we would have a negative impact of minus sixty million euros of contribution but we are short of eight billion euros of bonds and we expect to um take advantage of the uh rate uh uh movements long term rate movements now.
4482264,319,2832.9399,2840.3301,2,So we expect that uh we will reinvest uh uh uh all or a big part of that uh uh portfolio through the year.
4482264,320,2840.3701,2850.98,2,So we should compensate most of that impact not total because you know we will take time until we rebuild those those those uh portfolios with good rates but most of that should be compensated.
4482264,321,2850.98,2860.47,2,Remember that in this current context it is not only the yield that you get out of the bonds but also the the the the reduction of the excess of liquidity which is very important.
4482264,322,2861.27,2867.54,2,Um the second impact is still zero minus seventy five billion uh million euros sorry uh for for next year.
4482264,323,2868.25,2870.3201,2,Um we believe as Cezar explained that these will…
4482264,324,2870.8701,2874.1899,2,we should be more than offset by uh the TSB evolution.
4482264,325,2874.1899,2879.5701,2,TSB we need to remember that uh we are counting on volumes next year but it's not only volumes of twenty twenty two.
4482264,326,2879.6001,2892.3801,2,We have to remember that TSB grew uh well over eleven percent this year and what we have uh from first January it's the total volumes that we ended with uh with we ended with in q four.
4482264,327,2892.47,2894.77,2,So it's it's significantly higher than q one twenty one.
4482264,328,2895.0801,2899.52,2,So these these adds also a lot of money for or a lot of NII for uh twenty twenty two.
4482264,329,2899.5601,2904.26,2,And on top of that we are expecting to increase volumes in TSB uh in in twenty two.
4482264,330,2904.9099,2910.8601,2,Now in terms of rates I think we've been reasonably uh uh conservative if you wish.
4482264,331,2911.1101,2914.1699,2,So for Spain we have not considered any rate movement.
4482264,332,2914.51,2922.96,2,I know there are a number of uh brokers that are coming now with uh more optimistic uh uh views in the last uh few weeks but we have considered zero.
4482264,333,2923.48,2926.48,2,And in terms of TSB we've only considered twenty five basic points.
4482264,334,2926.48,2929.8899,2,While in the market now it's probably facing more to one hundred this year.
4482264,335,2930.8401,2935.1199,2,Uh so I think if anything that should help in any case.
4482264,336,2935.1499,2939.24,2,Uh I'm I'm talking about the n i i sensitivity that you mentioned uh um Alvaro.
4482264,337,2939.9099,2950.51,2,We need to remember that uh basically um higher interest rates take some time to flow into into n i i you know uh because it takes time to reprise all the asset side you know.
4482264,338,2951.0,2962.96,2,So I think um in terms of sensitivity we have a little bit more sensitivity in TSB than in Spain uh but in a different context if you allow me to explain it this way.
4482264,339,2963.01,2969.47,2,While in Spain or continental Europe um um <inaudible> is still at minus fifty so deep negative.
4482264,340,2970.05,2978.9502,2,We don't expect that any rate movement whenever that comes will have an impact on the liability sites you know because as I said the rates are still very very negative you know.
4482264,341,2978.95,2987.1899,2,So I think uh uh any uh movement in rates whenever it comes should be more or less trespassed fully trespassed to NII.
4482264,342,2987.95,2992.3799,2,In TSB is a little bit different because the rate is already positive and it's at twenty five basic points.
4482264,343,2992.74,3004.3298,2,So when looking at uh the NII sensitivity we have to take an assumption regarding uh how much of that interest uh rate hike would be passed through to the deposit.
4482264,344,3005.3101,3017.03,2,But in general terms in general terms the sensitivity to NII for the group and for TSB uh uh should be around two percent to 3% of NII for every ten basic points movement.
4482264,345,3017.29,3029.8,2,But please remember that the impact of these n i i movements as we have shared before is much more concentrated on the second year than in the first year because as I mentioned before it takes time to reprise the the asset side.
4482264,346,3033.1699,3033.9199,1,Uh thank you.
4482264,347,3034.1399,3036.5601,1,Um please could we move to the next question?
4482264,348,3038.2,3041.96,3,Next question come from the line of Mark Machin from GB Capital.
4482264,349,3041.96,3043.03,3,Please ask your question.
4482264,350,3044.46,3044.73,5,Hi.
4482264,351,3044.73,3045.2202,5,Good morning.
4482264,352,3045.25,3047.8601,5,Thank you for the presentation and taking the questions.
4482264,353,3047.8601,3049.79,5,I have two um if I may.
4482264,354,3049.79,3051.27,5,The first one is on taxes.
4482264,355,3051.27,3055.5901,5,I would appreciate if you could take us through the fiscal adjustments you included in the quarter.
4482264,356,3056.3,3058.04,5,And the second one is on profitability.
4482264,357,3058.04,3063.4202,5,Uh you've brought forward the about six percent return on taxable equity target to two thousand twenty two.
4482264,358,3063.4199,3068.0798,5,I was wondering if you include any provision rever reversals at TSB in the guidance.
4482264,359,3068.72,3076.54,5,And also now that things are going in line or even better than expected why don't you want to be more bullish on the twenty twenty three target?
4482264,360,3076.95,3077.27,5,Thank you.
4482264,361,3079.78,3086.8601,1,I'll leave the the taxes uh to you Leo and uh give a very very high level on the profitability.
4482264,362,3087.3701,3104.0498,1,Uh on the profitability to your specific question if there's uh something about uh reversion uh in TSB we have there still uh thirty million of potential reversion but that's not the material in uh our consideration of the profitability.
4482264,363,3104.05,3121.6001,1,The profitability of the six percent is coming basically from uh <inaudible> NNI low single digit in fees contribution of a hundred and ten million of uh the saving cost and a significant reduction in uh in in risk cost.
4482264,364,3121.6001,3130.3999,1,So that's the main origin of the profitability looking forward and our confidence in the more than six percent for twenty twenty two.
4482264,365,3131.45,3133.78,1,But I leave Leo on the taxes.
4482264,366,3134.1699,3135.9399,1,Sorry uh on twenty…
4482264,367,3135.9399,3139.04,1,yeah for more than six percent on twenty twenty two.
4482264,368,3139.48,3148.55,1,We are not uh giving any uh guidance for twenty twenty three because uh we think that it's a little bit too early.
4482264,369,3148.55,3155.0701,1,This is just uh eight months uh eight months old and we don't think we should change the plan at this point in time.
4482264,370,3155.49,3167.8801,1,But certainly we are more optimistic about beating the plan as we stand uh beating the plan of twenty twenty three as we stand today as it's uh quite obvious from the numbers we are have shown today.
4482264,371,3169.1201,3173.76,2,And uh with the regard to taxes uh basically in q four we closed uh some subsidiaries.
4482264,372,3173.76,3176.55,2,we've come from from around ten years ago.
4482264,373,3176.96,3187.47,2,Uh some some real estate subsidiaries um that allowed us to contribute or consolidate fifty six uh million euros sorry yeah million euros of of fiscal uh assets you know.
4482264,374,3187.8401,3196.3301,2,So basically this has an impact a positive impact in PNL which is the one that you've seen but has no impact in in capital because basically there are tax losses carried forward.
4482264,375,3196.6899,3199.29,2,So basically they're deducted from from c t one.
4482264,376,3199.4399,3204.3201,2,This is a one off uh uh impact that uh was due to arrive in this quarter.
4482264,377,3207.8201,3209.1602,1,Thanks a lot for the questions Max.
4482264,378,3209.22,3209.5901,2,Oh sorry.
4482264,379,3209.5901,3209.77,2,Yeah.
4482264,380,3209.77,3211.23,2,On on on one more thing.
4482264,381,3211.26,3218.75,2,Uh remember that also in this quarter we have the profit coming from the renting disposal which is tax free okay?
4482264,382,3219.1299,3222.0601,2,It it does not contribute to to uh the income tax.
4482264,383,3224.5901,3225.5801,1,Thanks lot for the questions.
4482264,384,3225.74,3227.7002,1,Uh let's move on to the next caller please.
4482264,385,3265.49,3267.5601,6,in twenty twenty two particular in the first quarter?
4482264,386,3267.5601,3274.21,6,I mean can I assume that a lot of the learning growth syndicated learning growth activity has been back and loaded in the quarter?
4482264,387,3274.8601,3281.1902,6,So so if you yes could elaborate a bit on on the dynamics of our portfolio in margins and in NII.
4482264,388,3281.54,3281.8401,6,Thank you.
4482264,389,3284.27,3285.29,2,Should I take them if you wish?
4482264,390,3285.5701,3290.74,2,Uh so first on on fees um we had a very good year for twenty twenty one.
4482264,391,3290.8301,3292.52,2,It was better than what we expected.
4482264,392,3292.52,3294.52,2,We guided for mid single digit growth.
4482264,393,3295.1299,3301.6399,2,We almost did nine percent uh and I think uh um yeah we're very happy about uh the evolution.
4482264,394,3302.1599,3306.6702,2,We are still seeing uh good momentum in twenty twenty two.
4482264,395,3307.1299,3319.9099,2,Uh there's a number of things that should help us increase our uh fees in twenty twenty two but we see a little bit less uh um of an evolution than the one that we had in twenty one because it was very big.
4482264,396,3320.1101,3324.97,2,So basically uh that's why we're guiding for a low single digit uh uh growth.
4482264,397,3324.97,3326.9299,2,Now we are fairly confident that we can achieve it.
4482264,398,3327.3201,3333.2598,2,This is based on basically the very positive uh um commercial momentum in terms of AUMs.
4482264,399,3333.6599,3335.3201,2,We're very happy with the evolution of AUMs.
4482264,400,3335.3201,3347.05,2,I mean um when I look back now basically we are only ten ten percent behind what we were making in terms of fees and commissions in AUMs before we sold the asset manager last year.
4482264,401,3347.3301,3355.3499,2,So basically um we are about to complete a one year payback which is in my opinion quite impressive.
4482264,402,3355.8701,3366.0701,2,And this is because um yeah the the kind of products that we're putting uh uh or that we are showing our our customers was much better than what we could do on a standalone basis before.
4482264,403,3366.46,3373.74,2,And therefore we are we're getting quite a lot of momentum on this regard and we expect certainly these to continue in twenty uh twenty two.
4482264,404,3374.6399,3387.3,2,we are also thinking that we can maximum uh some increases in terms of insurance uh basically uh if only uh based on the evolution of our mortgage volumes and the insurance related to them.
4482264,405,3387.6101,3390.53,2,So we are we are um positive in that regard.
4482264,406,3390.8899,3392.0298,2,And then activity you know.
4482264,407,3392.03,3399.76,2,We believe that uh um the activity will has to recover more in twenty twenty two on the basis of the macro context you know.
4482264,408,3400.0901,3412.9399,2,So we are fairly optimistic in in fees in twenty two but uh uh we don't think we will be able to achieve the numbers that we achieved in two one because they were basically uh better than what we were um that we were thinking you know.
4482264,409,3413.3701,3415.5801,2,So positive but low single digit.
4482264,410,3416.04,3429.54,2,And in with regards to uh your second question uh we saw in the quarter uh some pressure on um the um margins of especially corporate banking.
4482264,411,3429.6599,3446.7998,2,Uh you know banks were were um wanted to make certain that they were going to achieve the net land in targets uh and therefore especially in December we saw a little bit of a drop in um in prices uh but I think it was a a very seasonal impact in my opinion.
4482264,412,3446.8,3449.8899,2,It was driven by this issue that I that I mentioned uh before you know.
4482264,413,3450.5901,3456.78,2,And in terms of volumes for next year as Cesar was mentioning we we believe that we should keep on growing on this on this segment you know.
4482264,414,3457.1001,3459.27,2,I mean on on on the SME segment you know.
4482264,415,3459.6399,3471.1902,2,Uh next year or sorry this year in twenty two we have the we we should start seeing the impact of the next generation fund but I think this is going to be in my opinion back loaded to the second half of the year.
4482264,416,3471.6101,3478.8499,2,But despite that I think um the uh recovery of the economy should uh should improve uh the numbers here.
4482264,417,3478.8799,3481.25,2,Not something specticular uh spectacular sorry.
4482264,418,3481.79,3487.8999,2,Uh as Cesar mentioned before we've seen low single digit growth volumes for Spain um in twenty two.
4482264,419,3491.5701,3492.02,1,Thank you.
4482264,420,3492.25,3494.0898,1,Uh let's move please to the next question.
4482264,421,3502.01,3502.2,7,Hello.
4482264,422,3502.2,3502.8,7,Good morning.
4482264,423,3507.96,3511.8,7,Can you please elaborate a bit more the volumes you could be adding and what are you buying?
4482264,424,3535.6299,3536.4199,7,What is there?
4482264,425,3536.71,3538.5398,7,Um and could we see more?
4482264,426,3539.46,3543.8699,7,And then more generally what is your outlook for NPL increase in twenty twenty two?
4482264,427,3543.9099,3546.0698,7,We've seen that NPLs are up.
4482264,428,3546.3999,3548.6799,7,Uh you are a bit of an outlier here.
4482264,429,3548.6799,3567.6702,7,Banks that have reported so far uh have shown very very sound NPL trends.
4482264,430,3579.1201,3582.5601,2,Uh as I mentioned there is a chance that we reinvest those bonds.
4482264,431,3582.6399,3585.4199,2,I I do not fully agree with your view on this regard.
4482264,432,3585.45,3589.72,2,I think um obviously if we buy bonds it's going to be in the help to collect portfolio.
4482264,433,3589.75,3595.75,2,So uh it shall have no impact in in capital in any case uh going forward.
4482264,434,3596.25,3605.9402,2,And I think we need to remember that it's not only uh the yields that we're getting out of the of the bonds that we buy but access liquidity which is costing us fifty basic points at the current day you know.
4482264,435,3606.5,3627.1401,2,As I said um with these um with the construction of this portfolio in twenty twenty two we're probably not gonna be able to fully offset the impact of the minus sixty million euros that I mentioned before cuz it will take time to build this portfolio and we're gonna be opportunistic with the yields but I think it should help to uh to offset most of it.
4482264,436,3627.77,3634.95,2,Uh with regards to us equality basically what we had in the in the year was a flow back of a hundred fifty million euros in NPLs.
4482264,437,3636.22,3638.6001,2,I think it's it's worth seeing the context of this.
4482264,438,3638.9199,3647.3599,2,This is a hundred and fifty million euros on the back of over ten billion euros of transactions of the disposals of these portfolio.
4482264,439,3647.3601,3650.76,2,So barely I dunno one point six percent of the total.
4482264,440,3651.24,3653.6399,2,And the reasons for these are basically uh two.
4482264,441,3653.6699,3672.01,2,On the one hand in NPLS is uh the difference um between the <inaudible> and and and the <inaudible> of the closing which is basically that the <inaudible> uh identified assets is not eligible uh uh loans related to social housing uh loans that have been repossessed during that period et cetera et cetera.
4482264,442,3672.01,3673.5,2,Now this is absolutely normal.
4482264,443,3673.76,3676.71,2,I've seen it um in in my previous job.
4482264,444,3676.71,3677.5498,2,I've seen it everywhere.
4482264,445,3677.55,3682.53,2,I think it's the numbers in my opinion are not are not very very relevant.
4482264,446,3682.75,3686.0,2,And then there's also another impact in the in the case of foreclosed assets.
4482264,447,3686.03,3689.03,2,And this is due to the <inaudible>.
4482264,448,3689.3701,3699.3301,2,Uh when this was uh implemented uh any repossessed assets sold that did not meet the new uh <inaudible> would've to be reverted to the bank.
4482264,449,3699.3601,3703.24,2,And these <inaudible> are coming back to the bank in the forms of uh NPLs.
4482264,450,3703.24,3712.6301,2,In any case um we do not see any impact going forward because the portfolios that were shelved in twenty nineteen and twenty twenty are really clean.
4482264,451,3712.9199,3722.1099,2,So this was more of an historical issue uh uh that was pending to to finish if you wish and not uh uh and not anything that we still have going forward.
4482264,452,3722.73,3725.75,2,So this is a hundred and fifty million of the movement of NPLs.
4482264,453,3725.8899,3739.8501,2,The N P L S moved three hundred and ninety five million euros in the year and we also have another specific impact which accounted to one hundred ninety million euros uh in q one uh and was derived from uh TSB as explained before.
4482264,454,3740.22,3750.5701,2,So all in all uh we are saying that uh three hundred and fifty of the three hundred and ninety five uh uh um million Euro growth in NPLs in the year are basically explained by these two factors.
4482264,455,3751.1599,3761.1802,2,Uh in my opinion uh an evolution of uh um forty fifty million euros in in in twenty twenty one of increase of NPLs well we're very happy with it.
4482264,456,3761.3999,3764.73,2,I think it's much much better than what we ever could imagine you know in twenty-
4482264,457,3764.73,3765.5898,2,in twenty twenty one you know.
4482264,458,3765.99,3767.9399,2,So for next year what's the outlook you know?
4482264,459,3768.4299,3800.26,2,As I tried to explain before uh dividing the three different buckets of the portfolio that we have you know uh on the vast majority of the portfolio over ninety perc ninety percent of the portfolio which is not affected by neither moratoria nor <inaudible> trend is very good has been very good in twenty one and I don't see a reason to um believe that the trend should not be at least the same or even better in twenty twenty two you know cuz the macro is is holding up very well real estate prices are going up unemployment rate is going very well and and GDP should grow from five percent to 6% next year.
4482264,460,3801.6299,3804.51,2,On the second book moratoria I think that's done.
4482264,461,3804.6499,3813.8301,2,Uh as I mentioned before you know everything is already paying uh uh five hundred million out of the three point five or half already been amortized.
4482264,462,3814.1699,3824.1499,2,So we don't expect neither uh new NPLs nor um basically uh um um any kind of cost of risk for twenty twenty two you know.
4482264,463,3824.6699,3833.97,2,And on the eco book uh well we we um anticipated uh and front loaded a little bit of NPLs this quarter uh out of that book.
4482264,464,3834.0,3838.8501,2,Um as I said we have around five percent of the book uh classified as a stage three.
4482264,465,3839.45,3842.0,2,And out of that sixty percent is unlikely to pay.
4482264,466,3842.03,3844.4302,2,Therefore it has not uh passed due over ninety days.
4482264,467,3845.21,3846.1602,2,Uh we will see.
4482264,468,3846.1599,3848.6802,2,And we need to wait a little bit on on how these evolves.
4482264,469,3848.71,3860.0901,2,And I think the the trigger here for us and I believe the sector will be second Q next year cause eighty percent of the remaining exposure that is not paying principle today uh will start uh in second Q.
4482264,470,3860.8301,3873.3499,2,Uh but in any case um the impact of these in cost of risk I think uh well it's certainly uh um reduced given the fact that seventy six percent of these book is covered by state guarantees.
4482264,471,3873.3501,3878.1802,2,Therefore we only have to provide for the remaining twenty four percent in terms of cost of risk.
4482264,472,3878.55,3888.3899,2,So for overall movement in NPLs I'm not certain whether we we have seen the peak at the end of twenty twenty one but I believe that if we have not seen that peak.
4482264,473,3888.5,3893.1401,2,Uh the movement in twenty twenty two should not be relevant in in my opinion.
4482264,474,3896.6299,3897.1699,1,Thanks a lot.
4482264,475,3897.2,3898.9102,1,Let's move on to the next question please.
4482264,476,3946.3701,3946.79,8,Thank you.
4482264,477,3949.8799,3950.25,2,Sure.
4482264,478,3950.25,3952.7,2,So basically um as uh…
4482264,479,3952.7,3953.4802,2,it's maybe four.
4482264,480,3953.55,3968.6099,2,We are expecting eighty five percent of the expected savings out of our uh second efficiency plan which we are now basically um um executing to uh be reflected in our numbers in twenty two already.
4482264,481,3969.4299,3977.8601,2,Uh we are out of um at the end of January basically around fifty percent of the efficiency plan will have already been executed.
4482264,482,3978.23,3982.8301,2,So that's why we are confident that we will and the remaining fifty percent will be executed in February and March.
4482264,483,3983.1699,3983.54,2,So we are…
4482264,484,3983.54,3987.9099,2,that's why we're very confident that we'll achieve these uh at least these eighty five percent you know.
4482264,485,3988.45,3989.5601,2,On the…
4482264,486,3989.5901,3996.4199,2,uh so that's in in in you know in case we're very confident that we can we can uh meet those uh those targets you know.
4482264,487,3996.98,4007.95,2,As per the the inflation yes there is inflation in costs but uh it's basically linked to electricity or the most the biggest part of that it's linked to electricity.
4482264,488,4008.5801,4033.4202,2,So while inflation is uh over six percent in Spain if we go to um uh the pot that should be or could impact our uh um our costs uh it's probably more linked to the service inflation and that's more around two percent in any case we are fighting to try to reduce that uh in this year.
4482264,489,4033.8,4058.77,2,And we have some cost efficiency initiatives in order to uh offset that uh efficiencies in in in the field of of I dunno the amount we are we are spending on consultancy um uh the amount that we are uh spending in in um physical mailing uh driven by the fact that our clients want to uh relate with us uh through digital and not physical.
4482264,490,4058.77,4059.23,2,And that…
4482264,491,4059.3899,4065.6499,2,well it it seems it seems silly but there's a lot of money in in that uh physical mailing.
4482264,492,4065.6499,4068.3298,2,So I think we can we can save there uh some money.
4482264,493,4091.3799,4091.7698,2,Correct.
4482264,494,4093.0701,4093.27,2,Yep.
4482264,495,4093.3799,4094.1799,2,Sorry that was the Spain.
4482264,496,4096.6699,4097.0498,1,Thank you.
4482264,497,4097.3198,4099.3901,1,Uh let's please move on to the next question.
4482264,498,4106.6499,4107.4502,9,Uh good morning.
4482264,499,4144.9502,4150.3999,9,And um yeah that would be it.
4482264,500,4150.6099,4150.9199,9,Thank you.
4482264,501,4152.6499,4153.1499,1,Okay.
4482264,502,4153.1499,4169.1001,1,So on on dividends uh there is no guidance uh and there's no decision from the board uh for future uh besides uh what has been communicated today around the distribution over the twenty twenty one results.
4482264,503,4169.5498,4183.3901,1,Uh the logic and the mood would be that uh logically as uh as results uh continue to improve uh payout uh would uh should also naturally uh increase.
4482264,504,4183.7998,4190.1196,1,Uh but uh there's no more that we can say at this time because uh there's no formal decision from from the board.
4482264,505,4190.6499,4198.9302,1,In terms of the TSB fine it is still early uh although we think that the movements will happen uh probably this this year.
4482264,506,4199.48,4202.0098,1,Uh I think there are two factors here.
4482264,507,4202.3999,4205.21,1,One is uh the fine which is uncertain.
4482264,508,4205.4102,4210.8003,1,And the other one is the recovery uh from the insurance which is also uncertain.
4482264,509,4211.3701,4221.6602,1,The way we see it is that we expect that there will be no material impact uh from that because uh they will tend to compensate each other.
4482264,510,4222.0801,4235.4497,1,And the only thing that we do is we expect a timing difference between the potential fine which should come earlier than the recovery uh from the insurance on the on the matter that we are discussing.
4482264,511,4237.3999,4237.6597,9,Thank you.
4482264,512,4239.98,4240.5601,2,Thanks a lot.
4482264,513,4240.5898,4242.6299,2,Let's please move on to next question.
4482264,514,4321.6299,4321.7798,10,Yes.
4482264,515,4323.96,4324.0801,1,Yep.
4482264,516,4324.1099,4324.2798,1,Sure.
4482264,517,4324.3198,4324.5601,2,Okay.
4482264,518,4324.8198,4328.8003,2,So basically for TSB we're we're also uh positive if you wish.
4482264,519,4329.0298,4342.2598,2,It's true that we have been able to reach these uh seven point seven percent <inaudible> sorry uh return tangible equity in in twenty one which is well ahead of our initial guidance which was north of six percent for twenty twenty three.
4482264,520,4342.3599,4343.4897,2,So things are improving.
4482264,521,4344.0601,4345.6299,2,Things have improved more than we thought.
4482264,522,4345.79,4363.21,2,Uh I think um with regard to the of the management of the bank things are going very well and also uh the macro is is improving much faster and it has helped a lot you know for example in terms of the volumes that have been uh done both for the market and both for TSB in twenty twenty one which was not in our expectation.
4482264,523,4363.6899,4369.3804,2,In any case moving moving forward and looking at uh twenty twenty two as I said we are positive.
4482264,524,4369.3799,4372.5103,2,We think NII should expand because of the reasons I mentioned before.
4482264,525,4372.5098,4373.6099,2,So basically volumes.
4482264,526,4373.6499,4381.0098,2,We're gonna grow volumes in twenty two but also we are starting the year with the volumes of q four which were significantly higher than in q one you know.
4482264,527,4381.3301,4395.8096,2,So this is gonna have to be uh it's gonna be it is gonna be very should be fairly positive for twenty twenty two despite the fact that we are not considering all the full rate increases that the market is now uh taken into account just twenty five basic points out of the one hundred.
4482264,528,4395.8398,4397.73,2,So pretty confident on NII.
4482264,529,4397.9502,4402.4102,2,Fees I think we had a very good uh year in twenty twenty two sorry in twenty twenty one.
4482264,530,4402.7002,4408.23,2,So we're aiming for perhaps a flattish number in twenty twenty two something reasonably stable.
4482264,531,4408.79,4415.2104,2,Costs are gonna go down in twenty two uh because of the execution of the restructuring plan in twenty one.
4482264,532,4415.2402,4417.4199,2,So uh year on year they're gonna go down you know.
4482264,533,4417.96,4418.8501,2,And then cost of risk.
4482264,534,4419.2598,4421.5498,2,We had no cost of risk in twenty one because of the write backs.
4482264,535,4422.3701,4429.8696,2,We believe that cost risk uh going forward on normalized basis should be fairly low uh the twenty basic points that you mentioned <inaudible>.
4482264,536,4429.8701,4433.6797,2,Uh basically this is uh uh a mortgage mono liner.
4482264,537,4434.1699,4439.1704,2,As you very well know the the mortgage market in the UK is very different to one in Spain.
4482264,538,4439.6001,4445.3403,2,Uh we're talking about mortgages that have less than two year duration because of how the mortgage uh evolves there.
4482264,539,4445.7798,4451.5601,2,Uh so basically historically uh mortgages in the UK have had very very very little basic points right?
4482264,540,4451.5601,4460.2598,2,In terms of cost risk I would say less than mid single digit uh and we're expecting we are we are focused in twenty you know because we have a little bit of consumer uh finance.
4482264,541,4460.2598,4472.2002,2,So uh and on top of that there is a chance that uh you know there's still some provisions that were booked in twenty twenty and that if the macro uh has a good uh evolution could be released.
4482264,542,4472.23,4479.1899,2,But even without that we are confident that return on <inaudible> equity in twenty two should should improve as per study.
4482264,543,4479.1899,4479.5,2,Cesar.
4482264,544,4479.6299,4479.9297,1,Yeah.
4482264,545,4480.0298,4481.3999,1,In terms of uh…
4482264,546,4481.3999,4484.6201,1,I mean TSB is generating capital to fund its own growth.
4482264,547,4484.6201,4492.6299,1,We are very satisfied uh with uh the way management and the market and the evolution of the numbers and the strategies going forward.
4482264,548,4493.1401,4498.4399,1,And uh sorry for being boring but there are no plans to engage in corporate activity.
4482264,549,4499.2002,4500.3003,1,So no change.
4482264,550,4504.3599,4504.77,2,Thank you.
4482264,551,4505.1001,4507.0,2,Let's uh please move on to the next question.
4482264,552,4508.6099,4516.0898,11,Uh we have been hearing hearing in the industry that customer experience uh should tend to to to be stable uh but actually we're we're still seeing pressure.
4482264,553,4542.1802,4547.5801,11,If you could provide the the percentage of eco loans that are under stage two.
4482264,554,4548.3398,4548.6602,11,Thank you.
4482264,555,4550.5601,4551.04,1,Okay.
4482264,556,4551.0801,4565.5303,1,Uh I think we have uh been all along saying that uh customer experience are under some pressure both in Spain and the UK across uh the different uh segments both uh retail and uh commercial.
4482264,557,4565.9199,4576.9102,1,Uh the question is and I think in the guidance that uh I mean the forward looking that we're giving we are saying that uh this would be compensated uh by volume growth.
4482264,558,4577.1699,4588.0601,1,So it's not uh dramatic but we see some uh minor reduction in customer experience that should be offset or more than offset by by volume growth.
4482264,559,4588.3198,4593.1499,1,In terms of capital this is also managed because we are being more efficient in the way we deploy it.
4482264,560,4593.2202,4597.2603,1,So overall it's a positive uh positive outcome.
4482264,561,4599.04,4605.3301,2,And as per eco loans uh we have around eighteen percent of the portfolio classified as uh stage two at the end of the year.
4482264,562,4609.3198,4610.3198,1,Well thanks a lot.
4482264,563,4610.4399,4612.3799,1,We're starting to run short of time.
4482264,564,4612.46,4618.1001,1,So uh we'll give access to one more call and we'll see if we can feed uh get another one behind that.
4482264,565,4618.6099,4620.52,1,So let's please give access to the next call.
4482264,566,4655.4199,4655.6997,2,Sure.
4482264,567,4655.7002,4657.8701,2,So in terms of macro we we are…
4482264,568,4657.8701,4664.48,2,if we if we consider macro what we um provisioned in twenty twenty as per COVID that was six hundred and fifty million euros.
4482264,569,4664.6401,4668.3599,2,We are not considering any release of these provisions in twenty twenty two.
4482264,570,4668.3599,4671.75,2,This is important to to um to mention okay?
4482264,571,4671.75,4679.3901,2,So our our view of the evolution of cost of risk in twenty twenty two is is if you wish the recurrent uh evolution of of cost of risk.
4482264,572,4679.5601,4684.1997,2,So we're not foreseeing any kind of write backs of these provisions in in twenty twenty two.
4482264,573,4685.4902,4688.9302,2,And as per the kind provisions we're including those in the in the cost of risks.
4482264,574,4688.9302,4697.3701,2,So we do not expect uh any kind of impact in capital and uh uh of course nor in in in this rep.
4482264,575,4700.8799,4701.4102,12,Thanks a lot.
4482264,576,4701.4102,4702.3599,12,That was quick <laugh>.
4482264,577,4702.4902,4704.4702,12,So we'll try to squeeze one last question please.
4482264,578,4713.6401,4713.9902,13,Hello.
4482264,579,4766.6602,4766.9502,1,Yeah.
4482264,580,4766.9502,4780.0103,1,Around eighty percent of the new mortgages lending in uh in q four have been uh fixed but the majority of the portfolio if look uh if you look at the portfolio as a whole uh is is variable.
4482264,581,4780.4102,4785.3696,1,We are uh tending yes uh to produce a more balanced uh uh…
4482264,582,4785.3999,4789.8999,1,the market is more or less at fifty fifty fixed and and variable.
4482264,583,4790.1899,4801.9302,1,And we will progressively tend to reduce our production of uh of uh fixed uh mortgage uh lending and balancing it with more production of of variable.
4482264,584,4802.3599,4812.02,1,Also not also from uh a book perspective but also from a demand uh customer demand perspective we think that's uh that's a trend to a more balanced composition.
4482264,585,4813.1201,4820.8804,2,And as per the hedging that you mentioned uh Carlos basically we hedge the book through um our ALCO uh um uh committee if you wish.
4482264,586,4820.8799,4826.77,2,Also basically we hedge it through uh the hedge of our uh bonds and portfolios and the hedge of our funding.
4482264,587,4827.2598,4834.1001,2,So of course we take into account the evolution of the book and the evolution of the whether the book is more fixed or more uh floating.
4482264,588,4834.1299,4836.6299,2,And taking that into account we hedge the the balance sheet.
4482264,589,4836.71,4846.0898,2,In any case we are now more hedged to increase in rates among other things for example because the fact uh um because we sold uh bond portfolios.
4482264,590,4846.4502,4851.9199,2,So because we are shorter of portfolios now we're more hedged to uh increase of of rates you know.
4482264,591,4852.2598,4870.3701,2,If we were to um uh buy uh some of those port or rebuild part of those portfolios that I mentioned before we would of course uh apply some hedging or leave the hedging where it is right now through hedges on either those bonds or uh the the wholesale funding that uh that we produce.
4482264,592,4873.5498,4874.0,1,Thanks a lot.
4482264,593,4874.0,4876.4902,1,Uh we now wrap up the q and a session.
4482264,594,4876.8799,4878.25,1,Thank you all for your questions.
4482264,595,4878.5098,4882.9697,1,As always uh the full IR team is available for any further question that uh you could have.
4482264,596,4883.25,4885.48,1,Uh once again thank you all for joining us today.
4482264,597,4885.7598,4886.4102,1,Have a good day.
4482264,598,4887.0498,4887.4497,2,Thank you.
4482264,599,4887.8101,4888.4697,0,Thank you very much.
4482311,0,0.55,2.3,0,Ladies and gentlemen good evening.
4482311,1,3.13,18.35,0,We are gathered to review indirectly since we are on Zoom the uh results for the year twenty twenty one.
4482311,2,18.35,20.24,0,I apologize for being on Zoom.
4482311,3,20.45,40.0,0,Um last year we were already on Zoom and I hope that um next year this uh pandemic will have left us once and for all and we will uh be able to work in um our presence.
4482311,4,40.03,43.46,0,It's a very pleasant um meeting.
4482311,5,43.46,45.92,0,The results are pretty good as you can see.
4482311,6,46.2,62.82,0,In twenty twenty one we achieved uh pretty good growth because uh revenue has um reached almost sixty four billion and uh profit from recurring operations over seventeen billion Euros.
4482311,7,62.82,76.56,0,Now this um uh performance is um all the more remarkable I believe that um the year twenty twenty one was heavily affected by the global pandemic.
4482311,8,76.56,100.75,0,Let me add that in terms of the results we've achieved a remarkable level of operating free cl cash flow exceeding thirteen uh billion Euros growth uh was strong especially in Asia and in the United States and it gradually recovered in Europe towards the end of uh twenty twenty one.
4482311,9,100.75,131.56,0,And in fact we uh saw an acceleration of growth in um q four because in our uh fashion and leather goods business uh for example we saw year um uh annual organic growth on the year forty seven percent and in q four a growth versus uh twenty nineteen of fifty one percent.
4482311,10,131.56,141.38,0,So that really is a high point of the year twenty twenty one is the expansion of our fashion and leather goods business.
4482311,11,141.38,154.34,0,And we can also note and I'll return to that the successful integration of uh Tiffany's that also has achieved uh a very remarkable performance during the course of twenty twenty one.
4482311,12,154.66,157.78,0,Online sales continued to uh grow.
4482311,13,158.14,165.6,0,Uh the development of online sales uh with the pandemic were particularly sustained.
4482311,14,165.87,178.84,0,And the only area that uh remains a bit more uh challenging is everything that concerns international travel that haven't uh f resumed yet.
4482311,15,178.84,186.22,0,I don't believe that they will uh fully resume before the year twenty twenty three or possibly even twenty four.
4482311,16,186.22,196.27,0,And <unk> that was uh quite affected during the course of year twenty twenty one uh rebounded well last year.
4482311,17,196.27,213.79,0,Before looking at the uh businesses a few words about our um commitments and progress achieved both on C S R and um environment that we track particularly closely.
4482311,18,215.46,225.9,0,We've um conducted some uh major programs to uh respect each one's dignity and individuality.
4482311,19,225.9,236.24,0,seventy one percent of women in the groups <inaudible> work for uh sixty five of whom occupy uh managerial positions.
4482311,20,236.24,265.11,0,We've uh transmitted the craftsmanship that is our heritage as well as that of traditional <inaudible> craftsmanship thanks to the trades of excellence that is expanding across six countries with some fifteen hundred apprentices uh trained and uh qualified since its creation a few years back.
4482311,21,265.11,279.44,0,We're also supporting the safety and wellbeing of our employees eighty percent of <unk> houses have allowed employees to work uh flexible hours part time working uh remote working.
4482311,22,279.8,289.8,0,And we uh commit to supporting individuals in difficultly and we've assisted several hundred thousand during the course of the year.
4482311,23,292.82,296.95,0,This regards our commitment for the environment.
4482311,24,297.06,300.27,0,I would like to mention creative circularity.
4482311,25,300.3,304.82,0,That is the recycling of uh our materials.
4482311,26,304.82,317.42,0,thirty percent of our materials are now uh recycled and in packaging in particular we have an objective of reaching seventy percent by twenty thirty.
4482311,27,317.93,330.43,0,Biodiversity very important six hundred and forty thousand hectares of fauna and flora habitat have been regenerated with an objective of five million by twenty twenty six.
4482311,28,330.66,353.63,0,Traceability in our uh vineyards in our supplies of uh raw materials cotton leather gold we have uh equipped our various value chains with a dedicated traceability system with a target of achieving a hundred percent by twenty thirty.
4482311,29,353.63,354.83,0,Lastly the climate.
4482311,30,355.74,365.91,0,Well we have this uh uh live three hundred and sixty carbon trajectory and we are pursuing that very actively.
4482311,31,366.55,371.02,0,Turning now to the various business uh groups.
4482311,32,371.02,379.09,0,Firstly um wines and spirits with very sustained demand both uh for champagne and cognac.
4482311,33,379.12,391.37,0,So strong in fact that uh as regards the uh shipments that uh we are uh um allocating to several regions.
4482311,34,391.37,399.55,0,Very strong demand in the US and Europe for champagne with the gradual reopening of restaurants um resumption of tourism.
4482311,35,399.81,418.08,0,In Japan there is still like a travel retail impacted by COVID uh things were slightly more difficult but um nevertheless global uh demand has exceeded our production capacity.
4482311,36,418.31,433.43,0,Very significant success less constrained by production because it's manufactured outside Europe with the Chandon Garden Spritz that was launched uh firstly in Europe and in the US very successful there.
4482311,37,433.7,438.9,0,And the rapid growth of our Rose wines in particular Chateau d'Esclans.
4482311,38,440.04,451.6,0,I'd also mention the first integration of our <inaudible> uh fifty percent of which was acquired uh by the group in partnership with Jay-Z.
4482311,39,452.51,475.36,0,Also worth noting the fact that <unk> uh rose in two thousand and four magnum was ranked by Champagne and Sparkling Wine World Championship was um designated the best champagne in the world.
4482311,40,475.36,476.83,0,It's absolutely extraordinary.
4482311,41,477.56,480.01,0,I invite you to taste it if you can find some.
4482311,42,480.01,487.45,0,Of course unfortunately there won't be any drinks um offered today after this reception.
4482311,43,487.45,490.05,0,We hope to be able to organize that next year.
4482311,44,490.05,490.9,0,That was wonderful.
4482311,45,491.4,499.7,0,Um likewise for cognac supplies that are still below global demand.
4482311,46,501.29,507.83,0,So um sales that are strongly up but uh as I say limited by the supply constraints.
4482311,47,508.7,520.73,0,We've opened a great many dedicated stores in a number of um Asian countries uh notably on Hainan Island where we're selling uh directly.
4482311,48,521.08,538.1,0,And we've also seen rapid progress for Glenmorangie an absolutely remarkable whiskey and Ardbeg that received the master distiller prize for the fifth consecutive year.
4482311,49,540.3,542.31,0,Moving now to fashion and leather goods.
4482311,50,542.73,552.97,0,Well fashion and leather goods as you've seen the figures for that and Jean Jacques Guiony will be discussing those in a moment remarkable success.
4482311,51,553.52,564.0,0,Uh credit where credit is due first and foremost Louis Vuitton remarkable performance uh buoyed by regular ongoing innovation.
4482311,52,564.0,569.53,0,And Louis Vuitton is far more than just a fashion company.
4482311,53,569.53,592.74,0,In fact it's not a fashion company it's a culturally creative company that um reaches out to very important uh customer base the most important gen Z very much uh fans of Louis Vuitton through to a more uh mature um customer base.
4482311,54,592.77,601.3,0,Because Louis Vuitton is a company that is involved in many aspects of cultural life.
4482311,55,601.3,619.0,0,I would mention uh the latest fashion show that we um attended last week the um Tribute fashion show in memory of Virgil Abloh who passed away sadly last uh November where that fashion show…
4482311,56,619.0,621.63,0,It was far more than um a fashion show.
4482311,57,621.63,623.55,0,It wasn't really a fashion show.
4482311,58,623.55,651.82,0,Of course there were garments products shoes leather goods also music images um an orchestra that was uh the um conductor that he himself had uh chosen had picked before passing away um he wasn't expecting that but this uh lead conductor Gustavo Dudamel who now um is the conductor of the Paris opera.
4482311,59,652.1,654.97,0,That is the spirit of Louis Vuitton.
4482311,60,654.97,660.02,0,It's not just a fashion brand it's cultural brand with a global audience.
4482311,61,660.02,672.53,0,That's why we can say that Louis Vuitton is very um much apart from what we see in the various magazines that talk about fashion.
4482311,62,672.86,705.24,0,We can return to that but in any event demands very strong and the result thanks to very dynamic uh teams thanks to de designers as was Virgil as is um <unk> really um provide wonderful ideas taking this brand from success to success whilst attracting uh the youngest as well as the most uh mature of our customer segments in the world.
4482311,63,705.57,711.91,0,Uh of course we also have Christian Dior that is a very different uh brand.
4482311,64,711.91,737.14,0,It's a brand that is a couture uh brand that has uh very remarkable has been very remarkable in its success since the two designers Maria Grazia Chiuri and Kim Jones uh are designing it and really giving life to the spirit of Christian Dior.
4482311,65,737.18,747.98,0,Kim Jones' latest uh show was a perfect illustration of uh Monsieur Dior of his style his elegance his um refinement.
4482311,66,747.98,751.36,0,And it was very interesting cuz during that fashion show Mr.
4482311,67,751.36,757.99,0,Dior was uh speaking we managed to get him to speak during the fashion show.
4482311,68,757.99,766.72,0,It was both um uh moving and instructive uh one of the details of everything that Dior does.
4482311,69,770.32,772.99,0,It's remarkable it's magnificent.
4482311,70,772.99,779.15,0,The Maison Dior of avenue Montaigne that was chosen in nineteen forty seven by Monsieur Dior.
4482311,71,779.15,786.08,0,He said I'm gonna establish my um shop there and nowhere else.
4482311,72,786.08,791.97,0,We'll be reopening as of early March this year and I invite you all to come and visit it.
4482311,73,792.28,795.43,0,I believe it will be an unforgettable event.
4482311,74,795.62,813.35,0,And the the figures well we won't go into the detail of the figures but thanks to the um management teams of uh that company I would say that uh they are uh truly um dynamic.
4482311,75,813.35,818.56,0,And whilst being um contained they have delivered remarkable growth.
4482311,76,818.89,823.63,0,Now there are other brands in um the fashion and leather goods.
4482311,77,823.63,830.48,0,Fendi big success from day one but accentuated since the arrival Kim Jones.
4482311,78,830.8,847.13,0,Not only producing great uh shows the um couture in uh Paris and others such as the bag here which is the um <unk> and it's um um on a waiting list just about everywhere.
4482311,79,847.13,863.81,0,Celine our exceptional uh brand with a very talented designer Hedi Slimane that has uh created um ready-to-wear lines that are very successful.
4482311,80,863.81,876.21,0,And during the pandemic he uh produced uh film stage films of his um shows all very original they're all very successful.
4482311,81,876.5,887.45,0,And today um Celine is one of the brands that has the highest uh growth rate of all the uh world's uh fashion um brands in my view.
4482311,82,887.75,890.79,0,Loro Piana L'Oeuvre uh too.
4482311,83,890.79,892.63,0,I won't go into the detail.
4482311,84,892.92,897.89,0,Great brand growing strong with uh JW Anderson.
4482311,85,898.43,906.09,0,Great many products there both uh uh fashion leather goods for ready-to-wear.
4482311,86,906.37,907.38,0,I won't go into the detail.
4482311,87,907.41,914.09,0,Uh maybe just to indicate that we have a new designer at uh Kenzo.
4482311,88,914.22,922.92,0,Great uh Japanese artistic director Nigo and the first show was held this past weekend.
4482311,89,923.17,925.75,0,Moving to perfumes and cosmetics.
4482311,90,925.75,930.74,0,Also strong growth strong growth of uh perfume and skincare.
4482311,91,930.74,935.16,0,Firstly at uh Christian Dior well it's a the perfume.
4482311,92,935.55,948.16,0,Extraordinary success in twenty twenty one the Sauvage line become the world's leading fragrance not just for men but also beating all the existing women's perfumes.
4482311,93,957.69,960.9,0,I invite you all to uh test it.
4482311,94,961.9,980.85,0,Furthermore the Miss Dior uh fragrance the J'adore perfume um continued to grow uh strongly and we've launched uh several new variations in the uh La Collection Privee that is very successful.
4482311,95,981.25,995.67,0,We've got the Rouge Dior uh the world's number one lipstick and a very strong performance of skincare line be it Prestige Capture and L'Or de Vie.
4482311,96,995.96,998.45,0,I won't go into the detail of that either.
4482311,97,1000.16,1013.21,0,Second uh French brand that's very successful Guerlain uh growth in it's skincare of uh Orchidee Imperiale and Abeille Royale.
4482311,98,1013.47,1022.94,0,And many uh perfume successes with it's eau de parfum <unk> um L'Art La Matiere and Aqua Allegoria.
4482311,99,1023.47,1032.37,0,Other smaller brands such as Givenchy uh <inaudible> Fresh Maison <unk> Aqua <inaudible>.
4482311,100,1033.4301,1066.21,0,And a new house uh that has just joined the group small but magnificent known called Officine Universelle Buly headed up- founded <unk> Victoire de Taillac uh renowned for very creative products inspired by the great uh French tradition and um aesthetic design of their boutiques that's quite original and extremely inspiring.
4482311,101,1067.14,1069.34,0,Moving on to watches and jewelry.
4482311,102,1069.34,1076.83,0,Well the high point uh the event of the year was the integration of Tiffany that achieved a record year.
4482311,103,1077.28,1108.4701,0,Uh uh very considerable success of its products of its iconic lines the T uh line the Knot uh line the HardWear line plus the lines created by that famous French uh J- uh Jean uh Schlumberger that are absolutely um remarkable that have been uh relaunched and that are very successful.
4482311,104,1108.84,1111.52,0,Uh Tiffany achieved a record year.
4482311,105,1111.52,1126.1201,0,It's interesting to note that Tiffany delivered strong growth e even though it's flagship it's uh leading store was closed for the year because of renovation work uh during the year.
4482311,106,1126.12,1136.12,0,The uh renovation work was um started before we acquired it and that flagship is set to renew uh to reopen at the end of the year.
4482311,107,1136.42,1153.6899,0,So without the uh the flagship that generated several um hundred million dollars in revenue it beat it's uh uh revenue record both in uh in in revenue and and uh profit.
4482311,108,1154.65,1156.28,0,bulgari there may be questions on that.
4482311,109,1156.28,1159.5701,0,Bulgari uh was very successful in its stores.
4482311,110,1159.5699,1170.14,0,It seeks to to to concentrate now as as Tiffany is doing all its jewelry sales in its own uh stores.
4482311,111,1170.61,1178.7999,0,And uh numerous iconic uh lines continue to grow the Serpenti the Diva lines etc.
4482311,112,1179.51,1196.27,0,Uh I would also mention the fact that the uh watch uh uh model very uh very fine watch Octo Finissimo achieved the Aiguille d'Or grand prize in Switzerland.
4482311,113,1196.27,1200.87,0,That's a very prestigious accolade for a watch brand.
4482311,114,1202.3101,1216.03,0,Next in the um watches and jewelry TAG Heuer continued to grow um cementing a major successful partnership with Porsche.
4482311,115,1216.26,1221.8201,0,It's the watch that I'm wearing here the Carerra Porsche uh watch.
4482311,116,1221.8199,1227.77,0,Um wonderful watch it's uh so successful that it's difficult to to find.
4482311,117,1228.34,1251.2001,0,Uh and they teamed up with um with various ambassadors including Ryan uh Gosling the famous actor and have also teamed up with the new Formula One um champion who uh won the last Grand Prix and is world champion.
4482311,118,1251.3,1260.16,0,Hublot continues to grow with several iconic uh watches including that with <inaudible>.
4482311,119,1260.16,1273.75,0,That's a jewelry um company that I know well because a while back it was um led by my uh sister who unfortunately is no longer with us today.
4482311,120,1273.75,1284.98,0,But um that company is rebounding with a great team and is offering uh products that are extremely attractive and um and interesting.
4482311,121,1285.3199,1286.0099,0,Chaumet…
4482311,122,1286.61,1289.88,0,Well uh Chaumet needs no introduction.
4482311,123,1290.17,1315.85,0,They're again a a very uh fine jewelry brand the oldest of the <unk> and began working for the um uh for Napoleon and the emperor so it has a absolutely remarkable uh legacy history and that is growing very successful in a number of countries including Japan.
4482311,124,1316.35,1321.05,0,Um uh we believe that the prospects are very good.
4482311,125,1321.05,1322.9,0,And lastly Zenith.
4482311,126,1323.41,1330.54,0,Zenith this year launched uh several um uh watches that met with considerable success.
4482311,127,1330.54,1333.21,0,There was the <unk> uh watch.
4482311,128,1333.21,1342.6,0,And this year they launched the Chronomaster Sport that received the Chronograph uh Watch Prize at the Grand Prix of Geneva.
4482311,129,1343.26,1344.95,0,Selective retailing…
4482311,130,1344.95,1350.5601,0,Well um I'll uh skip over D F S.
4482311,131,1350.5601,1363.23,0,It's very difficult to get that company to operate uh w when they're in travel retail in the airports where there are no travelers.
4482311,132,1363.54,1368.4,0,Thanks to the teams we were able to limit the difficulties in twenty twenty.
4482311,133,1368.4,1369.76,0,It lost quite a bit of money.
4482311,134,1369.76,1382.98,0,it it lost a lot less uh this year a little uh and but I think that soon as travel uh picks up again but I don't think that's gonna happen soon.
4482311,135,1383.26,1388.34,0,Um it it's expected to pick up strongly.
4482311,136,1388.53,1392.9299,0,Sephora there's the rebound thanks to the dynamism of the teams.
4482311,137,1392.9301,1414.84,0,The success of Sephora in the US and the online sales um Sephora has uh rebounded strongly reaching a very significant level of revenue not far from its record and um operating a profit in several hundred uh million.
4482311,138,1414.84,1424.59,0,And is uh very good in terms of the uh current climate where even during the year twenty one a number of stores were were closed.
4482311,139,1424.8199,1432.73,0,Let's um mention in closing this presentation the two uh major Parisian stores.
4482311,140,1432.73,1448.87,0,We have Le Bon Marche continued dynamic growth that is off to a good start since the uh recovery and the reopening cuz Le Bon Marche was uh closed several occasions during the past two years.
4482311,141,1448.87,1457.71,0,And the launch of La Samaritaine which a wonderful store and that is um getting off to a good start.
4482311,142,1457.71,1471.3199,0,That all goes well even if we don't have the expected tourists for uh Parisian department stores and that's um uh the case for all department stores.
4482311,143,1471.3199,1487.6901,0,For twenty twenty two the outlook I believe that um if the um economic climate continues um as it did in January uh is expected to be promising.
4482311,144,1487.6899,1493.6,0,The numbers for January confirm growth at the same pace at the end of last year.
4482311,145,1493.6,1500.62,0,We've got off to a good start nevertheless we need to remain vigilant.
4482311,146,1500.72,1502.86,0,Everyone's talking about inflation.
4482311,147,1502.86,1512.38,0,That's interesting because the leading experts and specialists various Nobel Prize winners have very differing views.
4482311,148,1512.61,1525.4301,0,Some are saying well inflation it's uh return to inflation like in the eighties it'll be difficult to stop it we'll have to constantly increase interest rates.
4482311,149,1525.4301,1529.36,0,It will penalize the economy a very bleak picture.
4482311,150,1529.36,1539.23,0,There are others who are equally legitimate and uh reputed some are also Nobel uh Prize uh winners.
4482311,151,1539.23,1559.35,0,Some are saying that it's transitory and once the bottleneck created in the global economy by the exit from the pandemic we know the problems in supply chains and uh ports where um we can't um unload the containers etc.
4482311,152,1559.35,1568.47,0,Once all that is resolved um inflation will um calm down and um things will uh resume normally.
4482311,153,1568.86,1579.88,0,Can't tell you that I uh favor one or other of the explanations but those are the two that we have uh heard and listened to.
4482311,154,1579.88,1590.24,0,What I believe is that the group in an inflation situation is a group that is used to weathering economic crisis.
4482311,155,1590.24,1595.72,0,I'm not forecasting an economic crisis I don't expect such an economic crisis.
4482311,156,1596.0699,1599.47,0,We've just gone through two very challenging years.
4482311,157,1599.84,1614.99,0,I rather think that things will continue to improve but we have an advantage on quite a few other companies and groups which is that we have a degree of uh flexibility on our prices.
4482311,158,1614.99,1623.9801,0,So in the face of inflation we have the ways and means to react and I believe that demand will remain strong for our products.
4482311,159,1623.98,1625.34,0,That's what we're seeing currently.
4482311,160,1625.72,1632.88,0,Nevertheless we are vigilant uh we're continuing our uh management efforts.
4482311,161,1632.95,1651.1001,0,We're um confident thanks to our values our creativity constant quest for quality the spirit of uh um enterprise the entrepreneurial spirit that motivates everyone it's on company.
4482311,162,1651.1,1674.15,0,It's uh um a a family operation controlled by a family and employees be they in management such as those with us this evening will write to the craftsmen in our hundred uh manufacturing sites in France.
4482311,163,1674.15,1678.4501,0,A part of the family they are viewed as such.
4482311,164,1678.45,1686.42,0,We look after them uh we motivate them such that they want to remain with us and they have long term motivation.
4482311,165,1686.42,1699.48,0,I think that also accounts for the groups successes that we're not there to seek uh results for the quarter but uh results over several dozen years.
4482311,166,1699.48,1721.9099,0,That's why a brand such as Louis Vuitton Dior is so successful because in our discussions we're not just we never look just at uh the results for the next quarter we realize and we have in mind that these fabulous may continue to increase their desirability over a period several decades.
4482311,167,1722.36,1747.1899,0,and and lastly in our values um the commitment uh environment uh corporate responsibility in particular over to Jean Jacques Guiony who unfortunately can't uh join us here but um will speak from his office because he's tested positive for uh COVID but even if he doesn't have many symptoms.
4482311,168,1747.48,1747.63,1,<crosstalk>.
4482311,169,1749.27,1749.5699,1,Thank you.
4482311,170,1749.5699,1751.1,1,Well you know everything.
4482311,171,1751.3101,1753.17,1,So good evening everyone.
4482311,172,1753.17,1759.86,1,So I'll give you some details on the uh uh remarkable financial performance that Mr.
4482311,173,1759.89,1762.0,1,Arnault uh outlined.
4482311,174,1762.0,1777.95,1,On this slide you have uh the numbers that are record numbers sixty four uh billion in revenue seventeen billion in profit from recurring opera uh operations uh thirteen billion in operating free cash flow uh operating margin twenty six percent.
4482311,175,1778.12,1787.55,1,Of course uh this is a recovery from uh last year which had suffered the pandemic but uh even from uh the the year before that.
4482311,176,1787.6,1789.14,1,Let's start with the revenue.
4482311,177,1789.14,1803.45,1,Uh this is a rather uh tedious picture but it shows uh our uh sales the organic and the uh structuring pact the two benchmarks uh that is uh twenty twenty and twenty nineteen.
4482311,178,1803.45,1805.39,1,Let's start with twenty twenty.
4482311,179,1805.39,1807.29,1,Organic growth thirty six percent.
4482311,180,1807.74,1819.53,1,Um and of course th there's a a plus a structure impact uh to plus ten percent percent vis-a-vis twenty twenty and the currency effect only two percent.
4482311,181,1819.53,1824.0599,1,It had it was uh stronger in the first half of the year and became positive in the second.
4482311,182,1824.0601,1829.3199,1,So look all in all not much of a currency in effect in twenty twenty one.
4482311,183,1830.38,1836.01,1,So uh the that gives us a growth of forty four percent compared to twenty twenty.
4482311,184,1836.3,1839.39,1,Now it's more significant if you move back to twenty nineteen.
4482311,185,1839.39,1852.29,1,We have fourteen percent organic growth uh compared with twenty nineteen and we'll be return to that figure in the following slides and this shows that the uh pandemic and the twenty twenty uh crisis is behind us.
4482311,186,1852.5601,1859.91,1,Uh we offset as it were the decline of uh twenty twenty and over two year we are registering growth.
4482311,187,1859.91,1865.86,1,Uh let's look at organic growth uh compared with twenty nineteen and twenty twenty.
4482311,188,1866.33,1878.2101,1,Uh twenty twenty one compared to twenty twenty let's not go back to um uh uh q one because well that's an easy comparison because there was a uh the pandemic the year before.
4482311,189,1878.21,1888.6,1,But uh in uh q three and four the situation had normalized and yet compared with that uh we are twenty four percent up which is quite significant.
4482311,190,1888.64,1896.04,1,We were not in the trough of the first uh half of the year with the shops closed down and yet we were up twenty four percent.
4482311,191,1896.3101,1910.86,1,Uh what is significant is compared to twenty nineteen uh up until the end of September we were looking at eleven percent growth uh eleven percent um in uh um h one and in q three.
4482311,192,1910.86,1915.3201,1,And in q four significant growth uh twenty two percent.
4482311,193,1915.59,1917.62,1,Uh and so we are looking at twenty-
4482311,194,1917.6801,1920.98,1,uh fourteen percent compared with twenty nineteen.
4482311,195,1921.29,1928.71,1,And still compared with twenty nineteen I can't resist the pleasure of showing the figures of fashion and leather goods quite dramatic quite remarkable.
4482311,196,1929.13,1938.2101,1,Uh we are looking at uh for fashion and leather goods uh we are looking at forty two percent uh above uh twenty nineteen.
4482311,197,1938.21,1948.6901,1,And there was no slow down at the end of the year because in in uh q four we were at fifty one percent above uh uh the same period in twenty nineteen.
4482311,198,1949.03,1954.27,1,So let's look at the distribution of revenue uh per uh business line.
4482311,199,1954.5699,1955.99,1,Uh usually th th…
4482311,200,1956.02,1960.88,1,Well it's not as as so spectacular but the first country now is twenty-
4482311,201,1961.12,1964.0,1,uh United States with twenty six percent two points two percent forward.
4482311,202,1964.28,1969.36,1,The first region is Asia thirty five percent of sales up five points in two years.
4482311,203,1969.36,1977.8601,1,And these uh five points and two points were taken away from Europe which was down seven points seven percentage points in uh a matter of two years.
4482311,204,1977.86,1980.04,1,Well you have uh several things.
4482311,205,1980.04,1990.1101,1,Uh tourism was down in Europe and that was a account uh accounted for significant part of the business and that uh was uh transferred to Asia and uh North America.
4482311,206,1991.09,1998.34,1,Now back to the uh geographical areas and looking at uh the uh development quarter on quarter.
4482311,207,1998.34,2000.1101,1,Starting with the United States then.
4482311,208,2000.45,2007.25,1,In the US you look at the last bar on the right we were up twenty five percent.
4482311,209,2007.25,2010.0901,1,So it's remarkable performance in uh the US.
4482311,210,2010.09,2017.9301,1,We compare with twenty nineteen it's a two year uh uh growth and uh it's uh well it's compared with twenty nineteen twenty five percent.
4482311,211,2017.9301,2028.11,1,And if you look at the quarters quarter after quarter we are looking at growth anywhere between fifteen and thirty percent some volatility but that cause for no special comments.
4482311,212,2028.11,2031.72,1,So steady growth and significant in the United States.
4482311,213,2031.72,2035.96,1,Japan uh had an overall growth of five percent over the year.
4482311,214,2036.3199,2049.96,1,Um you shouldn't consider uh q four as an isolated growth because uh yeah on the basis of twenty nineteen you had an increase of v a t uh in q one twenty nineteen so that upset the apple cart.
4482311,215,2050.3,2061.4199,1,But if we look at the first half and the second half of the year first half we we were at minus three in h two plus thirteen so uh growth accelerated considerably in the second half.
4482311,216,2061.5801,2070.23,1,Asia of course is the record because we are looking at an overall growth of thirty percent you can see this on the last bar for Asia thirty one percent-
4482311,217,2070.23,2071.25,1,up thirty one percent.
4482311,218,2071.29,2072.5,1,All quarters were good.
4482311,219,2072.78,2078.9399,1,Uh so um we were anywhere between twenty five and forty percent quarter on quarter.
4482311,220,2079.2,2088.0398,1,Now Europe uh is a more uh challenging story and we mentioned this before um it's a more difficult situation but here we can draw the lessons.
4482311,221,2088.04,2089.53,1,We are looking at an upwards trend.
4482311,222,2089.53,2097.23,1,We were at minus eighteen then minus fifteen then minus six percent in uh q three and then plus one percent in q four.
4482311,223,2097.3899,2107.23,1,So we were knocked back to the uh pre-crisis levels but uh we're still uh below but we there there is a steady p improvement.
4482311,224,2107.6699,2115.5898,1,And we can be proud of this because it means that our people were able to make up for the uh uh absence of tourist of tourists.
4482311,225,2115.5901,2129.29,1,Instead of that we have uh local customers and that is much more much more of a challenge because uh uh looking for new customers uh is no easy task when all the uh usual kinds have gone.
4482311,226,2129.74,2131.8201,1,Now looking at the various business lines then.
4482311,227,2132.1499,2137.4299,1,Uh the fourteen percent which is a or an organic growth uh compared with twenty nineteen.
4482311,228,2137.8201,2146.3298,1,Uh if you look at all the business lines we are doing better than twenty nineteen except for selective retailing.
4482311,229,2146.3301,2151.49,1,And even then even then we are looking at travel retail as a Mr.
4482311,230,2151.49,2158.95,1,Arnault said and D F S uh is of course in uh tourist areas in Asia that have completely ground to a halt.
4482311,231,2159.22,2167.29,1,Whereas Sephora back in twenty twenty one uh went back over its level its performance of twenty nineteen.
4482311,232,2167.29,2168.8599,1,So fine performance by Sephora.
4482311,233,2169.3101,2175.1699,1,But uh of course uh challenges remain at DFS and you know all about that.
4482311,234,2175.52,2183.3201,1,Regarding wines and spirits growth almost double digit uh growth uh driven by champagne and cognac in the United States and in Chine by the way.
4482311,235,2183.77,2188.9102,1,Fashion and leather goods I mentioned earlier on are up forty two percent compared to twenty nineteen.
4482311,236,2189.26,2198.04,1,Uh you have the performance of all brands including <inaudible> and Louis Vuitton not only them uh <inaudible> Fendi of course.
4482311,237,2198.04,2205.45,1,So all the brands have performed ex uh extremely well and they're very much of course they they're driving the growth.
4482311,238,2205.8301,2220.0,1,Um perfumes and cosmetics are back to the level of twenty nineteen and watches and jewelry we here we are looking at organic growth and we are not looking at the consolidation of Tiffany up um uh seven percent compared to uh twenty nineteen.
4482311,239,2220.1899,2225.1499,1,So uh that is of course that uh fashion and leather goods were the main driver.
4482311,240,2225.4399,2229.2002,1,Now looking at the same thing but this time quarter by quarter to see what happened.
4482311,241,2229.54,2234.97,1,Uh their performance was relatively stable again uh for wines and spirits.
4482311,242,2235.1101,2240.1199,1,Fashion and leather goods I mentioned up forty two percent with fifty one percent in q four.
4482311,243,2240.52,2244.5999,1,Uh perfumes and cosmetics back to their levels of twenty nineteen.
4482311,244,2244.8501,2255.46,1,In watches and jewelry there is an acceleration of growth at the end of the year largely attributable to Bulgari because Tiffany uh is in the scope effect in the structure impact.
4482311,245,2255.6599,2261.6401,1,So uh growth uh picked up mostly in q four that's the retail uh business of Bulgari fine performance.
4482311,246,2261.9099,2273.6401,1,And selective retailing of course all in all we are are in the red at minus eighteen percent but uh q four is uh reaching uh is getting back to the levels of uh twenty nineteen.
4482311,247,2273.95,2282.9399,1,Uh for Sephora we'll be ahead of twenty nineteen but DFS is still uh lagging behind but we are getting close to the uh twenty nineteen uh numbers.
4482311,248,2282.9399,2284.21,1,So this is very encouraging.
4482311,249,2284.21,2294.6802,1,And then for the second half of this presentation looking at the profit i I showed here you have the uh income statement well the first line is revenue so that was already uh discussed.
4482311,250,2294.9399,2310.5801,1,On gross margin what I can tell you is twenty twenty one we are looking at sixty eight point five percent of sales and won't compare it with twenty nineteen but we are looking at two point three percentage points above twenty nineteen and that is a a pretty uh stable indicator.
4482311,251,2310.77,2314.8101,1,When you have point four point five percent uh it's uh already pretty good.
4482311,252,2314.8101,2318.71,1,And here we are looking at two point three percentage points so remarkable performance.
4482311,253,2319.1001,2327.4299,1,Expenses always a bit complicated especially because there's the scope effect with Tiffany but if you lead out the currency effect and the scope effect is quite simple.
4482311,254,2327.6699,2338.8599,1,Expenses last year uh operating expenses were down fourteen percent compared to uh twenty nineteen which was in itself a good performance looking at a a at significant headwind.
4482311,255,2338.8601,2344.9299,1,And here they were up well expenses were up twenty percent which stands to reason because of course business uh grew.
4482311,256,2345.1399,2352.4299,1,Uh but over two years expenses not including currency and uh scope are five percent.
4482311,257,2352.53,2363.4299,1,That's up five percent but s sales were up fourteen percent not including scope or currency and uh the gross margin was up uh uh uh two percent.
4482311,258,2363.6799,2379.8401,1,You have the financial equation of of AMH in twenty twenty one led to uh a uh current operating uh profit of recurring operation of upwards of one billion um up fifty percent compared to twenty nineteen.
4482311,259,2380.1799,2384.3398,1,Um and and of course a hundred percent compared to the previous year.
4482311,260,2384.3401,2391.0898,1,Well this may not be uh uh significant but of it's still uh quite good to see that the profits are so up.
4482311,261,2391.28,2400.28,1,Operating uh margin stands at uh uh at uh uh twenty seven percent.
4482311,262,2400.6201,2404.6599,1,Uh so all the numbers are good including uh uh gross margin.
4482311,263,2404.8999,2413.6599,1,But of course we have the significant the the successful integration of Tiffany um and uh and of course that uh made a big difference.
4482311,264,2413.8899,2416.21,1,Looking at the income statement…
4482311,265,2416.52,2431.77,1,Well it's uh less exciting but uh of uh um operating income and expenses are almost nil because some uh uh gains uh made up for losses on uh intangible assets.
4482311,266,2432.0901,2443.3501,1,Um income tax well they were up but the in the tax rate was slightly down to a about twenty six percent so that was uh uh a p a positive effect.
4482311,267,2443.3501,2455.27,1,And so all in all uh we have a uh net profit of twelve billion Euros which is unprecedented in the group up sixty eight percent compared to twenty nineteen.
4482311,268,2455.27,2459.3999,1,So in terms of net profits this is a remarkable uh performance.
4482311,269,2459.6201,2467.71,1,So uh now let's look at a profit from recurring operation at seventeen uh billion l going line by line again.
4482311,270,2469.24,2474.98,1,Now uh you start with wines and spirits uh up eight percent compared to twenty nineteen.
4482311,271,2475.3101,2480.03,1,Uh this is more than the uh growth in revenue so we can certainly be pleased with that.
4482311,272,2480.03,2493.5801,1,Fashion and leather goods uh a remarkable performance because we are looking here at uh in twenty twenty one way uh above the performance of twenty nineteen which uh wh which in itself was pretty good.
4482311,273,2493.5801,2501.03,1,we are looking at up uh a uh plus seventy five percent improvement uh uh which speaks for itself.
4482311,274,2501.29,2504.99,1,Perfumes is and cosmetics up to the back to the twenty nineteen level.
4482311,275,2505.24,2517.4399,1,Watches and jewelry they are a above the previous years but uh there's a scope effect but not only that because of Bulgari uh achieved uh outstanding numbers in twenty twenty one way above twenty nineteen.
4482311,276,2517.4399,2523.71,1,So these uh brands did extremely well um in um twenty twenty one.
4482311,277,2523.8799,2527.6599,1,And that was completed by TAG Heuer and Hublot and indeed Zenith.
4482311,278,2527.6599,2533.26,1,We don't often mention but Zenith uh also had a remarkable performance in uh twenty twenty one.
4482311,279,2533.26,2541.5601,1,Regarding uh selective retailing uh we were uh losing money last year now we are back to uh in the black.
4482311,280,2541.6201,2550.45,1,Uh and that uh is uh well DFS uh uh losses were compare were offset by uh the profits generated by Sephora.
4482311,281,2550.6699,2559.04,1,So we're still uh in in the in the red but all in all uh this is quite a a performance considering the circumstances.
4482311,282,2559.29,2569.5898,1,Now if we look at how we grew from organic growth uh organic growth from uh or uh structure impact and currency but organic is the main factor.
4482311,283,2569.6201,2581.96,1,the the main structure impact was Tiffany because as Tiffany brought in eight zero oh million dollars uh uh in profit last year uh a a…
4482311,284,2582.4099,2591.5901,1,It was uh it used to be at the level of <unk> um and a bit down now it's <unk> at eight hundred uh million so this is remarkable.
4482311,285,2591.8899,2595.26,1,And in twenty years this is the first time we have no currency effect.
4482311,286,2595.6399,2598.53,1,Uh we didn't play around this is really zero.
4482311,287,2598.9299,2611.49,1,And so uh we uh have a a fifty percent uh increase uh in um uh profit from recurring operations compared with twenty nineteen.
4482311,288,2611.8799,2628.0999,1,And if we look at uh the profits from recurring operations year on year uh if you look at half years we had a a fifty three percent improvement in h two forty four percent in h one compared to the same period in twenty nineteen.
4482311,289,2628.4299,2635.98,1,And all in all we are looking at uh forty nine percent uh improvement.
4482311,290,2636.1899,2648.73,1,So if you look at the financial results uh well we have a significant net financial debt and I will give details about that uh and yet we generated a negative cost with net financial debt it is an income.
4482311,291,2649.04,2651.6899,1,That is the paradox of negative inc interest rates.
4482311,292,2652.04,2654.3901,1,The interest of these liabilities…
4482311,293,2654.3899,2677.0999,1,Well uh this is a accretion expense and that means because uh you have uh leases that uh are shouldn't be there but are there on this line and thank god it's so stable year on year uh the hedges uh currency hedges that they the costs of uh derivatives slightly down but this is um a a cyclical situation.
4482311,294,2677.1001,2681.2,1,It will be back uh in twenty twenty two to the levels of twenty twenty.
4482311,295,2681.6299,2693.5,1,Um and that but uh the the fair value adjustment a available uh for sale financial assets and so that there is the variation of the value of our portfolio of financial investments five hundred million.
4482311,296,2693.5,2702.51,1,Last year there was no uh changes in the value it was more or less stable but now it's up five hundred million the value is up uh th this year.
4482311,297,2702.73,2711.8501,1,But of course uh these is unrealized capital gains these we didn't actually sell off these assets uh uh we uh we don't turn our portfolio around.
4482311,298,2712.1699,2718.49,1,Uh so just because there's an unrealized capital gain doesn't mean we will uh sell these uh dispose of these properties.
4482311,299,2718.49,2727.29,1,And then cash well when you have negative interest rates we may as well invest it elsewhere and that investment was uh profitable.
4482311,300,2727.29,2732.3599,1,In twenty twenty one we were able to therefore generate a five hundred million uh gain.
4482311,301,2732.6699,2747.1699,1,Regarding uh the balance sheet uh regarding the balance sheet that's pretty stable while we have the consolidation of Tiffany which uh brought in some debt about uh thirteen billion of intangible assets between the brand and the good will.
4482311,302,2747.5,2754.72,1,Uh but uh equity still accounts for about forty percent of uh of uh the whole uh line.
4482311,303,2755.0601,2761.8,1,Uh i i if uh you <inaudible> a hundred twenty five billion uh forty percent in total equity is not bad.
4482311,304,2762.2,2767.8201,1,Uh now looking at the the cash flow uh the and that is significant.
4482311,305,2767.8201,2774.78,1,We're looking at thirteen point five uh billion uh cash flow over the year.
4482311,306,2775.1899,2780.1499,1,Uh that the previous record was uh six point two billion the year before.
4482311,307,2780.6201,2784.76,1,Um this uh is a significant improvement.
4482311,308,2784.76,2791.48,1,Now the the payment of taxes in twenty twenty one to twenty twenty well that brought in some cash.
4482311,309,2791.48,2799.78,1,There was uh operational uh investment in uh h one which was not as high as uh uh in previous years.
4482311,310,2800.26,2812.22,1,and um and of course there were uh there was a increase uh in activity in business in revenue uh which generated uh uh uh more uh cash.
4482311,311,2812.4199,2819.1101,1,Uh but we can't expect the same uh results next year but th that improvement nonetheless is quite quite remarkable.
4482311,312,2819.5701,2826.3499,1,Uh looking at the debt posi position and i'll i will look more closely at the last two items on the next slide.
4482311,313,2826.72,2828.0,1,Uh that is high.
4482311,314,2828.29,2830.1401,1,Uh it's still below ten billion.
4482311,315,2830.4399,2849.3699,1,Uh having acquired uh uh made an acquisition with sixteen billion that year so we worked hard to bring that debt down it's above what we had in twenty seventeen after the acquisition of Jean Patou but uh we are close enough uh to that uh to that level.
4482311,316,2849.3701,2854.8701,1,And on the next on the next slide you have the explanation for the for the change in the debt position.
4482311,317,2854.8701,2860.8398,1,So you had the debt level in twenty twenty at end twenty twenty and at end twenty twenty one on the right hand side.
4482311,318,2860.8401,2861.53,1,So what happened?
4482311,319,2861.53,2868.29,1,We invested thirteen uh billion in um uh well mostly it was Tiffany.
4482311,320,2868.6399,2874.49,1,Uh available uh operating free cash flow was uh uh also uh thirteen point five billion.
4482311,321,2874.6699,2880.21,1,So it's as if we uh offset the acquisition of uh Tiffany with the cash flow.
4482311,322,2880.3301,2882.98,1,It's not quite true because there were dividends in other things.
4482311,323,2882.98,2888.3601,1,But I mean on the picture it looks pretty convincing then there were dividends uh paid that's four billion.
4482311,324,2888.55,2898.4299,1,That includes uh shareholders of LVMH but also minority interests uh including Moet Hennessy plus uh uh taxes.
4482311,325,2898.4299,2905.4399,1,So we are looking at four billion cash out and then various others that we had buyback of shares and uh technical things.
4482311,326,2905.75,2920.3,1,Um uh I won't get into the detail of of that but that's why the uh net uh the net financial debt was uh short of uh ten billion which is uh not bad considering the amount of acquisitions uh in that year.
4482311,327,2920.78,2930.6101,1,And then to complete a few words about the dividends what we will uh propose to the uh <inaudible> in April ten euros per share a dividend of ten euros.
4482311,328,2930.6799,2939.0498,1,This is a significant uh growth but it is uh uh in line with the improvement in the net performance net profits.
4482311,329,2939.05,2940.0,1,Thank you for your attention.
4482311,330,2953.9199,2957.76,0,If that's the case I'll ask you to kindly introduce yourself.
4482311,331,2959.5,2962.79,0,a Antoine Belge for the first question.
4482311,332,2964.9299,2965.55,0,Yes.
4482311,333,2965.8301,2966.6201,0,Good afternoon.
4482311,334,2966.6201,2968.1201,0,I hope you can hear me.
4482311,335,2969.3701,2972.9399,0,From uh b n p Paribas Exane.
4482311,336,2972.9399,2975.4702,0,Three uh questions if I may.
4482311,337,2975.47,2985.8699,0,First of all we saw the surprise since the start of COVID as this extraordinary growth with US and European um customers.
4482311,338,2985.8701,2995.1602,0,because if we look at the figures in Europe Europe was um up in q four with no tourists at least no Chinese visitors.
4482311,339,2995.1599,3001.0601,0,That means that the um French Italian um customers have grown strongly.
4482311,340,3001.0601,3008.4199,0,What are the drivers behind this growth and to what extent would you say they are um cyclical?
4482311,341,3008.4199,3010.3501,0,And what are the more structural strengths?
4482311,342,3010.49,3018.0,0,Second question margins have grown strongly are there certain divisions where there's a need perhaps to reinvest a bit more?
4482311,343,3018.3201,3024.8,0,Or do you um consider that there's sort of a new normal on the margins that we've seen?
4482311,344,3025.6799,3035.5999,0,And thirdly more specifically on wines and spirits with um a dip at the margin in the second half of the factors to account for that?
4482311,345,3035.6299,3036.0798,0,Thanks.
4482311,346,3037.7,3047.76,0,Well to answer your first uh question this regards uh growth with US and um and European um customers.
4482311,347,3047.76,3052.76,0,Difficult really to draw uh general conclusions from that.
4482311,348,3052.76,3064.9302,0,I think that these customers are being increasingly um selective and really um show a priority for um a number of brands that offer more.
4482311,349,3065.1599,3070.49,0,Um and that's what I said earlier uh with Louis Vuitton offering more than just fashion.
4482311,350,3070.6399,3076.23,0,Louis Vuitton sells culture to the Americans and to uh Europeans.
4482311,351,3076.23,3082.73,0,At uh Louis Vuitton we um offer far more than uh just fashion.
4482311,352,3082.8999,3087.1599,0,We have for example the Louis Vuitton Foundation.
4482311,353,3087.1599,3095.8401,0,I don't know if you've been able to visit the show that's uh currently there um that's remarkably successful.
4482311,354,3095.8401,3099.27,0,We just topped the eight hundred thousand visitor mark.
4482311,355,3099.3701,3103.1401,0,I mean um we can't you m you can't generalize.
4482311,356,3103.3601,3120.55,0,When we uh look at uh what's happening elsewhere there are a number of brands um including the brands of the LVMH Group um are somewhat different in terms of their development with the um the clientele than than others.
4482311,357,3120.79,3124.75,0,And then there are markets um the markets as as Mr.
4482311,358,3124.75,3137.3,0,Guiony said uh where we have greatly um developed um customer relations with uh local uh customers.
4482311,359,3137.6001,3162.29,0,And so there where uh previously uh visitors were extremely numerous in European countries and in the US those uh numerous uh customers I won't say um they were pervasive but were very present in the uh in certain stores.
4482311,360,3162.54,3175.8301,0,Um when they uh gradually uh disappeared well we were able to replace that thanks to uh a focus on proximity relations.
4482311,361,3175.8301,3191.3801,0,The fact that the appeal of our brands is quite special Louis Vuitton Christian Dior and the others and so it's I would say uh something that is said to last and that we're developing.
4482311,362,3191.3799,3200.7998,0,In fact we don't um expect the Asian visitors to to return um anytime soon.
4482311,363,3200.8,3208.73,0,I think that uh Asian visitors will remain quite far from Europe the US at least for um this year.
4482311,364,3208.73,3216.3699,0,It was already absent last year we saw that it didn't prevent our brands from um operating well.
4482311,365,3216.73,3235.9602,0,So selectivity and I would say a great devotion by our uh sales forces and um our ambassadors uh with local customers.
4482311,366,3235.96,3236.6299,0,Now Mr.
4482311,367,3236.7,3241.4399,0,Guiony on the margins and the calculations maybe you could say a word?
4482311,368,3242.78,3243.1201,1,Yes.
4482311,369,3243.1201,3249.75,1,Well what I can tell you is that uh we uh have to watch uh things pretty carefully.
4482311,370,3249.75,3258.48,1,Members of the the executive committee are attending this uh uh Zoom discussion so we are looking very carefully at uh margin levels.
4482311,371,3258.9199,3274.9902,1,Uh no person uh in charge uh e except e expects us to uh go back to uh uh to previous uh margin levels.
4482311,372,3274.99,3284.3101,1,So w we are looking here at something that is uh sustainable at least uh in i in the context we expect to find in the years to come.
4482311,373,3284.8799,3296.7102,1,Uh as to your last question Antoine about wines and spirits uh in uh h two uh we have this almost year on year this is a traditional uh cyclicality.
4482311,374,3296.71,3313.01,1,We have a certain number of bottles available in h one and when uh demand is greater than supply well there tends to be uh h one higher uh than in h two for in terms of top brand <inaudible> of course.
4482311,375,3313.3701,3324.05,1,In marketing expenses uh and advertising it's the other way around uh we spend less in h one than in h two except for the Chinese New Year.
4482311,376,3324.05,3339.29,1,So there's a uh there is a a disconnect between sales that are high in h one and lower in h two and expense is higher uh in uh h one and um than in h two.
4482311,377,3339.29,3344.7,1,So there's the scissors effect that you uh that you note for the uh profit margin.
4482311,378,3345.3301,3346.8499,3,Question arrived.
4482311,379,3347.0601,3349.72,1,We have another question from Aaron <unk>.
4482311,380,3349.72,3349.98,1,Aaron.
4482311,381,3349.98,3357.75,1,No Aaron <unk> from h s b c from New York.
4482311,382,3357.75,3362.02,1,And thank you for this presentation and congratulations on the performance.
4482311,383,3362.4299,3368.3999,1,Uh if I may we have a a couple of questions and a third one.
4482311,384,3368.72,3379.6799,1,The first point on China and the uh the risk that uh China must remain closed off for the next couple of years what are the implications in terms of expenses?
4482311,385,3379.6799,3380.45,1,We have uh…
4482311,386,3380.9299,3389.6199,1,Well uh when the uh uh Chinese travel they tend to spend more than at home but that may not necessarily be the case.
4482311,387,3389.9399,3403.2202,1,The Chinese ecosystem being uh locked down as it were or locked up you uh see more expenses simply because uh prices are higher or there's more cross-selling.
4482311,388,3403.5601,3406.1301,1,Um how wh what do you expect?
4482311,389,3406.1699,3408.6499,1,The second question is about inflation.
4482311,390,3409.0601,3418.3401,1,Uh there are a number of brands within uh the group uh but indeed outside the group as well that have increased their prices uh significantly.
4482311,391,3418.77,3422.1501,1,Uh do you think it is realistic?
4482311,392,3422.1499,3431.8899,1,Is there a risk of going too far in terms of uh uh pricing of uh increasing the prices too uh too too much?
4482311,393,3432.3501,3442.3899,1,And then uh to uh respond to Jean Jacques well of course you have a the the cash flow more or less being equal to the price of uh Tiffany.
4482311,394,3442.77,3453.0801,1,Uh but um do you have priorities in terms of uh possible future consolidations in wines and spirits or cosmetics or…
4482311,395,3453.26,3458.7402,1,I mean uh do you have any gaps that need to be filled uh for the group?
4482311,396,3459.6899,3489.0901,1,Well regarding uh our Chinese customers as we uh told you in the presentation maybe it was uh Jean Jacques who mentioned this but uh we found uh in twenty twenty one that our Chinese customers even though uh they couldn't travel outside the country uh our Chinese customers then were buying uh were buying more from us than in twenty nineteen.
4482311,397,3489.0901,3502.3301,1,And so um and I certainly a a agree with you I mean uh uh international travel is not about to resume anytime soon but uh that trend is here to stay.
4482311,398,3502.6899,3508.95,1,And the question is uh I mean as we are doing uh in Europe how can we remain close to our Chinese customers?
4482311,399,3508.95,3513.5801,1,How can we ensure that we provide them with the best products the most creative products?
4482311,400,3513.8601,3522.5601,1,Uh and indeed uh how can we uh reach out to them with the th th the best quality we have to offer showing all aspects of our brands?
4482311,401,3522.5601,3536.0901,1,Uh to sh we have to show them that Christian Dior an iconic uh remarkable creator uh is at the same time a very modern uh uh creator and that Louis Vuitton is much more than fashion.
4482311,402,3536.0901,3540.1399,1,Indeed I keep saying this Louis Vuitton is not a fashion company.
4482311,403,3540.1399,3553.7798,1,And all this uh is very attractive to our Chinese customers and uh and uh of course we have to keep a long term view of these things and to see what it is uh that uh attracts our customers.
4482311,404,3553.78,3559.3301,1,Well what uh stimulates what creates this uh desire for our brands?
4482311,405,3559.3301,3569.45,1,why uh what uh causes uh our customers to uh aspire to acquire our products whether they be European or or or Asian?
4482311,406,3569.76,3572.3301,1,And uh having said all that I'm not concerned.
4482311,407,3572.6001,3577.02,1,Now uh regarding the prices of course you shouldn't you shouldn't go too far.
4482311,408,3577.02,3577.6399,1,There's only…
4482311,409,3577.95,3585.53,1,But uh nonetheless uh if the demand is high if a product is high uh highly desirable well it comes at a high price.
4482311,410,3585.8201,3589.1101,1,Let me just uh uh give you an example.
4482311,411,3589.1101,3601.9199,1,Recently at uh Tiffany we've just um celebrated the one hundred seventieth anniversary of um the um collaboration between Tiffany and Patek Philippe.
4482311,412,3602.3601,3626.01,1,And on that occasion well Patek Philippe uh uh p produced a a special edition of the a watch called Patek Tiffany it had uh th the the uh the uh uh th the watch was uh uh blue and there were only one hundred seventy watches.
4482311,413,3626.01,3641.26,1,Uh a and of course there's this close uh bond between uh Patek Philippe and Tiffany that goes back a hundred seventy years because uh ever since its inception uh Tiffany had been uh selling uh Patek Philippe uh watches in the United States.
4482311,414,3641.6299,3666.0801,1,Um and so I'm not saying that we should sell uh uh all the uh watches at the same price as that uh that is the unique Patek Philippe but uh but of course for customers uh uh when you want a a high quality watch you you pay a high price it's something like fifty thousand dollars.
4482311,415,3666.49,3679.53,1,But uh uh we decided to sell one of these uh watches uh up for auction and you for charity and you may have heard I think it it I think it sold for five million dollars uh uh the one watch.
4482311,416,3679.53,3683.96,1,so uh and that's how much it fetched a at an auction.
4482311,417,3684.1499,3693.6599,1,But of course all that counts as the quality of the product and then of course people will pay uh the price they deem uh uh worth it.
4482311,418,3694.1399,3697.1299,1,As to acquisitions we are in no hurry.
4482311,419,3697.1299,3699.5,1,I've been making acquisitions for the past forty years.
4482311,420,3699.5,3706.0701,1,People tell us we are we are making many acquisitions uh we only have one every so often.
4482311,421,3706.0701,3716.1401,1,h here this was a big one and thanks to the good work of our CFO we've uh more or less paid off uh the the the th the cost of that the price of that acquisition.
4482311,422,3716.1399,3719.8501,1,Well if you see another attractive uh acquisition why not?
4482311,423,3719.8501,3726.45,1,But um it's not a matter of looking for possible acquisitions as you said it's just a matter of finding them.
4482311,424,3726.97,3727.8298,1,And uh for the questions…
4482311,425,3727.8301,3729.3601,1,Yes there's another question.
4482311,426,3729.5601,3732.9202,1,I'll give the phone now to Angelina <unk>.
4482311,427,3735.6699,3737.1101,1,Angelina you you you…
4482311,428,3737.6899,3738.6201,1,Yes thank you.
4482311,429,3739.9099,3740.51,1,Good evening.
4482311,430,3742.3201,3742.77,1,Mr.
4482311,431,3742.77,3750.9199,1,Arnault uh about uh <unk> uh you have seventy five brands in the group.
4482311,432,3751.27,3759.0801,1,Uh uh do you uh sometimes consider that you should dispose of certain uh uh brands.
4482311,433,3759.5601,3769.7,1,Um I mean uh th th there was a few years back I believe that uh some uh you disposed of some brands.
4482311,434,3773.8501,3778.2,1,And then uh who is going to replace vir Virginia <unk> at uh Louis Vuitton.
4482311,435,3778.2,3783.78,1,wh wh what are wh what are the the the the skills required?
4482311,436,3783.78,3784.8101,1,I'd like to take the job?
4482311,437,3785.3799,3798.04,1,Well regarding the the regarding the brands we we uh we we look at every company in the group uh we uh analyze the performance we see where how we can uh boost the performance.
4482311,438,3798.2,3800.8,1,It may happen but very rarely indeed.
4482311,439,3801.1799,3814.9399,1,Uh I mean Antony and uh Jean Jacques Guiony and myself might decide that that maybe uh we might not be able to um uh to get through with it it may not be suited.
4482311,440,3815.3201,3819.1201,1,Uh it may have happened what maybe two or three times in the history of the group.
4482311,441,3819.5601,3826.53,1,But uh that that is a com but that is uh uh uh that is very uh incidental.
4482311,442,3826.8799,3848.29,1,But um indeed whenever we make an acquisition whenever we have a brand we nurture it we we must not be in a hurry because of course we can't expect uh performance to occur um overnight you uh you have to take the time it takes uh for this or that uh uh company to uh uh to prosper.
4482311,443,3848.6299,3856.3,1,Uh but indeed uh if after a long time we we don't believe in it anymore well then we will draw the lessons.
4482311,444,3856.3,3859.25,1,But uh again that is uh very exceptional.
4482311,445,3859.53,3862.98,1,Uh over several dozens of years it may have happened two or three times.
4482311,446,3863.3,3867.3098,1,Regarding Virgil uh we were…
4482311,447,3867.3101,3873.1201,1,Uh I mean this was shock nobody expected him to uh uh to die so young.
4482311,448,3873.3999,3874.9199,1,That was a real tragedy.
4482311,449,3875.25,3881.77,1,Virgil was an extraordinary uh uh creator uh more than a fashion designer.
4482311,450,3882.04,3884.6699,1,he he was a very cultivated man.
4482311,451,3884.7,3898.1001,1,he and as I was saying uh in in his uh last uh show that he um he had actually designed prior to his death uh th that was a a cultural event.
4482311,452,3898.1001,3900.3201,1,It was uh it was not just a fashion show.
4482311,453,3900.8,3912.73,1,Um and so we're still mourning him and uh I will tell you well once uh that is behind us we will we will consider uh the next move.
4482311,454,3913.29,3913.6799,1,Thank you.
4482311,455,3913.6799,3917.0798,1,The next question comes from uh Edward <unk>.
4482311,456,3917.6001,3918.0701,1,Edward.
4482311,457,3921.0801,3923.1101,1,ed Edward <unk> from <inaudible>.
4482311,458,3923.1101,3923.9102,1,Good evening Mr.
4482311,459,3923.9099,3924.3699,1,Arnault.
4482311,460,3924.3701,3941.27,1,On Tiffany you said that uh uh you would be uh uh telling us more about uh the the merits of th of this acquisition but could you tell us more about your main uh operations uh you what you communicated about Tiffany?
4482311,461,3941.8301,3949.5801,1,And then on the uh cosmetics division that is the one division that underperformed uh in terms of revenue.
4482311,462,3949.8401,3957.1201,1,The main uh leaders of that segment how can you how do you account for this and uh how do you see the performance in the long run?
4482311,463,3957.54,3962.5698,1,And then uh one question about the Metaverse what is your opinion?
4482311,464,3962.79,3970.0901,1,Uh do you uh I mean is that a significant uh concern for the main brands of the of the group?
4482311,465,3970.0901,3978.24,1,Do you believe that in say five or ten years time the substantial portion of the revenue or the profitability could come from the m from the Metaverse?
4482311,466,3979.3,3992.9102,1,Well Mettany- uh Tiffany you refer to the uh to the products and of course what makes a such a company as uh tiff Tiffany's so successful is of course the products its makes and sells.
4482311,467,3993.24,4008.1401,1,Uh what you can say is that uh this year was a a a major turnaround uh for the company because of course we knew uh the teams the people uh working there but we have people who have the uh experience.
4482311,468,4008.1399,4020.28,1,Uh they uh they know our group and we were able to bring some people in from day one when we came in and uh took over um Tiffany.
4482311,469,4020.5901,4036.7102,1,It should also it should also be pointed out that uh Tiffany for um well at a time uh where uh luxury uh the luxury industry uh grew uh remarkably all the way up to uh twenty nineteen.
4482311,470,4036.98,4046.71,1,But during these years which was a period of growth uh Tiffany uh stagnated uh both uh profit and revenue were flat.
4482311,471,4046.97,4048.96,1,So we came at an opportune time.
4482311,472,4048.99,4056.1001,1,People said you're paying uh a lot for that company but i I think it was it was not expensive at all.
4482311,473,4056.1001,4058.0,1,In fact well along with Mr.
4482311,474,4058.0,4061.6301,1,Guiony was able to uh to pay it off very quickly.
4482311,475,4061.96,4067.1299,1,But it wasn't such an expensive acquisition considering and looking at the performance.
4482311,476,4067.1299,4068.46,1,And I'll say a few words about that.
4482311,477,4068.46,4087.79,1,But considering the performance achieved uh just because again once again from day one when we came in at the head of Tiffany we had a uh team of uh professionals a very uh dynamic team that was uh that knew all about uh products uh communication retail.
4482311,478,4088.1001,4100.48,1,Uh th th we hire a team of high professionals and uh a and uh should uh Tiffany still be listed it probably would be worth it would be worth twice uh its share price.
4482311,479,4100.48,4107.0303,1,Maybe it's an exaggeration but I still think um uh in terms of value this was a a g great acquisition.
4482311,480,4107.2402,4112.0898,1,Now of course uh the uh the products of Tiffany are iconic.
4482311,481,4112.0898,4114.0503,1,You have the uh line T.
4482311,482,4114.0498,4115.8999,1,But the production was too low.
4482311,483,4116.2598,4121.8398,1,Uh likewise likewise for HardWear um the shops uh lacked momentum.
4482311,484,4122.1099,4145.0898,1,Um th maybe some of them had to be redesigned uh a and business was sluggish uh and so we were able to turn it around and bring it up to uh a uh a uh a a an extremely uh high performance while all the time the flagship store had been closed since uh the end of twenty twenty.
4482311,485,4145.25,4148.5396,1,And yet we were able to pull uh to pull this off.
4482311,486,4148.5898,4154.46,1,So we are very confident as to uh the future of uh Tiffany.
4482311,487,4154.46,4158.0298,1,Uh we uh th you may remember that the…
4482311,488,4158.0601,4185.1802,1,Well with Beyonce there was a a big uh event that uh uh stirred a lot of interest on the part of the well the younger generation uh there's this uh song which uh uh Beyonce herself Moon River which is the song of the movie uh well of bre Breakfast at Tiffany where you saw uh Audrey Hepburn um eating her her breakfast uh in front of the um the Tiffany window.
4482311,489,4185.1802,4190.2803,1,I saw people weep when they uh uh when they heard that song.
4482311,490,4190.4902,4199.8101,1,So I mean this this was a a a uh this was great fun but of course uh our teams were highly motivated and and uh and they did quite well.
4482311,491,4200.1099,4203.8301,1,Now perfumes and cosmetics you say we are lagging behind.
4482311,492,4204.1602,4214.8398,1,Uh it's true in terms of revenue uh we may not be uh doing as uh as well as uh as other brands but uh this is a deliberate move.
4482311,493,4214.8398,4229.3701,1,You have many brands that uh flaunt their uh huge revenue uh but um uh they said well part of the revenue was uh a achieved last year in duty free stores but uh that's odd.
4482311,494,4229.3701,4232.8301,1,How can you generate revenue in shops that have no customers?
4482311,495,4233.1699,4237.8501,1,Uh and w we know about this because we have a a business called DFS.
4482311,496,4238.27,4253.8301,1,Uh what happens is you have products that don't even uh go through the stores because there are no customers there they go straight from that store or rather from the basement of that store to uh retailers in China uh who uh sell them at a discount.
4482311,497,4254.1099,4260.3301,1,And that has a terrible negative uh effect on the image of of of the brand.
4482311,498,4260.6299,4261.9399,1,And we are not doing this.
4482311,499,4262.1099,4265.5303,1,Uh look at uh Chanel beautiful brand they refused to do that.
4482311,500,4265.8198,4273.2002,1,And I won't name names and tell you who uh uh who is is doing this but there are at least two of us refusing to do this.
4482311,501,4273.2002,4277.77,1,The reason is we want to preserve the brand image uh the image of our brands.
4482311,502,4277.77,4289.0601,1,And I'm fine with other brands doing it uh fine let them do this they want to generate revenue uh in this cheap way but they want to they have to produce revenue figures.
4482311,503,4289.0601,4292.9199,1,Maybe in the short run this it looks good but it's pretty bad in the long run.
4482311,504,4293.2598,4307.4204,1,As to the Metaverse well at this stage all we can say is that th you do realize this is a virtual world and right now as far as we know we are very much in a down to earth world.
4482311,505,4307.4502,4309.3398,1,We want real products selling for real.
4482311,506,4309.77,4313.0,1,Uh now fair enough uh there is some…
4482311,507,4313.0298,4320.2803,1,it it it is uh rather um thought provoking to see a virtual universe generating profit.
4482311,508,4320.2798,4329.2998,1,It would be good to see uh how this can generate profit and and there's uh non fungible tokens uh ge generating profits.
4482311,509,4329.3301,4337.3101,1,Um I'm sure this will probably have a a a a positive effect if things are done properly.
4482311,510,4337.6602,4352.6001,1,th th this could this might do uh uh useful services uh for certain brands but f say we are not interested in selling a pair of sneakers for virtual sneakers for ten euros.
4482311,511,4352.6001,4355.2803,1,Uh uh we are not into that.
4482311,512,4355.4302,4358.2402,1,But there may be more relevant applications.
4482311,513,4358.2402,4360.2598,1,We have to see what these applications might be.
4482311,514,4360.2598,4364.71,1,what what universes might actually uh be in a way profitable.
4482311,515,4364.71,4369.5698,1,I believe there's a few dozen uh <inaudible> verses out there.
4482311,516,4369.9399,4379.77,1,Well we're looking at this but again we are not s in the business of selling virtual shoes and uh we also have to uh be wary of uh of bubbles.
4482311,517,4380.0298,4389.4902,1,At the beginning of the internet in the in the year uh uh in the two thousands there were all sorts of things grow cropping up left right and center and that was a bubble that burst all right.
4482311,518,4389.9102,4399.2402,1,Uh a a Facebook's there were there were were quite a few of them trying to do it only one pulled through uh and the others uh failed.
4482311,519,4399.2402,4402.7896,1,So uh we we have to uh sound a note of caution.
4482311,520,4402.79,4405.6499,1,Maybe we have time for a final question for…
4482311,521,4405.6802,4407.46,1,Yes that will be uh <unk>.
4482311,522,4407.6802,4411.3301,1,Uh Susanna uh take it away.
4482311,523,4414.4902,4417.6699,0,Yes yes yes.
4482311,524,4419.1401,4419.6899,4,Perfect.
4482311,525,4420.7202,4421.27,4,Uh great.
4482311,526,4421.3101,4423.4497,4,Sorry just wasn't aware of the technology.
4482311,527,4455.46,4457.8896,4,Um then the second question on pricing.
4482311,528,4458.5698,4477.8101,4,Um I understand that you're probably reluctant to comment exactly on pricing that you may post it here uh but obviously we're in a very high inflation environment um and it would be just interesting to know what we should be expecting in terms of pricing especially for the fashion leather goods division?
4482311,529,4478.7202,4482.5,4,Maybe at least some sort of a margin to mid-single digit high single digits.
4482311,530,4513.4399,4522.8198,4,Are you already considering maybe expanding some of the stores in the US or uh just maybe enlarging them?
4482311,531,4522.8198,4549.7197,4,cuz I guess at this rate of growth probably customer service may at some points start- start to suffer.
4482311,532,4549.7202,4549.9097,4,Thank you.
4482311,533,4549.9102,4550.2202,3,<unk>.
4482311,534,4551.04,4556.0303,0,Well i'll I'll answer in French if you don't um mind.
4482311,535,4556.0601,4573.0601,0,But um regarding the outlook as we say in the press uh release where um we're confident okay the results in um January considering at the same growth pace at the end of last year demand is very much still uh present.
4482311,536,4573.3799,4585.0503,0,Uh of course we can't make an economic forecast for the long term but um as I said in my brief presentation as regards inflation who's right?
4482311,537,4585.3301,4621.6699,0,Is it those who are very worried about inflation fearing galloping inflation that will um lead to a recession as happened several times uh twenty thirty years back or is it those who uh believed that inflation is something that is just appearing for um short term cyclical reasons linked to the pandemic and will um disappear over the next twelve eighteen months.
4482311,538,4621.6699,4623.1802,0,It's rather difficult to say.
4482311,539,4623.1802,4648.4897,0,Um pricing well um we try and adjust but you mustn't you see the margins we're achieving uh pricing of our uh uh products uh um offers very um acceptable margins but we also need to be responsible uh to our customers.
4482311,540,4648.4902,4661.1299,0,Can't give the impression as some brands do that we can um go to uh figures that don't correspond to the economic reality of the price of the product.
4482311,541,4661.1299,4662.8501,0,We need to be reasonable.
4482311,542,4662.8501,4688.8799,0,We try and be reasonable so that our our customers do uh sense do feel that uh with us they um are with brands that uh bring them something that th re realistic and there's not artificially even if they're very fine products but um not artificially inflated.
4482311,543,4688.8799,4701.5698,0,As to the US market well we already have a presence on the US market very um very extensive presence because Louis Vuitton is the leading brand on the US uh market.
4482311,544,4702.6099,4709.5601,0,Tiffany and it's um it feels far and away uh number one on the US market.
4482311,545,4709.5601,4717.0098,0,Some of our brands uh need to increase their presence such as Bulgari for example needs to up its presence.
4482311,546,4717.4102,4720.9702,0,Dior has increased its presence significantly.
4482311,547,4721.46,4736.1299,0,Um we only do that in light of our ability and the ability as a group and that's uh an advantage to be a group as we are that has the finest brands in the world is to be able to obtain the best locations.
4482311,548,4736.3999,4742.6099,0,Uh I was in November as it happens um when the…
4482311,549,4744.4502,4770.4199,0,un unfortunately we we we learned uh at that time the the passing of Virgil I was in Miami with the teams and um we saw the strength of the group at work in a location the design district that we we um arriving with all our brands to obtain excellent locations but we mustn't be in a hurry.
4482311,550,4770.4199,4775.4199,0,I mean we're not t too much <inaudible> we've got great locations like ones in New York.
4482311,551,4776.1802,4779.21,0,Good results good earnings very good growth.
4482311,552,4779.21,4795.23,0,the the sales in our stores and boutiques are increasing um naturally and we're seizing um opportunities um as and when they arise at the right time.
4482311,553,4795.4399,4797.1401,0,Well thank you all.
4482311,554,4797.8599,4798.1899,0,Mr.
4482311,555,4798.1899,4800.5,0,Guiony do you have anything to add?
4482311,556,4801.2998,4804.7798,0,No I won't um speak again after you.
4482311,557,4804.8101,4805.0698,0,No.
4482311,558,4805.71,4807.7603,0,You don't have a few figures to give us?
4482311,559,4807.98,4808.8301,3,<unk>.
4482311,560,4808.96,4809.9697,0,You've given them all?
4482311,561,4813.0698,4814.6099,0,Well you're really amazing.
4482311,562,4814.8901,4816.5,0,Is there one one last question?
4482311,563,4817.8198,4818.0898,3,<unk>.
4482311,564,4818.2002,4819.5796,0,One last question if you like.
4482311,565,4819.5801,4819.9199,0,Okay.
4482311,566,4820.25,4821.8604,0,One final question.
4482311,567,4821.8599,4829.9897,0,It's already seven thirty and we can't offer um there's not a cocktail party for our guests this evening.
4482311,568,4830.2002,4842.8901,0,That's really a shame but if uh things next um year improve um I promise you we'll taste the um best champagne in the world the Ruinart two thousand and four.
4482311,569,4844.0898,4846.2998,0,<unk> the last question from you.
4482311,570,4848.1001,4848.73,0,Thank you.
4482311,571,4850.1299,4851.0601,0,Bonsoir Mr.
4482311,572,4851.0601,4851.3701,0,Arnault.
4482311,573,4851.3701,4858.6802,0,I really look forward to tasting the Ruinart two thousand and four uh Rose next year.
4482311,574,4859.2998,4863.0303,0,Uh first question for you second for Jean Jacques.
4482311,575,4863.9902,4871.2197,0,Fashion and leather goods the growth of that division plus forty two percent organic over two years.
4482311,576,4871.2202,4883.7798,0,That's about twenty percent growth per annum over the past two years to be compared to fifteen percent growth rate over the three previous years seventeen through nineteen.
4482311,577,4883.7798,4900.7598,0,What are the main drivers of that significant acceleration five points market share gains versus your peers price increases higher or uh postponing um spending you know travel etc.
4482311,578,4901.1602,4904.5698,0,that may be temporary?
4482311,579,4904.5698,4914.6104,0,For Jean Jacques Vuitton saw it's operating margin rise sharply six hundred seven hundred basis points versus twenty nineteen.
4482311,580,4914.8501,4921.0698,0,fifty percent EBIT margin what's the share of that margin progression that comes to from grow marg…
4482311,581,4921.3999,4939.6899,0,Thanks to the outstanding growth of volumes and price increases and that comes um an abnormally low uh cost base of uh <inaudible> marketing spend because of the pandemic just wanted to check with Jean Jacques or maybe it was you Mr.
4482311,582,4939.6899,4946.7603,0,Arnault that the operating margin for uh Vuitton this year is a good basis for the next two years?
4482311,583,4946.7598,4947.2397,0,Thanks.
4482311,584,4947.9302,4957.9697,0,Well why why do we have um this growth that is really helping us to gain market share I mean that was your first question.
4482311,585,4957.9702,4959.46,0,There are several factors.
4482311,586,4959.46,4976.2598,0,The first is uh probably thanks to the work put in by the teams the design teams the production uh manufacturing teams distribution customer relations.
4482311,587,4976.2598,4989.5898,0,Our brands are more desirable than the market as a whole so customers turn first and uh foremost and more strongly to our brands than to others.
4482311,588,4989.5898,4992.9897,0,I could explain all that but it would take rather a long time.
4482311,589,4993.3701,5000.7598,0,The reasons why our products our brands are extremely appealing.
4482311,590,5001.3799,5007.4399,0,You know once again it's we sell um a lot more than just fashion.
4482311,591,5007.4399,5008.96,0,I think that's the most important thing.
4482311,592,5009.2798,5021.5796,0,Next our customers our teams are really producing uh products that are increasingly sophisticated.
4482311,593,5021.5801,5021.9399,0,Okay.
4482311,594,5022.6699,5034.7803,0,th won't repeat what I said about the Tiffany watch that we sell at uh quite a high price but also more and more uh sophisticated products at Vuitton.
4482311,595,5034.7798,5055.4102,0,Delphine in particular is in charge of all the leather goods that are growing in sophistication increasingly appealing increasingly successful which means that the average price because the product is more sophisticated the average price increases.
4482311,596,5055.4102,5061.7798,0,So um revenue sales increase as it occurs at a given scale.
4482311,597,5061.8301,5072.4897,0,That explains why growth is higher than those who sell more ordinary uh products that are a lot cheaper.
4482311,598,5072.8901,5088.3799,0,But um since we're speaking about pricing we try and ensure that the customer buys a sophisticated leather uh product from Vuitton that h he really does get an outstanding product.
4482311,599,5088.9102,5098.2798,0,Um we have at Louis Vuitton we have machines of of torture for all the leather goods.
4482311,600,5098.3398,5114.1597,0,if uh if you like one day uh maybe invite you uh uh to visit what remains of certain products of certain competitors when they emerge from the torture machines of Louis Vuitton.
4482311,601,5114.1602,5115.9697,0,Sometimes there's not much left.
4482311,602,5116.1001,5125.8999,0,Whereas the v Vuitton has to remain in the machine for a week before it can go to stores.
4482311,603,5125.8999,5126.98,0,That's the difference.
4482311,604,5126.98,5130.8701,0,It's really this um focus on um on quality.
4482311,605,5132.6201,5135.5503,0,I think there was another question it was for you Jean Jacques.
4482311,606,5136.1602,5138.3696,0,you so you are gonna have the last word you see.
4482311,607,5139.6201,5139.9902,1,Yes.
4482311,608,5139.9902,5142.4497,1,I will answer and that will bring the session to an end.
4482311,609,5142.4502,5165.7202,1,So I can confirm that the uh profit margins of of Vuitton have not come down uh and in fact uh they well they um they may have in fact increased but I'm not going to confirm the o the the numbers you have given because we we do not go into the specifics of uh uh Vuitton.
4482311,610,5166.1201,5171.8901,1,But admit uh assuming that the margins may have gone up there are two factors to to explain this.
4482311,611,5171.8901,5191.3198,1,Number one uh we had a significant uh increase in volumes uh and so that meant uh th there was uh less uh depreciation uh especially um the finished products in twenty twenty one than in previous years because of the volumes.
4482311,612,5191.7202,5199.6201,1,Uh and uh because of uh the volumes there is also a better absorption of operating expenses.
4482311,613,5199.6201,5216.0303,1,However they they know one of uh items there had been some in twenty twenty but not in twenty twenty one such as renegotiated leases uh need to be we renegotiated the leases in twenty twenty when the shops were closed but there was no significant effects in twenty twenty one.
4482311,614,5216.0298,5220.73,1,But it's true uh we were able better to absorb our operating expenses.
4482311,615,5221.2402,5229.8501,1,Well uh ladies and gentlemen thank you so very much for a attending this uh presentation of the twenty twenty one results.
4482311,616,5229.8501,5235.3101,1,And I certainly hope that uh next time around it will be an actual in presence meeting.
4482311,617,5235.3101,5239.9897,1,It uh will be my pleasure to let you try out our best champagnes.
4482311,618,5239.9902,5240.3501,1,Thank you.
4482383,0,2.06,15.21,0,And welcome to The PointsBet Holdings Limited Q2 FY 2022 Appendix 4C Investor Presentation.
4482383,1,16.38,18.38,0,All participants are in a listen-only mode.
4482383,2,19.19,22.34,0,There will be a presentation followed by a question and answer session.
4482383,3,23.15,28.81,0,If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.
4482383,4,34.67,35.4,0,Please go ahead.
4482383,5,36.89,37.35,1,Thank you.
4482383,6,37.51,38.17,1,Good morning.
4482383,7,38.2,45.85,1,And thank you all for joining the PointsBet Holdings Limited Second Quarter of Financial Year two thousand twenty two Business Update And Activities Report.
4482383,8,46.35,48.04,1,This is Group C E O Sam Swanell.
4482383,9,48.13,51.16,1,And I'm joined on the call today by our Group C F O Andrew Mellor;
4482383,10,51.66,53.74,1,our u s C E O Johnny Aitken in Denver;
4482383,11,54.13,57.61,1,and our Group Chief Operating Officer Mark Hughes who is joining us from Dublin.
4482383,12,58.36,64.93,1,Before we begin please note all numbers referred to are unaudited and in Australian dollars unless otherwise stated.
4482383,13,65.52,66.61,1,Turning to slide three.
4482383,14,66.61,74.33,1,The December two thousand twenty one quarter as well as the month of January has been a period of great progress for PointsBet.
4482383,15,75.22,85.26,1,During the quarter we saw improvement in relation to many of our core financial metrics and we've also made great strides in terms of expanding our addressable market and delivering on our product vision.
4482383,16,86.16,89.59,1,This has been headlined by exciting launch into New York this week.
4482383,17,90.0,97.56,1,New York is expected to be one of the largest markets in the United States and we are very proud to be one of only nine licensed operators to gain access.
4482383,18,98.61,104.72,1,This is in addition to our launch in Virginia last month and will be followed by our launch into Pennsylvania in February.
4482383,19,105.45,113.17,1,These are obviously very substantial markets and allow PointsBet to leverage key N B C regional sports network assets in each market.
4482383,20,113.7,116.57,1,We also this week launched iGaming in West Virginia.
4482383,21,118.41,124.52,1,We will continue to grow our total addressable market rapidly with Ontario Canada likely to follow Pennsylvania.
4482383,22,124.82,130.51,1,And at least a further seven States are expected to be added in North America in calendar year two thousand and twenty two.
4482383,23,130.51,140.77,1,In November we were thrilled to deliver our first major in-play product upgrade following the acquisition of Banach Technology now known as PointsBet Europe.
4482383,24,141.83,153.58,1,Sports betting is the product that is leading the expansion of online betting across the u s a To win market share and deliver success in the u s market will require excellence in sports betting product and execution.
4482383,25,154.63,163.63,1,As sports betting is legalized across the u s we anticipate that seventy five percent of all online bets will be placed in-play that is once a match has already started.
4482383,26,164.97,177.67,1,Providing an elite optimized client experience in-play betting is beyond the capabilities of most operators who do not have modern in-house proprietary technology combined with advanced models and automated real time trading systems.
4482383,27,178.22,183.69,1,u s sports in particular continues to be poorly serviced in terms of the in-play client experience.
4482383,28,184.18,192.03,1,PointsBet's superior optimized client experience in particular around in-play will clearly differentiate us from our opposition.
4482383,29,192.03,197.85,1,The PointsBet Europe upgrade has now been applied to N F L and recently n b a.
4482383,30,198.45,200.13,1,Further sports will swiftly follow.
4482383,31,200.85,206.62,1,The impact on our N F L KPIs has been impressive and provides huge encouragement regarding the path we are on.
4482383,32,207.42,216.16,1,In-play handle is up forty four percent since the upgrade and Group C O O Mark Hughes will speak to other impressive positive indicators later in the presentation.
4482383,33,216.75,228.33,1,it is also worth mentioning that this month PointsBet became the first operator in the u s to offer in-play betting with zero suspensions or a hundred percent uptime across the core markets of NFL's spread and money line.
4482383,34,229.2,239.23,1,Most people would be unaware that the majority of operators are operating at just seventy percent of uptime meaning that when a client attempts to place a bet the market is suspended thirty percent of the time.
4482383,35,239.8,250.18,1,It's not hard to see the difference in player experience between the two outcomes and thus the positive sentiment and ultimately ongoing patronage that will be earned by the superior product experience.
4482383,36,251.37,257.16,1,In addition to in-play betting another key product battleground is parlays and in particular same-game parlays.
4482383,37,257.76,266.0,1,As such it gives me great pride to announce that this week PointsBet released its market-first N F L and N B A in-play or live same-game parlay.
4482383,38,266.73,280.17,1,PointsBet same-game parlay has proven incredibly popular with our clients and providing them with the opportunity to place these bets during a game is a further example of how PointsBet is hitting its stride leveraging the capabilities of our proprietary technology and models.
4482383,39,281.03,290.06,1,As you see in today's numbers it's also great to see u s net win increase sixty four percent quarter-on-quarter to reflect the improvements we've made across the business.
4482383,40,291.17,292.97,1,That improvement also includes iGaming.
4482383,41,293.43,297.71,1,As is well recognized PointsBet was late to the u s market from an iGaming perspective.
4482383,42,298.27,301.57,1,We were not in New Jersey prepast the repeal like many of our competitors.
4482383,43,301.92,312.08,1,And we took the time to build our own in-house proprietary platform as we set the business up the correct way for long-term success but we are now making swift ground.
4482383,44,312.46,319.56,1,In November we we released the evolution live casino product set into Michigan and this was completed for New Jersey in January.
4482383,45,320.27,323.69,1,iGaming net win was up one hundred forty five percent quarter-on-quarter.
4482383,46,323.89,333.18,1,And with West Virginia having launched this week and Pennsylvania and Ontario upcoming we will see iGaming revenues continue to climb on the back of our ever improving product suite.
4482383,47,333.7,339.85,1,In Australia the December quarter saw the seamless delivery of record activity across the spring carnival.
4482383,48,340.52,348.1,1,it's imperative that we deliver a reliable secure and scalable system that meets the needs of our clients on peak days such as Melbourne Cup Day.
4482383,49,349.0,355.32,1,On Caulfield Cup and <inaudible> Day PointsBet Australia processed over four thousand bets per minute up two point five times on last year.
4482383,50,355.85,360.99,1,On Melbourne Cup Day we processed over six hundred and eighty three thousand bets for the day setting a new record.
4482383,51,362.24,380.46,1,This continues PointsBet's impressive record at successfully managing peak days without incident in both Australia and the u s To wrap up my introduction I wanna return to the u s In New Jersey we've historically operated without the benefits of iGaming revenue and without the benefits of also being live in Pennsylvania.
4482383,52,381.03,386.94,1,Many clients cross the border between New Jersey and Pennsylvania will not use an app that is not operational in both markets.
4482383,53,387.63,393.667,1,We have the Philadelphia regional sports network via a relationship as the official sports betting partner of N B C.
4482383,54,394.39,402.67,1,This delivers us integrations exclusivity for all seventy six ers Phillies and Flyers games an extremely powerful asset.
4482383,55,403.47,410.83,1,We've been utilizing this asset to reach the South Jersey audience but we'll shortly be able to unlock its full benefits by being live in Pennsylvania.
4482383,56,411.77,419.89,1,Following our New York launch earlier this week we are now amongst an exclusive group of operators that will be live in New Jersey Pennsylvania and New York.
4482383,57,421.6,427.99,1,In New York we are again leveraging our N B C partnership through SportsNet NY a part of the N B C Sports Group.
4482383,58,428.54,437.66,1,s n y is the regional broadcast home of Major League baseball's New York Mets in addition to carrying supplemental coverage of the NFL's New York Jets.
4482383,59,438.09,442.08,1,They offer PointsBet year-round multi-platform media and marketing opportunities.
4482383,60,443.1,447.02,1,In parallel with these exciting developments PointsBet continues to deliver on its product vision.
4482383,61,447.62,455.24,1,Recent months provided a taste of what is to come with market leading innovation as we now leverage the hard work that's gone into building our proprietary technology and product.
4482383,62,455.96,467.37,1,While it is disappointing to see the recent performance of our share price we continue to focus on achieving our key operational priorities investing in our proprietary best-in-class technology and working towards our long-term growth goals.
4482383,63,468.34,470.75,1,We'll now drill into particular focus areas.
4482383,64,471.94,472.49,1,Slide four.
4482383,65,473.91,504.59,1,Pair to the group results for q two FY two thousand twenty one to be referred to as the P C P in q two FY twenty two sports betting turnover was up eleven percent at one point three three billion dollars as sports betting gross win was up sixty percent at a hundred and thirty three point eight million dollars and sports betting group net win was up sixty one percent at seventy one point nine million dollars to q two FY twenty two iGaming net win of five point four million represented a hundred and forty five percent increase quarter-on-quarter.
4482383,66,505.02,507.08,1,Now turning to slide five.
4482383,67,507.92,520.784,1,The Australian trading business continued its strong performance ending the quarter with turnover of seven hundred twenty seven million dollars up thirty four percent compared to the P C P and net win of fifty three point one million up seven percent from the p P C P.
4482383,68,521.36,529.39,1,However net win was marginally lower in q one FY twenty two reflecting the business' focus on promotional activity during the spring carnival.
4482383,69,529.97,535.33,1,Gross win margin and net win margin were twelve point seven percent and seven point three percent respectively.
4482383,70,536.24,537.52,1,Now turning to slide six.
4482383,71,538.56,552.975,1,The Australian trading business' q two marketing expense was twenty two point six million dollars which assisted in delivering twelve month rolling cash active clients to thirty one December of two hundred thirty two thousand eight hundred seventy five an increase of sixty three percent compared to the P C P.
4482383,72,553.66,566.78,1,To take advantage each of the latter parts of the N R L and A F L seasons and the spring racing carnival the FY twenty two marketing budget was skewed towards h one to build our brand and to acquire and retain clients over this important period of the sporting and racing calendar.
4482383,73,567.63,577.17,1,Marketing expense in h two will be substantially lower than h one as we execute the strategy to front end marketing expense this financial year and leverage our fantastic shack assets.
4482383,74,578.5,579.73,1,Now turning to slide seven.
4482383,75,581.02,586.67,1,Compared to the P C P Australian trading business has been in suit has seen improvement across several KPIs.
4482383,76,587.23,589.87,1,We saw a fifteen percent growth of first time bettors.
4482383,77,590.3,600.877,1,This was particularly pleasing given two thousand twenty saw both A F L and N R L finals shift from September to October resulting in increased first time beter activity in the P C P.
4482383,78,601.67,609.83,1,PointsBet's app download volume grew by a hundred twenty one point three percent compared to the P C P representing the largest gain across all major competitors.
4482383,79,610.24,617.517,1,For context sports betting increased volume by thirty four point five percent and tab by thirty three point nine percent respectively compared of the P C P.
4482383,80,618.07,620.57,1,And PointsBet's brand awareness grew significantly.
4482383,81,621.81,629.62,1,As mentioned earlier I'm also very pleased to report that our in-house proprietary system successfully process rec record betting activity through the spring racing carnival.
4482383,82,630.21,635.5,1,We saw new peaks reach for scale indicators such as bets per minute concurrent active user sessions and settlements.
4482383,83,636.55,648.41,1,Success on such big days in Australia provides the global team with even more confidence in the stability and scalability of our tech stack and trading systems as we enter into the N F L finals and launch in more u s States.
4482383,84,649.31,659.05,1,We'll now hand over to u s C E O Johnny Aitken to provide commentary on our u s business.
4482383,85,664.67,665.27,2,Thank you Sam.
4482383,86,682.54,690.38,2,Pleasingly q two net win of twenty four point one million have represented quarter-on-quarter growth of sixty four percent.
4482383,87,691.39,697.53,2,We remain focused on generating net win in our u s business and doing so in a sustainable and disciplined fashion.
4482383,88,698.61,704.34,2,Please refer to appendix one of the present for State by State breakdown of handle gross win and net wins.
4482383,89,706.09,711.26,2,Handle for the quarter was five hundred and ninety eight point nine million up seventy two percent quarter-on-quarter.
4482383,90,712.42,719.03,2,Handle shows a decline on P C P but please note my earlier comments on the impact of last year's short-term trading variances.
4482383,91,720.28,723.45,2,I'd like to take a moment here to outline a very important part of our strategy.
4482383,92,724.43,730.89,2,We are extremely focused on ensuring that every dollar of handle we book will ultimately drive value and revenue.
4482383,93,732.22,738.96,2,In line with this our focus is aimed at ensuring every client we acquire is capable of being about revenue generating.
4482383,94,740.17,752.57,2,Rather than focusing on the sheer number of actives our experienced customer intelligence and trading analytics teams are intensely focused on calculating the lifetime value of our clients ensuring they're accurately and quickly profiled.
4482383,95,753.47,758.03,2,Targeting procuring and retaining the right clients continues to be very important.
4482383,96,759.17,771.94,2,PointsBet's blended u s online handle market share in the States we are we are operational in consolidated with four point two percent for the quarter compared to four point five percent in q one of FY twenty two.
4482383,97,772.87,775.96,2,A further breakdown of market share per State can be found on slide eight.
4482383,98,777.0,779.37,2,Cost handle is one indicator of business scale.
4482383,99,779.79,781.68,2,We remain focused on growing net win.
4482383,100,782.6,797.07,2,Our strong sense is that analysts and operators agree that the market will transition fr from being heavily promotional-driven to one where the product experience is the primary driver of operator success combined with scale of distribution.
4482383,101,797.6,800.28,2,And we certainly have the latter via our partnership with M B T.
4482383,102,801.86,805.99,2,I note the heightened gross win margin that PointsBet has delivered in New Jersey compared to all other state.
4482383,103,832.31,841.82,2,Our quick our quick parlay builder parlay booster same-game parlay and now in-game same-game parlay are just the beginning of ongoing gut product feature enhancements.
4482383,104,843.0,844.05,2,Now turning to slide nine.
4482383,105,846.26,849.77,2,q two marketing expenses were twenty nine point seven million U S D.
4482383,106,850.5,857.01,2,And I'm pleased to report that the overall u s working media cost per per F D B was again under five hundred dollars.
4482383,107,858.2,868.46,2,We continue to invest in marketing and growing the brand across the u s Cash actives grew to two hundred eleven thousand up two hundred and ten percent compared to the P C P.
4482383,108,869.43,875.79,2,It should be noted that this metric also reflects our retention efforts not just ac not just acquisition volumes.
4482383,109,884.82,895.92,2,This investment targeted upcoming States like Virginia New York and Pennsylvania and more broadly asked to build brand awareness and the database nationally to assist future state launches.
4482383,110,897.52,904.06,2,We noted in the FY twenty two q one call that there was an opportunity to better utilize our tactical promotions.
4482383,111,904.98,915.11,2,A number of optimizations were made during q two refining our approach with a focus on rewarding our high value engaged client cohort and gaining an improved share of wallet from them.
4482383,112,916.07,922.28,2,We have reinvested a smaller proportion of gross gaming revenue on the promotions in q two compared to q one.
4482383,113,923.61,943.19,2,While slightly lower than the peak seen in September and October competition remained significant in the quarter specifically as it related to promotional activity thus it was important to retain and incentivize our value c clients with all four the major pro sports together being active along with college basketball and college football.
4482383,114,943.81,952.36,2,However it should be noted that we expect to gradually bring down the rate of promotional investment further in time as we continue to focus and lead with our superior product.
4482383,115,953.83,954.84,2,So ending to slide eleven.
4482383,116,956.46,967.06,2,We are excited by the opportunity before us this calendar year as we target to be operational at least seventeen States in the u s and also Ontario Canada our calendar year-end.
4482383,117,968.44,982.11,2,Our mid-December launch of online sports betting operations in Virginia with our partner Colonial Downs mark the eighth operational States for PointsBet and one of our most successful State launches to date when looking at F T B driven from N B C properties.
4482383,118,983.57,991.69,2,Virginia represents a large market opportunity with a population of eight point five million a comparable size to New Jersey and with a rich sports history.
4482383,119,993.32,1009.38,2,Tapping over twenty two thousand leads at launch largely driven by our partnership with N B C and leveraging local legend and eleven time N B A Allstar Alan Iverson a PointsBet brand ambassador our Virginia launch exceeded uh our execution goals.
4482383,120,1010.37,1021.55,2,In the first week of launch Virginia F T B acquired by N B C channels were almost five times higher than FTB acquired in the first week post launch in the State of Michigan.
4482383,121,1022.65,1031.25,2,This launch demonstrated that we continue to improve our strategic go-to market plans that are leveraging our N B C partnership and execution capabilities.
4482383,122,1032.51,1053.39,2,Viewers have been familiar with the PointsBet brands through our exclusive odds integrations and expert e- expert analysis during key N B C television broadcast including Sunday Night Football where PointsBet brand ambassadors and N B C N F L talent through Breys and Chris Simms host the PointsBet post segment with an audience of nearly twenty million people each week.
4482383,123,1054.54,1072.5601,2,Notably NBC's Washington regional sports and network affiliate is prominent throughout the region including Maryland an upcoming launch date for two thousand twenty two and serves as the exclusive regional broadcast home of the NBA's this is Washington Wizards and the N H L Washington Capitals.
4482383,124,1074.71,1084.66,2,They're utilizing NBC's regional sports networks and owned and operated broadcast station unlocks a a daily presence with local market teams and top sporting events.
4482383,125,1085.6,1090.9401,2,Grading a f a familiarity with the PointsBet brand pride on launch.
4482383,126,1092.4301,1097.91,2,In that December we were named the official and exclusive sports betting partner of the University of Mary Athletics.
4482383,127,1098.61,1111.77,2,This multi-year agreement marks the first ever sports betting partnership within the storied big ten conference and follows our deal with the University of Colorado which has provided the template to work within the uh the university space.
4482383,128,1114.7,1127.3201,2,The University of Maryland athletic spends more than three million funds worldwide with nearly two hundred thousand located in the D M V region which stands for the Washington d c Maryland and Virginia.
4482383,129,1128.61,1139.8,2,Also as announced on the twenty fifth of January two thousand twenty two PointsBet launched operations in New York by representing another major milestone for our company our brand and our web technology.
4482383,130,1140.62,1145.1,2,As Sam mentioned earlier New York is expected to be one of the largest markets in the United States.
4482383,131,1145.6,1149.46,2,And we are very proud to be one of only nine licensed operators in the Big Apple.
4482383,132,1150.79,1156.49,2,We'll again look to leverage our n b c partnership through SportsNet NY a part of the N B C Sports Group.
4482383,133,1157.78,1162.63,2,SMY is the the the regional broadcast home of the major league baseball New York Mets.
4482383,134,1163.12,1174.7599,2,In addition to carrying supplemental coverage of the New York Jets they offer PointsBet with year-round multi-platform media and marketing opportunities across its unmatched bet portfolio of events.
4482383,135,1175.84,1185.8199,2,PointsBet will have additional leverage opportunities as one of only six uh operators that have a New York access and official N F L partnership status.
4482383,136,1187.39,1194.09,2,As we plan to Pennsylvania to launch next month our focus will be on the significant uh Philadelphia and Pittsburgh markets.
4482383,137,1195.04,1202.9399,2,Since going live in New Jersey in two thousand nine we have been utilizing N B C Sports Philadelphia to reach the the South Jersey audience.
4482383,138,1204.24,1227.0399,2,This includes linear imagery and integration across the Flyers the seventy six ers and the Phillies which taps into their hometown affection to their teams with both with uh by digital both on their national sites our geo targeted ads to New Jersey and uh utilizing nbcsports dot com 's R S N specific website.
4482383,139,1228.76,1249.49,2,As made public by the New York State Gaming Commission on the thirteenth of August two thousand twenty one PointsBet as an app approved their platform provider will also provide the Resort World a wholly owned subsidiary of the Genting Group with a b two b by mobile sports so by wagering a service in the State of New York.
4482383,140,1250.03,1261.36,2,This strategic b two b agreement should be viewed as an a creative and valuable partnership for the company but not but not uh indicative of a large b two b strategy of PointsBet.
4482383,141,1262.8199,1272.58,2,Aside from the unique economic opportunity got presented by the Resort World Bet of New York PointsBet remains solely focused on our b two c sports book and our gaming operations.
4482383,142,1273.88,1274.8199,2,Turning to slide twelve.
4482383,143,1276.96,1283.29,2,Industry analysts keep increasing the estimated size of the u s online sports betting gross gaming revenue TAM opportunity.
4482383,144,1284.4,1285.7999,2,As we launched new States in two-
4482383,145,1286.1899,1290.4301,2,about two thousand and twenty two our coverage of the u s population.
4482383,146,1290.76,1296.76,2,And with that our TAM our TAM opportunity continues to grow uh well considerably.
4482383,147,1298.02,1303.35,2,We've seen some estimates point to an online sports spending TAM and maturity of u s about forty two billion.
4482383,148,1303.5699,1307.38,2,And on top of that the u s eighteen billion for our for our gaming.
4482383,149,1308.42,1312.9501,2,We would note that horse racing is not not commonly included in these the u s TAM estimates.
4482383,150,1313.6,1329.0,2,However from our our our experiences in Australia we do think there is future upside in this category to be realized in the u s hence why we bought Bet Bet PTC a u s advanced deposit horse horse uh wagering business last year.
4482383,151,1362.28,1363.7999,2,Turning to slide thirteen.
4482383,152,1366.3199,1371.1901,2,The NBC and PointsBet partnership entered its second year at the start of September two thousand twenty one.
4482383,153,1371.6,1377.3401,2,And the partnership continued to dr continues to drive results and break new ground in the category.
4482383,154,1379.22,1387.01,2,It should be noted that at the end of the quarter only sixteen point five percent of the total n b c lead base was a direct first time bettor opportunity for PointsBet.
4482383,155,1388.01,1399.8401,2,However that number will jump to an approximate by twenty six percent from February two thousand twenty two once both New York and Pennsylvania are launched and grow even higher over the calendar year.
4482383,156,1400.96,1405.72,2,I'm pleased with how the partnership is developing and excited for the innovation we have planned in h two.
4482383,157,1405.72,1420.5701,2,The coming period will include a a more ro robust a a more robust sort of digital plan incorporating NBC's new by regional connected TV and and over the top bet solution spot on.
4482383,158,1421.47,1426.98,2,There are also additional opportunities for inclusion on their quickly growing streaming platform Peacock.
4482383,159,1428.0699,1439.5,2,This combination of national and regional networks along with the local uh the local TV assets gives us the ability to create bespoke bespoke strategies to reach any audience.
4482383,160,1440.67,1445.7699,2,I'd like to now introduce our Group Chief Operating Officer Mark Hughes formally the CEO of Banach Technology.
4482383,161,1446.54,1457.1,2,Mark began his career working for Paddy Power now part now part of the now part of the uh Flutter Group I should say as a pivotal member of the quantitative analytics team.
4482383,162,1457.71,1466.29,2,As previously noted in-play betting is estimated to make up at least seventy five percent in the uh u s of all sports wagering activity uh within the next three years.
4482383,163,1466.83,1470.8201,2,And PointsBet acquired Banach Technology to take advantage of this in-play opportunity.
4482383,164,1471.46,1479.2,2,Mark will highlight the progress we've made in this area again over the quarter uh uh integrating the uh Banach trading platform.
4482383,165,1479.6,1480.2001,2,Over to you Mark.
4482383,166,1484.15,1484.72,3,Thank you Johnny.
4482383,167,1485.79,1487.3301,3,Now turning to slide fourteen.
4482383,168,1488.28,1489.65,3,In-play is our north star.
4482383,169,1490.84,1495.48,3,We believe in the value that sports betting brings in enhancing the viewing experience of a sporting event.
4482383,170,1496.85,1500.0499,3,And we are building a product to appeal to the users that enjoy that experience.
4482383,171,1521.48,1526.6799,3,Our in-play customers demonstrate higher average bet plays to bet more frequently.
4482383,172,1527.13,1531.0,3,They have more bets per play day and ultimately a higher average revenue per user.
4482383,173,1532.52,1533.58,3,Turning to slide fifteen.
4482383,174,1535.36,1543.26,3,The launch of our enhanced in-house in-play model for N F L in October twenty twenty one represented a big milestone for the company.
4482383,175,1544.01,1575.65,3,PointsBet acquired Banach Technology in early twenty twenty one with the intent to accelerate ambitions to deliver a world class in-play betting experience to our customers in the u s Banach Technology was founded with the vision to build a modern sports betting technology platform to support the delivery of a more enriched and quality betting experience for the in-play customer in the u s Since launching the new in-play NFL model we have already seen key results when compared to the period immediately prior to release.
4482383,176,1577.65,1586.65,3,Firstly the improved betting experience new algorithm has reduced the amount of time our in-play product is suspended for betting by more than forty percent.
4482383,177,1601.78,1603.2101,3,Secondly product expansion.
4482383,178,1604.51,1608.52,3,We have increased fourfold the number of betting markets our players can bet on.
4482383,179,1609.47,1614.9601,3,This includes the addition of player prop betting markets and the markets first in-play same-game parlay.
4482383,180,1620.62,1628.0599,3,And the early statistics have showed huge promise with a proportion of turnover outside three core betting markets increasing by forty two percent.
4482383,181,1629.33,1632.42,3,Our users want to play this product and we'll continue to deliver for them.
4482383,182,1633.6899,1637.58,3,This also offers a proportional increase in cash out opportunities for our customers.
4482383,183,1638.98,1640.08,3,And thirdly results.
4482383,184,1641.6,1648.6,3,Our stated north star is in-play and our hypothesis is that our product improvements will drive our users to better in-play.
4482383,185,1649.6,1655.8199,3,Since the launch of our NFL model in-play is a proportion of overall N F L handle has grown by forty four percent.
4482383,186,1656.5699,1668.3099,3,So continuing to push the boundaries of the customer experience and with integration of the official NFL data from Betgenius we have seen further improvements in both in-play betting availability and bet delays.
4482383,187,1669.27,1683.48,3,January have seen the introduction of our in-house in-play N B A product and we'll plan a fast follow for our in-house in-play n c a a b model and an overall improvement in our in-play tennis offering with the introduction of IDF tennis.
4482383,188,1714.74,1722.87,3,All of the aforementioned initiatives demonstrates our ability to continue to innovate and lead the market with unique and value adding products.
4482383,189,1725.58,1726.77,3,Turning to slide sixteen.
4482383,190,1727.61,1729.16,3,I would now like to touch upon iGaming.
4482383,191,1731.4301,1737.38,3,The iGaming product continues to show strong quarter-on-quarter improvement with net win up one hundred and forty five percent.
4482383,192,1738.9399,1747.74,3,We were particularly excited to have launched our live dealer table solution in Michigan in November and New Jersey in December including blackjack roulette and baccarat.
4482383,193,1749.3,1759.5601,3,Online casino products have seen a rapid product in the u s And the experience iGaming team at PointsBet is responsive to our users and eager to bring our customers the experience and gains they're looking for.
4482383,194,1761.17,1766.62,3,The introduction of live theater gaming is a welcome addition to PointsBet's growing wagering product suite.
4482383,195,1768.28,1776.48,3,Our live gaming options in Michigan offer top tier choices for our players and will serve as a template as iGaming expands in other jurisdictions in the u s and Canada.
4482383,196,1777.87,1785.59,3,We launched iGaming in West Virginia on January twenty seventh and anticipate further launches in Pennsylvania and Ontario in the coming months.
4482383,197,1787.46,1802.74,3,Importantly we look forward to the continued product improvements we have in development as we move to the next phase of our iGaming offering including a significantly enhanced games library automated promotional functionality personalized offerings and other innovations.
4482383,198,1804.25,1808.98,3,We will continue to see online casino in customer activity and revenue generation over the coming months.
4482383,199,1810.09,1813.0801,3,I now I'd like to hand it over to our Group C F O Andrew Miller.
4482383,200,1815.01,1815.7,4,Thanks Mark.
4482383,201,1816.29,1820.15,4,Turning to slide seventeen for the quarterly four city cash flow summary.
4482383,202,1820.5,1828.12,4,As at the thirty first of December twenty one the company's corporate cash balance was five hundred and twenty three point three million dollars.
4482383,203,1828.63,1837.46,4,Net cash used in operating activities during the quarter ending thirty one December excluding the movement in player cash accounts was fifty six million dollars.
4482383,204,1838.1,1840.9099,4,I'll now walk through each of the main line items.
4482383,205,1842.1801,1846.02,4,Receipts from customers for the quarter totaled ninety point four million bucks.
4482383,206,1847.0,1880.3099,4,This includes net win from sports book and iGaming verticals of seventy seven point three million dollars as previously presented by Sam and Johnny and a balance of thirteen point one million dollars includes cash receipts from our European b two b operations cash receipts from our u s rating ADW business and a partial New York license fee reimbursement received from Resorts World Bet a subsidiary of the Genting Group as part of our b two b platform provider agreement to power the Resorts World Bet's online sports book operation in New York State.
4482383,207,1881.38,1890.9301,4,As early presented by Johnny this strategic b two b agreement should be viewed as an accretive and valuable partnership for the company but not indicative of a larger b two b strategy of PointsBet.
4482383,208,1893.66,1903.14,4,Cash outflows during the quarter included cost of sales of forty four point eight million dollars which grew on the previous quarter in line with increased trading activity in both the u s and Australia.
4482383,209,1903.5601,1914.89,4,Non-capitalized stock costs of of eighteen point nine million bucks with growing global FTS growing to five hundred thirty nine at the end of q two as we continue to build to scale.
4482383,210,1915.21,1919.5699,4,And in addition we have support staff which are engaged by third party service companies.
4482383,211,1921.04,1924.96,4,Marketing cash outflow for the quarter with sixty five point six million dollars.
4482383,212,1925.4399,1933.38,4,This increased quarter-on-quarter with slightly increased marketing expenses as well as being due to the movement in prepayments and accruals from the prior quarter.
4482383,213,1935.37,1941.15,4,As previously disclosed the Australian marketing expense was twenty two point six million AUD for the quarter.
4482383,214,1941.15,1945.62,4,And the u s marketing expense was twenty nine point seven million USD for the quarter.
4482383,215,1946.45,1952.8201,4,As noted by Sam the Australian marketing expense will reduce significantly in h two in h two versus h one.
4482383,216,1953.39,1965.8199,4,And we expect the u s marketing expense in q three to be higher than q two as we launch new s new u s States including the recent launch in New York and soon to be followed by Pennsylvania our tenth u s State of operation.
4482383,217,1966.5,1975.63,4,Cash outflows of administration corporate costs and g s t paid on Australian net win was seventeen million dollars for the quarter.
4482383,218,1976.99,1978.4501,4,Turning to investing activities.
4482383,219,1979.4301,1985.3201,4,Net cash used in investing activities during the quarter ending of thirty one December was forty three point six million AUD.
4482383,220,1986.91,1998.61,4,The main driver of this outflow was the well documented market access payment to the New York State Gaming Commission of twenty five million USD required to receive our New York State mobile wagering license.
4482383,221,1998.61,2009.15,4,For further over the quarter the company capitalized seven million dollars of technology and product staff wages as part of continued development of our sports wagering and iGaming platform.
4482383,222,2010.26,2014.83,4,There was minimal cash flows from financing activities for the period and the company has no corporate borrowings.
4482383,223,2016.38,2020.25,4,At the end of December we had five hundred twenty three million dollars in corporate cash.
4482383,224,2020.4,2032.8,4,We take a disciplined approach to setting up the company for long-term success investing in our unique and market-leading proprietary technology and product platform continuing to grow the team to scale across the globe and investing in our marketing strategy.
4482383,225,2033.22,2034.23,4,I'll now hand back to Sam.
4482383,226,2034.91,2035.51,1,Thanks Andy.
4482383,227,2036.3101,2038.55,1,Turning to slide one eight slide eighteen.
4482383,228,2038.58,2041.1101,1,And in closing some brief words on Canada.
4482383,229,2041.62,2046.11,1,We eagerly await the announcement of an official launch date for Ontario which is imminent.
4482383,230,2047.4301,2052.3101,1,Not be more pleased with what has been achieved by our team led by Canadian C E O Scott Vanderwel.
4482383,231,2053.3999,2057.3701,1,We are dedicated to delivering a brand and an experience that is genuinely Canadian.
4482383,232,2058.02,2069.54,1,The deals that we have executed with daily faceoff dot com and the nation network Carling Canada the National Hockey League Alumni Association and the Trailer Park Boys are all true to this strategy.
4482383,233,2070.1899,2077.1201,1,We are extremely confident in the efficiency of the cut throat these partnerships will deliver to grow brand recognition and acquire clients.
4482383,234,2078.04,2093.4502,1,In launching PointsBet Canada into Ontario the Canadian team will leverage not only the proprietary technology and market leading product that the company has built but also the global scale we now possess with a one team approach supported by staff in numerous continents.
4482383,235,2094.25,2095.0598,1,Thanks for your time.
4482383,236,2095.0601,2096.2,1,And we'll now take questions.
4482383,237,2099.3301,2099.74,0,Thank you.
4482383,238,2100.3601,2105.76,0,If you wish to ask a question please press star one on your telephone and wait for your name to be announced.
4482383,239,2106.3701,2109.8401,0,If you wish to cancel your request please press star two.
4482383,240,2110.75,2114.4399,0,If you're on a speakerphone please pick up the handset to ask your question.
4482383,241,2115.72,2120.04,0,The first question comes from Rohan Sundram from MST Financial.
4482383,242,2120.47,2121.2798,0,Please go ahead.
4482383,243,2123.1599,2123.7002,5,Hi team.
4482383,244,2123.73,2126.3799,5,Uh I might start with a question for Sam.
4482383,245,2126.5,2134.8701,5,Just how are you thinking about the long-term share asp aspirations of the business in light of the ongoing increases in estimated North America TAM?
4482383,246,2134.8701,2142.9099,5,So w- would you be happy with say a five percent share of a a seventy billion market as opposed to say ten percent of a thirty billion market?
4482383,247,2142.9099,2144.6802,5,Is that how you're thinking about it?
4482383,248,2145.3601,2146.02,1,Thank you there Rohan.
4482383,249,2146.02,2146.5901,1,No I think…
4482383,250,2146.5901,2151.54,1,Look our our aspiration remains to to work towards that ten percent market share.
4482383,251,2152.29,2164.74,1,I think the reality is is what we thought you know in terms of a marketing budget that would us to achieve that um is now effectively probably a marketing budget that's more akin to achieving a say a three percent or four percent market share.
4482383,252,2164.77,2173.78,1,Because as you've sort of drawn the link to the the size of the market has grown dramatically and and the size of the estimated size of the future market.
4482383,253,2174.3,2179.95,1,So our competitors are being far more aggressive in line with that and they're being far more aggressive from a promotional perspective.
4482383,254,2179.95,2193.24,1,So you know I suppose our relative budget if you think about us spending you know twenty seven last quarter and a little bit more this quarter the market was probably spending close to a billion dollars those two quarters on marketing.
4482383,255,2193.24,2196.53,1,So we're probably spending about three percent of what the market's spending for marketing.
4482383,256,2196.53,2204.4299,1,So it's a bit unrealistic for us to expect at this stage in the current environment to be to be heading you know rapidly north towards that ten percent.
4482383,257,2204.4299,2226.04,1,But as you know I suppose as we assume the market transitions you know it was interesting hearing Adam um the CEO of MGM BetMGM yesterday or the day before talk about maybe there's another twelve months of um you know this heightened aggressiveness in the market may be one more start of NFL season but then their expectation is that perhaps things ease off a little bit.
4482383,258,2226.3899,2228.8101,1,Um and we probably we probably agree with that.
4482383,259,2229.1299,2233.47,1,And in line with that you know obviously we are continuing to make rapid progress on our product strategy.
4482383,260,2233.47,2236.6399,1,So we think those two things combined improving our brand.
4482383,261,2236.6399,2239.3301,1,We're investing in our brand we're investing in building data bases.
4482383,262,2239.8501,2250.52,1,Um while it may take longer to get to that ten percent given the the growing TAM and the and the amount that's being spent you know we still plan to get there as the market transitions to being more product-focused.
4482383,263,2251.75,2252.01,5,Okay.
4482383,264,2252.6201,2252.8401,5,Thanks.
4482383,265,2252.8401,2268.4102,5,And and on the New Jersey share I know it's not the the main game but I take into account the the reduction there in turn over but given the high net win how would you share look on a a net win basis especially given the first quarter was almost eight percent net win.
4482383,266,2268.4099,2268.5598,1,Yeah.
4482383,267,2268.5601,2270.75,1,Well I mean that New Jersey's a very good example.
4482383,268,2270.8601,2279.75,1,So you know from a market share perspective we came under a bit of pressure again but from a net win perspective net win quarter-on-quarter was up to 24% you know so that's that's a good example.
4482383,269,2279.75,2282.29,1,We want to keep growing growing net win.
4482383,270,2282.3899,2292.2,1,Now if that's a smaller proportion of the market that we thought would be that's in some ways a positive cause again it talks to the fact that the market is bigger than most expected and and is growing more rapidly.
4482383,271,2292.6399,2303.45,1,Um Johnny made a comment during um his part about the fact that you know New jer Jersey now it's becoming a bit of a trend that it's gross margin yields are yielding higher than our other States.
4482383,272,2303.45,2306.3501,1,And you know we look we look at the reason behind that.
4482383,273,2306.3799,2322.4399,1,And as he said some of it's some variance but but some of it is definitely some differences in player behavior in terms of that slightly more mature market now cause it's been open a bit longer players gravitating to the higher margin products the same game parlays the player props et cetera.
4482383,274,2322.4399,2334.95,1,And we think again that's a positive trend for us because it shows that they're moving into the let's call it the the sweet spot for PointsBet because this is where we aim to lead in terms of having the most engaging um product set.
4482383,275,2337.0801,2341.76,5,Thanks Sam.
4482383,276,2345.1201,2345.8701,0,Please go ahead.
4482383,277,2347.3899,2348.5,6,Uh good morning everyone.
4482383,278,2349.0901,2360.0698,6,Um you know you Sam you talked about New Jersey you know Indiana and Michigan were you know the States the bigger States that you have exposure to in the third quarter where you lost share.
4482383,279,2360.0701,2375.72,6,But um I guess the expectation rightfully wrongfully it would take a while to build those back given the advertising and the promotional uh environment but you were able to rebuild in Michigan.
4482383,280,2375.72,2390.48,6,I was wondering can you describe or talk about you know maybe some of the methods that you use to to recapture some of that lost share in the fourth quarter ver I'm sorry in the um fiscal second quarter versus the first quarter?
4482383,281,2390.6599,2391.8999,6,That's the first question.
4482383,282,2392.3,2396.9102,6,And then I wanted um to ask about customer acquisition costs.
4482383,283,2397.3501,2404.0698,6,Um Johnny you had mentioned you guys are still uh running about five hundred dollars or so.
4482383,284,2404.8301,2428.1699,6,And with your newer launch dates in Virginia and Pennsylvania in a month or you know in February and and New York and your ability to rely on your RSNs your NBC RSNs would it be fair to assume that that customer acquisition costs could come down in those particular markets?
4482383,285,2430.0601,2430.5898,1,Hi Joe.
4482383,286,2430.8301,2444.0701,1,Um so in terms of Michigan look again I think the pleasing thing for Michigan yes our sports betting market share did go up but again even more importantly I think we had seven hundred thousand of net win last quarter and this quarter was so like three point two million.
4482383,287,2444.0701,2448.74,1,So again really good growth in Michigan from a net a net win perspective.
4482383,288,2449.21,2469.4299,1,Um you know I think obviously when you've got the casino products improving uh you know when we when we think about States that have a mix of sports betting and iGaming you really do have to look at them in in totality because it goes without saying that if client um goes and loses some money playing blackjack well then that's perhaps less money that they have to turn over on sports betting.
4482383,289,2469.4299,2487.8701,1,So the two are are generally related and thus when you're looking at New Jersey uh Michigan and and soon to be West Virginia and Pennsylvania and States with with mix you have to look at the combined result um not you know with there's there's a difference if you just have sports betting to to having sports betting uh and iGaming.
4482383,290,2488.3601,2491.6599,1,Johnny is there anything you'd wanna say about um Michigan in particular?
4482383,291,2493.6101,2508.01,2,i would just add Sam that ag again we view every State a State as its own not country and each State sort of differs in terms of the dynamics and how again consumers consume sport the population the the distribution.
4482383,292,2508.04,2509.8501,2,You know a market like Michigan is very unique.
4482383,293,2524.3601,2529.54,2,We made a smart investment into building a sports bar next to the main entrance of the stadium.
4482383,294,2529.6599,2547.27,2,And when you've got at least eighty two home games of n b a NHL and people are walking past the PointsBet brand going in and out of the arena and going in there and having a drink it played a role in making sure the PointsBet's part of the yellow boost sporting fabric there and part of the consideration when people in Michigan and Detroit is thinking about where to play the next bet or sign up.
4482383,295,2548.5701,2549.1001,1,Thanks Johnny.
4482383,296,2549.1001,2549.23,1,Yeah.
4482383,297,2549.48,2554.9099,1,In terms of the CAC Joe I mean you know we spent and and Johnny made a comment about this we spent twenty-
4482383,298,2554.9099,2564.2598,1,twenty nine point seven million on marketing and that last quarter was similar in terms of um because we were waiting to launch in vir in in Virginia.
4482383,299,2564.3701,2570.3201,1,And we knew that we had upcoming launch and we were waiting q q you know quietly confident of a positive outcome in New York.
4482383,300,2570.3201,2574.5398,1,And again confident of a positive outcome with licensing in Pennsylvania.
4482383,301,2574.9199,2584.54,1,It's been a strange couple of quarters because a a fair chunk of our marketing budget has gone into the Washington RSN the the Philly RSN and and SNY in New York.
4482383,302,2585.02,2595.6902,1,So as those States go live Virginia now New York and and soon Pennsylvania you know that that spend goes from being sort of out of State to to being in live States.
4482383,303,2595.72,2601.0798,1,And so that proportion of let's call it somewhat spend that was going outside and maybe less efficient.
4482383,304,2601.1101,2603.73,1,Yes it was building the brand and and warming those States up.
4482383,305,2603.73,2604.9099,1,That then comes in States.
4482383,306,2604.9099,2628.26,1,So I don't necessarily I wouldn't necessarily say that taxes are gonna come down because we're now um going um you know live into those States but we certain certainly do believe that those it's it's been the model that we've used obviously in in Chicago that um you know we're never gonna outspend these big guys at the moment but you know the audience watches live sport.
4482383,307,2628.3899,2643.79,1,You know we've got Philly seventy six ers all the teams that Johnny spoke about the Mets in in in New York et cetera um getting in front of those eyeballs through those RSNs we think is a very efficient uh mechanism to grow our brand and and acquire clients.
4482383,308,2644.98,2646.6199,6,Thank you guys.
4482383,309,2650.8101,2651.22,0,Thank you.
4482383,310,2651.75,2654.8899,0,Your next question comes from Desmond Star from Goldman Sachs.
4482383,311,2655.3301,2656.0901,0,Please go ahead.
4482383,312,2658.4099,2658.6399,7,Hello.
4482383,313,2658.6399,2659.2102,7,Hi team.
4482383,314,2659.25,2664.3999,7,Um I've just got a couple of questions around slide uh fourteen and fifteen.
4482383,315,2664.3999,2669.02,7,I think you guys provided some interesting detail uh on those two slides.
4482383,316,2669.02,2678.01,7,Um you know obviously I think Mark noted a couple of industry-first achievements by the business in the u s and obviously now with Banach and the rise of in-play.
4482383,317,2678.01,2687.7002,7,I was wondering if you can just talk a bit more about the opportunity that in-play presents and then more specifically whether you have a sense of market share within in-play.
4482383,318,2688.2,2696.1799,7,You know would it be fair to say that your share of the in-play market is actually far greater than the blended four point two percent share that you talked to today?
4482383,319,2698.47,2699.27,1,Good question.
4482383,320,2699.3,2709.5701,1,Um yeah I think in terms of the opportunity yeah I want I really want this to be clear in terms of stepping through the dynamics of the u s market.
4482383,321,2709.8301,2715.73,1,Um you know we've we've been at at a disadvantage because we didn't come from an iGaming background.
4482383,322,2716.1899,2718.22,1,Most of the companies that we're competing against…
4482383,323,2718.78,2722.5,1,New Jersey legalized iGaming back in something like two thousand thirteen.
4482383,324,2722.9099,2733.6599,1,Um so all of most of our competitors have been operating iGaming in America in one State at least and maturing all of their products and practices for for some time you know pre-past 'em being repealed.
4482383,325,2734.22,2740.6899,1,Um add to that as I said the fact that we took the time to build our own platform because we want to we wanna own it we wanna keep the margin for the long-term.
4482383,326,2741.05,2750.8599,1,You know we have been at a competitive disadvantage from a product set perspective but also from a revenue perspective of of not having had um having had that product.
4482383,327,2751.29,2760.4299,1,But as we think about you know forward-looking States you know I think it it needs to be clear that all the States that are going live now and launching are all sports betting only.
4482383,328,2760.8101,2767.47,1,So iGaming expertise is not gonna necessarily get you get you anywhere if you don't have sports betting expertise.
4482383,329,2767.47,2772.3899,1,And our obviously our blueprint is to win our market share on the back of our sports betting expertise.
4482383,330,2772.78,2788.28,1,And then when iGaming does get legalized you know two years later or three years later for a particular State we've already got um hundreds of thousands of clients and we can cross-sell forty percent of them or whatever that number is to iGaming versus you know someone who was focused on iGaming well they won't have any market share.
4482383,331,2788.3201,2793.3599,1,Um if they don't have a proprietary sports betting product um they're they're not gonna win that market share in those sports betting States.
4482383,332,2793.78,2804.95,1,But within you know that earning of market from sports betting I don't think there's there's any operators out there that aren't talking about um a seventy five percent in-play uh market.
4482383,333,2805.3301,2809.6499,1,Uh so so everyone's everyone's agreeing that seventy five percent of sports bets will be placed in-play.
4482383,334,2810.28,2814.51,1,And you know we're on a path to we believe leading um within that sector.
4482383,335,2814.51,2817.27,1,Now we wanna lead within the entire product sector.
4482383,336,2817.27,2821.7,1,So we want to have the best product full stop and that includes you know improving our iGaming product.
4482383,337,2821.8601,2827.45,1,Um but you know leading the way and now starting to deliver on um some of our product vision.
4482383,338,2827.8601,2838.25,1,Part of the challenge when you build something from scratch you know and we built we've built this tech stack from scratch even in Australia and you know at at the start with not a lot of resources it it takes time to to deliver things.
4482383,339,2838.7,2842.6702,1,Um and we're now getting to the point where um you know we we're delivering.
4482383,340,2842.7,2848.1899,1,You know we're starting to innovate as you know a hundred percent uptime in-play in-play same-game parlay et cetera.
4482383,341,2848.1899,2858.78,1,So when it comes to you know the in-play vision and how important it's gonna be for winning market share and ultimately succeed in the u s I don't think anyone's in in indoubt with that.
4482383,342,2858.78,2869.3,1,And and I hope you know um the market is starting to see how PointsBet um is already leading in this category but is gonna put the foot down and continue to um you know to really um put a gap on there.
4482383,343,2869.76,2875.22,1,Um in terms of market share in-play market share I'll throw to I'll throw to Johnny.
4482383,344,2875.22,2888.8899,1,But I would just say um perhaps you know I I think it's still a customer journey and that's what we were talking about from the from the New Jersey perspective that you know the market is still very focused on the promos et cetera.
4482383,345,2889.0601,2892.4001,1,It'll it'll gradually um gravitate to be more product-focused.
4482383,346,2892.6201,2904.1501,1,And then there's the second part to that is though as clients get a little bit more sophisticated as we're seeing in New Jersey and they branch away from the core bet types into you know uh more creative bet types and higher margin uh bet types.
4482383,347,2904.1499,2909.3098,1,But Johnny do you a feel for whether you believe we're already over indexing from uh in-play perspective?
4482383,348,2911.6699,2912.02,2,Yes Sam.
4482383,349,2912.02,2917.79,2,I think I I think the true sort of read through will be um sort of sort of q three onwards this quarter and onwards.
4482383,350,2918.5601,2928.9202,2,And the reason being there that again in q two we we saw NFL and NBA move on to our our uh internal trading feeds powered by uh the Banach Technology.
4482383,351,2929.1201,2933.25,2,And so now sort of for each quarter ahead we'll get a true read of of the power that drives.
4482383,352,2933.29,2941.29,2,You know one of the things I think is misunderstood by um the market is that it isn't just about competing for in-play on the number of markets you have.
4482383,353,2941.6499,2944.6899,2,Um it isn't just about building play pops and micro markets.
4482383,354,2945.3401,2974.3201,2,Really the core tenet of offering an in-play experience that drives repeat that usage and allows you to lean in on on your product over sort of again sort of covering uh maybe with gaps in the product with heavier sort of promotions centers around being up up the longest again you know sort of aiming towards that zero sort of betting suspensions and giving consumers that complete experience to place a bet to cash out their bet uh without again um you know the moment when the the market are rather suspended.
4482383,355,2974.79,2978.6499,2,And then the second tenet is around the speed uh to accept the bet.
4482383,356,2979.1101,2986.21,2,Again you know we sort of know that our competition in general applies seven to ten second bet delay um when any in-play bet is placed.
4482383,357,2986.9099,3001.0,2,And then after that seven to ten seconds passes and the bet is then um pinged again to the trading uh software that's being used externally by a lot of our competitors fifty percent of the time the bet's being rejected due to a price change or again due to the market being suspended.
4482383,358,3001.6299,3015.8699,2,Again you know we're uh again actively working and sort of backing in the models um that have been delivered by Banach sort of backing in again the pricing efficiency that we have that we have the confidence to to uh recontinue to put as many clients as we can on zero bet delay.
4482383,359,3016.2,3027.5901,2,And so not only matching again as I said that that sort of um you know sort of uptime goal to again continue to increase that but also accepting bets um you know in sort of lightning speed.
4482383,360,3038.51,3041.6702,2,Again it's gonna be a huge ongoing driver of client activity for business.
4482383,361,3044.0701,3044.3901,7,Great.
4482383,362,3044.53,3045.01,7,Thanks Sam.
4482383,363,3045.01,3045.52,7,Thanks Johnny.
4482383,364,3045.52,3046.1301,7,Appreciate it.
4482383,365,3046.1299,3046.8201,7,That's all for me.
4482383,366,3050.3899,3050.8699,0,Thank you.
4482383,367,3051.3101,3054.3499,0,Your next question comes from Larry Gava from Credit List.
4482383,368,3054.8899,3055.7,0,Please go ahead.
4482383,369,3057.52,3057.95,8,Hi team.
4482383,370,3057.95,3059.22,8,A few questions for me.
4482383,371,3059.8401,3069.53,8,Um Sam just in New Jersey uh I you know hearing how you guys evolved um you know the management of that uh offering there.
4482383,372,3070.1899,3080.99,8,Um can you talk to whether that involved a churn of customers or is it did you migrate existing customers into new patterns um how that play out?
4482383,373,3081.3701,3083.98,8,And is this uh sort of first date?
4482383,374,3083.98,3087.0701,8,How come you didn't sort of take this approach in Illinois yet?
4482383,375,3087.1799,3089.7,8,Is it just a different cir circumstance there?
4482383,376,3090.28,3091.9502,1,Okay Larry.
4482383,377,3092.1599,3114.48,1,Um I think across the across the business you know we made a comment and I think Johnny referenced it again that last quarter we probably didn't focus enough on our existing clients or our high quality clients and um with our with our promotions and focused on you know the acquisition period.
4482383,378,3114.48,3120.8799,1,And I think you know we we we do want to focus on quality clients uh without wanting to…
4482383,379,3121.4299,3124.1499,1,Everyone's got their own strategies but you know there's…
4482383,380,3124.8101,3127.75,1,Acquiring clients um is not hard.
4482383,381,3127.8201,3136.8901,1,You know we we can run promotions and um give away money and just acquire client but that doesn't necessarily mean that all of those clients are gonna be of of value.
4482383,382,3136.8899,3139.0999,1,So we are trying to find the the balance.
4482383,383,3139.46,3148.3999,1,Um and I think that's the message you know coming out that yes um we will keep growing but we want to keep growing um responsibly.
4482383,384,3148.8501,3157.7002,1,Um so if you know adding another ten thousand actives or twenty thousand actives if those actives are are no good and that then that's the same in terms of churn.
4482383,385,3157.73,3161.95,1,There's no point trying to hold onto some clients if they're just they're just genuinely not not genuine.
4482383,386,3162.4099,3166.7998,1,Um then then you know we make we make no uh apologies for for doing that.
4482383,387,3166.8,3181.8799,1,So no I wouldn't I wouldn't sort of say that we're actively um you know targeting um segments or you know disconnecting from certain segments apart from unprofitable segments you know clients that are just not gonna be worth anything.
4482383,388,3182.1899,3184.4399,1,Uh and in terms of Illinois no it's it's very similar.
4482383,389,3184.6299,3187.1501,1,Um it's it's it's very similar.
4482383,390,3187.1499,3188.1001,1,The strategy's the same.
4482383,391,3188.1001,3191.0901,1,You know it's about it's about a focus on value continue to grow.
4482383,392,3191.0901,3199.97,1,it is just the dynamics work out that in in New Jersey we grew revenue by that twenty four percent um quarter-on-quarter lost a bit of market share.
4482383,393,3200.05,3204.6501,1,Um in Illinois we were able to continue growth without losing that market share but the s the strategy is consistent.
4482383,394,3204.78,3204.96,8,Hmm.
4482383,395,3207.0801,3207.4001,8,Okay.
4482383,396,3207.9199,3208.5,8,Excellent there.
4482383,397,3218.55,3234.54,8,New Jersey's been funding um marketing for new States but if we kind of withdraw that new State support um are we getting it close to break-even in New Jersey alone to sort of isolate just New Jersey marketing?
4482383,398,3235.9299,3238.1602,1,Yeah I think I think we are uh Larry.
4482383,399,3238.1899,3250.0,1,You know I mean I think when we do ten point eight for the quarter I would rather times that by four um because the iGaming product has come in and that wasn't necessarily um present in in in previous quarters.
4482383,400,3250.47,3251.5898,1,You know there's a few…
4482383,401,3251.5901,3253.0701,1,There's a lot happening in New Jersey.
4482383,402,3253.0701,3255.4299,1,There's a lot of market dynamics still there.
4482383,403,3255.5601,3257.1299,1,So I'll I'll call out a few.
4482383,404,3257.1299,3267.0,1,You know obviously going live in New York and being um one of um an exclusive group that will be live in New York New Jersey and Pennsylvania will be helpful going live in Pennsylvania.
4482383,405,3267.0,3269.0801,1,We spoke to that that Philly audience.
4482383,406,3269.52,3274.21,1,The continued growth of the iGaming product um is gonna be vitally important.
4482383,407,3274.4099,3281.4099,1,But you know I think um I think by the middle of next year um you know we think New Jersey is is turning profitable.
4482383,408,3288.6399,3293.4502,1,middle of post COVID in the middle of two thousand twenty sort of had to restart the business.
4482383,409,3293.8501,3297.5,1,And so you know we think by the end of next financial we are we're turning profitable.
4482383,410,3299.3701,3299.8701,8,Okay great.
4482383,411,3299.8701,3300.23,8,Thank you.
4482383,412,3303.73,3304.21,0,Thank you.
4482383,413,3304.6101,3308.0601,0,Your next question comes from Don Carducci from JP Morgan.
4482383,414,3308.4099,3309.22,0,Please go ahead.
4482383,415,3314.3501,3319.6201,9,So if I think about the net new active customers where did they they come from?
4482383,416,3326.02,3326.51,1,Hey Don.
4482383,417,3326.74,3326.9099,1,Yeah.
4482383,418,3326.9099,3331.0,1,I mean look obviously we acquire clients in all in all new markets.
4482383,419,3331.03,3338.23,1,The difference being that in a market like New Jersey where you have been uh live for some time you also churn clients out out the back end.
4482383,420,3338.23,3341.8,1,So the increase in active clients is a is a net effect.
4482383,421,3341.8,3343.02,1,It's what you've added.
4482383,422,3343.02,3350.53,1,Obviously the increase we've acquired more first time bettors than that increase in actives but we've also churned some clients in the backend.
4482383,423,3350.53,3352.9199,1,So that's the that's the net the net effect.
4482383,424,3354.2,3355.26,9,Yeah no g got it.
4482383,425,3355.26,3355.8899,9,I understand that.
4482383,426,3355.8899,3358.75,9,So I guess if I rephrase the question I mean you you have churn.
4482383,427,3359.29,3366.8701,9,Is the majority of this churn coming from new States or is it coming from the existing States that you've been in for twelve months or more like New Jersey Iowa Indiana?
4482383,428,3367.3799,3383.3701,1,Yeah no by by the definition because we're giving a twelve month rolling number it has to be States that we've been live in for more than twelve months because if we've been live in six in in um a state for six months for example um all of those clients would be in the twelve month active number.
4482383,429,3384.8,3385.1301,9,Gotcha.
4482383,430,3385.4199,3391.71,9,And then can you give us a little bit of clarity on like the cash guidance maybe for next quarter um include you know license payments et cetera.
4482383,431,3391.8301,3398.1199,9,Obviously Pennsylvania that's a that's a steep one uh New Jersey but just kind of a little bit of guidance on what we should expect for that.
4482383,432,3398.75,3400.79,1,Yeah sure Don Sandy.
4482383,433,3401.24,3411.9399,1,You know I think and just talk to to cashburn generally you know we're continuing to build obviously for the long-term and investing in this opportunity particularly in the us and and the product.
4482383,434,3412.51,3426.1602,1,Um and that is requiring a reasonable level of upfront investment as you mentioned the the market access requirements licensing requirements and the marketing investment which I think that's pretty pretty well understood as we roll out into into new States.
4482383,435,3426.96,3436.3501,1,As uh as it relates to um the market access access payment obviously this was a a larger payment that we made in New York which was twenty five million US in q two.
4482383,436,3436.8101,3443.1401,1,Um the payment required for Pennsylvania uh is eleven million USD which which will be paid in q three.
4482383,437,3443.1399,3448.52,1,So the business development payments for for q three will be lower than than q two.
4482383,438,3451.04,3451.3201,9,Gotcha.
4482383,439,3451.6101,3451.98,9,Thanks team.
4482383,440,3455.3,3455.73,0,Thank you.
4482383,441,3456.3701,3458.45,0,There are no further questions at this time.
4482383,442,3459.3201,3461.1599,0,That does conclude our conference for today.
4482383,443,3463.77,3472.1799,0,You may now disconnect.
4482569,0,189.74,193.38,2,However the margin increased by forty basis points on a quarter-on-quarter basis.
4482569,1,194.47,201.88,2,Gross margin for the global generics and p s a i were at 57.8% and 22.5% respectively for the quarter.
4482569,2,211.02,224.34,2,The year-on-year increase is in line with our business growth and on account of continued investments in sales and marketing activities for brands in India and emerging markets.
4482569,3,301.36,301.64,2,2%.
4482569,4,408.92,412.33,3,I hope you and your family are all safe and healthy.
4482569,5,412.71,419.77,3,i'm pleased to share that we had a strong financial performance during the quarter without any benefits of one-off or COVID-related sales.
4482569,6,420.81,432.99,3,We have grown year uh on year across our key businesses in both e b i t d a and RoCE margins are closer to our aspirational target of twenty five percent each while we continue to invest in our future growth business.
4482569,7,434.0,446.55,3,We have been able to achieve this despite certain industry level headwinds like a higher level of price erosion across the generic segment in uh in the US market increase in commodity prices and higher freight costs.
4482569,8,447.62,457.29,3,The sustained performance shows the resilience we have been able to build uh with a a diversified business model to mitigate such external headwinds.
4482569,9,458.61,469.89,3,We also generated significant cash flow during the quarter and are now having a cash uh net cash uh surplus which wi will enable us to invest for future growth.
4482569,10,471.48,475.25,3,Let me take you through the key business highlights for the for the quarter.
4482569,11,475.8,479.91,3,The reference of these numbers in these sections are in respective local currencies.
4482569,12,481.43,493.25,3,Our North America generic business recorded sales of two hundred and forty eight million for the quarter with a year-on-year growth of 6% however a sequential quarter decline of two percent.
4482569,13,494.44,502.42,3,During the quarter we continued to gain market share for some of our key products including uh recent launch of icosapent ethyl soft gels.
4482569,14,503.32,514.93,3,However the sales were impacted due to price erosion for some of our products and has been the case for the entire sector and seasonal demand variation for a few of our key products.
4482569,15,536.42,542.52,3,We are expecting a few good launches during q four which should enable us to return to growth in this market.
4482569,16,543.85,556.39,3,Our emerging market business recorded sales of one thousand one hundred and fifty four crore crores rupees with a strong year-on-year growth of 20% however registered a sequential decline of eleven percent.
4482569,17,556.44,565.61,3,Within the emerging markets the Russia business grew by two percent on a year-to-year basis and declined by eighteen percent on a quarter-to-quarter basis in constant currency.
4482569,18,566.46,584.9,3,As informed earlier the q two performance in Russia was very strong which supported by seasonal demand and launch of biosimilar be uh bevaciz- bevacizumab uh and the rest of the world market sales were supported by one off sales of the COVID-related products.
4482569,19,585.75,589.98,3,During the quarter we launched sixteen new products across various emerging markets.
4482569,20,591.38,600.55,3,Our India business recorded sales of one thousand twenty seven crores rupees with year-over-year growth of seven percent and sequential decline of ten percent.
4482569,21,601.11,610.33,3,Adjusted for COVID-related portfolio sales in the previous year and the last quarter the business performance has been fairly strong and in line with the expectations.
4482569,22,611.37,614.97,3,During the quarter we launched four new products in the India market.
4482569,23,657.0,669.5,3,Our as of December thirty first twenty twenty one we had ninety ninety one cumulative filings pending for approval within the US f d a which include eighty eight ANDAs and three five oh five b two NDAs.
4482569,24,691.48,699.29,3,Earlier during the month we had launched molnupiravir in India expanding our portfolio to fight against the ongoing COVID pandemic.
4482569,25,699.76,706.63,3,we're also working uh on certain export opportunities in line with the the licensing rights obtained from Merck.
4482569,26,707.88,712.73,3,As regards uh to Sputnik we are now ready uh with capacities in India.
4482569,27,713.14,720.67,3,We are working actively with the government of India for registering Sputnik Light as a vaccine and as a booster uh dose of Sputnik V.
4482569,28,721.26,727.9301,3,We have also submitted proposal to d c g i to conduct trial to test Sputnik Light as a booster to other vaccines.
4482569,29,728.79,731.16,3,Sputnik continues to be a viable option for Dr.
4482569,30,731.16,733.73,3,Reddy's for India and other countries.
4482569,31,734.88,745.92,3,Consistent with our aspiration and healthy balance sheet m and a remains an integral part of our growth strategy and therefore we are actively pursuing few deals across our focus geographies.
4482569,32,765.06,773.28,3,There is a good progress to deliver on the short-term and long-term growth levers across our businesses and we remain committed and optimistic about this.
4482569,33,774.68,780.21,3,i'm pleased to share uh uh also the recent recognitions of our efforts towards e s g.
4482569,34,781.01,790.52,3,In November twenty twenty one we were positioned number nine among pharma companies in the world in the Dow Jones Sustainability Index twenty twenty one.
4482569,35,791.29,798.6,3,During the quarter we were also recognized by the UN w e p for gender inclusivity in the workplace.
4482569,36,799.27,813.81,3,Our F T O S E Z p u one manufacturing plant in in Vizag was honored with the prestigious National Energy Conservation Award by the Bureau of ene Energy Efficiency uh Ministry of Power Government of India.
4482569,37,814.53,819.18,3,We have been recognized as the most innovative company for the year 2021 at uh CII Industrial Motivatio- uh Innovation Awards twenty twenty one.
4482569,38,821.43,836.06,3,Earlier this month we won a prestigious APEX award Sustainable Corporate of the Year at the twenty twenty one Frost and Sullivan TERI's Sustainability four point zero Award.
4482569,39,837.76,845.04,3,Uh as you can see e s g should continue to remain our focus area and we are going to increase our effort in that uh direction.
4482569,40,845.62,849.17,3,With this I would like to open the floor for questions and answers.
4482569,41,927.78,931.38,6,It's continued to be a a product-based situation.
4482569,42,932.09,939.23,6,But uh in the in inaudible uh inaudible number for products-based competition.
4482569,43,939.91,947.54,6,And the investors spoke on the on the inaudible like a double digit.
4482569,44,947.96,949.42,6,But despite that we are still going.
4482569,45,949.7,962.49,6,So uh we managed to offset the this uh erosion with the with new products with marketshare as well with uh inaudible activity.
4482569,46,962.61,971.71,6,So this is still the main uh issue and the and the growth of about I think now nine out of the one oh quarters we are going inaudible.
4482569,47,971.71,979.12,6,And uh this will continue to be a kind of uh the phenomenas in the future.
4482569,48,979.18,985.3,6,Uh in which I do see growth uh uh maybe slower than other markets but we are still going to inaudible.
4482569,49,988.06,988.61,5,Okay sure.
4482569,50,989.07,999.91,5,And uh inaudible the Covid-related contribution um uh across uh India or any merging market inaudible could that be a percentage of revenue for the first nine months?
4482569,51,1009.39,1019.53,6,And um and uh we would see uh uh probably also more inaudible.
4482569,52,1019.53,1031.86,6,Uh so in the this inaudible to the main composition of this portfolio will be in the second as well as the uh in the in the fourth.
4482569,53,1032.08,1033.1899,6,Uh not so much on the third.
4482569,54,1033.1899,1037.99,5,And and India there was contribution in fourth quarter that year right?
4482569,55,1039.8199,1040.47,5,inaudible.
4482569,56,1041.65,1058.54,6,That's why on this equation basis when you compare India uh that's why there is a decline cuz uh it was inaudible the last contribution inaudible quarter but not so much in the third.
4482569,57,1067.26,1067.47,5,Sure.
4482569,58,1069.21,1072.25,5,And and uh inaudible just uh on the follow up on that.
4482569,59,1072.72,1082.1799,5,Uh we know now that are seeing healthy Covid uh you know contribution at least for the first nine months.
4482569,60,1117.52,1123.71,6,But we're prepared for that.
4482569,61,1128.09,1128.38,5,Okay.
4482569,62,1128.38,1135.51,5,And in case if if it doesn't pan out uh um and do we have still have growth levers in place to inaudible?
4482569,63,1136.96,1137.96,6,Absolutely.
4482569,64,1158.28,1158.64,5,Thank you.
4482569,65,1185.55,1187.1599,8,Or you know any color on that?
4482569,66,1188.49,1189.9301,6,Uh it should be.
4482569,67,1189.97,1195.63,6,So I believe that uh most of the products inaudible price erosion we have already inaudible.
4482569,68,1197.97,1208.4399,6,the business model uh the position we also continue uh uh as it is normally does.
4482569,69,1208.4399,1210.48,6,So the business model will not change.
4482569,70,1210.48,1219.47,6,But in terms of uh uh the products that are affected by that I believe that uh most of the uh most of the effect is behind us.
4482569,71,1260.8101,1267.6,6,Uh second is productivity activity that we're doing on the on uh on cost improvement produ uh programs and others.
4482569,72,1275.78,1280.33,6,So uh we were preparing for uh so for for this phenomena.
4482569,73,1280.98,1285.63,6,And uh like I mentioned in my script we are growing despite inaudible.
4482569,74,1286.97,1287.2999,6,So…
4482569,75,1288.8199,1289.3199,6,um…
4482569,76,1290.42,1294.9401,6,uh so I'm I'm not so concerned about this uh uh going forward.
4482569,77,1297.02,1297.6699,8,Uh understood.
4482569,78,1333.15,1349.55,6,Uh so you know what we are going to see uh is uh uh the contribution in India of uh in q two uh as well as we're going to see some inaudible uh because of the current inaudible.
4482569,79,1356.08,1364.14,8,Are are we in discussions with the government to you know allow us to export given that you know the booster trial will just start so that is some time away?
4482569,80,1365.17,1366.88,6,We we will we can export.
4482569,81,1367.24,1368.5701,6,We can export the product.
4482569,82,1369.38,1373.2101,6,uh inaudible vaccine as well as the uh the other products.
4482569,83,1374.1801,1374.4501,8,Okay.
4482569,84,1374.51,1378.0,8,a and you've started exporting e exporting it in in the current quarter?
4482569,85,1378.0,1378.63,8,Or not just yet?
4482569,86,1382.39,1383.5801,7,Thank you.
4482569,87,1430.45,1437.63,6,The second is in the energy uh cost especially coal a few months ago.
4482569,88,1437.63,1438.75,6,Uh especially in India.
4482569,89,1439.3199,1443.8401,6,And the third is on the flights uh on the freight and the shipping uh cost.
4482569,90,1444.5601,1449.16,6,In all of that we absorbed and uh within the margin.
4482569,91,1518.12,1528.25,6,Uh w- w- we're targeting globally.
4482569,92,1528.25,1529.9701,6,Uh we have um…
4482569,93,1531.1899,1539.02,6,uh uh we have inaudible which is we have now it's a commercially with most of the American market.
4482569,94,1539.1,1545.5,6,And uh uh and uh the primary markets for India today is uh India and Russia.
4482569,95,1546.28,1557.27,6,The inaudible and the and the uh additional uh four biosimilars that inaudible markets.
4482569,96,1588.35,1591.37,6,So overall it's a a healthy portfolio.
4482569,97,1617.49,1624.0699,6,Uh uh we uh we um…
4482569,98,1625.1801,1629.8799,6,it normally takes 90 days and ninety days area due uh sometimes next week.
4482569,99,1630.75,1636.26,6,So we need to around that uh date uh we will probably get the feedback.
4482569,100,1637.3199,1639.63,6,And uh we we're awaiting the feedback from the hopefully we get inaudible.
4482569,101,1639.63,1645.96,9,That's helpful thank you.
4482569,102,1645.96,1648.8301,9,I'll get back inaudible.
4482569,103,1648.83,1649.2899,7,Thank you.
4482569,104,1676.2,1676.5499,10,Yeah.
4482569,105,1718.15,1727.92,10,Okay okay.
4482569,106,1786.2,1795.0701,12,Uh is it uh largely inaudible specific uh that double digit kinda price erosion situation.
4482569,107,1795.51,1799.8,12,Uh and uh possibly could be because of a more number of inaudible.
4482569,108,1801.25,1805.51,13,Is that the situation or it is broad based inaudible in the US?
4482569,109,1837.66,1856.5599,14,So the um in- in our case uh we we we had inaudible by design were faced with position that a larger proportion outta the entire basket.
4482569,110,1857.28,1888.6599,14,So um let's say inaudible percentage percent is let's say for me at least the indicator of the health of the business the health of the business inaudible.
4482569,111,1912.5,1917.8199,13,So let's say five years down the line is it fair to inaudible?
4482569,112,1926.91,1960.49,14,inaudible our strategy for the last four years and so uh we're investing in other markets for growth uh in inaudible markets and this is providing us by using the the the inaudible based on the portfolio of assets inaudible this is allowing us inaudible and yes I think it's fair to say that that these markets will grow faster than the US.
4482569,113,1961.2,1968.54,14,So the United States will continue to be an important market for us uh just want to emphasize that.
4482569,114,1968.54,1971.72,14,inaudible continue to invest and go in United States.
4482569,115,1977.67,1981.24,14,It's decreasing already.
4482569,116,1981.24,1982.09,14,it'll decrease over time.
4482569,117,1984.92,1990.6,14,Uh and the capital location is uh inaudible.
4482569,118,1990.6,1990.76,13,Okay.
4482569,119,1990.76,1995.8601,13,Just last one question inaudible.
4482569,120,1996.02,2009.5699,13,So uh inaudible whether we're inaudible we have already launched inaudible Canada and that it also inaudible market for this inaudible.
4482569,121,2009.5699,2027.11,13,So whether we have the appropriate number or the kinda uh revenue inaudible outta Canada market but then we have achieved the right inaudible revenue out of the data.
4482569,122,2027.11,2037.1101,13,inaudible will take longer time to achieve that inaudible outta the market from inaudible.
4482569,123,2091.6201,2092.9102,14,It's not the same situation.
4482569,124,2110.03,2111.01,13,Okay thank you.
4482569,125,2111.04,2111.8501,13,Wish you all the best.
4482569,126,2114.8,2115.1101,15,Thank you.
4482569,127,2116.6699,2121.5798,15,The next question is from the line of inaudible from Morgan Stanley.
4482569,128,2121.73,2122.28,15,Please go ahead.
4482569,129,2123.71,2126.6401,16,Hi thank you very much and good evening to everyone.
4482569,130,2127.1699,2131.27,16,So the first question is for inaudible which is inaudible in the US.
4482569,131,2131.8301,2134.5901,16,Uh it's a good job done on the market share game.
4482569,132,2134.5901,2140.45,16,I think it's now stabilizing around eleven twelve percent uh for last few weeks uh you know.
4482569,133,2140.77,2145.46,16,So uh have you reached the peak or uh you know what's the outcome over here?
4482569,134,2145.8101,2154.0298,16,And is it the supply that is holding you back?
4482569,135,2154.6799,2155.29,14,inaudible.
4482569,136,2156.6899,2164.46,14,I think that the product is doing well and we are planning to continue to do well as well in the next three quarters to come.
4482569,137,2172.6799,2175.54,14,Uh inaudible holding a nice market share.
4482569,138,2176.4099,2182.8799,14,And then in in terms of supply it it is not concerning us at this stage.
4482569,139,2185.76,2193.0598,16,Then uh why is the market share you know in early double digit and not much higher if supply's not holding you back?
4482569,140,2193.5701,2195.1699,16,So what's the roadblock?
4482569,141,2202.78,2213.1399,16,but but so that's a little counterintuitive cuz genetic is the lower cost lower price so most of the time customer are too happy to take genetic product.
4482569,142,2219.24,2220.46,16,Is anything different over here?
4482569,143,2221.4299,2229.7998,14,No nothing different here.
4482569,144,2247.6399,2247.8098,16,Okay.
4482569,145,2251.22,2251.99,16,Okay.
4482569,146,2279.8401,2283.79,14,But I wish that it'll be only peace in the world and inaudible.
4482569,147,2286.47,2288.8701,16,So far have you seen any back from the business?
4482569,148,2290.2,2290.53,14,No.
4482569,149,2292.1799,2292.48,14,No.
4482569,150,2293.71,2294.04,14,No.
4482569,151,2298.3,2298.9001,16,Okay great.
4482569,152,2299.21,2309.6201,16,So one final question if I may which is on your inaudible um you know is any of inaudible over here how has been the progress?
4482569,153,2310.4299,2322.6799,16,Anything you can share on the physical infrastructure you know that you'll build especially for you know for online pharmacy versus inaudible diagnostic side and how many cities have you rolled out?
4482569,154,2322.71,2327.1501,16,What's the plan going forward for next you know uh four six quarters?
4482569,155,2328.28,2328.6599,14,Sure.
4482569,156,2329.5901,2331.0901,14,It is going very nicely.
4482569,157,2331.3999,2336.53,14,Uh uh we basically on the last stages of finishing the pilot.
4482569,158,2337.78,2345.1499,14,Uh we we we are now present in five cities going to ten cities uh uh in the next few weeks.
4482569,159,2346.0701,2377.6799,14,And the and the and this will cover of course the main cities of uh India and inaudible and the- and accordingly will be the roll out of the of the companies that will join this platform so they they our main way to go about business is by convincing the companies to work with us inaudible and basically insure by our assurance in these products.
4482569,160,2378.6799,2382.54,14,And of course rolling out a new service inaudible to provide excellent service.
4482569,161,2383.45,2399.0801,14,Uh this is very very neat project and I'm very proud of the the beginning and the delivery delivery very much.
4482569,162,2399.0801,2405.1101,14,Uh it's a good thing uh for us and uh I believe it's a very good thing for India.
4482569,163,2408.1499,2408.8201,16,Okay great.
4482569,164,2409.03,2409.8401,16,Thank you so much.
4482569,165,2412.8401,2413.1401,15,Thank you.
4482569,166,2417.6499,2434.01,15,Please go ahead.
4482569,167,2461.47,2477.01,14,Uh the main driver of course will be uh the the launches that will be in the marketplace uh by two three by two four by twenty five by the customers both by internal use as well as external use.
4482569,168,2480.23,2484.5398,14,inaudible meaning the top products that used to drive this business are going to be changed.
4482569,169,2485.4199,2495.1001,14,inaudible products that will be launched in that area which will be one more profitable and second uh bigger in size.
4482569,170,2496.0,2499.4102,14,This will drive the growth on the bas basic inaudible.
4482569,171,2500.3,2510.3098,14,p c i is comprised also mostly inaudible that they are slightly picking up and uh we very much believe in it.
4482569,172,2510.3101,2534.49,14,So most of the inaudible that is done now inaudible projects which are in phase one and early phase two and make sure some of these products will come to phase three and beyond that and of course inaudible part of the business which is uh inaudible activities and it's seemingly picking up.
4482569,173,2534.6299,2556.0701,14,The sales inaudible and the p c i is picking up and launches of pharmaceutical product that we are saving in Japan as well as in some Middle Eastern and African countries.
4482569,174,2588.0601,2599.55,14,And the uh so right now uh still most of the uh most of the p c i comprise of uh A P I of the a p i processes.
4482569,175,2600.1899,2606.0701,14,And uh in the case of q two it was uh comprised of some COVID trends as well.
4482569,176,2612.28,2613.22,17,Got it.
4482569,177,2613.78,2615.5,17,Helpful.
4482569,178,2615.5,2626.98,17,Second question is inaudible some of the early comments.
4482569,179,2631.8999,2634.3599,17,What's the reason for doing the trial with other vaccines?
4482569,180,2636.26,2648.78,14,Yeah we will uh we will uh we have to get approval from uh uh the the authorities here in India for the protocol of the trial.
4482569,181,2649.5,2659.3999,14,And the and the and based on that pending that approval of that protocol we will have the trial uh inaudible another option.
4482569,182,2660.26,2664.1699,14,But inaudible as well as the government will uh booster in the future.
4482569,183,2664.6299,2672.0801,14,Uh we believe that uh boosters will be part of our of our life and we'll have to take it one or twice a year now.
4482569,184,2672.96,2676.3198,14,And uh and we believe that we want to be ready for that.
4482569,185,2676.48,2678.4402,17,Got it.
4482569,186,2680.28,2680.4001,17,Helpful.
4482569,187,2680.3999,2680.96,17,Last question.
4482569,188,2693.8601,2697.99,17,We just inaudible assets or products that you will be looking to acquire.
4482569,189,2705.72,2711.21,18,In India and naturally as well as the emerging market in the United States and Europe.
4482569,190,2711.21,2716.01,18,In all of those global fields there are now actually projects.
4482569,191,2716.8999,2723.3098,18,Uh some of them can be faster and and then within the next few weeks if of course we'll get them approved.
4482569,192,2723.3101,2725.6501,18,And some of them may be later.
4482569,193,2725.6499,2734.7302,18,Um uh uh the the nature of the capital location will be the same as we discussed in the past.
4482569,194,2734.73,2736.3701,18,We are not in the shop industry.
4482569,195,2737.1499,2740.53,18,We uh we see it as complementary to our organic growth.
4482569,196,2750.5901,2755.52,18,So uh and so now let's see which one of the projects will be…
4482569,197,2755.5601,2761.25,18,actually eventually come to conclusion but likely that we'll see multiple deals in the next coming months.
4482569,198,2761.5901,2763.8601,19,Got it.
4482569,199,2822.3601,2844.75,18,Or if all of this will happen it can create a nice opportunity for us.
4482569,200,2858.6299,2859.0298,18,The…
4482569,201,2866.8601,2868.28,18,We can export.
4482569,202,2869.9199,2885.6599,18,Exporting like exporting is uh we can export but naturally our customers will not buy a product that is not approved for use in the relevant markets and for the relevant patients that are going to use it.
4482569,203,2887.3201,2894.26,18,So it has to be approved uh in that specific country for the use either as a vaccine or as a booster.
4482569,204,2894.26,2897.22,18,Uh this is where the…
4482569,205,2897.22,2897.78,18,from t…
4482569,206,2897.78,2899.9102,18,from there we will derive the quantities.
4482569,207,2906.1299,2906.3298,21,Okay.
4482569,208,2911.77,2912.6699,21,Okay yeah.
4482569,209,2912.7,2913.24,21,Got it.
4482569,210,2915.45,2916.6199,21,Uh to inaudible.
4482569,211,3013.4199,3014.1099,22,Y-…
4482569,212,3027.6799,3037.6301,22,And uh in our case most of our portfolio faced it and so likely that we're not going to see another round for these specific products.
4482569,213,3037.6299,3038.1199,22,And therefore…
4482569,214,3038.25,3041.03,22,and hence it will probably come down.
4482569,215,3144.05,3145.5,18,Thank you for the opportunity again.
4482569,216,3147.5701,3161.1501,18,Uh someone that that I talked to last time uh uh he was saying that the inaudible not a lot's gonna happen in the next one or two quarters but if we supply the needs uh initial inventory too presuming it's stable or it'll happen once uh uh the approval comes around.
4482569,217,3167.4399,3177.75,18,So so just to uh present uh as part of the deal all the rights all the activities of this model inaudible.
4482569,218,3177.8501,3187.0601,18,Uh and the therefore we are just ahead of a certain financial uh avengement with inaudible.
4482569,219,3187.7,3193.7998,18,Once they'll go we will enjoy uh an extreme operating value that will come from their launch.
4482569,220,3194.24,3204.48,18,So we are not supplying and not involved in the launch and we're not aware of the dates and uh we are going to be advised by them when they will be trying to do this.
4482569,221,3206.6899,3207.3101,24,Oh okay sure.
4482569,222,3207.6699,3208.03,24,Thank you.
4482569,223,3219.73,3222.26,26,Um I hope my voice is audible.
4482569,224,3222.47,3223.99,26,There seems to be some disruption.
4482569,225,3224.53,3225.9102,26,So just one final question.
4482569,226,3225.95,3230.3799,26,Uh how are you thinking about your injectable portfolio for the US market?
4482569,227,3242.8501,3256.48,18,Yeah so it's uh naturally very important to acknowledge us in the US but also globally.
4482569,228,3256.48,3262.0901,18,Um and uh and and the answer is yes.
4482569,229,3285.6201,3294.04,18,And it will grow faster than the early performance.
4482569,230,3330.1299,3334.48,18,The PI was not related to a specific product like that.
4482569,231,3334.6299,3347.0698,18,But naturally when uh you have a PI they are not checking only the specific borders they are checking the entire site.
4482569,232,3359.4199,3369.7,27,Um would you would you still expect to grow in the US next year if uh there is an adverse uh observation on inaudible from the f d a?
4482569,233,3369.7,3375.26,18,Uh first we file of it and first uh we hope not to have these adverse effects.
4482569,234,3376.27,3381.0701,18,And the and the and the second we are…
4482569,235,3381.0701,3384.6699,18,and so at this stage they're not looking for it so long as that we don't have these sites.
4482569,236,3385.1599,3390.8599,18,Uh but these sites are very very important for the growth in the United States not just next year but also in the years to come.
4482569,237,3393.1001,3393.3501,27,Okay.
4482569,238,3393.6799,3397.5701,27,And any any update on uh on you running uh internally?
4482569,239,3397.5701,3400.05,27,Have you decided to go ahead with the launch or drop it?
4482569,240,3401.71,3407.4001,18,We did not finish all the evaluations but unlikely that you'll see launch in the next few months.
4482569,241,3409.1499,3409.7898,27,All right.
4482569,242,3409.79,3412.6699,27,And and lastly any update on Copaxone?
4482569,243,3414.45,3415.6401,18,Uh it is still important.
4482569,244,3415.6899,3417.1101,18,Uh we view it…
4482569,245,3417.1399,3418.6201,18,It's now in the FDA court.
4482569,246,3418.9399,3428.3801,18,Uh the ball is in their court meaning that we have submitted all the relevant information and we're waiting for the response.
4482569,247,3428.3799,3432.4902,18,Again I believe that they…
4482569,248,3432.49,3438.8499,18,Or at least I don't think likely to see a launch in the next three months.
4482569,249,3440.75,3440.98,27,Got it.
4482569,250,3441.46,3441.71,27,Okay.
4482609,0,7.99,10.27,0,I hope you and your loved ones are well.
4482609,1,11.09,13.96,0,For today's presentation we are joined by our C E O Mr.
4482609,2,13.96,17.2,0,Gonzalo Gortazar and the C F O Javier Pano.
4482609,3,52.49,55.48,0,And without further ado let me hand it over to our C E O Mr.
4482609,4,55.48,55.51,0,Gortazar.
4482609,5,57.95,58.57,1,Well good morning.
4482609,6,790.44,797.68,1,Uh the other piece of news in the P&L so the big picture um cost under control uh in line with our guidance and the significant reduction of uh loan loss charges.
4482609,7,949.18,949.53,2,Okay.
4482609,8,949.53,949.97,2,Thank you.
4482609,9,955.62,970.72,2,And uh and good morning.
4482609,10,1239.73,1264.51,2,And on the right-hand side uh you see the evolution of uh our um back book yield that is down by two basis points to 161 still suffering the latest leg of rivalry pricings.
4482609,11,1356.58,1377.3199,2,And you may see the breakdown.
4482609,12,1426.4301,1448.0699,2,And on the on the right you have uh the breakdown of the different impacts of the consolidation of uh Bankia Vida.
4482609,13,1558.71,1642.09,2,And on ICOS uh we have uh 38% of those already paying principle and the major milestones here being uh May June when the major part of them will start uh paying principle.
4482609,14,1790.16,1790.9,4,Thank you very much.
4482609,15,3617.8101,3650.0601,1,Uh so uh let's see how that goes.
4482609,16,3659.3701,3674.48,1,Um but uh but I think we have to be positive.
4482609,17,3678.0,3705.6499,1,The peak for NPLs uh uh should uh should be reached this year.
4482609,18,4713.5601,4715.25,2,Well on um what you mentioned about other provisions and other one-offs.
4482609,19,4718.0098,4788.3203,2,Well on other a provisions ex M&A ex M&A related we had uh a prudent approach to some legal issues mainly related to um foreign exchange mortgage exposures uh to revolving.
4482609,20,4978.73,4993.25,2,And unfortunately uh we still don't have a final view on uh which is going to be the final breakdown uh by P&L cuz there are different moving pieces and unfortunately we are still uh working on it.
4482609,21,4993.25,5011.2197,2,And i'm sure we will be able to inform once we we announce uh uh the first quarter results.
4482609,22,5196.2998,5197.25,1,Oh okay fine.
4482609,23,5477.1899,5477.8799,0,And thank you for watching and goodbye.
4482613,0,37.4,37.73,1,Thank you.
4482613,1,39.22,46.28,1,Um this is Varun Kapoor head of investor relations and it's my pleasure to welcome you to our uh third quarter fy twenty two Earnings Call.
4482613,2,47.07,49.64,1,We have with us today the management team headed by Mr.
4482613,3,49.64,51.56,1,Sunil Duggal Group CEO;
4482613,4,51.56,51.92,1,uh Mr.
4482613,5,51.92,53.55,1,Ajay Goel Group Acting CFO;
4482613,6,54.12,54.38,1,Mr.
4482613,7,54.38,56.93,1,Prachur Sah Deputy C O O Oil and Gas;
4482613,8,56.93,57.19,1,Mr.
4482613,9,57.19,59.12,1,Arun Misra C O O Hindustan Zinc;
4482613,10,59.8,60.12,1,Mr.
4482613,11,60.12,61.88,1,Rahul Sharma Deputy C O O Aluminum;
4482613,12,61.88,62.46,1,and Mr.
4482613,13,62.46,64.9,1,Sauvik Mazumdar C O O uh Iron and Steel.
4482613,14,65.85,67.75,1,With that I would like to hand over to Mr.
4482613,15,67.75,69.32,1,Duggal to take us through the presentation.
4482613,16,70.62,71.35,2,Thank you Varun.
4482613,17,72.62,80.8,2,Good evening ladies and gentlemen and welcome to Vedanta Limited f y twenty two Third Quarter Earning Conference Call.
4482613,18,82.09,92.86,2,This quarter the commodity market witnessed heightened volatility mainly driven by energy crisis worsening supply situation and concern over rising cost.
4482613,19,94.29,117.63,2,The global economy has been losing momentum cause of the new variant of the COVID supply chain disruption and elevated inflation level change in the expansionary stance of monetary policy by central banks and worse than expected impact of Omicron variant may pose pressure on commodity demand and prices going forward.
4482613,20,119.07,132.72,2,Indian economy has been on a relatively stronger footing as most of high-frequency indicators surpass pre-pandemic level though some showed sign of slowing momentum recently.
4482613,21,133.49,157.21,2,However government push on infrastructure spending reviving capital expenditure by corporate sector credit availability less stringent curb on m-movement of people and material unlike previous two waves of pandemic and mixed sentiments on the lethal impact of the third wave is likely to limit the impact.
4482613,22,158.24,168.61,2,We expect the demand for mineral metal and energy in India to remain resilient in a seasonally upbeat Quarter four.
4482613,23,169.64,183.37,2,Vedanta continued its strong growth momentum this quarter reporting its highest quarterly and nine monthly revenue and EBITDA despite macroeconomic and input costs headwinds.
4482613,24,184.54,192.68,2,We witnessed steady volume performance across all our businesses with aluminum and zinc delivering record quarterly performance.
4482613,25,193.97,202.41,2,We have become the sole producer of nickel in India post the acquisition of Nicomet which complements our existing portfolio.
4482613,26,203.64,206.6,2,All our initiatives on E S G front are progressing well.
4482613,27,207.81,215.17,2,We are making great strides to stand by the commitment made on renewable energy and decarbonization.
4482613,28,216.07,227.44,2,We are proud to announce the establishment of our three thousand Nandghar benefiting one lakh twenty thousand children and ninety thousand plus women.
4482613,29,269.03,283.3,2,As announced last quarter our reformed e s g vision of Transforming for Good is supported by three pillars Transforming Community Planet and Workforce.
4482613,30,284.94,298.08,2,These pillars are indicative of Vedanta's steadfast commitment to become a best-in-class company and at the same time ensure that we are future-ready to tackle current and emerging risk.
4482613,31,299.01,308.49,2,These pillars are supported by nine aims that have specific quantifiable targets to track our pro-progress.
4482613,32,311.95,321.6,2,The aim was arrived at after a comprehensive tear down of material aspects that what evaluated by E S G rating agencies like m s c i Sustainalytics and c d p.
4482613,33,322.73,343.41,2,Aim one two and three under Transforming Communities commit us to keep community welfare at the core of our business decisions empowering two point five million families with enhanced skillset uplifting our a hundred million women and children through education nutrition healthcare and welfare.
4482613,34,353.27,360.76,2,achieving net water positivity by two thousand thirty innovating for a greener business model.
4482613,35,362.18,374.73,2,Aim seven eight and nine under Transforming the Workplace commit us to prioritizing safety and health of all employees promote gender parity and diversity and inclusivity;
4482613,36,375.71,379.48,2,adhere to global business standards of corporate governance.
4482613,37,380.49,417.5,2,Some of our forward targets are reduce absolute GHG emission by 25% by 2030 deploy 2.5 GW by f y thirty five oh oh MW r t c by f y twenty five convert 100% of LMV fleet to electric by FY30 75% of mining fleet by FY35 increasing diversity at workplace conserving biodiversity and working for our communities.
4482613,38,442.58,450.22,2,We have taken some concrete action and are in the process to take some more further to realize these targets.
4482613,39,451.47,462.67,2,On renewable power our aluminum business is largest industrial consumer of renewable energy in India who procures over two billion units of renewable energy from IEX and PXIL leading to 1.54 million tons equivalent of CO2 reduction.
4482613,40,466.1,513.72,2,We are in the final stages of approval to deploy more than 300 MW of RTC RE.
4482613,41,544.33,566.59,2,Similar efforts going on in all our businesses and depending on the mapping availability of such equipment in market and depending on how the market success is there there could be opportunity for us to convert our industrial passenger carrier vehicles to EV in the next few years.
4482613,42,585.35,613.92,2,we're also looking for opportunities for partnering with the research institutes like TERI HACH CSIR- NML Worley IIT Bombay to research an evaluate implementation of opportunities for adopting clean fuels like natural gas hydrogen into our operation in steel making process zinc concentrator etc.
4482613,43,653.95,673.28,2,Similarly on waste management specific projects are underway to utilize 100% water.
4482613,44,673.51,710.0,2,BALCO has discharged its first fly ash to cement industry and has partnered with National Highway Authority of India for off-taking its 12% to 15% of annual fly-ash.
4482613,45,714.67,718.38,2,Lanjigarh has also engaged with cement players to utilize red mud.
4482613,46,738.88,755.58,2,We have established a Diversity Equity and Inclusion Inclusion Council which will independently work towards to oversee and promote and bring more inclusivity diversity and equity within the organization and bring more women in leadership roles.
4482613,47,756.46,760.25,2,We have a target to increase diversity at Vedanta to thirty percent level;
4482613,48,761.77,765.31,2,women in leadership position to forty percent level;
4482613,49,801.66,807.86,2,c d p Climate Change rating is at B in twenty twenty one from B in twenty twenty.
4482613,50,810.05,820.69,2,We are deeply saddened by the loss of two lives in Quarter two Quarter three one at HZL Zawar and one at our Black Mountain Mining.
4482613,51,821.75,825.87,2,The incident investigations have been completed by a senior leadership team.
4482613,52,826.5,834.87,2,The outcomes of the investigation are immediately shared with all sites of Vedanta for deploying the learning across our site.
4482613,53,835.37,843.23,2,Safety Stand-Down was conducted across all our sites with aim to communicate the learning to all employees and business partners.
4482613,54,843.96,853.08,2,As an immediate response an engagement session in work force were conducted with all of our CEOs and H S C heads for fatality prevention initiatives.
4482613,55,854.67,864.08,2,To avoid such in-incidents in future mechanization of activities such as face charging secondary blasting breaking is being implemented in a time-bound manner.
4482613,56,864.77,871.37,2,Management has also decided to on standardization of mining points across all underground mines at Vedanta.
4482613,57,872.21,877.21,2,To ensure that all employees go back home safe like criti…
4482613,58,877.68,883.41,2,The programs like critical risk management cross-business audit program I C M…
4482613,59,884.07,892.27,2,i c a m quality safety investigation and safety committee of pra practices have been initiated.
4482613,60,894.26,896.1,2,Now turning to our business verticals;
4482613,61,898.3,914.95,2,aluminum yet again witnessed an exceptional quarter with highest ever metal production of 578 KT which was up 16% YOY.
4482613,62,958.3,982.89,2,we're also taking all initiatives to operationalize our coal mines two of which could become operational in the next year.
4482613,63,1087.85,1098.52,2,At Oil and Gas business Quarter three gross production was one fifty nine kboepd taking the Y T D average volume to one sixty three kboepd.
4482613,64,1129.38,1139.5399,2,In OALP and D S F blocks early monetization is underway for Cambay in Assam the large target production start in Quarter four f y twenty three.
4482613,65,1140.8101,1149.38,2,OPEX cost in the current quarter was at ten point three dollars per barrel compared to nine point one dollars per barrel in the previous quarter.
4482613,66,1150.33,1161.95,2,This increase is primarily due to increase in polymer prices owing to oil price rally we are looking forward to continue the exploration work program in OALP and P S C blocks.
4482613,67,1192.96,1200.63,2,Our VAB margin was down forty nine percent q o q due to lower pig iron prices and high coking coal prices.
4482613,68,1201.3199,1205.95,2,We have begun commercial operation at recently acquired Cement Plant.
4482613,69,1206.92,1216.03,2,We are also proud to announce that with the successful acquisition of nickel and cobalt plant at Goa Vedanta has become the sole producer of nickel in India.
4482613,70,1281.96,1293.87,2,Our EBITDA margin was 5X YOY majorly impacted in the last quarter because of high coke prices.
4482613,71,1294.3199,1306.4,2,At the end I would like to reiterate Vedanta's unique position to deliver long-term sustainable value through continued focus on our strategic priorities and diversified asset base.
4482613,72,1307.48,1322.23,2,I'm confident that with our renewed E S G vision we'll be able to usher in a new era of sustainability leadership and be among the world's most responsible respected and renowned resource companies.
4482613,73,1322.95,1326.49,2,With this now I would like to hand over to our C F O Mr.
4482613,74,1326.49,1328.5701,2,Ajay Goel for the perfor…
4482613,75,1328.71,1330.2999,2,financial performance commentary.
4482613,76,1330.65,1331.26,2,Over to you Ajay.
4482613,77,1332.5,1334.35,3,Thank you Sunil and good evening everyone.
4482613,78,1354.14,1365.46,3,q three was benefited by favorable sales realizations on account of lofty prices zinc and aluminum being at historical high and also high brent.
4482613,79,1375.6899,1380.9801,3,ROCE return on capital employed at 25% which is a double versus last year's number of 12.5%.
4482613,80,1380.98,1392.51,3,Gross debt at Rs.
4482613,81,1531.98,1552.8199,3,Income is also down by 11% quarter-on-quarter again due to M T M movement and utilization of funds for payment of dividend in q three.
4482613,82,1553.79,1558.8201,3,The y t d income from investment stood at about 4.7% pre-tax.
4482613,83,1619.03,1624.55,3,However this have been partly offset by higher cost at aluminum and anic businesses.
4482613,84,1625.84,1631.63,3,Overall the absolute EBITDA value is one point four times of last year same quarter.
4482613,85,1788.48,1791.9,3,With this we are very well positioned to close the year strong.
4482613,86,1793.13,1796.0701,3,Thank you and back to the operator for any q a.
4482613,87,1930.15,1937.5699,2,But uh to give you a comfort of what else we are trying to do we said that we are trying…
4482613,88,1938.01,1949.1901,2,we are tying up and collaborating with the world's major like uh Hatch Worley c s i r o uh TERI.
4482613,89,1950.35,1966.74,2,So we are partnering with them to work on the technology where the carbon footprint could be reduced which could be you know the example is the Green Anode some people uh global players the aluminum players are working on that.
4482613,90,1967.45,1971.72,2,Uh something similar we are trying to do partnering with them.
4482613,91,1972.91,1973.98,2,But as I…
4482613,92,1974.01,1985.38,2,We also said that uh we are in discussion and we are in an advanced stage of signing the P P A for five hundred megawatts of round-the-clock renewable power.
4482613,93,1986.25,1989.5,2,Uh it is across all our businesses.
4482613,94,1989.66,1994.03,2,A major part of it is is also uh there in aluminum.
4482613,95,1995.09,2007.6599,2,So the net-net what we are trying to do is that we are trying to make a strategy which is a longterm and a rolling strategy for three years five years ten years fifteen years.
4482613,96,2008.33,2023.2999,2,As to on the complete value chain how do we want to go about making our operation carbon net zero on our promise of 2050 and or or before?
4482613,97,2023.5601,2027.22,2,So that was uh I think uh uh your first question.
4482613,98,2027.22,2032.1899,2,The second question is on Nicomet why we have acquired?
4482613,99,2032.64,2045.75,2,So this is one uh area which actually matches with our strategy and our portfolio and uh you know in our journey of E S G also.
4482613,100,2046.6,2048.1699,2,So Nico um…
4482613,101,2060.8999,2075.8,2,So here we wanted to put a foot on the ground and in that direction we have acquired this asset and we will be commissioning this asset in the next one one and half months' time.
4482613,102,2076.1299,2080.4099,2,As of now we are trying to tie up for the raw material.
4482613,103,2081.3601,2094.1699,2,Um but ultimately our objective is to become integrated and we're looking at the opportunities globally which uh uh for which I cannot divulge any information to you at this point of time.
4482613,104,2094.45,2095.9199,2,But that is what the intention is.
4482613,105,2096.3701,2100.4802,2,But let me also tell uh you that we have uh…
4482613,106,2169.03,2179.8499,2,We we should look at sufficiently good margin which are you know equivalent to our our other businesses of at least 20% 30% of the EBITDA margin.
4482613,107,2180.4199,2188.9399,2,But as of now we are just focusing on how we get our hold on the ground and start the operations.
4482613,108,2191.8101,2192.3901,4,Okay great.
4482613,109,2317.6299,2322.71,5,Uh would it be possible for you to indicate how much would it be for Jan to March quarter?
4482613,110,2325.26,2329.02,3,Maybe that one that we can uh we can share the information to you by quarter.
4482613,111,2329.05,2330.22,3,Normally we look at a rolling.
4482613,112,2330.22,2333.4299,3,As I mentioned next one year and a two point eight billion is the number.
4482613,113,2334.3601,2334.6602,5,Okay.
4482613,114,2334.6899,2336.47,3,March quarter will be a much smaller number.
4482613,115,2337.24,2337.77,5,Okay fine.
4482613,116,2338.0801,2339.8999,5,Uh my second question is for <unk>.
4482613,117,2355.3301,2356.05,2,<laugh>.
4482613,118,2469.6899,2519.0,3,The whole exercise is quite comprehensive and the board's guidance last time was look at many many options.
4482613,119,2550.8899,2552.6499,6,Uh thank you for taking my question.
4482613,120,2716.0,2717.8799,2,So this is a factor of that.
4482613,121,2718.52,2721.1702,2,Um but you know what we are trying to do.
4482613,122,2777.6599,2782.5601,2,We have three mines auctioned uh which we're going through auction;
4482613,123,2785.4099,2789.02,2,uh Jamkhani uh Kuraloi and uh third is Radhikapur.
4482613,124,2789.02,2793.6199,2,We are trying to operationalize at least two of these mines in the next year and want…
4482613,125,2840.3101,2841.4602,2,Anything you would like to add?
4482613,126,2841.46,2843.3799,7,No no.
4482613,127,2906.6899,2906.8499,2,Right.
4482613,128,2929.4099,2929.8101,6,Yeah sure.
4482613,129,2942.48,2942.95,6,Thanks.
4482613,130,2986.03,2987.26,6,Um we said um…
4482613,131,3013.1101,3015.8401,6,Is it just a technical uh point of writing it off?
4482613,132,3015.8401,3018.8198,6,Or we still really expect this to be recovered?
4482613,133,3027.5701,3028.0601,6,So…
4482613,134,3029.1899,3036.75,6,We have always mentioned that we have the highest standards of the code of conduct for business at Vedanta so what additional are we looking at when we're releasing this uh new code of conduct that would be helpful <inaudible>.
4482613,135,3063.3201,3065.54,3,And there is no provision I guess in the previous quarter.
4482613,136,3066.02,3071.8101,3,That lead to the remainder one-third about two thirty odd crores balance on balance sheet as of December end.
4482613,137,3072.46,3075.1599,3,We think the entire amount is fully recoverable.
4482613,138,3075.73,3081.1499,3,The valuation for this remainder balance one-third is backed up by evaluation by one of the Big Fours.
4482613,139,3081.9099,3086.75,3,Let me add that Vedanta Limited is one operational creator ahead of in fact the the…
4482613,140,3086.78,3087.6902,3,from the VRL side.
4482613,141,3087.75,3092.28,3,This amount we believe is very much backed up by third-party opinion fully recoverable.
4482613,142,3093.1001,3093.27,2,Yeah.
4482613,143,3093.27,3099.4199,2,Otherwise also we are in active talk uh with the government there and all stakeholders.
4482613,144,3100.1799,3100.73,2,So it's…
4482613,145,3100.73,3112.4402,2,And we we still believe and have a confidence that uh we should be able to you know uh get the legal support number one.
4482613,146,3112.8899,3117.5701,2,Number two the advocacy efforts are also going on.
4482613,147,3117.9199,3127.51,2,A combination of this would lead us to restoration of our management there and we are really excited and committed to this mine.
4482613,148,3127.51,3135.01,2,And uh this mine still has a great future cuz this is this is one of the uh richest uh copper source in the world.
4482613,149,3136.24,3140.8499,6,So the arbitration is going on uh in in which place for this particular mine right now?
4482613,150,3142.9099,3144.6602,2,So arbitration is going on in London.
4482613,151,3145.8301,3145.9202,6,Okay.
4482613,152,3147.6001,3149.3599,6,And we are expecting a decision soon on this?
4482613,153,3151.75,3153.8398,2,So the witnesses are going on as we speak.
4482613,154,3155.04,3155.2,6,Sure.
4482613,155,3155.75,3158.5698,6,Um just on the code of conduct sir.
4482613,156,3158.5701,3159.0901,2,At the same…
4482613,157,3165.21,3165.3599,6,Sure.
4482613,158,3166.78,3167.05,3,Sure.
4482613,159,3167.28,3169.3401,3,I i'll move to the second part of what you asked about-
4482613,160,3169.3401,3170.1101,3,the code of conduct.
4482613,161,3170.1101,3173.5801,3,As you would appreciate the the the document is like a code of conduct.
4482613,162,3173.99,3175.1001,3,They are living documents;
4482613,163,3175.21,3176.99,3,they need to be revised at some interval.
4482613,164,3177.55,3178.47,3,What may have changed…
4482613,165,3189.3301,3196.1201,3,Take an example the law around anti-bribery be it u k b u k b or FCPA or the Indian law.
4482613,166,3196.53,3200.4199,3,That section has been embellished made more clearer to the employees.
4482613,167,3201.04,3206.7,3,Few areas for example the new age laws around the privacy and the GDPR has been added.
4482613,168,3207.5901,3212.3198,3,Some guidelines around how to conduct ourselves in social media has also been added.
4482613,169,3212.98,3227.01,3,Last one and perhaps one of the more important areas is addition in terms of diversity uh and inclusion from employee's viewpoint and Vedanta's commitment on renewing that we are equal opportunity employer has been added.
4482613,170,3227.4399,3232.77,3,So with this I think uh our current CoC uh is at par with the best in the country.
4482613,171,3235.28,3237.5999,6,So thank you so much.
4482613,172,3240.29,3240.52,3,Thank you.
4482613,173,3256.8201,3261.7,8,Now over the years Vedanta has consistently missed the aluminum cost of production target.
4482613,174,3286.6299,3296.7002,2,So uh as we said that uh we want to operationalize at least couple of mines in the next year and ramp up as we go forward.
4482613,175,3297.48,3304.9202,2,So I mean the one ton aluminum requires around ten to eleven tons of uh uh coal.
4482613,176,3305.55,3312.3201,2,So say two point two million tons requires around twenty five twenty six million tons of coal.
4482613,177,3312.3501,3313.21,2,A part of it…
4482613,178,3313.6799,3318.51,2,A major part of it will be met through the operationalization of uh these mines.
4482613,179,3446.45,3451.55,8,Now with the Chairman also having commented about the potential demerger into separate entities.
4482613,180,3480.8,3485.8499,2,We cannot give you a granular detail but let me tell you that what is the opportunity?
4482613,181,3485.9199,3492.24,2,I would give you couple of examples which are you know not aluminum and zinc.
4482613,182,3492.8701,3495.8499,2,One is that unfinished project of Electrosteel.
4482613,183,3496.52,3499.75,2,Uh there is hardly any jobs which have to be done around…
4482613,184,3500.0801,3505.24,2,thirty percent of jobs have to be done and this will give us a complete capacity of three million tons.
4482613,185,3505.8301,3510.8599,2,So there is the question of funding and this is a very low hanging fruit.
4482613,186,3511.22,3513.8899,2,Another example is the Nicomet furnace.
4482613,187,3514.4299,3525.49,2,We have a capacity to uh um produce eighty KT of ferrochrome today and there is another furnace sixty KT which is the unfinished uh furnace.
4482613,188,3526.1399,3535.99,2,Uh as we speak we have started doing the engineering and the balanced job completion discussion for this furnace.
4482613,189,3535.99,3540.77,2,So this will take our uh capacity of this from eighty KT to sixty KT.
4482613,190,3541.23,3541.5901,2,This…
4482613,191,3541.97,3547.6101,2,<unk> also uh is one acquisition which has given us rich dividends.
4482613,192,3548.22,3564.6399,2,And the op-opportunity in the mines and the way the r and r were raised by doing uh the drilling at a such a fast speed uh gives us the opportunity even go beyond one forty KT.
4482613,193,3565.24,3565.78,2,So…
4482613,194,3565.8101,3569.3599,2,But one forty KT we should be able to go in the next year itself.
4482613,195,3569.4099,3580.1899,2,We'll be raising the mining capacity for which also we are uh going ahead with the environment clearance and then you know commissioning this furnace.
4482613,196,3580.53,3581.8499,2,So these are couple of examples.
4482613,197,3581.8501,3601.4199,2,So similarly there are lot of opportunities in in all our businesses where we'll we will keep evaluating that in the near term what could be the low hanging fruits uh through which uh it will it'll add to the EBITDA of the individual entities.
4482613,198,3601.8601,3604.6799,2,Otherwise also we have not split the company.
4482613,199,3604.77,3606.6499,2,This was the proposal which was given.
4482613,200,3607.2,3613.73,2,We uh formed the uh sub-committee of the board of which i'm also a member.
4482613,201,3614.1899,3624.0999,2,We are working on various options and based on various options and the merits we will put up these various options to the board in the next two to three months' time.
4482613,202,3624.49,3630.3501,2,Depending on what we decide at that point of time we will come back to the market that which way we are going.
4482613,203,3632.3301,3632.8301,8,Understood.
4482613,204,3645.8,3646.97,9,A couple of questions.
4482613,205,3659.8401,3663.21,9,And is there any consideration of any revision in this royalty rate?
4482613,206,3666.03,3676.8799,3,Yeah sure Sumangal.
4482613,207,3747.1499,3747.6399,9,Understood.
4482613,208,3747.8999,3748.3499,9,Understood.
4482613,209,3780.9099,3788.6201,2,Uh as far as ESL is concerned we are going uh to commission three million tons in the next one year.
4482613,210,3840.79,3842.4399,2,We are exploring various options.
4482613,211,3843.8701,3844.1001,3,Yeah.
4482613,212,3937.6499,3938.28,9,Uh yeah.
4482613,213,4000.1001,4006.01,1,If you have any further questions please feel to reach uh either me or the rest of the Investor Relation team.
4482613,214,4006.5601,4011.51,1,I would like to wish everybody a happy weekend and uh with that I will pass it back to the operator.
4482641,0,139.62,179.64,1,Good afternoon everyone.
4482641,1,185.13,192.41,1,This is Fujita.
4482641,2,1379.49,1392.4501,2,Depreciation and accommodation totaled 3.9 billion yen.
4482641,3,1696.28,1706.25,3,you will find 2021 forecast.
4482641,4,3150.21,3150.8999,8,Very clear.
4482641,5,3153.3701,3153.6802,8,Thank you.
4482682,0,28.41,32.27,0,And the the agenda today we'll start with the summary of fantastic year twenty twenty one.
4482682,1,32.72,38.97,0,And then the financials with Leena a little bit more look at the quarter as such.
4482682,2,39.92,49.44,0,And then we're also very pleased today to present a plan for a much faster transformation of our Nordic production system.
4482682,3,49.79,54.14,0,So Martin so Martin will spend some time to explain what we're looking at there.
4482682,4,57.85,65.23,0,And at the end as usual outlook and summary and we will also have a lot of time for questions here so you will be able to to ask your questions at the end.
4482682,5,67.02,71.87,0,So by that please Martin start with twenty one.
4482682,6,72.64,74.39,1,Thank you Par and good morning everyone.
4482682,7,74.5,119.05,1,Um I will start with a brief comments in the summary of twenty twenty one and it was and is or was a historical year for S S A B with I would say a solid performance in a very strong market and I will give you a couple of examples of that but uh we had an operating profit of almost nineteen billion or eighteen point eight billion in a net operating operating profit very very strong net cash flow and net cash flow twelve point four billion and that meant that we could uh close the year in a debt-free position and the board decided at the board meeting to propose the A G M to have a dividend of five kroner and twenty five per uh per share.
4482682,8,119.66,126.38,1,Of course uh a lot of this is due to a very strong uh market but it's also structured.
4482682,9,126.38,129.17,1,We have seen very strong demand for our niche products.
4482682,10,129.17,132.79,1,We have seen good and solid uh internal performance.
4482682,11,133.1,145.91,1,If we take safety as one example we have improved the the number of LTIs a lot during the year and I would say that that is structurally and we still are not at zero but we are approaching and doing a good job in the organization.
4482682,12,146.85,150.86,1,I think also we had the stable and high production.
4482682,13,150.86,158.29,1,We saw a successful ramp up during the autumn of twenty twenty after very challenging twenty twenty.
4482682,14,158.99,162.33,1,We saw record output in several production lines.
4482682,15,162.33,175.46,1,Uh we have managed I think in a decent way to handle problems even though they are not fully over with the covid nineteen in in the uh at the production sites in the organization.
4482682,16,175.46,192.53,1,We have also had problems with the supply chain issues shortage of rail cars uh sea transports uh trucks and so on both during the full year of twenty twenty one during q four and also into q one twenty twenty two.
4482682,17,193.55,227.22,1,Uh it was a remarkable year in many aspects and I think uh the first volumes of fossil-free products that we delivered the first fossil uh commercial volumes to Volvo was a landmark for S S A B and we have during the year and are continuing with that to announce a number of strategic uh agreements with customers and uh we have or the board has to take in a decision to uh speed up the transition and taking a dire directionally uh decision to to for a faster transformation.
4482682,18,227.22,228.86,1,I will come back to that in the end.
4482682,19,230.7,235.03,1,But we have not also market wise only served on on on a strong market.
4482682,20,235.06,239.26,1,We have actually been able to continue to deliver on our strategic targets.
4482682,21,239.26,252.1,1,If we look at uh specialties in twenty twenty one they almost reached one point five million tons and I would say that they would have reached it if we wouldn't have had the transport uh call it challenges.
4482682,22,252.1,259.32,1,So they are going to reach the strategic target of one point six uh million tons at the latest twenty twenty three.
4482682,23,259.59,261.01,1,Services is moving on.
4482682,24,261.01,266.56,1,We haven't done any major acquisitions during the year but we are on our way to reach the strategic targets.
4482682,25,266.86,276.87,1,America's premium share improving over the year and looking at S S A B Europe we are fairly close to the strategic target we have for twenty twenty three.
4482682,26,277.17,282.16,1,forty three percent being the outcome of premium share twenty twenty one and still a lot of things to do.
4482682,27,282.36,296.89,1,Automotive of course a segment affected by a shortage of semiconductors but still a good growth and if we look at the premium volumes in S S A B Europe we already twenty one reached the target for twenty three.
4482682,28,296.89,301.79,1,So ahead of plan still a lot to do and a lot of interesting prospects.
4482682,29,301.79,309.15,1,And the Nordic market share in line with uh our long-term target of between forty percent and 45% Nordic market share.
4482682,30,310.99,313.26,1,I said in the beginning it was a marvelous year.
4482682,31,313.26,315.69,1,We had record earnings in all divisions.
4482682,32,315.69,330.69,1,We had very good EBIT margins good profitability and all together the EBIT sum summed up to almost one nine billion but uh Leena will give you some more details on the financials.
4482682,33,330.88,332.35,1,So Leena I hand over to you.
4482682,34,336.37,336.92,2,Thank you Martin.
4482682,35,338.13,338.57,2,Yes.
4482682,36,338.66,345.9,2,Uh it is really a privilege to start in my new role with these kind of figures which I will go through briefly.
4482682,37,347.47,360.38,2,Um in this uh slide if if we look at the the graph on the right hand side on the bottom we can see the e b i t d a improvement quarter by quarter during this year.
4482682,38,360.96,363.49,2,And definitely the market was favorable.
4482682,39,363.68,381.68,2,Prices were increasing throughout the year uh volumes were on the lower side during the second half of the year and the problems already Martin mentioned uh but if we say that the market was favorable I would also highlight the good performance of the whole organization.
4482682,40,382.76,399.32,2,I already discussed about the premium mix improvement uh Europe division America's improving the premium uh portion of the sales uh and also special steals delivered higher volumes this year so good work in the sales in that aspect.
4482682,41,400.28,408.14,2,Also the stable production improvement since last year uh that is giving of course big benefit for the profitability.
4482682,42,408.78,418.35,2,So we can say that good achievement also in that aspect and also the cost efficiency we were sustaining a good cost efficiency during the year.
4482682,43,418.38,424.01,2,So all that shown in the figures related to e b i t d a.
4482682,44,424.9,432.58,2,And then uh uh quarterly figures isolated q four comparing to last year telling exactly the same story.
4482682,45,433.15,438.0,2,Prices on much higher level they are compensating well the higher raw material.
4482682,46,438.77,444.5,2,Uh cost base uh volume slightly lower compared to last year's uh fourth quarter.
4482682,47,445.5,452.69,2,Fixed cost on a higher level and this is now mainly related to maintenance activities where we had the shift in timing.
4482682,48,453.03,460.62,2,America's division did the big maintenance during q three last year and this year we did it instead of during q four.
4482682,49,460.79,468.68,2,Also mobile maintenance uh which was done during q four is something we do only second uh every second year.
4482682,50,469.96,477.57,2,And then the other half is related to personal cost with these high earnings we are realizing uh profit sharing programs.
4482682,51,480.03,499.29,2,And then if we compare q four with the q three outcome prices did continue to go upwards uh compensating again higher raw material cost base volume slightly lower partially seasonality of q four related and also these transportation problems that Martin already mentioned.
4482682,52,499.76,505.06,2,Uh fixed cost in this uh comparison more related to seasonality.
4482682,53,505.27,507.89,2,q three is a vacation period.
4482682,54,508.43,517.87,2,And then as you can see the utilization of the capacity was higher a task the the materials and services also higher in line with that.
4482682,55,520.51,533.37,2,All this good performance led to a strong cash flow uh q four cash flow net cash flow ended on the level of five point three uh four billion and the full year twelve point four billion.
4482682,56,534.08,539.89,2,Comparison high level with last year definitely the earnings played important role.
4482682,57,540.27,542.25,2,They were much higher compared to last year.
4482682,58,542.41,554.15,2,Uh some negative impact with working capital with higher inventories but nothing to be alarmed about because the net operating working capital over net sales did develop really well during this year.
4482682,59,555.76,558.3,2,Maintenance expenditures on a higher level.
4482682,60,559.32,560.99,2,Financial items slightly lower.
4482682,61,561.24,564.07,2,Taxes naturally higher with this level of earnings.
4482682,62,564.68,574.27,2,Strategic investments were somewhat higher and this is now mainly related to the Oxelosund conversion started and we will continue during next year as well.
4482682,63,577.16,591.83,2,As said already in the beginning the target set for year-end to be net debt-free we reached and actually exceeded the gearing ratio at the end of the year being negative minus three while last year it was nineteen.
4482682,64,592.57,596.66,2,So the net uh cash position positive two point three billion.
4482682,65,599.33,610.61,2,Then when we look at the next year forecast on high level um the CapEx activities will increase during next year and this is now mainly related to the Oxelosund conversion.
4482682,66,611.1,617.59,2,We were indicating CapEx need for this year thirty three point five and we were slightly below three.
4482682,67,619.01,622.8101,2,And net interest to be somewhat uh lower for next year.
4482682,68,623.02,629.25,2,And then the taxes higher and that's due to the incurred taxes this year will be paid out next year.
4482682,69,630.99,638.35,2,So on a total level eight point five is the total cash need estimate at this stage for next year.
4482682,70,638.72,644.69,2,Very briefly about the raw material view going forward or actually this is illustrating the history.
4482682,71,644.82,657.41,2,Um the iron ore peaked during two one started to come down luckily during q four but the latest uh development is again upward.
4482682,72,658.89,667.68,2,Uh so the outlook for iron ore for q one is that it will be on a similar level than q four with an upward risk.
4482682,73,668.61,678.73,2,And then the coal prices they continued to increase uh second half of the year peaking upwards and they will continue to increase also during q one.
4482682,74,679.58,687.91,2,This is only few of the raw materials the bigger raw materials and we know that the alloys for example zinc and other materials will continue to go up.
4482682,75,688.21,693.49,2,So overall the cost base is expected to be somewhat higher for q one.
4482682,76,696.24,701.73,2,And very briefly scrap prices this is illustrating the US spot prices.
4482682,77,701.78,704.17,2,They were on a higher level for q four.
4482682,78,704.43,714.78,2,Uh coming down mainly seasonality for January and the outlook for February is that it's stable or might be going upward so that's still unknown.
4482682,79,716.54,721.66,2,But then regarding outlook and other issues Martin will continue.
4482682,80,723.8,724.38,1,Thank you Leena.
4482682,81,726.58,744.437,1,So some words than uh about the accelerated Nordic transformation and to start to give you some background uh back in two thousand and seventeen we formed the HYBRIT joint venture together with Vattenfall and L K A B.
4482682,82,744.93,754.52,1,And we also inaugurated the world unique uh pilot plant for producing uh sponge iron fossil-free sponge iron in twenty twenty.
4482682,83,755.52,765.15,1,During last year we uh uh delivered or produced the first uh sponge iron uh fossil-free sponge iron in that pilot plant.
4482682,84,765.58,781.32,1,We also decided to uh we plan started the plan for to reach commercial volumes of one point three million tons in this project or fossil-free sponge iron in twenty twenty six in line with the the need and the demand in in Oxelosund.
4482682,85,782.37,791.84,1,We then in August rolled and delivered the the first fossil-free steel and that was uh delivered to Volvo Group uh to their new TARA machines.
4482682,86,791.84,805.5,1,So in this partnership we have uh created the foundation for a fossil-free value chain all the way from the iron ore being up in the mountain in the north of Sweden until finished products.
4482682,87,805.5,809.66,1,In this example the TARA machine from from Volvo Construction Equipment.
4482682,88,809.66,813.92,1,So this is uh what we have created since twenty sixteen.
4482682,89,815.52,825.22,1,We have also seen a lot of interest from customers in uh existing customers in our important and focused segments.
4482682,90,825.25,830.9,1,These are examples of partnerships that we announced uh during last year.
4482682,91,831.57,843.68,1,We have also seen that the demand today and especially in the future exceeds uh the planned supply of one point three million tons in twenty twenty six.
4482682,92,844.08,851.89,1,And the demand is not only bigger but also broader uh than we currently have the ability to produce.
4482682,93,852.22,860.5099,1,And I would say a big part of it is within the mobility segment advanced high strength steels for automotive and for heavy transport.
4482682,94,860.79,873.8,1,And we have had and continue to have and that is only increasing new customers in those segments approaching S S A B wanting to sign partnerships and take part of this development.
4482682,95,875.35,887.77,1,So we have decided or the board has decided to start the feasibility study with the ambition or the to to accelerate the Nordic uh strict production system.
4482682,96,888.05,896.01,1,And the idea is to build a new mini mill in Lulea and one in Raahe and close existing blast furnaces and steel shops and so on.
4482682,97,896.01,907.1,1,So build two new compact high efficient mini-mills with a scale of roughly two point five million ton each which is in line with current capacity.
4482682,98,908.32,923.79,1,We expect to complete this transformation during the coming ten years and that is the time is good because that is before the next scheduled blast furnace re-aligning and the next schedule invests big investments in coke oven batteries and so on.
4482682,99,923.79,926.62,1,So the timing is perfect around twenty thirty.
4482682,100,927.44,937.15,1,This will allow us to expand the product range in terms of grades dimensions and quality within current specialty and premium strategy.
4482682,101,937.34,945.4301,1,As one example we will be able to produce q and t two meter wide with thin gauges which is asked for by the market.
4482682,102,946.17,954.16,1,This will also give us a capability to run a flexible load of H P I sponge iron and recycle scrap.
4482682,103,954.16,962.64,1,So part of the discussions and and the partnerships we have with customers is to reuse uh the virgin scrap so to say.
4482682,104,963.81,973.45,1,we'll leverage existing downstream assets uh for the new mills including Borlange Hameenlinna <inaudible> construction cut-to-length facilities.
4482682,105,973.87,981.26,1,And we will build both mills uh fossil-free from the start including power supply and I will come into some details.
4482682,106,982.37,994.62,1,If we look at uh this graph showing the possibility to reduce with eight million tons of carbon dioxide per year fifteen years earlier than planned.
4482682,107,994.62,1008.19,1,If we just put what the cost might be or where it is close today or in twenty thirty without free allocations because the free allocations in Europe will go away.
4482682,108,1008.34,1021.63,1,That by itself is equivalent to seven billion per year in cost avoidance by doing this fossil-free but this of course overall strengthen our e s g position as a company.
4482682,109,1022.9,1033.97,1,If you look into the benefits with these type of mills I would claim that this will give us the possibility to have a structural and long-term profitability uplift.
4482682,110,1033.97,1042.08,1,If we look and start with the commercial be benefits we will have a broader range of specialty and premium products.
4482682,111,1042.48,1049.98,1,We will be able to increase the sales to Nordic customers in areas where we don't have capacity today and that is asked for.
4482682,112,1050.46,1053.91,1,One example is uh galvanized material.
4482682,113,1054.17,1061.04,1,We will have a much faster ramp up of fossil-free steel volumes in line with the market demand.
4482682,114,1061.76,1067.21,1,If we look at the operational efficiencies we will have a much better cost position.
4482682,115,1067.24,1069.47,1,Lead times will be completely different.
4482682,116,1069.47,1074.83,1,Today we have lead times of six eight and uh sometimes ten weeks.
4482682,117,1074.83,1078.73,1,We will build mills with lead times below two weeks.
4482682,118,1079.3,1104.1699,1,We will have said avoid costs for c o two emissions and we will re de-risk the carbon dioxide cost exposure and we will also take try to take away this less small the small last part of of of uh emissions by also looking into using biofuels in Oxelosund to become a hundred percent fossil-free.
4482682,119,1105.08,1110.83,1,If we look at the increased operational fle flexibility and as you know we are used to run mills like this.
4482682,120,1110.83,1112.66,1,We have two of them in US.
4482682,121,1112.91,1119.87,1,We will have lower fixed costs and a much better ability to adopt to to swings in demand.
4482682,122,1119.87,1123.4401,1,It's much easier with a mini-mill and electric arc furnace.
4482682,123,1123.4399,1134.45,1,It's in practice if you put it bluntly uh red and a green bottom when the when the business cycle is good you push the green button and when the business cycle is bad you put push uh the red button.
4482682,124,1134.8199,1144.09,1,Uh so much more flexibility than running blast furnaces that are typically built for being run twenty four seven in fifteen years or twenty years.
4482682,125,1144.09,1151.1001,1,And then you do a re-lining or coke oven batteries that you run twenty four seven in thirty to fifty years without flexibility.
4482682,126,1152.13,1155.8401,1,We will also have a better raw material for uh flexibility.
4482682,127,1155.84,1168.3201,1,We can use both fossil-free H P I from the partnership in HYBRIT and we can also use recycled scrap from internal operations and customers scrap that we are typically today selling on the market.
4482682,128,1168.6899,1177.2301,1,And then of course we'll be able to reduce or any avoid avoid reinvestments in existing coal based operation.
4482682,129,1177.23,1184.76,1,And as you might know many of our uh operations were originally built during the sixties and the seventies.
4482682,130,1184.76,1189.6899,1,So we will have a modern mills state-of-the-art mills with much lower CapEx needs.
4482682,131,1191.9301,1212.12,1,We expect this when we move now and start the feasibility study to cost around forty five billion for the coming eight to ten years uh and that includes Lulea Raahe Borlange and Hameenlinna but it's excluding the conversion in Oxelosund that costs five billion on top of it this.
4482682,132,1212.47,1229.12,1,And if we look at the investment plan up until twenty forty five I would say that this is similar or even lower than the existing plan to keep uh uh ma- ma-maintenance of of the assets we have today and moving into to electric arc furnaces.
4482682,133,1229.12,1234.7699,1,So we will have a much more strategic and future oriented investments in this case.
4482682,134,1234.77,1241.71,1,And we when we look forward we see that we have the ability to fund this transition with our own cash flow.
4482682,135,1243.1801,1257.5801,1,And uh when we look at uh and we will come back with updates when we do the FIDs and so on but when we look at the overall calculation this is a very interesting investment case but we can't do this only by ourselves.
4482682,136,1257.58,1260.8,1,We need help with some things from the society.
4482682,137,1261.03,1270.66,1,Of course we need environmental permits and have an efficient environment uh permit process that is maybe a little bit less worrying.
4482682,138,1270.66,1279.11,1,What is important though is that we have fossil-free electricity at the right time uh at the right place.
4482682,139,1279.11,1299.3401,1,So so we need to work with electricity transmission and make sure together with society that we can deliver that together on time but if we can do that we have a very good opportunity uh to be fossil-free twenty thirty in line with the growing market demand.
4482682,140,1301.05,1305.5,1,So the way forward we have initiated the feasibility study for Lulea and Raahe.
4482682,141,1305.95,1318.64,1,we'll start immediately the permit process uh already now and we will come back within information about sequencing and uh in financial guidance to when it is available.
4482682,142,1318.64,1322.65,1,So we will keep you updated as we move on with this uh project.
4482682,143,1324.0601,1327.8199,1,Then outlook and summary for the year.
4482682,144,1328.49,1341.17,1,When we look into q one we continue to see healthy demand in many sectors and many areas uh and especially for q and t and advanced high strength steel.
4482682,145,1341.2,1345.26,1,We see foresee a solid demand in q one.
4482682,146,1345.67,1367.1101,1,There is always of course uh in q one as it was in twenty twenty one in q four uh questions regarding transport capacity and also the development of the covid nineteen situation but right now it's not worse than it was in q four so and hopefully this will ease up during twenty twenty two.
4482682,147,1368.08,1376.8199,1,So when we guide and look at shipments and prices we expect higher shipments in special steels Europe and Americas in q one versus q four.
4482682,148,1377.42,1385.75,1,Stable prices in special steels somewhat lower prices in Europe and stable to somewhat higher prices in Americas.
4482682,149,1386.34,1396.01,1,And as Leena said generally higher raw material costs and fuels and bottlenecks within transportation will continue in q one.
4482682,150,1397.01,1399.72,1,So we sum it up before we open up for questions.
4482682,151,1400.1,1417.27,1,Strong earnings strong cash flow generation high and stable production good work with continuous improvement what we internally call ssab one better safety performance and a debt-free situation with the net cash position end of twenty twenty one.
4482682,152,1417.58,1421.85,1,The board is proposing a dividend of five kroner and twenty five euro per share.
4482682,153,1422.27,1428.59,1,And we have a plan for an accelerated Nordic transformation that that will meet customer demand.
4482682,154,1429.08,1446.87,1,And for fossil-free products within our segments we are doing a step change we're planning for step change when it comes to efficiency flexibility and co and cost position and we will be able to eliminate uh carbon dioxide emissions fifteen years earlier than the previous plan.
4482682,155,1448.15,1452.52,1,So with that uh I think we open up for and Leena we open up for questions.
4482682,156,1452.5601,1452.65,0,Yes.
4482682,157,1453.1899,1455.5801,0,Uh we will do.
4482682,158,1455.58,1456.97,0,Just just a few words.
4482682,159,1456.97,1462.55,0,Uh we have good time now for questions but I'm sure there's a lot of questions.
4482682,160,1462.55,1472.1899,0,So maybe in the first round keep it to a couple of questions and as always please state them one at a time to make the the process a bit easier here.
4482682,161,1473.3101,1477.9299,0,So by that and I would please ask the operator to present instructions.
4482682,162,1479.29,1479.7799,3,Thank you.
4482682,163,1526.0601,1531.1599,1,Ah we ah we we in our calculations we have done that this with own cash flow and then if we would get some funding we haven't calculated with that.
4482682,164,1531.16,1542.24,1,So so uh the forty five forty five billion is what we believe it would uh cost maximum and uh we see that we can do this with our own cash flow generation.
4482682,165,1544.45,1544.74,4,Okay.
4482682,166,1544.91,1545.25,4,Thank you.
4482682,167,1558.2,1560.5299,1,We will not uh change the dividend policy.
4482682,168,1560.5601,1565.2899,1,We were we and the proposal for twenty twenty one is in line with uh the dividend policy.
4482682,169,1565.29,1566.1699,1,we'll not change that.
4482682,170,1566.17,1575.9701,1,I think uh we are in a position with the net cash position uh when I look forward and look at uh demand development cost development and so on.
4482682,171,1575.97,1584.24,1,We you should expect us to continue to generate I've been saying this for many years now <laugh> but you should expect us to continue to generate strong free cash flow.
4482682,172,1584.62,1589.38,1,And then we will uh use that and of course this is uh money belonging to the shareholders.
4482682,173,1589.38,1592.9701,1,we'll use that uh to invest and also to pay dividends.
4482682,174,1595.12,1598.62,4,And in terms of max- your maximum CapEx tolerance per annum?
4482682,175,1598.62,1612.62,1,No but that will of course change over the years and and I mean now we start the feasibility study and we are running uh the Oxelosund project so so I mean uh it it'll be a bit uh call it back end loaded the the the rest of it.
4482682,176,1612.62,1616.29,1,So so and we will have possibilities to adjust that over time as well.
4482682,177,1616.65,1628.1,1,We don't have an uh uh one figure saying that this is the maximum uh investment level we will have but what we know is that we instead of investing in old equipment we will invest in in brand new equipment.
4482682,178,1630.38,1630.58,4,Okay.
4482682,179,1630.75,1631.02,4,Thank you.
4482682,180,1677.3101,1678.55,1,And to give you some examples.
4482682,181,1678.55,1684.4199,1,The re-lining of the blast furnace is roughly one and uh one to one and a half around one and a half billion.
4482682,182,1685.26,1689.47,1,Uh building a newer re-aligning a coke oven battery is much more expensive than that.
4482682,183,1689.52,1692.4301,1,And then we have uh steel shops and a lot of other things.
4482682,184,1692.4301,1701.75,1,So I would say this is compared to the previous plan a bit more front loaded but but the absolute terms are actually slightly lower.
4482682,185,1704.49,1704.8099,5,Okay.
4482682,186,1725.34,1735.11,1,Very good question but I would say that what we saw regarding the spread of h r c and plate last year was abnormal with H R C being much higher than plate.
4482682,187,1735.35,1738.16,1,What we see now is more a historical pattern.
4482682,188,1738.5,1741.46,1,Will that uh stabilize and be there forever?
4482682,189,1741.49,1754.38,1,I don't really know but we see a good underlying demand for plate in North America and especially for for infrastructure purposes and others but where the spread will go I was surprised to see the negative spread uh last year to be honest.
4482682,190,1797.55,1812.2101,6,I'll start there please.
4482682,191,1813.42,1830.72,1,Uh what we have what we are planning for right now is the what we call the demonstration plan which is a full-scale production plant of one point three five million tons and we have announced that that will be built by the partners up in in in <inaudible> in Northern Sweden.
4482682,192,1831.02,1837.71,1,Then of course we are discussing other plans also to to step up these investments and LKAB is doing that.
4482682,193,1837.71,1846.37,1,So we are doing this in a joint venture and and a partnership so so this fits uh uh together with with the plans for the value chain.
4482682,194,1846.37,1856.96,1,So our ambition is to build a fossil-free value chain and have fossil-free steel available from that fossil-free value chain uh uh for our customers.
4482682,195,1856.96,1871.35,1,And that will of course be dependent on the on the future demand but uh what we see right now is that uh the demand is stronger than we thought and in the partnerships we have signed the ambitions are uh quite strong.
4482682,196,1871.35,1877.47,1,So so we have a good uh quality good good prospects for the future in that aspect.
4482682,197,1877.47,1883.33,1,Then of course we need of course uh power supply in order to to do this transformation.
4482682,198,1883.6899,1894.9299,1,The power generation is there and and the power generation is being built out but we also need a a power supply so that I would say will be time-wise maybe a a limiting factor.
4482682,199,1897.95,1898.0399,6,Okay.
4482682,200,1899.21,1900.1801,6,Just to follow up on that.
4482682,201,1915.01,1926.0599,1,I mean we are moving now into the feasibility stu- study and we we can flex between uh H B I scrap and and and recycle the the virgin scrap so to say.
4482682,202,1926.0601,1929.52,1,So so I said we we are not using the scrap today.
4482682,203,1929.9,1933.5801,1,We can get scrap back from customers and and use internal scraps.
4482682,204,1933.58,1936.23,1,So so the exact balance we need to come back to.
4482682,205,1939.41,1939.6801,6,Okay.
4482682,206,1939.6801,1940.0601,6,Thank you.
4482682,207,1940.37,1943.12,6,Um and I guess one last question please on special steals.
4482682,208,1959.76,1975.27,1,If if we take a step back and look at the EBIT margins that I showed on the first uh one of the first uh pictures you saw that uh Europe and Americas had better and higher EBIT margins than special steels which is typically the case in a very strong market.
4482682,209,1975.84,1976.99,1,Uh so so you're right.
4482682,210,1976.99,1985.39,1,Special steels is uh they're much more stable uh margin wise and price wise less fluctuations and and less volatility.
4482682,211,1985.72,1996.14,1,What we see and what we saw during twenty twenty one is structurally increasing underlying demand and we have seen that for for quite some time and and that is the important part.
4482682,212,1996.14,2004.42,1,So they will continue to grow and I I would bet you that we will meet the strategic target of one point six at the latest uh twenty twenty three.
4482682,213,2004.42,2005.86,1,So so we are following the planner.
4482682,214,2005.86,2012.92,1,We are actually a bit ahead of plan uh but less volatility and more stable uh margins all the time.
4482682,215,2013.95,2016.85,1,But the underlying demand is structurally growing.
4482682,216,2019.23,2019.51,6,Okay.
4482682,217,2019.62,2020.23,6,Thank you very much.
4482682,218,2054.0901,2059.29,1,We have started a feasibility study and we'll uh gradually get more and more educated.
4482682,219,2059.29,2063.6699,1,But I would say maybe one and a half two years maximum.
4482682,220,2068.0801,2068.28,7,Okay.
4482682,221,2086.3501,2089.04,1,Uh that's our base assumption.
4482682,222,2089.0801,2094.3999,1,Then of course uh when you do projects like this you in Swedish we say <unk>.
4482682,223,2094.76,2099.8101,1,You you need to be really sure about that and we are very confident that we can do that.
4482682,224,2103.1499,2103.51,7,Okay.
4482682,225,2103.54,2103.74,7,Thanks.
4482682,226,2130.3101,2138.8198,1,We have excellent products and some products they're high uh the martensitic steels up to two thousand mega pascal which where we are world unique.
4482682,227,2138.8201,2140.1401,1,We we know the platforms.
4482682,228,2140.1399,2143.8999,1,We have uh are uh we're or we are into and so on.
4482682,229,2143.8999,2150.52,1,So so I I see a lot of growth prospects for for the uh automotive part as one example.
4482682,230,2150.52,2156.6299,1,And we have also invested in Borlange in the continuous <inaudible> line uh to take up the capacity.
4482682,231,2156.6299,2166.75,1,So so we have uh we have plenty of opportunities to continue to grow that uh premium mix above the target of twenty twenty three.
4482682,232,2168.6101,2171.9299,7,Thank you and just if I have one last one just quick confirmation.
4482682,233,2181.8,2183.28,1,Then but there will be some costs.
4482682,234,2183.28,2185.8198,1,I mean with with consultants internal work and so on.
4482682,235,2185.8201,2190.0601,1,So so uh but uh to be honest I'm not sure it'll take…
4482682,236,2190.0601,2198.78,1,I I don't have the exact uh days and months it would take the feasibility study but uh fair guess from the top of my head would be one and a half to two years.
4482682,237,2199.05,2200.6001,1,And then we know the cap.
4482682,238,2200.6001,2204.1199,1,And then we will take the decisions uh mill by mill so to say.
4482682,239,2205.97,2206.2,7,Okay.
4482682,240,2217.77,2218.04,8,Hi.
4482682,241,2276.1499,2312.1899,1,Uh I think we we have a clear dividend policy and we will follow that dividend policy and we are obviously in a different position right now with the net cash position and as I said uh I've said it many times and I have a tendency of repeating myself on that issue but but you should expect us to continue to generate from operations uh strong cash flow and and have a good cash flow generation and we are not done even though I think uh Leena was rightly so impressed with the development of net operating working capital over sales we actually had a lot of inventories at the end of the year because due to transport pro uh product problems and so on.
4482682,242,2312.1899,2319.9001,1,So uh I think we will have a solid uh cash flow generation for the coming years and for the future.
4482682,243,2319.8999,2322.9402,1,And then we will use that cash flow wisely.
4482682,244,2323.3701,2325.8201,1,Uh as I said it belongs to the shareholders.
4482682,245,2325.8201,2333.03,1,We will uh live by the dividend policy and we will do investments that we believe is uh good investments for the future.
4482682,246,2333.0601,2334.2202,1,So it will be a combination.
4482682,247,2336.72,2337.0898,8,Thank you.
4482682,248,2386.5,2390.6001,1,So that there are continuous built into that number.
4482682,249,2390.6001,2390.9702,1,Yes.
4482682,250,2393.24,2393.3301,8,Okay.
4482682,251,2395.76,2396.1001,8,Great.
4482682,252,2396.1001,2397.6301,8,I'll leave it there and now I'll jump back in.
4482682,253,2398.1001,2398.3201,8,Thank you.
4482682,254,2398.3201,2402.24,1,And let's come back let's come back to the issue when we have the FIDs and the investment cases ready.
4482682,255,2402.24,2417.8401,1,And then we can talk about profitability internal rate of return and so on.
4482682,256,2460.6799,2476.1199,1,No but I what we are saying is that the transformation of the building of two modern high efficient mini-mills in in the Nordic production system including investments in Borlange and Hameenlinna and some other that will cost roughly forty five billion.
4482682,257,2476.1201,2480.6001,1,We have also said that the conversion of Oxelosund will cost roughly five billion.
4482682,258,2480.8201,2482.8101,1,So these are the two main buckets.
4482682,259,2482.8101,2509.4099,1,Uh Oxelosund will uh uh as communicated earlier be up and running already twenty twenty six but then also when you know that uh we are not going to run the existing facilities with the blast furnaces and coke oven batteries and so on uh for the for the long-term future there will also be a bucket of CapEx avoidance in existing facilities.
4482682,260,2509.8701,2517.99,1,I mean right now we are up until now we have been running them as going concerned meaning that they would run forever.
4482682,261,2517.99,2521.8201,1,So you have you have a bucket bucket of CapEx avoidance as well.
4482682,262,2521.8201,2526.3301,1,And then how that plays out every year and so on is a a bit too early to say.
4482682,263,2526.3301,2534.7202,1,But uh in the forty five billion we have contingencies and we will come back to call it uh FIDs for for for each uh investment.
4482682,264,2534.72,2546.8201,1,This is a directional decision and this is the starting point of of a vision and an idea of of speeding up the transformation of the Nordic strip system where we have done a lot of homework of course.
4482682,265,2548.75,2549.05,9,Sure.
4482682,266,2549.0801,2549.4001,9,Sure.
4482682,267,2549.75,2550.6699,9,Um thanks a lot.
4482682,268,2581.04,2581.8801,1,Quite the opposite.
4482682,269,2583.8301,2584.0801,9,Okay.
4482682,270,2584.3101,2584.5901,9,Okay.
4482682,271,2638.6399,2649.52,1,Uh then I said create this question mark uh the transportation system is a question mark but the order book gives us uh clarity in q one.
4482682,272,2649.96,2654.7898,1,Am I expecting uh the work to break down first of April?
4482682,273,2654.79,2656.46,1,It doesn't look like that right now.
4482682,274,2657.3799,2659.3401,0,No and can I add also Martin?
4482682,275,2659.3401,2659.47,1,Okay.
4482682,276,2659.47,2665.8301,0,We we believe that these shortages will probably ease during the first half.
4482682,277,2666.1899,2666.3799,1,Yeah.
4482682,278,2666.45,2668.3701,0,At least at least that's that's our base scenario.
4482682,279,2668.3701,2670.51,0,Then as I said we don't know but yeah.
4482682,280,2704.96,2705.0701,10,Okay.
4482682,281,2707.8301,2708.2002,1,Yes.
4482682,282,2709.03,2710.04,10,Is it already included?
4482682,283,2710.1001,2710.52,1,Yes.
4482682,284,2712.0601,2712.1899,10,Okay.
4482682,285,2712.22,2720.99,1,And and I was I was partly partly wrong during my presentation because we actually did some acquisition with s within SSAB services during twenty twenty one as well.
4482682,286,2722.54,2722.9199,10,Okay.
4482682,287,2723.21,2723.6699,10,Perfect.
4482682,288,2723.8999,2724.1702,10,Thank you.
4482682,289,2724.1699,2725.52,10,I just wanna clarify that.
4482682,290,2736.8601,2737.3899,11,Uh yes.
4482682,291,2737.3899,2737.8,11,Good morning.
4482682,292,2738.26,2739.77,11,Thanks for taking the question.
4482682,293,2770.3501,2775.26,11,Are there any other points why this is being accelerated that much?
4482682,294,2775.26,2792.3701,11,Uh looking at Oxelosund you have been discussing these issues with infrastructure and permitting and the power cables and so on for quite some time so what is giving you the confidence from that background that you can move that much faster than than previously anticipated?
4482682,295,2792.3701,2800.4102,1,I think uh I think it is a bit less complicated up in Northern Sweden and Northern Finland uh uh for one reason.
4482682,296,2800.4099,2807.2,1,We have learned a lot as well during this process but but the underlying factor is uh the increased demand.
4482682,297,2807.2,2814.97,1,And when we started this project together with LKAB and Vattenfall we were not really foreseeing how the demand would uh develop.
4482682,298,2814.97,2822.3201,1,And I think also we have a unique position here up in the Nordics because we have surplus of fossil-free electricity.
4482682,299,2822.7,2824.3198,1,We have the right iron ore.
4482682,300,2824.3201,2828.7898,1,We have the knowledge and we have now also proven that we can produce this steel.
4482682,301,2828.79,2837.5901,1,And and that is a a good uh have been asked for by the market and has been creating a lot of interest in the market.
4482682,302,2837.8701,2874.0,1,I also think that uh we have with with us pre prerequisites the possibility to to bring and start to to bring mini-mills to Europe which has not been the case before and we have experience since twenty years of running mini-mills and you see the development in North America now with quite uh I mean take Steel Dynamics in Sinton as an example quite impressive being built with with capacity and cost position and capabilities that fits us very well and we see the possibility to broaden our product offering.
4482682,303,2874.0,2886.3398,1,One example was to meet the why the q and t with thin gauges that is asked for by the market but where we don't have the ability to produce today with with good cost efficiency and productivity.
4482682,304,2886.8799,2899.72,1,So it's a lot of reasons but but it starts with the the increasing demand from the market and the marketplace and if you should do this anywhere in Europe I think you should do it in in in Northern Sweden and Northern Finland.
4482682,305,2902.5,2902.8501,11,Okay.
4482682,306,2954.26,2955.2002,1,Uh no.
4482682,307,2955.2,2957.6401,1,It hasn't and we haven't to be honest really decided.
4482682,308,2957.6399,2969.1001,1,What is important for us is the partnership with LKAB and Vattenfall and the ambition or or the uh yeah the ambition to create the fossil-free value chain and to optimize that value chain.
4482682,309,2969.1001,2972.71,1,And then how we will invest or or not in that?
4482682,310,2972.8201,2983.95,1,We we we need to figure out over time but we have been investing in the pilot plant and we are now in the h y b r i t uh in the final stages of of the FID with the demonstration plant.
4482682,311,2986.1799,2989.4001,11,So is d r i included in the forty five billion?
4482682,312,2989.51,2994.6899,1,Uh the forty five billion is uh what is currently the Nordic pr uh strip system.
4482682,313,2995.8101,2998.74,1,So the the answer is simple and the answer is no.
4482682,314,3000.6299,3001.0098,11,Okay.
4482682,315,3029.3601,3033.8101,1,The good thing with this is so that we can build the mills in parallel with the existing mills.
4482682,316,3034.1101,3045.4399,1,And then when the uh new mills are ramped up we close the existing mills and we can do that before the next blast furnace re-aligning or before we need to spend a lot of money in coke oven batteries and others.
4482682,317,3045.76,3051.6799,1,So so from a risk perspective I think this uh is also a way of mitigating risks.
4482682,318,3053.23,3053.8501,1,So we will not <crosstalk>-
4482682,319,3053.9199,3054.21,11,Okay.
4482682,320,3054.21,3057.21,1,put put any customers in in in jeopardy.
4482682,321,3059.22,3059.54,11,Okay.
4482682,322,3059.78,3061.53,11,Maybe uh maybe I was unclear.
4482682,323,3061.5601,3076.6501,11,Uh what I meant is on the uh on the demonstration plant is uh first 1.3 million tons of fossil-free steel what kinda timeline do you think do do you need to fully push and establish that terms in the market?
4482682,324,3076.6499,3081.48,11,Is this just a a one-year process or is this rather a multi-year ramp-up phase?
4482682,325,3081.5701,3081.9202,1,No.
4482682,326,3081.9199,3088.3098,1,We are getting more and more sure that we will be able to deliver volumes from that plant to Oxelosund twenty twenty six.
4482682,327,3090.26,3090.5801,11,Okay.
4482682,328,3091.0801,3091.23,11,Okay.
4482682,329,3105.46,3105.71,3,Thank you.
4482682,330,3107.8799,3125.3699,12,Um it's a bit of a follow-up question just on the possible funding for this and uh apologies if I misunderstood the answer or but I understood that at the moment you're planning for the said forty five to be funded internally from cash flows and you're confident that you can generate that.
4482682,331,3125.46,3125.8599,1,Yes.
4482682,332,3126.0701,3141.8098,12,I mean is is there not government funding or government support or European uh funds or even low-cost financing available that can help offset some of this CapEx pull and will you be looking into that or is it the case that you've looked at it and decided to do it yourself?
4482682,333,3142.3401,3142.5901,1,No.
4482682,334,3142.5901,3169.4001,1,But uh of course uh there could be possibilities like that but that we have not taken that into account when we have done our calculations but we we see a lot of interest of of funding these kinda projects but I said when we look at the future we see that we have the ability to fund this with our own cash flow and and then how we finally finance it we we uh let's take that decision when we we come to the investment uh decisions.
4482682,335,3169.7,3179.3901,0,And as you saw last year we already then had this sustainability linked bond where we had good conditions on the back of back of the earlier plan.
4482682,336,3179.8601,3184.5701,0,Now this is much more aggressive so we will not be in a worse position on that as well.
4482682,337,3186.6699,3193.8999,1,But I think the starting position is de decent with the net cash positions and and uh good cash flow generation prospects.
4482682,338,3193.8999,3195.74,1,So so I think uh yeah.
4482682,339,3198.29,3198.55,12,Thanks.
4482682,340,3198.55,3206.1899,12,I I think the reason there's so many questions on this is because your peers say you know they're expecting up to fifty percent percent of of government support right?
4482682,341,3206.1899,3208.74,12,So I think that's where where that's all coming from.
4482682,342,3209.27,3209.45,1,Yeah.
4482682,343,3213.6001,3213.8201,1,Yeah.
4482682,344,3214.01,3214.3,1,Okay.
4482682,345,3214.3501,3214.55,1,Yeah.
4482682,346,3214.9199,3215.26,1,Sorry.
4482682,347,3216.6101,3219.1301,1,Uh please go ahead.
4482682,348,3219.6899,3222.8799,1,Uh no I was uh trying to think out loud and that is not always a good idea.
4482682,349,3222.8799,3223.6599,1,So please continue.
4482682,350,3240.3401,3244.6501,12,Can you maybe just help us think through the economics the unit economics of this a little bit more?
4482682,351,3244.6499,3257.1201,12,So should we be thinking about this as higher cost um steel although you avoid c o two but at the end of the day you're getting a premium or or a higher price on average a higher realized price?
4482682,352,3260.3999,3268.53,1,The way we have looked at this is that we'll have a much more cost efficient production with a broader product portfolio.
4482682,353,3268.79,3272.3699,1,And then of course as you mentioned some future cost avoidance.
4482682,354,3272.9199,3275.71,1,Uh that is how we have done the calculations.
4482682,355,3275.71,3289.8999,1,I think there will be most probably a premium to start with and uh on on fossil-free but I think and hope that fossil-free will be the new normal and because customers and consumers are demanding that.
4482682,356,3289.8999,3301.7,1,So so over time I think this will be a very cost efficient effective way of producing fossil-free steel products within our niches and our segments.
4482682,357,3304.23,3304.6799,12,Understood.
4482682,358,3304.8,3305.54,12,Thank you very much.
4482682,359,3336.73,3349.96,1,Well I think in and and they they have had fairly the last couple of years fairly normal maintenance CapEx levels or if I remember it correctly after around uh a couple of billions.
4482682,360,3349.96,3350.1399,0,Yeah.
4482682,361,3350.8101,3353.53,0,Uh uh one point eight to two billions expense so.
4482682,362,3353.5701,3364.6399,1,And that of course we see the possibility to gradually then uh uh decrease uh when we are not when we know that we will not uh run the existing system forever.
4482682,363,3364.6399,3373.4602,1,So so it will be uh uh call it a gradual uh gradually lower and lower.
4482682,364,3410.01,3410.23,13,Okay.
4482682,365,3410.3301,3410.75,13,No.
4482682,366,3417.3899,3429.0801,1,I think also with this uh fit for fifty five in Europe there will be no possibilities for for steel companies to hunt volumes because they will have to pay emission rights.
4482682,367,3429.0801,3447.02,1,I think structurally maybe healthier from an output point of view and demand and supply balance a healthier uh market but we are also looking into our ability to continue to shift the mix to less volatile products more more profit generating products.
4482682,368,3447.02,3454.8201,1,Then of course we will still have volatility but the ambition is to reduce the volatility as much as possible and that is done with a couple of things.
4482682,369,3455.24,3461.4199,1,Of course the most important part shifting the mix towards more stable price stable and more stable products.
4482682,370,3462.0,3468.21,1,Continue to work with the continuous improvements in order to increase productivity reduce cost and reduce lead times.
4482682,371,3468.21,3478.4199,1,And and so we have a number of programs that we are running and I think uh that uh when we look at that we see that and do the calculations including continuous and and so on.
4482682,372,3478.74,3483.1899,1,Uh we see that this is clearly a good opportunity and possibility for the future.
4482682,373,3484.75,3484.95,13,Yeah.
4482682,374,3484.95,3485.8601,13,Uh no.
4482682,375,3500.6799,3506.78,1,<laugh> You shouldn't expect us to uh generate more than twelve billion in free cash flow every year but I've been with…
4482682,376,3507.5,3514.51,1,Like a fool repeating myself that we should be able to continue to generate strong cash flow and we are not ready.
4482682,377,3514.51,3518.8298,1,I mean yes we were investing a lot in in working capital towards the end of the year.
4482682,378,3518.8301,3519.1301,1,Yes.
4482682,379,3519.1299,3519.6499,1,For sure.
4482682,380,3519.6499,3520.8198,1,we will continue to do that.
4482682,381,3520.8601,3521.24,1,No.
4482682,382,3521.24,3525.47,1,We still still see see opportunities to become more capital efficient.
4482682,383,3525.47,3537.2,1,And the example with the with the mini-mills if you reduce lead times from just a simple calculation from eight weeks to less than two weeks that is also a huge possibility of releasing working capital.
4482682,384,3537.8301,3537.9102,13,Yeah.
4482682,385,3562.5701,3565.29,1,We we don't give any figures or guidance.
4482682,386,3565.29,3568.1499,1,That's uh your job to to figure out.
4482682,387,3568.1499,3573.6201,1,<laugh> No but we are also saying that we we see we see uh problems in the supply chain.
4482682,388,3573.6201,3583.6802,1,We had uh end of q four and we still have problems with uh getting lor trucks uh getting containers rail ship rail shipments uh boats and so on.
4482682,389,3584.1799,3589.23,1,We don't know where the COVID situation will end up and when it will end.
4482682,390,3589.23,3591.4399,1,We have had problems in q four.
4482682,391,3591.4399,3596.1101,1,We still have problems with a lot of people with a a high short term lead.
4482682,392,3596.1101,3601.4299,1,The people being in qua- quarantine being sick or taking care of sick uh family members.
4482682,393,3601.4299,3604.22,1,So so it's too early to say.
4482682,394,3604.22,3610.8101,1,There are still uh some um uh call it uh problems uh like we had in q four.
4482682,395,3610.8101,3612.99,1,And and they persist into q one so far.
4482682,396,3614.0701,3619.1699,0,and remember remember remember Victor also the prices in Europe will be lower also so.
4482682,397,3619.1699,3619.3098,13,Yeah.
4482682,398,3619.5601,3619.73,13,Yeah.
4482682,399,3620.75,3621.1201,13,No.
4482682,400,3638.3999,3650.6201,1,I said we need to come back to that when we come with the FIDs but we see this as a very interesting investment opportunity when we look at the calculations so far otherwise we wouldn't uh propose it.
4482682,401,3651.28,3653.49,1,But let's come back to that with more details.
4482682,402,3658.3101,3658.3801,13,Yeah.
4482682,403,3669.23,3669.3501,13,No.
4482682,404,3674.8,3675.03,13,No.
4482682,405,3683.4299,3683.6699,13,Okay.
4482682,406,3703.95,3704.1099,13,Okay.
4482682,407,3705.76,3705.8899,13,Okay.
4482682,408,3707.4299,3707.96,13,Yeah.
4482682,409,3708.22,3708.96,1,No.
4482682,410,3708.96,3709.6199,1,Not really.
4482682,411,3709.6201,3714.3,1,I mean uh we we think um the the market is very interested.
4482682,412,3714.3,3717.72,1,The market is wheeling from start to pay a premium.
4482682,413,3718.6001,3735.0498,1,I honestly believe that uh well there will be might be a price difference between uh <laugh> carbon-free fossil-free steel and and usual steel where margin difference or or however you put it but but I think uh and hope that this will be the new normal.
4482682,414,3735.05,3741.27,1,So so I think it's very hard to say what what will the premium be over time and how do you calculate the premium.
4482682,415,3741.27,3742.7,1,So let's come back to that.
4482682,416,3742.7,3743.75,1,I don't have a good answer.
4482682,417,3743.75,3753.6301,1,But we see that uh the current demand uh is uh exceeding uh the planned capacity.
4482682,418,3754.0701,3780.5,1,And my our base case guess and I would say that this is a fairly educated guess is that that demand will not lower over time and you have seen announcements from companies like Daimler what what kind of of pressure they put on their sub suppliers when it comes to scope three emissions and my guess would be and I I would say claim that this is an educated guess as well is that that pressure will not decrease.
4482682,419,3780.5,3781.6699,1,I would say quite the opposite.
4482682,420,3806.5,3806.77,14,Yeah.
4482682,421,3806.8601,3807.1401,14,Yeah.
4482682,422,3824.3501,3826.77,14,Got you.
4482682,423,3844.99,3853.6301,1,Uh run it on scrap as we do in US and there is scrap availability in the Nordics and we are one big producer of scrap <laugh> and our customers using our material.
4482682,424,3854.0601,3857.8301,1,So then we could also use it uh with scrap from the market today.
4482682,425,3857.8301,3859.3699,1,We are selling scrap to the market.
4482682,426,3859.3701,3867.0,1,Uh so so there is a possibility and that's what we try to call flexibility then between h b i and and scrap.
4482682,427,3867.03,3873.75,1,So we will in practice have uh higher flexibility than raw material flexibility today than today.
4482682,428,3875.4399,3875.6899,14,Okay.
4482682,429,3902.28,3907.4399,1,We have uh a fairly good idea about that and it is within the mobility sector.
4482682,430,3907.4399,3923.9502,1,And one good example and I won't bore you with too many examples but one good example is to meet the wide q and t which is uh and thin gauges which which is asked for by the market and we are not in a cost efficient way able to produce that today.
4482682,431,3923.95,3939.98,1,I mean the quarter mill in Oxelosund is uh not uh an optimal setup to produce uh I would say thinner gauges than four millimeters and and with these mills we can produce one two three up to four millimeters.
4482682,432,3940.45,3943.54,1,Uh so so we will have a broader product offering.
4482682,433,3943.54,3954.04,1,We will also with this mill what we are lacking today and what is asked for is uh and where we have a fairly low market share is galvanized products uh especially within advanced high-strength steels.
4482682,434,3954.04,3955.6199,1,We don't have the capacity today.
4482682,435,3955.8999,3957.3401,1,That will be another example.
4482682,436,3967.27,3968.0901,1,Not necessarily.
4482682,437,3968.0901,3968.4001,1,No.
4482682,438,3968.4299,3994.8,1,Uh but but we are focused to stay within our niches with advanced high-strength steels and and q and t and there we see possibilities both for for as said with the example of q and t new grades and new gauges and widths but but also uh other parts where we are either <inaudible> producing today like galvanized advanced high strength steels or not being able to produce at all.
4482682,439,3996.9199,3997.1399,15,Okay.
4482682,440,4001.53,4005.8201,1,I mean we are not changing the strategy or the focus on on niche products.
4482682,441,4005.8201,4010.99,1,That's still the foundation that will continue to be the foundation of SSAB.
4482682,442,4012.8701,4012.9902,15,Yeah.
4482682,443,4041.3201,4041.6201,1,Yes.
4482682,444,4041.6201,4050.1301,1,We see that from a lot of segments and segments that we are not active in today and segments that we will where we will not be active but we see it from heavy transport.
4482682,445,4050.1299,4053.02,1,We see it from other segments where we are active today.
4482682,446,4053.02,4063.3901,1,So I would say <laugh> to be honest we see it from most of the segments uh want to have fossil-free steel in the future with very few exceptions.
4482682,447,4065.6101,4065.9202,15,Okay.
4482682,448,4117.6802,4117.9102,15,Okay.
4482682,449,4118.25,4127.0996,1,It's it's a very good question and let's come back to that because as we said I mean we have the maintenance CapEx level today that will over time then in existing facilities go down.
4482682,450,4127.1001,4133.52,1,We have the Oxelosund conversion which we have said will cost uh until twenty twenty six roughly five billion.
4482682,451,4133.73,4135.3599,1,And then we have this new program.
4482682,452,4135.3599,4157.1699,1,So it will be a combination of that and it'll be dependent on when we start but but for the coming years you should expect us to uh move on with Oxelosund and then gradually then start to invest in our Nordic mills but at the same time we'll start to reduce uh maintenance CapEx and call it other strategic CapEx in in in those facilities.
4482682,453,4158.3701,4164.52,1,So let's come back to that with with when we move on with this uh feasibility study and have more clarity.
4482682,454,4164.9199,4174.27,1,But we have said a round figure of forty five including contingencies and and in order not to disappoint anyone with that figure.
4482682,455,4175.8999,4176.23,15,Okay.
4482682,456,4183.1802,4190.3301,1,uh convince her to answer something <laugh> that you knew that you wouldn't get an answer from <inaudible>.
4482682,457,4190.4502,4196.25,1,So good try.
4482682,458,4281.0298,4293.6196,1,But but but what I'm trying to explain is that we will do this in a partnership in the in in the hy HYBRIT partnership together with LKAB and and Vattenfall.
4482682,459,4293.6201,4299.04,1,And I think uh it will be dependent on on electricity prices.
4482682,460,4299.04,4304.6699,1,I think the good thing with this product is that we will also have hydrogen storage.
4482682,461,4304.6699,4307.4702,1,So we can use uh wind power as an example.
4482682,462,4307.4702,4311.6104,1,And then store energies in in in in the hydrogen storage.
4482682,463,4311.6099,4319.8501,1,And then produce uh sponge iron twenty four seven regardless of of peaks or or troughs in in electricity prices.
4482682,464,4319.8501,4326.73,1,So what I'm trying to say and and let's come back to that but we're trying together to optimize then uh a value chain.
4482682,465,4326.73,4338.8398,1,And then exactly who will do what then who will own what we haven't really decided uh that uh we have the partnership we are now investing or planning to start to invest in the demonstration plant.
4482682,466,4338.8398,4339.8198,1,And then we'll take it from there.
4482682,467,4349.5298,4355.1602,1,So what we are trying to achieve is fossil-free products out that end users in a cost efficient way.
4482682,468,4355.2798,4355.5596,16,Yeah.
4482682,469,4368.7998,4378.8296,1,Uh that will of course depend on cash regeneration and so on but uh now we are taking this decision and and directional decision and we will take uh the decisions one by one.
4482682,470,4378.8301,4383.8398,1,But but it goes together because uh we are now investing in a fossil-free value chain.
4482682,471,4384.5601,4384.6602,16,Okay.
4482682,472,4385.0898,4389.1797,1,And I think that is what is appreciated by the market and what the market wants to see.
4482682,473,4389.9902,4390.0601,16,Yeah.
4482682,474,4412.3398,4412.5801,16,No.
4482682,475,4412.5801,4413.3999,16,I completely agree.
4482682,476,4433.9302,4440.8198,1,Uh it's complete mini-mills uh like uh I think Sinton in in Texas is a good example.
4482682,477,4441.0801,4448.1201,1,Completed completely integrated mill starting with electric arc furnaces outcomes uh finished products of the rolling.
4482682,478,4449.2202,4450.3901,1,So this is a complete mini-mill.
4482682,479,4450.3901,4450.6104,16,Yes.
4482682,480,4450.6099,4463.9302,1,In Oxelosund we are closing the coke oven battery and the blast furnaces and moving over to electric arc furnaces but we keep uh the steel shop the rolling mill because they are state-of-the-art and very well fitted for those kind of products.
4482682,481,4463.9302,4467.3901,1,This I mean you should compare it with <inaudible> or Sinton.
4482682,482,4469.0898,4469.4199,16,Okay.
4482682,483,4469.8198,4470.2397,16,Okay.
4482682,484,4520.2998,4520.6299,6,Thank you.
4482682,485,4521.3501,4521.6401,1,No.
4482682,486,4521.6401,4532.9702,1,But uh we have been become more and more sure about the cost and the efficiency and so on and and that has not increased over time when we have become more and more sure.
4482682,487,4537.8599,4538.25,6,I'm sorry.
4482682,488,4538.25,4540.27,6,The cost inflation you're more <crosstalk>-
4482682,489,4540.4199,4540.6499,1,No.
4482682,490,4540.6499,4549.5698,1,But but but might not know about the the cost of producing uh steel like this is uh has not increased when we have gotten more and more educated.
4482682,491,4550.2202,4551.0601,1,I would say the opposite.
4482682,492,4553.5,4553.6201,6,Okay.
4482682,493,4553.6201,4559.5503,6,Can you confirm an updated expectation for how much your operating costs will increase like for like with the new technology?
4482682,494,4560.3999,4562.7798,1,Uh they would not increase.
4482682,495,4566.8799,4567.1797,6,Okay.
4482682,496,4567.21,4571.9399,6,So compared to prior guidance of an over thirty percent increase the new guidance is no increase?
4482682,497,4573.1899,4576.4399,1,Uh let's come back to that but it is not a thirty percent increase for sure.
4482682,498,4578.0898,4578.3496,6,Okay.
4482682,499,4578.3999,4584.3804,6,I think that's something that the market definitely wants more color on recognizing how much capital is being allocated to the shift in technology.
4482682,500,4585.2202,4596.1099,1,And and we need to come back to that when we uh come up with the FIDs and so on and take it mill by mill but but the operating costs will be we will we will be much more cost efficient.
4482682,501,4598.3301,4598.6802,6,Okay.
4482682,502,4620.0698,4623.5103,7,And then how the remaining will be split twenty three to twenty five?
4482682,503,4623.5098,4627.02,2,I think for twenty two it's around a billion.
4482682,504,4627.4502,4628.0,1,mm-hmm <affirmative>.
4482682,505,4629.6001,4630.8101,1,A billion in twenty twenty two.
4482682,506,4640.2798,4640.4199,2,No.
4482682,507,4640.4199,4641.6802,2,That's for the two two year.
4482682,508,4641.9399,4643.1201,1,Uh for for twenty two.
4482682,509,4645.1099,4647.5,7,And and how much was spent in twenty one?
4482682,510,4648.98,4653.73,2,I don't have the exact figure but part of the cost is already occurred during during two one.
4482682,511,4653.8599,4654.0298,2,Yeah.
4482682,512,4656.4502,4656.73,7,Okay.
4482682,513,4656.7598,4671.4102,7,And the second one is just on um the down you know the blast furnace re-aligns and new coke ovens for Lulea and Raahe uh were those scheduled to be done before twenty thirty or after twenty thirty?
4482682,514,4671.7798,4673.3101,1,I would say around twenty thirty.
4482682,515,4673.3101,4678.7998,1,Then you can always flex uh sometimes you can prolong it a year and sometimes you need to do it a year earlier.
4482682,516,4678.7998,4683.23,1,So I would say around twenty thirty the two blast furnaces in Raahe.
4482682,517,4683.7002,4687.4502,1,One of them slightly later and also and Lulea in that region as well.
4482682,518,4687.4502,4690.75,1,So I would say around twenty thirty all the three of them.
4482682,519,4690.9502,4691.1704,7,Okay.
4482682,520,4691.1699,4697.1699,7,So but effectively within the timeline of the forty five billion?
4482682,521,4697.4399,4697.6802,1,Yes.
4482682,522,4697.6802,4698.6001,7,Not afterwards?
4482682,523,4698.6299,4699.98,7,Is that the correct way to think about it?
4482682,524,4700.6499,4701.9502,1,Um around that timeline.
4482682,525,4701.9502,4705.98,1,Uh I I say that around twenty thirty because it's not an exact science.
4482682,526,4705.98,4711.5498,1,You you can sometimes you are lucky and you can run a blast furnace one more year than planned.
4482682,527,4711.5498,4714.5298,1,Sometimes you're unlucky you need to do it one year earlier.
4482682,528,4714.8599,4722.46,1,It depends so much of of the wear and tear in the uh blast furnaces and also if you have uh had to stop them or not.
4482682,529,4722.46,4729.75,1,So so it is not an exact science but but uh around twenty thirty all the three all three of them.
4482682,530,4731.8301,4732.0898,7,Okay.
4482682,531,4732.25,4732.5703,7,Thank you.
4482682,532,4733.8701,4735.79,1,So the idea is to avoid that of course.
4482682,533,4740.9399,4748.1499,3,Thank you.
4482682,534,4748.1499,4748.75,0,Thank you.
4482682,535,4748.75,4750.4199,0,Thank you for all the interest.
4482682,536,4750.4502,4755.2402,0,And by that we close today's conference call and we wish you a pleasant day.
4482682,537,4755.5801,4755.8896,0,Thank you.
4482682,538,4756.4399,4756.7798,2,Thank you.
4483046,0,3.66,14.0,0,Now it's times there would like to starts the performance briefing session of q three of March twenty twenty two of the T D K Corperation.
4483046,1,16.24,22.39,0,Today's speaker is Executive Vice President Tetsuji Yamanishi…
4483046,2,22.61,23.29,0,I mean Yamanishi.
4483046,3,23.49,24.92,0,Hello everyone thank you very much.
4483046,4,25.95,26.21,0,Okay!
4483046,5,26.73,32.11,0,i am Yamanishi speaking thank you very much for joining us today in your very busy schedule.
4483046,6,32.21,32.62,0,Thank you.
4483046,7,33.45,34.77,0,Okay then a…
4483046,8,34.77,41.37,0,I'd like to start with a performance briefing of q three FY of March twenty twenty two.
4483046,9,44.02,46.68,0,I start with the key points concerning earnings.
4483046,10,47.93,58.3,0,And even under the covid nineteen pandemic and uh continuing from the first inaudible and that normalizations of the socio and economic activities is going on and all over the world but…
4483046,11,58.75,60.14,0,And still in…
4483046,12,60.76,61.28,0,it's a…
4483046,13,61.99,64.85,0,The constraints and the supply chains and have a prolonged…
4483046,14,64.88,65.33,0,prolo…
4483046,15,65.33,66.01,0,prolonged…
4483046,16,66.21,70.36,0,so that's the that was the adverser affects of the production municipal to build the smartphone.
4483046,17,70.36,77.42,0,But on the other hand now it our electronics business has been steady so that the we could have the incomes and the…
4483046,18,77.42,80.24,0,Sales in all segments and including that's the…
4483046,19,80.5,81.18,0,impro eh…
4483046,20,81.18,83.67,0,Improvement of profits under the passive components.
4483046,21,83.67,89.11,0,And then also the sensor profitability have increased and then we have a very well-balanced earnings structure.
4483046,22,89.68,101.97,0,Sales have increased by twenty six point three percent during the year and overall income have increased by thirty one point three percent in a year and for both the q three and the first nine months of the fiscal year have both…
4483046,23,102.31,102.89,0,and rec…
4483046,24,103.13,104.95,0,have recognized that it's the all-time high.
4483046,25,105.2,106.11,0,In uh auto…
4483046,26,106.11,107.58,0,automotive markets and the…
4483046,27,107.85,114.94,0,due to that eh the shortage of that the semiconductors for example and in that have lowered the projections of the end of the year.
4483046,28,115.15,126.03,0,But still there's further developments of the XP and that the further electrification have aid us have increased in the number of components installed per vehicle than there ever ha…
4483046,29,126.06,129.81,0,and favorable for our business so that our business is steady.
4483046,30,130.18,134.7,0,And we could expand the sales of the the passive components as well as sensors.
4483046,31,135.1,139.03,0,In ICT markets and now steel and some…
4483046,32,139.19,139.47,0,the…
4483046,33,139.65,140.82,0,the shortage of the sem…
4483046,34,140.93,143.93,0,semiconductors and the push down the production of small forms.
4483046,35,144.26,145.74,0,And also made it lower than the last year.
4483046,36,145.74,154.52,0,But our own components have adapted more in the small forms and on the top of that there is strong demand in the PC and the tablets and…
4483046,37,155.01,155.31,0,a…
4483046,38,155.56,162.75,0,major contribution of our steady business and the steel that's very good investment to the data center pushing up through those other demands.
4483046,39,163.07,169.88,0,And all of these are sales on the second inaudible sensor as well as a hundred h d d head have increased.
4483046,40,170.78,173.3,0,Also we entered the market of industrial equipments.
4483046,41,173.6,173.9,0,Now…
4483046,42,174.31,174.6,0,the…
4483046,43,175.05,183.18,0,inaudible is very steady by the corporations and in our sales for the semiconductors in the factory equipment and renewable energy have increased.
4483046,44,183.72,189.42,0,And also passive components and uh industrial current supply have expanded the sales.
4483046,45,189.8,190.12,0,And…
4483046,46,190.57,193.11,0,also for the the second battery a…
4483046,47,193.92,200.43,0,and we're also have a very good business including the increase in sales of the middle-sized battery for the home-use E S S.
4483046,48,200.97,201.44,0,Just relax.
4483046,49,201.44,206.41,0,Under this and the good favorable performance then the first nine months of that…
4483046,50,206.46,209.68,0,this fiscal year have largely surpassed our forecast.
4483046,51,210.3,212.42,0,So that's why and…
4483046,52,212.66,217.41,0,the full-year projection were revised at inaudible in light of operating results through q three.
4483046,53,217.74,220.65,0,And that delayed us the ordered trends.
4483046,54,221.26,222.17,0,Again we have this…
4483046,55,222.62,225.2,0,and uh revision and from the last time in October.
4483046,56,225.26,225.67,0,i'll be…
4483046,57,225.72,227.26,0,I explain the details later.
4483046,58,227.63,231.58,0,Next lemme talk about the concentrated result of the first nine months of the q three.
4483046,59,233.8,235.87,0,Exchange impacted to that a…
4483046,60,236.47,244.53,0,The net sales have about eighty five point three billion and also and three point five billion in up income…
4483046,61,244.53,244.75,0,it…
4483046,62,244.75,245.58,0,including all these.
4483046,63,246.0,250.24,0,The total sales was one trillion and three hundred ninety three point nine billion yen.
4483046,64,250.67,255.55,0,That is three hundred seven point one billion yen a twenty eight point three percent increase during the year.
4483046,65,255.78,265.28,0,Operating income was one hundred thirty nine point two billion yen that is thirty one point eight billion yen or twenty nine point five percent up from the year earlier.
4483046,66,265.72,271.85,0,The income before tax was one hundred forty six point six billion yen net income was one hundred seventeen point three billion yen.
4483046,67,271.85,275.52,0,So in all these KPIs we could recognize the all-time high.
4483046,68,276.07,279.89,0,Earning per-share was three hundred nine point five three yen.
4483046,69,280.3,284.03,0,When it comes to the sensitivity to the current inaudible there is no any change.
4483046,70,284.07,284.92,0,Before so that…
4483046,71,285.27,289.52,0,one yen changed to the dollar have the impact on the operating income of one point two billion yen.
4483046,72,289.66,292.34,0,And two hundred million yen a…
4483046,73,292.89,293.49,0,for the euro.
4483046,74,296.49,297.26,0,Next let me…
4483046,75,297.65,300.31,0,the report about the consolidated results for q three.
4483046,76,301.7,307.24,0,So again the exchange impacts onto the sales have this thirty nine point nine billion yen.
4483046,77,307.53,311.61,0,And also five point three billion yen impact on the operating income.
4483046,78,311.67,312.07,0,And…
4483046,79,312.12,317.97,0,including all these impacts the total net sales was four hundred ninety nine point seven billion yen.
4483046,80,318.23,323.6,0,That is a hundred four billion yen or twenty six point three percent increase during the year.
4483046,81,332.09,337.01,0,Income before tax was a sixty two point two billion yen and net income was forty nine point one billion yen.
4483046,82,337.01,337.5,0,Just like…
4483046,83,337.5,338.55,0,for the nine months…
4483046,84,339.42,339.72,0,a…
4483046,85,340.24,351.4,0,first to the nine months and the total also we have the record high KPIs for all of these and the figures and a earnings-per-share was one hundred twenty nine point five zero yen.
4483046,86,351.81,356.54,0,Next lemme talk about the segment-wide business performance in q three.
4483046,87,357.99,358.25,0,A…
4483046,88,358.77,366.25,0,the passive components segments the sales was one twenty nine point five billion yen that is eighteen point three percent increase in the year.
4483046,89,366.85,373.0,0,The demand in automotive markets have pushed up by the increasing number of components and um…
4483046,90,373.03,376.26,0,amount is earned at the vehicles and also now…
4483046,91,376.45,385.45,0,in the industrial equipment markets or the renewable energy business also have been favorable and in the I C T market although the demand in smartphone will decline that's…
4483046,92,385.95,388.0,0,the other strong demand in the eh…
4483046,93,388.0,388.72,0,sp…
4483046,94,388.72,392.5,0,base stations well above the biases have more than offset so then the…
4483046,95,392.76,393.48,0,on all of…
4483046,96,393.48,398.93,0,all these inaudible we could have the positive growth in all of the segments.
4483046,97,399.52,405.22,0,Operating income was twenty two point six billion yen that is sixty nine point three percent of increase on the year.
4483046,98,405.51,410.69,0,And operating income margin was seventeen point five percent of increase in profitability.
4483046,99,411.28,423.26,0,Then business-wise excluding high-frequency components then we have all that the profit increase particularly an improvement of the profitability of the classical inductive devices that pushed up our…
4483046,100,423.26,425.1,0,the business performance of all the segment.
4483046,101,425.44,432.46,0,When it comes to high-frequency components in that the profit has declined slightly due to the upfront investment for the R N D for new products.
4483046,102,432.69,434.04,0,Next sensor…
4483046,103,434.58,435.99,0,application product segment.
4483046,104,436.73,440.64,0,Now we have consecutively passed the all time sale…
4483046,105,440.64,443.01,0,high sales from the last q three.
4483046,106,443.25,453.0,0,And also in this q three we also have record high sales of thirty six point one billion yen that is a fifty seven point one percent increase in a year.
4483046,107,453.4,455.05,0,Operating income and…
4483046,108,455.74,456.02,0,cu…
4483046,109,456.28,461.95,0,also secured the profits including that the pushed up sales and also the better product mix.
4483046,110,462.36,465.32,0,So now we can pushed up the responsibility from the q two…
4483046,111,465.32,468.93,0,q two and now we have the operating income margin of over ten percent.
4483046,112,469.2,473.56,0,And the result of that also in the first nine months of the fiscal year we could secure the profits.
4483046,113,474.24,474.62,0,The sen…
4483046,114,475.1,481.2,0,temperature and pressure sensors there was inaudible in the demand for industrial equipment so the home appliances.
4483046,115,481.86,484.87,0,And then we have the the increased sales also for the home sensors.
4483046,116,485.13,487.53,0,And this is supported by the automotive markets.
4483046,117,487.85,490.45,0,And we have largely improved this profits.
4483046,118,491.15,492.18,0,T M L sensor…
4483046,119,492.52,492.98,0,a…
4483046,120,493.27,504.02,0,is an the I C T markets now an increase in the I C T market but then also an inducted for the new applications in we have the largely substantial increase of sales and profits.
4483046,121,504.26,511.39,0,And for the MEM sensors we could enjoy the bad expansion of customer-based and application-based now have effected steady on the performance.
4483046,122,511.55,513.66,0,And motion sensors MEM in the mem for funds…
4483046,123,513.73,521.73,0,sales have increasing in a substantially and now with the profitability improvement we could successfully shrink that the largely that the…
4483046,124,522.36,523.02,0,at the loss.
4483046,125,525.75,528.35,1,Next inaudible in application products business.
4483046,126,528.46,532.81,1,Net sales was sixty four billion yen fourteen point four percent year-on-year.
4483046,127,533.92,539.4,1,Operating income was three point three billion yen down twenty two point five percent year-on-year.
4483046,128,540.24,548.42,1,But uh here may I remind you that in in the third quarter previous year we had both two point four billion yen from the sales gain of suspension business.
4483046,129,549.19,553.61,1,So in substance this segment was able to secure growth and profit.
4483046,130,555.18,556.09,1,Next in inaudible…
4483046,131,557.21,557.38,1,uh…
4483046,132,557.82,561.1,1,server demand for data centers has been firm.
4483046,133,561.83,566.71,1,New line HDD heads growed one point eight times in volume.
4483046,134,567.12,572.8701,1,That whole HDD head became profitable with its volume grow uh growing twenty eight percent.
4483046,135,578.03,589.51,1,Hard drive suspension new line on the hard disk drives for the nation's customers and data centers continued to be firm giving us growth both in revenue and profit.
4483046,136,590.85,591.42,1,Laminate.
4483046,137,592.48,599.25,1,Sales for the automotive has been firm in sales withstanding a price increase of raw materials.
4483046,138,599.56,601.79,1,Loss number increased slightly.
4483046,139,608.21,611.46,1,Next I will explain our energy and application products.
4483046,140,612.35,615.56,1,Revenue was two hundred fifty six point one billion yen.
4483046,141,616.11,625.54,1,Operating income was thirty point nine billion yen up thirty one point one percent in sales and eight point nine percent in profit year-on year.
4483046,142,626.92,634.01,1,As for rechargeable batteries this segment was impacted by the inaudible changes as well as the increased price of raw materials.
4483046,143,634.01,636.46,1,Talking of ethics the cheaper Japanese Yen.
4483046,144,637.63,645.47,1,But uh if we are to exclude this we stayed smart from production decline as much as eleven percent from the previous year.
4483046,145,645.69,648.42,1,Sales uh for smartphones declined.
4483046,146,649.72,652.68,1,In contrast power sales for electro…
4483046,147,652.78,653.47,1,uh electra…
4483046,148,653.75,659.51,1,uh electric motorcycles and residential inaudible power systems expanded.
4483046,149,661.31,665.51,1,For the entire business it became almost flat year-on-year.
4483046,150,669.44,673.15,1,Excluding effects and impact and also then the pricing factor.
4483046,151,674.11,674.98,1,Operating income.
4483046,152,675.75,681.56,1,While the real sales did not grow we made a force to improve cost and fixed-cost efficiency.
4483046,153,682.04,686.03,1,And we are uh seeing improved profit starting from the second quarter.
4483046,154,686.91,692.7599,1,But in the third quarter of this year raw materials prices started again going up rapidly.
4483046,155,693.26,697.93,1,So we're still have some potential factor for to push down profit.
4483046,156,698.44,702.55,1,And also we have about five point one billion as the royalty to be made…
4483046,157,702.55,702.99,1,paid.
4483046,158,705.62,708.42,1,As for the industrial equipment um um dena…
4483046,159,708.45,715.84,1,powered devices demand intersection and has been rather firm giving us the opportunity to increase the revenue.
4483046,160,716.31,721.91,1,But um then we also have been faced with an increase in the materials so we had to procure…
4483046,161,721.91,729.11,1,and also we have been uh within a covid nineteen and with all this in factors in plays we are having a slight decline in profit.
4483046,162,732.59,739.97,1,Next I would like to go through the factors behind the ups and downs of sales and operating profit numbers for the third quarter by segment.
4483046,163,740.37,743.1801,1,First on the passive components segment.
4483046,164,743.75,749.26,1,Net sales was at two point two billion yen or one point seven percent from the second quarter.
4483046,165,749.62,754.3,1,Operating income was at one point three billion yen or five point nine percent.
4483046,166,754.97,759.56,1,As for sales it grew slightly thanks to the strong and auto market.
4483046,167,760.53,766.79,1,In the industrial equipment market renewable energy and manufacturing facilities grow in sales.
4483046,168,767.03,771.42,1,Whereas in the I C T market sales for smartphones declined.
4483046,169,772.31,777.15,1,The business became profitable except for the RF components.
4483046,170,777.66,784.58,1,Operating income side capacitors and inductors uh contributed to the overall profit growth.
4483046,171,786.45,788.84,1,Next the sensor and application products.
4483046,172,789.85,794.43,1,Revenue on here was three point five billion yen up ten point six percent.
4483046,173,794.61,797.8,1,Operating income was an up two point three billion yen.
4483046,174,798.25,801.96,1,We continued to improve further since the second quarter.
4483046,175,802.84,808.62,1,Temperature and pressure sensors slightly declined partially due to the seasonal factor.
4483046,176,810.15,823.8,1,In the other sensors inaudible sensors grew firmly particularly for the auto and T R M sensors grew significantly in the sales volume of the new products since q two thanks to the major customers for smartphones.
4483046,177,824.53,832.18,1,Motion sensors are uh sensors and uh been firmly growing in sales thanks to the expanded base of customers and applications.
4483046,178,832.55,844.04,1,Up in income grow uh significantly thanks to the good business of T M L sensors motion sensors contributed greatly to profit reflecting the improved customer mix and product mix.
4483046,179,844.18,848.32,1,All in all they contributed greatly to the overall profit improvement.
4483046,180,848.75,855.77,1,Next I will explain magnetic application products reveal being one point three billion yen down two point one percent.
4483046,181,856.28,865.03,1,Operating income was um down two point seven billion yen excluding the one-time cost of about four billion yen we had in the third uh…
4483046,182,865.13,866.08,1,second quarter.
4483046,183,866.52,872.4,1,Revenue the HDD heads volume mainly all for PCs was down about eight percent.
4483046,184,873.34,878.44,1,And had described assembly sales volume was also down about fifteen percent.
4483046,185,879.32,885.45,1,In contrast HDDs has been shown to had an a growth in profit driven by new online business.
4483046,186,888.46,889.09,1,Magnets.
4483046,187,889.6,894.14,1,This business grow in profit thanks to the firm demand for auto.
4483046,188,894.53,901.54,1,Operating income declined sharply thanks to the decline in H D D heads volume as well as the selling price of the…
4483046,189,901.54,902.72,1,the pricing erosion.
4483046,190,904.22,911.4,1,Suspension improved on its profit driven by the growth in sales and the mutual improvement by the high-valued products.
4483046,191,911.91,918.36,1,Magnets are still in loss because the impact from the price rise is still with us.
4483046,192,919.18,922.15,1,Next energy in application products segment.
4483046,193,923.27,927.38,1,Revenue was twenty point six billion yen up eight point eight percent.
4483046,194,927.93,932.31,1,Operating income was four point seven billion yen up thirteen point six percent.
4483046,195,934.02,939.32,1,Rechargeable batteries saw sales growth thanks to the increased production volume of smartphones.
4483046,196,940.65,942.73,1,Power cell products sales grew.
4483046,197,943.77,953.43,1,In one excluding the effects impact and raw materials and price increase shifted to in our selling price revenue actually grew from the second quarter.
4483046,198,954.08,956.86,1,Industrial power and supplies grew slightly in revenue.
4483046,199,960.16,968.69,1,Operating income of raw materials and for the rechargeable batteries in started rising further from the second quarter and its impact is still with us.
4483046,200,968.92,976.85,1,But we made further efforts to improve the efficiency of fixed-cost resulting in the improved profitability starting from the second quarter.
4483046,201,977.79,983.71,1,Industrial power supplies thanks to the increased sales resulted in the growth both in revenue and profit.
4483046,202,986.41,991.53,1,Next i'll go into details of fourteen point one billion yen of the operating income.
4483046,203,994.53,998.56,1,With the growth in sales of passive components profit expanded.
4483046,204,998.84,1002.26,1,With the sensor business becoming profitable profit expanded.
4483046,205,1003.45,1012.15,1,With the recovering profit of h d d heads though know we had some impact from the rising costs of materials we had increase…
4483046,206,1012.23,1015.36,1,we had increase in profit as much as twelve point six billion yen.
4483046,207,1015.68,1028.6,1,Impact from the sales price discounts remained rather small rationalization cost down inaudible as well as the impact of eight point six billion yen coming from the structure reform we executed in the fourth quarter in the previous year…
4483046,208,1028.63,1029.8099,1,in the previous fiscal year.
4483046,209,1030.08,1032.5,1,Our profit uh has been raised up.
4483046,210,1035.63,1039.0399,1,inaudible actually now increase of twelve point five billion.
4483046,211,1039.04,1049.34,1,Major factors for that are first in the third quarter previous year we had and the sales of all inaudible almost of two point four billion yen.
4483046,212,1049.88,1051.1899,1,And also the rechargeable…
4483046,213,1051.22,1055.9199,1,uh the royalty cost being of five point one billion yen.
4483046,214,1057.04,1061.09,1,And uh with the covid nineteen going on there has been a…
4483046,215,1061.09,1064.6699,1,the price increase in the distribution cost.
4483046,216,1067.1899,1077.3601,1,Well of course with the Japanese Yen becoming cheaper and actually on up five point three billion all in all it's going to be a fourteen point one billion yen improvement in profit.
4483046,217,1079.55,1084.5701,1,Lastly I will explain for the following year consolidated in our performance.
4483046,218,1085.8,1090.83,1,As I said in the outset we've seen inaudible and up until the third quarter.
4483046,219,1091.23,1102.36,1,And in light of the orders we have received in the latest quarter we revised upward of a large numbers we announced back in November November the first.
4483046,220,1105.63,1111.15,1,So we made this revision again full internet sales is now one trillion eight hundred fifty billion yen.
4483046,221,1111.42,1113.6001,1,Operating income a hundred sixty billion yen.
4483046,222,1113.98,1120.1599,1,Income before income taxes now a hundred sixty eight billion yen and income is now thirteen billion yen.
4483046,223,1122.25,1128.85,1,As for the sales demand for passive components particularly for auto and industrial equipments.
4483046,224,1131.64,1138.78,1,And also now for the rechargeable batteries demand for smartphones has turned out to be much faster than we had expected.
4483046,225,1141.42,1142.48,1,So uh the…
4483046,226,1142.51,1146.22,1,the original version we wanted to actually make uh the upper revision.
4483046,227,1146.25,1151.11,1,As for the operating income we expect to grow in profit thanks to the increased sales.
4483046,228,1151.38,1160.8501,1,We also expecting to have one-time costs of nine billion yen for the consolidation of locations as well as the sales disposition of assets.
4483046,229,1161.26,1163.9401,1,And that has been expected uh in the fourth quarter.
4483046,230,1164.3101,1169.1899,1,We expected to have one-time costs of with tax around seventeen billion yen about.
4483046,231,1170.5601,1172.79,1,That is inaudible in the fourth quarter.
4483046,232,1173.63,1175.8301,1,So with this and factors in place and uh…
4483046,233,1175.87,1178.6001,1,we are happy to announce that we made these revisions.
4483046,234,1179.23,1187.58,1,As for uh the year-end dividend and cap inaudible and depreciation of possession and our yearly costs there has been no change uh since the last time announcement.
4483046,235,1187.62,1189.0599,1,This concludes my explanation.
4483046,236,1189.35,1191.2301,1,Thank you indeed for your kind attention.
4483296,0,3.08,3.49,0,Hello.
4483296,1,3.59,9.48,0,Thank you for standing by and welcome to Imperial Fourth Quarter two thousand twenty one Earnings Conference Call.
4483296,2,9.96,12.6,0,At this time all participants are in a listen-only mode.
4483296,3,13.1,16.43,0,After the speaker presentation there will be a question-and-answer session.
4483296,4,16.9,20.62,0,To ask a question during the session you'll need to press star one on your telephone.
4483296,5,21.3,23.89,0,Please be advised that today's conference may be recorded.
4483296,6,23.89,27.42,0,If you require any further assistance please press star zero.
4483296,7,27.93,33.61,0,I would now like to hand the conference over to your speaker today Dave Hughes Vice-President Investor Relations.
4483296,8,33.98,34.56,0,Please go ahead.
4483296,9,37.13,37.91,1,Thank you very much.
4483296,10,37.94,41.25,1,Good morning everybody and welcome to our fourth quarter earnings call.
4483296,11,41.25,45.0,1,I'll start by introducing uh you to the management team we have in attendance.
4483296,12,45.48,48.12,1,Uh Brad Corson Chairman President and CEO;
4483296,13,48.36,51.47,1,Dan Lyons Senior Vice-President of Finance and Administration;
4483296,14,51.82,54.22,1,Simon Younger Senior Vice-President of the Upstream;
4483296,15,54.68,57.54,1,Sherri Evers Vice-President of Commercial and Corporate Development;
4483296,16,57.57,59.73,1,and Jon Wetmore Vice-President of the Downstream.
4483296,17,60.21,62.22,1,So I'll just quickly go over the cautionary statement.
4483296,18,62.57,65.83,1,Today's comments include reference to non GAAP financial measures.
4483296,19,65.87,74.4,1,The definitions and reconciliations of these measures can be found in Attachment six of our most recent press release and are available on our website with the link to this conference call.
4483296,20,75.17,88.24,1,Today's comments may also contain forward-looking information and any forward-looking information is not a guarantee of future performance and actual future financial performance and operating results can differ materially depending on a number of factors and assumptions.
4483296,21,89.23,104.24,1,Forward-looking information of the risk factors and assumptions are described in further detail on our fourth quarter earnings press release that we issued this morning as well as our most recent Form ten k and all of these documents are available on SEDAR EDGAR and on our website so I'd ask you to please refer to those.
4483296,22,104.61,115.02,1,So just before I turn it over to Brad for his opening remarks once he's done and and he and Dan go over our financial and operating performance for the quarter we will be moving to the q and a session as usual.
4483296,23,115.05,116.54,1,So with that I'll turn it over to Brad.
4483296,24,123.09,126.82,2,I hope each of you are doing well and are of good health to start the new year.
4483296,25,127.79,136.35,2,As we bring twenty twenty one to a close well at least from a reporting point of view I would like to repeat something I said on the third quarter call.
4483296,26,136.81,138.84,2,Wow what a difference a year makes.
4483296,27,139.57,148.43,2,I'm very pleased to report that we finished the year strong with another quarter of solid operating performance and strong financial results.
4483296,28,149.05,165.76,2,In twenty twenty we focused heavily on ensuring Imperial was well-positioned to take advantage of the market recovery through ongoing focus on reducing our cost structure improving our reliability and progressing high return brownfield projects.
4483296,29,166.71,177.07,2,And you can now see the benefits of those efforts in our twenty twenty one results as we continued to make the most of the improving and attractive business environment.
4483296,30,177.6,185.37,2,This performance was reflected in all business lines although we did see some pretty challenging weather to close out the year.
4483296,31,186.25,208.03,2,And as it has all year this performance allowed us to return a material amount of cash to shareholders in the quarter and in fact to accelerate the pace of these returns resulting in around three billion dollars for the full year the highest level in the company's history.
4483296,32,209.64,215.26,2,Throughout twenty twenty one we continued to manage the ongoing challenges due to covid nineteen.
4483296,33,215.78,228.57,2,Our focus on maintaining the health and safety of our workforce was key not only in minimizing disruptions to our operations but also and most importantly in ensuring the wellbeing of our people.
4483296,34,229.29,240.95,2,From a business perspective we saw continued demand recovery throughout the year and significant improvement in commodity prices both of which are reflected in our results.
4483296,35,241.57,247.98,2,Over the next few minutes Dan and I will detail the results o of what was a very strong quarter.
4483296,36,249.53,252.76,2,So now let's turn more specifically to the fourth quarter results.
4483296,37,253.23,266.06,2,Earnings for the fourth quarter were eight hundred and thirteen million dollars and our cash from operating activities was over one point six billion dollars both somewhat lower versus the third quarter.
4483296,38,266.72,274.83,2,Earnings were negatively impacted by approximately one hundred sixty million in onetime non-cash events.
4483296,39,275.53,287.31,2,And cash flow excluding working capital effects was up more than one hundred million dollars reflecting our strong operating performance and the strong commodity fundamentals in the quarter.
4483296,40,288.44,295.15,2,Crude prices continued to strengthen through the quarter while both downstream and chemical margins remained strong.
4483296,41,296.51,303.32,2,Our upstream continued to perform very well delivering its highest annual production in over thirty years.
4483296,42,304.1,306.49,2,And our downstream performed well also.
4483296,43,306.75,314.05,2,We saw utilization of ninety seven percent for the quarter and higher product sales as demand continued to recover.
4483296,44,315.4,323.87,2,Our chemical business closed out the year with another strong quarter and delivered the highest full year earnings in over thirty years.
4483296,45,324.69,334.32,2,As expected polyethylene margins did soften somewhat in the quarter but remained strong and supported the best ever full year earnings for this business.
4483296,46,335.64,345.83,2,So in total our strong cash flow generation in a period of strong commodity prices was underpinned by continued strong operational performance.
4483296,47,346.33,352.68,2,We were able to take advantage of attractive markets for crude refined products and chemicals.
4483296,48,353.87,363.33,2,And all of this contributes to a very strong cash position which continues to allow us to deliver on our priority of returning cash to shareholders.
4483296,49,363.99,372.06,2,In the quarter we returned nine hundred fifty million dollars to our shareholders in the form of dividends and accelerated share buybacks.
4483296,50,373.31,383.62,2,For the year we've generated about five point five billion dollars of cash from operating activities and around four point five billion dollars of free cash flow.
4483296,51,385.06,386.89,2,And we put this cash to good use.
4483296,52,387.32,401.02,2,Early in the year we announced the largest quarterly dividend in the company's history and re-instituted our share buyback program which we suspended in twenty twenty due to the business environment brought on by the pandemic.
4483296,53,402.25,407.81800000000004,2,And in the fourth quarter we announced an acceleration of the renewed N C I B.
4483296,54,408.52,414.97,2,All of this resulted in the return of nearly three billion dollars of cash to our shareholders in the year.
4483296,55,416.51,422.02,2,twenty twenty one marks the twenty seventh consecutive year of dividend increases.
4483296,56,422.91,437.22,2,And you would've seen us continue this trend with the announcement this morning of another significant dividend increase of seven cents per share which is around twenty six percent our largest dividend increase in history.
4483296,57,438.59,450.45,2,This equates to a fifty five percent increase since the beginning of twenty twenty one and represents an increase of almost eighty percent since the beginning of twenty nineteen.
4483296,58,452.13,473.26,2,Going forward following yesterday's completion of our accelerated N C I B and today's announcement of a sizeable dividend increase we remain committed to returning surplus cash to shareholders and are actively evaluating our next steps in this area including a potential substantial issuer bid.
4483296,59,474.41,482.75,2,We are unwavering in our commitment to a reliable and growing dividend and delivering further shareholder value and returns.
4483296,60,485.56,490.56,2,I'll now turn it over to Dan to go through our financial performance for the quarter in more detail.
4483296,61,491.5,492.24,3,Thanks Brad.
4483296,62,492.84,512.74,3,Getting into the financial results for the full year we recorded net income of almost $2.5 billion an increase of around $3.2 billion excluding the onetime one point two billion dollars non-cash impairment charge related to our unconventional business that we recognized in the fourth quarter of last year.
4483296,63,513.59,518.27,3,For the fourth quarter of twenty twenty one our net income was eight hundred thirteen million dollars.
4483296,64,518.3,524.82,3,Excluding identified items net income increased almost eight hundred million dollars from the fourth quarter of last year.
4483296,65,525.36,532.51,3,This increase was primarily driven by stronger realizations in the upstream and improved margins in the downstream and chemicals.
4483296,66,533.36,542.42,3,Now if we look sequentially our fourth quarter income of eight hundred thirteen million dollars is down about ninety five million dollars from the third quarter of this year.
4483296,67,552.1,553.69,3,Looking at each business line.
4483296,68,553.8,574.47,3,The upstream recorded net income of five hundred forty five million dollars up twenty million dollars from our third quarter net income of five hundred twenty four million dollars as a result of higher realizations in volumes partly offset by higher operating expenses driven in part by mine progress spend at Kearl and higher energy costs.
4483296,69,575.19,580.67,3,Upstream results included a number of onetime charges of about eighty five million dollars.
4483296,70,590.83,591.73,3,The downstream recorded net income of $250 million down $43 million from net income of $293 million in the third quarter.
4483296,71,592.46,598.0,3,Downstream results included a number of onetime charges totaling around seventy five million dollars.
4483296,72,598.78,611.83,3,Chemicals continue to demonstrate strong performance in fourth quarter with net income of sixty four million down about sixty million dollars from the third quarter this year as polyethylene prices moderated from the extreming…
4483296,73,611.99,614.89,3,extremely strong levels seen in the third quarter.
4483296,74,621.92,623.33,3,Moving on to cash flow.
4483296,75,630.01,634.13,3,Our free cash flow for the quarter was just over one point two billion dollars.
4483296,76,634.56,641.12,3,Looking at the full year our strong results and capital discipline delivered free cash flow of almost four point five billion dollars.
4483296,77,641.81,653.0,3,As we start twenty twenty two strong commodity prices along with our continued cost and capital discipline position us well to generate very substantial free cash flow going forward.
4483296,78,665.19,671.45,3,Full year capital expenditures were in line with the revised guidance at just over one point one billion dollars.
4483296,79,672.09,680.49,3,Capital spending in twenty twenty one was focused on progressing key projects such as Kearl input tailings infrastructure and the Sarnia products pipeline.
4483296,80,680.89,703.16,3,We also continued to invest in improving volumes through projects like the solvent assisted LASER project at our Mahkeses Cold Lake plant and improving the efficiency and cost structure of our operations by continuing to invest in projects like our autonomous haul truck fleet and related infrastructure as well as installing our first boiler flue gas heat recovery unit at Kearl.
4483296,81,704.25,712.78,3,In December we announced our twenty twenty two capital guidance at one point four billion dollars reflecting our strong ongoing capital discipline.
4483296,82,713.4,726.77,3,In the upstream at Kearl capital spending includes the ramp up of the Kearl input tailings project ongoing investment in our autonomous truck fleet and installing additional boiler flue gas heat recovery units.
4483296,83,727.23,737.05,3,At Cold Lake we will work on developing phase one of our Grand Rapids project continue to progress solvent assisted LASER as well as infield drilling and well work.
4483296,84,738.12,747.04,3,In the downstream spending includes the completion and commissioning of the Sarnia products pipeline and spending on the Strathcona renewable diesel project.
4483296,85,747.04,751.81,3,we'll have an opportunity to discuss these plans in more detail at our investor day.
4483296,86,754.26,756.21,3,Shifting to shareholder distributions.
4483296,87,757.22,763.13,3,As I mentioned earlier we generated about four point five billion dollars of free cash flow in twenty twenty one.
4483296,88,763.13,773.23,3,This performance supported record returns of almost three billion dollars of cash to shareholders including returns of about nine hundred fifty million dollars in the fourth quarter alone.
4483296,89,773.88,788.0,3,We repurchased seventeen point five million shares for seven hundred sixty one million dollars in the quarter under an accelerated program bringing our full year buyback to fifty six million shares for over two point two billion dollars.
4483296,90,788.38,794.82,3,We paid dividends of a hundred eighty eight million in the fourth quarter and a total of over seven hundred million for the full year.
4483296,91,795.83,801.59,3,Despite these record distributions we ended the year with about two point two billion dollars of cash on hand.
4483296,92,802.24,812.37,3,Consistent with our previous announcement we continued our accelerated N C I B purchases in January twenty twenty two and completed this program on January thirty first.
4483296,93,813.2,818.08,3,We also declared an increased dividend of thirty four cents per share payable on April one.
4483296,94,818.78,831.32,3,Furthermore as Brad mentioned in light of our current cash balance and the strong business outlook we are actively evaluating options for additional shareholder returns including a potential substantial issuer bid.
4483296,95,831.82,835.22,3,Now I'll turn it back to Brad to discuss our operational performance.
4483296,96,836.78,837.53,2,Thanks Dan.
4483296,97,837.73,846.78,2,As we switch our focused operations I would sum up the fourth quarter as being another strong quarter operationally across all business lines.
4483296,98,847.36,863.82,2,In the upstream we average four hundred and forty five thousand oil equivalent barrels per day which is an increase of ten thousand barrels per day versus the third quarter but is down fifteen thousand barrels per day versus the fourth quarter of twenty twenty.
4483296,99,864.25,869.68,2,This decrease year-on-year was due mainly to an early start to winter.
4483296,100,870.46,883.45,2,In fact Alberta saw several weeks of extreme arctic temperatures in the last half of December and early January which as you know present some operational challenges particularly in our mining operations.
4483296,101,884.81,895.3199,2,At our investor day in late twenty twenty we communicated our intent to focus the upstream organization's efforts on maximizing the performance of our existing asset base.
4483296,102,907.23,920.81,2,In fact our full year twenty twenty one production was four hundred and twenty eight thousand oil equivalent barrels per day which is the highest in over thirty years and exceeded our guidance for the year.
4483296,103,922.17,927.88,2,I would also note the current market environment and the strong commodity prices we are seeing.
4483296,104,928.4,944.55,2,While in the fourth quarter there were a number of factors which drove the wti W C S spreads wider such as the phase startup of line three and other smaller disruptions we are now seeing narrower spreads and are well-positioned to continue to benefit from this.
4483296,105,945.42,947.86,2,So now let's move on and talk about Kearl.
4483296,106,949.26,964.26,2,Production at Kearl in the fourth quarter averaged two hundred and seventy thousand barrels per day growth which was down four thousand barrels per day versus the third quarter and fourteen oh oh oh barrels per day lower than the fourth quarter of twenty twenty.
4483296,107,964.94,974.13,2,As I mentioned Western Canada saw an early start to winter feeling the effects of the deep freeze that started late in the fourth quarter and extended into the new year.
4483296,108,974.61,983.9,2,And as we have talked about in the past extended periods of extreme cold weather can be challenging for our operations and particularly mining.
4483296,109,985.46,1002.43,2,The result of these weather challenges was lower than expected production in the fourth quarter at Kearl with an estimated impact of around thirteen thousand barrels per day in the quarter or just over three thousand barrels per day on a full year basis.
4483296,110,1003.21,1012.25,2,The impacts of the extreme cold weather continued to linger into January but I'm pleased to say that as of now our operations have essentially returned to normal.
4483296,111,1013.44,1028.6901,2,I would also like to take a moment to recognize the tremendous dedication of our workforce whose efforts to safely maintain our operations in these extreme conditions and mitigate the production impacts are a huge credit to the organization.
4483296,112,1029.99,1040.1,2,Despite the weather impacts total full year production for Kearl was two hundred sixty three thousand barrels per day the highest in the assets history.
4483296,113,1040.75,1051.0599,2,This compares to two hundred and twenty two thousand barrels per day in twenty twenty an increase of forty one thousand barrels per day for the year.
4483296,114,1052.0699,1063.3201,2,And as Kearl continues to deliver on its production reliability c commitments including the elimination of the second annual turnaround a full year ahead of schedule.
4483296,115,1064.86,1074.89,2,Looking forward we continue to be excited about Kearl's potential as we make progress on our accelerated journey to two hundred and eighty thousand barrels per day.
4483296,116,1090.9,1099.51,4,I would also note that this twenty twenty two guidance reflects one major planned turnaround expected to be executed in the second quarter of the year.
4483296,117,1100.61,1105.25,4,I'd like to wrap up our discussion about Curl with some comments about unit cost.
4483296,118,1105.87,1109.0,4,Another positive reflection of the asset's performance.
4483296,119,1110.38,1125.51,4,As I mentioned on our third quarter call continued pressure from higher energy prices and the strength of the Canadian dollar presented some challenges in meeting our unit cash cost target of us twenty per barrel.
4483296,120,1126.84,1139.9401,4,In twenty twenty one higher energy costs and the strength of the Canadian Dollar represented approximately an incremental two dollars and fifty cents per barrel relative to twenty twenty.
4483296,121,1140.84,1157.0599,4,However if we normalized for energy costs and forex both items ou outside our control our unit costs would have achieved a reduction of almost one dollar per barrel from twenty twenty and been below the target of us dollar two oh per barrel.
4483296,122,1159.76,1167.0801,4,Close management of unit costs continues to be core to our approach to maximizing profitability at CURL.
4483296,123,1167.42,1172.3999,4,And we remain focused on achieving further unit cost reductions as we go forward.
4483296,124,1173.4,1175.4801,4,So now let's talk about Cold Lake.
4483296,125,1176.5601,1180.0601,4,Cold Lake has been a really positive story throughout twenty twenty one.
4483296,126,1181.13,1193.9099,4,Production for the quarter averaged one hundred and forty two thousand barrels per day which was up seven thousand barrels per day versus the third quarter and six thousand barrels per day higher than the fourth quarter of twenty twenty.
4483296,127,1195.08,1201.49,4,This strong performance reflects the benefits of our continued focus on production optimization and reliability.
4483296,128,1202.3,1212.3,4,And while Cold Lake experienced the same stream same extreme cold temperatures in December it did not have a material impact given the nature of this operation.
4483296,129,1213.62,1222.9299,4,For the year production averaged one hundred forty thousand barrels per day exceeding our updated guidance of one hundred and thirty five thousand barrels per day.
4483296,130,1224.11,1235.4401,4,Our full year production at Cold Lake was driven by significant improvement to the base performance highlighting the effectiveness of our strategy to focus on reliability and optimization.
4483296,131,1236.33,1245.24,4,We also saw the benefits from recent drilling operations which contribute almost two thousand barrels per day of production for the year.
4483296,132,1246.4,1250.99,4,We are looking forward to continuing to benefit from these improvements in the coming year.
4483296,133,1251.5,1260.4299,4,And for twenty twenty two we have issued guidance of one hundred and thirty five thousand to one hundred and forty thousand barrels per day for Cold Lake.
4483296,134,1260.61,1264.17,4,Which includes a typical plant turnaround in the second quarter.
4483296,135,1267.09,1277.64,4,Now at Syncrude Imperial's share of production for the quarter averaged seventy nine thousand barrels per day which was up slightly from seventy eight thousand barrels per day in the thir- third quarter.
4483296,136,1278.36,1282.98,4,But down eight thousand barrels per day from the fourth quarter of twenty twenty.
4483296,137,1283.73,1296.63,4,Unplanned downtime coupled with extreme cold weather presented challenges for these operations in December as detailed in the statement issued by the operator Suncor earlier in January.
4483296,138,1297.84,1303.78,4,We estimate the impact to be close to five thousand barrels per day our share in the quarter.
4483296,139,1305.0,1314.0499,4,Imperial's share of full year production averaged seventy one thousand barrels per day an increase of two thousand barrels per day versus twenty twenty.
4483296,140,1315.33,1326.03,4,As the ownership continues its focus on improving asset reliability we reiterate our guidance for twenty twenty two of seventy five to eighty thousand barrels per day.
4483296,141,1326.64,1333.74,4,This guidance reflects the impacts of planned maintenance in the second quarter and a major coker turnaround in the third quarter.
4483296,142,1335.14,1348.4,4,twenty twenty one also marked a change in the operating structure at Syncrude and we remain confident that this change will better support the continued focus on improved reliability and cost performance for this asset.
4483296,143,1349.58,1351.86,4,So now moving to the downstream.
4483296,144,1352.4399,1375.4301,4,We refined an average of four hundred and sixteen thousand barrels per day in the fourth quarter which was up twelve thousand barrels a day versus the third quarter of twenty twenty one and up fifty seven thousand barrels per day versus the fourth quarter of twenty twenty reflecting the strong operating performance and the continuation of demand recovery we have seen throughout twenty twenty one.
4483296,145,1377.15,1386.2,4,The fourth quarter throughput equates to a utilization of ninety seven percent which is the highest fourth quarter utilization in over thirty years.
4483296,146,1387.1,1398.98,4,This represents a three percent increase over the third quarter bringing our full year utilization to eighty nine percent which is right on the guidance we provided for twenty twenty one.
4483296,147,1399.51,1408.13,4,And for the year throughput was three hundred and seventy nine thousand barrels per day up thirty nine thousand barrels per day versus twenty twenty.
4483296,148,1409.91,1421.97,4,Looking forward to twenty twenty two we have a fairly light turnaround year planned supporting our increased guidance for twenty twenty two of ninety two to ninety four percent utilization.
4483296,149,1423.4,1431.16,4,Looking at cash operating costs our downstream business continues to do an exceptional job in managing its operating costs.
4483296,150,1431.55,1443.3201,4,Full year cash operating costs were down seventy million dollars compared to twenty twenty and down even more when normalizing for the rising energy prices we saw in twenty twenty one.
4483296,151,1444.8199,1457.78,4,This decrease is especially notable because over the same period our refining throughput increased by thirty nine thousand barrels per day and our petroleum product sales grew by thirty five thousand barrels per day.
4483296,152,1459.71,1465.9301,4,So we are refining more barrels and selling more product and we're doing it at a lower absolute cost.
4483296,153,1466.22,1472.58,4,And again this was a year of significant turnaround activity and higher energy costs.
4483296,154,1475.0699,1496.62,4,Petroleum product sales in the fourth quarter were four hundred and ninety six thousand barrels per day up eleven thousand barrels per day from the third quarter on continued strong demands and up eighty thousand barrels per day from the fourth quarter of twenty twenty reflecting significant recovery from the pandemic related softness of twenty twenty.
4483296,155,1499.38,1505.24,4,We continue to see industry demand trends pretty consistent with what we saw through twenty twenty one.
4483296,156,1506.42,1518.09,4,With gasoline and diesel demands hovering around ninety to ninety five percent of historical levels and jet continuing to improve averaging around seventy to seventy five percent.
4483296,157,1518.89,1530.11,4,However as mentioned jet continues to be somewhat volatile as we experience subsequent waves of covid nineteen and the associated restrictions related to travel.
4483296,158,1531.6899,1546.14,4,Also of note is that our jet sales volumes continue to track about ten percent ahead of industry predominantly related to competitive gains we were able to capture in twenty twenty one increasing our overall market share.
4483296,159,1547.9,1564.0399,4,And with respect to downstream margins unlike crude prices our fourth quarter crack spreads continued to hover around the middle of the five year band which reflects fairly steady improvement over early twenty twenty at the onset of the pandemic.
4483296,160,1565.14,1577.1001,4,And despite ongoing demand volatility our continued focus on reliable and efficient operations ensures we are capturing as much value as possible in the current downstream pricing environment.
4483296,161,1578.48,1594.3301,4,Looking forward to twenty twenty two the outlook is positive as we continue to see improvements in the market environment driving further strengthening of our downstream business which supports our continued journey back to typical earnings and cash flows for this business segment.
4483296,162,1595.6801,1598.8899,4,And I'll wrap up our operating results with chemicals.
4483296,163,1599.09,1611.89,4,twenty twenty one was an incredible year for this key part of our business and I just can't say enough about how pleased I am with the performance it delivered making the most of capturing a very favorable market environment.
4483296,164,1612.99,1616.1,4,The fourth quarter was another solid quarter.
4483296,165,1616.48,1625.01,4,Earnings in the fourth quarter were sixty four million dollars supported by continued strong production reliability and margins.
4483296,166,1625.35,1634.5699,4,Fourth quarter earnings were down fifty seven million versus the third quarter which I will will remind you was the highest quarterly earnings in over thirty years.
4483296,167,1635.51,1641.4301,4,This reduction was driven largely by expected softening of polyethylene margins.
4483296,168,1642.12,1651.0801,4,And while margins did soften somewhat in the quarter they still remained quite strong and that sets the chemical business up well for a strong twenty twenty two.
4483296,169,1652.9,1664.77,4,Four year chemical earnings were three hundred sixty one million dollars seventy four million higher than the previous full year record of two hundred eighty seven million dollars set in twenty fifteen.
4483296,170,1665.27,1670.78,4,An outstanding year for our chemicals business which continues to be a differentiator for us.
4483296,171,1671.4,1678.15,4,The integrated nature of our business supports a long history of profitability even in a year like twenty twenty.
4483296,172,1678.5,1684.33,4,And we expect this to continue even as we see polyethylene prices normalizing somewhat.
4483296,173,1686.38,1691.15,4,And just before wrapping up I wanted to highlight a couple of other important items of note.
4483296,174,1692.17,1702.09,4,First we announced our plans to market our interest in X T O Energy Canada a few weeks ago which of as you'll recall is our unconventional business.
4483296,175,1712.76,1716.5399,4,To be clear though no decision has been made to sell these assets.
4483296,176,1717.02,1727.34,4,But in our view we felt it was appropriate to test the market in the event there is an opportunity to generate increased value through a potential sales transaction.
4483296,177,1729.04,1742.15,4,I also wanted to highlight the announcements we made recently on Imperial's plans for further reductions in greenhouse gas emissions intensity over the next decade to help support Canada's net zero goals.
4483296,178,1742.8199,1756.5699,4,Imperial has set a twenty thirty goal to reduce scope one and scope two greenhouse gas emissions intensity of our operated oil sands facilities by thirty percent compared with twenty sixteen levels.
4483296,179,1756.97,1763.45,4,This target builds on our previous twenty twenty three commitment which we are well on track to deliver.
4483296,180,1764.62,1772.41,4,I'm quite proud of the progress we've made to date in reducing the intensity of our greenhouse gas emissions at our operated oil sands assets.
4483296,181,1772.8101,1780.29,4,And our recent announcement is another step in our journey to net zero at our operated oil sands assets by twenty fifty.
4483296,182,1782.4301,1792.2,4,So in closing another strong quarter which brings to a close a year of very strong results both operationally and financially.
4483296,183,1793.16,1805.86,4,As you have heard me say before the decisions we have made and the work the organization has done over the past several quarters is allowing us to take maximum advantage of the prevailing market conditions.
4483296,184,1807.1899,1817.23,4,And this performance supports our ongoing commitment to drive increased shareholder value and our continued commitment to shareholder returns.
4483296,185,1818.28,1829.25,4,As you heard Dan and I mention in twenty twenty one we returned nearly three billion dollars to our shareholders via our reliable and growing dividend and share buybacks.
4483296,186,1830.95,1847.7101,4,And we are also excited to reinforce our commitments to sustainability not only with our recent announced greenhouse gas intensity reduction target but with our participation in the Pathways Initiative an unprecedented industry alliance.
4483296,187,1848.87,1860.6599,4,Our long term focus on reducing our environmental footprint through investments in things like solvent technologies and carbon capture and storage underpin our confidence in meeting these goals.
4483296,188,1862.3101,1879.85,4,Looking forward to twenty twenty two we continue to see support for commodity prices and fully expect to deliver another year of strong operational performance underpinning our ability to take utmost advantage of the current market conditions.
4483296,189,1881.08,1890.15,4,We will continue our focus on reduced emissions and sustainability including our plans for renewable diesel at our Strathcona refinery.
4483296,190,1891.75,1897.1801,4,We will remain disciplined with respect to spending levels both operating and capital.
4483296,191,1899.36,1905.24,4,And we will also continue to return cash in excess of these needs to our shareholders.
4483296,192,1906.59,1910.17,4,And finally I'd like to thank all of you for your continued support.
4483296,193,1911.17,1914.49,4,I hope you're as excited about twenty twenty two as we are.
4483296,194,1915.28,1916.87,4,Thank you and back to you Dave.
4483296,195,1918.33,1918.62,5,Okay.
4483296,196,1918.62,1920.61,5,We're gonna move to the q and A now.
4483296,197,1920.91,1926.35,5,We did have a couple of uh questions pre-submitted which we'll get to first and then we'll go to the live q and a line.
4483296,198,1926.51,1929.7,5,So the two questions came from Phil Skolnick at Eight Capital.
4483296,199,1930.29,1936.3301,5,The first one What are you and ExxonMobil looking for in order to make a decision on marketing the X T O assets?
4483296,200,1936.33,1938.15,5,Would you consider selling it in pieces?
4483296,201,1939.0699,1941.6599,4,Yeah thanks for that question Phil.
4483296,202,1941.66,1952.83,4,And and as as you know we we announced earlier um in January our intention to market those assets jointly with with ExxonMobil.
4483296,203,1953.08,1958.35,4,Uh and in fact we we've progressed those activities now have the data room open.
4483296,204,1958.63,1961.2799,4,Um there there is a lot of interest.
4483296,205,1961.28,1977.22,4,And you know our our decision around marketing was really driven by um the strategic work we have done over the last couple of years where we have prioritized our focus on on certain assets in our portfolio.
4483296,206,1977.5601,1981.85,4,And uh and and really prioritized our capital as well.
4483296,207,1982.14,1993.5599,4,And and through that work we we have concluded that we have uh higher value opportunities uh with our with our core mining uh assets.
4483296,208,1994.05,2008.62,4,And as such um you know you'll recall we took an an impairment decision in in late twenty twenty uh for some of the unconventional assets that we had um not included in our development plans.
4483296,209,2009.03,2014.21,4,So again this is really um a continuation of of that strategy.
4483296,210,2014.7,2017.46,4,We have not made the decision to sell though.
4483296,211,2017.71,2026.15,4,So we're gonna be looking at um you know how do we create maximum value for for us for our shareholders?
4483296,212,2026.54,2039.25,4,Um prior to uh to putting the the assets in the marketplace we had received uh several unsolicited offers uh for for those assets.
4483296,213,2039.64,2041.77,4,Um and we shouldn't be surprised by that.
4483296,214,2041.84,2050.75,4,Um you know there's been a lot of consolidation that's occurring i in the in the Montney and Duvernay shale uh resource plays.
4483296,215,2050.75,2059.5601,4,And uh you know so it's really the the culmination of all that that uh that drove us to put those assets in the marketplace.
4483296,216,2059.99,2062.7,4,And uh and and we'll see what we get back.
4483296,217,2063.03,2068.9399,4,Um we it is a very large resource uh play.
4483296,218,2068.9399,2073.3599,4,Um you know over six hundred and fifty thousand net acres.
4483296,219,2073.8,2085.52,4,Um and and so from a uh you know from a a a transaction structure we we are open to uh to selling it in pieces.
4483296,220,2085.52,2092.3301,4,Um you know we we do know that there are some industry players that are primarily focused on the Montney.
4483296,221,2092.3301,2095.22,4,There's others that are primarily focused in the Duvernay.
4483296,222,2095.6101,2097.46,4,Um there's some that are in both.
4483296,223,2097.6201,2105.2,4,Uh so you know we we are open to considering uh alternate uh structures for the transaction.
4483296,224,2105.5801,2119.27,4,Um the key is gonna be what delivers the most value and and how does that compare to our view of value if we were continue to uh to retain the asset and and develop it further ourselves?
4483296,225,2119.71,2127.25,4,Um so uh so we're we're excited to see uh what comes out of the data room and and the bids um you know in another month or so.
4483296,226,2127.8701,2128.7102,4,Thanks for that question.
4483296,227,2129.6699,2129.8999,5,Okay.
4483296,228,2129.8999,2133.29,5,And Phil's uh follow up I think Dan I'll direct uh straight to you.
4483296,229,2133.29,2136.6699,5,Is are you still considering an SIB given the dividend increase?
4483296,230,2137.4199,2138.1899,6,Yeah thanks Phil.
4483296,231,2138.3999,2142.7,6,We talked about this uh you know in our in our kind of prepared remarks.
4483296,232,2142.73,2145.5701,6,Uh but but it's probably worth um talking a little more.
4483296,233,2145.5701,2147.0898,6,I mean the short answer is yes.
4483296,234,2147.55,2149.72,6,We are we are considering an SIB.
4483296,235,2149.72,2156.9502,6,And and just stepping back you know we we have a long standing philosophy I think as you know to return surplus cash to shareholders.
4483296,236,2157.3999,2161.54,6,You know it starts with a reliable and growing dividend which we've demonstrated over many years.
4483296,237,2161.54,2163.7,6,And and of course this morning's announcement of a…
4483296,238,2177.5801,2181.1301,7,Um we used it certainly to the max in in twenty twenty one.
4483296,239,2181.1299,2184.4001,7,We had a a program where restarted in in may June.
4483296,240,2184.3999,2185.8599,7,We we we bought a bunch of shares.
4483296,241,2185.8601,2187.2,7,We launched a new program in June.
4483296,242,2187.95,2191.2,7,We ended up accelerating that to to wrap up early.
4483296,243,2191.6101,2198.6001,7,Um over the course of twenty twenty one we repurchased uh over two point two billion through that program.
4483296,244,2198.6299,2208.96,7,And just uh you January thirty first yesterday we wrapped up that program with our acceleration through January thirty first of another incremental four hundred fifty million dollars.
4483296,245,2208.96,2214.52,7,So over thirteen months about about two point seven billion dollars uh through the NCIB.
4483296,246,2214.52,2221.4702,7,But as you know as well we're limited to five percent of outstanding shares annually in that program.
4483296,247,2221.9099,2225.99,7,Um our next renewal would be late June uh of this year.
4483296,248,2225.99,2228.01,7,We we certainly plan to to do that.
4483296,249,2228.4399,2242.1799,7,Um but looking at our cash balances and our outlook you know for for for strong cash flow um we're anticipating taking action on shareholder returns additional action be before renewal of the NCIB in late June.
4483296,250,2242.1799,2251.47,7,We haven't made a final decision but we certainly heard the market's feedback um strong preference uh for N C I B and and that's our lead case at this point.
4483296,251,2251.96,2252.1199,7,Okay.
4483296,252,2253.5901,2258.24,7,Um operator uh can we turn it over to you now please to go to the live q and a line?
4483296,253,2260.49,2260.9199,8,Thank you.
4483296,254,2261.0,2264.98,8,As a reminder to ask a question you'll need to press one on your telephone.
4483296,255,2265.4099,2267.75,8,To withdraw your question press the key.
4483296,256,2268.45,2272.3501,8,Our first question comes from Dennis Fong with c i b c World Market.
4483296,257,2272.3799,2273.6599,8,You may proceed with your question.
4483296,258,2275.1499,2277.55,9,Hi good morning and and thanks for taking my questions.
4483296,259,2278.03,2285.3599,9,Uh the first one follows in line with uh Dan's comment there on um on returning cash back to shareholders.
4483296,260,2320.0601,2328.3899,7,Yeah look you know we we could uh we have about $5 billion of debt which had for um you know pretty been stable for for for a number of years.
4483296,261,2328.8301,2336.21,7,We we feel comfortable with that level of debt you know given our our leverage uh on an absolute basis and relative to peers is low.
4483296,262,2336.5701,2339.9399,7,Um it's not it's not um our first move to repay the debt.
4483296,263,2339.9399,2350.2002,7,So uh to the extent we have surplus cash um are are really you know once we've exhausted the NCIB it's it's used other mechanisms to to return that to shareholders.
4483296,264,2350.2,2371.4302,7,So um you know that's maybe a short answer but I think I think that is um that in a nutshell and you see we have a fairly as I mentioned in my remarks a fairly modest capital program in twenty twenty two and you know at current price levels we we anticipate generating significant free cash flow in addition to you know a pretty significant cash balance uh right now.
4483296,265,2374.4099,2375.73,9,Great great thanks.
4483296,266,2375.8501,2381.77,9,And my second point in here is uh more on the upside so they're maybe directed to you Brad or to Simon.
4483296,267,2382.3799,2391.99,9,um just with respect to Cold Lake you've obviously seen fairly strong um production levels uh and and a lot of success from the optimization side.
4483296,268,2392.02,2410.3201,9,You mentioned a little bit around a laser and the the utilization of solvents just curious as to how the optimization is is continuing what maybe some of the next steps happen to be and what does that potentially mean for project like Grand Rapids which was potentially going to ut utilize existing uh steam infrastructure in the area.
4483296,269,2410.75,2411.01,9,Thanks.
4483296,270,2412.5901,2412.8201,10,Yeah.
4483296,271,2412.8501,2421.51,10,Thanks for that question um Dennis um you know we we are super excited about the progress we're we're making that Cold Lake.
4483296,272,2421.8999,2430.5598,10,Um you know we we have put a lot of focus into optimizing the the reservoir performance of of those assets.
4483296,273,2430.5601,2434.3801,10,We've continued to focus on reliability as well.
4483296,274,2434.6499,2455.5601,10,And then you know as as you mentioned and and we've commented on this call and in the past uh you know we continue to look for ways to employ um kind of next generation solvent technologies uh like laser that achieve multiple objectives for us.
4483296,275,2455.5601,2471.01,10,Um you know they they do have the benefit of enhancing reservoir performance um but equally important they reduced the greenhouse gas emissions uh because they they have lower uh steam and energy intensity.
4483296,276,2471.47,2484.6401,10,And so you know it is a continued strategy of ours to continue to um to deploy uh solvent technologies to enhance Cold Lake's performance.
4483296,277,2484.96,2495.3799,10,Um you know next on the docket is uh is Grand Rapids phase one uh which will uh employ sa SAGD technology.
4483296,278,2495.8301,2521.46,10,And then looking a little bit longer term uh we we're evaluating application of a Cyclic Solvent Process uh we refer to a c s p which allows us to replace steam with propane and and achieve even further reductions in uh in greenhouse gas intensity while improving reservoir performance.
4483296,279,2521.46,2530.3699,10,And in the case of c s p uh we've we've already piloted that uh quite successfully and so now looking at the further applications.
4483296,280,2530.3701,2551.3901,10,So you know I think over over the the coming quarters and and years you're are gonna continue to hear us talk about the evolution of these technologies how they're integral to both our our reservoir optimization but also our our greenhouse greenhouse gas intensity reduction objectives.
4483296,281,2551.3899,2559.3401,10,And and I'm sure in our in our upcoming Investor Day we'll spend some more time talking about each of those and and how they fit in.
4483296,282,2559.7,2561.6899,10,Uh thanks thanks for the question.
4483296,283,2561.6899,2566.3301,10,And again we're we're very excited about uh about our actions at Cold Lake.
4483296,284,2572.71,2573.02,8,Thank you.
4483296,285,2575.51,2576.77,8,You may proceed with your question.
4483296,286,2583.52,2585.8699,11,I'm just trying to understand if you can give us some…
4483296,287,2585.8999,2587.5601,11,I'm sure you've done some preliminary work.
4483296,288,2587.8899,2590.05,11,What kind of feed stocks are you looking to run?
4483296,289,2590.05,2591.6899,11,Soya bean canola.
4483296,290,2591.6899,2595.95,11,I mean you're in that vegetable oil belt so is it primarily going to be vegetable oil?
4483296,291,2596.1101,2599.6201,11,Can you bring in some use cooking oil uh some animal fats.
4483296,292,2600.1399,2603.27,11,And so if you if if I could get some understanding of that.
4483296,293,2605.05,2605.3901,10,Yeah.
4483296,294,2605.3899,2605.72,10,Thanks.
4483296,295,2605.8899,2607.0999,10,Thanks for that question.
4483296,296,2607.1001,2613.3599,10,And and again we're we're we're gonna spend some more time at Investor Day describing the this project.
4483296,297,2613.3899,2623.8701,10,But um kind of at at the the foundation of of your question fundamentally this is gonna be plant-based materials.
4483296,298,2624.03,2633.3599,10,Um we're we're we're not looking at um you know animal fat or or or other sorts of uh of supply.
4483296,299,2633.3601,2641.5,10,It's it's very much focused on um on plant-based materials that are sourced um generally in the region.
4483296,300,2641.98,2648.72,10,Um you know we haven't talked explicitly about um the the specific type of plant.
4483296,301,2648.78,2653.46,10,We're still in commercial discussions with potential suppliers.
4483296,302,2653.79,2660.49,10,Um and and so those those uh commercial discussions are still sensitive around the type.
4483296,303,2660.5701,2678.95,10,Uh but but needless to say there's there's an abundant supply of of available materials and and good options for us that are gonna allow us to uh you know ultimately produce twenty thousand barrels a day of a very uh competitive supply.
4483296,304,2679.3899,2700.9299,10,Um and and so we're we're really excited this project um you know uh driven by kind of the overall benefits it'll bring to uh to Canada in in achieving uh you know achieving our um you know total emissions objectives of net zero by twenty fifty.
4483296,305,2700.9299,2705.22,10,This this is a key contributor to reducing scope three emissions.
4483296,306,2706.77,2708.1599,10,So so more to come inaudible.
4483296,307,2709.0901,2709.4302,11,Perfect.
4483296,308,2709.46,2719.51,11,And again um keeping on the line of emission reductions you and others have obviously committed to carbon capture and sequestration.
4483296,309,2720.3799,2723.0598,11,It was a big project kind of which was announced.
4483296,310,2723.0601,2725.5901,11,But like how is it progressing?
4483296,311,2726.02,2727.73,11,How are the partner commitments?
4483296,312,2727.79,2730.5701,11,What are you looking from the government in terms of help?
4483296,313,2730.8601,2736.27,11,I mean it's it is an excellent project but we don't get too many details on that carbon cap sequestration project.
4483296,314,2736.5,2743.1001,11,So if you could just help us understand how the discussions are progressing between you and all the others and the government for that project.
4483296,315,2744.5601,2744.9302,10,Yeah.
4483296,316,2744.9299,2745.9299,10,Thanks for the question.
4483296,317,2745.9299,2747.46,10,I'm excited to talk about it.
4483296,318,2747.8,2752.49,10,Um we are we're we're making I think really really good progress.
4483296,319,2752.52,2761.01,10,Um you know this is a very complex undertaking uh to achieve net zero by twenty fifty.
4483296,320,2761.27,2770.48,10,Uh and and the Alliance we've established uh amongst the member companies is unprecedented the level of of cooperation.
4483296,321,2770.76,2784.3,10,The amount of investment that will ultimately be required to get to net zero you know we've we've estimated as as seventy five billion dollars uh from now to twenty fifty.
4483296,322,2784.3,2787.28,10,So you know it's a huge undertaking.
4483296,323,2787.5,2792.77,10,It's not just one um single project it's multiple projects.
4483296,324,2792.77,2818.1899,10,Um there there's a foundational project which is building this large trunk line that will allow the transport of carbon uh that's captured in the Fort McMurray area all the way down to the cold lake region uh where we've applied with the government for access to poor space so we can um so we can sequester the the carbon there.
4483296,325,2818.54,2824.7202,10,Um so you know building this large trunk line is is a significant project.
4483296,326,2825.0601,2831.95,10,But then there's several other projects around the capture site at each of the individual sites.
4483296,327,2831.95,2836.5601,10,So where we're you know producing uh hydrocarbons today.
4483296,328,2836.9399,2858.1399,10,Uh um and then on top of that um you know as I just talked at at Cold Lake you know not only are we focused on um capturing carbon and transporting it to a site to to store it but we're also looking at how can we fundamentally reduce the amount of carbon that's generated?
4483296,329,2858.46,2861.4299,10,And so things like solvent technologies are quite important there.
4483296,330,2861.79,2868.8298,10,So a lot of moving pieces uh if if you will to uh to progress this project.
4483296,331,2868.8301,2889.97,10,But you know we as as an Alliance uh have been able to develop uh preliminary plans around uh kind of the sequence of the trunk line project the the carbon capture projects as well as other technology initiatives.
4483296,332,2890.3101,2896.8301,10,Um you know we we will talk more about that on Investor Day uh but I think it's moving quite well.
4483296,333,2897.77,2910.5601,10,We are also uh spending a lot of time with both the federal and provincial government around enabling steps that are necessary to progress these huge investments.
4483296,334,2911.26,2924.97,10,You know specifically we are looking for investment tax credit and other uh financial support from the government uh given the nature of these investments the the risks associated with them.
4483296,335,2925.3,2928.25,10,So so those discussions are are ongoing.
4483296,336,2928.74,2935.3198,10,Um the the cooperation amongst the companies is just exceptional.
4483296,337,2935.76,2953.1399,10,Um you know in in fact as as CEOs uh the six companies we we get together every single week and and are having uh discussions about the progress of the project key priorities.
4483296,338,2953.4399,2955.2998,10,How do we keep it moving along?
4483296,339,2955.5701,2957.4102,10,You know what are some of the key issues?
4483296,340,2957.6599,2963.1201,10,And again as I mentioned we're also actively uh engaged with with the government.
4483296,341,2963.1201,2976.6401,10,So as CEOs we are we're meeting directly with key officials and certainly our our teams are meeting uh with with officials and staffs as well led at both the federal the provincial level.
4483296,342,2976.6399,2978.8701,10,So you know it's all hands on deck.
4483296,343,2978.98,2984.8701,10,Um this is a huge challenge but we think it's achievable and we think it's necessary.
4483296,344,2985.1201,2987.1799,10,And so we're we're gonna do what it takes.
4483296,345,2988.3501,2994.5601,11,That is that is great inaudible and uh hoping to meet you at an in-person uh Investor Day in March.
4483296,346,2995.95,2996.26,10,Thank you.
4483296,347,2996.26,2996.75,10,Thank you.
4483296,348,2996.75,2999.3101,10,Well I I look forward to meeting you as as well.
4483296,349,2999.3101,3013.45,10,You know unfortunately uh the the Corona Virus has uh has continued to to delay many in-person meetings but um you know as soon as as soon as the opportunity uh affords itself I very much look forward to it as well.
4483296,350,3013.45,3015.3,10,It's been it is been a long two years right?
4483296,351,3016.1599,3018.24,10,So so again I look forward to meeting you as well.
4483296,352,3018.27,3018.6401,10,Thank you.
4483296,353,3019.45,3019.6299,11,Okay.
4483296,354,3021.78,3022.0901,8,Thank you.
4483296,355,3022.0901,3025.29,8,Our next question comes from Doug Leggate with Bank of America.
4483296,356,3025.3701,3026.6499,8,You may proceed with your question.
4483296,357,3027.74,3027.77,12,Thanks.
4483296,358,3028.74,3029.4302,12,Good morning everyone.
4483296,359,3029.4299,3030.9299,12,I'm delighted to be on your call.
4483296,360,3032.8701,3041.8799,12,Um Brad I I wonder if I could start with uh Exxon Mobil's announcement yesterday of combining their downstreaming chemicals business.
4483296,361,3057.3701,3059.6301,10,So uh so thanks for joining the call today.
4483296,362,3061.6899,3081.3901,10,Um you know regarding Exxon Mobil's announcements yesterday um super super exciting news um you know for for Exxon Mobil and you know with Exxon Mobil being uh majority shareholder of Imperial we benefit uh from that relationship in many ways.
4483296,363,3081.4199,3094.99,10,Um you know we we often talk about uh the the technology uh benefits that we're able to leverage kind of their global best practices some some operational synergies.
4483296,364,3095.29,3100.53,10,And and I think all of that comes to play uh with the announcement that was made yesterday.
4483296,365,3100.8899,3112.72,10,Um you know we're we still have a lot of work to do to fully understand their plans and then see how we can best leverage them and adapt them.
4483296,366,3113.0801,3124.6301,10,But I I fully expect um that we will within Imperial see benefits uh from you know their announcements to strategies that that they're progressing.
4483296,367,3124.98,3127.1799,10,And like I said we're we're super excited.
4483296,368,3127.49,3129.5999,12,Okay thank you for that.
4483296,369,3129.6001,3133.9602,12,My my follow up is I I don't want to get ahead of myself here for your upcoming analyst day.
4483296,370,3134.53,3143.3599,12,It it seems Exxon has also decided to go virtual and unfortunately so I dunno what you ultimately decide but um but my question is specifically on Kearl.
4483296,371,3144.0601,3152.9102,12,wh when you lead out the kind of reliability trajectory um towards twenty twenty five um it seems that you are well on your way to that.
4483296,372,3152.9399,3155.4402,12,You're probably a little bit ahead of the pace I would guess.
4483296,373,3156.1101,3165.5701,12,Is there any any thoughts you could you could provide in terms of the timing or the scale of what you ultimately see Kearl doing on that original timeline?
4483296,374,3168.1201,3168.53,10,Yeah.
4483296,375,3168.5601,3168.98,10,Thanks.
4483296,376,3169.01,3171.3401,10,Thanks for that question and you're right.
4483296,377,3171.48,3196.46,10,You know it is is an unfortunate some of the the impacts that uh that COVID has had on uh on plans for Investor Day you know it impacted us last year has the risk of impacting us this year but you know we're we're committed to uh to engaging uh you know with our investors our analysts and sharing our our forward plans.
4483296,378,3196.46,3199.8801,10,I think it's a very it's a very positive story.
4483296,379,3200.29,3203.78,10,Um you know and and in terms of Kearl you are you're exactly right.
4483296,380,3203.8101,3222.6199,10,You know each year uh over the last couple years we we continue to set new records at Kearl and uh you know and so as I mentioned you know we just completed twenty twenty one with uh two hundred sixty three thousand barrels a day um gross.
4483296,381,3223.0,3243.77,10,Um our guidance for next year is two sixty five to two seventy um which again moves us one step closer to to two eighty which as as as you accurately note we previously indicated that that we would get to two eighty in that twenty twenty five…
4483296,382,3247.6299,3253.1899,13,Um and and that Investor Day you know will lay out kind of a revised plan.
4483296,383,3253.1899,3267.28,13,But but but safe to say it's you know there's a lot of organizational focus on how we can get to that two hundred eighty thousand level sooner than than twenty twenty five.
4483296,384,3267.72,3284.24,13,Um and and so you know some of the things we we've already done that will contribute are things like uh moving to one turnaround per year which we achieved a year earlier than than what we shared at last Investor Day.
4483296,385,3284.6599,3291.4399,13,Um we have multiple debottlenecking projects uh that that we're progressing.
4483296,386,3291.75,3301.79,13,We're continuing to look at how do we optimize um you know ore recovery and uh and movement uh in in the mines.
4483296,387,3302.1001,3307.6101,13,And and then you know uh taking full advantage of of digital.
4483296,388,3307.6899,3318.96,13,Um you know I've talked on on prior calls about how we're employing multiple um digital techniques that are adding real value to us.
4483296,389,3318.96,3324.95,13,And you know that will also have beneficial effects on our production rates.
4483296,390,3324.95,3333.6802,13,So you know I I still I I think two sixty five to two seventy is is is appropriate for twenty twenty two.
4483296,391,3333.71,3340.75,13,Um but but you can see that's gonna step us to two eighty quicker than than the twenty twenty five timeframe.
4483296,392,3341.27,3348.1899,13,Um and and will you know Simon at Investor Day will give a lot more detail about those individual projects.
4483296,393,3349.3501,3350.3699,14,Um thanks for the full answer.
4483296,394,3350.3701,3351.2102,14,Guys will look forward to it.
4483296,395,3351.6699,3352.05,14,Thanks again.
4483296,396,3360.5901,3361.1599,16,Yeah thanks.
4483296,397,3361.1599,3361.5701,16,Good morning.
4483296,398,3361.5701,3364.03,16,And thanks to the rundown is is always very thorough.
4483296,399,3365.0901,3375.49,16,Um again at the risk of probably jumping ahead but but uh uh Brad you've mentioned you know that there are steps you're taking to strengthen the downstream business.
4483296,400,3375.49,3385.5701,16,I'm just wondering if if there are any things you can kind of share and whether the um you know like I'm assuming the products pipeline you know fix into that mix but any color there would be great.
4483296,401,3387.54,3387.9102,13,Yeah.
4483296,402,3387.9099,3389.04,13,Thanks for the question Greg.
4483296,403,3389.04,3390.0,13,And and and you're right.
4483296,404,3390.0,3395.8098,13,We'll we'll give a much more comprehensive story um at uh at Investor Day.
4483296,405,3395.8501,3401.2102,13,But you know it it it starts fundamentally with our cost structure.
4483296,406,3401.21,3405.74,13,And as I mentioned we've done a lot of things uh ar around our cost structure.
4483296,407,3406.1499,3410.28,13,Um and and I feel really good a about that.
4483296,408,3410.6499,3433.8201,13,And then it's it it's ensuring that we are leveraging um you know all the synergy that we have uh based on our our location of our three refineries um the integration that they have between themself but that they also have um with our upstream production assets.
4483296,409,3434.26,3455.53,13,Um and then you know ensuring that we maximize the flexibility of their run slate you know which has been key through the pandemic as we've had to adjust to much lower jet demand uh and move that into other other products.
4483296,410,3455.9199,3463.0,13,Um and then look at where we have an opportunity to to grow new uh product outlets.
4483296,411,3463.0,3473.03,13,Um you know we've talked about things we've done with asphalt uh over the last couple of years and how that's you know an increasing part of our portfolio.
4483296,412,3473.03,3477.1501,13,And again leverage is on our on our our heavy crude slate.
4483296,413,3477.6001,3493.9302,13,Um and then you know most recently of course you know the the shred project and our ability to to generate uh you know renewable diesel at Strathcona will be a key um strategic undertaking for us.
4483296,414,3494.4199,3511.3999,13,Um and then of course uh you know the integration we have between uh Sarnia refinery and Sarnia chemical plant also allows us to um you know further capture market and value.
4483296,415,3511.49,3515.73,13,And uh so again you know that that's kind of a broad brush on it.
4483296,416,3515.79,3528.3501,13,Uh you know John Wetmore uh will will give of a much more comprehensive story at uh at Investor Day but uh but exciting opportunities for us uh in the downstream.
4483296,417,3529.3501,3529.52,16,Okay.
4483296,418,3529.8101,3530.5601,16,No terrific.
4483296,419,3530.5901,3538.78,16,And and maybe now uh it's probably more of a question for Dan but I mean just as an observation and we've been talking about a SIV for a long time.
4483296,420,3539.1799,3543.98,16,Um but and I totally understand where you guys are coming from in terms of evaluation.
4483296,421,3543.98,3550.5999,16,But but maybe Dan specifically uh would it be possible for you to just frame what the mechanics are?
4483296,422,3550.6001,3554.1199,16,Like I've never worked through one of these uh from that standpoint.
4483296,423,3554.1201,3557.6501,16,And and is it possible just to again enlighten us in terms of black ore.
4483296,424,3557.6499,3568.3599,16,It's like I'm not trying to pin you down on a date per se because you're sorta saying within the June timeframe but I just I think I'd love to know what what needs to go into this in terms of formalizing your decision process.
4483296,425,3570.79,3571.1201,17,Yeah.
4483296,426,3571.1201,3579.6301,17,I mean technically the technicalities o o of an SIV I mean it requires a filing it's it's open for thirty five days.
4483296,427,3579.98,3591.2,17,Generally speaking y y you shouldn't do it duri during a blackout period which which is typically sort of thirty days before your earnings release y you know ballpark is on the blackout periods are.
4483296,428,3591.2,3595.6699,17,So that that's that's sort of the um the the timing and technicalities of it.
4483296,429,3597.8101,3598.0601,16,Okay.
4483296,430,3602.8799,3603.1802,15,Thank you.
4483296,431,3603.1799,3606.2,15,Our next question comes from Neil Mehta with Goldman Sachs.
4483296,432,3606.2,3607.4299,15,You may proceed with your question.
4483296,433,3646.8,3647.04,13,Yeah.
4483296,434,3647.0701,3648.1099,13,Thanks Neil.
4483296,435,3667.0601,3671.01,13,Um it's it's not our top priority.
4483296,436,3671.01,3686.1699,13,Our top priority uh centers around our existing asset base um and maximizing value from those assets which I I think we we have demonstrated uh success over over the last couple years.
4483296,437,3686.1699,3699.4299,13,And and has us well positioned for the future with you know some very long life assets that um you know under under favorable markets will continue to generate significant cash.
4483296,438,3699.4299,3714.3501,13,And uh so when we look at potential m and a opportunities we we need to convince ourself that not only do they fit into a long term strategy but but they are a creative.
4483296,439,3714.4199,3727.6401,13,And and they do compete for capital relative to um you know the the the brownfield investments that that we already have identified and and are progressing.
4483296,440,3728.23,3735.9199,13,Um you know we're we're not uh driven to acquire something just to grow for the sake of growing.
4483296,441,3735.9199,3742.8101,13,In fact you know I think we've demonstrated our ability to grow with the existing asset base.
4483296,442,3742.8101,3746.27,13,Um y you know take Kearl for example.
4483296,443,3746.27,3753.8601,13,Um you know it was just just a couple years ago that that we were at or below two hundred thousand barrels a day.
4483296,444,3753.8601,3761.3298,13,And so you know now this year we are at two sixty three we expect to grow that to two sixty five to two seventy.
4483296,445,3761.8101,3768.55,13,And and within a relatively short timeframe you know I expect we'll be at at two eighty or or higher.
4483296,446,3768.55,3782.8401,13,And so in a few short years we we will have added eighty thousand barrels a day of growth in our portfolio at a cost much much lower than you know any acquisition we we could have contemplated.
4483296,447,3782.8799,3790.77,13,So that will continue to be the the priority as you know making sure we first focus on our existing assets.
4483296,448,3791.23,3800.97,13,But you know there is a lot of consolidation occurring and uh and you know we we wanna make sure we are making thoughtful decisions.
4483296,449,3800.97,3809.6301,13,And so you know we we look at uh potential acquisitions and evaluate them and we discuss them as a management team.
4483296,450,3809.6299,3813.6699,13,And um and and you know that guides us accordingly.
4483296,451,3814.1799,3817.3999,13,Um so so hope that answered your question.
4483296,452,3818.24,3820.1799,18,Uh that is a helpful framework Brad.
4483296,453,3820.1799,3822.6799,18,And the follow up is just around cash taxes.
4483296,454,3822.6799,3828.0598,18,Can you just remind us uh team how you how you're thinking about your deferred tax position?
4483296,455,3840.1799,3841.5,13,Yeah a absolutely.
4483296,456,3841.96,3844.8501,13,Dan and his team spend a lot of time thinking about that.
4483296,457,3844.8501,3847.1199,13,And so I'll i will ask him to answer.
4483296,458,3847.1499,3851.96,17,Yeah well uh you know just for the record we're against cash taxes um if you didn't know our position.
4483296,459,3851.96,3855.3098,17,But <laugh> uh we you know we don't expect…
4483296,460,3855.3101,3862.52,17,Well in twenty twenty one uh actual actual cash taxes will be you know quite small.
4483296,461,3872.55,3876.3098,17,So you know I think that's probably as much as I I can tell you.
4483296,462,3876.3101,3885.49,17,But um well on a on a pure cash basis out the door um we should pay uh less than the statutory rate in in twenty twenty two.
4483296,463,3885.49,3890.0798,17,But by twenty twenty three you know we'll be full fully tax paying on on a cash basis.
4483296,464,3890.1699,3891.1399,17,That's kind of where we are.
4483296,465,3897.04,3897.3201,18,Thank you.
4483296,466,3898.4299,3898.9299,15,Security.
4483296,467,3900.29,3901.5801,15,You may proceed with your question.
4483296,468,3902.6299,3903.95,19,Uh good morning everyone.
4483296,469,3903.95,3905.9399,19,And uh thanks for uh squeezing me in.
4483296,470,3906.3799,3913.23,19,Uh m most of my questions have been answered but maybe I'll just uh surround things out with cost inflation.
4483296,471,3913.4199,3922.7002,19,We have a pretty good sense of what that could look like for upstream across the the industry but what are what are you seeing in terms of cost pressures for downstream?
4483296,472,3922.7,3926.4299,19,And would you be able to provide uh separate ranges for the two?
4483296,473,3929.73,3930.95,13,Yeah thanks for the question.
4483296,474,3930.95,3945.23,13,And and no doubt that is a uh is is an emerging theme you know a across industry and and and more broadly society right now with inflationary pressures from from lots of angles.
4483296,475,3945.23,3957.0298,13,You know I I think um you know fortunately uh for us uh we we haven't seen huge impacts of of inflationary pressures yet.
4483296,476,3957.51,3961.1699,13,Um but that's not to say we we won't going forward.
4483296,477,3961.3899,3968.4199,13,You know probably the single largest uh impact we've had i i is around our own energy costs.
4483296,478,3968.45,3976.48,13,Um you know where where we we we purchase natural gas um you know for for our facilities.
4483296,479,3976.8301,3989.1001,13,Um and and obviously you know we all know what's happened there but you know as uh as as somebody who also produces uh energy you know unbalanced that's that's still favorable for us.
4483296,480,3989.53,3995.6301,13,Um you know we're we're taking a close look at other consumable supplies and things like that.
4483296,481,3995.6599,4003.6899,13,And you know first making sure we we we have access to the supplies and we're not impacted by any market shortages.
4483296,482,4004.0801,4012.98,13,Um but then also looking at you know how we can optimize the the cost and and mitigate any any cost pressures.
4483296,483,4013.5,4023.9399,13,Um you know where we could see you know more significant impacts would be things like um you know steel for example.
4483296,484,4024.3,4042.77,13,But the good news is you know when when we look at um our large projects um you know for for next year you know we talk about Sarnia products pipeline you know that project is essentially complete steel bought you know a a long time ago.
4483296,485,4043.1001,4052.5999,13,Um the Kearl in pit tailings project is you know had some steel associated with it again most of which has already been been procured.
4483296,486,4052.6001,4062.0,13,But it's more of a um you know earth moving project uh than than anything um very labor intensive.
4483296,487,4062.0,4068.53,13,And so we gotta keep an eye on labor costs but but again so far we we haven't seen huge impacts there.
4483296,488,4068.53,4077.46,13,So something we're gonna keep a very close eye on going forward um but but so far we've we've been able to manage it quite well.
4483296,489,4079.8401,4080.3401,19,Thanks Brad.
4483296,490,4080.3999,4080.99,19,I'll leave it there.
4483296,491,4082.1101,4082.4302,13,Okay.
4483296,492,4082.46,4082.74,13,Thanks.
4483296,493,4084.5701,4084.8601,15,Thank you.
4483296,494,4084.8601,4087.4199,15,Our next question comes from Phil Gresh with jp Morgan.
4483296,495,4087.48,4088.7998,15,You may proceed with your question.
4483296,496,4089.8401,4090.8699,20,Uh yes.
4483296,497,4090.8999,4091.5601,20,Hi good morning.
4483296,498,4092.03,4101.1304,20,Um my first question's on the on the dividend obviously as you noted two very large increases uh in the past two years since the last time uh you had an Analyst Day.
4483296,499,4101.8198,4106.7397,20,Um and you had talked about you know a certain breakeven level uh at that time.
4483296,500,4106.7402,4112.5098,20,So I I I was just wondering if you could refresh us on how you think about what that breakeven would be today.
4483296,501,4112.5698,4124.04,20,And then as you go forward um how think about sustainable levels increases in the dividend um with respect to you know a breakeven framework or however else you might look at it.
4483296,502,4126.8999,4128.2002,13,Thanks for the to for the question.
4483296,503,4128.2002,4130.5698,13,I think d Dan will give an an answer on that.
4483296,504,4131.2598,4131.5596,17,Yeah.
4483296,505,4131.5601,4135.0098,17,Hey Phil we we'll talk more about breakevens a at the Analyst Day.
4483296,506,4135.0098,4144.6699,17,I mean last year we we talked about um um uh you know thirty six bucks with um you know uh both including uh sustaining capital a and dividend.
4483296,507,4144.6699,4149.1396,17,I think that that's still still a good number so we're we're pretty far away away from that.
4483296,508,4149.3501,4160.4399,17,So it is important to us obviously that <laugh> we the dividend is uh s- sustainable and growing dividend is is our is our core kind of one of our core investor uh offerings.
4483296,509,4160.7598,4162.1899,17,And and we do think about that.
4483296,510,4162.1899,4169.29,17,And we and we feel given given our outlook that that that the seven cents is is warranted and we feel quite good about it uh going forward.
4483296,511,4169.48,4174.8301,17,Um so I guess it is probably much as much as I I'll say but you know our breakeven is is well below current prices.
4483296,512,4174.8301,4176.8799,17,So um that gives us a lot of comfort.
4483296,513,4177.1602,4186.4102,17,And obviously as we go forward we continue to you know we've had energy inflation as has been discussed um but we continue to work on our base cost structure.
4483296,514,4186.6699,4191.5801,17,Um so you know obviously we wanna get that breakeven down a as low as low as we can.
4483296,515,4192.6699,4193.7603,20,Uh understood.
4483296,516,4194.02,4194.2603,20,Okay.
4483296,517,4194.3198,4194.7402,20,Thank you.
4483296,518,4195.2002,4201.4902,20,Um and then just one other question on um the OPEX in the quarter obviously it was up sequentially.
4483296,519,4219.6001,4230.6401,17,There's there's deferred tax adjustments there there's life phone inventory changes but there's there's there's also I'd say $60 million of OPEX in the upstream included in that number.
4483296,520,4230.75,4239.0801,17,So yeah part part of that's uh uh part part of that 160 is one-time OPEX from some smaller write-downs of o o of of a number of things.
4483296,521,4240.46,4241.1602,20,Okay great.
4483296,522,4241.1602,4241.5,20,Thank you.
4483296,523,4244.5298,4244.9302,14,Thanks Phil.
4483296,524,4246.21,4246.6504,15,Thank you.
4483296,525,4246.6499,4248.9199,15,I'm not showing any further questions at this time.
4483296,526,4248.9199,4252.6401,15,I would now like to turn the call back over to Dave Hughes for any further remarks.
4483296,527,4254.2998,4254.6699,21,alright.
4483296,528,4254.75,4258.6904,21,Well thank you very much and thank you everybody for uh joining us this morning.
4483296,529,4259.1602,4265.1001,21,As as usual if you have any further questions uh please don't hesitate to reach out to us at any time.
4483296,530,4265.8501,4266.25,21,Thank you.
4483296,531,4269.9399,4270.3804,15,Thank you.
4483296,532,4270.5,4272.27,15,This concludes today's conference call.
4483296,533,4272.3501,4273.4302,15,Thank you for participating.
4483296,534,4273.5601,4274.4102,15,You may now disconnect.
4483297,0,25.06,29.5,1,Thank you operator and uh welcome everyone to Novozymes's full year twenty twenty one conference call.
4483297,1,29.69,33.85,1,Uh my name is Tobias Bjorklund and I'm the head of investor relations here at Novozymes as mentioned.
4483297,2,34.83,43.18,1,At this call our C E O Ester Baiget and our C F O Lars Green will go through our performance in key events of twenty twenty one as well as the outlook for twenty twenty two.
4483297,3,43.94,58.8,1,Also present at this call are Tina fan E V P agriculture and industrial bio solutions Amy Byrick E V P strategy and business transformation Anders Lund E V P consumer bio solutions and also Claus Fuglsang uh CSO E V P of research and development.
4483297,4,59.57,63.82,1,The entire call will take about fifty minutes including time for questions at the end.
4483297,5,65.02,72.45,1,Before we begin I would like to remind you that the information presented during the call is unaudited and that management may make overlooking statements.
4483297,6,72.51,81.55,1,These statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to defer materially from those described in any overlooking statement.
4483297,7,82.35,85.93,1,With that uh I now leave the hand to uh ce our C E O Ester Baiget.
4483297,8,86.09,86.69,1,Ester please.
4483297,9,89.02,92.44,2,Thank you Tobias and thank excuse me and thank you all for calling in.
4483297,10,92.91,95.39,2,Please uh turn into slide uh number two.
4483297,11,96.45,111.1,2,I'm very pleased with our performance in two thousand twenty one we delivered a strong sales earnings and non-financial numbers and advance our business in accordance with our a refreshed strategy unlocking growth powered by biotech that we launched last September.
4483297,12,111.91,117.13,2,Organic sales grew six percent and benefiting from our diversified portfolio.
4483297,13,117.61,128.28,2,Performance was particularly strong in food beverages and human health in bio energy and in grain and tech processing all three business areas delivered strong double digit growth.
4483297,14,128.99,133.94,2,Household care declines likely and agricultural and animal health and nutrition was flat.
4483297,15,134.17,140.43,2,And when both uh business areas were soft they were roughly in line with our latest expectations for the full year.
4483297,16,141.12,147.71,2,Over the past couple of years we have invested in our commercial activities especially in emerging markets.
4483297,17,148.15,153.93,2,And it's very very encouraging to see the sales here growing by an impressive eighteen percent.
4483297,18,154.24,158.87,2,Sales in the developed markets also grew although at a more moderate rate.
4483297,19,160.04,163.99,2,Sustainability it's part of our D N A here at Novozymes.
4483297,20,164.32,169.67,2,And I'm very pleased to say that we are on track to meet twelve of our thirty non-financial targets.
4483297,21,170.1,177.33,2,While the the targets are for two thousand twenty two we actually exceeded several of them already in two thousand twenty one.
4483297,22,178.52,191.72,2,The benefits to the world from the use of our products are something we are all very proud of and we embrace the responsibility to be at the forefront of the movement for a healthier planet as a company with a strong purpose.
4483297,23,192.0,209.43,2,We are committed to support the transition towards a climate natural society and in two thousand twenty one seventy seven percent of our revenue was generated from products that contribute to lowering c o two emissions by reducing the use of fossil based resources and by reducing waste.
4483297,24,210.17,215.2,2,Another key to achieve a more sustainable world is to transform food systems.
4483297,25,215.57,226.76,2,In two thousand twenty one thirty five percent of our revenue came from products enabling our food production systems to produce more food from less and improve nutrition and quality.
4483297,26,227.35,237.87,2,Additionally we strongly committed to enabling healthy lives and five percent of our full year revenue came from products that enable a better health for people around the world.
4483297,27,239.28,253.35,2,From an innovation perspective two thousand twenty one was another strong year with the launch of market leading products such as Pristine which is the broad market freshener solution and prag three sixty which improved digestibility of proteins for animals.
4483297,28,253.56,260.18,2,In total we launched fourteen products during two thousand twenty one including six in the fourth quarter of alone.
4483297,29,260.54,262.49,2,This is much in line with previous years.
4483297,30,263.34,271.24,2,Turning uh to our financials we delivered a strong E B T margin and ROIC including goodwill as well as a strong free cash flow.
4483297,31,271.64,281.8,2,And while reinvesting significantly in commercial activities making uh several acquisitions and increasingly experience the head ones from higher input costs towards the end of the year.
4483297,32,283.09,301.03,2,Executing on our strategy has been our number one priority in two thousand twenty one after acquiring Micrim Labs and the Biota Technology asset in the first quarter we took another important step to advance our bio health business in the fourth quarter with the acquisition of Synergy Life Science.
4483297,33,301.38,314.36,2,Synergy is a leading developer and manufacturing for sport probiotics and natural vitamin in k twenty seven and it will play a key role for us in expanding our opposition in human health and also in functional foods.
4483297,34,315.24,330.51,2,Also in the fourth quarter we enter into a very exciting collaboration with Saipem on enzymatic carbon capture and continue the construction of the new state of the art production for advanced protein solutions in Blair Nebraska in the US.
4483297,35,331.69,339.36,2,The steps we have taken during the last couple of years sets us up to deliver another good year in two thousand twenty two.
4483297,36,339.83,343.0,2,And we expect to be off to a good start for the year.
4483297,37,343.75,348.76,2,In two thousand twenty two we expect sales to grow by three to seven percent organically.
4483297,38,349.07,356.28,2,With growth across all business areas sales in Danish kroner is expected to be around three percentage points higher.
4483297,39,357.23,365.09,2,The EBIT margin is expected at a solid twenty five to twenty six despite significant pressure from higher input costs.
4483297,40,365.31,383.8,2,And lastly we expect ROIC including goodwill to end between sixteen and seventeen percent while the free cash flow before acquisitions is expected between one point seven to two point one billion Danny Kroner including a significant uptick in CapEx mainly driven by the new production line in in Blair.
4483297,41,384.64,389.27,2,With that overview let's now look at each of the five business areas in more detail.
4483297,42,389.62,391.13,2,And uh starting with household care.
4483297,43,391.8,393.79,2,Could you please turn uh to slide number three.
4483297,44,394.7,395.03,2,Thank you.
4483297,45,395.89,405.13,2,Household care decline org uh by one percent organically in two thousand twenty one the so full year performance came against a strong performance in two thousand twenty.
4483297,46,405.67,415.43,2,Emerging markets performed well supported by investments to expand our commercial footprint and tailor solutions resulting in an increased enzymatic penetration.
4483297,47,416.04,422.59,2,Our sales developed in developed markets declined as European consumer uh demand was significantly lower than expected.
4483297,48,423.0,430.25,2,Performers further worsened in the second half of the year where also two mid-sized private label players went out of businesses.
4483297,49,431.22,442.38,2,The freshness technology performed well and in line with expectations it was made available across multiple countries in Europe and the broad market solution was successfully launched in the third quarter.
4483297,50,443.1,455.79,2,Sales in the fourth quarter declined three percent organically similar to the full year performance emerging markets performed well while Europe in particular continue to decline decline for the same reasons as mentioned uh for the full year.
4483297,51,456.94,468.29,2,While the one percent decline in two thousand twenty one was not satisfactory an average annual growth of a rate of two percent over the past two years is a meaningful step in the right direction.
4483297,52,468.94,475.07,2,Looking ahead we expect sales in household care to grow by two to four percent in two thousand twenty two.
4483297,53,475.94,486.34,2,Growth is expected to be driven by increased market penetration in emerging markets by freshness as well as in the non laundry areas of professional and medical cleaning and in dish wash.
4483297,54,486.87,491.45,2,As mentioned we launched the broad market version of freshness technology in two thousand twenty one.
4483297,55,492.01,500.41,2,This was a significant milestone and freshness is expected to increasingly contribute to growth as the year progress as well as in the years to come.
4483297,56,501.26,503.3,2,Could you please turn into slide number four?
4483297,57,504.17,504.47,2,Thank you.
4483297,58,505.51,519.3,2,Our food beverages and human health businesses had an excellent year and the team has done a terrific job in executing on the strategic direction while also capitalizing on the supportive market conditions.
4483297,59,519.88,528.26,2,Sales grew fourteen percent organically in two thousand twenty one with all three main categories growing by double digits.
4483297,60,528.61,541.03,2,Growth in food was mainly driven by market penetration and demand was particularly strong for health focused solution such as acrylamide reduction in baking sugar reduction in dairy and solution for plant-based protein extraction.
4483297,61,541.32,547.5,2,In addition bene baking benefited to some extent from raw optimization and ingredient substitution.
4483297,62,548.38,555.48,2,Beverages perform well and outgrew the underlying market while also benefiting from a recovery in global beer volumes.
4483297,63,555.81,560.49,2,Growth in human health was very strong and driven by cross-selling and geographical expansion.
4483297,64,561.24,564.77,2,In the fourth quarter sales grew thirteen percent organically.
4483297,65,565.37,568.32,2,The performance was led by food bev uh by food.
4483297,66,568.85,577.61,2,Beverages grew slightly and was uh somehow impacted by the stocking where uh hum whereas human health performed well and according to the expectations.
4483297,67,578.33,588.42,2,Also in the fourth quarter we strength uh and accelerated our Bio Health business by acquiring a majority stake in Synergia Life Science and as I've already mentioned.
4483297,68,589.56,601.81,2,Let me now turn uh to the outlook in two thousand twenty two we expect organic sales in food beverages and human health to grow by high single digit rate with all soup areas contributing to growth.
4483297,69,602.4,610.39,2,Growth in food will be driven by market penetration supported by health focused solutions and raw material optimization and ingredient substitution.
4483297,70,611.47,616.03,2,For beverages we expect uh growth on top of the double digit growth in two thousand twenty one.
4483297,71,616.39,623.39,2,And for human health we expect continued solid double digit growth driven by innovation cross-selling and regional expansion.
4483297,72,624.25,626.1,2,Please turn into slide number five.
4483297,73,626.6,627.47,2,Thank you.
4483297,74,628.61,632.61,2,Full year sales in bio energy grew eleven percent organically.
4483297,75,632.94,650.81,2,The strong performance was driven by the recovery of US ethanol production growth from innovation capacity expansion of corn based ethanol production in Latin America and market penetration with enzymatic solutions for bio diesel production putting the US development a bit into context.
4483297,76,651.0,658.05,2,It's important to remember that US gasoline demand and ethanol production was severely disrupted during two thousand twenty.
4483297,77,658.58,667.31,2,US ethanol production rates gradually recovered during two thousand twenty one but still remain lower than the two thousand nineteen pre COVID level.
4483297,78,668.26,675.17,2,Organic sales in the fourth quarter grew ten percent driven by the same factors as already mentioned for the full year performance.
4483297,79,675.45,683.33,2,Additionally sales benefit from growth market conditions for ethanol producers with some of the biggest crash margins in almost a decade.
4483297,80,684.29,690.35,2,For two thousand twenty two we expect sales to grow by low to mill single digits.
4483297,81,690.87,703.07,2,And as in two thousand twenty one growth continues to be driven by the recovery of US ethanol production innovation capacity expansion in Latin America as well as market penetration in bio diesel.
4483297,82,703.84,713.47,2,And as a final note the past two years have been unusually volatile for the ethanol industry and uncertainties related to the pandemic and volatile market conditions are still present.
4483297,83,713.87,718.8,2,This is also why bio energy com covers a relatively broad range uh wine.
4483297,84,718.91,720.78,2,Um bro broadly gro growth range.
4483297,85,721.9,724.95,2,Please uh turn into slide number six thank you.
4483297,86,726.0,731.59,2,Grain and non tech processing uh sales grew thirteen percent organically in two thousand twenty one.
4483297,87,732.42,738.52,2,Sales in both grain and in tech grew by double digits with strong performance across soup areas.
4483297,88,738.96,753.38,2,The growth in the growth in grain was led by market penetration with solutions for vegetable oil processing innovation in starch particularly in grain milling as well as an increased and market demand for starch delivered products especially in emerging markets.
4483297,89,753.93,760.64,2,Tech grew primarily due to the recovering sales in textile following the negative COVID nineteen impact in two thousand twenty.
4483297,90,761.36,766.92,2,Good performance in areas such pulp and paper leather and diagnostic enzymes for the pharmaceutical industry.
4483297,91,767.09,770.02,2,They also contributed to the full year performance.
4483297,92,770.84,774.47,2,Four quarter sales group by fifteen percent organically.
4483297,93,775.08,783.41,2,The performance was also broad base in the quarter with uh growth being fueled by innovation and high end market demand in starch delivered products.
4483297,94,783.9,789.8,2,Market penetration in vegetable oil processing uh and sales of diagnostic enzymes for pharma.
4483297,95,791.19,803.45,2,Looking at two thousand twenty two the the development is expected to be more moderate compared to two thousand twenty one and thus we expect the sales performance to range from flat to low single digit growth.
4483297,96,804.34,811.77,2,Growth will be led by continued market penetration in vegetable oil processing and from innovation in starch such as for grain milling.
4483297,97,812.38,828.47,2,Similar to the situation in bio energy the relatively large uncertainty related to the pandemic and the volatile market conditions are affecting the way we see prospects for grain and tech processing hence we have applied a relatively broad sales range for this business area as well.
4483297,98,829.72,832.0,2,Could you please turn uh to slide number seven.
4483297,99,833.37,848.16,2,Organic sales in agricultural and animal uh he health and nutrition ended the year flat despite a negative uh base effect from sixty million one off in the second quarter of two thousand twenty related to the former biarch setup.
4483297,100,848.48,857.01,2,Sales in animal health and nutrition grew primarily from increased market penetration driven by inoventions such balancials and Prag three sixty.
4483297,101,857.66,863.05,2,Sales in agricultural decline into the afforded base effect and increase if adjusted to it.
4483297,102,863.5,868.08,2,The adjusted performance was driven by market penetration led by Latin America.
4483297,103,868.84,871.31,2,Four quarter sales grew seven percent organically.
4483297,104,872.01,878.16,2,Growth was the strongest in animal health and nutrition with increased demand for both protein and health solutions.
4483297,105,878.79,883.92,2,Sales in agricultural also grew driven by higher demand for bio yield solutions.
4483297,106,884.61,893.19,2,In two thousand twenty two we expect organic sales in agricultural animal health in addition to grow in the high single digits to glow teams.
4483297,107,893.86,906.1,2,Growth will be led by agricultural which is expected to grow at double digit rate good market conditions and beneficial substan uh sustainability pull is expected to benefit a higher usage of OncoLens.
4483297,108,906.49,915.95,2,This combined with innovation and a refined go to market model will enable increased market penetration of both bio yield and bio control solutions.
4483297,109,916.95,927.17,2,Animal health penetration sales are also expected to grow fueled mainly by innovation and market driven volume growth supported by favorable market conditions.
4483297,110,927.64,932.01,2,And with that a land over to Lars for a review of the financials.
4483297,111,932.13,933.35,2,Lars please.
4483297,112,934.44,935.13,3,Thank you Esther.
4483297,113,935.83,940.29,3,lemme start by reviewing the performance of our sustainability and non-financial targets.
4483297,114,940.9,942.31,3,Please turn to slide number eight.
4483297,115,943.39,955.68,3,With our refreshed strategy unlocking growth powered by biotech we made new long-term commitments to accelerate towards a climate neutral society transform food systems and enable healthier lives.
4483297,116,966.82,974.13,4,The two thousand twenty two non-financial targets from two thousand nineteen are still valid and serve as milestones on our long term journey.
4483297,117,975.03,981.59,4,And it's encouraging to see that we are on track to meet twelve out of the thirteen targets we defined by in two thousand nineteen.
4483297,118,982.67,994.66,4,As the non-financial targets are coming to an end here in two thousand twenty two we are also committing to communicate the progress and milestones we have we have towards our long term targets for two thousand thirty and two thousand fifty.
4483297,119,995.46,997.29,4,You'll hear more about this during the year.
4483297,120,998.8,1002.76,4,Now please turn to slide number nine for a review of our financial performance.
4483297,121,1003.86,1011.11,4,The performance in two thousand twenty one was highly satisfactory meeting or exceeding all targets uh set out at the beginning of the year.
4483297,122,1012.16,1020.58,4,In addition we successfully integrated two companies acquired a third and launched our strategy unlocking growth powered by biotech.
4483297,123,1021.79,1032.6799,4,Sales grew six percent organically and seven percent in reported Danish kroner and included a two percent point contribution from m and a and roughly a one percent point headwind from currencies.
4483297,124,1033.49,1038.1801,4,Sales in the fourth quarter grew seven percent organically and eleven percent in Danish kroner.
4483297,125,1039.53,1047.98,4,The cross margin was strong at fifty seven point seven percent one seventy basis points higher than the cross margin in two thousand twenty.
4483297,126,1049.21,1061.5,4,While many companies experienced the impact from higher input costs already in two thousand twenty one Novozymes's unique productivity improvements and production excellence including our leverage allows for some alleviation of such changes in input costs.
4483297,127,1062.36,1071.84,4,However we are not immune to the significantly higher input cost and we started to see a growing impact in the fourth quarter when the gross margin came in at fifty six point one percent.
4483297,128,1072.7,1081.08,4,This was sixty basis points above the fourth quarter of two thousand twenty but around two hundred basis points lower than for the first nine months of two thousand twenty one.
4483297,129,1082.15,1090.26,4,We saw the same beneficial operational factors throughout the year with the addition of a supportive prime mix price mix and m and a contribution.
4483297,130,1091.3199,1099.9301,4,The first quarter year-on-year cross margin development was driven by the same factors as for the full year with input costs becoming a stronger headwind in the quarter.
4483297,131,1101.67,1109.8199,4,The EBIT margin was solid at twenty six point eight percent in line with expectations and seventy basis points higher than in two thousand twenty.
4483297,132,1111.16,1117.3,4,Higher operating costs were more than offset by higher gross profits and an increase in other operating income.
4483297,133,1118.3199,1130.0499,4,As implied by the twenty seven percent full year outlook the fourth quarter EBIT margin was expected to be soft and the year-on-year decline was primarily due to increased operating costs which offset the improved cost margin.
4483297,134,1131.59,1141.05,4,The first quarter increase in operating costs was as expected mainly due to higher sales and distribution spend one off transaction costs and the recognition of acquisitions.
4483297,135,1142.26,1147.45,4,Currencies provided a slight headwind for the full year but were marginally supportive in the fourth quarter.
4483297,136,1148.95,1158.5499,4,When adjusting for one-offs the underlying full year EBIT margin for two thousand twenty one was around twenty seven percent and roughly on par with the underlying EBIT margin for two thousand twenty.
4483297,137,1159.65,1169.51,4,Further when comparing year-on-year margins two thousand twenty one included close to a one percent point headwind from m and a and currencies compared to two thousand twenty.
4483297,138,1170.73,1183.88,4,In the fourth quarter the underlying EBIT margin when adjusted for both the transaction costs related to the acquisition of Synergia Life Sciences and the sale of a non-core building in Switzerland was around twenty two percent compared to the twenty one percent reported.
4483297,139,1184.96,1193.4099,4,Additionally the fourth quarter included high operational costs as expected and included in the outlook of around twenty seven percent for the full year.
4483297,140,1195.4,1202.35,4,Net investments totaled one point one billion Danish kroner somewhat below expectations mainly due to timing in the fourth quarter.
4483297,141,1203.38,1207.1,4,Free cashflow before acquisitions was solid at two point nine billion Danish kroner.
4483297,142,1208.0,1214.9299,4,Working capital changes and increased net investments offset higher net profit and improved earnings quality.
4483297,143,1215.1899,1228.9199,4,The lower year-on-year cash flow was much as expected following the the two thousand twenty BioAg one off and the previously highlighted timing effects that had a positive effect on working capital in two thousand twenty.
4483297,144,1230.5601,1238.77,4,The first quarter free cash was two hundred million Danish kroner and roughly in line with expectations following higher networking capital as well as higher investments.
4483297,145,1240.09,1245.2999,4,Return on investor capital including Goodwill was nineteen point three percent in two thousand twenty one.
4483297,146,1246.66,1249.63,4,This was forty basis points higher than in two thousand twenty.
4483297,147,1250.8199,1260.2999,4,The improvement in ROIC was due to the higher net operating profit after tax which more than offsets an increase in average invested capital following the three acquisitions.
4483297,148,1262.04,1265.1799,4,Please turn to slide ten for the two thousand twenty two outlook.
4483297,149,1266.47,1272.4199,4,We continue to invest and position ourselves to unlock Novozymes's true sustainable long term growth potential.
4483297,150,1273.47,1285.5801,4,Organic sales are expected to grow by three percent to seven percent in two thousand twenty two and sales in Danish kroner are expected to be around three percent points including roughly one percent point from the acquisition of Synergia.
4483297,151,1286.73,1294.9199,4,The indicated ranges per business area are broader for the agricultural exposed areas catering for higher implied in market volatility.
4483297,152,1296.13,1303.75,4,The full year indications per business area are in line with the overall two thousand twenty five targets presented at our recent capital markets day.
4483297,153,1304.9301,1309.63,4,Seen over the year we expect performance to be offered to a good start in two thousand twenty two.
4483297,154,1311.08,1319.6901,4,The EBIT margin outlook for two thousand twenty two is between twenty five percent to twenty six percent including an expectation of a slight year-on-year benefit from currencies.
4483297,155,1320.77,1326.54,4,The margin will benefit from operational leverage productivity improvements as well as targeted price increases.
4483297,156,1327.12,1332.9501,4,This is expected to be more than offset by significantly higher input costs and continued investments in the business.
4483297,157,1334.11,1342.37,4,Included in the outlook the cross margin is assumed to decline by one point five percent to two percent points in two thousand twenty two compared to the previous year.
4483297,158,1343.39,1346.53,4,We are making a dedicated effort to pass on higher input costs.
4483297,159,1346.64,1355.9501,4,And while we expect this to have a net neutral impact on our year-on-year sales growth the effort is expected to be supportive to the cross margin and it's included in the outlook.
4483297,160,1357.3101,1368.0,4,The free cashflow before acquisitions is expected at one point seven to two point one billion Danish kroner including a significant step up in net investments to support our growth opportunities.
4483297,161,1369.3199,1373.8899,4,Net investments are expected at between two point five and two point eight billion Danish kroner.
4483297,162,1374.66,1384.1001,4,The increase in net investments reflects maintenance expansion and optimization CapEx as well as investments to support our ambitions in the food and health related areas.
4483297,163,1385.24,1394.13,4,The amount we expect for net investments in two thousand twenty two includes roughly one billion kroner related to the advanced specialty protein facility in Blair.
4483297,164,1395.4399,1404.1899,4,When adjusting for the protein investment net assessments add up to around ten percent CapEx to sales ratio which is in line with what we communicated at our capital markets day.
4483297,165,1412.67,1425.7699,4,Subject to approval at the annual shareholders meeting in March the dividend is proposed at five one slash two Danish kroner per share up by five percent from the year before and corresponding to a payout ratio of forty eight point five percent.
4483297,166,1426.72,1432.88,4,In addition a share buyback program of up to five hundred million Danish kroner has been approved for two thousand twenty two.
4483297,167,1434.15,1444.8301,4,This is in line with our capital structure policy to return the free cash flow generated to shareholders through a combination of dividends and share buybacks at a net debt to IBITDA ratio of around one.
4483297,168,1445.6801,1449.78,4,With this I'll now hand back to Ester for a wrap up before we open up for questions.
4483297,169,1450.3,1451.15,4,Ester please?
4483297,170,1452.16,1452.61,5,Thank you.
4483297,171,1452.8199,1453.5,5,Thank you Lars.
4483297,172,1454.01,1456.2,5,Please uh turn to slide number eleven.
4483297,173,1457.11,1457.46,5,Thank you.
4483297,174,1458.14,1464.78,5,I'm very pleased uh with the strong set of both financial and non-financial results that we have delivered in two thousand twenty one.
4483297,175,1465.51,1471.5,5,We grew our sales six percent organically with double digit growth in three of five business areas.
4483297,176,1471.84,1477.4,5,We delivered solid earnings and cash while still reinvesting significantly in the business.
4483297,177,1477.85,1483.6,5,And we are on track to meet twelve out of the thirteen of our non-financial targets.
4483297,178,1484.38,1488.76,5,We expect the strong performance from two thousand twenty one to continue in two thousand twenty two.
4483297,179,1489.23,1496.4099,5,And we are guiding for a three percent to seven percent organic sales growth with a solid EBIT margin that comes despite high input costs.
4483297,180,1496.6,1502.13,5,Both ROIC and cash are impacted by high investments to secure growth of the business.
4483297,181,1502.8199,1515.9401,5,Our relatively broad range uh for sales growth allows us to navigate through continued uncertainty related to the pandemic and volatile market conditions similar to the way we position our outlook for two thousand twenty one.
4483297,182,1516.92,1523.97,5,At the beginning of two thousand twenty one we outlined four progress areas to allow you to follow our strategic execution from a different angle.
4483297,183,1524.64,1528.96,5,One of them was to engage in at least three large commercial r and d collaboration.
4483297,184,1529.33,1538.29,5,This goal was achieved with a collaboration with Saipem with a key a key player in the plant uh based industry and with F M C in agricultural.
4483297,185,1539.1801,1542.51,5,The second progress area focused on commercializing innovation.
4483297,186,1542.78,1549.65,5,This goal was also accomplished as more than thirty percent of our sales were from solutions launched during the last five years.
4483297,187,1550.12,1556.42,5,Thirdly we wanted to reach more customers and aim to generate at least fifty percent of our sales leads digitally.
4483297,188,1556.9301,1561.46,5,This goal was achieved as more than sixty percent of our new leads were generated digitally.
4483297,189,1562.17,1568.95,5,And finally we want to be a strong voice on the world stage for the ever increasing need of sustainable solutions.
4483297,190,1569.3,1583.84,5,We wanted to take part in at least three global events linked to sustainability and by participating at the World Economic Forum the UN Global Compact Leaders and the cop twenty six in Glasgow we also reached our target for this key progress area.
4483297,191,1584.99,1589.6699,5,Executing on our strategy remains a top priority here in two thousand twenty two.
4483297,192,1590.3101,1604.2101,5,And pre key progress areas for us are achieving key milestones in the construction of the new production line for advanced protein solutions in Blair Nebraska leverage the rest and acquisitions and deliver double digit growth in human health.
4483297,193,1604.8,1611.08,5,Continue to strengthen our commercial setup also by initiating investments in the first customer co-creation center.
4483297,194,1611.49,1622.26,5,And finally we will secure that we keep diligent focus on prioritizing in our core business making sure we deliver on our short as long as our long-term commitments.
4483297,195,1623.74,1628.58,5,Novozymes is in a unique position to drive change towards a healthier planet.
4483297,196,1629.26,1632.6801,5,And as a company we have a responsibility to make this happen.
4483297,197,1632.95,1636.29,5,We have built an even stronger foundation over the past two years.
4483297,198,1636.66,1647.6699,5,And with our sixty year legacy in understanding biotechnology we are committing to grow our business sustainably making a lasting difference to the world and to all our stakeholders.
4483297,199,1648.01,1652.86,5,And with this world these words <unk> please uh let's now begin the q and a session.
4483297,200,1652.91,1654.5,5,Operator please begin.
4483297,201,1655.83,1679.37,6,Thank you.
4483297,202,1763.79,1772.86,5,I'll I'll comment on pricing and then uh I'll pass it to Lars for the uh fu uh building on your co comments on on uh ROIC and then uh Tina on on BioAg.
4483297,203,1773.54,1776.67,5,So on uh on pricing what gives us the confidence?
4483297,204,1776.67,1780.41,5,I mean it's not uh we have not started the journey on pricing uh today.
4483297,205,1780.41,1796.1899,5,This is a long journey that we have already been working if you remember uh for for already since the since the time for sure since I have been uh in the team eh and we start seeing the benefits of those focus last year and this year we're doubling our en energy in this segment.
4483297,206,1796.22,1801.3199,5,We live in extraordinary circumstances with a rapidly increasing raw material prices.
4483297,207,1801.42,1812.0901,5,As you seen have you s heard last saying we did a fantastic job this year flowing and uh uh postponing the impact of this uh high increased raw material till q four but we are not immune.
4483297,208,1812.6899,1826.6001,5,And this opens a fantastic uh situation for environment for our discussions and conversations with our customers as contracts expire as contracts sunset to bring out the discussion of value on price on the table.
4483297,209,1827.2,1838.4601,5,And we aiming for a space where we're going to move into a positive impact from pricing in gross margin but then yes uh overcome uh by the higher raw material price increases.
4483297,210,1838.46,1844.13,5,And then overall uh still with a a slightly compaction of of gross margin of one point five percent to two percent.
4483297,211,1845.76,1847.0499,5,And then I'll pass it to you Lars.
4483297,212,1847.79,1848.0601,4,Yes.
4483297,213,1848.0601,1848.99,4,And thanks Ester.
4483297,214,1849.46,1853.13,4,And uh and uh Gunder to your question on on on on ROIC.
4483297,215,1853.13,1869.0701,4,Uh clearly the biggest uh impact on the lower uh return on invested capital is coming from from the invested capital component uh where the uh the acquired assets uh from our acquisitions is is increasing in is increasing the the invested capital uh number.
4483297,216,1869.49,1872.6799,4,So the uh the the n o p a t uh is a smaller impact.
4483297,217,1872.72,1877.9901,4,Um and of course our guidance uh is sort of a a range on a number of parameters.
4483297,218,1877.99,1881.27,4,Uh and so therefore um our comments should be seen in in that light.
4483297,219,1881.7,1885.74,4,Um I think the key point is that the biggest impact on ROIC is coming from invested capital.
4483297,220,1889.48,1895.9,8,And then I'll answer on uh uh the agriculture and animal health and nutrition comment on the BioAg specifically.
4483297,221,1896.4399,1903.97,8,So um yes we do uh guide uh a relatively broad range here from high single digit growth to the low teens.
4483297,222,1904.45,1916.84,8,And um if we if we just take a step back in that area and in these Ag exposed areas the growth drivers is both innovation it's market penetration it's sustainability.
4483297,223,1917.26,1923.76,8,And then there's also support uh when the commodity prices are high given that what we deliver is a…
4483297,224,1929.0601,1956.4501,9,Um if you if you look at the performance in in twenty twenty one in agriculture and animal health and nutrition then you have to remember it it was a flat performance uh you have to remember the sixty million which we saw in twenty twenty and also um we grew seven percent in q four so we are on a strong trajectory and we also think there is some timing and that is supporting the high expectation for twenty twenty two.
4483297,225,1964.1,1965.02,9,Next question please.
4483297,226,1966.67,1972.7799,10,Thank you.
4483297,227,2008.47,2009.8301,9,Tina and huh Las.
4483297,228,2010.99,2011.22,15,Yeah.
4483297,229,2011.22,2014.1899,15,So in uh Green and Tech uh it's…
4483297,230,2014.4399,2033.13,15,if you look at the yeah both for the year and the quarter then roughly seventy percent of the segment is coming from Green and thirty percent is coming from tech and that means that uh and within the tech segment as you know we have many different businesses so diagnostics is a small part of uh uh that so it is a small impact.
4483297,231,2035.66,2047.48,12,And on CapEx uh we uh guided uh in the capital markets day back in September for a CapEx to sales ratio of around uh ten percent uh through uh the period to twenty twenty five.
4483297,232,2047.85,2053.3401,12,And then on top of that we have our uh uh advanced protein facility in uh in Blair.
4483297,233,2053.8799,2061.8101,12,Now uh the latter is uh roughly two billion Corona in total uh over the three year period twenty one uh to twenty three.
4483297,234,2062.3799,2066.1501,12,Um and we uh recorded roughly two hundred million in twenty one.
4483297,235,2066.54,2074.0901,12,Another one billion is expected here in twenty two and so this leaves a residual roughly eight hundred million for for twenty twenty three.
4483297,236,2074.6799,2086.27,12,Um the good thing is we have uh progress uh in line with our plans uh but uh exactly how uh the uh the uh recording of the CapEx plays out of course uh is subject to a bit of uncertainty.
4483297,237,2086.5801,2089.3801,12,So uh this is uh our expectations right now.
4483297,238,2089.73,2090.98,12,Um so you have to set…
4483297,239,2091.0601,2097.1699,12,to add that the residual component of roughly eight hundred million uh to the ten percent also in two thousand twenty three.
4483297,240,2098.6299,2098.8499,11,Sure.
4483297,241,2169.03,2169.2,13,Thanks.
4483297,242,2169.96,2170.6201,9,Thank you Nicola.
4483297,243,2170.6201,2172.7,9,And Hanas could you please uh take those questions?
4483297,244,2172.8899,2173.01,16,Yeah.
4483297,245,2173.01,2173.6199,16,So thanks.
4483297,246,2173.6201,2176.26,16,Let me start with uh with Europe and what's what's going on.
4483297,247,2176.26,2184.6699,16,So uh the result of uh the performance in the retail market was that laundry which is by far our largest single segment is down five percent on volume.
4483297,248,2185.0801,2189.01,16,And uh the way we look at it it's a few different uh sort of trends that's going on.
4483297,249,2189.01,2193.8501,16,We see customers they are trading down to uh lower uh tiered brands.
4483297,250,2194.23,2197.73,16,We also see the customers are washing a little bit less than what they did last year.
4483297,251,2198.1499,2203.9001,16,And then of course we see the private label segment being under a lot of stress and stress comes in different forms.
4483297,252,2203.8999,2214.1899,16,It comes with uh two two of our LA midsize customers have gone outta business but also comes in in a way where you can see that they're actually losing substantially more than uh than the big brands.
4483297,253,2214.5701,2218.97,16,And our exposure to the private label market uh has traditionally been uh been quite strong.
4483297,254,2219.1899,2223.9299,16,So from that perspective we also get um ge quite get quite some some challenge in Europe.
4483297,255,2224.3601,2236.3301,16,And I think when when you look at the guidance for the full year uh looking at household care uh Europe is actually the single and only area compared to our plans that de delivers the deficit to our original guidance.
4483297,256,2236.8601,2238.6001,16,So that's what's going on.
4483297,257,2238.6001,2239.75,16,Looking ahead on Europe.
4483297,258,2240.1101,2242.6799,16,Uh we plan for a flat European market next year.
4483297,259,2243.1299,2246.1799,16,Uh we believe that uh we have sort of seen the bottom of this.
4483297,260,2246.1799,2251.04,16,We also believe that the private label pain that we saw that that will travel to other private labels.
4483297,261,2251.22,2256.76,16,So for us then that's um I think a good um belief that we'll see sort of the…
4483297,262,2256.79,2258.8899,16,we've seen the bottom of the European market.
4483297,263,2259.4099,2262.0999,16,Now if we turn to the next uh question uh this is very…
4483297,264,2262.1699,2266.1099,16,it's it's difficult and and of course I can only speculate it and can tell you what had…
4483297,265,2266.5,2267.6499,16,what happened in the past.
4483297,266,2268.4099,2273.22,16,Um of course we've seen investor pressure coming in and it has shown itself in in different shapes and forms.
4483297,267,2273.8999,2278.1101,16,Um this time around I think it's uncertain to say what's going to maybe happen to Unilever.
4483297,268,2278.4299,2282.6799,16,We know that Unilever is on a journey where they are really driving sustainability heart.
4483297,269,2282.96,2289.8501,16,We have very strong conversations and and also a very strong pipeline with Unilever and I'm I'm I'm pretty sure that some of that will come through.
4483297,270,2290.23,2293.4199,16,It's too early to tell if there's going to be any negative impact.
4483297,271,2293.6899,2294.6501,16,Right now we don't see it.
4483297,272,2294.6499,2299.02,16,And our conversations are are positive towards uh towards growth and innovation.
4483297,273,2302.5601,2310.04,9,Nikola you did not really implicitly ask for it but I would like to build on on Hanas' comments on what gives us the trust on the two four…
4483297,274,2310.4099,2312.8799,9,two point four guidance and also on the long term growth.
4483297,275,2313.3201,2314.03,9,It is the…
4483297,276,2314.0601,2324.4299,9,For for one step very strong penetration of uh freshness that we see the broad launch is sticking and uh and uh dra contributing to the growth and also contributor to the growth of two thousand twenty two.
4483297,277,2324.8201,2330.99,9,The continued penetration of our solutions in emerging geographies that they do grew least this year and they will continue to grow.
4483297,278,2331.5601,2337.1201,9,And then the strong momentum and the pull for our customers for sustainable solutions replacing chemicals and detergents.
4483297,279,2337.6799,2345.1799,9,All these parameters they make us confident that there is a growing path and that we are moving in the right direction to that growth path.
4483297,280,2349.1799,2350.1699,9,Next question please.
4483297,281,2350.49,2350.8201,13,Thank you.
4483297,282,2352.4199,2359.6899,9,Thank you.
4483297,283,2429.99,2430.3201,10,Thank you.
4483297,284,2433.23,2433.4299,9,Yes.
4483297,285,2433.4299,2439.0801,9,We feel uh very pleased with the results and also uh that we expect a good start for for the year.
4483297,286,2439.0801,2444.8999,9,i will i will let Lars answer your first question and then um uh Amy uh follow up on your second one.
4483297,287,2446.76,2446.8701,12,Yeah.
4483297,288,2446.8701,2457.0801,12,So on on our assumptions uh on on pricing um our two thousand twenty two outlook uh uh includes a net neutral impact from price on the top line.
4483297,289,2457.8301,2464.3201,12,Um we benefit from uh our targeted price increases but we have also included uh some volume loss uh risks.
4483297,290,2464.78,2475.25,12,Um so so that's how we have uh built our guidance for for the year um while the mid effect on top line is neutral uh we expect the minor positive contribution to the gross margin.
4483297,291,2475.6399,2483.71,12,Um and um and and as as I just explained earlier on uh we are looking uh to effectuate these price increases as uh contracts expire.
4483297,292,2484.47,2516.9202,12,So our commentary on on being off uh or expecting to be off to a good start uh it's important to understand uh that wording of expecting to be off to a good start uh uh so we are really commenting on the fact that um that the uh for the first quarter uh and and for the beginning of the year we uh we see and and expect uh the the momentum we had the uh in the uh last part of twenty one to continue into twenty two um and therefore just trying to set the expectations for uh our first uh uh reporting of q one uh in April.
4483297,293,2526.98,2536.2,12,Um so that we are not commenting on Lars we are just saying that we have uh three percent to seven percent for the year and then uh that we are uh expecting a good uh start through the year.
4483297,294,2537.6499,2537.75,17,No.
4483297,295,2552.3,2556.9001,12,So what I was saying is that we were continuing the same momentum uh from uh q four.
4483297,296,2556.8999,2559.1599,12,I didn't say we would have exactly the same growth rates.
4483297,297,2559.2,2569.8,12,Um so uh so I think if anything uh we we are saying that we expect the first uh quarter of the year to be uh at least on average uh for the full year uh growth.
4483297,298,2569.8,2574.25,12,And and I think that's as far as we can uh help you on the first quarter uh expectations.
4483297,299,2735.6001,2735.9202,18,Thank you.
4483297,300,2735.9199,2737.26,9,Very very very good questions Alex.
4483297,301,2737.26,2741.3699,9,Lars if you could uh answer the first one and then uh Hanas built on the dynamics on banking.
4483297,302,2741.6101,2741.9202,9,Thank you.
4483297,303,2742.75,2743.01,12,Yes.
4483297,304,2743.01,2743.76,12,Uh absolutely.
4483297,305,2744.1899,2751.4299,12,So um so our operational expenses in the fourth quarter uh were uh significantly higher than they were in the beginning of the year.
4483297,306,2751.5,2760.5198,12,Um and this called out uh actually already in the uh in our release of the second quarter that we were expecting higher operational costs in the in the second half.
4483297,307,2760.8101,2763.8398,12,And the majority of those uh hit in the in the fourth quarter.
4483297,308,2764.3501,2785.22,12,So uh so what they were uh were for example uh uh in c commercial investments we had in our one health areas where we had significant investments in cross channel and cross geography promotion and new product launches uh building on our acquisitions uh of uh of the uh uh two and now three uh companies uh in the area.
4483297,309,2785.8201,2798.5,12,Um we initiated a number of clinical trials um and we also across the businesses not only in uh in the area one health but also in the other areas uh had uh significant investments in in digital solutions.
4483297,310,2798.95,2806.53,12,Um so those were some of the key factors that impacted the fourth quarter spent uh primarily in the sales and distribution area.
4483297,311,2807.0601,2817.04,12,And when we look forward to to twenty two um then the fourth quarter of last year is is not the appropriate benchmark for for how twenty two would uh would look like.
4483297,312,2817.74,2842.5801,12,Um so um so as we set on the on the gross margin um we expected for the year to be one and a half to two percent this points lower than what we saw for twenty one um um maybe to give you an idea of uh of the other uh line items uh then um admin cost is is probably uh uh a good assumption to be in line with history at five percent to six percent.
4483297,313,2842.5801,2857.3601,12,Um we have historically had r d costs of uh of of thirteen um s and d uh eleven to twelve uh but uh on the latter too uh we have consciously chosen to uh shift a bit of our resources from r and d to s and d.
4483297,314,2857.8201,2870.4402,12,Um so I think uh you would probably see a slightly higher s and d ratio uh maybe closer to twelve uh or twelve-ish uh uh and and r d uh maybe still in line with a with a thirteen or so.
4483297,315,2883.04,2888.1899,20,And on food and beverages I'll just expand a little bit on how growth is uh composed in in twenty one.
4483297,316,2888.5701,2894.7,20,So the the major driver for us was very strong underlying demand and innovation and market penetration.
4483297,317,2894.7,2898.9399,20,That made up more than two three of the growth in in food and beverages.
4483297,318,2899.27,2906.1301,20,Then we saw especially in the brewing space uh some recovery that also supported growth and then we come to raw material optimization.
4483297,319,2906.1599,2910.05,20,And absolutely as you as you highlight that was mainly in baking.
4483297,320,2910.52,2920.8601,20,What happened in baking was we saw certain shortages of raw materials like vital wheat gluten we saw quite some inflationary pressure on ascorbic acid emulsifiers and so on.
4483297,321,2921.3201,2923.25,20,And then you can ask Well does this stick?
4483297,322,2923.25,2926.3799,20,We believe when we talk to customers that it is actually quite sticky.
4483297,323,2926.4099,2929.3599,20,Uh and that's a business that will continue.
4483297,324,2929.74,2934.01,20,Um our estimate is betrween two three and three four of this that will stick.
4483297,325,2934.26,2939.46,20,And the reason that we believe it'll stick is that um customers they use it to sort of drive priv…
4483297,326,2939.5,2940.8101,20,uh clean labor claims.
4483297,327,2941.0801,2947.95,20,They of course also do it because of the stability of cost and then there is some pain associated when we which would make these reformulations.
4483297,328,2948.1001,2957.3201,20,So all of this makes us quite confident um that what we have seen of reformulation and optimization will actually remain in um twenty two and the years to come.
4483297,329,3009.49,3009.9199,24,Lars.
4483297,330,3011.8401,3039.1802,19,Yes so on the first question um so from the twenty seven percent on the line um the most uh important uh facts towards the two five to twenty six percent uh abid market guidance for twenty two um is the lower uh cost margin uh which we believe uh will be one point five to two percentage points lower than uh than what we saw in uh two thousand and and twenty one.
4483297,331,3039.79,3048.8601,19,Um we are also continuing to uh invest uh in our business um and therefore um as I just outlined will our expectations or at least the you…
4483297,332,3048.8601,3059.3901,19,the way you can think about some of the individual cost lines we are still investing uh also in both sales and distribution and also R and D uh on a growing top line.
4483297,333,3059.8899,3069.1101,19,Um so we don't see any significant uh out of the ordinary uh items in the uh in in our two thousand and twenty two numbers.
4483297,334,3069.48,3080.99,19,Um so those would be the the significant uh drivers of the margin uh arriving from the twenty seven percent last year to uh twenty five to twenty six percent in two thousand twenty two.
4483297,335,3083.1201,3088.5,24,And on to your second question uh we make fourteen launches we love them all.
4483297,336,3088.8201,3089.51,24,Uh they…
4483297,337,3089.8201,3093.3098,24,it's it's hard to choose which is the one we feel more proud of.
4483297,338,3093.3401,3100.3,24,They all contributing to what it has been already also a trajectory of uh where innovation continues to be a strong contributor of our growth.
4483297,339,3100.4399,3105.1301,24,thirty percent of our sales this year they were coming from launches we make in the last five years.
4483297,340,3105.6001,3106.5601,24,But if you make me…
4483297,341,3106.5601,3110.21,24,if you ask me Where would you see that contributing in the future?
4483297,342,3110.6899,3112.0701,24,It would be across all fronts.
4483297,343,3112.1001,3117.8101,24,So from one side uh we have uh very high expectations on our launches in animal nutrition.
4483297,344,3117.8401,3123.1899,24,On I guess including the latest launch we have made uh in aforious animal nutrition.
4483297,345,3123.76,3133.8901,24,Very strong uh trend on the momentum in freshness with a broad launch that continues to contribute to the uh to contribute to growth in in household care.
4483297,346,3134.3601,3149.6401,24,Very good momentum in human health uh very high level of cross-fertilization on the acquisitions that we brought in and also the the tangible example from innovation from uh from our innovation muscle and then also cross-fertilization across the globe.
4483297,347,3150.1201,3156.9001,24,And then uh lastly not to mention if uh strong trend in the in the market for consumers for healthier foods.
4483297,348,3157.27,3160.6099,24,Some by replacement of chemicals as uh oh ingredients…
4483297,349,3161.0701,3169.3701,24,That's as Hannis mentioned but the strong also driver for nutritional changing habits in seeking for plant-based solutions where our enzymes contribute.
4483297,350,3169.9199,3186.03,24,If you couple that with uh also a stronger penetration in the margin share office I have to close your question saying we love them all and uh we pleased with the thirty percent contribution of innovation and we know that innovation is a key contributor of our long-term growth.
4483297,351,3250.79,3251.76,24,We we…
4483297,352,3252.1201,3253.3098,24,thank you for your question.
4483297,353,3253.3401,3268.9199,24,Uh we have launched as you as you recall our strategy in in uh September and uh a lot of the fruits that we're seeing today are already from the work made from the past uh steps we're taking from the implementation of the strategy.
4483297,354,3268.95,3270.24,24,It's a combination of both.
4483297,355,3270.75,3273.74,24,we are just capitalizing on the headwinds we're seeing in the market.
4483297,356,3273.79,3278.1499,24,We're not shy of that but then also many of those ones they sticky.
4483297,357,3278.6201,3279.2,24,They stay.
4483297,358,3279.23,3289.1501,24,We know that once you've tried our solutions then our customers fall in love with a value propositions of sustainability that we bring in and that's a culture across all fronts.
4483297,359,3289.22,3296.8499,24,In animal nutrition where we bringing beyond increased prat uh protein enhancement also lower manure like in baking where we it's…
4483297,360,3296.8899,3299.8699,24,we are moving into natural and uh chem…
4483297,361,3300.5901,3304.24,24,uh formulation and uh clean clean labels enabling.
4483297,362,3304.8401,3307.3699,24,Or detergents leading to washing…
4483297,363,3307.6499,3310.6001,24,consumers who can wash at lower temperatures and replacing chemicals.
4483297,364,3310.9199,3315.3701,24,So there is good momentum we're capitalizing on that but that is a lot of self-help.
4483297,365,3315.75,3322.5198,24,And the self-help comes from uh proactive investments we've made in the <unk> office on assets on people on labs.
4483297,366,3322.8101,3337.8398,24,The self-help also comes from acquisitions that we have made in human health to maximize the potential that we have as a biotech company and to contribute to the work in uh in a very rapidly growing trend on uh healthier needs.
4483297,367,3337.9199,3349.4302,24,Same will be for plant-based proteins on investments we've made in Blair we are making on Blair that's one of the key milestones also for this year to move ahead with those investments and that will be a contributor also for the future growth.
4483297,368,3418.3501,3418.73,26,Thank you.
4483297,369,3419.1499,3423.3098,24,I'll let Hannis answer your first question and then Lars can you build up on the second one?
4483297,370,3423.3101,3423.7202,24,Thank you.
4483297,371,3424.0,3433.9099,20,Yeah so so of course we have one month in in the books and it confirms what I said before that um we believe that Europe will look around flat maybe slight slight growth.
4483297,372,3434.6001,3436.6599,20,That's what what we see now.
4483297,373,3436.6599,3438.1001,20,And that's also what we see in the order books.
4483297,374,3441.0801,3460.9199,19,And I would say on the on on the spend in the fourth quarter um I don't know but I assume the three hundred million you refer to is is the costs that we uh carved out uh all the way back in uh in nineteen when we started uh to uh sort of re-shape our cost structures towards sales and distribution.
4483297,375,3461.3501,3470.3901,19,Um I think now we are almost three years later and I think it becomes very difficult what was say carved out and and what is now invested where.
4483297,376,3470.75,3479.25,19,So I would maybe rather uh look at uh our commitment to continue to invest in our business which we also do and imply in our guidance here for twenty twenty two.
4483297,377,3479.71,3489.3799,19,Um and then we have also provided the long-term guidance back in the capital markets day that we aim for a margin of twenty six percent in in twenty twenty five or above.
4483297,378,3489.8701,3492.4402,19,Um and no individual year going below twenty five.
4483297,379,3492.4399,3499.78,19,And and that's what we are guiding for here in twenty twenty two with a continued investment in our business to support the organic sales growth.
4483297,380,3503.4099,3505.47,24,We have time for one more last…
4483297,381,3505.54,3506.8499,24,One last question please.
4483297,382,3507.9299,3514.24,22,Thank you.
4483297,383,3567.3501,3569.6101,24,And I'll let Lars answer your questions.
4483297,384,3570.72,3571.9099,19,Yes uh thanks Sebastian.
4483297,385,3571.9099,3585.8198,19,Uh so um so right now um we are uh like many other companies impacted by the higher input costs and therefore we are guiding to a lower gross margin of one point five to two percentage points.
4483297,386,3585.8201,3592.75,19,Uh we are also seeing that we are taking actions to pass on some of those higher input costs to our customers over time.
4483297,387,3593.21,3599.98,19,Um and therefore we see a small positive contribution from that uh pricing initiative on our gross margin.
4483297,388,3600.52,3614.51,19,Um and then I would say we are we are still continuing to see the productivity improvements we have continued to see for years and years and years uh leveraging the scale and the volume growth in our facilities.
4483297,389,3614.8201,3631.0801,19,So in the long-term we still see potential to still expand gross margin from productivity from scale um and then we we'll see uh how the future develops both in terms of input costs and also in terms of price discussions.
4483297,390,3631.6599,3638.4202,19,But the fundamental factors that enables us to see gross margin expansion uh those are intact.
4483297,391,3638.6201,3645.4099,19,And then of course there are more parameters like we're now experiencing in twenty two which will determine the actual gross margin in in the individual year.
4483297,392,3649.1799,3649.8301,24,Thank you Lars.
4483297,393,3649.9199,3651.9102,24,And that uh closes the session.
4483297,394,3652.45,3653.0398,24,Oh oh.
4483297,395,3653.75,3654.3601,24,Sorry Hannis.
4483297,396,3654.3601,3655.79,24,Just build off the second question.
4483297,397,3655.8999,3665.0298,20,I think there was a co-question around protein and lemme just expand on that and I'll I'll give you a specific guidance on how much we sell and whether the a hundred million is warm or cold.
4483297,398,3665.3999,3676.1099,20,But what we do we have a sizable business on protein extraction and protein modification that relates to meat patties both delivering on taste and texture and reduction on salt.
4483297,399,3676.1399,3678.6501,20,It's a business that's growing very very nicely right now.
4483297,400,3678.9099,3685.04,20,And of course when you look at the trends we have a lot of hope and faith that we'll continue to grow for all Novozymes.
4483297,401,3686.71,3687.53,24,And now yes.
4483297,402,3687.9099,3690.24,24,Thank you very much for all your questions.
4483297,403,3690.5,3695.3901,24,Thank you for your time and looking forward to continue the conversations with you in the forecoming days.
4483297,404,3695.54,3696.5701,24,Wishing you a very nice day.
4483297,405,3696.8401,3697.1401,24,Thank you.
4483320,0,11.52,20.69,0,Uh welcome to the Lundin Energy q four twenty twenty one uh Results and also the twenty twenty two uh Business Outlook and and Budget for the year.
4483320,1,21.17,24.05,0,Um we'll run today like a normal set of results.
4483320,2,24.05,41.04,0,Actually we um we will have Nick Walker talk through the top line some operational highlights uh and then we'll hand over to to Dan Fitzgerald he'll talk you through the operations uh and then over to Teitur Poulsen he'll talk you through the financial performance for the year uh and an outlook into twenty twenty two.
4483320,3,41.32,51.49,0,Um after that we'll be followed by the q a and that we'll run it uh by the conference call line first q and a and then I'll host the calls from the web thereafter.
4483320,4,52.17,54.78,0,So uh thanks for joining and I'll hand over to Nick Walker.
4483320,5,54.78,56.86,0,he will he'll kick off the presentation.
4483320,6,59.79,60.34,1,Thank you Ed.
4483320,7,60.34,73.49,1,And uh good afternoon or or good morning if you're joining us from north America and it's great to have you all join our London Energies uh twenty twenty one uh results discussion and uh uh twenty twenty two uh business outlook.
4483320,8,74.04,82.15,1,Of course given the transaction we announced with Aker BP in December the format today is naturally slightly different to our usual Capital Markets Day.
4483320,9,82.15,88.76,1,And as Ed says I'll I'll give a an overview and then uh give a an insight into the uh the Aker BP transaction.
4483320,10,88.76,90.83,1,And uh and then we'll run through the agenda.
4483320,11,90.83,96.13,1,And of course uh as usual uh we'll give you the opportunities for answer your questions at the end.
4483320,12,98.6,101.0,1,So first of all the key highlights for twenty twenty one.
4483320,13,101.0,106.77,1,I'm really pleased to report uh uh record production and record financial uh results for the full year.
4483320,14,107.49,111.52,1,This is underpinned by continued uh excellent operating performance.
4483320,15,111.68,116.06,1,And of course the strong oil and gas prices uh that we're enjoying uh today.
4483320,16,117.31,121.88,1,You can see our world class assets continue to outperform uh full year production.
4483320,17,121.91,125.06,1,You can see came in at a hundred ninety thousand BOEs per day.
4483320,18,125.06,127.25,1,That's top of the original guidance range.
4483320,19,127.76,131.5,1,And we exited the year at just under two hundred thousand BOEs per day.
4483320,20,133.95,148.35,1,All of our key projects are on track uh in the greater Edvard Grieg we delivered an infill drilling program and we delivered two tieback projects to the facilities Solveig and Rolvsnes and all of those projects came in on budget and on schedule.
4483320,21,149.02,154.7,1,And together with a number of new projects that being planned we'll keep the facilities full in the long term.
4483320,22,156.05,164.86,1,Johan Sverdrup Phase two remains firmly on schedule for first oil later this year which will provide a big boost to our production uh as you'll see when Dan talks.
4483320,23,165.54,170.0,1,And we have two projects in the Alvin area just started in the execution phase.
4483320,24,171.09,176.27,1,We again grew the business with a resource replacement ratio last year of two hundred percent.
4483320,25,176.88,181.06,1,And I see more to come from continued growth in our world class assets.
4483320,26,181.06,184.42,1,And I think Dan will give you a flavor for that when he talks.
4483320,27,186.88,198.53,1,Our high quality cash generative business uh delivered record financial results uh you can see continuing industry leading low operating costs of three point one oh dollars per B O E in the year.
4483320,28,199.41,208.58,1,We generated record-free cashflow on the back of uh strong production performance and uh strong prices of one point six billion for the year.
4483320,29,208.75,218.06,1,That's over three times our annual dividends and results in us de-leveraging the business with net debt reduced to two point seven billion at the year end.
4483320,30,219.65,227.78,1,We're also making gate progress on our de-carbonization plan with the company set to be carbon neutral by twenty twenty three from operational emissions.
4483320,31,228.18,234.49,1,And I see this is a key value differentiator for Lundin Energy and supports our top quartile E S G ratings.
4483320,32,235.69,241.3,1,And this is the foundation of our recent inclusion in the DAO Jones sustainability index for Europe.
4483320,33,241.61,242.72,1,And I think this is a big deal.
4483320,34,242.72,246.42,1,It's one of the biggest accolades you can get in relation to E S G.
4483320,35,247.64,253.72,1,So in summary we've delivered excellent results in twenty twenty one and all of our key business priorities are on track.
4483320,36,254.8,267.52,1,But also at the end of last year I was very pleased that we announced a transaction we're combining Lundin Energy's E M P business with Aker BP to create the leading European independent E M P company.
4483320,37,267.97,270.3,1,And I'll talk about that in a few moments.
4483320,38,273.61,282.51,1,But first looking forward to what can you expect in twenty twenty two you can see where guiding production of a hundred eighty to two hundred thousand BOEs per day.
4483320,39,283.19,291.89,1,And that's consistent with what we've indicated previously with the main variable uh being the timing of the startup of Yon's Federal per phase two.
4483320,40,292.87,296.87,1,As I've discussed uh we're set to be carbon neutral by the end of this year.
4483320,41,297.75,303.83,1,And we continue to sustain low operating costs uh three point six oh dollars per barrel is the guidance for this year.
4483320,42,304.21,316.82,1,That's slightly above twenty twenty one levels but that's due to startup uh phase of Yon's Federal but when we get to a full year of production on Yon's Federal phase two then it drops down again in twenty twenty three.
4483320,43,318.58,330.65,1,In terms of operational delivery you'll see that Yon's Federal phase two comes online in the fourth quarter of the year lifting capacity through the field to seven hundred and fifty five thousand barrels of oil per day gross.
4483320,44,331.7,344.9,1,At Edvard Grieg we expect to see three new project sanctions uh by the end of the year supporting this long term production uh plateau extension and electrification of the facilities will start up uh later in the year.
4483320,45,345.13,348.46,1,And this is a of course a key element to our decarbonization plan.
4483320,46,349.95,358.28,1,And at the large Westin uh Field where we increased our interest last year to thirty five percent we will sanction uh that project development at the end of the year.
4483320,47,358.72,363.49,1,And this provides material support to the long term production outlook for the business.
4483320,48,364.77,386.81,1,And of course during the late year we expect the transaction with Aker BP to complete around the middle of the year And on the back of that strong performance and the outlook for the business and as we announced at the end of last year uh the board is recommending to the 20 22 AGM a quarterly dividend increase by twenty five percent from this year.
4483320,49,387.24,395.13,1,So on an annual basis that's two dollars and twenty five uh two dollars and twenty five cents per share which will be paid quarterly.
4483320,50,395.64,407.25,1,Uh this uh this is line with our dividend policy to grow shareholder returns and this uh increased dividend level will remain payable until closure o of the Aker BP transaction transaction.
4483320,51,408.2,415.03,1,And I now uh intend to run through a couple of slides uh that talk about the the proposed Aker BP Lundin Energy combination.
4483320,52,418.42,424.62,1,London energy is a track record of creating value for shareholders for for over twenty years which you can see uh shown in this slide.
4483320,53,424.62,442.94,1,Uh so since the company's inception the share price has grown through uh three sect per share in two thousand one to three roughly three hundred and seventy five sect per share today while also along a distributing around two and a half billion dollars uh through spinouts and dividends.
4483320,54,443.26,450.15,1,And this represents a twenty eight percent compound annual average return uh every year for twenty years.
4483320,55,451.67,475.21,1,However the board has felt uh for a while that to prosper through the energy transition that we need to build greater scale while retaining focus being low cost and low carbon which led to the process that we run during the second half of last year resulting in this proposed transaction where we announced in December to combine London Energies E M P business with Aker BP.
4483320,56,476.35,481.51,1,And leaving Lundin Energy uh renewables business which is positioned to grow.
4483320,57,482.59,492.4,1,And I think this creates more value for shareholders that I think selling the renewable business with the E M P business uh uh would would've uh would would not create that extra value.
4483320,58,492.8,498.97,1,So I'm convinced this transaction uh will continue our path of uh creating value for shareholders.
4483320,59,501.98,517.84,1,So focusing now on the details of the transaction the proposed combination of Aker BP and Lundin Energy's uh E M P business I think is a tremendous deal to combine these two great companies drawing on the best of both to make something even bigger and better.
4483320,60,518.25,528.53,1,It creates a Norwegian pure play E M P company of scale production growth low cost and low carbon emissions that I think is set to prosper through the energy transition.
4483320,61,529.25,543.73,1,It will be Europe's leading uh uh independent E M P company and one of the top independence in the world with a market cap of today around twenty three billion and will be uh Norway's third ranked listed company by value.
4483320,62,545.21,549.85,1,I think it's a great deal where the value of the combined business is greater than the component parts.
4483320,63,549.85,555.29,1,And I think in this set case we can truly say one plus one uh is to more than two.
4483320,64,556.72,564.6,1,And for the Lundin Energy shareholders this will deliver significant upfront cash consideration of approximately seventy two sect per share.
4483320,65,564.79,572.27,1,That's around twenty percent of the value of the company the opportunity to be a shareholder in the leading European E M P company.
4483320,66,572.61,585.87,1,And you can see receiving point a roughly point in oh dot nine five uh Aker BP shares for every one uh Lundin Energy share you hold and a retained interest in the new renewables business uh that is set for growth.
4483320,67,587.2,594.73,1,And the combined business has the financial strength and cashflow profile to pay a growing and sustainable dividend into the next decade.
4483320,68,595.71,599.74,1,Aker BP has announced a fourteen percent increase in dividend for this year.
4483320,69,600.04,607.81,1,And the combining group will pay an annual dividend of one point nine oh dollars per share post completion on a quarterly basis.
4483320,70,608.35,612.79,1,And the intent that is that will grow thereafter by at least five percent per annum.
4483320,71,614.14,620.71,1,And so I'm convinced that this combination proposal with Aker BP is a win-win outcome for both sets of shareholders.
4483320,72,621.36,631.92,1,And I think in terms of the process moving forward on the transaction uh the Lundin Energy uh shareholders will be asked to vote on the transaction at our A G M at the end of March.
4483320,73,632.32,636.46,1,Uh and the Aker BP uh shareholders will vote uh uh early April.
4483320,74,636.83,650.55,1,And then there's some necessary uh approvals government approvals and petition authority approvals in Norway which I I think um I see as a formality which will lead to closing of the transaction around the middle of the year.
4483320,75,654.01,656.0,1,And this is what the combined company looks like.
4483320,76,656.0,660.4,1,It will have reserved some resources of over two point seven billion BOEs.
4483320,77,661.37,666.1,1,Production today uh will be around four hundred thousand BOEs per day in twenty twenty two.
4483320,78,666.1,672.17,1,And that will grow to over five hundred and twenty five thousand BOEs per day in twenty twenty eight.
4483320,79,672.9,695.8101,1,You can see industry leading low operating costs of less than seven dollars a barrel an industry leading low carbon emissions of around one quarter uh of of industry average providing the combined entity the opportunity to continue continue a progressive and market leading decarbonization strategy which I think you will hear more about from Aker BP in that q four results.
4483320,80,697.54,700.4,1,And also delivering sustainable and growing dividends.
4483320,81,700.44,708.63,1,And this creates a company of scale production growth low cost low carbon emissions which as I say I think will prosper through the energy transition.
4483320,82,712.66,718.28,1,And for the remaining Lundin Energy business this will be a new renewable company that we intend to grow.
4483320,83,719.06,726.8,1,It has three high quality renewable assets in the Nordics which when fully built out will produce six hundred GW hours per annum net.
4483320,84,728.37,740.27,1,This business will be debt free and with significant cash reserves complete the projects and generating free cash flow from the end of twenty twenty three and with the financial capacity to grow the business.
4483320,85,741.43,749.04,1,We also intend to position this to pursue other opportunities and consider other opportunities through the energy transition.
4483320,86,750.61,754.06,1,The business will remain listed on the Nasdaq Stockholm exchange.
4483320,87,754.67,759.89,1,And I think this is a really a great opportunity to grow and create further significant value from this business.
4483320,88,760.53,771.6469999999999,1,And we will outline what the business plan the management board and governance details are gonna be for this on the seventh of March so that you can understand the opportunity ahead of our A G M.
4483320,89,772.99,774.32,1,So that's is what I wanted to cover.
4483320,90,774.32,778.14,1,So now I'm gonna hand over to Dan who will give you some more details on our operations.
4483320,91,778.14,779.23,1,So over to you Dan.
4483320,92,781.61,782.14,2,Thank you Nick.
4483320,93,782.14,791.13,2,And it's a pleasure to be here presenting today what has been a a phenomenal year of performance for Lundin and not withstanding the Aker BP transaction.
4483320,94,791.49,798.06,2,A really exciting um outlook for twenty twenty two with a lot of activity aimed at continuing to to grow the business.
4483320,95,798.67,807.5,2,And so if we look across the the operations and the assets that we have today it's been another year of really good top tier operating performance.
4483320,96,808.18,816.72,2,On Johan Sverdrup the excellent performance we've seen over the past eighteen months two years has continued um continued in the same fashion.
4483320,97,817.0,822.53,2,And we're gonna touch a little bit later on where we see opportunities for resource or further resource growth in Johan Sverdrup.
4483320,98,823.99,832.76,2,On Edvard Grieg we've seen a reserves upgrade uh of around forty million barrels this year which is more than we produced from the area in twenty twenty one.
4483320,99,833.04,838.1,2,And that that comes from not only the Edvard Grieg field but starting to see some of the upsides in the tiebacks.
4483320,100,838.1,843.5,2,And so we'll we'll delve into those a little bit more and the activities that we have to continue that growth into the future.
4483320,101,845.05,857.16,2,We have five new projects moving towards sanction this year and that that corresponds to net resources of around two hundred and forty million barrels that we're aiming to mature towards the reserves at the end of the year.
4483320,102,857.58,865.83,2,And each of those projects has an exciting potential to to continue to grow beyond what we put forward in in these project sanctions.
4483320,103,867.12,878.21,2,If we look at the the resource replacement we've added two barrels for every barrel we we produced in twenty twenty one and that comes primarily from the Westin acquisition we announced at the end of last year.
4483320,104,878.81,883.79,2,Growth in the Edvard Grieg area and the the subsea tiebacks to Edvard Grieg as well.
4483320,105,884.33,891.71,2,And that corresponds to a hundred and forty million barrels of two p plus two c re resource editions in twenty twenty one.
4483320,106,893.18,896.51,2,And the operating performance of the assets really has been world class.
4483320,107,896.51,905.4,2,We've been at ninety eight percent on Edvard Grieg Johan Sverdrup and ninety five on Alvheim which really is world class performance from all of these assets.
4483320,108,905.7,911.87,2,And something you'll see which is unparalleled in the industry when you look broadly across not only Norway but the wider industry.
4483320,109,913.01,925.62,2,And we've done that at an all in cost of three point one oh dollars per barrel that to us OPEX and a carbon intensity of less than three kilograms of c o two per barrel which is really world class operating performance.
4483320,110,928.51,931.21,2,Nick touched quickly on our production in twenty twenty one.
4483320,111,931.21,939.28,2,And we we finished the year above the top end of our original guidance range at just over a hundred ninety thousand barrels of oil equivalent per day.
4483320,112,939.98,951.15,2,And you see here the growth towards the tail end of the year with a hundred ninety four in q three and a hundred ninety five in q four and December finished just shy of two hundred thousand barrels per day.
4483320,113,951.89,961.19,2,And the outperformance in twenty twenty one really was due to Edvard Grieg and a little bit from Johan Sverdrup really high production efficiency on both assets.
4483320,114,961.59,967.47,2,And we saw some increased capacity available on Edvard Grieg which we took advantage of towards the tail end of the year.
4483320,115,968.73,981.65,2,And that puts us in a position where now for six and a half the company has been delivering at or above the midpoint of its production guidance range which is which is really an an outstanding achievement um all considered.
4483320,116,983.85,992.44,2,If we look forward towards twenty twenty two and this year we've given guidance of a hundred eighty thousand to two hundred 000 barrels of oil equivalent per day.
4483320,117,992.9,996.38,2,And that range is really driven by two main themes of activities.
4483320,118,997.05,1008.97,2,In q two we'll see turnarounds planned outages on Johan Sverdrup which will be the hookup and commissioning of the Phase two platform which will have been lifted late in q one of this year.
4483320,119,1009.85,1012.91,2,Edvard Grieg has a planned maintenance turnaround as well in q two.
4483320,120,1013.55,1021.75,2,And then in q four we see the startup of Johan Sverdrup Phase two and that really drives the opening and increasing of our guidance range towards the end of the year.
4483320,121,1022.65,1027.2999,2,And there's some some flex in that range in the low side we see it start later in q four.
4483320,122,1027.65,1030.9,2,And in the high side we see it starting in the early part of q four.
4483320,123,1031.52,1036.1901,2,And so the the external guidance for Johan Sverdrup is firmly on track for q four.
4483320,124,1036.41,1041.5701,2,And we see a range of outcomes possible in our external guidance for this year sorry.
4483320,125,1044.05,1050.86,2,And all of that will be completed with operating costs still in our long term guidance range of between three and four dollars per barrel.
4483320,126,1051.22,1054.96,2,And we maintain that range as we look forward with a another year behind us.
4483320,127,1056.24,1070.13,2,twenty twenty one our outturn on the year was around just over ten cents higher than what we expected at three dollars ten still industry leading levels but were impacted towards the tail end of the year by increased carbon prices and increased electricity prices.
4483320,128,1070.98,1085.25,2,As we move into twenty twenty two we're guiding at three dollars sixty per B O E and that takes into account the fact that we have increased costs in Johan Sverdrup and we don't benefit from all of the production upside we see getting phase two online.
4483320,129,1086.3,1092.1801,2,We also see an increase in in carbon price pricing and electricity pricing which is taken into account in this guidance.
4483320,130,1093.34,1109.09,2,As we roll then into twenty twenty three and we see a full year of production impact from Johan Sverdrup Phase two we'll see our operating costs reduce back to our long term average of between three and four and down at the lower end of that range while we remain on plateau for Johan Sverdrup.
4483320,131,1109.85,1116.5901,2,So all in all we we remain industry leading on operating costs and we expect to to maintain that guidance going forwards.
4483320,132,1121.28,1128.6699,2,Our carbon neutral promise still stands firm and we're now less than twelve months away from being carbon neutral on our operations.
4483320,133,1129.15,1134.5599,2,And the three key pillars we have driving that carbon neutrality is firstly powering our assets from shore.
4483320,134,1135.26,1142.12,2,Secondly powering them by renewable assets which we've invested in and third natural carbon capture projects.
4483320,135,1142.6899,1143.97,2,And on the electrification…
4483320,136,1151.21,1159.1899,3,And once we see phase two online then we'll see Edvard Grieg um powered from from shore through through the P-two platform.
4483320,137,1160.3,1165.8099,3,Our renewable projects are progressing well and by the end of next year all three of the projects will be fully online.
4483320,138,1166.6801,1171.42,3,Today Like Hangar is fully online which is a hydropower plant in-in Norway.
4483320,139,1172.24,1175.2799,3,m l k we have around half the turbines generating power.
4483320,140,1175.99,1191.2101,3,About three quarters of them are fully commissioned and nearly all of them by one uh are fully constructed and so we are slightly delayed from our original plan of end of last year but we expect to see m l k fully online and handed over towards the tail end of q one this year.
4483320,141,1191.8199,1203.0699,3,Then we move into Sweden with our Cast Groove project and that will be online towards the tail end of twenty twenty three and and the activities project activities have already commenced on Cast Groove.
4483320,142,1204.29,1213.1799,3,And then our natural carbon capture projects once we complete those first two pillars there's a small amount of remaining emissions and our natural carbon capture projects are firmly on track.
4483320,143,1213.8199,1225.09,3,We've planted around half a million trees to date we have-just shy of three million being planted this year and a total of eight million trees being planted which will capture the residual emissions from our business.
4483320,144,1225.96,1228.21,3,And as we move forward Nick touched on this a little bit;
4483320,145,1228.25,1233.53,3,Aker BP will acquire the assets and will pick up all of the electrification projects and assets.
4483320,146,1233.92,1240.7001,3,They will also pick up the natural carbon capture projects with the renewables staying behind in-in Lundin Energies Renewables Company.
4483320,147,1241.41,1247.5599,3,And uh Aker BP are going to communicate a little more on this when they come out and speak to the markets later in their q four results.
4483320,148,1249.6801,1258.46,3,Then if we start to look through some of the key assets across our portfolio Johan Sverdrup really has had another year of world class delivery.
4483320,149,1259.38,1266.6899,3,We've seen emissions from a from the Johan Sverdrup asset at significantly lower than point one kilograms of c o two per barrel.
4483320,150,1267.7,1276.9399,3,Operating costs down at less than two dollars a barrel with extremely high production efficiency and a credit to all of the teams involved in making this performance happen.
4483320,151,1277.89,1283.04,3,this this will continue with Phase Two coming on stream and we see some of the benefits of that;
4483320,152,1283.04,1291.6001,3,not only on Johan Sverdrup but in the whole Sierra high region with the power from shore infrastructure coming on and so we expect to see this performance continuing on Johan Sverdrup.
4483320,153,1294.27,1301.86,3,If we look at the opportunities for resource growth and we we open this door a little bit at the end of last year where we are now looking…
4483320,154,1301.86,1315.6,3,now that we have more production data from phase one we're looking for opportunities on how we can continue to grow the Johan Sverdrup field and how we can a-realize some of the key things that were-key themes that we see as-as upside in Johan Sverdrup.
4483320,155,1316.62,1325.4299,3,The first one that we we touched on in our reserves announcement and today in our um guidance announcement is on acceleration.
4483320,156,1325.89,1330.3401,3,And so this year we've put a range of infill wells into our two p reserves.
4483320,157,1330.6899,1339.33,3,And we see a lot more potential in the field for infill drilling and bringing forward some of the tail end resources from Johan Sverdrup.
4483320,158,1339.79,1342.4,3,And this field has an extremely long tail and a…
4483320,159,1342.4,1346.2401,3,a lot of volumes which can be recovered over its entire field life.
4483320,160,1346.62,1355.61,3,If we're able to take some of those volumes and move them forward extending plateau and arresting the decline are two opportunities where we can see significant potential.
4483320,161,1355.61,1360.49,3,and we're doing pieces of work to try and identify and understand what that potential looks like.
4483320,162,1362.1801,1371.14,3,Secondly there's some constraints around some of the um facilities capacity and reservoir management that we're trying to understand and investigate here.
4483320,163,1371.79,1382.4401,3,And especially around water handling and water injection we see some significant upside there and finally you can see here the development so far has been concentrated in the field center.
4483320,164,1383.12,1399.0099,3,And we still see significant opportunity and uncertainty around the outside and the flanks of the field where there's opportunity for further understanding potentially increased thickness of the reservoir and further to that further development which could see some of those volumes being produced.
4483320,165,1399.01,1410.37,3,So with all three of these acceleration through infill drilling and improvement in capacity and further understanding and development of the flanks of the field we see significant running room in Johan Sverdrup.
4483320,166,1411.0699,1414.98,3,And that in the fullness of time will be able to share more details of what that looks like.
4483320,167,1417.13,1421.6,3,The Phase Two project on Johan Sverdrup is firmly on schedule for q four of this year.
4483320,168,1422.6801,1424.66,3,We're around seventy percent Complete now.
4483320,169,1424.9,1434.86,3,We've started drilling on some of the satellite areas and the p two processing platform will be installed in-in late q one of this year with the hook up and commissioning in q two.
4483320,170,1435.5601,1439.03,3,And the project teams are doing a phenomenal job a-at managing it.
4483320,171,1439.0601,1447.25,3,All of the risks and uncertainties with this project not withstanding COVID Over the last two years and being able to keep this project firmly on the track.
4483320,172,1447.84,1451.99,3,And not only on track on schedule we're we're on cost as well.
4483320,173,1451.99,1456.5801,3,So we still sit with costs in line with the PTO estimate for phase two.
4483320,174,1458.97,1461.2799,3,Moving now on to the greater Edvard Grieg area.
4483320,175,1461.9,1468.0499,3,And this really is a core area for Lundin Energy and one where we've seen significant growth and significant upside.
4483320,176,1468.53,1471.3099,3,And there's still a significant amount of activity in this region.
4483320,177,1472.21,1478.16,3,We started with Edvard Grieg at a hundred ninety six million barrels of two p reserves when we sanctioned the project.
4483320,178,1478.58,1482.12,3,And now in the greater area we see that growing to four hundred and fifty.
4483320,179,1482.9399,1494.88,3,If we include the upsides and some potential exploration success we could be between six hundred and eight hundred million barrels of-of reserves and resources in this area which is over four times what we started with.
4483320,180,1495.63,1497.54,3,And Edvard Grieg itself is performing well.
4483320,181,1497.54,1499.64,3,We've seen out performance reserves increase.
4483320,182,1500.03,1501.85,3,Solveig has grown over the years;
4483320,183,1501.85,1502.61,3,this year As well.
4483320,184,1502.61,1506.13,3,we see reserves increased because of the the results of drilling.
4483320,185,1506.61,1525.9601,3,And we've got three projects in the area of further development on Solveig roughness for field and Lille Prinsen into the north where we see future potential to grow in the Edvard Grieg area edvard Grieg itself we announced uh just shy of thirty million barrels increase in the two p reserves from Edvard Grieg.
4483320,186,1525.96,1530.51,3,And you can see in the bottom left here how much this has grown since p d o.
4483320,187,1530.77,1534.24,3,a hundred eighty six million barrels is now just shy of three hundred and eighty.
4483320,188,1534.24,1536.77,3,And we still have upsides to continue to grow that.
4483320,189,1537.76,1543.88,3,And where we see upsides we completed the um infill wells this year on schedule;
4483320,190,1544.34,1545.0801,3,on budget.
4483320,191,1545.65,1553.23,3,And the-the productivity from two of these wells with the fish bones is significantly higher than what we expected to see.
4483320,192,1553.84,1564.1901,3,And so we see further potential to deploy the fish bones more towards the eastern flanks of the field and the Eastern core of the field where we have slightly poorer reservoir quality.
4483320,193,1564.49,1568.8401,3,And that's where we see the real benefit of these Fish bone completions by increasing productivity.
4483320,194,1569.99,1573.42,3,We drilled for the first time production wells into the Jorvic high;
4483320,195,1573.42,1574.5,3,in the Jorvic basin.
4483320,196,1574.8101,1580.67,3,And we see further running room which we'll understand a little bit more through um through the production performance of the wells.
4483320,197,1581.49,1582.4099,3,In the northern area.
4483320,198,1582.41,1589.66,3,We have two wells already producing from the Tellus area where we see a very small layer of-of Asgard sand sitting above basement.
4483320,199,1590.15,1598.4,3,And those two wells in the North have seen a really good charge from the basement into this thin sand giving us good production performance.
4483320,200,1598.83,1602.5701,3,And so we'll talk in a slide or two around the whole basement potential in the region.
4483320,201,1602.91,1605.5701,3,But already we have wells on production in the basement.
4483320,202,1606.25,1616.9299,3,In your Jorvic and in Tellus we have further opportunity in-in the field to f-to explore what the basement potential could be on top of where this Asgard sand will sit in those regions.
4483320,203,1617.84,1620.3199,3,On top of that we have further infill drilling planned in the…
4483320,204,1620.3199,1621.78,3,in the core of the field as well.
4483320,205,1621.78,1634.61,3,So although we've already seen significant resource growth in Edvard Grieg I don't think we're yet finished with Edvard grieg in Solveig we started this field in q three of twenty twenty one.
4483320,206,1635.22,1639.1901,3,And we've seen an increase in reservoir properties due to the…
4483320,207,1639.23,1646.8199,3,the results of the drilling campaign on Solveig and so that drives the increase of eleven million barrels to our two p reserves.
4483320,208,1647.5,1656.6801,3,We're now getting ready for a phase two development which you'll take into account the de segment discovery we-we made last year and there's a well towards the northeast of the field.
4483320,209,1657.04,1660.1899,3,And in the southwest you see two wells in the SYN rift section.
4483320,210,1660.62,1663.71,3,And so we will be maturing this project through towards p d o.
4483320,211,1664.25,1665.58,3,And we're looking at opportunities.
4483320,212,1665.58,1672.16,3,We see segment A there we're looking at opportunities to further explore and expand Solveig to continue this growth story.
4483320,213,1675.83,1682.0599,3,And finally on the Edvard Grieg area a little bit around Lille Prinsen in the regional basement potential in Rolvsnes.
4483320,214,1682.6801,1692.09,3,So in-in Rolvsnes if we start in the South of this Rolvsnes has a resource potential of between fourteen and seventy eight million barrels of-of resources.
4483320,215,1692.09,1694.86,3,We have the extended well test which we started up last year.
4483320,216,1695.6801,1702.0701,3,And this well tests aims to prove a number of things in the basement One that we have productivity over a long period of time.
4483320,217,1702.6801,1705.77,3,And two to that we we have a water cut development that…
4483320,218,1705.9399,1707.92,3,that allows for a full field development.
4483320,219,1707.92,1718.11,3,And so the stability of the water cut development is key to ensure that the fractured and weathered basement continues to contribute to a well over a long period of time.
4483320,220,1718.34,1724.51,3,And we see matrix flow not only fracture flow where we see water coming up from from underneath the field.
4483320,221,1730.9,1733.41,3,And the key thing is that there's stability in the…
4483320,222,1733.4399,1742.2001,3,in the water cup development means we're seeing a lot more contribution from the weathered basement and a lot more contribution from the matrix.
4483320,223,1742.6,1746.46,3,And so because we're starting to see this this water cut stabilize;
4483320,224,1746.74,1751.9,3,it suggests that we've got a significant running room on Rolvsnes to continue with a full field development.
4483320,225,1752.29,1760.01,3,And I think what you'll see on that development is a phase development where where we take small steps to further understand the resource potential.
4483320,226,1760.89,1765.4401,3,And so if we take that knowledge on the basement and step up to Lille Prinsen.
4483320,227,1766.29,1777.22,3,last year we completed a transaction with Equinor to acquire an extra twenty percent and take operatorship of Lille Prinsen and then we drilled a suite of-of exploration appraisal wells this year.
4483320,228,1777.91,1783.62,3,And what we've found is some good quality sands in Lille Prinsen but we've also found basement potential below.
4483320,229,1784.36,1790.49,3,And so what you see here in-in the resource range is primarily the good quality sands with a small amount of basement potential.
4483320,230,1790.91,1797.45,3,But what we found in that basement is we have three times the thickness or up to three times the thickness of what we do in-in Rolvsnes.
4483320,231,1798.54,1807.6699,3,And we also have um the oil in Lille Prinsen is the same as Edvard Greig and roughly in pressure communication potentially through the aquifer.
4483320,232,1807.67,1812.7,3,So you have this basement potential that extends from Rolvsnes all the way up to Lille Prinsen.
4483320,233,1813.42,1820.37,3,And we have the ability to go and phase the development in Lille Prinsen as well to test some of this basement potential on top of the base.
4483320,234,1820.89,1833.9601,3,And so if we put our arms around all of that there's potentially up to three hundred million barrels of gross potential in this area due to basement alone on top of what we have in um in the field and the non basement potential.
4483320,235,1834.75,1846.51,3,And so we'll be spending a little bit more time this year with both the P-D-O's and the understanding in the area to try and explore what further potential we have in in the regional basement in in the Utsira High.
4483320,236,1849.13,1864.38,3,Stepping out of the Utsira High into Wisting this will become a new core production area for Lundin Energy and as N-Nick touched on earlier it's a really strategic acquisition for us that adds long life resources into a window where-where we are looking for that growth.
4483320,237,1865.11,1870.99,3,And so we remain firmly on track with engineering and the work required to submit the p d o at the end of this year.
4483320,238,1871.89,1883.0,3,And we've also been awarded a further license in the latest app around and we'll take a a thirty five percent working interest in all of the acreage around Westing and operatorship of the exploration phase.
4483320,239,1883.45,1888.92,3,And there's running room of up to five hundred million barrels as identified today on that exploration potential.
4483320,240,1889.55,1893.3401,3,And we'll be working with Equinor the operator to mature that forward.
4483320,241,1893.34,1895.17,3,So really exciting area.
4483320,242,1895.17,1898.76,3,I think there's more to hear regarding Wisting as we move forward.
4483320,243,1901.26,1907.45,3,in the Alfheimer area the-the fantastic work that I could BP have been doing in Alfheime really continues.
4483320,244,1908.12,1910.2,3,We see new projects Cumper East…
4483320,245,1910.5,1919.01,3,and Cumper East Gecko and Frost was sanctioned last year and they're moving into the execution phase and we should see Trellentrein moving through the same process this year.
4483320,246,1919.77,1928.9299,3,And those material additions add significant volumes but also significant production into the profile for for the Alfheimer area and I think that will continue into the future.
4483320,247,1931.8101,1936.51,3,Looking at the future growth potential we have three projects in execution just now.
4483320,248,1937.05,1939.9,3,Cake Frosk and Johan Sverdrup phase two.
4483320,249,1940.39,1942.28,3,And then five more progressing to p d o.
4483320,250,1942.28,1947.24,3,And those five represent two hundred and forty million barrels net resource.
4483320,251,1947.7,1948.27,3,And so that…
4483320,252,1948.27,1959.01,3,that project is our short to medium term production growth and then we have a remaining program of five V N A wells in twenty twenty two targeting around a hundred forty million barrels.
4483320,253,1959.5601,1970.7101,3,And so we'll see those being drilled through the course of the year And then we have a material program ongoing with still around a hundred licenses in Norway and an exciting program for twenty twenty three and beyond as well.
4483320,254,1974.84,1978.75,3,My final two slides looking at reserves resources and production;
4483320,255,1978.8199,1987.16,3,on the reserves and resources position We touched on the two hundred percent Resource replacement ratio for twenty twenty one.
4483320,256,1987.53,1991.6,3,And that-that's made up of primarily Wisting Edvard Grieg and Solveig.
4483320,257,1991.92,2007.76,3,And so if we look at the reconciliation of our two p reserves of two c resources we see the production of seventy one million barrels we see Edvard Grieg and Solveig two p reserve additions of thirty nine corresponding to around fifty five percent reserve replacement ratio.
4483320,258,2008.3101,2016.5701,3,And then we see the Wisting transaction coming in less some of the the stranded assets in the balance which we took off the books at the end of last year.
4483320,259,2016.96,2021.29,3,And all of that together points towards a strong resource replacement ratio;
4483320,260,2021.29,2027.95,3,two barrels added for every barrel produced and over a billion B-O-E's of two p resources and two…
4483320,261,2028.09,2030.4601,3,sorry two c resources and two p reserves.
4483320,262,2033.15,2037.4,3,And then my final slide before I hand over to Tighter is our long term production outlook.
4483320,263,2037.4,2046.35,3,And we've shared this for the last few years that CMD and year on year we see that the two p reserves position continues to increase.
4483320,264,2046.9,2051.2,3,And so you can see on here in the dark blue bars our current two p reserves position.
4483320,265,2051.54,2057.1301,3,And you see in the red line what the two p reserves were at the year end twenty twenty So twelve months ago.
4483320,266,2057.6599,2059.77,3,And you see nearly every year an increase.
4483320,267,2060.23,2065.27,3,And our role as a-as a technical management team is to turn some of the three p and up sides.
4483320,268,2065.27,2067.05,3,into two p reserves over time.
4483320,269,2067.3701,2070.7002,3,And I think you've seen our track record of doing that year after year.
4483320,270,2071.01,2074.8499,3,And you see the potential in our asset base to continue to do that over time.
4483320,271,2075.2,2076.9802,3,And so we all believe that-that that a…
4483320,272,2077.48,2083.3999,3,that three p and up sides will continue to be added into the two p and new opportunities will come on top of that.
4483320,273,2084.3101,2087.8701,3,And so our production growth outlook is greater than two hundred by twenty twenty three.
4483320,274,2087.8701,2095.74,3,And significantly more as you can see here and where we will sustain that greater than two hundred With this pipeline of projects and new opportunities.
4483320,275,2096.8,2099.6099,3,And so it's been a fantastic year in twenty twenty one.
4483320,276,2099.6599,2102.1599,3,Really strong performance across all of the assets.
4483320,277,2102.5701,2106.05,3,And I think there's a really exciting portfolio for this year to continue.
4483320,278,2106.6399,2119.5701,3,And putting this portfolio together with Aker BP as Nick touched on creates one of the world's oil certainly Europe's leading and one of the world's leading low cost low carbon companies with significant growth into the future.
4483320,279,2120.8,2122.7,3,And with that I'll pass over to Tighter.
4483320,280,2125.47,2130.6702,4,Okay thanks Stan for that and Good afternoon everybody uh or good morning depending on where you are.
4483320,281,2131.3401,2141.1899,4,So we are not gonna go through q four financial numbers which again are gonna show a very strong quarterly performance and we are also touching on the full year results for the company.
4483320,282,2141.8601,2148.6702,4,And then towards the end we will give a brief guidance on the twenty twenty two numbers as we see them.
4483320,283,2149.3899,2158.3201,4,And just a a comment on the accounting implications from the announced deal with Aker BP whereby we combine our E M P business with Aker BP.
4483320,284,2159.1201,2169.26,4,What that means is that from the fourth quarter onward we will present all the numbers relating to the EMP businesses as discontinued operations in our consolidated income statement.
4483320,285,2169.97,2179.7,4,And similarly on loan consolidated balance sheet we will present the liabilities and assets associated with the business's assets and liabilities held for for distribution.
4483320,286,2180.5801,2189.6599,4,But in terms of the numbers we're presenting here today you'll see everything as normal as we are combining discontinued and continuous operation together into one financial metric.
4483320,287,2192.48,2200.3699,4,So starting off with with the key highlights for for the fourth quarter and also q four and the for the full year and q four.
4483320,288,2201.26,2207.1902,4,As we announced ahead of releases that we have had a lower lift in the fourth quarter.
4483320,289,2207.8,2211.26,4,So the sales volume is a hundred ninety nine thousand b u e per day.
4483320,290,2211.6399,2216.1301,4,And understand the number that drives all the financial numbers we are reporting for the quarter.
4483320,291,2216.6899,2226.95,4,And similarly for the full year we were also over the last basis by around about six thousand miles on ninety six thousand b u e per day in terms of salt uh volume.
4483320,292,2228.0801,2233.1599,4,Uh strong price oil prices have been very-very strong similar to-to gas prices.
4483320,293,2233.6299,2247.51,4,Uh seventy seven dollars A barrel for the crude oil result in the fourth quarter and actually over two hundred dollars A barrel in b u e terms for gas around about thirty four bucks per-per M C F.
4483320,294,2248.55,2258.46,4,Obviously the gas uh market in-in Europe has been valid advertised to be extremely tight and that's certainly shown true in our realized um gas uh gas prices.
4483320,295,2259.47,2265.3999,4,Cost we've been through those to some degree but three dollars eighty one per barrel for the fourth uh quarter.
4483320,296,2266.04,2270.5198,4,And we had oil and gas investments of just over two hundred and thirty million dollars.
4483320,297,2270.9099,2282.24,4,And also we-we completed the listing acquisition in the fourth quarter so that led to a three hundred and twenty million dollars uh cash consideration to uh only four to twenty five percent we acquired.
4483320,298,2296.4399,2301.3301,5,And then generating free cash flow of one point six billion dollars for the for the full year.
4483320,299,2302.0701,2308.48,5,And that delivered the deck position of the company down to just over two point six two and seven uh billion.
4483320,300,2309.9399,2313.24,5,And as Nick mentioned we are again increasing dividends.
4483320,301,2313.8,2327.04,5,That was the uh uh criteria we set out when we started off paying dividends in two thousand eighteen and we've essentially increased dividends in line with financial ordinance over that period except for the year twenty twenty when we had the COVID impact.
4483320,302,2327.04,2338.8401,5,But again our material increase in dividend proposed to the inaudible this year of twenty five percent which equates to just over fifty six cents per quarter in quarterly dividend payments.
4483320,303,2341.5601,2347.29,5,If we then look at some of the key financial metrics that we normally report on as we go through the year.
4483320,304,2347.79,2354.47,5,Starting off with uh EBITDA at one point four six billion dollars for the quarter.
4483320,305,2354.52,2358.9302,5,That's generated off revenue of one point five five billion dollars.
4483320,306,2358.9299,2365.9102,5,And as you can see in the top right corner very strong sales price for the quarter eighty four dollars per BOE.
4483320,307,2366.3999,2372.3899,5,Obviously as I mentioned the the gas inaudible gas prices is pulling up the BOE number quite significantly.
4483320,308,2372.3899,2375.7,5,So ninety four percent up on the same quarter last year.
4483320,309,2375.7,2382.23,5,And also to say this volume's up eighteen point three million barrels up six percent uh on the same quarter last year.
4483320,310,2383.3501,2388.8801,5,The cash flows from operation in the fourth quarter came in just below five hundred and sixty million dollars.
4483320,311,2389.6101,2396.0901,5,In the fourth quarter uh we always have a higher tax installment in Norway given how the defacing of tax installments works.
4483320,312,2396.6101,2402.25,5,So we've paid seven hundred and ten million dollars in in cash taxes uh in the quarter.
4483320,313,2402.79,2411.9402,5,And in addition we also had to work on capital build of uh over a hundred and forty million dollars given to continue the strong oil price performance as we went through uh through the year.
4483320,314,2412.5801,2418.1401,5,So also c f f o is up more than double on on the on the period same period last year.
4483320,315,2419.55,2431.73,5,Uh free cash flow uh before dividend payments uh twenty two million dollars and that was also impacted by by the settlement of the inaudible acquisition of the three hundred and twenty million dollars.
4483320,316,2432.1899,2438.9399,5,So we had all in uh investment levels of uh five hundred and thirty million dollars in the quarter.
4483320,317,2440.6899,2449.0701,5,And then in terms of adjusted net results uh two hundred and ninety three million dollars for the for the fourth quarter.
4483320,318,2449.73,2455.71,5,But on the face of the income statement if you combine discontinued and continued operation we came in at a hundred and twenty two million dollars.
4483320,319,2456.3899,2468.51,5,Again the the inaudible acquisition with the Aker BP has led to certain one-off uh financial items which we normally just uh move through equity is now having to be charged to the income statement.
4483320,320,2468.51,2475.8701,5,Such as FX and interest rates flops which are now all deemed ineffective given the the transaction we have announced.
4483320,321,2476.52,2484.6699,5,So that movement normally went to equity where it's now going forward that that will be uh fully charged to the to the income statement.
4483320,322,2487.6399,2490.28,5,And then a similar outlook for the for the full year.
4483320,323,2490.3101,2494.71,5,Uh we generated five point one billion dollars of revenue for the full year.
4483320,324,2495.1299,2507.6799,5,So that led as I said to EBITDA of four point eight billion dollars and at our q three numbers we actually guided EBITDA full year EBITDA between four point eight and four point nine so we came roughly in uh in at the middle of that uh guidance.
4483320,325,2508.8501,2513.4001,5,And then c f f o came in as I said just above three billion dollars.
4483320,326,2513.8301,2519.3098,5,That then includes uh cash tax payments for the full year of one point four billion dollars.
4483320,327,2519.3101,2525.8,5,And also uh our capital build for the full year of uh two hundred and thirty million dollars.
4483320,328,2525.8,2532.3701,5,So very strong cash flow generation and more than doubling from the uh from twenty twenty uh numbers.
4483320,329,2533.6299,2541.1299,5,And as Nick said free cash flow from operation uh free cash flow uh before dividend payments at one point six billion dollars for the full year.
4483320,330,2541.76,2548.4299,5,That's actually covering dividends three point five times uh the cash dividend we paid out over the over the last year.
4483320,331,2549.3501,2560.0898,5,And then adjusted net results just below eight hundred million dollars when we take out the non cash effects impacts we have on on on numbers.
4483320,332,2560.74,2567.3201,5,And on the face of the income statement we we have reported just below five hundred million bucks in net profit uh for the full year.
4483320,333,2570.24,2575.9199,5,Just touching a bit more in detail on our realized crude prices as we've gone through the year.
4483320,334,2576.3999,2584.5798,5,You can see on the chart to the right here that we are showing uh the timing difference which is the orange bar on the average Dated Brent for each quarter.
4483320,335,2584.5801,2595.3301,5,And you can see in the first half of the year the timing of our lifting led to us actually outperforming on realized prices half a dollar in the first quarter and one dollar in the second.
4483320,336,2596.0,2609.02,5,But you can see that trend then reversing in q three q four particularly in q four you can see on the chart to the left we had a high lifted volume in December just as the Dated Brent was dropping.
4483320,337,2609.6299,2614.03,5,And that's therefore led to a timing difference of one dollar seventy for the fourth quarter.
4483320,338,2614.03,2616.2002,5,A negative impact on our realized prices.
4483320,339,2616.95,2622.5701,5,And the red bars you see here are then the the the differentials uh to the to the Dated Brent.
4483320,340,2623.1399,2628.5801,5,And we've sold between half a dollar to two dollars differentials in each of these quarters.
4483320,341,2628.5801,2631.49,5,But it's been been a very busy year for our crew though.
4483320,342,2631.49,2635.1399,5,Our marketing department we sold close to a hundred cargoes for the year.
4483320,343,2635.1399,2643.79,5,So almost two cargoes per week eh so the team here in Geneva's done a great job in inaudible marketing and then selling all these all these cargoes.
4483320,344,2646.78,2652.51,5,And on gas gas prices it's been very much an increasing trend as we've gone through through the year.
4483320,345,2652.51,2662.7,5,And actually in in December alone we realized the two hundred and forty dollars barrel per BOE equivalent and and and realized gas prices.
4483320,346,2663.27,2666.6401,5,So a very strong macro environment here on on gas sales.
4483320,347,2667.1299,2674.1899,5,In Europe we're selling both into into the UK market and into the Dutch uh gas market on on pricing ahead.
4483320,348,2674.6899,2686.6799,5,And of course importantly whenever inaudible will be fully electrified at the end of this year our gas sales volume will obviously uh increase since we are not gonna burn any gas on the gas turbines on inaudible.
4483320,349,2687.3,2694.2002,5,So that will lead to even further revenues from our gas production when we look into twenty twenty three and and beyond.
4483320,350,2696.9399,2708.4299,5,Then looking at uh at operating costs and EBITDA margin uh we continue to very much have industry-leading unit operating costs out there which is leading to an exceptionally high EBITDA margin.
4483320,351,2708.4299,2715.72,5,You can see here ninety four percent in q four and in fact it's been right around ninety four percent over the last uh five quarters.
4483320,352,2716.6399,2723.2898,5,On the chart to the to the left you can see there was a little bit of an optic in in unit OPEX uh for fourth quarter.
4483320,353,2723.8201,2732.8601,5,And Dan touched on this already but you can see at the bottom of the bars here you can see the actual impact from higher electricity prices and also higher c o two prices.
4483320,354,2733.3799,2747.99,5,Both of those prices increased roughly fifty percent from q three to q four uh so that's what's leading to a somewhat higher uh unit OPEX also combined with a somewhat stronger Norwegian kroner compared to previous quarters.
4483320,355,2748.6001,2762.6501,5,So all then that just pushed the unit OPEX to three dollars eighty one but nevertheless still extremely low and for the full year as Dan said we came in at uh three dollars ten uh for for the year as average.
4483320,356,2765.9399,2768.29,5,Then looking at uh tax.
4483320,357,2768.3201,2776.3198,5,The top two uh charts show uh the q four effective tax rate on the face of the income statement of uh eighty nine percent.
4483320,358,2776.95,2800.1099,5,But if you then again adjust for the non cash inaudible uh financial items uh which have very little tax uh impact for us then you can see we get to uh seventy nine percent effective tax rate which is very much in line with what you would expect uh given that we operate in Norway where you have a seventy eight percent uh uh effective uh tax rate.
4483320,359,2800.9199,2805.73,5,And then the chart on the bottom here shows you the phasing of our cash tax installments.
4483320,360,2805.73,2812.8301,5,As I mentioned in q four we had a significantly higher tax installment given that you make two tax installments in in that quarter.
4483320,361,2813.4399,2817.4199,5,So seven hundred and eleven million dollars installed in q four.
4483320,362,2818.01,2822.54,5,And if you sum up all all of the quarter last year we paid one point four billion dollars.
4483320,363,2823.02,2826.9102,5,But you also see on our balance sheet that we have uh uh a tax liability…
4483320,364,2827.1299,2830.6501,5,current tax liability of close to one point six billion dollars.
4483320,365,2831.1399,2840.53,5,And that's then the cash tax uh catch-up payment we have to make in first half this year to fully settle the twenty twenty one uh tax due.
4483320,366,2840.53,2858.6099,5,So you can see we have already locked in these tax installments of uh five hundred and ten million bucks in q one and just over a billion dollars in q two based on the year end effects rate of eight point eight NOK to to the dollar.
4483320,367,2859.71,2866.9199,5,Uh so those are the locked in tax installments we already know we have to make in q one and q two.
4483320,368,2870.1299,2874.3899,5,Then looking at the full year cash generation for the business which as I said was very strong.
4483320,369,2875.0701,2883.3599,5,The c f f o organic c f f o before we adjust for the working capital came in at close to two point three billion dollars and after working capital $2.58 billion.
4483320,370,2886.48,2898.5601,5,We have total investments during the year of one just over one point four billion dollars roundabout three hundred million bucks relates to e and a and three hundred and twenty million dollars relates to the inaudible acquisition.
4483320,371,2899.45,2909.7,5,And then the delta is split roughly a third a third a third for inaudible but some smaller items also on the uh on the inaudible.
4483320,372,2910.4399,2916.1401,5,So that's how we define the free cash flow before dividends on one point six billion dollars for the full year.
4483320,373,2916.8999,2939.49,5,And you can see here the total dividend payment of four fifty five million dollars and debt reduction close to eight hundred million dollars which therefore gave us a cash build of three hundred seventy million dollars so we are exiting twenty twenty one with a cash tax sorry a cash balance of four hundred and fifty million bucks.
4483320,374,2942.03,2962.5999,5,In terms of debt position and liquidity headroom for the for the company at year end we had cross debt of uh three point two billion dollars which consists of bonds amounting to two billion dollars and term long spread of three four and five year maturities eh of one point two billion dollars in total three point two.
4483320,375,2963.3301,2971.1699,5,And as I said around we have uh cash of just below half a billion dollars leaving the net debt of two point seven billion.
4483320,376,2972.27,2979.24,5,In terms of available liquidity for the for the group we have uh an inaudible of $1.5 billion.
4483320,377,2980.0901,2990.6799,5,So in addition to the cash we are holding we have in total right about two billion bucks of of liquidity headroom as of year end uh twenty twenty one.
4483320,378,2994.1799,3010.4001,5,If you now turn into uh guidance for twenty twenty two and what I should emphasize here is this guidance is uh is provided on inaudible on a stand alone basis as if the Aker BP combination is is not happening.
4483320,379,3011.1799,3031.2,5,Uh but as I said in my introduction from now up to closing we will continue to report the MP business as discontinued operations so so the numbers here are are are essentially uh reflecting uh no deal happening at all and the year would be as a normal EMP year for us.
4483320,380,3032.0601,3041.77,5,So the guidance here uh the key highlights are as I said earlier the dividend of two dollars twenty five per share and that will be proposed to the inaudible in twenty twenty two.
4483320,381,3042.3201,3048.8,5,And we will then commence our quarterly dividends as normal until the the deal with Aker BP uh completes.
4483320,382,3049.7,3055.55,5,The CFO guidance we're giving here is between one point three to two point one billion dollars for the full year.
4483320,383,3056.04,3063.3601,5,Eh and that's on an oil price range between sixty five to eighty five Dated Brent average for the for the full year.
4483320,384,3064.78,3074.6299,5,And on the midpoint of the uh price bracket we give which is seventy five dollars Brent we anticipate to generate free cash flow after dividend payments for the year.
4483320,385,3075.0701,3082.96,5,So that'll reduce net debt EBITDA to roughly zero point five times the ratio at year end twenty twenty two.
4483320,386,3084.21,3088.1201,5,We've been through the been through the OPEX guidance and the inaudible analysis this morning.
4483320,387,3088.1201,3100.6699,5,The oil and gas investment is estimated to amount to seven hundred and sixty million dollars and then renewable and natural carbon capture projects amounting to roundabout seventy million bucks.
4483320,388,3103.1699,3134.5,5,And then running through the the details of the guidance as we normally do so if we focus on the mid column here which is our base case planning assumption on on on oil price in twenty twenty two seventy five dollars and inaudible a term in gas price that'll then generate a revenue per barrel of seventy six dollars and seventy cents which is five point three billion dollars in in absolute revenue giving a cash margin of five point one billion dollars or around about seventy three dollars a barrel.
4483320,389,3134.5801,3147.8,5,Eh and an EBITDA net back of seventy two forty per per barrel or just above five billion bucks in EBITDA generation based on our midpoint scenario seventy five bucks Brent.
4483320,390,3151.0601,3158.3401,5,And then in terms of uh p and l impact uh as I said the cash uh margin seventy three dollars a barrel.
4483320,391,3158.9099,3167.1699,5,We have the inaudible charge of just below eleven dollars a barrel which is slightly above the depletion we run with in twenty twenty one.
4483320,392,3168.0701,3174.8999,5,And the g and a is running as usual at the very low rate uh of sixty cents per produced for the year.
4483320,393,3175.6699,3186.0999,5,And then financial items which includes uh income from joint ventures which are our renewable projects in Finland and Leikanger in Norway amounting to two bucks a barrel.
4483320,394,3186.1799,3191.3999,5,So given those profits before tax just below sixty bucks a barrel.
4483320,395,3192.1599,3200.23,5,And then the tax charge roundabout forty seven bucks a barrel giving us net after-tax profit of twelve dollars a barrel.
4483320,396,3200.23,3209.72,5,And you can see here the current tax is a percentage of uh of the EBITDA generation and and the midpoint oil price scenario sixty one percent.
4483320,397,3210.3201,3218.49,5,And that will equate to roughly uh just over three billion dollars in current tax for the year twenty twenty two.
4483320,398,3219.01,3228.52,5,And that tax calculation is based on the proposed new tax legislation in Norway which is going through Parliament soon but hasn't been ratified as as yet.
4483320,399,3228.5701,3232.21,5,But the numbers are based on that it uh that it will be.
4483320,400,3237.3899,3242.6399,5,And then the the last uh slide on on the net inaudible guidance for us uh here.
4483320,401,3242.8301,3257.0901,5,This is the cash flows from operation for the for twenty twenty two and we are sitting as I said between one point three billion dollars at the sixty five dollars case up to two point one billion dollars in the eighty five dollars case.
4483320,402,3257.9099,3274.6001,5,And in this year we will have the cash tax payments will actually mirror to a large degree the current tax that we will charge to the income statement given that we have uh one point six billion dollars catch-up cash tax payment to make this year relating to the twenty twenty one uh tax bill.
4483320,403,3275.8301,3294.03,5,And you can see here all the capital items are amounting up to twelve dollars a barrel or roundabout eight hundred and thirty million dollars so that will therefore give us a free cash flow available for dividends of uh between six point eight to eighteen point three dollars a barrel.
4483320,404,3294.5901,3310.9099,5,So certainly in the seventy five and eighty five dollars cases you can see that we are more than funding the dividend payments we are proposing and in the sixty five dollars case we are slightly drawing on that to fund the dividend to the tune of a hundred and forty million dollars.
4483320,405,3311.6101,3317.55,5,But the bottom line here is that it's it's uh it's a low OPEX business and it's also very low CapEx intensity business.
4483320,406,3318.1599,3324.23,5,inaudible CapEx to grow production further is only twelve dollars a barrel uh for the full year.
4483320,407,3327.28,3332.4299,5,And if we then look out in time uh and focus on the Capex profile we have…
4483320,408,3332.9099,3340.48,5,If we focus on the two people's firm which is essentially our two inaudible plus inaudible and some of the projects in the inaudible area.
4483320,409,3341.0701,3357.23,5,Uh you can see this year as we guided this morning five hundred and twenty million dollars this year and and a similar level next year and then when inaudible expenditures start to wrap up you can see that we're rounding it out about seven hundred million dollars per year for out to twenty twenty six.
4483320,410,3357.72,3363.8501,5,So it'll continue to be a business with relatively low Capex intensity as we look out in in time.
4483320,411,3364.74,3371.7,5,And then the lighter blue bars here are the are the growth projects that Dan talked about mainly relating to inaudible expenditures in- in 2024.
4483320,412,3376.25,3389.6899,5,The majority of this spend would relate to to inaudible and then in in twenty twenty five you have a roughly fifty fifty split between inaudible phase two in terms of development expenditure.
4483320,413,3393.0801,3402.1599,5,And my final slide before I hand back to uh uh Nick is just a quick summary of the guidance we have set out in our press release this morning.
4483320,414,3402.1599,3413.23,5,So a hundred and eighty to two hundred thousand BOE per day for the full year guidance and all our numbers in terms of net back guidance was based on the midpoint of this a hundred ninety thousand BOE per day for the full year.
4483320,415,3424.28,3438.54,7,Uh contribution and the capital items that we went through earlier amounting to eight hundred and thirty million dollars including renewables and carbon capture uh expenditure and some decommissioning costs.
4483320,416,3439.6899,3444.0801,7,So with that I will hand back to Nick with some concluding remarks.
4483320,417,3446.24,3447.8,8,Well thanks uh Dan and Titer.
4483320,418,3447.8,3451.1299,8,I've just got one final slide uh before we open up for questions.
4483320,419,3451.1299,3454.5601,8,I I just want to leave you with these uh three uh key messages.
4483320,420,3454.5601,3464.3899,8,First uh we delivered record operational and record financial results uh in the year uh support uh increased dividend proposal to the AGM.
4483320,421,3465.3501,3478.3899,8,Secondly uh the proposed combination of Lundin Energy's EMP business and AKA BP uh creates a a leading European independent EMP company which I'm convinced is a win-win outcome for both sets of shareholders.
4483320,422,3478.3899,3483.79,8,And uh and it's expected that that transaction will complete around the middle of this year.
4483320,423,3484.8701,3490.4299,8,And then thirdly the remaining Lundin Energy is a new renewable energy business positioned for growth.
4483320,424,3490.99,3498.8501,8,And we'll let you but we'll provide you more details about that and the strategy for that business in early March so you can understand the opportunity.
4483320,425,3499.9099,3504.8701,8,So those are our full year twenty twenty one results and uh outlook for this year.
4483320,426,3505.4299,3506.74,8,Uh thanks for your time.
4483320,427,3506.8401,3512.9199,8,Uh and we'd now like to open up the call for your questions and I think Ed is going to run that process for us.
4483320,428,3514.78,3515.48,9,Thanks very much Nick.
4483320,429,3515.51,3515.8101,9,Yeah.
4483320,430,3515.9199,3524.03,9,Uh Mark we'll open up for questions from your uh conference call line first and then um and then you can hand back to me and I'll see if there's any from the the web.
4483320,431,3524.1399,3525.1001,9,So over to you mark.
4483320,432,3626.1599,3626.1899,10,Thanks.
4483320,433,3627.0601,3630.6499,8,Titer do you want to get the first one and uh maybe Dan the second?
4483320,434,3631.1001,3631.3,11,Yeap.
4483320,435,3631.5901,3633.99,7,Yeah I can on on on the CapEx guidance.
4483320,436,3633.99,3644.8398,7,So what we call two P plus firm includes obviously all our our two P reserves and the bulk of that remaining expenditure really relates to uh the build out of inaudible phase two.
4483320,437,3645.46,3655.3899,7,But what we call firm here is the majority of that is uh is the visiting development which is a material CapEx project obviously up in the up in the Baron C.
4483320,438,3655.95,3668.3801,7,When we guided last year we only had ten percent of this thing in our numbers whereas with the acquisition with OMB this year that number is now thirty five percent uh equity in the visiting development.
4483320,439,3668.3799,3677.5,7,And and from twenty twenty four onwards the the bulk of the two P plus firm really relates to the visiting the building out of the visiting development.
4483320,440,3677.5,3679.1101,7,So that is the the answer to that.
4483320,441,3680.6899,3691.22,11,And I think on the Baron C assets the the small discoveries are <unk> small ten to twenty million barrel gas or small oil stranded assets.
4483320,442,3691.22,3694.1699,11,So nothing of any materiality in the Barons.
4483320,443,3697.23,3697.49,10,Great.
4483320,444,3815.6001,3822.9302,7,So obviously there will be continued CapEx boat in two seven and and twenty eight and and and probably some drilling beyond that even.
4483320,445,3822.96,3842.0601,7,Uh but we we align the CapEx guidance here with our production guidance which are also showing out to twenty twenty six but what we are giving guidance on is to the the full full scale CapEx of Yohan's inaudible uh sixty five to 75 billion not getting to number is or thereabout.
4483320,446,3842.6799,3846.9502,7,So I think you can take your thirty five percent uh net from that.
4483320,447,3846.95,3860.1599,7,And and you can roughly eyeball it because from obviously we will have some inaudible numbers in twenty twenty three and and and beyond for for drilling and there will al also be the the the cake and frost developments in the inaudible area.
4483320,448,3860.79,3864.4102,7,But as I said the bulk of this will be the visiting uh development.
4483320,449,3864.4099,3873.8301,7,So I think you can eyeball roughly what twenty twenty seven and two eight expenditure will will look like with without knowing the exact facing of that.
4483320,450,3873.8301,3886.3601,7,And of course the PDO obviously hasn't been submitted as yet so the caveat on this is of course also that uh we need to see a more exact facing of the CapEx when we submit the submit the PDO.
4483320,451,3887.6299,3899.0898,7,And then in terms of your uh free cashflow breakeven I mean we didn't feel it was appropriate for us given the deal with inaudible BP to guide beyond twenty twenty two otherwise we normally would've would've done that.
4483320,452,3899.74,3918.1599,7,But I think it suffices to say you you again look at the CapEx profile we're showing here and and you see the the growing production profile that we're showing that that should explain to you that the CapEx intensity per barrel would remain low and our long term OPEX guidance between three to four dollars a barrel is also very low number.
4483320,453,3918.8401,3932.0798,7,Uh and with reducing debt and and cheaper debt with investment rates in place now uh it all the elements are in place for us to continue to have an extremely low um free cash or breakeven price for the business as we look forward.
4483320,454,3933.8601,3942.7,11,I think your question on the resources so on the slide we said two hundred forty million barrels in with thirty five percent of the five hundred million barrel discovery.
4483320,455,3942.7,3948.6599,11,So just shy of a hundred eighty of that is wisting the remainder net resources in the remaining four projects.
4483320,456,3949.6699,3951.1699,11,Hope that helps.
4483320,457,3954.29,3954.3801,13,Okay.
4483320,458,4002.04,4002.5601,11,No problem.
4483320,459,4002.72,4009.5601,11,Um we're not gonna give exact guidance for exactly how long it's going to be shut down because we have a range in our profiles.
4483320,460,4009.9199,4016.1301,11,I think you can see from q one and q three where there are no outages the rough level of where where our production would normally sit.
4483320,461,4016.55,4024.21,11,And I think if you if you think in the order of a small number of weeks for those outages on both inaudible that's around the right ballpark.
4483320,462,4026.8601,4040.1001,8,And in terms of the the regulatory process for approval as I mentioned when I spoke uh uh for the transaction both sets of shareholders will vote uh ours at the end of March and uh inaudible BP is uh early April.
4483320,463,4040.6001,4047.9199,8,Uh we we also have uh government approval to to achieve and also competition authority approval in Norway.
4483320,464,4047.9199,4051.95,8,And those are the only uh real regulatory approvals that that we have to get.
4483320,465,4051.95,4056.1799,8,And uh and I think you know our feeling is that those are really a formality.
4483320,466,4056.1799,4063.4199,8,It just takes a bit of time and that's why it takes from uh from now until around the middle of the year to close the transaction.
4483320,467,4063.4199,4078.73,8,So you know you know it's very low risk to this deal not going ahead given the nature of the shareholding of both companies and uh and and the quality of the transaction and uh and uh and and and the inaudible approvals that are required.
4483320,468,4081.3101,4083.98,8,I hope the that gives you a clear clear understanding.
4483320,469,4084.7,4105.5098,14,Thank you.
4483320,470,4110.02,4110.1001,14,Yeah.
4483320,471,4142.3599,4144.54,8,Dan why don't you cover both of those?
4483320,472,4145.1499,4145.3799,11,Yep.
4483320,473,4145.8701,4150.3896,11,Um firstly on the the gas side I think most of it's associated gas.
4483320,474,4150.3901,4156.75,11,We don't have a big gas injection program that we can swing in and move the amounts of produced gas.
4483320,475,4156.75,4163.4399,11,So I think inaudible the the amount of gas production you've seen over the past period you'll probably see going forwards as well.
4483320,476,4164.1099,4175.79,11,And I think the E and A and development spending most of if we focus on the appraisal spending first most of that is linked to studies and activities towards the PDO so I think you'll see that roughly spread over the course of the year.
4483320,477,4176.1899,4184.75,11,And similarly with the um with the exploration spend it'll be spread between the wells and and with five wells spread over the course of the year.
4483320,478,4185.1099,4188.79,11,Um you'll see a rough spread rather than all of it being done in one quarter.
4483320,479,4197.7002,4199.1099,15,quarter is that the best guidance?
4483320,480,4199.4902,4199.5503,15,Yeah.
4483320,481,4200.2402,4200.3901,11,Yeah.
4483320,482,4200.3901,4201.0103,11,So the…
4483320,483,4201.27,4204.0298,11,And Titer you jump in if if there's anything to add.
4483320,484,4204.0298,4215.5503,11,But the so Yohan's federal makes up a big portion of the development spend there and most of that'll be spent as you roll between now evenly until you get into um the the final commissioning and startup phase.
4483320,485,4215.5498,4224.6802,11,So you'll see that fairly linearly over the course of the year and then depending on the the final outcome on cost we may see some of that coming out over time let's see.
4483320,486,4225.23,4242.8101,11,Um on the remaining spend we will finish the development drilling on inaudible and q one and so you won't see heavy development spend in the inaudible after after that period other than for the inaudible power from shore project which will be linear through most of the year until we get into the commissioning at the end.
4483320,487,4242.8101,4249.6597,11,So I think you should roughly see most of this all on both the the development and e and a spread fairly evenly through the year.
4483320,488,4250.1602,4251.6201,11,Obvious ups and downs as you go.
4483320,489,4279.2798,4279.52,15,Cool.
4483320,490,4304.2402,4304.4702,15,Perfect.
4483320,491,4304.4702,4304.6899,15,Thank you.
4483320,492,4306.5298,4307.8599,7,Yeah I I can.
4483320,493,4308.29,4308.8599,7,Hi James.
4483320,494,4308.8599,4331.6802,7,Um I mean it's been it's been a story we've been telling for some time now and we've been working really hard at getting to the great position we we now are in which which means that sort of sixty percent of our production is produced carbon neutrally and is actually fully fully certified both in terms of the emissions and also the offsets that we have uh purchased for uh for inaudible group.
4483320,495,4332.1201,4352.0303,7,So essentially means that every time we now lift uh inaudible cargo it is essentially a carbon zero cargo and uh whilst it's still not showing through in the numbers we presented today but we have actually uh now sold a few cargos on inaudible group with with with our carbon premium implied on the overall price.
4483320,496,4352.0298,4358.6997,7,It's still selling at a at at a discount to to date inaudible but at a lower discount than it otherwise would've.
4483320,497,4358.7402,4369.5298,7,But I would say the numbers are relatively modest at the moment but you know we continue to to tell the story and to articulate the benefits to to our buyers from buying carbon neutral cargos.
4483320,498,4369.5298,4375.6201,7,And we firmly believe that over time that will be mani manifested in the in the in the prices we're gonna achieve.
4483320,499,4378.6899,4378.96,16,Brilliant.
4483320,500,4390.4702,4392.6299,9,I'm just checking on the web here.
4483320,501,4394.0098,4398.2397,9,I think because of our unbelievably good disclosure there's no further questions from the web either.
4483320,502,4399.0098,4410.3301,9,So um with that I'll I'll I'll draw the meeting to a close but if anyone has any other questions that that they need answering please don't hesitate to to drop me a line uh and we'll we can take it offline.
4483320,503,4410.3999,4412.0503,9,So um thanks very much for joining.
4483320,504,4421.5801,4425.3999,9,Uh…
4483338,0,3.89,5.76,0,Good day and thank you for standing by.
4483338,1,6.02,11.07,0,Welcome to the tele two Fourth Quarter Interim Report twenty twenty one Conference Call.
4483338,2,34.15,35.14,0,c e o please go ahead.
4483338,3,36.8,39.07,1,Yes thank you operator and good morning everyone.
4483338,4,39.22,40.52,1,Thank you for bearing with us.
4483338,5,40.6,46.76,1,Uh we seem to have a little bit of uh of technical issues with the um the operator system but um here we are.
4483338,6,46.79,52.59,1,Um so welcome to the uh tele two report call for the Fourth Quarter and Full Year of two thousand twenty one.
4483338,7,53.33,59.46,1,Today I'm very happy that in front of me I have Charlotte Hansson our new Group C F O sitting here in Kista.
4483338,8,59.94,66.53,1,And uh of course with me here Hendrik de Groot our Chief Commercial Officer and Stefan Trampus our Head of b two b.
4483338,9,67.63,71.09,1,So today we will walk you through the results of the quarter and full year.
4483338,10,71.74,78.83,1,The progress that we have made in two thousand twenty one and the outlook for two thousand twenty two and beyond and um we'll do a q and a at the end of it.
4483338,11,80.44,87.84,1,two thousand twenty one was yet another year with impressive results for the group and I would like to start by highlighting the achievements and strategic initiatives that we have taken.
4483338,12,88.46,89.44,1,So moving to slide two.
4483338,13,90.92,104.87,1,So despite the challenging year with headwinds stemming from the covid nineteen pandemic we were able to lift and deliver on our guidance for two thousand twenty one by growing end-user service revenue by one percent and underlying EBITDAaL by five percent.
4483338,14,105.73,115.38,1,This was done by continued strong performance in the Baltics as we were able to achieve both ASPU and volume growth while maneuvering through an unpredictable pandemic.
4483338,15,116.8,122.63,1,In Sweden b two b we were able to reach stabilization in q three and we see yet another strong quarter today.
4483338,16,123.77,133.51,1,In Sweden Consumer we continued our more-for-more strategy and saw strong performance within mobile postpaid and fixed broadband while we were able to mitigate the decline in digital TV.
4483338,17,134.77,143.34,1,At the same time we executed on our business transformation program which ended the year with an annual run rate of sek five hundred million in line with our targets.
4483338,18,144.93,153.59,1,During the year we took a major step in our F M C strategy by creating the new premium tele two brand through the consolidation of two of the most iconic brands in Sweden.
4483338,19,154.3,157.99,1,And with that we concluded the first phase of our F M C strategy.
4483338,20,159.79,165.13,1,i'm very happy to see the results in Sweden b two b that Stefan and his team has delivered during the year.
4483338,21,166.01,177.95,1,When we presented the new b two b strategy on Capital Markets Day I was optimistic and excited and it pleases me now to say that they have over-delivered on my expectations for the second half of the year in two thousand twenty one.
4483338,22,179.07,193.06,1,This improvement is not merely done through our new S M E mobile portfolio but we see improvement across all segments as we are now able to show the second consecutive quarter of growth for a business that was declining by high single digits a year ago.
4483338,23,195.07,202.07,1,In September we announced the sale of our stake in T-Mobile Netherlands which was the last step in consolidating our international footprint.
4483338,24,202.97,208.59,1,I'm very impressed by the results the team has shown there during the last years and the value that they have created.
4483338,25,208.69,212.29,1,And we were able to achieve a very good valuation for the company.
4483338,26,213.54,220.6,1,We expect the transaction to be co completed soon and once it is done we intend to distribute all of the proceeds to our shareholders.
4483338,27,222.32,230.68,1,tele two is a strong cash generative company and as I said during the Capital Markets Day one of our mid-term targets is to have the best industry shareholder return.
4483338,28,232.0,245.4,1,With the equity free cash flow that we have generated this year or rather last year the board intends to increase the ordinary dividend by twelve point five percent to sek six .75 per share.
4483338,29,245.94,261.08,1,thi this puts us comfortably within our leverage range and as we generate more cash and grow our underlying EBITDAaL throughout the year you should expect us to re-lever the balance sheet to remain around the midpoint over time and distribute that cash to our shareholders.
4483338,30,261.95,263.88,1,And with that please move to slide three.
4483338,31,266.4,273.72,1,We started two thousand twenty one by witnessing negative impacts on the pandemic with the primary headwind being lower international roaming revenue.
4483338,32,274.58,283.5,1,However during the year we have seen roaming gradually returning and we are now experiencing a tailwind albeit at a lower level than before the pandemic.
4483338,33,285.12,293.16,1,At the same time we have been able to build a solid foundation for growth throughout the year which we have seen tangible results for us since q two two thousand twenty one.
4483338,34,294.37,306.64,1,In this quarter we see a continuation of this and we were able to grow end-user service revenue by two percent both including and excluding roaming adding up to a one percent growth for the whole of two thousand twenty one.
4483338,35,309.0,313.33,1,In q four we decided to take our foot off the gas a bit in terms of commercial spending.
4483338,36,314.33,323.59,1,Since I became C E O of this company you have heard me talk about the importance of balancing value and volume in the consumer business in order to achieve sustainable growth in the long-term.
4483338,37,341.26,349.65,1,As q four normally is a quarter driven by high activity through campaigns we decided to take a more active part in the market compared to the year before.
4483338,38,350.81,358.56,1,This hampered some of the underlying EBITDAaL growth in the quarter but creates value for the long-term as we balance the value and volume in our customer base.
4483338,39,359.96,369.71,1,This coupled with FX headwinds in Sweden and increased inflation particularly in the Baltics resulted in an underlying EBITDAaL growth of one point three percent in the quarter.
4483338,40,370.74,379.41,1,Since this was in line with our plan and clearly communicated we are able to land spot on with our guidance for the year as underlying EBITDAaL grew by five percent.
4483338,41,380.92,390.28,1,As a result we saw strong cash generation during two thousand twenty one with equity free cash flow growing double digits to five point eight billion for the year.
4483338,42,391.96,401.48,1,In Sweden Consumer we see continued strong performance in broadband and mobile postpaid end-user uh mobile postpaid end-user service revenue on the back of our more-for-more strategy.
4483338,43,402.83,409.66,1,With investments in the markets we were able to see strong ne net intake in mobile postpaid resulting in the customer base growing year-over-year.
4483338,44,410.52,423.9,1,The renamed tele two play plus continues to show solid performance and we also launched our first SIM offer now in January further future-proofing our role as a player both in linear and O T T universe within the TV business.
4483338,45,426.0,433.36,1,Sweden b two b saw the second consecutive quarter of growth driven by mobile volume growth solutions and slight tailwind in roaming.
4483338,46,434.4,436.75,1,The mobile volume growth is driven by all segments.
4483338,47,437.51,443.58,1,Activity within the uh solution space continues to pick up despite some challenges in the supply chain.
4483338,48,445.5,453.33,1,The Baltics continued to perform well driven by both volume and after growth in Lithuania and Latvia resulting in strong end-user service revenue development.
4483338,49,454.41,463.74,1,During the quarter we saw some elevated costs driven by increased commercial spending in order to sustain the growth but also through higher inflation rates primarily impacting energy costs.
4483338,50,464.92,476.94,1,And on a go on uh on a positive note in Latvia we were able to secure spectrum in the seven hundred megahertz auction and at fair prices which now enables us to start a full rollout of five g within the country.
4483338,51,478.48,481.4,1,So let's move over to Sweden Consumer on slide five.
4483338,52,484.22,487.16,1,During the quarter we saw a strong mobile postpaid net intake.
4483338,53,487.54,491.28,1,And as a result we were able to grow the customer base compared to last year.
4483338,54,492.13,498.7,1,Postpaid ASPU increased by two percent driven by price adjustments made previously in the year and slight tailwind from roaming.
4483338,55,500.03,505.56,1,Price adjustments made earlier in the year continued to impact the fixed broadband ASPU which grew by one percent.
4483338,56,506.64,510.02,1,We saw a stronger quarter in terms of new sales within fixed broadband.
4483338,57,510.63,521.43,1,However this was offset by higher churn in the base as an effect of historically high sales periods in which customers are now rolling off resulting in somewhat lower net intake.
4483338,58,523.23,530.73,1,In Digital TV Cable Fiber we see continued contribution from tele two play plus which helped us to grow by three percent in the quarter.
4483338,59,531.28,535.85,1,We continue to see a negative intake which hampers end-user service revenue growth.
4483338,60,537.32,541.18,1,Moving on um slide six.
4483338,61,542.23,550.23,1,ASPU and volume growth in mobile postpaid led to an end-user service revenue growth of two percent for mobile postpaid and one percent for total mobile.
4483338,62,551.57,557.56,1,We see continued end-user service revenue growth in fixed broadband of three percent driven by both ASPU and volume growth.
4483338,63,559.29,570.06,1,Total end-user service revenue for Digital TV declined by four percent in the quarter primarily driven by continued decline in the legacy d t t TV service due to a decline in customer base.
4483338,64,571.3,573.65,1,And moving on to b two b next page.
4483338,65,575.27,581.3,1,Mobile net intake continued to be strong in the quarter driven by new contracts both within S M E and large segments.
4483338,66,582.23,588.5,1,The mobile ASPU declined in the quarter by four percent but we clearly see improvements from the levels witnessed at the end of last year.
4483338,67,590.08,602.92,1,Continued mobile volume growth and strong growth in the solutions business was able to fully offset the decline in the legacy fixed business resulting in Sweden b two b growing end-user service revenue for the second co consecutive quarter with one percent.
4483338,68,604.43,607.77,1,Now let's turn to page eight for a Sweden overview.
4483338,69,609.53,618.27,1,End-user service revenue was flat in Sweden as growth in Sweden b two b was offset offset by continued decline in the legacy services within Sweden Consumer.
4483338,70,619.27,631.4,1,Underlying EBITDAaL was flat compared to q four two thousand twenty as the contri contribution from the business transformation program was offset by FX headwinds and increased commercial spending in the quarter within Sweden Consumer.
4483338,71,632.61,642.16,1,We continued to see strong cash conversion of sixty four percent but at slightly lower levels compared to previous quarters as we ramp up networks investments related to the five g rollout.
4483338,72,643.57,645.31,1,Then moving to Baltics page ten.
4483338,73,645.31,656.48,1,In the Baltics we continue to see strong volume and ASPU growth in Lithuania and Latvia as we're able to monetize data through our more-for-more strategy and a slight tailwind from roaming.
4483338,74,657.44,666.91,1,In Estonia we also see strong ASPU growth driven by price adjustments while volume growth was hampered by promotional activity from competitors leading to elevated churn in the quarter.
4483338,75,668.58,677.25,1,Moving on um naturally this ASPU and volume growth resulted in strong end-user service revenue in the quarter and we saw growth of fourteen percent for the Baltics.
4483338,76,678.18,692.28,1,Underlying EBITDAaL grew by seven percent in the quarter as a strong end-user service revenue growth was partly offset by slight pressure from rising inflation rates primarily impacting energy costs and higher commercial spend in Lithuania and Estonia.
4483338,77,692.69,699.7,1,And I would add uh also an adjustment um you know an accounting adjustment related to handsets.
4483338,78,700.99,705.48,1,But with that I would like to hand over to Charlotte who will take us through the financial overview.
4483338,79,705.51,707.64,1,So welcome Charlotte and I hand it over to you.
4483338,80,708.45,710.45,2,Thank you Kjell and good morning everyone.
4483338,81,711.05,716.29,2,Before we dig into the Group financials I'd like to give a quick take on my first impressions of tele two.
4483338,82,717.36,725.67,2,During my first weeks here I can see that in the last couple of years tele two has built a solid foundation to become a leading telco in the Nordic and the Baltic region.
4483338,83,726.38,735.02,2,This includes investing and developing an organization that can create sustainable growth best sharehol- industry shareholder return and lead in sustainability.
4483338,84,736.27,743.95,2,The Group leadership team that I have joined includes several individuals with a long expertise of the telco industry both domestic and international.
4483338,85,745.18,758.65,2,And after working in several different companies outside of the telco industry I believe I can contribute with an outside perspective in order to improve and excel the already fantastic results that we have seen as we will which we will continue to achieve going forward.
4483338,86,759.94,765.9,2,It's our job now to show that we can deliver on our mid-term ambitions and illustrate that we are a growing company.
4483338,87,767.65,770.04,2,Please turn to page thirteen in the presentation.
4483338,88,773.22,784.7,2,As in previous quarter we have created this slide to show the revenue breakdown of our segments excluding roaming to illustrate that we are a company uh that is growing despite the tailwind from roaming.
4483338,89,785.74,795.72,2,Like Kjell said consumer postpaid continues to perform well as price adjustments made previously during the year and volume growth contributes to the end-user service revenue growth.
4483338,90,797.15,809.16,2,Total Sweden Consumer end-user service revenue declined by zero point six percent in the quarter excluding roaming as growth in mobile postpaid and fixed broadband was offset by decline in legacy services.
4483338,91,810.99,822.7401,2,In Sweden b two b we see continued strong momentum in mobile and solutions offset by decline in fixed legacy services and total end-user service revenue remained stable despite roaming being excluded.
4483338,92,824.4,832.73,2,In the Baltics the strong performance continues resulting in thirteen percent growth primarily driven by higher ASPU and volume growth in Lithuania and Latvia.
4483338,93,834.07,839.92,2,For the Group this led to an end-user service revenue growth of two point three percent in the quarter excluding roaming.
4483338,94,841.0,851.09,2,We now see that roaming revenue is starting to come back in a material way as outbound roaming increased by sek twenty five million in the quarter compared to q four twenty twenty.
4483338,95,852.01,856.05,2,However this is still not close to the roaming levels that we saw prior to the pandemic.
4483338,96,858.07,860.16,2,Please turn to slide fourteen for the Group results.
4483338,97,865.18,873.77,2,Underlying EBITDA grew by one percent organically in the quarter driven by end-user service revenue growth and contribution from the business transformation program.
4483338,98,874.64,883.85,2,However this was partly offset by higher commercial spending primarily in Sweden but also in Lithuania and Estonia and FX headwinds in Sweden.
4483338,99,885.02,900.75,2,We also see higher inflation rates impacting the costs primarily through higher energy costs items affecting comparability of minus sek a hundred seventeen million in the quarter primarily stemming from restructuring cost taken in the quarter which releases…
4483338,100,900.97,906.04,2,um relates to the continued execution of the business transformation program in Sweden.
4483338,101,908.04,924.66,2,The decrease in net profit for continuing operations compared to q four twenty twenty was primarily driven by the close down of the operation in Luxembourg which had a positive impact on the results by roughly sek three .3 billion in q four twenty twenty but with no impact on equity.
4483338,102,926.09,934.24,2,There is also higher amortization of the Com Hem brand compared to last year following the brand merger in q two twenty twenty one.
4483338,103,936.0,938.61,2,So let's continue with the cashflow on slide fifteen.
4483338,104,940.88,948.43,2,CapEx paid decreased to sek nine hundred seventy one million in the quarter driven by higher network investments related to five g in Sweden.
4483338,105,949.61,954.68,2,Working capital was strong in the quarter as we saw three separate items that had a positive impact.
4483338,106,955.01,960.06,2,Firstly we settled the receivable in the quarter of roughly sek three hundred twenty five million.
4483338,107,961.15,969.15,2,Secondly the timing of an accounts payable was favorable in the quarter where we expect to see the opposite effect in q one twenty twenty two.
4483338,108,970.39,974.8199,2,Thirdly we see continued contribution from external handset financing in the Baltics.
4483338,109,976.8,985.89,2,Taxes paid declined compared to q four twenty twenty primarily driven by preliminary tax in Sweden for the year twenty twenty which was repaid in the quarter.
4483338,110,987.57,995.08,2,All of this uh led to a quarter with remarkably strong uh cash generation of sek one .8 billion in equity free cash flow.
4483338,111,996.18,1004.3799,2,For twenty twenty one our continuing operations have thus generated sek five .8 billion or sek eight .3 per share.
4483338,112,1006.4,1009.83,2,Please move to slide sixteen to go through the capital structure.
4483338,113,1013.1,1021.56,2,Economic net debt rose by s e k oh .2 billion in the quarter as we paid out the second tranche of the ordinary dividend of sek two .1 billion.
4483338,114,1022.68,1027.46,2,However this was largely offset by the strong cash generation in uh in the quarter.
4483338,115,1028.7,1034.79,2,At the end of the year leverage was two point five times which is still in the lower end of the target range of two point five and three.
4483338,116,1036.25,1058.0299,2,Uh with the proposed two point five percent increase in ordinary dividend for the financial year of twenty twenty one we will comfortably be within our range and we remain committed to maintaining leverage around the midpoint of two point five and three over time and re-lever the balance sheet as we grow underlying EBITDAaL in order to distribute excess cash to our shareholders.
4483338,117,1060.3,1070.4301,2,In addition to the ordinary dividend we also intend to distribute the full proceeds from T-Mobile Netherlands transaction as soon as the transaction is closed and we have received the cash proceeds.
4483338,118,1075.74,1081.34,1,And then please turn over to slide seventeen uh where we'll go through the business transformation program.
4483338,119,1081.9399,1091.66,1,So far we have reached an annualized run rate of five hundred million with savings of a hundred fifty million affecting the p and l in the quarter and three hundred fifty five million for the full year.
4483338,120,1092.21,1094.7999,1,And we are now entering the last stages of the transformation program.
4483338,121,1095.8101,1102.15,1,These last stages include three major operational improvements within the business decommissioning the three g network;
4483338,122,1102.87,1106.59,1,improve efficiency within our consolidated IT and technology organization;
4483338,123,1106.92,1111.8199,1,and decommissioning our remaining IT stacks once we have migrated all customers.
4483338,124,1113.0699,1126.1599,1,Firstly the close down of SUNAB which we have already started will increase the efficiency within our mobile network and reduce the amount of sites that we have as we consolidate towers and move frequencies into one company net four mobility.
4483338,125,1127.58,1136.2,1,Secondly when tele two and Com Hem merged we realized certain synergies within the technology department by merging the fixed and mobile network organizations into one.
4483338,126,1137.33,1148.48,1,When Yogesh joined the company we further consolidated the technology and the IT department into one organization in order to improve collaboration within that organization but also with the commercial units.
4483338,127,1149.25,1151.6801,1,From this we expect to realize further synergies.
4483338,128,1152.8,1166.5801,1,And thirdly we have so far already decommissioned two of our IT systems and in two thousand twenty two we'll carry out the major IT migration elements which will yiel- yield the largest cost savings and vastly improve operational efficiency.
4483338,129,1167.72,1176.05,1,When we consolidated the tele two and Com Hem brand we created a new IT stack on which new uh F M C customers are put.
4483338,130,1177.4,1184.27,1,Now the job is to migrate existing customers onto that IT stack as we currently operate different brands on different IT stacks.
4483338,131,1185.1801,1196.7899,1,With all customers on one IT stack we will vastly reduce the internal complexity simplify the product portfolio and reduce the time customer uh the customers spend with customer service.
4483338,132,1197.78,1198.98,1,This is of course not an easy job.
4483338,133,1199.1801,1203.64,1,we we have already started migrating our first customers with successful results.
4483338,134,1204.83,1215.7301,1,However in order to secure quality in all these complex projects and enable stable commercial momentum we will extend the deadline from end of two thousand twenty two to end of q two two thousand twenty three.
4483338,135,1216.4,1221.26,1,This is purely a matter of timing in order to optimize our ways to deliver on our mid-term ambitions.
4483338,136,1221.99,1228.6399,1,we're still confident that we will achieve the target of at least sek one billion in annualized run rate savings by the end of the period.
4483338,137,1229.1899,1243.42,1,At the same time we're able to guide on mid-single-digit growth in underlying EBITDAaL despite less uh contribution in two thousand twenty two from cost savings which I will talk about on the next slide demonstrating the long-term growth journey that we have embarked upon.
4483338,138,1243.92,1248.22,1,This is about saving costs but it's also about building sustainable growth.
4483338,139,1248.42,1250.09,1,And we need to balance those two things.
4483338,140,1251.24,1252.85,1,So moving to slide slide eighteen.
4483338,141,1254.17,1258.67,1,i'm happy to announce that we can now guide for the full year in accordance with our mid-term guidance.
4483338,142,1259.41,1268.24,1,We expect low single-digit growth in end-user service revenue and mid-single-digit growth in underlying EBITDAaL for two thousand and twenty two compared to 2021.
4483338,143,1269.25,1286.13,1,We expect CapEx excluding spectrum and leases to be in the higher end of our range of two point eight to SEK3 .3 billion driven by investment primarily in our mobile network as we ramp up the five g rollout in Sweden and the Baltics but also investment in the fixed network through RemotePHY.
4483338,144,1287.36,1299.64,1,For end-user service we expect to continue the momentum that we had since q two twenty twenty one by making all countr countries contribute to the growth as we leverage the continued performance in the Baltics and return to growth in Sweden.
4483338,145,1305.51,1313.2,1,This does not mean that we will grow Sweden b two b every quarter during the year but our aim is to stabilize and grow the business for the full year.
4483338,146,1314.22,1319.96,1,In Sweden Consumer we expect the momentum in mobile postpaid and fixed broadband to persist through our more-for-more strategy.
4483338,147,1320.72,1324.8601,1,We also expect to see continued momentum in the Baltics to provide support for the entire Group.
4483338,148,1327.17,1333.8201,1,The end-user service revenue growth will filter down to underlying EBITDAaL and we will continue to execute on the business transformation program.
4483338,149,1334.36,1341.9401,1,The program remains back-end loaded in the year and we expect to reach the majority of the remaining annual ra run rate in two thousand twenty two.
4483338,150,1342.84,1345.63,1,As I pointed out during the first half of two oh-
4483338,151,1345.63,1357.01,1,of two thousand twenty one commercial activity advert advertisement was significantly reduced uh during the um that part of the year and we have now focused on bringing sustainable growth back in the second half.
4483338,152,1358.03,1359.8099,1,And this leads to some investment in the market.
4483338,153,1360.66,1371.74,1,This coupled with the phasing of the business transformation program will result in year-on-year underlying EBITDAaL trends to be more favorable from the summer of twenty twenty two as we will continue to invest um during the year.
4483338,154,1373.47,1377.24,1,We today also reiterate our mid-term guidance similar to our guidance for 2022.
4483338,155,1377.86,1390.2001,1,In this guidance we aim for sustainable growth for the Group with continued contribution for all countries while the business transformation program will continue to give tailwind to underlying EBITDAaL up until the first half of twenty twenty four.
4483338,156,1391.02,1404.47,1,For CapEx we expect to be at the high end of our guidance during the peak of the five g rollout and we'll gradually reduce CapEx spending as we complete the five g rollout and improve the operational efficiency through the business transformation program.
4483338,157,1405.75,1409.7,1,So then please uh turn to the next slide for the key priorities going forward.
4483338,158,1411.72,1420.39,1,In Sweden we will continue to ramp up five g investments in order to increase customer satisfaction which will support our more-for-more strategy within the mobile business.
4483338,159,1421.24,1431.0601,1,Similarly on the fixed side we see the upgrade with RemotePHY as an opportunity to increase capacity and speed in order to main maintain reliable growth in our broadband business.
4483338,160,1432.3,1440.36,1,We will continue executing on the business transformation program to deliver at least sek one billion of savings by the end of uh q two two thousand twenty three.
4483338,161,1441.75,1452.23,1,In Sweden Consumer we'll continue to balance value and volume in order to build sustainable growth while gearing up our capabilities to address the one point three million non F M C households.
4483338,162,1453.6801,1463.48,1,We will also continue to build our premium brand in order to increase customer satisfaction that we can monetize through reduced churn or price adjustments on the back of product improvements.
4483338,163,1465.38,1474.2,1,In Sweden b two b we will continue the turnaround that we have started during the second half of the year by executing on our new granular approach with clearly defined segments.
4483338,164,1475.84,1486.1801,1,In the Baltics we will continue to build on the performance that we have seen and execute on our mobile-centric convergence strategy through more-for-more offers in order to make sure that we can sustain the growth.
4483338,165,1487.42,1494.59,1,With the five g auctions now concluded in Latvia we will start to ramp up the five g rollout while preparing for the auctions in Lithuania and Estonia.
4483338,166,1495.59,1499.52,1,At the same time we will continue to develop and explore F M C capabilities.
4483338,167,1500.5601,1510.4299,1,And lastly we aim to close the T-Mobile Netherlands transaction soon and which we intend to distribute all proceeds to our shareholders once the transaction is closed and we have received the proceeds.
4483338,168,1512.39,1520.3,1,tele two is a growth company at heart and we're witnessing positive results from our strategic initiatives which demonstrates the viability of our way forward.
4483338,169,1521.14,1529.5801,1,i'm confident in our ability to succeed and deliver on our two thousand twenty two and mid-term guidance and excited to continue building sustainable growth.
4483338,170,1530.61,1535.76,1,And with that um I would like to hand it over to the operator so we can uh do a q and a.
4483338,171,1537.72,1538.17,0,Thank you.
4483338,172,1538.17,1541.21,0,Dear participants we'll now begin the question and answer session.
4483338,173,1548.62,1551.16,0,If you wish to cancel your request use the hash key.
4483338,174,1647.41,1655.2899,1,if if uh we were single-mindedly focused on cutting costs we could have done the trans the the transformation uh program by the end of 22.
4483338,175,1657.05,1664.48,1,But what you see is in the second half of two one we're actually able to get back to uh meaningful growth uh in Sweden.
4483338,176,1665.01,1671.7101,1,And I really would like uh for uh Stefan and Hendrik to not have too many freeze periods where they have to…
4483338,177,1671.91,1674.08,1,uh where they're limited in their approach.
4483338,178,1674.38,1685.1,1,And I am quite confident that that brings more value especially in the medium term getting the business back to growth rather than uh fast forwarding uh this cost-cutting program.
4483338,179,1685.5601,1687.8401,1,To deliver on this we'll definitely do it.
4483338,180,1687.99,1689.4399,1,Uh there is no doubt about that.
4483338,181,1689.9,1702.29,1,Uh but from a value perspective I think the sequencing that we are putting now where we are taking the last of the big migrations in the first quarter of twenty twenty three uh is a better one for for for our overall business.
4483338,182,1702.99,1705.14,1,And we talk a lot about the sales and marketing cost.
4483338,183,1705.14,1710.58,1,and and uh of course this is just a sign of the market becoming more normal again.
4483338,184,1711.03,1714.52,1,So um we have comparisons where where they were very low levels.
4483338,185,1714.52,1718.1801,1,You saw we had a huge uptick in our EBITDAaL in the first part of two one.
4483338,186,1718.65,1720.74,1,Um and then of course there…
4483338,187,1720.9,1743.1499,1,since we are very very transparent in the way we go uh to market and operate with you I could have made a bridge to you easily that will take us back to the uh the um uh consensus of three point seven by pointing out uh individual elements related to an uh an i f r s adjustment we have done the electricity cost in in the Baltics and some exchange losses.
4483338,188,1743.15,1748.28,1,And we'll be back at what the consensus was um but this is how we are.
4483338,189,1748.28,1751.37,1,We are maybe a little bit too brutally honest with ourselves.
4483338,190,1751.9,1754.9301,1,Um so let's not overdo the sales and and marketing.
4483338,191,1754.9301,1757.13,1,I do not know Hendrik do you want to add few comments to that?
4483338,192,1757.39,1761.0299,4,Uh yes um Kjell i am pleased to.
4483338,193,1761.4399,1779.1299,4,So on the sales and marketing cost that Kjell was saying we of course um you know need to look at where we are in the fourth quarter against early in the year also from a you know return to normality point of view and that of course brings you um in general to a little bit of a normalized level also on your marketing and sales cost.
4483338,194,1779.13,1784.11,4,And then within that the fourth quarter is typically a a very high trading season.
4483338,195,1784.11,1794.9701,4,We do a lot of the you know promotions a lot of the handset and device sales and actually we have done we've performed quite nicely in the quarter I would say particularly on the mobile postpaid side.
4483338,196,1794.97,1798.7799,4,And then on your question how will that translate into into next year?
4483338,197,1799.15,1807.3999,4,I would say you know as long as we get out of uh let's say back to normality and out of COVID you will see of course a you know a normalized run rate again.
4483338,198,1807.84,1813.25,4,Um but within that the fourth quarter is a higher cost quarter and I'm…
4483338,199,1813.28,1832.5499,4,And I also would like to point out that a lot of that commercial cost is driven by acquisition costs and not as much as marketing costs which I saw on some of the commentaries cuz we have of course also been able to get um some you know transformation savings on to our marketing spend by moving to uh one brand.
4483338,200,1832.55,1836.24,4,So uh there is a lot more related cost to volumes.
4483338,201,1838.66,1838.9401,3,Okay.
4483338,202,1838.9399,1839.2599,3,Thanks.
4483338,203,1849.77,1865.1599,1,Yeah that's also why we are reiterating our mid-term guidance.
4483338,204,1865.16,1866.0699,1,And there are…
4483338,205,1866.29,1868.08,1,I think we can say that there are cost savings.
4483338,206,1868.08,1869.08,1,There are cash savings.
4483338,207,1869.08,1879.51,1,Uh the the Swedish model um has uh also quite a lot of capitalized expenses expenses for consultants that's a bit unique to Sweden.
4483338,208,1879.51,1890.28,1,So at the end of the day I do see a scope for improvements beyond the program that we have now defined in terms of uh reduction of cash spending in the company.
4483338,209,1898.26,1898.63,1,Hello?
4483338,210,1901.8199,1903.7799,0,Excuse me Andrew have you finished with your question?
4483338,211,1907.95,1908.58,1,I think you dropped that.
4483338,212,1908.58,1910.3201,4,You might have dropped that but sorry about that.
4483338,213,1910.3199,1912.95,4,We're having some problems with the with the webcast everyone.
4483338,214,1913.3199,1914.62,1,Well let's go to Ulrich then.
4483338,215,1915.15,1918.96,4,I think we can go to the to the next question of the operator.
4483338,216,1919.79,1920.14,0,Thank you.
4483338,217,1920.14,1923.76,0,The next question comes from the line of ul Ulrich Rathe from Jefferies.
4483338,218,1923.76,1924.76,0,Please ask your question.
4483338,219,1925.89,1926.35,5,Uh thank you.
4483338,220,1926.35,1927.16,5,I have two questions please.
4483338,221,1927.16,1930.05,5,The first one is bit of a follow-up on the on the earlier one.
4483338,222,1930.53,1943.88,5,Um just to clarify when you talk about the phasing of commercial events um in this regard to the BTS um sort of change is that the customer migrations or is it other commercial events that you're referring to?
4483338,223,1943.88,1955.9,5,And also um is this informed um this plan informed by anything you see in the market actions by competitors or competitive um levels overall in the market?
4483338,224,1955.9,1966.05,5,Or is it simply going back to the drawing board you know putting together all the all the plans and sort of deciding it's it's it's better to sort of shift it out by six months?
4483338,225,1966.05,1967.63,5,Is it more internal or external?
4483338,226,1968.0699,1969.04,5,That is the first question.
4483338,227,1969.66,1986.39,5,And then the second question is um you mentioned during your prepared remarks that there was sort of a bit of a wave of contract expiration in the first quar in fourth quarter due to you know I suppose high sales in prior fourth quarters and then this contract sort of expired and created higher churn.
4483338,228,1986.97,1987.48,5,Was this…
4483338,229,1988.1801,1989.66,5,how how do you see that right?
4483338,230,1989.66,1995.0701,5,I mean that's generally you wo you would hope to not to see high churn when contracts ex expire.
4483338,231,1995.35,2000.14,5,Was this sort of a normal rate and just the higher underlying contract expiry?
4483338,232,2000.8199,2011.45,5,Or was there a reason why more people percentage-wise of these expiring contracts decided to leave tele two or or or ask for for some better terms?
4483338,233,2011.54,2011.87,5,Thank you.
4483338,234,2012.63,2013.36,1,Yeah okay.
4483338,235,2013.65,2016.2,1,I will do the first one and Hendrik will do the second one.
4483338,236,2016.47,2018.95,1,So you're basically asking why do we shift to six months?
4483338,237,2018.98,2022.74,1,i I actually see that as uh a signal of strength in the business.
4483338,238,2022.74,2030.3101,1,If we were not succeeding in the go-to-market then we would redouble the efforts on costs to try to compensate.
4483338,239,2030.91,2044.83,1,the the thing here is that I see that both Stefan and uh now Hendrik has the opportunity to build sustainable growth and then it's easier to let them have a little bit of maneuvering space in the go-to-market.
4483338,240,2044.83,2051.6301,1,So it's a decision that we have made internally based on how we think we can get the most value out of the approach.
4483338,241,2051.9099,2059.6499,1,So if we see-the see the opportunity like we do now to have sustainable growth it makes sense to give them a little bit more space and have…
4483338,242,2060.0,2062.8198,1,uh do not be bogged down by too many freeze periods.
4483338,243,2062.8999,2065.3901,1,Uh so overall I think this is good news.
4483338,244,2066.3501,2066.46,5,mm-hmm <affirmative>.
4483338,245,2066.79,2066.95,4,Yeah.
4483338,246,2066.95,2069.2202,4,Sure Kjell.
4483338,247,2069.22,2069.4199,4,Sure.
4483338,248,2070.05,2073.01,4,Um so first of all just to to confirm a couple of things.
4483338,249,2073.23,2079.2,4,First of all on from a commercial point of view in the consumer market we are really executing on our value strategy right?
4483338,250,2079.2,2088.71,4,So we're we're we're trying to you know to drive value into the market and of course with that also increase the overall value in the market for you know um for the industry.
4483338,251,2089.5901,2106.5,4,and and with the with that we're in a we are in a regular cycle that is recovering coming outta COVID with typically the fourth quarter being a very high trading season with you know some um additional commercial spend just from the quarter itself.
4483338,252,2107.25,2142.9199,4,If we look into take this forward then what you can expect is that we uh you know in in twenty two we'll be able as we recover from uh COVID although we still have some weakness in you know the end of January and in January as we speak we will be able to get to a better sustainable commercial rate uh but not at the level of q four uh not the high level of q four cuz that is a seasonality and not at the low levels we've seen earlier in in twenty twenty one where we were very much focused on focused on EBITDA in the midst of COVID.
4483338,253,2143.5,2148.8499,4,Um then in terms of what happens with the customer base we've seen uh that you know…
4483338,254,2148.8501,2160.4302,4,And i I think your your question particularly pertains to broadband and our you know net intake of um of one k versus a normal rate of you know a mid-single-digit rate.
4483338,255,2160.9199,2163.4902,4,And I think we have sort of been guiding that.
4483338,256,2163.8799,2179.74,4,What happens in this quarter in particular around broadband is is you know uh that we had a pretty decent sales rate although we've had some impact you know from COVID on some of the channels uh that has sort of given a little bit of softening.
4483338,257,2180.22,2196.8499,4,Uh but in particular we've seen uh for this quarter that we have had um campaigns that we've had over the last two years the twenty four months campaign and twelve months campaign that have both rolled out and sort of ended in this quarter.
4483338,258,2196.8501,2201.3899,4,And typically if we roll off a campaign this always comes with a level of churn.
4483338,259,2201.3899,2213.3899,4,So because we've had now two sort of these campaigns all happening in this quarter we've seen some you know additional tick up on uh on churn um and that's sort of key driver for the rate.
4483338,260,2213.3899,2229.79,4,And that is not a continued a continued trending that is very much you know a uh a a particular event in the in the fourth quarter and I would say underlying our broadband you know traction is still around sort of that mid mid-single-digit rate.
4483338,261,2229.8999,2231.5,4,Um and what we…
4483338,262,2231.79,2248.0901,4,And then lastly what we typically do in terms of you know migrations we as we execute on more-for-more pricing strategies we continuously move and upgrade customers to of course our new front book and of course also to you know our our new product sets that we have.
4483338,263,2248.0901,2252.22,4,And if you mean migration in that sense yeah that is what we continue to do as as part of more-for-more.
4483338,264,2253.6899,2254.3301,5,That's very helpful.
4483338,265,2254.3301,2256.97,5,Can I just clarify the very first question that that I asked?
4483338,266,2256.97,2269.2,5,the these commercial events that you specifically talk about in the report as as sort of the phasing of that informing the de- delay to the BTS what exactly are these commercial events?
4483338,267,2269.2,2272.0,5,Is it the the migration waves?
4483338,268,2272.0,2273.77,5,Is that what it is or what is it?
4483338,269,2274.22,2274.74,1,Uh yes.
4483338,270,2274.79,2275.1501,1,Okay.
4483338,271,2275.1499,2277.6802,1,So yeah we probably put it more clear in our language.
4483338,272,2277.71,2279.95,1,So specifically what what I'm trying to say is that…
4483338,273,2280.3899,2282.75,1,Um let me take a historic perspective on this.
4483338,274,2282.9299,2292.98,1,My predecessor uh made a decision which I think was right at that time to focus on uh EBITDA and cost because of the the uncertainties around COVID.
4483338,275,2293.4299,2302.8398,1,Now we are at the end of this thing and we have seen that we've been able to get meaningful growth back into uh all main lines of our business.
4483338,276,2303.28,2307.6599,1,Then it makes sense for me and the management team to focus on getting that growth going.
4483338,277,2308.1299,2315.8201,1,And the commercial events that I mean that is that for example uh Hendrik is planning a campaign in an important period of the year.
4483338,278,2316.0801,2321.02,1,We do not want him to be too restricted by uh constant freeze periods.
4483338,279,2321.2,2336.05,1,So by sequencing the b two p program so that it fits well with our go-to-market we are able to do both of these things and um that builds the most value for the business.
4483338,280,2336.05,2336.0801,5,<inaudible>.
4483338,281,2336.4399,2337.2,5,Thank you very much.
4483338,282,2337.25,2337.52,5,Thank you.
4483338,283,2339.47,2340.01,0,Thank you.
4483338,284,2340.3999,2345.01,0,The next question comes from the line of Andreas Joelsson from Danske Bank.
4483338,285,2345.26,2346.3801,0,Please ask your question.
4483338,286,2347.79,2348.3201,6,Yes.
4483338,287,2348.3201,2349.53,6,Good day to you all.
4483338,288,2349.5701,2351.5798,6,a a question on leverage.
4483338,289,2351.8201,2357.1499,6,You have been at the lower end of the leverage for quite a few quarters now as the slide showed.
4483338,290,2357.4299,2360.2102,6,Is there anything that would change that view?
4483338,291,2360.72,2368.5,6,Or uh if i'm being a little bit blunt what is preventing the board from moving you to the mid of the range that you expressed?
4483338,292,2369.27,2369.6099,6,Thank you.
4483338,293,2371.1299,2372.9199,4,Yeah I you can…
4483338,294,2372.95,2374.76,4,I can start and you can take over Kjell.
4483338,295,2374.79,2382.1301,4,Um just we have had a um very positive two thousand twenty one from a cash flow perspective.
4483338,296,2382.5601,2386.55,4,And a couple of things have come our way that has been really really helpful.
4483338,297,2386.76,2388.48,4,We expected it and it has happened.
4483338,298,2388.53,2393.6299,4,So you see a a very high cash flow uh generation in the business.
4483338,299,2394.1799,2397.99,4,And we do remain committed to the the policy.
4483338,300,2398.05,2400.03,4,We will be reviewing this.
4483338,301,2400.51,2405.6802,4,Last year we paid an extraordinary uh when we announced the second quarter.
4483338,302,2405.6799,2412.4399,4,Of course I cannot say anything about what we're gonna do this year but the the board is very committed to our policy.
4483338,303,2412.4399,2421.4502,4,So if we see that we will be uh over time trending significantly lower than what we have said then that will be reviewed for sure.
4483338,304,2421.98,2422.3899,4,This…
4483338,305,2422.6201,2432.73,4,We have no desire as a management or as a board to to hold back uh any uh any significant amount compared to what you expect.
4483338,306,2433.01,2449.6699,4,And of course one thing we're doing now is that we are handing out when the deal closes in Netherlands the entire amount despite the fact that you know from a ratings perspective some of that revenue would've been uh calculated by s and p as future uh contributions.
4483338,307,2449.98,2452.8,4,so so that is a signal of strength uh from our side.
4483338,308,2452.8,2456.6299,4,But yes we remain committed to the policy and we will be monitoring that.
4483338,309,2459.5,2459.98,6,Very clear.
4483338,310,2459.98,2460.3899,6,Thank you.
4483338,311,2462.0801,2462.6199,0,Thank you.
4483338,312,2462.73,2466.0901,0,The next question comes from the line of Peter Nielsen from a b g.
4483338,313,2466.1799,2467.3201,0,Please ask your question.
4483338,314,2468.1699,2468.8999,7,Thanks very much.
4483338,315,2468.9299,2469.8799,7,Um morning guys?
4483338,316,2485.8101,2494.1699,7,Or are you seeing some some issues here um uh that is sort of uh moves this also slightly into into the next year?
4483338,317,2494.49,2495.51,7,That was my first question.
4483338,318,2495.51,2496.6299,7,and and just second one.
4483338,319,2496.97,2500.6499,7,Kjell um we are seeing a slight weakening of trends in the TV business.
4483338,320,2509.3899,2510.1301,7,Thank you very much.
4483338,321,2511.8701,2514.9199,1,Let me do the first and then the second one I will hand over to um…
4483338,322,2515.47,2520.6101,1,So and on on the um migrations we have actually started that process.
4483338,323,2520.7,2531.8101,1,Uh so one of our main brands is uh is moving to to the um to the new platform and we have not had any unexpected things there.
4483338,324,2531.8101,2533.8899,1,Actually it's been relatively smooth I would say.
4483338,325,2534.28,2540.5801,1,These things are never super easy but uh there has not been any kind of red or even orange flags coming up there.
4483338,326,2541.0901,2549.79,1,Um so so again uh our our reasoning for for the choice we have made is exactly uh what you see is what you get.
4483338,327,2549.8301,2551.0999,1,This is our thinking.
4483338,328,2551.47,2556.6702,1,We really wanna make sure that we extract the most value from the market in this uh in this process.
4483338,329,2556.79,2566.8901,1,So um we are we're very confident about the business transformation plan both the number and of course now the the timeline that we have set.
4483338,330,2567.22,2572.1101,1,And I think it's definitely the right thing to do in terms of a value creation perspective.
4483338,331,2572.8201,2573.4202,1,Um.
4483338,332,2573.45,2574.6899,4,Yeah Kjell.
4483338,333,2575.72,2585.0601,4,Hey Peter on the TV or or in entertainment business uh just to um give you um sort of some insight there.
4483338,334,2585.0901,2602.0601,4,Uh in last year's uh Capital Markets Day I think it was very clearly launched and stated that you know our aim is to uh stabilize and modernize our entertainment business to also you know contribute to driving value for the overall consumer business.
4483338,335,2602.46,2604.8301,4,Um and that's basically still our aim.
4483338,336,2604.8301,2621.1602,4,So we you know our aim is to stabilize this business and and to make the necessary adjustments so that we can really you know move into uh into streaming and get more solid fundamentals in the DTV business.
4483338,337,2622.28,2638.29,4,What you see if you look at uh you know the numbers underlying you see at least the revenue level that our you know cable and fiber uh entertainment business is is sort of starting to stabilize whilst we still have some you know decline on the on the legacy d t t side.
4483338,338,2638.75,2650.03,4,Uh and that is in in part uh coming through from you know the uh you know uptake we're seeing on our streaming business which sits in the in the you know cable and fiber numbers.
4483338,339,2650.4399,2666.0601,4,Um again we're still early on because uh since we've now just rebranded Com Hem play plus into tele two Play uh we've we're seeing some good growth momentum and that's also where we're now launching you know linear streaming into the portfolio.
4483338,340,2666.3601,2680.7,4,This is again a first step uh into a you know continued modernization journey uh for our entertainment business that again in the end should be able to stabilize you know the total TV line over time.
4483338,341,2682.46,2682.6799,7,Okay.
4483338,342,2685.6599,2686.1599,0,Thank you.
4483338,343,2686.26,2689.96,0,The next question comes from the line of Stefan Gauffin from DNB.
4483338,344,2690.02,2691.23,0,Please ask your question.
4483338,345,2693.27,2694.49,8,Um Yes.
4483338,346,2694.52,2694.97,8,Hello.
4483338,347,2695.0901,2698.75,8,Um I have a question on mobile a r p u.
4483338,348,2699.6201,2716.28,8,Um uh there was a slightly weaker uh growth momentum on the ARPU side for both the consumer and the uh business mobile uh this quarter compared to q three.
4483338,349,2716.8401,2727.8701,8,I'm just wondering if that is uh a result of campaigning or if it's uh increased mobile competition or due to phasing of price increases?
4483338,350,2728.51,2734.9302,8,Just uh help me understand sort of the development on on uh mobile ARPU.
4483338,351,2736.6899,2738.3901,1,Okay Stefan will start and then Hendrik.
4483338,352,2738.6201,2739.02,9,Yeah.
4483338,353,2739.8,2740.4001,9,Hi Stefan.
4483338,354,2740.3999,2741.8,9,Uh thanks for the question.
4483338,355,2741.8501,2751.4399,9,Uh and on b two b then uh if you look at the comparison versus last year it's true that we have a a decline.
4483338,356,2751.5,2761.6702,9,Um but if you look on the long uh trend we are decreasing that revenue or-or ASPU decline that we have seen in the b two b segment.
4483338,357,2762.24,2787.54,9,Um so uh looking at the efforts that we're doing uh keeping more disciplined around our pricing guidelines uh focusing on value uh and and making sure that we take a responsible stance in the market and we are challenging ourselves all the time to making sure that we get the right price from our b two b customers.
4483338,358,2788.02,2791.9702,9,And we can see that is actually resulting in improvements.
4483338,359,2792.0901,2797.76,9,Uh if you compare to the q three and q four ASPU uh it's a flat development.
4483338,360,2798.02,2805.99,9,Uh and also if you look at the full-year ASPU uh we are on the same level as we were in both q three and q four.
4483338,361,2806.3,2819.1199,9,So i would say the strategy uh is is uh yielding results and of course bringing in more SME customers with a higher a s p u than the the key and the public sector.
4483338,362,2819.46,2823.1301,9,Uh it works in the right direction for for us in b two b.
4483338,363,2824.3701,2825.9199,9,I hope that answers the question.
4483338,364,2825.9199,2827.6499,9,And then I hand over to Hendrik.
4483338,365,2827.74,2828.49,4,Thank you Stefan.
4483338,366,2829.46,2830.8501,4,Yes Stefan and Stefan actually.
4483338,367,2830.8501,2836.6301,4,So um I will focus on the uh consumer side on the postpaid asked by Stefan.
4483338,368,2836.6599,2851.74,4,and and basically what you see from q three to q four is typically you know that in q three uh also this year actually still sort of in that um lighter touch on COVID we did have some good roaming revenues as you may remember from our q three report.
4483338,369,2851.74,2863.0701,4,So that typically drives a higher you know ASPU in the quarter which then of course you know coming out of the holiday season has an effect on the on the you know ASPU in the fourth quarter.
4483338,370,2863.3,2865.4402,4,And that I think is the main the main explanation.
4483338,371,2865.4399,2875.6899,4,If you look at the you know underlying ASPU in the quarter versus last year we've been growing but by two percent and actually also versus full-year you know strengthening the a s p u uh development.
4483338,372,2875.8101,2886.5098,4,and and whilst you may think well you know from a campaigning there may be uh may be a little bit of a campaign uh low you know softer a s p u uh coming into the mix.
4483338,373,2886.51,2894.1401,4,That of course to an extent is true but it doesn't have uh any effect on the overall you know customer base ASPU as such.
4483338,374,2894.1399,2905.54,4,So I would say it's mainly an effect from you know a strong q three driven by uh typically you know roaming and uh versus last year we see a a two percent growth in the quarter.
4483338,375,2908.6101,2909.1101,8,Okay.
4483338,376,2909.6799,2910.1299,8,Thank you.
4483338,377,2910.25,2913.9099,8,Uh good explanations from both of you.
4483338,378,2916.1201,2916.48,8,Thank you.
4483338,379,2916.48,2916.7102,0,Thank you.
4483338,380,2918.3401,2918.7798,0,Thank you.
4483338,381,2918.78,2926.03,0,The next question comes from the line of Francesca Schild from BNP Paribas Exane.
4483338,382,2930.6899,2933.4299,10,So how do you think of wage inflation risk in Sweden?
4483338,383,2944.77,2945.1301,10,Thank you.
4483338,384,2947.3701,2954.99,1,Well um the wage inflation in Sweden is pretty much determined by uh the central negotiations.
4483338,385,2954.99,2961.2202,1,So uh i I do not see anything you know dramatic coming out of that.
4483338,386,2961.27,2964.6799,1,tho those numbers are usually quite responsible.
4483338,387,2965.1299,2974.3701,1,Uh we do see a bit more wage inflation in in the Baltics uh that kind of goes with the the overall um growth in the…
4483338,388,2974.3701,2977.0999,1,that we see there in the in the business and the economy.
4483338,389,2977.48,2984.45,1,Uh and um there there is inflationary pressure in the Baltics than in uh in Sweden.
4483338,390,2984.8899,2991.6101,1,Now the good thing about that is that the business in the Baltics is also pretty good at uh pricing their services.
4483338,391,2991.6499,3001.29,1,So uh I think the industry in general in Europe has struggled with focusing on on this uh inflation adjustments of of pricing.
4483338,392,3001.29,3007.6899,1,And you see the what BT is doing in the UK as maybe a one way of doing it.
4483338,393,3007.8101,3012.2002,1,we we think our Baltic colleagues have been overall quite good at it.
4483338,394,3012.25,3015.7898,1,I think probably we could be even better at this in in the Swedish market.
4483338,395,3015.79,3026.3499,1,So um but to be specific on your question Sweden wage pressures seem to be kind of under control because they are centrally managed most of it.
4483338,396,3026.6001,3029.6501,1,And the Baltics is also under control but will have a higher level.
4483338,397,3032.54,3032.8601,10,Thank you.
4483338,398,3032.8601,3034.6099,10,So just on that so do you have…
4483338,399,3035.1799,3040.23,10,do you think that in Sweden it will be similar the increase this year to last year?
4483338,400,3040.3,3042.9099,10,And have have the negotiations taken place?
4483338,401,3044.01,3052.01,1,I think we can you can expect uh overall those agreements to end up in the area of two maybe two point five percent.
4483338,402,3053.1899,3053.5,10,Okay.
4483338,403,3053.5801,3053.9399,10,Thank you.
4483338,404,3056.9199,3057.4099,0,Thank you.
4483338,405,3066.48,3068.1799,12,Thank you for taking questions.
4483338,406,3068.21,3084.8,12,Um on um the marketplace uh I focus on Sweden and in regard to everything spoken about before the positioning in networks and your five g position and the JV with Telenor.
4483338,407,3085.72,3103.0701,12,Can you describe to us just very top down how important that is going forward in terms of having a good position in five g uh and the perception in the market of fast and strong networks and the investments in those?
4483338,408,3103.76,3107.0701,12,And are you aligned with Telenor in that uh space?
4483338,409,3108.45,3111.8501,1,Pontus actually really thank you for that question because it's something I love to talk about.
4483338,410,3111.9099,3118.0701,1,Um we have a quite unique position in European telecoms with our network cooperation with Telenor.
4483338,411,3118.4199,3124.9302,1,So we run uh some part of Sweden on our own network but most of it through net four mobility.
4483338,412,3125.3799,3132.6201,1,And that gives a a great advantage because we have the scale advantage and we have also very good spectrum a very good spectrum position.
4483338,413,3132.99,3154.24,1,So when we when the whole two g three g four g market consolidates into one five g market that is actually a net positive for us at tele two cause the combination of net four mobility on our home networks will mean that in terms of um base stations and spectrum we would have the strongest position in the markets.
4483338,414,3154.72,3162.28,1,Uh cause right now we're operating with network corporations with SUNAB with Telia we have net four mobility we have our own.
4483338,415,3162.6299,3170.8,1,When we consolidate all of this into one uh with one network planning we will have the biggest reach and we'll have a great spectrum portfolio.
4483338,416,3170.8,3180.7,1,So we can't wait to get through this because it will it will if anything uh strengthen our position towards uh both b two b and b two c consumers in the Swedish market.
4483338,417,3185.0801,3185.47,12,Okay.
4483338,418,3185.5801,3185.99,12,Thanks.
4483338,419,3186.1599,3198.21,12,I know it's becoming more important towards the consumer you feel or is it because in the beginning you know people weren't so aware but now if you look Sweden efficiency is is more of a divider in the marketplace?
4483338,420,3199.4199,3202.0298,1,Yeah I think we have a good four g network now.
4483338,421,3202.03,3213.5798,1,Uh but the good news is that when we're moving over to the next technology and we can re-plan the network we'll be able to have better reach with fewer base stations because we're not sharing in in multiple relationships here.
4483338,422,3213.5801,3218.5801,1,So that whole planning uh has a a significant uh efficiency in it.
4483338,423,3218.9199,3222.3699,1,Actually I think Yogesh described that very well at our Capital Markets Day.
4483338,424,3222.3701,3227.28,1,So uh there there is a clip out there that describes how that journey goes.
4483338,425,3227.6599,3230.27,1,So um it's it's something that we're really looking forward to.
4483338,426,3231.97,3251.5901,4,And maybe to add Pontus i I think if I look at the you know typical consumer behavior and uptake on uh on for example new phones and handsets you see quite quite a lot of the phones that we have been shipping also in the fourth quarter are you know five g ready um and that's sort of making its way into the market quite quickly.
4483338,427,3251.5901,3254.1699,4,So there is a natural uptake by the market.
4483338,428,3256.4299,3256.6499,12,Okay.
4483338,429,3256.6499,3256.97,12,Thank you.
4483338,430,3260.8101,3261.3599,0,Thank you.
4483338,431,3269.28,3270.4299,13,Uh thanks very much.
4483338,432,3270.46,3271.1399,13,Hello everyone.
4483338,433,3271.1699,3277.4099,13,Um I wanted to ask kinda uh a slightly general question about the way you are thinking on phasing of customer growth.
4483338,434,3278.3101,3282.1902,13,Um from my perspective today's results show the machine is kind of working.
4483338,435,3324.97,3325.2798,13,Thank you.
4483338,436,3326.9299,3327.3198,1,Okay.
4483338,437,3327.3201,3338.76,1,So when looking at uh our positioning in in the market i'm I'm very happy to see that we have a much higher uh accuracy now than we had uh when I joined.
4483338,438,3338.8799,3343.0701,1,Uh and that is because a lot of people have worked hard on getting their data right.
4483338,439,3343.5701,3348.97,1,One of the reasons why uh Stefan is successful in b two b is that they do much better analysis now.
4483338,440,3349.3701,3349.8901,1,There used to be…
4483338,441,3353.24,3356.1001,1,Now they are much more accurate about the customer needs.
4483338,442,3356.1001,3363.0999,1,They have a much more interesting and relevant discussion with our big cu large customers and uh solutions customers.
4483338,443,3363.3401,3367.6101,1,And that is how they can provide value to these customer relationships.
4483338,444,3386.1699,3390.6001,1,And that was great in a growing market and where you didn't have such a huge long tail.
4483338,445,3390.8799,3393.46,1,Now we are a converged FMC player.
4483338,446,3393.71,3397.8298,1,We need to be much more accurate and that level of accuracy has increased a lot.
4483338,447,3398.1299,3401.27,1,And what Hendrik brings to to the business here he brings many things.
4483338,448,3401.27,3410.3799,1,But one of the things he brings is a deep understanding not only on mobile markets and not only of broadband markets but also the TV side of the business.
4483338,449,3410.78,3413.0901,1,So the whole picture comes together.
4483338,450,3413.4199,3422.0999,1,and and for us to be uh more surgical in our approach between value and volume we need more and bigger data.
4483338,451,3422.1299,3423.4202,1,That's what we're getting into place.
4483338,452,3423.5701,3425.52,1,That is one of the key things that is happening.
4483338,453,3426.2,3429.8999,1,And on on the rollout of the five g it's it's moving ahead.
4483338,454,3430.1899,3434.8298,1,We actually were able to do a little bit more towards the end of the year than than we expected.
4483338,455,3434.8301,3437.7,1,So that that momentum has really picked up.
4483338,456,3438.1299,3448.51,1,So we think um a lot is gonna be built out in two two and that the main momentum will be done and finished by two three with of course some build-outs in twenty four.
4483338,457,3448.51,3449.0,1,So.
4483338,458,3449.6799,3454.1699,1,And the guidance for our CapEx you have it will be at the upper end clearly.
4483338,459,3454.54,3457.5801,1,Uh and but we we have transparency on that.
4483338,460,3457.5801,3458.72,1,We have visibility on that.
4483338,461,3459.23,3460.51,1,Uh it it is looking pretty good.
4483338,462,3462.6101,3463.6501,13,That's pretty helpful.
4483338,463,3463.6799,3463.9602,13,Thank you.
4483338,464,3463.96,3465.8699,13,But if I could just follow-up on that first question.
4483338,465,3482.52,3493.27,1,Um one of the things that I did after coming here was to move the big data resources out from being more of a staff function to being directly in the line of business.
4483338,466,3493.76,3504.6299,1,Uh we have people here who are truly um capable and they are actually quite motivated now because they're much closer to where it happens.
4483338,467,3504.6299,3506.1599,1,They're much closer to the business.
4483338,468,3506.7,3513.6299,1,so so they they have really um quite a lot of energy in uh in putting into their work.
4483338,469,3514.03,3519.04,1,Uh and it seems like uh they're coming up with a with a big value add.
4483338,470,3519.24,3520.8999,1,And do you wanna add something guys?
4483338,471,3522.02,3530.3899,9,Now well from from a b two b perspective I would say that uh in the past in tele two we have underinvested in the business intelligence side.
4483338,472,3531.0601,3545.26,9,Uh that is something that we are changing uh and and which we started already next year with the program in becoming more data-driven and to to Kjell's point in different manners of of running the business.
4483338,473,3545.4299,3549.5598,9,Uh we will continue to do that uh also this year.
4483338,474,3550.05,3581.21,9,Uh and I think the cooperation that we have with with the units within our technical organization with the skillset that they bring uh the cooperation between the commercial and technical parts that will yield uh better control and better um uh performance and execution going forward in in in all aspects and not just commercial I would say but also from a customer experience perspective uh and a production perspective.
4483338,475,3581.24,3584.8,9,so so really really looking forward to that.
4483338,476,3586.3799,3586.8999,13,Thanks very much.
4483338,477,3587.1899,3590.6702,4,And maybe maybe Adam just to add you know from a consumer point of view.
4483338,478,3591.29,3600.1799,4,I think you know customer value management you probably pick it up also as the operator is is really a way to go as you go into a converged strategy.
4483338,479,3600.3,3606.2898,4,Um you know that is where we still have uh you know a lot of opportunity and mileage to go.
4483338,480,3606.29,3624.98,4,And uh as uh you know as Kjell alluding to earlier the IT transformation is quite essential to get that uh get that done so that we can really uh not just have the data but also act on it through you know how we build propositions how we you know get the intelligence to the channels and and et cetera.
4483338,481,3624.98,3630.76,4,So you know we're we're in full motion of that um and uh there's clearly a lot of potential still to be…
4483338,482,3631.1399,3633.0901,4,to come out of this as we go through twenty twenty two.
4483338,483,3634.78,3635.0,13,Great.
4483338,484,3635.1499,3635.46,13,Thank you.
4483338,485,3637.6201,3638.1099,0,Thank you.
4483338,486,3645.9099,3646.24,14,Yes.
4483338,487,3646.27,3648.7002,14,Uh Good morning and thank you for taking my question.
4483338,488,3649.05,3655.99,14,Um I just wanted to come back to the comments around driving um improved top line growth in Sweden please in context of the guidance.
4483338,489,3656.6699,3667.05,14,Uh in twenty twenty one obviously you know Group service revenue growth of one percent uh but all of that was driven by the Baltics with Sweden declining point five percent and q four actually softening a bit.
4483338,490,3667.5901,3672.4302,14,So just to confirm within the twenty two guide what are you assuming for Sweden please?
4483338,491,3672.46,3679.05,14,Uh looks like consensus has around one percent growth for Sweden uh in both consumer and business.
4483338,492,3679.05,3683.28,14,Is that something that um uh you are comfortable with?
4483338,493,3683.73,3684.0701,14,Thank you.
4483338,494,3686.0,3686.8501,1,Well I can start.
4483338,495,3686.9099,3690.0698,1,Uh first of all I think it's very important to see the trends overtime here.
4483338,496,3690.0701,3699.9099,1,So going from a a quite significant negative trend in in b two b to to to being a stable business was what we said we would do and and we've done it.
4483338,497,3699.9099,3700.27,1,So.
4483338,498,3700.8799,3702.77,1,And then of course we wanna take it from there.
4483338,499,3702.77,3707.0999,1,Stefan and I and others will work hard to deliver meaningful growth there also.
4483338,500,3707.6101,3714.25,1,Uh and then of course uh we've seen volumes picking up a bit in in consumer.
4483338,501,3714.25,3727.5901,1,So our ambition is that all the the the main lines of the business meaning the Baltics b two c Sweden b two b Sweden should should be delivering uh to the overall growth momentum of the company.
4483338,502,3728.24,3735.29,1,And then and then of course it will it will vary over time where the biggest uh contribution comes from.
4483338,503,3735.6299,3738.02,1,Clearly in the short-term it will be be the Baltics.
4483338,504,3738.4299,3739.99,1,Anything you wanna add or?
4483338,505,3740.8,3742.55,9,No I think you've put it well.
4483338,506,3742.6899,3752.05,9,Uh I mean during the year we've set some strategy for for b two b with specific cornerstones that that we shared with you uh at the Capital Markets Day.
4483338,507,3752.6799,3767.4602,9,We are delivering on on that strategy to the full extent and that's our focus and also to be consistent with regards to to to strategy and and these cornerstones with segmentation being a big subscription partner operational excellence et cetera.
4483338,508,3767.96,3778.4299,9,And with that uh ambition to make a major trend shift during 2022 2021 which which uh Kjell just uh mentioned.
4483338,509,3778.4299,3780.3999,9,I mean we have we have delivered on that.
4483338,510,3780.79,3790.98,9,And then we are on on the path of uh having the ambition to be stabil- stabilizing the revenue growth that you saw in the last quarter.
4483338,511,3791.8101,3809.7,9,Um and uh hopefully that that that uh answers the the ambitions that we have uh and going from minus 7% in- in 2020 uh to- to to that level that we see now with two consecutive quarters with with positive growth.
4483338,512,3810.3301,3814.7898,9,Uh we're we're we are uh we are proud of that delivery but we're not satisfied.
4483338,513,3814.79,3818.3701,9,We will push forward uh going uh into the future.
4483338,514,3821.51,3822.0701,4,Okay.
4483338,515,3822.23,3823.6299,4,We have Nick Lyall.
4483338,516,3836.6201,3837.6899,15,Just uh two things.
4483338,517,3837.6899,3843.6301,15,Just I was looking at the the annual survey the sort of end of um twenty twenty one annual survey.
4483338,518,3844.0701,3848.78,15,Well could you just explain why that's why that is or is not a true reflection of the sort of network quality?
4483338,519,3849.5801,3854.8098,15,And should we be concerned about your ability to close the gap on TV and mobile prices because of that?
4483338,520,3855.3999,3858.71,15,And then secondly and apologies if I missed something but…
4483338,521,3858.71,3860.03,15,cuz I got cut off for a couple of times.
4483338,522,3860.03,3863.3201,15,But I take your point about the broadband campaigns annualizing.
4483338,523,3863.3201,3871.8198,15,But if you were able to remove that would we see in the numbers you're making some headway by taking share from Telia because of their rises in broadband prices?
4483338,524,3877.6001,3884.46,1,So i'll do one and maybe Hendrik does two.
4483338,525,3884.6399,3884.8699,4,Yeah.
4483338,526,3885.05,3889.9102,1,So uh what you are highlighting is an opportunity for for tele two.
4483338,527,3889.98,3893.27,1,We have a good network today and then of course there will always be surveys.
4483338,528,3893.27,3895.8401,1,There always have been sur surveys as long as I have been in this industry.
4483338,529,3896.2,3911.6301,1,But what I tried to say on the previous question is that the going into this setting up the five g networks well we can have uh a one to you know a one network uh under our own control and not have multiple cooperations.
4483338,530,3912.1101,3916.2302,1,The cooperation net four mobility has uh is tested over time.
4483338,531,3916.23,3917.26,1,It works really well.
4483338,532,3917.54,3920.9102,1,We are we are in a good relationship with our partner there with Telenor.
4483338,533,3921.25,3941.79,1,So five g brings an opportunity for us to capitalize on that gap that you are pointing out because clearly we moving forward with tele two becoming a converged player quality uh player gives us the chance to lift uh ASPUs over time.
4483338,534,3941.95,3961.22,1,So uh when we come out end of two three and early twenty four with great coverage and great spectrum and a very strong uh five g proposition that gives us an opportunity to equalize some of that uh gap that you are pointing out.
4483338,535,3961.3501,3962.8899,1,So it's it's a good opportunity for us.
4483338,536,3963.98,3964.21,4,Sure.
4483338,537,3964.21,3977.8,4,Um and Nick it will be an opportunity to carry on you know the growth momentum I think also through more-for-more on the on the on the mobile a s p u um um for us you know um as such.
4483338,538,3977.8301,3981.8799,4,And then on the fixed I would just briefly comment on that you know.
4483338,539,3981.8799,3985.3501,4,Underlying I think we have still a good trend.
4483338,540,3985.3501,3996.0999,4,Of course you know you need to look at the total market of course where where we have gotten and if you look traditionally first where we are now of course you know uh we we do have a mature and and quite penetrated market.
4483338,541,3996.6499,4010.75,4,Uh however the uh campaign momentum that I was alluding to is that of course you need campaigns to to an extent to drive uh you know your your net adds uh on the one hand but on the si you know.
4483338,542,4011.78,4024.49,4,But in this quarter in particular we have seen you know just the uh two of these sort of quite successful campaigns you know coming coming out you know rolling out and that has been that specific effect.
4483338,543,4024.8701,4027.3801,4,So yes you need campaigns to drive it.
4483338,544,4027.3799,4038.51,4,Of course this need to be well well sort of um you know planned and scheduled that you don't have these sort of effects that we've seen in this quarter in particular which we are which we're doing uh as we go forward.
4483338,545,4039.4299,4058.2998,4,And uh as we also execute on you know the FMC strategy uh and we will be able to as we have been alluding to get more out of the customer base and customer value focus we will also we will also be able to address you know some of the churn levels and see some churn reduction.
4483338,546,4058.3,4075.45,4,So a continuation on uh you know driving sort of campaigns that are sort of we well planned um in combination with uh really driving the FMC momentum uh throughout twenty twenty two I think will give us a good underpinning for our broadband business going forward.
4483338,547,4076.9399,4077.4402,15,That's good.
4483338,548,4079.98,4080.5,15,Thank you.
4483338,549,4080.6599,4083.5701,0,Dear participant thank you very much for all your questions today.
4483338,550,4084.04,4089.3301,0,I would like to hand the conference over to your speaker Kjell Johnsen for the closing remarks.
4483338,551,4090.6399,4090.8098,1,Yeah.
4483338,552,4090.8101,4097.25,1,And thank you very much everyone for joining us uh this morning to go through the full year of uh twenty one and our outlook for two two.
4483338,553,4097.3501,4112.4199,1,I'm very happy that we could close the year uh on a relatively high note uh with basically living up to the guidance increase that we gave you in July of last year and that we are now sitting with a guidance that is higher than we had uh twelve months ago.
4483338,554,4112.77,4123.0601,1,We have increased our dividend by uh twelve point five percent and we are recommitted to of course as we always are to the uh dividend policy and the capital allocation.
4483338,555,4123.6401,4124.7598,1,So things are looking good.
4483338,556,4124.8999,4137.1699,1,we are gonna deliver on our transformation program and we're going to uh make sure that that does not uh interfere with our ability to drive growth momentum also in the Swedish market.
4483338,557,4137.4902,4143.4502,1,So we're making these judgment calls and um I'm pretty positive about the the outlook.
4483338,558,4144.3101,4145.1699,1,So thanks for joining us today.
4483506,0,3.15,11.94,0,Ladies and gentlemen uh it is now time to start Sony group corporations f y twenty one three Third Quarter Earning announcement.
4483506,1,12.23,14.2,0,I'm Okada corporate communications.
4483506,2,14.25,16.48,0,I'll be serving as master of ceremony today.
4483506,3,16.94,25.14,0,The session is being held for journalists analysts and institution investors to whom we have sent out invitations in advance.
4483506,4,25.71,31.31,0,This session will be live broadcast through our investors relations website.
4483506,5,31.66,33.88,0,First we have with us Mr.
4483506,6,33.88,45.86,0,Totoki Executive Deputy President and C F O to explain third quarter fy twenty one consolidated results and the forecast for consolidated fiscal twenty twenty one results.
4483506,7,46.08,48.39,0,That duration is about seventy minutes.
4483506,8,48.5,48.74,0,Mr.
4483506,9,48.74,50.13,0,Totoki the flow is yours.
4483506,10,50.97,54.63,0,Thank you I will cover the topics written here today.
4483506,11,55.56,74.74,0,f y twenty one q three consolidated sales increased thirteen percent compared to the same quarter of the previous fiscal year to three trillion thirty one point three billion yen and consolidated operating income increased the significant hundred and thirteen point three billion yen year on year to four hundred and sixty five point two billion yen.
4483506,12,75.1,77.46,0,Both were equal heights for the third quarter.
4483506,13,78.0,90.03,0,Income before income taxes increased seventy seven point eight billion yen year on year to four hundred and sixty one point six billion yen and net income attributable to Sony group corporation shareholders increased thirty five.
4483506,14,90.25,94.09,0,four billion yen to three hundred and forty six point two billion yen.
4483506,15,94.65,102.55,0,Please see pages three to six of the presentation materials for a depiction of each profit metric adjusted to exclude one time items.
4483506,16,103.13,107.12,0,This slide shows the results by segment fy twenty one q three.
4483506,17,107.86,112.29,0,Next I will show the consolidated results forecast for fy twenty one.
4483506,18,113.32,125.4,0,Consolidated sales are expected to remain unchanged from our previous forecast of nine trillion nine hundred billion yen while operating income is expected the increase a hundred and sixty billion yen to one trillion two hundred billion yen.
4483506,19,125.72,138.36,0,We have also upwardly revised our forecast for income before income tax to one trillion one hundred and fifty five billion yen and a forecast for net income attributable to Sony group corporations shareholders to eight hundred and sixty billion yen.
4483506,20,138.67,146.79,0,A forecast for consolidated operating cash flow excluding the financial services segment has increased fifty billion yen to nine hundred and forty billion yen.
4483506,21,147.42,150.95,0,This slide shows are focused by segment for fy twenty one.
4483506,22,151.61,156.04,0,I will now explain the situation in each of a business segment.
4483506,23,156.39,174.08,0,First is game and network service segment f y twenty one q three sales decreased to eight hundred and thirteen point three billion yen eight percent lower than the same quarter of the previous fiscal year in which we launched the playstation five and sold the major titles in conjunction with the launch.
4483506,24,174.29,191.28,0,Operating income increased twelve point one billion yen year on year to ninety two point nine billion yen primarily due to a decrease in selling general and administrative expenses and an improvement in ps five hardware profitability partially offset set by a decrease in software sales.
4483506,25,191.68,207.68,0,f y twenty one sales are expected to decrease a hundred and seventy billion yen compared to our previous focus two trillions seven hundred and thirty billion yen and operating income is expected to increase twenty billion yen compared to the previous forecast to three hundred and forty five billion yen.
4483506,26,208.18,228.78,0,Total game playtime or PlayStation users in December twenty one was twenty percent lower than the same month of the previous year which was immediately after the release of ps five but game play time increased approximately seven percent from December twenty nineteen per quarter in which there were only a few meta titles released.
4483506,27,228.98,231.05,0,We think this was solid performance.
4483506,28,232.19,246.05,0,In the fourth quarter and in March 31st twenty twenty two we expect user engagement to increase further because the meta first party titles Horizon Forbidden West and Gran Turismo seven will be released.
4483506,29,246.68,257.9,0,The PC version of God of war released in January twenty twenty two has received high acclaim among the PC gaming community obtaining a Metacritic metascore of 93.
4483506,30,262.48,282.14,0,Unfortunately due to limitations on the supply of components especially semiconductors an increase in delivery times resulting from the disruption of the global distribution supply chain we have revised our fy twenty one unit sales forecast for ps five hardware to eleven point five million units.
4483506,31,282.59,292.76,0,Limitations on the supplier components are expected to continue going forward but we are continuing to exert every effort to meet the strong demand for ps five.
4483506,32,295.6,304.65,0,On January thirty first in the US Sony Interactive Entertainment entered into definitive agreement to acquire Bungie Inc.
4483506,33,304.85,308.48,0,One of the world's leading independent game developers.
4483506,34,309.91,320.51,0,With more than nine hundred creative people on staff Bungie has a track record of creating blockbuster titles such as Halo and Destiny.
4483506,35,322.05,328.16,0,As a longtime partner of Bungie we have discussed various forms of collaboration with them in the past.
4483506,36,328.67,342.05,0,Ultimately we decided to pursue an acquisition because we gained confidence that we could grow even more by combining the corporate cultures of both companies as well as our strengths in the creatives space.
4483506,37,342.51,352.27,0,Once part of S I E Bungie will operate as an independent studio and will continue to publish its content on platforms other than PlayStation.
4483506,38,353.57,364.58,0,The total consideration for the acquisition is three point six billion US dollars and the complexion of the acquisition is subject to certain closing conditions including regulatory approvals.
4483506,39,365.12,381.54,0,From calendar year twenty fourteen to calendar year twenty twenty one the size of the global game content market doubled driven by addon content to revenue from live game services which grew at an average annual rate of fifteen percent during this period.
4483506,40,381.83,384.44,0,We expect this trend to continue going forward.
4483506,41,385.69,400.01,0,Bungie has capitalized on this opportunity from an early stage by incorporating live game services into its premier franchise destiny and it has accumulated of wealth of experience and superb technology in the space.
4483506,42,400.49,421.29,0,The strategic significance of this acquisition lies not only in obtaining the highly successful destiny franchise as well as major new IP that Bungie is currently developing but also in incorporating into the Sony group the expertise and technologies that Bungie has developed in the live gaming services space space.
4483506,43,421.73,430.72,0,We intend to utilize their strengths when developing game IP at the PlayStation studios as we expand into the live gaming services area.
4483506,44,431.14,439.59,0,Through close collaboration between Bungie and the PlayStation studios we aim to launch more than ten dive service game by the fiscal year and in March 31st 2026.
4483506,45,442.26,452.97,0,In addition to review the deployment of a game IP on multiple platform as a major growth opportunity for Sony as has been the evidence by the success of PC version of the God of war and other First Party games.
4483506,46,453.23,467.12,0,Through this exhibition we intend to acquire new users and increase engagement on platforms other than PlayStation which will enable us to significantly advance our long term growth strategy for further expanding the ecosystem of our game business.
4483506,47,468.03,479.39,0,Catalyzed by the acquisition of Bungie we intend to accelerate the growth of our first party games software revenue aiming to more than double the current amount by a fly twenty five.
4483506,48,483.23,493.24,0,Now I will use this uh conceptual uh diagram to explain at the high level how this acquisition will be treated from an accounting perspective.
4483506,49,493.59,498.85,0,Bungie is a private company the majority of whose shares owned by its employees.
4483506,50,499.13,510.1,0,So payment of the consideration is structured to incentivize the shareholders and other creative talent to continue working at Bungie after the acquisition closes.
4483506,51,510.71,526.42,0,Approximately one third of the three point six billion US dollar consideration for the acquisition consists primarily of deferred payments employee shareholders conditional upon their continued employment and other retention incentives.
4483506,52,527.0,536.23,0,These amounts will be paid over the course of several years after the acquisition closes and will be recorded as expenses for accounting purposes.
4483506,53,536.59,545.88,0,We expect about two thirds of these deferred payments and other retention incentives to be expensed in the first two years after the acquisition closes.
4483506,54,546.77,551.53,0,Next is the music segment or those sales of visual media and platform decreased.
4483506,55,551.77,563.67,0,If fy twenty one q three sales increased twelve percent year on year to two hundred ninety five point nine billion yen primarily due to an increase in streaming revenue.
4483506,56,564.0,569.62,0,Despite the impact of the increase in sales recorded music operating income decreased four.
4483506,57,570.21,580.58,0,zero billion yen year on year to fifty five point five billion yen primarily due to the impact of the decrease in sales of visual media and platform.
4483506,58,583.3,591.94,0,The contribution to the operating income of the quarter from visual media and platform accounted for the inaudible percentage of the operating income of the segment.
4483506,59,592.25,608.01,0,If fy twenty one sales are expected to increase twenty billion yen compared to our previous forecast to one trillion ninety billion yen and operating income is expected to increase five billion yen compared to our previous forecast to two oh five billion yen.
4483506,60,608.3,611.53,0,Streaming revenue in q three continue to grow at high rate.
4483506,61,611.96,618.07,0,twenty nine percent year on year in recording music and twenty seven percent year on year in music publishing.
4483506,62,618.46,628.65,0,The recorded music business continued to generate measure hits with an average of thirty six songs ranking in Spotify's global top a hundred songs during the quarter.
4483506,63,630.53,644.32,0,Global superstar singer songwriter Adele's uh album thirty became a historic hit remaining number one on the billboard chart who were consecutive eight weeks after its release in November.
4483506,64,645.19,691.74,0,Next is the picture segment f y twenty one q three sales increased uh significant one hundred forty one percent year on year to four hundred sixty one point two billion yen primarily due to the blockbuster hit Spiderman No Way Home Emotion Pictures and the licensing of the popular US television series inaudible in television productions operating income uh increased a significant a hundred twenty one point one billion yen year and year to a hundred forty nine point four billion yen primarily due to the impact of the increase in sales and the recording of a seventy point two billion yen gain from the transfer of G S N games which closed on December the sixth twenty twenty one.
4483506,65,693.55,711.64,0,f y twenty one sales are expected to increase forty billion yen compared to our previous forecast to I trillion two hundred twenty two billion yen and operating income is expected to increase ninety seven billion yen compared to our previous forecast to two oh five billion yen.
4483506,66,712.08,721.0699,0,Even when one time items are excluded operating income this fiscal year is expected to be the highest ever for the picture segment.
4483506,67,723.06,735.98,0,Spiderman No Way Home was released across the US on December the seventeenth twenty twenty one and went on to record the second highest ever opening box office revenue nationwide.
4483506,68,736.16,745.22,0,According to the most recent data it's cumulative worldwide box office revenue is the sixth highest ever at approximately one point seven billion US dollars.
4483506,69,745.53,750.71,0,And it holds the record for highest crossing film in the history of Sony pictures entertainment.
4483506,70,751.01,756.91,0,Other franchises such as Venom Let There Be Carnage contributed significantly to our financial results.
4483506,71,757.18,764.16,0,And we are looking forward to the release this month of uncharted which is a movie version of a popular PlayStation game title.
4483506,72,764.37,783.32,0,Despite our success we will continue to pursue our flexible release strategy going forward as we have done by postpo- postponing the US release of Mobius a new film from the Sonny pictures universe of Marvel characters from January to April of this calendar year.
4483506,73,783.61,798.47,0,On December twenty second twenty twenty one Sony Pictures Networks India a subsidiary of s p e signed a definitive agreement on merge uh to merge S P N I with ZEE entertainment enterprise.
4483506,74,799.08,812.94,0,The merger represents an opportunity to further accelerate expansion and digitalization of our business by using the strengths of both companies to strengthen our digital distribution service in rapidly growing India media mark entertainment market.
4483506,75,813.27,830.39,0,We expect that the transaction workflow in the inaudible this fiscal year ending March of thirty first twenty twenty three after obtaining approval of the ZEE shareholders and regulatory authorities after the transaction closes SPE will own the majority of the shares of the merged entity.
4483506,76,831.11,835.24,0,Then the next is the electronics products and solutions segment.
4483506,77,835.38,866.42,0,Despite the favorable impact on sales from foreign exchange rate q three sales decrease two percent year on year to two hundred eighty six point nine billion yen primarily due to a decrease in the unit sales of our products resulting from a decline in stay at home demand and a shortage in the supply of components despite the favorable impact of foreign exchange rate and an improvement in product mix operating income decreased twenty three point three billion yen year on year to eighty billion yen primarily due to the impact of decrease in sales.
4483506,78,866.94,881.45,0,The fy twenty one sales are expected to increase eighty billion yen compared to a previous forecast to two trillion three hundred sixty billion yen and operating income is expected to increase twenty billion yen compared to our previous forecast to two hundred ten billion yen.
4483506,79,882.48,886.87,1,Operating income margin for this fiscal year is expected to exceed eight percent.
4483506,80,887.25,892.31,1,The efforts we have been making to improve our profitability are steadily bearing fruits.
4483506,81,893.0,903.9,1,During quarter three the impact of the rapid decline in TB panel prices on consumer market prices for TB was more limited than we originally anticipated.
4483506,82,904.34,911.4399,1,And the shift to large size TVs increased primarily in the US Europe and China.
4483506,83,912.38,921.12,1,As a result we are able to maintain the average selling price of our TVs especially the same level at the second quarter ended September thirtieth twenty twenty one.
4483506,84,921.67,929.68,1,Nevertheless we continue to be unable to fully meet the market demand in multiple categories due to uh severe limitations on the supply of components.
4483506,85,929.93,936.23,1,We expect the situation to continue to impact us in the fourth quarter ending March thirty first twenty twenty two.
4483506,86,936.81,945.8,1,We will continue to exude every effort to procure components as that will be one of the highest priorities for this segment next fiscal year.
4483506,87,946.23,983.58,1,Next is the imaging and sensing solution segment uh f y twenty one q three sales increase a significant twenty two percent year on year to three hundred twenty four point eight billion yen primarily due to an increase in sales of highend in image sensors while mobile products operating income increase thirteen point three billion yen year on year to sixty four point seven billion yen primarily due to the impact uh of the increase in sales our f y twenty one sales is expected to decrease decrease uh thirty billion yen compared to our previous forecast of one trillion seventy billion yen.
4483506,88,983.94,988.06,1,The f y twenty one operating income forecast remains unchanged from the previous forecast.
4483506,89,988.34,1007.51,1,Despite severe conditions in this smart for market such as weakness in the Chinese market and shortage of components especially inaudible the effort we have made here to to expand and diversify our mobile sensors customer base as well as to recover our markets share on a volume basis or having some success.
4483506,90,1007.88,1018.8,1,However it is taking longer than expected to introduce uh the high of four months high resolution custom sensor sensorss that we have been working on with Chinese smartphone makers.
4483506,91,1019.08,1029.64,1,So the speed of of affordability improvement resulting from an increase in added value products going into next fiscal year will be slightly lower than the originally planned.
4483506,92,1030.15,1044.54,1,Recently the train toward the Chinese smartphone market purchasing larger size segments for the high end product is improving after having segment uh due to the con contraction of our business with a certain Chinese customers.
4483506,93,1044.7,1049.9301,1,We expect the Chinese smartphone market to normalize in the second half of next fiscal year.
4483506,94,1050.27,1065.2999,1,Since we feel better about the possibility of sales growth and for the market share expansion next fiscal year we will focus even more on increasing the added value of our products and the strive to improve profitability on January twenty fifth twenty twenty two semi…
4483506,95,1065.73,1075.5,1,Sony Semi Conduct Solutions Corporation completed its initial investment in Japan and then Semi conductor manufacturing company limited as a minority shareholder.
4483506,96,1075.6899,1086.0699,1,Sony will support j a s m by assisting with the startup of this new logic wave for factory which aims to uh begin mass production during uh calendar year twenty twenty four.
4483506,97,1086.72,1104.54,1,Lastly the financial service segment uh fiscal year twenty one q three financial services revenue increased eleven percent year on year to four hundred seventy one point three billion yen primarily due to an increase in the net gains on investments in the separate account at Sony Life Insurance Company Limited.
4483506,98,1104.78,1117.9301,1,Operating income decreased four point seven billion yen year on year to thirty five point two billion yen primarily due to deterioration in valuation on securities at our venture capital business and at Sony Bank.
4483506,99,1118.3101,1135.22,1,New policy uh amount enforce at Sony Life during q three grew at a higher rate than our uh competitions uh driven primarily by our priority uh focus area of selling insurance to corporations.
4483506,100,1145.38,1149.73,2,Our FY twenty one our overall income forecast remains unchanged from the previous forecast.
4483506,101,1150.04,1153.7001,2,Now I'd like to update you on our strategic in investments.
4483506,102,1154.11,1176.3501,2,The amount of capital allocated to strategic investments including the position of the Bungee which I explained earlier and repurchases of Sony stock from the beginning of the fiscal year on to today and increasing acquisition and asset purchases that have closed as well as those that have been decided but not closed inaudible approximately eight hundred fifty billion yen.
4483506,103,1176.77,1182.03,2,This slide shows a breakdown of the segments and areas in which we have allocated investment.
4483506,104,1182.28,1193.86,2,The music segment among the portion of the chart does not include across one hundred billion yen we have invested in music category catalogs because the amount is included in operating cash flow under i f r s.
4483506,105,1194.29,1211.52,2,We are making steady uh progress in accordance with our current mid-range uh plan of making two trillion yen on or more of strategic investments as we believe that we we believe that the evolution of our business portfolio aimed at real long term growth is progressing well.
4483506,106,1211.55,1222.77,2,As I mentioned at the previous earnings announcement we aim to accelerate the cycle whereby returns generated from previous investments are used to invest in growth thereby realizing long term growth.
4483506,107,1223.11,1234.51,2,At C E S twenty twenty two last month President Yoshida announced that they will stop the Sony mobility in the spring of this year and we will explore the possibility of introducing our vision S to the market.
4483506,108,1234.51,1247.97,2,The vision S initiative aims to read the new value and contri contribute to the evolution of the mobility by leveraging Sony's various technology and content and by adding new entertainment elements to a safe and secure moving space.
4483506,109,1248.36,1257.98,2,Going forward we will proceed our uh with our exploration under the assumption that we will collaborate ally ourselves with multiple partners.
4483506,110,1258.09,1260.4401,2,That is the conclusion of my remarks.
4483506,111,1263.05,1264.35,3,Thank you very much.
4483506,112,1264.58,1265.2201,3,It was Mr.
4483506,113,1265.22,1269.8999,3,Tataki executive deputy president and the C F O chief financial officer.
4483506,114,1270.16,1278.4399,3,From three fifty five we have Q and Q and A session for media and from four twenty Q and A by investors and analysts.
4483506,115,1278.71,1281.38,3,We set aside twenty minutes each for Q and As.
4483506,116,1281.74,1291.79,3,Those uh uh journalists investors analysts who have already registered for questions in advance please be connected to the designated telephone number in advance.
4483506,117,1292.41,1303.12,3,And those of you who have not made the registration in advance you can continue to listen to the Q and A session through internet webcast.
4483506,118,1303.21,1305.74,3,Please wait until the session is resumed.
4483506,119,1305.74,1459.78,3,<silence> we'll begin Q and A session for media shortly.
4483506,120,1459.78,1463.03,3,Would you kindly wait until the Q and A session begins?
4483506,121,1501.72,1504.53,3,Now we are going to entertain questions from the media.
4483506,122,1505.49,1507.74,3,Respondents are Mr.
4483506,123,1508.36,1512.0,3,Hiroki Tataki Executive Deputy President and Chief Financial Officer.
4483506,124,1512.0,1519.25,3,Uh Naomi Matsuoka is the senior vice president in charge of corporate planning control finance and IR.
4483506,125,1519.45,1523.4701,3,If you have questions please press asterisk followed by number one.
4483506,126,1523.9399,1531.27,3,When your turn comes I'll call your name so please uh identify yourself and your affiliation before you ask your questions.
4483506,127,1531.4399,1533.9,3,I would like to ask you to kindly limit your questions to two.
4483506,128,1534.76,1542.3,3,Also in order to prevent uh feedback of the sound please be sure to switch off the volume of your peripherals.
4483506,129,1542.78,1544.5499,3,Your cooperation is very much appreciated.
4483506,130,1545.3199,1554.22,3,In the event that your voice is disrupted because of the communication environment we may have to move on to the next questions next person.
4483506,131,1555.05,1560.84,3,And if you would like to cancel your question please press asterisk followed by number two.
4483506,132,1561.46,1563.45,3,Now we'll have to begin Q and A session.
4483506,133,1564.23,1568.3099,3,If you have any question please press asterisk followed by one.
4483506,134,1575.97,1580.89,3,The first question is Maslisa from Nikkei Shimbun newspaper.
4483506,135,1581.04,1581.3301,3,Ms.
4483506,136,1581.46,1582.48,3,Maslisa please.
4483506,137,1587.52,1591.9199,3,Maslisa can you hear me?
4483506,138,1593.8101,1594.6599,3,Can you hear us?
4483506,139,1596.5699,1597.7101,3,Yes I can hear you.
4483506,140,1598.72,1599.88,3,I have two questions.
4483506,141,1601.1,1604.83,3,First question is you're thinking about strategic investment.
4483506,142,1606.25,1616.8301,3,The other day uh you have uh made an acquisition and I I think that you made an estimate going forth AV and uh semiconductors.
4483506,143,1617.62,1624.86,3,you'll be coming up with new strategies and for each is the size of investment will become larger going forward?
4483506,144,1625.95,1635.51,3,So as the main management you will be you think that it is necessary to make large uh investment and investment deals.
4483506,145,1635.7,1638.05,3,You have the seeding made of two trillion.
4483506,146,1638.42,1646.24,3,But is that going to be uh exceeding two trillion or uh the acquisition in the orders of hundreds of billions of yen?
4483506,147,1647.1801,1648.3201,3,Thank you for your question.
4483506,148,1648.91,1653.6901,3,Uh our thinking behind the strategic investment was the question that you have raised.
4483506,149,1653.89,1665.87,3,Currently as you know three year mid-range plan strategic investment uh we will be allocating two trillion for strategic investment.
4483506,150,1666.05,1676.53,3,And as I mentioned in my speech earlier eight hundred and fifty billion yen and we made the decisions up until eight hundred and fifty billion yen and this framework work.
4483506,151,1677.35,1685.9601,3,We don't think that we need to change in a major way this framework and within this we will be making uh forward looking positive investments.
4483506,152,1685.99,1690.65,3,So areas of investment priority area is i p d t c and technology.
4483506,153,1692.3199,1695.73,3,And this list priority areas remain unchanged.
4483506,154,1695.76,1696.5701,3,That's all from me.
4483506,155,1700.9301,1706.39,3,So we'd like to entertain the next question from Masahe Suzuki-san please.
4483506,156,1709.59,1711.4301,3,Thank you for giving me the floor.
4483506,157,1711.4301,1712.66,3,I'm Suzuki Obasaki.
4483506,158,1712.91,1714.0,3,I hope you can hear me.
4483506,159,1714.04,1714.5601,3,Yes.
4483506,160,1714.99,1715.92,3,Go ahead please.
4483506,161,1716.37,1716.8201,3,Thank you.
4483506,162,1717.28,1718.91,3,I have two parts of questions.
4483506,163,1719.05,1732.8,3,First is image sensor that uh the uh as to this pigment chip that the Taiwan T S M C is the company that you uh expect it to interest you the the uh the the supply.
4483506,164,1733.38,1745.61,3,Uh according to some reports I see this uh peaking in in the the distribute uh uh like for iPhone and other applications that are in for the high level of the sophisticated cameras.
4483506,165,1746.0601,1750.23,3,Do you intend to further uh ask them to manufacture on behalf of Sony?
4483506,166,1750.78,1753.24,3,Because it's a couple couple connection is different.
4483506,167,1753.53,1766.64,3,But uh as to some of the fundamental technologies maintained by your company Sony but I think the chips are maybe likely to be entrusted to the the DC uh T S M C and so on to produce on behalf of you.
4483506,168,1767.01,1789.0699,3,Uh in conjunction the T S M C will have a new plant in Kumamoto logical wave of circuitry uh that it has been the missing piece so that the Japanese government is likely to give subsidy to that the new plant in Kumamoto but it's expected that this new the uh the the chip for the pigment and so forth is likely to be producing commodities as well.
4483506,169,1789.11,1800.63,3,Now turning to electric vehicle that the President Yoshida announced about the mobility new area and then you have a new Sony mobility company is likely to be established in the spring.
4483506,170,1801.34,1811.27,3,But uh you might have a higher the uh details they have like uh the scale of this new company as well as the exact timing to establish new company because Mr.
4483506,171,1811.27,1815.3099,3,Taktaki as to the new mobility company together the car emission.
4483506,172,1816.22,1822.9301,3,Uh I understand that you have some chat with him about the the Fitch triggered.
4483506,173,1823.11,1827.4501,3,You are the founder of Sony Bank and other new businesses in the past.
4483506,174,1827.45,1834.48,3,So with a new uh big company to the service are you going to nurture this Sony Movie thing to be a big company?
4483506,175,1834.92,1841.38,3,As one of the pillars I'd like to hear your view on the mid to long term in terms of how to nurture Sony mobile thinking.
4483506,176,1841.38,1854.67,3,So the turn to the first uh uh the the question about this uh the the image sensor that you're likely to entrust the production to this uh T S M C.
4483506,177,1855.0,1858.4399,3,But the the uh actually it's uh not announced by us.
4483506,178,1858.79,1861.87,3,But it I don't have a direct answer to that.
4483506,179,1862.2,1872.1801,3,But anyway as to the external production uh uh by like possible like T S M C that the logic the is mostly to be produced outside.
4483506,180,1872.5699,1876.36,3,But uh it's called this uh the master of the process.
4483506,181,1876.77,1888.47,3,As to the master process to be instructed outside it's quite limited because as of now that we do not intend to increase the image sensor chip uh that is a a master process.
4483506,182,1888.78,1892.4,3,We did not intend to ask the outside company to produce much of that.
4483506,183,1892.73,1897.0599,3,As to your second part of the question for new mobility when will that be built?
4483506,184,1897.0601,1902.96,3,In the spring of two thousand twenty two that has been mentioned by uh president C E O uh Yoshida.
4483506,185,1903.25,1910.6,3,As to the exact timing when the company will be established we have to scrutinize and consider the details of this new company.
4483506,186,1910.96,1916.9701,3,So after that is decided at that optimal timing we like to publish that information.
4483506,187,1917.29,1921.02,3,Let me add to that the Sony mobility Inc.
4483506,188,1921.02,1926.48,3,will be established and we will consider to be engaged in the mobility sector.
4483506,189,1927.9399,1934.8999,3,There was a inaudible we announced so so we didn't exactly decide on the exact entry into that sector.
4483506,190,1935.1899,1941.51,3,As to the automobile industry there are lots of things we have the study about uh more the automobile industry.
4483506,191,1942.39,1946.76,3,So as to this uh establishment of Sony Mobility Inc.
4483506,192,1947.02,1952.73,3,which is the first step in that it will enable us to further deepen our study in consideration.
4483506,193,1952.73,1955.28,3,That's what we mean by building a new company.
4483506,194,1955.72,1963.85,3,Of course for the long term future we might like to nurture this company as a hope to nurture it as an important big company.
4483506,195,1964.34,1970.5,3,But specifically what would that be a specific business the scale of the business and other things?
4483506,196,1970.75,1975.38,3,Well uh it's too premature to mention the details of this new company.
4483506,197,1975.53,1975.92,3,Thank you.
4483506,198,1979.77,1981.37,2,Next uh question.
4483506,199,1982.53,1985.4401,2,We have Nishida-san a freelance reporter.
4483506,200,1987.86,1989.0599,2,This is Nishida speaking.
4483506,201,1989.0601,1989.77,2,Can you hear me?
4483506,202,1989.97,1991.02,2,Yes we can.
4483506,203,1992.21,1993.0601,2,Please go ahead.
4483506,204,1994.3101,1995.7101,2,I have two questions.
4483506,205,1997.11,2027.36,2,The first question is that the semiconductor devices shortage is the topic uh PlayStation five and e p n s products have impact from the shortage and are there any change in the product mix as a result or uh any change in the product line uh for to ensure the performance and also that may have an impact on platform?
4483506,206,2028.12,2034.74,2,So if you could expound more on the impact of the supply shortage on your performances.
4483506,207,2035.11,2042.3301,2,And next on the game business uh your rival Microsoft has announced a large scale purchase.
4483506,208,2044.4,2050.7998,2,Is there uh any plan to uh have a purchase of a large publisher type supplier?
4483506,209,2051.1001,2057.1699,2,And also uh is there uh any impact on your game business?
4483506,210,2057.47,2062.3801,2,Uh who because of that kind of a publisher type acquisition by your competitor?
4483506,211,2062.6699,2063.1299,2,Thank you.
4483506,212,2063.52,2076.0601,2,First about the semiconductor shortage and to that we do have a variety of impacts on our businesses and largely we have a shortage of components.
4483506,213,2076.4199,2081.77,2,So we need to have put high priority on the high valued products.
4483506,214,2082.1599,2099.52,2,That is not something new to us though that the when the semiconductor the shortage just started we made a lot of adjustments to change the product mix and allocate to different product lines.
4483506,215,2099.5701,2107.8999,2,And regarding the ps five uh in terms of a short term profit uh promotion cost uh was saved.
4483506,216,2108.3301,2119.49,2,Uh or uh high logistics cost has been saved because of the decline in the units.
4483506,217,2119.79,2123.5601,2,Uh that leads to the decline in expenses.
4483506,218,2123.8899,2129.27,2,But uh we plan to we hope to ship as many units as we can.
4483506,219,2129.6299,2132.54,2,So we will exert our efforts.
4483506,220,2132.9099,2146.1599,2,Now in terms of the impact on the long term platform that the right now under the limited uh shipping capability I think that's the short term impact.
4483506,221,2146.3501,2147.74,2,We think we can catch up.
4483506,222,2148.0901,2165.72,2,And from ps four uh the when we moved from one console generation to the next uh there was a large change drop in engagement and also sales and profit changes drastically.
4483506,223,2166.03,2172.54,2,Uh so there was a very sharp cyclical uh phenomena that has soft softened recently.
4483506,224,2173.1699,2178.3,2,And and obviously we hope to see a quicker uh recovery.
4483506,225,2178.3,2183.77,2,But we also see the situation is rather limited in terms of the impact.
4483506,226,2184.49,2190.78,2,Now the intents of the acquisition by our competitor we're not in a position to make any comments.
4483506,227,2192.3999,2195.8401,2,So it is difficult for us to uh say anything.
4483506,228,2195.8701,2206.1399,2,But uh they have announced the intention to purchase but that has not been completed yet.
4483506,229,2207.02,2217.25,2,And what kind of business model change will take place is something we don't have a clear picture yet.
4483506,230,2218.27,2225.03,2,So for the competitors large scale M and A we do not want to speculate.
4483506,231,2225.6101,2232.9402,2,Uh and rather we want to pursue and execute our strategy at the right timing.
4483506,232,2233.2,2234.6201,2,And we want to focus on that.
4483506,233,2234.6799,2235.1499,2,That's it.
4483506,234,2238.3101,2240.1301,3,We'll have to move on to the next question.
4483506,235,2240.8301,2242.75,3,Nick KBP next one please.
4483506,236,2247.6299,2248.5801,3,Hello can you hear me?
4483506,237,2248.8,2249.6802,3,Yes we can.
4483506,238,2250.3601,2250.7302,3,Please.
4483506,239,2252.8301,2255.53,3,Thank you for letting me uh letting me ask questions.
4483506,240,2255.53,2256.5,3,I have two questions.
4483506,241,2256.77,2258.48,3,First is about VR.
4483506,242,2259.0,2266.0901,3,At CES the other day new uh uh device VR two was announced.
4483506,243,2266.0901,2275.3501,3,On the other hand environmentally the competitors are increasing their units and investing large amount of money and the momentum is there.
4483506,244,2284.8601,2286.8701,4,and second mobile games.
4483506,245,2289.47,2294.1699,4,Currently Sony Music is is the is the main player.
4483506,246,2294.3999,2302.05,4,But SIE itself will be uh considering a mobile ga mobile games business.
4483506,247,2302.05,2304.74,4,So what is the direction that yo you have in mind?
4483506,248,2304.99,2305.48,4,Thank you.
4483506,249,2306.1699,2313.5898,4,Your first question regarding VR psvr two at least we have already explained.
4483506,250,2315.8401,2320.46,4,Uh you user to have that sense of imag imagined.
4483506,251,2320.49,2327.4199,4,So the setup itself will be simplified and headset we'll be evolving and we'll be evolving the headsets.
4483506,252,2327.8799,2329.5298,4,And already this is announced.
4483506,253,2330.75,2343.0901,4,Evolution of head the headset four k h r dis display with a wider viewing of angle and uh movement of the eye of the player is detected looking at certain direction.
4483506,254,2343.0901,2347.3501,4,Then it's possible to mani manipulate the…
4483506,255,2347.3501,2356.4399,4,so for the inaudible the high resolution for the center of the view and external then lower resolution.
4483506,256,2357.4199,2364.1799,4,But by that high quality image experience can be given to the users such technology is introduced.
4483506,257,2364.3501,2376.95,4,Also the uh the motor vibration and head head set and haptic headset uh feedback this will be introduced as a technology as uh we already made decision.
4483506,258,2378.1499,2386.99,4,In relation to VR already a further technological uh evolution there's room for evolution hardware and software.
4483506,259,2387.47,2393.8901,4,Then uh with this evolution of technology i it is expected that market is also going to expand.
4483506,260,2394.25,2406.3,4,So we Horizon Call of the Mountain we're the first party title is no is already announced simultaneously.
4483506,261,2406.6001,2416.8301,4,So in this way we have our technology and contents that we have an ecosystem movie uh leveraged and we are going to enhance our presence in this market.
4483506,262,2418.1499,2428.47,4,And then the second question mobile games mobile game market itself is a growth area.
4483506,263,2429.1499,2434.49,4,And PlayStation IP can be uh u used by more users.
4483506,264,2434.49,2436.25,4,And this is a great opportunity for us.
4483506,265,2436.4399,2446.4099,4,As for the timing it's very hard to say exactly when but uh PlayStation IP will be deployed for uh the uh IPs.
4483506,266,2446.76,2456.5498,4,so so so I believe that we can grow this steady so these attempts and the specifics.
4483506,267,2457.1399,2462.22,4,When the appropriate timing comes then we are going to explain to you more clearly.
4483506,268,2462.4199,2462.9099,4,Thank you.
4483506,269,2466.6201,2467.77,4,The time is running short.
4483506,270,2467.77,2471.1899,4,So we like to entertain the last question of for this session.
4483506,271,2471.8401,2473.9602,4,Himaisa from NHK please.
4483506,272,2475.4399,2476.45,4,Thank you very much.
4483506,273,2476.8,2478.2,4,Ann Shimai of NHK.
4483506,274,2481.77,2483.3501,4,I have two parts of the questions.
4483506,275,2483.6899,2488.8699,4,The first is about your performance and achievement because the results are very good.
4483506,276,2489.28,2493.4199,4,Frankly i I like to ask your frank interpretations of that.
4483506,277,2493.6299,2504.8599,4,Despite the covid nineteen you had achieved well so taking two countries uh difficult environment what kinda good measures will be implemented to to achieve such a good results?
4483506,278,2504.8601,2506.4402,4,That's uh one question.
4483506,279,2509.8,2517.8298,4,So in near future investment uh in terms of the ¥2 trillion that that for this-this strategic investment.
4483506,280,2517.8301,2521.6799,4,You didn't refer to EV by this spring new company will be established.
4483506,281,2522.1399,2524.6401,4,And then maybe the different consideration will be made.
4483506,282,2524.8601,2530.6301,4,So uh in that strategic investment framework of ¥2 trillion that would that include EV?
4483506,283,2532.3201,2538.3301,4,Uh you intend to spend the money for EV or you rather than tapping into that uh the budget.
4483506,284,2538.97,2544.45,4,That may be the more of the game will be the focus of spending money for certain investments.
4483506,285,2544.45,2545.6401,4,What do you think of this?
4483506,286,2545.6699,2547.24,4,Now thank you for your question.
4483506,287,2547.72,2554.1301,4,As to this question cuz this adds to the third quarter the results what is my impression?
4483506,288,2554.1299,2568.4399,4,My comments as you mentioned despite the covid nineteen difficulty the logistics who were ad adversely impacted and semiconductor and other device uh components as supply was limited for a long time.
4483506,289,2569.48,2573.02,4,In many areas this is the problem lasted for a long time.
4483506,290,2573.72,2580.47,4,To cope with that the situation for each business segment they would like to look at what we're will happen next.
4483506,291,2580.75,2587.03,4,And by based upon that good forecast they take uh proactive measures to prepare for the difficulty.
4483506,292,2587.5701,2595.9299,4,So that is why I think that we achieved the record high results that the the sales and the profit uh in this third quarter.
4483506,293,2596.76,2601.78,4,bu but not everything was rosy and good because ps five there was a big demand.
4483506,294,2602.1799,2612.0901,4,We couldn't supply enough to the the increasing demand as an image sensor the profitability that recovery did not progress as as as soon as we had expected.
4483506,295,2612.0901,2616.75,4,Those are the challenges we identified and we'd like to consider that for the future.
4483506,296,2618.3,2622.77,4,The sec second question that is so investment idea towards EV.
4483506,297,2624.4099,2654.3901,4,Well about the EV as has been mentioned earlier the we assume that uh we'd like to start with the the asset light conditions with our pos possible partners to ally with us to our concept for example standalone or we we might not have that the big production facility or we develop our own battery that kind of capital intensive activity is not likely to be considered in a business model.
4483506,298,2654.8301,2663.8601,4,Without such a capital investment as an assumption we would like to we achieve the vision we have they advocated.
4483506,299,2664.0801,2666.76,4,So that's how we are considering this the business.
4483506,300,2666.79,2668.51,4,So what's the vision for the EV?
4483506,301,2669.01,2681.99,4,Let me repeat that the mobility environment space should be evolved into a more entertainment space for the new kind of the customer experience and values should be provided through that.
4483506,302,2681.99,2686.1001,4,Thank you.
4483506,303,2686.9199,2691.22,5,Now it is time to close the q and a session for the media.
4483506,304,2691.6599,2701.74,5,People will be changing our responders so the q and a session for analyst will start at uh four twenty.
4483506,305,2705.76,2706.1001,5,<silence>.
4483506,306,2728.8401,2946.1099,5,Now uh we will be starting the q and a session for the investors and analyst.
4483506,307,2946.1499,2949.3701,5,Um please wait for a few more seconds.
4483506,308,2949.4299,2949.78,5,Thank you.
4483506,309,3000.97,3001.97,5,Thank you for waiting.
4483506,310,3002.45,3006.96,5,Now we'd like to start the q and a session for investors and analysts.
4483506,311,3007.3,3011.7898,5,My name is Hayakawa uh in charge of uh financial services in IR.
4483506,312,3012.3799,3014.1799,5,I will be serving as the moderator.
4483506,313,3014.8601,3016.8799,5,As responders we have Mr.
4483506,314,3017.03,3027.27,5,Hiroki Totoki Executive Deputy President and CFO and Miss Naomi Matsuoka SVP for corporate planning and control and finances and IR.
4483506,315,3027.3201,3032.48,5,and also SVP accounting <unk>.
4483506,316,3032.6201,3041.78,5,If you have questions please press the asterisk and number one at on your phone and i will name you.
4483506,317,3042.03,3053.8201,5,And we ask you to limit your questions up to two questions and to prevent the holding and please make sure to turn off the volume um of the devices around you.
4483506,318,3054.3501,3062.4399,5,And if the line gets chopped and because of the time concern we'll move on to the uh next person with a question.
4483506,319,3062.8899,3069.3201,5,And if you want to cancel your request for question please press the asterisk and two.
4483506,320,3069.6599,3071.8501,5,Now i will start the q and a session.
4483506,321,3071.9399,3078.6699,5,Once again if you have a question please press the asterisk and one at your phone.
4483506,322,3079.0601,3086.1399,5,We have from Morgan Stanley for <unk> Thank you.
4483506,323,3086.9099,3089.8701,5,And regarding the games I have two questions.
4483506,324,3090.73,3108.8799,5,The first question is that the PlayStation five uh what is your forecast for the future from the second quarter inaudible speaking tone uh from the four-
4483506,325,3108.8799,3121.74,5,fourteen million fourteen point eight million uh original target to that has been set back and especially this time reduced substantially?
4483506,326,3122.04,3126.74,5,And what is your forecast for the next quarter?
4483506,327,3127.0801,3129.1001,5,In May last year Mr.
4483506,328,3129.1001,3140.3699,5,Jim Lion uh was saying that the he hopes to to shoot for the record high and twenty two to twenty three million uh I believe was the target.
4483506,329,3140.7,3150.99,5,What is the your feel for the demand and also what is your pro prospect for your supply capability?
4483506,330,3151.8,3167.73,5,And the second question is that the regarding your strategic investment this time you have invested in one of the for the invest in the Bungie as a games segment investment.
4483506,331,3170.1299,3182.97,5,Now uh the remaining uh budget you have about ¥110 billion or so to uh invest.
4483506,332,3184.1699,3189.25,5,And what is your criteria uh for investment decisions for them.
4483506,333,3189.3101,3204.6702,5,For example for game uh when you invested in their game there was a small game house and the there was a investment for content IP that was your priority back then.
4483506,334,3205.1299,3224.3701,5,But this time you'll have a total ownership and uh you'll intend to retain the uh subscription or you want to improve your first party uh development capability or what is your criteria uh for investment decision?
4483506,335,3225.22,3226.71,5,Thank you for your questions.
4483506,336,3227.28,3238.26,5,The first question was that the p s five uh expectation for the next fiscal year.
4483506,337,3238.75,3251.4202,5,And in the past the record was the ¥22.6 million the first presentation I believe it was a single year units.
4483506,338,3252.6299,3259.7598,5,And that is what we were saying that that will will try to copy again.
4483506,339,3259.8601,3276.8098,5,Uh but in terms of the next year the the market demand uh is very high uh that could allows us to make a record high sales.
4483506,340,3277.1101,3293.76,5,Now our partner companies supplying us the components we are working closely with them collaborating negotiating and working with them closely and we hope uh we can make that happen.
4483506,341,3294.0701,3302.6799,5,But in terms of PS there was a…
4483506,342,3303.8301,3318.9199,5,We believe that the next year uh I think it's safe to say that they will continue to have a supply disruption in terms of the components globally because of the distribution uh problem and so on.
4483506,343,3318.9199,3325.8101,5,So we can't say for sure uh what is exactly the demand for next year.
4483506,344,3326.4099,3344.6599,5,and but having a high target we have and if we bring it down we may uh ease ourselves to go for the lower target.
4483506,345,3344.6899,3348.8501,5,And so i I think it is good to maintain the high target.
4483506,346,3349.5601,3361.8298,5,So uh in the consolidated performance report we will have a more exact forecast for the fiscal year twenty two.
4483506,347,3364.1699,3367.75,5,And so that's the first uh answer to the first question.
4483506,348,3367.75,3376.3899,5,The second question was about our concept of strategic investment.
4483506,349,3376.6399,3385.24,5,And we in the past we were investing we in IP and that's what we've been saying.
4483506,350,3386.3,3396.6499,5,And we will and uh obviously IPs have market prices as fair values.
4483506,351,3397.1299,3413.9199,5,So we tend to look for the future upside potential uh with our involvement and that is our criteria for investment decision.
4483506,352,3448.6899,3456.48,6,capabilities and risk will be studied very closely uh to decide any investment.
4483506,353,3456.9099,3466.3201,6,And also you used an example partial purchase or total purchase you mentioned and…
4483506,354,3467.6599,3470.8901,6,and uh we need to work with our partner.
4483506,355,3471.05,3479.05,6,We cannot decide single handedly ourselves if it is a good uh company.
4483506,356,3479.3701,3494.1599,6,We would wish to purchase a hundred percent but if we are adamant about uh a hundred percent purchase we may have difficulty having a good alliance.
4483506,357,3494.26,3497.03,6,So we will…
4483506,358,3498.22,3502.76,6,give considerations for long term partnership and alliance that's all.
4483506,359,3503.01,3504.29,7,I'd like to move on.
4483506,360,3505.25,3507.04,7,Katiya Sun from a s m b Sinico.
4483506,361,3508.98,3509.51,8,Thank you.
4483506,362,3510.53,3511.78,8,I have two questions.
4483506,363,3512.3999,3518.5698,8,First about uh impact of the shortage of components next is vision S.
4483506,364,3518.97,3525.51,8,The first one impact of the shortage of components in supplement of materials number…
4483506,365,3525.51,3530.3501,8,page seven inventory asset included if you can respond.
4483506,366,3533.75,3539.3301,8,Shortage of components and cost increase and impact of that.
4483506,367,3540.23,3541.7002,8,What kind of impact was there?
4483506,368,3542.8301,3566.8801,8,e p n s and GNS as well can you please invite and quantitatively explain to cue e p n s sixty to seventy vitium of buffer are rick verse in corporate and this time up right revision of twenty vitium for profit so compared to second quarter it turned out…
4483506,369,3569.3101,3571.4099,8,that it was better slightly better.
4483506,370,3571.4399,3575.99,8,But on the other hand situation is such that it is prolonged.
4483506,371,3576.02,3577.6699,8,So what is your thinking behind this?
4483506,372,3577.71,3579.23,8,This is the first question.
4483506,373,3579.5601,3596.4502,8,Second question inaudible the question by the media people talked about inaudible mobility and acid light is your posture in this equating market.
4483506,374,3597.78,3613.3801,8,The former TV inaudible you'll be suffering from long term losses so Sony mobility ink what kind of risk return are you thinking about and also investment of inaudible resources.
4483506,375,3613.9399,3619.21,8,Like uh situation is first and going forward to the extent that you can share with us.
4483506,376,3619.21,3620.49,8,Please enlighten me.
4483506,377,3620.8601,3621.2898,8,Thank you.
4483506,378,3622.1799,3623.1899,8,Thank you very much.
4483506,379,3623.3,3641.9299,8,First the shortage of component and the impact of the cost increase including inventory level and uh you asked me to explain first of all this fiscal year as in the third quarter inventory level.
4483506,380,3643.6499,3645.8699,8,I think it's good to talk about the inventory level.
4483506,381,3646.3,3648.6101,8,By category if I may explain.
4483506,382,3649.99,3664.73,8,Game network service with the holiday season there's a decrease in inventory level and ps five shortage of components which resulted in decreasing the inventory so there's no sufficient level of inventory.
4483506,383,3665.27,3666.3301,8,e p n s…
4483506,384,3668.5901,3669.9099,8,with the holiday season.
4483506,385,3670.4199,3673.8701,8,The decrease of the completed products e…
4483506,386,3673.8701,3679.5898,8,with the increase in TV panel and this is the key and uh in…
4483506,387,3679.77,3680.0801,8,readying…
4483506,388,3680.0801,3686.2,8,in preparing for the shortage of materials strategic stock buying is being done.
4483506,389,3686.6599,3700.3298,8,Next fiscal year also to a certain extent uh we are at expecting shortage especially in the first uh half and we can then expect that for some of the products so gradually we're building up our inventory.
4483506,390,3703.71,3704.3201,8,Therefore…
4483506,391,3707.71,3715.6401,8,Although there was a decrease of the inventory of the completed products because of the holiday season but stock pile being of…
4483506,392,3715.97,3719.49,8,strategically stockpiling and the confusion of the this…
4483506,393,3720.3201,3721.2,8,supply chain.
4483506,394,3721.2,3723.5798,8,There's a delay of the delivery period.
4483506,395,3723.76,3726.25,8,So these two factors are affecting one another.
4483506,396,3726.71,3730.0898,8,The level perenal inventory is perfect level.
4483506,397,3730.52,3731.6899,8,INSS…
4483506,398,3734.97,3748.9302,8,As you all know in China smartphone market the recovery is slower and this uh increase in the level of uh inventory the market which resulted in the level of inventory.
4483506,399,3749.1899,3759.9199,8,But the demand for gas fund X fiscal year and the production capacity and costering that and their building up the strategic inventory toward the end of the fiscal year.
4483506,400,3760.1499,3762.8999,8,And this policy remains unchanged.
4483506,401,3765.25,3765.8701,8,Therefore…
4483506,402,3767.2,3772.5901,8,it's very difficult to say in a summary fashion but next fiscal year…
4483506,403,3773.6101,3776.0999,8,looking at the business for next fiscal year.
4483506,404,3777.9199,3789.5,8,As for the inventory that is deemed to be necessary as we move toward the end of this fiscal year we are going to build up the level of inventory that is a basic thinking.
4483506,405,3791.27,3793.55,8,And then inaudible…
4483506,406,3799.7,3807.23,8,Risk return and investment of manager resources we are not the stage where we can give you a clear cut answer yet.
4483506,407,3808.6201,3814.5,8,And uh as had repeated and mentioned asset light is what we have in mind.
4483506,408,3815.54,3816.23,8,So…
4483506,409,3818.9399,3830.1301,8,silence We are not thinking of making big investment into this area more specifically development of battery or development…
4483506,410,3830.9199,3840.3101,8,having the manufacturing facility for the vehicles itself or sells infrastructure or maintaining fracture to be held by us.
4483506,411,3840.53,3842.6599,8,We are not thinking of doing this.
4483506,412,3843.5,3848.54,8,Basically uh we tap upon partnerships or similar relationships.
4483506,413,3849.3799,3870.1599,8,And we are going to as asset light as possible and uh with the evolution with vehicles without technological element we are going to contribute and as a long term vision uh the space of vehicles are to be turned into new entertainment space.
4483506,414,3870.76,3873.5701,8,That is our long term vision.
4483506,415,3873.8899,3879.01,8,Therefore for example in the mid range plan period.
4483506,416,3880.5801,3886.6399,8,Two three year strategic uh uh investment is that included in that.
4483506,417,3886.8899,3891.6599,8,We are not thinking about investment at that scale and this is not realistic.
4483506,418,3891.8201,3893.3501,8,Please understanding that way.
4483506,419,3893.6201,3894.1399,8,Thank you.
4483506,420,3897.8999,3900.5,7,Uh I would like entertain the next question.
4483506,421,3900.53,3901.29,7,inaudible Please.
4483506,422,3901.49,3906.9099,7,Can you hear me?
4483506,423,3906.95,3908.6001,7,inaudible I have one question.
4483506,424,3912.6299,3916.6899,7,inaudible mentioned that I like to hear your personal view but…
4483506,425,3916.8999,3926.75,7,inaudible North America what is a final ultimate demand in North America in case of your company the game hardware software and the music and pictures as well the electronics and…
4483506,426,3927.25,3931.46,7,you cover everything hardware software and contents very comprehensive.
4483506,427,3931.8201,3941.95,7,So the venue uh summarized the old clivities of that fiscal year and then this taking into account information as well as changed of the uh interest rate and so on…
4483506,428,3942.8,3943.0601,7,Da…
4483506,429,3943.0601,3944.2698,7,What is s…
4483506,430,3944.27,3946.29,7,your view of the summary?
4483506,431,3946.29,3952.8601,7,As well as the uh toward the next fiscal year what is the overall perspective according each settlement.
4483506,432,3953.97,3958.46,7,If not please tell us some the highlights of that situation.
4483506,433,3959.6499,3960.0798,7,Thank you.
4483506,434,3960.45,3965.48,7,About the question is about North American demand and business inaudible.
4483506,435,3966.1499,3972.6001,7,Well i'm quite concerned about uh it's outlook in North America and you say that the…
4483506,436,3972.8999,3978.48,7,the interest rates policy is uh uh the turning point to be changed.
4483506,437,3978.48,3984.3999,7,Due politic risks now increase and the mid term election is scheduled to be held.
4483506,438,3984.99,3987.9099,7,Through all these uh stable da…
4483506,439,3987.9099,4010.0,7,elements are likely to be influential and depending upon inaudible maybe demand might be affected and I'm getting the latest information and updating that understanding from different business segments but for the time being there's no clear trend of this deceleration in the North American market.
4483506,440,4010.4299,4013.3201,7,That's my frank perspective right now.
4483506,441,4013.55,4018.4199,7,However especially in terms of inaudible during a lot of half…
4483506,442,4018.4199,4033.0901,7,inaudible the Europe and Japan campared to the previous year there's sort of a sign of deceleration of slow down a little bit but been expected.
4483506,443,4033.3899,4044.22,7,But in terms North America better than we had expected I mean the strength seems to be maintained and the uh the uh the momentum is kept in North America.
4483506,444,4044.9199,4046.23,7,What about entertainment?
4483506,445,4046.28,4049.0701,7,Generally speaking entertainment is doing well in general.
4483506,446,4049.8799,4053.21,7,However your covid nineteen impact.
4483506,447,4053.51,4057.54,7,That is inaudible release ruled the subjects to impact.
4483506,448,4057.76,4066.6099,7,If the number of the infected patients increases they have to revise this inaudible release that's a flexible implementation policy.
4483506,449,4066.8501,4070.0398,7,Your deck is likely to have up and down…
4483506,450,4070.6101,4071.1101,7,But the…
4483506,451,4071.29,4079.3799,7,In January demand rate entertainment per se is not likely to go through major change according to my interpretation.
4483506,452,4079.3799,4082.45,7,So in terms of North America things are going oh…
4483506,453,4082.52,4084.4702,7,steady it seems steady.
4483506,454,4085.9299,4089.8499,7,Uh is it really true that it will never go through variation cha…
4483506,455,4089.9199,4092.98,7,Cause I'm personally always concerned about uh anyway potentional.
4483506,456,4093.22,4095.76,7,I'm always keeping an eye on who…
4483506,457,4095.76,4100.6099,7,if something some negative designs observed uh detected.
4483506,458,4100.6099,4102.6499,7,We like to take quick counter measures.
4483506,459,4102.75,4104.1001,7,Take action accordingly.
4483506,460,4104.2598,4104.6099,7,Thank you.
4483506,461,4106.2998,4107.5703,6,We are running outta time.
4483506,462,4107.8501,4109.98,6,So we'll make the next question…
4483506,463,4110.4702,4112.9399,6,next person to be the last.
4483506,464,4113.3501,4113.6899,6,And we…
4483506,465,4114.9302,4117.1201,6,inaudible of JP Securities.
4483506,466,4117.3101,4118.1299,6,JP Morgan.
4483506,467,4119.5098,4121.3301,6,Uh I have a son brother.
4483506,468,4121.9102,4124.2798,6,Uh I have two questions regarding Bungee.
4483506,469,4125.1299,4128.1304,6,First question is that the inaudible slide.
4483506,470,4128.79,4152.5601,6,You explained that how you'll be treated uh in terms of accounting uh the three point two a billion yen one third is about for retention purpose uh expenditure about one point two billion dollars and of the one point two billion and uh tow thirds will be uh used up in the first two years.
4483506,471,4152.9102,4158.9399,6,So that about .4 billion dollars uh or four hundred million dollars annually.
4483506,472,4159.3999,4174.1797,6,And also intangible assets about uh twenty percent about seven hundred to eight hundred million dollars how do you plan to depreciate that?
4483506,473,4175.3999,4179.4302,6,In terms of a term period over which period?
4483506,474,4179.8398,4184.1499,6,Uh as long as the best ethmet you have will be fine.
4483506,475,4184.5801,4194.79,6,And I know it's only still pending on the regularity authorities approval and so if we have any have in prospect that would be appreciated.
4483506,476,4194.79,4197.4902,6,And also second question is about uh Mr.
4483506,477,4197.4902,4201.3701,6,inaudible mentioned about uh in the future that be…
4483506,478,4201.3701,4206.1201,6,you can uh get outside that will be…
4483506,479,4206.1201,4208.48,6,that will be the decision criteria.
4483506,480,4208.8701,4212.2798,6,And uh oh what is the case for bungee?
4483506,481,4212.8999,4218.3301,6,And also for Bungee what is the offsite for them to work with…
4483506,482,4218.3701,4220.4902,6,to become a part of Sony?
4483506,483,4220.6001,4223.23,6,And also up sight for Sony to acquire.
4483506,484,4223.98,4227.29,6,Is that simply increasing the users?
4483506,485,4227.3701,4228.0601,6,Or…
4483506,486,4230.0698,4236.46,6,what kind of KPIs are you expecting to get gained from this investment?
4483506,487,4238.5498,4238.8096,6,Okay.
4483506,488,4241.71,4244.6899,6,The first question…
4483506,489,4245.6699,4253.1504,6,silence Uh it's uh we explained that the one third…
4483506,490,4254.6499,4257.25,6,will be for…
4483506,491,4257.5098,4261.5298,6,will be be third payment for retention purpose.
4483506,492,4262.2798,4271.7998,6,For specific numbers we still need to Squid guys and this time we're giving you the rough image.
4483506,493,4272.6899,4276.8301,6,So that is the extent we hope you'll understand.
4483506,494,4276.8599,4290.3804,6,We will examine more closely and if have update we will be sharing you and the it's be including in the uh four ps for the next year.
4483506,495,4290.3799,4293.1899,6,So we will updating that number.
4483506,496,4293.6602,4301.9702,6,Now in terms of inaudible assets we are actually uh studying examining that right now.
4483506,497,4302.6001,4311.2603,6,So generally speaking uh we uh look at ten years or so for depreciation and…
4483506,498,4311.2598,4315.8604,6,but that depends on the contents of uh such inconjuable assets.
4483506,499,4316.5098,4317.5498,6,So…
4483506,500,4318.6802,4320.8101,6,Corinunva Sun do you have comment on that?
4483506,501,4322.98,4323.6699,6,Let me…
4483506,502,4324.23,4325.3403,6,add some comments.
4483506,503,4326.04,4326.8501,6,The…
4483506,504,4327.5298,4330.23,6,what will be treated as expenditures…
4483506,505,4330.5098,4332.9702,6,expenses will be…
4483506,506,4337.5098,4350.5698,6,uh treated two years and that'll one third and there are a lot of conditions and uh how will you relocate for the first year?
4483506,507,4350.6001,4351.4702,6,And the second year?
4483506,508,4351.6802,4363.6401,6,That would not be 50 50 and necessarily.Q And also in terms of the depreciation the intangible we'll…
4483506,509,4366.96,4373.4697,6,will be allocation the purchase to a variety of…
4483506,510,4375.8701,4384.9897,6,assets and uh we will identify the price tag for each one of them and then decide the depreciation period down the road.
4483506,511,4385.5298,4390.1104,6,Okay and the second question was that the in case of Bungee uh what…
4483506,512,4391.23,4392.3198,6,in as I…
4483506,513,4392.96,4395.3301,6,commented in my speech they are…
4483506,514,4396.6802,4410.3203,6,uh platforms capabilities rather and ability to distribute to a variety of platforms and also uh they have a paper bullet to devolve.
4483506,515,4411.3701,4423.9199,6,And those are somethings that we have lost and learned from them and they're all our studios will learn from Bungee and that is…
4483506,516,4423.9199,4426.6597,6,A strong wish we have and…
4483506,517,4426.6602,4449.4004,6,but this side also uh is ruling to work closely with us uh and in the first year inaudible we will put together a uh a good plan and drive that and I believe it will generate upside fromt hat kinda work.
4483506,518,4449.6899,4450.9497,6,Now the…
4483506,519,4450.9502,4451.96,6,from the other side…
4483506,520,4454.52,4470.6699,6,the Bungee the personnel retention and recruiting and support them and uh and we hope to give…
4483506,521,4470.6699,4471.2002,6,do so.
4483506,522,4471.96,4503.3999,6,And also not just all gaming area but the multi using of IP and marginalizing of IPs like uh good title maybe game title maybe put into the pictures movies and Bungee we want nurture the IP have in the multi dimensional manners and that's there hope.
4483506,523,4504.0898,4510.1797,6,And for that we believe that we can help that.
4483506,524,4510.2598,4522.8804,6,We have pictures and music and a Bungee can use leverage of platform so that their IP can flourish and grow big and that's all.
4483506,525,4524.29,4526.8799,7,The time has come to close.
4483506,526,4526.8799,4530.0698,7,Sony Group Corporations earnings announcement.
4483506,527,4531.7998,4534.0601,7,I thank you very much for joining us today.
4483589,0,5.04,7.52,0,Welcome to the conference call of TeamViewer AG.
4483589,1,14.28,17.43,0,After the presentation there will be an opportunity to ask questions.
4483589,2,32.84,36.77,1,Good morning and welcome to the TeamViewer of fourth quarter and full year twenty twenty one results.
4483589,3,37.13,44.58,1,In a moment Oliver <inaudible> will take you through the business and financial update with the twenty twenty one highlights.
4483589,4,45.3,48.65,1,As always we'll conclude today's call with a q and a following the presentation.
4483589,5,49.51,52.16,1,Before we start a little housekeeping exercise for today.
4483589,6,52.87,57.78,1,I would like to remind you of the note on the forward looking statements that you find on page two of the presentation.
4483589,7,61.11,62.22,1,Let me now hand over to Oliver.
4483589,8,63.93,64.81,2,Thank you Robert.
4483589,9,65.11,65.7,2,Good morning.
4483589,10,65.7,67.17,2,Thank you all for joining today.
4483589,11,67.99,72.79,2,We are pleased to take you through the TeamViewer of fourth quarter and full year twenty twenty one results.
4483589,12,73.57,78.59,2,I will start with an update on our business followed by Stefan who will present our financials.
4483589,13,78.59,82.43,2,And as always we'll conclude today's close q and a following the presentation.
4483589,14,84.0,90.77,2,Before we dive into the uh fourth quarter and full year business update uh I would like you to take a step back from our perspective.
4483589,15,90.77,102.07,2,twenty twenty one was marked by several strategically important decisions which we made to foster team with future growth but also of course by a few challenges which we clearly had to acknowledge.
4483589,16,103.31,115.7,2,We have however in working hard to address these and we remain committed to continue that path and also create value for our shareholders as demonstrated by our announcement this morning and the progress we made in q four.
4483589,17,115.7,126.91,2,Hence we are pleased with the conclusion of the financial year as we fully delivered against our revised guidance and further strengthen the foundation for long term profitable growth.
4483589,18,127.34,131.84,2,We will show you detailed overview of all those KPIs later in the presentation.
4483589,19,133.4,137.99,2,With record growth rates our enterprise business has again proven to be a strong driver.
4483589,20,138.93,145.17,2,With the acquisition of Upskill and <unk> both leading players in the dynamic augmented reality industry.
4483589,21,146.02,152.71,2,We have further strengthened and diversified our solutions portfolio and at the same time also our footprint in the United States.
4483589,22,153.64,165.32,2,In addition we initiated several new major strategic partnerships in our S M B business we successfully retained a significant part of the customers that we won during the pandemic.
4483589,23,165.99,170.21,2,We further improved our churn rate throughout the year and increased the a s p.
4483589,24,170.9,178.86,2,Finally we made major progress on our improvement program REMAX uh which we will update you on later in more detail as well.
4483589,25,179.79,189.93,2,Our strong development in twenty twenty one combined with our highly attractive cash profile opens up avenues for further value generation for our shareholders in the future.
4483589,26,190.44,201.96,2,We revised our capital allocation and announced this morning a share buyback program of up to three hundred million Euro uh or a maximum of twenty million shares which is equivalent to nearly ten percent of our outstanding share.
4483589,27,202.9,206.25,2,This should be completed within twenty twenty two.
4483589,28,206.52,209.82,2,Uh Stefan will walk you through the details of this program uh in a moment.
4483589,29,211.73,218.22,2,We go to the next slide um uh q four and the fiscal year twenty twenty one at a glance.
4483589,30,218.74,224.67,2,Um let me summarize some highlights of the fourth quarter and also the entire financial year.
4483589,31,225.19,234.97,2,Uh first of all we increased total billings by nineteen percent year on year to uh five hundred forty eight million Euro with accelerating billing growth in the fourth quarter.
4483589,32,235.62,242.88,2,With a clear focus on cost containment we were also able to maintain high profitability and to achieve margins ahead of our revised guidance.
4483589,33,244.2,254.24,2,With a growth rate of seventy five percent and billings of almost one hundred million in the last twelve months the enterprise business is now clearly a substantial growth engine of TeamViewer.
4483589,34,254.45,259.98,2,At the end of twenty one the enterprise business accounted for seventeen percent of total billings.
4483589,35,261.18,274.55,2,In addition we increased our net retention rates in the fourth quarter significantly to one hundred and five percent after a notable dip in the first half of twenty twenty one with that retention rate of around mid nineties.
4483589,36,275.25,284.9,2,This leaves TeamViewer with an average net retention rate of ninety eight percent over the past twelve months underlying our success in billing lasting customer relationships.
4483589,37,285.89,293.17,2,Uh at the same time our subscriber churn rate further improved to fourteen percent compared to fifteen point one percent in twenty twenty.
4483589,38,294.04,302.01,2,This confirms our ability to retain the strong intake of customers which we won from the COVID-19 pull forward demand in the previous year.
4483589,39,304.73,315.84,2,At year end we counted six hundred twenty seven thousand subscribers which is an increase of seven percent compared to twenty twenty or roughly forty three thousand more subscribers.
4483589,40,317.03,321.33,2,Furthermore our financial profile remains very strong with again lower leverage rate.
4483589,41,322.87,324.96,2,Now let's look at twenty twenty one in more depth.
4483589,42,325.23,330.22,2,First of all I would like to give you an overview of how the two businesses have developed in twenty twenty one.
4483589,43,330.94,336.16,2,Before we then take a closer look at both the enterprise and S M B separately and in detail.
4483589,44,338.65,350.7,2,Coming to enterprise um as a reminder we define enterprise customers as those with invoice billings across all products and services of at least ten thousand Euro <inaudible> a month.
4483589,45,351.7,356.35,2,Customers who exceed or fall below the thresholds are reallocated and accordingly.
4483589,46,357.34,365.43,2,As you can see on the left hand side our total company billings increase year on year by eighty eight million to five hundred forty eight twenty twenty one.
4483589,47,366.8,374.35,2,Although our s m b business still contributed most of this absolute growth the enterprise business is rapidly becoming more material.
4483589,48,375.27,379.56,2,It contributed only twenty six percent of the overall growth in twenty twenty.
4483589,49,380.18,382.89,2,And now almost half of the growth in twenty twenty one.
4483589,50,383.34,390.31,2,This underpins our success in billing a leading enterprise business that is delivering strong and sustainable growth.
4483589,51,392.05,409.22,2,The chart on the right hand side shows additional proof the enterprise business achieved high billings growth rates throughout twenty twenty one and actually accelerated nicely during the year after somewhat slower staff due to the COVID retention and right sizing issues in the first quarter of twenty twenty one.
4483589,52,410.06,413.84,2,For the year as a whole the enterprise business grew by seventy five percent.
4483589,53,414.6,421.06,2,The S M B business also grew nicely in the fourth quarter with nine percent uh and twelve percent for the year respectively.
4483589,54,421.76,433.25,2,Let's not forget that our S M B business serves as a very attractive funnel for the enterprise business and we have been extremely successful in converting S M B customers into SM enterprise customers.
4483589,55,434.12,438.36,2,And this is obviously to the disadvantage of the reported uh S M B growth.
4483589,56,443.16,448.77,2,As mentioned before we'd like to give you more detailed insight into our dynamically growing enterprise business.
4483589,57,449.32,451.62,2,In the next few slides uh slide seven now.
4483589,58,452.75,455.65,2,Uh I would start with development of the number of our customers.
4483589,59,456.05,473.99,2,In the past twelve months the number of enterprise customers grew by forty four percent to now two thousand seven hundred and twelve particularly in the fourth quarter in line with the usual seasonality for enterprise software companies we were able to make further strong gains and almost double our growth average.
4483589,60,474.93,479.21,2,This was driven by the strong execution of our pipeline at the end of the year.
4483589,61,480.08,491.13,2,In addition we won new customers through acquisition of uh Upskill and Viskupic both of which have been added to our augmented reality platform frontline and now complete our fully integrated offering.
4483589,62,492.09,501.63,2,We now count a well balanced mix of use cases across manage connectivity and operational workflows in our portfolio some of which I will show on the following slides.
4483589,63,505.17,511.42,2,But before we get to some of the use cases I would like to present the development of billings in the enterprise business.
4483589,64,511.98,517.2,2,Not only the amount of enterprise customers increase but also our enterprise billings.
4483589,65,517.98,533.16,2,Uh up seventy five percent in twenty twenty one we were able to grow the enterprise business to nearly a hundred million Euro and this corresponds to more than a five fold increase compared to for example around seventeen million Euro in twenty nineteen.
4483589,66,534.72,544.08,2,This success is also due to the fact that we were able to increase the size of the contract with the respective customers last year as can be seen on the right hand side.
4483589,67,544.85,559.63,2,Our annual contract value packet above two hundred thousand Euro increased by eight percentage points compared to twenty twenty and our smallest packet ten thousand to fifty thousand Euro A C V contracts declined by eleven percentage points.
4483589,68,559.98,561.33,2,So really seeing a shift there.
4483589,69,562.09,566.82,2,We were able to achieve this positive development primarily through our successful app and cross selling.
4483589,70,567.23,576.31,2,Our success in billing lasting customer relationships and the acquisition of multiple new high profile strategic partnerships with leading businesses in their respective industries.
4483589,71,578.94,582.87,2,On the next slide you can see the importance of strategic partnerships for our business.
4483589,72,583.46,590.89,2,S A P and Google Cloud were among the highlights in two thousand and one underlining our strong value proposition in the enterprise business.
4483589,73,591.34,597.147,2,In addition to that we partner with leading multinational technology partners such as <inaudible> <unk> or N S S.
4483589,74,598.51,602.42,2,Those strategic partnerships are a major driver for our long term growth.
4483589,75,602.65,604.24,2,The reason for this is twofold.
4483589,76,604.81,610.71,2,They help us to accelerate our expansion into various strategically relevant vertical industries.
4483589,77,611.59,617.43,2,Uh and these partnerships are a great opportunity to join forces with both those parties and leverage our sales reach globally.
4483589,78,620.63,625.11,2,With that let's have a brief look at some example use case of our product to begin with.
4483589,79,625.42,628.96,2,The great success is clearly our collaboration with N S F International.
4483589,80,629.5,632.31,2,I've just mentioned N S F International on the partnership slide.
4483589,81,632.51,633.3,2,Partnership slide.
4483589,82,634.3,637.11,2,Let me elaborate a bit more on what we do together.
4483589,83,637.85,640.89,2,N S F is a leading global food safety organization.
4483589,84,641.1,649.75,2,We have closed a commercial agreement with them and we are now jointly improving in marketing and augmented reality solutions to digitalize the food industry.
4483589,85,650.19,659.26,2,This solution is based on our enterprise uh AR platform frontline and guides workers step by step through the food production process.
4483589,86,659.71,663.81,2,It is voice or eye controlled and therefore really a hundred percent hands free.
4483589,87,664.39,670.59,2,As you can imagine this is a game changer for the food industry which is with its very strict hygiene regulations.
4483589,88,671.17,674.14,2,The solution we have with N S F is already fully operational.
4483589,89,674.97,677.76,2,And it is used for example by a global fast food restaurant chain.
4483589,90,678.35,688.81,2,What I want to highlight here is that this solution is enhanced with artificial intelligent capabilities where the software can detect for example if the workers are wearing and changing their hygiene gloves.
4483589,91,689.2,695.32,2,We are convinced that this will further contribute to more safety in the global food industry and adjacent industries.
4483589,92,697.58,701.51,2,On slide eleven let me demonstrate another attractive use case of our product.
4483589,93,701.56,704.26,2,Our productive collaboration with the Ford Motor Company.
4483589,94,704.75,715.46,2,We provide extensive state of the art augmented reality to Ford to Ford's diagnostics teams which must go through complex technical issues when checking vehicles.
4483589,95,715.97,728.73,2,Therefore our solutions are rolled out across more than four hundred Ford dealers worldwide who now have the capabilities to solve problems more efficiently and accurately using augmented reality remote support.
4483589,96,731.04,741.96,2,Another very different example uh use case which I want to show is our cooperation with <inaudible> Austria which is one of the largest banking groups in Central and Eastern Europe.
4483589,97,742.75,749.22,2,Together with TeamViewer <inaudible> bank enabled its customers to visit so to say a virtual branch.
4483589,98,749.84,758.72,2,That means that clients can consult a personal banking advisor who then can via video call have the client to put together online forms upload documents and so on.
4483589,99,759.57,764.05,2,And the service level of this digital uh services similar to the one in the real branches.
4483589,100,765.11,775.59,2,I think this this case a great example of our customer engagement software TeamViewer engage that has been added to our portfolio through the acquisition of <unk> also in early twenty twenty one.
4483589,101,778.27,782.91,2,The last great example of how to use our solution is uh shown on slide thirteen.
4483589,102,783.32,788.74,2,Uh recently we started working <inaudible> with A B B one of the world's leading global technology companies.
4483589,103,789.31,797.59,2,With our software A B B provides remote support for their clients who heavily use connected devices such as robots and industrial machines.
4483589,104,798.49,805.11,2,And furthermore another goal of A B B is to standardize the global remote IT support across all global divisions.
4483589,105,805.34,808.16,2,TeamViewer is ABB's partner of choice to achieve this goal.
4483589,106,809.13,817.79,2,Our enterprise connectivity suite handler is just the right solution here because it delivers a stable highly secure cross-country connectivity uh both internally and externally.
4483589,107,818.93,826.18,2,These four examples demonstrates the breadth of use cases for our products across a ri wide range of different sectors and industries.
4483589,108,827.02,831.2,2,This is one of the aspects that make us confident about our enterprise business.
4483589,109,833.86,836.31,2,We come to the S M B business page fourteen.
4483589,110,836.86,839.21,2,Um take a look closer look there.
4483589,111,839.86,849.41,2,Overall we recorded the growth of twelve percent year on year in S M B amounting to billings of four hundred fifty five million and several factors contributed to this growth.
4483589,112,850.16,860.06,2,Firstly part of the growth stems from higher volumes with existing customers as a result of our continued cross and upselling as well as winning new customers at higher prices.
4483589,113,860.69,872.21,2,This can be seen in our A C V packet split our largest A C V packet uh a thousand five hundred to ten thousand Euros showed the most dynamic growth in the last two years with an increase of almost ten percentage points.
4483589,114,873.45,881.87,2,Secondly we can see in the upper right corner that we were able to steadily increase our A S P again after a dip in the second quarter.
4483589,115,882.37,886.68,2,In the fourth quarter of twenty twenty one the A S P counted seven twenty eight Euro.
4483589,116,887.41,896.35,2,And thirdly we improved our S M B churn rate by almost one percentage points to fourteen point one percent in q four compared to q four twenty twenty.
4483589,117,896.49,901.55,2,And again S M B business is very attr is a very attractive part of our enterprise business.
4483589,118,902.01,909.55,2,More than ten million Euros of the incremental enterprise billings in twenty twenty one are actually coming from former S M B customers.
4483589,119,910.93,923.42,2,As shown on the chart in the bottom right we counted six hundred twenty four thousand S M B subscribers at the end of fiscal year twenty twenty one which is forty two k or seven percent up from last year.
4483589,120,924.24,934.13,2,In the fourth quarter however the number of subscribers remained essentially flat because of our decision to suspend free to paid monetization campaigns to further develop our ecosystem.
4483589,121,934.16,935.04,2,I'll come to that later.
4483589,122,936.12,942.24,2,As we started into twenty twenty two we intend to continue the suspension of free to paid monetization campaigns.
4483589,123,942.86,953.41,2,And this should nurture our free user ecosystem but will at the same time increase the seasonality of our subscriber goals with the majority of growth weighted to the second half of the year.
4483589,124,954.3,959.63,2,We are confident that we will achieve our thirty to fifty thousand subscriber growth target in the year ahead.
4483589,125,961.52,975.08,2,<unk> a strong focus on further developing existing S M B customers and the growing relative importance of enterprise customers will further diminish the relevance of subscriber growth as a K P I for measuring future growth at TeamViewer.
4483589,126,979.6,981.8,2,What are the use cases behind the S M B growth?
4483589,127,982.48,991.86,2,We see similar use cases as for large enterprises maybe with the exception of operational workflows created on our frontline platform which are more biased towards enterprise.
4483589,128,992.5,1003.29,2,Overall it's a well balanced mix of use cases clearly with a strong presence within remote access and control of all sorts of equipment and devices including access and control of non IT equipment.
4483589,129,1004.32,1010.61,2,The digitalization around operational technology uh and their use cases also applies for SMBs.
4483589,130,1011.64,1016.42,2,We cover IT management including monitoring of IT environment patch management endpoint protection.
4483589,131,1017.04,1025.0499,2,We obviously also uh cover remote work use cases and in addition we offer customer engagement solutions as well as solutions for the education sector.
4483589,132,1025.14,1030.34,2,So very comprehensive portfolio for the S M B business as well.
4483589,133,1032.79,1033.89,2,We go to the next slide.
4483589,134,1033.98,1041.75,2,lemme change gear provide an update on our ecosystem free user ecosystem as we committed to do at the capital market space.
4483589,135,1043.13,1050.22,2,Free ecosystem was one of the largest drivers of the S M B growth in the past especially in twenty nineteen and twenty twenty.
4483589,136,1051.0,1053.36,2,Not so much in twenty twenty one anymore.
4483589,137,1054.09,1059.6901,2,Due to increased monetization as well as more competition at the low end our ecosystem has been declining.
4483589,138,1060.3101,1068.59,2,Uh in in line with our update at the <unk> we want to stabilize um the ecosystem again and ideally reignite growth.
4483589,139,1069.86,1072.1299,2,So here's the status on slide sixteen.
4483589,140,1072.6801,1078.96,2,As you can see installations of our software has increased again albeit only slightly.
4483589,141,1079.51,1081.0701,2,But this is clearly encouraging.
4483589,142,1081.59,1090.15,2,Also the number of monthly active devices has stabilized again the one indicator which is still in expected decline is the number of yearly active devices.
4483589,143,1090.95,1108.0,2,This is for us not really surprising as we need to bear in mind that the number of two hundred eighty three million includes a significant number of devices active during severe lockdown restrictions actually the fourth quarter of twenty twenty and the first quarter of twenty twenty one.
4483589,144,1108.73,1122.4399,2,And as those devices now roll off from the L T M count we expect to slide further decrease before that number will stabilize that being said the more current indicators like installs and monthly active devices are essentially stable.
4483589,145,1122.62,1129.9501,2,The ecosystem number will also become less meaningful as we evolve to more use cases which are not necessarily fully reflected on our ecosystem.
4483589,146,1130.29,1132.3,2,Such as for example our AR solution.
4483589,147,1136.84,1139.53,2,Now let's look at our strategic sponsoring activities.
4483589,148,1139.84,1153.8101,2,As you all know investing in the TeamViewer brand and increasing marketing efforts to showcase our extended product portfolio has been an important focus um uh for us to broaden our solution awareness across all customer segments.
4483589,149,1153.8101,1160.4299,2,We signed to partnerships with football club Manchester United and the Formula One and the Formula E racing teams of Mercedes.
4483589,150,1161.28,1165.4601,2,Um and we have two partners with this to boost our brand awareness globally really.
4483589,151,1166.62,1172.42,2,Both brands truly global provide an unrivaled reach and marketing power for TeamViewer.
4483589,152,1173.08,1182.0701,2,With Manchester United we have already achieved more than eleven point seven billion impressions of our logo since the partnership officially started mid last year.
4483589,153,1182.92,1194.08,2,And regarding Mercedes we have nearly eight hundred million video views featuring our logo on their channels and we are able to reach a global TV audience of more than one point five billion Formula One viewers.
4483589,154,1195.12,1201.53,2,You can see some more figures really impressive figures on our two major sponsorships on the slide of slide seventeen.
4483589,155,1202.9301,1211.1499,2,Uh from our perspective our sports sponsoring teams are a strategic lever for TeamViewer as they are providing unrivaled global brand exposure.
4483589,156,1211.52,1213.55,2,You can see how impressive these numbers are.
4483589,157,1213.73,1221.96,2,And you can probably imagine that much higher spend uh is needed in traditional marketing activities to reach these numbers of exposure.
4483589,158,1223.08,1229.8199,2,Finally as you can see on the right we use our sports partnership also to develop joint use cases of our technology in action.
4483589,159,1230.14,1244.67,2,With that we can then clearly demonstrate the value uh our software solutions can add at the different steps of the value chain for different businesses that really apply to all industries in one way or the other and uh the sports clubs are showcases for that.
4483589,160,1245.3101,1250.21,2,Therefore we can leverage our sports engagement beyond pure branding and logo impressions.
4483589,161,1250.51,1257.8199,2,But use these joint use case use cases and success stories as reference for other potential customers.
4483589,162,1257.91,1261.6901,2,And then of course combine it with all other elements of the branding partnership.
4483589,163,1262.4,1273.9199,2,With the next slide let's come to our internal improvement uh which we've also discussed and announced through the capital markets day which is uh called um the program called REMAX which is on slide eighteen.
4483589,164,1274.8,1282.01,2,Uh we called uh we launched this program uh to address some of the issues we faced in twenty twenty one.
4483589,165,1282.6801,1293.14,2,Since then we've already made substantial progress in terms of execution uh successfully re-accelerated some of the growth initiatives to better balance billings and cost growth.
4483589,166,1293.36,1298.7,2,Let me briefly highlight some improvements which were made since announcing a REMAX program.
4483589,167,1299.41,1306.23,2,Uh with thanks to our core product team and we we allocated resources to this area away from non focused products.
4483589,168,1306.95,1314.5199,2,This will also bear fruit in new UI UX update forthcoming which is on track to be released early uh second quarter so very shortly.
4483589,169,1315.5699,1319.9,2,Within REMAX we also introduced the task force to upgrade our website and digital marketing.
4483589,170,1321.0601,1325.88,2,Also we made quite some progress regarding initiatives uh with short term billings impact.
4483589,171,1325.96,1335.35,2,The new organization has settled in very well and we conducted for the first time in two years a physical leadership kick off with most of our senior leaders.
4483589,172,1335.64,1339.75,2,This just happened ten days ago uh very important to be together in one room again.
4483589,173,1340.6,1350.66,2,Lastly uh as already announced we've strengthened the expertise of uh senior management and implemented some major cost reductions to better balance cost and billing scores.
4483589,174,1350.95,1358.9501,2,As you can see on the slide we have been successful in temporarily raising our headcount uh through effective regrouping.
4483589,175,1359.1899,1362.72,2,Um and now standing at around fourteen hundred seventy.
4483589,176,1363.87,1370.26,2,Coming up uh I'm strongly convinced that we are well on track um uh with pushing TeamViewer ahead.
4483589,177,1371.14,1374.2,2,Following a sustainable and profitable growth trajectory.
4483589,178,1374.23,1380.85,2,Our efforts have already started to pay off and I'm confident that we will see many more positive developments in the future.
4483589,179,1381.4301,1386.3401,2,With that I would like to hand over to my colleague Stefan who will walk you through the financials in more detail.
4483589,180,1387.29,1387.99,3,Thank you Oliver.
4483589,181,1388.5,1389.4099,3,Hi good morning.
4483589,182,1389.41,1395.9,3,Also from my side uh quickly summarizing the financial highlights uh top line bottom line and cash flow.
4483589,183,1396.7,1397.65,3,So total billings.
4483589,184,1397.65,1407.47,3,I mean obviously you've seen the numbers uh increase by constant currencies uh sorry increased seventy percent uh measured in constant currencies in q four and twenty percent for the full year.
4483589,185,1407.75,1409.7799,3,Uh so delivering the high teens growth.
4483589,186,1410.55,1420.76,3,Clearly due to very strong enterprise growth uh as well as a nice contribution from S M B driven primarily by increased volume and higher AS fees with existing customers.
4483589,187,1421.52,1427.8,3,ifr IFR revenues grew nine percent and ten percent for q four and for the full year respectively.
4483589,188,1428.29,1437.51,3,I think as you know the revenue growth rate has been below billings growth rate due to the base effect from the discontinued uh perpetual license business model.
4483589,189,1437.86,1450.27,3,Uh and during twenty twenty we still recognize roughly forty six million of previous perpetual license sales uh and obviously this figure now came down to only around two point six million twenty twenty one.
4483589,190,1450.6899,1453.39,3,And that means it depresses our reported revenue growth.
4483589,191,1453.79,1458.14,3,Uh now that being said this effect will finally fully disappear in twenty twenty two.
4483589,192,1458.75,1461.8101,3,So billings growth and revenue growth will be much much more in line.
4483589,193,1462.7,1469.78,3,Uh if we take a look at the revenues from the subscription model only they grew sixteen percent in the fourth quarter and twenty-
4483589,194,1469.78,1472.1899,3,twenty two percent in twenty one overall.
4483589,195,1472.71,1475.67,3,So again much more in line with our reported billings growth.
4483589,196,1476.25,1478.87,3,So going forward I think the picture will be much much clearer there.
4483589,197,1479.5,1481.0601,3,Uh looking at profitability.
4483589,198,1481.33,1489.9301,3,We came out at the high end of our pre release numbers with two hundred and fifty seven million Euro adjusted e b i t d a or a forty seven percent margin.
4483589,199,1489.96,1495.89,3,Uh clearly a very attractive margin overall despite our significant investments in in future growth.
4483589,200,1496.41,1505.16,3,Uh that being said clearly we acknowledged that our margins are obviously down compared to an exceptionally profitable year twenty twenty which had all the tailwinds from covid nineteen.
4483589,201,1506.42,1509.46,3,Moving on to cash flows uh I think very strong set of numbers.
4483589,202,1509.87,1518.11,3,Very pleased to report the levered free cash flow which increased in the last quarter uh to sixty eight million Euro overall up at twenty one percent.
4483589,203,1518.41,1519.3799,3,Uh and for the full year;
4483589,204,1519.38,1527.85,3,twenty one levered free cash flow decreased slightly by five percent obviously reflecting the slightly lower adjusted e b i t d a but overall still a very strong conversion.
4483589,205,1528.79,1532.39,3,Now let's take a look uh at our billings composition on the next slides.
4483589,206,1532.42,1534.41,3,Obviously an important breakdown.
4483589,207,1534.6,1537.87,3,Uh I think q four was quite remarkable for two reasons.
4483589,208,1538.52,1543.7999,3,A the net retention rate increased quite nicely as you can see on the graph uh on the left hand side.
4483589,209,1544.41,1551.5199,3,Retained billings in the fourth quarter amounted to a hundred thirty three million reflecting a net retention rate of a hundred five percent.
4483589,210,1551.85,1555.17,3,This is in fact one of the highest numbers we have reached now.
4483589,211,1555.72,1558.6799,3,Also new billings contributed well to our overall growth.
4483589,212,1558.87,1565.96,3,Uh two quarters in a row we achieve now two million of new billings uh and this is despite the absence of free user monetization.
4483589,213,1567.29,1576.6799,3,And looking at the year in total we gained ninety four million of new billings uh which was obviously below the twenty twenty covid nineteen peak figure but still a very solid number.
4483589,214,1577.63,1587.6001,3,Uh taking a look at subscribers increase of ten percent I think those numbers are well known to you uh over the year but basically essentially fled in the fourth quarter.
4483589,215,1588.24,1594.4,3,This is primarily due to the suspension of the free to paid monetization campaigns which we stopped entirely during the third quarter.
4483589,216,1595.21,1603.0,3,And our subscriber base therefore slightly decreased by net a thousand uh subscribers during the fourth quarter which was pretty much in line with with our estimates.
4483589,217,1603.62,1612.5399,3,I think you heard Oliver talk about the continued pause of this monetization and therefore subscriber growth will be more biased towards the second half of twenty twenty two.
4483589,218,1613.37,1619.5599,3,But despite uh no subscriber growth we were able to grow our billings in the fourth quarter by seventeen percent.
4483589,219,1620.17,1629.3301,3,And please remember that the bookend of of our subscribers a s p it can be two hundred Euro at the low end but it can also be more than one million Euro in in the enterprise business.
4483589,220,1629.41,1632.5599,3,So very different bookends uh in terms of ASPs.
4483589,221,1633.64,1641.09,3,Uh slide twenty two uh clearly an important measure uh to reflect uh the stickiness of our customer base.
4483589,222,1642.03,1653.76,3,The quality performance of the net retention rate showed uh as I said a strong improvement in the fourth quarter coming up two hundred five percent and therefore pushing the overall net retention rate for the full year to ninety eight percent.
4483589,223,1654.08,1658.86,3,Uh as you know that's been quite a roller coaster year in terms of net retention rate and its development.
4483589,224,1659.54,1667.83,3,Uh as we explained before the one time effect of right sizing of the COVID customers triggered the strong decrease especially in the first six months.
4483589,225,1668.3,1675.59,3,And then we saw a subsequent increase again in q three uh and now uh in q four up to a hundred five percent.
4483589,226,1675.59,1677.11,3,So very strong development I would say.
4483589,227,1678.0699,1683.79,3,Uh and despite the low on that subscriber number in q four new billing slightly went up to twenty million Euro.
4483589,228,1684.89,1686.2,3,Uh this is good achievement.
4483589,229,1686.73,1698.45,3,Uh frankly most those new billings relate to more sticky enterprise customers with deeper embedded use cases such as AR or managed enterprise connectivity like A B B as as Oliver mentioned.
4483589,230,1698.77,1716.35,3,Uh and again as we have not run free user monetization anymore I also believe that the customer <inaudible> which we won lately uh might turn out to be stickier than the ones from other quarters where we had new billings more biased towards lower a s p which tend to have a higher higher churn rate than the year later.
4483589,231,1717.24,1721.0399,3,Let's take a look at the geographical performance on slide twenty three.
4483589,232,1722.3,1728.11,3,Uh in terms of <inaudible> performance uh fourth quarter billings growth was especially strong in the APAC region.
4483589,233,1728.14,1728.9401,3,That's good to see.
4483589,234,1729.78,1732.24,3,Clearly representing one of our key growth regions.
4483589,235,1732.29,1736.86,3,Um we'd have a tough year for APAC overall but with a very strong finish.
4483589,236,1737.46,1744.74,3,As I as you might remember q four last year was actually not that strong in APAC so they also benefited from a lower base.
4483589,237,1744.8101,1749.37,3,However uh we clearly saw very good improvements com especially compared against q three.
4483589,238,1750.0699,1755.88,3,Uh q four billings of thirty million roughly representing thirty percent year on year growth very strong.
4483589,239,1756.74,1764.01,3,You also saw that we have a new leader <inaudible> Lee she's joined us uh as the new president APAC in December.
4483589,240,1764.4301,1771.59,3,And I think with her we won a clearly a very proven enterprise software expert with significant knowledge in those important market swaths.
4483589,241,1772.53,1773.89,3,So very happy to have her on board.
4483589,242,1774.62,1776.16,3,Let's move on to the Americas.
4483589,243,1776.1899,1783.61,3,Uh billings in the fourth quarter grew by twenty four percent also benefiting from some currency tailwinds as the US dollar strengthened.
4483589,244,1784.41,1791.0499,3,Uh growth in the Americas actually was clearly biased towards enterprise very strong pipeline conversion there.
4483589,245,1791.5601,1797.09,3,I think <unk> joined us in May timeframe clearly put together a very strong team and contributed quite nicely there.
4483589,246,1797.85,1802.24,3,Uh e m e a contributed billings of eighty six million up sixty percent.
4483589,247,1802.6801,1813.5699,3,I think America's performance especially <inaudible> by the enterprise sales and EMEA recorded good S M B resides and also strong pipeline conversion but less strong than Americans overall.
4483589,248,1815.04,1817.8199,3,So let's move on to the cost structure on the next slide.
4483589,249,1819.2,1832.1699,3,Uh overall clearly the business remains very scalable despite our strong push into adjacent markets and the even stronger push into our enterprise business is around ninety three percent.
4483589,250,1832.17,1835.0399,3,Our cross profit margin remained comfortably above ninety percent.
4483589,251,1835.04,1842.52,3,Actually even improving slightly compared to last year so clearly showing that our infrastructure efficiently scales with a steadily growing business.
4483589,252,1842.97,1850.5,3,And that's even take into account that we further expand into the enterprise business with larger deals and more complex use cases.
4483589,253,1851.6,1869.87,3,And now let's take a look at our optics functions uh clearly in line with our key growth initiatives significant investments uh occurred uh as you're all aware especially in the marketing area now reflecting the full impact of the marketing partnerships since Q3 that's pretty much a flat line expense.
4483589,254,1873.87,1890.26,3,Uh so each quarter pretty much the same amount to be expense for those partnerships.
4483589,255,1899.49,1904.65,3,Uh moving on to cash generation clearly a continuous highlight of TeamViewer.
4483589,256,1905.13,1910.85,3,We continue to enjoy strength cash strong cash flow and actually very high cash conversion.
4483589,257,1911.52,1917.36,3,Fully pre tax cash flow from operating activities was clearly impacted by the measurements into the brand equity.
4483589,258,1917.72,1920.9199,3,Uh sorry into the brand equity partnerships.
4483589,259,1921.28,1928.0801,3,Uh but that being said levered free cash flow in the fourth quarter actually sixty eight million up twenty percent or twenty one percent.
4483589,260,1928.5699,1935.1,3,A very strong cash conversion in the fourth quarter and also actually benefiting from lower CapEx and and interest payments.
4483589,261,1935.42,1945.53,3,As you can see for the full year uh levered free cash flows slightly decreased obviously reflecting the marketing partnerships uh and uh the slightly lower e b i t d a.
4483589,262,1945.95,1950.0099,3,That being said we achieved a cash conversion rate of sixty one percent of adjusted EBITDA.
4483589,263,1950.01,1951.26,3,I think overall very strong.
4483589,264,1951.77,1958.9199,3,And actually uh would like to point out that our CapEx and interest payments boasts nearly half so quite significant improvements there.
4483589,265,1959.34,1962.62,3,And I expect them to stay at those lower levels going forward.
4483589,266,1963.5,1969.17,3,And clearly that means this healthy cash flow adds to an already strong liquidity position as you can see in the next chart.
4483589,267,1970.38,1978.25,3,Uh we'd like to take a step back here quickly I think there was the lingering question out there about our capital structure and I think we wanted to respond to that today.
4483589,268,1979.0,1984.45,3,So at the time of the i p o uh the company actually had a leverage of about three point five times e b i t d a.
4483589,269,1984.45,1991.89,3,Uh I think clearly since then we've generated significant amount of cash uh and delivered pretty fast now to one point three times.
4483589,270,1992.3101,1994.7301,3,Uh two developments contributing to that.
4483589,271,1995.33,2004.99,3,Obviously uh this is driven by our continuously increased adjusted e b i t d a on one hand and on the other hand we consistently generate significant amount of free cash flows.
4483589,272,2006.08,2012.9801,3,And if you add this together uh we have now a cash position of five hundred fifty million at the year end of twenty twenty two.
4483589,273,2013.63,2016.83,3,Uh and a net uh debt position of three twenty seven million.
4483589,274,2018.0601,2030.88,3,In q one of last year actually we'll also use the chance to strengthen the balance sheets and secured long term really attractive financing uh with a promissory note of four hundred million Euro which we concluded by the end of q one twenty twenty one.
4483589,275,2031.45,2041.6599,3,And as you can see at the bottom of this slide uh our financing structure is very solid and long term secured with no refinancing needs for the next two to three years.
4483589,276,2041.6899,2043.52,3,So overall I think a very solid balance sheet.
4483589,277,2044.97,2051.6001,3,And therefore and now we've set ourselves a sustainable year and leverage target of roughly one point five times adjusted e b i t d a.
4483589,278,2052.1599,2061.1401,3,I think this target is derived from well balanced and and long term secured financing structure and obviously takes into account our contingency strong cash flow generation.
4483589,279,2062.4099,2068.0601,3,So wrapping it up on the next slide uh quickly highlighting the cash profile of TeamViewer.
4483589,280,2068.5,2080.1399,3,Clearly as a technology company we traditionally have low CapEx and I think that CapEx saw some peak during the last couple of years but has now come down substantially and will remain at those levels for the foreseeable future.
4483589,281,2080.8201,2083.74,3,We also had and will continue to have relatively low taxes.
4483589,282,2083.74,2086.5901,3,Uh we still have significant amount of taxes carry forward.
4483589,283,2087.1001,2090.53,3,Therefore our effective uh tax cash rate remains pretty low.
4483589,284,2091.02,2092.8401,3,That remains the case for the next two years.
4483589,285,2093.95,2098.9202,3,And obviously we are able to achieve uh uh and generate significant adjusted e b i t d a margins.
4483589,286,2099.47,2107.5498,3,Even with the significant impact of the marketing and brand investments we retained margins comfortably in the mid forty percent range or forty seven percent for the last year.
4483589,287,2108.96,2124.73,3,Uh so finally uh we consistently maintained a strong cash flow and I think the profitable growth in the enterprise as well as the SMB business in combination uh with our now well balanced billings and costs grow cost growth will further boost cash generation going forward.
4483589,288,2125.0901,2129.4001,3,And if you sum all of this up I think TeamViewer clearly has a highly attractive financial profile.
4483589,289,2130.1499,2139.8501,3,And this financial profile and strong position obviously uh helps us now and enables us to create value for our shareholders um basically on a new level.
4483589,290,2139.97,2141.71,3,Which leads me to the share buyback program.
4483589,291,2142.1699,2149.8398,3,Uh this program has been uh in discussion for a while and now we wanted to update you what we wanna do going forward.
4483589,292,2150.05,2151.74,3,Uh so let's move on to next slide.
4483589,293,2152.8301,2170.1199,3,Uh I think we talked about uh enough about our capabilities to deliver uh and our strong liquidity position and therefore we have decided to initiate a share buyback program with a volume of three hundred million Eurlo- 300 million Euro or pretty much ten percent of our shares.
4483589,294,2170.3799,2177.96,3,That's obviously fully in line with the authorities granted by our shareholders uh in the AGM in twenty nineteen.
4483589,295,2178.6599,2181.6799,3,Obviously we also released an ad hoc announcement this morning.
4483589,296,2181.9299,2189.6099,3,The program is scheduled to start tomorrow uh and is also expected to be completed within the fiscal year twenty twenty two.
4483589,297,2190.6001,2197.9502,3,Obviously the whole buyback program will be carried out in accordance with EU regulations and other applicable rules uh and so forth.
4483589,298,2198.77,2209.2798,3,Important to note the vast majority of the shares will be canceled uh and therefore the share count of the company will be reduced accordingly so roughly by ten percent.
4483589,299,2209.9199,2220.1201,3,I think this should clearly demonstrate the confidence of us in the strong outlook of the business and our commitment to shareholder value creation by now allowing shareholders to participate in the success of <inaudible>.
4483589,300,2222.29,2229.8801,3,Uh and with the remaining two oh oh million Euro of cash we still have adequate financial flexibility and firepower to execute on all our growth initiatives.
4483589,301,2230.1699,2232.28,3,I think overall a very strong position to be in.
4483589,302,2232.96,2236.52,3,Let's move on and conclude my presentation with the outlook for twenty twenty two.
4483589,303,2237.45,2243.71,3,Clearly as you heard Oliver talk we expect continuing demand for solutions over the coming quarters.
4483589,304,2244.0901,2250.24,3,The global mega trends are still well intact and will continue to support our growth trajectory uh in twenty twenty two.
4483589,305,2250.9399,2259.53,3,I think the continued implementation of the meas measures which we talked about and updated you today uh will further positively impact this development.
4483589,306,2260.05,2270.1301,3,I think against this background we continue to target high <inaudible> growth and expect billings in the range of six thirty to six fifty million Euro for the current fiscal year.
4483589,307,2270.3401,2276.26,3,And revenue is expected to increase in the mid teens to Euro five sixty five to five eighty million.
4483589,308,2276.48,2280.27,3,Uh adjusted EBITDA margin is expected to be between four forty five and forty seven.
4483589,309,2280.8201,2285.5898,3,And furthermore clearly we always expect operating cash flow to increase again compared to twenty twenty one.
4483589,310,2286.6299,2289.53,3,For the medium outlook this remains unchanged as well.
4483589,311,2289.5601,2296.47,3,We see uh the mentioned growth rates for billings and revenue as well as an improvement of our adjusted e b i t d a margin going forward.
4483589,312,2297.3501,2298.95,3,And with that I would hand back to Oliver.
4483589,313,2299.51,2301.2,2,Uh thank you very much Stefan.
4483589,314,2301.23,2303.6602,2,Uh let me close with some final remarks.
4483589,315,2303.6599,2321.02,2,I think from our perspective twenty twenty one um very remarkable year uh with some challenges but also some very strategic decisions which are very important on the partnership side on the m and a side on the development of the enterprise business uh broadening the solution portfolio and the like.
4483589,316,2321.02,2328.1499,2,So uh really significant decisions and steps uh towards um uh continued profitable growth.
4483589,317,2328.1499,2334.1001,2,So we really believe uh we have we have set a clear course uh and we deliver on um on this.
4483589,318,2335.0701,2338.3601,2,Uh we have delivered on our updated twenty twenty one guidance.
4483589,319,2339.1499,2346.7,2,Uh steadily generating high teens growth in combination with strong profitability and very strong cash flows as as Stefan pointed out.
4483589,320,2347.3101,2354.6501,2,Uh we are pleased to announce that we will use our strong financial profile to return some of the value as we generate to our shareholders.
4483589,321,2354.76,2363.46,2,Um and the share buyback program we just initiated strongly and clearly underpins our confidence in our business and the future growth of TeamViewer.
4483589,322,2364.3899,2369.78,2,Uh this concludes today's presentation and we now look forward to taking your questions.
4483589,323,2372.8201,2373.29,0,Thank you.
4483589,324,2373.48,2375.53,0,we'll now begin our question and answer session.
4483589,325,2375.72,2380.45,0,If you have a question for our speakers please dial zero one on your telephone keypad now to enter the queue.
4483589,326,2380.6599,2382.8,0,Once your name has been announced you can ask a question.
4483589,327,2417.0801,2421.3999,4,How are you thinking about constant currency net retention rates across twenty twenty two?
4483589,328,2450.6001,2451.9802,4,Is anything specific going on there?
4483589,329,2452.22,2452.5,4,Thank you.
4483589,330,2455.24,2460.79,3,Yeah uh thanks those are established and are clearly uh also very pleased with that development.
4483589,331,2460.95,2466.45,3,I think in our portfolios at ninety eight percent uh fourth quarter a hundred five percent.
4483589,332,2466.78,2468.8799,3,You pointed out yes there was some currency tailwinds.
4483589,333,2468.8799,2472.8701,3,Probably two two percentage points I guess in in the fourth the fourth quarter.
4483589,334,2473.3601,2477.0498,3,For the year as a whole pretty much unaffected uh by constant currencies.
4483589,335,2477.23,2480.04,3,Uh how do I see that going to twenty twenty two?
4483589,336,2480.9299,2488.95,3,Obviously we've made this uh guidance now assuming roughly stable uh currency rates uh what we currently see.
4483589,337,2489.53,2493.4199,3,Uh and I would expect some slight improvements in that potential rate.
4483589,338,2493.4199,2495.75,3,I think it's a bit early to give precise guidance.
4483589,339,2495.75,2503.3599,3,But as you know especially in the first six months uh we have seen a negative effect of all of the right sizing and downsizing from the COVID customers.
4483589,340,2503.53,2506.1401,3,Uh and that was quite a drag on our n r r.
4483589,341,2506.6299,2511.1199,3,That being said in the second half we uh recovered quite substan quite significantly.
4483589,342,2511.1799,2512.05,3,So it's a good trend.
4483589,343,2512.5901,2520.9202,3,And and I would expect uh clearly that overall we continue to improve our n r r uh for the full year which was li like ninety eight percent.
4483589,344,2520.97,2523.9099,3,But bear with us I think it's too early to give precise guidance there.
4483589,345,2524.6799,2533.4099,3,But then thinking about pricing power in the SMB space uh I think we've now been able again to show a nice increase in HP within the SMB uh space.
4483589,346,2533.8101,2535.8201,3,This is uh driven by two factors.
4483589,347,2535.8501,2546.78,3,A uh obviously continues upsell into the install base more use cases more embedded products uh cross selling activities scale going on.
4483589,348,2547.1001,2553.29,3,So it's well balanced mix of uh more use cases and some price increases which you push through.
4483589,349,2553.3201,2556.49,3,And I do think the price environment is actually pretty stable.
4483589,350,2556.49,2561.0598,3,So I don't see any indications that this will change uh even at at the low end.
4483589,351,2562.1001,2564.9099,3,Uh the marketing partnerships that impact in the fourth quarter.
4483589,352,2564.9099,2568.3,3,Uh look I mean obviously significant impact on the p and l.
4483589,353,2568.3,2574.3801,3,I think Oliver talked about in his presentation what we see in terms of trend equity and the positive impact there.
4483589,354,2574.8201,2578.77,3,Uh it did not really influence the top line meaningful in the fourth quarter.
4483589,355,2578.77,2580.5601,3,It's also not what we expected frankly yeah.
4483589,356,2580.5601,2582.8701,3,We always always said this is a long term investment.
4483589,357,2583.1799,2586.6799,3,But clearly from from a brand perspective we're very pleased with what we are seeing.
4483589,358,2587.45,2588.3499,3,Uh pipeline conversion.
4483589,359,2588.3501,2590.3401,3,I think that's what's the fourth part of your question.
4483589,360,2590.3701,2593.53,3,Overall very happy uh what we've seen in in the fourth quarter.
4483589,361,2593.96,2596.51,3,<inaudible> the fourth quarter from the enterprise business is Showtime.
4483589,362,2597.0801,2601.1099,3,a and I think especially the Americas team uh converted their pipeline very well.
4483589,363,2601.3,2603.5,3,Strong pipeline build and pipeline conversion.
4483589,364,2603.99,2606.3699,3,In India also good pipeline conversion.
4483589,365,2606.4299,2609.2,3,Um so overall very pleased with what we've been seeing.
4483589,366,2609.2,2614.0701,3,But obviously it's also the fourth quarter and it's important to see that pipeline conversion the fourth quarter.
4483589,367,2614.53,2620.3499,3,As you would expect now obviously some of the pipeline needs to be rebuilt <inaudible> trying to ask for all others enterprise software companies out there as well.
4483589,368,2621.2,2623.03,2,And last question was around cost line r and d.
4483589,369,2623.0601,2624.3601,2,Anything especially the fourth quarter?
4483589,370,2624.74,2624.8501,2,No?
4483589,371,2624.8501,2625.47,3,Not really.
4483589,372,2625.51,2628.1902,3,Uh I think it's the full impact of the acquisitions which we've done.
4483589,373,2628.22,2628.53,3,Yeah.
4483589,374,2628.5601,2632.3301,3,Uh that that's about it but going forward its growth will be will be slower.
4483589,375,2633.8101,2634.5,4,Great thank you.
4483589,376,2642.46,2642.6299,5,Great.
4483589,377,2642.6299,2642.8799,5,Morning.
4483589,378,2642.8799,2643.6199,5,Thanks very much.
4483589,379,2643.72,2649.24,5,Um and and particularly um for the for the extra disclosure around the SMB business as well.
4483589,380,2649.49,2650.6199,5,A couple of questions from me.
4483589,381,2650.6201,2652.6301,5,Firstly just on the headcount side.
4483589,382,2652.6599,2662.4202,5,Um if I look at q four there's been a meaningful sort of reduction in the sales and and the marketing lines there presumably around the right sizing.
4483589,383,2662.46,2668.51,5,So really just wondered if you could talk a little bit about your plans in terms of headcount into twenty two.
4483589,384,2668.5601,2673.8699,5,Um are you expecting any impact from from that lower sales headcount?
4483589,385,2673.8701,2682.25,5,And how are you finding um employee attrition and and the sort of general environment around employees given the changes an an and movements last year?
4483589,386,2682.71,2687.8499,5,And then just secondly um I guess a slightly broader question on the outlook for twenty two.
4483589,387,2688.6799,2696.5898,5,Nearly half half of the growth this year from SMB versus enterprise so just wondered if rule of thumb you're you're expecting something similar in this year?
4483589,388,2697.02,2710.8398,5,And then in terms of seasonality there as well I think um a sort of a flatter set of comps than we've we've had previously but still a little bit of residual strength in q one from from that COVID um period t two years ago.
4483589,389,2710.8401,2717.74,5,So would it be fair to say that you'd expect growth to to be stronger in the sort of Q2 to Q4 part of the year?
4483589,390,2717.8899,2718.23,5,Thank you.
4483589,391,2719.8201,2720.8301,2,Yeah hi Jim.
4483589,392,2720.8301,2721.1802,2,Thanks.
4483589,393,2721.24,2724.3398,2,So just for your first question um headcount.
4483589,394,2724.46,2733.1101,2,Um yeah we had a headcount uh three years ago as you can see from the numbers up to the very strong intake um that's really um just a freeze.
4483589,395,2733.1599,2734.8398,2,No no meaningful reduction.
4483589,396,2735.1101,2738.8098,2,And especially um there's no meaningful headcount reduction in sales and marketing.
4483589,397,2738.8101,2741.71,2,So uh this is these are two areas where we're investing.
4483589,398,2742.21,2756.6599,2,So there's regrouping uh underneath the th the <inaudible> to say but all in all we have a strong sales force strong strong marketing um support and that's not going to impact the growth um and the initiatives for the for this year.
4483589,399,2757.8999,2769.1799,3,Yeah I think uh in terms of your rule of thumb yeah I mean obviously we don't give guidance between for SMB and enterprise growth but generally speaking the way how we see that is is not a bad uh bad approach frankly.
4483589,400,2769.3201,2769.54,3,Yeah.
4483589,401,2769.6499,2775.6699,3,Uh and that would equal to I mean as in <inaudible> ten percent or above for getting to twelve percent growth.
4483589,402,2776.3,2779.6699,3,That's obviously the uh the target which we gave ourselves at the c m d.
4483589,403,2780.04,2784.3401,3,We're not quite there yet but obviously we put in place lots of measures to improve our SMB performance.
4483589,404,2785.0701,2793.9099,3,Uh and I think if we expect uh equal weighting of enterprise incremental growth and SMB increment growth that's a good rule of thumb.
4483589,405,2794.6399,2796.26,3,And seasonality yeah you're right.
4483589,406,2796.6799,2801.4199,3,I would also expect a moderately uh biased <inaudible> towards the second half.
4483589,407,2802.48,2807.5098,3,A we continue to post monetization free users as we talked about that's still that still the case.
4483589,408,2807.6599,2810.0901,3,Uh so we don't use any of that for the time being.
4483589,409,2810.52,2818.8799,3,And obviously enterprise pipeline rebuild and converting obviously is also biased as for most other enterprise software companies more towards the second half.
4483589,410,2820.9299,2821.1299,5,Okay.
4483589,411,2821.1299,2821.54,5,Thank you.
4483589,412,2821.54,2825.4802,5,All of it just may be coming back just on the um on the employee side just in a little bit more detail.
4483589,413,2825.48,2836.48,5,I mean just just around the general environment is clearly a topic um across the space at the moment just in terms of attrition versus wage inflation you know versus finding the right people.
4483589,414,2836.48,2838.21,5,And anything to to add around that?
4483589,415,2839.4199,2841.3101,3,Yeah uh good point.
4483589,416,2841.3101,2848.3799,3,Uh clearly we see uh that there is significant um kind of competition uh for workforce across all markets.
4483589,417,2848.3799,2851.0,3,I think started in the US and also has reached Europe.
4483589,418,2851.1001,2855.5,3,Um and APAC was always very difficult uh to find high caliber people.
4483589,419,2856.1699,2872.01,3,Uh certainly we've used the regrouping exercise to also um think about adjustments there in terms of uh um increasing salaries and making adjustments uh for the people that uh are high talent and we want to keep um going forward.
4483589,420,2872.01,2876.3398,3,And then on reductions in some places where we felt we are not in the best possible position.
4483589,421,2876.3401,2877.55,3,So it's getting harder.
4483589,422,2877.55,2878.3201,3,Absolutely.
4483589,423,2878.8701,2882.1199,3,I think we have an attractive um compensation system.
4483589,424,2882.6599,2885.0698,3,Uh we we provide significant opportunities.
4483589,425,2885.1899,2887.3999,3,And and we have an eye on that.
4483589,426,2887.78,2891.03,3,I wouldn't say that we have difficulties finding people.
4483589,427,2891.3,2901.3701,3,Attrition has gone up in some areas but also honestly speaking during the REMAX program uh part of it was also <inaudible> so to say.
4483589,428,2901.48,2909.3599,3,Uh so we were actually quite happy to have the opportunity to regroup in some places and in some departments globally.
4483589,429,2909.6001,2913.4399,3,So all in all I would feel well under control but it's getting it's getting tougher for sure.
4483589,430,2914.5,2914.98,5,That's helpful.
4483589,431,2924.1699,2925.02,6,Great thank you.
4483589,432,2925.05,2927.54,6,Uh morning uh Oliver and Stefan.
4483589,433,2928.03,2929.4199,6,Um a couple from me.
4483589,434,2962.96,2967.8298,6,But are you also seeing any any progress or evidence around some of the larger deals?
4483589,435,2968.3799,2971.4099,6,And and is that sort of baked into your uh expectations or not?
4483589,436,3006.26,3011.6299,3,Uh I think what we've seen here is uh a good build of the pipeline especially in the Americas.
4483589,437,3011.8799,3015.6802,3,When <inaudible> joined us uh she put together a new team.
4483589,438,3016.2,3023.3401,3,I think that that team uh also with existing talent actually produced a very good pipeline and then converted really strong in the fourth quarter.
4483589,439,3023.9299,3030.5801,3,And I think it was this was a progress across all use cases and across all the sizes uh in the US.
4483589,440,3030.9399,3033.6799,3,I think in e m e a we are slightly behind.
4483589,441,3033.6799,3038.1899,3,There was leadersh leadership change a bit later in the year in the fourth quarter.
4483589,442,3038.6299,3047.02,3,And I think the pipeline between the EMEA region as we expressed during the third quarter was not as strong as uh as in the US but they converted also very nicely.
4483589,443,3047.1201,3048.9299,3,Yeah overall speaking.
4483589,444,3049.3701,3058.4299,3,I think what's good to see from my perspective is that the pipeline we have now uh built together with our key partners like an SAP or Google and the likes is increasing.
4483589,445,3058.46,3059.0999,3,That's nice.
4483589,446,3059.6499,3073.8899,3,Uh also pretty much centered around the newer use cases which tend to have larger ticket sizes but clearly those partners uh like I mentioned uh they are also very much biased towards q three and q four right towards the end of the year when they when they convert a pipeline.
4483589,447,3074.3201,3076.29,3,But overall happy with what we see.
4483589,448,3076.48,3089.02,3,Uh as you would expect going into new y new year there is some carryover from pipeline which hasn't been closed which we can close and did close early on but fundamentally obviously you need to rebuild the enterprise pipeline.
4483589,449,3089.51,3091.52,3,But happy with what we've been seeing here.
4483589,450,3092.04,3093.46,3,In terms of execution.
4483589,451,3093.77,3100.3599,3,Look I think it's all about being close uh towards the deals and closer towards uh close dimensions to enterprise team.
4483589,452,3100.3601,3102.3701,3,I think that's what we've been doing over the last few months.
4483589,453,3102.9399,3119.1902,3,All by Patty and Yan who <inaudible> enterprise team and also June I think generally speaking we're much closer to our uh close to monitoring our enterprise development sales productivity and that makes me confident that uh we have it in place to deliver on our twenty twenty two numbers.
4483589,454,3119.5701,3130.6599,2,And I would also say that of course what you call make execution more consistent I mean if I turn it around the inconsistency is of course also due to the fact that we see really many positive movements.
4483589,455,3130.6599,3134.9199,2,I mean we see a move over the last uh quarters towards larger deal sizes.
4483589,456,3135.1201,3142.3401,2,We see regional moves we enter new verticals which we haven't been present before we did the acquisitions to add augmented reality.
4483589,457,3142.96,3153.75,2,So all of this is getting us larger project outside deals at certain points in time plus on top now we have the partnerships which we launching with uh uh with SAP and Google.
4483589,458,3153.75,3162.2202,2,So I would say in a way good problem to have because the share of new business to uh to recurring renewal business is still very high.
4483589,459,3162.3501,3172.72,2,And and then of course that distorts the picture here and there a little bit but with the overall growth rate the track record you see except for the COVID quarters I think it's it's impressive.
4483589,460,3172.72,3180.7,2,So therefore um I wouldn't call it an inconsistency it's the the growth growing pains so to say of a business which is really gaining speed.
4483589,461,3182.27,3182.5701,6,Okay.
4483589,462,3182.5701,3183.54,6,That's that's great.
4483589,463,3183.54,3185.02,6,And I can fit one more in.
4483589,464,3208.8201,3225.02,2,Yeah I think the I think pretty much unchanged I would say as as we had discussed the um uh the COVID wave has really brought uh a a number of new competitors um winning customers and trying to uh get customers and subscribers at the lower end.
4483589,465,3225.05,3228.7,2,So this is a numbers game not a not a a s p game so to say.
4483589,466,3228.77,3229.9502,2,These are small ticket sizes.
4483589,467,3230.8101,3234.0898,2,And I think um we can do many things there.
4483589,468,3234.0901,3243.4399,2,Um what we did in the past clearly is we had a a good portion of the subscriber growth uh through conversion of uh of free users.
4483589,469,3244.49,3248.6499,2,We uh converted quite a few of them uh in the COVID aftermath.
4483589,470,3249.21,3253.75,2,Uh we felt now it's time to probably better ring fence our field a bit more.
4483589,471,3253.8701,3255.52,2,Uh don't monetize too much.
4483589,472,3255.6001,3261.1501,2,Uh let them be on the on the platform and use our products and get to know other use cases.
4483589,473,3261.6599,3265.6101,2,That's what we have implemented in q three and also in q four and that's what we expect.
4483589,474,3265.6101,3269.4102,2,So I wouldn't say there there is no change in the competitive landscape.
4483589,475,3269.4099,3271.4502,2,I think we have discussed it multiple times.
4483589,476,3271.45,3287.8298,2,But it's more like we take a more aggressive stance maybe which is okay let's let people stay on the platform uh and then don't monetize them because we don't really need uh these extra subscribers uh uh to print significant growth for the moment.
4483589,477,3287.8601,3298.52,2,Uh and if you kind of take that thirty to fifty thousand subscriber addition guidance um something which uh we can do with a later stage if we need to and want to.
4483589,478,3300.28,3300.6401,6,Great.
4483589,479,3300.6399,3304.46,6,Thank you.
4483589,480,3304.46,3307.0601,0,The next question is coming from Stacy <unk> at JP Morgan.
4483589,481,3307.0601,3307.9001,0,Your line is now open.
4483589,482,3310.3701,3311.4199,7,Hi thank you very much.
4483589,483,3311.4199,3320.3999,7,Maybe some quick follow ups for me just digging in on that last comments around s m b and the subs you know we saw a little bit of drop from q four to q three.
4483589,484,3320.3999,3329.51,7,Is that when you talk about competition you know are you mostly competing on price uh because the products are somewhat similar and commoditized at that low end?
4483589,485,3330.02,3336.2,7,Or are you somehow grabbing customers because of features or function or or is that where the competitive landscape is?
4483589,486,3336.2,3340.3301,7,Like just to really understand what are the w what the features are?
4483589,487,3340.78,3348.8499,7,And in second question um are you able to broadly quantify the impacts on the strategic partnerships with SAP and Google as you think ahead?
4483589,488,3348.8501,3355.6602,7,So say what portion of growth you'd expect them to contribute either in twenty twenty two or at some point in the future.
4483589,489,3356.78,3357.99,7,And sorry final question.
4483589,490,3358.46,3363.3,7,Recapital allocation is the share buyback now the priority focus and how are you thinking of m a?
4483589,491,3364.27,3366.5999,7,Maybe not as much plan for twenty twenty two?
4483589,492,3367.5701,3368.99,7,Or do you see more opportunities?
4483589,493,3370.8,3374.1699,2,Yeah maybe uh a thought would be uh competition point.
4483589,494,3374.9299,3393.8701,2,I think if you if you get to the entry level uh where you think about uh working from home one computer connecting to another computer where it is very hard to differentiate on features because you're effectively um uh connecting two managed IT equipment pieces.
4483589,495,3394.3501,3397.0901,2,Uh that's uh the other competition I would say is more on price.
4483589,496,3397.21,3405.47,2,Um and we are uh we have an attractive offer which we call TeamViewer remote access which is for this individual users situation.
4483589,497,3406.04,3411.21,2,Um and um in some markets this is competitively priced and others uh it's maybe a bit too high.
4483589,498,3411.8301,3413.5198,2,But it's also not the key focus for us.
4483589,499,3413.52,3415.79,2,So we haven't been reacting uh on this a lot.
4483589,500,3416.3799,3427.0,2,Uh what we focus on is uh feature richness and quality of connectivity to all kinds of devices across all operating systems reliability performance global footprint.
4483589,501,3427.54,3443.77,2,Uh in order for this to be really relevant um you have to be a professional service provider using the product day in and day out uh in very different use case situations where you don't want to have a a breakdown or a non connection and you want to have uh security.
4483589,502,3443.77,3454.1199,2,So this is I would say the bifurcation uh if there's focus on uh uh on features and connectivity resilience and reliability uh then we win.
4483589,503,3454.4299,3461.9001,2,If it's purely single person connecting um uh we are under price pressure we tend to be not as competitive enough.
4483589,504,3461.8999,3469.8999,2,That's why we are basically giving it for free at the moment which go with that if you remember the IPO we said the free product is the best protection against low end competition.
4483589,505,3470.3101,3473.52,2,We haven't played that card over the last twenty four months but now we do.
4483589,506,3475.51,3485.47,3,Uh then maybe on the strategic partnerships uh I mean recapping twenty twenty one I mean obviously those have been closed and signed towards the end of the summer.
4483589,507,3486.0901,3488.9199,3,We didn't expect significant contribution in twenty twenty one.
4483589,508,3488.9199,3493.0999,3,Despite that there was strong momentum in pipeline builds especially in the Americas.
4483589,509,3493.27,3496.0801,3,I think we are well connected there uh with the team.
4483589,510,3497.1001,3501.8801,3,We already closed a few smaller deals uh together with s a p which is which is good to see.
4483589,511,3502.53,3510.6799,3,Uh also Google supported us scaling some larger deals also very strong contribution there through indirect relationship support I would say.
4483589,512,3511.1201,3514.28,3,So overall very pleased with with the momentum which we've seen.
4483589,513,3514.28,3521.78,3,Now it's obviously all about increasing and billing the pipeline and start converting the same in in the second uh second half.
4483589,514,3522.1499,3530.6001,3,I think it's a bit too early to quantify the full impact frankly but obviously those strategic partnerships open up avenues for significant growth in the enterprise space.
4483589,515,3530.6001,3534.4001,3,I mean last year we did forty million of incremental billings in the enterprise business roughly.
4483589,516,3535.0,3541.98,3,I think it doesn't take a whole lot to imagine that successful SAP partnerships and Google partnerships can contribute meaningful to those numbers.
4483589,517,3542.6599,3551.5901,2,I mean the overall logic is that there's a complete new set of solutions which are more and more adopted which are based on the augmented reality uh platform.
4483589,518,3551.5901,3560.21,2,So really supporting uh other workers and employees which are not in the office environment but which are outside the office environment.
4483589,519,3560.21,3564.29,2,So call them frontline workers or industrial workers or service technicians whatever.
4483589,520,3564.77,3577.27,2,There is the clear trend to bring more IT more software more support outside of the IT uh uh the headquarter into these functional areas.
4483589,521,3577.49,3582.9099,2,And the nice thing is that I think we are aligned uh with this with this opportunity.
4483589,522,3582.9099,3594.4099,2,So clearly um I mean like Google like others but also Google they want to increase their cloud consumption by new types of services that can be provided across the enterprise.
4483589,523,3594.9399,3605.3398,2,Uh somebody like SAP really extending the proposition from uh e r p warehouse management to frontline worker support our software come into play.
4483589,524,3605.55,3615.46,2,Sometimes uh this is integration some professional services needed which is then tapping into the traditional partner network that is doing a software implementation.
4483589,525,3615.46,3624.3699,2,So I think a good group of companies coming around that opportunity and that's why we saw a positive of this um future perspective then.
4483589,526,3624.8999,3637.4302,3,And then maybe on the share buyback and m and a uh look I think the key question for us was how are we dealing with a significant cash position we build up over last couple of years leverage down one point three times.
4483589,527,3637.73,3641.4099,3,So that enables us to do this share buyback.
4483589,528,3641.72,3647.04,3,But that being said I would feel very comfortable to take up leverage again if the right target comes our way.
4483589,529,3647.1599,3647.3999,3,Yeah.
4483589,530,3647.79,3654.75,3,Again I think we have the financial firepower and the flexibility now <inaudible> to pursue m and a that's not immediately on the horizon.
4483589,531,3654.8301,3655.6499,3,Um absolutely not.
4483589,532,3655.76,3659.5698,3,Uh but we still maintain significant firepower to pursue m a.
4483589,533,3662.1299,3662.6802,7,Okay useful.
4483589,534,3700.8,3729.7402,8,2022 guidance shows a little bit less confident in it.
4483589,535,3749.8101,3763.21,2,Yep sorry that just the first part the first views and are they so yes so let's uh so first I talked about the m and a that we did contribution in the fourth quarter and the AR contribution uh and the likes and the reshuffles.
4483589,536,3764.8501,3764.97,2,you go.
4483589,537,3764.97,3775.95,2,So I think the uh the way to think about it is that we have fully integratedUB <unk> Upskill and Viskupic uh into our product management r and d and also go to market and sales.
4483589,538,3775.95,3784.0701,2,Obviously uh sales was more coming from the um <inaudible> side not so much from these smaller companies.
4483589,539,3784.6399,3796.6001,2,Uh so um significant uh contribution from AI um if you look at the enterprise in total currently Stefan can comment on the numbers but I think importantly is the the go forward pipeline.
4483589,540,3796.6899,3815.49,2,Um and as we see it in most regions I would say that uh that's somewhat like a split of fifty fifty between topics which are centered around augmented reality solutions uh for frontline workers one way or the other can be manufacturing field engineering uh service technicians logistics say all the use cases really.
4483589,541,3816.0801,3826.2898,2,Um uh and the other half being classical <inaudible> and engagement manage connectivity uh customer interaction um products and so forth.
4483589,542,3826.29,3830.6299,2,So that's that's how I would say contribution to the pipeline uh go forward.
4483589,543,3831.1599,3838.76,2,Uh the e m e a reshuffling uh that has nothing to do with uh with UB Max or anything like this.
4483589,544,3838.8701,3842.26,2,Uh the three UB Max founders are all still on board.
4483589,545,3842.3799,3856.5498,2,One is our Chief Product Officer one is leading the enterprise uh sales and solution delivering in e m e a and one is based out of the US really driving the uh augmented reality solutions there with the um president America.
4483589,546,3856.55,3860.28,2,So that is a lot of the driver the drivers really leadership change only.
4483589,547,3860.28,3866.01,2,And then a bit of re-cutting the regional teams uh underneath so uh nothing more than that I think.
4483589,548,3866.0701,3868.4802,2,I'll let Stefan comment on the margin.
4483589,549,3868.48,3881.6699,2,But I what is not true is that enterprise is suppressing our margin that uh we have found the enterprise investments back back in the year so to say and ramped up our sales force and also our r and d product management and the like.
4483589,550,3881.6699,3886.5999,2,So um um I think that in going hypothesis is wrong um on that end.
4483589,551,3886.9299,3892.6099,3,Yeah maybe it's just on UB Max with you cause I think all of those three founders play a people a very important role within the organization.
4483589,552,3892.74,3896.25,3,Uh as Oliver just just mentioned and obviously they have very strong enterprise background.
4483589,553,3896.8701,3903.6899,3,Uh so great to have them on board and and it's good to see that their that their roles have actually increased in importance.
4483589,554,3904.1899,3906.77,3,Uh in terms of margin that's overall necessarily right.
4483589,555,3906.8601,3909.48,3,Uh now look I think enterprises goes to twenty percent.
4483589,556,3909.48,3912.1501,3,And that that was always the question is this going to be diluted.
4483589,557,3912.7,3914.98,3,And and it's not but it hasn't been yeah.
4483589,558,3915.1899,3922.1599,3,Um if you would rip out the marketing partnershop ships effect on our p l it would still be at the mid fifties roughly right.
4483589,559,3922.3201,3932.7,3,So despite enterprise business growing or nearly doubling uh uh in last year we would've been able to keep our margins at very high level.
4483589,560,3932.8601,3935.0999,3,So I think from my perspective no dilutive impact.
4483589,561,3935.48,3936.0701,3,Why is that?
4483589,562,3936.1001,3945.7,3,A look that's no significant professional services it's land and expense uh taking SMB customers and converting them into larger customers that's a big driver as well.
4483589,563,3946.4099,3949.24,3,Uh and i I don't think it's gonna change going forward.
4483589,564,3949.9299,3954.3501,3,Uh now in margin uh you expressed it as having less confidence.
4483589,565,3954.3501,3955.77,3,I don't think so frankly.
4483589,566,3955.9299,3963.5901,3,Uh I think frankly in twenty twenty one we did look the overdelivered against the guidance we gave ourselves was forty four to forty six percent.
4483589,567,3963.5901,3965.3298,3,Now we came out at forty seven percent.
4483589,568,3965.6201,3971.49,3,Uh I think we said at the time of the capital markets day we want to improve margins again as we exit twenty twenty two.
4483589,569,3971.6799,3975.8101,3,And now I think we've achieved that goal a bit earlier in twenty twenty one.
4483589,570,3975.8401,3984.0901,3,And I think the margin guides we gave ourselves forty five to forty seven percent is is a is a good margin target and it's not it's not diluted for clearly.
4483589,571,3984.52,3989.49,3,You should bear in mind that in twenty twenty one the first quarter didn't have the impact of the marketing partnerships.
4483589,572,3989.9199,3994.3699,3,It had margins of around sixty percent but obviously that's that's not repeatable anymore.
4483589,573,3994.3701,4000.6301,3,And that's the biggest the biggest reason uh for a potential um adjustment of all margins.
4483589,574,4000.78,4004.5098,3,But as you pointed also out in the fourth quarter we achieved forty four percent margin.
4483589,575,4004.95,4005.5698,3,Still very good.
4483589,576,4005.74,4011.0801,3,Now we have the cost freeze implemented as Oliver mentioned or the cost pause as Oliver mentioned.
4483589,577,4011.1201,4015.04,3,And that should help us to get uh the margins to the forty five to forty seven percent level.
4483589,578,4016.5601,4017.73,8,Um okay thank you.
4483589,579,4058.6001,4062.0798,3,So im immaterial an and the same with our Upskill.
4483589,580,4062.0801,4062.2002,3,Yeah.
4483589,581,4062.2,4068.04,3,I mean that's hardly material contributions from that so <crosstalk> all of the goals which you have seen is pretty much organic growth.
4483589,582,4069.1201,4069.5,2,Exactly.
4483589,583,4069.5,4071.1699,2,If that if that is what you are after.
4483589,584,4072.22,4072.45,2,Yeah.
4483589,585,4072.45,4078.0,2,<crosstalk> technology tax right they're part of the they're part of it the part of the solution portfolio but you cannot you cannot strip out uh…
4483589,586,4078.54,4088.7,2,They don't they they didn't come with billing which are now absorbed and would uh kind of the evaluate the organic growth <inaudible> that's absolutely not the case.
4483589,587,4089.3999,4091.46,3,And Hans maybe just quickly on the cost growth.
4483589,588,4091.46,4113.0898,3,I mean obviously that growth compared to twenty twenty one is predominantly the full year impact of the marketing partnerships right that has started in the second quarter with half the charge more or less and since q three it's fully expensed in the p l but obviously now going into q one you will see significant increase compared to q one last year but the run rate is now stable.
4483589,589,4113.5898,4118.3901,3,If you compare q three q four uh uh it's pretty stable at one way.
4483589,590,4120.1499,4121.1299,8,That makes total sense.
4483589,591,4131.0801,4131.3999,8,Thank you.
4483589,592,4201.4199,4206.6997,3,What are you going to do with the significant cash you are going to generate over next couple of years?
4483589,593,4206.7002,4210.7202,3,And I think now with a leverage of one point three times we had to answer the question.
4483589,594,4211.73,4224.1104,3,And then obviously we deliberated and conducted quite some intense reviews about balance sheet structure and h what is a reasonable balance sheet for us what gives us uh still enough headroom to invest into the business?
4483589,595,4224.5898,4234.0898,3,Uh and we feel anything below a leverage of one point five times this then allows us the opportunity to return cash to shareholders through a share buyback.
4483589,596,4234.3999,4236.8901,3,And I think that's what the level of which we have already achieved.
4483589,597,4237.5498,4243.3896,3,Uh however I think and that's the good news it does not eat into our reinvestment opportunities at all.
4483589,598,4243.3901,4247.6201,3,I think we still have very strong financial firepower to pursue m and a.
4483589,599,4248.1299,4254.4702,3,Um I would feel comfortable anytime to increase the leverage again uh if the right target comes our way.
4483589,600,4254.54,4268.5098,3,So I think this actually now gives us opportunity in the share buyback to let shareholders participate and the cash regenerate but at the same time does not eat into uh into our future m and a uh uh plans.
4483589,601,4268.8301,4270.5,2,Yeah I think maybe for my side to add to this.
4483589,602,4270.6602,4278.21,2,Um I think the thinking process is a m and a is not on the on the list short term.
4483589,603,4278.3599,4282.5601,2,Uh I think we clearly committed that capital market state that it's all about organic performance.
4483589,604,4283.1099,4292.2402,2,We revised our guidance we revised our mid term plans we gave details around value creation in enterprise and SMB and it's about delivering on this uh in the short term.
4483589,605,4292.2402,4296.2798,2,So therefore no immediate uh thoughts on m and a.
4483589,606,4296.2798,4296.9302,2,Number one.
4483589,607,4297.4102,4308.1499,2,Number two if we were to do m and a it's either uh at a later stage it's either tacking m and a which we have very successfully done with UB Max Upskill Viskupic in the past.
4483589,608,4308.73,4315.8896,2,Uh and the current share buyback program leaves uh all the opportunity and flexibility to do so um if that would come along.
4483589,609,4316.3701,4327.7202,2,Um now the only limitation would be if there is a mega m and a uh and then we anyway a different game and need to think about different measures because then the capital we have wouldn't be enough.
4483589,610,4327.7202,4340.2202,2,And that's totally not on the rise at the moment so therefore we feel without after quite some discussions with investors over time uh we should do this now because it's a good timing and uh we don't need the funds.
4483589,611,4341.3599,4345.4897,3,And then in terms of why cancel not keep them for m and a currency.
4483589,612,4345.4902,4348.3096,3,Look I think it's just straight up uh to cancel them.
4483589,613,4348.6899,4356.6401,3,Uh we can obviously if we pursue m and a we issue shares I think technically not not a big difference for anybody it's just straight up to cancel them now for the time being.
4483589,614,4357.3101,4358.5698,2,As as it on the shorter <inaudible>.
4483589,615,4360.3701,4362.5703,3,And then sales commission your last point.
4483589,616,4362.6499,4373.1899,3,Uh yes we started capitalizing some of those around three million in the fourth quarter and I expect uh going to twenty twenty two that would be in the mid single digit million range.
4483589,617,4373.3101,4375.5503,3,So probably five to seven million on a yearly basis.
4483589,618,4378.2202,4378.5498,9,All right.
4483589,619,4378.5498,4378.9102,9,Good stuff.
4483589,620,4388.5698,4389.2202,10,Yeah hi there.
4483589,621,4389.2598,4391.6597,10,And just a few follow ups um for me too.
4483589,622,4392.0801,4393.4902,10,And I have three questions.
4483589,623,4393.52,4403.5498,10,Just the first one could you perhaps share on your <inaudible> base what are the percentage of billings that comes from AR and IoT and sort of what is the customer count evolution there?
4483589,624,4403.5498,4411.6602,10,Um the second question is if you could share some data I know you've previously spoken on this CMD about IT versus OT use cases.
4483589,625,4412.0698,4418.4702,10,Um how is that looking in in the fourth quarter and how are you thinking about the trends progressing into FY twenty two?
4483589,626,4418.8198,4423.71,10,If you're still seeing potentially more of OT use cases versus IT and how are you measuring that?
4483589,627,4424.3999,4428.3101,10,And the final one is just um sort of a clarification.
4483589,628,4428.3701,4437.9102,10,I wanted to understand whether um your your enterprise billing I saw that you you've converted a sort of twelve million from the SMB.
4483589,629,4438.3501,4443.3301,10,Um I was wondering outta the <inaudible> remaining how much came from retained versus new wins?
4483589,630,4450.3701,4465.2402,3,Okay uh so on the AR side of things I think we disclose at the capital markets day that an ATM basis uh operational workflows billings were around thirty million won three and that is subsidized substantially increase in the fourth quarter as you would expect.
4483589,631,4465.98,4470.3203,3,And also highlighting some of the use cases Oliver mentioned which included our frontline solutions.
4483589,632,4470.9302,4475.3501,3,So overall still obviously relatively small but it's part of new billings.
4483589,633,4475.3501,4478.5898,3,Especially in the enterprise business becoming increasingly important.
4483589,634,4479.6201,4487.5601,3,Also mentioning the partnerships with Google and SAP that's obviously right now at this point in time predominantly focusing on those use cases.
4483589,635,4487.77,4492.7402,3,Uh and then thinking about the IT OT use case split.
4483589,636,4493.3999,4502.0801,3,Uh predominantly more bias towards OT especially obviously the frontline solutions as well or the whole AR suite.
4483589,637,4502.8198,4513.5698,3,I think probably going back a year one and a half years ago was roughly split I'd say fifty percent OT fifty percent IT use cases or managed connectivity use cases.
4483589,638,4513.75,4524.3403,3,If I take a look at the pipeline today it's probably about a two thirds OT frontline that use cases and one third of the <inaudible> probably has an IT use case scenario to it as well.
4483589,639,4524.5801,4527.4097,3,I think overall it's it's well balanced frankly.
4483589,640,4527.98,4537.21,3,And it should see and has seen a significant uh larger increase towards our newer products which which is very very encouraging.
4483589,641,4537.8599,4542.9502,2,But it's also important to notice I mean most large customer situations have a mix uh somewhat.
4483589,642,4543.04,4552.4502,2,There's either their staff with in IT and then have uh the plan to move into more parts of the organization and connect more devices or the other way around.
4483589,643,4553.0,4554.5898,2,To your question how do we measure this?
4483589,644,4555.1401,4562.1196,2,I think the I think the honest answer is that we we have in the CRM of course we have a clear understanding of what the customers do.
4483589,645,4562.71,4567.0801,2,But we don't measure it with a single KPI because that…
4483589,646,4567.8701,4575.1304,2,We tried in the past uh and there's kind of um effects on connectivity and the likes and the likes.
4483589,647,4575.1299,4584.9805,2,But ultimately the only thing that has is to engage with customers and understand what they're doing and that's not a call it quantitative measure which we which we which we're following or managing.
4483589,648,4584.98,4586.6899,2,It's really not not so relevant.
4483589,649,4586.6899,4591.1499,2,The importance is that we sell more use cases to uh larger organizations.
4483589,650,4592.25,4599.7798,3,And then lastly on the enterprise new billings uh significant amount of the incremental billings in enterprise came in from new customer wins.
4483589,651,4601.0498,4605.9702,3,Obviously we have a strong net retention rate in the enterprise business overall it's a hundred five percent.
4483589,652,4605.9702,4609.3799,3,For the fourth quarter you can image for the enterprise was significantly higher.
4483589,653,4610.0601,4617.48,3,Uh but even that being said uh we still had a very good intake of new enterprise customers in in the fourth quarter as you would expect as well.
4483589,654,4619.7402,4620.1201,10,Right.
4483589,655,4620.1699,4621.9702,10,And and just a quick follow up.
4483589,656,4622.5298,4632.6802,10,Are you saying that the <inaudible> may contain um uh you are sort of blocking it even in the long term like even in the future?
4483589,657,4632.6802,4640.7603,10,Or is it something that you might revisit and sort of say if growth expectations on exactly what what you want them to be?
4483589,658,4641.2798,4641.4497,10,Um.
4483589,659,4643.21,4645.73,2,No I think the uh yeah good question.
4483589,660,4645.7598,4653.1201,2,I think the past had always shown path meaning before this whole COVID disruption.
4483589,661,4653.1201,4664.7197,2,The path that always shown that it makes sense to convert some of the free users into paying customers uh in a given market but then don't do anything for a while.
4483589,662,4665.27,4668.8301,2,Uh now we have done very little in q three nothing in q four.
4483589,663,4668.8599,4673.25,2,And as we said before likely the same will be q one q two.
4483589,664,4673.46,4674.4204,2,Um but let's see.
4483589,665,4674.9399,4685.1099,2,Uh but that's that's the current planning and then most likely we'll do summarization again towards the second half of the year in selected markets and let's see what the contribution is.
4483589,666,4685.4702,4691.0303,2,We feel very comfortable with this thirty to fifty thousand new subscribers uh which we want to grow.
4483589,667,4691.0298,4697.1299,2,Part of it will come from free to paid likely part of it will come from voluntary purchases uh to other initiatives.
4483589,668,4697.1299,4701.3101,2,So this is just the way we look at it at the moment.
4483589,669,4701.46,4711.3198,2,Um of course if we see significant other attraction in other parts of the business and we can suspend it even longer than we'd likely to do so.
4483589,670,4711.4902,4715.29,2,Um but that's uh how to be discussed later during the year.
4483589,671,4717.4702,4717.75,10,Right.
4483589,672,4717.75,4719.7002,10,j just one last if I can fit it in.
4483589,673,4719.8901,4733.6504,10,And on my previous question around new wins in enterprise are you not able to pin a number or quantify the percentage of enterprise billing <inaudible> from new customers not that were retained or um converted from SMB?
4483589,674,4735.3398,4738.23,3,Look I think that's something which we don't wanna do at this point in time.
4483589,675,4738.2598,4746.1401,3,Uh I think the important step at CMD was to give precise color around those two different segments s m b and enterprise.
4483589,676,4746.5,4748.5,3,Uh but I think that's it for the time being.
4483589,677,4748.5298,4748.73,3,Yeah.
4483589,678,4748.7598,4749.8999,3,Uh I think it was…
4483589,679,4750.4502,4756.9902,3,Going forward we might change this but at this point in time we focus on providing overall billing split between SMB and enterprise.
4483589,680,4757.79,4780.8296,2,And it's often not at this point I know I mean later and future might be more relevant but at the moment with so many customers where uh there is a contact and there is a license in our SMB base and whether you call that a new logo despite the fact that maybe there's this few a thousand Euro license there I think this is such a significant move upwards.
4483589,681,4781.3999,4786.6304,2,And then there's a few customers that come in completely new as new logos with a big ticket.
4483589,682,4788.1499,4791.4897,2,But I think at the moment it really doesn't matter that much.
4483589,683,4791.4902,4808.5601,2,Later when we have more of these large logos and we talk more about upsell development and cross selling and we have maybe at some point depleted the number of large organizations of our subscriber base um that will be a different topic but at the moment that's just not the the operational reality at the moment.
4483589,684,4815.5498,4819.5503,0,<crosstalk> a reminder if you have a question for our speakers please dial zero one to enter the queue.
4483589,685,4822.04,4825.1499,0,The next question is coming from Victor Chang at Bank of America.
4483589,686,4830.8901,4834.3501,11,Um just a follow up on the net subscriber additions.
4483589,687,4851.54,4854.73,11,And then second question on the free user base.
4483589,688,4855.2202,4872.5098,11,Are you able to break down the yearly active devices by device types and how that has evolved over time has IoT become a bigger part of of these devices and if so does that imply the free base creation device actually have struck a bit more?
4483589,689,4873.25,4873.5,11,Thank you.
4483589,690,4875.0801,4890.0503,2,And so I'd say net additions uh uh as we said thirty to fifty k is the range of net additions we want to do and we uh and we can confirm that probably uh uh weighted towards the second half as I said q one q two.
4483589,691,4890.9302,4899.6597,2,Uh probably suspended free to paid campaigns so wouldn't expect significant net adds in these two quarters from today's perspective.
4483589,692,4900.5098,4913.3301,2,Um uh free user base breakdown I dunno that we wouldn't go to that detail we have different metrics uh around the free user base of course but I think that's that's nothing which we want to disclose.
4483589,693,4913.3301,4929.9199,2,And also device type is an in is interesting but of course if you look at the just the sheer number of hundreds of millions of active devices uh most of them are one way or the other uh Windows or Android operating system.
4483589,694,4929.9199,4935.2598,2,So breaking that out by device type um at the moment is not that relevant.
4483589,695,4935.5898,4937.02,3,The device type you can't do anyway.
4483589,696,4939.3301,4939.9697,3,running on that.
4483589,697,4940.0298,4945.9199,3,But as I said this is not really meaningful cause obviously Microsoft is <inaudible> <crosstalk>-
4483589,698,4945.9199,4952.4102,2,You can do mobile Android versions and not it's not meaningful.
4483589,699,4954.8501,4955.5,11,All right thank you.
4483589,700,4959.0498,4960.6602,0,There are no more questions at the moment.
4483589,701,4970.4902,4970.8403,2,Thank you.
4483589,702,4970.9502,4971.2402,3,Thanks.
4483589,703,4971.2402,4971.5801,3,Bye.
4483589,704,4971.6299,4971.9702,2,Good day.
4483589,705,4971.9702,4972.1802,2,Cheers.
4483589,706,4972.1802,4972.4702,2,Bye.
4483623,0,3.05,10.52,0,Ladies and gentlemen thank you for standing by and welcome to Exco Technologies Limited First Quarter Results two thousand and twenty two.
4483623,1,11.54,14.02,0,At this time all participants are in a listen-only mode.
4483623,2,14.54,18.52,0,After the speakers' presentation there will be a Question-and-answer session.
4483623,3,18.98,23.09,0,To ask the question during the session you will need to press then one on your telephone.
4483623,4,23.84,26.28,0,Please be advised that today's conference is being recorded.
4483623,5,27.03,30.66,0,If you require any further assistance please press then zero.
4483623,6,31.55,36.88,0,I would now like to turn the conference over to your speaker for today Darren Kirk President and Chief Executive Officer.
4483623,7,37.05,37.69,0,You may begin.
4483623,8,39.12,40.27,1,Thank you Tuanda.
4483623,9,40.57,47.08,1,Good morning ladies and gentlemen welcome to Exco Technologies fiscal twenty twenty two first quarter conference call.
4483623,10,47.46,49.63,1,I am Darren Kirk C E O of Exco.
4483623,11,50.12,52.16,1,I will lead off with an operations overview.
4483623,12,52.76,58.87,1,Matthew Posno our C F O will then review the financial results before we open the call for questions.
4483623,13,59.9,64.05,1,Before I begin I would like to make some comments about forward-looking information.
4483623,14,64.71,72.59,1,In yesterday's news release and on page two of the presentation that we have posted to our website you'll find cautionary notes in that regard.
4483623,15,73.31,78.24,1,While I won't repeat the contents I want to emphasize that they apply to this discussion today.
4483623,16,79.06,83.36,1,So it was a challenging quarter with several factors catching up to us.
4483623,17,83.96,88.82,1,Lower vehicle production volumes due to ongoing chip shortage was the biggest contributor.
4483623,18,89.3,102.17,1,However labor disruption due to the greater spread of the Omicron variant widespread inflationary pressures inventory de-stocking broader supply chain issues and logistical constraints also contributed.
4483623,19,103.18,114.43,1,But I want to emphasize that while the quarter was challenging and while our results were well below our recent performance nothing has changed fundamentally for Exco or our medium-term outlook.
4483623,20,115.23,119.17,1,We expect much stronger results in the quarters ahead.
4483623,21,119.57,130.9,1,In fact with that in mind i am very pleased to announce that yesterday our Board of Directors approved a five percent increase in our dividend to an annualized rate of forty two cents per share.
4483623,22,131.52,137.36,1,This is the fourteenth time Exco has increased its dividend in the last thirteen consecutive years.
4483623,23,137.99,143.15,1,I'm not sure how many other companies have done this but I do know it's a pretty exclusive club.
4483623,24,144.4,152.44,1,Despite current headwinds we remain encouraged by the underlying trends across our various businesses that will contribute to our future growth.
4483623,25,153.15,165.72,1,I've mentioned several times before the automotive industry's transformation towards electric vehicles and focu focus on reducing emissions is extremely positive for Exco tooling businesses.
4483623,26,166.71,177.54,1,As OEMs make the change to greener vehicles and strive for greater manufacturing efficiency there is an increased use of light metals and the demand for our associated tooling.
4483623,27,178.88,186.05,1,There is also increasing demand for technical expertise at the supplier level as products become larger and more complex.
4483623,28,186.88,197.9,1,More broadly we also expect to benefit from the trend towards larger and more complex castings across the industry as all OEMs seem likely to pursue this playbook.
4483623,29,198.7,209.0,1,In addition there is a heightened focus on efficiency by all manufacturers for sustainability initiatives that will be very positive for the entirety of our tooling business.
4483623,30,210.17,218.79,1,In anticipation of these trends we continue to make sizable investments in order to better position our various businesses to capture these opportunities.
4483623,31,219.51,228.51,1,We are investing record sums of CapEx this year across several initiatives and we made great headway on advancing these projects during the quarter.
4483623,32,229.83,237.65,1,By this point I think the constrained supply of microchips impacting the OEM's ability to manufacture vehicles is well understood.
4483623,33,238.35,245.12,1,Most industry players and analysts do however expect an improvement in supply as we go through twenty twenty two.
4483623,34,245.85,255.5,1,I H S for example is anticipating a seventeen percent increase in vehicle volumes in twenty twenty two and a further eleven percent in twenty twenty three.
4483623,35,256.19,260.18,1,It is important to understand that underlying demand for vehicles remains strong.
4483623,36,260.62,271.15,1,This is evidenced by record high prices for used vehicles significantly depleted dealer inventories and an aging of the on-road vehicle fleet to historic levels.
4483623,37,272.58,276.2,1,Turning to the quarter and first looking at our automotive solutions segment.
4483623,38,276.57,282.63,1,Overall vehicle production volumes in North America and Europe were down about twenty percent year-over-year.
4483623,39,283.21,297.86,1,This drove our segment revenues lower but we were additionally impacted by unfavorable vehicles and product mix shift inventory destocking of Exco's products in the supply chain as well as our own operational logistical constraints.
4483623,40,299.03,309.19,1,New program launches contributed to our results this quarter including one key new program where we are supplying sizable content on a fleet of commercial EV vans.
4483623,41,310.09,317.29,1,This program will begin to ramp up more significantly in our third fiscal quarter and continue for several years.
4483623,42,318.25,328.32,1,Moreover we will continue to ramp up several other new key programs through twenty twenty three that will provide outsized growth relative to our historical performance.
4483623,43,329.09,333.48,1,Meanwhile quoting activity and new program awards remains very decent.
4483623,44,334.11,340.96,1,We are seeing a number of sizable new opportunities particularly with electric vehicles from both new and established OEMs.
4483623,45,341.97,347.24,1,On the cost side our margin suffered from greatly reduced overhead absorption due to the lower volumes.
4483623,46,347.91,359.46,1,Employee severance costs were also a factor although we also carried extra cost as we have retained surplus labor in anticipation that demand levels will rebound in the coming quarters.
4483623,47,360.42,366.06,1,Fluctuations in the in forecast versus actual order releases were again problematic this quarter.
4483623,48,366.57,371.53,1,This occurred as our customers juggled their own production schedules in response to the chip shortage issue.
4483623,49,372.3,377.8,1,These challenges were pushed down to to the supply base and place strain on our own production planning process.
4483623,50,378.5,384.85,1,Moreover raw material cost increases picked up and we faced various supply chain challenges of our own.
4483623,51,385.88,394.03,1,These elements required us to be nimble and also absorbed a lot of extra costs related to over time material substitution and expedited freight.
4483623,52,394.83,400.27,1,Pricing remains tough in this business and there is limited ability to use this tool as a lever.
4483623,53,400.93,405.48,1,We did however take pri pricing action where possible to recover higher input costs.
4483623,54,406.06,408.8,1,We will see the impact of these actions in our second quarter.
4483623,55,410.66,414.32,1,In our casting and extrusion segment our top line held up fairly well.
4483623,56,414.53,417.6,1,In fact we recorded modest growth over the prior year.
4483623,57,418.23,423.34,1,The extrusion market remains strong this quarter with high demand across a number of end markets.
4483623,58,423.92,435.87,1,Our extrusion tooling ultimately supports a diverse range of applications including residential and industrial building and construction solar panels consumer durable products and various modes of transportation.
4483623,59,436.63,449.22,1,This quarter we again demonstrated we could keep up with the sizable demand growth by utilizing equipment and labor more efficiently while leveraging the harmonized manufacturing process of our numerous group facilities.
4483623,60,450.18,459.98,1,With regards to the latter this initiative has allowed us to centralize certain processes such as programing and design and utilize our capacity on a network basis.
4483623,61,460.58,468.3,1,All of this keeps our cost low capacity high and provides us with the ability to manufacturer a quality product in a standardized manner.
4483623,62,469.2,480.76,1,We are making significant strategic investments to further shrink lead times drive down our operating costs and in-source more of our own heat-treat requirements all while reducing our environmental footprint.
4483623,63,482.27,492.48,1,The die-cast market which is driven by automotive production however softened materially in the quarter as lower vehi vehicle production was magnified by inventory de-stocking.
4483623,64,493.41,501.55,1,This negatively impacted demand for Castool's consumable die-cast tooling while The Large Mould group suffered from reduced rebuild work.
4483623,65,502.25,507.41,1,Nonetheless we achieved a number of program wins that will benefit future quarters.
4483623,66,507.79,515.69,1,In fact we achieved record levels of order intake in our Large Mould group ending the quarter with the highest backlog in our history.
4483623,67,516.66,531.85,1,We are very bullish on the long-term outlook of this business given the growing demand for large and complex die-cast components coupled with our leading market position full service capabilities and view that supply change will become more localized over time.
4483623,68,532.93,541.74,1,As well our additive tooling business continues to perform very strongly contributing record levels of sales and order intake during the quarter.
4483623,69,542.54,547.73,1,Additive tooling is a critical differentiator providing us with an unmatched competitive edge.
4483623,70,548.31,551.21,1,We are extremely optimistic on where this business will go.
4483623,71,552.42,559.47,1,Looking at the casting extrusion segment margins we experienced weakness this quarter from levels that we have otherwise come to expect.
4483623,72,560.14,571.49,1,Segment margins were impacted by unfavorable product mix rising input costs higher freight charges and labor disruption due to COVID all of which outpaced ongoing efficiency gains.
4483623,73,572.53,582.73,1,As well front end losses at Castool's new plant in Morocco added to the margin pressure this quarter as revenue was only started to be generated towards the end of the quarter.
4483623,74,584.08,591.14,1,We did take pricing action where possible through the quarter to protect our margins and expect the impact will be evident in our next quarter.
4483623,75,592.19,599.86,1,Lastly as we announced during the quarter we reached an agreement to acquire Halex Europe's second-largest manufacturer of extrusion dies.
4483623,76,600.65,610.06,1,There's not really much more of an update at this time we continue to work towards closing the acquisition this spring and welcoming Halex employees to exc Exco at that time.
4483623,77,610.93,612.92,1,That concludes my operations overview.
4483623,78,613.17,617.14,1,I will now pass the call to Matthew to discuss the financial highlights of the quarter.
4483623,79,617.56,617.95,1,Matthew?
4483623,80,618.56,619.14,2,Thank you Darren.
4483623,81,619.5,619.97,2,Good morning.
4483623,82,620.74,627.46,2,Consolidated sales for the first quarter ended December thirty first were a hundred one million dollars a decrease of twenty point four million.
4483623,83,628.17,633.14,2,Over the quarter the consolidated impact of exchange rate movements reduced sales by three point five million dollars.
4483623,84,634.01,645.15,2,Adjusting for the impact of foreign exchange first quarter sales at our automotive solutions segment decreased eighteen point six million or twenty four percent and the Casting and Extrusion group sales were up one point six million or four percent.
4483623,85,646.37,648.96,2,Consolidated net income for the first quarter was two bucks.
4483623,86,648.96,658.28,2,seven million or earnings of seven cents per share compared to ten point nine million or twenty eight cents per share in the same quarter last year a seventy five percent decrease in net income.
4483623,87,659.11,664.81,2,The effective income tax rate for the current quarter was twenty six percent compared to twenty two percent in the prior year period.
4483623,88,665.31,670.79,2,The income tax rate in the current year quarter was impacted by geographic distribution and foreign rate differentials.
4483623,89,672.36,680.76,2,The Automotive Solutions segment experienced a twenty seven percent decrease in sales in the first quarter or a decrease of twenty point nine million dollars to fifty five point two million.
4483623,90,681.41,697.61,2,The decrease in sales is attributable to lower O E M production volumes due to covid nineteen constraints related supply chain disruptions storage including a shortage of semiconductor chips unfavorable vehicle production mix logistics challenges and the negative impact of foreign exchange.
4483623,91,698.62,708.32,2,First quarter pre-tax earnings in the automotive solutions segment totaled three point four million dollars which is a decrease of eight point two million or seventy one percent over the same quarter last year.
4483623,92,708.92,717.58,2,The segment's lower pretax profit is due to the twenty four percent reduction in sales causing lower in overhead absorption and higher material logistics and labor costs.
4483623,93,719.02,728.86,2,The Casting and Extrusion segment recorded sales of forty five point eight million dollars in the first quarter compared to forty five point three million last year an increase of half a million dollars.
4483623,94,729.35,735.35,2,The Extrusion group experienced strong sales at locations reflecting steady demand for extrusion tools and market share gains.
4483623,95,736.0,750.69,2,The Castool and Large mo Mould groups sales were down during the quarter due to the same supply chain disruptions caused by the semiconductor shortage negatively impacting automotive vehicle production lowering demand for consumable tooling for die casting and rebuild work for Mould.
4483623,96,751.41,756.62,2,The Large Mould group quoted and was awarded a number of programs from current and new customers in the quarter.
4483623,97,756.69,759.34,2,As a result inventories and backlog are increasing.
4483623,98,761.14,769.06,2,Pretax earnings in the Casting and Extrusion segment declined by two point six million dollars or seven percent over the same quarter last year to four point six million dollars.
4483623,99,769.73,777.6,2,The impact of inflationary pressure on raw materials and transportation combined with lower overhead absorption at Castool and Large Mould reduced pretax profit.
4483623,100,778.91,788.77,2,Exco generated cash from operating activities of eight million dollars during the quarter and five point two million of free cash flow after two point eight million dollars in Maintenance Fixed Asset expenditures.
4483623,101,789.21,799.33,2,This cash flow together with cash on hand was more than sufficient to fund fixed assets for growth initiatives of eight point two million dollars and a three point nine three point nine million dollars of dividends.
4483623,102,800.1,808.88,2,Exco ended the quarter with eleven point six million in net cash and thirty five point three million in available liquidity including twenty six point three million of ca balance sheet cash.
4483623,103,809.71,811.95,2,Exco's financial position remains very strong.
4483623,104,812.3,822.63,2,As such the company's balance sheet and availability under the existing credit facility allows considerable flexibility to support strategic initiatives like our Halex extrusion purchase announced in December twenty twenty one.
4483623,105,823.42,832.91,2,Our strong financial position combined with our free cash flow creates the foundation for management to produ high value growth capital expenditures dividends and other opportunities that may arise.
4483623,106,833.75,834.96,2,That concludes my comments.
4483623,107,835.16,837.92,2,We can now transition to the q and a portion of the call.
4483623,108,839.95,840.42,0,Thank you.
4483623,109,841.4,846.08,0,Ladies and gentlemen as a reminder to ask the question you will need to press then one on your telephone.
4483623,110,847.11,848.97,0,To withdraw your question press the pound key.
4483623,111,849.67,851.93,0,Again it's one to ask the question.
4483623,112,852.3,854.45,0,Please standby while we compile the q and a roster.
4483623,113,858.41,862.5601,0,Our first question comes from the line of David Ocampo with Cormark Securities.
4483623,114,863.36,864.18,0,Your line is open.
4483623,115,875.57,891.8,3,Um just thinking about it more higher level when you combine that with sort of that operational efficiencies that you guys are looking for are are you guys able to offset that inflationary pressure and and hit your 15% target or are we thinking more longer term where we need to see some of these contracts roll off?
4483623,116,892.43,892.82,1,Okay.
4483623,117,892.85,897.87,1,Um so I I I presume you're talking about the automotive solutions uh segment.
4483623,118,898.65,899.22,3,Yeah that's right.
4483623,119,899.51,907.22,1,And um yeah you know a lot of uh of that business is uh kind of fixed price work that continues for a number of years.
4483623,120,907.25,914.56,1,And um you know you uh kind of are exposed to rising raw material uh costs.
4483623,121,915.06,927.65,1,And um you know our path back to kind of a fifteen percent um segment inaudible margin certainly remains um very achievable in our minds.
4483623,122,928.0,950.54,1,Um the that path includes kind of first getting back to uh normalized um sales levels and then having the benefit of uh the new program launches for over-absorption of um of overhead uh that we planned uh through the next uh at least couple of years.
4483623,123,951.05,964.96,1,Uh and you know there there are pockets of um of products within the segment where we do have some pricing power and we're certainly and we have uh uh pursued that.
4483623,124,965.44,977.74,1,Uh so um you know it is it's probably uh the minority of products and the rest we have to offset with efficiency gains which we continue to do.
4483623,125,978.17,990.58,1,Uh there are other aspects such as um uh LTA's or long-term pricing adjustments where um you uh you know have an obligation to reduce prices through the program.
4483623,126,991.02,998.86,1,But um you know with push back we expect that uh you know we will we'll be successful in in not taking those um reductions.
4483623,127,999.33,1009.72,1,So um you know that's kind of at a high level uh how we think about the um uh the impact of of rising um rising costs in that segment.
4483623,128,1011.46,1012.33,3,Okay understood.
4483623,129,1018.27,1024.79,3,And then a lot of the discussion over the la- the last few quarters has been on your Large Mould division and the impact on sales from the shift to EV but one area that we haven't really touched on is the margin profile.
4483623,130,1033.6801,1035.62,3,So are the moulds for EV in your view you know similar to transmissions and engine blocks or or could they even be higher than than where the where your legacy business is today?
4483623,131,1036.61,1049.1799,1,Um yeah I wouldn't I wouldn't say that there is um you know a reason to expect a a dissimilar margin for for EV molds as opposed to to powertrain.
4483623,132,1049.1801,1068.8201,1,I mean just by chip generally as um as moulds get larger and more complex it uh it reduces the number of players that can effectively compete uh in this space and requires much more sophisticated engineering and technical depth.
4483623,133,1068.8199,1077.0699,1,And you know you you would expect that that would be accompanied with with higher value add over time but we're we're certainly not modeling that in.
4483623,134,1077.0699,1079.51,1,But uh I think the logic folds together.
4483623,135,1081.02,1082.8099,3,And then last one for me.
4483623,136,1083.33,1086.78,3,What kind of ramp can we expect at the new Castool facility?
4483623,137,1086.8101,1093.08,3,Is it something similar to what we've seen in the other greenfield facilities where you know it takes a couple of quarters to get up to profitability?
4483623,138,1093.77,1095.11,1,Yeah yeah that's right.
4483623,139,1095.11,1111.2,1,I mean there is uh certainly a a few quarters of uh of drag uh in the profitability but uh by by the end of uh of the fiscal year we would certainly expect that facility to be uh at least EBITDA breakeven if not better.
4483623,140,1111.61,1132.26,1,Um our five year target that we have disclosed of realizing uh at least thirty million of revenue between Castool's plant in Morocco and then their uh plants new plant in Mexico by the end of that time frame certainly holds uh uh certainly holds true.
4483623,141,1134.38,1134.74,3,Okay.
4483623,142,1134.77,1135.2699,3,That's it from me.
4483623,143,1135.27,1136.0699,3,I'll hop back in the queue.
4483623,144,1136.2,1136.63,3,Thanks guys.
4483623,145,1136.63,1137.0699,1,Thank you.
4483623,146,1137.17,1137.4299,1,Thank you.
4483623,147,1139.8,1140.25,0,Thank you.
4483623,148,1141.54,1145.6599,0,Our next question comes from the line of Peter Sklar with B M O Capital Markets.
4483623,149,1146.03,1146.78,0,Your line is open.
4483623,150,1147.61,1147.72,4,Yeah.
4483623,151,1149.47,1167.86,4,Um my first question is um like you've done a really good job explaining you know how the earnings uh deteriorated year-over-year but the I would just like to have a little bit of discussion versus quarter over quarter versus the fourth quarter.
4483623,152,1167.86,1183.2799,4,So like if you look at vehicle production volumes like they were s- you know stronger global vehicle production volumes North American glo North American vehicle production volumes were stronger in q one than they were in q four.
4483623,153,1183.28,1191.78,4,But like the earnings of the company in both segments really deteriorated rapidly you know or significantly versus the fourth quarter.
4483623,154,1191.78,1203.84,4,So I'm just trying to figure out what has changed since the fourth quarter because arguably you know the backdrop was pretty bad and was even worse in the fourth quarter at least in terms of vehicle production volumes.
4483623,155,1204.47,1204.88,1,Yeah.
4483623,156,1204.88,1206.84,1,It's a good uh question Peter.
4483623,157,1206.87,1216.25,1,And uh I I would explain that we were um more so impacted by inventory de-stocking in our first quarter than the fourth quarter.
4483623,158,1216.83,1223.8199,1,And um you know that that concept is really come come to a head uh during our latest quarter.
4483623,159,1223.8199,1237.3201,1,And you know just to kind of explain that you know if you're running um call it six die-cast machines uh you might have um twelve moulds uh six in production and six back up.
4483623,160,1237.78,1251.35,1,And uh as as volumes go down then um you know your your first uh deplete your your back up dies rather than adding new new dies for for rebuild.
4483623,161,1251.86,1254.7,1,And we really saw the impact of that this quarter.
4483623,162,1255.29,1266.26,1,In fact we only shipped one um one rebuilt die uh in in the quarter which is highly highly unusual for us.
4483623,163,1266.26,1272.71,1,And um so um I guess that the converse of that is is on the way up.
4483623,164,1272.87,1283.23,1,Um not only do you get the benefit of higher vehicle uh production but then you've got the uh the inventory replenishment that that needs to occur.
4483623,165,1283.65,1298.11,1,And um with our strong order flow that we saw in the quarter uh rising to record backlog uh in the Large Mould group uh we we certainly think and expect that we're at the front end of of that rebound.
4483623,166,1316.74,1317.7,4,Right okay.
4483623,167,1318.37,1322.9401,4,Um and can you talk a little bit about plant labor?
4483623,168,1323.77,1330.2899,4,So have you had trouble getting labor in the plant and has that disrupted your operations?
4483623,169,1331.34,1333.87,1,Um yeah uh for sure.
4483623,170,1333.87,1341.38,1,I I think that um phenomenon is is pretty widespread um across all entities.
4483623,171,1342.02,1360.14,1,Um and it has been exacerbated by uh the Omicron variant in the last quarter where you know there were some weeks where where twenty percent of the the labor or more was uh was out uh due to uh uh due to that factor.
4483623,172,1360.23,1377.0199,1,And uh so it's a it's a continuing challenge to uh to just find people and then that is compounded by just the disruption that's uh that's occurred due to uh due to COVID.
4483623,173,1377.34,1381.0499,1,And you know we we continue to uh to work against that.
4483623,174,1381.12,1389.76,1,Um it forces you to think about how you produce things and uh ultimately you need to become more efficient.
4483623,175,1389.98,1401.79,1,And uh I think that one of the benefit that we've had over the years is we've added uh a lot more equipment and uh we really haven't uh increased our our head count.
4483623,176,1402.45,1407.76,1,Um and so we have become more efficient and we'll continue to uh to do so.
4483623,177,1412.34,1417.39,4,I understand you gave a good explanation why the you know the tooling businesses did worse.
4483623,178,1433.1801,1443.58,1,Inventory uh de-stocking I think was a was was a big factor uh in that uh and then labor disruption uh as well.
4483623,179,1443.61,1457.35,1,And there there has been some elevated um raw material and input cost inflation uh that uh we are uh have taken some measures to uh to reverse.
4483623,180,1457.35,1467.33,1,And as we've indicated uh in our comments and and in uh in the news release that we uh we expect to see the benefit of of that in our second quarter.
4483623,181,1468.16,1468.64,2,Yeah.
4483623,182,1468.64,1488.3,2,And Peter another component that we look at is is mix between different locations and we don't get into that level of detail on these calls but we've had different mix of you know production might have been up in certain areas but depending on how it fit our mix and our production and our locations that also caused some challenges there too.
4483623,183,1490.22,1490.61,4,Okay.
4483623,184,1490.79,1496.41,4,And then just my last question is in the write-up you talked about the additive manufacturing business.
4483623,185,1496.97,1500.41,4,I don't think I've heard that wording before what what is the what is that?
4483623,186,1501.4,1505.72,1,That's our three d printed tooling uh components.
4483623,187,1505.9301,1517.83,1,And um we'd uh we'd love to have uh be be up to our new market plan but that's been a a very uh strong growth business and differentiator for us.
4483623,188,1517.88,1528.83,1,But uh what we're talking about there is making parts of the the mould components um by printing them uh with steel.
4483623,189,1528.89,1542.9399,1,So we we we basically print a steel component and that enables us to um have water lines in in tooling lines uh that follow the contour of the mould.
4483623,190,1543.52,1556.5299,1,And so we can target hotspots in the mold um much better using um three d printed components than um than ma making those components uh traditionally.
4483623,191,1557.2,1570.8799,1,And uh that has an overall uh very positive impact on the cycle time and other measures such as scrap uh rates of of the of the casting process.
4483623,192,1571.4,1585.8301,1,And uh we are we are leaders uh in this business a couple of years ago uh we won the uh Automotive News PACE Award in recognition of our leadership of of this business.
4483623,193,1585.83,1592.01,1,And we're seeing greater and greater traction uh from uh from many customers.
4483623,194,1592.47,1607.75,1,Uh and so we use these um actively produced components in our own mo moulds and we also sell uh some of them uh as kind of um replacement uh components for uh for mould rebuild.
4483623,195,1607.75,1619.11,1,So uh it's a uh it's it's a very exciting uh part of the la Large Mould group and we expect it will have um you know very strong growth over the coming years.
4483623,196,1619.9,1620.35,4,I understand.
4483623,197,1627.63,1641.52,1,crosstalk they use them in the molds and in more and more of our moulds in fact most of them now have uh three d printed mould components in them uh that serves to uh improve the efficiency of the overall mold.
4483623,198,1642.7,1642.8899,4,Hmm.
4483623,199,1643.08,1643.64,4,Interesting.
4483623,200,1643.7,1644.48,4,Okay thanks.
4483623,201,1644.52,1645.1799,4,That's all I have.
4483623,202,1645.79,1646.1799,1,Thanks Peter.
4483623,203,1646.1801,1646.7301,2,Thanks Peter.
4483623,204,1649.0699,1649.5099,0,Thank you.
4483623,205,1649.63,1653.14,0,As a reminder ladies and gentlemen that one to ask the question.
4483623,206,1662.2,1664.15,0,I'm showing no further questions in the queue.
4483623,207,1665.08,1667.9299,0,I would now like to turn the call back over to Darren for closing remarks.
4483623,208,1668.6801,1672.39,1,Well uh thanks everyone for um your time this morning.
4483623,209,1672.46,1675.5699,1,Uh we look forward to uh speaking to you again next quarter.
4483623,210,1675.79,1676.25,1,Take care.
4483623,211,1677.96,1680.5399,0,Ladies and gentlemen this concludes today's conference call.
4483623,212,1680.58,1682.9601,0,Thank you for your participation you may now disconnect.
4483633,0,0.53,2.53,0,Good day and thank you for standing by.
4483633,1,2.82,6.79,0,Welcome to Ferrari twenty twenty one full year results conference call.
4483633,2,7.19,9.86,0,At this time all participants are in listen-only mode.
4483633,3,10.36,13.66,0,After the speakers' presentation there will be the question and answer session.
4483633,4,14.04,18.47,0,To ask a question during the session you'll need to press star and one on the telephone keypad.
4483633,5,19.17,21.67,0,Please be advised that today's conference is being recorded.
4483633,6,31.24,31.82,0,Please go ahead.
4483633,7,33.2,34.19,1,Thank you Nadia.
4483633,8,34.42,36.31,1,And welcome to everyone who's joining us.
4483633,9,36.88,42.62,1,Today we plan to cover the group's full year twenty twenty one operating results and twenty twenty two guidance.
4483633,10,43.1,47.39,1,In light of this the duration of the call is expected to be around sixty minutes.
4483633,11,47.88,50.49,1,Today's call will be offered by the group C E O Mr.
4483633,12,50.49,52.72,1,Benedetto Vigna and group C F O Mr.
4483633,13,52.72,53.94,1,Antonio Picca Piccon.
4483633,14,54.49,59.33,1,All relevant materials are available in the investor's section of the Ferrari corporate website.
4483633,15,59.38,63.22,1,And at the end of the presentation we will be available to answer your questions.
4483633,16,64.12,81.25,1,Before we begin let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on page two of today's presentation and the call will be governed by this language.
4483633,17,81.48,84.27,1,With that said I like to turn the call over to Benedetto.
4483633,18,85.55,86.46,2,Thank you Nicoletta.
4483633,19,86.69,86.98,2,Thanks.
4483633,20,87.44,89.24,2,Thank you everyone for joining us today.
4483633,21,90.35,95.09,2,Uh three months have passed since last time we met digitally all together.
4483633,22,95.7,98.42,2,And many things have happened in our company.
4483633,23,99.33,108.24,2,Today I will be delighted to take you through the twenty twenty one result and I will provide a little taste about what's happening in our company.
4483633,24,109.51,117.9,2,Our performance in twenty twenty one was very robust from both a quantitative and qualitative point of view.
4483633,25,118.93,120.18,2,Numbers first.
4483633,26,121.27,132.12,2,We closed the year setting a new record in terms of result across all metrics posting double-digit growth and above pre-pandemic level.
4483633,27,133.2,141.3,2,The results were higher than the targets we had already upgraded when we shared our third quarter results.
4483633,28,142.55,146.94,2,Five five excellent result to remember.
4483633,29,148.23,158.16,2,First €4.3 billion revenues materially exceeding for the first time in our history the threshold level of €4 billion.
4483633,30,158.16,166.33,2,"Over 11,000 car shipped with significant growth in our region."
4483633,31,166.9,170.83,2,In China our deliveries doubled year over year.
4483633,32,172.53,180.06,2,thirty five point nine percent exceptionally strong e b i t d a margin reached at a record level.
4483633,33,181.4,197.73,2,Impressive €640 million industrial free cash flow generation mainly thanks to the advances collected on the special special series and thanks to the discipline and timing of CapEx spend.
4483633,34,198.4,203.01,2,In all this we've no impact on our product plan.
4483633,35,203.9,209.51,2,The last point is we have the strongest ever order book in our history.
4483633,36,210.83,220.86,2,Up double-digit versus the prior year in covering well into twenty twenty three with all region all region showing significant growth.
4483633,37,221.67,226.8,2,How did we achieve this excellent these five excellent result?
4483633,38,227.64,239.73,2,Firstly we have to thank our incredible customer both existing and new and all the women and all the men of Ferrari for their outstanding work.
4483633,39,240.66,248.97,2,Secondly it was possible thanks to the strong margin contribution of the Monza sp one and sp two.
4483633,40,250.27,261.49,2,Thirdly this was farther boosted by our decision to seize commercial opportunities on certain models inline with our order intake evolution.
4483633,41,262.24,273.15,2,We also benefited from deliveries of the sf ninety Stradale being moved to twenty one from previous year twenty twenty.
4483633,42,273.97,295.66,2,And last but not least we have capitalized on a strong economic climate as evidence also by the solid performance of our pre-owned business and on enthusiasm of our customer <inaudible> the light in sharing their Ferrari passion with us has been so evident at our event.
4483633,43,296.98,305.31,2,After this five excellent result the five key priorities we focus on on all the year twenty twenty one.
4483633,44,306.29,314.21,2,Product excellence customer experience motor racing brand diversification and carbon neutrality.
4483633,45,315.35,316.55,2,Let's start with product.
4483633,46,317.42,326.23,2,Last year we unveiled four new models demonstrating our leadership in technology in design in driving experience.
4483633,47,327.04,334.02,2,They all received an enthusiastic response from the market and worldwide acclaim.
4483633,48,334.74,355.45,2,In May we unveiled the eight twelve Competizione and the eight twelve Competizione Aperta our latest special series with its revolutionary aerodynamics and they were all sold out prior to the official launch as a testament to the vigorous demand for our v twelve models.
4483633,49,356.55,370.32,2,Just a month later in June we launched the accelerating two ninety six G T B featuring our latest hybrid powertrain combining a v six turbo and electric motor.
4483633,50,371.42,389.93,2,It exceeded previous models' order intake over the same relative period and now is solid <inaudible> of experiences for our customer is already planned for the current year farther fueling our ambition for this model.
4483633,51,390.78,400.08,2,I drove this car several times and the the go-kart feeling and the fun to drive experience you can have are really unique believe me.
4483633,52,401.11,414.79,2,A few weeks ago in November the new Icona the most powerful v twelve ever made who's unveiling I had the pleasure of attending in Florence surprised our most loyal Ferrariste.
4483633,53,415.19,418.28,2,I'm talking about the Ferrari Daytona sp three.
4483633,54,418.91,424.52,2,A masterpiece of of craftsmanship performance and design.
4483633,55,424.91,440.66,2,Already awarded internationally and limited to five hundred and ninety nine units which have all been allocated in advance of its premier and we have <inaudible> demand way way exceeding the limited series run.
4483633,56,441.85,449.22,2,So we enter this year two two with considerable momentum thanks to two factors.
4483633,57,449.49,452.88,2,One the strongest ever order book.
4483633,58,453.19,456.05,2,And two a broad portfolio of models.
4483633,59,456.85,457.94,2,The order book first.
4483633,60,458.68,460.41,2,It has never been so strong.
4483633,61,461.26,475.93,2,The positive trend characterized the whole year and continued in q four when we experienced impressive order intake despite our decision to close the order collection on certain models.
4483633,62,476.66,479.02,2,Second the new product portfolio.
4483633,63,479.84,503.68,2,Not only do we have the broadest most innovative and most beautiful range of cars ever offered to our customers but we also plan to farther in reach this with two further launches this year completing the fifteen launches <inaudible> Capital Market Day in two thousand eighteen.
4483633,64,505.02,514.95,2,In this year in twenty two we will unveil the much anticipated Purosangue which I'm confident will exceed our customer expectation.
4483633,65,515.71,531.0,2,I drove it several times in the hills around Maranello the day and night for the test and I can testify that the driving experience is really astonishing but I do not want to say more to avoid to spoil such a surprise.
4483633,66,532.06,535.31,2,Now after product customer experience.
4483633,67,536.33,544.93,2,In the course of twenty twenty one it has been really liberating to be able to start arranging events with them again.
4483633,68,545.51,550.42,2,To mention a few of them we market Cavalcade's tenth anniversary.
4483633,69,550.71,567.58,2,We have a very special event in Sicily for classic and modern drivers and we started our <inaudible> client activities culminating in the Finali Mondiali Mugello where I met <inaudible> customer and fans all passionate about Ferrari.
4483633,70,568.58,572.52,2,Now our motor racing activities.
4483633,71,573.06,592.39,2,twenty twenty one was our best ever season in GT racing with Ferrari winning the drivers and manufacturers world titles in F I A world endurance championship and with victory at the twenty four Hours of Le Mans with our four eighty eight GT Evo.
4483633,72,593.01,603.12,2,The Formula One twenty twenty one season also showed encouraging sign towards its end with third place in the Constructor Championship.
4483633,73,603.73,613.75,2,twenty twenty two is the first year with a complete new set of technical rules and our new car will be presented in a few days on February seventeenth.
4483633,74,614.73,621.0,2,We are also defining our strategic partner along three direction.
4483633,75,621.43,624.87,2,One we welcome back bank Santander.
4483633,76,625.8,633.79,2,Two we tap current segments with new partners such as CEVA Logistics in the transportation space.
4483633,77,634.63,648.6,2,Three we strengthen our relationship with leading edge technological partner such as Amazon Web Services and Velas to be at the forefront of digital technologies in Web three point zero.
4483633,78,649.77,662.64,2,Such stronger partner portfolio confirms once again the continued allure of the most successful team in f one history Scuderia Ferrari.
4483633,79,663.99,665.87,2,And what about brand diversification?
4483633,80,666.68,674.05,2,Well last year we made excellent progress in extending our brand into exciting new territories.
4483633,81,674.55,678.94,2,In June we launched the first ever Ferrari fashion collection.
4483633,82,679.41,685.74,2,In July we reopened the iconic Cavallino restaurant in the heart of Maranello.
4483633,83,686.2,692.597,2,And in the second half of last year we renovated our stores in Italy and U S A.
4483633,84,693.64,703.62,2,In twenty twenty two we plan to move forward and the first important milestone will be the upcoming fashion show in Milan later this month.
4483633,85,705.1,709.78,2,Last but not least carbon neutrality by twenty thirty.
4483633,86,710.44,723.02,2,In a farther step towards our goal in q four we received ISO fourteen thousand sixty four certification for our calculation of the group's carbon footprint.
4483633,87,723.88,727.84,2,This certification has been really an important step forward.
4483633,88,728.43,748.01,2,In addition to our electrification journey we are also committed to addressing both direct indirect emission with a focus on energy and material across all our <inaudible> value chain.
4483633,89,748.88,754.25,2,As always our focus was not only on external stakeholders.
4483633,90,754.79,764.49,2,We continued to invest in our employees through to our founders believe that Ferrari is made above all by people.
4483633,91,765.49,773.89,2,We invested in training for our employees caring for their wellbeing and nurturing the diversity of talent in our company.
4483633,92,774.75,787.7401,2,Our efforts were rewarded in twenty twenty one by equal salary certification for the second consecutive year in Italy and for the first time in the United States.
4483633,93,788.64,802.27,2,The year has been really outstanding thanks to the passion the dedication of Ferrari people and to reward their achievement inline with the company's strong performance indicators.
4483633,94,802.66,812.92,2,"I'm really pleased to announce the company the yearly competitive award up to slightly over €12,000 for our employees."
4483633,95,814.39,828.24,2,And now after the twenty twenty one highlight let's have a look at the future at our future a small taste before providing the full picture on June sixteen when we meet here.
4483633,96,829.36,842.78,2,We are targeting twenty twenty two to be a solid year on the trajectory to reach the twenty twenty three e b i t d a target of one point eight €2 billion as announced in two thousand eighteen.
4483633,97,843.93,844.99,2,How do we want to do this?
4483633,98,844.99,846.95,2,How do we want to achieve this goal?
4483633,99,847.63,850.75,2,Well there are three clear direction we identified.
4483633,100,851.29,864.14,2,Number one we will carefully manage a vibrant order intake inline with our strategy to pursue controlled growth to preserve our brand exclusivity.
4483633,101,865.15,873.73,2,Two we will manage the Monza's phase out while the Daytona's deliveries will start in twenty twenty three.
4483633,102,874.75,882.2,2,Three as I already explained in the last call innovation requires partners and it is what we start to do.
4483633,103,882.2,887.35,2,<inaudible> Amazon and Velas just to mention a few of them.
4483633,104,887.79,893.65,2,And some others some other important technology partnership will follow up in the near future.
4483633,105,895.04,898.6,2,twenty twenty two is a very important year for us.
4483633,106,898.94,914.01,2,It's not only the seventy fifth anniversary of our company it also sets the foundation for a new business plan which will be presented at our Capital Market Day on June sixteen here in Maranello.
4483633,107,914.85,932.17,2,This will also be location to meet in person some members of our new organization recently announced and achieved through both the promotion of homegrown talents and a number of key strategic externalize.
4483633,108,933.12,943.06,2,The new organization is designed to farther further innovation optimize processes enhance <inaudible> and increase collaboration.
4483633,109,943.86,954.33,2,People are the soul of our company and I'm confident we will seize the opportunities ahead of us in this fast evolving environment.
4483633,110,955.18,961.74,2,I will now hand over to Antonio who will review the twenty twenty one result and twenty twenty two guidance.
4483633,111,965.32,966.44,3,Thank you Benedetto.
4483633,112,966.9,970.8,3,And good morning or afternoon to everyone who is joining us today.
4483633,113,972.48,985.46,3,Let me start on page seven where you can see the highlights of the twenty twenty one earnings a very strong year which shows high double-digit growth on all metrics compared to twenty twenty.
4483633,114,986.36,991.2401,3,And more meaningfully a remarkable increase versus pre-pandemic levels.
4483633,115,993.07,1002.58,3,Our shipments reached eleven thousand one hundred and fifty five unit up twenty two percent versus the prior year and ten percent versus twenty nineteen.
4483633,116,1004.12,1018.3,3,"Group net revenues were €4,271,000,000 increased twenty three percent versus prior year and thirteen percent versus twenty nineteen driven mainly by volume and stronger product mix."
4483633,117,1020.16,1031.26,3,"e b i t d a came in at €1,500,031,000 up 34% versus twenty twenty and close to twenty one percent versus twenty nineteen."
4483633,118,1031.26,1044.51,3,The e b i t d a margin reached a record level of thirty five point nine percent boosted by the contribution from the Ferrari Monza and and otherwise very rich product mix.
4483633,119,1046.36,1055.9401,3,"EBIT was €1,075,000,000 up 50% versus twenty twenty and 17% versus twenty nineteen."
4483633,120,1057.33,1071.5599,3,The improvement of both operations margins compared to our latest guidance mainly reflects the upward revision of the commercial revenue from df one commercial rate holder recorded in q four.
4483633,121,1074.71,1092.98,3,<inaudible> net profit was eight hundred and thirty three million up fifty six percent versus twenty twenty and nineteen percent versus twenty nineteen resulting in an adjusted diluted E P S of €4.5 improved by fifty six percent versus prior year.
4483633,122,1094.5699,1106.59,3,"Industrial free cash flow for the year was exceptionally strong at €642,000,000 supported mainly by the collection of the advances for the eight twelve Competizione."
4483633,123,1109.72,1110.87,3,Turning to page eight.
4483633,124,1111.6801,1119.16,3,You can see the details of the shipments of the full year twenty twenty one up twenty two percent versus twenty twenty.
4483633,125,1121.0601,1136.0499,3,Sales of eight-cylinder went up about thirty five percent while twelve cylinders were down sixteen percent mainly due to the reduced volume volume of the a twelve Superfast which was phase out in the year.
4483633,126,1137.79,1147.72,3,Uh deliveries were driven by the range models the f eight family the Ferrari Roma and the sf ninety Stradale which reached global distribution.
4483633,127,1148.63,1152.37,3,The Portofino M and the sf ninety spider in wrap up phase.
4483633,128,1154.5,1163.85,3,Shipments of the Ferrari Monza sp one and sp two were higher compared to the prior year inline with planning and reaching the end of production.
4483633,129,1165.0,1168.71,3,All geographic regions posted double-digit growth.
4483633,130,1172.45,1173.46,3,Moving to page nine.
4483633,131,1173.46,1178.79,3,You can see the <inaudible> of our group net revenues up twenty six percent at constant currency.
4483633,132,1180.55,1194.25,3,The increasing revenues from cars and spare parts up almost twenty nine percent at constant currency were supported by higher volumes and strong enrichment of the product mix along with personalization.
4483633,133,1196.62,1203.22,3,The revenues from personalizations were higher than the prior year in absolute terms sustained by volumes.
4483633,134,1204.21,1212.0701,3,They were inline with historical average at around eighteen percent in proportion to revenues from cars and spare parts.
4483633,135,1214.35,1218.0699,3,Engines revenues were up about twenty six percent.
4483633,136,1218.88,1227.33,3,The improvement is related to higher shipment to Maserati and to a lesser extent to the rental of engines to other Formula One racing teams.
4483633,137,1229.77,1245.4299,3,The increasing sponsorship commercial and brand up close to thirteen percent at constant currency was <inaudible> to the more favorable Formula One calender and brand-related activities partially offset by lower prior year ranking.
4483633,138,1246.64,1254.02,3,This increase reflect also the upward revisions of the commercial revenues from Formula One that I mentioned before.
4483633,139,1256.4399,1269.5399,3,"Currency including translation and transaction impact as well as foreign currency edges at the negative contribution of €80,000,000 mostly related to the US dollar and the Japanese yen this quarter."
4483633,140,1272.04,1273.3501,3,Moving to page ten.
4483633,141,1274.08,1278.76,3,Let me review the change in our EBIT bridge explained by the following <inaudible>.
4483633,142,1280.87,1286.74,3,"First volume was positive for €220,000,000 reflecting the shipment increase."
4483633,143,1288.78,1304.7899,3,"Second mix price variance was also positive for €212,000,000 boosted by a richer product mix thanks to the sf ninety family and the Ferrari Monza sp one and sp two along with personalizations."
4483633,144,1305.6899,1314.08,3,Partially offset by the wrap up of the Ferrari Roma and the Portofino M and the reduced contribution of the a twelve Superfast.
4483633,145,1315.84,1328.6499,3,As already mentioned by Benedetto the product mix in twenty twenty one was farther boosted by our decision to seize commercial opportunities on certain models inline with order intake evolution.
4483633,146,1329.51,1337.38,3,It also benefited from deliveries of the sf ninety Stradale being moved to twenty twenty one from twenty twenty.
4483633,147,1339.55,1356.15,3,Third industrial <inaudible> expenses increase €65 million mainly due to higher D N A product innovation activities and Formula One expenses <inaudible> of technology related government incentives as well as startup cost.
4483633,148,1358.87,1373.38,3,Forth <inaudible> were negative by €14 million mainly reflecting communication and marketing activities of model unveilings and lifestyle events as well as the company's organizational development.
4483633,149,1375.53,1393.08,3,Lastly other increase €83 million reflecting the more favorable Formula One calender and higher contribution from brand-related and other supporting activities partially offset by the impact of the lower Formula One ranking of twenty twenty.
4483633,150,1395.33,1399.35,3,The <inaudible> net impact of currencies was negative for €77 million.
4483633,151,1401.23,1414.4299,3,"As a result of what I just mentioned e b i t reached €1,075,000,000 up fifty point two percent versus the prior year with an EBIT margin of twenty five point two percent."
4483633,152,1417.42,1418.76,3,Turning to page eleven.
4483633,153,1418.88,1434.98,3,Industrial free cash flow generation for the year was remarkable and equal to €642 million sustained by the strong growth in e b i t d a and the collection of advances on the eight twelve Competizione.
4483633,154,1436.77,1452.63,3,The working capital dynamic including the the above mentioned advances provisions and other receivables in payable was almost neutral also due to the cadence of our capital expenditure which to that €737 million.
4483633,155,1455.42,1461.74,3,The capitalization ratio was approximately thirty nine percent for the year and inline with the prior year.
4483633,156,1463.53,1475.53,3,Net industrial debt as off the end of the December twenty twenty one was €297 million compared to €543 million at the end of twenty twenty.
4483633,157,1477.22,1489.34,3,It's worth mentioning that excluding the dividend distribution of €152 million and €231 million of <inaudible> purchase we would've been cash positive at year end.
4483633,158,1492.78,1494.26,3,Let's move on page twelve.
4483633,159,1495.02,1515.24,3,Here we explain the main drivers of our guidance for twenty twenty two which targets a solid growth and continues to demonstrate the e b i t d a progress on the trajectory to reach our twenty twenty three e b i t d a target of one point eight to €2 billion as announced back in twenty eighteen.
4483633,160,1517.26,1540.0,3,While in twenty twenty two our profitability will continue to expand in absolute terms carefully leveraging our record order book percentage wise the marginality will be flatten by a product mix which will be richer but not enough to offset the negative impact of the Monza phasing out and of the Daytona deliveries starting in twenty twenty three.
4483633,161,1541.36,1557.29,3,More diversified by but lower revenues from sponsorship and a step-up in DNA inline with the start of production of new models which will start deliveries in twenty twenty three or which contribute marginally in twenty twenty two.
4483633,162,1559.74,1571.5599,3,On the industrial free cash flow side the generation will be robust supported by the strong operating result and the collection of advances on the Daytona sp three.
4483633,163,1573.15,1587.8301,3,This will be partially offset by capital expenditure of approximately €800 million as we expect the lower CapEx seen in twenty twenty one to <inaudible> partly in twenty twenty two.
4483633,164,1589.17,1596.54,3,But also by much higher taxes <inaudible> to the very strong result posted in twenty twenty one.
4483633,165,1599.99,1601.7,3,Page ten twelve.
4483633,166,1602.58,1612.41,3,We show the progress that we aim to achieve based on our guidance since our starting point of twenty eighteen until the end of twenty twenty two.
4483633,167,1613.87,1634.8301,3,In essence as of the end of this current year we want to be very close to what we promised at the twenty eighteen Capital Market Day for the accumulated e b i t d a and fully on target in terms of cumulated industrial free cash flow generation over the planned period albeit with a different time profile.
4483633,168,1636.42,1642.1,3,And we want to achieve such result despite the impact of this pandemic.
4483633,169,1644.25,1658.4099,3,Subject to meeting our ambitions I believe this will prove once again the resilience and strength of our business model based on brand exclusivity product excellence leading edge technology and innovation.
4483633,170,1659.45,1663.5699,3,Such awareness allow us to look at the future with great confidence.
4483633,171,1664.71,1667.36,3,With that said I turn the call over to Nicoletta.
4483633,172,1667.8,1668.17,3,Thank you.
4483633,173,1669.21,1670.28,1,Thank you Antonio.
4483633,174,1670.5699,1675.0099,1,Nadia please we are now ready to start our q and a session.
4483633,175,1676.47,1677.0599,0,Thank you.
4483633,176,1677.3,1680.7999,0,The participants we'll now begin our question and answer session.
4483633,177,1680.86,1687.76,0,As a reminder if you wish to ask a question please press star and one on your telephone keypad and wait for your name to be announced.
4483633,178,1692.5699,1696.25,0,The first question comes from line of Michael Binetti from Credit Suisse.
4483633,179,1696.42,1697.0,0,Please go ahead.
4483633,180,1698.27,1698.37,4,Hey.
4483633,181,1698.37,1698.8799,4,Good morning guys.
4483633,182,1698.88,1700.9501,4,Thanks for all the details today and for taking our questions.
4483633,183,1701.65,1709.23,4,Um I guess i am trying to think about the the structure of the guidance you laid out for twenty two relevant to where with were at.
4483633,184,1709.36,1728.96,4,Um I know you guys have been focusing us on the on the twenty eighteen Analyst Day and helping explain the differences and similarities as you pushed up to 1.8 to 2.0 billion to next year but this year you've got revenues inline at four point eight with the the low end of that original plan but EBIT um below by maybe a a hundred million at the low end of the plan.
4483633,185,1728.96,1738.2001,4,Maybe you could just help us understand what's different on the same revenue base that that drives EBIT a little bit lower um this year and if it's…
4483633,186,1738.92,1744.1101,4,And I think you you originally said maybe a few units of Purosangue would would start to ship in twenty twenty two.
4483633,187,1755.64,1755.87,4,Is that…
4483633,188,1762.83,1764.61,2,Antonio can you help me with it?
4483633,189,1765.77,1766.36,3,Thank you Michael.
4483633,190,1766.39,1779.71,3,If I get your question right I think the difference compared to the guidance we gave back in twenty eighteen is largely due to the different timing of introduction of of the cars compared to what we modeled at that time.
4483633,191,1780.17,1783.49,3,Obviously we are seizing the commercial opportunities we are having.
4483633,192,1783.49,1805.83,3,So uh the significantly strong order books on on v eight and remodel is resulting in that respect while as we mentioned I think the the gap that we have between the phase out of the of the Monza and introduction of the Daytona is is impacting the the level of the the margins both EBIT and e b i t d a.
4483633,193,1805.97,1816.0,3,In addition to that as far as e b i t is concerned we have this D N A impact which is the the fact that we start producing new cars that are coming in in the next one.
4483633,194,1816.41,1818.5601,3,I dunno whether this is enough or…
4483633,195,1819.22,1821.3899,3,I think in terms of <inaudible> this should help.
4483633,196,1823.29,1825.3201,4,Um lemme follow that for one second.
4483633,197,1825.37,1846.0801,4,You have the Daytona and Purosangue confirmed to start shipping next year after what you described as a as a headwind from mix this year largely Monza but if the guide is now one point eight to two billion for next year the low end of that guide assumes EBITDA growth will slow to about six percent in twenty twenty three from eleven percent in twenty twenty two.
4483633,198,1847.04,1851.61,4,How should we think about the top end versus the bottom end of the guidance in that range?
4483633,199,1851.61,1857.98,4,What what scenario do you see that would explain a slowdown to the to an EBITDA growth next year?
4483633,200,1858.35,1865.26,4,Maybe maybe there's some phasing of of investments as you guys look out to big big initiatives like electric and those kinds of things.
4483633,201,1865.26,1866.72,4,I'm just curious if you could help us think about that?
4483633,202,1868.02,1868.23,2,Yeah.
4483633,203,1868.23,1876.78,2,I think volumes will keep on growing anyway with better margins with <inaudible> be stronger which is supported by by the new Icona coming in.
4483633,204,1877.23,1879.4501,2,Um and this isn't the…
4483633,205,1879.74,1887.4299,2,As far as the contribution of our core business and then we added the other businesses that we expect also to grow.
4483633,206,1887.89,1891.4299,2,I mean brand is still very low in twenty twenty two we expect it to be better.
4483633,207,1891.91,1901.2001,2,Um in terms of one there are some elements that including the budget cap introduction to debts of course in terms of the cost side.
4483633,208,1902.5699,1902.71,4,Okay.
4483633,209,1904.11,1904.28,4,Thanks.
4483633,210,1904.52,1906.0901,4,And congrats on a on a great year guys.
4483633,211,1906.5601,1908.42,4,I appreciate it.
4483633,212,1909.47,1910.0601,2,Thank you.
4483633,213,1910.0601,1913.9501,0,The next question comes from the line of Adam Jonas from Morgan Stanley.
4483633,214,1913.95,1915.1899,0,Please ask your question.
4483633,215,1917.02,1917.99,5,Uh thanks very much.
4483633,216,1917.99,1921.2101,5,And I cannot wait until June sixteenth.
4483633,217,1922.02,1923.26,5,That's gonna be really…
4483633,218,1924.1,1925.28,5,That's gonna be so special.
4483633,219,1925.39,1927.0699,5,So I look forward to meeting you all in person.
4483633,220,1927.76,1931.0699,5,Um Benedetto uh when you…
4483633,221,1931.22,1938.1,5,You guys recently struck a deal with the Swiss blockchain uh company Velas Network.
4483633,222,1938.9399,1950.58,5,Uh how should investors think about the potential for the Ferrari brand in the Metaverse uh or in the N F T or digital space?
4483633,223,1952.8101,1958.2899,2,Thank you for the question uh Jonas and also looking forward to meet you in person on the sixteenth of June.
4483633,224,1959.0601,1969.64,2,I I think that as we said you know it's important that we look and we see how the new technologies can help the our brand.
4483633,225,1970.3199,1983.42,2,For sure the digital technologies the Web three point zero technologies that are using the the blockchain and the NFT is an area that is can be interesting for us it deserves some attention.
4483633,226,1984.45,1988.96,2,There are many as you know there are many there is a lot of movement on the market about this.
4483633,227,1989.47,2001.29,2,Some companies even changed the name and I think this is an area that where we have to put our attention and that's the reason also why I put the um…
4483633,228,2001.72,2017.85,2,We have in place if you've seen in the organization I don't know a department that is called digital and data because I mean it is an important dimension that we as Ferrari we have uh we have to evaluate to consider for the future.
4483633,229,2020.9399,2021.3899,5,Okay.
4483633,230,2021.49,2024.21,5,Uh look forward to learning more about that uh Benedetto.
4483633,231,2024.24,2035.99,5,Um my follow up is do you believe electric vehicles expands the addressable market for the Ferrari brand and if so how?
4483633,232,2038.73,2045.22,2,So do you think that the electric vehicles will expand the brand?
4483633,233,2046.8101,2059.79,5,Do you think that as Ferrari brings forth all electric vehicles that that grows the addressable market and revenue potential for the brand?
4483633,234,2060.6899,2064.54,5,And if so how do you see that happening or why?
4483633,235,2065.6799,2066.2,2,Okay.
4483633,236,2066.8601,2069.49,2,Uh I think the the point is the following.
4483633,237,2069.49,2081.3298,2,I mean electrification is one one technology like the digitalization that we will harness always in our unique Ferrari way.
4483633,238,2082.25,2088.71,2,As you know we already started to hybridize our model a few years ago.
4483633,239,2088.74,2095.8,2,We have already three model on the road that are pretty much successful sf ninety Stradale Spider and two ninety six G T B.
4483633,240,2096.27,2106.3699,2,And I believe that the the electrification is a way is a technology in a way that can help our brand to keep the pace with the time.
4483633,241,2107.26,2109.02,2,That's what I believe uh Adam.
4483633,242,2111.4299,2111.6499,5,Okay.
4483633,243,2111.8301,2112.6499,5,Thanks Benedetto.
4483633,244,2115.6299,2116.1499,0,Thank you.
4483633,245,2116.55,2119.8799,0,The next question comes from the line of Susy Tibaldi from UBS.
4483633,246,2120.6101,2121.73,0,Please ask your question.
4483633,247,2122.2,2122.9399,6,Hi.
4483633,248,2122.97,2124.29,6,Thank you for taking my question.
4483633,249,2124.8899,2131.3401,6,Um so my first one would be um just to go back on Michael's question on the the two two guide.
4483633,250,2131.8201,2148.24,6,Um so your revenue uh guide for twenty twenty two um is is quite high um and so given that the mix is going to be not that strong it kind of implies uh a good step up in volume.
4483633,251,2148.8701,2156.3799,6,Um and so I was wondering if this is a correct assumption or if there is something else that will contribute meaningfully to the top-line?
4483633,252,2168.2,2170.9299,6,So I just wanted to check if that's uh the right way to think about it?
4483633,253,2172.5901,2174.6499,3,Um hi Susy Antonio speaking.
4483633,254,2174.8701,2176.24,3,Your assumption is correct.
4483633,255,2176.24,2179.0398,3,Volume will be higher so we'll grow there.
4483633,256,2179.3301,2187.46,3,And this is because also the order book is significantly higher than we're used to and it's covering well into twenty twenty three.
4483633,257,2188.01,2190.6401,3,Um it's not true that the the mix is weak.
4483633,258,2190.6399,2194.96,3,I mean actually the the the product range mix is high.
4483633,259,2195.1799,2204.05,3,It's simply not enough improving compared to the loss of the of the Monza and the introduction some some months later of the Daytona.
4483633,260,2205.0801,2205.3101,6,Okay.
4483633,261,2205.3101,2213.8298,3,But basically year-over-year volumes will be positive and mix we expect to be um slightly negative overall.
4483633,262,2213.8301,2214.0901,6,Okay.
4483633,263,2215.8401,2216.1602,6,Okay.
4483633,264,2216.1599,2216.5798,6,Got it.
4483633,265,2216.73,2226.6499,6,Um and on pricing um so in twenty one it was the first time that you you pushed through a like for like price increase about two percent.
4483633,266,2249.5601,2249.8,3,Yeah.
4483633,267,2249.8,2251.1702,3,This is an important point.
4483633,268,2251.1699,2272.27,3,I mean uh there is some pressure on the energy on the aluminum cost and we will uh and we will apply this price increase to consider for that but we will also leverage uh other important levers when it comes to the pricing of the new model and selected I mean the price increase of selected model and also the personalization.
4483633,269,2272.73,2275.6499,3,So this is an important factor we are factoring in uh Susy.
4483633,270,2276.5,2276.9399,6,Okay.
4483633,271,2277.01,2277.4199,6,Very clear.
4483633,272,2277.6201,2281.76,6,And very quick just to follow up on your free cash flow uh that you…
4483633,273,2303.46,2309.5701,6,cuz it feels like um that has been just phased differently due to the to the phasing of the models.
4483633,274,2309.7,2309.77,3,Yeah.
4483633,275,2310.05,2315.6399,6,Or was there some kind of advances for a future maybe hypercar which now been change in timing?
4483633,276,2315.6399,2316.1499,6,Um.
4483633,277,2316.1499,2316.3999,3,No.
4483633,278,2316.3999,2317.6099,3,You got it right Susy.
4483633,279,2317.79,2320.26,3,Uh phasing is exact answer.
4483633,280,2320.29,2320.4199,6,Okay.
4483633,281,2321.79,2322.0,6,Okay.
4483633,282,2322.8501,2323.2102,6,Perfect.
4483633,283,2323.21,2323.6199,6,Thanks a lot.
4483633,284,2324.4199,2324.75,3,Welcome.
4483633,285,2325.5701,2326.0598,0,Thank you.
4483633,286,2326.5601,2330.1799,0,The next question comes from the line of John Murphy from Bank of America.
4483633,287,2330.22,2331.4001,0,Please ask your question.
4483633,288,2332.74,2333.0,7,Hi.
4483633,289,2333.0,2334.8301,7,Good afternoon everybody and thanks for the time.
4483633,290,2335.22,2338.3101,7,Um just wanted to follow up on on that pricing discussion.
4483633,291,2338.3101,2346.6299,7,I mean obviously there's cost inflation that's going on but you're talking about your order book um being longer than it ever has been before.
4483633,292,2346.6299,2363.5901,7,So is there a greater opportunity to you know take price explain it to your your customers if there's cost inflation to you um they're relatively sophisticated to offset that but then also to maybe you know help balance out the supply and demand um in the business?
4483633,293,2363.5901,2369.27,7,It's a very high-class problem but it seems like there might be a greater pricing opportunity um than you've ever even had before.
4483633,294,2371.78,2372.2,2,Thank you.
4483633,295,2372.23,2377.01,2,I think this is what you say it's important and uh we are considering uh uh…
4483633,296,2377.04,2385.71,2,I mean we we we are applying the price increase and we are monitoring carefully what's happening on these two dimensions of energy and aluminum.
4483633,297,2386.1299,2392.8801,2,And again as I said we will introduce also new model and <inaudible> we will apply in the right way the pricing.
4483633,298,2393.49,2403.8,2,So this is uh an important dimension that we are uh we are we are careful about also because uh we all know what is the pressure that there is in the supply chain all over the world.
4483633,299,2404.1699,2415.9302,2,On the other side I have to say that we have also uh on the supply chain I mean we have some good partners reliable partner we can leverage on.
4483633,300,2417.8701,2418.1702,7,Okay.
4483633,301,2418.2,2422.1599,7,And maybe just a second question on the transition to to EVs.
4483633,302,2422.1599,2427.51,7,Um you know it's very interesting that Daytona is a v twelve uh naturally aspirated um engine.
4483633,303,2427.5701,2429.8101,7,Um you know that sounds great to me personally.
4483633,304,2430.1499,2433.0701,7,Um but you know obviously there's a push towards towards EVs.
4483633,305,2433.3999,2445.27,7,Um given your your close relationship with your your customers and and you kind of build you design engineer and build what they want what are you hearing from your customers at this point on this transition?
4483633,306,2445.27,2456.3,7,I mean many other companies are you know slaves to guessing at where EV penetration will go and what they should do with their powertrain investment but you have direct access and good discussion and relationships with your customers.
4483633,307,2456.3,2457.6499,7,So what are they telling you?
4483633,308,2457.98,2459.75,7,cuz on the Daytona it seems like they're saying Hey.
4483633,309,2459.78,2461.22,7,We probably don't want this right now.
4483633,310,2461.6101,2463.3301,7,But um the reality is some people might.
4483633,311,2463.3301,2466.49,7,So I mean what are your customers telling you right now?
4483633,312,2466.49,2477.23,2,I think we have uh uh I mean we have different kind of Ferrariste each one with its own uh preferred uh let's say model and propulsion.
4483633,313,2477.23,2489.4399,2,So we have a Ferrariste that uh I have seen them in Florence when uh we launched the the Daytona and they were extremely extremely happy and delighted to see such a beautiful car.
4483633,314,2490.2,2494.9502,2,I have seen also customer trying the the two ninety six GTB.
4483633,315,2495.1299,2499.1101,2,That is a kind of different uh different car with different feeling.
4483633,316,2499.5601,2512.3301,2,So I think that uh if you want to get my uh feedback from the customer is that we have customer with different uh feeling different needs different perceptions.
4483633,317,2512.74,2523.3301,2,And uh even the same customer for different moment can have can prefer the the v twelve the aspirated one or the v six hybrid.
4483633,318,2523.98,2530.54,2,So there is a mix of different uh customer with different feelings and different need different emotion.
4483633,319,2531.99,2534.1101,7,But it's fair to say that you're not guessing at this?
4483633,320,2534.1101,2536.01,7,you are you're having these discussions with your customers.
4483633,321,2536.01,2536.72,7,So your your…
4483633,322,2536.75,2540.47,7,So what you're introducing and you're building is what they want.
4483633,323,2540.47,2546.6499,7,You're you're never gonna go you you misestimated the EV penetration on on your on the models right?
4483633,324,2546.6499,2551.8999,7,I mean this is something that's well known by by you through that order book and your discussions with your customers.
4483633,325,2551.8999,2553.1399,7,Is that a fair statement?
4483633,326,2553.71,2553.8699,2,No.
4483633,327,2553.8701,2562.6602,2,I'm saying that there is a clear trend and we will work on uh for sure on electric vehicle and we will see the strategy line up uh here in June sixteen.
4483633,328,2562.8401,2568.9102,2,What I want to say is that there are customers different customer that prefer different kind of uh propulsion scheme.
4483633,329,2568.9099,2580.75,2,So we are aware obviously of what's happening we have planned for that but we are also aware of the different feelings and different emotion the customer want to get with different propulsion scheme.
4483633,330,2582.0801,2582.3301,7,Okay.
4483633,331,2582.3701,2582.6101,7,Great.
4483633,332,2582.6499,2583.3501,7,Thank you very much.
4483633,333,2584.1201,2584.5498,2,Thank you.
4483633,334,2585.3601,2585.9399,0,Thank you.
4483633,335,2586.27,2591.05,0,The next question comes from the line of Giulio Pescatore from BNP Paribas Exane.
4483633,336,2591.1299,2592.3,0,Please ask your question.
4483633,337,2593.6899,2593.8599,8,Hi.
4483633,338,2593.8601,2595.23,8,Thanks for taking my question.
4483633,339,2595.5901,2597.3101,8,I just wanna follow up on on the previous point.
4483633,340,2597.6699,2607.99,8,Um in your answer did you mean that as long as customer will want combustion engines you would be willing to provide them even if we think about ten or twenty years down the line?
4483633,341,2609.52,2615.3801,2,I think that uh the technology is useful as far as it address the customer uh needs.
4483633,342,2615.6699,2617.1899,2,We have to delight the customer.
4483633,343,2617.1899,2617.8601,2,We have to…
4483633,344,2618.5701,2620.9299,2,I mean this is this is important for us.
4483633,345,2620.9299,2628.5,2,So if uh we are moving piston or we are um moving other other things that's what we want to to do.
4483633,346,2630.7,2631.03,8,Okay.
4483633,347,2631.0601,2631.3201,8,thank you.
4483633,348,2648.74,2656.8301,8,And can you maybe talk about the difference in demographics between that vehicle and and the four eight eight?
4483633,349,2656.8301,2657.3799,3,Maybe I I go?
4483633,350,2657.3799,2657.5698,2,Yeah.
4483633,351,2657.5701,2659.2,2,You can go Antonio.
4483633,352,2659.2,2660.7,2,I think you have <crosstalk>.
4483633,353,2660.7,2663.8301,3,<crosstalk> the forecast on on volume lifecycle.
4483633,354,2664.21,2673.9202,3,However as as Benedetto said before uh the <inaudible> has been very strong in terms of order compared to our previous internal benchmarks.
4483633,355,2674.3999,2681.6101,3,The other element yes I think you're addressing the fact that the our customer base for this car is slightly younger and this is it is true.
4483633,356,2683.54,2685.6301,2,I mean really you need to drive it to experience it.
4483633,357,2727.1299,2729.1301,8,cuz it's really difficult to bridge the two numbers.
4483633,358,2730.9199,2738.9299,3,Well um I have not comment on the degree of conservatives of the estimate but basically our cash flow is really simple.
4483633,359,2738.9299,2741.78,3,I mean we have the e b i t d a and you know what the guidance is.
4483633,360,2742.3101,2744.28,3,You know what we said about CapEx.
4483633,361,2744.6399,2755.95,3,I think your question is about the working capital where we include in the wider definition also the impact of the advances on the limited series cars.
4483633,362,2756.3401,2762.21,3,Uh so the Daytona we're talking about more than two hundred million more or less in in terms of current estimate.
4483633,363,2762.74,2775.78,3,The other element you should not underestimate is the impact of taxes because we are obviously paying taxes both in terms of the balance and the advance on the basis of the results of twenty twenty one.
4483633,364,2775.8899,2784.6699,3,Uh and it makes a big difference compared to what we paid in twenty twenty one based on the results of twenty twenty that were impacted by by the pandemic.
4483633,365,2785.4399,2789.8,3,Hope this provides you uh a better understanding of the detail.
4483633,366,2790.73,2790.9299,8,Yeah.
4483633,367,2791.4099,2793.29,8,You're still benefiting from the button box right?
4483633,368,2794.4199,2805.46,3,The button box is helping but not in terms of cash nor the level it did at the very beginning because now the the law provides for the benefit cash-wise in three install in three-year installments.
4483633,369,2805.5601,2810.45,3,So this has been already visible in twenty twenty one and it will be obviously in twenty twenty two.
4483633,370,2811.9199,2812.1099,8,Okay.
4483633,371,2812.3,2812.55,8,Thank you.
4483633,372,2813.22,2813.5,3,Welcome.
4483633,373,2814.6599,2815.1899,0,Thank you.
4483633,374,2821.3601,2822.0898,9,Thank you.
4483633,375,2822.46,2823.9299,9,Good morning good afternoon everybody.
4483633,376,2824.5,2831.1599,9,Uh my focus is on CapEx uh which is a portion of the lower free cash flow for the current year.
4483633,377,2831.55,2841.8,9,So the eight hundred million may be considered a sort of peak for CapEx or should we expect they will go beyond one billion annually going forward?
4483633,378,2842.54,2850.25,9,Uh and when you talk about uh partnerships uh I remember you also mentioned partnership in order to reduce CapEx.
4483633,379,2851.27,2862.95,9,I clearly understand you cannot talk about something that was not announced but uh just to elaborate a bit on on this in order to understand what could be the magnitude of the reduction in CapEx if any?
4483633,380,2863.75,2864.28,2,Thank you.
4483633,381,2864.3101,2865.0801,2,Thank you Marco.
4483633,382,2865.0801,2866.2,2,Uh you remember well.
4483633,383,2866.2,2869.7,2,The partnerships are an important way forward for us.
4483633,384,2870.3601,2878.54,2,And as I said also before uh there would be some uh partnership that uh is an important partnership for us we will announce in the near future.
4483633,385,2879.25,2883.9902,2,I I think that um I mean it's important…
4483633,386,2884.3501,2893.9001,2,That is always also what I said in my previous life to keep strong discipline about CapEx and to keep the momentum and to to make sure to do something innovative.
4483633,387,2894.4099,2903.1499,2,It's it is important we decide what we do internally and we decided and what we want to do with partners outside.
4483633,388,2903.5601,2907.2302,2,So the two word are partnership and discipline.
4483633,389,2907.78,2922.3301,2,And uh as I said in in the near future you will hear about an important partnership on something that is important for for our car but for which let's say we believe the the best way forward is is partnership.
4483633,390,2924.7,2928.8101,9,And on the amount of CapEx uh eight hundred million could be considered as a peak?
4483633,391,2929.76,2941.3301,2,You you can consider it is more or less a a good number to think about because we will use as I said the the partnership to to optimize and to be disciplined.
4483633,392,2944.1299,2944.5798,9,Okay.
4483633,393,2944.5801,2944.9402,9,Thank you.
4483633,394,2944.97,2958.0198,9,And uh talking about volumes uh based on what you commented before I would expect uh higher volume growth than the usual let's say average six percent we saw in the last few years?
4483633,395,2958.22,2958.25,9,<crosstalk>.
4483633,396,2959.74,2960.1399,3,Yes.
4483633,397,2960.1399,2967.27,3,it's a better result of the significant net order intake increase that we have seen this year.
4483633,398,2967.4199,2969.1799,3,So we need to serve this one.
4483633,399,2969.1799,2978.47,3,Obviously we'll be very careful because the concept of <inaudible> remains crucial to our business model and this is an element of of significant attention.
4483633,400,2978.47,2981.0601,3,We'll play all all leverages to to manage this one.
4483633,401,2981.9399,2992.1399,2,And for sure the broadest portfolio the broad portfolio we have is helping uh to protect also the brand exclusivity because in this year we have a lot of uh a lot of model that are in production.
4483633,402,2994.6101,2995.01,9,Thank you.
4483633,403,2998.3799,2998.8599,0,Thank you.
4483633,404,2999.3,3003.51,0,The next question comes from the line of Stephen Reitman from Societe Generale.
4483633,405,3003.51,3004.8501,0,Please ask your question.
4483633,406,3008.21,3008.8799,10,Thank you for this.
4483633,407,3008.9099,3012.8601,10,Um I understand what you're saying about the mix in twenty twenty two.
4483633,408,3012.8601,3015.21,10,So just <inaudible> dig a little more detail in that.
4483633,409,3043.5601,3043.8198,2,I dunno.
4483633,410,3043.8201,3046.25,2,It seems there is uh someone unmuted.
4483633,411,3046.25,3046.52,2,I dunno.
4483633,412,3050.8201,3051.3599,10,I'll try again.
4483633,413,3051.3601,3051.7002,10,Sorry.
4483633,414,3051.74,3052.1001,10,Okay.
4483633,415,3052.1299,3052.8,10,I'll try again maybe.
4483633,416,3052.8,3053.3599,2,Sorry about that.
4483633,417,3053.3601,3054.8699,10,Um yeah I'm sorry no.
4483633,418,3064.8,3067.95,10,Will that have an impact expected in the first quarter of this year still?
4483633,419,3079.1201,3079.8201,3,Hi Stephen.
4483633,420,3079.8201,3087.0701,3,I think in terms of the Monza we'll complete the deliveries of the of the Monza in q one.
4483633,421,3089.1101,3096.72,3,However then the absolute number will not be uh as high as it has been during the last quarter of this year.
4483633,422,3097.3201,3104.02,3,And the eight twelve Competizione and Competizione Aperta will be spread quite evenly uh across the fourth quarter.
4483633,423,3105.8701,3106.1802,10,Thank you.
4483633,424,3107.0601,3107.45,3,Welcome.
4483633,425,3110.6699,3111.1499,0,Thank you.
4483633,426,3112.8301,3116.55,0,The next question comes from the line of George Galliers from Goldman Sachs.
4483633,427,3116.55,3117.6699,0,Please ask your question.
4483633,428,3119.6299,3121.0901,11,Thank you for taking my question.
4483633,429,3121.3101,3121.46,11,Yeah.
4483633,430,3121.75,3125.1101,11,The the first question I had was um just on the volumes.
4483633,431,3125.1101,3127.51,11,Obviously you're now above eleven thousand units.
4483633,432,3128.0901,3137.3499,11,I think in the past uh previous management mentioned that max capacity was about fifteen thousand units on the existing industrial footprint.
4483633,433,3138.1299,3142.3,11,Is is that still roughly the right number to think about?
4483633,434,3142.96,3146.1299,11,And in order to get there presumably you'd have to add shifts.
4483633,435,3146.72,3151.3899,11,What's the kind of lead time from a trading perspective to add incremental shifts?
4483633,436,3152.4399,3157.98,11,The second question I had was with respect to the carbon neutrality by twenty thirty.
4483633,437,3158.48,3164.71,11,Do you still expect e-fuels to play a prominent role in reaching that target?
4483633,438,3165.5601,3180.9199,11,And then finally obviously we had significant management changes and some exciting promotions and external hires during the quarter um perhaps you could give some insights into the skill sets you were looking to promote as part of those management changes.
4483633,439,3181.25,3181.6899,11,Thank you.
4483633,440,3182.6699,3183.1799,2,Thank you.
4483633,441,3183.21,3188.3098,2,I'll start from the last one the management change and the carbon neutrality and the first one uh Antonio will take it.
4483633,442,3188.3401,3189.96,2,So let's start from the management change.
4483633,443,3190.6101,3197.1799,2,Yes uh we did a big change at the beginning end of last year beginning of this change beginning of this year.
4483633,444,3197.75,3201.9099,2,And uh we did along two direction if you have seen.
4483633,445,3202.27,3212.1099,2,On one side we promoted our internal talents that I had the the pleasure to see because I talked to a lot of people in the company and those will externalize.
4483633,446,3212.8301,3226.0498,2,I think uh what the common thread uh that we wanted and I wanted to push within this new organization are uh the four the four following ones.
4483633,447,3226.1299,3230.26,2,Number one the strong willingness to cooperate.
4483633,448,3231.9299,3235.9399,2,Number two is about uh attention to innovation.
4483633,449,3236.3999,3248.25,2,And number three is the focus to bring these things uh especially in a transition area to make the right the right choice the right decision with right timing and to move forward.
4483633,450,3248.74,3268.26,2,And number number four is uh is very important especially nowadays this is becoming very important for all the companies is this continuous learning approach because we have uh to to be open to listen at the other point of view other people point of view and also the supplier point of view the partner point of view.
4483633,451,3268.73,3276.0601,2,So these are uh the features that I want to boost with the uh the new organization.
4483633,452,3276.3999,3282.21,2,Again organized with homegrown talents and also external hires.
4483633,453,3283.3999,3290.3499,2,This keeps for granted let me say competencies that are all these people are bringing uh in in the game.
4483633,454,3291.3,3293.8699,2,Coming to the second question the carbon neutrality.
4483633,455,3294.49,3301.26,2,As we said the carbon neutrality uh we we will show you a clear plan in when we meet here in Maranello.
4483633,456,3301.26,3304.0601,2,The target is to become carbon neutral by twenty thirty.
4483633,457,3304.99,3315.8,2,We want to do it looking at uh all the carbon emission we generate directly as well as the carbon emission that uh gets generated along uh the value chain.
4483633,458,3316.48,3319.71,2,And uh we want to do in a scientific way scientific way.
4483633,459,3320.1201,3335.6401,2,And so that's the reason why we are also proud if you want of this ISO certification we got in q four because it it testifies that we are uh substantiating these numbers with scientific approach.
4483633,460,3335.6699,3348.3599,2,I think that if we want to tackle this properly we need it to be to to do it scientifically and that's what we will do and that's what we will show you in in June.
4483633,461,3349.3201,3351.99,2,Now the the the first question Antonio you can take it.
4483633,462,3351.99,3352.5601,3,Yeah George.
4483633,463,3352.9299,3358.74,3,On the first one yes fifteen thousand units is the is level of capacity that we have.
4483633,464,3358.74,3360.5898,3,There has been no change in that respect.
4483633,465,3361.1799,3365.98,3,And the second one we're working on to shift and we predict to be there even for twenty twenty two.
4483633,466,3368.3,3368.9299,3,Hope this helps.
4483633,467,3368.9299,3369.29,11,Great.
4483633,468,3369.3401,3369.78,11,Thank you.
4483633,469,3370.24,3370.53,11,Yeah.
4483633,470,3370.72,3371.3401,11,Very helpful.
4483633,471,3371.3401,3373.9199,11,Thank you very much and looking forward to the CMD.
4483633,472,3375.54,3376.01,3,Likewise.
4483633,473,3378.04,3378.6401,0,Thank you.
4483633,474,3378.77,3382.8801,0,The next question comes from the line of Monica Bosio from Intesa Sanpaolo.
4483633,475,3382.8799,3384.21,0,Please ask your question.
4483633,476,3384.51,3386.74,12,Uh good afternoon everyone.
4483633,477,3386.74,3387.9299,12,I hope you can hear me.
4483633,478,3388.4299,3401.0701,12,Um my first question is on the volume growth in two thousand twenty two on the back of the strong order books the ramp-up of the new <inaudible> model seen in 2022.
4483633,479,3401.1799,3405.5601,12,The volume volumes impact would be significant over the current year.
4483633,480,3405.8999,3413.1401,12,I was wondering if these could bring to some phase out of some models such as the s eight.
4483633,481,3413.1799,3426.25,12,And uh as for the price mix uh uh I was wondering if you can elaborate uh on what do you expect in term of personalization for two thousand and twenty two?
4483633,482,3426.96,3432.29,12,And uh my second question uh is are housekeeping questions.
4483633,483,3432.3501,3442.1199,12,Uh as for the advances uh from the Daytona should we assume an impact mostly in the first part of the year is it correct?
4483633,484,3442.8301,3452.9102,12,And uh in term of uh taxes you mentioned that the taxes will be higher at the cash impact level in two thousand twenty two.
4483633,485,3453.28,3456.4202,12,Can you give us some highlights at the p and l level?
4483633,486,3459.22,3461.8799,2,i will take the part of the the phase outta the model.
4483633,487,3461.9199,3466.7698,2,As I said in in q four we stopped the…
4483633,488,3467.0601,3474.01,2,We did not take order anymore on some uh some model and this is done for the sake of brand exclusivity.
4483633,489,3474.24,3480.7102,2,Uh the personalization uh gives uh a good contribution to our um to our top line.
4483633,490,3481.24,3485.4399,2,And uh for the Daytona the taxes may be…
4483633,491,3486.3101,3487.26,2,Antonio you can take it.
4483633,492,3487.5,3487.8401,3,Sure.
4483633,493,3488.79,3493.3201,3,The <inaudible> Daytona is significantly contributing in terms of cash flow with the advances in q one.
4483633,494,3493.9299,3497.46,3,Maybe you'll remember what happened back in twenty nineteen with the with the Monza.
4483633,495,3509.8201,3510.52,12,Thank you very much.
4483633,496,3510.52,3510.5801,3,Yeah.
4483633,497,3511.24,3511.54,3,Welcome.
4483633,498,3511.8899,3512.25,12,Thank you.
4483633,499,3515.22,3516.1199,0,Thank you very much.
4483633,500,3516.4299,3523.8899,0,Dear participants thank you very much for all your questions and now I would like to hand the conference over to our main speaker today Mr.
4483633,501,3526.71,3527.0801,0,Go ahead.
4483633,502,3527.99,3528.3799,2,Thank you.
4483633,503,3528.4099,3529.0701,2,Thank you so much.
4483633,504,3529.0701,3533.51,2,And thanks all uh for your time this afternoon and also for all your uh your questions.
4483633,505,3534.24,3537.6001,2,Let me close by underscoring three things.
4483633,506,3538.46,3545.27,2,One uh our excellent twenty twenty one financial result with an exceptional e b i t d a margin.
4483633,507,3546.0801,3551.02,2,Two our record order book covering well into twenty twenty three.
4483633,508,3551.7,3560.6101,2,And three our broad innovative and beautiful product range with two new launches to come in this year in twenty twenty two.
4483633,509,3561.8899,3566.6099,2,Today I realize I mean we provided a little taste of what's happening in our company.
4483633,510,3567.3,3581.6802,2,I realize that you want to hear more and we are as eager as ever to seize these opportunities ahead of us and to share with all of you the full picture on June sixteen in Maranello at Capital Market Day.
4483633,511,3583.21,3584.48,2,So good afternoon everyone.
4483633,512,3584.9399,3588.3799,2,Thanks again for your attention and talk you in the next quarter.
4483633,513,3588.8701,3589.25,2,Thank you.
4483633,514,3592.1299,3594.0901,0,That does conclude our conference for today.
4483633,515,3594.1399,3595.27,0,Thank you for participating.
4483633,516,3595.27,3596.3999,0,You may all disconnect.
4483633,517,3596.3999,3597.1899,0,Have a nice day.
4483668,0,0.76,2.14,0,Good morning ladies and gentlemen.
4483668,1,2.14,6.25,0,Welcome to the A T S Automation third quarter conference call and webcast.
4483668,2,6.56,11.23,0,This call is being recorded on February second twenty twenty two at eight thirty AM Eastern Time.
4483668,3,11.66,15.13,0,Following the presentation we will conduct a question and answer session;
4483668,4,15.22,18.51,0,instructions will be provided at that time for you to queue up for questions.
4483668,5,19.11,25.02,0,If anyone has difficulties during the conference please press star followed by zero for operating systems at any time.
4483668,6,25.47,29.78,0,i'll now turn the call over to Stewart McCuaig vice president General Counsel A T S.
4483668,7,31.16,32.85,1,Thanks operator and good morning everyone.
4483668,8,32.93,38.09,1,Your main host today are Andrew Hider chief executive officer of A T S and Ryan McLeod chief financial officer.
4483668,9,38.73,48.04,1,We note that our remarks today are accompanied by slide deck displayed on the screen in the webcast and which is also available including for those joining by phone at ats automation dot com.
4483668,10,48.52,65.82,1,We caution that the statements made on the webcast and call may contain forward-looking information and our cautionary statement regarding such information including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied in making the statements are detailed on slide two of the slide deck.
4483668,11,66.11,68.15,1,Now it's my pleasure to turn the call over to Andrew.
4483668,12,70.83,71.77,2,Thank you Stewart.
4483668,13,72.72,75.76,2,Good morning ladies and gentlemen and thank you for joining us.
4483668,14,76.79,88.11,2,We're pleased to report another strong quarter for A T S featuring order bookings order backlog and revenue records and adjusted EBIT margin expansion.
4483668,15,89.44,95.57,2,Although the pandemic and supply chain disruptions created a challenging and fluid business environment.
4483668,16,96.39,98.57,2,Organic revenue growth was robust.
4483668,17,99.35,104.05,2,Newly acquired businesses performed to plan and we completed two acquisitions.
4483668,18,105.24,111.83,2,SP industries expands our capabilities and offerings throughout the lifecycle of pharmaceutical development.
4483668,19,113.21,116.32,2,GF enhances our offerings and aseptic fill finish.
4483668,20,117.2,122.98,2,Today I will update you on our business and then Ryan will provide his financial report.
4483668,21,125.46,135.68,2,Starting with our value drivers q three revenues were five hundred and forty seven million dollars up 48% from q three last year.
4483668,22,136.77,141.86,2,Driven by a combination of acquired businesses and strength across our core operations.
4483668,23,142.9,153.16,2,Organically revenues grew twenty two percent year over year a positive result that was augmented by the pandemic impact and q three revenues in the prior year.
4483668,24,155.39,159.84,2,q three order bookings will record six hundred and seventy one million dollars.
4483668,25,160.25,162.65,2,Up fifty four percent year over year.
4483668,26,163.0,171.14,2,c f t BioDot and SP contributed approximately two thirds of border booking's growth versus last year.
4483668,27,172.49,179.94,2,Bookings were strong across most market verticals with large customer rewards and consumer products and transportation.
4483668,28,182.0,191.53,2,Our adjusted EBIT margin for the quarter was twelve point nine percent representing margin expansion of over a hundred basis points from q three of last year.
4483668,29,194.26,207.37,2,Moving to our outlook our backlog grew to a record one point five billion dollars at the end of the quarter providing us with a solid base of business and good revenue visibility.
4483668,30,208.68,222.01,2,The pandemic situation remains fluid and we continue to work with our customers and employees to manage the challenges including newly imposed travel restrictions in certain jurisdictions and supply chain interruptions.
4483668,31,222.57,229.07,2,Despite the challenges our teams have done an excellent job to ensure customer needs are met.
4483668,32,230.87,240.49,2,By market conditions remain positive in life sciences with good activity in our key sectors of medical devices pharma and radio-pharma.
4483668,33,240.49,247.51,2,Today our funnel is comprised of more traditional non COVID related opportunities.
4483668,34,249.69,256.46,2,In e b i t we continue to see robust activity levels with rapid growth in the battery assembly market.
4483668,35,257.48,262.78,2,We won several mandates during the quarter including a large award from a repeat customer.
4483668,36,263.98,277.52,2,As our customers experience new complexities from evolving battery technologies our long track record and proven expertise in the battery assembly and test space position A T S as a trusted partner.
4483668,37,279.22,285.56,2,In food and beverage our order funnel remains strong with opportunities and food processing leading the way.
4483668,38,286.84,290.53,2,In consumer we're seeing continued activity in warehouse automation.
4483668,39,292.73,299.49,2,In energy the market for automated tools and related services for nuclear refurbishment is expanding.
4483668,40,300.58,307.6,2,The decommissioning market also continues to evolve and we see prospects in both North America and globally.
4483668,41,309.09,316.76,2,There are also emerging opportunities in isotope production and small modular reactor markets as well as grid batteries.
4483668,42,319.57,325.94,2,On services order bookings grew both year over year and sequentially.
4483668,43,327.63,337.04,2,Utilization and expansion of our regional service network coupled with the use of digital support tools have improved our ability to support our customers.
4483668,44,337.75,342.81,2,In turn our customers continue to embrace our digital services platform.
4483668,45,343.98,349.96,2,We see opportunities to expand our aftermarket services footprint and add to our digital capabilities.
4483668,46,352.59,359.15,2,Operationally we faced a challenging business environment resulting from global supply chain issues and the pandemic.
4483668,47,359.67,366.14,2,We've experienced some supplier lead time extensions and our team has completed several related problem-solving events.
4483668,48,367.04,369.5,2,These challenges are likely to persist in the near term.
4483668,49,371.67,380.26,2,To summarize our outlook this quarter included record order bookings record order backlog and a robust funnel.
4483668,50,381.25,383.68,2,We're encouraged by recent activity levels.
4483668,51,383.82,390.37,2,However global supply chain and labor market dynamics represent a challenge and uncertainty.
4483668,52,391.43,396.91,2,The situation is actively monitored and countermeasures implemented wherever possible.
4483668,53,399.47,403.45,2,Moving to the A B M our continuous improvement playbook.
4483668,54,404.99,412.94,2,This was another busy quarter with continued emphasis on improving our value drivers both operationally and commercially.
4483668,55,414.65,419.73,2,Our linear motion business held the Kaizen to remove waste from a critical assembly process.
4483668,56,420.92,428.99,2,The Kaizen resulted in a fifty percent reduction in force base lower inventory requirements and a twenty percent improvement in cycle time.
4483668,57,429.44,434.88,2,A Life Sciences Division held the Kaizen on their spare parts order processing.
4483668,58,435.87,440.47,2,Through collaborative efforts they were able to improve efficiency by fifty percent.
4483668,59,442.14,451.73,2,Our services business held a joint Kaizen with a customer to define requirements for a turnkey training execution and spare parts management program.
4483668,60,452.73,459.42,2,These joint efforts are a great way to provide value to our customers while also strengthening our relationships.
4483668,61,461.71,470.27,2,We continue to employ our global virtual A B M Bootcamps on the back of similar successful events and proceeding quarters.
4483668,62,470.89,477.88,2,The camp runs over a six week period and combined self-paced learning and real-time discussions with A B M leaders.
4483668,63,478.74,490.75,2,This modified virtual format enables us to continue scaling our training and demonstrates how businesses across A T S use the A B M to drive tangible results.
4483668,64,493.0,502.4,2,On m and a acquisitions and strategic core markets continue to be an important complement to ATS's organic growth.
4483668,65,503.83,509.52,2,During the quarter we closed two acquisitions SP being the largest in A T S history.
4483668,66,511.08,520.39,2,SP as a designer and manufacturer of high grade biopharma processing equipment life sciences equipment and lab apparatus products.
4483668,67,521.32,529.03,2,SP expands our life sciences capabilities and offerings through the addition of its aseptic and non-aseptic inaudible portfolio.
4483668,68,530.54,540.87,2,Notably the combination of A T S and SP will allow us to better support the needs of our customers throughout the lifecycle of pharmaceutical development and production.
4483668,69,543.04,548.51,2,After deploying capital to these latest acquisitions our balance sheet remains strong.
4483668,70,549.34,555.72,2,We will continue to cultivate and evaluate acquisition opportunities consistent with our proven strategy.
4483668,71,556.66,566.28,2,Of course timing of acquisitions will be variable and our approach deploying our balance sheet will be disciplined and strategic as well the integrations that follow.
4483668,72,567.96,581.98,2,Of note we continue to make progress in the integration of previous acquisitions including C F T which was acquired last March BioDot acquired in June and N C C which joined in September.
4483668,73,581.98,593.64,2,At BioDot administrative tasks associated with the integration are largely complete and our efforts are focused on continuing to deploy the A B M playbook.
4483668,74,594.42,607.27,2,At C F T we continue to roll out the A T S business model focused on opportunities to further synergies in our supply chains and cost structures and completed several A B M activities.
4483668,75,618.91,628.78,2,AT ATs our innovation activities are ongoing as they form part of our expand strategy.
4483668,76,630.53,653.72,2,In the past quarter we have completed a number of projects and initiatives that have resulted in the launch of a new high-speed debug camera g m p testing and certification of our super track pharma product and the development of a new energy management software program that will enable customers to track and reduce their carbon footprint.
4483668,77,655.13,658.28,2,We're pleased that our acquired company are also innovators.
4483668,78,658.71,670.8,2,At the recent Chicago Process ex Expo our N C C business won the Innovation Award for the sanitary design of the N C C side drive conveyance system.
4483668,79,672.02,678.3,2,We have filed a patent for this system which has multiple applications including raw and packaged food products.
4483668,80,679.3,682.78,2,Congratulations to the whole N C C team well done.
4483668,81,697.33,704.33,2,Record order booking activity reflects the alignment we have with our customers in providing best-in class solutions.
4483668,82,706.23,716.8,2,Going forward we are unwavering in our commitment to protecting and engaging our employees serving our customers well and creating value for our shareholders.
4483668,83,727.75,737.97,3,Our record order backlog provides good revenue visibility while the healthy balance sheet enables pursuit of organic growth and strategic m and a opportunities.
4483668,84,739.89,747.15,3,Our objective is to build a great A T S business and we're making progress every day towards our collective goal.
4483668,85,748.25,750.2,3,Now I'll turn the call over to Ryan.
4483668,86,750.47,751.65,3,Ryan over to you.
4483668,87,752.47,753.19,4,Thank you Andrew.
4483668,88,753.51,767.96,4,And good morning ladies and gentlemen this morning i'll provide an overview of our q three operating results that featured growth and revenues both year over year in and sequentially adjusted EBIT margin expansion and record order bookings and backlog.
4483668,89,768.81,775.35,4,I will then review our balance sheet which we have deployed strategically to expand our customer capabilities and earnings potential.
4483668,90,776.58,784.4,4,Starting with operating results bookings were six hundred and seventy one million dollars up fifty four percent compared to q three last year.
4483668,91,785.16,791.61,4,Organic growth in bookings was eighteen percent partially offset by a five percent headwind from foreign exchange translation.
4483668,92,792.98,804.4,4,Organic growth came from transportation as a result of new and follow on work in EV energy markets due to follow on work and consumer products due to a large customer program one during the quarter.
4483668,93,805.3,814.49,4,Acquisitions contributed forty one percent growth in order bookings with the majority coming in food and beverage due to several new programs booked by our C F T businesses.
4483668,94,815.87,823.91,4,An a trailing twelve month basis our book to bill ratio was one point one five to one positioning us well for continued organic revenue growth.
4483668,95,826.45,831.86,4,Moving to revenues our q three top line increased forty eight percent over q three last year.
4483668,96,832.62,840.42,4,Organic growth was twenty two percent due to higher order backlog entering the quarter as well as year over year growth in service and parts revenues.
4483668,97,841.47,844.87,4,Foreign exchange was a five percent headwind compared to q three last year.
4483668,98,845.73,851.98,4,Acquired companies added thirty one percent to revenue growth with C F T and SP the primary contributors.
4483668,99,852.44,865.89,4,Due to seasonality and as expected C F T revenues were lower in comparison to q two going forward C F T is well positioned with a healthy order backlog following a very strong order bookings result in q three.
4483668,100,867.86,873.5,4,Our q three ending backlog of one point five billion was fifty percent higher than q three last year.
4483668,101,874.21,881.12,4,Looking forward our revenue conversion for q four is estimated to be in the thirty five to forty percent range of order backlog.
4483668,102,881.84,891.11,4,As a reminder this estimate is based on revenue expectations for both the exit execution of projects from backlog and work that will be booked and billed within the quarter.
4483668,103,893.31,903.79,4,Moving to margins q three gross margin included five point one million of cost related to the fair value adjustment of inventories acquired through acquisition activity.
4483668,104,904.54,913.1,4,Excluding this adjustment Q's adjusted gross margin was twenty nine point eight percent two hundred basis points higher than the comparable period a year ago.
4483668,105,913.9,928.72,4,Higher gross margin reflected operating efficiencies from strong project execution improvements in the cost structure of our core business through previous reorganizations increased service revenues and other continuous improvement efforts achieved by deploying our A B F.
4483668,106,930.02,937.0099,4,Disruptions and supply chain have led to increase lead times and in some cases increases in cost in our supply base.
4483668,107,937.99,941.21,4,To date this has not had a material impact on our profitability.
4483668,108,941.97,952.33,4,Our teams have implemented countermeasures including advancing order timing and securing alternative sources of supply to mitigate inflationary pressures and lengthening lead times.
4483668,109,953.8,961.12,4,Even with these countermeasures supply chain pressures remain dynamic and will continue to present a challenge to or mitigation efforts going forward.
4483668,110,961.6,967.75,4,Moving to SG&A expenses were 43.6 million higher than q three last year.
4483668,111,968.41,977.28,4,This year's costs included sixteen point seven million of acquisition related amortization and six point three million of acquisition related transaction costs.
4483668,112,978.26,986.72,4,Excluding these items in both periods q three threes sg and a was seventy nine point nine million 25.9 million higher than last year.
4483668,113,987.24,993.22,4,Reflecting incremental sg and a costs from acquired companies primarily C F T BioDot and SP.
4483668,114,994.66,1000.81,4,Third quarter stock compensation expense was twelve point seven million up from four point nine million last year.
4483668,115,1003.5,1013.11,4,q three adjusted earnings from operations were seventy point four million or twelve point nine percent compared to forty three point eight million or eleven point eight percent last year.
4483668,116,1013.57,1026.0599,4,The increase in margin reflected efficiency gains made in our cost structure through effectively implemented reorganizations improved program execution and increased after sale service revenues compared to a year ago.
4483668,117,1027.11,1037.51,4,Excluding acquisitions our core business operated with a fourteen point three percent adjusted earnings from operations margin up two hundred and fifty basis points of our q three last year.
4483668,118,1038.6899,1042.5299,4,Adjusted earnings margins from our acquired businesses were seven point four percent.
4483668,119,1043.25,1052.14,4,As expected we saw a sequential reduction in earnings BioDot as business volumes normalized following a period of higher demand for COVID related products.
4483668,120,1053.98,1065.72,4,As expected C F T operated at a low single digit even margin in the third quarter actions to improve the cost structure of the business and drive savings through supply chain synergies are underway and on track.
4483668,121,1066.08,1072.2001,4,In the quarter supply chain savings were partially offset by increased cost of materials such as stainless steel.
4483668,122,1073.29,1083.5399,4,We are confident that the ongoing deployment of the A B M at C F T including core tools such as daily visual management problem solving and Kaiser events will drive improvements in the business.
4483668,123,1084.9399,1093.9901,4,As previously announced we also took action to reorganize certain C F T subsidiaries including closing two facilities and consolidating product lines.
4483668,124,1094.77,1101.1901,4,These actions will drive cost efficiencies in line with our plan and bring focus to areas with a stronger value proposition.
4483668,125,1102.02,1105.51,4,Restruction costs of four point two million were incurred in the third quarter.
4483668,126,1108.0,1110.61,4,Integration of SP and DF are in the early stages.
4483668,127,1111.28,1120.47,4,Our teams are working to achieve identified synergies between our pharma businesses including A T S Life Sciences Coma Chair and now with the addition to SP and DF.
4483668,128,1122.16,1126.9399,4,q three adjusted E P S was fifty two cents per share compared to thirty cents per share last year.
4483668,129,1127.4,1132.1799,4,The increase is primarily attributable to growth in revenues and improved operating margins.
4483668,130,1133.6,1144.8,4,Moving to the balance sheet in q three we generated cash from operations of eighty two point one million dollars up from seventy eight point nine million last year on growth and revenues and operating margins.
4483668,131,1145.76,1159.71,4,Our non-cash working capital as a percentage of revenue remained low at six point three percent in q three up slightly from six percent in q two and well within our target of maintaining working capitals of percentage of revenues below fifteen percent.
4483668,132,1161.26,1167.91,4,We invested eleven point three million in CapEx and intangible assets in q three compared to seven million in q three last year.
4483668,133,1168.71,1174.4501,4,Higher investments primarily related to the expansion and improvement of facilities and investments in IT.
4483668,134,1175.6,1185.96,4,On leverage our December net debt to adjust EBITDA ratio was three point one to one as we drew on our revolving credit facility to fund the acquisition of SP in q three.
4483668,135,1187.03,1191.96,4,As we've said previously we are willing to temporarily increase our leverage for the rate opportunities.
4483668,136,1193.1801,1203.09,4,And a proforma basis including the trailing twelve month EBITDA contributions of acquired businesses our net debt to adjusted EBITDA ratio was approximately two point six to one.
4483668,137,1204.6899,1211.4501,4,We ended the quarter with two hundred million of cash and availability on our credit facilities of approximately one hundred and seventy one million.
4483668,138,1212.27,1220.7001,4,Going forward we're focused on maintaining our strong balance sheet and flexibility into our financing to continue supporting our growth strategies.
4483668,139,1222.48,1232.4399,4,In summary strong growth continued in q three including record quarterly revenues bookings and backlog and we pursued margin expansion with good results.
4483668,140,1233.27,1242.79,4,These accomplishments reflected organic growth on plan contributions from our newly acquired businesses and the ongoing application of our A B M playbook.
4483668,141,1243.79,1252.4601,4,Our global teams have demonstrated strong performance in challenging business conditions as we continue to deliver value to our customers and shareholders.
4483668,142,1253.5,1257.8101,4,Now we will open the call questions from our analysts operator could you please provide instructions?
4483668,143,1258.27,1258.5399,4,Thank you.
4483668,144,1259.74,1263.72,5,Thank you ladies and gentlemen who will now conduct a question and answer session.
4483668,145,1264.08,1269.0801,5,To allow as many voices to be heard as possible please limit yourself to two questions per turn.
4483668,146,1277.22,1281.0499,5,Please ensure you leave the handset if you're using a speaker phone before pressing any keys.
4483668,147,1281.78,1288.08,5,One moment please for your first question your first question comes from Charlene Raborn GD Securities please go ahead.
4483668,148,1289.33,1289.98,7,Thanks very much.
4483668,149,1289.98,1290.85,7,And good morning.
4483668,150,1291.6899,1305.6801,7,Um Andrew as we think about your m and a agenda after a very busy twelve months can you give us a sense of how much white space is left in life sciences for you and where your areas of focus will be going forward?
4483668,151,1308.29,1308.7101,3,Yeah.
4483668,152,1308.71,1310.5,3,Good good good morning Charlene.
4483668,153,1310.64,1315.74,3,Um so I'm gonna walk through first really pleased with the progress we've made here.
4483668,154,1316.55,1326.36,3,And as we continue to build out our focus on key markets key areas we've also increased what we view as as the potential.
4483668,155,1326.36,1330.9401,3,And so our funnel was healthy and remains healthy in this space.
4483668,156,1331.14,1335.52,3,And there are multiple areas we like as you're well aware one is in life sciences.
4483668,157,1336.59,1352.4601,3,And even with the addition of of SP not only do we view bio pharma as having additional opportunity when we look at their life sciences equipment space it opens up new niche markets that we view have potential for A T S in the future.
4483668,158,1353.75,1357.84,3,Couple items to to to highlight our balance sheet remains strong.
4483668,159,1358.3199,1364.88,3,But secondly the cultivation activity that we do today oftentimes will pay off two years from now.
4483668,160,1365.22,1375.12,3,So when we look at our strategic layout and our strategic structure we're constantly focused on how to ensure that we build those relationships.
4483668,161,1375.17,1381.8101,3,We put us in a position that when an available target becomes available A T S can win.
4483668,162,1382.27,1392.8201,3,And as you are well aware we look at niche applications that are leaders in their spaces leaders in technology that we can bring together and really provide solutions for our customers.
4483668,163,1395.63,1395.95,7,Great.
4483668,164,1396.0699,1397.0299,7,That's great color.
4483668,165,1397.5,1412.77,7,Um and then for Ryan um your backlog conversion has been above guidance for the last several quarters and I was hoping you could help us understand that is that because there are now certain short cycle revenues that aren't factored into the backlog conversion?
4483668,166,1412.8,1418.0,7,Or is the company just continuing to exceed its own expectations for backlog conversion?
4483668,167,1420.05,1421.89,4,Um yeah good morning Charlene.
4483668,168,1421.89,1433.2899,4,So so I I'll start th this is something that we do look uh at every quarter and we base the estimate um on what is in our backlog or expectations.
4483668,169,1433.29,1440.47,4,And uh specifically to your question we have added uh faster turning businesses.
4483668,170,1444.9301,1450.38,8,Other projects are generally shorter cycle than than the core A T S business.
4483668,171,1450.38,1455.6901,8,They also have the lab ware and glassware business which is uh-uh a fast returning business.
4483668,172,1456.14,1462.3101,8,Um in in this quarter we were a bit higher than uh that thirty five to forty percent range.
4483668,173,1463.17,1463.4701,8,That…
4483668,174,1464.14,1472.4301,8,just over half of that just over one percent was related to SP which was not part of our business when we provided that range last quarter.
4483668,175,1473.0,1483.5599,8,Um so in in the short term we are dealing with supply chain headwinds uh there-there there's been an uptick in employee absenteeism related to Covid.
4483668,176,1484.01,1489.76,8,And so that's led us to keep that rate in that thirty five to forty percent range.
4483668,177,1490.3101,1498.63,8,Over time again to the to your question given the addition of more products technologies uh growth in services.
4483668,178,1499.15,1506.75,8,We may see this rate increase but i-in today's environment uh our our outlook is is in that thirty five to forty percent range.
4483668,179,1507.47,1508.89,9,Okay that makes a lot of sense.
4483668,180,1509.08,1509.5599,9,Thank you.
4483668,181,1509.76,1510.53,9,That's all from me.
4483668,182,1513.16,1513.6899,10,Thank you.
4483668,183,1513.83,1516.91,10,Your next question comes from Mark Neville with Scotia Bank.
4483668,184,1516.96,1517.65,10,Please go ahead.
4483668,185,1519.66,1520.36,11,Hey good morning guys.
4483668,186,1520.36,1521.54,11,<cough> 'Scuse me.
4483668,187,1521.75,1523.01,11,Uh another great quarter.
4483668,188,1523.4399,1530.0,11,Um I guess just just on these supply chain presses um again you're calling these out longer lead times labor et cetera.
4483668,189,1530.48,1535.66,11,Uh I guess I'm just curious sort of incrementally have things gotten materially worse?
4483668,190,1535.73,1538.25,11,Um or or or or not?
4483668,191,1547.5601,1549.45,12,Yeah good good good morning Mark.
4483668,192,1549.49,1552.96,12,Um I'll start then Ryan feel free to jump in if there's areas you want to add.
4483668,193,1553.5699,1555.77,12,Um so to to start…
4483668,194,1556.8,1559.64,12,we have and and I'll just walk through this quickly.
4483668,195,1559.67,1566.35,12,We we we've really launched our view of the A B M around this and and and it's something we call daily visual management.
4483668,196,1567.1801,1573.6899,12,Um effectively what you're doing is you're looking at every business every site every area on a daily basis.
4483668,197,1573.6899,1576.7,12,And and you know better green do you have an issue or not?
4483668,198,1576.7,1579.92,12,And if you have an issue how do you then resolve it that issue and drive?
4483668,199,1579.92,1585.49,12,And so we know from from not only a regional from a site-specific area.
4483668,200,1585.89,1596.3199,12,At my level across the enterprise I can pull up weekly I can pull up you know daily if needed what's going on in our supply chain and what do we really need to drive to assess?
4483668,201,1596.3199,1599.0199,12,And so quite candidly it has gotten worse.
4483668,202,1599.05,1606.5699,12,And and quite candidly you know it is a it is a challenge today one that we're planning for for for the remainder of the calendar year.
4483668,203,1606.5699,1615.42,12,Now there's different opinions on when that will call it come back to 'normal' but our view has been tactically how do we drive impact here?
4483668,204,1615.45,1617.25,12,How do we minimize the impact?
4483668,205,1617.72,1621.13,12,Additionally how do we set ourselves up for success in the long-term?
4483668,206,1621.13,1624.63,12,And so candidly it it it has increased.
4483668,207,1624.67,1626.52,12,Our team continues to perform.
4483668,208,1626.95,1639.79,12,It is an area we are very focused on and we're identifying short-term and midterm countermeasures on a daily basis to ensure that we stay ahead of any challenges uh whether it is supply chain or or general inflation.
4483668,209,1710.3,1713.4601,12,Um there's there's headwinds in supply chain.
4483668,210,1713.92,1718.38,12,Uh there's headwinds still related to to Covid and the resurgence there.
4483668,211,1718.38,1721.83,12,So you know we- we're you know being prudent in-in-in this.
4483668,212,1721.83,1725.27,12,And and you know i i i think I think that's appropriate.
4483668,213,1726.59,1726.99,11,Okay.
4483668,214,1732.13,1738.87,11,sequentially population was down quarter for quarter and I'm guessing that's bio-dot inaudible and then second question I'm gonna…
4483668,215,1753.88,1756.8501,12,And and that that was expected as I said in my prepared comments.
4483668,216,1757.41,1765.9701,12,Um that business had a had quite a strong covid tailwind uh related to to a couple of products that that they offer.
4483668,217,1766.52,1772.83,12,And we did expect that to normalize it did happen in the quarter and and in the business is-is-is really…
4483668,218,1773.48,1778.7899,12,It's in line with expectations but the reality is is it's still ahead of our expectations in terms of its performance.
4483668,219,1778.8199,1780.7401,12,So so we're very pleased there.
4483668,220,1781.36,1801.64,12,Um your second question was I think on the bay shelf filing so um We really look at this as-as-as a tool and-and-what-what has helped us be successful um in M N A over the past couple of years is is having flexibility and the ability to get a deal done.
4483668,221,1801.64,1804.51,12,In-in particular with our financing conditions.
4483668,222,1805.14,1808.78,12,And from a seller's perspective that takes a lot of risk outta the process.
4483668,223,1809.38,1817.64,12,And-and so as we're looking forward we talked about our growth strategy MNA is a big part of that.
4483668,224,1817.64,1828.15,12,We want to have uh continue to have financial flexibility and having this bay shelf in place is is an important part of that that that uh flexibility going forward.
4483668,225,1830.34,1830.61,11,Got it.
4483668,226,1834.48,1834.9301,10,Thank you.
4483668,227,1835.24,1839.0801,10,Your next question comes from David Okampo with Core-Mac Securities.
4483668,228,1839.08,1839.8201,10,Please go ahead.
4483668,229,1841.15,1841.91,13,Hi Good morning everyone.
4483668,230,1843.85,1851.22,13,Ryan last quarter you you provided a uh I guess organic operating margins for for the base business.
4483668,231,1852.08,1858.46,13,Since there's a lot of moving parts in in the quarter as it relates to you know acquisitions as well as supply chain issues…
4483668,232,1858.46,1862.4399,13,I was just wondering where your base operating margins are right now?
4483668,233,1864.3199,1873.2999,12,Yeah so I I I did mention this in my prepared remarks but we we are in the mid fourteen percent range so uh fourteen point three percent.
4483668,234,1873.8101,1879.0399,12,We were actually down slightly we were down fourteen point four in the prior sequential quarter.
4483668,235,1879.55,1884.0601,12,Um and-and-and the-the headwind there was related to stock comp.
4483668,236,1884.0601,1888.75,12,It was about a thirty to forty basis point uh impact on our core margins.
4483668,237,1889.3,1896.48,12,Um our growth margin and uh in-in-in-and operating margins were both ahead excluding stock comp.
4483668,238,1897.01,1903.6201,12,Um and-and then the acquisitions were in the-the high single digit range seven and a half percent.
4483668,239,1904.36,1918.72,12,And I talked through the different components there but just to-to reiterate so CFT has uh historically been at a low single digit even margin and they continue to be in line there so um you know we've made progress…
4483668,240,1918.75,1926.87,12,Some of the some of the day one costs uh that we've expected have come out um we've had some early winds in supply chain…
4483668,241,1927.28,1936.25,12,Now again there's-there's other areas in supply chain for example commodities and I mentioned in uh stainless steel uh they're a large consumer of that.
4483668,242,1936.28,1941.6799,12,And and that scenario where we do have more of a challenge to offset those cost increases.
4483668,243,1942.34,1946.1899,12,Um so so they're performing to plan.
4483668,244,1946.23,1951.48,12,The restructuring we announce will further uh help with their costs and operating efficiencies.
4483668,245,1952.0601,1964.79,12,Um the other big piece of of our acquisition margins was bio-dot and I talked about um you know that's been a very strong performer for us really driven by some of those Covid tailwinds.
4483668,246,1965.3,1967.75,12,And we did see that as I said normalize in the quarter.
4483668,247,1967.75,1972.0699,12,And-and so their margins are still accretive to our overall margins.
4483668,248,1972.1899,1974.4301,12,Uh but they did come down relative to q two.
4483668,249,1975.72,1995.03,13,And and you guys did note that uh product sale is becoming a bigger piece of your business here in-in-in the release but I was just curious what-what what's the split now between internal equipment versus third party equipment that you guys are using for I guess the entirety of your sales?
4483668,250,1997.1899,2005.15,12,Uh so it-it-it hasn't really changed it's still in that it's still in that forty percent range which is typically where it's been.
4483668,251,2005.84,2009.7999,12,It-it ranges a little big forty to forty five but it is still in that forty percent range.
4483668,252,2011.2,2012.62,13,That's forty percent internal right?
4483668,253,2014.91,2016.27,12,Uh yes correct.
4483668,254,2040.24,2043.78,10,Your next question comes from Justin Keywood with Chief G M B.
4483668,255,2043.78,2044.59,10,Please go ahead.
4483668,256,2045.67,2046.52,14,Hi good morning.
4483668,257,2046.98,2047.88,14,Thanks for taking my call.
4483668,258,2047.88,2050.05,14,Nice to see the continued strength and the business.
4483668,259,2050.6599,2055.3799,14,On the organic growth uh it was uh strong inaudible at twenty one point five percent.
4483668,260,2055.71,2061.7402,14,I'm wondering if we just take a step back and uh if you could describe some of the factors driving that organic growth…
4483668,261,2062.3201,2068.8301,14,uh across the different segments and and how do you see organic growth playing out in uh the near term and uh medium term?
4483668,262,2070.6699,2072.3799,15,Um you know sure.
4483668,263,2072.53,2073.6101,15,Good morning Justin.
4483668,264,2074.76,2079.0198,15,So I'll characterize this at the top level but I'll go into specifics.
4483668,265,2079.0601,2084.49,15,So if we look at the markets we generally state the markets are are are favorable and good.
4483668,266,2085.27,2088.52,15,And then if you look at our funnel as I mentioned our funnel remains solid.
4483668,267,2089.6201,2096.6101,15,I then I then you know would would be remiss to not add in the operating environment which we say is challenging.
4483668,268,2096.76,2103.4099,15,And and we would say not only you know from a from a supply chain but also when you look at the pandemic impact.
4483668,269,2103.4099,2106.6599,15,So so it is a challenging environment but our teams continued to perform.
4483668,270,2106.6599,2107.6599,15,They continued to thrive.
4483668,271,2108.6001,2115.5901,15,Then if I step into each segment and I did talk a bit about this in the prepared remarks but to add a little additional color.
4483668,272,2116.26,2136.5,15,Like sciences uh when we-we look at this area it it's largely compris-comprised of-of non-covid opportunities now and and you know things do you know get a little bit blurry in that you know that vaccine rollout and-and as we get more bio-pharma more more pharma it really does impact whether it's that or new drugs or new discoveries.
4483668,273,2136.5,2141.1899,15,But-but that market call it year-to-date growth is roughly fifteen percent.
4483668,274,2141.1899,2149.1602,15,This quarter was a little more impacted by some delays in-in-in elective surgeries and so we did see some impact this quarter.
4483668,275,2149.3999,2155.23,15,But as we look at our year-to-date number we still see this as a solid market and-and one that provides opportunities for the future.
4483668,276,2155.8101,2157.4299,15,The funnel remains healthy here.
4483668,277,2167.9399,2182.02,17,Uh and and and you know as you look at the stricter emissions and you look at the the the focus on driving this and in that sector in that space we do view that we are positioned well to help our customers through that.
4483668,278,2182.02,2192.8899,17,And we do view this as an area that we can continue to support and drive growth within our solution set within our technology within within our core value within the within the market.
4483668,279,2193.72,2197.3801,17,Consumer we saw good activity uh in warehouse automation.
4483668,280,2197.3799,2201.8901,17,And and we are seeing uh some some pickup in in in the cosmetic space.
4483668,281,2201.8899,2220.8999,17,As a matter of fact uh I recently visited a customer in this area and it was fascinating because this customer specifically walked through their model their business with me where they said that they're impacted by by by a reduced sunscreen because of the limited travel but yet their home care products have have have skyrocketed.
4483668,282,2220.8999,2225.03,17,And and sky racking to 'em was a big number but but I don't reference what that number is.
4483668,283,2225.5601,2231.1201,17,And so we have seen that market start to come back and we have seen you know the funnel really align with that.
4483668,284,2231.2,2243.47,17,And and then you know to round this out uh our food business um you know when we think about primary processing you know and think think uh tomato to to initial processing.
4483668,285,2243.47,2247.8,17,So so to you know from buying to puree was a solid quarter.
4483668,286,2247.8601,2256.1799,17,And you know we are seeing a bit of an uptick there and and and and a favorable setup for the the the harvest season that's coming up.
4483668,287,2256.9199,2267.5,17,Energy uh you know I I I mentioned this in in in the announcement in the update you know this this continues to be a strong market for us continues to be an area that we view we can offer high value for our customer base.
4483668,288,2268.22,2275.0898,17,We're continuing to look at at opportunities to expand a niche application to ensure that it's high value in the markets we serve.
4483668,289,2275.6399,2279.6501,17,And lastly boy you know our our services team continues to execute.
4483668,290,2279.8401,2285.3899,17,And and if you look at you know versus prior quarter in in year to year the growth that they've seen.
4483668,291,2285.99,2297.2,17,And you know it's this is an interesting one and and one to highlight where even in my tenure here this has gone from a nice to have to a str strategic imperative for our customers.
4483668,292,2297.2,2301.22,17,Where when they when they came to us from the beginning it was well do you have services?
4483668,293,2301.22,2302.9299,17,And ca what can you offer in going through?
4483668,294,2302.9299,2314.0698,17,Now it's because of the pandemic because of the supply chain disruptions because of you know machine dependency and or turnover they're looking at our services organization as a key enabler.
4483668,295,2314.6599,2322.1899,17,And so when companies and and customers in say the UK went down and went on lockdown ATS could still execute.
4483668,296,2322.1899,2328.1499,17,ATS could still provide that inaudible because we launched digital tools because we had the regional service network.
4483668,297,2328.1499,2334.96,17,And so I truly think this has been an enabler for us to keep driving share and and driving that value for our customers.
4483668,298,2334.96,2343.5,17,And so overall I would say to get back to my initial point generally favorable in the markets positive and and our funnel remains healthy and aligned around it.
4483668,299,2343.95,2345.8499,17,Uh but the operating environment is challenging.
4483668,300,2346.73,2352.1599,18,Thank you very helpful context and uh good to hear the new EV customer when in uh Europe.
4483668,301,2352.8101,2357.3401,18,Just on the services growth that you mentioned uh what was that in the quarter?
4483668,302,2357.73,2367.46,18,And just to provide some context if we look at aftermarket services as a percentage of sales what was that prior to the pandemic or a couple of years ago?
4483668,303,2367.8201,2371.5801,18,What is it today and what would be the long term target for that area?
4483668,304,2373.3999,2383.24,19,So uh in terms of uh after sales services as a percentage of revenues it is it's mid to high teens today.
4483668,305,2383.24,2388.8101,19,So it's been in the and it's while it's grown the the rest of our business has grown too.
4483668,306,2388.8101,2392.6899,19,So uh it it's it's had to keep up which which it has.
4483668,307,2393.1699,2399.97,19,Um you know a few years ago and I don't have the data in front of me but we went back four or five years.
4483668,308,2399.97,2402.47,19,It would've been than the low teen maybe ten twelve percent.
4483668,309,2402.47,2415.78,19,So it it's it's its growth has outpaced um the the equipment side of the business which which we view as as as very positive and and much for the reasons that Andrew just outlined.
4483668,310,2416.96,2438.8101,17,One other item that that I would just uh want to highlight as well as is is a growth in our digital solutions around whether it's Illuminate or or what what PA's doing and in their business to really provide not only data collection but then utilizing the data to then bring back in a solution set that helps customers improve their process.
4483668,311,2438.8101,2446.9802,17,And so we have seen that be a real call it bright spot and growth but it's still relatively small across the you know the total business.
4483668,312,2446.98,2452.6799,17,But we do view that as an area of growth for our organization and one we can help our customers as they navigate this this time.
4483668,313,2454.1799,2454.6902,20,That's helpful.
4483668,314,2454.6899,2455.8899,20,Thank you for taking my questions.
4483668,315,2459.26,2459.73,18,Thank you.
4483668,316,2460.0801,2463.97,18,Your next question comes from Maxim Chichi with National Bank please go ahead.
4483668,317,2466.04,2466.9399,22,Hi good morning gentlemen.
4483668,318,2468.4399,2469.1699,17,Good morning Max.
4483668,319,2469.1699,2469.5798,19,Morning.
4483668,320,2469.97,2486.77,22,Um Andrew maybe just the the first question for you um in terms of you know how we think about uh uh m and a and and the timing of it how do you balance uh that dynamic with uh obviously the need to properly integrate um especially SP which was a pretty sizable transaction.
4483668,321,2486.77,2490.71,22,So do you mind me just walking us through your thought process there?
4483668,322,2491.8301,2493.3699,17,Uh yeah.
4483668,323,2493.3701,2496.1599,17,And and and and Max there's there's no perfect answer here.
4483668,324,2496.1599,2499.03,17,What I can walk you through is we've developed an integration playbook.
4483668,325,2499.03,2503.5701,17,It's it's very standard around how we operate and how we walk into businesses.
4483668,326,2503.5701,2512.95,17,And and you know as you are well aware when we look at an acquisition we have four criteria and you know it's markets it's it is strategic rationale.
4483668,327,2513.3999,2519.5801,17,One of 'em is is is the management assessment and and their ability to align around the ABM.
4483668,328,2519.6101,2521.3799,17,And so we do assess that going in.
4483668,329,2521.3799,2530.1799,17,And then ultimately in the early days of the integration you start to align around where they are in their journey and and and where do we need to press where do we need to you know help in that solution set?
4483668,330,2530.1799,2536.3401,17,So we have a very good indication when we acquire a business of where they are in that journey and and and where we help.
4483668,331,2536.3401,2549.51,17,And so what I can tell you is we have built out our capability and our ability within our leadership team to be able to align and and continue to build out their portfolio of solutions.
4483668,332,2550.22,2554.0999,17,We are selective in in in what we are going to add.
4483668,333,2554.26,2563.0801,17,And we look at it from a value creation perspective both from a shareholder and a customer perspective from what we can offer whether it is technology or solutions.
4483668,334,2563.8,2575.6101,17,And as you're well aware the cultivation activity while you know I I will say it often oftentimes will will will play out two three four years from now.
4483668,335,2575.6101,2579.3401,17,And so uh we are not slowing down this activity.
4483668,336,2579.4199,2584.7002,17,We do view that there's a lot of opportunity for us to continue to add here but we're gonna be extremely disciplined.
4483668,337,2585.24,2589.8701,17,And so to answer your question head on we have built our capability among our team.
4483668,338,2590.55,2600.1001,17,We certainly are taking and ensuring that we have a key focus on SP to execute to ensure they meet and exceed our expectations.
4483668,339,2600.6699,2608.6399,17,And then lastly we're not slowing down our cultivation and and we're gonna continue in the areas that we view are gonna add value over over the long term for ATS.
4483668,340,2609.1101,2609.2002,22,Okay.
4483668,341,2610.5601,2612.1602,22,That makes a lot of uh sense.
4483668,342,2612.3601,2612.8999,22,Thank you for that.
4483668,343,2613.1001,2615.3501,22,And then just one quick follow up on on SP.
4483668,344,2615.9299,2622.7102,22,Um in terms of the ability to cross fill their consumable business do you mind maybe just providing some data points there?
4483668,345,2622.71,2628.2002,22,Because my understanding is that uh I think most of the sales process there is going through distributors.
4483668,346,2628.5801,2635.6499,22,And I'm just curious to see how you think about sort of leveraging that potential business into the rest of the ATS if if it's possible.
4483668,347,2637.24,2643.54,17,So so Max you know I I think just to confirm you're asking about the lab ware glassware business?
4483668,348,2644.1499,2644.5798,22,Exactly.
4483668,349,2644.6201,2644.8401,22,Yeah.
4483668,350,2644.99,2645.1399,22,Yeah.
4483668,351,2646.28,2646.52,17,Yeah.
4483668,352,2646.52,2660.4902,17,So so so we we certainly uh you know we did a lot of diligence to understand this space and and the stickiness with with their you know call it bell art portfolio as well as the the other areas uh within that within that space.
4483668,353,2660.49,2672.0,17,And you know we view this as as a as a as a business that you know while it's low single digits it's it's a it's a market that has consistent continued revenue.
4483668,354,2672.2,2688.6499,17,And and when we think about the consistency there it's one one we like from a standpoint of of their we don't want to call it consumable but their reoccurring revenue and and their approach around the the brand being a strong brand in the markets they serve.
4483668,355,2688.6499,2690.71,17,And so it does go through distribution.
4483668,356,2691.1001,2696.9202,17,Uh it's an area that that we certainly see you know value in continuing to to help them execute their plan.
4483668,357,2697.45,2700.1101,17,Uh does it help sell bio pharma processing equipment?
4483668,358,2700.46,2707.3601,17,Uh we think it's an potential adder but but it is not call it would not draw that that total processing equipment in.
4483668,359,2707.6499,2719.3101,17,We would view the alignment with Coma Chair to inaudible to to Haul as really being the the the thesis and the alignment on the biopharma biopharma processing piece.
4483668,360,2719.8701,2741.6501,17,And then you know to around this out they've got Genevac and Life Sciences equipment and and FTS and and and there's a lot to like around those those areas of of what we can have from a from an ATS Coma Chair SP integration to to offer that full process solution whether it's biopharma or pharma processing.
4483668,361,2743.1101,2743.3601,22,Okay.
4483668,362,2743.5,2744.1201,22,That's helpful.
4483668,363,2744.1201,2745.0801,22,Thank you so much that's it for me.
4483668,364,2761.6201,2762.05,17,Operator.
4483668,365,2770.8501,2771.3801,18,Great.
4483668,366,2771.49,2787.1799,18,Um well we will conclude and and you know if I step back we're pleased with the performances quarter and recognize the hard work and dedication of our teams across ATS that made this possible.
4483668,367,2787.9099,2789.03,18,Thank you for joining us.
4483668,368,2789.5801,2792.3298,18,I look forward to speaking to you on our q four call in May.
4483668,369,2792.74,2794.3701,18,Stay safe and goodbye for now.
4483670,0,2.69,12.3,0,Thank you for standing by and welcome to the Capital Product Partners Fourth Quarter two thousand twenty one Financial Results Conference Call.
4483670,1,13.44,15.13,0,We have with us Mr.
4483670,2,15.13,18.78,0,Jerry Kalogiratos Chief Executive Officer of the company.
4483670,3,54.17,69.22,0,Our ability to pursue growth opportunities our expectations or objectives regarding future distribution amounts capital reserve amounts distribution coverage future earnings capital allocation as well as our expectations regarding market fundamentals.
4483670,4,69.73,84.58,0,Also the employment of our vessels including delivery rates and charter rates maybe forward-looking statements as defined in Section twenty one e of the Security Exchange Act of nineteen forty three as a mandate.
4483670,5,84.58,96.58,0,Thus foreword-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated.
4483670,6,97.02,112.67,0,Unless required by law we disclaim an obligation to update or revise any of those forward-looking statements but because of future events and new information a change in our user expectations to confront to actual results or otherwise.
4483670,7,113.51,119.44,0,We assume no responsibility for the accuracy of the forward-looking statements.
4483670,8,119.84,123.36,0,We make no predictions or statements about the performance.
4483670,9,130.66,135.65,1,Thank you Ella and thank you everyone for joining us today.
4483670,10,136.41,143.0,1,As a reminder we'll be referring to the supporting slides available on our website as we go through today's presentation.
4483670,11,144.46,150.13,1,We are pleased to have announce last week the increase of the partnership unit quarterly distribution by fifty percent.
4483670,12,151.22,155.77,1,The distribution will be paid on February tenth to common unit holders to record on February third.
4483670,13,156.73,162.75,1,Our board has also set a new quarterly distribution guidance of fifteen cents per quarter unit compared to ten cents previously.
4483670,14,190.0,197.64,1,During the quarter we also delivered the motor vessel at inaudible to its new owners and acquired the remaining four L N D carriers.
4483670,15,198.02,200.89,1,Thus completing our six L N D carrier acquisition program.
4483670,16,202.64,227.12,1,I would like to remind you that underpinning of the three additional L N D carriers to those announced in August two thousand twenty one with insurance of a hundred fifty million Euro for approximately a hundred seventy four million Dollars secured bond on the inaudible in October 2021 with a fixed coupon of two point six five percent and a five-year tenor.
4483670,17,228.49,236.11,1,After entering into cross-currency swaps for four years the effective coupon of the bond in u s Dollars is approximately three point seven percent.
4483670,18,238.12,251.08,1,Turning to Slide three revenue for the quarter were sixty three point six million an increase of eighty one percent compared to thirty five point one million during the fourth quarter of two thousand and twenty.
4483670,19,256.82,273.65,1,Following the acquisition of the three Panamax containers in February 2021 and the acquisition of the six LNGs during the second half of 2021 partly set off by the sale of our two nine 000 vessels in May and December two thousand twenty one respectively.
4483670,20,275.08,281.99,1,Total expense for the quarter were thirty five point seven million compared to twenty four point six million the fourth quarter of two thousand twenty.
4483670,21,283.37,295.5,1,Budget expenses for the quarter increased to three point two million compared to one point nine million the fourth quarter of 2022 excuse me two thousand twenty primarily due to the average size of our fleet.
4483670,22,296.98,309.13,1,Total vessel operating expenses during the quarter amounted to fourteen point nine million compared to ten point three million during the fourth quarter of two thousand twenty again as a result of the net increase in the average size of our fleet.
4483670,23,310.87,320.87,1,Total expense for the fourth quarter also due to vessel depreciation of fourteen point eight million compared to ten point seven million in the fourth quarter of two thousand twenty.
4483670,24,322.93,326.57,1,The increase was mainly attributable to the net increase in the average size of our fleets.
4483670,25,327.91,336.54,1,General expenses for the quarter amounted to point seven million compared to one point eight million in the fourth quarter of two thousand twenty.
4483670,26,339.24,350.88,1,The increase in general expenses was mainly attributable to fees and expenses in connection to the acquisition of the four LNGs during the fourth quarter of 2021 and the bond dispute on the Athens exchange.
4483670,27,401.44,423.79,1,We allocated thirty one million to the capital reserve and an increase of sixteen point five million compared to the previous quarter due to the increase of the acquisition of the four LNGs in the fourth quarter and the inclusion of the capital reserve of eight point five million corresponding to an additional non-cash reserve that our board has decided to set aside in view of the fourth quarter of two thousand twenty one.
4483670,28,424.73,431.66,1,The additional reserve represents the amount that we will need to accumulate per quarter in order to repay the bond in full on maturity.
4483670,29,432.52,437.9,1,After adjusting for the capital reserve the adjusted operating surplus amounted to six point nine million.
4483670,30,442.91,451.7,1,As of the end of the fourth quarter our partners capital amounted to five hundred twenty five million and increased of 103 million compared to 425 million as of year end.
4483670,31,452.56,476.59,1,The increase of the net income for the full year 2021 15.3 million representing the value of the 1.1 million common units as issued by the consideration pay for acquisition of the two l n d carriers and inaudible incentive plan partly offset by the distributions declared and paid during the period the total amount of seven point six million.
4483670,32,477.96,481.4,1,The partnerships common units for an aggregate amount of four point five million.
4483670,33,517.11,532.16,1,The increase was partly offset by the sale of two nine thousand TEUs and the debt repayment of the respected financial arrangements the total amount of ninety six point two million and scheduled principle payment of forty nine point three million during the period.
4483670,34,533.17,538.94,1,Total cash at the end of the quarter amounted to thirty one million including received cash of ten point six million.
4483670,35,539.33,543.26,1,Which represents the minimum liquidity requirement and the financing arrangements.
4483670,36,568.13,570.27,1,Exceeding one point two billion in value.
4483670,37,571.53,589.02,1,Specifically the six ships were acquired with an average price of just short of two hundred four million and the long-term time charters with inaudible with a waited average remaining charted duration of five point seven years and an average rate of approximately seventy thousand dollars per day.
4483670,38,590.04,603.81,1,As the four LNGs were delivered towards the end of two thousand twenty one we expect to see the full impact on the partnerships financials in the first quarter of two thousand twenty two with total operating days for the six vessels expected to amount to five hundred forty…
4483670,39,633.82,641.28,2,I would like to highlight that presently the charter three market value of the collateral fleet is abour ten times the value of the balloon payment.
4483670,40,642.16,649.04,2,As a result we're not only expecting the financing to be very straight forward but also potential lever for our additional liquidity.
4483670,41,651.34,659.1299,2,Now moving to slide eight the partnerships remaining in charter duration amount to approximately four point nine years on the back of the six vessel acquisition.
4483670,42,687.52,696.83,2,While contract revenue remains high until two thousand twenty five when certain of our container vessels roll of their charters if certain options are not exercised.
4483670,43,699.25,710.11,2,We're also pleased that our charter portfolio consists of seven high quality counter parties having diversified our customers base with the addition of three investment grade charters namely BP and.
4483670,44,710.9,715.83,2,BP represents our largest customer and accounts for abour forty percent of our contracted revenues.
4483670,45,718.35,721.3,2,Turning to slide ten and the L N G market update.
4483670,46,722.2,732.61,2,The fourth quarter started with a common winter pattern of a very tight freight market with global energy exports setting an all time record during December led primarily by US exports.
4483670,47,733.49,746.85,2,However the inversion of the commodity price spread between Europe and the Far East led to a weaker spot market for L N G carriers towards the end of the quarter as the flow of cargos to Europe instead of the Far East adversely affected on mile demand.
4483670,48,747.71,759.16,2,Overall demand fundamentals for L N G shipping remain robust as liquefaction capacity is expect to grow by eight and seven percent in two thousand twenty three and two thousand twenty four respectively.
4483670,49,759.82,778.33,2,With most of the additional new capacity being added in the US in particular about seventy five um amount metric tons per anum or m t p a of additional liquefaction capacity is expected to go online in the US by the end of two thousand twenty four compared to seventy M T P A today.
4483670,50,780.65,794.35,2,The L N G fleet order book stands at twenty seven percent of the current fleet with thirteen new orders placed during the quarter utilizing almost all available C P R L N G carrier floats up to mid two thousand twenty five.
4483670,51,795.55,816.63,2,As a result of increased demand and the strong fundamentals of the L N G market competition from other segments such as the container market as well as inflationary pressures in raw materials and equipment shipyards are continuing to increase new building prices with shipyard quotes currently in excess of two hundred twenty million per vessel for higher specification L N G carriers.
4483670,52,818.38,832.32,2,The increased L N G commodity prices and charters preference for larger cargo sizes as the L N G export market continues to expand favors increasing latest generation to stroke L N G carriers such as vessels owned by C P O P.
4483670,53,833.23,853.09,2,The rate differential in view of the increased cargo intake lower effective boil off and lower consumption in a world of twenty five dollars L N G price per m n b t e u has increased to forty thousand dollars per day compared to a T S T vessel and seventy thousand dollars per day compared to a steam ship for US to Europe round trip.
4483670,54,854.33,862.88,2,At the same time as we seem to increase focus on greenhouse emissions in shipping in general and forever L N G carriers in particular including methane emissions.
4483670,55,863.27,873.97,2,The preference for the latest innovation vessels will become even more pronounced and as a result lead to and even greater earnings differential between latest generation L N G carriers and other vessels.
4483670,56,877.0,879.5,2,On slide eleven we review the container market.
4483670,57,880.82,885.67,2,Momentum remains very strong during the fourth quarter and into early two thousand twenty two.
4483670,58,886.24,888.76,2,With freight and charter rates surging to record highs.
4483670,59,889.7,897.77,2,The Clarkson's container ship charter rate index stood at three six two points in December up two hundred eighty percent since the beginning of two thousand twenty one.
4483670,60,898.85,906.89,2,Also underscoring the strength of the market a fifteen year old standard eight thousand five hundred T E U vessel was fixed recently for five years at sixty four thousand dollars per day.
4483670,61,906.89,920.8701,2,A record charter rates have been driven by a range of factors including strong demand exceptional freight rate severe logistical disruptions and the trend towards longer periods that has restricted to availability specially in the larger sizes.
4483670,62,923.73,927.44,2,Looking ahead the outlook remains positive for two thousand twenty two.
4483670,63,928.49,943.02,2,The inaudible new built deliveries at approximately one million T E U for this year and vessels that have been fixed on medium to long term period charters last year are expected to keep inaudible availability limited also in two thousand twenty two.
4483670,64,944.53,948.77,2,As such demand growth is expected to outstrip supply growth for a second consecutive year.
4483670,65,949.58,958.57,2,Although demand growth is expected at three point eight percent for two thousand twenty two with supply growth forecast standing at three point six percent.
4483670,66,959.49,968.11,2,In addition with the appearance of the highly contagious Omicron variant has exerted further pressure on logistical change worldwide thus further restricting vessel supply.
4483670,67,969.81,983.6,2,Nevertheless the medium to long term demand outlook remains more challenging due to the tapering of stimulus measures and easy monetary policy resulting in increasingly more normalized consumer spending.
4483670,68,984.16,998.78,2,If this coincides with an easing of logistical bottlenecks which would release more capacity in the container market we can potentially see a slowdown in terms of freight and charter rates that might be further adversely affected by increased new built deliveries from two thousand twenty three onwards.
4483670,69,1009.79,1017.49,2,During the quarter it is estimated that fifty six container vessels were ordered which compares to an average of a hundred seventy one vessels during the first three quarters of the year.
4483670,70,1018.5,1026.8999,2,Overall the container vessel order books were twenty three percent in mid January up just zero point four percent from the third quarter of last year.
4483670,71,1028.9301,1055.98,2,Now moving to slide twelve we're very pleased that our board has announced an increased quarterly distribution by fifty percent by fifty percent to fifteen cents per quarter for the fourth quarter of two thousand twenty one and together set a new increased distribution guidance of fifteen cents per quarter as a result of the addition of the six L N G carriers to the partnership's fleet and the expec expected associated increase in the earnings and cash flow going forward.
4483670,72,1058.5601,1065.5,2,Overall we tend to continue to return capital to our unit holders as we have done every quarter since our I P O in April two thousand seven.
4483670,73,1065.87,1081.0299,2,Over the last fifteen years the partnership has paid non stop distributions for fifty eight consecutive quarters corresponding to a total of approximately nine hundred sixty million including eight ninety million in cash distributions and a hundred forty million in distributions in kind.
4483670,74,1082.59,1089.13,2,Going forward we expect to continue increasing our common unit distributions as we increase our distributable cash flow with new additions to our fleet.
4483670,75,1089.92,1102.75,2,In addition having the six L N G carrier acquisition program behind us that strained our liquidity during the third and fourth quarter of last year we can now resume our unit buy back program which we put in place early last year.
4483670,76,1103.71,1112.74,2,As mentioned earlier since launching of the unit buy back program in February two thousand twenty one we have repurchased common units in the amount of four point five million.
4483670,77,1114.65,1123.4301,2,Now turning to slide thirteen and in terms of future growth opportunities the number of additional acquisitions that we are targeting in the short to medium term.
4483670,78,1124.34,1128.5699,2,In the short term our primary fo focus would be the vessels for which we have the right of first offer.
4483670,79,1129.73,1134.14,2,A right we obtained as a part of the agreement for the acquisition of the six L N G carriers.
4483670,80,1134.6899,1145.83,2,This includes three thirteen thousand T E U container vessels with delivery from the third quarter of two thousand twenty two until May two thousand twenty three and which have a ten year firm time charter in place.
4483670,81,1146.47,1152.4,2,Um as well as three additional L N G carriers with delivery in two thousand twenty three.
4483670,82,1152.4,1161.88,2,The Asterix One is the first L N G carrier to be delivered in January two thousand twenty three and has a secure time charter deployment of minimum five years at a highly attractive rate.
4483670,83,1163.4399,1173.12,2,In addition to the above vessels Cattle Maritime has entered over the last few months into additional new building contracts for three more L N G carriers with deliveries set for two thousand twenty four.
4483670,84,1175.59,1191.03,2,As this three additional L N G vessels find deployment and subject to our ability to acquire these vessels inaudible can potentially become one of the very few companies that control a fleet of twelve brand new latest generation L N G carriers with a unique portfolio of charters.
4483670,85,1191.91,1203.29,2,As explained earlier we anticipate that two stroke latest generation L N G carriers like the vessels we already own and these potential drop down candidates will benefit greatly from the L N G market fundamentals ahead.
4483670,86,1217.11,1235.42,5,And as we continue to grow the partnership's asset base and distributable cash flow we will also seek to increase the amount we pay out to unit holders in the form of common unit distributions and unit buybacks thus executing our savings strategy of continuing to grow the partnership's asset base but at the same time returning capital to our unit holders.
4483670,87,1236.75,1243.23,5,And with that I'm happy to answer any questions you may have thank you.
4483670,88,1243.23,1246.3101,5,Ladies and gentleman we'll now begin the question and answer session.
4483670,89,1246.9301,1255.87,5,If you'd like to ask a question please press star and one on your telephone and wait for the automated message stating your line is open.
4483670,90,1259.0601,1262.65,5,Once again it's star and one if you'd like to ask a question.
4483670,91,1338.1,1340.16,4,Eh given the structure of the charter.
4483670,92,1340.28,1348.12,4,I think uh we are quite well placed in terms of debt repayment.
4483670,93,1348.6,1366.73,4,Uh in addition if you look at our uh um overall um L T V despite uh the um um despite us incurring um quite a bit of additional debt in order to um to acquire the six LNGs.
4483670,94,1367.5601,1377.01,4,Uh our gross leverage is still on the back of uh car and tractor values approximately forty six percent which is quite reasonable.
4483670,95,1441.9399,1455.35,4,Um Eh a couple of things I agree with you um especially with very lofty um container prices compared to historical leverages.
4483670,96,1455.8101,1468.14,4,Um one has to make sure that um the the employment that is in place in any potential acquisition especially uh when it comes to conservative business model like ours.
4483670,97,1468.54,1478.61,4,Eh you write down those vessels very close to what is uh historically uh unacceptable residual.
4483670,98,1500.9,1521.11,4,Um now secondly with regard to um let's say um the focus in terms of drop downs um it's obvious what would qualify really for us are the three thirteen thousand new containers ships and the L N G that has been fixed.
4483670,99,1522.9301,1530.1801,4,Uh the rest um I think um will have to wait until there is employment uh in place otherwise it's simply too speculative.
4483670,100,1531.04,1542.8101,4,Um We estimate that in uh very broad terms um that uh that these vessels will require equity of anywhere from a hundred forty to a hundred sixty million dollars.
4483670,101,1543.26,1547.72,4,And could generate uh inaudible from sixty million dollars.
4483670,102,1548.41,1554.4399,4,Um so the question is uh as you say what can and what will you do out of those.
4483670,103,1555.64,1568.48,4,Uh subject to uh reaching a potential agreement on the acquisition of the ships uh the fine for the financing we have numbers numerous levers at our disposal.
4483670,104,1569.24,1576.63,4,Um firstly as you pointed out earlier on our free cashflow generation is expected to increase materially going forward.
4483670,105,1577.1,1585.4701,4,And as and uh and as we have the full impact of the six LNG carriers and that will be from the first quarter of two thousand twenty two.
4483670,106,1586.4301,1594.9701,4,Um Secondly as I pointed out in my prepared remarks there is some additional liquidity that we can source by finan by financing of our credit facilities.
4483670,107,1596.23,1601.9401,4,We would have ample of room in view of the relatively small debt balance is outstanding.
4483670,108,1602.54,1607.7,4,Uh and thirdly I think we will continue to look for attractive external capital.
4483670,109,1607.86,1617.9301,4,Um you know sources could be the preferred equity market the fixed impact market that uh um that we successfully tapped um a last year.
4483670,110,1618.45,1624.5901,4,Um and these um sources could compliment our generated cash flows.
4483670,111,1625.73,1632.46,4,And potentially uh try to execute uh uh on on all on all these four ships.
4483670,112,1632.96,1639.9399,4,But I think that will very much depend very much on uh um eh what access we have in terms of external capital.
4483670,113,1640.75,1669.38,4,Again like last time the priority is to avoid uh any issuance of comments so this is uh this is uh in view of the eh value of the location this is something that uh we will not entertain and eh in in the last eh um acquisition of the six L N G carriers despite the huge program we only issued fifteen million dollars of of equity.
4483670,114,1669.47,1676.5699,4,Em I think it shows um that this is uh the very last tool we want to be using given the viutes location.
4483670,115,1677.09,1688.63,4,So I think it will very much depend on where there will external sources of capital but if if we can ideally we would like to continue growing on both sides that is uh both containers and the LNGs.
4483670,116,1689.04,1692.02,4,Um um and the L N G front.
4483670,117,1692.67,1716.8401,4,Uh the I should I should add here that one of these main criteria going forward is that we are committing to buying only um modern eco vessels that are compliant with the latest regulations so um e d i face that is very important so we will not be looking at other vessels.
4483670,118,1717.38,1725.5,4,We believe that uh um the residual risk of other vessels is not properly priced in.
4483670,119,1725.53,1731.2,4,And uh in in part historically by the very lofty container market.
4483670,120,1731.66,1753.7201,4,Um but the hidden effect for many of the older vehicles um the potentials for even more um punity of regulations after two thousand twenty seven is uh quite significant so we are committing to uh acquiring only modern uh less regulation compliant vessels eco vessels.
4483670,121,1754.11,1757.87,4,Eh and potentially to find good opportunities divesting from other assets.
4483670,122,1778.21,1780.72,7,Hey hey Jerry how's it going?
4483670,123,1781.53,1782.4399,6,I'm very well how are you?
4483670,124,1783.26,1784.73,7,Oh doing well doing well.
4483670,125,1784.92,1785.7401,7,Uh two questions.
4483670,126,1785.9399,1794.63,7,alright first on your fleet so you have one hundred percent charter coverage for the next two years outside of two vessels.
4483670,127,1794.63,1796.23,7,So let's discuss those.
4483670,128,1807.29,1815.4299,9,So the inaudible has earned on average around twenty two thousand dollars um in uh two thousand twenty one.
4483670,129,1815.46,1821.0601,9,Um it's earnings are similar um um year to date.
4483670,130,1822.3199,1823.04,9,Uh we're…
4483670,131,1823.04,1829.25,9,We continue to consider this vessel as a non-core asset but we're very opportunistic about it.
4483670,132,1829.6801,1831.13,9,Um we…
4483670,133,1831.16,1834.77,9,We had discussion to sell the vessel uh clo in in the summer.
4483670,134,1835.11,1844.5599,9,Um since then values um have become softer and more importantly in liquidity in the market especially for cape sized vessels has somehow receded.
4483670,135,1844.9301,1847.1,9,But we are monitoring this um…
4483670,136,1847.24,1847.99,9,um…
4483670,137,1848.13,1849.55,9,this market and um…
4483670,138,1849.6,1851.8999,9,uh if we find a good opportunity we'll sell.
4483670,139,1852.3101,1863.26,9,Um now if a great opportunity arises and uh you know for a six twelve months out there we might take it um but it doesn't change the…
4483670,140,1863.26,1865.86,9,uh the view that this is not a non-core asset.
4483670,141,1867.9,1868.27,8,Okay.
4483670,142,1870.49,1875.64,8,Uh I believe that one's on charter through uh September of this year.
4483670,143,1876.11,1883.6499,8,Is there any kind of option uh for the charterer to extend that vessel or that container ship charter?
4483670,144,1883.97,1888.5,8,Um and if not I would assume you're already getting offers right?
4483670,145,1888.99,1891.79,8,<laugh> For new longer term charters on that vessel.
4483670,146,1892.04,1894.25,8,Um so what's the updates around that?
4483670,147,1895.4301,1911.25,9,So on the Akadimos uh the charterers um hold an option um to extend the charter which at it's latest point if the option is exercised uh it can um take us to April two thousand twenty three.
4483670,148,1912.4399,1924.72,9,Um however I should say that this is um one of the most efficient vessels out there with uh very high reefer capacity.
4483670,149,1925.29,1925.98,9,Um…
4483670,150,1926.8199,1935.4199,9,so less than ten ships of this size um are expected to open up between now and uh it's earliest delivery so…
4483670,151,1935.45,1935.5499,8,Yup.
4483670,152,1935.55,1936.97,9,We should be in a good place.
4483670,153,1938.1,1940.37,9,Um and none of them have the reefer intake that the Akadimos has.
4483670,154,1941.14,1941.6,9,Um…
4483670,155,1941.63,1956.54,9,also this being very fuel efficient and uh with um the um momentum on reducing uh the carbon footprint of logistical change uh this vessel should be very well sought after.
4483670,156,1956.6801,1962.1599,9,In my prepared remarks I mentioned that I made a thousand five hundred to you so a…
4483670,157,1962.16,1969.61,9,a much less efficient vessel with uh lower reefer intake which fix for five years around six five thousand dollars…
4483670,158,1969.9,1974.2699,9,and that was for delivery uh in uh one two quarters from now.
4483670,159,1974.8101,1984.8099,9,So I assume that um we should be able to fix forward if the markets hold um something along these levels potentially higher and…
4483670,160,1985.52,1996.29,9,of course like last time um if um um an offer comes to sell the vessel that we cannot refuse that we will entertain as well.
4483670,161,1997.22,1999.36,9,Uh so I think we are very well placed.
4483670,162,1999.39,2001.9401,9,We have a fantastic uh asset for this uh…
4483670,163,2001.9399,2002.77,9,for this market.
4483670,164,2003.12,2006.95,9,Um it's as you say an active market.
4483670,165,2006.99,2008.5701,9,Um um…
4483670,166,2009.0,2012.52,9,and we'll try to maximize returns be it uh through the…
4483670,167,2012.52,2016.2699,9,through um a charter which is what we are aiming for.
4483670,168,2016.55,2020.5601,9,Or a sale if this is um uh great value.
4483670,169,2022.75,2023.03,8,Okay.
4483670,170,2023.0601,2023.8201,8,No it's all fair.
4483670,171,2039.26,2043.13,8,And then with that should we expect additional increases in…
4483670,172,2043.1899,2047.6899,8,in the near term or is this basically an annual step up?
4483670,173,2048.0901,2054.8298,8,And then lastly how do you do unit purchases uh relative to increasing distributions at these levels?
4483670,174,2056.8899,2057.97,9,So let me…
4483670,175,2058.0701,2060.0801,9,lemme start with the last uh question.
4483670,176,2060.1899,2066.1001,9,Um when we're thinking uh returning capital unit holders um I think it's um…
4483670,177,2066.1299,2073.8398,9,we're thinking of both and we see them in a way um as um um as an aggregate of the money um…
4483670,178,2073.8899,2074.8601,9,of money spent.
4483670,179,2075.3301,2083.3,9,Um so in terms of the unit buy backs um we did um about four point five million last year.
4483670,180,2083.3,2089.9099,9,We stopped very early in Q4 um cuz we had to make sure we manage our liquidity.
4483670,181,2090.29,2095.5701,9,Um now that the liquidity is building up again we can start uh spending again.
4483670,182,2096.0701,2121.3799,9,Um you know overall um last year we spent uh somewhere between uh a quarter of our um free cash flow to um in returning capital uh to unit holders either through buy backs or uh quarterly distributions um I think uh going forward um we are going to target a similar range.
4483670,183,2121.3799,2124.23,9,Anywhere between a fifth to twenty five percent and…
4483670,184,2124.73,2141.05,9,and uh as let's say our distributable cash flow increasing with new additions we will be revisiting the uh distribution um as the additions come in and in view of uh the wider growth plans and um…
4483670,185,2141.1399,2142.8401,9,and liquidity needs.
4483670,186,2142.8401,2154.55,9,So I think for the moment uh this is it but um if let's say um we um deliver on more growth uh down the line…
4483670,187,2154.55,2162.47,9,this is not far off uh I mean we talked about um potential acquisition in q three q four this year we will again re-examine the…
4483670,188,2162.47,2162.8599,9,the…
4483670,189,2163.25,2170.6199,9,uh the distribution as well as the uh unit buybacks in view of the impact of the new additions.
4483670,190,2171.3601,2172.6201,9,So I think that's…
4483670,191,2172.8401,2177.8301,9,that's more or less how we're thinking about it i we have also been very clear with regards to…
4483670,192,2177.8601,2178.6702,9,to the strategy.
4483670,193,2178.8999,2180.5798,9,Uh it…
4483670,194,2180.5801,2182.54,9,this is…
4483670,195,2182.6699,2192.1401,9,We want and we will continue to return capital inaudible holders but this will be uh a combination with growing our asset base and distributable cash flow.
4483670,196,2192.5,2203.23,9,I think we have done quite well uh so far and um we have delivered both significant value in terms of any inaudible total returns for our unit holders.
4483670,197,2203.3301,2205.9099,9,Um and uh we will continue along these lines.
4483670,198,2207.5901,2208.6499,8,Well yeah that's great.
4483670,199,2208.71,2209.49,8,Uh you know we…
4483670,200,2209.49,2212.0999,8,we increased the priced target recently and you're…
4483670,201,2219.02,2224.3599,10,If there are no further questions may I hand the call back to Mr.
4483670,202,2224.4099,2226.3501,10,Carlo Rassison in closing remarks.
4483670,203,2227.95,2229.25,11,Thank you all for joining us today.
4483670,204,2235.0701,2236.9102,10,Thank concludes the presentation.
4483670,205,2237.3999,2238.9502,10,Thank you for participating.
4483670,206,2239.3301,2240.3201,10,You may disconnect.
4483678,0,1.22,2.66,0,Good morning ladies and gentlemen.
4483678,1,2.95,7.48,0,Welcome to CGIs first quarter fiscal twenty twenty two conference call.
4483678,2,21.19,32.37,1,With me to discuss CGIs first quarter fiscal twenty twenty two results are George Schindler our President and C E O and Francois Boulanger Executive Vice President and C F O.
4483678,3,33.16,41.91,1,This call is being broadcast on cgi com and recorded live at nine AM eastern time on Wednesday February second twenty twenty.
4483678,4,42.72,55.26,1,Supplemental slides as well as the press release earlier this morning are average for download along with our Q1 MB&A financial statements and accompanying notes all of which have been filed with both Cedar and Andrew.
4483678,5,56.26,73.8,1,Please note that some statements made on the call may be forward looking actual events or results may differ materially from those expressed or implied and C G I disclaims any intent or obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise.
4483678,6,74.55,80.18,1,A complete Safe Harbor Statement is available in both our md a Press Release as well as on cgi dot com.
4483678,7,81.23,84.36,1,We recommend our investors read it in its entirety.
4483678,8,97.73,101.07,1,nd a contains definitions of each one used in our reporting.
4483678,9,101.75,106.06,1,All of the dollar figures expressed on this call are Canadian unless otherwise noted.
4483678,10,342.48,348.59,2,Canada at 25.6%;
4483678,11,558.55,560.57,2,Looking ahead as…
4483678,12,602.36,602.66,2,George.
4483678,13,603.61,605.9,3,Thank you Francois and good morning everyone.
4483678,14,606.75,610.29,3,i'm pleased with our teams strong first quarter financial performance.
4483678,15,610.81,617.92,3,We started fiscal year twenty twenty two with positive momentum in all key metrics double digit E P S accretion;
4483678,16,618.58,622.67,3,accelerated revenue growth on a year-over-year and substantial quarter basis;
4483678,17,623.37,626.5,3,robust bookings for the quarter in the last twelve months;
4483678,18,627.08,630.8,3,and cash from operations of fifteen point seven percent for the quarter.
4483678,19,631.91,638.31,3,The continued strength of our financial performance is grounded in our consultants ability to earn clients trust every day.
4483678,20,638.97,642.88,3,This is evident in our modernization and digitization wins in the quarter.
4483678,21,643.46,648.09,3,For example Fannie Mae extended our longterm partnership in the US.
4483678,22,648.87,659.52,3,We were awarded new work to support their migration to the Cloud and implement intelligent automation and data analytics across all consumer and commercial lines of business.
4483678,23,660.59,672.65,3,inaudible a recognized pioneer in health and care and social services in Finland has expanded their relationship with CGI to assist in completing their Goggle Cloud-based transformation.
4483678,24,673.42,678.53,3,This engagement aims to help optimize costs and increase business agility.
4483678,25,679.76,686.22,3,The Quebec Government selected c g i to help them establish and operate a new government Cloud for the next three years.
4483678,26,686.95,694.82,3,On completion this Cloud environment will be delivering services to multiple government agencies serving over eight million citizens.
4483678,27,695.87,715.53,3,Elektroskandia the Swedish electrical wholesaler which is a company of Sonepar the world's largest electrical products systems and services firm named C G I as their digital transformation partner to support their modernization efforts including the implementation of S A P s four HANA.
4483678,28,716.8,726.67,3,The French Agency for ecological transition chose C G I to deliver application services agile scale and DevOps to help modernize their take…
4483678,29,726.67,731.65,3,technology capabilities and services supporting over three million businesses.
4483678,30,732.91,738.86,3,And in the UK the University of Nottingham awarded CGIs a new consulting services agreement.
4483678,31,739.69,749.65,3,Through this partnership we'll help modernize their digital value chain and support of learning services for over forty five thousand students and seven thousand employees.
4483678,32,750.85,761.55,3,Our robust bookings in the quarter were led by awards from government sector clients up twenty eight percent year-over-year for a book-to-bill of one hundred and fifty one percent.
4483678,33,762.78,773.39,3,We expect this uptick to continue given the governments around the world are reprioritizing their IT initiatives in line with the evolving public health and economic environment.
4483678,34,774.64,787.44,3,On a sequential quarter basis we also saw demand accelerate in the financial services sector resulting in a nearly forty percent increase in q one bookings and a book-to-bill of one hundred fourteen percent.
4483678,35,788.38,793.79,3,This was driven by client demand for digital services across all geographic segments.
4483678,36,795.33,806.36,3,In addition to our strong performance clients continue to recognize the depth and breadth of our knowledge and expertise resulting in all time high client satisfaction scores.
4483678,37,807.18,812.11,3,Notably our two highest client satisfaction scores measure how we partner with clients;
4483678,38,812.66,817.09,3,specifically our level of commit collaboration and communication.
4483678,39,817.82,822.23,3,These qualities are key elements of the world class delivery excellence for which C G I is known.
4483678,40,822.86,833.44,3,In fact client executives often raise these qualities as some of the most important priorities for their partner selection and site them as differentiators for C G I.
4483678,41,834.94,845.12,3,As a people center firm we also recognize that our success is founded on the strength of our consultants and professionals eighty five percent of whom are C G I shareholders.
4483678,42,846.02,849.94,3,Our employee satisfaction scores also continue to be it record high levels.
4483678,43,850.55,857.82,3,This is primarily due to our ongoing investments in digital tooling self and wellbeing and employee development.
4483678,44,858.74,867.16,3,These are critical elements to provide rapid career growth for our talented employees and are therefore instrumental to our overall employee retention.
4483678,45,867.72,873.83,3,As such our voluntary attrition rates remains below the IT services industry average.
4483678,46,888.67,894.05,3,During that meeting we shared four areas of investment with annual and three year objectives.
4483678,47,895.07,900.64,3,First and foremost an industry knowledge to help clients in their quest to build their right future.
4483678,48,901.51,903.97,3,In technology expertise to support them…
4483678,49,912.1,918.18,4,And finally the operational excellence to help clients operate and evolve their planned future estate.
4483678,50,919.4,925.3799,4,Today I'll provide updates on each of these areas starting with the right industry knowledge.
4483678,51,926.34,936.81,4,We announce our plan to grow strategic business and IT consulting services revenue by fifteen to twenty percent on a compound annual growth rate basis over the next three years.
4483678,52,937.88,946.45,4,In the quarter we saw an uptick in consulting in the systems integration demand as bookings increase by over one hundred million dollars compared with this time last year.
4483678,53,947.23,957.06,4,This is due in part to the expansion of our local consulting practices and related increased investment in hiring and developing industry expertise.
4483678,54,958.05,974.41,4,In fact we are finalizing a new white paper which consolidates input from our board of directors C G I industry experts and external alliance partners to explore the key trends that will impact and shape the long-term trajectories of most global industries.
4483678,55,975.5,985.65,4,Our consultants will be sharing this paper with our clients to help inform their strategic planning and we will then discuss with clients how C G I can best support their business objectives.
4483678,56,986.98,996.49,4,Our next area of investment technology expertise helps clients balance the potential technology with the reality of complex enterprise delivery.
4483678,57,997.37,1005.26,4,We previously announced our fiscal twenty twenty two plan to increase employee training and digital technologies by thirty three percent.
4483678,58,1006.34,1014.33,4,A key mechanism for supporting this plan is CGI's online university worth thirty five percent of employees completed courses in q one.
4483678,59,1015.13,1023.05,4,This training enables rapid reskilling and upskilling in areas of high demand which is scaled agile and cloud technologies.
4483678,60,1024.4,1036.38,4,Also in support of our technical expertise investment we plan to add over fifteen thousand employee certifications of global alliance partner solutions over the next three years.
4483678,61,1037.38,1041.97,4,So far this year we've already surpasses twenty one hundred of these certifications.
4483678,62,1042.8101,1049.64,4,This has contributed to a fifteen percent increase in bookings with our global alliance partners on a year over year basis.
4483678,63,1050.97,1059.71,4,Leveraging our investments in intellectual property we also announced our plan to reach thirty percent of our revenue derived from IP by twenty twenty five.
4483678,64,1060.5,1067.84,4,In the first quarter IP services and solutions accounted for twenty two percent of revenue up from twenty one percent last quarter.
4483678,65,1068.6899,1086.9,4,Investments in IP globally are focused on deploying new value add capabilities across the existing IT portfolio as well as investing to cocreate with clients on new innovations for bringing in greater value to clients' digital transformation and add to CGI's IT portfolio.
4483678,66,1088.3,1100.58,4,Most importantly our plans for operational excellence are a critical elements our clients are looking for not only for us to be a safe pair of hands but also for us to deliver in a cost-efficient manner.
4483678,67,1101.39,1116.79,4,The support delivery and operational excellence objectives the three-year plan we announce includes increasing head account by fifteen percent on a three-year compound annual growth rate basis across all of our global delivery centers particularly in India.
4483678,68,1117.75,1122.92,4,In q one our current hiring pace in India is almost two and a half times more than before the pandemic.
4483678,69,1123.51,1128.49,4,This hiring contributed to the twenty percent year to year growth in our Asia Pacific operations.
4483678,70,1129.46,1136.65,4,Given CGI's strong value proposition our attrition rate in India stands well below the India peer group average.
4483678,71,1138.0699,1145.99,4,For our ability to deliver these results is ensuring we have the right talent in both our client proximity and global delivery operations.
4483678,72,1147.04,1153.11,4,Over the past few months we've continued to evolve our hiring strategies to meet increasing client demand.
4483678,73,1154.04,1158.49,4,In q one the number of new hires more than doubled compared to this time last year.
4483678,74,1159.09,1167.24,4,The end of the quarter with eighty two thousand employees a year-over-year net increase of six thousand consultants and professionals.
4483678,75,1168.5,1184.59,4,We continue to employ an effective and efficient talent attraction and onboarding approach with two-thirds of candidates coming directly to C G I either through referrals from current employees or through direct applications for open positions on cgi dot com.
4483678,76,1185.49,1193.5,4,In addition to support our proactive recruiting outreach we've increased our recruiting capacity across all operating units.
4483678,77,1194.6801,1206.6001,4,Our operational leaders the same leaders who are responsible for client delivery are involved in candidate sourcing assessment and decision-making at every step of our hiring process.
4483678,78,1207.21,1215.52,4,This ensures tight alignment between candidate skills and client needs and reduces overall time to fill open fillable positions.
4483678,79,1217.47,1226.9301,4,In moving to the growth outlook for the rest of the year we expect client demand for end to end digitization to continue accelerating across most of the key industries we serve.
4483678,80,1227.74,1236.84,4,In government as I stated earlier we see positive client demand momentum particularly in areas well aligned to CGI's positioning and offerings.
4483678,81,1237.47,1250.17,4,This includes helping agencies address arrange a domestic priorities spanning social and health services infrastructure space-based data solution environment and the climate and cybersecurity.
4483678,82,1251.2,1256.88,4,In manufacturing supply chain disruptions continue to require reshaping and reconfiguration.
4483678,83,1257.54,1269.41,4,This is driving demand for data-driven enterprises to improve service quality and generate new revenue streams through use of digital services including AI and advanced analytics.
4483678,84,1270.8199,1291.99,4,In retail and consumer services the permanent shift to more digital orders is requiring prioritization of omni channel investments while supply chain challenges are creating pressure on customer service and loyalty driving demand of AI and predictive analytics to improve forecasting inventory management and workforce planning.
4483678,85,1293.23,1303.2101,4,And in financial services banks are aggressively implementing their digital transformational agendas to better understand their customers and improve organizational performance.
4483678,86,1304.09,1315.48,4,Banking client initiatives now often include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency…
4483678,87,1316.73,1409.6899,4,include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on Faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency include if not hinge on faster modernization of legacy assets advanced data analytics and a need for greater operational efficiency.
4483678,88,1410.98,1418.61,5,That um decision um is that maybe a function of just you know the the many opportunities that you see as inaudible cap allocation for the upcoming year?
4483678,89,1420.52,1421.48,6,Yeah thanks inaudible.
4483678,90,1421.48,1422.23,6,it is Francois.
4483678,91,1422.38,1423.45,6,I'll take this one.
4483678,92,1423.8101,1429.4601,6,Uh you're right uh you know and and that's uh what we indicated uh at the uh investor day.
4483678,93,1429.85,1437.12,6,You know uh we feel that you know the acquisition and many activities uh uh will be a lot more active this year.
4483678,94,1437.12,1449.99,6,Uh we're talking a about allocating a billion uh on on this and and that we're on a right path uh for now so so uh and what we're seeing is that uh we we think that we'll be able to achieve at this objective.
4483678,95,1450.3101,1456.46,6,So uh that's why we thought that again uh to wait uh uh again for for the dividend.
4483678,96,1456.78,1468.03,6,Uh we as as indicated uh we did uh we will renew our N C I B so uh you know if needed we will put some some investment in the uh in the short buyback.
4483678,97,1468.45,1475.02,6,But uh we think that the you know uh versus this versus last year uh a lot more in the inaudible.
4483678,98,1477.05,1477.42,5,Okay.
4483678,99,1477.65,1478.75,5,Uh thank you Francois.
4483678,100,1492.65,1495.8199,7,I know about a year ago this time you started down that path.
4483678,101,1496.65,1499.52,7,Maybe give us an update on how you see things trending.
4483678,102,1500.63,1503.8401,4,Yup no it's a it's a great question because uh you're right.
4483678,103,1503.87,1520.9401,4,We uh I call it our our unified approach to uh to growing IP and uh it really is first and foremost about having processed the methodology to propagate the existing IP across the entire uh channel of uh C G I.
4483678,104,1520.9399,1537.03,4,So uh this is everything from approved value proposition through add-ons to our existing IP broader target market across industries geographies and functions in and having a a more efficient and uh profitable uh delivery model.
4483678,105,1537.03,1543.28,4,So just to give you a quick update in the quarter uh we do have over ten percent increase in the pipeline.
4483678,106,1543.8199,1549.28,4,We have an over ten percent increase in the deal size of the bookings that we have.
4483678,107,1549.28,1549.88,4,So that's…
4483678,108,1549.88,1559.55,4,that gets to that uh improved value uh proposition and that broader uh delivery mechanism and then we have an over ten percent increase in the win rate.
4483678,109,1559.59,1567.5299,4,So those are some nice early proof points um that say that what we're doing around that propagation is uh is working.
4483678,110,1567.92,1578.51,4,Uh in fact we have three of our SBUs that are art the thirty percent and uh and the two fastest growing are the ones that are under ten percent.
4483678,111,1578.51,1584.0399,4,So we have a we have opportunity and uh and of course uh propagating that IP is the way to get there.
4483678,112,1584.4399,1589.25,4,Uh we're also making increased investments in the sourcing the new IP.
4483678,113,1589.6899,1599.52,4,So this is uh everything from ideation from our industry experts so that's uh that's showing some uh some signs of uh of opportunity cocreating with clients.
4483678,114,1600.01,1603.48,4,Sometimes we actually cocreate and acquire the IP from our clients.
4483678,115,1603.51,1607.98,4,Sometimes we actually just cocreate and jointly own it and everything in it between.
4483678,116,1607.98,1611.21,4,That's where a lot of our best IPs actually came from.
4483678,117,1611.42,1616.0199,4,And so we uh we're doing that across uh the global c g i now.
4483678,118,1616.1801,1632.23,4,And then as I mentioned in the uh opening remarks uh M N A uh is is an area where we're gonna be looking at um uh IP services and solutions firms uh not just software only but services and solutions firms.
4483678,119,1632.51,1636.38,4,Uh we're opening the uh the aperture to more of that and our M N A.
4483678,120,1636.38,1642.1899,4,So uh you know early returns are are coming and uh we're we're bullish on the future.
4483678,121,1643.49,1643.8199,7,Great.
4483678,122,1643.95,1650.01,7,And then just the one final one from me just around maybe more quarterly matters here either you or Francois.
4483678,123,1650.5601,1651.24,7,Could you talk about…
4483678,124,1651.24,1655.62,7,you mentioned client contract adjustments mainly in the UK and Australia.
4483678,125,1655.62,1669.3101,7,You mentioned a little bit in Scandinavia but just you know obviously this is always sort of a inaudible but where we are in the process of sort of running off um maybe those adjustments for those engagements and ramping other stuff.
4483678,126,1669.77,1670.03,7,Thanks.
4483678,127,1670.26,1670.4401,6,Yeah.
4483678,128,1670.9301,1671.16,6,Yeah.
4483678,129,1671.1899,1673.13,6,Uh thanks I'll I'll take it uh Paul.
4483678,130,1673.13,1677.4299,6,So so for for UK clearly it was a you know a one…
4483678,131,1677.49,1684.12,6,a nonrecurring adjustment that uh had an impact on on their uh on their growth and contribution.
4483678,132,1684.12,1695.3,6,So so that's behind us and and so you can expect uh to to to have a margin and and the revenue picking up in the next uh few quarters in for UK.
4483678,133,1695.7,1717.1599,6,And and same thing for for uh in in the uh Scandinavia we we we have some some you know operational issue that we need to resolve in in Scandinavia but we had also nonrecurring uh one-time adjustment that uh uh are uh behind us and uh expecting that uh also there we'll see some some growth in the contribution.
4483678,134,1718.55,1718.8401,7,Perfect.
4483678,135,1719.14,1719.46,7,Thank you.
4483678,136,1723.02,1723.7699,8,It's our next call.
4483678,137,1724.64,1728.3099,8,The next question comes from Richard c from National Bank Financial.
4483678,138,1728.38,1729.12,8,Please go ahead.
4483678,139,1733.6801,1733.9801,9,Hello.
4483678,140,1736.4301,1744.0599,9,<laugh> Uh just uh wanted to get a bit of perspective in terms of the the operating level of a of a business you know compared to pre-pandemic.
4483678,141,1744.28,1748.72,9,Like are utilization rates um kind of back to where they've been?
4483678,142,1748.72,1750.78,9,Like I'm try trying to get a bit of understanding on that.
4483678,143,1752.25,1759.22,4,Yeah um actually our utilization rates are a little bit stronger than they were uh pre-pandemic.
4483678,144,1759.39,1772.11,4,Uh and and part of that is that uh the strong demand uh side that we see but also the opportunity we took uh right at the beginning of the uh pandemic to take the actions that we felt necessary.
4483678,145,1772.38,1777.03,4,So uh we we measure the utilization on a weekly basis.
4483678,146,1777.41,1782.1599,4,Uh obviously not just with reports but in a call that I have with all the operating leaders.
4483678,147,1782.16,1789.63,4,So uh we're very focused on it and and I'm pleased to to tell you that it's uh it's actually a little bit above where we were pre-pandemic.
4483678,148,1790.85,1791.25,9,Okay.
4483678,149,1791.6801,1796.47,9,And then um obviously you're in pretty constant contact with your accounts and clients.
4483678,150,1797.0601,1803.74,9,What are they saying about IT budgets um going into twenty twenty two you know particularly you know how…
4483678,151,1809.87,1811.53,11,Yeah it's a it's a good question.
4483678,152,1811.53,1812.14,11,Obviously.
4483678,153,1812.14,1815.48,11,Uh everybody's got uh slightly different uh planning periods.
4483678,154,1815.48,1824.77,11,But uh in general uh in in areas like financial services we see uh those budgets continuing to to go up.
4483678,155,1824.77,1831.9501,11,And and across the board the focus is on both uh growing their revenue but and using technology to help do that.
4483678,156,1832.23,1842.1699,11,And uh and and some client facing uh solutions in in their uh in their IT budgets but also focused on that operational efficiency.
4483678,157,1842.49,1856.3201,11,Uh we hear our clients t talking about they have uh they're dealing with uh the current uh economic uh uh pricing pressures and and looking to make sure that they stay competitive through operational efficiencies.
4483678,158,1856.3199,1858.4301,11,Technology as you know plays on both sides.
4483678,159,1858.4301,1865.1,11,It plays on the uh on the upside on the revenue side but technology also plays on the uh operational efficiencies.
4483678,160,1865.1,1870.16,11,So we we see a pretty strong environment for uh for IT.
4483678,161,1870.47,1879.1899,11,And uh I've been talking for a while Richard this uh you know this wasn't just pent up demand that we saw uh coming out of the the pandemic.
4483678,162,1879.1899,1882.62,11,It's it's it's something we think is sustainable from an IT perspective.
4483678,163,1883.5601,1883.8301,10,Okay.
4483678,164,1883.86,1885.3,10,And just one last quick one for me.
4483678,165,1885.89,1890.5701,10,Uh you know on the acquisition side uh you talked about opening up the aperture for technology.
4483678,166,1890.5699,1894.0299,10,Historically uh you guys have been more sort of value conscious.
4483678,167,1894.09,1903.5499,10,And so when you look at you know technology type deals no doubt the uh evaluations are certainly a bit more robust uh despite maybe the pullback here at the beginning of the year.
4483678,168,1904.01,1907.83,10,So how how do you look at sort of the relative valuation you're kind of willing to pay for these?
4483678,169,1907.83,1910.0599,10,And maybe give us a bit of perspective o on that.
4483678,170,1911.02,1911.34,11,Yeah.
4483678,171,1911.34,1915.67,11,may maybe I'll I'll start and then I'll ask uh Francois to uh to continue.
4483678,172,1915.67,1921.51,11,Just to to remind you uh we are looking to make these acquisitions accretive.
4483678,173,1921.51,1925.24,11,And so uh we're we're very conscious of not uh overpaying.
4483678,174,1925.55,1930.5199,11,Having said that if the value is there we're willing to pay higher multiples.
4483678,175,1931.58,1955.0901,12,Uh and and you know where we're to some point conservative in our acquisition where you know we when we're building our return we're building it a lot of times with with cost energies you know for sure in IP we need to to to be convinced that we will have revenue synergies and and so meaning uh expecting uh rev uh a lot more revenue increase coming from from these uh acquisition.
4483678,176,1955.51,1958.67,12,And and we have now the channel across the world to do what…
4483678,177,1958.67,1967.92,12,So so for sure what we are looking at is IP that uh can be sold across the world uh without no too much changes.
4483678,178,1968.34,1980.4299,12,And and so for sure you know it will be valued a bit more but we naturally with the return that we think we can enable we don't have any problem to to pay uh to pay the the right price.
4483678,179,1981.92,1982.64,10,Okay great.
4483678,180,1982.88,1983.2999,10,Thanks a lot.
4483678,181,1988.74,1992.5399,13,Your next question comes from Paul Trevor from R B C Capital Markets.
4483678,182,1992.66,1993.29,13,Please go ahead.
4483678,183,1999.53,2001.08,14,Thanks very much and good morning.
4483678,184,2001.99,2002.55,11,crosstalk.
4483678,185,2003.0601,2008.7101,14,I just wanna touch on uh you know CGIs growth relative to to the market in in peers.
4483678,186,2008.71,2014.9199,14,And now maybe this is in an apples to apples comparison um but some of your peers have reported quite strong growth recently.
4483678,187,2015.3101,2022.14,14,I just wanted your thoughts on you know what's your view on CGIs growth you know just relative to those peers and and the market?
4483678,188,2022.22,2029.16,14,And do you feel like you know you're matching you're exceeding um or or lagging the the the growth of peers in the markets that you are in?
4483678,189,2030.84,2033.0701,11,Yeah thanks for the question uh Paul.
4483678,190,2033.22,2043.08,11,Look we we like where we are in our profitable revenue growth uh current landscape but also where where we're where we're headed towards.
4483678,191,2043.45,2058.9202,11,Uh very very proud of the fact that uh we've been able to take this the uh growth that we are achieving both uh through the build and the buy and uh and drop that to earnings uh per share accretion double digits here in the first quarter.
4483678,192,2058.9199,2064.53,11,So we we like where we are on uh where we're getting that growth and uh and what the outlook is.
4483678,193,2064.53,2071.6799,11,And you see that outlook based on the uh the strong book the bill again this quarter and for the trailing twelve months.
4483678,194,2071.6799,2080.6599,11,So we feel like we're in a very good um uh position to continue to uh accelerate our growth through both the build and the buy.
4483678,195,2080.9399,2085.9402,11,And uh and like I said our clients are rewarding us for that with uh new work.
4483678,196,2086.24,2093.1899,11,And uh and also in uh in the scores satisfaction scores are giving us which translates to future new work.
4483678,197,2093.1899,2096.6299,11,So uh we we feel like we're in a very good uh good place there.
4483678,198,2098.8301,2108.98,14,And just looking at you know the the growth uh in your employees uh offshore so India um you know you mentioned that that's uh uh reflective the demand that you're seeing.
4483678,199,2109.4099,2118.76,14,So you know can you speak to like the your clients are they in increasingly prioritizing offshore versus what they did in the past?
4483678,200,2119.24,2122.6199,14,And what's the underlying driver of that?
4483678,201,2122.6201,2126.6802,14,Is it is it cost is there is there something else that's that's driving the capabilities perhaps?
4483678,202,2127.8999,2137.6401,11,No I think uh I think uh for for a lot of reasons there's some in uh some companies that hadn't gone to leveraging offshore.
4483678,203,2137.98,2149.1201,11,And when the pandemic happened and everybody went remote both uh both onshore and offshore it it gave them a view that maybe some of that uh some of that could work.
4483678,204,2149.1201,2153.0999,11,And so I think it's just some catch up by uh by some of those players.
4483678,205,2153.46,2162.0598,11,I I'd add at the same time uh given the pandemic those that were heavily heavily in offshore uh looked to rebalance some of that.
4483678,206,2162.0601,2171.8899,11,So but but on average you know if you're if you're rebalancing some of it versus you're going from zero to to something uh the the the moved offshore is outweighing it.
4483678,207,2172.28,2174.1299,11,It's also that operational efficiency.
4483678,208,2174.1299,2181.04,11,There's the there there are operational efficiencies uh to be gained in uh in in leveraging offshore.
4483678,209,2181.04,2185.0598,11,And and of course that's uh given kind of what the outlook is for for cost.
4483678,210,2185.1001,2186.1699,11,Uh we see some of that.
4483678,211,2186.2,2191.9099,11,But you know it's uh it's something that uh will continue to uh to leverage.
4483678,212,2191.9099,2198.0901,11,Uh and and just to remind you we're gonna stay true to our proximity model even as we leverage global delivery.
4483678,213,2199.8201,2200.3301,14,Yeah thank you.
4483678,214,2200.3301,2200.8699,14,I'll pass the line.
4483678,215,2201.6101,2201.77,11,Yep.
4483678,216,2208.5901,2209.3,13,Please go ahead.
4483678,217,2215.8701,2216.01,11,Hi.
4483678,218,2217.8799,2221.6799,15,Um I was hoping that you could touch just on the percentage booking from new clients.
4483678,219,2221.6799,2223.3201,15,It was very strong in the quarter.
4483678,220,2229.5,2229.8701,11,Yeah.
4483678,221,2229.8999,2230.26,11,Thanks.
4483678,222,2230.26,2231.3501,11,Uh thanks Stephanie.
4483678,223,2231.3501,2246.55,11,As I mentioned we have made investments on uh on the talent side and uh in both the technology uh reskilling upskilling and also the certifications as I mentioned on alliance partners.
4483678,224,2246.96,2252.3899,11,So that gives us another channel uh to uh to reach some of the the newer clients.
4483678,225,2252.75,2258.52,11,Also we're making investments on the uh industry expertise and the consulting skills.
4483678,226,2258.55,2263.5798,11,That's another new avenue for us to uh generate uh those new clients.
4483678,227,2263.5801,2274.3198,11,So those are kind of two of the uh investments that that we've been making and will continue to make that's uh that's driving some of those uh those new client logos.
4483678,228,2276.3301,2276.7002,15,Thanks.
4483678,229,2277.24,2279.4202,15,And then maybe one uh for Francois.
4483678,230,2290.8999,2291.0798,12,Yeah.
4483678,231,2291.3301,2291.9902,12,So thanks.
4483678,232,2291.99,2293.29,12,Uh Stephanie for a question.
4483678,233,2293.29,2300.6199,12,Uh yeah as I indicated you know uh last year we had a very strong cashflow close to six hundred million just in a quarter.
4483678,234,2301.03,2313.4102,12,And and really was the fact that last year because of COVID you know we had a lot less uh uh bonuses uh year end bonuses to pay last year uh in the first quarter.
4483678,235,2313.8101,2324.8501,12,So uh versus twenty twenty one where we had the you know uh a way better year on on bonuses and that had an impact on the quarterization or the the cash coming from from the first quarter.
4483678,236,2325.3201,2334.5601,12,We're still uh I'm still convinced that uh we will be capable to generate uh you know the the right level of cash like last year and even perhaps a bit better than last year.
4483678,237,2335.03,2343.1099,12,Uh so so uh you know it's it's just a timing uh on the cash side but uh you know still still pretty…
4483678,238,2343.1101,2352.3398,12,And you saw the DSO uh at forty five days and it's I think now it's the last five or six quarters uh that that we are at our target of DSO.
4483678,239,2352.3401,2356.5598,12,So uh pretty uh a pretty comfortable where we are with the cash generation.
4483678,240,2357.8601,2358.5801,15,That's helpful color.
4483678,241,2371.0,2374.01,16,Th- th- thank you so much for uh for taking the questions.
4483678,242,2374.5701,2385.6799,16,Uh I I'll just like to start with um the one about IP uh George you mentioned that um you know of the ways you're developing IP and this has been for a while is to work work with clients.
4483678,243,2385.73,2390.6501,16,And just wanted to get a sense of what uh how how that's structured and how you share the costs.
4483678,244,2390.9099,2395.74,16,Um I know before you know you you did this a long time ago with with the big banks in Canada.
4483678,245,2395.74,2402.01,16,And now now as you're evolving and and working with more clients outside of Canada how we inaudible evolving as well?
4483678,246,2402.4199,2402.6699,16,Thanks.
4483678,247,2403.71,2403.95,11,Yep.
4483678,248,2404.01,2406.01,11,No thanks for the for the question Howard.
4483678,249,2406.04,2408.22,11,It it really does uh uh vary.
4483678,250,2408.3799,2423.4502,11,Um the the most uh the most typical uh opportunity though that we see is that the client uh actually provides some of the uh some of the industry uh expertise obviously the use case if you will.
4483678,251,2423.76,2432.47,11,And uh and and of course then accelerates it through some of their uh quality assurance and uh and then piloting it.
4483678,252,2432.8,2436.7,11,What they get from that is uh first mover status.
4483678,253,2437.1001,2444.9399,11,And uh and then of course we build some of those customizations and productize it uh with CGI's investment.
4483678,254,2445.25,2449.9299,11,And as a result they uh they get the long term maintenance benefits.
4483678,255,2450.3101,2454.0701,11,So a lot of times it's really as simple as uh as that.
4483678,256,2454.3799,2461.02,11,And then they may pay us for some of the customizations directly and keep them outside of the product.
4483678,257,2461.27,2462.6499,11,And we're seeing that more and more.
4483678,258,2462.6499,2474.4099,11,So there might be some uh some proprietary or specific elements that we decide up front would not go into the product but they still get the leverage kind of the platform nature of the product.
4483678,259,2474.72,2482.26,11,That's that's typically the most uh the most uh uh used uh o opportunity that we that we see.
4483678,260,2482.6499,2486.9102,11,Others are but we've done the other where we actually jointly put the money in.
4483678,261,2487.2,2496.6499,11,And uh and then we we have a royalty uh scheme that goes back to the the clients based on uh on new uh new wins.
4483678,262,2497.04,2510.8499,11,And of course c g i in all cases owns the the rights to the uh to the IP but the uh but then the uh the client gets the the rights to to use it in uh in in a in a perpetuity.
4483678,263,2511.1499,2514.2,11,So that's uh that's typically how we uh how we see those.
4483678,264,2514.45,2516.6199,11,We also see sometimes its consortium.
4483678,265,2517.01,2526.3599,11,If it's a cost of doing business which is kind of the opposite of uh first mover or proprietary nature of the of the business it might be a cost of regulatory cost of doing business.
4483678,266,2526.71,2536.52,11,And everybody uh puts money in as equal partners including c g i but CGI uh runs owns and operates the IP or the consortium.
4483678,267,2536.52,2538.4902,11,So we see kind of um multiple models.
4483678,268,2538.8201,2543.6501,11,And and that's pretty consistent across uh each of the geographies that we operate in.
4483678,269,2545.05,2546.6101,16,So that that that's a great explanation.
4483678,270,2548.5801,2549.05,16,structures.
4483678,271,2549.5801,2558.2,16,Um on the uh on on on the acquisitions um just looking at um the revenue contribution you know from array and uh CMC.
4483678,272,2558.2,2566.6501,16,And I know it's just one quarter but um the the multiples you know uh they they look they look pretty good I guess compared to the the past acquisitions.
4483678,273,2566.6499,2580.0701,16,Is there anything you'd like to call out there and um is it just you know maybe it's just uh acquisition specific or is there some thing about um the valuations um that you are seeing in in in um in the your uh targets?
4483678,274,2581.3501,2598.3301,11,Yeah well valuations uh you know as we know over the last uh couple years have uh have gone up and uh but we still are are interested in finding valuations that uh that we can make accretive to CGI in that first year.
4483678,275,2598.3301,2600.9299,11,And so uh yes there you do see some of that.
4483678,276,2601.3,2607.99,11,I would say though moving forward we're seeing valuations starting to favor e b i t d a over growth.
4483678,277,2611.6101,2616.4299,12,I think uh we we saw a stabilization of of the of the valuation.
4483678,278,2616.8301,2630.6301,12,And and uh George's right this thing a bit more uh you know concentration on on on the on the how much uh margin or ebi or e b i t d a that uh the the company can bring in.
4483678,279,2630.6599,2634.74,12,So so uh uh yeah we are seeing stabilization of it.
4483678,280,2635.1599,2637.6301,12,And so uh the opportunities uh for us.
4483678,281,2639.0601,2639.28,16,Oh yeah.
4483678,282,2639.28,2643.1699,16,That uh that makes sense given uh I guess what's been going on in the market past few weeks.
4483678,283,2643.1699,2643.75,11,Exactly.
4483678,284,2643.9199,2645.4202,16,Um yeah.
4483678,285,2645.4199,2652.28,16,Uh and then just maybe just one last one for Francois um just noticed the uh in the quarter of pp d spending you know ticking up.
4483678,286,2652.54,2662.5,16,Um is that just kind of a return to normal uh um you know t t uh investing again in physical facilities or could you just put a little more color to that?
4483678,287,2663.21,2663.77,12,Yeah yeah.
4483678,288,2663.77,2666.03,12,I I bet the return to normal.
4483678,289,2666.03,2667.04,12,You're you're totally right.
4483678,290,2667.0901,2677.1699,12,Uh with with uh you know people that uh start to come back to the officers for for sure we we started to do some some investment in in offices and all that.
4483678,291,2677.1699,2679.5898,12,So so that that's a that's a part of it.
4483678,292,2680.05,2692.8301,12,And and some of it is also as uh as we know with with uh you know the supply chain in in some places that it's a little bit tougher we we can have some a bit of swing from from one quarter to the other uh with some of the delay.
4483678,293,2692.8301,2694.27,12,So so both of them.
4483678,294,2694.27,2703.7598,12,So yes some of it is just uh you know uh coming back to a a normal investment level and some of it you can have some seasonality just uh because of…
4483678,295,2704.53,2706.3701,17,some some supply chains uh I…
4483678,296,2706.3701,2707.01,17,uh issues.
4483678,297,2708.4399,2709.03,18,Okay great.
4483678,298,2709.1299,2709.3699,18,Thanks.
4483678,299,2709.3701,2711.0798,18,Thanks for the colorized uh I'll turn it back.
4483678,300,2718.3899,2719.02,19,Please go ahead.
4483678,301,2723.8601,2724.8101,20,Uh good morning gentlemen.
4483678,302,2724.8101,2725.22,20,Can you hear me?
4483678,303,2725.97,2726.22,24,Yes.
4483678,304,2726.25,2726.51,24,Yep.
4483678,305,2726.9099,2727.27,18,Hi Kevin.
4483678,306,2727.3101,2727.8501,20,Oh awesome.
4483678,307,2727.8799,2728.1799,20,Perfect.
4483678,308,2728.1799,2728.5601,20,Good morning.
4483678,309,2728.5901,2758.3,20,Um question for you is there is there any sort of way to think about your your customer mix in terms of size you know sort of thinking about the split between enterprise mid-market SMB I'm wondering you know if maybe any recent change in focus any opportunities or or ability to take a greater share of IT spend from smaller versus larger customers and just how to investigate how would you think about the structure of your sales uh and consultant mix and the uh and the metro market strategy uh you know just to be aligned with how you're seeing the various uh and uh customer end markets.
4483678,310,2759.4399,2760.7,17,Yeah no thanks Kevin.
4483678,311,2761.25,2766.5,17,Uh our our focus is primarily on enterprise uh clients.
4483678,312,2766.6899,2779.97,17,Uh we uh we feel that uh the value proposition that we can bring to them the impact that we can have on them uh particularly given our global footprint and our end to end services is in fact uh greatest.
4483678,313,2779.97,2782.6899,17,And so that's really the the primary focus.
4483678,314,2782.6899,2802.8098,17,In fact if you look at uh some of those recent uh m a transactions whether it's a Array DMC and Unico they all have uh that same uh makeup of uh you know very large enterprise at least one very large enterprise client that that generates uh a lot of their revenue.
4483678,315,2803.26,2814.71,17,Um it does not mean that we do not uh take some of our IP and uh solutions to the uh the medium size business not as much on the on the small side.
4483678,316,2815.04,2816.1501,17,And um…
4483678,317,2816.48,2826.9302,17,but but it really uh the the primary focus is on uh is on enterprise and those uh those accounts that we can uh really again drive the uh the highest value.
4483678,318,2827.21,2837.24,17,And i I wanna make sure you you recognize when we're talking about those metro markets uh those metro markets are where those enterprise uh companies uh are are headquartered.
4483678,319,2837.24,2845.7202,17,It's not uh it's not uh looking at uh uh at metro markets where uh it's only uh going after a smaller medium sized uh company.
4483678,320,2846.78,2847.26,20,Very good.
4483678,321,2847.26,2848.6099,20,thanks thank you for that explanation.
4483678,322,2849.03,2851.53,20,Uh maybe just one uh perhaps for prevent Sprintlaw.
4483678,323,2851.6101,2854.1899,20,Uh I know you don't disclose gross gross margin.
4483678,324,2854.1899,2855.6499,20,Can you talk about trends there?
4483678,325,2855.6899,2862.6499,20,If I look year over year the split of manager IT versus consulting uh is fifty fifty of this fifty fifty a year ago as well.
4483678,326,2862.75,2870.1201,20,Um but what are you seeing on the on sort of a gross margin underlying trends um and how is that contributing to the uh to the EBIT uh outperformance?
4483678,327,2871.3201,2879.3701,17,Well wi with gross margin is is is very good uh and and improving since uh uh since uh last last year.
4483678,328,2879.73,2889.8901,17,Uh like uh George alluded before uh utilization is very high uh so like contributing to to to the to the gross uh margin.
4483678,329,2890.2,2894.24,17,So uh they'll continue to be uh pretty uh pretty good on it.
4483678,330,2894.24,2901.2202,17,And sg and a uh with with uh the the concentrate the automation that we're pushing more and more.
4483678,331,2901.6299,2907.3,17,a and offshoring up of some of the sg and a activities is also uh improving year over year.
4483678,332,2907.3,2909.55,17,And that's why you see uh the the EBIT improvement.
4483678,333,2911.1699,2912.1299,20,Super thanks very much.
4483678,334,2912.1299,2913.01,20,I'll uh I'll pass the line.
4483678,335,2915.9399,2919.7,18,Your next question comes from Daniel Chan from TD Securities.
4483678,336,2919.97,2920.6301,18,Please go ahead.
4483678,337,2925.7,2926.4202,22,Hi good morning.
4483678,338,2926.9099,2933.4402,22,Um good to see that you guys are still able to grow your team and your employee attrition rates are lower than the industry average.
4483678,339,2934.1101,2936.6599,22,any any color on why you're able to achieve this?
4483678,340,2936.6599,2941.6301,22,Is it because you guys are paying more or is it based on the locations where you're uh operating out of any color would be helpful?
4483678,341,2942.8501,2943.3201,17,Sure.
4483678,342,2943.3701,2954.0,17,Uh well I think the the the biggest reason for kind where we uh where we're able to to to do that is our employee value proposition.
4483678,343,2954.1599,2959.0,17,Uh it includes significant stock ownership the eighty five percent.
4483678,344,2959.3401,2967.53,17,Uh the the investments we've been making in career development the thirty three percent increase in training development around rescaling et cetera.
4483678,345,2967.78,2974.1802,17,these these are really some of the uh the the the reasons that uh that we have this including our community involvement.
4483678,346,2974.55,2977.3701,17,Um it's really a an attractor there.
4483678,347,2977.6799,2983.0398,17,but but it goes one step further we we recognize that we're in a uh a unique environment.
4483678,348,2983.04,2994.02,17,And so um we really focused on a few areas that uh to to keep that um not just about the the attrition down but also the attraction up.
4483678,349,2994.3899,3002.97,17,And uh and what we're doing on the attraction side is is really focused on who we recruit uh where we recruit and uh and how we recruit.
4483678,350,3002.97,3013.4302,17,And I think that's uh some of where you were talking about the who we recruit uh higher concentration on college hires and also trainees that are coming from nontraditional IT environments.
4483678,351,3013.4299,3016.1101,17,So that's uh that's about twenty percent of our hires.
4483678,352,3016.1101,3019.72,17,Now we have boot camps that then build the digital skills that they need.
4483678,353,3020.0801,3025.6699,17,Where we recruit yeah yeah proximity and uh and offshore but also those onshore delivery centers.
4483678,354,3026.0701,3031.0,17,That's a better place to to recruit for us and uh and then a lower turnover rate.
4483678,355,3031.0,3034.1099,17,And we have thirty nine percent of our hires came from uh global delivery.
4483678,356,3034.5901,3041.8999,17,And then it's how we recruit I've mentioned before that uh a third of our people come through employee referrals.
4483678,357,3042.22,3051.1602,17,Uh they're they're stronger uh attraction to to CGI but the people that refer 'em have a higher retention rate as well.
4483678,358,3051.48,3063.9399,17,Uh so we're really uh you know we're really uh making sure that we invest to not just rest on the the employee value prep proposition that we have but continue to uh to build in this uh current environment.
4483678,359,3065.8101,3066.5298,21,Thanks for that George.
4483678,360,3066.6101,3078.1602,21,Uh as a follow up to that given that twenty percent of your hires are from non-traditional IT and uh from uh relatively junior members from college would you say that the ramp up time for these employees might take a little bit longer than typical?
4483678,361,3079.1201,3084.46,17,Although we do put them through uh we do put them through boot camps so there is uh a little bit of a ramp up.
4483678,362,3084.6899,3095.53,17,And uh yet this is what we're doing today and you see that uh we're still able to uh to deliver the utilization and margins that you uh you see in our results in this quarter.
4483678,363,3095.78,3105.4602,17,And yet uh that's probably another lever as they uh as they come on board to uh to to increase uh the the utilization and margin going forward.
4483678,364,3107.1499,3107.3098,21,Okay.
4483678,365,3107.3101,3107.9001,21,That makes sense.
4483678,366,3108.3401,3108.4602,21,From…
4483678,367,3108.46,3117.4099,21,So you mentioned that you model um revenue synergies into your IP acquisitions where it's typically you've typically looked to leverage uh value from cost synergies.
4483678,368,3118.2,3120.8799,21,How about market uh metro market modeling side two?
4483678,369,3120.8799,3130.53,21,When you're looking at metro market acquisitions are you also starting to model in revenue synergies given your view to bring in additional services uh as you make these acquisitions?
4483678,370,3131.6499,3132.3201,17,Uh for sure.
4483678,371,3132.3601,3140.79,17,And especially you know uh when when uh we're we're investing in in uh metro markets where we're not necessarily there.
4483678,372,3141.1499,3147.45,17,Uh so most of the time it's because we want to buy uh relationships also and with clients and new clients.
4483678,373,3147.9199,3148.8699,17,and and so…
4483678,374,3148.8701,3162.5701,17,And that's what we did in the past and in some places uh so uh you know sometimes these uh smaller firms will have good relationship with with large clients but not having the full capabilities that CGI has.
4483678,375,3163.1001,3178.27,17,And so by by coming and and and doing this merger we are bringing the capabilities uh to to uh to this metro market and and with the relationship that we just uh bought you know we are capable to have some revenue synergies there.
4483678,376,3180.4099,3180.6199,21,Great.
4483678,377,3180.6499,3180.9202,21,Thank you.
4483678,378,3182.95,3183.26,17,Julie.
4483678,379,3183.26,3185.27,17,I think we've got time for one more question please.
4483678,380,3186.1299,3186.3999,19,Perfect.
4483678,381,3190.6699,3191.4202,19,Please go ahead.
4483678,382,3195.6001,3197.77,22,Hey guys this is Kathy Channon for Jason.
4483678,383,3197.8,3198.3298,22,Good morning.
4483678,384,3198.73,3201.1699,22,Uh I'll just you know quickly slip into your questions.
4483678,385,3201.1699,3205.1499,22,So my first one I just wanted to ask you guys obviously had pretty strong bookings this quarter.
4483678,386,3205.47,3209.23,22,You know I think it's the fourth quarter of like LTM book to bill you know greater than one.
4483678,387,3209.4399,3209.8398,22,one.
4483678,388,3209.8401,3214.5999,22,Can you just talk about you know very briefly like the core drivers of this and the potential sustainability.
4483678,389,3214.6299,3223.29,22,So like can we accept this trend to continue you know maybe at least for the next couple of quarters given the strong demand from the environment that you guys you know are able to capitalize on.
4483678,390,3223.4199,3223.71,22,Thanks.
4483678,391,3225.1201,3225.5901,17,Sure.
4483678,392,3225.6201,3232.4001,17,Um Kathy one one of the uh areas i I already talked about some of the investments that we're making to uh…
4483678,393,3232.4299,3246.29,17,To drive some of the uh the new clients are particularly around the uh some of the the digital skills and the global alliances as well as the uh industry skills and uh some of the the consulting growth.
4483678,394,3246.29,3252.9199,17,So that's uh that's one of the areas that's driving that is that uh uh that mix of of new clients that are coming in.
4483678,395,3253.1399,3261.6702,17,Certainly IP as we move to uh to IP uh thirty uh will give us uh an opportunity as we increase those deal size.
4483678,396,3261.6699,3267.0,17,I talk about some of the investments that we're making there to uh to to uh to drive that.
4483678,397,3267.23,3275.79,17,And then the last is really the operational excellence you know the this uh drive to um uh to to efficient seized by our clients.
4483678,398,3276.1599,3280.24,17,Um and a lot of that uh requires automation and the…
4483678,399,3280.24,3281.3098,17,that offshore mix.
4483678,400,3281.3101,3290.3501,17,And what we're doing around our managed services offering is building modernization into the operational excellence uh platform.
4483678,401,3290.3799,3294.2102,17,That's uh that's driving again longer term larger deals.
4483678,402,3294.21,3300.21,17,So uh we do believe that uh in in this environment we'll be able to uh to sustain a strong book to bill.
4483678,403,3301.5901,3302.3799,22,Okay awesome.
4483678,404,3302.48,3304.6499,22,And then you know one final question from me.
4483678,405,3304.6499,3314.1499,22,I know you you guys have talked a lot about you know the consulting investments that you guys are making and you know during the Analyst Day you guys talked about that fifteen to twenty percent revenue CAGR over the medium term.
4483678,406,3314.4199,3319.0,22,You know your Unico acquisition um obviously both with your capabilities there as well.
4483678,407,3319.4099,3330.3999,22,And while you don't really break apart bookings or revenues like by consulting you know per se you know can you share any metrics on you know perhaps like how book to bill for consulting is trending or any other details there?
4483678,408,3330.6599,3331.05,22,Thanks guys.
4483678,409,3332.3201,3332.5901,17,Yep.
4483678,410,3332.74,3337.3799,17,So uh we don't break that out uh now so don't have that number in front of me.
4483678,411,3337.3799,3347.1199,17,But I can tell you just in general about ten percent of our si c is now um in the C uh in the consulting side.
4483678,412,3347.1201,3352.8301,17,So uh we're we're looking at uh that's kind of the the basis of what we'd like to continue to grow.
4483678,413,3354.55,3355.2102,22,Okay awesome.
4483678,414,3355.24,3356.1199,22,Thanks guys take care.
4483678,415,3356.97,3357.1899,24,Okay.
4483678,416,3358.51,3358.8801,17,Okay.
4483678,417,3358.9199,3361.0,17,Thanks everyone for participating.
4483678,418,3361.03,3373.79,17,As a reminder a replay of the call will be available either via our website or by dialing one eight hundred seven seven zero two zero three zero and using using the pass code seven four two five four three six.
4483678,419,3374.53,3378.54,17,As well a podcast of this call will be available for download within a few hours.
4483678,420,3379.1599,3385.3701,17,Follow up questions can be directed to me at one nine oh five nine seven three eight three six three.
4483678,421,3386.0801,3386.97,17,Thanks again everyone.
4483678,422,3386.97,3388.22,17,And look forward to speaking soon.
4483678,423,3389.6399,3391.1899,19,This concludes today's conference call.
4483678,424,3391.1899,3392.0901,19,You may now disconnect.
4483678,425,3392.25,3392.75,19,Thank you.
4483678,426,3393.51,3393.9299,24,Thank you.
4483678,427,3394.1599,3394.49,17,Thank you.
4483678,428,3394.49,3394.9199,21,Thank you.
4483680,0,1.17,2.89,0,Please standby we're about to begin.
4483680,1,4.43,9.01,0,Good day and welcome to the Allied Properties REIT Fourth-Quarter twenty twenty one Earnings Conference Call.
4483680,2,9.69,11.39,0,Today's conference is being recorded.
4483680,3,12.03,14.38,0,At this time I would like to turn the conference over to Mr.
4483680,4,14.38,17.23,0,Michael Emory President and Chief Executive Officer.
4483680,5,17.62,18.31,0,Please go ahead Mr.
4483680,6,18.31,18.59,0,Emory.
4483680,7,19.35,20.19,1,Thank you Jess.
4483680,8,20.53,24.46,1,Uh good morning everyone and welcome to our conference call.
4483680,9,24.86,34.93,1,Tom Cecilia and Hugh are here with me to discuss Allied's results for the fourth quarter and year end to December thirty first twenty twenty one.
4483680,10,35.74,43.02,1,We may in the course of the conference call make forward looking statements about future events or future performance.
4483680,11,43.62,53.17,1,These statements by their nature are subject to risks and uncertainties that may cause actual events or results to differ materially.
4483680,12,53.73,65.29,1,Including those risks described under the heading Risks and Uncertainties in our most recently filed A I F and in our most recent quarterly report.
4483680,13,66.48,78.96,1,Material assumptions that underpin any forward looking statements we make include those assumptions described under Forward Looking Disclaimer in our most recent quarterly report.
4483680,14,81.17,89.27,1,By way of overview twenty twenty one was a strong year operationally and financially for Allied.
4483680,15,89.96,109.28,1,F F O per unit came in at two dollars forty five cents and a f f o per unit at two dollars and nine cents in both cases at record levels and at the high end of the range contemplated in our internal forecast.
4483680,16,110.32,133.38,1,Leasing activity exceeded our expectations for the year with the result that our average in place net rent per occupied square foot rose in all four quarters finishing at twenty four dollars and sixty four cents in the fourth quarter compared to twenty three dollars and eighty eight cents in the comparable quarter last year.
4483680,17,134.66,144.69,1,Cecilia will summarize our financial results and speak about the ongoing augmentation of our financial and E S G reporting.
4483680,18,145.62,150.03,1,Tom will follow with an overview of leasing and operations.
4483680,19,150.58,157.37,1,Hugh will provide a development update and I'll finish with our current thinking about the future.
4483680,20,157.78,159.96,1,So now over to Cecilia.
4483680,21,161.02,161.75,2,Good morning.
4483680,22,162.01,166.36999999999998,2,I'll touch on our balance sheet internal forecast and E S G.
4483680,23,167.28,168.45,2,First our balance sheet.
4483680,24,169.28,179.04,2,As you know we flexed our balance sheet over the past two years to take advantage of acquisition opportunities that would not have been available to us in a normal environment.
4483680,25,180.11,190.57,2,Our confidence in doing so was bolstered by the fact that our current developments will increase our EBITDA by approximately eighty million dollars annually in the next few years.
4483680,26,191.6,201.23,2,That said we're not prepared to flex our balance sheet further and have begun the process of getting our net debt to EBITDA back to our target range.
4483680,27,202.42,206.03,2,Our recently established at-the-market program will be helpful.
4483680,28,206.71,214.89,2,We test ran it in q four raising thirty million dollars of equity at a weighted average price of forty four dollars and five cents.
4483680,29,215.77,225.16,2,Also helpful will be our development completions starting to become economically productive later this year and into twenty twenty three and twenty twenty four.
4483680,30,226.16,237.66,2,Their contribution to earnings combined with discretionary use of the at a t m program will effectively allow us to more actively manage towards our targeted debt metrics.
4483680,31,239.48,241.13,2,Onto our internal forecast.
4483680,32,241.88,250.53,2,We expect low to mid single digit growth in each of F F O per unit a f f o per unit and same-asset N O I in twenty twenty two.
4483680,33,251.27,261.3,2,Consistent with previous internal forecasts we've assumed no new acquisitions and using debt to finance all activity both of which are highly unlikely.
4483680,34,262.47,276.3,2,Growth in F F O and AFFO per unit will be the result of development completions a full year of acquisitions completed in twenty twenty one rent growth and occupancy growth to ninety four percent later this year.
4483680,35,277.21,290.49,2,As with all our development projects on completion the financial impact is moderated by the simultaneous decapitalization of costs resulting in the full impact not being realized for twelve to twenty four months.
4483680,36,291.68,303.52,2,Development completions are expected to contribute an incremental six cents to F F O per unit in twenty twenty two net of one million dollars less in capitalization of costs.
4483680,37,304.24,310.85,2,This is primarily from economic occupancy commencing at The Well Duncan and Adelaide and Breithaupt Phase i i i.
4483680,38,310.85,322.1,2,Same-asset N O I growth will be the result of occupancy in rent growth in Toronto Montreal Vancouver and our u d c portfolio.
4483680,39,322.67,325.81,2,Parking is assumed to return to pre-pandemic levels.
4483680,40,326.78,339.39,2,Straight line rent and the total portfolio is expected to almost triple in twenty twenty two from twenty twenty one levels as turnover vacancy is addressed in the latter half of twenty twenty two.
4483680,41,339.39,346.98,2,This sets us up for a strong twenty twenty three when economic productivity from development completions continues to grow.
4483680,42,347.82,357.85,2,Development completions are expected to contribute an incremental fourteen cents of F F O per unit net of sixteen million less in capitalized costs.
4483680,43,358.59,365.24,2,This would be primarily from The Well Duncan and Adelaide Breithaupt Phase III and q r c Phase II.
4483680,44,366.33,390.79,2,Combined with a full year of the acquisitions expected to close in q three of twenty twenty two and economic occupancy from leasing ac activity completed in the rental portfolios in the latter half of twenty twenty two our current internal estimates are for growth in the mid to high range of ff oh per unit aff oh per unit and same-asset N O I in twenty twenty three.
4483680,45,392.14,393.45799999999997,2,Now to E S G.
4483680,46,394.39,398.22,2,We continue to advance our E S G program in twenty twenty two.
4483680,47,398.93,409.29,2,Last year we set an inaugural greenhouse gas intensity target and a long term of goal of achieving net-zero for all new developments or major redevelopments.
4483680,48,410.81,421.44,2,This year we will be evaluating our possible pathways to net-zero and preparing our team members and relevant partners for implementation of our decarbonization roadmap.
4483680,49,422.29,430.82,2,We are committed to evaluating climate risk across the business and will be undertaking a climate scenario analysis in the first quarter.
4483680,50,431.55,445.39,2,You can expect our third annual E S G report to be released by July of this year including disclosure of our performance against the Task Force on Climate-Related Financial Disclosures or T C F D recommendations.
4483680,51,446.53,450.92,2,I'll now pass it to Tom for a discussion of our operating and leasing results.
4483680,52,452.56,453.46,3,Thank you Cecilia.
4483680,53,454.64,459.18,3,By any measure twenty twenty one was an excellent year of leasing at Allied.
4483680,54,460.07,462.17,3,q four was particularly strong.
4483680,55,462.93,473.63,3,Over the course of twenty twenty one we bolstered our leasing team by adding three leasing managers bringing our in-house leasing and lease documentation team to thirty one employees.
4483680,56,474.71,483.06,3,The team conducted over one thousand physical tours in the portfolio over the twelve months just about doubling the number of tours in twenty twenty.
4483680,57,484.92,496.85,3,one hundred and forty six deals were completed in q four totaling just under one million sq ft and four hundred deals were completed for the year totaling two point four million sq ft.
4483680,58,497.14,505.9,3,Average net rent rents achieved on renewals or replacements in twenty twenty one were twenty point six percent higher than average rents in the expiring term.
4483680,59,507.78,518.14,3,Some leasing highlights in twenty twenty one include one hundred percent pre-leasing of our Q R C West Phase II project now under construction at Queen and Peter in Toronto.
4483680,60,519.06,528.63,3,We substantially advanced pre-leasing of the office component at The Well we made good progress in addressing a large non-renewal at one eleven Robert-Bourassa in Montreal.
4483680,61,529.33,535.28,3,We actually increased our leased area in Calgary and improved the leased area in our U B C portfolio.
4483680,62,536.1,544.78,3,We also completed a number of significant expansions for major tenants across the portfolio including inaudible almost doubling their space requirement.
4483680,63,546.64,553.31,3,As predicted the amount of space available for sublease in our portfolio declined considerably over the quarter.
4483680,64,553.35,557.69,3,This trend will no doubt continue as companies realized they need their offices.
4483680,65,558.79,568.1,3,I will now provide an update on leasing activities in Montreal Toronto Calgary and Vancouver and conclude with an update on our urban data center portfolio.
4483680,66,569.7,575.64,3,Starting in Montreal the team continues to complete small deals at R C A and El Pro buildings in St.
4483680,67,575.64,576.0,3,Henry.
4483680,68,577.23,581.66,3,Following on the heels of a thirty thousand square foot deal with Molson Coors at Robert…
4483680,69,581.82,592.6899,3,one eleven Robert-Bourassa we have recently completed a deal for forty thousand sq ft and we are currently negotiating with two companies for a total of seventy thousand sq ft in that same building.
4483680,70,594.64,603.21,3,Moving to Toronto we learned Monday of this week that Shopify elected not to exercise a right to expand by ninety thousand sq ft at The Well.
4483680,71,604.14,613.2,3,This will allow us to further diversify our mix of office tenants and we will most certainly achieve uplifts in net rents in the range of ten to fifteen dollars per square foot.
4483680,72,613.77,621.65,3,It is also highly likely that the replacement tenant or tenants will begin to pay rent six months sooner than previously negotiated.
4483680,73,622.93,627.2,3,Shopify remains fully committed to three hundred and forty thousand sq ft.
4483680,74,628.65,636.89,3,Strong demand for this project continues as we completed five transactions totaling one hundred and thirty five thousand sq ft over the past three months.
4483680,75,637.75,648.41,3,Indeed the marketplace was waiting to learn about the availability of the ninety thousand sq ft and our leasing team without any advertising had three inquiries by eleven AM yesterday.
4483680,76,649.04,650.19,3,Stay tuned on this one.
4483680,77,651.6,664.9,3,Moving to our existing portfolio in Toronto we mentioned on the last call we were in the process of finalizing an expansion of existing tenant at one eleven Queen Street East growing from sixty eight thousand to one hundred and twenty thousand sq ft.
4483680,78,665.63,667.16,3,That deal has been fully executed.
4483680,79,668.31,671.36,3,We also completed two deals for twenty two thousand sq ft.
4483680,80,671.85,683.27,3,at three twelve Adelaide just subsequent to the quarter and are working with an existing tenant at King and Spadina to move them from twenty five thousand sq ft to fifty five thousand sq ft of space.
4483680,81,684.78,697.67,3,In Calgary the team completed an uh an impressive seventeen transactions in the quarter and we actually increased our leased area to eighty six point four percent which in the context of that market is quite good.
4483680,82,698.47,703.53,3,Subsequent to the quarter we completed a twenty thousand sq ft deal for vacant space in Vintage One.
4483680,83,705.23,711.38,3,Most of the activity in this market is for deals of five thousand sq ft and less with tenants seeking built-out space.
4483680,84,712.1,715.64,3,We have upgraded a number of suites in order to attract these small users.
4483680,85,716.42,724.96,3,At TELUS Sky we built out three model suites and two were leased fairly quickly last year and we are currently building out another four units.
4483680,86,725.65,731.25,3,We also have a deal under negotiation for thirty thousand sq ft in that building which we expect to complete.
4483680,87,733.11,738.7,3,In Vancouver we completed three small transactions in the quarter and have good activity on available spaces.
4483680,88,739.76,748.68,3,The three year restoration project at Sun Tower is now complete and scaffolding which had been completely covering the building has now been removed.
4483680,89,749.39,756.2,3,This will greatly improve the desirability of this building and improve leasing which had been difficult during the restoration.
4483680,90,757.54,760.16,3,The Vancouver portfolio is ninety one percent leased.
4483680,91,762.26,769.79,3,Our urban data centers in Toronto are ninety five point two percent leased overall with two small renewal transactions completed in q four.
4483680,92,770.85,772.59,3,I will now turn the call over to Hugh.
4483680,93,773.37,773.96,4,Thanks Tom.
4483680,94,774.48,779.8,4,This quarter has seen advancements on both our playing activity as well as our construction activity fronts.
4483680,95,780.6,788.17,4,I will begin by giving an overview of our major projects and then we'll follow back with an update on work we have done on our development pipeline.
4483680,96,789.44,795.73,4,Beginning in Montreal work continues on the upgrade work at a thousand one Robert-Bourassa and R C A.
4483680,97,796.49,800.19,4,We have completed the majority of the base building work at four hundred Atlantic.
4483680,98,800.86,804.71,4,The leasing team is now actively marketing the spaces of all three buildings.
4483680,99,805.93,816.04,4,In Central Canada despite the supply chain and manpower issues that COVID has created in the industry we continue to make progress in all of our active construction projects.
4483680,100,816.88,822.97,4,At The Well we have revised the anticipated completion date of the office tower from q one to q two.
4483680,101,823.89,827.94,4,Tenants continue to take possession of their spaces as set out in their leases.
4483680,102,828.95,834.17,4,At nineteen Duncan we are able to hand over the first floors to Thomson Reuters for their fit-out work.
4483680,103,834.83,840.97,4,We anticipate achieving occupancy of the office comboter- component in late q two or early q three.
4483680,104,842.05,852.4,4,In Kitchener work is being completed on the base building of the third phase of Breithaupt Development and we anticipate handing over the space to Google for their fit-out in early q two.
4483680,105,853.52,858.73,4,We were able to achieve a significant milestone at our College Street JV Project with RioCan.
4483680,106,859.69,865.19,4,The building achieved occupancy and it has had its first residents start to occupy their suites.
4483680,107,866.16,870.65,4,In Western Canada we are able to achieve occupancy at four hundred West Georgia.
4483680,108,871.93,872.87,4,Playing activity.
4483680,109,873.52,878.5601,4,This quarter has seen progress made on a number of submissions for future intensification projects.
4483680,110,879.65,884.61,4,Subsequent to quarter end we were approved for the first phase of expansion of inaudible.
4483680,111,885.39,891.83,4,We intend to bring this to market in the spring and would commence instruction once we'd achieved the pre-leasing requirement.
4483680,112,892.73,900.44,4,The goal of this project is to both better serve our knowledge-based workspace users as well as to advance our E S G commitments.
4483680,113,901.31,906.22,4,We believe we can do this through the exploration of building our first net-zero carbon building.
4483680,114,913.88,919.04,4,We are targeting the approval for the Bathurst Assembly in the fall of twenty twenty two.
4483680,115,920.36,923.77,4,This quarter has seen progress made across all of our development work.
4483680,116,924.37,935.74,4,Despite industry wide disruptions to the supply chain and manpower the team remains focused on maintaining momentum on all active developments and advancing work on future opportunities.
4483680,117,936.33,938.27,4,I will now turn the call back to Michael.
4483680,118,939.26,940.24,1,Thank you Hugh.
4483680,119,940.92,952.38,1,While Omicron put a bit of a damper on the reopening in Canada it doesn't appear to have undermined the restoration of confidence among our customers.
4483680,120,953.06,970.82,1,As of January thirty first this year eighty seven percent of the users in our portfolio occupying ninety percent of the total G L A in our portfolio have reopened their workspace and are bringing employees back to work.
4483680,121,971.69,984.62,1,We don't have information on the exact number of employees that these users have brought back to their workspace but we do know that the reopening in our portfolio continues across the country.
4483680,122,986.43,995.85,1,As the global pandemic appears to be coming to an end i am reminded of the thesis I articulated in early April of last year.
4483680,123,996.78,1007.07,1,It advanced the proposition that the global pandemic would benefit the commercial real estate industry by accelerating three established secular trends.
4483680,124,1007.72,1010.2,1,One urban intensification.
4483680,125,1010.86,1016.61,1,Two humanistic operation and three stress-tested leadership.
4483680,126,1017.53,1022.0099,1,As I pointed out then I can't prove the thesis.
4483680,127,1028.14,1040.53,5,What I can say at this point in time is that human behavior as Allied had experienced it over the course over the course of twenty twenty one strongly supports the thesis.
4483680,128,1041.61,1049.2101,5,I intend to update the thesis in early April of this year and perhaps periodically thereafter.
4483680,129,1050.3,1054.21,5,I hope this has been a useful and comprehensive update for you.
4483680,130,1054.66,1058.4701,5,We would now be pleased to answer any questions that you may have.
4483680,131,1060.3101,1060.85,6,Thank you.
4483680,132,1060.85,1066.28,6,Ladies and gentlemen for any questions or comments you may signal by pressing star-one on your telephone keypad.
4483680,133,1066.28,1071.9601,6,If you are using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment.
4483680,134,1072.98,1075.39,6,Again it is star-one to ask a question.
4483680,135,1076.47,1079.49,6,We'll go first to Jonathan Kelcher at TD Securities.
4483680,136,1079.89,1081.2799,6,Your line is open please go ahead.
4483680,137,1082.99,1084.6,7,Thanks um good morning.
4483680,138,1085.64,1086.04,5,Morning.
4483680,139,1099.88,1106.23,8,Hi Jonathan um it would it would be relating to parking and turnover vacancy.
4483680,140,1107.59,1107.6799,7,Okay.
4483680,141,1119.99,1120.33,7,okay.
4483680,142,1129.86,1133.9099,7,Um can you maybe give us a l a little bit uh a little bit of color on that?
4483680,143,1135.38,1135.99,5,For sure.
4483680,144,1136.03,1138.2699,5,i i they're related to two things.
4483680,145,1138.78,1150.2,5,One is the uh extension of the construction schedule um and and two is uh activities that happening on site uh in order to deal with the the impacts of Covid.
4483680,146,1154.04,1154.28,7,Okay.
4483680,147,1154.28,1156.6799,7,So so just sorta timing and supply chain?
4483680,148,1161.49,1161.79,7,Okay.
4483680,149,1162.0699,1162.4299,7,Fair enough.
4483680,150,1171.05,1172.38,8,It'll be about $200 million.
4483680,151,1172.51,1177.16,8,Um and it'll drop in twenty twenty three to under a hundred million.
4483680,152,1180.03,1180.41,7,Okay.
4483680,153,1181.9399,1182.64,7,That's uh that's it for me.
4483680,154,1182.71,1183.63,7,Thanks I'll turn it back.
4483680,155,1185.26,1185.7999,5,Thank you.
4483680,156,1187.85,1190.38,6,We'll go next to Mario Seric ESCO Shipping.
4483680,157,1190.7,1191.23,6,Please go ahead.
4483680,158,1193.08,1193.54,9,Hi good morning.
4483680,159,1194.46,1194.7899,5,Morning.
4483680,160,1194.89,1199.48,9,Uh just one uh one quick question the capital allocation for the year.
4483680,161,1199.72,1210.21,9,Uh I think the inaudible and the inaudible holders that highlighted the expectation to allocate a large amount of capital in twenty two which is uh consistent with prior years.
4483680,162,1222.38,1228.7999,9,And if so how do you think about funding uh and the expected activity given the current you know pricing balance sheet?
4483680,163,1231.22,1246.39,5,Mario given the extent of opportunities visible to us uh it would be very easy for us to achieve a comparable level of acquisitions in twenty twenty two if not more.
4483680,164,1247.42,1250.26,5,If not considerably more potentially.
4483680,165,1251.16,1256.5801,5,Uh there are two limiting factors however that we have to recognize.
4483680,166,1257.02,1263.9301,5,The first is as Cecilia mentioned we are not prepared to flex our balance sheet any further.
4483680,167,1265.08,1272.84,5,The second is uh we are not prepared to issue substantial amounts of equity below N A V per unit.
4483680,168,1273.86,1287.39,5,Um that could ultimately delay or constrain our ability to take advantage of opportunities that expect to become available to us.
4483680,169,1288.33,1304.4301,5,But we have explored and developed a number of options that would allow us to utilize capital uh without raising equity below N A V per unit.
4483680,170,1305.15,1309.5399,5,Uh and without putting upward pressure on our debt metrics.
4483680,171,1309.9399,1321.1699,5,I don't want to elaborate on that any further but I do wanna reiterate the two governing propositions for capital allocation in twenty twenty two.
4483680,172,1321.17,1333.48,5,They are as follows one we will not flex out balance sheet any further number two we will not raise substantial amounts of equity below N A V per unit.
4483680,173,1337.54,1341.89,9,Um and I don't know if you can answer this uh given your your comment just now.
4483680,174,1341.92,1346.91,9,But um are are are inaudible something that Allied would increasingly consider?
4483680,175,1346.91,1351.62,9,It it's not something uh you've historically done but i is that an option you're looking at?
4483680,176,1380.86,1381.28,5,Yes.
4483680,177,1382.1801,1383.14,5,But it's only one.
4483680,178,1383.78,1384.71,5,There are others.
4483680,179,1388.22,1388.4199,9,Okay.
4483680,180,1389.0,1396.9701,9,Uh just maybe a bit more color on your acquisition at two oh seven West Hastings uh it was in November of last year.
4483680,181,1396.97,1401.8201,9,But just um c can you remind us of what the plans are there for that asset?
4483680,182,1403.09,1407.08,5,It it is a spectacular heritage asset.
4483680,183,1407.63,1417.99,5,Probably along with our Sun Tower which by the way is featured on the cover of our annual report uh post-restoration.
4483680,184,1418.35,1427.29,5,Um along with the Sun Tower it is arguably the finest heritage structure in the city of Vancouver.
4483680,185,1427.8101,1442.36,5,It is heavily occupied by a very large number of small users on short term leases um that are structured in the old way of leasing uh which is essentially gross.
4483680,186,1442.95,1449.9,5,We plan to work with the existing tenant base and if my memory serves there are a hundred and forty tenants there <laugh>.
4483680,187,1450.2,1453.6899,5,Um or there were at least on uh on acquisition.
4483680,188,1453.9,1466.65,5,We wanna work with all of them to find a way to transform the building into a leasing format that is more consistent with our operating format.
4483680,189,1467.11,1472.5499,5,But we we genuinely want to do that in a way that retains the existing users.
4483680,190,1473.76,1482.75,5,Or possibly relocates some of them to other buildings we have with a more Allied-like leasing structure.
4483680,191,1483.42,1489.72,5,So that will be a gentle rolling upgrade for lack of a better term.
4483680,192,1490.0601,1493.8099,5,Uh the the Dominion Building is very close to Sun Tower.
4483680,193,1494.1801,1506.41,5,Um and actually it Sun Tower and the Landing um are almost optic optimally located in relation to one another.
4483680,194,1506.85,1527.47,5,Um and so at the Landing we can acqui we can accommodate excuse me larger single-floor users at Dominion we can accommodate mid-sized single-floor users and at the Dominion Building we can accommodate a large number of smaller users.
4483680,195,1527.5,1547.12,5,And we want to continue to accommodate all such users because we want an ecosystem uh in our portfolio in Vancouver and elsewhere as you know that allows us to to accommodate the the broad range of creative businesses in our economy today.
4483680,196,1550.78,1551.01,9,Okay.
4483680,197,1551.28,1555.79,9,Um inaudible really quick one to my end uh the first relates to your U B C cap rates.
4483680,198,1556.49,1563.0099,9,Uh they're a flat quarter of a quarter at five point three percent including one fifty one Front which is a hundred percent occupied at a five cap.
4483680,199,1563.29,1572.1599,9,I think we've seen a lot of transactions in the North American markets uh pretty healthy evaluations that would suggest one fifty one Front in particular is well below a five cap rate asset.
4483680,200,1572.65,1582.36,9,so I guess the question um is what what do you think that the catalysts to recognize the inherent value at one fifty one in particular uh in terms of the cap rate and valuation?
4483680,201,1582.51,1587.0901,9,And more broadly across the u d c portfolio which stands valued at one point one billion today.
4483680,202,1588.83,1593.84,5,Um we are very aware of the transactions you've adverted to.
4483680,203,1594.1801,1604.74,5,Uh we have not reflected those transactions in our r f r s value uh at the end of q four.
4483680,204,1605.1,1628.2001,5,Uh not because we don't think it's appropriate but we wanted those transactions to close um with certainty and we wanted to uh work with our independent appraiser Kushman um in terms of determining what impact those transactions have on our underlying uh urban data center values.
4483680,205,1628.78,1645.01,5,The transactions aren't perfect comparables to our one fifty one Front but they're much better comparables than some of the transactions that occurred either earlier in twenty twenty one or previously.
4483680,206,1645.41,1655.4301,5,Um so we will be striving to reflect that accurately precisely um as we go through twenty twenty two.
4483680,207,1656.79,1656.92,9,Okay.
4483680,208,1657.1,1668.9399,9,Uh and my my last question just in terms of Montreal I think in the last quarter uh with respect to the R C A building it was mentioned that there was one potential user for fifty thousand square feet.
4483680,209,1669.46,1675.16,9,Looking at the space uh is that potential user still there in terms of uh possibility?
4483680,210,1675.16,1676.8199,9,Or has that opportunity come and gone?
4483680,211,1678.13,1682.24,5,That is for thirty thousand square feet Mario and we're trading paper with that tenant.
4483680,212,1684.41,1691.4399,5,I would translate that into yes.
4483680,213,1720.37,1730.1901,10,The six cents in twenty twenty two is pretty clear the fourteen cent inaudible you referenced in 2022 is that relative to zero?
4483680,214,1737.6899,1746.6801,8,It's another incremental fourteen cents net of uh 16 million de-capitalized.
4483680,215,1748.1801,1749.37,8,figures are incremental.
4483680,216,1749.64,1749.83,8,Yeah.
4483680,217,1762.84,1763.4,10,Um…
4483680,218,1779.21,1779.33,5,Sure.
4483680,219,1779.33,1798.49,5,That is uh roughly five point two acres immediately to the South of the Union Center site above the rail lands where we closed the acquisition of air rights I believe in the fourth quarter.
4483680,220,1798.95,1819.1799,5,Um so it it is it is literally five point two acres of land that really runs directly South of the Union Center site I guess with the boundary on the East being North York and the boundary on the West being Simcoe.
4483680,221,1819.29,1823.8101,5,And it basically goes to the far side of the rail lands.
4483680,222,1824.29,1843.58,5,Um and uh is a very very good incremental asset for us at Union Center and will in time augment our ability to create value on that larger site.
4483680,223,1845.39,1845.7001,10,Okay.
4483680,224,1845.83,1846.61,10,That's that's great.
4483680,225,1854.11,1857.0599,5,It it fortunately it isn't necessary.
4483680,226,1857.0601,1867.7899,5,We just got approval for what I would call uh Union Center three point oh um which we're very happy with.
4483680,227,1867.79,1872.63,5,I I think I think it is not at about one point three three million square feet.
4483680,228,1873.2,1880.1699,5,Um we will clearly build it um and…
4483680,229,1882.87,1892.36,5,construct on the remainder of the existing site in a way that allows us to utilize the air rights most efficiently.
4483680,230,1892.53,1900.2899,5,But we don't have to change how we're gonna use the portion of the site that Union Center three point oh is on.
4483680,231,1902.03,1902.37,10,Okay.
4483680,232,1903.16,1906.33,10,Last one for me before I turn it back to uh to my peers.
4483680,233,1906.33,1920.37,10,Just um I I think Michael your commentary with respect to the opportunity set front of you on the acquisition side seems to be uh if not on par but maybe more um bullish for uh for lack of better term uh going forward.
4483680,234,1921.09,1925.13,10,Um dare I ask is is two fifty Front part of that um opportunity set?
4483680,235,1927.34,1929.77,5,Well let me respond to the general question first.
4483680,236,1929.77,1934.13,5,And I I I should and will respond to the specific one second.
4483680,237,1934.59,1935.1599,5,Um…
4483680,238,1936.84,1945.78,5,I believe a lot of portfolio rebalancing is going to occur in twenty twenty two and onward.
4483680,239,1946.6899,1959.39,5,Um which could I'm not saying inevitably will but which could see high quality office opportunities that fit our investment and operating focus come our way.
4483680,240,1960.1899,1975.9501,5,So generally I actually think the environment for continued consolidation of appropriate urban office space in Montreal Toronto Calgary and Vancouver uh will be good for us.
4483680,241,1976.54,2005.23,5,Specifically as to two fifty Front the CBC Building it is a matter of public knowledge and is widely known that c b c initiated a process through c b r e uh to ascertain the extent to which and the price at which the market was prepared to transact on the purchase of the CBC building.
4483680,242,2006.21,2027.46,5,That process was explicitly conducted with the knowledge that Allied has the right of course inaudible and that at the end of the process uh the c b c would then deal with Allied in relation to its right of first offer.
4483680,243,2028.3199,2035.88,5,So that everything I have said is a matter of public record uh and known to all.
4483680,244,2047.99,2060.8999,11,Um and that's the extent of public information whether the right of first offer will translate favorably for us or not is unknown.
4483680,245,2061.6899,2067.5999,11,Uh I can tell you as I've said for years our interest level is high.
4483680,246,2068.1499,2081.3999,11,So i am confident but not certain um that we will end up um in a position to buy the CBC building.
4483680,247,2082.6499,2086.01,11,Uh whether we actually do it or not is unknown.
4483680,248,2087.3999,2096.5298,11,So I'm trying to be as open and honest as I can without uh being inappropriate in terms of what I disclose.
4483680,249,2096.9099,2105.03,11,Uh but everything I have disclosed specifically is is public information and is known to all in the industry.
4483680,250,2106.6499,2108.0801,12,No i I appreciate that.
4483680,251,2108.0801,2112.0898,12,And um maybe Michael I know you've confirmed your interest in the building in the past.
4483680,252,2121.3101,2126.27,11,It is I mean the way to think about it is it is roughly a million square feet.
4483680,253,2126.8201,2130.1899,11,Roughly half will be um…
4483680,254,2130.8201,2135.1599,11,Will be leased to the c b c long-term.
4483680,255,2136.23,2142.25,11,Won't be a lot of growth in the lease but it will be a very long-term lease with a very high caliber covenant.
4483680,256,2142.76,2152.4402,11,The remainder of the building has exactly the kind of transformational potential for which Allied is known.
4483680,257,2153.24,2173.0999,11,And as you also know a hundred and seventy thousand square feet or so of the remainder is already leased to Allied um as part our urban data center portfolio for what was originally a fifty year term less a day and what is probably now a forty one or forty two year term.
4483680,258,2174.3,2185.3801,11,Um so what we would have really is an is an aggregation of a very stable base albeit not one that's likely to grow materially over time.
4483680,259,2186.05,2202.45,11,And then another base that is materially underutilized um that we will be able to upgrade and reposition um in the way we have so many other buildings uh with similar physical attributes.
4483680,260,2203.05,2210.3301,11,And then finally of course we will own the urban data center portfolio free and clear.
4483680,261,2210.48,2213.27,11,This is all if we do this transaction.
4483680,262,2213.5901,2214.5,11,So that that's…
4483680,263,2214.71,2223.27,11,I think the way to look at it that's how it was presented to the to the open market uh for bidding.
4483680,264,2223.52,2233.8401,11,And there were bidders who stepped forward um and that will then allow c C B C to determine how best to deal with our right of first offer.
4483680,265,2236.05,2238.1799,12,Michael I appreciate your transparency and that's excellent color.
4483680,266,2238.1799,2238.8799,12,Thank you I'll turn it back.
4483680,267,2240.1201,2240.6001,11,Okay.
4483680,268,2242.29,2244.97,13,Moving next to Brad Sturges with Raymond James.
4483680,269,2245.1499,2246.6602,13,Your line is open please go ahead.
4483680,270,2273.51,2275.49,11,In terms of uh N O I?
4483680,271,2275.49,2276.24,11,Is that what you're saying?
4483680,272,2276.24,2277.77,14,Occupancy stabilization.
4483680,273,2278.0601,2279.6699,11,Oh In terms of percentage?
4483680,274,2279.8201,2279.97,14,Yeah.
4483680,275,2280.04,2281.3101,11,When we'll get to where we…
4483680,276,2281.6599,2287.9001,11,we we hopefully will have that uh by q three uh which uh…
4483680,277,2290.4299,2297.52,16,Yeah ninety five percent is what we would consider stabilized occupancy and q three would be when we close on that transaction.
4483680,278,2297.5601,2301.52,16,So it would coincide with when it comes on our books that's…
4483680,279,2301.52,2302.77,16,That would be our expectation.
4483680,280,2303.55,2303.77,14,Okay.
4483680,281,2305.04,2318.5398,14,a and then um I guess just one other question um in terms of um you know funding some of your growth initiatives uh you have uh still some assets for sale on the balance uh listed on the balance sheet uh at the end of the year.
4483680,282,2319.1699,2333.8198,14,You know you know would there be a scenario where you consider more uh you know a a hundred percent uh asset sales at this stage in if uh you know the capital markets aren't uh at a point where you you feel comfortable raising equity?
4483680,283,2333.8201,2338.6599,14,Or how should we think about um asset sales beyond what's uh listed for sale right now?
4483680,284,2340.1499,2343.1702,11,That's an option Brad that is available to us.
4483680,285,2343.5801,2354.8301,11,Um the two held for sale uh are moving toward completion on schedule although we can never be certain they'll complete until they complete.
4483680,286,2355.28,2362.78,11,Uh there is another smaller non-core asset in Toronto that we might transact on.
4483680,287,2363.3501,2373.29,11,But when I say there are options available to us uh I'm not postulating large-scale asset sales on our part.
4483680,288,2374.3401,2374.55,14,Okay.
4483680,289,2375.3401,2375.8601,14,That makes sense.
4483680,290,2375.97,2376.6899,14,i'll I'll turn it back.
4483680,291,2376.6899,2376.9802,14,Thank you.
4483680,292,2381.8401,2384.29,13,Welcome next to Caitlin Burrows with Goldman Sachs.
4483680,293,2386.3101,2387.1199,15,Hi good morning.
4483680,294,2387.1599,2393.03,15,Um in the prepared remarks I think you guys mentioned reaching ninety four percent occupancy later this year.
4483680,295,2420.22,2420.5701,15,Okay.
4483680,296,2421.0601,2438.47,15,Um and then um separately I don't think this one was talked about yet and I know I'm gonna say it wrong but last July um you announced that uh Jasta group was developing seven hundred Rue St-Hubert uh which you would buy um in the second half of twenty two around the time of completion.
4483680,297,2438.8101,2443.6399,15,So assuming that is still the plan can you go through how we expect to fund that project in particular?
4483680,298,2443.98,2447.77,15,And to what extent that property may contribute to earnings in twenty two?
4483680,299,2449.5,2459.1702,11,Again we will fund it subject to the parameters I articulated uh in my answer with respect to allocation or capital allocation.
4483680,300,2459.49,2463.77,11,Um and as I said there are known options available to us.
4483680,301,2463.77,2464.8699,11,That's not parti…
4483680,302,2464.8999,2470.8398,11,Not to not to diminish that particular acquisition but it's not particularly large.
4483680,303,2471.28,2483.24,11,Uh but as I said we will not fund it uh with equity below NAV per unit and we will not uh we will not fund it by flexing our balance sheet further.
4483680,304,2485.6001,2486.03,15,Okay.
4483680,305,2486.3999,2489.4199,15,Um and then maybe uh two quicker ones.
4483680,306,2489.5601,2497.3599,15,Um just wondering if the internal assumptions that you outlined for twenty two and even twenty three assume any additional ATM usage.
4483680,307,2497.3601,2503.1199,15,Or if you were to use the ATM in a small way would that be kind of like an incremental update?
4483680,308,2504.26,2506.9299,16,No we don't assume any ATM usage.
4483680,309,2506.9299,2513.0298,16,We assume everything is funded with debt so that would be an incremental usage.
4483680,310,2514.1499,2514.51,15,Okay.
4483680,311,2514.8601,2520.79,15,Um and then last it looks like um the salaries and benefits were higher in the fourth quarter than they have been.
4483680,312,2521.0801,2530.3501,15,I know you mentioned that uh you hired three new leasing managers so is that related to that hiring and more of a permanent increase or was there something one time or a mix?
4483680,313,2532.8401,2539.27,16,That would be the the q four GNA uptake you would've seen was for the final bonus payouts for the year.
4483680,314,2539.3,2542.8999,16,So it was a bit of a year to date catch up on compensation.
4483680,315,2544.72,2551.76,15,So as we think about this year would you say that like twenty twenty one or some growth rate from that is reasonable to assume?
4483680,316,2552.8899,2553.1399,16,I…
4483680,317,2553.1399,2563.54,16,For twenty twenty two you should assume g and a will be in line with twenty twenty one but excluding the one point two or one point three million of severance expense that we had in twenty one.
4483680,318,2563.5901,2566.23,16,So almost flat from twenty one to twenty two.
4483680,319,2566.23,2566.46,15,Okay.
4483680,320,2566.6799,2569.1101,15,Uh thanks.
4483680,321,2569.2,2569.4399,15,That's all.
4483680,322,2569.4399,2575.55,16,We'll go next to Matt Cornick at National Bank Financial your line is open.
4483680,323,2575.55,2576.1599,16,Please go ahead.
4483680,324,2583.1799,2588.3201,17,So just a quick question in terms of potential uh vendors uh in the market.
4483680,325,2588.3201,2594.1001,17,Is there an appetite at this point for them to take back equity at n a v in Allied?
4483680,326,2594.1001,2598.8,17,Or is that a potential kind of way to get at some of these assets while not issuing it a discount?
4483680,327,2600.03,2602.4199,11,It is a theoretical possibility.
4483680,328,2602.4199,2603.0,11,Yes.
4483680,329,2603.47,2614.9302,11,Um it is never one we've executed on uh nor is it nor is it how we approach uh vendors.
4483680,330,2615.4399,2619.9199,11,Um so it it is a theoretical possibility.
4483680,331,2620.22,2622.75,11,Uh I don't know if it's a real possibility.
4483680,332,2623.3,2623.54,17,Okay.
4483680,333,2623.74,2624.23,17,Fair enough.
4483680,334,2624.6699,2638.8401,17,Um with with regards to the ninety four percent occupancy in the rental portfolio is that purely lease up of uh vacant space or is the component of that just bringing on sort of fully leased development properties as well?
4483680,335,2639.8999,2649.8,11,No it would mostly be driven by uh leasing up turnover vacancy not so much on the development cuz on our larger developments we're actually very highly leased.
4483680,336,2649.97,2651.49,11,So um.
4483680,337,2652.5,2652.76,17,Okay.
4483680,338,2652.79,2653.3899,17,Now fair enough.
4483680,339,2653.3899,2661.3501,17,And then on the I guess follow up on uh CT Multimedia um it sounds like you have prospects there.
4483680,340,2661.5901,2668.49,17,That they're they've been there for a while but it's sitting I guess uh one of them uh Rubber Ruber boost is sitting at forty nine percent occupied.
4483680,341,2668.96,2669.6101,17,What is…
4483680,342,2669.6101,2676.05,17,Is that where we should expect uh some of that lease up in the second half of the year or should that come in the near term?
4483680,343,2677.1799,2684.01,11,I think we can uh expect some considerable lease up in that building Matt um while some of that…
4483680,344,2685.02,2689.5698,11,Those prospects have been sitting there uh we're getting closer and closer.
4483680,345,2690.45,2693.5801,11,So I think you're going to see some some movement over the course of the next few months.
4483680,346,2695.04,2695.1401,17,Okay.
4483680,347,2695.6001,2703.9001,17,Um and then uh last one with regards to uh four hundred West Georgia.
4483680,348,2704.3401,2707.3198,17,Um how should we think about that?
4483680,349,2707.3201,2718.8101,17,it is coming to completion but just the the outlay versus uh what you've learned against that asset and is that contemplated in guidance uh that coming in or being purchased uh at completion?
4483680,350,2719.95,2720.3,16,Yes.
4483680,351,2720.4199,2721.3701,16,So it it…
4483680,352,2721.48,2730.3799,16,our our our outlook our forecast our estimate includes the two acquisitions that we've already committed to just no new acquisitions.
4483680,353,2730.3799,2745.5498,16,So it includes closing on four hundred West Georgia in q three and it will actually be a net cash inflow because we will be repaid our loan and we will put permanent financing…
4483680,354,2745.55,2753.8599,16,Mortgage financing on the property which will result in net cash to us over and above our buy-in to the project.
4483680,355,2755.04,2755.29,17,Okay.
4483680,356,2755.3701,2756.0801,17,Now that makes sense.
4483680,357,2756.0801,2760.2202,17,And last one seven twenty BD is that in process?
4483680,358,2760.22,2762.4299,17,I'm not sure exactly where it stands at this point?
4483680,359,2762.4299,2766.7,17,or or what the prospect would be for that to be completed and brought into the read.
4483680,360,2767.9199,2769.9001,11,It's a timely question.
4483680,361,2770.28,2780.9399,11,Um the rate that we have advanced against that project slowed considerably in twenty twenty one.
4483680,362,2781.4099,2789.8,11,Uh the plan we have there is not similar to the plan we executed at the well.
4483680,363,2790.1399,2798.98,11,We are going to commit to the below grade construction pre pre-leasing threshold.
4483680,364,2799.8,2809.8098,11,Um knowing that if we get to grade without having met the pre leasing threshold we can always stop and wait.
4483680,365,2810.5601,2824.51,11,It's never something we want to do but it does allow us to close the temporal gap without committing to what I would call full scale speculative development.
4483680,366,2825.29,2835.8701,11,We are enjoying considerable preliminary progress in pre-leasing that project.
4483680,367,2836.5601,2843.7002,11,Uh which is quite large for Vancouver it's roughly six hundred thousand square feet our share of three hundred.
4483680,368,2844.2,2848.4199,11,So it's not gigantic but in the context of Vancouver it is quite large.
4483680,369,2848.8601,2858.6702,11,And the approach we've taken is is to fund uh the subterranean structure backup to grade.
4483680,370,2859.1899,2865.51,11,Uh and if necessary stop once we get there if there's no pre-leasing in place.
4483680,371,2866.0701,2882.5999,11,Uh if our experience at the well is any indication and our assessment of the strength of the Vancouver market uh accurate we'll easily get to our pre-leasing threshold um before we get back to grade there.
4483680,372,2883.1699,2886.5798,11,But um so it's it is a timely question.
4483680,373,2886.5801,2894.54,11,it it hasn't been a big drag on capital for us and and we're getting a very good return on what capital we advance.
4483680,374,2894.98,2902.3599,11,Uh but that that will accelerate a little in twenty twenty two but under no circumstances are we building that on spec?
4483680,375,2903.21,2903.4299,17,Okay.
4483680,376,2903.6101,2904.46,17,Now I appreciate that.
4483680,377,2904.46,2909.6401,17,And then sorry Cicily one last one on on the guidance for for the view on twenty twenty three.
4483680,378,2910.1499,2933.27,17,Um it sounds like I mean if you can go from eighty nine point nine percent occupancy to ninety four this year I understand that some of the growth would be delayed into next year but um is there any sense of conservatism in in your forecast uh there for sort of high single digit same property or not same property to your FFO pre nego?
4483680,379,2934.5701,2944.95,16,Oh the mid to high I would say if if we were to air on one side it would be on the side of conservatism of conservatism but I wouldn't say it is highly conservative.
4483680,380,2945.6799,2945.96,17,Okay.
4483680,381,2946.4199,2946.75,17,Thanks Cis.
4483680,382,2948.79,2953.79,13,we will go next to Pammi Bir RBC Capital Markets.
4483680,383,2954.05,2955.1001,13,Your line is open please.
4483680,384,2955.1001,2955.3899,13,Go ahead.
4483680,385,2956.9299,2958.73,18,Thanks and uh good morning.
4483680,386,2958.8501,2960.99,18,Um I believe last men…
4483680,387,2961.02,2967.4099,18,last quarter you mentioned getting back to maybe ninety five percent occupancy in twenty twenty three.
4483680,388,2967.8201,2974.9199,18,Uh I'm just curious as to perhaps maybe upside to that target you just given you know I guess the expedition get to ninety four um by the end of this year?
4483680,389,2978.55,2979.72,11,I do believe…
4483680,390,2980.5701,2981.7798,11,This is Michael Emmet speaking.
4483680,391,2981.78,2981.8101,16,<laugh>.
4483680,392,2981.8101,2983.24,11,Of course I believe this upside.
4483680,393,2983.24,2983.29,18,<laugh>.
4483680,394,2985.1201,2998.6902,11,Um <laugh> but but it is not unrealistic but once you get to ninety five percent across the country um you know it it it it's hard to get higher than that.
4483680,395,2998.9199,3022.6199,11,Uh if we brought developments in uh into the rental portfolio that were fully leased maybe uh but you know once you get to ninety five percent across the country especially given the level of ongoing upgrade activity that we engage in uh in an effort to boost our average in place net rent for square foot over time.
4483680,396,3023.8799,3024.3599,11,I…
4483680,397,3024.48,3028.6599,11,even I can't imagine there's great upside above ninety five percent.
4483680,398,3029.1899,3031.0698,11,and and it would be temporary I…
4483680,399,3031.0701,3049.02,11,In our entire history um even when we were much smaller of focused entirely on Toronto which was a market over which uh one could argue we had more control um you know nine seven might have been just a great…
4483680,400,3049.02,3049.1799,11,let…
4483680,401,3049.1799,3052.3699,11,we we've hit ninety five before but it didn't last long.
4483680,402,3052.6899,3062.3201,11,Uh nine seven we have achieved but it was a smaller portfolio more discreet um not subject to geographic variation.
4483680,403,3062.5601,3063.78,11,So i I don't think.
4483680,404,3067.5601,3067.8899,20,Got it.
4483680,405,3067.8899,3074.4102,20,And and maybe just maybe building on the commentary around leasing um I guess we haven't talked too much about it.
4483680,406,3074.4099,3083.9399,20,I'm just curious you know what you could share with us in terms of you know has there been a shift at all in any kind of sentiment you know maybe maybe it's more specific to to your user base.
4483680,407,3084.3899,3094.97,20,Um but has it been a shift in sentiment in terms of you know space needs uh at all just given where we're we're sitting today I guess you know hopefully through the latest wave and through Omicron.
4483680,408,3094.97,3096.9199,20,I'm just curious if you could provide some color there.
4483680,409,3098.8401,3105.6799,19,I don't discern a shift in sentiments among our customers.
4483680,410,3106.8501,3121.47,19,And I also don't discern a material shift in sentiment um generally in the urban Toronto markets pardon me the urban Canadian markets.
4483680,411,3121.9399,3130.5901,19,Um I think there's perhaps a potential shift in sentiment among the accounting firms.
4483680,412,3131.6299,3138.24,19,Um there's clearly no shift in sentiment among the law firms which is interesting.
4483680,413,3138.6299,3143.9502,19,The accounting firms being accountants are desperately anxious to reduce occupancy costs.
4483680,414,3144.55,3157.75,19,I don't think they'll be successful in doing it ultimately but if there is a shift in sentiment or at least explicit vacillation uh it's with the major accounting firms.
4483680,415,3158.47,3168.3799,19,Uh a lot of their teams are hoping desperately to work from their cottage for as long as they can um and as happily as they can.
4483680,416,3169.24,3179.75,19,That might be a bit of an overstatement but but it's not inaccurate but but overall I don't discern a big shift certainly among our customers.
4483680,417,3180.4399,3190.77,19,And indeed I think among the major customers of the conventional office towers um in Canada.
4483680,418,3191.1699,3209.49,19,Um I I think the banks are wrestling with minimally engaged employees but I don't think that will ultimately result in their changing their fundamental view towards office space.
4483680,419,3209.52,3212.1799,19,I may be wrong in saying that.
4483680,420,3212.1799,3220.1499,19,I I certainly have no inside knowledge or at least not much but that's what I sense.
4483680,421,3220.1499,3220.47,19,They…
4483680,422,3221.1299,3229.49,19,One person of influence said to me We will be talking about hybrid working for another eighteen or twenty four months.
4483680,423,3229.49,3235.0498,19,And when that eighteen or twenty four months is over we'll be back to working exactly as we did.
4483680,424,3235.76,3241.49,19,And this person has a tremendous amount of influence in relation to the organization he leads.
4483680,425,3242.3101,3249.98,19,Again can I extrapolate from that across uh the major user segments in the towers?
4483680,426,3250.01,3250.5701,19,No.
4483680,427,3250.97,3253.96,19,Um do I think it's safe extrapolation?
4483680,428,3254.0801,3254.9099,19,Probably yes.
4483680,429,3255.5801,3264.3401,19,And again the only sort of vocal vacillators are the the major accounting firms.
4483680,430,3265.1799,3277.7202,19,They just don't know which way's up and and they're hoping desperately that they can I don't know just take it a hell of a lot easier and and not have to uh and not have to show up on site.
4483680,431,3278.3501,3288.4001,19,Uh but the lawyers learn very quickly that while they can function on an emergency basis in that way they can't build legal practices.
4483680,432,3288.4299,3294.9399,19,They can't train young people um by working from home.
4483680,433,3295.1599,3297.8601,19,Um so they pulled their subway space.
4483680,434,3298.3201,3306.26,19,They put the subway space on the market really really quickly in twenty twenty and they pulled it off the market almost as quickly.
4483680,435,3308.24,3308.6299,20,Got it.
4483680,436,3309.22,3310.04,20,Thanks for the color.
4483680,437,3310.04,3315.9199,20,Um I I guess maybe just with respect to the well and the space not exercised by Shopify what what's your sense?
4483680,438,3315.9199,3321.29,20,And you did mention of course the you know some discussions that are underway with uh with other tenants.
4483680,439,3321.29,3327.3801,20,What's your sense of the timing of you know when you may actually have some some deal signed on that space?
4483680,440,3329.72,3336.1101,19,I would say we're going to start dialogue on the space serious dialogue with a number of parties right away.
4483680,441,3337.2,3341.73,19,And expect that within the next two or three months we'll have deals completed.
4483680,442,3344.78,3345.22,20,Okay.
4483680,443,3345.3899,3350.6599,20,Um and just coming back to maybe the ATM.
4483680,444,3351.3601,3358.3398,20,Um Cecilia I think you you mentioned that uh the guidance assumes no further equity issuance or or no equity issuance.
4483680,445,3358.8,3362.22,20,Um but yet you know the ATM is still in still in use.
4483680,446,3362.25,3366.54,20,Um so I'm just curious how should we think about you know the use of the ATM in for the year end.
4483680,447,3368.29,3376.9199,21,You know the ATM is a tool um in our toolbox and it will be one of many ways that we will be funding our activity.
4483680,448,3376.9199,3383.47,21,I don't you know we're not going to be raising a significant amount of equity through the ATM.
4483680,449,3383.78,3389.8999,21,It'll be a small amount um you know a hundred fifty to two hundred and fifty million.
4483680,450,3389.8999,3390.3999,21,I don't know.
4483680,451,3390.3999,3394.53,21,It all depends on on how our our what our cost of equity is.
4483680,452,3395.29,3400.48,21,So I wouldn't expect it to have a material impact on our forecast.
4483680,453,3400.5701,3400.6602,20,Okay.
4483680,454,3401.8601,3402.1201,19,No.
4483680,455,3402.1201,3407.8599,19,And the one thing I'd I'd add add to that Tommy is I I think opportunistic is the right word.
4483680,456,3408.29,3426.77,19,We see it as long term an extremely valuable tool for allied in funding development activity um and in reducing debt uh with a view to getting to our target levels for debt to EBITDA.
4483680,457,3427.1499,3439.01,19,That's where we see it being immensely valuable to us but what we're not prepared to do as I've said it you know at the outset is raise huge amounts of equity below nav per unit.
4483680,458,3439.29,3452.1599,19,So the extent to which we use it in twenty twenty two will entirely be governed or largely be governed by our uh our trading uh.
4483680,459,3452.1899,3455.22,19,price relative to our NAV per unit.
4483680,460,3455.71,3464.0701,19,And uh you know the faster our trading price approaches the NAV per unit in all likelihood the more we'll use it.
4483680,461,3465.23,3499.3901,19,Um and as I say on an ongoing basis when we get to what I'll call a fully stabilized um trading value what whatever that proves to be um I see us using that very significantly on an annual basis uh because the cost of equity is so much lower um and cause we can we can issue if you will into the market on an entirely discretionary and opportunistic basis.
4483680,462,3499.76,3506.9001,19,The trial run we did in the fourth quarter was extremely successful to my way of thinking.
4483680,463,3507.4399,3519.1301,19,We raised thirty million essentially which is not a lot of equity um at around forty four oh five on average uh in a very volatile market.
4483680,464,3519.1899,3530.8699,19,This was almost as Omicron hit and introduced an extreme amount of volatility into well the equity markets worldwide.
4483680,465,3531.24,3542.95,19,Uh even in that context we were able to raise what for us is a a material amount of money at a very good weighted average price in relation to the trading VWAPs.
4483680,466,3543.77,3549.27,19,And um and we were able to do that without disrupting the market in any way shape or form.
4483680,467,3549.9099,3569.6001,19,So for us it was a great trial run um but it didn't represent a huge aggregation of equity on our part but it was a great trial run and and we're confident we can use it successfully um when our cost of equity reaches a point that we consider acceptable.
4483680,468,3572.05,3572.3401,20,Got it.
4483680,469,3572.3401,3572.6802,20,thank you.
4483680,470,3572.6799,3573.8999,20,Just one last one for me.
4483680,471,3573.8999,3588.7,20,I know we're uh we've hit the sixty minute mark uh just on the same property and Y outlook you know the low to mid single dig your guidance for the year I guess overall uh just curious um how does that sort of roughly break out you know across your core markets?
4483680,472,3588.7,3591.5,20,You know we had some pretty strong results in Montreal.
4483680,473,3591.55,3597.52,20,Toronto slipped a little bit uh and I guess Western Canada was down a bit but just curious what you can share with us on that.
4483680,474,3598.6399,3609.71,21,Yeah it would it would be you know well into that range in in central and u d c and then offset by continuing softness in in Calgary.
4483680,475,3609.71,3611.1599,21,And then in Mon…
4483680,476,3611.4299,3620.9299,21,in Montreal as we lease up the turn over vacancy um that is a a a bit of softness in twenty twenty two as it relates to CMS and NOI.
4483680,477,3623.9199,3624.46,20,Thanks very much.
4483680,478,3624.49,3625.04,20,I'll turn it back.
4483680,479,3628.5,3632.8499,22,i will take our next question from Scott Fromson at c i b c.
4483680,480,3633.04,3633.79,22,Your line is open.
4483680,481,3633.79,3634.5,22,Please go ahead.
4483680,482,3635.5,3636.01,23,Thanks.
4483680,483,3636.01,3636.98,23,And uh good morning.
4483680,484,3638.1101,3647.3,23,If uh we can return once again to the well it sounds like face rates are trending uh pretty strongly on good demand as you get close to full occupancy.
4483680,485,3647.8201,3653.0901,23,How how are trend how are TIs trending with respect to uh average lease term?
4483680,486,3655.9199,3662.76,19,TIs haven't been um haven't changed a great deal over the course of our leasing program.
4483680,487,3663.3701,3678.5,19,What's happened most recently I would say that's that's helping us achieve you know really good rents is we can physically take people into the building up to the floors and they can see what they're going to be occupying.
4483680,488,3679.21,3691.0898,19,And that's that may makes a big difference uh for companies rather than leasing from a plan um and leasing from renderings they can physically see what they're going to be sitting in.
4483680,489,3691.53,3694.6301,19,Um and I think that's helped us achieve higher rents.
4483680,490,3698.25,3699.8499,23,And and what about other markets?
4483680,491,3700.04,3704.04,23,Uh say Vancouver especially four hundred West Georgia.
4483680,492,3708.02,3710.8,19,No change in in TIs in Vancouver.
4483680,493,3710.8401,3718.0901,19,Uh TIs and and a little bit of free rent is is the order of the day in Calgary.
4483680,494,3718.73,3721.1699,19,Um and there's been no change in Montreal.
4483680,495,3723.1799,3723.6299,23,Okay.
4483680,496,3723.6899,3725.3401,23,Uh just one last question.
4483680,497,3725.3401,3735.1799,23,Are you seeing any backfill vacancy on uh new developments coming on the market in your existing portfolio say some of your older older buildings?
4483680,498,3737.5,3747.8198,19,No we we haven't needed to cannibalize our existing portfolio to fill any of our development properties.
4483680,499,3748.3799,3762.99,19,Uh I I can't think of a single instance where someone is moving out of an existing property uh into a property with the possible exception of Conrad at King and Spadina.
4483680,500,3763.1599,3773.8,19,And they'll be moving out of one of our best brick and beam buildings in the country uh into the well and and act filling that space is the easiest thing in the world for us to do.
4483680,501,3773.8899,3775.4399,19,We're we're actually looking forward to that.
4483680,502,3775.4399,3782.6499,19,I I did mention in my in my speaking notes that there was a twenty five thousand square foot user at King and Spadina.
4483680,503,3783.26,3785.72,19,Moving to fifty five thousand square feet.
4483680,504,3785.75,3787.4099,19,We're getting close to that deal.
4483680,505,3788.01,3795.53,19,But that that is they're moving to a brick and beam building that's being refurbished today um on Spadina.
4483680,506,3795.8999,3800.03,19,So if that was what prompted the question uh that's not the case.
4483680,507,3800.03,3806.6399,19,And by the way we have users ready to take the twenty five thousand square feet once this tenant makes the move.
4483680,508,3807.29,3809.7998,19,Um Yeah.
4483680,509,3809.8,3815.8398,19,So as Michael said there's nobody that's leaving the portfolio uh at our expense.
4483680,510,3822.3,3822.8899,19,It would.
4483680,511,3823.8101,3824.1201,23,Okay.
4483680,512,3824.51,3824.97,23,That's great.
4483680,513,3824.97,3825.7898,23,That's very helpful.
4483680,514,3825.79,3826.1201,23,Thanks.
4483680,515,3826.3201,3827.21,23,Uh I'll turn it over.
4483680,516,3830.4299,3833.6199,22,We'll take our final question from Jenny Ma at BMO Capital Markets.
4483680,517,3833.8799,3834.73,22,Your line is open.
4483680,518,3834.73,3835.45,22,Please go ahead.
4483680,519,3836.3701,3836.6602,24,Thanks.
4483680,520,3836.6599,3837.3999,24,And good morning.
4483680,521,3837.76,3842.1499,24,Um I appreciate the color that was provided on the uh on what goes into the guidance.
4483680,522,3845.2,3853.8501,24,When we think about the pathway of that what that might take would it more or less resemble the occupancy move that you're expecting?
4483680,523,3853.9199,3855.3398,24,So kind of trend…
4483680,524,3855.6001,3860.49,24,kind of steady where it's been at year end for the first half of this year and starting to trend down?
4483680,525,3861.01,3873.8301,24,Um and then the second part of my question is when you're talking about a target um could we zone in on if you're targeting returning more to a a twenty twenty level sort of in that seven range or or a pre-pandemic six range?
4483680,526,3875.8401,3895.21,19,I think the worst case scenario if if I can describe it that way would see our return to target levels of net debt to EBITDA actually trailing our occupancy gain uh over the course of twenty twenty two.
4483680,527,3895.21,3901.3901,19,So I wouldn't see getting to our target levels in twenty twenty two.
4483680,528,3901.48,3905.9402,19,I think it'll be in twenty twenty three organically.
4483680,529,3906.4299,3913.4001,19,And what gets us there organically of course is the introduction of roughly eighty million dollars in EBITDA.
4483680,530,3913.6799,3925.0798,19,Once that is hitting our statement on a recurring basis we see ourselves getting down into the low sevens maybe even the high sixes.
4483680,531,3925.53,3947.49,19,Uh but I don't think we get our debt to EBITDA back to our target which is let's call it sevens um by the end of twenty twenty two unless our cost of equity improves materially um and we over equitize as we have done in the past.
4483680,532,3947.76,3949.8301,19,But that I'm not counting on.
4483680,533,3950.1299,3960.5598,19,So I think realistically it's gonna take us until twenty three late twenty three to sort of get back to our target range or maybe even early twenty four.
4483680,534,3962.3401,3962.8999,24,Okay great.
4483680,535,3962.8999,3964.0999,24,That's really helpful.
4483680,536,3964.1299,3970.1602,24,Um Cecilia you had mentioned uh the straight line rent is expected to triple this year.
4483680,537,3970.1599,3971.0901,24,I think I heard it right.
4483680,538,3971.0901,3974.8501,24,Could you give us a bit more detail on sort of the timing of how that flows through?
4483680,539,3976.6399,3988.3501,21,Yeah that would basically be the result of um the turnover of vacancy from twenty twenty one being addressed in twenty twenty two in the latter half.
4483680,540,3988.3501,3992.8801,21,So we'd have significant straight line rent coming online from that.
4483680,541,3994.4299,3994.5898,24,Great.
4483680,542,3995.04,3995.3301,24,Great.
4483680,543,3995.4099,3995.8699,24,Second half.
4483680,544,3996.3999,3997.3101,24,Okay great.
4483680,545,3997.3101,3997.8899,24,That's all for me.
4483680,546,3999.71,4000.0598,24,Thank you.
4483680,547,4001.6299,4003.28,19,Thank you.
4483680,548,4003.28,4007.8701,22,With no other questions holding I'll turn the conference back to management for any additional or closing comments.
4483680,549,4009.4099,4009.8401,19,All right.
4483680,550,4009.8401,4013.5999,19,Well thank you one and all for participating in our conference call.
4483680,551,4013.8101,4018.2,19,Uh we will keep you apprised of our progress going forward.
4483680,552,4018.53,4020.7102,19,In the meantime have a great day.
4483680,553,4020.8601,4021.3999,19,Thank you.
4483680,554,4023.3501,4025.21,22,Ladies and gentlemen that will conclude today's call.
4483680,555,4025.21,4026.8899,22,We thank you for your participation.
4483680,556,4026.9199,4028.28,22,You may disconnect at this time.
4483733,0,0.46,1.41,0,Hello everyone.
4483733,1,1.56,7.62,0,And welcome to this Orsted investor presentation for q four and full year twenty twenty one results.
4483733,2,8.39,12.51,0,For the first part of this call all participants will be in listening only mode.
4483733,3,12.65,15.47,0,And afterwards there will be a question and answer session.
4483733,4,16.12,21.919999999999998,0,Today I am pleased to present Matt Sniper C E O and Marianne Wiinholt C F O.
4483733,5,22.27,23.57,0,speakers please begin.
4483733,6,24.95,27.81,1,Thank you very much and good afternoon and good morning everyone.
4483733,7,27.81,30.67,1,And welcome to the q four twenty twenty one earnings call.
4483733,8,31.94,39.11,1,Never before has the world's climate challenge has been greater and the message from science clearer that we need to act now to preserve our planet.
4483733,9,40.09,50.16,1,And we're more than seventy percent of the world's carbons emissions coming from the production and use of energy the transition to a sustainable energy system is at the core of combating climate change.
4483733,10,51.16,64.97,1,With more than thirty years of experience in renewables as one of the five largest renewable energy companies in the world and as the undisputed leader on offshore wind we at Orsted want to play our apart in realizing this massive renewables build out.
4483733,11,65.67,82.51,1,And we plan to do so by reaching our strategic ambition of being the world's leading green energy major installing approximately fifty gigawatts of renewable capacity by twenty thirty and combining technologies to offer customers fully integrated multi product solution.
4483733,12,83.88,90.29,1,In many ways the past year has been extraordinary with various external factors impacting the markets where we operate.
4483733,13,91.42,100.83,1,Throughout twenty twenty one We experienced significantly lower wind speeds than normal especially in Northwestern Europe where we have most of our operating offshore portfolio.
4483733,14,101.96,115.27,1,In February Texas was subject to an unprecedented winter storm where the cold weather was accompanied by surging power prices as conventional and renewable capacity across the state failed on tough conditions.
4483733,15,116.27,125.13,1,The European energy crunch in the last part of the year with extremely high and volatile gas and power prices was also partly cause by weather conditions.
4483733,16,125.24,138.0,1,As the cold winter in the beginning of two one two one led to low levels of gas at storage which together with low wind and precipitation and increasing demand for power and gas caused by supply challenges.
4483733,17,138.91,146.22,1,Finally the COVID nineteen pandemic continued to affect societies and businesses globally and led to economic uncertainty.
4483733,18,147.13,158.26,1,And I'm pleased to say that we have successfully navigated the challenges during the year and we have delivered significant results in twenty twenty one strategically operationally and financially.
4483733,19,158.78,163.19,1,And lemme take a moment to reflect on some of those accomplishments before getting into results.
4483733,20,164.6,168.96,1,We are strongly committed to maintaining our number one position in global offshore wind.
4483733,21,169.6,177.56,1,And in twenty twenty one we have done so by securing twenty five percent of the eighteen gigawatts of offshore capacity auctioned globally.
4483733,22,178.15,184.02,1,and also by replenishing our pipelines with new future opportunities across all technologies.
4483733,23,185.15,191.74,1,We've demonstrated that we are an industry leader on innovation by reaching f i d on our first renewable hydrogen project.
4483733,24,192.21,207.23,1,Having ten hydrogen projects in development alongside several new MOUs with industry leading partners and by securing our first deep water lease right through the recent ScotWind auction that will be used to develop our first floating offshore wind farm.
4483733,25,208.8,217.6,1,We are com committed to being the leading partner and we have delivered by signing numerous corporate PPAs across geographies and with multiple technologies.
4483733,26,218.42,230.32,1,This is further exemplified by the P P A signed for Borkum Riffgrund three which allowed us to substantially derisk the originally fully merchant project and bring it to f i d at attractive returns.
4483733,27,231.26,242.57,1,Taking a customer-centric approach we have tailored the farm-down solution for our partners and ourselves to obtain revenue certainty including a twenty five year P P A with b s f.
4483733,28,243.41,249.99,1,And we have launched even more key strategic partnerships across technologies and the world which I'll explain in more detail later.
4483733,29,251.45,255.34,1,Finally we continue to be the global energy leader in sustainability.
4483733,30,255.89,259.91,1,Publishing EU tax on multiple numbers already in twenty twenty one.
4483733,31,260.78,273.62,1,Being re recognized as the first entity company for net zero targets by the Science Based Targets initiative and by promising all projects commissioned in twenty thirty and after to be net biodiversity positive.
4483733,32,274.59,284.74,1,And most recently Orsted was ranked for the fourth year in a row as the world's most sustainable entity company on corporate nights twenty two global one hundred index.
4483733,33,285.6,289.1,1,We have transformed our company completely to get where we are today.
4483733,34,289.62,296.48,1,And I truly believe that sustainability will be a fundamental premise for all businesses in only a few years time.
4483733,35,297.7,300.39,1,Let's now turn to our annual financ financial results.
4483733,36,301.05,312.81,1,And I'm pleased that we have have delivered full year results in line with our guidance as our twenty twenty one group e b d a excluding new partnerships came in at fifteen point eight billion Danish krone.
4483733,37,313.84,320.65,1,The results are better than our q three and Q uh two q two and q three expectations of the lower end of the range.
4483733,38,321.1,323.76,1,Even in light of the extraordinary market conditions.
4483733,39,324.57,337.99,1,Altogether we see twenty twenty one as having demonstrated the resilience of our business model benefit of our diversification effect and our ability to maintain high availability rates even under difficult circumstances.
4483733,40,338.74,358.71,1,Furthermore we once again demonstrated the power of our proven partnership model in twenty twenty one as we close the fifty percent farm down of Borssele one and two to notice bank investment manager and the fifty percent farm-down of Greater Changhua one to global investment group C D P Q and k f p e.
4483733,41,359.27,359.56,1,the eight.
4483733,42,359.77,366.9,1,five billion of e b d a we recognize for these two farm-downs are considered new partnerships and thus were excluded from guidance.
4483733,43,367.89,371.34,1,Our return on capital employed ROSI for twenty twenty one.
4483733,44,371.37,380.36,1,Was fifteen percent above our target of an average group ROSI of around a eleven percent to 12% for the period twenty twenty to twenty twenty seven.
4483733,45,381.82,395.46,1,On the back of our financials we will propose a dividend of twelve point five Danish krone per share to the annual general meeting corresponding to an increase in dividends of eight point seven percent in line with our dividend policy.
4483733,46,396.78,398.06,1,Now turning to slide four.
4483733,47,398.68,401.64,1,I'm very pleased with how we have grown our farm capacity.
4483733,48,402.4,407.95,1,During twenty twenty one we grew our offshore wind farm capacity by thirty one percent.
4483733,49,409.01,417.06,1,We confirmed our strength as a partner when we were selected in Poland by P G E for the two point five gigawatt Baltica two and three projects.
4483733,50,417.77,419.84,1,And between the two gigawatt of competitively…
4483733,51,419.84,435.07,1,a water capacity in New Jersey for ocean wind two and most recently in Maryland for skip deck two reproved our ability to deliver a winning offering with competitive pricing attractive terms and an all encompassing local local content package.
4483733,52,436.1,437.04,1,turning to onshore.
4483733,53,437.7,443.14,1,we demonstrated that we we not only buy well but that we create the right organic development opportunities too.
4483733,54,444.07,455.82,1,We acquired Brookfield Renewable Ireland in April of twenty twenty one that included three hundred and twenty seven megawatts of operating assets and at that time a sixty two megawatt project under construction.
4483733,55,456.81,463.58,1,Since then we have brought two additional projects to f i d adding another forty five megawatts to our firm capacity as well.
4483733,56,464.46,472.14,1,We also acquired Lincoln land in m y s o of the u s in November of twenty twenty one which is now operating and generating cash flows.
4483733,57,473.02,480.75,1,And we are constructing the five hundred and eighteen megawatt wind and solar PV Helena Energy Center a greenfield development for project.
4483733,58,481.32,486.59,1,And altogether we added one point three gigawatts of farm capacity within the onshore business.
4483733,59,486.93,493.93,1,And by end twenty twenty two we expect to have four point seven gigawatts of operating onshore renewable capacity online.
4483733,60,494.96,506.04,1,Finally for renewable hydrogen we reached F I D and started construction of the two megawatt h two res project in Denmark moving hydrogen from pen and paper to a tangible opportunity.
4483733,61,506.75,520.81,1,And all in all we have grown our farm capacity by twenty eight percent in just one year reaching over twenty six gigawatts today and putting us even closer to our twenty thirty ambition which I'll continue discussing on the next slide.
4483733,62,521.79,534.07,1,Our twenty thirty ambition is fifty gigawatts by twenty thirty uh and of which thirty gigawatts if is offshore wind and seventeen and a half gigawatts is onshore renewables.
4483733,63,534.48,549.52,1,And I'm pleased to say that we are well on track to to achieving this because not only did we add around siga six gigawatts to our farm capacity in two one as just explained but we also replenished our substantiated and opportunity pipelines.
4483733,64,550.41,567.23,1,Compared to the twe- approximately twenty four gigawatts of capacity needed to realize our fifty gigawatt ambition we today have a twenty four gigawatt substantiated pipeline between offshore and onshore renewables and an additional forty three gigawatt opportunity pipeline for offshore wind.
4483733,65,568.41,576.88,1,And let me take a few moments to reflect on our key accomplishments in market development this past year that has allowed us to have such strong pipelines.
4483733,66,577.97,590.09,1,Most recently we and our partners Falck Renewables and BlueFloat Energy were selected by the Crown Estate Scotland to enter into an auction agreement for a new one gigawatt floating offshore windly site.
4483733,67,591.06,606.84,1,We commend the ScotWind sea bid auction for being large scale and for having focus on development phase commitments which is exactly what is needed to allow for financial sustainable development and to make floating and deeper water wind cost competitive.
4483733,68,608.15,620.79,1,By securing this sea bed lease area we are confirming our ambitions in floating offshore wind while expanding our substantiated pipeline for offshore wind which now sits at approximately twelve point five gigawatts.
4483733,69,621.72,629.59,1,We made progress on other offshore wind market entries as well with a number of key strategic partnerships and MOUs established during twenty twenty one.
4483733,70,630.51,644.21,1,This includes our most recent MOUs with two leading career utilities Costco and COMIPO which explores renewable energy certificate off take joint operation and partnerships and technology exchange for o m.
4483733,71,644.82,650.47,1,And is overall an important step in the development of the one point six gigawatt inch an offshore project.
4483733,72,651.35,667.77,1,In addition I would mention our M O U with t and t in Vietnam our M O U with N F I T in the Baltics and our partnership with Fred Olson Renewables and Hafslund Eco for the upcoming Norway sea bed lease auction as well as long term development in Norway.
4483733,73,668.7,674.97,1,Together these have substantiated our opportunity pipeline which now sits at approximately four to three gigawatts today.
4483733,74,676.2,686.45,1,We also further built out our onshore wind and solar PV substantiated pipeline which includes land control and interconnection positions in the US UK and Ireland.
4483733,75,687.65,698.67,1,Lastly we continue to aim to be a global leader in renewable hydrogen and green fuels and as such we've continued to mature our existing strategic partnerships while building out our pipeline further.
4483733,76,699.4,706.08,1,And we now have ten pipeline projects in established uh partnerships and five additional MOUs.
4483733,77,707.3,711.04,1,We are progressing well on the funding and construction of the existing projects.
4483733,78,711.55,719.41,1,The first phase of our inaudible one hundred project partnership for example is supported by the German foreign language program.
4483733,79,719.76,722.02,1,And we and our partners are currently maturing.
4483733,80,722.06,725.26,1,The thirty megawatt electrolyser project towards final close.
4483733,81,726.39,729.62,1,Four of our projects are progressing with I P S I as well.
4483733,82,730.29,735.65,1,i p s i approval is key and it allows the respective EU member states to fund the projects.
4483733,83,736.45,745.63,1,Our linking green hydrogen project with BP was shortlisted as a German I P S I project as was the scale up of the west coast to one hundred project called high scale.
4483733,84,746.3,750.81,1,The inaudible slow scale project was sors- shortlisted for the Dutch I P S I project.
4483733,85,751.4,762.39,1,And our green fuel for Denmark flagship project with mask S A S Copenhagen Airports D F D S D S V and others was selected as a Danish I P S I project.
4483733,86,763.64,767.23,1,Before moving on I wanna mention our two most recent accomplishments.
4483733,87,767.94,784.79,1,First we have reached an agreement with Liquid Wind AB to acquire forty five percent the ownership share of liquid winds flagship one eMethanol project expected to produce fifty thousand tons of eMethanol per year based on renewable hydrogen and biogenic c o two.
4483733,88,786.1,801.68,1,Flagship one is the late stage development project that could become the world's first last scale sustainable eMethanol project of many especially as Liquid Wind AB plans to establish a series of facilities across Sweden to decarbonize the maritime sector.
4483733,89,802.95,811.31,1,Second we have signed an M O U with international steel and technology major Salzgitter to collaborate on a number of circular economy related areas.
4483733,90,812.03,817.84,1,These include green hydrogen production potentially using power from our North Sea offshore wind assets.
4483733,91,818.5,828.95,1,Low c o two steel production that can be used in our future offshore wind farms closed loop recycling of scrap from decommissioned wind farms and infrastructure.
4483733,92,829.97,840.83,1,With see this as an excellent opportunity to help decarbonize the heart to abate sector of steel production as well as an example of our sustainability commitment pursuing close loop opportunities.
4483733,93,841.38,849.05,1,And all in all we believe we stand with one of the broadest and deepest portfolios of renewable hydrogen products in the industry.
4483733,94,850.31,855.2,1,Now moving on to slide six where I'll look into recent development in the u s offshore portfolio.
4483733,95,856.27,866.5,1,Starting in Maryland where we were awarded a contract for the full amount of our eight hundred forty six megawatt Skipjack two project in the recent competitive offshore wind solicitation.
4483733,96,867.69,886.27,1,The award of twenty year uh offshore renewable energy certificate o OREC starts at a u s dollar eighty three point nine per megawatt hour in twenty twenty six and escalates three percent per anum which equals a levelized two thousand seven price of seventy five point eight US dollar per megawatt hour.
4483733,97,887.25,900.09,1,Subject to final investment decision skip deck two and the previously awarded one hundred megawatt uh skip deck one project will be built as one project with expected commissioning in twenty twenty six.
4483733,98,901.35,919.11,1,We see this project demonstrating our capabilities in creating value in a competitive environment by leveraging our expertise to help our customers achieve their ambitions uh ambitious renewable targets deliver on strong local content and ultimately execute on a very attractive project.
4483733,99,920.47,932.67,1,With skip deck two Orsted has been awarded total of around five gigawatts offshore wind projects in the u s And we maintain our market leadership with the largest us offshore wind in development pipeline.
4483733,100,933.53,934.44,1,This leaves us uh.
4483733,101,934.44,943.53,1,and our partners with proprietary secret rights of around three gigawatts off the e u s east coast which can be utilized for upcoming solicitations.
4483733,102,944.68,949.34,1,In the u s we continue to see strong development and progress being made in a maturing.
4483733,103,949.34,956.96,1,our industry leading five gigawatt development pipeline of the projects with the first FIDs expected in twenty twenty two and twenty twenty three.
4483733,104,958.05,970.24,1,Our first projects that have been exposed to the federal permitting delays carry costs of related to developing a local supply chain which together with current cost inflation are impacting the value creation.
4483733,105,971.33,974.61,1,Project development is most mature for our Northeast cluster.
4483733,106,975.14,984.29,1,And we can see that in particular the cost of installation vessel has increased significantly not least in light of the limited supply of inaudible compliant vessels.
4483733,107,985.57,994.39,1,We continue pursuing all technical commercial and regulatory levers at our disposal to improve returns of these projects in the same way as we always do.
4483733,108,995.44,998.69,1,The continuous fast progress of the federal permitting progress…
4483733,109,998.69,1006.3199,1,processes as well as the proposed clean energy tax policies being considered in Congress are important supportive factors.
4483733,110,1006.66,1012.1299,1,Not only for our projects but for the accelerated build out of offshore wind in the u s in general.
4483733,111,1013.07,1017.73,1,Well we remain fully committed to be a leader in the development of u s offshore wind.
4483733,112,1019.06,1023.14,1,Now turning to slide seven while given update on our construction projects and pipeline.
4483733,113,1023.37,1025.78,1,First starting with projects under construction.
4483733,114,1027.03,1030.2599,1,We are currently constructing two of the world's slightest offshore wind farms.
4483733,115,1030.38,1034.76,1,foreign language in the UK and Greater Changhua one and two a in Taiwan.
4483733,116,1035.87,1042.08,1,At Hornsea two we have now successfully installed all array cables and all one hundred sixty five turbines.
4483733,117,1042.34,1047.84,1,And we reached first power at the end of last year when the offshore transmission asset was connected to the grid.
4483733,118,1048.98,1058.1801,1,Today seventeen turbines are energized but significant parts of the electrical engineering work as well as other key final commissioning steps are still undergoing.
4483733,119,1059.3199,1062.2301,1,We saw progress according to plan until mid-December.
4483733,120,1063.02,1072.02,1,However the accelerating Omicron variant affection rates mea meant that it was not possible to man the vessels used for commissioning work according to plan.
4483733,121,1072.63,1085.99,1,And as a consequence the Rambo profile will be slower than our orig original internal expectations but we still expect to commission Hornsea two in the first half twenty twenty two as previously communicated.
4483733,122,1087.54,1095.8099,1,As we previously have discussed we continue to expect to farm-down Hornsea two in twenty twenty two upon um or after commissioning.
4483733,123,1097.0,1100.9399,1,We continue to see high interest for direct investments into our assets.
4483733,124,1101.16,1110.5599,1,Our most recent deals demonstrate high confidence in offshore wind and provide a testament to our proven transaction model of providing contract X for full scope B P C.
4483733,125,1111.05,1114.0599,1,twenty years of on o and m and route to market.
4483733,126,1115.4301,1124.99,1,At our Greater Changhua one and two a project we continue to progress our offshore construction work and have installed fifteen out of the one hundred eleven jacket foundations.
4483733,127,1125.87,1133.5,1,We plan to reach first power in the first half of twenty twenty two and still expect to commission the projects towards the end of twenty twenty two.
4483733,128,1134.58,1144.24,1,As we mentioned in q three we continue to see Taiwan being affected by COVID nineteen restrictions which could potentially impact the construction timeline but hasn't yet.
4483733,129,1145.4399,1158.3201,1,Since the q three call we reached F I D on our Borkum Riffgrund three and Gode Wind three projects after signing seven hundred and eighty six megawatts of corporate PPAs and farming down Borkum Riffgrund three.
4483733,130,1158.87,1163.34,1,Hereby meeting our partners additionality mandates unlimited merging approach…
4483733,131,1163.59,1164.73,1,uh merchant and exposure.
4483733,132,1166.54,1169.63,1,Turning it out to our onshore renewable projects on the construction…
4483733,133,1169.67,1171.8101,1,and Starting with the u s shore wind.
4483733,134,1172.24,1179.1901,1,We are near completion in terms of constructing for the twe- 298 megawatt haystack wind project.
4483733,135,1179.55,1182.26,1,And will formally commission in the first half of this year.
4483733,136,1183.34,1198.24,1,As previously discussed we still expect some delays in commissioning of our us solar projects all three hundred and the solar phase of Hele- Helena Energy Center due to the forced labor allegations in China and u s terrorists on Chinese goods.
4483733,137,1199.55,1202.2101,1,We take the issue of forced labor very seriously.
4483733,138,1202.61,1210.4301,1,And for future projects we have decided to only use poly silicon free panels until the traceability issues have been fully resolved.
4483733,139,1212.0601,1215.64,1,In Europe we have reached the f i d on our first Northern Ireland project.
4483733,140,1216.0,1223.0599,1,The sixteen megawatt Ballykeel project has an off take solution with Amazon and is on track to commission in twenty twenty three.
4483733,141,1224.0699,1229.64,1,The construction of the two other projects that sixty two megawatt can effect one project in Scotland.
4483733,142,1230.25,1235.5699,1,And the twenty nine megawatt machine three project in Ireland are still put regressing according to schedule.
4483733,143,1235.6,1238.62,1,And I expected to reach c o d in twenty twenty two.
4483733,144,1240.03,1245.5,1,We also continue to advan advance our first renewable hydrogen product on the construction h two res.
4483733,145,1246.3199,1255.92,1,The two megawatt electrolyser project will use our inaudible offshore wind facility as a source and is still expected to commission in the first half of twenty twenty two.
4483733,146,1257.21,1264.6801,1,All these projects together equote- equate to the nearly eighteen gigawatts of installed and on a construction renewable capacity.
4483733,147,1266.14,1269.67,1,The development of our water projects continues to progress as planned.
4483733,148,1270.45,1278.7001,1,In the u s we've added skip gear two to our water capacity and the u s interior department recently kicked off the process for the New York bites.
4483733,149,1278.7,1279.88,1,Sea at lease offering.
4483733,150,1280.9399,1289.08,1,New York bite is the first of seven potential offerings in twenty twenty two through twenty twenty four across different U S C bed regions.
4483733,151,1289.83,1294.1899,1,We are little bit bid for the New York bite and we'll provide updates in due time.
4483733,152,1295.45,1300.04,1,Finally the development of products in Taiwan and Poland are also progressing as planned.
4483733,153,1301.3101,1306.03,1,Let's move on to slide eight and an update on upcoming offshore wind auctions and tenders.
4483733,154,1306.71,1318.85,1,And I'm extremely pleased with our year in of successes in twenty twenty one where we and our partners secure twenty five percent of the awarded capacity globally through Poland New Jersey and Maryland.
4483733,155,1319.9399,1329.4199,1,The four point five gigawatts of grass offshore wind capacity is fifty percent above our strategic uh ambition of adding approximately three gigawatts of offshore wind per year.
4483733,156,1330.11,1339.52,1,From this it is clear to me that our competitive advantages continue to shine through a across g different geographies and auction types.
4483733,157,1339.9399,1347.75,1,And we look to apply this in several of the plentiful number of auctions expected during twenty twenty two and twenty twenty three.
4483733,158,1348.59,1351.4301,1,And with this I will now hand over the words to Marianne.
4483733,159,1352.22,1352.88,2,Thank you Matt.
4483733,160,1352.96,1354.2401,2,And good afternoon everyone.
4483733,161,1354.8101,1358.14,2,And let's start with slide nine and the E B D A for the quarter.
4483733,162,1358.86,1370.3899,2,Looking uh at the group level we realized any B D A of eight point three billion a significant increase uh on last year driven by the gain uh from the fifty percent Greater Changhua one divestments.
4483733,163,1371.16,1376.41,2,Our B D A excluding the effect from new partnerships was in line with q four twenty twenty.
4483733,164,1377.78,1385.6699,2,As uh stated when we gave our twenty twenty one full year guidance we expected numerous drivers to impact the earnings.
4483733,165,1386.16,1389.75,2,And these totaled uh zero point two billion in q four.
4483733,166,1390.73,1401.5699,2,The underlying earnings composition did turn out uh differently uh than what we had anticipated driven by the very strong performance from our C S P plants and gas business.
4483733,167,1401.9399,1408.23,2,Whereas the energy crunch led to a larger than uh expected negative impact on our offshore wind assets.
4483733,168,1409.46,1413.38,2,During the quarter we saw wind speeds roughly in line with the norm for the quarter.
4483733,169,1413.84,1421.22,2,Uh why they derived effect from the energy crunch had a negative impact of one billion on our offshore sites earnings.
4483733,170,1422.26,1434.08,2,The impact is related to higher balancing and intermittency costs as well as having to buy back hedges caused by the delayed uh Hornsea two ramp up as Mas described earlier.
4483733,171,1435.45,1455.47,2,The negative F D A impact uh from our existing offshore partnerships in q four twenty twenty one related to a zero point five billion increase in weight provisions to our partners while the project development costs increased by zero point five billion uh driven by the continued expansion of our footprint.
4483733,172,1456.8,1469.83,2,Earnings in our onshore business uh increased by sixty four percent driven by the ramp up in generation capacity which was partly offset by the cost relating to the continued expansion uh of our onshore business.
4483733,173,1471.16,1486.02,2,In bioenergy and others earning significantly increased driven by exceptional performance by our c h p plants due to the higher power prices higher heat and power generation as well as higher sale of ancillary services.
4483733,174,1487.01,1496.7599,2,As we only hit the power we co-generate with heat we fully benefited uh from the high power prices on our condensing power generation in the quarter.
4483733,175,1498.08,1504.89,2,Earnings from our gas markets and infrastructure increase significantly due to a strong underlying performance.
4483733,176,1505.7,1512.6899,2,In q three twenty twenty one we conducted uh uh renegotiations of gas purchase contracts.
4483733,177,1513.03,1525.04,2,And because of the ongoing negotiations uh of these contracts and the uncertainty around price levels we would settle upon we had not locked in our margins uh as we would normally do.
4483733,178,1526.16,1537.21,2,Hence with in increase in gas prices throughout q four twenty twenty one we were able to uh secure a very solid contribution uh from the sale of these volumes.
4483733,179,1539.26,1544.6799,2,Let's continue to slide ten uh covering our net profit net debt and credit metric.
4483733,180,1545.96,1554.08,2,Net profit for the period totaled three point three billion which was significantly above last year driven by the higher e b d a in the quarter.
4483733,181,1555.29,1564.21,2,A net debt at the end uh of fourth quarter amounted two twenty four point three billion an increase of three point one billion during the quarter.
4483733,182,1565.16,1568.6901,2,A cash flow from operating activities reflected the a b d…
4483733,183,1569.123,1584.47,2,E B D A as well as tax equity contribution from our partner at Haystack in the u s offset by combined initial margin payments to clearing houses and margin payments on on realized hedges of eight point eight billion.
4483733,184,1586.09,1590.15,2,These margin payments uh only impact liquidity temporarily.
4483733,185,1591.09,1601.1799,2,Our gross investments total eleven point eight billion uh driven by our continued investments into offshore and onshore wind and solar PV farms.
4483733,186,1601.72,1607.8199,2,While the divestments proceeds related to the fifty percent farm-down of the Greater Changhua one uh project.
4483733,187,1608.7,1615.14,2,Finally we had exchanged rate adjustments of one billion relating to appreciation of the British Pound.
4483733,188,1617.1801,1622.7999,2,Our key metric F F O too adjusted net debt stood at thirty one percent for the twelve month period.
4483733,189,1634.1899,1639.3201,3,Uh let's turn to slide eleven uh and our financial and nonfinancial ratios.
4483733,190,1640.35,1648.77,3,Uh our return on capital employed uh came in at fifteen percent uh uh with the increase compared to last year being driven by the farm down gain.
4483733,191,1650.54,1662.95,3,In twenty twenty one our taxonomy eligible share of revenues was about sixty six percent while our show was EBITDA was ninety percent and the share of gross investments was ninety nine percent.
4483733,192,1664.13,1678.25,3,As we have stated previously we expect the share of taxonomy eligible revenue to increase in the coming years as we plan to phase out coal completely during twenty twenty three and gradually reduce our gas activities.
4483733,193,1679.48,1688.28,3,Our greenhouse gas emissions intensity uh from our heat and power generation namely our scope one and two emissions was on par with twenty twenty one.
4483733,194,1689.17,1697.6901,3,The emissions from our supply chain and safe activity decreased by twenty eight percent compared to last year driven by lower gas volumes.
4483733,195,1699.13,1715.1299,3,Turning to safety uh we have seen a four percent reduction in the number of injuries and a fifteen percent increase in uh hours uh working hours which led to a seventeen percent reduction in the total recordable injury rate during twenty twenty one.
4483733,196,1717.49,1721.0499,3,And this concludes uh the group's financials for q four twenty twenty one.
4483733,197,1721.21,1726.3199,3,Uh and then let's turn to slide twelve uh and the outlook for twenty twenty two.
4483733,198,1726.91,1739.51,3,Our guidance for twenty twenty two e b i t d a excluding new partnerships ex expected to be nineteen to twenty one billion uh representing a significant step up uh on twenty twenty one EBITDA.
4483733,199,1741.0699,1753.01,3,As of twenty twenty two uh we have increased uh the range uh of our guidance to two billion instead of the previous one billion due to the increasing size of our renewable portfolio.
4483733,200,1754.14,1760.08,3,As in previous years uh our e b i t d a guidance does not include earnings from new partnership agreements.
4483733,201,1761.36,1778.3,3,In terms of new partnerships in twenty twenty two we expect to close both the fifty percent farm down of inaudible three expectedly during q one as well as the farm down of fifty percent share of the Horn c two project expectedly during the summer.
4483733,202,1779.5601,1789.7101,3,We have not included any gains from these farm downs in our guidance but we have assumed a derived reduction inside earnings from Horn c two in the second half of the year.
4483733,203,1791.02,1805.46,3,Including the expected farm down gains from uh those two transactions uh the twenty twenty two e b i t d a will be significantly higher than twenty twenty one EBITDA including new partnerships of twenty four point three billion.
4483733,204,1807.6,1823.1699,3,Looking at the directional earnings development for each of the business units we expect the earnings in offshore and onshore to be significantly higher than twenty twenty one while earnings in bioenergy and other is expected to be significantly lower.
4483733,205,1824.6,1835.76,3,I would like uh to go through the earning drivers in more detail uh starting with offshore where uh the significant positive impact is driven by a number of factors.
4483733,206,1837.49,1850.96,3,Earnings from sites in twenty twenty one were negatively affected by very low wind speeds uh which for uh twenty twenty two is not expected to repeat it but on the contrary revert to a normal wind year.
4483733,207,1852.17,1860.15,3,Uh both Horn c two and Greater Shangwell one and two a uh will contribute with a ramp-up of generation.
4483733,208,1860.5601,1870.25,3,And we expect to commission uh the projects late in the first half of uh twenty twenty two and in the uh second half of twenty twenty two respectively.
4483733,209,1871.3101,1880.5499,3,The ramp-up will be partly offset offset <laugh> by uh the fifty percent farm down of Horn c one and two uh in May twenty twenty one.
4483733,210,1882.04,1888.9299,3,We will have a full year effect uh of the CFD contribution uh for the whole of Horn c one.
4483733,211,1889.8,1895.15,3,And we expect uh a less negative impact uh from the energy crunch uh in twenty twenty two.
4483733,212,1895.75,1906.52,3,However we expect to see uh a continued negative impact uh from high uh balancing and intermittency costs driven by expected continued high volatility.
4483733,213,1908.24,1917.6799,3,Furthermore uh earnings from existing partnership uh will benefit from the contributions from Greater Shangwell one which have farmed down in twenty twenty one.
4483733,214,1919.46,1926.9401,3,We also realized a negative impact in twenty twenty one uh from the provision for the cable protection system issue.
4483733,215,1928.08,1937.74,3,During twenty twenty one uh we took the necessary proactive measures uh to repair the cable protection systems uh where we had found them to be damaged.
4483733,216,1937.77,1944.3099,3,Uh and we have st uh stabilized uh the CPS on several of our offshore wind farms.
4483733,217,1945.4,1957.37,3,Uh this stabilization has been executed to prevent further movement of the cables across the inaudible protection by placing additional engineered rock berms uh around the CPS.
4483733,218,1958.6,1966.35,3,We are continuing with this exercise uh and have plans for further rock sta stabilization uh during twenty twenty two.
4483733,219,1967.73,1982.6699,3,We are now analyzing the long-term integrity of the cables uh impacted by the movement uh and the requirement uh to replace cut cables including the impact in relation to suppliers partners and insurance.
4483733,220,1983.6,1995.49,3,At pres at present our evaluation of the total financial impact of this issue remains unchanged but it is more backend loaded uh than what we had initially assumed.
4483733,221,1997.3101,2002.97,3,In twenty twenty one uh we made further provision regarding uh wake effects.
4483733,222,2003.73,2008.16,3,Uh this effect is not expected to be repeated for twenty twenty two.
4483733,223,2008.67,2023.54,3,And finally we expect uh zero point five billion increase in costs relating to expense project development costs related to hydrogen development uh and general costs uh due to the uh increasing size of our business.
4483733,224,2025.36,2053.0,3,Earnings from our onshore business uh is expected to be significantly higher uh driven by the ramp-up uh generation uh at Permian Energy Center Western Trail Muscle Shoals uh and Lincoln Land which we commissioned during twenty twenty one and the expected commissioning of All three hundred Solar Center Helena Energy Center uh in the second half of uh twenty twenty two uh and Haystack uh in the first half.
4483733,225,2053.78,2064.79,3,And furthermore uh twenty twenty two uh will account for a full year earnings uh from Brookfield Energy Island which we acquired uh in q two twenty twenty one.
4483733,226,2066.03,2073.8,3,And finally uh we expect a zero point three billion increase in expense project development uh and general costs.
4483733,227,2075.75,2089.8198,3,The earnings from our bioenergy and other business uh for twenty twenty two is expected to be significantly lower than twenty twenty one largely owing to the fact uh of the very strong performance in uh twenty twenty one.
4483733,228,2091.02,2107.0298,3,In twenty twenty one our c h p plans benefited uh from the large amount for auxiliary services uh as well as the very high power prices and spreads in the last four months of the year which also led to uh unusually high power generation.
4483733,229,2108.1599,2113.6101,3,We do not expect this to be repeated to the same extent in twenty twenty two.
4483733,230,2114.29,2138.0898,3,Furthermore earnings uh in gas markets and infrastructure were positively impacted by a one-off effect in connection with the renegotiation of gas purchase contracts in twenty twenty one and a strong uh underlying uh in a very volatile and bullish gas markets where we were able to optimize purchase uh from our long-term gas contracts.
4483733,231,2139.21,2146.6199,3,In twenty twenty two we expect earnings to be fairly limited reflecting normal margins on these activities.
4483733,232,2148.5601,2171.3,3,Despite uh twenty twenty one being a soft year for our side earnings I want to reiterate that we are fully on track to deliver on our long-term e d b i t d a CAGR up around twelve percent from twenty twenty to twenty twenty seven targeting uh a thirty five to forty billion EBITDA uh from offshore and onshore assets in operation by twenty twenty seven.
4483733,233,2172.8601,2178.8198,3,Our gross investments uh for twenty twenty two uh are expected to amount to thirty eight to forty two billion.
4483733,234,2179.76,2184.6199,3,The outlook reflects uh a high activity level uh in offshore and onshore.
4483733,235,2185.4199,2191.1401,3,Uh our gross investment guidance is fully in line with our expectations and long-term plans.
4483733,236,2192.3601,2203.3499,3,And finally let's turn to slide thirteen which recaps our twenty twenty two EBITDA and gross investment guidance as well as our long-term financial estimates and policies.
4483733,237,2204.1799,2213.74,3,We are well on track uh on our capital investment program uh in our green growth uh and maintain very comfortable with our long-term financial targets.
4483733,238,2215.1399,2222.75,4,And before we open up for the q and a session thank you very much Mina I would like to thank you Marianne for an outstanding career announcement.
4483733,239,2223.5901,2227.52,4,As you all know Marianne announced that she will pursue a career outside of Orsted.
4483733,240,2228.3201,2244.05,4,And whilst I can support and understand by Marianne after more than seventeen successful years at Orsted has the appetite to try other challenges I am certainly sad to see her leave as a great experience and capable colleague to me and the rest of the Orsted executive committee.
4483733,241,2244.8999,2252.5898,4,Luckily we are in the best of hands with our new group CFO Daniel Lerup who I very much look forward to welcoming on the executive committee.
4483733,242,2253.51,2261.79,4,Daniel is currently senior vice president head of commercial and EPC and operation finance at Orsted and has worked for the company since two thousand nine.
4483733,243,2262.8101,2277.2,4,He has a strong strategic mindset an in-depth knowledge of the company and extensive experience for several corporate finance and business functions including previously serving as the head of investor relations tax and financial planning and analysis.
4483733,244,2277.6799,2284.55,4,And I'm confident that Daniel will use his strong leadership skills to support our global growth while keeping financial discipline.
4483733,245,2284.97,2290.3401,4,And I am pleased that our recruitment process has confirmed our strong internal talent pipeline.
4483733,246,2291.1499,2296.5898,4,For now Marianne will stay on until April eighth to support the transition.
4483733,247,2297.29,2302.0,4,Marianne apart from thanking you I will leave it to you for your closing remarks.
4483733,248,2302.95,2303.95,3,Thank you Mads.
4483733,249,2304.27,2312.51,3,I am very happy to have been part of this amazing journey over the past seventeen years with the past uh eight years uh as CFO.
4483733,250,2313.29,2318.6602,3,And I have concluded that now was the right time for me to step down as uh CFO.
4483733,251,2319.4199,2334.1001,3,Together with the entire Orsted team we have transformed the company to a global leader in renewable energy and uh creating significant value for all our stakeholders and driving uh a world-leading sustainability agenda.
4483733,252,2335.03,2349.98,3,I would very much to thank the Board of Directors Mads and my colleagues in the executive committee and the entire uh Orsted team for an exceptional collaboration in uh realizing the profound results that we have achieved together.
4483733,253,2350.9399,2355.49,3,I will stay on uh as CFO for a few months to ensure a smooth transition.
4483733,254,2356.02,2359.49,3,And I remain very committed to Orsted until my final day.
4483733,255,2360.3101,2363.96,3,Thereafter I will continue to follow Orsted's exciting journey going forward.
4483733,256,2365.3701,2367.9299,3,And with that we will now open up for questions.
4483733,257,2367.96,2369.4502,3,Uh Operator please.
4483733,258,2372.3799,2377.7,5,This concludes the presentation part of our call and we are now ha happy to answer your questions.
4483733,259,2378.79,2385.05,5,Please respect only one question per participant and then you can go back in the queue for a second question.
4483733,260,2386.29,2392.0,5,So if you do wish to ask a question please press zero one on your telephone keypad.
4483733,261,2392.9199,2397.97,5,If you wish to withdraw your question you may do so by pressing zero two to cancel.
4483733,262,2398.6499,2401.8101,5,There will be a brief pause while questions are being registered.
4483733,263,2407.52,2411.24,5,Our first question comes from Sam Arie with UBS.
4483733,264,2411.5801,2412.0999,5,Please go ahead.
4483733,265,2421.0701,2427.4299,6,Also may I just add my thanks to you Marianne for for everything and congratulations to Daniel for his appointment.
4483733,266,2428.3999,2436.6401,6,Uh so on to my question which I think is kind of the question uh which is about inflation rates and cost of capital.
4483733,267,2459.27,2463.05,6,And I'm asking it in that way because I know you don't like to talk about the level of the cost of capital.
4483733,268,2463.4099,2467.9001,6,But I'm hoping you can comment on whether you see any change versus this time last year.
4483733,269,2467.8999,2476.29,6,And and related to that um you know I looked in the annual report this morning to see uh what you did on your impairment tests and I don't see any.
4483733,270,2476.74,2494.9099,6,So I'm tempted to conclude from that that you know you you basically don't see any impact on the value of your of your portfolio from kind of the things the market's worried about at the moment rising and yeah inflation and the cost uh of your projects and you know arising discount rates that you might apply for valuation.
4483733,271,2495.5701,2499.6702,6,So that's my question and I welcome any comments you can share with us on on those points.
4483733,272,2499.74,2500.1299,6,Thank you.
4483733,273,2500.47,2500.6599,3,Yeah.
4483733,274,2501.3101,2502.75,3,Uh thank you Sam.
4483733,275,2502.75,2504.6799,3,Uh I will try to answer that one.
4483733,276,2505.21,2519.46,3,Uh the way we look at uh inflation and and increased inflation rates is that we split our portfolio uh into what we have already built uh what we are in the process of building and and then the the future uh pipeline.
4483733,277,2519.97,2533.78,3,Uh and if I start talking about uh what we have already built the operating fleet uh we are uh very blessed uh by having uh a large degree of our assets uh being inflation indexed.
4483733,278,2534.26,2545.1299,3,Uh so all the UK uh projects are inflation indexed uh and we think that this gives us uh a good protection uh against increasing interest rates.
4483733,279,2545.1299,2549.05,3,I know there's not a one-to-one relationship but I I think we are in a good spot.
4483733,280,2549.49,2566.6699,3,Uh then we have the projects uh with uh fixed nominal contracts where we uh to the extent possible uh have secured those via the fixed nominal debt uh meaning uh that we keep for those where we do that we keep uh the value creation intact.
4483733,281,2567.6899,2584.2698,3,Uh then when you look at what we have not built uh we have not built for example our Polish projects where we also have inflation uh adjustment our US projects uh in a way we we have not built and we have a a fixed contract some of which we have secure already through fixed nominal debt.
4483733,282,2584.72,2586.6602,3,Uh but there of course we have an exposure.
4483733,283,2587.3201,2597.0901,3,Uh not an exposure that makes this project not being value creating and that's why you cannot see any impairment losses uh in in our uh annual report.
4483733,284,2597.8899,2606.1301,3,Then when you look at the projects that we have not won yet uh we will not be in a different position than any of our competitors.
4483733,285,2606.54,2615.0701,3,So we believe that uh higher interest rates meaning higher inaudible uh will uh be built into to the bids.
4483733,286,2615.3,2621.8201,3,Uh and and and we will as I said be in e exactly the same position uh as uh as appears.
4483733,287,2621.8201,2636.3201,3,Uh and that that will if this uh increased interest rates in a way continue and this is the new normal uh then you will see uh subsidies uh increasing or prices uh in in increasing uh as a consequence of that.
4483733,288,2637.1101,2641.97,3,So so we feel that we are actually quite well protected.
4483733,289,2642.0701,2645.6299,3,Uh I know uh we are exposed of course uh to some extent.
4483733,290,2645.6599,2656.24,3,But but compared to to many of our competitors and and and uh in a way compared to what I think many investors uh think i i I think we are in a good place.
4483733,291,2703.8701,2705.8301,7,What would've been the uh the number then?
4483733,292,2706.01,2707.72,7,Can you give any guidance to to that?
4483733,293,2709.1899,2709.5698,4,Yeah.
4483733,294,2709.5701,2710.3901,4,It it uh thank you Casper.
4483733,295,2710.3899,2712.9402,4,It it it would've been roughly the same.
4483733,296,2712.9399,2718.79,4,I mean this is driven by the fact that we are constructing very significantly sized assets.
4483733,297,2718.8201,2721.0,4,So we we are still we are still feeling antsy too.
4483733,298,2721.0,2722.1401,4,we are building Shangwell.
4483733,299,2722.53,2725.3901,4,We took f i d on our on our German program.
4483733,300,2725.6001,2734.7,4,So we we are really constructing a lot of large-scale assets on top of the of of the of the of the the strong onshore uh investment plans as well.
4483733,301,2735.21,2741.46,4,So the the inflation is is nothing that significantly impacts our overall capex market I think is the short answer.
4483733,302,2743.1001,2743.1902,7,Okay.
4483733,303,2743.8999,2752.1501,7,If if I just may follow up I think Mads you said last year that that you were not that worried about the rising input cost of steel or plastics etc.
4483733,304,2752.1799,2758.2,7,because for example on your uh US portfolio you were not looking into anything being completed before twenty twenty five.
4483733,305,2758.6101,2760.4299,7,I mean we are getting closer and closer to that.
4483733,306,2760.46,2760.6499,4,Yeah.
4483733,307,2760.6499,2762.0701,7,And and costs are still high.
4483733,308,2762.8899,2764.9399,7,Um are are you starting to be a little bit more worried?
4483733,309,2765.22,2765.4199,4,Yeah.
4483733,310,2765.4199,2769.1201,4,And we we yes I we we are starting to be a little bit more worried.
4483733,311,2769.1201,2795.72,4,I I'll say that we are we are we are working very effe very hard on it because like we also mentioned just briefly now is that we we are seeing that whilst we had secured through pre-buy for example uh a very large share of the steel we are gonna use in the US projects there are other parts of our supply chain such as as uh installation vessels where there is a inaudible the Jones Act compliant vessels that means that those prices are going up.
4483733,312,2796.0701,2802.3501,4,We we have for the for those projects that are next in line we we have locked in a very large share of the capex.
4483733,313,2802.75,2804.6401,4,But but there is still an exposure.
4483733,314,2804.6399,2806.0,4,That is what we are working on.
4483733,315,2806.03,2829.4299,4,And also mentioning that to ensure that if this this inflation continue as we near the sort of the the the the the project commencement and the construction phase that is also why we underlined the need for for the green part of the Build Back Better and the and the the the the approval process as a inaudible to continue to be very effective and support the sustained uh build-out.
4483733,316,2829.8899,2832.5498,4,No matter what we remain committed to our portfolio.
4483733,317,2832.5801,2839.72,4,We want to be a driver of the US onshore uh offshore uh portfolio at at least that thirty by thirty ambition.
4483733,318,2840.47,2844.51,4,But it is something that is putting pressure in general on the on the industry.
4483733,319,2844.8701,2855.8,4,And and we I think have been working uh with all we got uh through uh securing both commodities and also the other parts of our our capex.
4483733,320,2856.25,2862.6902,4,But it is impacting and it is something that underlines the need for for the support to ensure we we keep traction.
4483733,321,2864.97,2865.3899,7,Thanks Mads.
4483733,322,2865.49,2866.1101,7,Thanks all the best.
4483733,323,2868.1499,2872.7,5,Our next question comes from Deepa Venkateswaran with Bernstein.
4483733,324,2872.9299,2873.5601,5,Please go ahead.
4483733,325,2875.03,2876.8401,8,Uh thank you for my question.
4483733,326,2876.8701,2883.22,8,Uh I also wanted to start off by uh thanking Marianne for her service uh to all of us and all the best in your next endeavor.
4483733,327,2883.8101,2888.71,8,Uh so my uh question and and you know this is to Mads or Marianne or whoever who wants to pick up.
4483733,328,2888.71,2894.28,8,So we've been talking a lot about inflation of uh raw materials confidence supply chain.
4483733,329,2894.28,2899.22,8,But the other massive inflation that also happened of course has been wholesale power prices.
4483733,330,2899.6699,2904.96,8,Uh we've also seen of course driving commitments from corporate towards reducing emissions and so on.
4483733,331,2904.96,2919.5601,8,So in this backdrop just wanted to see how your approach has shifted or not uh you know moving away from just options uh to to actually broadening it out more and including corporate PPA.
4483733,332,2919.5601,2923.8301,8,And I know you were the pioneers uh in in in Germany a few years back.
4483733,333,2923.8301,2928.0,8,But at that time the power plant environment and ESG commitments were completely different.
4483733,334,2928.0,2941.49,8,So I wanna just uh uh you know focus on the other other aspect of inaudible which I think a lot of investors are ignoring is uh you know driving merchant power prices and and increasing corporate appetite and how that changes uh the value of your future opportunities.
4483733,335,2941.8,2942.24,8,Thank you.
4483733,336,2943.2,2943.4399,3,Yeah.
4483733,337,2943.4399,2954.71,3,So so so basically uh Deepa what you are really asking about in a way has this changed our appetite for for merchant projects uh and and taking onboard more merchant risk.
4483733,338,2954.71,2956.8801,3,Isn't that your what you're really asking about?
4483733,339,2957.8899,2959.23,8,In in one way yes.
4483733,340,2959.23,2964.0601,8,But but perhaps it's also opened up uh another avenue of demand from corporate you know.
4483733,341,2964.1799,2968.5701,8,So so not completely keeping it merchant for yourself but another avenue of off-stake uh.
4483733,342,2968.8,2969.9602,3,Yeah yeah.
4483733,343,2969.96,2971.1101,3,Uh uh yes.
4483733,344,2971.1101,2973.22,3,Uh <laugh> yes to both questions.
4483733,345,2973.22,2983.1902,3,Uh the thing is that for now in a way we we don't have any uh merchant exposure uh on any of our projects where we can go out and market uh the the corporate PPAs.
4483733,346,2983.1899,2990.1902,3,So uh so so we we we don't have anything to say sell basically for our offshore portfolio.
4483733,347,2990.5801,2999.0198,3,For for onshore uh we are uh continuing and and yes you are right uh we see the amount being very very strong stronger than ever.
4483733,348,2999.3999,3015.6001,3,Uh first of all in a way driven by uh wind requirements from the corporates and and but but also uh I I think it it has been a wake up call this energy crunch uh that uh that energy prices in a way are much more volatile.
4483733,349,3015.6001,3021.4102,3,And in this transition uh we are in the middle of in a way you you would probably see more volatility.
4483733,350,3021.46,3032.0801,3,Uh and and that also then uh leads to the question uh do we have more appetite on on on merchant risk if we should win uh a merchant uh project?
4483733,351,3032.0801,3040.1899,3,Uh and and and there will be auctions in twenty twenty two uh where we will have uh merchant projects like for example in in the Netherlands.
4483733,352,3040.8601,3061.3201,3,Uh and and one thing is uh is is an eye-opener you can say from this energy crunch that uh being merchant probably in a way could also give a very significant uh upside uh while uh the the downside from being uh fully hitched uh uh or or not being hitched in a way is is is not at the same level.
4483733,353,3061.8201,3071.3301,3,So yes we are looking at our appetite uh and and the way we hitch uh whether we should leave some more room for for having uh a higher merchant exposure.
4483733,354,3071.47,3077.54,3,Uh but that's something we will be working on and and we will come back to you uh as we progress with this work.
4483733,355,3078.01,3093.1802,4,And and Deepa Mads here if I could just support or or sort of supplement Marianne's answer we are starting to see that that the PPA uh terms and and prices are are are going slightly off for our onshore business.
4483733,356,3093.1799,3103.0601,4,And that can sort of those are shorter-term so that also means that that could well be a lead indicator generally for this for for the for the the market allowing this to happen.
4483733,357,3103.0901,3110.9299,4,So so that would also mean that part of that inflation that that that is a real risk as as the input factors as we go along.
4483733,358,3125.6499,3130.2,5,Our next question comes from Alberto Gandolfi with Goldman Sachs.
4483733,359,3130.3999,3130.8999,5,Please go ahead.
4483733,360,3131.75,3134.3699,9,Afternoon and thanks for taking my question.
4483733,361,3134.3701,3139.0601,9,And and Marianne all the best in your future endeavor and thank you so much for all the help over the years.
4483733,362,3139.5801,3140.9102,9,Um a quick one.
4483733,363,3147.3301,3152.4299,9,You know we talked about cost inflation and we started to talk about top line inflation protection.
4483733,364,3152.47,3161.0701,9,And I really appreciate your slide four two for sharing with us that about two-thirds of your basically top line is inflation hedge one or another over the years.
4483733,365,3161.0701,3167.8301,9,So what I was trying to understand here is there's a lot of moving pieces.
4483733,366,3167.8301,3169.8899,9,You know steel prices started to come down.
4483733,367,3170.1399,3172.71,9,Uh freight rates probably have peaked.
4483733,368,3222.03,3223.6301,9,Would the impact be quite meaningful?
4483733,369,3226.96,3243.48,9,And and and just in case as you're talking about the twenty twenty seven EBITDA am I right in thinking that you just need to win a few gigawatts this year to be a hundred percent done on the operating side of the target?
4483733,370,3244.6201,3246.4202,22,Apologies because this is one and a half question.
4483733,371,3248.1699,3248.29,11,Yeah.
4483733,372,3248.29,3248.4199,11,I…
4483733,373,3248.4199,3248.78,11,if I…
4483733,374,3248.78,3251.9099,11,i i it is a quite complex question uh for sure Alberto.
4483733,375,3251.9099,3252.3398,11,Thank you.
4483733,376,3252.3401,3254.97,11,I I can kit kick it off and count on my end as a supplement.
4483733,377,3255.3,3259.98,11,You you you are right that in order to uh in in order to hit uh if I start to…
4483733,378,3259.98,3260.6099,11,backwards.
4483733,379,3260.8899,3273.3701,11,In in order to hit the um the the the the the twenty seven uh IBIDA at- or gu- guided IBIDA it is relatively few things we need to to to win apart from what we have already secured.
4483733,380,3273.4299,3275.77,11,That is the nature of of that business.
4483733,381,3275.77,3279.1599,11,So this uh that we would be we would be quite close to.
4483733,382,3279.53,3288.25,11,And we cann cannot quantify in terms of uh of of of basis points impact of what has what has happened since then.
4483733,383,3288.25,3288.51,11,We…
4483733,384,3288.54,3291.9099,11,thi this would be uh this would be too sensitive information.
4483733,385,3292.27,3306.8401,11,But I can say that we we are a as we as we mentioned for the German program that was one where despite that we saw CapEx increased there we could actually get the uh we we could we could get the uh the the the the PPAs uh correspondingly attractive.
4483733,386,3306.8401,3309.1899,11,So the value creation from that was fully intact.
4483733,387,3309.79,3312.8,11,We are not done with the with the work uh in in Poland.
4483733,388,3312.8,3315.0801,11,We have not locked those final CFD levels.
4483733,389,3315.1101,3317.0698,11,So there are still things that can be worked on.
4483733,390,3317.0701,3319.8899,11,Uh so we also mentioned in the in the in the…
4483733,391,3319.8899,3332.5999,11,in what we talked about in in the beginning of this call w we still have levers to work on to to to work against those those um those those inflationary elements that we are seeing.
4483733,392,3333.3601,3335.72,11,I I actually think as we mentioned it is not…
4483733,393,3336.1001,3342.1499,11,you are right that steel and commodities are starting to come down um and we have not locked everything.
4483733,394,3342.1499,3342.8401,11,So we are…
4483733,395,3342.8701,3343.75,11,we we we would…
4483733,396,3344.22,3344.78,11,We we have a…
4483733,397,3345.0601,3357.4302,11,For example for our near term u s projects where I think the the exposure we face is i is the biggest because that's also where we are building an entirely new supply chain a new uh a new setup.
4483733,398,3357.8799,3361.6499,11,Um there we still have quite a lot of levers but it is also…
4483733,399,3361.6499,3362.6299,11,sorry for repeating.
4483733,400,3363.1899,3364.5999,11,That is also why it…
4483733,401,3364.6899,3378.3398,11,In order to to to protect the sort of the the strong value creation it is uh very important that those build back better uh elements actually come through and we keep momentum from the regulators.
4483733,402,3378.8701,3381.8201,11,So I I can't exactly b build that bridge.
4483733,403,3381.8201,3383.2,11,Maybe inaudible can supplement.
4483733,404,3383.6799,3384.4099,11,But we we we…
4483733,405,3384.5701,3385.6702,11,It is impacting.
4483733,406,3385.97,3389.3599,11,Uh primarily in the us we are still…
4483733,407,3389.5701,3392.9102,11,even with what we currently have had it's still value creating projects.
4483733,408,3393.3101,3395.22,11,We are working on our levers.
4483733,409,3395.52,3402.5,11,Uh and it is something where with the regulatory levers and tax levers that could come in place that we would be in a in a comfortable place.
4483733,410,3402.5,3411.2,11,But we are choosing here with the examples of vessels as being the most uh the the most impactful one due to the fact that we have locked a lot already.
4483733,411,3416.3899,3419.5598,12,a a and just a small supplement.
4483733,412,3419.5601,3429.48,12,Uh we will not need to win more offshore capacity to deliver the twenty twenty seven because what we will win going forward will in a way be in operation uh after twenty twenty seven.
4483733,413,3432.1799,3443.74,12,uh with uh with quite a lot of new uh new capacity which in a way is needed to deliver our our inaudible ABDA but which we all on the other hand are very confident that that we'll deliver.
4483733,414,3443.74,3446.98,10,Thank you.
4483733,415,3449.3601,3453.72,10,Our next question comes from Christian Johansen with s e b.
4483733,416,3453.8799,3454.52,10,please go ahead.
4483733,417,3457.05,3457.28,13,Yes.
4483733,418,3457.28,3457.8301,13,Thank you sir.
4483733,419,3457.8301,3465.8201,13,My question is around this impact of the the energy crunch we are seeing in in q four which is is obviously pretty material.
4483733,420,3465.8201,3470.05,13,So I I understand that this is a sort of un unprecedented territory.
4483733,421,3470.05,3484.1299,13,But uh ca- can you maybe reflect on the learnings uh f- from this and whether this will make you reconsider how to structure uh contracts or hedges so anyway so uh you would potentially avoid s such significant impact in the future?
4483733,422,3484.3799,3484.5598,12,Yeah.
4483733,423,3484.73,3492.02,12,Uh there is uh two different uh parts of this impact of the energy crunch which I'd like to touch on.
4483733,424,3492.53,3494.9299,12,One of them cannot be avoided.
4483733,425,3495.01,3497.71,12,Uh that is the balancing cost part.
4483733,426,3498.0701,3506.1799,12,And that is one hitting everybody uh in in the industry uh because with this uh very very high volatility we have seen…
4483733,427,3506.6299,3510.26,12,You will see more uh costs uh for balancing.
4483733,428,3510.5701,3513.5601,12,And this relates to the whole portfolio we have.
4483733,429,3513.5601,3516.76,12,Even if we have uh the CFT the subsidies…
4483733,430,3517.05,3524.1099,12,We get the CFTs uh uh on the day ahead and then we sell they head into to the market.
4483733,431,3524.4399,3528.29,12,And there there is uh where we have seen this significant increase.
4483733,432,3528.8701,3539.7,12,Uh the other part where we have a lot of learning uh is that we also have had to buy back some hedges uh due to uh this uh delay of uh the ramp up uh of of Hornsea two.
4483733,433,3540.29,3546.6699,12,And and this uh has made us uh rethink the way uh we we hedge.
4483733,434,3546.9299,3553.21,12,So we will going forward uh etch uh a significantly lower share than what we do today.
4483733,435,3553.73,3564.9199,12,Previously a and not that I'm saying we have been over etched before but with uh normal power pli prices if we were uh over etched we would just buy back uh the volumes at the end price as as etched.
4483733,436,3565.1699,3567.6501,12,And then there will not be a material impact.
4483733,437,3567.7,3576.6001,12,With these unprecedented high power prices we have seen in this energy crunch it has been costly to be over etched uh and that is what we have been hit by.
4483733,438,3577.01,3584.8799,12,But a big part of it is this balancing costs uh which we believe will normalize as we come on the other side of this energy crunch.
4483733,439,3585.5801,3589.22,11,And and ma maybe just briefly supplementing Christian that that we we are…
4483733,440,3589.46,3604.3501,11,Like Marianne says we we are confident it will normalize but for our twenty twenty two inaudible we have still built in in a quite sizable share of that cause betting that the volatility is going to go away very near term we think might be too optimistic.
4483733,441,3604.3501,3616.55,11,So for the comfort of also you knowing that that that we have been we have been probably been relatively conservative as in assuming a a a reasonably high volatility this year as well to cover those balancing and intermittency costs.
4483733,442,3618.22,3626.4702,12,You probably need to be on the other side of this uh geopolitical uncertainty around Ukraine uh before you see things uh normalizing.
4483733,443,3626.5,3629.01,12,Um and and who knows when that will happen.
4483733,444,3629.04,3631.78,12,So so volatility will probably continue for a…
4483733,445,3631.78,3632.3101,12,for a while.
4483733,446,3635.73,3636.2,13,Understood.
4483733,447,3636.27,3637.5898,13,Uh thank you so much for your answers.
4483733,448,3639.5801,3643.21,10,Our next question comes from Jenny Ping with Citi.
4483733,449,3643.49,3644.2002,10,Please go ahead.
4483733,450,3700.1899,3703.4299,11,I I can start backwards and and then leave the first question to Marianne.
4483733,451,3703.4299,3708.3,11,No no we we we can't we can't quantify that uh Jenny.
4483733,452,3708.6799,3716.1299,11,I- it is uh i- it is something that is uh that that is impacting but it is not something that mean we don't have value creating projects.
4483733,453,3716.1299,3717.49,11,That is as close as we can get it.
4483733,454,3718.0601,3718.26,12,Hmm.
4483733,455,3718.9199,3727.72,12,Uh and on on the CapEx uh the the CapEx is uh e exactly as expected when we made our plan we presented at the CMD.
4483733,456,3728.22,3735.4102,12,Uh we already then said that there will be a a a big deviation between uh CapEx from year to year.
4483733,457,3735.8101,3743.04,12,This year is uh a heavy year uh because we have both Hornsea two we have Changhua and we are starting to…
4483733,458,3743.04,3747.72,12,Uh and Germany and we are starting to spend significant CapEx also in in the us.
4483733,459,3748.1201,3760.3501,12,But also if you look at the average of these uh three hundred and fifty uh billion that we guided at the c m d that corresponds to a uh a forty five ish forty four forty five ish average per year.
4483733,460,3760.6699,3761.5801,12,So th so this…
4483733,461,3761.74,3767.04,12,th that's nothing in a way unexpected and and this number is not impacted by cost inflation.
4483733,462,3767.04,3770.4702,12,So so I I would really emphasize that that that that's not what you're seeing.
4483733,463,3774.02,3774.76,14,Thank you very much.
4483733,464,3777.49,3782.71,10,Our next question comes from Peter Bisztyga with Bank of America Securities.
4483733,465,3782.95,3783.48,10,Please go ahead.
4483733,466,3819.9399,3820.6602,11,I I I…
4483733,467,3820.6599,3822.54,11,Again also thanks thanks a lot to Peter.
4483733,468,3822.54,3823.5801,11,I I can kick it off.
4483733,469,3824.1899,3825.74,11,i there there's no doubt that I mean…
4483733,470,3825.78,3835.73,11,the the continued geographic expansion building our pipeline new markets but also don't forget that we are now starting to also spend real money on hydrogen…
4483733,471,3835.73,3838.4302,11,maturing our hydrogen projects and green fuels projects.
4483733,472,3839.02,3840.25,11,This also adds to this.
4483733,473,3840.28,3849.1101,11,So I mean I I don't think we will see we'll see increases like this every year but but but onshore it is it was a very small team with sort of…
4483733,474,3849.6899,3853.25,11,where we had where we were really working on on on low budgets.
4483733,475,3853.25,3856.01,11,We are gearing that for the very substantial growth.
4483733,476,3856.01,3858.0801,11,We a we announced at the Capital Markets Day.
4483733,477,3858.4399,3861.1201,11,So that is something where we where we are still ramping up.
4483733,478,3861.6599,3867.8601,11,And uh with the new markets and hydrogen ramping up I think the five hundred million i is is something that we are…
4483733,479,3868.55,3875.28,11,that again not every year but uh but certainly it is something that we are continued to to to see uh to see increases in DevX.
4483733,480,3877.45,3882.48,12,And and and uh to the last part of the question on on uh the salary uh wage inflation.
4483733,481,3882.9199,3887.6699,12,It's not something we are really seeing yet uh but of course there is a pressure out there.
4483733,482,3887.6699,3891.1599,12,But but it it it's not not something that is significant.
4483733,483,3891.97,3896.8499,12,And and just these eight hundred million uh that we we show it it is four things.
4483733,484,3896.8501,3904.97,12,It's hydrogen cost it's uh onshore and it's more offshore and it's also a general cost increase due to the uh increasing size of the business.
4483733,485,3904.97,3905.3,12,Uh…
4483733,486,3911.8101,3915.6001,10,Our next question comes from Rob Rooney with Morgan Stanley.
4483733,487,3915.8101,3916.3201,10,Please go ahead.
4483733,488,3969.9099,3970.3298,12,Yeah.
4483733,489,3970.3301,3975.1799,12,Uh I I I will start with uh your last question because I I cannot really answer the first one.
4483733,490,3975.1799,3987.52,12,We we are not able to give a a a percentage uh range for for for the inflation because uh we are in a way constantly working on nurturing our projects and and it'll be a different number from project to project.
4483733,491,3987.52,3989.46,12,And I I I cannot really give you that detail.
4483733,492,3990.04,3991.3899,12,Uh but it's a very good question.
4483733,493,3991.3899,3995.8,12,The last one in a way are we assuming when we are bidding in uh to the auctions.
4483733,494,3995.8,4003.48,12,Uh and now we have some some very big upcoming auctions in front of us for example uh the the UK uh auction.
4483733,495,4003.98,4024.02,12,And and and what we are doing uh is of course we we have people uh who follow each part of of the supply chain follow the installation vessels the the turbines the cables uh the the foundations and and make their best estimates uh based on all the knowledge that we have on on where pricing will be when when we need to commit.
4483733,496,4024.22,4025.3,12,Uh so…
4483733,497,4025.3,4028.8101,12,Uh th there's there's no other thing I can say than that.
4483733,498,4028.9399,4038.8801,12,But but I think with the the the huge experience we have uh I I I think we are a and the close relationship we have with the suppliers I I I think we…
4483733,499,4038.98,4049.3699,12,in a way a at least have a good chance of <laugh> of of of being uh taking into account all the knowledge out there and doing it as as best as as is possible to to do.
4483733,500,4059.3701,4063.27,10,Our next question comes from Mark Freshney with Credit Suisse.
4483733,501,4063.6499,4064.1799,10,please go ahead.
4483733,502,4065.6299,4065.9099,17,Hello.
4483733,503,4065.9099,4068.04,17,Thank you for taking my question.
4483733,504,4068.71,4093.49,17,If I could ask on the u s onshore business um and you've got the bridge bridge of projects um there but just beyond that bridge my understanding is that you know returns are actually quite good as they are u s onshore even with twenty percent higher turbine prices at least um cuz the PPAs have gone up by more.
4483733,505,4093.52,4102.9897,17,But as I understand it the entire industry is laying off FID cuz they're waiting for even better returns and build back better.
4483733,506,4103.6299,4106.54,17,So my question is is that is that something that you have?
4483733,507,4106.54,4113.2197,17,Have you got a lot of very advanced projects ready to go that are just waiting for build back better?
4483733,508,4114.0801,4120.3301,17,And given given I was some way down the queue um I have a question on costs.
4483733,509,4121.27,4121.4199,17,With…
4483733,510,4121.9502,4124.5,17,The several parts of costs right?
4483733,511,4124.6699,4140.2798,17,people are very focused on near term cost inflation price inflation for existing equipment but there is also the underlying uh efficiency as you modernalize uh industrialize and you continually take cost out of projects.
4483733,512,4140.2798,4140.52,17,Right?
4483733,513,4140.52,4140.9399,17,And that…
4483733,514,4141.3301,4144.25,17,my understanding hasn't hasn't gone away.
4483733,515,4144.25,4145.0601,17,It's still there.
4483733,516,4145.0601,4149.04,17,So can you can you also confirm confirm that thank you.
4483733,517,4150.6899,4151.9297,11,Yeah I I think the uh…
4483733,518,4151.9302,4163.6597,11,I I mean if if we start with uh with the letter um if I understand you corre your your your question correctly Mark then yes we we are continuously working on the…
4483733,519,4163.6602,4165.1201,11,on on all those levers.
4483733,520,4165.1499,4171.5,11,And uh and and many of them we've already materialized in uh in in in our practice in our offshore practice.
4483733,521,4171.79,4172.5303,11,But we are still…
4483733,522,4172.8701,4179.52,11,we still have uh lots of things that we can actually continue to apart from locking in and working with our suppliers like Marianne talked about.
4483733,523,4179.9302,4190.71,11,But we are leveraging we we are looking every time at what is it that we can do to take out additional cost to use our scale to use our experience.
4483733,524,4190.7402,4199.1504,11,And and for every single project we have uh even the near term and the longer term ones we have a list of continued offsite levers that we continue to work on.
4483733,525,4199.1899,4202.1802,11,I I hope I'm answering your your your question on that.
4483733,526,4202.23,4210.9102,11,And for for onshore to my to my best knowledge we don't have a parking lot of things that we are working on right now that we are holding back on.
4483733,527,4211.4199,4212.1802,11,I think that…
4483733,528,4213.0,4220.5601,11,Honestly I think th the the the the only place where we could say we are holding back is and is uh is is not something we wanna do.
4483733,529,4220.5601,4231.3501,11,That's on the solar projects where we are still waiting to get those panels uh ready but uh but we are not we we are not sort of having something which is which is just waiting for better terms.
4483733,530,4232.0098,4232.0396,12,Oh.
4483733,531,4232.5098,4241.4302,12,But on the other hand uh our pipeline will increase in value uh with these components of of build back better uh on on the renewable side.
4483733,532,4241.4302,4252.9399,12,i if those go through we don't believe necessarily that the build back better goes through but we believe or or hope <laugh> that uh parts of of uh o of the parts related to renewables could go through.
4483733,533,4253.3901,4259.4902,12,And and that will significantly increase uh both the offshore and the offshore uh portfolio.
4483733,534,4259.8501,4260.02,11,Yeah.
4483733,535,4260.02,4261.21,11,And and and the reason why…
4483733,536,4261.25,4271.1201,11,if they go through we we are well positioned because we we are living up to most of the proposed criteria for when to be eligible for those tax benefits.
4483733,537,4274.29,4274.6802,17,Okay.
4483733,538,4274.7998,4275.5801,17,Thank you very much.
4483733,539,4277.5601,4281.75,10,Our next question comes from Vincent Izrael with JP Morgan.
4483733,540,4282.0,4282.5801,10,Please go ahead.
4483733,541,4284.3799,4284.6699,18,Yes.
4483733,542,4284.6699,4286.1104,18,Thank you for taking the question.
4483733,543,4292.98,4300.9102,18,Um i would like to…
4483733,544,4318.6899,4328.1099,18,And um uh structurally um CHP and and the gas before maybe uh was not seen uh uh really core maybe.
4483733,545,4344.7798,4351.4102,11,Ma- Marianne can.
4483733,546,4352.1299,4352.3398,11,The…
4483733,547,4352.3398,4355.0,11,m Marianne wi can can can speak to the first part.
4483733,548,4355.3599,4360.23,11,But but I can say there's nothing in what has happened this past that the changes are over direction of travel.
4483733,549,4360.6602,4367.4902,11,I mean our investments the core of our strategy is an offshore wind onshore renewables and and hydrogen and green fuels.
4483733,550,4367.75,4369.3003,11,So so there is nothing.
4483733,551,4369.6602,4383.6104,11,We we are we are thankful that especially our CHPs but also the the the the the gas market has helped us in a year that primarily due to wind was challenging but our strategic journey remains intact and absolutely no rebalancing of that.
4483733,552,4384.04,4384.2402,12,Hmm.
4483733,553,4385.4902,4385.8896,12,But uh…
4483733,554,4385.8901,4405.5601,12,And and just to add to the to the last question before I answer number one uh this year has really proven the value of the CHPs uh because what we have benefited from uh is that the increasing uh gas prices uh but also uh coal prices uh has not uh been repeated when it comes to to biomass.
4483733,555,4405.5601,4419.2197,12,So we have been buying uh quite cheap biomass uh and and therefore in a way ahead of very very very good margin uh on our uh uh uh CHPs which which of course has has been an offset to the low wind.
4483733,556,4419.2202,4421.8501,12,And and the low wind of course again gives higher power prices.
4483733,557,4421.8501,4427.0103,12,So so this this uh diversification effects has proven to be uh extremely useful.
4483733,558,4427.4102,4436.4697,12,Uh when you then talk about uh the the hedging uh yes we we were when we went into the air approximately ninety percent hedged.
4483733,559,4436.5,4439.7998,12,Uh and and that has proven to be uh too high.
4483733,560,4440.3701,4446.0503,12,Uh and and especially now uh because of uh the delayed ramp up on uh on Hornsea two.
4483733,561,4446.3501,4453.0503,12,Uh and uh therefore we have had to buy back uh some hedges uh not to have that risk.
4483733,562,4453.6201,4457.8403,12,Uh we will as I said go going forward reevaluate the way we do this.
4483733,563,4457.8701,4471.2197,12,Uh but one thing is is for certain that this volatility that we have seen here and these extremely high prices uh will mean that we will lower the hedging level uh not to sit on that volume risk.
4483733,564,4471.3198,4477.1304,12,Uh but but we will come back as I said with with something new when when when that becomes implemented.
4483733,565,4480.5898,4481.3901,18,Thank you very much.
4483733,566,4487.4902,4488.0698,10,Please go ahead.
4483733,567,4489.9199,4490.1401,19,Yes.
4483733,568,4534.8999,4535.3003,19,Thank you.
4483733,569,4536.54,4540.29,11,Yeah I I I can I can s put to put a little bit more color to that.
4483733,570,4540.29,4541.4102,11,And the uh…
4483733,571,4541.7998,4549.8599,11,I I I think I mean it's it's impossible to give an answer to what share of the pe CapEx still needs to be contract cause it's very different on how mature the projects are.
4483733,572,4549.8599,4555.6602,11,I mean for example our our Southfork is uh is is is is quite close to f i d.
4483733,573,4555.6602,4560.4502,11,So that obviously is very that that is very highly uh contracted.
4483733,574,4560.98,4563.5498,11,Whereas some of the next in line projects are also.
4483733,575,4563.5498,4565.1899,11,But we we are looking at sort of a…
4483733,576,4565.77,4572.1396,11,We we are looking at a relatively small share of the most sort of mature projects that still need to be to be contracted.
4483733,577,4572.1401,4575.8701,11,But obviously the the the ones that come a little bit further out still have a…
4483733,578,4576.1802,4577.9097,11,still have a a a bigger share.
4483733,579,4578.6401,4579.54,11,But I think the uh…
4483733,580,4579.5898,4581.9302,11,s still a a bigger share to be contracted.
4483733,581,4582.4199,4583.0703,11,And I think we…
4483733,582,4583.1099,4584.8403,11,I mean there are technical levers.
4483733,583,4584.8701,4587.5898,11,Obviously the the biggest lever is regulatory.
4483733,584,4587.5898,4589.3101,11,That is the the tax elements.
4483733,585,4589.48,4600.23,11,But also on the technical levers there is there is still a range uh a available for these such as optimizing the h v d c and still still some contracting to be done.
4483733,586,4600.23,4604.1001,11,But we are we are very far for example with the vessels so uh…
4483733,587,4604.1001,4605.4102,11,on the most mature projects.
4483733,588,4605.4102,4614.4199,11,So so we are locking in as we speak but it's impossible to give you a full range of the potential upsides because some of them are are are are are are very…
4483733,589,4614.4502,4615.1099,11,are material.
4483733,590,4615.4102,4620.02,11,Some of them are are are l less hard to do but uh but also with a smaller offset.
4483733,591,4620.02,4621.1602,11,But we are still working on…
4483733,592,4621.1602,4628.8296,11,The team is even for some of the more mature projects still plowing ahead to uh to to materialize those on the on the technical side.
4483733,593,4632.96,4633.27,19,Okay.
4483733,594,4633.3599,4633.7998,19,Thank you.
4483733,595,4635.6899,4639.9302,10,Our next question comes from John Musk with r b c.
4483733,596,4640.1802,4640.79,10,Please go ahead.
4483733,597,4643.3101,4644.4004,20,Yes afternoon everyone.
4483733,598,4652.1499,4663.77,20,Um and we have seen uh a few departures announced um in the team I guess below Marianne and yourself Matt.
4483733,599,4663.77,4677.0801,20,Have you done any sort of exercise on um you know peer group comparisons to understand how you rank uh versus peers in terms of competitive competitiveness salaries et cetera.
4483733,600,4677.0801,4682.52,20,Um and is there a risk of of more people leaving if others are trying to ramp up their teams?
4483733,601,4684.1699,4685.6904,11,th th Yeah tha tha thanks John.
4483733,602,4685.6899,4687.5498,11,I m I mean the risk is always there.
4483733,603,4688.04,4707.25,11,But I think even though we've had a a a quite a few quite visible departures from the company I I would say that that very few of those and this is a genuine and and and and and honest answer I think very few of those are due to the fact that somebody's paying significantly higher.
4483733,604,4707.25,4720.6201,11,Um and and if if you look at the the the voluntary sort of uh uh turn rate of our employees it is still sort of well below ten percent uh seven ish percent.
4483733,605,4721.0298,4722.9199,11,And that means that we are actually at…
4483733,606,4722.9199,4725.5703,11,This is a this is at all level even at direct to plus level.
4483733,607,4725.7998,4732.2402,11,So we are not seeing an unusually high churn even though obviously the capabilities we are building are high in demand.
4483733,608,4732.7202,4742.46,11,Surely there are people that pay uh higher uh and and surely it's become visible with sort of a handful of of quite visible departures over the last year or so.
4483733,609,4742.8599,4756.0,11,But uh but it is not something that we are that we are gravely concerned about John also because w- we can see that uh that not only um uh is is is it great to see our ability to to to recruit internally.
4483733,610,4756.0,4756.9404,11,And I I don't only…
4483733,611,4756.9399,4760.7002,11,it's not only Daniel who we ap who we appointed today to be Marianne successor.
4483733,612,4761.2798,4770.1997,11,But also just with the fact that that that Neil or Donovan could very successfully step up into this of use of Declan um heading up our our our onshore business.
4483733,613,4770.2002,4779.1899,11,So and we can still attract very strong people in p including people from competitors where Troy our CEO and our inaudible American business came from a diary competitor.
4483733,614,4779.1899,4781.5103,11,So yes there will be people leaving us.
4483733,615,4781.9502,4790.0601,11,Yes for some there will be a pay element but we don't think that is at a root cause and that we are at a competitive disadvantages that will mean that that we are…
4483733,616,4790.1099,4791.9399,11,have a a significantly higher flight risk.
4483733,617,4794.4302,4794.52,20,Okay.
4483733,618,4795.7998,4796.3501,20,Thank you.
4483733,619,4798.1899,4801.9502,10,Our next question comes from Dominic Nash with Barclays.
4483733,620,4802.3301,4802.9004,10,Please go ahead.
4483733,621,4804.52,4805.3901,21,Good afternoon.
4483733,622,4805.3901,4806.71,21,And thank you for the question.
4483733,623,4806.7402,4810.4297,21,Can you please note I'm not gonna ask about uh revenue or cost inflation.
4483733,624,4810.6401,4817.6997,21,Um I'm gonna ask that inaudible completely different uh which is the upcoming offshore sea bed competitions please.
4483733,625,4817.9199,4826.77,21,Um so look I mean you were first movers into this this industry and you had big market shares and sea bed leases to start off with.
4483733,626,4826.9102,4834.27,21,But if we look at the UK sea bed leases over the last twelve months nothing's worth thirty three gigawatt or so out there.
4483733,627,4870.2402,4876.8198,23,That happened in the UK th essentially you are being crowded out by other offshore wind farm developers.
4483733,628,4876.8198,4882.3701,23,And what can you do to defend your sort of market share in offshore sea bed leases please?
4483733,629,4882.9502,4884.1299,24,I th I think I'll start…
4483733,630,4884.1299,4885.25,24,Uh thanks a lot Dominic.
4483733,631,4885.25,4889.8101,24,I'll I'll start by saying that that our inventory of sea bed is is still strong.
4483733,632,4889.9399,4902.23,24,I mean wi with the with just under five gi g gigawatts in uh in in in the UK and we're still with options uh in uh in in a around the inaudible and the one additional gigawatt in floating in Scotland.
4483733,633,4902.23,4903.3599,24,So that's still very healthy.
4483733,634,4903.3599,4906.6699,24,We still have three gigawatts in North America secured.
4483733,635,4906.98,4913.3301,24,And then in some of the markets where it's not auctioned away we we we have s we have some very attractive opportunities.
4483733,636,4913.3301,4919.46,24,There like for example the one point six gigawatts of ancient uh which is not proprietary but uh in in Korea.
4483733,637,4919.8198,4927.5098,24,Uh but but something we we are quite confident can uh can materialize uh I I think I I think that we…
4483733,638,4927.5098,4935.3403,24,if we we need to split the UK example into two cause leas round four we had absolutely no regrets that we didn't uh that we didn't win there.
4483733,639,4936.0498,4939.6201,24,cause we we simp we don't think that those prices are sustainable.
4483733,640,4939.6201,4953.8198,24,And as a matter of fact the fact that ScotWind chose to to to to uh to allocate twenty five gigawatts we we think is actually a really good thing because that'll mean that other people are also filling up uh their their inventories.
4483733,641,4954.23,4956.9399,24,Obviously for the very long term this is very important.
4483733,642,4956.9399,4960.52,24,And for ScotWind most of this would be also be post twenty thirty.
4483733,643,4960.8901,4971.6699,24,But with our current um with our current inventory combined with where we plan to bid in I mean we we we we we are working with a with a new partner in Poland for the Polish auction.
4483733,644,4972.04,4974.7598,24,We have qualified to participate in New York bite.
4483733,645,4975.1401,4978.0601,24,Um we have partners in the no in the we Norwegian.
4483733,646,4978.0601,4987.54,24,So I definitely think that our ticket to play and don't forget that we will probably probably still be the one both on CFD auctions but also on uh on on sea bed.
4483733,647,4987.5698,4992.6802,24,That we will be one of those sort of leaning into most of these auctions.
4483733,648,4992.8398,5001.0703,24,Uh and that will also mean that in totality we we are not concerned that this is something that will fundamentally threaten our long term offshore leadership.
4483733,649,5001.3999,5014.8701,24,But we are not going to be especially when when the when there are no ceiling bids we are not gonna get so carried away that we are gonna uh pay amounts of money that will not allow us to do investible or meaningful value creating projects.
4483733,650,5014.9502,5016.5103,24,That's not a route we are gonna go down.
4483733,651,5020.6802,5020.9399,23,Thank you.
4483733,652,5022.8198,5026.73,25,Our next question comes from Dan Togo with Carnegie.
4483733,653,5027.0298,5027.6797,25,Please go ahead.
4483733,654,5029.4502,5030.0801,26,Uh yes.
4483733,655,5030.0801,5030.7603,26,And thank you.
4483733,656,5030.8901,5032.29,26,Not so many questions left here.
4483733,657,5045.8999,5047.1802,26,Uh what we should think there.
4483733,658,5047.5298,5055.9497,26,You still have some projects uh where we're only a hundred percent but they're still not you know facing uh commission uh anytime soon here.
4483733,659,5079.1299,5081.7104,27,Uh it's not something we have decided yet.
4483733,660,5081.8799,5086.0898,27,Uh we actually would like to keep the flexibility uh on the timing.
4483733,661,5086.29,5091.7598,27,Uh and I cannot rule out that it'll be uh a farm-down uh during commissioner…
4483733,662,5091.7598,5093.0601,27,during uh construction.
4483733,663,5093.46,5097.23,27,So uh we we will give news as as as soon as we have it.
4483733,664,5097.23,5101.9902,27,Uh but for now uh w we haven't decided yet so therefore I can't share it.
4483733,665,5103.02,5103.1499,26,Okay.
4483733,666,5104.4199,5104.7598,26,Fair enough.
4483733,667,5105.0098,5105.25,26,Fair enough.
4483733,668,5112.02,5121.6099,28,poor market prices.
4483733,669,5169.1699,5171.0103,24,I I mean it it it is your right.
4483733,670,5171.04,5172.52,24,It is more backend loaded.
4483733,671,5172.8999,5174.6499,24,Uh we are we are…
4483733,672,5174.6802,5175.1499,24,we have…
4483733,673,5175.1899,5180.1299,24,We are relatively far but we cannot say exactly when those technical investments will be…
4483733,674,5180.1299,5182.7998,24,will be concluded and therefore that we will have a final number.
4483733,675,5182.7998,5190.0298,24,But I would say that all the work that has happened so far has gone exactly as planned and hoped.
4483733,676,5190.0298,5200.5703,24,That that means that any further exposure uh to the total of of three billion impact and the eight hundred million provision we already made we we see as highly unlikely.
4483733,677,5200.9502,5211.3398,24,Uh so so things are going to plan uh but but not with a possibility to say exactly when we will have concluded and and therefore be able to sort of con finally finally confirm exactly.
4483733,678,5211.3398,5213.1499,24,But but unlikely that it'll be worse.
4483733,679,5213.3398,5215.5601,27,And and just one addition.
4483733,680,5215.5898,5219.79,27,Uh we have very limited cost in in the twenty twenty two guidance for this.
4483733,681,5219.79,5225.4102,27,Because as we said it is back and loaded so we will more do investigation work in twenty twenty two.
4483733,682,5225.79,5229.9297,27,And not something that will uh impact the the PNL to a significant extent.
4483733,683,5230.3599,5231.8101,24,Only investigation and rock dumping.
4483733,684,5231.96,5232.1602,27,Yeah.
4483733,685,5235.0601,5235.3501,28,Okay.
4483733,686,5235.6401,5236.27,28,Thank you very much.
4483733,687,5244.6001,5244.8599,29,Yeah.
4483733,688,5293.6899,5294.8701,27,So that's that's on change.
4483733,689,5294.8701,5294.9702,27,The…
4483733,690,5294.9702,5298.02,27,So three hundred and fifty is the gross and two hundred is the net.
4483733,691,5320.9902,5325.2305,25,Our next question comes from inaudible with Morningstar.
4483733,692,5325.6401,5326.2798,25,Please go ahead.
4483733,693,5329.29,5329.9399,30,Good afternoon.
4483733,694,5329.9702,5331.48,30,Thank you for taking my question.
4483733,695,5336.8999,5339.96,30,And so far offshore if you could confirm that this is the hedging level for the merchant side of uh of the operation and also give us maybe um um…
4483733,696,5340.9302,5369.7202,30,tell uh what our uh exposure for instance 100% in year one which is your amount in uh in inaudible.
4483733,697,5370.8398,5371.27,27,Hmm.
4483733,698,5380.1099,5380.3301,27,Hmm.
4483733,699,5380.8198,5384.4702,30,And second question still on uh on this slide for bioenergy.
4483733,700,5427.5601,5428.1401,27,Yeah.
4483733,701,5428.3901,5428.8501,30,Thank You.
4483733,702,5429.0498,5429.2397,27,Yeah.
4483733,703,5430.0298,5430.3496,27,Yes.
4483733,704,5430.3501,5433.0898,27,Uh the the first question uh yes you are right.
4483733,705,5433.0898,5434.0903,27,i it is uh…
4483733,706,5434.0898,5436.6504,27,The the merchant part uh that that is uh…
4483733,707,5436.6802,5437.8101,27,we are indicating here.
4483733,708,5438.1099,5441.6597,27,So we are uh a hundred percent hedged in in year one.
4483733,709,5442.2002,5445.7002,27,Uh and and and that is too much compared to where we would like to be.
4483733,710,5445.79,5447.5601,27,Uh so so we will work on that.
4483733,711,5448.1001,5453.0,27,Uh on on bioenergy uh I don't have the volumes sorry on the top of my head.
4483733,712,5453.0,5454.6997,27,So so that's uh sorry for that.
4483733,713,5457.5,5458.5898,27,that level of transparency.
4483733,714,5458.5898,5459.2803,27,So sorry for that.
4483733,715,5459.71,5463.1001,27,Uh and and then on bioenergy uh yes you are right.
4483733,716,5463.27,5471.4199,27,The the policy we have on on uh on bioenergy hedging is that we only hedge the part that is the heat bound part of the production.
4483733,717,5471.8701,5475.9097,27,Uh and that's also why we in very strong years with high power prices.
4483733,718,5475.9102,5478.8701,27,And and then that follows with a high production.
4483733,719,5479.1499,5482.0801,27,We typically will see a a very high uh upside.
4483733,720,5482.3701,5484.4097,27,And that's also what these numbers reflect.
4483733,721,5485.9902,5486.3398,24,And I…
4483733,722,5486.3398,5487.25,24,And and maybe just to your…
4483733,723,5487.25,5488.7202,24,you had the very last question.
4483733,724,5491.48,5491.8701,24,still?
4483733,725,5491.8701,5492.0903,27,Yeah.
4483733,726,5492.25,5493.2002,24,Uh i is…
4483733,727,5493.2002,5501.1401,24,that it was a a very extraordinary year last year both both in terms of the the the heat production um but where we…
4483733,728,5501.1401,5506.8203,24,And in terms of the power production because we had very high prices and very very good earnings f from that.
4483733,729,5507.0098,5510.5801,24,And then also was an extraordinary attractive year from ancillary services.
4483733,730,5510.5801,5519.7803,24,We still expect a a a strong year from bioenergy this year but compared to last year it will be s it will expectedly be significantly low.
4483733,731,5523.7402,5523.9604,30,Okay.
4483733,732,5524.29,5524.7402,30,Thank you.
4483733,733,5526.6802,5531.23,25,Our next question is a follow up question from Sam Aaron with UBS.
4483733,734,5531.6001,5532.23,25,Please go ahead.
4483733,735,5533.9502,5534.3301,30,Hi.
4483733,736,5594.6499,5605.4897,30,Like what are the implications for long term energy market policy and how is the world gonna change to prevent us getting into this kind of situation um again or or for the long term?
4483733,737,5606.1201,5606.9297,30,So thank you.
4483733,738,5606.9302,5607.9897,30,That's that's it from me.
4483733,739,5608.0898,5608.2197,27,Yeah.
4483733,740,5608.54,5608.73,27,Yeah.
4483733,741,5608.73,5612.3999,27,I'll I'll I'll answer the first one uh on on the cost of capital.
4483733,742,5612.7402,5613.8901,27,Yes you you are right.
4483733,743,5613.8901,5618.8901,27,Uh of course with increasing interest rates we we will see uh the rack increasing.
4483733,744,5618.9199,5626.9702,27,Uh and and and that's in a way in our methodology uh where we use uh the the forward curve the the market based interest rates.
4483733,745,5626.9702,5628.4102,27,That that that is a consequence.
4483733,746,5628.9102,5640.9302,27,But uh as you can see from our annual report this is not anything that is so significant that it has an impact on for example impairments and and and neither uh does it have any impact on that guidance on value creation?
4483733,747,5642.4702,5642.6704,24,Yeah.
4483733,748,5642.6699,5643.4897,24,And if I'm to comment…
4483733,749,5643.4902,5648.29,24,It's it's obviously a very big question Sam on the on what do we do to avoid a situation like this?
4483733,750,5648.6802,5658.4399,24,I I I think even though as Marianne said there's no doubt that lower lower winds for example they do impact the the the the the power prices.
4483733,751,5658.9502,5659.2803,24,But I…
4483733,752,5659.3599,5672.9502,24,we we are convinced that the root cause of what has happened is a combination of so many things uh that especially driven by by by gas prices uh that that really is uh that…
4483733,753,5673.2002,5690.6099,24,the shortage the the the cold winter the shortage of uh of of gas supplies from east to Europe uh the the low winds the low uh the low production the maintenance of the of the of the the nuclear power plants in France the burned interconnect in between France and and UK.
4483733,754,5690.8999,5693.1299,24,So so many factors happening at the same time.
4483733,755,5693.7202,5699.25,24,We fundamentally don't think that a change to the energy market dynamics in Europe are…
4483733,756,5699.5098,5701.7998,24,is is something that would be good.
4483733,757,5701.7998,5703.1899,24,Uh no avoid this.
4483733,758,5703.6099,5713.8901,24,Uh and we don't think the solution is to to keep sort of a much higher share of nuclear or fossil fuel uh uh in in in the in in the in the energy mix.
4483733,759,5714.0801,5724.9897,24,So essentially we think the headline is to accelerate the build out of renewable energy therefore also reducing the dependency on energy imports and then obviously the the…
4483733,760,5725.1299,5733.02,24,to to retain the base load sort of sources like biomass fire power plants like our own like existing nuclear capacity and so on.
4483733,761,5733.02,5735.2603,24,We we we think that is the best way.
4483733,762,5735.2598,5743.3101,24,And then we we will hopefully also not see a complete spike in global demand leading to to to to an excessive demand.
4483733,763,5743.3101,5753.5298,24,Like the post COVID uh sort of stimulus packages has meant that gas and and and energy in general has been an extreme demand at the same time as the suppliers have actually gone down.
4483733,764,5753.8701,5757.0,24,So we don't think there's a silver bullet but but but…
4483733,765,5757.1001,5769.1699,24,And that's what we also hear when we interact with regulators both in EU and u s th there is a strong recognition that accelerated build out of renewable energy is actually at the center of what we need to do to avoid a similar situation.
4483733,766,5772.75,5773.4302,30,Fascinating.
4483733,767,5785.0098,5785.5601,25,Please go ahead.
4483733,768,5831.5,5833.3301,32,Are you comfortable with that as it stands?
4483733,769,5833.6299,5833.96,32,Thanks.
4483733,770,5835.5698,5839.9502,24,Yeah I I I can uh comment on the on the hydrogen uh p uh pipeline Jenny.
4483733,771,5839.9502,5850.5601,24,It it is it is still too early to give specific financial guidance but I can say that we are actually very keen on moving along we with with this with this project pipeline.
4483733,772,5850.5601,5858.9897,24,And I can say that twenty twenty two is clearly a year uh th where where we do expect take more tangible also investment decisions on our portfolio.
4483733,773,5858.9902,5867.4902,24,Um and and I'll ju just mention an example of the of the the the recently acquired share in the flexive one eMethanol product.
4483733,774,5867.52,5874.9102,24,So this fifty thousand tons annual tons of uh of eMethanol we are expecting to take uh f i d uh this year.
4483733,775,5875.3999,5885.4399,24,And likewise for the first phase of uh of the the German inaudible uh we we're also expecting at the back end of this year to to to take f i d.
4483733,776,5885.79,5889.1001,24,And then th on a couple of other projects it is likely that we would…
4483733,777,5889.2202,5893.8301,24,that we could take pre f i d depending on where we end these IPCEI.
4483733,778,5893.8301,5896.4097,24,So the International Project of Common European Interest.
4483733,779,5896.4102,5900.0898,24,Uh tho tho those are those are some of the dependencies we are looking at.
4483733,780,5900.6401,5907.25,24,I I will promise you we'll share a lot of details around that uh because that would be competitively sensitive.
4483733,781,5907.5898,5912.73,24,But I can promise you that you will hear more sort of tangible news about this portfolio during this year.
4483733,782,5914.1699,5914.4897,27,Yes.
4483733,783,5914.4902,5925.25,27,And and then on your question on uh offshore guidance uh I I will not answer that uh Jenny because if we had wanted to give you <laugh> that that guidance we would've put it into the…
4483733,784,5925.25,5926.5098,27,to the to the report.
4483733,785,5926.5098,5927.9502,27,And and and we have not.
4483733,786,5928.4502,5928.8403,27,So…
4483733,787,5929.7998,5930.0601,27,But I…
4483733,788,5930.0601,5934.2798,27,And we we believe you have everything you need to to to make the calculations.
4483733,789,5934.3101,5934.6099,27,Um…
4483733,790,5937.4399,5937.9697,32,tha thanks.
4483733,791,5940.1401,5946.2002,25,And for our final question we have a follow up from Alberto Gandolfi with Goldman Sachs.
4483733,792,5946.3701,5946.9902,25,Please go ahead.
4483733,793,5947.9302,5950.1699,33,Uh thank you for for taking the follow up.
4483733,794,5991.5498,5995.3301,33,What percentage of that CapEx is still to be to be locked in?
4483733,795,5995.3301,5998.6504,33,Um essentially I'm talking about slide seven.
4483733,796,5998.8198,6003.6802,33,So you know on on the right hand side what percentage of that CapEx has not been priced in?
4483733,797,6017.1802,6039.0503,33,Um so I was wondering just because you're waiting to see where really raw material settle at or is there any incremental visibility and maybe some tangible granular data points you can give us to convince us that actually X percent of what you have to spend is somehow in the bag.
4483733,798,6039.2598,6039.6001,33,Thank you.
4483733,799,6040.4102,6041.1699,24,Yeah it it…
4483733,800,6041.1699,6041.6899,24,There's not a…
4483733,801,6041.6899,6045.8901,24,There there is not one simple answer to it Alberto on the uh o on the…
4483733,802,6045.8901,6051.0801,24,on saying this is exactly what is because these these projects are at very different maturity level.
4483733,803,6051.5698,6056.54,24,But I can say that some of the more more advanced projects w- we have locked in just…
4483733,804,6056.54,6069.52,24,I I'll just give rough numbers around eighty percent of the of of the CapEx which of course gives us a a high degree of uh of certainty for those that are coming up uh that are coming up uh next.
4483733,805,6070.1001,6076.6597,24,And please don't interpret that when we say that that this is something where we're still working on levers that that means that there's no spread.
4483733,806,6077.0,6078.98,24,That is that is an overinterpretation.
4483733,807,6079.5298,6082.77,24,So what we are saying is that compared to where we to…
4483733,808,6082.77,6103.7402,24,compared to where we we came from given this inflation there has common addition pressure which means that the tax incentives uh and and the permitting processes are are are even more important because this is not again not just for but for the entire industry in order to keep high pace which we will we will uh take our FIDs.
4483733,809,6103.8799,6105.2002,24,Clearly expected to do…
4483733,810,6105.2002,6105.4404,24,to…
4483733,811,6105.4399,6105.9902,24,That we will.
4483733,812,6106.9702,6117.1997,24,Then this is something where where where these projects would significantly benefit from that which is also why we have signed a pledge that these green urban elements of built back better better need to come back.
4483733,813,6117.9199,6122.6899,24,But but the fact that we continue to work on the levers is not an expression that we…
4483733,814,6122.6899,6125.1499,24,that there is no value creation of a whack at all.
4483733,815,6125.1499,6127.0298,24,Uh but uh but to…
4483733,816,6127.0298,6138.4102,24,Uh but for the projects it it is not a secret that that some of the more advanced projects we are getting visibility that the I R S are are coming under pressure compared to where we came from due to…
4483733,817,6138.8599,6143.5898,24,And sorry to mention that example again due to the fact that vessel costs have gone up since then.
4483733,818,6143.6401,6153.1704,24,But but on on raw materials on steel which is the biggest cost component as we've talked about we had pre-bought a large a a large share of that.
4483733,819,6153.2598,6155.21,24,And that still remains to be the fact.
4483733,820,6155.21,6160.0503,24,So our exposure compared to those building is something where nothing was locked in is smaller.
4483733,821,6160.9302,6162.6802,24,That that I guess is as close as we can get it.
4483733,822,6202.1602,6204.9399,24,I I think it is an over simplification uh Alberto.
4483733,823,6204.9399,6206.3901,24,And and I think it's it's all…
4483733,824,6206.4902,6211.3301,24,I mean we we would actually rather not say yes you could definitely do that or so…
4483733,825,6211.3301,6213.6201,24,no absolutely not because this would give to…
4483733,826,6213.6201,6214.3901,24,thi this might…
4483733,827,6215.3999,6218.2803,24,We we might not have that full certainty.
4483733,828,6218.6001,6225.9004,24,But clearly with a relatively high share locked in the in the most mature projects the then obviously the exposure i is…
4483733,829,6225.9502,6227.1001,24,we believe it's manageable.
4483733,830,6232.6201,6237.4497,24,pressure to ensure that we get these policy levers in place is important for us as…
4483733,831,6237.48,6238.21,24,and for the industry.
4483733,832,6239.5298,6239.7598,33,Got it.
4483733,833,6239.8701,6240.21,33,Thank you.
4483733,834,6242.52,6244.8501,25,There are no further questions.
4483733,835,6244.9902,6248.52,25,I will now hand over to C E O Mads Nipper for a final remark.
4483733,836,6249.2998,6249.5996,24,Yes.
4483733,837,6249.6001,6253.3999,24,And tha and thank you very much for for for very good and uh challenging questions.
4483733,838,6253.3999,6254.5103,24,And thanks for your time.
4483733,839,6255.1499,6264.46,24,Uh we really look forward to uh to hosting you again in a month's time where we'll actually have our our very first annual E S G investor call and we'll provide you with more details.
4483733,840,6264.46,6270.7598,24,But let me just once again thank uh Marianne for for for all her contributions to Orsted.
4483733,841,6270.7598,6276.8003,24,And uh as I'm I'm sure you can tell that her her role uh in our journey has been fantastic.
4483857,0,1.51,6.51,0,Good morning ladies and gentlemen and welcome to Siemens Healthineers Conference Call.
4483857,1,6.96,9.84,0,As a reminder this conference is being recorded.
4483857,2,10.54,18.11,0,Before we begin I would like to draw your attention to the safe Harbor statement on page two of this Siemens Healthineers Presentation.
4483857,3,18.36,21.68,0,This conference call may include forward looking statements.
4483857,4,22.1,31.08,0,These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
4483857,5,31.3,35.5,0,At this time I would like to turn the call over to your host today Mr.
4483857,6,35.5,38.52,0,Marc Koebernick Head of Investor Relations.
4483857,7,38.94,40.03,0,Please go ahead sir.
4483857,8,41.17,47.8,1,Thanks operator and welcome dear analysts and investors to today's call also from my side.
4483857,9,48.5,59.28,1,Our first quarter results were released at seven AM CT this morning and you can find all the material presentation earnings release and the recording of the call on our IR webpage.
4483857,10,59.84,64.53999999999999,1,I'm sitting here with Bernd Montag C E O of Siemens Healthineers and Jochen Schmitz C F O.
4483857,11,65.19,69.31,1,We'll be taking you through our first quarter results in the usual detail.
4483857,12,70.49,73.33,1,After the presentation you will have the chance to ask questions.
4483857,13,73.79,78.94,1,Please may I ask you to limit yourselves to two questions each some things never change.
4483857,14,79.89,84.82,1,With this I pass the word over to our c e o Bernd Montag.
4483857,15,85.25,86.72,1,Bernd the floor is yours.
4483857,16,87.15,88.29,2,Thank you Marc.
4483857,17,88.67,90.7,2,Good morning dear analysts and investors.
4483857,18,91.08,96.35,2,Thank you for dialing in um and expressing your continued interest in Siemens Healthineers.
4483857,19,97.47,102.38,2,It has been a few months since we last spoke at our twenty twenty one Capital Market Day.
4483857,20,103.2,109.48,2,In case you missed it back then and have a few hours to spare you can still watch it on our webpage.
4483857,21,110.61,125.2,2,Let me start by shedding some light on our financial performance in q one which shows that we have been able to take the momentum from twenty twenty one over into the new financial year despite our quite challenging environment.
4483857,22,126.07,135.85,2,We increased our order backlog with an excellent equipment book to bill rate at one point two which is for all segments roughly on the same level.
4483857,23,136.44,150.28,2,Comparable revenue growth was strong with nine point five percent driven by an excellent twenty percent growth in diagnostics including €329 million of Rapid Antigen sales.
4483857,24,151.73,158.58,2,Varian had a very solid start to the fiscal year and contributed €750 million to the revenue.
4483857,25,159.4,166.25,2,Imaging continues to be strong with six percent comparable revenue growth and Advanced Therapies with three percent growth.
4483857,26,167.37,173.07,2,The adjusted EBIT margin for the group came in at seventeen point six percent in q one.
4483857,27,173.54,183.46,2,Foreign exchange headwinds and currently higher procurement and logistic costs were mostly offset by a better than expected rapid antigen contribution.
4483857,28,184.74,191.05,2,Our adjusted earnings per share increased year on year and was €0.55 cents in q one.
4483857,29,191.54,194.92,2,Free Cash Flow was strong with €556 million.
4483857,30,195.44,201.4,2,We have raised the outlook for the group in terms of comparable revenue.
4483857,31,201.96,219.0,2,We now expect three to five percent growth from previous knee zero to two um for adjusted basic earnings especially we expect two point one eight to two point three Euro cents from previously two point oh eight to uh two point two oh.
4483857,32,219.23,224.07,2,This increase is the result of higher than expected Antigen revenues.
4483857,33,224.37,231.13,2,We now assume seven hundred million of revenues out of Rapid Antigen testing in fiscal year two two.
4483857,34,232.38,241.61,2,So while it looks like it's shaping up to be another successful year at Siemens Healthineers and Jochen will explain in more depth the numbers of this successful start.
4483857,35,241.64,246.44,2,Let me recap a bit on what we told you at our Capital Markets Day.
4483857,36,247.4,251.28,2,What makes Siemens Healthineers so unique?
4483857,37,252.44,260.74,2,The basis for our success is the set of unique capabilities which we have systematically built in the past years.
4483857,38,261.37,270.98,2,A set of capabilities which we keep strengthening every day patient twining physician therapy and digital data and AI.
4483857,39,271.95,279.64,2,Patient twining means adding more effective and efficient ways to accurately describe the state of an individual patient.
4483857,40,280.53,292.63,2,Having the ultimate vision of a digital twin of a patient in mind on which diagnosis therapy selection and response control can be based very individually.
4483857,41,293.59,303.3,2,This is why we drive imaging to new levels of insights develop new diagnostics tests and work on making imaging and diagnostics more productive and accessible.
4483857,42,304.6,319.79,2,Position therapy means using cutting edge technologies to deliver individualized therapies often with sub millimeter sub millimeter accuracy whether it's cancer neural or cardiac disorders.
4483857,43,320.49,327.16,2,The importance of precision in treating patients is what makes Varian so unique in cancer therapies.
4483857,44,327.8,337.81,2,It is also why advanced therapies is focusing on making more and more procedures minimally invasive by image guidance and robotic assistance.
4483857,45,339.54,345.43,2,Precision improves results reduces side effects in short makes therapies better for patients.
4483857,46,346.2,351.81,2,Our third strengths is our unique competence in digital data and AI.
4483857,47,352.1,371.03,2,It is key for scaling the application of technological advances for having the next patient benefiting from the knowledge generated by diagnosing and treating millions of patients before and for connecting patient training with precision therapy.
4483857,48,371.98,378.35,2,Our unique capabilities allow us to pioneer breakthrough innovation to fuel further growth.
4483857,49,380.38,383.02,2,Let's look at some of the most recent examples.
4483857,50,383.46,391.22,2,First the MAGNETOM free max our lightest smallest and most cost-effective MR System.
4483857,51,391.6,406.99,2,The MAGNETOM free max comes with a basically helium-free technology that's significantly reduces total cost of ownership and therefore makes MR more accessible and consequently improves access to high quality diagnosis globally.
4483857,52,407.84,414.93,2,Since its launch we have seen more than fifty percent of systems being sold into new markets.
4483857,53,415.64,419.5,2,That means into setting where MR could not go before.
4483857,54,420.23,429.8,2,Buyer decisions are driven by favorable infrastructure requirements and ease of use especially for those first time users.
4483857,55,431.1,438.93,2,It was released in August twenty one and we see a steady order ramp up also for the little sister MAGNETOM free star.
4483857,56,440.09,446.81,2,The Naeotom Alpha is the first F D A cleared-photon counting CT on the planet.
4483857,57,447.33,458.69,2,After more than fifteen years of development over two eighty patents and over a hundred publications we have successfully launched Naeotom Alpha on November eighteenth two one.
4483857,58,459.83,474.38,2,Described by the F D A as the first major imaging device advancements for CT in nearly a decade Naeotom Alpha is seeing an impressive customer interest in both private and academic institutions.
4483857,59,475.47,484.05,2,Our customers confirm that for photon counting technology has the potential to become the new global technical standard in CT in the decades to come.
4483857,60,485.75,492.18,2,More than thirty five thousand patients were already scanned using the new system of um as of today.
4483857,61,492.8,499.62,2,And we started to book orders in fiscal year two one for a selected customer group of early adopters already.
4483857,62,500.97,509.76,2,Atellica CI 1900 Atellica Solutions' little sister is targeted towards mid-size labs hub and spoke settings in the emerging countries.
4483857,63,510.54,516.79,2,It brings the Atellica philosophy of combining quality and throughput to even more customers bird wide.
4483857,64,517.59,533.71,2,Speaking of Atellica in q one we were capable to sign a contract for more than forty Atellica solution analyzers with Ascent in California making it one of the country's largest single site Atellica Solution locations.
4483857,65,535.05,547.54,2,Turning the page over to physician therapy Ethos our AI driven adaptive radiation therapy system provides data-driven personalized cancer care with maximum impact by minimizing side effects.
4483857,66,548.02,561.4,2,Since launch we have booked more than a hundred ten orders for ethos already around fifty systems are installed with a remarkable number of over fifteen thousand adaptive sessions since launch.
4483857,67,562.14,570.29,2,And with core path we are on the way to advance endovascular robotics to better and more accessible state-of-the-art treatment.
4483857,68,571.46,576.9,2,All of this is enabled by the glue of digital data and AI.
4483857,69,577.51,582.3,2,Like our AI-led companion ovarian oncology as a service offering.
4483857,70,582.66,595.94,2,As an example we advanced clinical decision making with a comprehensive AI powered portfolio with our AI companions providing solutions for anatomies covering thirty five percent of imaging procedures.
4483857,71,596.7,602.25,2,By twenty twenty five we aim to increase this number to eighty five percent.
4483857,72,604.06,621.38,2,These breakthrough innovations our unique capabilities and the focus and scale of our broad products and solutions portfolio allow us to benefit from and to contribute to the three company-wide growth vectors that we presented at our Capital Market Day.
4483857,73,622.25,633.73,2,These growth opportunities include fighting the most threatening diseases enabling efficient operations and expanding access to care.
4483857,74,634.8,642.93,2,Our unique technologies and competencies are tackling exactly these opportunities and we tirelessly strengthen them even further.
4483857,75,643.49,648.87,2,As a result we will have even more impact on global healthcare and accelerated growth.
4483857,76,649.74,664.17,2,And while we pursue these three company-wide growth makers each segment keeps a razor sharp focus on its respective targets and contributes to our midterm targets that we presented at our capital markets day.
4483857,77,665.26,680.9301,2,As a reminder we aim to grow our comparable revenue growth by six percent to eight percent per year and our adjusted e p s by twelve percent to fifteen percent per year in the years from twenty three to twenty five.
4483857,78,682.44,694.81,2,Quickly turning to Varian I highlighted already before the incredible success of Varian um with the rollout of Ethos taking a lead in the adaptive therapy market.
4483857,79,695.22,700.07,2,However besides this Varian also delivered a very remarkable quarter.
4483857,80,700.84,709.61,2,Varian had a very solid start with a very positive revenue growth across all regions with revenues reaching um €750 million.
4483857,81,711.13,721.96,2,At the same time Varian has been capable to further expand its its strong order backlog with an equipment book to build off one point two three in the first quarter.
4483857,82,723.53,733.7,2,Documentation of this strong performance are two notable long-term partnerships we signed with the Oulu University Hospital and the US oncology network.
4483857,83,734.9,754.82,2,The partnership with Oulu University Hospital in Finland is a ten year strategic partnership to build a comprehensive digital diagnostic and therapeutic ecosystem that addresses the entire cancer treatment pathway and advances the quality of care for cancer patients in Northern Finland.
4483857,84,756.24,781.57,2,Through this partnership Varian and Siemens Healthineers will provide Oulu University Hospital with a technology and services package that includes both imaging and radiation therapy equipment for cancer treatment software solutions for improved workflow and decision support and a range of services from equipment maintenance to staff training and workforce development.
4483857,85,782.26,788.04,2,This is just one of many proof points of combined deals that we have in our pipeline.
4483857,86,788.87,791.52,2,So stay tuned for more combined deals to come.
4483857,87,792.24,801.95,2,At the same time during the quarter Varian signed a multi-year agreement with the US Oncology Network further extending the existing partnership.
4483857,88,802.71,808.71,2,The US Oncology Network is the largest network of community oncologists in the United States.
4483857,89,809.57,819.35,2,The agreement includes software service and equipment solutions across the US including service support for over one hundred fifty linear accelerators.
4483857,90,820.38,825.35,2,Also in terms of profitability Varian achieved a strong quarter.
4483857,91,826.14,844.39,2,With an adjusted EBIT of €117 million and a margin of fifteen point seven percent Varian Varian is already right in the little of its margin target range of fifteen percent to seventeen percent and therefore very well on track to deliver on what we have committed.
4483857,92,845.18,865.4901,2,So before I hand it over to Jochen for the financials and our updated outlook let me just say how proud I am on how we as a team have managed the challenging times and that we consistently work and deliver on our target to pioneer breakthroughs in healthcare for everyone everywhere.
4483857,93,866.65,868.15,2,And with this over to you Jochen.
4483857,94,869.66,875.84,3,Thank you Bernd uh and also good morning everyone also from my side glad that you are joining us again.
4483857,95,876.58,881.58,3,Let me take you through our financials of our first quarter in fiscal year twenty two.
4483857,96,882.59,890.77,3,As Bernd highlighted before we see the momentum from fiscal year twenty one to continue in the first quarter of our fiscal year twenty two.
4483857,97,890.82,895.21,3,Let me start with giving some color on the dynamics and the equipment orders first.
4483857,98,896.48,906.1,3,We continue to post very good equipment order intake growth in the high single digits a very healthy dynamic both year over year as well as sequentially.
4483857,99,906.54,911.93,3,Underpinned by the again very good equipment book to build one point two in q one.
4483857,100,913.41,917.99,3,In revenue we also continue to see good underlying revenue growth.
4483857,101,918.77,919.38,3,i e.
4483857,102,919.65,926.18,3,excluding Rapid Antigen revenue of four point five percent growth with growth across the board.
4483857,103,926.62,933.75,3,This is particularly good when you take into account that we grew by around ten percent ex-Antigen last year.
4483857,104,934.58,936.97,3,And this again was on the last quarter.
4483857,105,937.46,941.96,3,In fiscal year twenty which was not impacted by the pandemic.
4483857,106,942.74,956.99,3,This is for me a clear testimony not only to the accelerated gross momentum and at the same time and as important to our unique resilience in extremely challenging environments.
4483857,107,957.59,973.92,3,In particular the appearance of the Omnicron Varian accelerated the momentum of the antigen business in q one with three hundred twenty nine million of revenue primarily in AMEA which brings us to the overall nine point five five percent comparable revenue growth.
4483857,108,974.43,980.81,3,Bear in mind that we received uh the O E A approval for the US market only at the end of December.
4483857,109,981.58,986.56,3,Therefore we did not see US revenue from the antigen business in q one.
4483857,110,988.05,995.1801,3,I will talk later in my presentation in detail on what we have assumed for the Antigen business in the remaining fiscal year.
4483857,111,995.96,1000.41,3,In the geographies we also see the very good underlying momentum continuing.
4483857,112,1000.78,1004.19,3,Also in China we saw very tough coms in the prior year quarter.
4483857,113,1004.72,1013.54,3,Last year in q one we saw significant equipment grows in China due to government-backed preparations for potential second COVID nineteen wave.
4483857,114,1014.32,1020.88,3,In q one we also saw tearing from foreign exchange translation of around three percentage points.
4483857,115,1021.33,1027.1,3,So revenue in q one grew by around twelve percent if you take out portfolio effects only.
4483857,116,1028.6,1036.6299,3,This growth we saw also drop through to the bottom line with twelve percent growths on our adjusted earnings per share this quarter.
4483857,117,1037.72,1040.64,3,Obviously there were some moving part in between.
4483857,118,1042.5601,1050.0701,3,Adjusted EBIT margin came in at seventeen point six percent below the stellar prior year quarter.
4483857,119,1050.39,1058.7999,3,Bear in mind that last year's q one was exceptionally good since we posted the highest margin of the fiscal year in q one which is quite unusual.
4483857,120,1058.86,1063.47,3,So we see some degree of normalization in the q one margin this year.
4483857,121,1065.2,1068.62,3,On top of this we saw two major headwind this quarter.
4483857,122,1083.27,1087.4501,4,On the other side we saw tailwind from the higher rapid antigen contribution.
4483857,123,1088.85,1098.1699,4,I will talk in more detail later in this presentation on the different profit impacts this quarter and what to expect in the course of the remaining fiscal year.
4483857,124,1099.85,1113.2101,4,Below the e b i t line we posted minus thirty million Euros of financial income which was above our normal run rate for interest expenses due to a negative impact from the variation of smaller equity investments.
4483857,125,1113.66,1124.9399,4,We continue to expect the targeted fifty to seventy million expenses financial income net for the full fiscal year unchanged to our guidance from early November.
4483857,126,1125.49,1129.74,4,Tax rate came in at twenty nine percent slightly about prior year quarter.
4483857,127,1130.96,1151.48,4,Regarding cash with also a very strong start to fiscal year twenty twenty two in generating free cashflow with a strong free cash generation of five hundred fifty six million Euros despite significantly higher bonus payouts and the ongoing challenges in the supply chain with its impacts on inventory levels.
4483857,128,1152.36,1157.2699,4,This was largely driven by excellent cash collection.
4483857,129,1158.63,1161.66,4,Now let us have a look at the dynamics in the different segments.
4483857,130,1161.74,1170.36,4,Bear in mind that Varian has no comparable prior year quarter yet and therefore is not included in the comparable gross numbers yet.
4483857,131,1170.86,1176.05,4,We will include Varian in our comparable growth from q three onwards.
4483857,132,1178.28,1180.85,4,Let us now have a look at our segment performance.
4483857,133,1181.46,1186.1699,4,As Berndt has already covered Varian I will commenting the remaining three.
4483857,134,1187.88,1207.01,4,Imagining continues to be strong with six percent revenue growth driven by very strong growth in molecular imaging CT and M R I on the back of very strong prior year growth fueled both by healthy underlying growth in the core business as well as uh some pandemic related demand.
4483857,135,1207.5601,1212.83,4,On the adjusted e b i t line imaging showed a good performance of twenty percent margin.
4483857,136,1213.49,1224.0499,4,However it was three forty base points below prior year's record margin partially due to headwinds from foreign exchange and procurement and logistic costs.
4483857,137,1225.27,1233.0399,4,Our marketing and sales activities for the new product launches in the first quarter also impacted the margin slightly negatively.
4483857,138,1233.5699,1246.9301,4,Diagnostics showed excellent growth driven my rapid antigen sales as well as a very solid core business growth given the normalization of the test volume for routine examinations.
4483857,139,1247.46,1256.33,4,Excluding the rapid antigen contribution core business continues with solid growth at more than three percent.
4483857,140,1256.79,1264.92,4,On the margin side profitability was up by five hundred thirty base points year over year from the highly accretive rapid antigen business.
4483857,141,1265.49,1270.87,4,Excluding antigen the core business sustained solid underlying profitability.
4483857,142,1271.45,1276.6899,4,I will give more detail what this means for the diagnostic performance going forward on the next slide.
4483857,143,1277.1,1290.5399,4,At the same time we also saw an impact of around three hundred base point headwinds from foreign exchange and procurement and logistics cost which were overcompensated obviously by the antigen contribution.
4483857,144,1292.3,1303.86,4,Advanced therapies saw three percent growth this quarter a decent performance on a strong comparable of six percent in prior year and almost ten percent in q one of fiscal year twenty.
4483857,145,1304.55,1311.1899,4,Despite a softer growth quarter we see advanced therapies well on-track for growth this year with a healthy order backlog.
4483857,146,1311.6899,1324.37,4,q one margin in advanced therapies was down to fourteen point three percent in q one versus a very strong prior year quarter and in the guided range for this fiscal year.
4483857,147,1325.7,1341.16,4,In this quarter the margin was negatively impacted by the headwinds from foreign exchange and procurement and logistic cost of around a hundred fifty b p s and also by ongoing investments for inaudible.
4483857,148,1341.2,1355.4401,4,In ier- in our diagnostic business we now assumed a higher amp uh rapid antigen revenue contribution of seven hundred millions Euros in fiscal year twenty twenty two up from previously communicated two hundred million.
4483857,149,1356.4301,1367.28,4,Since our fiscal year twenty twenty two outlook announced uh in November the situation has changed significantly with the Omicron variant wave.
4483857,150,1367.42,1379.27,4,Adding to this we have received the F D A emergency use authorization approval in the United States States both was not factored into our original guidance.
4483857,151,1379.8199,1388.09,4,The team worked very hard to get the US approval and meet the additional demand which arose from this opportunity.
4483857,152,1388.14,1396.0601,4,However the full year visibility of on the testing demand is still relatively low and the situation is still very dynamic.
4483857,153,1396.76,1407.1799,4,Based on the trends we experienced over the last years we anticipate strong demand in q one and q two and then softening demand during the Summer month.
4483857,154,1408.22,1424.1801,4,Additionally pricing has come down substantially for tenders in Germany and considering we are not the only player to receive the US approval for its covid nineteen antigen test we should see our pricing and volumes evolve over time in the United States.
4483857,155,1425.01,1430.4,4,So the overall market becomes more and more competive- tive with more capacity overall.
4483857,156,1431.01,1434.8501,4,Therefore we expect revenues to decline sharply in the second half.
4483857,157,1436.62,1441.5599,4,Profitability this segment is largely a result of the development in volume and prices.
4483857,158,1441.63,1452.13,4,We expect profit accretion from rapid antigen peaking in the first half to then decline sharply in the second half due to the expected lower demand and price erosion.
4483857,159,1452.96,1457.53,4,Finally a few comments on the q one performance of diagnostics core business.
4483857,160,1459.21,1469.13,4,Excluding rapid antigen margin accretion we continue to see that the core business is developing according to our plans with a solid underlying profitability.
4483857,161,1469.66,1475.4501,4,And this needs to be evaluated taking into account the current global supply chain challenges.
4483857,162,1476.21,1482.39,4,Taking everything into consideration we can be very happy with the steady improvements in our diagnostic segment.
4483857,163,1482.87,1486.5,4,We continue to be on track with our plans to turn around the business.
4483857,164,1488.76,1495.11,4,Now let us have a closer look at the different profit impact that we expect to be more material in this fiscal year.
4483857,165,1495.28,1506.52,4,You'll see on the slide the four topic that we currently consider material and the year over year impact on adjusted e b i t in the first half and the second half of this fiscal year.
4483857,166,1507.35,1514.25,4,And you also see that they all have somewhat different profiles in terms of year over year comparison over the course of the year.
4483857,167,1515.86,1520.3999,4,Let me start with what we just talked about our rapid antigen testing.
4483857,168,1521.2,1537.98,4,We expect a very positive accretion in the first half year turning into a very negative year over year impact in the second half due to the slowing demand and at the same time comparing against the very strong second half of last fiscal year.
4483857,169,1538.77,1552.77,4,Regarding foreign exchange as said before we see a translational tailwind of around three percentage points this quarter particular from the strengthening of the US dollar and we expect this to continue throughout the year.
4483857,170,1553.38,1566.3,4,However since we do hedging on a rolling basis uh for three to six months forward the impact on the EBIT line is usually trading the top line impacts by the said three to six months.
4483857,171,1567.04,1573.7401,4,Consequently we expect a negative impact from foreign exchange on the first half bottom line turning…
4483857,172,1575.9,1577.75,4,in second half.
4483857,173,1577.99,1583.28,4,The topic of impacts from incentives followed as during the course of last year.
4483857,174,1583.54,1591.09,4,So let me start that the updated assumption for rapid antigen for this fiscal year is already fully reflected in our books.
4483857,175,1591.78,1595.99,4,Also group incentives related to antigen are kept this year.
4483857,176,1595.99,1605.37,4,So any incentive impacts from antigen will be limited to the diagnostic segment from now on as the new assumption is already beyond the set cap.
4483857,177,1606.51,1612.76,4,For fiscal year twenty two we expect an overall tailwind from incentives skewed towards the second half.
4483857,178,1613.22,1616.39,4,We expect the tailwind in the second half the fiscal year to be larger.
4483857,179,1617.97,1623.12,4,Since we booked in last year's q four the employee bonus provision of fifty six million Euros.
4483857,180,1623.51,1629.6799,4,The tailwind from incentives in q one was largely compensated by higher travel and marketing cost.
4483857,181,1630.46,1636.08,4,And now to the impacts from procurement and logistic cost related to the current situation of global supply chains.
4483857,182,1636.86,1640.6899,4,We are aware that this a big topic currently also in the capital market.
4483857,183,1640.6899,1647.71,4,So let me give you three main messages that sum up our current situation and what we expect for the remainder of the year.
4483857,184,1649.24,1656.45,4,First very important we did not see material impacts on our revenues from supply chain issues so far.
4483857,185,1656.9301,1661.52,4,And we assumed that we will not see material impacts going forward.
4483857,186,1662.79,1669.7599,4,Obviously there is uncertainty from the future development of the pandemic and for example from new variants which we cannot foresee.
4483857,187,1669.98,1682.0599,4,Second we see the headwinds mainly in procurement and logistic cost of around a hundred base points in margins year over year skewed towards the first half of the fiscal year.
4483857,188,1683.26,1686.4,4,These headwinds have two main driver.
4483857,189,1687.6899,1696.91,4,One driver is price p increases due to shortages most notable in the lo electronic components and in certain raw materials like metals.
4483857,190,1698.05,1704.4099,4,The other driver is logistic cost including structural changes e g.
4483857,191,1704.41,1712.05,4,switching from sea to air freight and mitigation mi measures in our manufacturing to secure production.
4483857,192,1713.03,1715.0,4,And this brings me to the third message.
4483857,193,1716.26,1726.4301,4,Thanks to our team we have been managing these challenges extremely well so far and we expect to continue to manage the situation well going forward.
4483857,194,1727.38,1739.34,4,Our procurement manufacturing and r and d teams work closely together on mitigation and new solutions working together with our suppliers who are closely integrated into our value chain.
4483857,195,1740.25,1750.8101,4,Albeit we managed the situation relatively speaking very well the hundred base points year over year headwind now reflects the intensified global supply chain challenges.
4483857,196,1751.33,1760.15,4,And of course this is also reflected in our updated outlook which brings me directly to the next chart.
4483857,197,1762.3199,1772.24,4,We raised the outlook for fiscal year twenty twenty two due to the new assumption of seven oh oh million Euros for rapid antigen revenues in fiscal year twenty twenty two.
4483857,198,1772.91,1779.04,4,Consequently we raised the revenue target for diagnostics to low single digit negative growth.
4483857,199,1779.63,1786.62,4,This race this raises the outlook for the group to three to five percent comparable revenue growth.
4483857,200,1787.35,1790.85,4,We also raised the outlook for adjusted basic earnings per share.
4483857,201,1791.04,1798.5801,4,The range for the adjusted E P S is now between two Euros and eighteen cents and two Euros and thirty cents.
4483857,202,1799.23,1805.6399,4,This new range obviously includes the different profit impact that we have discussed before e g.
4483857,203,1805.64,1811.47,4,the headwinds from procurement and logistic cost as well as the higher rapid antigen contributions in diagnostics.
4483857,204,1812.26,1821.35,4,This results in a net impact of around ten cents higher outlook by which we increase the outlook for adjusted earnings per share.
4483857,205,1822.03,1831.51,4,The diagnostic margin fiscal twenty twenty two is now expected in the low teens driven by the higher contribution from the rapid antigen business.
4483857,206,1831.97,1838.4301,4,And all other targets for the segments and the other items of the previous outlook remain unchanged.
4483857,207,1840.54,1845.9199,4,One comment on the margin target for imaging and the range twenty two to twenty three percent.
4483857,208,1846.42,1855.5699,4,We currently expect the imaging margin to be around the lower end of the range mainly due to the formentioned headwinds from procurement and logistic cost.
4483857,209,1856.0,1866.9199,4,This reflects an element of caution since there is uncertainty especially how headwinds and mitigation meas measures will play out in the second half of the year.
4483857,210,1867.71,1872.9099,4,Let me also add a comment on what we expect in q two where we have obviously better visibility.
4483857,211,1873.5,1879.38,4,For comparable revenue growth we expect momentum from q one to continue into q two for all segments.
4483857,212,1880.05,1894.17,4,On the margin side we expect imaging margins in q two to continue to be somewhat below the twenty two to twenty three margin range whereas we expect the the other segments some more pressure from procurement and logistic cost.
4483857,213,1894.17,1900.49,4,So margin in the other three segments might end up around what's likely lower compared to q one.
4483857,214,1900.8101,1905.9501,4,And with this I close my presentation and hand it over t to you Mark for q and a.
4483857,215,1906.96,1907.71,5,Thanks Johann.
4483857,216,1908.28,1917.28,5,So um I will be obviously managing the q and a but let me just hand it also sh briefly to the operator to start the q and a session.
4483857,217,1919.45,1920.45,6,Thank you gentlemen.
4483857,218,1920.9,1927.16,6,We will start today's question and answer session where we would like to ask you to limit yourself to two questions.
4483857,219,1927.42,1934.13,6,If you wish to ask a question please press the star key followed by the digit five on your telephone keypad.
4483857,220,1934.5601,1939.9401,6,Again ladies and gentlemen please press star-five on your telephone keypad.
4483857,221,1942.27,1944.6599,5,So great I see you are lining up here.
4483857,222,1944.84,1949.73,5,Um first caller on the line would be Veronika Dubajova from Goldman Sachs.
4483857,223,1950.24,1953.04,5,Veronika your line should be open please ask your questions.
4483857,224,1953.0699,1953.3999,8,Um…
4483857,225,2027.2,2028.6001,4,Yeah hello ven Veronika.
4483857,226,2028.83,2030.53,4,Thank you very much for the good questions.
4483857,227,2030.5699,2034.33,4,Um on let me start with uh antigen first.
4483857,228,2034.33,2034.62,4,Yeah I mean…
4483857,229,2036.03,2047.75,4,a as you as as you s as you know we were always relatively conservative with assuming in our outlook uh an antigen revenue portion yeah?
4483857,230,2048.25,2054.0601,4,And um w- we have good visibility uh o on on the seven hundred millions yeah?
4483857,231,2054.0601,2064.8599,4,And uh I I would also expect uh to see a relatively similar level of revenue in q two as as we saw in q q one.
4483857,232,2065.21,2074.3198,4,At least yeah and uh this leaves then uh some trailing out antigen revenue for the remainding remaining quarters yeah?
4483857,233,2074.75,2076.5999,4,That's that our is our current thinking.
4483857,234,2076.6001,2079.5801,4,I mean there are a lot of I would see variables still open yeah?
4483857,235,2079.5801,2086.6199,4,Pricing uh availability uh channel development in the United States and o and other things yeah?
4483857,236,2087.0601,2098.71,4,Uh which uh led us to give you I would say uh uh I would say a very balanced yeah uh guidance for seven oh oh million a assumption for seven oh oh million in our outlook yeah?
4483857,237,2099.45,2104.23,4,On the imaging margin I mean you asked here several questions around this.
4483857,238,2104.6201,2112.8401,4,Um when last year uh you saw uh quite some quite some I would say spread in the margins yeah?
4483857,239,2112.9299,2127.5801,4,From eighteen percent in q three up to I think twenty twenty three twenty four percent uh in in in the in the in in the highest quarters um and um we started now with st and and ended up on average with twenty one percent yeah?
4483857,240,2128.1299,2128.7698,4,Um…
4483857,241,2130.71,2139.01,4,inaudible was twenty percent with significant headwind from uh foreign exchange as well as uh procurement and logistic cost.
4483857,242,2139.6599,2147.6401,4,I mean we expect uh those uh procurement logistic cost to be skewed towards the first half of the fiscal year.
4483857,243,2148.22,2149.6799,4,Yeah this our assumption.
4483857,244,2150.23,2154.3301,4,Visibility is is is not super great in this regard yeah?
4483857,245,2154.8601,2157.1101,4,But this is what we currently assume yeah?
4483857,246,2167.8799,2172.99,9,Um but uh visibility is is beside backlog yeah.
4483857,247,2173.1101,2174.6101,9,Where we have good visibility.
4483857,248,2174.77,2182.22,9,Strong I would say um I would say s s strong s I would say security on the top line yeah.
4483857,249,2182.22,2187.4199,9,I think we we still have some limited visibility on on on certain cost items yeah.
4483857,250,2187.75,2191.78,9,But I'm still confident that we can reach uh the lower end of the bend.
4483857,251,2205.5701,2209.01,12,This would be Patrick Wood from uh Bank of America.
4483857,252,2209.0601,2211.2798,12,Um Patrick you should be live now.
4483857,253,2211.53,2212.55,12,Please ask your questions.
4483857,254,2260.98,2261.3301,11,Thanks.
4483857,255,2262.79,2263.5901,12,Thank you Patrick.
4483857,256,2263.6201,2268.3301,12,Um so maybe I rephrase the question.
4483857,257,2268.4099,2268.5698,12,Yeah.
4483857,258,2268.5701,2270.76,12,How do we offset um the cost?
4483857,259,2270.76,2274.0398,12,I mean the other thing is also how do we how do we preserve margins here?
4483857,260,2274.04,2277.9299,12,Because margin is the difference of price and costs.
4483857,261,2277.96,2278.0898,12,Yeah.
4483857,262,2278.9299,2286.4302,12,Um and um I mean uh one big topic is is of course to very fully manage pricing.
4483857,263,2286.52,2286.72,12,Yeah.
4483857,264,2287.3101,2298.3398,12,And also to make sure um that um that uh we we use our pricing power um and there i am uh we have we have good signals.
4483857,265,2298.4299,2298.6199,12,Yeah.
4483857,266,2298.6899,2304.8401,12,That um um that we we a we also make good progress on that front.
4483857,267,2305.6399,2305.8298,12,Yeah.
4483857,268,2305.8301,2309.3401,12,I mean we see it um also in the order book.
4483857,269,2309.47,2309.8301,12,Yeah.
4483857,270,2309.8301,2314.8701,12,That um that that pricing quality is is um is is is good.
4483857,271,2314.99,2315.27,12,Yeah.
4483857,272,2315.73,2320.3701,12,So um don't only look at the um at the at the cost side.
4483857,273,2320.48,2320.6799,12,Yeah.
4483857,274,2321.1201,2337.01,12,And um when it comes to the component supply aspects i am I believe that um we we are getting into more more uh uh stable waters.
4483857,275,2337.1599,2337.46,12,Yeah.
4483857,276,2338.1201,2360.04,12,Um which uh which will which which which will also help um to to ease the effect from the area but in the end I mean I think please bear in mind two things on the one hand I think we did a great job also compared to some of our competitors in safeguarding the top line.
4483857,277,2360.25,2360.4099,12,Yeah.
4483857,278,2360.4099,2364.6699,12,Which is I think the <laugh> first and big topic to achieve.
4483857,279,2364.7,2364.95,12,Yeah.
4483857,280,2365.52,2383.5801,12,Um and secondly we will manage very carefully the cost implications but on the other hand there's a big topic in in the in the in then it comes to pricing power um and and also passing some of these effects um um on so to say.
4483857,281,2384.52,2394.28,12,Um when it comes to the fortune counting I mean this this year is uh is um the year of a of a roll out two selected customers yeah.
4483857,282,2394.53,2424.5,12,Where we were uh so that the um I mean an early commercial rollout I would say um the the full commercial effect you will see um in the next fiscal year but what we what we see so far in terms of interest in terms of also um real demand um but also in terms of price realization is very very encouraging.
4483857,283,2425.8701,2438.76,9,And maybe Patrick one other aspect on that uh margin topic maybe we have uh made a deliberate decision to have a clear prioritization to be able to deliver our products yeah to our customers yeah.
4483857,284,2439.55,2442.0,9,Currently that is this doesn't come for free.
4483857,285,2442.1899,2442.3398,9,Yeah.
4483857,286,2442.3401,2444.1001,9,We need to be clear about this.
4483857,287,2444.1001,2444.25,9,Yeah.
4483857,288,2444.25,2445.73,9,This is a deliberate decision.
4483857,289,2446.21,2446.45,9,Yeah.
4483857,290,2446.48,2457.28,9,And that's also why we currently do not see any material impact on the top line yeah because of the strengths of our team but also based on the decision we made yeah.
4483857,291,2457.28,2467.3999,9,Uh and um and I think we feel so far in relatively in a relative term speaking comfortable with that decision.
4483857,292,2467.6299,2467.75,9,Yeah.
4483857,293,2467.75,2473.4399,9,Uh and uh and uh we will obviously observe it very very carefully.
4483857,294,2473.4399,2473.6799,9,Yeah.
4483857,295,2474.0901,2482.28,9,If things would get yeah out of control in this regard yeah we would might need to do the different things differently but we don't expect this to happen.
4483857,296,2488.54,2493.3999,12,So um next one on the line would uh be uh Lisa Cly from Bernstein.
4483857,297,2493.4299,2497.3101,12,Um Lisa um line should be open please ask your questions.
4483857,298,2516.9099,2526.55,13,And then um second question just on the IVD business X um antigen um nice to hear that there's some you know decent revenue growth and and margin improvement there.
4483857,299,2527.1699,2535.8301,13,If we think about the underlying demand for sort of routine tests how close are we to getting back to normal volumes?
4483857,300,2535.8301,2538.6699,13,Are we at sort of eighty five percent or is it more or less than that?
4483857,301,2538.8401,2539.0601,13,Thanks.
4483857,302,2541.4399,2543.96,12,Yeah let me um go first here.
4483857,303,2544.55,2556.74,12,Um I mean the the primary um um customer group when it comes to antigen testing or rapid test in the United States is is let's say large customers.
4483857,304,2556.77,2556.98,12,Yeah.
4483857,305,2557.3701,2570.1899,12,And we are not uh and we are not uh we don't have the channels yeah uh and and and not the ambition yet to go into the into uh too much into into a scattered ret retail space.
4483857,306,2570.4199,2574.1101,12,So number one is of course the big government programs.
4483857,307,2574.1399,2574.3198,12,Yeah.
4483857,308,2574.3201,2579.1099,12,This is also what what our strength is um and has been in Europe.
4483857,309,2579.1101,2579.26,12,Yeah.
4483857,310,2579.26,2580.8301,12,We had the the claim to fame.
4483857,311,2580.8301,2581.1301,12,Yeah.
4483857,312,2581.1299,2594.5698,12,For Siemens Healthineers as a super agile company was to make sure to to deliver a big quantities of super reliable tests with high confidence and certainty.
4483857,313,2594.6299,2594.8398,12,Yeah.
4483857,314,2595.1399,2607.6401,12,So um in in in terms of millions of tests which need to be delivered at once and this is also um one aspect um we are now living up to in the US when it comes to the government program.
4483857,315,2608.1499,2614.04,12,Um we are also um um looking at larger retail chains.
4483857,316,2614.0701,2614.3301,12,Yeah.
4483857,317,2614.48,2625.1899,12,And and and um and and and we'll see how that how that market develops yeah but that is currently baked into our into the forecast of the seven hundred million.
4483857,318,2625.8101,2629.75,12,Um when it comes to the um core business.
4483857,319,2629.75,2630.54,12,I mean yes.
4483857,320,2630.54,2638.7002,12,Um it had a in diagnostics um I'm very um happy with the with the with the start we had here.
4483857,321,2638.7,2638.8899,12,Yeah.
4483857,322,2638.8899,2653.25,12,It it uh shows a nice continuation of the trend um of of a step by step um um i i i improvement towards the the targets we have set uh for this business.
4483857,323,2654.26,2663.0999,12,Um th then it comes to how how close this business is to the let's say pre pandemic levels.
4483857,324,2663.47,2670.5798,12,I think it's pretty um uh it's i I mean I can't give you a clear number.
4483857,325,2670.5801,2670.8801,12,Yeah.
4483857,326,2670.8799,2676.1399,12,I mean but it is more in the in the in the ninety to to a a hundred percent normal.
4483857,327,2676.1399,2676.21,12,<laugh>.
4483857,328,2676.5701,2676.79,12,Yeah.
4483857,329,2677.27,2706.4402,12,But what you still see and which is which is uh uh when you double click on it is um that when it comes to the testing menu yeah there might be some shifts yeah compared to what normally has been done compared to two years ago there maybe two years ago more wellness tests and now there are still more secondary COVID related tests yeah which are baked in yeah because of some COVID related comorbidities or so.
4483857,330,2706.5,2706.74,12,Yeah.
4483857,331,2707.29,2718.02,12,But overall um we are largely back um to uh to to um normal to a normal uh situation in that business.
4483857,332,2724.26,2724.6201,13,Okay.
4483857,333,2724.78,2728.73,12,Um next one on the line should be uh James from Jeffreys.
4483857,334,2728.77,2731.51,12,Um James your line should be open.
4483857,335,2731.51,2732.8901,12,So please ask your questions.
4483857,336,2787.78,2788.1101,9,Yeah.
4483857,337,2788.1101,2789.22,9,Thanks for the question James.
4483857,338,2789.22,2811.77,9,I think what has changed uh since the initial assumption was uh that uh I think we we we saw I would say the the shortages and the the the necessity to buy uh at spot rates certain components ha has increased yeah relative to where we stand at at uh uh early November.
4483857,339,2812.4299,2823.5198,9,Uh um secondly as I said before and we deliberately made the decision to to to to prioritize the ability to be able to deliver to our customers.
4483857,340,2823.55,2823.79,9,Yeah.
4483857,341,2824.1101,2831.47,9,And by this we had to do cause of the difficulties it is because it's not only price of components yeah.
4483857,342,2831.47,2849.77,9,It's even when you have shortages you also need to be super agile and flexible in your internal processes which uh sometimes also lead to I would say to to certain disruptions in in your internal processes which might also lead to later ability to to manufacture things.
4483857,343,2849.8,2850.03,9,Yeah.
4483857,344,2850.3899,2854.0701,9,And therefore you also have certain logistic challenges following up.
4483857,345,2854.0701,2854.27,9,Yeah.
4483857,346,2854.27,2859.4399,9,And that's also why I said structural changes from C to air freight and things like this.
4483857,347,2859.4399,2859.6899,9,Yeah.
4483857,348,2859.6899,2864.74,9,And I would say the the tension just increased across the board.
4483857,349,2865.27,2886.1699,9,But as band said yeah what we currently see is that we see a stabilization of some in particular in on the supply side of component th things which gives us I would say um some confidence yeah in in in in being able even to manage that even even even better than we have already managed it today.
4483857,350,2886.1699,2886.3599,9,Yeah.
4483857,351,2886.6799,2900.45,9,And there's also and also the the I would say the learning curve we currently walk through we are being under this pressure and the organization is helping uh to optimize our internal processes according to the challenging environments.
4483857,352,2900.48,2900.6299,9,Yeah.
4483857,353,2901.2,2911.3899,9,On on the variant side uh on a performer basis yeah the growth rate on revenue in in q one was in the in the low teens again.
4483857,354,2911.4199,2911.6799,9,Yeah.
4483857,355,2911.6799,2918.7,9,So a Super strong start fully in line what what we have guided for for for varying for the full fiscal year.
4483857,356,2921.6599,2921.97,14,That's great.
4483857,357,2921.97,2922.3098,14,Thank you.
4483857,358,2923.48,2924.1799,12,Thanks James.
4483857,359,3015.97,3028.5701,9,Um as you rightfully said our guidance for for the diagnostic business or core business for this fiscal year is on the profitability side mid-single digit to a higher single digit.
4483857,360,3029.1001,3032.73,9,And we were at the lower end of of this range yeah.
4483857,361,3032.73,3045.3101,9,In in in the range but on the lower end also due to the fact that we had significant as we highlighted significant headwind form foreign exchange as well as uh the the procurement and logistic costs behind.
4483857,362,3045.3101,3049.6799,9,In in diagnostics it's primarily the logistic cost currently.
4483857,363,3049.6799,3049.74,9,Yeah.
4483857,364,3050.6299,3059.5801,9,Um and we feel but we feel well on track to get uh to stay in that line and and see progress uh a as we proceed through the year.
4483857,365,3059.6599,3059.8999,9,Yeah.
4483857,366,3060.4399,3072.1902,9,Um on the procurement and logistic front um I do not see this as a critical item for our midterm targets.
4483857,367,3072.23,3072.4099,9,Yeah.
4483857,368,3072.4099,3081.3401,9,We consider this a temporary problem yeah which uh should uh should be dealt with uh over time.
4483857,369,3081.3401,3103.0701,9,And as Dan already said beforehand when we have also mitigation measures uh when you when you extend this topic not only to COVID nineteen but also to the inflation topic yeah that we can uh that we can also in a in a I would say in a very meaningful way uh address it by by significant price discipline.
4483857,370,3103.1101,3103.29,9,Yeah.
4483857,371,3103.76,3122.72,9,And we have initiated the measures and we will see uh we expect to see also benefits from this kicking in in the in the l in the uh I mean according to when the the the orders come in yeah and turn that into revenue uh more in the in the later end of this fiscal year and then in the in the next years.
4483857,372,3122.8301,3123.02,9,Yep.
4483857,373,3127.1001,3127.4001,12,Okay.
4483857,374,3127.76,3128.02,12,Thanks.
4483857,375,3128.02,3128.4199,12,Yeah.
4483857,376,3128.8999,3136.3699,12,Um then I um would pass it over now to um Hassan from Barclays.
4483857,377,3136.77,3138.8499,12,Um Hassan your line should be open.
4483857,378,3145.3601,3146.3701,12,I can't hear you.
4483857,379,3146.3701,3146.4001,12,<silence>.
4483857,380,3158.02,3159.3701,12,lemme just a second.
4483857,381,3159.51,3170.6799,12,I dunno if we have any technical issues here maybe just a second Hassan I hope we get you into the line in a second or two.
4483857,382,3172.53,3176.1101,16,Please record your name after the tone and press the pound key.
4483857,383,3185.8999,3186.3499,12,Okay.
4483857,384,3186.3501,3187.8,12,Um so we try it again.
4483857,385,3189.3601,3190.6001,12,Um you are…
4483857,386,3190.9199,3192.1899,12,yo are you live now Hassan?
4483857,387,3228.74,3229.04,17,Thank you.
4483857,388,3245.3401,3247.76,18,Which is I think something which sets us apart.
4483857,389,3248.3601,3248.76,18,Um.
4483857,390,3248.76,3248.9199,18,Yeah.
4483857,391,3248.9199,3261.01,18,Because uh here really this organization does a wonderful job here in in in extremely um quickly reacting new to new uh situations.
4483857,392,3261.01,3264.99,18,I mean it's similar to us and what we do in the antigen tests and so on yeah?
4483857,393,3264.99,3277.26,18,So um it is um um very very um encouraging and I'm very proud how the organization is dealing with the um with the with the topics when it come to…
4483857,394,3277.6101,3282.26,18,I mean your question is more about the o I I I understand is outbound logistics yeah?
4483857,395,3282.26,3286.8,18,The the the question of is our customers ready to take reorders and so on.
4483857,396,3287.0601,3297.8,18,So here we are very flexibly um reacting um and um and and and prioritize then one customer over the other.
4483857,397,3298.4399,3298.8599,18,Um.
4483857,398,3299.4399,3306.9299,18,We see we are confident when it comes to the visibility we have in turning order book into into revenue.
4483857,399,3307.25,3312.03,18,Also in the short term that that this challenge is not increasing yeah?
4483857,400,3312.3799,3320.9299,18,So and you can trust us yeah that we that the way we were able to handle it in q one um um will will continue.
4483857,401,3320.9299,3333.54,18,And here we really stand out in the market and to some extent our ability to deliver yeah helps us to um to to to n uh to to even game share yeah.
4483857,402,3334.1299,3334.5498,18,Um.
4483857,403,3334.55,3334.6899,18,Yeah.
4483857,404,3334.6899,3347.8201,18,Because um uh s some of the um the the um some of the delivery times um of of competitors are just not not what the market accepts.
4483857,405,3348.75,3348.99,18,Um.
4483857,406,3348.99,3353.79,18,And that brings me also to the other topic yeah when it comes to um when it comes to pricing.
4483857,407,3354.3101,3357.8701,18,It is it is um i i um i…
4483857,408,3357.8701,3369.5901,18,Of course the the p some of the pricing which which which um which we have um is set by the um you know <laugh> at the point of the order intake.
4483857,409,3369.9099,3383.4099,18,And as you know in our business um typically on the on the imaging site um orders um the time between order and and r and and revenue or between book and bill is is in the range of six to nine months yeah?
4483857,410,3383.78,3398.3901,18,So that means yeah that pricing measures yeah which we have initiated um and which we see in the order book here um will also materialize towards the second half of the year.
4483857,411,3399.27,3399.73,18,Um.
4483857,412,3399.76,3411.45,18,And we see um actually a good acceptance of this both internally so to say in the sales force but also that when it when it when it when it comes to uh when it comes to customers.
4483857,413,3411.49,3411.6299,18,Yeah.
4483857,414,3412.3201,3427.3298,18,So um and as a last point please also bear in mind here about fifty percent or more fifty five percent of our revenue um is recurring revenue.
4483857,415,3428.3,3428.71,18,Um.
4483857,416,3428.74,3429.74,18,And in…
4483857,417,3429.8,3447.49,18,And f and especially when it comes to the service uh uh aspects yeah we have also uh price adjustment clauses and so on and are also protected yeah when it comes to in- uh when it comes to um um um infla- inflationary tendencies yeah.
4483857,418,3450.03,3452.6299,20,Thanks Ansan.
4483857,419,3453.3401,3454.8501,20,Sorry for the technical problems.
4483857,420,3455.52,3456.03,20,Um.
4483857,421,3456.1899,3459.8,20,So now we hand over to uh Daniel Wendoff.
4483857,422,3459.8,3462.3398,20,you are the second but last one on the queue.
4483857,423,3462.4399,3463.03,20,Um.
4483857,424,3463.1599,3463.5,20,Uh.
4483857,425,3463.5,3465.6499,20,Daniel uh your line should be open.
4483857,426,3465.79,3466.9102,20,Please ask your questions.
4483857,427,3468.51,3468.6101,21,Yes.
4483857,428,3505.8401,3505.9602,21,Um.
4483857,429,3528.3701,3529.2002,18,So so thank you Daniel.
4483857,430,3529.2,3547.4299,18,I mean looking at at Varian um there is on the one hand um when it comes to um the revenue development um very a very very strong um A recovery of the business yeah coming from from from from the pandemic.
4483857,431,3547.8701,3548.4502,18,Um.
4483857,432,3548.8101,3549.26,18,And…
4483857,433,3549.3,3563.29,18,Which which which on the one hand is triggered by a c by a very very strong competitive situation of Varian as a quote-unquote standalone business.
4483857,434,3564.28,3576.26,18,But in addition and that's what we see on the order book yeah we see um many bills yeah some of them have already been booked yeah.
4483857,435,3576.26,3580.6499,18,Like like um the one example I gave on uh Oulu in Finland.
4483857,436,3581.05,3583.8799,18,But many are in what we call the funnel yeah?
4483857,437,3583.8799,3606.8499,18,Which is the s project um the sales force is working on where there is a um a a super encouraging and uh momentum across the entire uh globe yeah in in the sales teams to team up and to work jointly on opportunities.
4483857,438,3607.1299,3608.95,18,And that goes in both directions yeah?
4483857,439,3608.95,3642.4199,18,This can be um uh you know specialty oncology customers who know um i i or or uh who are s s strongly tied to Varian here or have strong connections who and who know when to go into the um um uh o- a- ha- or expand the the relationship to imaging and it ca w and and and it can be um using the strength we have in C-level relationships as inaudible as classic if you wish um to pull in the Varian um um team.
4483857,440,3642.8899,3643.2,18,Um.
4483857,441,3643.2,3663.6799,18,And to use this um additional um additional effect it is um using our strength as inaudible classic again yeah in in in parts of the world were Varian hasn't been as strong yeah in terms of um sales presence sometimes not even having a direct sales force.
4483857,442,3664.2,3664.79,18,Um.
4483857,443,3664.8201,3671.74,18,So here we are extremely positive about the internal momentum and it also shows in the numbers.
4483857,444,3672.1799,3674.2,18,And looking at the order book we see…
4483857,445,3674.7,3675.05,18,Uh.
4483857,446,3675.05,3693.25,18,I mean uh it's not only a very strong start on the revenue side in in in in Varian with the seven hundred fifty um but um you need to look at the uh book to bill of one point two three yeah so that m t that uh that the orders have been even twenty three percent more than that yeah.
4483857,447,3693.25,3704.9202,18,So here um a clearly very very strong um and and uh uh i i a um a start and and I'm very very bullish when it comes to this.
4483857,448,3705.6101,3706.0,18,Um.
4483857,449,3706.03,3707.8401,18,Second question was…
4483857,450,3714.6299,3729.6799,18,Basically um it it s it expands the philosophy of Atellica solution yeah which is highest throughput highest quality um uh uh at…
4483857,451,3729.6799,3734.3298,18,So highest quality test in the in in high um throughput yeah.
4483857,452,3734.3301,3746.22,18,So the the the the unique mix we bring as Siemens Healthineers as a engineering company in the lab yeah to new customer groups.
4483857,453,3746.6101,3781.1199,18,And these are on the one hand the mid-size labs in the developed countries very importantly hop and spoke deployments that means um hospital networks who use the quote-unquote big Atellica Atellica solution in the hop and um the small Atellica associated spoke places which brings them on the one hand so-called reside concordance yeah.
4483857,454,3781.1201,3787.53,18,The same test resides but also allows them to purchase the same reagents and so on yeah.
4483857,455,3787.53,3790.26,18,So this is a big requirement in the market.
4483857,456,3790.95,3791.3899,18,Um.
4483857,457,3791.4399,3801.1301,18,And the third uh topic is um it is an ideal system for um for labs in the emerging countries.
4483857,458,3803.6299,3803.9202,21,Very good.
4483857,459,3803.9199,3805.96,21,Thank you.
4483857,460,3806.1799,3810.55,20,So um now we um go over to the last one for today.
4483857,461,3810.55,3811.1401,20,That should…
4483857,462,3811.25,3812.7598,20,The last not but not least.
4483857,463,3812.79,3812.98,20,Uh.
4483857,464,3812.98,3814.6501,20,Falko Freidrichs from Deutsche Bank.
4483857,465,3815.3799,3817.6101,20,Falko you should be live now.
4483857,466,3820.1799,3820.21,22,Uh.
4483857,467,3863.8101,3864.1001,18,Okay.
4483857,468,3864.1799,3864.4399,18,Uh.
4483857,469,3864.4399,3865.28,18,Thank you Falko.
4483857,470,3865.28,3867.71,18,On on the imaging launches.
4483857,471,3868.73,3870.03,18,Two uh…
4483857,472,3870.1599,3872.1101,18,I think they come in two different buckets yeah?
4483857,473,3872.1101,3886.1401,18,On the one hand um when it comes to um what we do with the Magnetom Free uh Max and also free star which is the smaller version of it this is about creating new ma markets for MRI.
4483857,474,3886.8501,3887.24,18,Um.
4483857,475,3887.27,3892.71,18,And it's bringing MR to places where where it where where it couldn't go before yeah?
4483857,476,3892.71,3893.6401,18,So to see to…
4483857,477,3893.6399,3901.2,18,From that point of view it is no it is independent of replacement cycles yeah to answer your question yeah.
4483857,478,3901.2,3906.5398,18,Because it so to say comes on top of the normal course of business.
4483857,479,3907.1001,3907.5601,18,Um.
4483857,480,3907.6699,3916.0598,18,And we are um very happy with what we are seeing that the products exactly do that yeah?
4483857,481,3916.0601,3922.3398,18,Bringing MR to the outpatient clinic which so far m only had CT.
4483857,482,3922.79,3923.1501,18,Uh.
4483857,483,3923.1499,3934.6699,18,Or bringing MR to places in emerging countries which didn't do it or bringing MR to um to um clinical specialties outside meteorology yeah?
4483857,484,3934.6699,3941.3899,18,So irrespective of replacement cycle this is typically installations where there a is no MRI before.
4483857,485,3942.6599,3947.3401,18,On the photon counting CT um this is…
4483857,486,3947.73,3978.0701,18,I mean I I commented um before yeah that uh that uh uh um v t- th- the f- th- th- this is in the an early phase of um of of launch yeah where we have um where we have a lot of excited um and exciting customers um who are who come in either from the academic medial centers um or uh in a very prestigious um private institutions.
4483857,487,3978.51,3997.72,18,Here the topic of a uh of shortening a replacement cycle can definitely happen because one of the reasons to buy the product is to be to stay at the forefront of medical research yeah.
4483857,488,3997.72,4010.74,18,This is more the academic medical center type of thinking or to be a quality leader in terms of what type of diagnosis you can offer as a private imaging center yeah.
4483857,489,4011.23,4024.73,18,So and and when your business model is to be competitive um and an early adopter because you are an innovator as a healthcare provider it shortens the replacement cycle.
4483857,490,4026.0701,4035.0698,18,And the good thing is that this effect of shortening the replacement cycle will over time migrate into broader segments of the market yeah.
4483857,491,4035.0701,4047.54,18,Because um I sometimes use this uh um a little bit maybe trivial analogy of comparing photon counting CT to flat panel uh TV or to HDTV.
4483857,492,4048.0901,4065.5901,18,When a technology like this is available people make the decision to go to the next level product earlier than when um the next generation offers just little improvements yeah.
4483857,493,4066.4299,4067.72,19,Maybe I'll answer your question.
4483857,494,4067.72,4072.7,19,On on the Americas you just highlighted that the that inaudible a strong quarter in the Americas.
4483857,495,4072.7,4074.46,19,I think that is also when this uh uh…
4483857,496,4074.49,4082.9001,19,As you know this is not a book and bill business so it was nothing which happened at the end of the day in in in the quarter from a market success.
4483857,497,4082.8999,4083.24,19,It it…
4483857,498,4083.24,4092.53,19,This is a success we had o o over the last years with the strong order intake also on the AT side which then materialized in in in the quarter as revenue yeah.
4483857,499,4092.53,4092.6001,19,Uh.
4483857,500,4093.05,4093.5898,19,And it…
4483857,501,4093.5901,4096.23,19,By the way it was across th the both of Americas.
4483857,502,4096.23,4106.6104,19,This was it was not US only you know so on on a much lower scale yeah uh uh there is uh very good revenue growth in Latin America on on the AT side yeah.
4483857,503,4106.98,4116.8696,19,So I think nothing what you can really point out too particular in the quarter but it was a particular driver of the revenue line in the quarter mm-hmm <affirmative>.
4483857,504,4119.27,4119.3701,21,Okay.
4483857,505,4119.75,4120.0498,21,Thank you.
4483857,506,4120.0498,4120.1396,20,Okay.
4483857,507,4122.3799,4125.7002,20,So um this ends uh our call for today.
4483857,508,4125.79,4131.7002,20,Thanks for your participation for your continued interest in Siemens Healthineers and your questions in today's call.
4483857,509,4132.4302,4144.21,20,We look forward to seeing some of you on our road show in the next days or at inaudible conferences early March or at the Barclays Conference in Florida in person maybe.
4483857,510,4144.6699,4144.96,20,Uh.
4483857,511,4144.9902,4148.27,20,Til then stay healthy your health and your esteem.
4483857,512,4150.7202,4152.8696,23,That will conclude today's conference call.
4483857,513,4153.1602,4155.8398,23,Thank you for your participation ladies and gentlemen.
4483857,514,4156.2002,4162.7402,23,A recording of this conference call will be available on the investor relations section of the Siemens Healthineers website.
4483857,515,4163.4502,4170.6099,23,The website address is corporate dot siemens healthineers dot com slash investor dash relations.
4483857,516,4220.0698,4223.6499,23,Please record your name after the tone and press the pound key.
4483857,517,4229.6802,4232.1104,23,The conference is in presentation mode.
4483857,518,4232.1401,4233.4302,23,The conference will begin…
4483857,519,4241.7598,4260.6099,23,The conference will b- uh…
4483912,0,54.32,72.87,0,Please go ahead.
4483912,1,78.13,86.28,1,Yes thank you operator and good morning and welcome ladies and gentlemen to our first quarterly earnings call in twenty twenty two.
4483912,2,87.44,90.31,1,As usual we have the entire management board on this call.
4483912,3,90.45,100.36,1,Reinhard Ploss c e o Helmut Gassel C M O Jochen Haneback C O O Constanze Hufenbecher c d t o and Sven Schneider C F O.
4483912,4,101.56,102.9,1,Today's call is a special one.
4483912,5,103.55,113.09,1,As we announced two and a half months ago Reinhard will retire and pass the baton on to Jochen by first of April after leading Infineon as c e o for nearly ten years.
4483912,6,114.07,116.85,1,So it's the last earnings call hosted by Reinhard today.
4483912,7,117.95,119.21,1,But for now back to business.
4483912,8,119.64,121.98,1,You are familiar with our usual procedure.
4483912,9,123.0,128.72,1,Reinhardt's summary will again come after the q and a so please stay tuned until the end of the call.
4483912,10,129.59,138.52,1,The illustrating slideshow which is synchronized with a telephone audio signal is available at infineon dot com slash slides.
4483912,11,139.78,143.94,1,After the introduction we will as always be happy to take your questions.
4483912,12,144.3,152.58,1,However today we will be strict on the one question per caller rule in order to let as many participants as possible have their say.
4483912,13,153.98,165.96,1,A recording of this conference call including the aforementioned slides and a copy of our earnings press release as well as our investor presentation are also available on our website at infineon dot com.
4483912,14,167.83,170.94,1,And now for one last time Reinhard over to you.
4483912,15,172.0,174.49,2,Yeah thank you Alexander and good morning everyone.
4483912,16,175.01,182.74,2,The new year has started and for us it feels very similar to how the old year ended with a business situation looking very positive.
4483912,17,183.37,188.21,2,Our December quarter topped the record revenue and segment result levels of the previous quarter.
4483912,18,188.57,196.13,2,Semiconductors continue to be the gating items in many inaudible as demand is outstripping supply by far.
4483912,19,196.98,205.01,2,Manufacturing capacities are being added but ongoing cyclical and underlying structure needs are still exceeding them.
4483912,20,205.98,212.74,2,Inventory reaches in some areas are going slightly up but stay considerably below long term averages.
4483912,21,213.47,217.15,2,Of course dynamics are different in the various of markets.
4483912,22,217.38,221.85,2,In some a supply demand equilibrium will be reached sooner than in others.
4483912,23,222.24,229.22,2,For our target applications automotive industrial data center and IoT as well as other areas.
4483912,24,229.61,231.91,2,We do not see this happening in the near future.
4483912,25,232.79,238.31,2,Supply limitations especially from foundries will persist well into twenty twenty two.
4483912,26,239.23,246.38,2,In such an environment specific supply disruptions in individual FETs are being felt twice as severely.
4483912,27,247.13,254.65,2,The December quarter was the first one in a while where we did not experience such disruptions and the numbers are clearly showing it.
4483912,28,255.6,268.57,2,We started out twenty twenty two fiscal year with revenues of three million one hundred fifty nine thousand euros five percent up compared to the previous quarter and a twenty percent increase year over year.
4483912,29,269.41,276.69,2,The stronger US dollars supported these growth rates assuming a constant US dollar euro exchange rate.
4483912,30,276.96,282.6,2,Sequential growth would've been three percent and the yearly one seventeen percent.
4483912,31,283.34,291.28,2,On higher revenue our margin expanded considerably with a segment result of seven hundred and seventeen million euros.
4483912,32,291.68,301.72,2,A segment result margin came to twenty two point seven percent an increase of a bit over two percentage points compared to the quarter before.
4483912,33,302.81,306.33,2,All of our four segments were able to grow their profitability.
4483912,34,307.14,309.47,2,Several factors drove this development.
4483912,35,309.95,314.0,2,We saw a good products mix in an overall favor of a pricing environment.
4483912,36,314.63,321.88,2,In addition and as already mentioned the absence of major supply disruptions allowed us to achieve a very good inaudible of performance.
4483912,37,321.88,326.03,2,Our FETs are basically running at full levels.
4483912,38,326.75,333.41,2,We take maximum COVID precaution measures but of course risks can not be completely excluded.
4483912,39,334.44,339.13,2,Near term indicators tell us that the positive momentum in our key market is intact.
4483912,40,339.9,342.31,2,The order backlog remains very supportive.
4483912,41,343.1,347.75,2,New incoming orders continue to outweigh cancellation by quite a margin.
4483912,42,348.49,354.97,2,Thus far we have provided book to bill figures as a proxy to assess the business situation.
4483912,43,355.72,358.69,2,In the last quarters we reported like for like numbers.
4483912,44,359.2,361.54,2,We will cease to do so from now on.
4483912,45,362.03,369.38,2,The ratio has lost much of its meaning given that orders are being controlled more flexible in times of our location.
4483912,46,370.15,375.85,2,Besides Infineon has led being the only company regularly publishing book to bill figures.
4483912,47,376.27,379.43,2,Many of you have used them to reverse calculate our backlog.
4483912,48,380.34,386.68,2,For the sake of transparency we'll provide you this figure directly going forward at company level.
4483912,49,387.44,401.97,2,The combined total of confirmed and unconfirmed orders stood at around thirty one bil thirty one billion euros at the end of December a further increase of about two billion quarter over quarter.
4483912,50,402.65,408.31,2,In other words our nominal stable of orders corresponds to more than two years of revenue.
4483912,51,409.34,422.14,2,It is fair to assume that some of it reflects cyclical shortages and the number might go down in coming quarters as supply gradually improves and some double orders are being cleaned off.
4483912,52,423.0,430.8,2,Having said this the few underlying structure demand is very healthy and are fully booked for twenty twenty two.
4483912,53,432.13,435.53,2,Now to our divisions and their performance in the December quarter.
4483912,54,436.17,438.77,2,Beginning as usual with automotive.
4483912,55,439.23,443.22,2,The segment recorded revenues of one million three hundred ninety and thousand euros.
4483912,56,443.66,451.63,2,A ten percent increase over the previous quarter was helped by a favorable currency development and the absence of specific supply disruptions.
4483912,57,452.24,455.56,2,The high volumes also left an improved profitability level.
4483912,58,456.12,468.19,2,The segment result came in at two hundred sixty one million euros resulting in a segment result margin of eighteen point eight percent compared to sixteen point seven percent in the quarter before.
4483912,59,468.91,475.27,2,In general terms the supply demand mismatched burdening the automotive industry remains quite wide.
4483912,60,475.86,485.77,2,Global car production in twenty twenty two was only slightly up compared to twenty twenty with seventy six point four million units.
4483912,61,486.41,497.69,2,Researchers from I H S Markit estimate that around ten million cars were not built due to semiconductor and other component shortages as well as various supply chain issues.
4483912,62,498.08,513.01,2,For twenty twenty two the gradual easing of the various constraints is expected but the recovery of worldwide auto production remains susceptible to external shocks like the spread of the Omicron virus variant.
4483912,63,513.82,533.87,2,The eighty two point nine million vehicles currently predicted by I H S for this year will still be considerably below the twenty eighteen and twenty nineteen numbers hence supply limitations are far from over and will persist well into twenty twenty two.
4483912,64,534.69,542.73,2,Inventories are likely to remain tight or by gradually improve with some replenishment moving into twenty twenty three.
4483912,65,544.01,550.03,2,Within an overall constraint car market electrical mobility's remaining on a strong trajectory.
4483912,66,550.4,555.54,2,In fact the current phase might once be seen as inaudible for EV adoption.
4483912,67,556.14,565.74,2,In twenty twenty one around six point seven million battery electric and plug in hybrid vehicles were sold basically doubling within a years time frame.
4483912,68,570.34,577.86,2,With an industry leading portfolio silicon and silicon carbides solutions be at center of ev gross.
4483912,69,578.47,585.95,2,Anecdotally December was the first months ever in which more battery electric vehicles than diesel cars were sold in Europe.
4483912,70,586.86,593.36,2,The car of the future will not only be carbon neutral but also autonomous fully connected and cyber secure.
4483912,71,594.32,600.44,2,This is opening up a track of semiconductor content growth opportunities for which we are at the pole position.
4483912,72,601.0,616.99,2,Our a u r i x microcontroller family has become the first choice automotive architecture for high growth and safeties inaudible application such as assisted and autonomous driving powertrain safety as well as the main or sound control.
4483912,73,618.24,630.43,2,inaudible a couple of weeks ago we launched a new a u r i x generation focusing on addressing growing vehicle complexity the enablement of AI implementations and advanced connectivity.
4483912,74,632.15,639.87,2,With the scalable family concept a u r i x is a key ingredient for dependable electronics and software based applications.
4483912,75,640.46,645.68,2,We expect a u r i x related revenues to grow strongly over the coming years.
4483912,76,646.85,648.6201,2,Now to industrial power control.
4483912,77,648.92,658.02,2,Following a very strong second half of our twenty twenty one fiscal year revenues in the December quarter moderated to three hundred eighty two million euros.
4483912,78,658.48,664.8,2,A sequential decline of six percent reflecting typical seasonal patterns in most application areas.
4483912,79,665.59,673.98,2,A positive exception was power infrastructure which among other comprises energy stores as well as EV charging stations.
4483912,80,674.65,687.52,2,The segment result of a p c came in at seventy three million euros corresponding to a segment result margin of nineteen point one percent up seventeen point seven percent in the prior quarter.
4483912,81,688.49,696.1,2,The impact of lower revenue was more than offset by positive mix effects and the fall of was related costs related to supply disruptions.
4483912,82,697.07,699.35,2,The current business perspective is positive.
4483912,83,699.83,708.4,2,Order intake is strong and many of our product areas continue to be on location and general inventories have down ticked again.
4483912,84,709.25,714.57,2,The market outlook remains constructive across the majority of end application.
4483912,85,715.56,725.78,2,After a strong surge in sales to serve pent up demand mature markets like home applications or industrial drives see a reversion to average long term growth rates.
4483912,86,726.7,730.27,2,Manufacturing PMIs are staying in expansion territory.
4483912,87,731.29,735.45,2,Structural drivers in areas like solar power remain fully intact.
4483912,88,735.71,740.01,2,However some supply chain imbalances are limiting near term growth.
4483912,89,740.06,749.68,2,Our advanced power solution based on silicon as well as silicon carbide enable the energy transition necessary in order to meet c o two reduction targets.
4483912,90,750.32,757.73,2,Governments and enterprises alike now need to turn net zero commitments into specific course of action.
4483912,91,758.88,764.14,2,Now over to power and sensor system which continues its very strong performance seen in the previous quarter.
4483912,92,764.93,769.91,2,Revenues came in at nine fifty five million euros a bit up sequentially.
4483912,93,770.4,773.8,2,Various components for smartphones witnessed a seasonal decline.
4483912,94,774.23,781.09,2,Our power related product areas saw strong demand from cordless powertools to solar power stations.
4483912,95,781.6,787.04,2,The strengths in the US dollar provided an additional inaudible like revenue.
4483912,96,787.32,801.63,2,Also a segment result of P S S edged up slightly for the December quarter from two hundred seventy six to two hundred eighty five million euros corresponding to a segment result margin of twenty nine point eight percent.
4483912,97,802.9,807.28,2,Demand remains very robust across a large majority of applications.
4483912,98,807.66,811.82,2,Customer orders exceed our supply abilities by quite a margin.
4483912,99,812.49,818.26,2,Around half of our products remain on our location and general inventories are very lean.
4483912,100,819.01,824.72,2,This overall healthy picture should last well into this year driven by several trends.
4483912,101,825.33,837.8701,2,For data center we see continued demand from cloud operator and hyperscalers but also rising enterprise spending motivated by return to office momentum and platform refreshers from inaudible vendors.
4483912,102,839.09,846.69,2,The ongoing five g cycle will continue to support smartphone upgrades and drive spending on telecom infrastructure equipment.
4483912,103,847.73,853.43,2,The desire to make human machine interaction more intuitive is calling for advanced sensor solution.
4483912,104,854.29,862.0699,2,One of them is capacitive inductive touch for which we recently launched a new generation of our CAPSENSE technology.
4483912,105,862.89,879.85,2,It enables advanced solutions like proximity sensing inaudible detection and directivity along which whoever directs for demanding user interfaces in home appliances industrial consumer and IoT products.
4483912,106,886.17,890.11,2,Closing the divisional revenue by connected secure systems.
4483912,107,890.48,898.04,2,The segment strongly increased its revenue by eleven percent quarter over quarter to four hundred twenty seven million euros.
4483912,108,898.63,907.38,2,Main drivers for a favorable product customer mix strengthening of the US dollar and some supply improvements for micro control and WiFi products.
4483912,109,907.95,912.41,2,These factors also led to a significant profitability increase.
4483912,110,912.85,925.19,2,The segment result margin of C S S amounted to a hundred million euros equivalent to a segment result margin of twenty three point four percent after fifteen point five percent for the quarter before.
4483912,111,926.01,932.68,2,Going forward we will continue to invest in r and d resources to further strengthen our product roadmap.
4483912,112,933.75,942.9,2,Demand continues to be very robust across practically all application areas far outstripping available supply especially from foundries.
4483912,113,943.49,949.0,2,Therefore revenue potential kept by inaudible available capacities.
4483912,114,950.41,956.65,2,Meanwhile we saw ongoing momentum in design and activity especially for connectivity offerings.
4483912,115,957.17,965.93,2,Our WiFi chips have been selected for a next generation automotive infotainment system and by a leading smart home thermostat inaudible.
4483912,116,966.61,977.62,2,Generally speaking connectivity is one of the key ingredients of our digitalization and we continue to strengthen our precision in this field with our AIROC product family.
4483912,117,978.55,989.52,2,A few recent examples with our cloud connectivity managers or inaudible developers can easily and securely connect IoT devices to Amazon app services.
4483912,118,990.05,999.27,2,Be launched a multiprotocal solution including bluetooth low energy for smart home applications inaudible the meta standard.
4483912,119,1000.15,1010.78,2,As well as low power WiFi chip sets it enables precise location solution for the inaudible location as a service company inaudible.
4483912,120,1011.65,1017.36,2,All in all our innovation pipeline around the IoT is well filled.
4483912,121,1018.28,1022.32,2,Now over to Sven who will comment on our key financial figures.
4483912,122,1026.13,1031.1499,5,It's always reassuring to report on positive numbers at the beginning of the new year.
4483912,123,1032.16,1034.71,5,Let's take a closer look at our margin development.
4483912,124,1034.9,1048.71,5,Gross profit in the first quarter of our fiscal twenty two came in at one million three hundred twelve thousand euros resulting in a gross margin of forty one point five percent slightly up compared to the previous quarter.
4483912,125,1049.71,1056.15,5,Excluding now segment result effects the adjusted gross margin was stable at forty three point nine percent.
4483912,126,1057.6,1074.88,5,This high level reflects the good traction we are seeing in the market for our high value systems solutions and an overall supportive environment in which we are able to pass on the high input costs related to foundry and SUBCON supply base materials and energy.
4483912,127,1075.36,1079.67,5,Furthermore utilization rates at our manufacturing cites are high.
4483912,128,1080.02,1085.6801,5,Before coming to operational expenses let me spend a word on currency development.
4483912,129,1086.51,1111.4501,5,As you are well aware Infineon benefits from a strengthening US dollar as around two-thirds of our group sales after the Cyprus acquisition are in this currency and looking at very recent headlines this morning I think I just want to stress that again in your calculations please factor in two-thirds of the revenues are in dollars not one hundred percent.
4483912,130,1111.9301,1129.2,5,Therefore according to our well known rule of thumb for sensitivity for each cent movement in the US dollar euro exchange rate we see a quarterly impact of around fifteen million euros in revenue and around five million euros in segment result.
4483912,131,1129.58,1145.3101,5,To illustrate that assuming the US dollar stays at 1.15 throughout the entire fiscal year this would lead to positive revenue impact of around three hundred million euros compared to our initial planning rate of one point two oh.
4483912,132,1145.91,1149.6499,5,Reinhard will build on this in the outlook section later on.
4483912,133,1150.97,1169.83,5,No back to our Opex numbers which at the end of September had seen a true up of variable compensation for our successful twenty twenty one fiscal year and the currently running twenty twenty two fiscal year we accrue for bonus payments at a lower rate reflecting internally raised targets.
4483912,134,1170.42,1183.9399,5,Despite this research and development expenses remained flat quarter over quarter at three hundred ninety nine million euros showing our consistent efforts to fund an ambitious technology and product road map.
4483912,135,1184.39,1194.4701,5,Selling general and administrative expenses however decreased to three hundred thirty million euros from three hundred seventy three million euros in the quarter before.
4483912,136,1195.0,1199.1,5,The net other operating income was thirty four million euros.
4483912,137,1200.03,1204.8799,5,The nonsegment result for the quarter amounted to minus one hundred million euros.
4483912,138,1204.88,1216.4301,5,Of this amount seventy six million euros corresponded to cost of goods sold six million euros to r and d expenses and forty seven million euros to sg and a expenses.
4483912,139,1217.0,1224.98,5,As a partial offset the new other operating income contained twenty nine million euros of nonsegment result income.
4483912,140,1226.17,1233.6901,5,The financial result for the September quarter was minus forty five million euros after minus thirty seven million euros in the previous quarter.
4483912,141,1234.98,1245.6899,5,Income tax expense amounted to one hundred seventeen million euros for the first quarter of the current fiscal yar equivalent to an effective tax rate of twenty percent.
4483912,142,1246.2,1257.49,5,A quarter over quarter comparison is not meaningful as fiscal year end quarter in September was influenced by adjustments to deferred tax assets and liabilities.
4483912,143,1257.9301,1266.7999,5,Cash taxes in the December quarter were fifty one million euros resulting in a cash tax rate adjusted for P P A effects of seven percent.
4483912,144,1267.42,1283.28,5,This is somewhat lower than our expectation for the entire fiscal year twenty two of around fifteen percent as in many years the cash tax rate for the first quarter is influenced by a time lag with respect to the assessment of pre payments.
4483912,145,1284.4,1291.05,5,Let's now look at our investments into property plant and equipment other intangible assets and capitalized development costs.
4483912,146,1291.4301,1299.72,5,These total four hundred eight million euros in the December quarter down from five hundred ninety six million euros in the quarter before.
4483912,147,1300.16,1309.52,5,We expect this amount to go up again in the coming quarter as we are consistently investing to reap opportunities for profitable growth.
4483912,148,1310.05,1322.5801,5,The depreciation and amortization including acquisition related nonsegment result effects were three hundred ninety three million euros in q one after three hundred ninety seven million euros in the preceding quarter.
4483912,149,1324.21,1339.89,5,The free cash flow from continuing operation was three hundred seventy eight million euros identical to the level achieved in the September quarter as higher operating income and lower investments were offset by incentive payouts that took place in December.
4483912,150,1341.23,1346.91,5,The strong free cash flow contributed to a further improvement of our liquidity and leverage figures.
4483912,151,1347.01,1351.9501,5,Our gross cash at the end of December was close to four point three billion euros.
4483912,152,1352.37,1362.16,5,Our gross debt amounted to just under six point seven billion euros leading to a further reduced net debt figure of two point four billion euros.
4483912,153,1362.72,1373.11,5,We are please to report already today to you that gross leverage is now closing in on our target level of below two with sequentially rising EBITA.
4483912,154,1373.11,1379.0801,5,The net leverage at the end of December quarter came to level of oh.
4483912,155,1379.35,1390.42,5,seven times underlying once again the strong business performance over the last quarters and the success of the faster than anticipate Cyrus' refinancing.
4483912,156,1390.76,1394.3101,5,And we're not standing still on our deleveraging path.
4483912,157,1394.3101,1407.0399,5,In mid January we fully repaired back a former Cyprus convertible bond for a conversion amount of three hundred eighty seven million US dollars bringing our gross leverage down further.
4483912,158,1408.16,1416.45,5,We are proud that these efforts and our firm commitment to investment grade of being recognized also by our rating agency.
4483912,159,1416.77,1423.89,5,As you might have seen the day before yesterday s and p Global increased our rating by one notch to triple B flat.
4483912,160,1424.53,1435.01,5,Continuing sorry counting from the closing of the nine billion Cyprus transaction it took us less than two years to get back to our starting rating level.
4483912,161,1436.39,1441.1801,5,I will finalize my part with reporting on our after tax return on capital employed.
4483912,162,1441.47,1447.4,5,The R O C for the first quarter of twenty two fiscal year came in at twelve point five percent.
4483912,163,1447.92,1464.92,5,This number is underestimating the margin by which we exceed our cost of capital as it is burdened by bookings related to the acquisition of Cyprus and international rectifier in particular good will fair values step ups in amortization as well as differed tax effects.
4483912,164,1465.16,1473.6499,5,However to simplify our reporting we will not any more illustrate these effects by providing an adjusted R O C figure going forward.
4483912,165,1474.29,1477.88,5,Now back to Reinhard who will comment on our outlook.
4483912,166,1478.01,1480.22,4,Thank you Sven.
4483912,167,1480.74,1490.14,4,The market environment continues to be characterized by tight supply and strong demand due to cyclical inaudible and structure effectors.
4483912,168,1490.96,1501.01,4,Over time capacities will gradually be added allowing for some restocking from very low levels but no full replenishment in the foreseeable future.
4483912,169,1502.08,1511.17,4,Product across a large majority of product categories and end markets everything that we ship gets assembled into final products and sold.
4483912,170,1511.8101,1526.7999,4,As a consequence our outlook is still predominately determined from the supply sight that is by the extend to which we can expand capacities both in house as well as from external manufacturing partners.
4483912,171,1527.75,1538.4801,4,Regarding currency we adjust our outlook to an assumed US dollar euro exchange rate of one point one five from 1.20 before.
4483912,172,1539.35,1547.2999,4,This is a major drive for raising our projections as you can conclude from the sensitivities that Sven mentioned earlier.
4483912,173,1548.63,1553.8199,4,First to the running second quarter of our twenty twenty two fiscal year.
4483912,174,1554.55,1559.73,4,We anticipate revenues to increase moderately to around three point two billion euros.
4483912,175,1560.39,1568.34,4,By division we expect i p c to grow sequentially by a high A T V by a low single digit percentage.
4483912,176,1569.056,1574.58,4,C S S should be flat and P S S seasonally decline by a low single digit percentage.
4483912,177,1575.35,1585.66,4,In terms of profitability typically the March quarter mark the low point within our fiscal year driven by effects from inventory revaluation and price declines.
4483912,178,1586.24,1591.5499,4,As stated in last inaudible quarter inaudible we do not expect inaudible that dip in the current environment.
4483912,179,1591.98,1600.1901,4,Hence the segment result margins should come in again at a level of about twenty two percent beating our usual seasonality.
4483912,180,1601.08,1610.72,4,For the full twenty twenty two fiscal year we raise our anticipated revenue figure from twelve point seven to thirteen billion euros.
4483912,181,1610.96,1616.37,4,Plus our minus five hundred million euros taking into account the stronger US dollar.
4483912,182,1617.36,1624.7999,4,At the midpoint this would constitute an annual growth rate of seventeen point five percent higher than market predictions.
4483912,183,1625.45,1632.12,4,We expect to benefit from structure growth opportunities and expansion of our in house manufacturing capacities.
4483912,184,1632.6801,1639.08,4,From a divisional perspective we continue to expect A T V and C S S to exceed the group average growth rate.
4483912,185,1639.5,1641.9301,4,PSS should grow in line with group average.
4483912,186,1642.23,1648.35,4,For I P C increase our protected growth in a high single digit percentage rate.
4483912,187,1650.36,1663.11,4,Sepcifically talking about silicon carbide we confirm our goal to roughly double our business again and achieve close to three hundred million euros of revenue in our twenty twenty two fiscal year.
4483912,188,1663.84,1668.6101,4,Also in this area the demand lies clearly above available capacities.
4483912,189,1669.63,1678.9399,4,On a cautionary note our outlook is predicated on the absence of larger supply chain disruption or other new bottlenecks.
4483912,190,1679.5,1689.9399,4,Whereas our current visibility is fairly good the resurgence of covid nineteen cases and the rapid spread of the Omicron virus variant create uncertainties.
4483912,191,1690.76,1705.9601,4,Bearing this in mind we are confident about our margin trajectory therefore we are firming up our guidance for the segment result margin which goes from twenty one to a level of twenty two percent assuming the expected revenue comes in.
4483912,192,1706.84,1713.15,4,As already mentioned cost and price increases do not necessarily occur in synchronized points in time.
4483912,193,1714.42,1724.36,4,Our projection for investment property plant and equipment other intangible assets and capitlized development cost remains unchanged at around four-
4483912,194,1724.77,1727.25,4,two point four billion euros.
4483912,195,1727.9301,1740.28,4,Key projects are the expansion of three hundred millimeter silicon capacities inaudible and expanding our wideband gap manufacturing in inaudible and also Kulin Malaysia.
4483912,196,1741.23,1758.12,4,For depreciation and amortization we expect a value between one point six and one point seven billion euros including amortization of around four hundred million euros resulting from the purchase price our location from Cyprus and to a lesser extent inaudible related to international rectifier.
4483912,197,1759.04,1762.77,4,For free cash flow we expect a level of around one billion euros.
4483912,198,1763.15,1770.29,4,Overall we are all set to continue our successful journey into twenty twenty two.
4483912,199,1771.48,1775.49,4,Before coming to your question please allow for a short personal note.
4483912,200,1776.08,1779.7899,4,Today's analyst call will be the last one for me as Infineon C E O.
4483912,201,1780.34,1782.65,4,The first was ten years ago.
4483912,202,1783.46,1789.0199,4,I have enjoyed the rigor of this quarterly exercise same as I have enjoyed dialogue with you.
4483912,203,1789.92,1797.62,4,As inaudible analyst you are the key link between our company and our owners as well as general capital markets.
4483912,204,1798.23,1805.63,4,Many thanks for all your support reports and recommendations in particularly those by and strong by.
4483912,205,1806.21,1810.26,4,Many thanks for all your investigative questions.
4483912,206,1811.02,1816.36,4,I hope I could answer most of them throughout the years but I'm sure you have a couple more.
4483912,207,1816.4,1817.39,4,Let's bring them on.
4483912,208,1817.58,1822.63,4,Some of them I might pass on to Jochen who will share this call from next quarter onwards.
4483912,209,1831.42,1836.3199,6,Thank you.
4483912,210,1906.4399,1907.26,4,Thank you Alex.
4483912,211,1907.26,1925.64,4,Uh first in general yes uh our outlook is definitely effected by the tightness of supply mainly from foundries and uh Helmut will go into details for the automotive market.
4483912,212,1925.97,1935.76,4,We also can briefly touch on other verticals but I think that major one is the automotive not to forget also our uh C S S segment.
4483912,213,1937.12,1938.4399,8,Just happy to add some color.
4483912,214,1939.37,1946.34,8,At first yest the current demand situation is by far exceeding capability supply.
4483912,215,1946.71,1949.0,8,This is particularly true for automotive.
4483912,216,1949.14,1966.73,8,Uh figures have been reported by analysts that about ten million cars would've been built more in last year than actually was possible through the shortage of semiconductors and other materials and certainly there is a need to catch up with that figure throughout the year.
4483912,217,1967.0699,1986.49,8,So for the entire year twenty two we do see the demand in automotive will continue to exceed gradually improving over the year yet there is um there's definitely no doubt that demand will be more than sufficient um to fill the books of ours.
4483912,218,1986.9301,1993.02,8,Um there is other verticals that are also very strong or remain to be very strong.
4483912,219,1994.01,2001.34,8,Let's say the inaudible market in the in the compute area definitely we see to hold on very strongly.
4483912,220,2001.58,2006.2001,8,On the renewable side in particular solar is gonna be driving double digit growth.
4483912,221,2006.5699,2011.72,8,Um so many other things besides automotive continue to drive our demand up.
4483912,222,2012.65,2022.4299,4,And then the situation uh I will hand over to Jochen but we expect that foundry supply will improve in second half of year.
4483912,223,2022.4301,2024.64,4,You see it only partically in our numbers.
4483912,224,2044.8101,2048.1399,9,But capacity and supply Johan can you comment please?
4483912,225,2049.1299,2050.54,10,Yeah thank you Ryan Hut.
4483912,226,2050.6001,2056.1399,10,Uh so let's start uh with the tightest area which is uh still from the foundries.
4483912,227,2056.5701,2061.4399,10,Uh here we secured more wafers in twenty two than in in in twenty one.
4483912,228,2061.8101,2070.97,10,But uh mainly uh back loaded meaning uh supply improves for the second calendar year which is then of course only reflected partially…
4483912,229,2072.76,2084.71,10,Second half of the calendar year okay uh which is of course uh only reflected then partially in our um in our forecast for our uh fiscal year.
4483912,230,2084.9399,2093.21,10,Um we see the tightest uh supply areas still in the let's say mature nodes from a hundred thirty down to forty twenty eight.
4483912,231,2093.6699,2099.23,10,Uh on the power side uh our outsourcing share is not very significant.
4483912,232,2099.3201,2102.75,10,There we see some um additional supply in the market.
4483912,233,2103.26,2111.52,10,Um but on the power side we of course benefit mainly from our continuous uh rand in our own factories.
4483912,234,2111.75,2127.45,10,And here uh the CapEx spend in two thousand nineteen till twenty twenty one of course give us uh the momentum reflected uh uh lately by the opening of our new three hundred millimeter factory in Villach.
4483912,235,2172.02,2180.95,10,Uh so the current environment is uh determined by let's say let's lead times uh of equipment.
4483912,236,2181.3701,2192.3699,10,Um in general uh I feel very comfortable with the page we showed at the CMD where we showed uh uh two facilities ramped up over time.
4483912,237,2192.54,2201.74,10,Of course we would take any advantage of uh a a equipment becoming earlier available um uh to boo boost this ramp.
4483912,238,2201.77,2204.9399,10,Uh but this is difficult in the current market environment.
4483912,239,2204.9399,2209.3899,10,So that is more determining um everything then they…
4483912,240,2209.8201,2212.4302,10,let's say uh capex uh budget number.
4483912,241,2214.53,2224.1301,9,But with one additional Sandeep uh we are in a very good position that we also can now ramp to into three hundred millimeter factories which we reported before.
4483912,242,2227.5,2228.6702,13,Understood thank you.
4483912,243,2280.96,2288.6599,9,But in general we have various patterns in our aura concept and Hamardryad will go into detail.
4483912,244,2289.27,2300.9202,15,Yes Didier like on on the backlog we reported obviously is exceeding by more than two um um our our revenue forecasts that we that we have for the year.
4483912,245,2301.3,2304.05,15,So clearly um the the black…
4483912,246,2304.4199,2307.3,15,the backlog um I'd say hasn't matured.
4483912,247,2307.3,2312.6799,15,You have eighty percent Around eighty percent of that is targeted for the next twelve months.
4483912,248,2312.99,2315.8699,15,And obviously that doesn't fit to our revenue forecasts.
4483912,249,2315.8701,2316.1501,15,So the…
4483912,250,2316.1499,2318.4099,15,we will not be able to fulfill all of this.
4483912,251,2318.8501,2329.1299,15,Um so I I think at this time no non cancelable orders are really um a term that that is not necessary given the fact that you have that maturity and absolute number.
4483912,252,2329.6399,2333.75,15,Um you also see the additional aspect of pricing.
4483912,253,2333.78,2342.72,15,Um I think we we um out of the revenue growth for the year that we have planned more than fifty percent of that is actually coming from volume.
4483912,254,2343.25,2354.01,15,But we do have the triple digit effect in terms of pricing as well as have the US dollar uh in the um current forecast included.
4483912,255,2355.5,2359.72,9,One addition to that uh non cancelable orders are double sided sword.
4483912,256,2359.78,2366.7,9,You for sure will get the revenue for the time being but we experienced this in former t times where we had such contracts.
4483912,257,2367.02,2376.3101,9,And after the periods where the non cancelable orders are I would say finished from the contract we saw significantly dip in revenue.
4483912,258,2376.6299,2382.26,9,We very much prefer to be close to the market and follow our customers along these lines.
4483912,259,2382.4099,2386.21,9,And I asked them to participate in the risks of either costs.
4483912,260,2391.1399,2391.4399,15,Thank you.
4483912,261,2441.3799,2441.6702,16,Thank you.
4483912,262,2442.3101,2446.1599,9,Yeah so uh uh thank you Andrew and uh I would…
4483912,263,2446.3899,2451.3201,9,Spend Ori hinted slightly in this presentation but I think it makes sense to go more into detail.
4483912,264,2451.7,2453.8201,17,Yeah thank you uh Andrew for the question.
4483912,265,2454.25,2461.6401,17,Um as we as we said the margin perspective and trajectories of course um the sum of of many different parts.
4483912,266,2461.6399,2481.74,17,Uh there are some pluses and there are some minuses as always and uh I think the most important thing to notice as we have said last time at this time in Reinhard's part as well this typical seasonality uh is no longer uh fully in sync of uh talking about cost increases and price pass through.
4483912,267,2482.04,2486.8999,17,So therefore we also need to be here a bit mindful of of how we interpret quarters.
4483912,268,2487.21,2491.5801,17,But looking at how we come to the twenty two percent for for the full year.
4483912,269,2491.9099,2496.8799,17,Uh I mean a as you say we have now uh twenty two something in the books.
4483912,270,2496.8799,2498.46,17,We are guiding for twenty two.
4483912,271,2498.8301,2506.01,17,Uh the first half of the year would then be a little bit less than fifty percent of the revenue guidance for the full year.
4483912,272,2506.4299,2527.9402,17,Uh and taking all the positives like uh pricing environment uh uh the the revenue fall through uh on the gross margin lower idle cost the currency contribution on the positive side and further cost pressure from foundries from commodity prices um and all that into uh equation.
4483912,273,2528.1001,2529.3801,17,And also having a…
4483912,274,2529.4099,2534.7,17,I would call it a balanced um uh approach between risks and opportunities.
4483912,275,2534.7,2540.6602,17,We just talked about opportunities if uh foundries supply would be a bit higher in second half.
4483912,276,2540.8501,2546.8,17,Uh there could be also a risk that uh Omicron impact could hit our uh supply side.
4483912,277,2547.0701,2550.5601,17,If that would not materialize there would be some kind of upside.
4483912,278,2550.5601,2557.73,17,That's also the reason why in the revenue guidance we have given you thirteen billion plus five hundred million.
4483912,279,2557.9099,2565.3398,17,So taking all that together we think it's a balanced approach of coming with twenty two taking all these factors into consideration.
4483912,280,2565.3401,2582.0,17,And last element uh as also explained I think well at the capital markets day please also always factor in especially for c s s but also for the group that we are heavily investing we are pre funding p two s revenue synergies.
4483912,281,2582.29,2590.25,17,Uh we are uh uh investing into white band gap uh and that also has an impact on the margin side going forward.
4483912,282,2595.75,2599.4502,16,Thank you.
4483912,283,2645.75,2647.4001,9,We never ask ourselves no joking.
4483912,284,2647.3999,2647.5398,10,Yeah.
4483912,285,2647.54,2650.6599,9,I think yes of course and Johan can go into details.
4483912,286,2651.02,2655.4399,10,Yeah uh we always uh invest in a e e in a meaningful manner.
4483912,287,2655.47,2667.2402,10,And uh let's face it we have uh now February you know our fiscal year ends in September uh in difference to our competition.
4483912,288,2667.5701,2672.1001,10,Uh so two point four billion is is a good number.
4483912,289,2672.1299,2676.1401,10,Again if there are opportunities uh we would take them.
4483912,290,2676.51,2690.1299,10,But the market is currently limited by uh equipment and uh it doesn't make sense uh to take equipment on the books which is not in the critical paths to more uh uh revenue.
4483912,291,2690.51,2712.8799,10,But um again we are uh planning here along our structural growth drivers and plans and that is over multi years and uh of course we'll expand our uh uh capacity in order to take advantage of uh the coming uh growth in all uh our target markets.
4483912,292,2714.25,2717.0698,9,There may be one uh uh add on here I think a…
4483912,293,2717.0701,2724.0898,9,especially in the silicon carbide area we'll be happy if we could accelerate the uh capacity ramp up.
4483912,294,2724.4399,2730.6499,9,Um but here as Johan said the suppliers limited uh from the equipment side.
4483912,295,2815.8201,2823.4399,19,You're keeping your capex flat so are there any material parts we should be aware of when modeling free cash flow uh remaining at uh…
4483912,296,2823.47,2827.0,19,above the uh billion um any color on that would be helpful.
4483912,297,2827.3799,2827.6602,19,Thank you.
4483912,298,2828.3601,2828.9299,9,Yeah thank you.
4483912,299,2828.9299,2830.3601,9,I will hand it over.
4483912,300,2830.4299,2832.5598,9,But uh due to the acquisition.
4483912,301,2832.5601,2834.3201,9,I want to make a brief remark.
4483912,302,2834.3601,2839.8699,9,At the time we had maybe a different pricing situation but also a different supply situation.
4483912,303,2840.2,2855.55,9,Considering this heads and tailwinds we believe that we are very successful in getting the value and the acquisition especially taking into account that we are still in hardly to no touch scenario of the integration process.
4483912,304,2855.9399,2861.4199,9,Therefore I believe it is a very balanced number but uh when Swanthis e elaborate on that more.
4483912,305,2862.0701,2863.6399,20,Yeah thank you Adi for the question.
4483912,306,2863.6399,2873.29,20,And and let me maybe start with with the with the obvious as we said in the past uh this nineteen percent profitability level is a through the cycle number.
4483912,307,2873.29,2882.1099,20,And through the cycle to us means that the boom years in good years need to be significantly above the number uh as in bad years.
4483912,308,2882.1499,2886.9802,20,Uh a COVID year for example which was not as bad at Infineon as for others.
4483912,309,2886.98,2890.8601,20,But still below the margin target you saw it uh to the downside.
4483912,310,2890.8601,2901.5298,20,So having a a three percent points um up uh compared to the nineteen is from my perspective just the confirmation that the through the cycle logic works.
4483912,311,2901.97,2907.4299,20,Uh the other thing I just wanna repeat if you recall our capital markets there uh at the…
4483912,312,2907.4299,2920.7002,20,in the q and a session I said that uh once markets have normalized and uh once all these supply demand imbalances are fading out we will upgrade our target operating model.
4483912,313,2920.7,2921.96,20,So I can confirm that.
4483912,314,2922.3,2926.76,20,But I think at that moment in time there is nothing to add from that perspective.
4483912,315,2927.1799,2936.4299,20,Uh and to your free cash flow question uh why have we not changed the one billion given that we have now three hundred million more uh of revenues?
4483912,316,2936.72,2942.3201,20,I mean uh mathematically there would be a s a small uh additional component I agree.
4483912,317,2942.6699,2949.95,20,Uh but it's an a round number and also please factor in that in order to secure supply for this…
4483912,318,2949.98,2958.3699,20,for the years to come we are also entertaining discussions with our suppliers on some pre payments which have also an impact on the free cash flow.
4483912,319,3002.8501,3007.3701,9,Yeah thank you Stefan uh uh Hamardryad will dip- touch on that.
4483912,320,3007.5801,3018.8701,9,But first of all I uh want to remind you that for a very long time we communicated that we have to improve the margin in the EV uh business.
4483912,321,3019.1201,3024.6499,9,Means the i g b t and silicon carbide and other products going in there.
4483912,322,3025.0701,3029.22,9,And there we have been very successful as volume uh was up.
4483912,323,3029.22,3033.21,9,And I would say we manage it well as uh predicted.
4483912,324,3033.6699,3037.98,9,Uh but there are other factors and uh the portfolio structure.
4483912,325,3038.3401,3039.9399,9,Uh I hand over to Hamardryad.
4483912,326,3041.3201,3043.95,15,Yeah thank you um Stefan for the question.
4483912,327,3043.98,3057.3601,15,Uh first of all EV dynamics is continued to be super strong um doubling the volume of uh plugin and battery driven vehicles and particular battery electric vehicles are super strong.
4483912,328,3076.6001,3084.5798,22,So um as to the margin as a um uh finance set we have been working on improving our cost position one side.
4483912,329,3084.6201,3096.7898,22,Other thing is um we are very strong in modules as well as in the chip business that we provide to this market and um there there is a margin difference between the two.
4483912,330,3097.05,3103.0798,22,In fact um the as there is less material that we have to purchase on the tip side the margin is generally higher.
4483912,331,3103.3201,3105.74,22,So that's a structural effect that certainly helps us.
4483912,332,3106.05,3118.01,22,And automotive then in general is also trending towards higher end vehicles this uh um path continues as well which is driving components with a higher value again.
4483912,333,3118.3201,3123.01,22,And uh so that is all contributing to a margin improvement in automotive.
4483912,334,3165.8301,3166.3101,25,Thank you.
4483912,335,3169.05,3185.23,22,Uh first of all we want to say that we still see or or we are very proud of that we are very advanced in the technology progress and are leading the industry on the trench uh based uh silicon carbide MOSFET.
4483912,336,3185.8799,3191.8101,22,Uh we are pretty much in line with our uh goal to one billion in the mid twenties.
4483912,337,3192.1201,3199.3801,22,And uh the order backlog uh here is uh i would say developing quite positively.
4483912,338,3199.71,3213.3601,22,Uh as we are a very I would say reliable partner we do not uh offer to our customers especially in automotive industry more capacity than we foresee in the near future.
4483912,339,3213.3601,3227.05,22,So I would say the outlook is uh uh no the outlook is more supply constrained and uh here we would expect that in all verticals we could do more.
4483912,340,3227.22,3237.6602,22,That is charging stations it is uh renewable power supplies for photovoltaic as in the drive train.
4483912,341,3238.0601,3251.6599,22,And uh I think here the there we can't cannot give you a precise number and we see Infineon becoming a leader in this uh market as we go forward.
4483912,342,3251.74,3257.8101,22,But the investment plans we talked about especially moving to coulomb will be a substantial part of it.
4483912,343,3258.1599,3261.47,22,And uh there are more to come in the next quarters.
4483912,344,3312.5801,3312.8701,24,Thank you.
4483912,345,3316.04,3318.2,22,I think we touched it a little bit already.
4483912,346,3318.2,3335.2002,22,Uh Jogen said something and we will share that question but uh as we move forward we see that uh capacity is coming on in house as we are investing and the foundry is still uh pretty constrained effecting a t v c s s.
4483912,347,3335.2,3348.25,22,And uh uh also PSS please don't forget that in many areas we have kind of a bundle solution where we could deliver more power uh but are constrained in other areas.
4483912,348,3348.25,3350.23,22,Jogen can you please go into detail?
4483912,349,3351.6899,3363.7302,27,Yeah first of all I would like to reiterate that the uh additional foundry waivers we are getting are rather uh good for our revenue in the second half of the calendar year uh twenty two.
4483912,350,3364.1201,3370.0,27,And I would also like to point that we baked in some risk into the uh forecast.
4483912,351,3370.26,3375.71,27,Uh nothing like as Ryan had said in his intro nothing like a Texas winter storm.
4483912,352,3375.74,3386.3401,27,Uh but I do I am concerned about uh Omicron uh spreading for example in China's zero COVID strategy there.
4483912,353,3387.3301,3393.6199,27,So uh let's see if uh if we come uh into the into the next quarter.
4483912,354,3393.6499,3400.2,27,Uh but uh for right right now we see it as a balanced uh forecast and some risks are baked in.
4483912,355,3401.3701,3404.95,27,We don't of course we do not know yet exactly where they're gonna be.
4483912,356,3405.3999,3405.49,22,Yeah.
4483912,357,3405.49,3427.98,22,But again what we said in the intro we do not see market risk we see uh the balance forecast which we are giving as a supply based forecast that we have figured in risks and opportunity you know ad infinitum how we act and therefore uh I believe the good message is the market uh would support more.
4483912,358,3431.1101,3431.8301,26,Thank you.
4483912,359,3487.0601,3487.71,28,Thank you.
4483912,360,3498.96,3516.24,22,You the opportunity there lies in the uh prior caisson and introduction of the uh high complexity m i m o architectures moving away from I would say the kind of let's call it single antenna concept.
4483912,361,3516.73,3521.49,22,And here you see two things to happen and we see these on good track.
4483912,362,3521.49,3540.3201,22,First of all uh the gallium nitride technology has to develop and there are quite substantial challenges in the behavior of gallium nitride RF components that we believe we have solved this better than the competitors uh make it more easy for our customer to design it in.
4483912,363,3540.72,3548.5,22,On the other side we also see that uh the adoption of new architectures has to go on.
4483912,364,3549.0,3562.0701,22,And of course we see in this uh very wide interest but also some challenges due to the geo geopolitical constraints which uh does not enable us to move everywhere fully freely.
4483912,365,3562.6001,3569.9199,22,Uh and here we have a very great technical cooperation uh but see a great opportunity to go beyond.
4483912,366,3570.3101,3583.49,22,You will see this gradually growing but we should not overestimate the consequence uh on the business uh as it will remain a smaller absolute number of revenue.
4483912,367,3583.8701,3591.0298,22,But we believe that we will can we will be able to enter this especially when we think about moving to higher frequencies.
4483912,368,3591.3,3597.29,22,But you'll see there are a number of steps to be taken and we believe that we are very well positioned.
4483912,369,3600.0801,3613.3298,28,It's very clear.
4483912,370,3644.8999,3648.46,22,Yeah so yeah I think Hamud can put more light on it.
4483912,371,3649.03,3649.45,30,Yes.
4483912,372,3649.95,3652.5701,30,That's the one billion dollars question I would say.
4483912,373,3652.5701,3654.3799,30,Um if I would know I'd be happy.
4483912,374,3654.6599,3657.0698,30,How much of that is gonna be in twenty three?
4483912,375,3657.0701,3660.47,30,But definitely yes uh to the second part of the question.
4483912,376,3660.9199,3674.24,30,And eighty percent for what twelve months means twenty percent beyond twelve months and then so the as you know our fiscal year ends in September so there's what is it eight months I think.
4483912,377,3674.6101,3680.1401,30,And that way we're probably having of that twelve months um um of the eighty percent.
4483912,378,3680.1399,3691.8799,30,Or either the twelve times eighty percent is what we have in this fiscal year and the rest goes already into the next fiscal year which is substantial um for a um for a substantial portion of it.
4483912,379,3692.27,3697.3198,30,And how that go is going to develop well um as usual it depend on many things.
4483912,380,3697.3201,3699.71,30,One of it um how's the market gonna hold?
4483912,381,3699.71,3701.6599,30,Is there gonna be an increase in supply?
4483912,382,3701.6599,3708.0098,30,So um but to predict the figure for that one for twenty twenty three is not possible now.
4483912,383,3708.3101,3713.5901,22,Okay I'll give you one addition in this backlog we have confirmed and unconfirmed orders.
4483912,384,3713.9299,3723.3799,22,Uh we very much believe that quite a portion of those uh which we cannot uh serve we will shift forward to twenty three.
4483912,385,3723.77,3732.1401,22,And uh therefore I think uh uh this is not so simple to try to have a precise calculation on it.
4483912,386,3734.4199,3734.6899,29,Yeah.
4483912,387,3734.6899,3735.4202,29,That's helpful.
4483912,388,3735.45,3736.25,29,Thank you very much.
4483912,389,3739.78,3740.3501,24,Thank you.
4483912,390,3762.45,3764.6301,22,Oh Jerome this is a challenging question.
4483912,391,3764.99,3778.3901,22,Uh we believe that the industrial business and to a large extent module based as we have a lot of customer in the renewables which prefer to use uh modules.
4483912,392,3778.3899,3786.52,22,We see also some trends to um discrete packages which we can solve quite value and all that.
4483912,393,3786.8701,3799.45,22,The challenge with silicon carbide is that out of the same package size you have four times the current use outs for many of our competitors it's difficult to support that technology.
4483912,394,3799.9299,3806.9099,22,In the automotive segment we see quite some demand on uh silicon carbide uh chips.
4483912,395,3807.1299,3818.74,22,And uh there uh it is we cannot clearly say as business develops and uh therefore I think uh Hamud any addition to that?
4483912,396,3819.72,3824.98,30,Yeah what I can say is obviously the the diodes are substantially lower in value than the MOSFET.
4483912,397,3824.98,3836.1699,30,So um we have higher volume in diodes but higher value in MOSFET if you wanna take that split between MOSFET and diodes and um um it all depends on.
4483912,398,3836.2,3849.71,30,Um uh right now we are much stronger in industrial and we do see a stronger growth in industrial tool than we do have in automotive currently and there we have a higher portion of the of discretes as well.
4483912,399,3850.23,3852.9099,30,But overall modules are more than than discretes.
4483912,400,3853.0801,3869.0898,22,And then to add here they uh for PSS uh for high end service suppliers for larger power service suppliers uh silicon carbide in the PFC stage is a very valuable solution parallel to gallium nitride.
4483912,401,3869.3999,3881.6599,22,And uh nevertheless don't forget uh cool moss and I think here we really have a strong foothold because we can offer the full range especially also high power packaging.
4483912,402,3882.04,3884.1299,22,So let's wait and see how it develops.
4483912,403,3884.1299,3897.95,22,And of course you can guess Infineon optimize for profit and uh therefore this may change over time as we uh take business on on but I think we can go next time more in detail on that.
4483912,404,3906.3501,3912.22,22,Yeah I think here we come to the end and uh now ladies and gentlemen it's time to summarize.
4483912,405,3912.8701,3927.54,22,Infineon was off to a strong start into the twenty twenty two fiscal year with more than three point one billion euros of revenue a twenty two point seven percent segment result margin and close to four million euros of free cash flow.
4483912,406,3928.3201,3932.55,22,In our target application areas the near term dynamic remains favorable.
4483912,407,3933.0601,3937.77,22,Suppliers seeing some improvement but keeps being insufficient to meet demand.
4483912,408,3938.3301,3941.9001,22,Many products are an allocation and inventories remain low.
4483912,409,3942.46,3949.46,22,Against this backdrop we continue to expect a strong twenty twenty two fiscal year to reflect the stronger US dollar.
4483912,410,3949.71,3954.55,22,We've raised our guidance to revenue of around thirteen billion euros.
4483912,411,3955.0,3963.1699,22,A segment result margin around twenty two percent euros and around one billion euros of uh free cash flow.
4483912,412,3963.7,3969.99,22,The supply demand and balance will stretch well into twenty twenty two but hardly last forever.
4483912,413,3970.55,3974.01,22,There will be restocking and phases of slower momentum.
4483912,414,3974.72,3978.8601,22,But more importantly our structural growth drivers are fully intact.
4483912,415,3979.3601,3993.54,22,Semiconductors are becoming ever more strategic and product-defining Infineon is ideally positioned to shape and benefit from the two secular themes of our time electrification and digitalization.
4483912,416,3994.24,4008.0601,22,With both near and long term prospects bright and full trust in the execution capability of this team here under your leadership it is a great time for me to say goodbye.
4483912,417,4011.51,4013.8098,31,Ladies and gentlemen thank you very much for dialing in.
4483912,418,4013.8101,4015.9102,31,This concludes our today's call.
4483912,419,4015.9099,4022.7798,31,Thank you for all your questions and in particular for being so disciplined with the one question per caller rule.
4483912,420,4023.1399,4028.1499,31,If you do have further questions please do not hesitate to reach out to us in the IR team here in Munich.
4483912,421,4028.71,4031.3398,31,Other than that stay safe and healthy and have a good day.
4483937,0,4.65,5.45,0,Good morning everyone.
4483937,1,5.73,8.57,0,I'm Chris Pockett head of communications for the Renishaw Group.
4483937,2,8.6,16.9,0,And I would like to welcome you to this live webcast presentation of Renishaw's interim financial results for the period ended December twenty twenty one.
4483937,3,17.95,22.82,0,Today's presenters are Will Lee chief executive and Allen Roberts group finance director.
4483937,4,23.63,28.16,0,Before I hand over to Will I would like to go through some basic housekeeping for the event.
4483937,5,29.09,32.15,0,After the presentation which will last around twenty five minutes.
4483937,6,32.5,43.53,0,So David McMurtry executive chairman will join Will and Allen for a question and answer session in which we'll try to answer as many questions as possible before we close at eleven o'clock.
4483937,7,44.58,47.13,0,No questions will be answered during the formal presentation.
4483937,8,47.23,57.81,0,However you will be able to submit questions both during and after the presentation via the question icon that you can see on the control panel on the rights of your screen.
4483937,9,59.67,65.44,0,I'd also like to point out that all financial information given during this presentation will be in pound sterling.
4483937,10,66.3,68.5,0,Thank you again for joining this webcast event.
4483937,11,68.6,70.41,0,And I will now hand over to Will.
4483937,12,72.13,73.07,1,Thank you very much Chris.
4483937,13,73.1,75.93,1,So let's take a start looking at the uh numbers.
4483937,14,75.96,83.21,1,Uh really good uh first half for us revenue growth of twenty seven percent up to three hundred twenty five uh million.
4483937,15,83.21,84.54,1,That that is a record for us.
4483937,16,84.93,87.04,1,Uh we've seen record levels of demand.
4483937,17,87.39,97.0,1,It's those key markets that we've talked about uh before really strongly uh recovering and also the semiconductor electronics markets remaining uh strong.
4483937,18,97.39,103.24,1,This has been across the board in in all of our region and continuing the trends that we talked about at the last webcast.
4483937,19,103.7,109.25,1,Our profit up by ninety four percent from forty three million to eighty four million.
4483937,20,109.47,112.86,1,Again a record profit for us for the first half.
4483937,21,113.28,120.44,1,And this has benefited from both these strong sales uh and also some of the productivity improvements that we put in place a while ago.
4483937,22,120.44,126.12,1,Uh cash up to two hundred and twenty two uh million uh at the end of the period.
4483937,23,126.39,128.98,1,Um this is really driven by the strong trading in performance.
4483937,24,129.14,134.69,1,We have invested more in in in capital expenditure in the last half than we did uh uh last year.
4483937,25,135.23,137.68,1,Um and also with the dividend payment.
4483937,26,138.09,140.83,1,Uh Allen will cover this in more detail later on.
4483937,27,142.72,145.37,1,Now take a look at our manufacturing technologies segments.
4483937,28,145.62,149.86,1,We can see here really good performance uh strong growth of of thirty percent.
4483937,29,150.24,152.86,1,Uh very much similar trends the last time we spoke.
4483937,30,152.9,162.17,1,Uh so we're seeing sus sustained uh investment in semiconductor and electronics CapEx and that's very much uh driving the demand for our encoder technologies.
4483937,31,162.49,173.58,1,Uh and we're also seeing the more traditional manufacturing uh sectors the need for more automation driving both uh need for our flexible gauging the Equator product and also our our machine tool products.
4483937,32,174.78,183.93,1,Um what we have been asked about quite a few times in the past it is what our uh thoughts are on the end markets for our technologies.
4483937,33,184.35,189.9,1,Now as we explain here we have a range of route to market uh and this varies quite a bit actually depending on the product line.
4483937,34,190.21,198.31,1,So with additive manufacturing we're selling direct to the end user and we know exactly um where they are going with products such as encoders.
4483937,35,198.36,203.95,1,Then we know what the equipment is which is typically into electronics and semiconductor equipment.
4483937,36,204.29,211.36,1,But with industrial metrology products particularly with machine tool probes and C M M probes we are normally selling through a machine tool uh or C M M builder.
4483937,37,211.71,215.56,1,And therefore we are less certain on what the actual end use is.
4483937,38,216.05,222.52,1,Now in the pie chart you can see we have our estimate here for the complete manufacturing technology uh part of the business.
4483937,39,222.96,227.57,1,Uh and that gives an indication as to what we feel the market sector split is.
4483937,40,227.95,229.14,1,You see it's quite diverse.
4483937,41,229.41,232.96,1,One probably worth explaining a little bit is on the precision manufacturing.
4483937,42,233.32,248.08,1,Here we have a range of a subsystem uh subcontractors uh making a range of paths bearings motors sensors et cetera going into a range of industries and also general subcontractors uh making parts for a range of different industries.
4483937,43,248.76,255.57,1,So the exciting thing here also is very positive long term growth rates for the markets we're serving here.
4483937,44,255.86,261.87,1,And also we've got the great technologies now and the future developments really to exploit those opportunities.
4483937,45,264.34,272.96,1,So if we now take a look at the analytical instruments and medical devices uh segment then we can see here we did see a revenue drop o o of of ten percent.
4483937,46,273.27,279.59,1,Um looking behind that a little bit uh spectroscopy the order intake actually was was strong in h one.
4483937,47,279.59,290.31,1,What we did see though was a bit of delay in in shipments uh going into China particularly with educational uh facilities uh uh achi achieving duty free exemption certificates.
4483937,48,291.23,296.1,1,Um we did also see uh a reduced turnover in our neuro product line.
4483937,49,296.74,302.77,1,Um we have been really positive news here as we talked about before engaging with a number of of of large pharma.
4483937,50,302.8,307.35,1,The trial actually though we talked about last uh time actually has ended.
4483937,51,307.35,310.17,1,There were issues with the uh drug there.
4483937,52,310.59,315.43,1,Positive news was was that our technology the drug delivery technology worked very well.
4483937,53,315.84,321.35,1,Uh and this sort of showed a model that we will work with with pharma companies going forward.
4483937,54,322.39,335.0,1,Um if we look here at the end market overview so less uh sectors naturally here large one dominated uh research here very much with our spectroscopy uh product line.
4483937,55,336.11,353.21,1,So if we now take a look at the breakdown of of the revenue by region what we can see here which is positive is is that where we talked before about the recovery being driven by our Asia Pacific region we now see that all three of our sales regions are growing nicely.
4483937,56,354.02,358.16,1,Many similar trends uh causing that growth across the regions.
4483937,57,358.56,370.8,1,APAC stands out still as being a bit different though that really comes from uh a significant volume of the manufacturing of semiconductor and electronics CapEx equipment is done in the APAC region.
4483937,58,371.24,376.8,1,And that is meaning that that the revenue and sorry demand for our encoders is very strong there.
4483937,59,377.63,386.55,1,We also see a lot of the manufacturing of co consumer electronics happening there and that is pulling on demand for particularly our creative flexible gauge but also for machine tool probes.
4483937,60,387.65,391.22,1,What we're also seeing is is these general drivers in all of our regions.
4483937,61,391.4,399.77,1,What we're seeing is machine tool investments and machine tool consumption going up um meeting increased sales through machine tool builders of our machine tool probes.
4483937,62,400.2,407.61,1,Um our AM strategy is really working with repeat uh orders for our AM machines by the same customers.
4483937,63,407.89,410.39,1,So that key account strategy working nicely.
4483937,64,410.95,421.28,1,We're seeing increased investment into the automotive EV clearly a lot of investment going on and also we're a recovery in the in the aerospace uh market and more investment there.
4483937,65,421.47,428.48,1,And this is really good driving growth in in our REVO uh system the five access technology for highly productive C M M measurement.
4483937,66,429.06,436.58,1,And we're also seeing uh increased industrial robots which is good particularly for our magnetic encoders.
4483937,67,437.71,438.12,1,Okay.
4483937,68,438.12,439.8,1,I will now hand over to Allen.
4483937,69,442.2,442.91,2,Thank you Will.
4483937,70,442.94,444.47,2,And good morning everybody.
4483937,71,445.43,455.34,2,As well as already mentioned we have experienced a very strong performance this half year with significant growth in revenue profitability and cash generation.
4483937,72,456.72,470.25,2,Due to the skills and dedication of our people the group have has maintained strong customer support global supply chains and all other business operations throughout this period of record first half revenue and in order intake.
4483937,73,472.14,483.17,2,Revenue amounted to three hundred and twenty five point two million compared to two hundred fifty five point one million last year an increase of twenty seven percent or thirty percent at constant exchange rates.
4483937,74,484.55,499.02,2,Adjusted profit before tax is eighty four point two million a record half year profit and compares with thirty forty three point four million in the prior year mainly as a result of the additional gross margin from revenue growth.
4483937,75,500.76,506.02,2,This gives a return on revenue of twenty six percent compared to seventeen percent for the previous year.
4483937,76,507.81,515.59,2,Adjusted profit before tax is one of the key performance measures used by the board to monitor the underlying trading performance of the group.
4483937,77,516.2,520.45,2,And follow and the following items are excluded from adjusted profit before tax.
4483937,78,521.86,533.87,2,Losses of two point nine million from forward contracts mostly use u s dollar denominated deemed ineffective for cashflow hedging compared with gains of twenty point five million in the previous year.
4483937,79,535.39,544.31,2,These gains and losses have no impact on our cash balances and no additional contracts have been designated as in effective this year.
4483937,80,545.93,554.24,2,And a credit of oh point two million for third party advisory fees relating to the formal sales process in the current half year only.
4483937,81,555.87,563.52,2,The result in statutory profit before tax was eighty one point five million compared to sixty three point nine million last year.
4483937,82,565.27,580.06,2,The effective tax rate for the half year is fifteen point nine percent compared to eighteen percent in the previous year representing a best estimate of the full year effective tax rates by geographical territory applied to the half year profits.
4483937,83,581.2,590.11,2,The reduced effective tax rate mainly arises from the forecast increase in the UK patent box benefit from nil in the prior year.
4483937,84,591.94,599.7,2,Earnings per share on an adjusted basis is £97.2 up from £49.2 last year.
4483937,85,600.35,606.88,2,And on a statutory basis is £94.2 up from £72.1 last year.
4483937,86,608.41,617.55,2,The board has proposed an interim dividend of £16 per share a fourteen point three percent increase over the last year's £14 per share.
4483937,87,620.49,621.7,2,Income statement.
4483937,88,621.96,626.54,2,This slide presents detail of our income statement and the profit bridge.
4483937,89,626.54,635.93,2,Shows the movements that reconcile the adjusted profit before tax of forty three point four million for the last half year to the eighty four point two million this year.
4483937,90,637.2,646.09,2,We've seen a £46 million improvement in gross margin excluding engineering costs mostly attributable to the increase in revenue.
4483937,91,646.94,651.8701,2,Our gross margin of thirty five point five percent of revenue is similar to the previous year.
4483937,92,652.87,669.15,2,However we have seen an increase in the cost of some purchased items particularly electronic components aluminum and steel and an adverse currency impact which have been offset by improved efficiencies resulting from higher production volumes.
4483937,93,670.94,689.5,2,The group headcount has increased during the first half of the financial year and was four thousand nine hundred seventy five at the end of December twenty twenty one compared to four thousand six hundred sixty four at the end of June two one and four hundred four thousand three hundred and twenty four at the end of December twenty twenty.
4483937,94,690.55,700.87,2,The increase since June mostly comprises manufacturing staff to ensure we have sufficient capacity to meet demand and also an intake of a hundred and twenty seven graduates and apprentices.
4483937,95,702.04,723.14,2,Labor costs excluding bonus provisions and prior year overseas job retention grant income were a hundred and fifteen point one million in this half year compared to a hundred and two point four million last year with an average head count in the first half of four thousand eight hundred thirty two against the previous half year of four thousand three hundred seventy one.
4483937,96,724.09,728.63,2,More on uh uh this topic will be covered by Will later on.
4483937,97,730.0,746.26,2,We remain committed to our long term strategy of developing new innovative and patented products to create strong market partic positions and incurred net engineering expenditure of thirty seven point eight million in the first half compared to thirty seven point two million last year.
4483937,98,747.64,756.98,2,Certain other operating costs such as travel and exhibitions are higher this half year compared to last year as some restrictions relating to the pandemic have been lifted.
4483937,99,758.47,766.94,2,We have also experienced an increase in other overhead costs including higher utility costs due to rising energy prices and higher usage.
4483937,100,767.44,772.3799,2,Another third party the administrative costs rises due to the current inflationary pressures.
4483937,101,775.12,787.22,2,This bridge tracks the movements from our opening cash and bank deposits balance of two hundred fifteen million the first of July to the closing position of two hundred twenty two million at the end of December.
4483937,102,788.73,795.85,2,Our operating profit before non-cash items and research and development costs gave a cash inflow of a hundred and twenty two point six million.
4483937,103,796.93,807.89,2,We have seen a net seventeen point nine million cash outflow from changes in working capital primarily relating to an increase in inventory levels of twenty two point three million.
4483937,104,808.76,819.46,2,This reflects increases in global demand and plant uplifts to strateg- strategic safety stock levels to mitigate global supply shortages.
4483937,105,820.53,827.34,2,This has been partially offset by a cash inflow of five point four million following an improvement in debtor days.
4483937,106,828.65,844.26,2,Significant cash outflows relating to our capital allocation strategy include twenty seven point nine million of r and d costs thirteen million of CapEx including intangibles and thirty seven point eight million of dividends paid.
4483937,107,845.3,853.2,2,Other significant cash outflows include ten point four million per ca tax payments and four point four million of pension scheme funding.
4483937,108,855.26,868.71,2,Turning into capital expenditure of the twelve point two million capital expenditure in the first half eight point five million related to planted equipment primarily to support our manufacturing processes and IT infrastructure.
4483937,109,869.15,878.72,2,And three point seven million on property for completion of our new distribution facility in South Korea providing demonstration capability for our capital goods products.
4483937,110,880.28,891.94,2,We are planning to increase our capital expenditure in the coming eighteen months including new production equipment and property expansion at our Miskin site in south Wales to support future business growth.
4483937,111,893.03,902.07,2,We have detailed planning permission for two additional holes which will will roughly double the space available for production at this site.
4483937,112,902.93,908.77,2,The first phase of this development could result in spend of up to twenty million next financial year.
4483937,113,909.69,911.2599,2,I'll now hand back to Will.
4483937,114,924.3,929.53,1,Hopefully we'll bring that further forward when we understand what is required better.
4483937,115,929.98,932.64,1,Uh we are continuing to invest here.
4483937,116,932.9,941.11,1,So we lo we do get majority of our global electricity from renewable sources but we're also investing in our own solar panels.
4483937,117,941.15,942.99,1,Uh and we will continue to do that.
4483937,118,943.2,951.8701,1,You can see here in the picture actually investment going on in our Dublin manufacturing facilities with new solar power panels being installed.
4483937,119,952.63,961.05,1,One of our real challenges o of this half has been really ramping up our manufacturing capacity to meet the demands of our customers.
4483937,120,961.47,969.21,1,That's a huge effort that has gone on by our global manufacturing team who have done an absolutely amazing job of of ramping up our capacity.
4483937,121,969.76,973.25,1,Uh we've grown continue to grow our our manufacturing headcount.
4483937,122,973.58,981.74,1,Uh we've been really working closely with our suppliers making sure that we can keep the supply chains going of critical uh components.
4483937,123,982.34,983.79,1,Uh we've done a really good job.
4483937,124,983.79,997.05,1,So clearly there are cost pressures uh on some components uh coming in but actually we've really offset that and kept our gross margin uh stable by looking at manufacturing efficiencies and productivity improvements uh ourselves.
4483937,125,998.16,1003.14,1,What we are seeing is now we're now starting to catch up uh with that rising uh demand.
4483937,126,1003.14,1011.2401,1,You can see uh that on the graph on the right uh how the order book has been uh going up steadily uh quarter by quarter.
4483937,127,1012.31,1029.16,1,Um what we have seen from a manufacturing point of view in terms of prices is as everybody has seen uh an increase in energy price which will really cut in for the second half of this financial year where we expect an additional £1.2 million worth of of energy costs in the business.
4483937,128,1031.5699,1034.28,1,So we now take a look at our our commercial strategy.
4483937,129,1034.89,1040.25,1,Now for us going forward the really important thing is we're looking at at growing our market share.
4483937,130,1040.8,1049.49,1,Um and what we have here is with a lot of our O E M products which get designed in our success rate here is really of getting new design wins.
4483937,131,1049.96,1057.58,1,Now this is a long process from introducing products getting it tested and then getting it built and designed into our customer's products.
4483937,132,1058.12,1063.78,1,This has been helped with new products coming through and machine tool for example such as the nc four Blue.
4483937,133,1064.97,1070.26,1,Uh but one of a particular interest um and is going very well for us is with our new enclosed encoder.
4483937,134,1070.6,1074.71,1,This is really good from us from from a growth point of view because it's a new market as well.
4483937,135,1074.71,1076.8,1,It's a product we didn't line we didn't have before.
4483937,136,1077.34,1081.9399,1,Uh and what we are seeing it is a very good uptake and adoption here.
4483937,137,1082.24,1087.28,1,Um and this is as we ramp up our production capabilities of this new product.
4483937,138,1088.92,1093.39,1,We are also uh complimenting this with the end user strategy that we talked about.
4483937,139,1093.6801,1103.3301,1,We have become more focused here more focused on key accounts whether this is from a um C M M engaging systems point of view or from an additive manufacturing point of view.
4483937,140,1103.72,1108.25,1,Uh that strategy repeat business as I talked about earlier is working well for us.
4483937,141,1109.3,1118.53,1,To complement our direct sales force which is still relatively small we are looking then at how do we asse address more end users?
4483937,142,1119.4399,1136.8201,1,And what we're doing here so products such as the Equator which has very much now gained market acceptance as being a a fantastic shop floor gauge is we are looking at at distributors and other people to sell the Equator directly to end customers for us.
4483937,143,1137.15,1148.85,1,As part of this we are looking at opening up the uh Equator and collaborating with others with their software packages allowing customers to choose the software package that they want to program the Equator with.
4483937,144,1149.47,1162.3201,1,As COVID restrictions hopefully ease in the second half of the year uh we are very much looking forward to getting out a meeting uh in person uh O E M and our end user customers all around the world.
4483937,145,1162.77,1166.73,1,Uh this is both in person and at trade shows and exhibitions which will be happening.
4483937,146,1167.4,1178.01,1,Um this will res result in an increase and we are factoring in an extra million pounds for the second half of the year relative to the first half for travel travel and exhibition spend.
4483937,147,1179.09,1179.3099,1,Okay.
4483937,148,1179.3101,1182.5701,1,So if we now take a look at engineering and research.
4483937,149,1182.95,1191.77,1,Uh the bits start with here really is saying that the the markets that we operate in as we've talked about we feel have good long term core growth opportunities.
4483937,150,1192.1801,1200.16,1,And we also feel that one of our core competencies is research and development and then taking that technology to develop really innovative uh new products.
4483937,151,1200.59,1211.25,1,And therefore really our our primary growth strategy over the next few years will be one of of organic growth through exploiting uh the output from our r d facilities.
4483937,152,1211.8199,1217.17,1,Now we have seen our r and d uh spend go down over the last uh couple of years.
4483937,153,1217.54,1229.95,1,Uh this was when we introduced our Fit for the Future initiative which very much focused uh our engineering efforts on what we thought were really key new products for the health and long term success o of the business.
4483937,154,1230.4301,1231.9301,1,We are now recruiting.
4483937,155,1232.91,1241.75,1,Now we are planning to grow in h two uh our engineering uh spend as we want to accelerate a number of these new programs.
4483937,156,1242.26,1247.4601,1,If we look at the breakdown of of the engineering spend then there's a number of different activities that are going on here.
4483937,157,1247.77,1257.9,1,We have a really important one of of process development and developing incremental changes in our products keeping our product lines fresh and maintaining those product margins by making us more productive.
4483937,158,1258.52,1273.37,1,We've also had a fair bit of resource in this area recently making sure that when we have supply chain issues and we have to look at alternative parts the design teams are support in that change uh to make sure those components are compatible and will work well and deliver quality products for our customers.
4483937,159,1274.21,1278.9,1,Um what we're trying to focus on is more and more resource on major new products.
4483937,160,1279.21,1289.23,1,Those that are gonna make a real difference both in established markets for us and in new markets where we come along with really uh patented differentiated uh new technologies.
4483937,161,1289.98,1293.0699,1,And then what we also have then is the research for the future.
4483937,162,1293.25,1299.9299,1,Typically smaller teams looking at the technology that's gonna power us and our growth over the next ten twenty years.
4483937,163,1300.54,1307.3201,1,We've also been steadily increasing our investment into software and we have some really important new products coming through in the future.
4483937,164,1307.79,1328.38,1,Um these are focused on both making it easier for customers to program and use our products and also in terms of helping them um do new things controlling manufacturing processes better and also then getting um an insight and information from the data that they're generating during their manufacturing processes.
4483937,165,1329.3,1342.38,1,If we now uh look at our people uh first thing to say here clearly uh been a huge amount of dedication by everyone across the group in uh responding to the opportunities uh that we've had with the increase in demand from our customer.
4483937,166,1342.38,1344.11,1,So a huge uh thank you there.
4483937,167,1344.8199,1348.5499,1,Um we have increased our our workforce respond to this growth.
4483937,168,1348.72,1356.7899,1,Um we have increased by over three hundred people which the majority has been in supporting the manufacturing uh capacity growth.
4483937,169,1357.3101,1366.3201,1,Um we have been complimenting across the group with targeted uh increases and we will continue to do that going into the second half.
4483937,170,1370.98,1377.7899,1,Um we've gone through quite a large uh benchmarking exercise in in the UK to make sure that our our pay is competitive.
4483937,171,1378.05,1390.99,1,And then we've also been looking at how do we give everyone uh clear uh progression roots through the organization and making sure we are giving them the skills and development uh to succeed uh and and do well.
4483937,172,1391.78,1396.47,1,we're having a real focus on on productivity uh across the group of continued focus.
4483937,173,1396.8101,1406.66,1,And this is looking at initiatives to help us increase the efficiency and making the most of all these very valuable resources that we have to make sure we maintain our operating margins.
4483937,174,1407.86,1418.22,1,Um now from a financial perspective we will see our labor cost uh increase uh by around six million uh for the second half uh relative to the first half.
4483937,175,1418.5601,1423.0,1,This is a combination of recruitment benchmarking increased employer NI.
4483937,176,1423.62,1427.37,1,Um now part here is recruiting for the future.
4483937,177,1427.53,1430.4301,1,As we talked about we want to invest here.
4483937,178,1430.4301,1432.08,1,We think we have the opportunity to do so.
4483937,179,1432.34,1438.25,1,And therefore we are we are planning to increase our headcount the second half for these long term opportunities.
4483937,180,1439.62,1450.3401,1,So looking forward um as we've talked about we we believe we are operating in very uh attractive markets with good long term growth opportunities.
4483937,181,1450.8101,1458.2301,1,Uh we are therefore uh continuing to increase our investment for organic growth going forward for that long term potential.
4483937,182,1459.12,1468.73,1,If we look in the shorter term though for this financial year we expect the markets to to continue to to be strong uh with those same drivers uh continuing.
4483937,183,1469.39,1477.5,1,Um we are therefore putting out a revenue range uh for the full year of between £650 million and £690 million.
4483937,184,1479.39,1486.97,1,Um the profit uh we expect to be within the range of £157 million to £181 million pounds.
4483937,185,1488.1899,1489.47,1,And uh over to you Chris.
4483937,186,1499.0699,1502.58,0,Uh well thank you.
4483937,187,1504.16,1509.6799,0,Uh we've now been joined by Sir David McMurtry for this uh q and a session.
4483937,188,1510.37,1512.92,0,We have around uh thirty five minutes remaining.
4483937,189,1513.0,1521.61,0,Um as ever I'll try to group uh similar questions together uh so that we consequence that we may not answer all individual questions.
4483937,190,1521.96,1527.09,0,Um we're going to start with a question from Mark Davis Jones.
4483937,191,1527.09,1527.85,0,Good morning Mark.
4483937,192,1528.41,1530.39,0,Uh relating to r and d.
4483937,193,1530.58,1536.1,0,Um the question is uh r and d spend was down slightly despite much stronger revenues.
4483937,194,1536.37,1548.28,0,Is this just a timing issue or should we expect r and d to sales ratios to remain lower than in the past given your tighter focus on a smaller number of flagship products?
4483937,195,1548.48,1550.36,0,And I think that one's gonna go to Will.
4483937,196,1554.46,1555.41,1,Thanks uh Chris.
4483937,197,1555.45,1572.3501,1,Um so uh no if we're gonna we have very ambitious uh five year plan in place uh that relies on us delivering a number of new products through to the the market uh and investing in r d will be key to delivering on that.
4483937,198,1572.38,1577.51,1,So uh Mark as you say we have focused on some more key flagship projects.
4483937,199,1577.8101,1588.5399,1,They need more resourcing to accelerate those three those through uh and also we have some nice new technologies coming through an earlier stage that we now want to to accelerate as well.
4483937,200,1588.89,1593.85,1,So we plan as we always have that the majority of our growth will be uh organic.
4483937,201,1594.02,1605.4399,1,Um so we will be uh investing and that's a one of the reasons why our second half costs are are higher uh than we've cuz we are forecasting an increase in our r d expenditure.
4483937,202,1610.11,1610.47,0,Okay.
4483937,203,1610.47,1612.34,0,Thanks uh thanks for that Will.
4483937,204,1617.5699,1622.34,0,Uh thank you for the additional disclosure on end markets.
4483937,205,1622.77,1623.52,0,Very helpful!
4483937,206,1625.17,1632.59,0,In manufacturing technologies can we infer from this that seventy one percent of Renishaw's sales are direct to end customer?
4483937,207,1633.27,1637.75,0,If so what percentage would this have been five or ten years ago?
4483937,208,1652.49,1669.14,1,end up irrelevant of whether we have sold them uh direct to that end customer in which case we clearly know uh where they uh the the end use um or if they've gone through um some some form of distribution.
4483937,209,1669.2,1672.7001,1,So a machine tool builder or a c m m builder et et cetera.
4483937,210,1673.58,1679.0801,1,So no that that is not saying that seventy one percent of our sales are direct to uh an end customer.
4483937,211,1679.72,1684.27,1,Um I think I mentioned we we do have a number of routes to market here.
4483937,212,1684.36,1691.28,1,Um sometimes like with our encoders when we're selling into some uh electronics capital equipment we know that equipment's gonna end up in the electronics market.
4483937,213,1691.5601,1702.92,1,Other times when we're selling machine tool probes to a machine tool builder we will only really understand the end use if we are talking with that machine tool builder to understand roughly the ratios of where they are selling into.
4483937,214,1703.4,1709.76,1,So this should be taken as our best guess as the end use of our products.
4483937,215,1714.29,1714.96,0,Thanks Will.
4483937,216,1715.3,1725.84,0,Um how we're going another question here from uh Mark uh uh Davis Jones.
4483937,217,1726.6,1731.28,0,Uh could you please explain the China export issue in spectroscopy?
4483937,218,1731.42,1732.74,0,Is this ongoing?
4483937,219,1733.24,1735.8601,0,I think that's also going to be answered by Will.
4483937,220,1738.84,1741.3501,1,Uh so yes uh this is still ongoing.
4483937,221,1741.35,1744.41,1,Uh we think it's just a timing issue and and nothing to be concerned about.
4483937,222,1744.41,1756.39,1,it is due to the the process I think many educational customers uh for our spectroscopy but in China claiming duty slash vat back on the product and and there's paperwork to do in advance.
4483937,223,1767.16,1768.97,1,We think it is just a a a timing issue.
4483937,224,1771.91,1772.38,0,Okay.
4483937,225,1772.38,1773.15,0,Thanks Will.
4483937,226,1773.29,1777.88,0,Um we'll stay with uh with Mark's questions.
4483937,227,1777.88,1783.16,0,It's uh also a question on the um new disclosure on end markets.
4483937,228,1783.1899,1787.49,0,Uh he asked could you comment on what you are seeing in automotive?
4483937,229,1787.88,1793.98,0,There have been concerns in the past about the EV transition and declining uh i c e business.
4483937,230,1794.37,1796.6901,0,How are you seeing this play out in practice?
4483937,231,1796.91,1798.8301,0,And um give that one to Will.
4483937,232,1802.28,1805.8999,1,Yeah so uh very interesting uh transition.
4483937,233,1805.9399,1812.34,1,So clearly uh as we know that there are gonna be less machined parts in in a pure EV uh vehicle.
4483937,234,1812.76,1822.5599,1,Uh but a number of new metrology challenges with uh some of our products um Equator gauging REVO aren't aren't very well suited um to to measuring.
4483937,235,1822.5601,1826.6899,1,So still in early days there we're still finding and understanding their challenges.
4483937,236,1827.11,1831.91,1,But the nice thing is that we believe there's gonna be continued investment in that transition for quite a while.
4483937,237,1831.9399,1838.77,1,So that change uh we believe will have probably changed some of the different bits and some of the different stuff in terms of products for us.
4483937,238,1838.8,1841.54,1,Um but the investment there is is really good for us.
4483937,239,1847.34,1848.08,0,Thanks Will.
4483937,240,1848.41,1852.2799,0,Um gonna move on to a a different question now.
4483937,241,1852.28,1856.24,0,So uh good morning uh Anthony Lynch who joins us.
4483937,242,1856.27,1868.2101,0,Uh uh he asks uh the order book demonstrates strong near term visibility but what gives the longer term confidence to double Miskin manufacturing capacity?
4483937,243,1870.4,1872.33,0,And I think that one's gonna go to Will to start.
4483937,244,1875.4399,1881.72,1,So just to clarify we put planning permission to double uh the capacity that is two new holes.
4483937,245,1882.04,1885.5901,1,Uh that is not saying that we will be doing both holes uh immediately.
4483937,246,1885.59,1889.74,1,So we have the option to do one hole and the next depending on how we see the plans going forward.
4483937,247,1890.3101,1899.9301,1,Um what we do see with some of our uh newer products and products under development uh that they are larger than the traditional products that we are used to.
4483937,248,1900.51,1910.6801,1,Even stuff that is quite um traditional for us like with the new FORTiS-S machine tool encoder that I talked about actually the size of that compared traditional encoder is much bigger.
4483937,249,1911.09,1916.8199,1,So we are going to need more floor space to efficiently and productively uh manufacture these products.
4483937,250,1917.25,1923.74,1,And we're still very much believes that keeping them close to our design facilities is the right thing to do.
4483937,251,1924.26,1930.45,1,Um so this will be one of our decisions to make uh in the um second half of this year.
4483937,252,1930.67,1939.9299,1,Uh at the moment our assumption is that we will do one hole um immediately and then depending on how we see demand going for the future we may do the second one very soon afterwards.
4483937,253,1946.23,1946.9801,0,Thanks Will.
4483937,254,1947.71,1949.92,0,Uh we're gonna stay with uh order book.
4483937,255,1949.92,1952.15,0,And uh there's a question from Jonathan Hurn.
4483937,256,1952.15,1953.1901,0,Good morning Jonathan.
4483937,257,1953.53,1958.6,0,Um is your order book visibility still around three months or is it currently longer?
4483937,258,1958.95,1962.0099,0,Any signs of double customer ordering in the order book?
4483937,259,1962.28,1966.14,0,And are you seeing a return of large one-off orders?
4483937,260,1966.51,1968.41,0,And again Will's gonna lead on that one.
4483937,261,1971.87,1976.5,1,So this isn't been driven by large one-off orders.
4483937,262,1976.73,1988.4401,1,Um I think the interesting change probably from what we used to is in the position measurement order book where we are seeing far more visibility there and guidance from our customers than we used to.
4483937,263,1988.4399,2004.0199,1,And I guess this shows the that the challenge they're having with all their supply chains uh not just um in terms of getting stuff from us but but across the board and what they're there for trying to do is to help um with us and giving us more visibility there uh and scheduling.
4483937,264,2004.47,2013.1001,1,So yes there certainly is a change from a position measurement uh encoder product line in terms of of the order vi- visibility going out further.
4483937,265,2013.8199,2022.6801,1,Uh but a lot of the other stuff is is more normal uh and just strong demand.
4483937,266,2022.6801,2028.3,1,And and sorry in terms of double double double ordering and and and whatever.
4483937,267,2028.3,2030.8501,1,So how much are people trying to overorder?
4483937,268,2031.23,2034.7599,1,Then we honestly we we never really know but we don't believe so.
4483937,269,2034.76,2040.59,1,We believe in in general the stuff that we are seeing is genuine for very strong uh demand.
4483937,270,2044.51,2044.84,0,Okay.
4483937,271,2044.84,2045.64,0,Thanks Will.
4483937,272,2045.97,2049.49,0,Uh we'll stay with uh another question from uh Jonathan.
4483937,273,2049.95,2055.9099,0,Um how much are you looking to increase headcount in the second half of the year?
4483937,274,2056.22,2060.9199,0,And what specific areas have been the focus of retention payments?
4483937,275,2061.73,2063.28,0,Uh start with Will on that one.
4483937,276,2066.6201,2069.52,1,So if we just clarify the the retention payments.
4483937,277,2069.7,2077.8101,1,So um that has been a benchmarking if these aren't sort of a uh um awards that that vest over time.
4483937,278,2077.97,2086.0798,1,So this is us benchmarking understanding where we are paying uh relative to the market uh and making adjustments there.
4483937,279,2086.0801,2092.3501,1,And that has been across the board uh with the UK focus um one of the at at the moment.
4483937,280,2092.8501,2097.3799,1,So which which has been very well received and has been a good exercise for us to go through.
4483937,281,2098.3301,2108.3,1,Uh in terms of headcount increase in h two then we're looking probably at recruiting another couple of million of of headcount costs for the second half.
4483937,282,2109.3101,2131.1699,1,Um and this is now on uh very targeted um investments accelerating new product development plans key uh commercial activities that we want to uh a achieve uh and with some uh manufacturing headcount increase where we are still trying to ramp up and accelerate some of the product manufacturing capabilities.
4483937,283,2136.3601,2136.6902,0,Okay.
4483937,284,2136.6899,2137.4402,0,Thanks Will.
4483937,285,2139.1299,2142.9099,0,Uh question here from uh Henry Carver.
4483937,286,2142.9399,2143.72,0,Good morning Henry.
4483937,287,2144.21,2159.52,0,Um market share gains where does uh Renishaw's manufacturing technology segment stand versus competition in terms of one pricing and two software capability?
4483937,288,2163.5601,2163.8101,1,Okay.
4483937,289,2163.8999,2164.3398,1,Thank you.
4483937,290,2164.3401,2167.1902,1,Um so let's do the two easy ones to start with.
4483937,291,2167.1899,2174.1899,1,So position position measurement with our encoders um we that there is no software that that that goes with that.
4483937,292,2174.1899,2177.3,1,So that's very much a a hardware um product line.
4483937,293,2177.4099,2178.6699,1,That's a fairly simple one.
4483937,294,2195.26,2203.6101,1,So that's quite an integrated but but we don't intend to be that either there in terms of the programming the cad cam software for for AM.
4483937,295,2203.9099,2206.3201,1,So again um quite a clear situation there.
4483937,296,2207.1001,2219.75,1,With the industrial metrology area cuz this this is different uh and traditionally we have been um uh more competitive stronger as a um a traditional hardware manufacturer.
4483937,297,2220.2,2233.3301,1,We have as I mentioned been investing quite a lot in um software here uh and focusing on areas which we believe can be quite disruptive with uh ease of use uh and and and data.
4483937,298,2233.76,2249.3401,1,Again this is quite a broad picture across the different industrial metrology lines from machine tool where we have a huge install base of our micro software uh um all around the world um which is maybe different to some of the situations on some of the newer products like Equator.
4483937,299,2249.46,2251.9302,1,As I said there are a number of different software packages out there.
4483937,300,2252.6599,2256.5,1,Um and we are collaborating with more of 'em uh now.
4483937,301,2257.1599,2267.46,1,Uh so in terms of of pricing then uh we uh again this varies uh across the board on the different areas here.
4483937,302,2267.8501,2275.26,1,In general though we tend to be a um uh we are certainly not going after the cheap end of the market.
4483937,303,2275.45,2282.8101,1,Uh and we are offering a premium product and what it can do and we would look to charge our customers uh for that premium offering.
4483937,304,2287.23,2287.8899,0,Thanks Will.
4483937,305,2289.1399,2292.28,0,So a question now from uh Sanjay Jha.
4483937,306,2292.3899,2294.01,0,Uh morning Sanjay.
4483937,307,2294.3501,2297.8401,0,Uh is a question about our Equator uh gauging system.
4483937,308,2298.5,2304.73,0,Uh question is you mentioned the need for compatibility with multiple software vendors.
4483937,309,2305.29,2307.3398,0,Is this a shift in the market?
4483937,310,2307.52,2309.4399,0,And I think that one's gonna go to Will as well.
4483937,311,2313.79,2316.8601,1,I'd say it it's a it's a shift in our strategy.
4483937,312,2317.22,2332.3901,1,Uh if you look at our history with Equator one of the challenges sometimes of coming up is something that doesn't exist before it is that you need to grow and people understanding of their need for it that product and what it can do for them.
4483937,313,2332.48,2335.0701,1,Uh and the early stages of Equator we're doing that.
4483937,314,2335.45,2343.7302,1,Over the last few years it is been uh very much accepted uh as a key part of of a manufacturing um machine shop.
4483937,315,2344.3601,2348.7002,1,Uh so we've seen the acceptance of Equator really take off.
4483937,316,2349.0901,2359.51,1,Uh so our strategy has been now how do we uh maximize our sales of Equator with a relatively uh small end user sales force of our own uh within Renishaw?
4483937,317,2360.1599,2368.2402,1,Uh and this is meant that we've been looking at getting other people selling uh Equator for us um and and meeting the the pull of the customers.
4483937,318,2368.78,2372.24,1,Um now with this some of the customers will want to use it with our software.
4483937,319,2372.52,2375.0,1,Uh others may already have other software they're using.
4483937,320,2375.1599,2377.2998,1,What we are now saying is Look we we are happy.
4483937,321,2377.3301,2382.71,1,We will allow other people to sell Equator and support it with the customer's choice of software.
4483937,322,2387.0601,2387.3301,0,Okay.
4483937,323,2387.3301,2388.23,0,Thanks Will.
4483937,324,2388.9399,2395.3899,0,Um here's a question again from uh that's first question from Robert Davis.
4483937,325,2395.4199,2396.78,0,Um hello Robert.
4483937,326,2396.78,2411.25,0,Uh how receptive are you additive manufacturing customers to purchasing your AM machines versus wanting to outsource the work i e getting you to produce their AM parts for them?
4483937,327,2411.6699,2413.4099,0,And I'll i will put that one over to Will.
4483937,328,2416.8701,2417.2302,1,Okay.
4483937,329,2417.23,2424.8701,1,So uh we we won't make um production AM parts uh for uh customers.
4483937,330,2424.8999,2427.4299,1,That's that's that's not a service we offer we do.
4483937,331,2427.8201,2440.05,1,What we will do is clearly at the early stages of working with a customer is looking at really accelerating and developing AM capabilities um then we will support 'em by making initial parts um for them.
4483937,332,2440.55,2450.8201,1,Uh and we may also host some of their early machines that they have bought here so we can support them um before they're ready to host those machines at their own uh facilities.
4483937,333,2451.3,2477.1399,1,Um now if a customer is interested in additive manufacturing and wants to get the benefits that they can bring with um design uh and productivity that that comes with additive manufacturing and getting that from our machines but they don't want to invest in the manufacturing infrastructure themselves then they can clearly go to AM AM subcontractor use our machines there so we can help them with that journey.
4483937,334,2477.5,2481.05,1,Um but that's not an area of the market that we want to get into ourselves.
4483937,335,2481.05,2489.99,1,We are clearly gonna be focused on making the best machines the most productive machines um that will grow part of vision very well in the future.
4483937,336,2495.3899,2495.75,0,Okay.
4483937,337,2495.75,2496.5999,0,Thanks Will.
4483937,338,2496.77,2503.5398,0,Um we're very large on questions there I have to say I'm sure Allen uh also David would appreciate a question.
4483937,339,2503.78,2511.79,0,Um but so there's one here that actually I I can answer uh is a question from uh uh Sanjay Jha.
4483937,340,2512.0,2513.3201,0,Uh again thank you.
4483937,341,2513.6101,2516.76,0,Uh just asking i is a copy of the presentation in the website?
4483937,342,2516.79,2519.0798,0,Um it will be uh Sanjay.
4483937,343,2519.3799,2528.49,0,Um also a uh recording of this presentation uh or the whole webinar with the presentation the q and a session will be available.
4483937,344,2528.49,2529.8701,0,We'll try and make that by the end of the day.
4483937,345,2529.8701,2533.5701,0,But certainly uh by tomorrow morning uh so you can go through.
4483937,346,2533.5701,2538.99,0,Again obviously for those people unable to attend then they can also uh uh listen as well.
4483937,347,2539.25,2544.4099,0,Uh we yes we have a another question.
4483937,348,2544.4399,2555.6699,0,Uh and this one is uh from Anthony Plom um saw the HiETA sale to uh Meggitt uh is this a one off?
4483937,349,2556.1399,2560.5601,0,Or are there any other parts of business that you'd consider selling?
4483937,350,2561.46,2566.74,0,Uh we're gonna start with Will on that.
4483937,351,2566.78,2567.01,1,Yeah.
4483937,352,2567.01,2581.1399,1,We're very pleased um selling our our stake in HiETA it's a really good home with uh Meggitt and and look forward to supporting HiETA uh and Meggitt very closely as a supplier of of additive and other technologies to them in the future.
4483937,353,2581.8101,2585.6299,1,Uh so at the moment that that that's the only thing we were uh planning in the immediate future.
4483937,354,2585.78,2588.46,1,So um uh very please to get that done.
4483937,355,2588.49,2591.2,1,But but no nothing else uh that we're working on at the moment.
4483937,356,2595.0,2595.3501,0,Okay.
4483937,357,2595.3501,2596.25,0,Thanks Will.
4483937,358,2596.6001,2600.8398,0,Um another question here from uh Robert Davis.
4483937,359,2600.8701,2609.23,0,Uh six or seven of the last half years have seen positive uh medical margins.
4483937,360,2610.1399,2614.28,0,What has structurally changed here versus a few years ago?
4483937,361,2617.1201,2619.6101,0,And that one's going to Will.
4483937,362,2622.95,2623.29,1,Okay.
4483937,363,2623.29,2639.2,1,So with our um the medical slide um we have uh the uh we have a slight change with um uh selling uh our business in in RDL the diagnostics business uh which helped profitability there.
4483937,364,2639.6499,2663.24,1,We also made some changes which I think we talked about in the past with our um neurological business and our focus there as saying that that really the strong are there and the opportunities is on the collaboration with large fiber companies in terms of developing uh therapies with them and supporting them doing that for which we uh get paid as part of the program.
4483937,365,2663.78,2675.04,1,So that focus of the neuro group has certainly helped the margins there as well together with a nice steady good growth on our existing strategy with our spectroscopy uh business.
4483937,366,2679.1101,2679.4001,0,Okay.
4483937,367,2679.3999,2680.1401,0,Thanks Will.
4483937,368,2680.1699,2683.24,0,We have had a a number of questions come in.
4483937,369,2683.24,2684.1899,0,Thanks for those.
4483937,370,2684.23,2689.3899,0,Um and here's one from David Robinson.
4483937,371,2689.3899,2690.1399,0,Morning David.
4483937,372,2690.5701,2702.0701,0,Uh can you give any indication uh of any change in the demand or requirements for your products from the EV cars versus conventional cars?
4483937,373,2702.1499,2703.8701,0,Start with Will on that one as well.
4483937,374,2707.6899,2720.0701,1,Yeah so I think I think within our industrial metrology group what we may see over time is a shift from maybe the as there's less machining operations uh potentially less machine tool uh probes.
4483937,375,2720.1201,2741.6399,1,Although a lot of these operations quite automated not using machine tool probes already from the processes that they were using uh particularly on the cylinder blocks um towards more of a stronger demand for the Equator uh and uh new products that will have coming out there in the future and and engaging and our REVO uh product line.
4483937,376,2741.78,2753.9302,1,So we are seeing a good engagement customers there uh the same productivity benefits that they bring uh to traditional i c e manufacturing carryover into EV.
4483937,377,2754.3601,2764.4402,1,What we're also seeing uh and this is a REVO one is that some of the parts where they don't need to be touched actually the REVO with with vision is complimenting the touch there well as well.
4483937,378,2764.9299,2777.1299,1,So I I as I said I think it's still early days from the EV market in terms of maturity of understanding metrology requirements but we think we've got some good flexible offerings that will grow there over time.
4483937,379,2781.29,2781.96,0,Thanks Will.
4483937,380,2782.0701,2789.6599,0,Uh Allen's been waiting patiently and I think uh this is one that uh he can finally get his teeth into.
4483937,381,2790.05,2792.1401,0,Uh it's question from uh Richard Page.
4483937,382,2792.1399,2792.98,0,Good morning Richard.
4483937,383,2793.45,2800.29,0,Um thank you for the uh guidance on additional workforce costs in uh second half.
4483937,384,2800.3401,2807.0701,0,Uh q four profitability last year was impacted by additional bonus accrue.
4483937,385,2807.6101,2813.28,0,Uh should we assume that these are better smooth this year?
4483937,386,2813.3701,2815.6899,0,So I'm push that one across to Allen.
4483937,387,2820.9099,2821.9602,2,Uh thank you Chris.
4483937,388,2821.96,2824.6499,2,Thank you uh Jonathan uh Richard.
4483937,389,2824.9399,2835.24,2,Um yes we have factored in additional bonus accrues which do occur when we know what the year end results are.
4483937,390,2835.55,2844.3301,2,So they have they have been factored into our profit range as we've uh as uh as disclosed in the uh in the statement.
4483937,391,2852.8999,2853.2898,0,Okay.
4483937,392,2853.29,2855.0901,0,Thanks uh Allen.
4483937,393,2855.1699,2866.6501,0,Um and got uh question here from uh Robert Robert Davis again.
4483937,394,2867.27,2873.3899,0,Have you seen any changes in terms of threats from competitors or new market entrants?
4483937,395,2873.6799,2877.6001,0,Is it getting any more challenging to protect your IP?
4483937,396,2878.1599,2880.0999,0,I think we'll start with Will on that one.
4483937,397,2884.3501,2886.76,1,So now it's it's still fine to to protect IP.
4483937,398,2886.79,2896.5,1,The the patents department here our internal patents department are still very very busy with a backlog of of ideas that that uh need to come through for for our uh new inventions.
4483937,399,2896.96,2901.3601,1,So that's absolutely still part of the of the strategy and and and they're still working.
4483937,400,2901.8799,2914.27,1,Uh in terms of competitors uh new market ENT then uh nothing that stands out I think that that to to bring attention to it at at the moment there.
4483937,401,2919.6599,2920.1799,0,Okay.
4483937,402,2920.3,2921.8499,0,Uh thanks Will.
4483937,403,2922.04,2929.5801,0,Um question here about uh inventory uh from uh <inaudible>.
4483937,404,2929.6201,2940.52,0,Uh can you talk about the inventory situation in the channel and your customers maybe end customers?
4483937,405,2941.0,2941.55,0,Thanks.
4483937,406,2942.0,2943.3601,0,And uh again Will.
4483937,407,2947.4099,2967.74,1,So maybe if I talked through um inventory in in in general uh so okay we have been going inventory work in progress as we respond to the the rising demand or we would still like to have uh more uh particularly on such products as are encoders uh to really accelerate uh the growth.
4483937,408,2967.74,2969.22,1,So I think we can do that.
4483937,409,2969.53,2973.25,1,So we will be focusing that on on the on this half.
4483937,410,2973.97,2983.3801,1,Um in terms of the inventory of that we see with our customers and and and end customers it feels like everything is still quite hand to mouth.
4483937,411,2983.95,2991.71,1,Uh so with our customers getting products to their customers um so I don't think there's a large stockpiling.
4483937,412,2991.71,2997.8401,1,But look um we're probably not the experts and and the right people to ask that but it doesn't feel that's the situation at the moment.
4483937,413,3002.49,3002.8401,0,Okay.
4483937,414,3002.8401,3003.6499,0,Thanks Will.
4483937,415,3003.9399,3009.3501,0,Um there's another question from Richard Paige.
4483937,416,3009.4099,3017.48,0,Uh a number of your peers and customers have spoken about the impacts of component shortages on sales growth.
4483937,417,3018.3,3026.0601,0,To what extent did these impacts your first half performance uh and may impact a second half?
4483937,418,3027.27,3029.2,0,Uh Will you gonna start with that one?
4483937,419,3033.6599,3034.1799,1,Yes.
4483937,420,3034.22,3038.6301,1,So component shortages is a a a major challenge.
4483937,421,3038.6599,3048.75,1,It is something that our manufacturing and product design teams have done a a great job to uh make the most in a really tricky uh situation.
4483937,422,3048.8899,3065.9502,1,So we have had to divert design engineering resource onto making sure that when we run into a component shortage that we can look around and find alternatives uh for that so that we can keep our production going and our customers um supported.
4483937,423,3066.3799,3070.1399,1,And um we have done a great job of of making sure that is happening.
4483937,424,3070.73,3078.3901,1,Um now clearly that has made us less productive um uh with having to do this work.
4483937,425,3078.4199,3083.26,1,And that has has impacted um in terms of our engineering spend.
4483937,426,3084.02,3099.1799,1,Um now in terms of getting uh product out and what was the impact in our first half um then we for sure we would have shipped more of our order book uh if we could have shipped more product at the moment.
4483937,427,3099.3101,3104.72,1,So um it is hard to put it exactly into how much that was due to component shortages.
4483937,428,3104.72,3107.46,1,But generally we will find a work around uh for that.
4483937,429,3108.28,3118.4299,1,Uh in terms of of H2 going forward uh then as you see we we do have a wider range uh than usual at this time of year we've gone up to forty million.
4483937,430,3118.4299,3142.1401,1,Some of that is is factoring in uncertainty both on uh our supply chain and also the concern that our customers may be even if we can if we supply to them well they may be let down uh by other suppliers uh and therefore the demand may be softer but than that the market uh is is is requesting.
4483937,431,3142.6001,3145.1101,1,Um so our our sales will be less.
4483937,432,3152.3201,3152.96,0,Thanks Will.
4483937,433,3153.0601,3157.4299,0,Um another question from uh Jonathan Hurn.
4483937,434,3157.5,3167.9299,0,Uh can you give us some more color on the assumptions made to get to the guidance range particularly the upper end?
4483937,435,3168.8401,3171.71,0,For example what visibility do you have?
4483937,436,3172.23,3176.6899,0,What is it assuming for end markets such as automotive and aerospace?
4483937,437,3176.97,3181.7798,0,And also what cost inflation does it assume?
4483937,438,3181.78,3186.49,0,Uh we'll start W- Allen.
4483937,439,3189.0701,3189.6201,0,apologies.
4483937,440,3193.3301,3193.6301,1,Okay.
4483937,441,3193.6299,3198.1501,1,So let let's start with the turnover uh range here.
4483937,442,3198.5801,3206.3301,1,So as I just mentioned we have factored in a a little bit more uncertainty there than normally at this time of year although it is on a on a higher number.
4483937,443,3206.78,3218.24,1,Um so what we have in there is uncertainty on timing uh for um uh um larger orders that may come through at the end of the year.
4483937,444,3218.6399,3237.3899,1,We have uncertainty that I have talked about in terms of demand for some of our position measurement line in terms of um our ability to supply and also our customers ability to get products uh from other people uh and also from their own um uncertainty from the demand from from their customers.
4483937,445,3248.1399,3253.7,1,Um in terms of specific stuff with automotive and aerospace that's probably more steady state.
4483937,446,3253.8999,3261.1199,1,Um so I don't think they are the largest areas of uncertainty that we would have um uh there.
4483937,447,3261.97,3276.1399,1,Um in terms of cost inflation we've talked of some of the parts during the presentation uh of bringing up where we have um increased uh overheads for the business in terms of things like the heat light and power.
4483937,448,3276.7,3287.77,1,Um we've also put in uh more for travel as we're looking forward to getting out uh and meeting customers both uh um at their facilities and also at uh trade shows.
4483937,449,3288.3601,3297.6899,1,Um and we have also gonna see the impact of the um cost based increases with with with labor costs that we talked about uh in the first half.
4483937,450,3297.72,3306.28,1,And also uh we are planning now to be increasing our um particularly our engineering headcount in the second half.
4483937,451,3307.46,3310.49,1,Um I dunno if anything Allen you want to add?
4483937,452,3311.0601,3311.49,2,Yeah.
4483937,453,3314.8101,3314.97,2,Yeah.
4483937,454,3314.97,3324.1899,2,I would just add to that that the as well as the uh the costs have been factored into the into the forecast as we just mentioned.
4483937,455,3324.74,3333.6399,2,But also of course uh the the our margin is such that it has a a big impact on on revenue forecasts.
4483937,456,3335.3201,3342.0701,2,So uh they're factored in uh into into the uh projections and the forecast going forward.
4483937,457,3351.98,3352.6099,0,Thanks Allen.
4483937,458,3352.6699,3359.3901,0,Um question for Sir David.
4483937,459,3359.48,3360.98,0,Actually I'm sure he is delighted to that.
4483937,460,3361.97,3364.28,0,it's from uh Mark Davis Jones again.
4483937,461,3364.8301,3374.8801,0,Um could uh Sir David comment on where he may be focusing terms of longer term r and d projects and technology development?
4483937,462,3375.22,3382.1799,0,And what is the next big thing he sees on the horizon for manufacturing technology?
4483937,463,3423.28,3423.4199,0,Okay.
4483937,464,3429.25,3431.6899,0,Thanks Sir David.
4483937,465,3431.9299,3432.28,3,mm-hmm <affirmative>.
4483937,466,3432.54,3440.1699,0,Um we've had uh okay.
4483937,467,3442.6499,3450.7,0,Has there been any progress in the uh neurology business with regards to winning more partners?
4483937,468,3450.7,3455.71,0,And a very similar question actually from uh <inaudible> as well.
4483937,469,3455.71,3456.23,0,Thank you <inaudible>.
4483937,470,3457.3401,3466.0701,0,Who asks for if there is it possibly give a bit more granularity around the clini uh clinical trials for the healthcare division any timeframes?
4483937,471,3466.3101,3469.0498,0,So I think we're gonna push that one towards Will.
4483937,472,3473.05,3473.25,1,Yeah.
4483937,473,3473.25,3473.77,1,Uh thank you.
4483937,474,3473.77,3484.6501,1,So look as I mentioned the the trial we talked about before uh and unfortunately um although our uh product worked well that there was an issue with the uh drug.
4483937,475,3485.1299,3497.5,1,But a really good part about this it showed a a a framework that we have now in place where a pharma can engage with us um work with us um on their drug with our drug delivery technology.
4483937,476,3498.3301,3507.8801,1,We have a number uh this is uh less than ten uh of um potential pharma accounts that we are discussing uh and working with.
4483937,477,3507.95,3519.95,1,Um none of those are uh actively uh uh going now with an agreed longer term plan but but some are coming through and we're doing early stages uh with them and working well.
4483937,478,3520.3999,3526.45,1,So we uh really hope this is going to be something over the next uh twelve months.
4483937,479,3526.49,3530.2998,1,We're in a place where really these are starting to to accelerate.
4483937,480,3538.24,3539.8801,0,Thanks uh Will.
4483937,481,3540.1399,3552.9299,0,Um we've had a couple of questions around um the uh combined shareholding for um Sir David and and John Deer the company founders.
4483937,482,3553.29,3558.8101,0,Um and anything that we can say on that uh what options are being considered.
4483937,483,3558.8101,3559.9299,0,There's a couple of questions there.
4483937,484,3560.53,3563.73,0,Um similar questions so it's from Edward uh Peter Hawkline.
4483937,485,3579.8301,3593.5801,1,This is one that we really can't um talk about uh or I can say from talking with David and John is is they very much aligned in terms of wanting to find um the the best long term future for uh Renishaw.
4483937,486,3593.6899,3597.3201,1,And um but unfortunately more than that we really can't say today.
4483937,487,3601.1299,3601.3198,0,Okay.
4483937,488,3601.8799,3611.4299,0,Uh well that's uh the end of the the questions and uh perfectly uh the end of the session at uh bang eleven o'clock.
4483937,489,3611.47,3617.0601,0,Um so um thank you everyone for for joining.
4483937,490,3617.0901,3628.1599,0,Um as I said earlier we will aim to publish a a recording of today's presentation and q and a session on the IR section of our website by tomorrow morning at the latest.
4483937,491,3628.3999,3632.6599,0,So just on behalf of Renishaw I'd like to thank you all for attending this event.
4483937,492,3633.1201,3636.6702,0,Hopefully it's been of value uh to all of you that have attended.
4483937,493,3637.1101,3646.8,0,And uh finally just a reminder that you will be able to download copy the interim report and copy the financial presentation later today from the IR pages of our website.
4483937,494,3646.8999,3650.24,0,So again thank you for attending and uh have a good day.
4484088,0,444.01,454.83,1,In twenty twenty one we also continued to improve and strengthen our model by investing in targeted acquisitions and strategic partnership.
4484088,1,456.16,465.28,1,We acquired CitrusAd to lead in retail media and Tremend to scale Publicis Sapient capabilities in Europe.
4484088,2,579.16,588.58,1,We welcomed over nine oh oh oh net additional recruits in the year and invested in reward and retention.
4484088,3,1259.9399,1267.92,2,Overall and excluding the activity of Publicis Sapient the u k was up three percent versus twenty nineteen in the fourth quarter.
4484088,4,1269.25,1278.85,2,France which represents seven percent of group net review in q q four posted organic growth of eleven point five percent compared to twenty twenty.
4484088,5,1279.51,1288.17,2,It grew three percent compared to twenty nineteen although this three percent that showed a negative when excluding media transport and the drugstore.
4484088,6,1288.86,1295.61,2,Creative activities were stable and media slightly positive after several quarters of solid growth.
4484088,7,1296.92,1314.1,2,Publicis Sapient grew strongly thanks to the ramp up of contract signed in twenty twenty in the b two b retail sector outdoor media and the drugstore rebounded significantly as the activities benefited from the full reopening of the economy in the quarter.
4484088,8,1315.26,1324.7999,2,Germany representing three percent of group net revenue posted five percent organic growth but was down six percent compared to twenty nineteen.
4484088,9,1326.0601,1333.2,2,Creative activities were stable while media posted high single digit and Publicis Sapient double digit growth.
4484088,10,1333.91,1346.4901,2,The decrease of six percent versus twenty nineteen is due to the decision we've taken in twenty twenty to close down a low margin print production unit as part of the COVID action plan.
4484088,11,1347.25,1353.0,2,This rundown is now completed and it'll not affect twenty twenty two performance.
4484088,12,1353.83,1363.54,2,Finally Central and Eastern Europe continue to post very strong growth with double digit organic in both media and creative.
4484088,13,1364.0699,1372.12,2,Poland Russia and Romania were extremely dynamic and the clear engines of growth in the region.
4484088,14,1374.14,1379.6499,2,On slide seventeen let me give you a bit more color on our performance in the rest of the world.
4484088,15,1380.48,1388.36,2,In Asia Pac representing ten percent of group net revenue in q four we delivered another very solid quarter.
4484088,16,1389.14,1396.28,2,The region grew nine point two percent organically with notably an impressive performance in China at seventeen percent.
4484088,17,1397.28,1407.3099,2,In China it's worth noting that we benefited from the ramp up of our various new business wins particularly in the non-food consumer products and automotive.
4484088,18,1408.1,1414.5,2,As we're in the region the performance w was more diverse affected by local lockdown situation.
4484088,19,1414.9399,1416.88,2,India was flat this quarter.
4484088,20,1416.91,1423.67,2,Australia up mid-single digits while Singapore was down this quarter due to some delayed contracts.
4484088,21,1424.27,1429.95,2,Thailand on the other hand doubled its net revenue in the quarter driven by Publicis Sapient.
4484088,22,1443.2,1451.02,2,Latin America posted a twenty two point six percent organic growth in the quarter which was nine percent growth versus twenty nineteen.
4484088,23,1451.36,1453.9501,2,The performance was mainly driven by media.
4484088,24,1454.7,1463.02,2,All countries in the region were positive with a notable twenty two percent in Brazil our largest country in the region.
4484088,25,1465.91,1471.6001,2,Let's now turn to slide eighteen which summarizes organic growth by region in the full year.
4484088,26,1471.8,1483.9301,2,North America posted regular and strong performance throughout the year leading to nine point seven percent in twenty twenty one versus twenty twenty and as I said seven percent versus twenty nineteen.
4484088,27,1484.72,1492.37,2,In Europe our activities were up nine point six percent for the full year not fully recovering the twenty nineteen levels yet.
4484088,28,1493.33,1499.3401,2,Excluding Publicis Sapient u k though Europe was nearly flat versus twenty nineteen.
4484088,29,1500.2,1509.7999,2,Middle East and Africa saw its revenue grow eleven point nine percent organically and almost recovered its twenty nineteen levels in the year.
4484088,30,1510.39,1521.16,2,Latin America was up sixteen point eight percent organically in twenty twenty one and thanks to its strong q four was up one percent versus twenty nineteen.
4484088,31,1523.28,1528.61,2,On slide nineteen you will find the group performance by industry verticals for the full year.
4484088,32,1529.26,1536.47,2,This is based as usual on the analysis of our main clients representing ninety one percent of our net revenue.
4484088,33,1537.25,1540.15,2,It also excludes media transports and the drugstore.
4484088,34,1540.85,1544.77,2,In twenty twenty one all our clients industries were positive.
4484088,35,1545.6899,1550.0699,2,Health posted the strongest growth over the year at seventeen percent.
4484088,36,1550.54,1556.3301,2,It also grew double digits in q four on an already strong performance in twenty twenty.
4484088,37,1557.37,1567.62,2,Automotive grew eleven percent in twenty twenty one despite some slowdown in the fourth quarter due to the supply shortages as we anticipated it.
4484088,38,1568.89,1575.2,2,The financial sector was slightly up on the year at five percent but nonetheless did decelerate in q four.
4484088,39,1576.149,1583.22,2,T M T retail and non-food industry posted double digit growth for both the full year and in q four.
4484088,40,1596.59,1600.34,2,Moving now to Page twenty our consolidated income statement.
4484088,41,1601.1801,1614.1699,2,Our net revenue in twenty twenty one was ten thousand four hundred eighty seven million Euro and e b i t d a was two thousand three hundred and seventeen million Euro up respectively eight percent and seven point three percent.
4484088,42,1615.34,1623.86,2,Operating margin was at one thousand eight hundred and forty million Euro which is a margin rate of seventeen point five percent up by…
4484088,43,1627.25,1636.27,3,This actually represents a historic historically high level for the group for both twenty nineteen levels by twenty basis points.
4484088,44,1637.04,1640.0699,3,I will provide more details on this in the next two slides.
4484088,45,1641.09,1649.74,3,Headline Group net income was one thousand two hundred sixty four million euro in twenty twenty an increase of twenty two percent versus last year.
4484088,46,1650.17,1665.4099,3,Headline net financial expen expenses came as expected at a hundred and sixty million euro while income taxes increased to four oh seven million euro on the basis of a higher taxable income.
4484088,47,1666.73,1681.55,3,After adding non-cash items group net income was at one billion and twenty seven million million euro in twenty twenty one doubling compared to twenty twenty and up forty three percent versus twenty nineteen.
4484088,48,1683.11,1686.49,3,Let me now get into more details for each of these aggregates.
4484088,49,1687.95,1700.85,3,First operating margin which improved by a hundred and fifty BP versus last year reported one hundred and sixty BP versus a comparable at constant perimeter and foreign exchange rate.
4484088,50,1701.76,1707.61,3,Our personnel cost were up ten percent on the year after six percent increase in the first half.
4484088,51,1708.09,1726.75,3,This reflects the acceleration in our investment in talent in the second half to attract retain and reward as inaudible mentioned previously with a significant rise in our bonus pool and over nine thousand net recruits in twenty twenty one to accompany our growth.
4484088,52,1727.79,1733.0,3,But we manage to maintain personnel costs at sixty two point eight percent.
4484088,53,1734.27,1743.4399,3,Restructuring costs reach fifty three million euro down as expected by a hundred and twenty one million prior to uh versus the prior year.
4484088,54,1744.1899,1760.51,3,I will detail as I did in h one the evolution of the other lines of the p and l in the next slide which shows a bridge between the fifteen point nine percent comparable twenty twenty and the seventeen point five percent we posted in twenty twenty one.
4484088,55,1762.91,1768.15,3,Let me take cue through our bridge of operating margin from the left to the right.
4484088,56,1768.91,1773.97,3,I will begin with the twenty basis point increase in personnel cost that I just talked about.
4484088,57,1774.59,1780.85,3,Consistent with what I told you at our h one earnings the evolution is derived from three different elements.
4484088,58,1781.98,1794.7101,3,First an improvement in fixed personal cost corresponding to a hundred and sixty basis points which materialized mostly in the first semester due to a low cost base exiting twenty twenty.
4484088,59,1796.51,1802.86,3,So inaudible an increase in people incentive by a hundred and ten BPs in order to both reward and retain.
4484088,60,1803.3199,1807.91,3,This include a fifty percent rise in bonus pool versus twenty twenty.
4484088,61,1808.27,1812.1801,3,And after after you've said it already doubling the level of twenty nineteen.
4484088,62,1813.01,1827.51,3,"It also includes the exceptional additional one week salary bonus that the group decided to award to 35,000 people who do not have a viable remuneration and were with us throughout the last two years."
4484088,63,1828.64,1836.84,3,Finally we increased our freelance resources amounting to seventy BPs to help us adapt to the rise in revenue in the second part of the year.
4484088,64,1837.76,1846.83,3,Then the decrease in restructuring cost in line with our anticipation that I previously mentioned represent an improvement of a hundred and thirty BP.
4484088,65,1848.3101,1864.2899,3,Cost of sales increased by a hundred and ten BPs consistent with h one and mainly reflecting a charge that used to be accounted for in depreciation and related to the short term extension of two French outdoor media contracts.
4484088,66,1864.79,1875.4,3,This is this impact will be reversed in twenty twenty two as we actually renewed at the end of last year those two contracts for our respectively five and ten years.
4484088,67,1876.65,1884.02,3,Half of the decrease in depreciation of a hundred and seventy BPs is explained by the same technical point I just mentioned.
4484088,68,1884.91,1894.0299,3,The other half is a result of the reduction of real estate footprint that we have carried over in the last few few years our all in one program.
4484088,69,1895.5,1901.3,3,Other operating expenses posted a slight negative ten B P S to the margin rate performance.
4484088,70,1902.0601,1913.41,3,Within operating expenses it's worth noting that G N A in percentage of revenue continue to decrease year on year as some expenses like travel have not yet fully restarted.
4484088,71,1914.3199,1927.53,3,As a result our operating margin rate in twenty twenty one amounted to seventeen point five percent again an increase of a hundred and sixty BPs compared to twenty twenty on a comparable basis.
4484088,72,1929.74,1944.14,3,Let's move now quickly to our headline net financial expenses on slide twenty three which is at minus a hundred and sixty million versus a hundred and eighty nine last year down by twenty nine million.
4484088,73,1944.89,1949.1801,3,This this decline is mostly due to two anticipated evolution.
4484088,74,1949.6899,1956.92,3,First a decrease in interest on net financial debt by eighteen million euro derived from the deleveraging of the group.
4484088,75,1957.24,1961.55,3,And I will get back to that while commenting the evolution of the group average net debt.
4484088,76,1962.1801,1974.9601,3,And so going the decrease of seven million in the interest uh on Lee's liabilities which is a direct consequence to of the continued reduction in the group real estate footprint that I just mentioned.
4484088,77,1976.89,1979.39,3,Now on slide twenty four income tax.
4484088,78,1979.54,1988.0,3,Reported income taxes on of three hundred and seven million euro increased along with the rise in profit before tax.
4484088,79,1988.64,2006.99,3,To calculate the headline income taxes of four hundred and seven million euros we are adding the non cash elements of our p and l i e the tax effect on our monetization of intangibles on impairment and real estate consolidation as well as non uh other non-cash item.
4484088,80,2008.1801,2021.4501,3,Effective tax rate reach twenty three point four percent which is down a hundred and thirty basis points compared to twenty twenty and an improvement just as our expectation of a twenty four point five percent rate.
4484088,81,2022.28,2040.28,3,While the E T R is obviously the reflection of our regional and business mix it was positively impacted in twenty twenty one by a non-recurring deferred tax asset set in France that we accounted for when we renewed the two French outdoor media contract I mentioned earlier.
4484088,82,2041.0,2049.9102,3,Taking this into account we expect our E T R for twenty twenty two to be at around twenty four percent in the current tax environment.
4484088,83,2052.2,2061.4402,3,On slide twenty five our headline earnings per share fully diluted increase by seventeen point six percent year on year to five euro and two cents.
4484088,84,2062.0701,2064.6501,3,Uh returning to its twenty nineteen levels.
4484088,85,2064.74,2074.9399,3,This is obviously directly related to the increase in our operating margin decrease of our financial cost and the variation of our share account.
4484088,86,2076.6201,2079.3699,3,Moving to slide twenty six free cash flow.
4484088,87,2080.28,2087.4299,3,Our free cash flow before changing working capital was one billion four hundred and twenty seven million euro in twenty twenty one.
4484088,88,2087.4299,2093.48,3,It is a twenty percent gross year on year and it's fourteen percent compared to twenty nineteen.
4484088,89,2094.1399,2102.7102,3,This improvement of two hundred thirty seven million euro that is twenty twenty derived from the following major evolution.
4484088,90,2102.71,2111.9299,3,First a hundred and fifty eight million increase in a inaudible consequence of the a hundred and sixty BPs increase in operating margin.
4484088,91,2112.79,2128.1699,3,inaudible a reduction of ninety six million in our lease liabilities reflecting the benefit from our all-in one real estate plan and the re-classification of the depreciation of the French outdoor media contract that I already mentioned.
4484088,92,2129.4199,2136.1001,3,Third a nineteen million reduction in our CapEx for the year mostly driven by the lower spend we had in the first half.
4484088,93,2144.52,2149.53,3,And finally an incremental outflow of sixty nine million of tax paid.
4484088,94,2152.1499,2155.45,3,Let's now move on to the next slide our use of cash.
4484088,95,2156.79,2163.4402,3,In twenty twenty one the change in working capital represented an outflow of two hundred and sixteen million euro.
4484088,96,2164.22,2177.3899,3,This is a better outcome that the three hundred to five hundred million euro reversal we initially anticipated after the recalled one billion euro inflow in our working capital in December twenty twenty.
4484088,97,2178.5601,2184.9199,3,At December twenty twenty one we now consider that the working capital at the group balance sheet is normalized.
4484088,98,2186.1599,2192.6301,3,Acquisition net of disposal and including earn outs and buyouts reach two hundred and eighty three million euro.
4484088,99,2193.27,2200.6101,3,At the top end of the racket of two hundred to three hundred million envelope for Bolton that we mentioned during the year.
4484088,100,2201.3401,2208.3098,3,This inaudible includes the payment of our acquisition of Citrus Ad Boomerang Octopus and BBK.
4484088,101,2210.3301,2216.4199,3,Other non-cash item was plus a hundred and ninety two million euro resulting from two main factors.
4484088,102,2216.5,2231.46,3,First a hundred and nineteen positive impact from Forex adjustment and change in fair value of inaudible a fifty six million positive impact from the non-cash change in earn outs and buyouts.
4484088,103,2232.3701,2242.6699,3,In total we decreased the group closing net debt by seven hundred fifty seven million euro in December twenty twenty one compared to December twenty twenty.
4484088,104,2244.6201,2247.52,3,Moving on slide twenty eight the net financial debt.
4484088,105,2247.52,2255.75,3,So reduction in that debt I just described led to a closing net debt of seven six million at the end of twenty twenty one.
4484088,106,2256.95,2264.3,3,But you know that the uh debt K P I which is the most important to judge the leverage of the group is the average net debt.
4484088,107,2265.1201,2270.4702,3,Our average financial net debt in twenty twenty one was one point five billion euro.
4484088,108,2271.28,2277.8601,3,This is slightly better than the latest guidance I gave you in October of one point six billion euro.
4484088,109,2278.97,2285.3098,3,As you know our priority for twenty twenty one was the deleveraging of the group after the inaudible acquisition.
4484088,110,2300.75,2308.3101,3,Before handing over to Arthur let's focus on our twenty twenty one dividend and our cash allocation for twenty twenty two.
4484088,111,2309.5601,2319.4099,3,First on slide twenty nine our dividend we are pleased together with the board to announce the dividend per share of two euro and four oh cents.
4484088,112,2320.28,2326.3801,3,The dividend will be submitted to the shareholders votes at uh at our next A G M in May.
4484088,113,2327.47,2335.1199,3,This represent a payout of forty seven point eight percent and an increase of twenty percent versus twenty twenty.
4484088,114,2336.3899,2346.29,3,It is actually ten cents higher than the twenty nineteen dividend that we were planning to pay in twenty twenty before the crisis hit.
4484088,115,2347.8401,2357.45,3,Thanks to our strong cash performance we have decided with the board to remove the script option which had been in place since twenty twelve.
4484088,116,2358.1799,2363.53,3,As a result our twenty twenty one dividend will be fully paid in cash.
4484088,117,2366.0801,2377.76,3,So let's now summarize our cash allocation for twenty twenty two on slide thirty which Arthur and I commented uh on in the previous slides.
4484088,118,2378.1499,2389.3601,3,First we are grading our dividend policy to a forty five to 50 payout ratio versus six inaudible 45% previously.
4484088,119,2390.29,2395.98,3,The twenty twenty one payouts of forty seven point eight percent is a good illustration of this.
4484088,120,2397.27,2408.02,3,So inaudible as I just mentioned we've decided to cancel the script dividend option in order to stabilize the number of group shares in circulation.
4484088,121,2408.8,2416.3801,3,This means an outflow of around six hundred million euro i e three hundred million more than in twenty twenty.
4484088,122,2417.8701,2428.0901,3,Third we are accelerating our Bolton acquisition strategy by allocating to it between four hundred and six hundred million euro in twenty twenty two.
4484088,123,2428.95,2438.8101,3,Which is twice the envelope of twenty twenty one to continue straightening our capabilities in data tech and commerce.
4484088,124,2439.79,2454.2,3,Fourth we'll use the remainder of our free cash flow generation to pursue the delivering of the group with the aim of reaching an average net debt of one billion euro by the end of twenty twenty two.
4484088,125,2455.0801,2457.28,3,This concludes my financial presentation.
4484088,126,2460.8401,2466.1499,4,In 2020 our industry went through historic loss.
4484088,127,2466.76,2470.1399,4,In twenty twenty one it rebounded to reach new heights.
4484088,128,2471.1101,2478.99,4,At every moment thanks to Amarillo we were able to face the challenges and seize the opportunities.
4484088,129,2480.5801,2503.8398,4,We are now emerging as a stronger company with three clear priorities for twenty twenty two leveraging our unique assets in data and technology giving our people more opportunity to progress delivering growth that is most profitable and responsible.
4484088,130,2505.26,2506.3101,4,Let me break that down.
4484088,131,2508.3101,2520.04,4,Our first priorities is to continue to leverage our unique assets in data and technologies to help our clients win in the platform world.
4484088,132,2521.5901,2528.1702,4,In the last years we have shifted our organization from a Northern company to a platform.
4484088,133,2571.02,2572.46,4,And for some years it has penalized our short term organic goals.
4484088,134,2599.5901,2618.8899,4,In a soon to be cookie less world we have clear leadership in building enriching and activating first party data.
4484088,135,2687.03,2693.02,4,Publicis Media and XLAN successfully launched PMX lifts in the US.
4484088,136,2694.0701,2705.6301,4,And with Citrus other that saw certified as a leader in retail media we'll lead the next generation of identity led retail media solution.
4484088,137,2717.23,2734.0601,4,We have the technology and one eight oh oh oh engineer and developers to build the platform and digital ecosystem our client need to create direct relationship with their consumer and accelerate on commerce.
4484088,138,2768.0801,2786.3101,4,Criteria included driving innovation reducing time to market improving business process agility and driving revenue goals.
4484088,139,2789.25,2797.3098,4,Let's be clear everyone in our industry will claim that they can deliver only channel creative experiences.
4484088,140,2799.1299,2819.79,4,But even if we all share the same core capabilities in creative and media very few have been making the necessary investments to really transform and adapt to the new imperative of the platform world as we have done in the past.
4484088,141,2821.24,2832.9399,4,And none of them have done it at the same scale we have with the acquisition of TBC Sapient and x l a n or the same level of integration with the country model.
4484088,142,2835.1799,2847.0701,4,The best way to concretely measure not only how attractive but also how differentiating is a model is new business and retention rates.
4484088,143,2848.21,2854.77,4,When it comes to new business we have been number one for three years out of four in the rankings.
4484088,144,2855.75,2873.5801,4,And as for our retention rates over the past four years we are first in terms of net billing thanks to our ability to win significant new client while maintaining and reinventing our relationship with existing ones.
4484088,145,2876.54,2886.8401,4,Our second objective is making our people progress in an ideal world by giving them more opportunity to grow than anywhere else.
4484088,146,2886.8401,2893.79,4,To the that we have inaudible We have today an adoption rate of ninety percent across the group.
4484088,147,2894.7,2900.3301,4,We have designed it to become the personal growth platform for everyone at TBC.
4484088,148,2901.4199,2906.6799,4,It is there for learning with more than three oh oh oh oh online classes available.
4484088,149,2926.02,2929.73,4,We have already new content onboarding programs and partnership.
4484088,150,2930.3301,2935.77,4,More recently we strive global to equip a teams to lead the change in a hybrid world.
4484088,151,2997.3,3005.0701,4,We have built structures that enable us to deliver the best financial KPIs in the industry.
4484088,152,3006.05,3027.2998,4,Our country model our group super functions including our global delivery center and our shared resource and platform mean we are confident in our ability to continue to deliver industry leading financial ratios while investing in our people and future facing capabilities.
4484088,153,3029.1299,3042.24,4,At the same time because growth cannot be sustainable without being responsible we are taking the lead in putting an environmental and social commitment at the core of everything we do.
4484088,154,3080.48,3095.28,4,And finally in the fight against climate change we became the first holding companies to have our ambitious objective of carbon neutrality by twenty thirty validated by l b t i.
4484088,155,3365.43,3368.3,8,Yes correct following uh Facebook comments last night?
4484088,156,3369.85,3370.1,5,Okay.
4484088,157,3370.14,3376.28,5,Um if you don't mind I'm gonna start with number one o on uh on uh four to five percent.
4484088,158,3389.78,3394.13,5,Uh so again uh looking at 2022 uh we definitely expect organic growth to between four to five percent.
4484088,159,3394.84,3405.44,5,Uh which again is gonna be a sequential improvement uh versus our two year stack of 3% and on the back of uh twenty twenty one at ten percent growth.
4484088,160,3444.77,3451.97,5,The second thing that is P B C specific is a ramp up uh of our strong new business win in twenty twenty one.
4484088,161,3452.54,3475.11,5,It has been a year with an increase of fifty percent of activity in new business uh we had a great run and this of course has a lot to do with the 4-5 What is not PBC specific but needs to be factored in is actually the positive environment that we're seeing for advertising that is gonna be true to our peers.
4484088,162,3541.52,3542.84,9,We were we were right.
4484088,163,3543.1,3547.09,9,It did materialize but it was softer than uh anticipated.
4484088,164,3716.3,3723.31,5,The point is that Lina touched on almost all topics in the first question and so on maybe I'll just recap and then we'll move on to the other one.
4484088,165,3723.31,3730.18,5,But when it comes to the top line we are confident to deliver between four to five percent for three reasons.
4484088,166,3730.18,3742.5,5,The strength of our model boosted by Epsilon and Sapient the ramp up of our business wins in twenty twenty one and the overall positive environment for advertising and business transformation.
4484088,167,3742.99,3752.55,5,To come back to your point this includes possible supply s- sales shortage that could in H1 and linger over the time.
4484088,168,3753.1,3760.79,5,When it comes to the margin uh we are maintaining the same margin uh as twenty twenty one for main reasons.
4484088,169,3761.47,3767.23,5,Michele and I said it we entered twenty twenty one with a lean cost base which is a big difference.
4484088,170,3767.81,3788.27,5,We are anticipating to mitigate inflation that will be there and also very importantly we'll continue to invest in our talent to sustain our growth cuz again we believe that when you are already at the best margin of the industry and the best margin ever for the group what matters the most is to sustain our growth.
4484088,171,3789.01,3794.18,5,And here again inflation is included and supply short shortage are included into those numbers.
4484088,172,3797.14,3798.08,8,Very clear thank you both.
4484088,173,3803.19,3803.71,6,Thank you.
4484088,174,3804.44,3808.94,6,We now move on to our next question which comes from Lisa Yang of Goldman-Sachs.
4484088,175,3808.94,3813.4,6,Please go ahead.
4484088,176,3833.24,3839.85,10,Um just like if you can help us understand like how you constructed that that four to five uh would be helpful.
4484088,177,3862.58,3867.61,10,Um and the third question is on capital location and I think your priorities for twenty twenty two are very clear.
4484088,178,3868.02,3875.71,10,I think you know most people I've uh spoke to this morning was you know what why why do you want to be uh so conservative on the on the balance sheet?
4484088,179,3882.06,3883.9901,10,So any color on that would be would be helpful as well.
4484088,180,3884.29,3884.59,10,Thank you.
4484088,181,3886.96,3890.41,5,Teresa uh Michele and i'll probably take one and three and I'll took two as well.
4484088,182,3890.47,3891.04,9,Yeah sure.
4484088,183,3891.04,3891.29,9,Sure.
4484088,184,3892.34,3892.63,9,Yeah.
4484088,185,3963.83,3964.23,9,Arturo?
4484088,186,4090.61,4100.28,9,We had a mandate in twenty twenty one which was deleveraging we've been super clear about that throughout the year and that's what we've d what what we did.
4484088,187,4100.74,4111.03,9,As you as you as you've seen we reduced significantly our average net debt and we've we've reduced it by a full round a full term of uh of EBITDA.
4484088,188,4217.86,4219.42,5,But more importantly personally.
4484088,189,4219.42,4229.5599,5,We did a lot of things and we tried to help as much as we can but delivering the performance they are delivering 14% globally uh uh is is really a big achievement.
4484088,190,4229.5601,4239.8,5,So uh now to answer your question um we don't think uh you should uh consider our uh twenty twenty one number as a normalized level of growth.
4484088,191,4240.67,4252.0199,5,But uh to be very straightforward on your question we are confident that P B C Sapient will be highly accretive to the group organic growth in twenty twenty two.
4484088,192,4252.91,4254.2899,5,There is two factors for that.
4484088,193,4255.62,4267.04,5,The first is the US I mean for those who uh were with us in twenty nineteen uh you would remember that Sapient for a year has been structurally declining in the US.
4484088,194,4267.6,4269.42,5,We did roughly uh three things.
4484088,195,4269.83,4273.3199,5,First we had Nigel Vaz who was in charge of the rest of the world to take care of it.
4484088,196,4274.0,4289.79,5,Second we separated uh Sapient from Razorfish and by the way give me an opportunity to say that Razorfish now is growing pretty well while US structure is declining too and January plan still has been doing a great plan in the US.
4484088,197,4290.42,4305.61,5,And uh we actually transformed Sapient's offer in the US on the model that Nigel has developed around the world which is industry verticals focusing on business transformation.
4484088,198,4306.64,4313.23,5,By doing this in twenty twenty one Sapient in the US reached twenty percent.
4484088,199,4314.59,4321.1899,5,So I'll give you an idea of the potential again don't take this number as a normalized number but you see the potential.
4484088,200,4321.96,4346.41,5,So second good news that matters a lot for us is that Sapient has been doing still a very good job internationally but it's not reflected into our UK number for a very simple reason is that many not that many but few very uh big and very big loyal clients have reduced their investments during uh twenty twenty.
4484088,201,4347.0,4351.1899,5,And it had a big impact on our number in the UK for the last two years.
4484088,202,4351.65,4352.96,5,There is two good news here.
4484088,203,4353.21,4376.11,5,The first is that investments are starting to ramp up again and on the same page Sapient in the UK have started and i will come back to the question you are asking about where are the opportunities Sapient has started to win uh some some very interesting and material business in the UK that make us confident that Sapient will be back in the UK in twenty twenty two.
4484088,204,4376.26,4386.23,5,So if you add the momentum we're having in the US and the fact that UK will have recovered this year uh we feel very good about the pipeline.
4484088,205,4386.5,4403.8,5,We are of course very aware of the need to retain first and attract the best talent in an industry that is highly competitive but we are putting in place all the mechanisms and I talked about that with Marcel but there are many others to make sure that we can create the dynamic.
4484088,206,4407.13,4407.6201,10,Great sorry.
4484088,207,4407.62,4408.62,10,Very comprehensive thank you.
4484088,208,4414.4301,4417.87,6,We now move on to a question from Richard Eerie from u b s.
4484088,209,4418.16,4418.9301,6,Please go ahead.
4484088,210,4454.3101,4457.87,11,Um the second question just is on inflation.
4484088,211,5873.8899,5881.98,14,Thank you.
4484088,212,5964.8899,5971.23,22,Uh that it should have not been brought to the court and because now it's a lawsuit we don't want to enter to details.
4484088,213,5971.9199,5976.74,22,As for the timeline it's really too early to know it can take years actually.
4484088,214,5977.1299,5980.5,22,So we are working on it and we'll continue monitoring the situation.
4484088,215,5992.0601,5998.74,15,Uh coming actually and maybe you you remember that coming uh particularly from our first semester.
4484088,216,5999.1899,6022.54,15,Uh in twenty twenty two we are estimating indeed a level of capex that will go back to the level of twenty nineteen with most of the increase um uh uh uh derived from the investment in our platforms in both digital media Epsilon and uh Sapient.
4484088,217,6043.0601,6043.51,16,Perfect.
4484088,218,6104.49,6104.78,23,Thank you.
4484088,219,6104.97,6108.76,14,I think that Michele are are going to take those three questions and then maybe I'll wrap up.
4484088,220,6109.3,6109.55,15,Yeah.
4484088,221,6109.6899,6109.8398,23,Cool.
4484088,222,6110.04,6110.3101,15,So…
4484088,223,6110.3101,6111.1802,15,<silence>.
4484088,224,6118.6799,6120.6299,15,I'm sorry I'm sorry my mic was not on.
4484088,225,6129.0701,6132.2,15,Through we we see a temporary margin deterioration.
4484088,226,6281.95,6286.8501,14,Um we do believe that we are emerging from this crisis uh as a stronger company.
4484088,227,6287.5701,6297.0898,14,Uh we have a growth an operating margin and a free cashflow that are above 2019 and at an historical high.
4484088,228,6298.1101,6311.02,14,Uh hopefully you have felt that we entering actually twenty twenty two with confidence because we truly believe that we have built very robust foundation.
4484088,229,6312.52,6320.48,14,We are though committed to continue to deliver industry leading financials with 17.5% operating margin.
4484088,230,6320.6899,6326.76,14,And again despite inflation and while investing in our talent to maintain the growth.
4484088,231,6327.5801,6334.72,14,And when it comes to growth we are committed to deliver around four to five percent it's gonna be a lot of work.
4484088,232,6335.77,6339.48,14,But we believe that we have three reasons to be confident.
4484088,233,6340.1599,6358.55,14,The first and we talked a lot about that so thank you for the question the strength of our model with Sapient and Epsilon that are accretive to our growth but again that also valuing our media and creative operation leading to more new business and uh client loyalty.
4484088,234,6359.3701,6373.77,14,The new business win that will have an impact this year and it's original inaudible and what we see as a positive environment for advertising and business transformation we talked a lot about business transformation.
4484088,235,6374.01,6375.75,14,But we believe it's true for advertising too.
4484088,236,6376.1201,6382.8599,14,So we are gonna stop here thank you again for your time take very good care of you and hopefully see you soon in person.
4484088,237,6383.1499,6384.1501,14,Thank you bye-bye.
4484088,238,6390.05,6392.96,16,Thank you this concludes today's call thank you for your participation ladies and gentlemen you may now disconnect.
4484146,0,4.94,6.86,0,Good day and thank you for standing by.
4484146,1,16.76,20.2,0,After the speaker's presentation there will be the question and answer session.
4484146,2,20.73,25.36,0,To ask a question during the session you will need to press Star and One on your telephone keypad.
4484146,3,26.12,28.74,0,Please be advised that today's conference is being recorded.
4484146,4,38.48,39.05,0,Please go ahead.
4484146,5,41.02,42.1,1,Thank you Nadia.
4484146,6,42.82,57.47,1,Thank you for joining us on our fourth quarter and fiscal year of twenty twenty one earnings conference call with Bernard Charles Vice Chairman and c e o Pascal Daloz Chief Operating Officer and Rouven Bergmann Chief Financial Officer.
4484146,7,57.94,58.62,1,We also…
4484146,8,58.74,65.7,1,we will also join us Tarek Sherif Chairman Dassault Systemes Life Sciences and Healthcare.
4484146,9,66.45,70.24,1,Dassault Systemes results are prepared in accordance with i f r s.
4484146,10,70.71,83.56,1,Most of the financial figures discussed on this conference call are on a non i f r s basis with revenue growth rate in constant currency unless otherwise noted.
4484146,11,84.38,91.52,1,Some of our comments on this call contain forward-looking statements which could defer materially from actual results.
4484146,12,91.99,100.62,1,Please refer to today's press release and the risk factors section of our twenty twenty universal registration documents.
4484146,13,101.22,108.48,1,All earnings material are available in our website and these prepared remarks will be available shortly after this call.
4484146,14,108.78,110.24,1,Bernard the floor is yours.
4484146,15,110.31,111.98,2,Thank you very much Francois-Jose.
4484146,16,111.98,116.41,2,Good morning and good afternoon to all of you and uh thank you for joining us.
4484146,17,116.41,121.74,2,Uh it's uh always a pleasure uh to review our full year result with you.
4484146,18,122.3,127.12,2,We had an excellent twenty twenty one year with a strong finish to the…
4484146,19,127.15,127.87,2,to the year.
4484146,20,128.24,138.28,2,The total revenue grows eleven percent for the year uh driven by a broad based demand across our end markets.
4484146,21,138.98,143.47,2,The majority of which are growing double digit by the way.
4484146,22,144.32,148.06,2,Our strategy growth drivers perform well through the experience.
4484146,23,148.06,155.03,2,Revenue increased fifteen per fifteen percent with cloud revenue rising twenty three percent.
4484146,24,155.86,163.78,2,Our three d experience platform has been a competitive advantage driving new client wins.
4484146,25,164.73,169.46,2,The cloud is a about inclusiveness and providing additional value to clients.
4484146,26,170.25,178.27,2,Earning per share increased twenty six percent thanks to good revenue growth on high profitability.
4484146,27,179.04,185.56,2,For twenty twenty two we have set the target for nine to ten percent top line growth.
4484146,28,187.08,197.98,2,As you can see we have delivered very good results but more importantly we have the key elements in place to support sustainable growth.
4484146,29,198.23,206.69,2,Our technology are changing the game for clients across our three major sector of the economy.
4484146,30,207.17,214.02,2,We are expanding our footprint deepening existing partnerships and adding new clients.
4484146,31,214.93,220.52,2,We have invested in our team establishing the next generation of leader.
4484146,32,222.61,227.4,2,The stage is set therefore for a good future.
4484146,33,227.78,233.09,2,Now I like to share some perspective on our vision and strategy for the coming years.
4484146,34,235.02,251.03,2,You remember ten years ago on February uh twenty twelve we unveiled a new brand identity for our company the three dexperience Company and our corporate purpose built around organizing product nature on life.
4484146,35,252.08,255.32,2,Today the significance of our strategy is clear.
4484146,36,255.5,259.58,2,Our clients and partners have embraced the experience economy.
4484146,37,260.27,260.75,2,They have…
4484146,38,260.99,273.09,2,They are transforming all sectors on industries with sustainability on human centricity as sample pillars of a new era.
4484146,39,273.09,283.78,2,The experience economy accelerated by the pandemic triggers new categories of expectations clearly from citizens passion consumers even workers.
4484146,40,284.52,288.2,2,This is apparent in our everyday life.
4484146,41,288.95,291.78,2,Tomorrow's mobility is no longer a matter of vehicles.
4484146,42,291.9,295.62,2,It's a matter of desirable sustainable mobility experiences.
4484146,43,296.72,301.53,2,Tomorrow's healthcare is much more than therapeutics.
4484146,44,301.59,304.86,2,It's about the patient journey on precision medicine.
4484146,45,305.48,309.58,2,Tomorrow's cities are not only a collection of building streets and facilities.
4484146,46,310.26,313.82,2,It's about quality of life and quality of service.
4484146,47,314.95,319.97,2,As a consequence all our clients need to reimagine their offer.
4484146,48,320.78,336.85,2,Our answer is the systematic use of virtual twin experience based on modeling simulation on real-world dividend in this merger between the virtual and the real world.
4484146,49,338.8,346.42,2,Our ambition therefore to help our client imagine create produce experiences for their own clients.
4484146,50,347.36,357.41,2,Unlike metaverse we use virtual world three d virtual world experiences to improve the real world.
4484146,51,358.33,362.97,2,Only then the possibility of harmonizing product nature on life will emerge.
4484146,52,364.49,370.46,2,I believe that innovators of tomorrows and we see them have to think in terms of universes.
4484146,53,370.46,380.58,2,They are that is to say in terms of organic systems of systems that create produce on play experience in a circular economy.
4484146,54,382.37,399.89,2,With the 3D3DEXPERIENCE platform we are creating this if we loop we can provide this holistic view combining value creation on value experienced design on usage to cover the full experience life cycle.
4484146,55,401.46,407.0,2,We can extend virtual twin experiences across universes.
4484146,56,407.99,411.39,2,It's about continuity of the what?
4484146,57,412.1,412.53,2,The offer.
4484146,58,413.09,418.45,2,The how are you make it on the use of it by people.
4484146,59,419.48,422.89,2,This is a new revolutionary approach to innovation.
4484146,60,423.87,426.188,2,It's in some way the next generation of P L M.
4484146,61,426.82,437.26,2,As we have done in the past with the early adopter we will pave the way for the future across the three sectors of the economy we serve.
4484146,62,437.26,440.58,2,Let's quickly look at implications.
4484146,63,440.72,442.35,2,For example in life sciences.
4484146,64,442.95,454.2,2,Clinical research has moved beyond the hospitals and labs as more and more technology is used to decentralize trials.
4484146,65,455.26,462.87,2,The entire clinical trial experience is transformed for all people involved.
4484146,66,464.31,469.06,2,Patients can now participate in a trial from anywhere especially from home.
4484146,67,469.85,474.3,2,Doctors and researchers can now collect more data in different ways.
4484146,68,475.8,486.98,2,If we connect the dots across clinical trials data real-world data and research on the development we can close the loop on make precision medicine reality.
4484146,69,488.88,491.79,2,As a consequence elevate the patent journey.
4484146,70,492.45,497.68,2,Dassault Systemes will be the only one capable of supporting end-to-end solution in life science.
4484146,71,498.94,504.48,2,The ongoing advancement toward the sustainable economy will mark the <inaudible> also.
4484146,72,506.65,511.11,2,We can reveal some of the dynamics we see progressing.
4484146,73,511.11,529.81,2,I think it's clear that our passion for science-based people-center innovation on the commitment we have for our very loyal clients is really a catalyst of that transformation.
4484146,74,530.85,537.0,2,Let's have a few illustration of how we are enabling such kind of transformation today.
4484146,75,538.42,541.74,2,And I think from there you will see a lot of good reasons to believe.
4484146,76,543.99,548.39,2,In the consumer industry we have a very successful partnership with Ikea.
4484146,77,549.64,565.2599,2,With the three dexperience by Knee me platform kin kitchen planner on the cloud Ikea is enabling customers to use virtualization to design their own dream kitchens.
4484146,78,567.61,576.44,2,The pandemic has led individuals to invest in their homes and has acted as an accelerator for eCommerce.
4484146,79,576.53,584.42,2,The three dexperience by me platform kitchen planner has a allow Ikea to take full advantage of these trends.
4484146,80,585.69,588.1,2,In some way the by me kitchen platform was do…
4484146,81,588.1,596.61,2,was used by one million people only a few months after being deployed.
4484146,82,597.01,606.87,2,And today has reached over four million user making it the most popular three d consumer application in the world.
4484146,83,608.35,613.45,2,This is the cloud advantage but it's also the mob mobile advantage.
4484146,84,615.7,620.59,2,In mobility and also sector of the industry pur purely is pursuing…
4484146,85,620.77,630.73,2,is pursuing increasingly challenging goals in terms of sustainability working on innovative materials on cutting edge production processes.
4484146,86,632.6,636.78,2,They have selected smart tires on the three dexperience platform.
4484146,87,637.7,648.81,2,They will leverage the capability of the virtual twin to foster innovation reduce cost increase circularity and of course reduce time to market through simulation modular design.
4484146,88,650.97,658.78,2,It's great to be part of Purelee's adventure to move everyone forward through technology and social progress.
4484146,89,661.09,671.16,2,In the healthcare I could take the example of Perigo uh because the healthcare affordability is becoming essential.
4484146,90,671.16,676.5,2,Today the cost of healthcare is growing twice as fast as the overall economy.
4484146,91,677.67,685.97,2,Perigo a hundred and thirty year old years old company has been improving patient life with affordable self-care products.
4484146,92,686.01,699.29,2,The company is deploying several of our solutions for example license to cure perfect formulation perfect package on our three dexperience platform.
4484146,93,699.29,706.49,2,As you noticed that you are describing the function we are describing the value even in the way we name our solutions.
4484146,94,707.57,710.53,2,Their goal is to increase efficiency quality on time to market.
4484146,95,712.22,716.28,2,We're very pleased to help Perigo have this positive impact.
4484146,96,716.28,718.29,2,I guess they are very positive too.
4484146,97,719.4,723.04,2,Now you have some proof points.
4484146,98,724.73,733.72,2,It's plain to see virtual twin experience powered by the three dexperience platform uh helping all our customers evolve and transform.
4484146,99,733.84,747.8,2,We recently re- celebrating our forty anniversary at Dassault Systemes two generation of innovators have revealed the power of virtual works to imagine create disruptive innovation.
4484146,100,748.33,751.04,2,And this is a fact in all sectors we serve.
4484146,101,751.6,757.15,2,Now we are focused on our next horizon twenty forty.
4484146,102,757.45,760.9,2,Our objective is to do the…
4484146,103,761.13,774.61,2,is to be the leader of in sustainable innovation and to continue to position our clients at the Vanguard of progress across manufacturing industries life science and healthcare as well as in infrastructure and cities.
4484146,104,775.09,780.11,2,To support our long term initiatives we have established the next generation of executive leadership.
4484146,105,781.77,812.66,2,I'm so happy to have Pascal Daloz now fully focused on his mission as chief operating officer to connect all the dots on elevate and expand the value we provide to our clients empower new generation of leader along the lines that I just described at the same time I'm equally delighted to welcome Rouven Bergmann to the executive committee of Dassault Systemes as chief financial officer.
4484146,106,814.05,818.02,2,Rouven has played a critical role in integrating metadata.
4484146,107,818.45,830.2,2,He has held the C O O and C F O titles and brings a mastering of financial matters related to software on cloud business model over.
4484146,108,830.2,833.12,2,Rouven it's wonderful to have you here.
4484146,109,845.32,845.84,2,Our…
4484146,110,846.01,852.26,2,and many activities are driven by both innovation capabilities as well as talent on…
4484146,111,852.29,859.06,2,as you all know after many years of observing the Dassault Systemes it has always been essential for us.
4484146,112,859.06,864.25,2,We are focused on enabling team to transform um reveal talents.
4484146,113,865.03,880.49,2,When we acquired metadata in twenty nineteen just two years ago Tarek and his team especially with uh Glen his buddy uh created this incredible reason to believe that we could have a future together.
4484146,114,881.54,890.31,2,I'm extremely proud of the significant innovation strong culture on leadership metadata as brought to the life science sector.
4484146,115,891.13,900.62,2,We have been able to integrate scale rapidly accelerate growth and deliver excellent result and above all have fun being together.
4484146,116,901.23,912.59,2,It's a great pleasure now to have online Tarek by body uh who is now the chairman of the Life Science sector on the scale for for Dassault Systemes system.
4484146,117,913.39,916.01,2,And Tarek would you like to say a few words?
4484146,118,918.45,919.43,3,Thank you Bernard.
4484146,119,919.56,920.26,3,It's uh…
4484146,120,920.55,921.9,3,Thank you for the kind words.
4484146,121,921.9,926.14,3,And uh it's really a pleasure to be with all of you today in in my role.
4484146,122,926.2,931.04,3,Um it's been a few years since I've been on an earnings call and as you say it it's a lot of fun.
4484146,123,931.2,935.7,3,Um so it's been more than two years since we announced coming together.
4484146,124,936.3,943.82,3,And honestly I can't be more excited about what we've been able to accomplish and the progress we've made since that time.
4484146,125,944.64,957.25,3,It's been an incredibly challenging environment as as you all know um integrations are never easy and doing it on a global scale is you even more difficult and then doing it in the midst of a pandemic is an even more difficult.
4484146,126,957.63,967.57,3,Um but I would say that the integration has been a tremendous success and I really want to thank Bernard and Pascal for all the support that they have given us and our teams.
4484146,127,968.05,975.65,3,And i I'd like to also thank you our teams who have come together focused on creating value for our customers and ultimately for patients.
4484146,128,976.39,987.28,3,You know our teams are delivering amazing innovation and execution to advanced clinical trials and new treatments for patients during what's been an unprecedented time.
4484146,129,988.11,993.26,3,And it feels like we're just getting started given the tremendous opportunities that we see ahead of us.
4484146,130,994.22,1000.19,3,Our impact on improving the patient experience and scaling precision medicine has never been clearer.
4484146,131,1001.22,1004.7401,3,You know at the end of the day it's what Glen and I always dreamed about.
4484146,132,1005.21,1007.81,3,And we're convinced we would be able to do one day.
4484146,133,1008.5,1011.55,3,And it's what brought us together as organizations in the first place.
4484146,134,1012.32,1013.88,3,And it's becoming a reality.
4484146,135,1015.32,1022.85,3,As many of you know we suffered the tragic loss of Glen de Vries my best friend and our co-founder late last year.
4484146,136,1024.6801,1026.8601,3,He helped transform our industry.
4484146,137,1027.3199,1030.33,3,And his vision has always been an inspiration for all of us.
4484146,138,1031.4399,1041.6801,3,Glen helped set the highest standards for medidavid- data and he drove us to innovate and solve the most complex problems with energy and creativity.
4484146,139,1042.8101,1050.85,3,And I am absolutely convinced that we will pursue progress in life sciences and healthcare with the same passion that he had.
4484146,140,1051.36,1054.52,3,And we have an amazingly strong team to support that.
4484146,141,1055.33,1065.02,3,By continuing to do everything we can do to support the business we are honoring Glen's legacy and we will ultimately ensure healthier lives for patients everywhere.
4484146,142,1066.14,1071.74,3,We have a strong leadership in place today and they will help carry us into the future.
4484146,143,1072.3199,1079.6801,3,And together with Bernard and Pascal and now Ruben I share the conviction and confidence in our promising future.
4484146,144,1081.22,1083.03,3,I want to hand the call back to you Bernard.
4484146,145,1084.14,1088.5701,2,Thank you Tarek.
4484146,146,1088.6801,1100.71,2,Thank you my friend for your leadership and also the incredible moment we had all of us together when we decided in less than one hour that the future was together and that was only two years ago.
4484146,147,1102.13,1119.7201,2,So um I am also confident that we can make the difference uh and um we have now uh an incredible um connection between people and tremendous opportunities uh to provide great solutions for our customer.
4484146,148,1120.63,1124.37,2,So with that Pascal you have the floor.
4484146,149,1125.51,1126.28,4,Thank you Bernard.
4484146,150,1126.53,1128.8101,4,Hello everyone I hope you are doing well.
4484146,151,1128.8101,1130.3601,4,And thank you for joining us today.
4484146,152,1131.3,1141.98,4,So turning to our financial results the strong business momentum we experienced throughout the year continue into the first quarter visiting in the performance well aligned with our guidance.
4484146,153,1142.35,1146.0,4,So let's start with the q four top lines year over year comparisons.
4484146,154,1147.1,1155.39,4,Total revenue grew ten percent to one billions three hundred seventy millions above our seven to nine percent range.
4484146,155,1156.22,1159.75,4,So software revenue also grew ten percent and all organically.
4484146,156,1160.97,1168.9,4,License and other revenues rose fifteen percent to three hundred and forty eight million well above the guidance.
4484146,157,1169.0,1172.23,4,And we are back to twenty nineteen levels.
4484146,158,1173.5699,1179.02,4,Subscription and support revenue increase eight percent driven by the high leverage subscription growth.
4484146,159,1179.9399,1190.3,4,Reflecting strong metadata uh performance but also the three d experience uh momentum and and the recurring revenue represents seventy two percent of the software revenue.
4484146,160,1191.46,1192.5,4,Zooming on services.
4484146,161,1192.55,1201.8199,4,Servicing was up ten percent and we achieve a services gross margin of twenty seven point one percent substantially better compared to last year.
4484146,162,1202.28,1209.99,4,And it's coming mainly from the effort we made to improve the efficiency when we were in the middle of the pandemic uh I would say eighteen months ago.
4484146,163,1211.62,1219.2599,4,From a profitability stand point in the first quarter we deliver a q four a strong operating margin of thirty six point eight percent.
4484146,164,1220.22,1223.54,4,This will well align with our guidance of thirty six point four.
4484146,165,1224.45,1229.01,4,When taking into account the currency impact of forty basis point.
4484146,166,1230.313,1237.01,4,E P S grew seventeen percent to twenty nine cents compared to our guidance of twenty seven to twenty eight cents.
4484146,167,1238.86,1240.0499,4,Few words on the account.
4484146,168,1240.14,1241.2899,4,It's an important topic.
4484146,169,1241.72,1243.29,4,I know you have questions usually on this.
4484146,170,1244.0,1245.49,4,So in type of account we were…
4484146,171,1245.9,1247.92,4,we are well aligned with our objectives.
4484146,172,1247.95,1252.26,4,We saw strong <inaudible> activity again in q four and the lower attritions.
4484146,173,1252.6801,1257.4,4,And overhaul head count grew four percent and research and development was up six percent.
4484146,174,1258.3199,1268.75,4,So I think given our track of innovation and our mission driven culture we are confident in our ability to continue to attract and retain top talents over the mid to long term.
4484146,175,1269.33,1271.89,4,And this is still a priority for twenty twenty two.
4484146,176,1273.23,1279.74,4,Let's us take a deep dive into our revenue performance first and let's zoom on the software revenue by geo.
4484146,177,1281.74,1290.9701,4,The Americas grow seven percent during the first quarter driven by subscription growth which is a definitely uh key trend in north America.
4484146,178,1291.9301,1293.02,4,In twenty twenty one.
4484146,179,1293.02,1298.9901,4,The regions benefited from strong performance in iTech transportation and mobility and life sciences at large.
4484146,180,1299.75,1303.5499,4,And now America has represents thirty eight percent of the total software revenue.
4484146,181,1305.02,1310.61,4,Europe increased ten percent thank to a strong resiliency throughout the regions.
4484146,182,1311.78,1317.5601,4,And in twenty twenty one transportation and mobility and industrial equipment grew <inaudible>.
4484146,183,1317.76,1322.3201,4,Europe represented thirty seven percent of software revenue in twenty twenty one.
4484146,184,1323.71,1330.1,4,Asia rose twelve percent driven by market expansion in Japan India and Southeast Asia.
4484146,185,1331.02,1338.1,4,And in twenty twenty one China grew nineteen percent and Asia at large represent twenty five percent of the software revenue.
4484146,186,1339.5699,1341.6799,4,Let's say if you work on the product line performance.
4484146,187,1343.25,1350.9,4,Industrial innovation software revenue rolled eight percent to six uh under rather eighty two point three million in q four.
4484146,188,1352.61,1358.97,4,This growth has been driven specifically by <inaudible> where the growth is exceeding the double digits.
4484146,189,1359.62,1364.84,4,And it's mainly due to a large part to large client wins we did in q four.
4484146,190,1366.01,1371.6,4,In Ovia showed also a strong subscription growth which is against new trend.
4484146,191,1372.09,1378.12,4,And I think this subscription model is relatively suitable for all the collaborative uh set of solution we have.
4484146,192,1379.33,1382.74,4,And cattier finally is back to twenty nineteen levels.
4484146,193,1382.77,1386.1901,4,So I think we have again on our trajectory.
4484146,194,1387.73,1393.97,4,Life sciences software revenue reach two hundred forty five point one million in q four an increase of nine percent.
4484146,195,1395.29,1400.22,4,Metadata grew over fifteen percent on the back of a strong comparison base if you remember.
4484146,196,1401.25,1419.84,4,And we continue to see a very good momentum across the metadata portfolio including metadata RA the core products metadata AI know the diversity in the analytics and artificial intelligence and metadata passion cloud which is the factor standard for the decentralized clinical trial.
4484146,197,1422.1899,1426.1899,4,This um momentum is also visible in all the…
4484146,198,1426.79,1428.78,4,across the hand markets we are serving.
4484146,199,1429.11,1437.14,4,So not only the pharmaceutical and biology um companies but also the contract research organization and the medical devices company.
4484146,200,1438.39,1449.0399,4,So we saw high double digits growth in attach rate against this quarter which is extremely important because not only we are capturing new customers but we are growing inside those customers.
4484146,201,1450.13,1459.14,4,From a product line perspective we saw strongly metadata performance was partially upset someone by lower and expecting bio rav bio revenue.
4484146,202,1460.54,1469.3,4,This was driven by the delay of two large renewal but we expect to sign both renewal during the first half so it's really a temporary impact.
4484146,203,1471.04,1485.8501,4,If we step back a little bit you know we are one year after we have decided to create the life science engagement model which is uh nothing more than combining all the different uh capability and resources we have to address this market.
4484146,204,1486.89,1492.42,4,And this has been done through the leadership of the metadata management team especially uh Michael Pre.
4484146,205,1492.54,1494.04,4,And for that Michael thank you.
4484146,206,1494.71,1495.6801,4,You did extremely well.
4484146,207,1497.55,1514.09,4,And now we are confident that this being in place with the strategy we have to provide life science industry and end-to-end solution that connect us between ideation development manufacturing commercializations almost what we did in our industry like aerospace decades ago.
4484146,208,1514.4399,1516.15,4,I think it's pretty unique on the…
4484146,209,1516.25,1518.6899,4,on the marketplace and we will make the differentiations.
4484146,210,1520.1899,1530.64,4,Moving now on to the mainstream innovations software revenue rose fourteen percent to three hundred twelve point two million uh in q four.
4484146,211,1531.05,1537.1801,4,SolidWorks first deliver a strong result with software revenue growing high single digits.
4484146,212,1537.21,1543.9301,4,And we continue to see options of our three dexperience works family you know the cloud based solutions doing this period.
4484146,213,1552.5,1553.28,4,Revenue growth.
4484146,214,1554.52,1567.23,4,And not only it's um you know it's delivering the numbers but in term of KPIs we are now reaching more than five hundred fifty customers representing more than four thousand five hundred brands.
4484146,215,1567.54,1570.3201,4,And with an extremely high level of satisfactions.
4484146,216,1570.95,1588.9299,4,Not only uh it's true in the fashion industry but since uh almost two years um century P M M thanks to Chris Growth is expanding into new vertical such as food and beverage cosmetic and personal care and other customer consumer segments.
4484146,217,1589.6,1594.27,4,So again very pleased by this move and uh it's paying off.
4484146,218,1596.3199,1599.09,4,Good result is also when the strategy is working.
4484146,219,1599.63,1603.26,4,And as you know we have two KPIs to measure this.
4484146,220,1603.48,1616.01,4,The first one is the drug coming from the three dexperience and for the full year for twenty twenty one the three dexperience revenue grow fifteen percent driven by strong subscription growth.
4484146,221,1616.65,1640.4301,4,And now it's account for thirty percent of the total software revenue which is an increase of two hundred basis points compared to the last year in twenty twenty one the cloud revenue which is the other one KPIs we are monitoring increased twenty three percent driven by the continuing lens in life sciences of course but not only but also and more and more by the three dexperience.
4484146,222,1641.46,1647.5099,4,And cloud now account for twenty percent of our software of revenue had two hundred business per compared to last year.
4484146,223,1649.79,1666.1899,4,All the clients you know we have across all the sectors are transforming extremely rapidly and they are turning to Dassault Systemes to help them to adopt new business model accelerate innovation embracing sustainability imperatives putting consumer patient and citizen the center of experience.
4484146,224,1666.5699,1675.64,4,And our strategy is really to enable them those transformations with cloud native applications or cloud extension to an existing on-premise investment.
4484146,225,1676.1,1679.35,4,And our three dexperience platform has been developed to make both.
4484146,226,1681.4,1683.92,4,All those good result is also…
4484146,227,1683.92,1686.7001,4,are also reflected into the cash flow.
4484146,228,1687.64,1701.72,4,And for the fiscal year twenty twenty one the cash flow from operation roll thirty percent year-over-year to one billion six hundred and thirty millions which is uh converting thirty three percent of the revenue to operating cashflow.
4484146,229,1703.6899,1716.71,4,Cash reach a little bit less than three billion two billion nine hundred eighty million an increase of eight hundred thirty one million versus an increase of two hundred and four million last year.
4484146,230,1718.23,1732.29,4,And finally our net financial debt position at the end of the year decreased by a billion a hundred fifty two millions to uh less than nine hundred million to be precise eight hundred and ninety million.
4484146,231,1733.71,1741.2999,4,And it has to be compared with two billion four we had in December uh thirty first in twenty twenty.
4484146,232,1742.3,1750.0599,4,This in a net is putting us a year more than a year in fact ahead of a our schedule on our delivering objectives.
4484146,233,1751.95,1759.38,4,Now to discuss the twenty twenty two objectives I'm very pleased to introduce Rouven Bergmann our new chief financial officer.
4484146,234,1759.58,1767.9399,4,And Bernard mentioned Rouven has played a vital role in integrating metadata and it has been a real pleasure to work together for the last two years.
4484146,235,1768.12,1770.11,4,And it's a successful partnership I think.
4484146,236,1770.64,1774.61,4,So Rouven we are delighted to have you with us over to you on the floor.
4484146,237,1775.33,1779.1799,5,Thank you Pascal and hello everyone also from my side.
4484146,238,1780.03,1792.21,5,And before I would start to outline um the financial objectives for twenty twenty two uh I also want to share that I'm um thrilled and very happy to be here today with you uh in this new role.
4484146,239,1793.63,1806.83,5,I've really enjoyed the opportunity to meet with some of you already and learn from many colleagues at Dassault Systemes in particular UPAS cars since the acquisition of Metadata which you know as you know you've completed more than two years ago.
4484146,240,1808.1899,1817.0701,5,And now uh with the successful integration i am looking forward to getting to know all of you and the broader investment communities during this year.
4484146,241,1818.28,1820.28,5,And I know we already have concrete plans to do that.
4484146,242,1821.55,1827.28,5,So with this uh let me turn to the full years financials for twenty twenty two our financial objectives.
4484146,243,1829.52,1837.71,5,As discussed we expect the broad-based dynamics we experienced in the fourth quarter and twenty twenty one to continue into twenty twenty two.
4484146,244,1839.05,1842.5,5,We are focused on driving durable long-term growth.
4484146,245,1843.5,1847.59,5,Our growth drivers are well-established as highlighted by Bernard and Pascal.
4484146,246,1848.1,1853.29,5,First we are enhancing our leadership position across our major brands.
4484146,247,1854.5699,1863.95,5,Second we are accelerating the momentum with three dexperience and industry solution experiences and we're bringing new customers as well as expanding within our installed base.
4484146,248,1865.2,1869.4,5,And third we are focused on delivering new experiences and value with cloud.
4484146,249,1870.23,1874.35,5,So we will continue the momentum of metadata and metadata patient cloud.
4484146,250,1875.08,1878.36,5,We will also expand the user base with the three dexperience Works family…
4484146,251,1878.36,1889.9,5,Works family in the mainstream market and deliver new value at scale with large enterprise partnerships like what you see happening with Reno or <inaudible>.
4484146,252,1891.8,1898.4199,5,Now with this in mind we are targeting for full year twenty twenty two total revenue growth of ten…
4484146,253,1898.46,1902.1899,5,nine to ten percent and software revenue growth in the same range.
4484146,254,1903.26,1915.64,5,When thinking about our software revenue growth let's keep in mind that last year we had a very strong year of license growth with twenty three percent year on year which brought us back ahead of two thousand nineteen levels.
4484146,255,1916.7,1927.2001,5,And now for this year we expect to continue healthy double digits growth at around ten of up to twelve percent which reflects continued strong demand within our installed base.
4484146,256,1928.3101,1933.38,5,This trend is more in line with what we saw our performance in the fourth quarter.
4484146,257,1935.28,1939.79,5,We anticipate recurring software revenue to increase by nine to nine point five percent.
4484146,258,1940.33,1950.8099,5,An acceleration of a hundred to one hundred fifty basis point was this last year driven by continued momentum and subscription growth with cloud and solid improvement in support revenue.
4484146,259,1951.09,1955.76,5,Also resulting from the very good license growth we experienced throughout last year.
4484146,260,1957.12,1968.85,5,For services revenue we are projecting to grow between eight to nine percent reflecting the increased activity levels of delivering innovation to our clients across all segments with solid margin performance.
4484146,261,1971.28,1980.5699,5,From a profitability perspective this past year we demonstrated the long term scalab long term scalability inherent to our business model.
4484146,262,1981.54,1990.9301,5,As we said through twenty twenty one we plan to accelerate investments into our business and reengage in activities which were impeded by the pandemic.
4484146,263,1991.71,1998.0801,5,Accelerating the growth in our workforce in line with our long term plan is our top priority.
4484146,264,1998.99,2006.63,5,And as such we anticipate the non i f r s operating marching to be in the range of thirty two point seven to thirty three point one percent.
4484146,265,2006.88,2011.02,5,Again this is consistent with our pri with our prior communication.
4484146,266,2013.12,2016.2999,5,Now let me continue with our proposed objectives for earnings per share.
4484146,267,2016.87,2023.16,5,We expect non i f r s E P S to grow between three to six percent reaching one Euro at the high end.
4484146,268,2023.95,2031.11,5,This E P S guidance assumes a tax rate in line with twenty twenty one levels of about twenty three point two percent.
4484146,269,2031.38,2036.49,5,Our financial objectives assume a Euro to US dollar conversion of one point one seven.
4484146,270,2038.3,2042.6399,5,Now I will provide some additional color on what to expect for q one.
4484146,271,2043.6899,2049.75,5,As you are aware our business has some seasonality and we expect to see growth rates progressing throughout the year.
4484146,272,2050.55,2063.48,5,We expect q one total revenue growth of seven to nine percent with software revenue increasing in the same range and services revenue up five to seven percent driven by continued broad based momentum across our geos.
4484146,273,2064.3999,2073.99,5,We expect the operating margin at a range of thirty two point three to thirty three percent with an EPS growth of three to seven percent versus last year.
4484146,274,2075.3701,2087.21,5,As you heard from us during this call we are confident in the long of opportunity ahead and we look forward to keeping you abreast of our progress throughout the year.
4484146,275,2088.1499,2090.6201,5,And now Pascal I'll hand the call back to you.
4484146,276,2091.2,2092.3401,4,Thank you Rouven for…
4484146,277,2092.3401,2093.1399,4,to summarize.
4484146,278,2093.1399,2095.8799,4,I think the stage set for the future of growth.
4484146,279,2097.1001,2101.29,4,On one hand our long term strategic visions has been validated.
4484146,280,2102.1599,2106.52,4,Investment we made ten years ago to a net the experience economy are paying off.
4484146,281,2107.4199,2116.79,4,And whatever you take the platform the virtual twin experiences the industry solution we have in the cloud they are durable competitive advantage.
4484146,282,2117.74,2124.1399,4,In parallel that's what Bernard say we are helping our clients also to transform to a sustainable economy.
4484146,283,2124.75,2131.02,4,And this is becoming an affordable and significant opportunity to deepen and expand our partnership and our impact.
4484146,284,2132.24,2140.97,4,This if you combine the two will be a strong secular of hybrids to underpinning growth across all the three sectors of the economy we are serving.
4484146,285,2142.01,2150.26,4,In addition to this I think we have the right leadership in place to execute against the tremendous opportunity before us and we…
4484146,286,2150.73,2157.52,4,our commitment to clients to drive our strategy will continue and we thank them for their continued trust.
4484146,287,2158.4199,2166.1399,4,So finally I think uh Rouven and I will be extremely pleased to see you in-person when we will have the ability to go back on the road.
4484146,288,2166.5801,2170.0701,4,But I think it has been so long when we haven't seen each other.
4484146,289,2171.3301,2179.3699,4,I think be Bernard Rouven it's direct of course you remember the time to take care uh of the questions.
4484146,290,2180.6101,2180.9702,5,Operator?
4484146,291,2184.9299,2185.51,0,Thank you.
4484146,292,2185.6899,2188.6101,0,The participants will now begin the question and answer session.
4484146,293,2199.47,2203.5698,0,The firs question comes from a line of Nicholas David from Odo BHF.
4484146,294,2203.8501,2204.8999,0,Please ask the question.
4484146,295,2206.4199,2206.9001,6,Yes hi.
4484146,296,2214.3101,2217.6201,6,Um my first one is regarding licenses gross.
4484146,297,2217.8401,2223.1699,6,Um you aren't expecting double digit growth um of licenses in twenty twenty two.
4484146,298,2264.1699,2284.55,6,Um and my second question is um still regarding licenses sales uh several uh software players including some of your competitors mentioned that the difficulties the client have had in hiring uh have led to to some delays in launching project and having negative impact on license sales.
4484146,299,2284.55,2288.49,6,So my question is uh to what extent uh you may have this kind…
4484146,300,2288.8201,2294.0701,6,you may suffer from this kind of of impact uh regarding your your your license sales in the coming quarters.
4484146,301,2294.54,2294.79,6,Thank you.
4484146,302,2297.27,2299.27,5,Rouven you want to take the the first one?
4484146,303,2299.47,2299.7,4,Yeah.
4484146,304,2299.7,2300.76,4,Happy to happy to.
4484146,305,2300.76,2316.3999,4,Um yeah so I think the best way to conceptualize uh this uh Nicholas thank you for the question is um yes we had in twenty twenty one very strong licensed performance with twenty three percent uh for the full year.
4484146,306,2317.22,2333.6802,4,Um you know of course this was uh was obviously a lower comparable basis twenty twenty q four or fifteen percent growth again against I think a uh uh a good uh comparability you know q four of twenty twenty we saw the rebound starting to happen.
4484146,307,2334.3101,2339.3298,4,And so it was a real proof point for us in the fourth quarter um to achieve double digit growth.
4484146,308,2339.6201,2346.6599,4,And that trend is what we continue to forecast into twenty twenty two uh with ten to twelve percent.
4484146,309,2347.3799,2349.0901,4,And I think uh the area…
4484146,310,2349.0901,2351.04,4,the the sources of growth for…
4484146,311,2351.1001,2361.3699,4,um that supports that underpins this assumption is that you know we have well-established an an operating model between CapEx and OPEX for our customers.
4484146,312,2361.6201,2370.6301,4,Uh we are serving industries where we have significant installed bases uh that are transforming to the cloud to the subscription model but it will take time.
4484146,313,2371.6201,2378.6199,4,And uh we are committed to support our customers um and support them in a way what their…
4484146,314,2378.6201,2383.7898,4,what their preferences are in terms of how they want to spend um and make the investments.
4484146,315,2383.96,2400.8801,4,Um you know these are very sticky investments uh very uh long term relationships where our customers are capitalizing on their investments for decades uh that we continue to uh to innovate and um and further drive value you know.
4484146,316,2400.8799,2408.6799,4,And I think with the three dexperience and the power by extension that we deliver we make these investments also really valuable and ready for the future.
4484146,317,2409.71,2414.4399,5,On the second part of the question Pascal if I may uh um on um…
4484146,318,2414.8799,2419.8101,5,uh is the the client and hiring challenge having an impact on our license?
4484146,319,2420.54,2420.5901,5,I…
4484146,320,2420.5901,2426.1602,5,we see it the total opposite way because the nature of our audience is changing.
4484146,321,2426.8101,2434.1599,5,Um for years we've been or we continue to focus on engineering production but now we just really experienced platform.
4484146,322,2434.29,2440.76,5,We also reach uh supply management costing uh on many other functions within the company.
4484146,323,2441.03,2448.3298,5,The example uh <inaudible> is is really amazing in terms of size at uh Toyota motor also and many other clients that I could name.
4484146,324,2448.8999,2459.0901,5,So the intent with the platform phenomena the three dexperience platform is to reach audience that we could not reach before.
4484146,325,2460.1699,2487.8401,5,Uh as a matter of fact you know the the 3DEXPERIENCE collab collaborative environment is now being used by clients to evaluate materials cost weight supply efficiency all based on the three universe not on number of dashboards but on the real product itself of all the way you produce it.
4484146,326,2488.1699,2489.75,5,So we see this as a…
4484146,327,2490.29,2515.8301,5,as a long lasting uh growth factor on uh Pascal mentioned that it's noticeable in even in with our business applications that we call now on the uh a category of Innovia where we deliver business experiences for program management project management costing even for ESG reporting um or c o two reporting because the the platform has this capability in short.
4484146,328,2515.8601,2521.0498,5,So we don't see the negative effect.
4484146,329,2563.0,2587.74,5,And we think that um it it it it provides a good compelling um incentive for people on uh we created this together model uh last year um which we was really to provide uh an plan for people to buy a shares at a certain discount on on guarantee the result over first few certain number of years very successfully uh successful program.
4484146,330,2587.74,2594.1201,5,But we integrated integrated that allocation as part of the overall policy.
4484146,331,2594.1201,2599.3301,5,So so the no deviation I would say if Pascal you want to add something.
4484146,332,2599.3301,2604.52,4,No I think uh well you know Nicholas not the first time we discussed this I think we are extremely…
4484146,333,2604.95,2606.22,4,We have a lot of discipline on this.
4484146,334,2607.5,2616.1099,4,Why so because if you want this to be uh long term and not only a one off you need to integrate it in the new…
4484146,335,2616.1101,2617.3601,4,in your business model.
4484146,336,2618.2,2627.26,4,If I compare with the competitors or the peers usually uh you know they allocate uh an envelope which could be sometimes three times bigger.
4484146,337,2628.54,2631.1602,4,However I think it's not sustainable over the time.
4484146,338,2631.6899,2636.6499,4,Especially if you look at at the end how much of the operating profits grows through this.
4484146,339,2637.1799,2645.99,4,I think do your job do the sanity check you will see it's balance it's fair it's agreeable and sustainable.
4484146,340,2646.02,2649.6902,4,And that's basically our philosophy and our uh principle.
4484146,341,2650.54,2655.95,4,So so you could count us to continue what we did in the same uh the same manner.
4484146,342,2659.1899,2659.6602,6,That's clear.
4484146,343,2659.98,2662.6099,6,Thank you and congrats for the set of results.
4484146,344,2663.21,2663.6699,5,Thank you Nicholas.
4484146,345,2663.6699,2664.2,4,Thank you Nicho.
4484146,346,2665.21,2665.8,0,Thank you.
4484146,347,2665.8301,2669.02,0,The next question comes to line of Charles Brennan from Jeffery's.
4484146,348,2669.22,2670.53,0,Please ask your question.
4484146,349,2672.6299,2673.54,7,Great good afternoon.
4484146,350,2673.54,2674.5398,7,Thanks taking my question.
4484146,351,2674.54,2679.0198,7,Hopefully it's second time lucky <laugh>.
4484146,352,2679.02,2688.6799,7,Across the industry we're seeing this cloud momentum gather pace and it's referenced in your statement with some of your legacy customers moving to the cloud.
4484146,353,2688.6799,2693.52,7,So I was wondering if I could just ask four questions related to the cloud.
4484146,354,2694.54,2705.51,7,The first of which is just in terms of your product portfolio can you remind us how much is native cloud versus available on the cloud via extensions?
4484146,355,2707.24,2723.04,7,Secondly I think you've traditionally said that the move to the cloud or or growth in the cloud would be largely incremental to your core business but certainly this morning you were talking about product lines like a Naver and SolidWorks moving to the cloud.
4484146,356,2723.74,2726.5701,7,Those are both traditional licensed product lines.
4484146,357,2727.0601,2735.3899,7,And I'm just wondering if we're starting to get to the stage where you're starting to see traditional licenses cannibalized by by the cloud.
4484146,358,2737.0,2742.6599,7,Thirdly it feels like some of your competitors are being a little bit more progressive in driving this agenda.
4484146,359,2743.2,2749.9099,7,I'm just wondering what it would take for you to be a little bit more proactive in enforcing a shift to the cloud.
4484146,360,2750.51,2759.74,7,You're obviously doing that in the life sciences vertical uh I guess Rouven's well placed to to manage a a more progressive cloud transition.
4484146,361,2760.03,2763.3301,7,Uh I'm just wondering what the catalyst would be for you to go down that route.
4484146,362,2764.1499,2772.24,7,Uh and very lastly uh on MNA uh I guess traditionally we see a bigger transaction from Dassault every couple of years.
4484146,363,2772.5901,2776.02,7,Uh I we must be getting into the window where we're due the next one.
4484146,364,2776.48,2791.1299,7,Should we assume that any future MNA from here will be of a a cloud-based business model uh and is that one of the catalysts that's gonna get you to the target of having thirty percent of the uh of the revenues in the cloud?
4484146,365,2791.3101,2791.6899,7,Thank you.
4484146,366,2793.3999,2798.5801,4,Well we could do probably the rest of the call on your question Charlie.
4484146,367,2798.5801,2801.7598,4,But Bernard you want to take the first one?
4484146,368,2801.76,2805.8801,2,I I could on the product portfolio on the Pascal of course stepping.
4484146,369,2806.25,2809.3599,2,Uh first of all we have reach a point where…
4484146,370,2809.3899,2818.0601,2,Um first of all the cloud approach for us above all is a way to reach new category of users.
4484146,371,2819.8501,2829.77,2,Second the cloud approach for for us is about providing new delivery system for the capabilities we have roles process and solution.
4484146,372,2830.0601,2830.5701,2,Why?
4484146,373,2830.9199,2842.1301,2,Having browser native services on mobile tablets and PCs is a big thing for the nature of software we do.
4484146,374,2842.6899,2851.3,2,And the Ikea story with four million users in a few months is an illustration exactly of that.
4484146,375,2851.71,2861.5601,2,Uh it is all going through browser based uh same as you mentioned uh sharp on the uh on the um clinical trial okay.
4484146,376,2862.0901,2866.54,2,Uh but we are doing that also for design and we are doing that…
4484146,377,2866.54,2871.5,2,And as a matter of fact the portfolio in short as we reach a point where where now…
4484146,378,2872.74,2878.5999,2,uh there are more solutions products and roles on the cloud native than we have on premise.
4484146,379,2879.96,2883.98,2,However I want to make sure uh it's clear.
4484146,380,2884.6799,2886.03,2,We love the on-premise.
4484146,381,2888.1899,2892.05,2,There are programs on the on-premise will become private clouds.
4484146,382,2893.1799,2895.2998,2,They will become absolutely private clouds.
4484146,383,2895.99,2899.45,2,Uh and we are going to do that to do so with customers.
4484146,384,2899.45,2911.2102,2,In fact we have started to do it for highly sensitive program because uh the the value of doing that is is so well recognized by by clients.
4484146,385,2911.3501,2930.3901,2,So we value this hybridation to reach the audience and provide really a three d for all approach um that will make the difference and accelerate the platform phenomena across all functions.
4484146,386,2931.02,2940.23,2,If you think about people now doing supply negotiation in the past they were using um ERP dashboards.
4484146,387,2941.04,2946.9702,2,Now they are looking at the product itself and they have the price on the part and they know where it's sourced from.
4484146,388,2947.53,2949.21,2,It's it's a new world from there.
4484146,389,2949.3701,2953.5601,2,We metaverse before metaverse because they see what's happening.
4484146,390,2954.1799,2957.4099,2,So enough said but they don't seek an validation.
4484146,391,2957.6001,2961.74,2,I see massive compramodality uh on that on that point.
4484146,392,2962.6001,2967.1799,4,And just to to echo what you say Bernard you were mentioning Innovia.
4484146,393,2967.98,2971.1702,4,Again you still have asked time to understand what Innovia is about today.
4484146,394,2972.3899,2975.74,4,Innovia is not anymore product life cycle management capability.
4484146,395,2976.71,2993.47,4,It's as well say it's a set of business applications you know allowing the procurement to source to cost to negotiate to contract allowing program manager to run the program to do their review to supply chain.
4484146,396,2994.4299,2999.27,4,This is what we are talking about and it's an extension compared to what we used to do.
4484146,397,3000.28,3001.71,4,So that's just an example.
4484146,398,3001.71,3004.8198,4,And on SolidWorks we are talking about the works family.
4484146,399,3004.9099,3007.3201,4,We are not talking only about SolidWorks.
4484146,400,3007.54,3009.6301,4,And the works family you have familiar works.
4484146,401,3009.6299,3013.3501,4,You have Demia works you have uh Innovia works.
4484146,402,3013.8101,3021.3,4,And those those um set of uh services are not uh well deployed in the mainstream market right now.
4484146,403,3021.54,3025.0801,4,And by the way under works family they are all cloud.
4484146,404,3025.1599,3026.0999,4,they're on cloud.
4484146,405,3026.1001,3027.45,4,So there's no on premise anymore.
4484146,406,3027.49,3027.8,2,All of them?
4484146,407,3027.8,3028.46,5,Are all cloud.
4484146,408,3028.98,3029.26,2,All of them.
4484146,409,3029.3201,3034.6099,2,So that's the reason why you know it's really an extension and it's still an extension compared to…
4484146,410,3035.8201,3038.3999,2,There is maybe some overlap that is quite limited.
4484146,411,3038.8701,3045.97,2,Now coming back to what could be the shift to force the subscription model but that's not our way of thinking.
4484146,412,3046.78,3052.3401,2,We are here to serve our customers to transform them and to evolve their business model.
4484146,413,3052.8899,3053.8901,2,So what is the point?
4484146,414,3053.8899,3065.8,2,To impose your business model when it is not aligned with your customer's business model knowing at the end the license or subscription we are doing uh I mean good profitability with both you'll notice.
4484146,415,3067.0701,3073.4001,2,So I think our thinking process is much more the transformation of what we do.
4484146,416,3073.4299,3079.76,2,We lead automatically to a subscription model for many things we do but we want to do it in with a…
4484146,417,3080.24,3083.3301,2,with a lot of alignment with our customers.
4484146,418,3083.52,3087.1899,2,That's I think making a big difference compared to many of our competitors.
4484146,419,3088.74,3092.96,2,And last but not least the question related to MNA yeah.
4484146,420,3092.96,3098.6201,2,I mean you notice that we will be leverage uh almost uh in six months from now.
4484146,421,3099.0801,3104.52,2,So which gives us the ability to do a uh all the move if we want.
4484146,422,3106.28,3110.3098,2,The cloud is not the I will say the purpose.
4484146,423,3111.5901,3121.1299,2,The purpose is ready to extend what we do uh having the ability to expand the addressable market and maybe change the nature of what we do.
4484146,424,3122.1599,3133.48,2,For example if we want to focus on the data centricity of our uh solutions and technology for sure the cloud is probably the way to do it but again it's a means it's not the goal.
4484146,425,3134.3401,3136.1699,2,So that's what I can say at this stage.
4484146,426,3136.2,3138.0999,2,It's probably too early to speak about it.
4484146,427,3138.1001,3144.1201,2,And maybe I don't know at the time of the capital market there in June we could probably discuss much more open to this topic.
4484146,428,3146.9099,3147.25,7,Perfect.
4484146,429,3147.25,3147.9199,7,Thanks so much.
4484146,430,3148.8401,3149.1401,4,Thank you.
4484146,431,3149.1399,3150.6001,2,So next question please.
4484146,432,3151.52,3151.9102,0,Thank you.
4484146,433,3151.9099,3158.45,0,The next question comes to line of JBlish Howard from Griffin securities.
4484146,434,3158.6799,3159.8901,0,Please ask your question.
4484146,435,3161.53,3162.4299,8,Um thank you.
4484146,436,3162.4299,3163.2,8,Hello everyone.
4484146,437,3163.72,3169.7,8,Um I'll ask all my questions at the same time uh just uh given me the time remaining on the call.
4484146,438,3170.25,3187.55,8,Um first um could you talk about the performance in twenty twenty one and what your expectations might be for twenty twenty two with respect to your two principal sales channels would you now call CSE and CPE in know formally BT and VS Of course?
4484146,439,3187.55,3197.74,8,Could you comment on uh those two channels and anything you might be doing to uh uh invest in or alter perhaps uh either of those channels?
4484146,440,3198.3201,3210.21,8,Um secondly one thing we see among a number of your principal competitors uh is a uh implementation of or plan to implement uh a faster product release cadence.
4484146,441,3211.1699,3214.54,8,We see this in both in CAD and PLM for example.
4484146,442,3215.25,3234.5801,8,And I'm wondering if in lieu of your historical summer and winter releases that you've done for for many many years there might be some rationale for accelerating um your product release uh cadence particularly in uh in alignment with uh with your cloudy business.
4484146,443,3235.1499,3238.8298,8,Um thirdly on um three dx.
4484146,444,3239.26,3251.95,8,Um one thing that seems to be occurring is that within the overall three dx number while ANOVIA seems to able to be the largest part of it as it's been um other brands like <inaudible> are growing their contribution.
4484146,445,3251.95,3260.4399,8,If you could comment on that and whether you think that brands other than INNOVIA might eventually account for the majority of the three dx business.
4484146,446,3260.4399,3266.3201,8,And lastly on three dx works uh I understand still quite early of course only six quarter market.
4484146,447,3266.6799,3279.79,8,Um but do you think that you have any visibility to uh penetrating let's say more than ten percent of the SolidWork space uh with three dx works and thereby make it an an increasingly uh material business.
4484146,448,3279.9099,3280.24,8,Thank you.
4484146,449,3281.79,3284.8,5,A few clarification Pascal if I may put…
4484146,450,3285.0601,3288.6201,5,uh first of all Dassault Systemes is providing…
4484146,451,3289.49,3295.54,5,not anymore functionalities but we are providing roles processes on industry solutions.
4484146,452,3296.52,3300.02,5,Uh so when we deliver roles there is a price on the roles.
4484146,453,3300.1299,3306.04,5,There is a price on the process to do the job and we do it by industry and industry segment.
4484146,454,3306.99,3310.5701,5,This is unique and no one of the competitors are doing that.
4484146,455,3311.51,3314.27,5,Uh so it's important to understand it.
4484146,456,3315.05,3317.8198,5,Uh the second thing is I uh on a…
4484146,457,3317.8201,3320.48,5,and then I will let Pascal on the general performance.
4484146,458,3321.6299,3328.26,5,The second remark is we do six weeks scale on delivery on the cloud.
4484146,459,3329.0801,3350.4199,5,So Jayblish please notice that for a large percentage of our install base we are already there every six weeks the world is getting new capabilities and it's working extremely well with an <inaudible> which is very high um on providing satisfaction.
4484146,460,3351.05,3352.99,5,Some large companies are already there.
4484146,461,3354.76,3358.6599,5,Uh uh we have taken the example Wig which it's all cloud a 100%.
4484146,462,3358.79,3367.4099,5,Rannovo for 3D collaborative environment suppliers all cloud every six weeks it's updated.
4484146,463,3367.8601,3373.3401,5,So we are already with this uh in in a big way all cloud are following that cadence.
4484146,464,3373.75,3377.8899,5,So I think we are faster than most of the other players on that standpoint.
4484146,465,3378.3401,3380.28,5,So just topic for clarification.
4484146,466,3380.6799,3383.98,5,On last remark we don't we don't count…
4484146,467,3384.1299,3389.45,5,catch on the three d experience line for who can explain more.
4484146,468,3389.71,3391.4202,5,We count chache for chache.
4484146,469,3391.45,3400.6899,5,We count <inaudible> each branch for what they are no matter if they are independent or if they are based on the three d experience platform.
4484146,470,3400.8899,3406.0701,5,So we we continue to keep that uh uh integrity in the way we report.
4484146,471,3406.6399,3416.1702,5,Now the last thing about the three dexperience works it should be noticed that outside works everything new is native cloud.
4484146,472,3417.01,3422.8899,5,Uh similar works is native cloud on only cloud for <inaudible> for customers.
4484146,473,3423.29,3427.8899,5,And we have also now a full suite of…
4484146,474,3434.0801,3445.3401,5,And this explains the incredible success of cloud in China believe it or not more than in any of our countries because I think in China they have…
4484146,475,3445.3701,3453.02,5,uh we have the approval to run cloud or own licenses and and really distribute in a big way.
4484146,476,3460.2,3473.4202,4,So first of all you know the the the best way to assess the performance of the channel is really to look at the incremental revenue and the license is still probably a good indicator across all the different engagement model right?
4484146,477,3474.3201,3475.1299,4,So if you…
4484146,478,3475.74,3480.51,4,if you follow me on this uh all of them are growing highers than twenty percent.
4484146,479,3482.24,3485.29,4,So when I say it's a broad base it's really a broad base.
4484146,480,3486.53,3488.6201,4,And and and it's uh the…
4484146,481,3488.6499,3497.0,4,what we call the process channel which has the best performance in term of license this year in twenty twenty one.
4484146,482,3497.25,3501.0,4,So by uh being much more close to thirty than twenty percent.
4484146,483,3502.8201,3503.22,4,So…
4484146,484,3503.22,3517.01,4,and it's not a surprise when you think about it because during the pandemic uh the direct sales resisted relatively well the mainstream the theory also but the process the supply chain we really the one being on the pressure.
4484146,485,3517.04,3522.9099,4,And we have been able to almost uh catch up the like uh in twenty twenty in twenty twenty one.
4484146,486,3523.74,3526.48,4,So I think uh we are relatively on a good path.
4484146,487,3527.3701,3536.5999,4,To compliment what Bernard said on the three dexperience uh distributed across all the brands uh you you have to be a little bit careful.
4484146,488,3536.6001,3538.1301,4,This is true.
4484146,489,3538.1299,3548.23,4,That Innovia or before Innovia almost to serve of the of Innovia is three dexperience based but it's a serve more than a serve for Innovia also for Ktea.
4484146,490,3548.73,3550.0,4,So it's not the only one.
4484146,491,3553.6899,3554.0601,8,Okay.
4484146,492,3554.51,3555.8799,8,Um if I may quickly…
4484146,493,3555.9199,3570.6199,8,uh my annual question on Solidwork unit volume uh my calculation is that it looks like your twenty twenty one SolidWorks new commercial seed volume was similar to perhaps slightly better than where you were in twenty nineteen.
4484146,494,3570.6499,3576.4199,8,So perhaps just around seventy six thousand or so and not quite back to where you were in twenty eighteen just yet.
4484146,495,3578.1699,3591.2,4,This is true but with one big difference the average price increased which means we are more and more capable to enrich uh the package.
4484146,496,3592.02,3601.7202,4,And one of the reasons you you should remember J um I will say sixty percent of the units are coming from existing customers.
4484146,497,3602.73,3608.3101,4,So they are the one not buying anymore the the base package are the one buying the full package.
4484146,498,3609.1299,3615.1599,4,That's basically the reason why also you have such a growth it's a combination of units and price.
4484146,499,3616.22,3616.6599,8,Value up.
4484146,500,3618.6499,3618.7798,4,Yes.
4484146,501,3619.8301,3620.0901,8,Okay.
4484146,502,3620.26,3625.28,8,Uh also by the way thank you for the uh headcount and hiring comments that uh always useful insight.
4484146,503,3626.8799,3627.5601,5,Thank you J.
4484146,504,3628.9199,3639.4099,4,By the way you will have a neighbor uh because uh Hoover uh family is still in New York for a few months and he will probably fly uh to New York in the coming weeks.
4484146,505,3639.45,3641.3999,4,So that's right.
4484146,506,3642.6399,3642.98,8,Great.
4484146,507,3642.98,3644.2998,8,I'll pick you up at the airport you know.
4484146,508,3644.8401,3646.55,4,Okay <laugh>.
4484146,509,3646.6299,3647.74,4,Maybe later for a coffee.
4484146,510,3651.3,3652.4602,1,Next question please.
4484146,511,3652.8401,3653.3499,0,Thank you.
4484146,512,3653.3501,3656.5601,0,The next question comes to line of Neil Steel from Redburn.
4484146,513,3656.5601,3657.8301,0,Please ask your question.
4484146,514,3659.1201,3660.04,9,Hi thanks very much.
4484146,515,3660.04,3661.6001,9,I just have a a couple of quick ones.
4484146,516,3661.7,3668.8499,9,Uh the first one is just looking at um sales and marketing uh expenses and I suppose the OPEX cost uh ratios in general.
4484146,517,3669.3101,3684.0999,9,Uh quite clearly uh as we've gone through the pandemic because there's travel and also uh hiring um you've you you're running with thousand marketing at around about three to four hundred basis points below where we were sort of pre pandemic.
4484146,518,3684.6001,3701.3201,9,I'm just wondering would you expect over the next couple of years for that to pick up to closer to the sort of twenty nine thirty percent uh cost ratio that we've seen in the past or are there structural reasons as to why hence for thousand marketing uh should be at sort of a a structural lower level?
4484146,519,3701.3201,3702.4299,9,That's the first question?
4484146,520,3703.98,3706.0598,1,Rouven Pascal will attend to this question.
4484146,521,3706.46,3713.9502,4,So you know as uh the chief operating officer I I learned something during the pandemic.
4484146,522,3714.73,3719.2,4,We have been capable to grow without having uh more resources.
4484146,523,3720.49,3724.23,4,And believe it or not we have increased dramatically the productivity.
4484146,524,3725.6101,3731.3,4,If I compared to nineteen it's per head per salespeople it's more than eleven percent.
4484146,525,3731.3,3746.5698,4,So so why I'm saying this because it's gonna be a combination between obviously more resources uh because we need to reinforce uh the coverage we have in certain region of the world or certain verticals.
4484146,526,3747.4299,3750.6599,4,But at the same times I still believing we still have…
4484146,527,3750.6599,3760.6399,4,uh we still we still can continue to improve the productivity maybe not at this level every year but at least a few uh percentage point.
4484146,528,3760.75,3763.3699,4,it's probably something we could uh be able to achieve.
4484146,529,3763.73,3764.47,4,So…
4484146,530,3765.3101,3771.6599,4,And this will give probably the ability for us to finance a different go-to market.
4484146,531,3773.23,3774.6699,4,Cause uh you…
4484146,532,3774.7,3783.49,4,we're talking about the traditional one but there are activities where we need to invest because it's a different way to go to market and still on-brand unique and we still need to invest.
4484146,533,3784.0801,3788.03,4,So so the net is uh it'll not be maybe…
4484146,534,3788.79,3790.8601,4,uh do not have a big difference.
4484146,535,3791.46,3797.27,4,However we have some level to extend uh the different nature of the go-to market we have.
4484146,536,3805.29,3816.5801,9,over the next couple of years sales and marketing cost ratio will go back up but perhaps not back up to the 30% level or are you suggesting it's more sustainable at the sort of 25 26% level?
4484146,537,3816.6101,3817.0601,4,No no.
4484146,538,3817.0601,3823.51,4,it'll increase cuz as I say to you uh we did not hire a almost one single person each one last year.
4484146,539,3824.27,3824.5601,9,Okay.
4484146,540,3824.5901,3826.1101,4,I mean it's not sustainable.
4484146,541,3827.24,3844.3701,4,However if you do the math you have to include some productivity effect because we had some productivity the last two years and now it's part of my duty to make sure that we grow the coverage but the same time we are also improving the productivity.
4484146,542,3846.6001,3846.9302,9,Okay.
4484146,543,3846.9299,3847.3899,9,Thank you.
4484146,544,3863.45,3865.1001,9,Um is that a little bit surprising?
4484146,545,3865.1001,3867.6699,9,That's more on the discovery side I think their product set.
4484146,546,3867.77,3870.02,9,And have you actually signed the deferral there?
4484146,547,3881.6001,3886.8301,5,so uh you know the impact that we had in the in the fourth quarter is temporary.
4484146,548,3887.0801,3897.21,5,Um these are two renewals uh that we are actively working on um too close in I would say early twenty twenty two uh it could be the first quarter.
4484146,549,3897.21,3898.47,5,It could be the second quarter.
4484146,550,3898.5801,3898.8901,5,Yeah.
4484146,551,3899.6899,3903.21,5,Uh these are two major customers of ours where we have established relationships.
4484146,552,3903.21,3904.6401,5,And it's only a question of time.
4484146,553,3905.6699,3925.96,5,Um I think the other part that I would like to add to the Biovia uh uh business as well and life sciences we are also aggressively transforming Biovia to towards a more subscription model than what it used to be because it was heavily dependent on licenses and that could it some variability from time to time.
4484146,554,3925.96,3931.4399,5,So that's another factor um that we will um talk about throughout twenty twenty two.
4484146,555,3933.6399,3933.9099,9,Okay.
4484146,556,3933.9099,3934.3899,9,Thank you.
4484146,557,3935.6699,3936.1301,5,Thank you.
4484146,558,3936.6201,3940.05,1,One final question please go on uh Nadia.
4484146,559,3940.5801,3941.21,0,Yes of course.
4484146,560,3941.21,3945.73,0,The last final questions come from the line of Jason Similia from k c b m.
4484146,561,3945.79,3946.9001,0,Please ask the question.
4484146,562,3948.8,3949.0801,10,Great.
4484146,563,3949.0801,3952.1899,10,Thanks for fitting me in just a couple quick ones on a couple of the brands.
4484146,564,3952.5,3956.21,10,Uh first on Same you know it's nice to see double-digit growth there.
4484146,565,3956.6399,3972.8601,10,It's been doing quite well for the past few quarters from what I can remember you know so my question here is you know is the strength we're seeing you know from share gains versus you know simulation competitive market or is it more you know broader industry strength uh recovery you know from from that?
4484146,566,3975.72,3987.4302,4,Similia uh I think uh what is be there are two major factors where basically we create a game-changer situation.
4484146,567,3988.22,3993.6499,4,Number one under SolidWorks install base customer may use…
4484146,568,3993.6499,3998.53,4,to use our competitor uh product uh on desktop.
4484146,569,3999.45,4009.4299,4,Uh now we are offering cloud-based Similia extremely successful easier to provision and to put in operation.
4484146,570,4009.9199,4014.6499,4,And it has created a very nice dynamic in the what we call the works family.
4484146,571,4015.6599,4026.45,4,Uh John Paulo is doing a very great job on on on the topic going to work uh on the full works family and not only SolidWorks.
4484146,572,4026.45,4031.8699,4,And we have just announced that the new CEO of SolidWorks is uh Manish Kumar.
4484146,573,4032.3501,4038.49,4,Uh but uh John Paulo is taking the full scope responsibility for three d expense works.
4484146,574,4038.8501,4055.0601,4,Uh that's one driver on the second one is new multi-physics platform based integration which is connecting um you know the power flow uh the E mag the stress and all of this together in a consistent environment.
4484146,575,4055.0601,4063.5198,4,And we see a lot of customers moving from uh isolated simulation to integrated system simulation.
4484146,576,4064.03,4072.51,4,Uh I think it's unstoppable in my mind and we have plenty of uh opportunities to continue to sustain a strong growth in this area.
4484146,577,4075.24,4075.5601,10,Perfect.
4484146,578,4075.6299,4095.8901,10,And then maybe one quick final one you know SolidWorks um maybe earlier in twenty twenty one had some pretty robust growth you know possibly from the pent up demand you know this quarter eight percent growth you know feels quite good normal maybe close to what we were seeing pre-pandemic you know is that the right way to think about the SolidWorks business you know normalizing from these levels?
4484146,579,4098.3799,4100.48,5,I think so you're right.
4484146,580,4100.9199,4101.8599,5,I mean if you remember…
4484146,581,4101.8599,4104.4102,5,so the works was really the first product line to cover.
4484146,582,4104.5298,4104.7598,5,Yep.
4484146,583,4104.9702,4112.04,5,And uh there is no base effect compared to that year and eight percent eight to nine is a is a good number.
4484146,584,4114.8398,4115.54,10,Okay perfect.
4484146,585,4115.9302,4116.5298,10,Thank you all.
4484146,586,4116.5298,4117.9102,10,And have a good afternoon.
4484146,587,4118.6201,4120.2998,1,Thank you everyone for participating.
4484146,588,4120.2998,4123.7998,1,It's always a great pleasure to uh exchange with you and advise your questions.
4484146,589,4123.7998,4134.0903,1,And uh yeah know that uh Pascal and Houven are now committed to do roadshows and uh visit you as quickly as possible as soon as possible and hopefully face to face.
4484146,590,4134.4702,4135.6401,1,With that thank you very much.
4484146,591,4136.0098,4138.23,1,Enjoy your day and talk to you soon.
4484146,592,4140.29,4142.2397,0,That does conclude our conference for today.
4484146,593,4142.27,4143.3203,0,Thank you for participating.
4484146,594,4143.3501,4144.6001,0,You may all disconnect.
4484146,595,4144.6001,4145.4302,0,Have a nice day.
4484942,0,2751.1399,2751.3999,2,Um.
4484942,1,2751.8701,2752.3801,6,Okay.
4485192,0,0.54,7.99,0,Good morning and welcome to Edgewell's First Quarter Fiscal Year twenty twenty two Earnings Conference Call.
4485192,1,8.71,10.98,0,All participants will be in listen only mode.
4485192,2,11.52,12.59,0,Should you need assistance?
4485192,3,12.99,18.41,0,Please signal a conference specialist by pressing star then zero on your telephone key pad.
4485192,4,19.09,23.18,0,After today's presentation there will be an opportunity to ask questions.
4485192,5,23.72,27.98,0,To ask a question you may press star than one on your telephone keypad.
4485192,6,28.62,32.06,0,To withdraw your questions please press star then two.
4485192,7,32.7,34.66,0,Please note this event is being recorded.
4485192,8,35.41,40.21,0,I would now like to turn the conference over to Chris Goff investor relations.
4485192,9,40.67,41.43,0,Please go ahead.
4485192,10,43.37,44.15,1,Good morning everyone.
4485192,11,44.15,49.19,1,And thank you for joining us this morning for Edgewell's First Quarter Fiscal Year two thousand twenty two Earnings Call.
4485192,12,49.7,54.97,1,With me this morning our Rod Little our president and chief executive officer and Dan Sullivan our chief financial officer.
4485192,13,55.51,62.06,1,Rod will kick off the call then hand it over to Dan to discuss our results and full year twenty two outlook before we transition to Q and A.
4485192,14,62.62,68.6,1,This call is being recorded and will be available for replay via our website www dot edgewell dot com.
4485192,15,69.35,90.42,1,During the call we may make statements about our expectations for future plans and performance this might include future sales earnings advertising and promotional spending product launches savings and costs related to restructurings changes to our working capital metrics current currency fluctuations commodity costs category value future plans for return of capital shareholders and more.
4485192,16,91.01,95.89,1,Any such statements are forward looking statements which reflect our current views with respect to future events.
4485192,17,96.29,111.0,1,These statements are based on assumptions and are subject to various risks and uncertainties including those described under the caption risk factors in our annual report on Form ten k for the year end at September thirtieth two thousand twenty one as may be amended in our quarterly reports on Form ten q.
4485192,18,111.73,117.36,1,These risks may cause our actual results to be materially different from those expressed or implied by our forward looking statements.
4485192,19,117.82,126.25,1,We do not assume any obligation to update or revise any of these forward looking statements to reflect new events or circumstances except as required by law.
4485192,20,127.27,129.89,1,During this call we refer to certain non GAAP financial measures.
4485192,21,130.43,134.26,1,These non GAAP measures are not prepared in accordance with generally accepted accounting principles.
4485192,22,134.73,144.42,1,A reconciliation of the non GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today which is available at the investor relations section of our website.
4485192,23,145.25,150.84,1,Management believes these non GAAP measures provide investors with valuable information on the underlying trends of our business.
4485192,24,151.35,153.18,1,With that I would like to turn the call over to Rod.
4485192,25,154.4,155.03,2,Thanks Chris.
4485192,26,155.51,156.46,2,Good morning everyone.
4485192,27,156.64,159.43,2,And thank you for joining us on our first quarter earnings call.
4485192,28,160.19,171.59,2,As you saw in the results we posted earlier today the improving underlying consumer demand that we witnessed in many of our categories as we exited fiscal twenty twenty one continued in the first quarter.
4485192,29,172.59,176.33,2,As the category strengthened so too did our market share results.
4485192,30,177.63,189.75,2,In the quarter we grew organic net sales two point five percent with growth coming from all three segments of the business led by sun care women's shave feminine care and men's grooming.
4485192,31,190.69,195.58,2,Importantly our organic growth was driven by both volume and price gains in the quarter.
4485192,32,197.17,206.24,2,We also had growth across all geographic regions and importantly started to see the first signs of recovery in important markets in Asia and Latin America.
4485192,33,207.28,214.56,2,Our aggregate market share in North America increased in the quarter led by sun care Wet Ones and disposable razors.
4485192,34,215.57,222.01,2,And in the international markets we were pleased to see continued share gains in Japan and in most Latin American markets.
4485192,35,223.32,236.5,2,In addition to our strong top line performance we also executed well on the bottom line delivering forty two cents of adjusted earnings per share and sixty nine point seven million of adjusted EBITDA in the quarter.
4485192,36,237.19,250.11,2,Despite significant cost headwinds resulting from increased inflationary pressure across many commodities freight and distribution costs as well as increasing covid nineteen related impacts on our labor force.
4485192,37,251.62,260.18,2,These challenges impacted our ability to meet elevated demand in the quarter particularly in women's branded shave shave preps and feminine care.
4485192,38,261.25,272.42,2,Our organization is working with relentlessly to mitigate the impacts of higher costs and supply constraints on the business while remaining focused on executing against our strategic priorities.
4485192,39,274.05,278.69,2,Dan we'll take you through more details on the supply chain environment and the impact on our business in a moment.
4485192,40,280.02,300.08,2,I'm also pleased with how our team designed and now is executing our price increases thoughtfully balancing a strategy of price leadership with fast followership reflective of category brand and market and we will continue to explore further opportunities as inflationary pressures remain at all time high levels.
4485192,41,301.54,312.46,2,Let me now pivot to the progress we're making on some of our key strategic priorities including the investment in our people and brands in support of our goal to deliver sustained top line growth.
4485192,42,313.9,322.66,2,Our performances quarter is again a testament to our team members who have executed with excellence in an increasingly challenging environment.
4485192,43,323.67,332.46,2,As you've heard me say before we've built a people first goal culture and we continue to prioritize the safety and wellbeing of all of our teammates.
4485192,44,333.61,347.27,2,The protocols we initiated nearly two years ago have been refined and augmented as the pandemic has evolved ensuring a safe and effective work environment across all of our offices manufacturing and distribution facilities.
4485192,45,348.46,359.36,2,We've made the covid nineteen vaccine readily available to all employees to vaccine clinics some of which have been on site and offered paid time off for employees to get vaccinated.
4485192,46,360.61,368.77,2,Conscious of the impact the pandemic has had on our employees we've implemented several initiatives to date in support of their mental health and wellbeing.
4485192,47,370.05,390.64,2,And finally in twenty twenty one we also rewarded our teammates for their dedication and contributions to our success during the pandemic with multiple cash bonuses awarded to our frontline workers and a one time cash award for all hourly and salaried corporate individuals who previously were not bonus eligible.
4485192,48,391.92,396.62,2,At Edgewell we value our teammates and remain committed to our people first objective.
4485192,49,397.92,414.61,2,In addition to the investment in our team members we also made meaningful investments in our brands and in key markets which contributed to strong sales and share growth in the quarter in two important areas of the business the sun care segment and the Japan market.
4485192,50,416.03,431.32,2,In sun care we have already secured meaningful new club channel distribution and compelling shelf gains in mass both in aisle and secondary displays and we're encouraged by the pace of recovery we're seeing in several international markets.
4485192,51,432.33,438.99,2,These strong distribution gains are a direct outcome of consecutive seasons of share gains in the United States.
4485192,52,439.73,446.46,2,And when combined with our expertise and procurement and formulation position us well for the critical sun season ahead.
4485192,53,447.67,457.66,2,And in Japan our second largest country based on sales the investments we've made in the men's Hydro relaunch drove increased shelf presence and share gains.
4485192,54,459.04,464.83,2,The men's Hydro relaunch in Japan is just one example of the innovation we're bringing to consumers this year.
4485192,55,465.75,483.35,2,In North America a rebranded Schick portfolio will be on shelf later this month reinforcing both the authentic and emotional connection between the brand and our consumers and the unparalleled functional product benefits we provide as part of men's daily shave regimen.
4485192,56,485.18,498.41,2,In sun care Banana Boat is targeting the unmet needs in our core sport and kids' franchises with sport and kids roll on S P F sixty and new one hundred percent mineral sea spray.
4485192,57,499.68,510.72,2,While Hawaiian traffic is launching a unique mineral powder brush made with one hundred percent mineral actives that mattifies while protecting your skin in a convenient brush format.
4485192,58,512.17,525.83,2,And in men's grooming we're combining the inherent equity and credibility of the Cremo brand with the unmatched blade technology of Edgewell to launch a new premium razor to compete in the more premium end of the category.
4485192,59,526.76,537.75,2,These are just a few examples of the commitment we have made to increasing our capabilities in the areas of brand building and consumer-centric innovation and I'm personally excited about the progress we are making.
4485192,60,539.2,567.01,2,And finally in addition to the organic investments we're making we completed our acquisition of Billie in the quarter adding the fast growing digitally native leading D T C brand to our strong and differentiated portfolio of women's shaving brands including Intuition Schick Hydro Silk and Skintimate and the timing couldn't be better as Billie has just begun its national retail launch exclusively in Walmart.
4485192,61,568.69,584.29,2,By the end of February Billie shave essentials including the starter kit travel case blade refills and a new whip shave will be in over four thousand Walmart stores and fully supported by in aisle and in cap signage and display.
4485192,62,585.29,595.41,2,Edgewell is now playing the role of disruptor to the category at retail combining a uniquely strong brand with expertise in distribution and retail execution.
4485192,63,596.76,608.55,2,So in summary we are seeing a healthier demand environment across many of our categories particularly in the United States and we are encouraged by the recovery beginning in other regions of the world.
4485192,64,609.79,616.9,2,Second with improving demand environment we remain committed to investing in our brands and executing on our strategic priorities.
4485192,65,617.91,624.37,2,Third our teams remain focused and agile even as the operating environment becomes increasingly challenging.
4485192,66,625.23,645.4,2,As we continue to see heightened cost pressures across many commodity categories as well as higher wages and transportation costs our teams will continue to focus on service while executing our productivity and efficiency efforts to help mitigate some of these cost headwinds while ensuring our product remains available for our customers.
4485192,67,646.47,654.14,2,Fourth we are executing our price increases well while continuing to evaluate further price measures in certain markets.
4485192,68,655.15,666.0099,2,And finally as evidenced by our dividend and share buyback execution we remain committed to a balanced and disciplined approach to capital allocation and returning value to shareholders.
4485192,69,666.91,674.41,2,And now I'd like to ask Dan to take you through our first quarter results and also provide details on our outlook for fiscal twenty twenty two.
4485192,70,677.19,678.65,3,Thank you Rod and good morning everyone.
4485192,71,679.09,693.76,3,As Rod discussed this was a good start to the year with our top and bottom line performance in line with expectations driven by improved demand and good execution by our teams despite increasing supply chain challenges and mounting cost headwinds.
4485192,72,694.61,703.84,3,Additionally we continue to make good progress against our strategic initiatives which help to drive more predictable top line growth and enable both disciplined commercial investment.
4485192,73,705.14,723.21,3,Importantly we delivered productivity savings in the quarter that were in line with expectations despite the deteriorating macro supply environment a true testament to the organization's capabilities to both structurally address costs and continue to navigate heightened supply chain challenges.
4485192,74,724.3,735.03,3,For the quarter organic net sales increased two point five percent adjusted gross margin decreased a hundred forty basis points or ninety basis points organically.
4485192,75,735.97,740.7,3,A M P spend increased five million dollars and ninety basis points in rate of sale.
4485192,76,741.81,745.97,3,Adjusted sg a improved a hundred and ten basis points in rate of sales.
4485192,77,746.89,749.0,3,Adjusted E P S decreased two percent.
4485192,78,749.39,758.84,3,However core adjusted E P S grew over nine percent in the quarter and we deployed thirty three million dollars of capital through dividends and share repurchases.
4485192,79,760.04,767.4,3,Before reviewing our detailed results I would like to provide some additional color on our operations and the continuing inflationary environment.
4485192,80,768.69,778.54,3,Our industry continues to face unprecedented supply chain disruption increased bottlenecks and accelerated inflation with little signs of easing in the near term.
4485192,81,779.47,793.43,3,Tight labor markets remain increasingly challenging in part made worse by the fast spreading Omicron variant and supply and demand imbalances and overall capacity constraints remain broad and sustained across the supply chain.
4485192,82,794.66,803.75,3,Conditions this quarter could best be described as volatile particularly in certain commodities such as specialty chemicals packaging and metals.
4485192,83,805.29,813.23,3,Freight and transportation markets also worsened in the quarter reflective of continued infrastructure challenges and heightened diesel cost inflation.
4485192,84,814.37,829.0,3,As we discussed last quarter our organization is working relentlessly to mitigate the impacts of higher costs and supply constraints on the business and we continue to take aggressive steps to stabilize supply and mitigate these cost headwinds.
4485192,85,830.17,837.99,3,In the face of growing labor constraints we've increased and diversified our efforts to secure the labor pool needed to support our demand outlook.
4485192,86,839.03,854.06,3,Rod already shared some of the steps we've taken to further support our employee base despite these efforts we did see sporadic supply shortages in certain categories most notably in fem care and shave preps and to a lesser degree women shave.
4485192,87,854.9,872.9,3,And our teams are taking the right actions to mitigate the potential impact going forward including broaden sourcing efforts increased upfront raw material buys staggered production scheduling and overtime utilization and alternative transportation strategies in the US and across Europe.
4485192,88,874.15,882.63,3,We're also tactically building inventory levels through the first half of the year where possible to ensure product availability and improve service levels to our customers.
4485192,89,883.72,885.91,3,Now I'll turn to the detailed results for the quarter.
4485192,90,887.02,893.26,3,As mentioned organic net sales increased two and a half percent equally driven by price and volume gains.
4485192,91,894.09,902.09,3,Most of the realized price increases were attributable to fem care and Wet Ones in North America and to a lesser degree Wet Shave in international.
4485192,92,903.0,908.89,3,Importantly the majority of the positive impact that will be realized from pricing occurs as the year evolves.
4485192,93,910.04,921.34,3,On a two year stack total company organic net sales increased just over one percent in the quarter versus the same period last year with growth in both North America and international markets.
4485192,94,922.36,930.91,3,Our eCommerce business saw strong results increasing by over nine percent in the quarter on top of over forty percent growth during q one a year ago.
4485192,95,932.11,941.3,3,In the quarter our total portfolio gained thirty basis points of market share in the US led by gains in sun and Wet Ones and flat share results in fem care.
4485192,96,942.28,945.61,3,Share results in Wet Shave were consistent with fifty two week trend.
4485192,97,946.73,956.7599,3,Looking deeper into our segments Wet Shave organic net sales increased two percent in the quarter largely driven by growth in women's systems disposables and private brands.
4485192,98,957.57,973.49,3,Our women's systems business continues to be the primary catalyst for growth with organic net sales increasing nine percent driven by Intuition as well as private label which grew forty eight percent in the quarter despite cycling fifty one growth last year in q one.
4485192,99,974.49,981.19,3,International Wet Shave grew over four percent as women's systems Organic net sales grew nearly twelve percent for the quarter.
4485192,100,982.38,990.12,3,Disposables organic net sales increased about five percent and gained share while men's systems organic net sales decreased six percent.
4485192,101,991.39,998.16,3,For the third consecutive quarter Us razors and blades category consumption increased growing four point eight percent.
4485192,102,999.11,1003.87,3,The category growth in the quarter was seen across men's and women's systems and disposables.
4485192,103,1004.88,1024.01,3,For the thirteen week period market share for the ship franchise declined a hundred basis points driven mostly by declines in men's and women's brand shave while disposables share grew seventy basis points driven by our men's business which saw a strong performance at Walmart and the benefit from distribution gains at Walgreens and Sam's.
4485192,104,1025.51,1033.64,3,Sun and skincare organic net sales increased about two percent driven by strong global sun care results and improved men's grooming results.
4485192,105,1034.63,1045.5499,3,Sun care organic net sales in North America increased fifty one percent while international organic sales increased twenty seven percent led by initial consumption recovery in Latin America.
4485192,106,1046.84,1053.4601,3,In the US the sun category increased forty four percent for the quarter aided by better weather and increased travel.
4485192,107,1054.24,1063.87,3,The Hawaiian Tropic and Banana Boat both outperformed the category with over seventy percent growth and collectively gained three hundred twenty basis points of market share.
4485192,108,1064.8101,1079.5601,3,Our strong execution and prominent on shelf position drove four hundred fifty basis points of share gains in the quarter at Walmart and we saw sequentially improved results across both the drug and grocery channels where we also delivered strong share gains.
4485192,109,1081.16,1092.75,3,Men's grooming organic net sales increased eight percent in the quarter led by Cremo strong growth of nearly twenty percent on the heals of excellent holiday execution as the category was up twenty seven percent.
4485192,110,1094.36,1113.1699,3,Wet Ones organic net sales decreased forty one percent in the quarter as compared to an increase of over a hundred ten percent in q one of last year representing two year stack growth of nearly thirteen percent category consumption decline seventy one percent versus a year ago lapping COVID-driven sales.
4485192,111,1114.17,1122.22,3,Wet One's consumption declines of seventeen percent was significantly better than the category declines leading to fifty five percent share of the category.
4485192,112,1123.85,1126.8101,3,Fem care organic net sales increased about five percent.
4485192,113,1127.9301,1137.72,3,Playtex Sport continued to gain share in the quarter reflective of new product launches and stronger brand support offsetting declines in the carefree and legacy brands.
4485192,114,1138.97,1148.92,3,Fem care category consumption during the quarter grew about eleven percent in the US and our portfolio consumption growth was largely in line with the category for the second consecutive quarter.
4485192,115,1149.99,1161.6699,3,Now moving down the p and l gross margin rate on an adjusted basis decreased a hundred forty basis points compared to the prior year inclusive of fifty basis points of inorganic headwinds.
4485192,116,1162.33,1176.21,3,As gross inflationary pressures of about four oh oh basis points we're only partially mitigated by just over a hundred basis points of favorable pricing promotional efficiency and mix and about two hundred basis points of productivity savings.
4485192,117,1177.732,1182.13,3,A M P expense increased five million dollars this quarter and was ten percent of net sales.
4485192,118,1182.73,1190.3099,3,Reflecting increases in support of the Hydro relaunch in Japan sun execution across the globe and holiday programs in grooming.
4485192,119,1191.8,1199.02,3,sg and a including amortization expense was ninety six point nine million dollars or twenty point nine percent of net sales.
4485192,120,1199.65,1206.51,3,Adjusted sg and a declined a hundred ten basis points as a percent of net sales due to lower incentive and fringe benefit costs.
4485192,121,1207.79,1220.42,3,Adjusted operating income was forty six point seven million dollars compared to forty nine million dollars last year as lower gross margin and higher a m p costs were only partially offset by lower adjusted sg and a costs.
4485192,122,1221.47,1238.28,3,GAAP diluted net earnings per share were twenty cents compared to thirty two cents in the first quarter of fiscal twenty twenty one and adjusted earnings per share were forty two cents compared to forty three cents in the prior period and inclusive of a four cent negative impact from the Billie acquisition.
4485192,123,1239.42,1248.54,3,This four cents reflects the impact of deferred profit as a consequence of the timing of profit recognized on sales to Billie as well as higher amortization costs.
4485192,124,1249.41,1252.37,3,Core E T S grew over nine percent in the quarter.
4485192,125,1253.74,1260.04,3,Adjusted e b i t d a was sixty nine point seven million dollars compared to seventy two point two million dollars in the prior year.
4485192,126,1261.97,1269.88,3,Net cash used in operating activities for q one was seventy nine million dollars a three point five million dollars improvement over the same quarter last year.
4485192,127,1270.8,1277.0699,3,The timing of interest payments and seasonal working capital build related to sun care results in a q one cash outflow.
4485192,128,1278.6899,1291.14,3,We ended the quarter with two hundred forty million dollars in cash on hand access to the two hundred twenty one million dollars undrawn portion of our credit facility and a net that leverage ratio of about three point three times.
4485192,129,1292.05,1294.55,3,This brings me to the topic of capital allocation.
4485192,130,1295.79,1300.71,3,We remain disciplined in how we are deploying capital and executing in a thoughtful and balanced manner.
4485192,131,1301.58,1310.65,3,Last quarter we announced our intention to put our healthy excess cash to work and repurchase approximately three hundred million dollars in shares over the next three fiscal years.
4485192,132,1311.3199,1315.08,3,And in the quarter our repurchase is total twenty four point five million dollars.
4485192,133,1316.11,1323.2999,3,In addition we continued our quarterly dividend payout and declared another cash dividend of fifteen cents for the first quarter.
4485192,134,1324.92,1342.48,3,Turning to our outlook for fiscal twenty twenty two we are reiterating our outlook for the core Edgewell business that was the basis for our original outlook and only updating our estimates to reflect the inclusion of ten months of the Billie business and the additional negative impact of currency translation.
4485192,135,1343.5601,1357.4299,3,As we look to the remainder of the year we're encouraged by the improving demand environment we see across any of our categories and geographies and are well positioned as a result of the distribution gains discussed last quarter most notably in sun and women shave.
4485192,136,1358.46,1363.59,3,However we're cognizant that we are operating in a more volatile environment than previously contemplated.
4485192,137,1364.48,1375.17,3,Beyond the cost pressures associated with rampant commodity and wage inflation we're also navigating mounting complexity across the supply chain and in the near term we see little signs of easing.
4485192,138,1376.42,1384.51,3,Before turning to our detailed outlook I wanna provide a summary of the impact of now including the acquisition of the Billie brand in fiscal twenty twenty two.
4485192,139,1385.8199,1393.1599,3,We expect Billie to add approximately four oh oh basis points of net incremental growth to our reported net sales for the fiscal year.
4485192,140,1394.05,1406.22,3,We refer to incremental sales as the net impact of Billie sales both D T C and to retail less the intercompany shipments that Edgewell will make that were previously expected to be third party sales.
4485192,141,1407.24,1421.5601,3,This change from expected third party sales to intercompany shipments also creates a timing difference with respect to gross profit recognition versus our original outlook and we estimate this amount to be a headwind of approximately four point one million dollars.
4485192,142,1422.95,1430.25,3,Incremental amortization costs associated with the intangible assets related to the acquisition will be approximately nine million dollars this fiscal year.
4485192,143,1431.38,1445.51,3,In total we anticipate that the acquisition will be diluted to adjusted E P S by approximately nineteen cents which reflects thirteen cents per share related to the increased amortization costs and six cents per share associated with the profit deferral.
4485192,144,1446.86,1454.99,3,For the fiscal year we continue to anticipate low single digit organic net sales growth with similar growth rates in half one and half two.
4485192,145,1454.99,1460.75,3,As a reminder Billie third party sales are excluded from the organic growth calculation.
4485192,146,1462.45,1475.39,3,Reported sales are now anticipated to increase by mid single digits including four oh oh basis points net from Billie and partially mitigated by an expected additional fifty basis points headwind from currency.
4485192,147,1476.5699,1481.0499,3,The Billie sales are expected to face somewhat rateably over the remaining three quarters.
4485192,148,1482.4,1494.61,3,As we look to gross margin we now anticipate approximately two hundred basis points year over year declines primarily reflective of the heightened inflationary pressures and the overall challenging supply chain environment.
4485192,149,1495.62,1507.12,3,Year over year gross margin declines will be more pronounced in q two before moderating somewhat in the backend of have to as our productivity program scale and price realization increases.
4485192,150,1508.4,1516.3101,3,This outlook largely assumes spot prices across the majority of the commodity basket as well as in transportation and warehousing.
4485192,151,1517.67,1527.17,3,We will continue to invest in support of our brands and key markets and with the addition of the Billie brand expect A M P spending to be largely in line with last year as a rate of sale.
4485192,152,1528.61,1534.5499,3,Adjusted operating profit margin is now expected to contract approximately a hundred and thirty basis points year over year.
4485192,153,1535.04,1545.76,3,Reflecting the de-leveraging effect of including the Billies sales increased amortization costs the headwind associated with the profit deferral and additional negative currency effects.
4485192,154,1546.76,1552.4301,3,Adjusted e b i t d a is now expected to be in the range of three hundred fifty seven to three hundred seventy seven million.
4485192,155,1554.2,1565.52,3,Adjusted EPS is now expected to be in the range of two dollars and seventy four cents to three dollars and two cents reflecting increased amortization expense in addition to the profit deferral and currency impacts.
4485192,156,1566.73,1580.96,3,We continue to expect to generate about two thirds of our full year adjusted E P S in half two of the fiscal year with respect to our share repurchase our outlook only includes the expected share repurchases required to offset dilution.
4485192,157,1581.9301,1590.7899,3,The benefit to EPS from additional share purchases transacted over the course of the year have not been contemplated in our in our outlook and will be additive to EPS.
4485192,158,1591.74,1597.5,3,And finally free cash flow conversion is expected to be approximately a hundred percent of GAAP net earnings.
4485192,159,1598.86,1605.09,3,For more information related to our fiscal twenty twenty two outlook I would refer you to the press release that we issued earlier this morning.
4485192,160,1605.89,1610.04,3,And with that I'd like to turn the call back over to the operator to begin the Q and A session.
4485192,161,1611.9399,1614.79,0,We will now begin the question and answer session.
4485192,162,1615.46,1620.03,0,To ask a question you may press star then one on your telephone key pad.
4485192,163,1620.6,1625.4601,0,If you're using a speaker phone please pick up your handset before pressing the keys.
4485192,164,1626.15,1632.8301,0,If at any time your question has been addressed and you would like to withdraw your question please press star then two.
4485192,165,1633.5601,1637.4501,0,At this time we will pause momentarily to assemble our roster.
4485192,166,1638.91,1646.3301,0,The first question comes from Chris Carey with Wells Fargo Securities please go ahead.
4485192,167,1649.8,1650.38,4,Hi good morning.
4485192,168,1651.7,1652.27,3,Morning Chris.
4485192,169,1652.27,1652.77,1,Hi Chris.
4485192,170,1654.74,1664.5901,4,Can you just um you know talk about sustainability of of the market share gains that you're seeing in the sun care business.
4485192,171,1665.1801,1672.7599,4,Um obviously some some some interesting statistics around you know share at at at some of your key retailers.
4485192,172,1673.6801,1695.7101,4,a and can you also um maybe expand on how you're thinking about how incremental some of these um you know incremental shelf um winds are going to be for the for the business this year um Walmart Costco and um and potentially how that's uh that's factoring into your thinking for the for the back half.
4485192,173,1695.99,1703.8101,4,Um and and maybe if I could just you know sneak in on the sun business as well just all in the context of sun um the supply chain issues.
4485192,174,1716.7,1719.9099,2,Chris is is the headline on on what's to come.
4485192,175,1720.41,1725.2001,2,Um we we like the planogram changes we've talked about that.
4485192,176,1725.2,1734.6901,2,We have new incremental distribution in the <inaudible> channel we have higher quality distribution across the balance of of food drug mass.
4485192,177,1735.45,1747.64,2,Um we launched hawaiian tropic dot com uh a year ago and we're we're activating online not only with our own channels but also with people like Amazon and in there.
4485192,178,1747.64,1751.13,2,So we have a really nice distribution footprint.
4485192,179,1751.64,1761.66,2,We have good innovation coming uh on Banana Boat a as we look at kids and family the sport franchise.
4485192,180,1762.09,1774.0801,2,We have uh refresh on the packaging on Hawaiian tropics that will start to phase in throughout the season so really solid distribution outcomes really solid innovation pipeline.
4485192,181,1774.61,1791.33,2,And then as importantly upstream our teams have done an amazing job of procuring the raw materials and the ingredients to be available um throughout the season and so we've planned for a big season.
4485192,182,1791.77,1800.84,2,We're covered on the supply chain on that front um we do most everything in house we control the manufacturing we're not reliant on third parties.
4485192,183,1801.41,1815.54,2,And so um what we've seen in the early part of sun season mind you in quarter one it's only six percent of the season transaction in the quarter just finished so the best of what sun can do for us we think is to come.
4485192,184,1817.11,1820.8199,4,Oh okay.
4485192,185,1837.37,1837.6,2,Yeah.
4485192,186,1914.9,1917.02,3,I'll uh I'll try to take it there's a lot there.
4485192,187,1917.02,1925.45,3,I think certainly and you picked up on it from our remarks we we're certainly operating in a more challenging environment than we had initially contemplated.
4485192,188,1925.45,1926.6801,3,I think that's that's for sure.
4485192,189,1926.6801,1938.67,3,We've said now that we anticipate you know about five hundred basis points of of macro inflationary pressure on COGS that's that's up about a hundred basis points from what we said a quarter go.
4485192,190,1939.23,1944.8301,3,Um and we said that that'll translate likely into about a two hundred basis point year over year decline in margin.
4485192,191,1944.83,1950.92,3,So so the the takeaway there is we do have a solid line of sight to some meaningful offsets right?
4485192,192,1950.92,1959.0701,3,And so as I break those down you know first and foremost for us it is in COGS as it always is and our and our approach here is twofold right?
4485192,193,1959.0699,1963.55,3,One we're continuing to look at what we already do really well.
4485192,194,1963.55,1967.7799,3,We deliver two hundred basis points of productivity savings in the quarter.
4485192,195,1967.8199,1985.64,3,Um we're looking at the opportunity to accelerate existing cost savings programs to bring forward initiatives that were perhaps timed for later in the year but at this the same time uh we're we're doing significant work to stabilize the the environment uh and meet demand right?
4485192,196,1985.64,1988.34,3,So so we have to continue to balance that.
4485192,197,1988.34,1990.1801,3,I think we're we're really good at that.
4485192,198,1990.54,1992.8,3,Uh and and and and that will continue.
4485192,199,1993.12,2025.55,3,On the revenue side of the house you know I I think you're you're right there you know if you look at we took price or how we thought about price um there are examples where we have taken broad brush price increases and we've talked about those around Wet Ones around fem care to a lesser degree Wet Shave in in certain international markets and those prices are are now priced in and and we either begun to feel the effects of that in international or have been feeling the effects of that for example in Wet Ones.
4485192,200,2026.23,2030.28,3,In the rest of the portfolio we we applied more of a surgical approach right?
4485192,201,2030.33,2041.8999,3,Where within categories within brands within markets we thought about it very differently across shave and sun and and grooming and and PBG and even preps uh for that matter.
4485192,202,2041.9,2056.3101,3,So as we're reassessing we are certainly considering both uh scenarios we're considering uh situations where we did go up in price at category level and is there opportunity to to implement further price.
4485192,203,2056.8401,2068.5701,3,We're also looking at where we have been more surgical and thinking about areas where perhaps we haven't taken price where where we can reconsider given the environment given what we've seen so far in elasticities.
4485192,204,2068.5701,2085.97,3,And then the last thing I would say is you know beyond just frontline price we continue to make great progress in our efforts to really better understand the promotional environment promotional intensity return promotional dollars and and that was actually a contributor to what we saw in q one.
4485192,205,2086.1299,2094.9502,3,Um and we expect that promo rationalization and just you know good effective spend will also be a tailwind for us to to help offset this this environment that we're in.
4485192,206,2099.74,2100.49,3,Thank you Chris.
4485192,207,2101.5601,2102.8298,3,Operator next question please.
4485192,208,2103.6499,2104.0798,0,Thank you.
4485192,209,2104.2,2108.4302,0,The next question comes from Nick Modi with RBC Capital Markets.
4485192,210,2108.8701,2109.6602,0,Please go ahead.
4485192,211,2110.8899,2111.24,5,Thanks.
4485192,212,2111.24,2112.22,5,Good morning everyone.
4485192,213,2112.71,2114.8599,5,Um just two questions for me.
4485192,214,2114.97,2122.0898,5,Um Dan is there any way you can quantify you know the impact outta stocks had on growth in the quarter if there's any quantification there?
4485192,215,2122.0901,2148.1501,5,And then I get I guess the broader question and this is just kind of a longer term question on productivity you know I was uh you know looking at the Church and Dwight analyst says I was struck again by you know their revenue per employee but also looking at Edgewell's revenue for employee you know I think the way it said in the chart it was three hundred and three um for Edgewell and Church and Dwight was that over a thousand and the average was closer to like five six hundred.
4485192,216,2148.6799,2160.4102,5,And and I just I just wondered if you could comment on that you know like you guys have done such a great job of productivity uh over the last couple of years how much do you think there's left in the tank when you really think about the bigger picture?
4485192,217,2162.5701,2162.8901,3,Yeah.
4485192,218,2162.8899,2163.4299,3,Good morning Nick.
4485192,219,2163.4299,2164.3901,3,Thanks for the questions.
4485192,220,2164.46,2169.8198,3,So on your first one you know can we estimate sort of the outta stock impact?
4485192,221,2169.8201,2179.6499,3,You know there were sort of two headwinds in the quarter that I think are worth calling out just to understand magnitude you know one is the drag Wet Ones had on our organic growth for the period right?
4485192,222,2179.6499,2188.76,3,So so we we produced a two point five percent organic growth rate and and Wet Ones was about a two hundred fifty basis point drag in the quarter.
4485192,223,2188.76,2200.1501,3,Now we talked about the category being down seventy percent and and we know that's a category that is still finding a normal water level if you will given what it's cycling in COVID so that's the the first item.
4485192,224,2200.27,2204.6401,3,The second item more to your point tough to truly estimate right?
4485192,225,2204.6399,2208.52,3,Tough to truly estimate what what demand was out there that we couldn't meet.
4485192,226,2208.5701,2234.6399,3,We know in the two most prevalent areas around fem care where we had labor shortages and in our shape prep business we where we had trouble with you know commodities and raw material that there was certainly a line of sight to to four to six million just there alone in those two small businesses of ours that likely adds up to you know somewhere a point and a half two percent in organics.
4485192,227,2234.6699,2244.05,3,Um beyond that tough tough to understand and really break down you know sort of what demand was was unmet but we can certainly call out those two pieces.
4485192,228,2244.5901,2255.5601,3,On your second question around productivity look I think you know what's left in the tank is a is a common question we get asked on the heels of of the fuel program and the success we saw there.
4485192,229,2255.5601,2266.5,3,And and we have said publicly that both in COGS and in in our core sg and a environment we see meaningful savings opportunities left to go.
4485192,230,2267.1599,2273.97,3,Uh and and if you go back to our investor day we've talked about you know one twenty five million dollars of savings over the next two years.
4485192,231,2274.4299,2299.1399,3,In COGS uh we delivered two hundred basis points of productivity savings in the quarter and you're starting to see that work now shift um you're starting to see gains from automation you're starting to see gains from the next level of procurement activity along with the continued uh focus on eliminating waste uh and and really being intolerant to waste across our facility.
4485192,232,2299.1399,2307.99,3,So i am I'm quite confident in in that team's ability simply based on demonstrated uh affect that there is there is certainly more to do there in productivity.
4485192,233,2308.49,2310.52,2,And Nick I I just add two points.
4485192,234,2311.04,2313.1301,2,You're seeing the g a leverage show up.
4485192,235,2313.1299,2322.1499,2,So regardless of what statistics look like revenue per head what have you at the end of the day we've gotta have leverage in the p l as we grow now and we're confident we will grow.
4485192,236,2322.8201,2328.52,2,Um we've gotta see the leverage come through you're seeing that in the quarter uh right with the g and a leverage showing up.
4485192,237,2329.0601,2344.99,2,The other data point that I'll give you that is is interesting it is back to your question around out stocks in the quarter it was the perfect storm with Omicron hitting and coming on top of a time where the labor environment was already very difficult.
4485192,238,2345.5801,2362.74,2,We had five to ten percent depending on the factory of our hourly manufacturing workforce out as you got toward the end of December with either Omicron positive sick or needing to isolate and quarantine out due to a close exposure.
4485192,239,2363.4299,2373.0701,2,And so that situation coming on top of already tight labor environment drove uh the service outage that that Dan referenced before.
4485192,240,2373.0701,2378.02,2,And again we're not alone that that's a national thing and I think it is a similar impact in our European plants.
4485192,241,2378.3201,2381.4202,2,The good news is as we look at that today that's in the rear view mirror.
4485192,242,2381.8999,2390.6702,2,Um we're back down to what I would call just normal going levels and so we feel really good about the go forward look in in service and availability.
4485192,243,2392.97,2393.25,5,Great.
4485192,244,2393.25,2393.49,5,Thanks.
4485192,245,2398.54,2398.9399,0,Thank you.
4485192,246,2399.1599,2402.8499,0,The next question comes from Jason English with Goldman Sachs.
4485192,247,2403.3601,2404.1501,0,Please go ahead.
4485192,248,2404.48,2407.8201,6,Hey good morning folks.
4485192,249,2407.9299,2408.54,6,Thanks for stopping me in.
4485192,250,2409.4199,2411.8101,6,Um quick math question I guess.
4485192,251,2411.8101,2414.05,6,Um you've got Billie in the p and l now.
4485192,252,2414.5601,2422.4299,6,Um a substantial amount of the COGS for Billie would seem to have already been in your p and l since you were manufacturing the razors for them and and selling them to them.
4485192,253,2450.6799,2451.3799,3,Hey Jason.
4485192,254,2451.3799,2451.77,3,Good morning.
4485192,255,2451.77,2452.2898,3,it is Dan.
4485192,256,2452.3601,2458.3699,3,i I'd be very careful assuming the lion share of costs were were already in the p and l.
4485192,257,2458.3999,2471.3198,3,Um if you think about their business in two ways one uh you know we were shipping uh blades obviously but there's other costs involved other products involved there's assembly there's distribution.
4485192,258,2471.8501,2478.7998,3,Um so so there are other costs within their core business beyond you know let's say our COGS as a as a supplier.
4485192,259,2478.8,2485.79,3,And then and then secondly you know obviously you have this shift to retail which is a slightly different margin profile to it as well.
4485192,260,2485.79,2486.52,3,So I wouldn't…
4485192,261,2487.0,2498.54,3,I I'm not gonna go back through your math point for point but I wouldn't uh assume that there's there's margin accretion here simply because we've been we've been already holding or recognizing all of the COGS that that's that's not true.
4485192,262,2499.76,2500.02,6,Okay.
4485192,263,2500.49,2502.01,6,Um that that is helpful.
4485192,264,2508.3601,2517.49,6,I think you said within COGS but but you're you're lowering gross margin pretty much commensurate with a higher inflation so it looks like in the near term you're knocking the offset in COGS.
4485192,265,2517.8899,2519.03,6,Where is the offset coming?
4485192,266,2519.03,2527.5898,6,because you are you're saying on an underlying basis you're still holding your earnings outlook flat um this must be somewhere within sg and a what specifically are you finding…
4485192,267,2527.8,2530.3401,6,um where specifically are you finding more efficiency or more leverage?
4485192,268,2531.6001,2531.8401,3,Yeah.
4485192,269,2531.8401,2555.96,3,I think so I think a couple things one on on the COG side I think as I mentioned in my comments w we continue to look at at all aspects of of the program we have in place and where we can accelerate that and where we can bring incremental savings into the year that work is ongoing as is the as is the revenue work that we're doing that I described so that the teams are literally uh in the process of of that work.
4485192,270,2556.3999,2562.4802,3,On the cost side I think absolutely we we have to evaluate all aspects of both overhead and commercial spent.
4485192,271,2562.78,2570.99,3,Um now we have to be really careful here because as we've said many times we're at a very very important moment for the business.
4485192,272,2571.3799,2584.25,3,We have seen the impact of what really good investment behind the brands and and really good investment behind organizational capabilities do for us and and and the role that it has played as a catalyst over the last eighteen months in growth.
4485192,273,2584.79,2592.6699,3,So we have no intention here on the on the spend lines if you will to take a step sideways uh let along backwards that's that's a fact.
4485192,274,2593.1799,2614.5801,3,Having said that absolutely we we're going to evaluate the spend with AMP we're gonna continue to look at effectiveness and make sure every dollar we put to use uh delivers returns for us um and and really be thoughtful about both our AMP investment and the you know the timing and phasing and how we think about overheads in this environment.
4485192,275,2614.5801,2617.5701,3,I think that's that's something we we certainly should be doing and we'll do.
4485192,276,2618.1499,2618.5999,2,Jason.
4485192,277,2618.6001,2619.96,2,I I would add to this.
4485192,278,2620.7,2635.04,2,Um we are not gonna go cut anything that we think is important capability to win in the future or part part of strategic narrative around brand building repositioning as we build our brands and the equities moving forward.
4485192,279,2635.5601,2643.75,2,Um there's an element of this that is also price revenue management related Dan referenced that that's a big place we want to go.
4485192,280,2643.75,2663.53,2,I don't think the pricing narrative is done here a lot of this inflation is hit in you know the last thirty to sixty days of the quarter just finished and and so it's now opened up the opportunity with that information to go look at pricing again uh across the portfolio and so we'll do that.
4485192,281,2663.8601,2679.51,2,And I think the other thing we will we'll really focus on is and where all the value in this business is of time is in a healthy accretive top line performance whether that be price or volume we're we're really focused on driving a better top line outcome here as part of the equation as well.
4485192,282,2681.45,2681.6699,6,Okay.
4485192,283,2682.03,2682.5901,6,Um thanks.
4485192,284,2682.5901,2683.0398,6,I'll pass on.
4485192,285,2684.1001,2684.8501,2,Thank you Jason.
4485192,286,2685.0901,2686.29,2,Operator next question please.
4485192,287,2687.2,2691.6499,0,The next question comes from Bill Chappell with Truist Securities.
4485192,288,2692.0701,2692.3501,0,Please.
4485192,289,2692.3501,2692.8401,0,Go ahead.
4485192,290,2694.0901,2694.1501,7,Thanks.
4485192,291,2694.8899,2695.3899,7,Good morning.
4485192,292,2696.6101,2697.05,3,Hi Bill.
4485192,293,2697.0801,2704.29,7,Hey uh first on Billie can you just help us understand on the rollout to Walmart like where that shelf space is coming?
4485192,294,2704.29,2714.8699,7,Is it is it all kinda promotional in cap uh center cap type stuff or are you getting uh permanent placement in in in the the Wet Shave aisle?
4485192,295,2714.8701,2718.8501,7,And if it's the the the second you know what is that where is that coming from?
4485192,296,2718.8501,2723.51,7,Is that coming from your existing portfolio or is that coming from from other competitors?
4485192,297,2726.3201,2728.5801,2,We are really excited about Billie.
4485192,298,2728.97,2740.47,2,Overall Bill if you look at the the profile of the business we acquired it ninety million dollars trailing twelve all transacted online so rapid growth.
4485192,299,2741.22,2753.3901,2,The the impact to us incrementally as as we call out today is roughly four hundred basis points on top of our organic sales um in the year we're in now.
4485192,300,2753.8501,2761.0701,2,Um and as part of that the big building block that comes on top of direct to consumer is the Walmart launch.
4485192,301,2761.28,2775.6599,2,And if you look at Walmart effectively a national roll at it it's obviously different in a Superstore format versus a neighborhood store but across their entire network there is permanent in aisle fixed display.
4485192,302,2776.6699,2787.6699,2,It looks beautiful um it has stopping power when you when you walk down the aisle it's the cleanest most beautiful part of the women's shave section now so it's permanent.
4485192,303,2788.0601,2798.97,2,And in addition uh there's in cap that comes on top of that on secondary display with full signage and and in cap coverage there.
4485192,304,2798.97,2803.77,2,So it's high quality distribution it's beautiful and it is there throughout the year.
4485192,305,2805.3401,2805.74,7,That's great.
4485192,306,2806.02,2807.6099,7,Uh uh and I appreciate that.
4485192,307,2807.6101,2815.3101,7,And then separate kind of differently on on Wet Ones can you kinda give us an idea of what Omicron did to that…
4485192,308,2815.6299,2821.8699,7,the category over the past three four months in terms of getting it back to whatever normal looks like for that category?
4485192,309,2821.8701,2824.1099,7,I mean did it accelerate the the path to normal?
4485192,310,2824.1699,2835.1699,7,Did people not really come back to to wipes with Omicron like they did for delta or prior versions and you know and and are we any closer to still kinda getting to what normal looks like?
4485192,311,2836.46,2849.54,2,We are close to what new normal looks like Bill this this quarter just printed here is the really the last quarter of where you had two to three hundred percent growth in the prior year period it's three hundred in this case.
4485192,312,2849.54,2864.1802,2,So you're lapping three hundred percent growth which was really the the rush you saw around the the spike uh in December a year ago November December a year ago.
4485192,313,2864.8201,2877.6699,2,And and so as as we come now to Omicron and as people either have their supplies or stocks or have become comfortable with their new routine in this Omicron is effectively a non-event I would say.
4485192,314,2878.1399,2888.3999,2,Um and so as we look forward we start to cycle more normal growth that big peak is behind us now so we're laughing more normal quarters as we go forward.
4485192,315,2888.97,2893.6001,2,The other important point here not to lose those we still feel really good about Wet Ones in the category.
4485192,316,2894.22,2918.95,2,It's up double digits on a stack basis versus pre-pandemic and so we do expect the category to continue to grow and we've got a fifty five percent market share position here we're the leader and we're seeing the shelf consolidate back to what the set looked like pre-pandemic with people that came in to to try to fill the the supply gap uh coming out of the sets.
4485192,317,2920.8501,2921.1001,7,Great.
4485192,318,2921.1001,2921.79,7,Thanks for the <inaudible>.
4485192,319,2922.75,2923.28,2,Thank you.
4485192,320,2923.3701,2924.0,2,Thank you Bill.
4485192,321,2924.03,2925.3799,2,Operator next question please.
4485192,322,2927.1299,2930.75,0,The next question comes from Kevin Grundy with Jeffries.
4485192,323,2930.9299,2931.8201,0,Please go ahead.
4485192,324,2983.1899,2983.3899,3,Yeah.
4485192,325,2983.3899,2984.0598,3,Absolutely.
4485192,326,2984.1799,2984.8201,3,Uh good morning.
4485192,327,2984.8201,2985.6799,3,So look I…
4485192,328,2985.71,3003.49,3,le let's unpack the Billie element first because as as we look at our guidance uh when you exclude you know the technical changes we made related to the Billie transaction and the incremental currency headwinds um our our core outlook remains intact right?
4485192,329,3003.49,3004.6501,3,That's that's unchanged.
4485192,330,3005.02,3010.1699,3,We talk talked about the FX piece uh that we see in additional five cents of headwinds here.
4485192,331,3010.1699,3024.04,3,So then it really comes down to to the Billie piece and you've got nineteen cents of anticipated full year uh impact driven by by two things Kevin one is the the amortization of the intangible.
4485192,332,3024.0701,3039.25,3,We we talked about that last time obviously couldn't have predicted what that would be it's an obviously a non cash charge that's thirteen cents of the nineteen cents tied up in this in this year one of Billie that obviously was not in our our initial guide.
4485192,333,3039.8,3047.1602,3,And then the second piece is is really a timing and a comparison piece which is the impact of of deferred profit right?
4485192,334,3047.1599,3057.6299,3,So if you think about our initial outlook we would've contemplated Billie as a customer we would've had twelve months of gross margin on sales to that customer in our outlook.
4485192,335,3058.3101,3078.8999,3,And now uh with Billie coming on board with ten months of business not twelve and with an assumed sixty day inventory return you know some of those previously thought of as sales become shipments and some of that profit on those shipments gets deferred uh purely timing purely the mechanics of the transaction.
4485192,336,3078.8999,3088.72,3,So thirteen cents related to the amortization charge six cents related to the impact of deferred profit versus what was in our initial guide.
4485192,337,3089.79,3090.1602,8,Okay.
4485192,338,3090.3201,3090.6299,8,All right.
4485192,339,3090.6299,3092.8899,8,Uh I can take some of that offline.
4485192,340,3108.5901,3120.21,8,You think about the Walmart distribution perhaps you can put some parameters around ACV or total points of distribution and where you think that can go as you sort of roll out uh into uh into Walmart.
4485192,341,3120.21,3121.4199,8,I can pass it on that.
4485192,342,3122.8701,3122.9902,2,Yeah.
4485192,343,3122.99,3127.8699,2,I'll I'll start Kevin and go to Dan if you want to add some commentary.
4485192,344,3128.5601,3132.0601,2,Look Billie's got a a high CAGR because it's four years old <laugh>.
4485192,345,3133.1499,3139.53,2,So you go from zero to to ninety million trailing twelve and four years you you get a high CAGR all online.
4485192,346,3140.1499,3169.8401,2,Um different than some other m and a we've looked at in the past this is timed nearly perfectly for us because we are just starting the retail rollout last month January of twenty two um with what we think is the premier women's brand um in this more value oriented space just around price point.
4485192,347,3170.24,3178.8799,2,It's very additive to our portfolio um with our Schick Hydro Silk in the Intuition brands.
4485192,348,3179.02,3183.5601,2,It's it's a it's a differentiated add to our portfolio where we had a whole.
4485192,349,3184.25,3193.8201,2,We believe over time this brand has legs to be everywhere and to be a big part of our portfolio going forward.
4485192,350,3194.3101,3207.1602,2,It's also incremental to us around who the consumer demographic is it skews younger it skews more diverse and so it's a nice add into our portfolio.
4485192,351,3207.1599,3214.6602,2,And the final thing I'll say before I throw with Dan is we have lacked access to good consumer data.
4485192,352,3215.1001,3219.4502,2,They have three million customers in their file right?
4485192,353,3219.45,3225.1001,2,And so this is also a breakthrough for us around not only digital capability but also consumer data.
4485192,354,3226.1599,3226.3198,3,Yeah.
4485192,355,3226.3201,3239.3098,3,And then just maybe building on the math so what we said at the time of the announcement was it was a ninety million dollars uh TTM business top line growing at about thirty percent of course that was just a DTC business at the time.
4485192,356,3240.01,3255.98,3,If you fast forward to today and again recognizing we have ten months of of their business in our p and l you know we've said it it'll add about four hundred basis points in reported sales so you know you're in the eighty five to ninety million range.
4485192,357,3255.98,3257.9199,3,Now there are two elements to that.
4485192,358,3258.54,3267.3601,3,There are the Billie third party sales both retail and DTC which we are estimating is in the you know a hundred and five a hundred ten million dollar range.
4485192,359,3267.8799,3276.78,3,And then you have the headwind of shipments that were in our initial plan that now become intercompany shipments and that's plus or minus twenty twenty five million.
4485192,360,3276.78,3282.29,3,So that you put the two together you land in the eighty five to ninety million range.
4485192,361,3282.3201,3286.98,3,As we think about the business uh over the ten months of of fiscal twenty two.
4485192,362,3287.01,3305.8999,3,Now the the fundamentals for this business are therefore you know twofold one we are going to continue to invest in DTC growth customer acquisition retention basket growth et cetera for all the reasons Rod described and then we're going to uh execute flawlessly at Walmart.
4485192,363,3305.8999,3314.8599,3,So you're really leveraging the expertise of the Billie team um on the first element and then obviously the retail expertise of Edgewell on the second.
4485192,364,3315.5801,3335.6401,3,You know the exact cadence and pace and splits and how quickly it scales you know that obviously we we'll learn our way into in twenty twenty two but it is super attractive growth profile and I think just looking at the Walmart end of it compares very very favorably to to recent launches uh in the space.
4485192,365,3336.6201,3336.9402,8,Okay.
4485192,366,3337.02,3337.48,8,Very good.
4485192,367,3337.48,3338.1401,8,Thank you both.
4485192,368,3338.1399,3338.6499,8,Good luck.
4485192,369,3339.3301,3339.6401,3,Thank you.
4485192,370,3339.6399,3340.1301,8,Thanks Kevin.
4485192,371,3340.4099,3341.0999,3,Thanks Kevin.
4485192,372,3341.1001,3342.3401,3,Operator next question please.
4485192,373,3343.4299,3348.74,0,The next question comes from Olivia Tong with Raymond James please go ahead.
4485192,374,3348.74,3348.9199,9,Great.
4485192,375,3350.1899,3350.4199,9,Great.
4485192,376,3350.46,3350.98,9,Thank you.
4485192,377,3351.8999,3353.1299,9,Um on…
4485192,378,3353.1299,3370.4702,9,my question's on pricing um if you could talk a little bit about what you've done of late um whether you think there needs to be more to offset the cost inflation um any view on what competition's done and and whether there have been any moves or or lack thereof by others that make it more challenging for you to put your plans in place.
4485192,379,3370.6299,3389.4199,9,And you know you've you've slugged it out quite a bit to improve your positioning so you know as con inflation continues how do you sort of think about balancing the desire to um to offset cost inflation by taking price with the potential implications it may have on um on markets here?
4485192,380,3389.47,3390.0901,9,Thanks so much.
4485192,381,3392.26,3392.3801,2,Yeah.
4485192,382,3392.3799,3393.1101,2,Good morning Olivia.
4485192,383,3393.1101,3394.95,2,Uh Rod here I'll start.
4485192,384,3394.95,3396.3699,2,And then then flip it to Dan.
4485192,385,3396.99,3410.0598,2,Look on on pricing I think you know one of the things I learned earlier in my career is Procter Gamble is is pricing is is really important to creating value over time and structural profitability in the business.
4485192,386,3410.0601,3422.4001,2,So we will always look uh to take pricing where it's warranted where where i it's either warranted by innovation our cost that needs to be you know shared on and passed on we'll look to do that.
4485192,387,3422.3999,3430.6401,2,Where we have leadership with the leading share position we will lead pricing under the under that scenario where it's warranted.
4485192,388,3431.2,3441.4502,2,Where we're not a leader we'll follow we play more of a follower role um and we look to fast follow I think we said that in our prepared comments that's the strategy that's the approach.
4485192,389,3441.8999,3451.28,2,All this through a context over time of we want to maintain and build our share and become more um competitive over time.
4485192,390,3451.3201,3455.4202,2,Price is obviously a piece of that so we we never want to be disadvantaged.
4485192,391,3455.4199,3462.7898,2,We've got price strategies by brand that we lay out that's part of the overall strategy of building that business and growing share over time.
4485192,392,3463.4299,3471.6799,2,Um but there is uh an opportunistic piece to the pricing environment we live in today that we need to to go get for sure.
4485192,393,3472.3401,3472.4402,3,Yeah.
4485192,394,3472.4399,3476.4099,3,And the only thing I would add Olivia I think just two comments one just a reminder.
4485192,395,3476.4099,3483.53,3,I know you know but price is not the only lever that we have here to offset this five hundred basis points of inflation.
4485192,396,3483.6499,3494.3801,3,Um it is a lever it is not the only lever and I won't go back through the comments on on productivity but we feel really good about our ability to to continue to take cost out there.
4485192,397,3494.8601,3508.78,3,You know on the price front to to Rod's point we we've been super thoughtful we've executed extremely well with with real precision both in how we think about frontline price and also how we think about promotional intensity and effectiveness.
4485192,398,3508.78,3512.1101,3,I think you have to look at those uh together.
4485192,399,3512.48,3521.4399,3,Having said that the world continues to change um and the teams are actually you know quite optimistic and recognize there's more to do here.
4485192,400,3521.4399,3534.7,3,And so we're back at it looking category by category looking brand by brand nothing is off the table on price uh obviously we won't get into the specifics here for competitive reasons but but we recognize that that there's more to do.
4485192,401,3534.7,3542.47,3,And in fact the pricing environment remains fairly productive at this point and the and the teams feel pretty good about the opportunities that further price has for us.
4485192,402,3545.1299,3545.3501,9,Got it.
4485192,403,3545.3501,3546.03,9,That's helpful.
4485192,404,3546.03,3564.52,9,And then just on uh future m and a you know now that you've done an acquisition larger than than the previous ones um when do you think you have capacity to start looking at sort of the niche tuck ins you've been known uh for over the last few years and just your broadly your thoughts on capital allocation um including the share purchase plans from here?
4485192,405,3566.0801,3566.53,3,Yeah.
4485192,406,3566.53,3576.8301,3,Look I I I think for m and a first of all um we we are not out of the game on m and a we are we are engaged and looking at things and obviously the bar is high.
4485192,407,3576.8301,3591.3901,3,Obviously we're going to need to be really disciplined about what we do from here but being three times levered with the cash profile that we have you know a deal like Billie uh certainly doesn't take us off the m and a landscape.
4485192,408,3591.3899,3602.0701,3,There's a lot of interesting assets out there and my team spends a lot of time you know looking at these uh for similar uh characteristics that we see with Billie right?
4485192,409,3602.1399,3608.73,3,High growth opportunity to to to gain growth in a growing segment capability uh share et cetera.
4485192,410,3608.73,3614.6101,3,So I think from an m and a perspective uh still highly engaged and still looking at a lot of interesting assets.
4485192,411,3615.04,3630.4202,3,In the broader capital allocation uh question look we we we really like where we are in the sense that we have a very clear very disciplined and and very broad approach to capital allocation that we have in fact been executing right?
4485192,412,3630.4199,3632.29,3,A year ago we initiated the dividend.
4485192,413,3632.8401,3637.22,3,Interesting yields one and a half two percent and solid uh returns.
4485192,414,3661.29,3663.6699,3,We we really like where we are and we like how we're executing.
4485192,415,3666.5601,3667.24,9,Thanks very much.
4485192,416,3668.21,3668.9299,2,Thanks Olivia.
4485192,417,3668.98,3670.25,2,Operator next question please.
4485192,418,3670.9399,3674.46,0,Uh currently we have no further questions.
4485192,419,3674.5,3678.4302,0,I would like to turn the conference back over to Rod Little for any closing remarks.
4485192,420,3680.0901,3682.8,2,Thank you everyone for your continued interest and time.
4485192,421,3682.8,3683.6201,2,Have a great day.
4485192,422,3684.1499,3684.53,3,Thank you.
4485192,423,3685.8701,3687.3,0,The conference has now concluded.
4485192,424,3687.5601,3689.74,0,Thank you for attending today's presentation.
4485192,425,3689.95,3691.0,0,You may now disconnect.
4485244,0,9.38,12.99,0,Welcome to KKR's fourth quarter two thousand twenty one earnings conference call.
4485244,1,13.66,16.93,0,During today's presentation all parties will be in a listen only mode.
4485244,2,17.46,21.0,0,Following management prepared remarks the conference will be open for questions.
4485244,3,21.63,26.65,0,If you should require operator assistance during the call please press star zero on your telephone keypad.
4485244,4,27.2,29.26,0,As a reminder today's call is being recorded.
4485244,5,29.89,34.21,0,I'll now hand the call over to Craig Larson Head of Investor Relations for K K R.
4485244,6,34.86,35.39,0,Please go ahead.
4485244,7,36.62,37.45,1,Thank you operator.
4485244,8,38.21,38.95,1,Good morning everyone.
4485244,9,38.95,41.61,1,Welcome to our fourth quarter twenty twenty one earnings call.
4485244,10,42.27,48.64,1,As usual I'm joined this morning by Rob Lewin our C F O and Scott Nuttall our Co-Chief Executive Officer.
4485244,11,49.78,61.21,1,We'd like to remind everyone that we'll refer to non-gap measures on the call which are reconciled to gap figures in our press release which is available on the investor center section at kkr dot com.
4485244,12,61.97,66.24,1,And as a reminder we report our segment numbers on an adjusted share basis.
4485244,13,67.42,72.81,1,Our call will contain forward looking statements which do not guarantee future events or performance.
4485244,14,73.63,79.06,1,Please refer to our earnings release and s e c filings for cautionary factors about these statements.
4485244,15,80.23,86.3,1,Now before we jump into our results for the quarter we'd like to take a step back and talk about K K R in full.
4485244,16,87.7,90.13,1,As we look at our business we see four things.
4485244,17,91.01,92.58,1,First we see scaling.
4485244,18,93.66,99.32,1,Organically over the last twelve months A U M at K K R increased forty eight percent.
4485244,19,100.54,104.93,1,For an asset management business of our size that alone is a pretty remarkable statistic.
4485244,20,105.82,111.59,1,And including the global Atlantic acquisition A U M increased eighty seven percent year over year.
4485244,21,113.1,118.54,1,Second you're seeing the impact of this scaling across many of the numbers that we're reporting today.
4485244,22,119.78,130.8,1,You see it in our financials management fees for the year increased forty four percent fee related earnings increased fifty four percent while distributable learnings more than doubled.
4485244,23,131.75,133.9,1,All of these figures are at a record level for us.
4485244,24,135.04,138.02,1,And you also see it in our operating statistics.
4485244,25,138.72,141.14,1,Investment activity for example is at a new level.
4485244,26,142.19,145.68,1,In twenty twenty we invested thirty billion bucks across the firm.
4485244,27,146.45,156.87,1,In twenty twenty one that increased to over seventy billion dollars and new capital raised of a hundred and twenty one billion for the year reflects breadth and diversification.
4485244,28,158.18,166.07,1,Approximately one third of that capital was raised from the broad private equity franchise so including our growth strategies and core PE.
4485244,29,167.34,173.82,1,Another one third came from our real assets businesses with the remaining one third coming from public markets.
4485244,30,174.79,178.01,1,So fundraising was truly diversified across the firm.
4485244,31,178.93,187.52,1,And the other neat point about that a hundred and twenty one billion is that forty five percent of it came from strategies that didn't exist at K K R five years ago.
4485244,32,188.52,191.87,1,We think that says a lot about our culture and our focus on innovation.
4485244,33,193.93,202.53,1,Third looking forward we remain very constructive on the opportunities we have ahead us with multiple identifiable growth avenues on a global basis.
4485244,34,203.89,208.15,1,Rob's gonna touch on our fundraising pipeline and our areas of focus in a few minutes.
4485244,35,209.69,213.61,1,And finally remember we feel advantaged during periods of dislocation.
4485244,36,214.71,221.86,1,There are very few long dated pools of capital as large as ours that can take advantage of dislocations.
4485244,37,222.81,233.54,1,And we have a unique business model and a unique culture that we think can lead to differentiated outcomes during these periods and that's all alongside of a hundred and twelve billion of dry powder.
4485244,38,235.03,242.52,1,Suffice to say there's plenty to focus on and a lot of compelling opportunities in the uncertain world in which we all find ourselves.
4485244,39,243.99,245.2,1,Now turning to our results.
4485244,40,246.0,248.76,1,The fourth quarter was another very strong quarter for us.
4485244,41,249.97,270.39,1,Fee related earnings per share of sixty nine cents and after tax distributable earnings of a dollar fifty nine per share are record quarterly figures for us and full year f r e of two dollars and twenty three cents per share and after tax PE of four dollars and forty four cents per share are record annual figures for us.
4485244,42,271.74,273.4,1,Looking at the quarter's operating metrics.
4485244,43,273.77,281.6,1,New capital raised total nineteen billion driven by several strategies across private equity infrastructure real estate and credit.
4485244,44,282.65,291.89,1,Notably healthcare strategic growth too held its final close bringing the fund to almost four billion or approximately three times larger than its predecessor.
4485244,45,293.24,296.86,1,This brings new capital raise for twenty twenty one to a hundred and twenty one billion.
4485244,46,297.49,305.08,1,And this record fundraising and the addition of ninety eight billion from the Global Atlantic acquisition in February significantly increased our asset base.
4485244,47,306.07,310.95,1,A U M now totals four hundred and seventy one billion up eighty seven percent year over year.
4485244,48,312.05,321.1,1,The strength of this year's fundraising is importantly quite diverse as I mentioned a minute ago with about seventy billion from non flagship strategies.
4485244,49,322.21,331.48,1,Our younger strategies are scaling as they enter their second or third fund life and we continue to innovate and expand in with adjacencies across strategies and across geographies.
4485244,50,332.83,338.04,1,And GA grew by twenty five billion through block activity alongside of organic inflows in the year.
4485244,51,340.1,342.04,1,We deployed twenty three billion in the quarter.
4485244,52,342.78,347.18,1,Capital invested in both traditional private equity and core private equity were strong.
4485244,53,348.04,357.29,1,Our real estate platform continues to see robust deployment with real estate credit particularly operating a high run rate and that's been amplified by Global Atlantic.
4485244,54,358.4,370.21,1,Similarly on the public market side GA has added to the rate of private credit deployment in the quarter most meaningfully in asset based finance with additional deployment in direct lending and opportunistic strategies.
4485244,55,371.51,378.88,1,q four s activity brings capital invested for twenty twenty one to seventy three billion up two and a half X year over year.
4485244,56,380.09,390.06,1,We've seen a step function type change in the level of deployment driven by the size and diversity of our capital base while at the same time remaining judicious and choosing our spots.
4485244,57,391.13,400.9,1,Now just as we continue to see strength on the fundraising and deployment front our funds and strategies continue to perform at a very high level.
4485244,58,401.23,408.66,1,You can see this on page seven of the earnings release where we detail investment performance for the quarter and the year across investment strategies.
4485244,59,410.34,414.66,1,And finally I want to touch on capital return before Rob walks through our earnings profile.
4485244,60,416.11,426.55,1,As you can see at the bottom of page two of the release consistent with historical practice we're pleased to announce an increase in our annual dividend from fifty eight cents to sixty two cents per share.
4485244,61,427.69,438.97,1,This is the third consecutive year we've increased our dividends since we changed our corporate structure and the change will go into effect beginning with any dividends to be announced for the first quarter of twenty twenty two.
4485244,62,440.21,453.23,1,And since our third quarter earnings call in November through last week we repurchased three hundred and sixty three million of our stock in the open market with the majority of that coming in twenty twenty two in the midst of all of this volatility.
4485244,63,454.02,456.09,1,And with that I'll turn the call over to Rob.
4485244,64,456.96,457.65,2,Thanks a lot Craig.
4485244,65,458.58,460.31,2,That'll walk you through our quarterly p and l.
4485244,66,461.6,466.15,2,Our management fees increased by forty nine percent this quarter versus q four of two thousand and twenty.
4485244,67,467.55,471.28,2,Management fee growth was driven by close across a number of active funds in the quarter.
4485244,68,472.37,478.42,2,These closes alongside our investment activity bring fee paying A U M to three hundred fifty seven billion.
4485244,69,479.53,489.17,2,The fundraising success experienced over the past few quarters is really starting to flow through this line with another thirty eight billion of committed capital not yet paying fees.
4485244,70,490.45,497.57,2,Our net transaction and modern fees were primarily driven by our capital markets franchise this quarter which earned three hundred twenty million dollars.
4485244,71,498.26,499.56,2,This is a high point for us.
4485244,72,500.51,505.0,2,This revenue figure also encompasses a record number of transactions in a single quarter.
4485244,73,506.02,509.08,2,And we only had one fee event that was greater than twenty million dollars.
4485244,74,509.97,516.84,2,For the year capital markets totaled eight hundred forty seven million with revenues diversified by type approximately.
4485244,75,516.84,526.37,2,A quarter of our revenues related to each of private equity infrastructure as well as third party clients with the remaining quarter diversified across multiple different asset classes.
4485244,76,528.57,529.79,2,Moving to our expenses.
4485244,77,530.24,536.1,2,Fee related compensation came in right at that twenty two and a half percent mark the midpoint of the range we've discussed previously.
4485244,78,537.03,539.91,2,While our other operating expenses came in at a hundred forty million.
4485244,79,540.96,546.78,2,The increase here was driven by higher placement fees as well as professional fees given high activity levels across the firm.
4485244,80,547.78,555.09,2,We are also all back in the office across most of our locations leading to an uptake in operating costs versus this time last year.
4485244,81,556.2,563.87,2,In total this brings our fee related earnings to six hundred six million for the quarter which is up forty five percent versus q four of two thousand twenty.
4485244,82,564.97,568.74,2,The quarterly and yearly f r e margin both came in at sixty three percent.
4485244,83,570.06,574.09,2,And on a per share basis f r e is two dollars and twenty three cents for the year.
4485244,84,575.21,576.76,2,Now moving on to realizations.
4485244,85,578.37,581.4301,2,Realized carried interest totaled to five hundred sixty eight million in the quarter.
4485244,86,582.59,589.14,2,Our realized incentive fees totaled three hundred fifty one million in the quarter largely due to Marshall wastes strong investment performance.
4485244,87,590.45,593.56,2,And realized investment income totaled three hundred thirty six million.
4485244,88,594.48,599.39,2,Together these earning streams resulted in one point four billion of asset management operating earnings.
4485244,89,601.59,608.51,2,Our insurance segment also experienced an incredibly strong quarter with three hundred forty seven million of operating earnings.
4485244,90,609.88,622.3,2,In q four Global Atlantic sold its interest in Origis Energy a solar renewable energy developer at twelve times cost resulting in a two hundred plus million dollar benefit to segment operating earnings.
4485244,91,623.35,633.06,2,This is really an amazing result for Global Atlantic and all of its shareholders while still recognizing that twelve time gains are not representative of our go forward expectations here.
4485244,92,634.43,640.27,2,Excluding all variable investment income for the year at GA R O E would've still been a bit about fourteen percent.
4485244,93,641.3,647.88,2,This return represents a strong core operating level and modestly above our twelve to thirteen percent expected range.
4485244,94,649.16,664.19,2,Most importantly a year into our partnership with GA we couldn't feel any better about our collective progress including the performance of management the profitability of our stake scaling of the A U M and the integration of our teams.
4485244,95,665.37,672.94,2,In total our after tax distributable earnings were one point four billion for the quarter or a dollar fifty nine per share.
4485244,96,673.7,678.1801,2,Comparing two thousand twenty one to two thousand twenty PE per share is up over two times.
4485244,97,679.79,687.52,2,Alongside an increase in earnings we are also seeing continued compounding in our book value per share which now totals twenty eight dollars seventy seven cents.
4485244,98,688.81,699.13,2,As a component of this our sixty one percent economic interest in Global Atlantic's book value now totals three point four billion of fifteen percent since the first quarter of our ownership.
4485244,99,700.64,710.7,2,In summary our business continues to perform at an exceptionally high level and this is clearly evident in both our q four as well as our two thousand and twenty one results.
4485244,100,712.13,715.36,2,Now there are two additional topics I would like to go through in a bit more detail.
4485244,101,716.2,717.34,2,The first is our potential.
4485244,102,718.62,730.07,2,In two thousand and twenty one we generated almost five billion dollars of distributable operating income really a step function increase from the two point three billion that we generated in two thousand twenty.
4485244,103,731.15,737.53,2,And to be clear we don't believe these results yet reflect even our run rate profitability let alone our potential.
4485244,104,738.85,740.86,2,There are a number of reasons why we have room to run.
4485244,105,741.98,743.34,2,Let's start with management fees.
4485244,106,743.84,749.02,2,At twelve thirty one we have thirty eight billion of committed capital that isn't yet running through our management fee line.
4485244,107,750.14,752.42,2,A year ago that number was twenty billion.
4485244,108,753.68,768.59,2,And as that thirty eight billion which has a weighted average management fee north of a hundred basis points is either invested or enters its investment period it will drive management fees in a meaningful way and I'll come to our future fundraising potential from here in just a minute.
4485244,109,769.7,771.04,2,Next our embedded gains.
4485244,110,771.73,777.65,2,Gross unrealized carry at year end totals eight point six billion compared to four point seven billion a year ago.
4485244,111,778.59,787.34,2,So even after a record realization year gross unrealized carry increased over eighty percent positioning us really well for future realized performance income.
4485244,112,788.73,795.07,2,And embedded balance sheet gains at twelve thirty one were six point seven billion up from four point four billion a year ago.
4485244,113,795.89,804.24,2,So similarly while we saw meaningful step up in balance sheet realizations in two thousand twenty one our embedded gains increased over fifty percent.
4485244,114,805.61,817.24,2,And finally as the overall footprint of the firm continues to grow leading to increased deployment and more relationships this in turn continues to expand the opportunities we expect to have in our capital markets business.
4485244,115,819.51,825.65,2,So really strong performance in two thousand twenty one but with a really meaningful potential still yet in front of us.
4485244,116,826.61,831.41,2,That leads into the second topic I'd like to touch on fundraising and our pipeline.
4485244,117,832.53,837.79,2,As we look forward we expect to be fundraising across thirty plus strategies in two thousand twenty two.
4485244,118,838.89,841.9,2,So we have a lot of runway and opportunity in front of us.
4485244,119,843.0,845.3,2,In terms of areas of focus I'd highlight four.
4485244,120,846.85,848.5,2,The first area is private wealth.
4485244,121,849.44,855.73,2,We now manage a little over fifty billion in private wealth assets and we've been investing meaningfully into this channel.
4485244,122,856.71,861.89,2,Historically private wealth has contributed about ten to twenty percent of the money that we raise annually.
4485244,123,863.07,876.34,2,With the investments we're making in people technology and new product innovation alongside the strength of our brand and our track record we believe over time that it should be thirty to fifty percent of the money that we raise.
4485244,124,878.17,879.51,2,The second area would be Asia.
4485244,125,880.47,884.26,2,More than half of global G D P growth is expected to come from Asia.
4485244,126,884.74,888.59,2,And as a reminder eight of our twenty one offices are in the region.
4485244,127,889.46,902.62,2,We were early to Asia and we've seen significant scaling as A U M across our Asia dedicated strategies has gone from twenty billion to forty two billion over the last two years with private equity being the biggest driver of that growth.
4485244,128,903.96,914.2401,2,In two thousand and twenty two we expect to be fundraising for five Asia focused strategies outside of PE across our infrastructure real estate credit and growth businesses.
4485244,129,915.09,921.96,2,We have a leading footprint in Asia today and building on our presence is a priority and a big opportunity for us.
4485244,130,926.97,931.8,2,These are all adjacent strategies to what we're doing in private equity real estate as well as infrastructure.
4485244,131,932.53,942.9,2,So think longer term capital a lot of which can be raised on a continuous basis for strategies that are leveraging resources and deal flow that are already resident within the firm today.
4485244,132,944.25,950.4301,2,A year ago we were at seventeen billion of A U M across core and today that figure is north of forty billion.
4485244,133,951.86,961.19,2,In two thousand twenty two we look to continue the momentum and expect to be fundraising across five distinct strategies in private equity real estate and infrastructure.
4485244,134,964.13,967.58,2,And the fourth area is what we're doing across our real estate franchise.
4485244,135,968.33,971.61,2,A year ago A U M across real estate was fifteen billion.
4485244,136,972.22,973.85,2,Today that figure is forty one billion.
4485244,137,974.72,984.93,2,In two thousand twenty two we expect to fundraise across ten distinct real estate strategies including the next generation of our opportunistic real estate strategies across all three geographies.
4485244,138,986.07,988.13,2,And with that let me turn it over to Scott.
4485244,139,990.87,994.17,3,Thank you Rob and thank you everyone for joining our call today.
4485244,140,995.36,1004.33,3,As Craig and Rob reviewed twenty twenty one was a very strong year with record A U M f r e and earnings.
4485244,141,1005.61,1014.77,3,The hard work of the last ten to fifteen years of business building began to show up in bigger ways last year and we're ahead of where we thought we would be at this point.
4485244,142,1016.64,1026.8099,3,And with a record a hundred and twelve billion dollars of dry powder we are well capitalized to invest in opportunities presented by more volatile markets and in an evolving macro picture.
4485244,143,1028.53,1031.36,3,In summary we feel incredibly well positioned.
4485244,144,1033.84,1037.8301,3,While we're together today I also wanted to give you a little color on our annual planning meetings.
4485244,145,1038.4,1048.3799,3,Last week we gathered thirty five of our partners for two full days to review where we are where we're going and what we need to get right to capture the opportunity in front of us.
4485244,146,1049.8199,1052.03,3,It was an extremely energizing discussion.
4485244,147,1054.13,1082.88,3,As we discussed at our investor day last April we had significant runway in all of our businesses and see the opportunity to meaningfully scale across multiple platforms and markets simultaneously including Asia real estate infrastructure our core suite of products private wealth growth impact in e s g insurance credit and private equity amongst others.
4485244,148,1084.46,1093.4501,3,What we discussed last week is that our progress makes us even more confident in the opportunity ahead and what these businesses can become.
4485244,149,1095.85,1104.99,3,Then another way we believe we can get to the destination faster than we thought a year ago and the quantum of the growth opportunity is greater than we anticipated.
4485244,150,1107.8101,1116.5599,3,So while twenty twenty one was a great year for the firm what's particularly exciting is how the progress we made last year positions us for more growth in the years ahead.
4485244,151,1118.0,1121.7201,3,And critically Joe and I have never had more confidence in our team.
4485244,152,1122.63,1129.8099,3,We have a focused and highly motivated group driving our businesses and functions and responsible for each of our growth initiatives.
4485244,153,1131.37,1140.6801,3,So we enter twenty twenty two with significant conviction in our growth prospects our model and our people and look forward to keeping you updated throughout the year.
4485244,154,1142.0699,1144.01,3,And with that we're happy to take your questions.
4485244,155,1146.4399,1146.9199,0,Thank you.
4485244,156,1146.92,1149.6799,0,At this time we'll be conducting a question and answer session.
4485244,157,1149.83,1153.41,0,If you'd like to ask a question please press star one on your telephone keypad.
4485244,158,1153.8101,1156.4,0,A confirmation tone will indicate your line is in the question queue.
4485244,159,1157.0601,1159.9301,0,You may press star two if you'd like to remove your question from the queue.
4485244,160,1160.5699,1165.38,0,For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys.
4485244,161,1165.96,1169.7,0,In the interest of time we ask that you each keep to one question and one follow up.
4485244,162,1169.91,1170.37,0,Thank you.
4485244,163,1171.51,1175.0399,0,Our first question comes from the line a of Alex Blostein with Goldman Sachs.
4485244,164,1175.04,1176.1,0,Please proceed with your question.
4485244,165,1177.75,1178.8199,4,Hey good morning everybody.
4485244,166,1179.13,1180.1,4,Thanks for taking the question.
4485244,167,1180.1,1185.5699,4,Um why why don't we start uh with with uh just the the dynamics around fundraising and management fee growth.
4485244,168,1186.0601,1201.3301,4,Um and I really kind of wanted to zone in a couple things because first uh whether or not the current macro conditions are are having any done LP appetite to allocate to private markets broadly um even if just tactically but curious what to hear what you guys are hearing on the ground.
4485244,169,1201.8,1207.38,4,Um and then secondly you know Rob you mentioned a number of fundraising initiatives for twenty twenty two.
4485244,170,1207.88,1215.52,4,I was hoping you could size how much you expect to raise across those thirty plus strategies and ultimately what that means for twenty twenty two management fee growth.
4485244,171,1217.17,1219.0399,1,Uh hey Alex this Craig why don't I begin.
4485244,172,1219.45,1234.26,1,Um to the first part of your question really no change in terms of the interest level that our LPs are having from uh a fundraising side and it continues to feel like we have a lot of momentum uh which is great.
4485244,173,1234.73,1242.89,1,Why why don't I give a little bit more granularity in terms of all of those you know the areas where we're fundraising give you a sense of the breadth of that activity for us.
4485244,174,1243.37,1254.5599,1,You know Rob obviously ran through the four areas of focus for us in twenty twenty two in a more narrowly and private equity we're still fundraising for America's private equity we're fundraising for our Europe private equity strategy.
4485244,175,1255.09,1259.51,1,In growth uh fundraising's launched for both the impact and next gen tech strategies.
4485244,176,1259.96,1268.5601,1,In core we're fundraising across the core businesses so that's core private equity as well as core inf infra and core plus real estate strategies.
4485244,177,1268.97,1279.24,1,Um now the latter to uh are open ended and in addition to core plus in the US that we've spoken about we've also launched fundraising for core plus real estate in Europe and Asia.
4485244,178,1279.58,1287.28,1,Both of those are also open ended um as well as an infra where fundraising continues for the benchmark infras strategy in real estate.
4485244,179,1287.28,1296.54,1,In addition to the core plus strategy in all three geographies we're fundraising for a stabilized real estate credit strategy and an opportunity real estate credit strategy as well.
4485244,180,1297.05,1300.53,1,Um in credit we're active in US Europe and Asia.
4485244,181,1301.05,1310.84,1,Uh we're fundraising for lending partners European revolving credit Asia credit asset based finance credit opportunities and that's in addition to a uh a Global Atlantic sidecar strategy.
4485244,182,1311.3199,1320.78,1,Our C L O business has been active and as we look to raise capital across the leverage credit platforms and our hedge fund uh partnerships on a more continuous basis.
4485244,183,1321.1899,1324.63,1,And that's all in addition to the suite of democratized products that we have.
4485244,184,1325.25,1332.2999,1,Um so again really it it I think the overall takeaway lots of activity and it just continues to feel like uh we have a lot of momentum.
4485244,185,1333.4,1333.54,3,Yeah.
4485244,186,1333.54,1337.77,3,The only thing I would add Alex um agree with Craig no change in LP appetite.
4485244,187,1337.77,1344.6699,3,The only incremental color I'd give is if anything we're seeing more interest in real assets with yield.
4485244,188,1345.64,1355.41,3,So anything with some inflation protection so think infrastructure and real estate as we've seen inflation expectations go up we're finding even more interest in those asset classes.
4485244,189,1356.01,1357.4199,3,Rob you wanna pick up on the second part?
4485244,190,1357.55,1357.8301,2,Yeah.
4485244,191,1357.83,1367.29,2,Hey Alex uh as it relates to the management fee piece of this Alex we've never felt as good as we do right now about our ability to sustainably grow management fees over time.
4485244,192,1367.9399,1380.96,2,Um obviously I referenced the thirty eight billion dollars of of capital that hasn't yet flown through our management fee line item that thirty plus products you know Craig has went through our relationship with Global Atlantic where assets are much higher than you know where we thought we'd be.
4485244,193,1380.96,1388.9401,2,And and frankly just the new product innovation that's happening across the firm today that gives us vis visibility around our ability to grow management fees tomorrow.
4485244,194,1389.33,1401.3999,2,So uh I think the expectation should certainly be continued management fee growth from us and being able to do so in a sustainable basis over time.
4485244,195,1401.78,1406.71,4,Um so you guys obviously picked up the pace of buyback so far in in the first quarter.
4485244,196,1407.12,1415.1801,4,Um given your comments around the robustness of business going forward obviously lots of capacity on the balance sheet given realizations and and embedded gains.
4485244,197,1415.72,1421.95,4,How are you thinking about the buyback at this level uh for the share price and should we be thinking about acceleration and share purchases from here?
4485244,198,1422.52,1422.8,2,Yeah.
4485244,199,1422.83,1431.21,2,Uh Alex the key for us uh on capital allocation is to have a consistent approach and and you've heard that for us over the last number of years and you know we'd anticipate that continuing.
4485244,200,1431.6899,1445.24,2,And so as we think about our overall capital allocation strategy you know we we wanna make sure that we're striking the right balance between capital we return to shareholders and investing back into K K R for growth so long as that can be done at at highs ROEs and above our cost of equity.
4485244,201,1445.6,1446.89,2,So let's take those in order.
4485244,202,1447.17,1454.71,2,Um you would've seen obviously that we just increased our dividends seven percent uh third consecutive year since we became a CD Corp we've increased our dividends.
4485244,203,1455.24,1459.17,2,And then we want to continue to invest back into KKR stock as you said.
4485244,204,1459.2,1464.4,2,Um certainly at these levels we feel really good about our overall body of work on our share buyback.
4485244,205,1464.87,1468.48,2,Uh we've repurchased or retired north of eighty million shares now.
4485244,206,1468.48,1473.77,2,That's uh almost ten percent of uh KKR shares of standing almost fifteen percent of our free float.
4485244,207,1474.3,1479.2999,2,Um and our goal as you know is to keep our share count flat as it relates to employee dilution.
4485244,208,1479.48,1487.8301,2,So I think the expectation over time with certainly CSB in the market um and and uh and acquiring and and retiring KKR stock.
4485244,209,1488.2,1505.1,2,In terms of balancing that with overall opportunity to grow K K R it is a big priority for us to reinvest back into K K R uh whether that's an m and a or supporting new products or supporting new innovation so long as we're seeing returns that are commensurate with that capital commitment and over the last number of years we certainly have.
4485244,210,1505.51,1509.7999,2,So we're gonna continue to have a capital allocation framework that is very much R O E based.
4485244,211,1510.4399,1516.37,2,We feel that's a real core competency of ours as we think about moving capital around to the highest ROE opportunity.
4485244,212,1516.8101,1528.12,2,Um and as you think about our overall capital allocation framework I think it's also um worth remembering that that K K R as an employee base is the single larger shareholder in KKR so we come at that from a very aligned basis.
4485244,213,1529.5699,1529.7699,4,Great.
4485244,214,1529.98,1530.53,4,Thanks for all that.
4485244,215,1531.15,1531.59,2,Thanks Alex.
4485244,216,1531.59,1531.9,3,Thank you.
4485244,217,1533.95,1534.35,0,Thank you.
4485244,218,1534.46,1537.1699,0,Our next question comes from the line of Robert Lee with KVW.
4485244,219,1537.17,1538.26,0,Please proceed with your question.
4485244,220,1538.26,1540.2,5,Uh great good morning everyone.
4485244,221,1540.2,1541.45,5,Thanks for taking my questions.
4485244,222,1559.86,1575.9,5,Like uh I know you had a ha just had a new head of global wealth management but you know whether it's specific products or specific things that kind of give you that confidence you know sitting here today that next you know couple of years you can have that magnitude of an increase coming from that channel.
4485244,223,1576.15,1577.0599,5,I mean what would drive that?
4485244,224,1578.37,1578.92,1,Hey Robert it's Craig.
4485244,225,1578.92,1579.48,1,Where do I begin?
4485244,226,1579.48,1585.8099,1,So you know private wealth is as big a priority as we have as a firm.
4485244,227,1587.01,1597.95,1,And the addressable market here cuz everyone knows is massive you know total client a client assets are estimated to be around two hundred eighty trillion dollars.
4485244,228,1597.95,1605.7201,1,That's pension funds sovereign wealth insurance private wealth combined and private wealth is almost sixty five percent of that and is growing.
4485244,229,1606.41,1614.39,1,So it's a massive end market but at the same time allocations as we all know for individual investors is a fraction of what you find at institutions.
4485244,230,1615.11,1620.5399,1,And so individual investors are less than five percent and by our research we actually think that number is in around two or three percent.
4485244,231,1621.46,1627.47,1,We have this enormous end end market it's under penetrated with allocations that are increasing.
4485244,232,1628.02,1638.0,1,And so it's a a huge opportunity and I think as we think of our investment skills our track record combined with our brand we really think we're exceptionally well positioned to be a winner here.
4485244,233,1638.5,1640.34,1,And the focus I'd say is really threefold.
4485244,234,1640.42,1645.09,1,So uh one we're focused on our partnerships with private wealth platforms.
4485244,235,1645.21,1649.5399,1,So in the US that's the wire houses the independent broker dealers the RIAs.
4485244,236,1649.9,1654.1901,1,And outside the US it's the global private banks and the regional private banks.
4485244,237,1654.71,1660.0099,1,And so the business is organized by geography here and you're correct you've you've seen some hiring related to that.
4485244,238,1660.67,1663.88,1,Uh second we're related or we're focused on the family capital part.
4485244,239,1664.3101,1672.65,1,So think about that single family offices multifamily ultra high net worth and some of those folks are very large and very sophisticated.
4485244,240,1673.2,1675.78,1,And again we're organized by geography here.
4485244,241,1676.51,1678.5399,1,And then third we're focused on product creation.
4485244,242,1679.16,1690.9299,1,So historically we've offered private fund solutions through the private wealth space but really there are only a limited number of private wealth investors that are qualified who could look at private funds as appropriate.
4485244,243,1691.5601,1705.55,1,So we're focusing on creating these new investment solutions these more democratized products democratized solutions that are in a registered fund format and have much wider applicability within the private wealth channel.
4485244,244,1706.27,1728.04,1,So um you know I think suffice to say when you combine with where we are in the development of the channel uh the maturing of our product set including and Scott mentioned this a moment ago all the products that we have with the yields uh real assets et cetera and put that together with our brand which is really encouraged with our how we're situated and all of the opportunities that we have ahead of us.
4485244,245,1729.27,1730.76,5,Okay great.
4485244,246,1730.76,1731.0601,5,Thanks.
4485244,247,1731.0601,1742.13,5,Maybe as a follow up uh I mean at least equity mark's been pretty rock rocky start to the year so I guess investors are you know generally concerned about kind of the realization outlook from here.
4485244,248,1742.13,1750.9399,5,Could you maybe update us on where you where things are for you guys right now you know through you know the start of the year the first you know you know half of the quarter or q one?
4485244,249,1752.09,1752.4199,2,Yeah.
4485244,250,1752.54,1752.88,2,Hey Rob.
4485244,251,1753.05,1754.4199,2,Um uh some good news here.
4485244,252,1754.42,1760.61,2,As it relates to q one we already have a good amount of visibility into some pretty meaningful revenue from monetization activity.
4485244,253,1761.29,1764.73,2,As of now that figure is around seven hundred million maybe a bit above that.
4485244,254,1765.24,1769.51,2,a as you know that's collectively across both our performance as well as our investment income.
4485244,255,1770.0,1775.9701,2,And as a reminder you know that is from deals that are already closed or have been signed up and that we expect to close in q one.
4485244,256,1776.74,1778.26,2,So we're off to a really good start there.
4485244,257,1778.3,1781.77,2,Uh this is one of the strongest figures we've ever had at this stage of the quarter.
4485244,258,1782.24,1790.11,2,Um and then the other um I know a relevant um thing for your models is uh the <inaudible> that's weighted around seventy five twenty five carry investment income right now.
4485244,259,1790.67,1797.4301,2,Uh so yeah we we feel like a pretty uh good start to to the year and and gives us some support going into q one in two thousand twenty two.
4485244,260,1799.01,1799.27,5,Great.
4485244,261,1799.27,1800.51,5,Thanks for taking my questions guys.
4485244,262,1803.9301,1808.9701,3,Thank you Rob.
4485244,263,1809.08,1809.29,0,Thank you.
4485244,264,1810.91,1813.21,6,Um so maybe come back to interest rates for a moment.
4485244,265,1822.66,1829.6,6,And then if rates were to go up can you walk us through what the net impact would be between maybe higher ROE there versus any impact on management fees?
4485244,266,1832.0601,1832.15,2,Yeah.
4485244,267,1833.22,1834.39,2,Hey hey Bill it's Rob.
4485244,268,1834.48,1835.66,2,Uh thanks for the question.
4485244,269,1836.55,1838.89,2,Maybe let's start with where we think interest rates are going.
4485244,270,1839.1,1844.4099,2,Um and so you know we do see uh rates uh certainly increasing like the rest of the market.
4485244,271,1844.41,1847.22,2,I think we're likely to get four more fed funds increases this year.
4485244,272,1847.76,1851.87,2,Uh but at the same time we do see that coming on the back of of robust financial conditions.
4485244,273,1852.28,1863.8199,2,So our expectation is that we can be an environment here where real rates are still lower negative over the next couple of years which I think is an overall you know positive place for uh for us to be from a business model perspective.
4485244,274,1864.35,1870.77,2,Uh now of course there are uncertainties around rates are going but I think there's a number of areas where we're I think pretty well competitively positioned.
4485244,275,1871.1899,1877.5601,2,You know as you referenced uh Global Atlantic you know they are largely biased to benefit from interest rates rising over time.
4485244,276,1877.97,1891.51,2,So a hundred twenty billion dollars of capital there as well as how we think about uh their individual channel and our ability uh uh to be able to generate sales from that channel we think are all uh positively biased in a in a rising rate environment.
4485244,277,1892.0699,1898.62,2,And so uh you know I think there's a number of other areas around KKR as well where um we think we're competitively well positioned.
4485244,278,1898.62,1901.87,2,You look at our credit business over two hundred or close to two hundred billion of AUM.
4485244,279,1902.55,1907.78,2,Uh much of our third party business there uh is floating rate exposure in in nature.
4485244,280,1908.13,1915.88,2,So as interest rates rise all things equal you know our returns go up and and the hurdle rates across many of those products tend to be fixed in nature.
4485244,281,1915.88,1919.87,2,So the likelihood of earning additional incentive fees is is that much higher.
4485244,282,1920.37,1923.65,2,Um so hope hopefully that uh helps answer your question Bill.
4485244,283,1925.0699,1925.37,6,Okay.
4485244,284,1925.37,1925.8301,6,Uh thanks.
4485244,285,1925.87,1943.8201,6,Just a follow up just coming back to maybe your prior guidance and certainly appreciate the tone and tenor of what you're saying about the confidence but can you sort of still triangulate back to sort of your guidance for this year in terms of two plus dollars of f r e sort of how you think about that not only for this year but maybe into twenty twenty three just given the compact nature of growth.
4485244,286,1944.3101,1952.2899,6,And then maybe to sort of level set where you are in terms of the uh the capital raising flagship of the a hundred billion plus certainly well well into that as well.
4485244,287,1952.3199,1952.62,6,Thank you.
4485244,288,1953.74,1954.04,2,Yeah.
4485244,289,1954.0699,1955.86,2,Uh no updates to numbers though.
4485244,290,1955.86,1960.7001,2,Obviously we're well ahead of where we thought we would be even six or twelve months ago.
4485244,291,1961.47,1969.02,2,And as it relates to both fundraising as well as manage management fee growth uh this isn't just a result of acceleration of fundraisers.
4485244,292,1969.45,1973.2101,2,Uh in many case we have well exceeded the expectations that we have for ourselves.
4485244,293,1973.74,1978.21,2,And so you know we continue to see a a robust environment to be able to raise capital.
4485244,294,1978.21,1989.09,2,And um as I mentioned earlier we continue to see environment where we should be able to really drive substantial management fee growth as well as f r e growth off of a basic you know two dollars and twenty three cents.
4485244,295,1989.62,1994.99,2,Uh so we should be well ahead of our target for two thousand twenty two that we laid out I think it was about twelve months ago.
4485244,296,1995.92,1996.0601,3,Yeah.
4485244,297,1996.0601,2002.6,3,The only thing I'd add the last quarter we said we thought we could double C related earnings and TDE over the next five years.
4485244,298,2003.12,2004.39,3,That's still very much the case.
4485244,299,2005.17,2012.0199,3,Uh so you know no updated guidance for twenty two but suffice it to say we we well exceeded what we told you a year ago.
4485244,300,2013.8199,2013.96,2,Okay.
4485244,301,2013.96,2014.3401,2,Thank you.
4485244,302,2014.97,2015.27,3,Thanks.
4485244,303,2018.09,2018.6,0,Thank you.
4485244,304,2018.67,2020.9501,0,Our next question comes from line of Glen Shore with <inaudible>.
4485244,305,2022.1,2023.2,0,Please proceed with your question.
4485244,306,2024.8199,2025.24,7,Hello there.
4485244,307,2025.8199,2026.0599,7,Uh…
4485244,308,2045.48,2060.05,7,You just gave us the number on in dollars uh for realization pipeline but just broader picture as you look at the year how susceptible could a realization pipeline or capital markets pipeline may or may not be to that.
4485244,309,2060.05,2067.5698,7,In in the past you've given some what you think the core run rate of of transaction monitoring fees or capital markets that would be helpful.
4485244,310,2067.5701,2068.5801,7,cuz rising <crosstalk>.
4485244,311,2068.5801,2068.9402,7,Thanks.
4485244,312,2070.28,2074.0098,2,So let- let's uh I think it's worth spending a little bit of time on our capital markets business.
4485244,313,2074.01,2078.6899,2,It did have a really a step function uh increase in in two thousand twenty one.
4485244,314,2079.47,2086.5601,2,If you take a step back our capital markets business over the last several quarters has averaged about two hundred million dollars of revenue per quarter.
4485244,315,2087.0701,2092.8201,2,Uh now markets have definitely been open and compliant uh but I think we've also continued to really take share here.
4485244,316,2093.78,2104.0601,2,Uh so I think that's as you think about our business in in a um in a market environment where capital is being deployed it can be still a a a relatively volatile market environment.
4485244,317,2104.4199,2107.99,2,Uh but in one way there's activity we think that's a reasonable run rate for our business.
4485244,318,2108.4399,2120.4399,2,But much more important for us is how we take our business from the eight hundred fifty million dollars of revenue in two thousand twenty one and over the next several years continue to take a lot of share uh and grow that in a meaningful way.
4485244,319,2120.4399,2123.0698,2,And and we think we've got plans of in place to be able to do that.
4485244,320,2123.4299,2124.95,2,Uh we've gone through these a bunch of times.
4485244,321,2124.95,2136.8198,2,So it includes you know following KKR uh in terms of its own product expansion following KKRs in terms of its own geographic expansion we think you know by hiring the right capabilities internally that could lead to a lot of revenue growth.
4485244,322,2137.3101,2142.73,2,And I think it's worth calling out um our uh non KKR issuer business our third party business.
4485244,323,2142.8701,2162.25,2,It generated almost two hundred million dollars of revenue in two thousand twenty one and I think that really speaks to our business model and the quality of our people uh that we were able to take that business and scale to the point that um is not too different from a revenue perspective from uh where our capital markets was business was in aggregate you know not too long ago.
4485244,324,2165.0801,2165.73,1,Glen it is Craig.
4485244,325,2185.6699,2192.5801,1,And if you look at where that where that came from and the impact of that it had a big impact on capital markets revenues.
4485244,326,2193.3301,2195.8301,1,So you know that increase in deployment for us.
4485244,327,2197.8301,2202.9299,1,So we invested ten billion dollars in twenty twenty we invested ten point two in twenty twenty one.
4485244,328,2203.98,2210.29,1,And so KCMCs from apple markets went from two thirty to two fifty in the year like they were up modestly.
4485244,329,2211.04,2225.3101,1,But what you really saw the big driver when you add up deployment for us and infrastructure core private equity growth and real estate equity so these are the areas that are gonna generate on deployment can generate sizable capital markets fees.
4485244,330,2225.79,2237.72,1,That deployment for us went two 3X went up two 3X in twenty twenty one and capital markets fees cumulatively similarly went up two 3X went from a hundred fifty to about three fifty.
4485244,331,2238.1899,2246.0498,1,So it it is a um you know the the dynamic that you have is is one where deployment is becoming a lot more broad based.
4485244,332,2246.53,2252.8699,1,And again KCM is not solely gonna be based on how we're deploying capital but it's certainly gonna be one of those factors.
4485244,333,2253.3,2264.7898,1,Um so I think really in that number as as Rob said you're you're seeing a real development in footprint in the framework of the firm which is exciting from a management fee standpoint and it's al also exciting from a capital market standpoint.
4485244,334,2264.8401,2271.0701,2,Hey hey Glen one other I know you you'd referenced you know the impact the capital markets environment have on monetizations.
4485244,335,2271.6201,2285.1902,2,You know I think the big advantage here is we come into two thousand twenty two with over fifteen billion dollars of embedded revenue that sits in our balance between gross and realized carry and the embedded gains of our investment portfolio.
4485244,336,2285.8201,2299.01,2,And you know I think q one and we're off to a good start from the monetization perspective a good example of that we don't need straight line markets up uh to be able to monetize uh that fifteen billion dollars of embedded revenue.
4485244,337,2299.3701,2307.5601,2,You know but what we will need is we will need uh a market environment uh that does have some stability over periods of time uh and is flexible in nature.
4485244,338,2307.5601,2315.5098,2,And you know I think there's gonna be areas where we're gonna be able to continue to pick up spots in this kind of a market environment and generate monetizations for our shareholders.
4485244,339,2316.9099,2317.0898,7,Great.
4485244,340,2317.0901,2317.97,7,I appreciate all of that.
4485244,341,2319.9099,2320.24,7,Thank you.
4485244,342,2322.46,2322.8899,3,Thank you.
4485244,343,2323.01,2325.71,0,Our next question comes from line of Jerry O'Hara with Jeffreys.
4485244,344,2325.9099,2326.9102,0,Please proceed with your question.
4485244,345,2328.45,2328.79,8,Great.
4485244,346,2328.79,2329.1301,8,Thanks.
4485244,347,2329.1299,2330.04,8,Uh thanks and good morning.
4485244,348,2330.04,2336.1001,8,Hoping we could uh get an update just on on the strategic investments within uh within your kind of perpetual capital sleeves.
4485244,349,2336.4299,2347.74,8,Clearly a nice uptick uh year over year but um you know perhaps you can talk about some of the drivers uh of that increase and and what we might be able to expect uh on a go forward basis.
4485244,350,2348.3201,2348.5901,8,Thank you.
4485244,351,2349.6499,2350.3801,1,Well I think uh…
4485244,352,2350.4099,2351.3599,1,Hey Jerry it's Craig.
4485244,353,2351.5701,2374.3701,1,Um you know very broad base again I think when you look at a lot of the you know core is an example area for us um in from a perpetual standpoint where we're raising capital infrastructure real estate as I mentioned <inaudible> two aspects of uh of of both Europe and Asia real estate perpetual or capital is is gonna be pe perpetual in nature.
4485244,354,2375.02,2383.0598,1,Uh Global Atlantic by itself continues to to grow in scale in addition to that uh which is which is great.
4485244,355,2383.5801,2389.3999,1,And I think we've over time also mentioned these longer dated uh strategic type partnerships.
4485244,356,2390.0601,2394.1299,1,Uh that activity continues it's multi asset class.
4485244,357,2394.5901,2400.8799,1,Um it's it's again capital where you can have recycling which can be very valuable from a an economic standpoint.
4485244,358,2401.4199,2409.21,1,Uh you're not gonna see that activity from us every quarter but again those dialogues uh continue and will keep you up to date and abreast on that.
4485244,359,2410.1399,2414.7,2,Jerry one other thing if you look at page five on on our press release you can see our perpetual capital.
4485244,360,2414.7,2417.48,2,It was up year on year over seven times.
4485244,361,2417.48,2427.8098,2,Now a lot of that is Global Atlantic but what we don't wanna get lost in that slide is that X Global Atlantic our perpetual capital year on year was still up four times versus this time last year.
4485244,362,2428.3101,2431.8101,2,And so there's a lot of momentum uh across that part of our business.
4485244,363,2433.8101,2434.04,8,Great.
4485244,364,2434.04,2434.8,8,That's that's helpful.
4485244,365,2434.8,2441.3501,8,And then just as as a follow up um appreciate the thoughts around the private wealth uh channel.
4485244,366,2441.3501,2453.8298,8,But as it relates to sort of investment uh I think last quarter you talked about sort of looking to triple headcount if my notes are right um and continuing to sort of invest in in operations and and technology.
4485244,367,2454.29,2463.3701,8,Can you uh you know just perhaps give us an update on on how things have progressed there and um you know how how we're tracking relative to perhaps where you where you are last quarter.
4485244,368,2463.3999,2463.6802,8,Thank you.
4485244,369,2464.8799,2465.8501,1,Hey Jerry it's Craig.
4485244,370,2465.8501,2474.6301,1,So we don't really wanna get in the habit honestly of of giving individual headcount updates on uh on a part of the business and where we are from that.
4485244,371,2474.6599,2481.5898,1,But again suffice it to say uh this part is a is a real strategic priority for us as we've spoken about.
4485244,372,2482.1799,2484.74,1,Um and there's lots of underlying activity and growth.
4485244,373,2485.55,2488.6899,1,Uh we feel really well positioned in working…
4485244,374,2488.6899,2492.4199,1,We're very active as it relates to to hiring talent on a global basis.
4485244,375,2492.96,2495.97,1,Uh hope that that gives you a clear sense of the importance for us.
4485244,376,2497.3101,2497.75,8,Fair enough.
4485244,377,2502.05,2502.55,3,Thank you.
4485244,378,2502.55,2506.21,0,Our next question comes from line of Craig Siegenthaler with Bank of America.
4485244,379,2506.26,2507.46,0,Please proceed with your question.
4485244,380,2509.2,2510.3201,9,Hey good morning everyone.
4485244,381,2510.99,2511.28,1,Morning.
4485244,382,2512.6101,2515.47,9,So um my question is on Global Atlantic.
4485244,383,2515.6699,2529.74,9,Um I just wanna get an update on your progress to reinvest Global Atlantic's portfolio into KKR originated product um and also how this could or will impact your blended fee rate as GA reaches your longer term objective.
4485244,384,2530.9399,2531.1399,2,Yep.
4485244,385,2531.25,2532.3401,2,Hey hey Craig it's Rob.
4485244,386,2532.98,2553.74,2,Um that's gonna be a multiyear process and we're gonna do it um in a in a very prudent way and and make sure that we're rotating GA's balance sheet from you know quality investments that they um had today into uh opportunities for KKR to be able to invest that capital uh with a similar better risk level and and at a uh increased yield.
4485244,387,2553.9299,2557.04,2,And so that uh process is uh taking place.
4485244,388,2557.04,2575.6499,2,And I I would say you know eleven months in were probably in a better place than we thought we'd be at at the beginning of the deal but there's no doubt um as uh we complete that rotation or we make progress on that rotation that's going to uh increase the blended management fee rate uh in our overall relationship with Global Atlantic.
4485244,389,2575.6499,2578.3899,2,I think that blended management fee rate today is in the mid teens.
4485244,390,2578.73,2584.8201,2,And so it definitely has uh the ability uh go up over time uh based on the rotation that you referenced.
4485244,391,2585.0701,2585.5601,2,It's a good question.
4485244,392,2585.5601,2590.6702,3,The only thing I'd add Craig is that it's gonna be a constantly evolving answer to your question.
4485244,393,2590.74,2599.53,3,because if you think especially as Global Atlantic uh pursues block activity we're bringing on more assets and then those blocks need to be rotated themselves.
4485244,394,2599.9199,2609.3101,3,So I'm not sure we'll ever reach stasis frankly but to Rob's point we're a bit ahead of where we thought we'd be and we we'll keep you updated but the block activity's obviously been significant since we signed the deal.
4485244,395,2611.3899,2612.53,9,Thanks Scott and Rob.
4485244,396,2612.5601,2614.7202,9,And uh just one one other question on that one.
4485244,397,2614.75,2622.3101,9,Um what assets um or KKR originated assets are being allocated into Global Atlantic today?
4485244,398,2623.8701,2624.1602,2,Yeah.
4485244,399,2624.1599,2632.5801,2,It's it's uh a lot across our real estate credit franchise our private credit franchise structured finance asset based finance.
4485244,400,2632.8799,2637.23,2,Those are really the big areas of opportunity uh that we're working together with the GA team.
4485244,401,2639.8601,2640.8599,9,Guys thank you very much.
4485244,402,2641.4299,2641.8098,3,Thank you.
4485244,403,2644.1001,2644.5601,0,Thank you.
4485244,404,2650.3601,2652.3401,10,Hi this is Brian McKenna for Devin.
4485244,405,2652.4099,2660.8101,10,You know so there's clearly a lot of momentum across the entire platform and I appreciate all the color on the outlook but what do you think will be the biggest driver of growth over the next five years?
4485244,406,2661.0901,2667.1301,10,And then what products will be the biggest contributor to achieving your f r e and DE targets of four dollars plus and seven dollars plus?
4485244,407,2670.29,2670.5801,2,Yeah.
4485244,408,2670.6201,2673.01,2,Uh hey Brian it's Rob I'll take a first shot at it.
4485244,409,2673.5701,2677.73,2,Reality is uh we've caught a lot of confidence across many parts of our business.
4485244,410,2677.73,2680.8601,2,I'll call it a few and we talked about that on our prepared remarks.
4485244,411,2681.0,2686.49,2,Uh Asia is a uh really massive long-term opportunity for us.
4485244,412,2686.49,2692.3999,2,And we've talked about in the past that we think we could take our Asia business and make it one day as big as our North America business.
4485244,413,2692.6599,2693.78,2,That's for a couple reasons.
4485244,414,2694.1299,2700.04,2,Uh one we think more than global uh excuse me half of global growth is gonna come outta that region over the next several years.
4485244,415,2700.4199,2705.8501,2,Two we have a a huge head start and competitive advantage uh versus our competitors.
4485244,416,2706.0901,2719.5798,2,And really the key for us is to take our leading position there with our leading position across infrastructure real estate credit growth equity on a global base and the marriage of those two things and we think that could lead to a lot of growth for us in that part of the world.
4485244,417,2719.9399,2725.3301,2,We've got five products X private equity that'll be fundraising for capital in Asia in two thousand twenty two.
4485244,418,2725.7,2727.3701,2,So that's really a big theme for us.
4485244,419,2727.7,2732.1702,2,You know what we're doing across real assets and real estate and infrastructure we think is really exciting.
4485244,420,2732.7,2734.96,2,Uh we've talked about our our build outta private wealth.
4485244,421,2735.1899,2742.0898,2,So there's a number of different avenues and ways that we have to be able to uh to achieve uh p l growth over the next several years.
4485244,422,2743.0701,2743.24,3,Yeah.
4485244,423,2743.24,2743.9199,3,Brian this is Scott.
4485244,424,2743.9199,2745.9199,3,it is uh thanks for asking the question.
4485244,425,2745.9199,2748.3301,3,It's kind of uh fun to answer honestly.
4485244,426,2748.4399,2752.29,3,Um cuz we talked about last April we just got a lot on.
4485244,427,2752.8701,2762.5601,3,Um you know we went from six to something like twenty eight investing strategies over the last decade plus uh so it's kind of to answer your question it's hard to be succinct frankly.
4485244,428,2763.1299,2774.3601,3,Uh you know we got we got to scale everything we started which is a long list of asset classes real estate infrastructure growth insurance core you know the list goes on and on.
4485244,429,2775.1299,2777.5601,3,Uh we have an opportunity to meaningfully expand our client base.
4485244,430,2778.4399,2782.51,3,We've talked about private wealth a lot today but there's a lot happening also in the institutional channels.
4485244,431,2782.8799,2784.9099,3,We're creating new growth vectors.
4485244,432,2784.9099,2790.1299,3,So not just the existing twenty eight but you're gonna see more things from us in terms of other ways that we can grow.
4485244,433,2791.02,2794.0701,3,Uh I think smart m and a is going to continue to play a real role here.
4485244,434,2794.76,2802.6602,3,Not only expanding through Global Atlantic but we're also looking at other acquisitions and then having the balance sheet and the currency gives us real tools to accelerate our growth.
4485244,435,2803.22,2808.3201,3,So we've got lots of opportunities to scale and we haven't even hit all of them today.
4485244,436,2808.77,2811.6899,3,I'm not sure we're gonna be able to identify one or two biggest drivers.
4485244,437,2811.6899,2813.79,3,I think it's gonna come from a lot of different places.
4485244,438,2814.1399,2821.3201,3,And part of the reason you hear such confidence in our voices to double again after we doubled in such a short period of time is everything I just mentioned.
4485244,439,2823.5901,2823.8201,10,Yep.
4485244,440,2823.95,2824.3699,10,Got it.
4485244,441,2824.4099,2824.51,10,Yeah.
4485244,442,2824.51,2825.8601,10,Appreciate all the color there.
4485244,443,2826.2,2828.7202,10,Um and then just two quick modeling questions for Rob.
4485244,444,2828.72,2833.04,10,How should we think about margin expansion in twenty twenty two relative to twenty twenty one?
4485244,445,2833.4399,2836.3901,10,And then is there any updated guidance beyond the tax rate moving forward?
4485244,446,2837.46,2837.6199,2,Yeah.
4485244,447,2837.6201,2839.2202,2,Um I'll start with the second one.
4485244,448,2839.22,2847.99,2,You know what we've you know our tax rate this year uh was a little over seventeen percent and what we said over time is we would expect that to migrate up to the statutory rate in the low twenties.
4485244,449,2848.5901,2852.1799,2,As it relates to margin you know we've talked about operating in the low sixties.
4485244,450,2852.24,2856.3401,2,Uh in q four we were at sixty three in two thousand twenty one we were at sixty three.
4485244,451,2856.6001,2858.55,2,So a little bit ahead of where we thought we would be.
4485244,452,2859.02,2861.3499,2,Uh we're investing a lot back into the firm right now.
4485244,453,2861.3501,2864.4001,2,So I think low sixties is the right level to think about in the near term.
4485244,454,2864.8401,2874.0701,2,Uh but we you know believe over the medium term that we could take our margin to the mid sixties on a sustainable base to if we're able to execute on the revenue opportunity in front of us.
4485244,455,2874.3201,2878.1201,2,And so that's where we're very much focused on as we continue to invest back into the business.
4485244,456,2880.0901,2880.5601,10,Thank you guys.
4485244,457,2881.6299,2881.8599,3,You.
4485244,458,2883.6799,2884.0898,0,Thank you.
4485244,459,2894.05,2911.8398,11,Um just to back on the retail side um of the fifty billion in in private wealth assets right now can uh you are able to break that out between what you would call um democratized products and I know those are still very much in development but just to try to get a sense of how you're thinking about that fundraising in retail from new products.
4485244,460,2911.8701,2916.6902,11,Um Scott you mentioned obviously some products um on on the yield side gaining attention.
4485244,461,2917.25,2926.6799,11,Maybe it's the flavor of that growth path of uh of of that you know ten to twenty percent to thirty to fifty maybe even just in the next one to two years.
4485244,462,2926.6799,2943.4702,11,What kind of um AUM you think you could raise um in new democratized um products in retail and then and then to what extent um you know would there be significant placement fees attached um with the retail side of that?
4485244,463,2944.79,2946.21,1,Uh hey Brian is Craig why don't I start.
4485244,464,2946.54,2959.3,1,Um look in terms of where we are today we have three broad democratized solutions that are on a a bunch of different platforms in addition to bespoke solutions that are tailored for individual platforms.
4485244,465,2959.8201,2967.1499,1,Uh to your first question we have a about five billion of AUM uh across that uh that family if you will.
4485244,466,2967.72,2982.04,1,And we do believe over time um that we'll have democratized products really across all of our asset classes and alongside of that we're gonna continue to invest in sales marketing data digital talent um et cetera.
4485244,467,2982.6599,2992.9102,1,And alongside of where we are today uh we do expect we'll see these products launched on additional platforms over the course of the year which will be additive to all of this.
4485244,468,2993.6101,2998.3101,1,So uh you know it it it feels like collectively we're off to a a great start.
4485244,469,2998.8101,3008.9299,1,Uh it still feels to us like like we're in the earliest uh stages uh you know one of the one of those products that seems to be taking uh or having a lot of mind share.
4485244,470,3009.3,3011.76,1,You know we only began accepting capital in June.
4485244,471,3012.21,3017.6702,1,Uh it's off to a great start that's uh crest start uh in in the real estate business.
4485244,472,3018.1599,3023.1099,1,So it just feels like we have a lot of momentum um which is really exciting for us.
4485244,473,3023.49,3032.71,1,Uh we don't have any breakdown of of democratized products for you in terms of uh where we think uh that number could grow.
4485244,474,3033.1799,3047.5901,1,Uh there's certainly lots of data points out there that highlight um you know the opportunity and again just given the investment we have the brand investment performance uh we think we're really well positioned to be a big winner in in a massive end market.
4485244,475,3049.8,3050.1799,11,Fair enough.
4485244,476,3093.4299,3099.5901,2,So uh on your on the first part of your question I'd say in that thirty eight billion I mean it's a mix of different things.
4485244,477,3099.5901,3108.8201,2,In some cases it's some investment products where the fee turns on when you invest it and some of those have lives of you know three four five years from investment period perspective.
4485244,478,3109.1599,3112.21,2,And so I think about that on a blended basis of about three years.
4485244,479,3112.21,3116.6401,2,And some of the other products it's just capital we've raised in funds that haven't yet turned on.
4485244,480,3116.8899,3123.0898,2,And so we would think that that's you know more in the next you know three six you know ish month timeframe.
4485244,481,3123.0901,3131.3401,2,So I think on a blended basis a couple years overall you know feels like a a reasonable assumption for that thirty eight billion maybe a little bit inside of that.
4485244,482,3131.8899,3136.6201,2,Um and then as it rates relates to the dry powder it's a tough question to answer.
4485244,483,3136.6201,3143.3501,2,It is really uh a function of how active the investment environment is uh coupled with our fundraising activity.
4485244,484,3143.3501,3149.48,2,And so I think what you've heard from us a number of times on this call is the excitement we have for future fundraising.
4485244,485,3149.98,3156.71,2,Um at the same time you know in these volatile markets we think the opportunity for us to be leaning in from an investment perspective might get more interesting.
4485244,486,3157.25,3163.98,2,And so I think it'll just be a balance of those two things hard to be prescriptive about where that number goes over the next couple of quarters.
4485244,487,3167.1799,3167.3799,11,Yep.
4485244,488,3167.3799,3167.7,11,That's fair.
4485244,489,3176.3899,3176.5198,11,Yeah.
4485244,490,3194.05,3200.26,12,And as you look forward are there any sort of risk to the outlook that you're paying attention to either regulatory wise?
4485244,491,3200.47,3204.6501,12,Clearly there's been some um a movement there or on the macro front.
4485244,492,3204.6499,3205.8899,12,Just curious your perspectives there.
4485244,493,3207.54,3209.0,3,Uh thanks for the question Michael.
4485244,494,3209.1899,3226.8999,3,Yeah I think I think part of it is let me take it back to kind of the strategy that we laid out last April which is that you know we said that we only wanted to be in businesses where we thought we already were or could get to be top three in the world and we wanted to stay focused in those areas.
4485244,495,3227.6201,3238.6001,3,And I think part of the reason you hear us saying now that we think the quantum of the opportunity is greater than we anticipated is you know the end markets that we're facing off against are growing quite rapidly.
4485244,496,3239.0801,3247.3301,3,And we're finding investor appetite not only from the traditional sources but new sources are increasing faster than we'd anticipated.
4485244,497,3247.9399,3252.51,3,So end markets are growing very quickly and more and more people are investing in what we do.
4485244,498,3253.3999,3258.46,3,And so that's kind of part one to the answer to your question as to why the quantum's greater than we'd anticipated.
4485244,499,3258.46,3259.6001,3,We already expected growth.
4485244,500,3260.04,3261.5901,3,I think it's a bit more than we expected.
4485244,501,3262.3301,3269.9399,3,The other thing I'd say is that we are approaching top three faster than we'd anticipated in some of these asset classes.
4485244,502,3270.6299,3277.4399,3,Um and a lot of that's on the back of good investment performance and you know building like and trust with a broader client base.
4485244,503,3278.1899,3284.7002,3,And so the end opportunity's bigger than probably we thought and we're getting there more rapidly than we thought.
4485244,504,3285.6201,3296.4099,3,And so uh the definition of top three in terms of what that means in terms of magnitude of AUM revenue profitability is therefore bigger than we what we'd anticipated probably twelve eighteen months ago.
4485244,505,3297.54,3300.46,3,Um you know the risks I think are pretty straightforward.
4485244,506,3300.46,3301.26,3,We gotta execute.
4485244,507,3301.6399,3303.55,3,It's a pretty straightforward business when you back up.
4485244,508,3303.55,3320.6401,3,If you have strong investment performance and you have uh products that uh clients want to invest in and they like you and they trust your uh judgment and you perform for them through a cycle um it's a very straight it's very straightforward to scale.
4485244,509,3321.22,3325.3499,3,So a lot of the the risks and this is one of the reasons we like our business so much it's on us.
4485244,510,3325.51,3328.95,3,We've got execution in front of us we just need to perform.
4485244,511,3329.5601,3340.1201,3,And I think a big part of the reason you've seen us scaling so rapidly is we've had really strong investment performance at the same time that we've been operationalizing a a broader client base.
4485244,512,3340.8999,3344.4402,3,And we do see a significant amount of running room on both of those topics.
4485244,513,3344.8101,3355.1199,3,So I know there's been a couple questions today about you know market volatility and it's been a little more bumpy beginning of this year than what we saw last but from our standpoint that tends to be you know quite good news.
4485244,514,3355.1899,3357.3999,3,We've talked about the a hundred twelve billion of dry powder.
4485244,515,3357.8401,3365.3101,3,If we can invest into volatility that tends to create long term opportunity for us in terms of incremental revenue and profit down the road.
4485244,516,3365.8601,3369.76,3,So long way of saying uh we really like the way we're positioned right now.
4485244,517,3370.1599,3375.47,3,Um little volatility is probably good for our business long term and the opportunity ahead is significant.
4485244,518,3386.95,3398.1899,3,Look I think uh you know the level of regulatory scrutiny of our space is probably um a positive for larger players that are more institutionalized.
4485244,519,3398.96,3407.28,3,And so you know there's aspects of how the regulatory environments developed that I think the barriers to entry in our space have gone up and that's good for incumbent players.
4485244,520,3407.7,3415.9001,3,Um so nothing that we see that you know I would call out today our job is to react to what um what the regulators talked to us about.
4485244,521,3415.8999,3419.73,3,And and so far we actually think it's been you know long term helpful to our business.
4485244,522,3421.53,3421.8,12,Great.
4485244,523,3449.9299,3452.7,2,That deployment does not include uh Global Atlantic's.
4485244,524,3452.7,3457.6199,2,If you included Global Atlantic in that number we'd be a little bit below seven billion dollars of deployment for the year.
4485244,525,3460.02,3460.23,12,Great.
4485244,526,3460.23,3460.73,12,Thanks so much.
4485244,527,3461.1799,3461.3899,2,Yep.
4485244,528,3461.3899,3461.5999,2,Thanks.
4485244,529,3461.6001,3462.0601,3,Thank you.
4485244,530,3464.01,3464.4099,0,Thank you.
4485244,531,3464.5,3468.1799,0,Our next question comes in line of <inaudible> with Wells Fargo Securities.
4485244,532,3468.3201,3469.46,0,Please proceed with your question.
4485244,533,3471.54,3487.6101,13,Uh hi good morning uh to uh follow on the insurance this topic are you able to uh touch on what you're seeing on on the regulatory agenda uh focusing more on structured products and alternative uh asset manager affiliates.
4485244,534,3487.8301,3496.5798,13,And if you see any major impact to the the the product that you uh and your peers are are providing to insurance clients?
4485244,535,3497.52,3497.79,2,Yeah.
4485244,536,3498.0,3499.0801,2,Uh thanks for the question.
4485244,537,3499.0801,3504.6101,2,it is a topical one and you know we're spending a lot of time internally um focused on it.
4485244,538,3504.8899,3517.79,2,Uh you know part of the answer similar to the answer Scott just gave from a regulatory um overall regulatory environment perspective I'd say the insurance industry just like other financial services industries is going through a period of change.
4485244,539,3518.23,3523.5601,2,Uh in general the industry is getting more sophisticated and we think that is ultimately a good thing for policy holders.
4485244,540,3524.3201,3533.48,2,And so as a result of that we think it's entirely appropriate uh for regulators to adapt as the industry evolves and we think smart regulation is a is a good thing for the industry overall.
4485244,541,3534.1299,3541.5798,2,Uh and so as it relates to Global Atlantic specifically uh we've got really close and transparent relationships with all of our regulators.
4485244,542,3542.3101,3548.9399,2,Um we know they're working to gather information and industry feedback and beyond that um there's really not a lot that we can comment on.
4485244,543,3549.3,3560.51,2,Uh all that we can say is that we don't anticipate really any major change to our core uh business model which is investing thoughtfully behind the the long term promises that we're making as an institution to policy holders.
4485244,544,3560.6499,3562.79,2,But appreciate the question and and it is a topic one.
4485244,545,3564.48,3565.0,13,Thank you.
4485244,546,3569.1899,3569.6599,0,Thank you.
4485244,547,3570.01,3573.75,0,Our final question this morning comes from the line of Rufus Hone with Bank of Montreal.
4485244,548,3573.8401,3574.8599,0,Please proceed with your question.
4485244,549,3576.21,3576.24,14,alright.
4485244,550,3576.95,3578.1301,14,Thanks for taking my question.
4485244,551,3598.0801,3601.0601,2,Um so uh uh no change in our appetite.
4485244,552,3601.3999,3609.48,2,it is been a an area of very meaningful um and we think very smart growth uh that Global Atlantic has had over the past twelve months.
4485244,553,3610.1599,3616.98,2,Uh you know I would say the uh space around block transactions I'm sure as you noted has become a little bit more uh competitive.
4485244,554,3617.48,3633.6702,2,Uh but we think uh with our capital base uh quality of our management team uh the relationships we have and and and really our our systems and processes they position us all uh to compete really effectively for block transaction.
4485244,555,3633.6699,3645.22,2,I think a big reason why Global Atlantic uh partnered up with KKR in addition to that was our capabilities on the asset management side and our ability to rotate assets in these blocks into KKR originated product.
4485244,556,3645.6499,3648.4102,2,And so when you combine all of that we think we're really well positioned.
4485244,557,3648.45,3654.24,2,No change in appetite in the institutional part of GA's business will continue to be a big growth driver for them going forward.
4485244,558,3660.5701,3660.9502,0,Thank you.
4485244,559,3676.6799,3677.2102,1,Take care.
4485244,560,3677.25,3677.74,1,Thanks again.
4485244,561,3679.25,3679.6201,0,Thank you.
MP3-A,0,687.38,687.78,1,Thank you.
MP3-A,1,689.82,692.76,2,Thank you very much Owen and uh good afternoon everyone.
MP3-A,2,693.55,697.13,2,The financial highlight is on page sixteen of the presentation.
MP3-A,3,698.31,705.99,2,If you look at the page the revenue for the period under review was fifteen point three billion.
MP3-A,4,718.34,723.8,2,So there are a lot of things that are happening in the power business that we're going to talk about when we get to the segment.
MP3-A,5,724.3,730.9,2,So but majorly the reduction in the revenue for the group is cuz of the reduction in the revenue from the power business.
MP3-A,6,744.36,747.3,2,And this is because of the reduction in revenue mentioned earlier.
MP3-A,7,759.96,772.28,2,For the financial position the total asset decline slightly from three one three billion at the end of twenty nineteen to three one one billion at the end of q one twenty twenty.
MP3-A,8,773.33,783.9,2,This was largely because of the incidental decline in trade and other receivable and this is because we receive a lot of money towards to our receivable during the period under review.
MP3-A,9,784.89,785.71,2,In the same…
MP3-A,10,827.11,834.17,2,If you go to slide seventeen so this basically shows the breakdown of our revenue between the segment.
MP3-A,11,853.67,864.69,2,And if we look at the slide the revenue contribution from power declined from seventy seven percent in q one twenty nineteen to seventy three percent in q one twenty twenty.
MP3-A,12,894.48,894.96,2,Thank you.
MP3-A,13,1322.12,1322.4,5,Okay.
MP3-A,14,1322.4,1323.71,5,Apologies about that.
MP3-A,15,1323.74,1326.49,5,Thank you very much Chris and good afternoon again everyone.
MP3-A,16,1326.95,1333.03,5,Um I would like to just take you through the overview of the hospitality um sector and as how…
MP3-A,17,1333.03,1334.5699,5,and as it has affected us.
MP3-A,18,1335.02,1341.01,5,The contribution of the hospitality sector continues to be quite in Nigeria and indeed across the world.
MP3-A,19,1367.4399,1388.99,5,Um with the onset as the group C E O talked about the impact of COVID on our business as a as a as a whole um the hospitality sector has actually um had a significant impact of the of the um COVID pandemic um that we would actually won't say it's not fully predictable how the impact will be on both our revenue and our supply chains.
MP3-A,20,1389.98,1398.74,5,Uh it's significantly affected our cash flow um and we've had constraints restriction of mobility and virtual business operations has actually affected us as well.
MP3-A,21,1399.28,1409.45,5,We have also with there a sharp drop in our occupancy rate across the hotel and across the industry it speculated at up to seventy five million jobs at risk within this sector.
MP3-A,22,1410.17,1420.7999,5,We also have seen that about two point one percent in increase of global unemployment directly linked to travel and tourism job losses.
MP3-A,23,1421.26,1421.91,5,However…
MP3-A,24,1421.99,1424.26,5,Um I mean the the the news is not all inaudible.
MP3-A,25,1424.55,1431.3101,5,As as the at the hotel one of the key fe measures that we took and…
MP3-A,26,1434.76,1440.49,5,All of our guests were also kept safe and ensured that they actually knew all that they needed to do onsite.
MP3-A,27,1441.08,1447.4401,5,Around the hotel we had sanitizers temperature checks preventive measures and awareness on all of our screens.
MP3-A,28,1447.6801,1455.8401,5,The rooms were more thoroughly claims than ever before and we ensured that we also communicated very effectively with our customers to ensure that we…
MP3-A,29,1455.9301,1458.63,5,the confidence that they knew that we had put in the hotel.
MP3-A,30,1459.38,1470.52,5,Further our our key strategies really going forward is we've put in place our cost measures to ensure that even within this time operational cost savings is a key priority to us.
MP3-A,31,1470.9301,1474.22,5,And we have gone ahead to receive concessions from our contractual services.
MP3-A,32,1474.79,1480.3101,5,We have also very f ve very f very focused on reducing cost across the hotels generally.
MP3-A,33,1480.63,1487.12,5,Um making very simple changes in terms of saving energy to reduce our energy consumption using significant…
MP3-A,34,1487.12,1493.1599,5,using fewer chillers across the hotel fewer elevators across the hotel to just ensure that we can keep our costs down.
MP3-A,35,1494.02,1502.7101,5,Going forward we remain optimistic and very focused about what we put in place to ensure we can recover from the heat of this COVI- COVID um pandemic.
MP3-A,36,1503.37,1506.02,5,We have split our initiatives into two phases.
MP3-A,37,1506.36,1509.4299,5,The first phase is going to focus very actively on recovery.
MP3-A,38,1509.89,1512.23,5,And what we will do is actually to to…
MP3-A,39,1512.23,1532.4401,5,i in terms of recovering from the loss of the long shut down we are going to continue to sweat our existing assets through operational efficiencies and develop a local demand market particularly targeted at the leisure segment and providing entertainment and activities across the industry for us in in in the two locations of Abuja and Calabar.
MP3-A,40,1533.1899,1534.63,5,Immediately one of the thing…
MP3-A,41,1534.63,1545.1699,5,key things that we did was introduction of our takeaway service business and this is already gaining a lot of significant traction serving fast food and oriental cui cuisine across our market.
MP3-A,42,1545.62,1549.0699,5,We also kicked up delivery and pick up service for our laundry business.
MP3-A,43,1549.45,1562.51,5,And we've also put innovative events in place such as the drive-in cinema and concert that adhere to very strict social distancing guidelines and while keeping the hotel um in mind and generating revenue at the same time.
MP3-A,44,1563.03,1576.08,5,We are continuing to deepen other services across our outdoor catering services and put in place again communicating topnotch safety guidelines um to re restore confidence to our g our guests and be able to welcome them back once they back…
MP3-A,45,1576.11,1578.39,5,once the lockdown is finally lifted.
MP3-A,46,1579.49,1584.03,5,In addition we continue to take precautionary measures to keep all our employees and guests safe.
MP3-A,47,1584.42,1589.9399,5,And with the heating uh ins institutionalizing a clean stay with lifestyle of protection we'll be…
MP3-A,48,1589.9399,1598.6799,5,which will be introducing across the hotel just to ensure that guests know the amount of clean cleansing that has gone on to keep them sanitized and safe at the hotel.
MP3-A,49,1599.39,1605.65,5,we'll continue to create um innovative ways to communicate with our guests within all of this period as well.
MP3-A,50,1606.26,1613.2001,5,In the in our growth strategy phase obviously we're going to focus like I mentioned on our leisure market on on on our local demand as well.
MP3-A,51,1613.63,1624.88,5,We are continuing to push promotions and incentives to gain traction for business targeting international business and airline crews as the reopening of the airways and flight resu resume.
MP3-A,52,1625.6,1636.1899,5,Also we are looking to continue to attract more conferencing events across Africa for events that have taken place to attract them to Nigeria as a location Calabar and Abuja our key locations for that.
MP3-A,53,1662.96,1673.4701,5,Our RevPAR recorded a sharp decline from sixty one thousand five hundred and sixty two in February to about twenty nine thousand five hundred and fifty three in March twenty while the industry recorded the decline of…
MP3-A,54,1673.47,1678.24,5,from forty six thousand five hundred and nineteen to twenty four thousand six hundred and ninety five.
MP3-A,55,1678.92,1699.4299,5,Looking at our financial highlight um which you you know talked about that and and in detail so I won't go through it too much but I think just note note to mention is that our revenue dropped slightly by zero point three percent and um we've uh we actually reported a loss of about six hundred and eighty seven million in quarter t- quarter one twenty twenty.
MP3-A,56,1699.9399,1703.14,5,Um we we also in terms…
MP3-A,57,1703.14,1717.37,5,One of the reasons for the major loss that we had was i in terms the interest cost that is now been expensed as a result of completion of the upgrade as against our q one twenty nineteen where the upgrade was still going on and capitalization of interest was still on.
MP3-A,58,1717.9,1722.27,5,The impact of COVID will truly be seen in quarter two twenty twenty.
MP3-A,59,1722.72,1732.0,5,However we are quite confident that some of the initiatives that we are putting in place would help us um reduce the negative impact that one would have expected within this industry.
MP3-A,60,1732.59,1740.5,5,Finally we are hopeful and optimistic that business and activities will return to the hotel and hospitality sector in due course.
MP3-A,61,1740.87,1741.7999,5,Thank you very much.
MP3-A,62,2943.1599,2943.7,12,Thank you.
MP3-A,63,2952.25,2952.77,13,Okay.
MP3-A,64,2966.1399,2971.8901,14,So um by regulation thirty percent of that…
MP3-A,65,2998.3701,2998.8198,14,Thank you.
MP3-A,66,3232.04,3241.27,19,So the initial twenty five percent is not to be paid immediately when we sign the agreement which we're looking at q two based on what has been going on.
MP3-A,67,3241.5901,3248.3599,19,So inaudible by the by the process we're supposed to pay the same five percent after six months.
MP3-A,68,3263.5,3263.9299,19,Thanks.
MP3-A,69,3479.6899,3480.0498,18,Thank you.
MP3-A,70,3484.29,3484.5801,18,Thank you.
MP3-A,71,3485.48,3488.0701,22,I think you've actually covered it quite significantly.
MP3-A,72,3488.52,3495.23,22,Like Owen rightly said our focus right now is to ensure at all levels and thankfully we started very early enough.
MP3-A,73,3495.23,3502.71,22,At the onset of the pandemic we took immediate action to actually reduce our cost and we've been very very successful in doing that.
MP3-A,74,3503.03,3508.6199,22,Going forward as the economy begins to open up we're going to still continue to focus on driving down our cost.
MP3-A,75,3509.0,3521.3201,22,But in addition some of the initiatives that we've introduced and continue to introduce will also help us in terms of driving revenue increasing revenue outside of just our room and conference revenue as well.
MP3-A,76,3521.51,3527.5398,22,So what we're doing is we're actively diversifying all the key segments of the market that we normally would've addressed.
MP3-A,77,3545.8701,3546.2798,22,Thank you.
MP3-A,78,3585.0701,3589.03,13,Uh just to really appreciate everyone that has taken time to come on this call.
MP3-A,79,3589.3401,3591.72,13,Typically we do uh conference call.
MTN-Ghana-2021-Third-Quarter-Results-Call,0,151.09,157.0,1,Thank you.
MTN-Ghana-2021-Third-Quarter-Results-Call,1,1189.52,1190.3,5,Thank you very much.
MTN-Ghana-2021-Third-Quarter-Results-Call,2,1227.0699,1230.74,6,Okay cool.
MTN-Ghana-2021-Third-Quarter-Results-Call,3,1324.45,1369.64,5,The most impactful one was you know a pilot to implement ID's on cashout right?
MTN-Ghana-2021-Third-Quarter-Results-Call,4,1916.08,1916.39,5,Okay.
MTN-Ghana-2021-Third-Quarter-Results-Call,5,2350.8701,2351.3,14,Uh yes.
MTN-Ghana-2021-Third-Quarter-Results-Call,6,3758.6101,3778.51,22,Um and then the second question is I'm curious whether your market share is different um between p two p mobile money transactions and um I guess p two c or b two c or these value added services?
mtngh_fy18_call_audio_04032019,0,28.96,37.95,1,Uh good afternoon and thank you for joining us today to discuss m t n Ghana's annual results for the year ended thirty first December twenty eighteen.
mtngh_fy18_call_audio_04032019,1,47.78,52.55,1,Modupe Kadri C F O of M T N Ghana and Group Investor Relations.
mtngh_fy18_call_audio_04032019,2,72.15,83.59,2,i'll provide a brief overview of our annual performance for twenty eighteen and our outlook for the current year before handing it over to q and a.
mtngh_fy18_call_audio_04032019,3,102.14,109.95,2,Voice revenue increased by fifteen percent year-on-year and contributed approximately 46% of total revenue.
mtngh_fy18_call_audio_04032019,4,111.32,120.19,2,Data revenue grew by thirty point two percent year-on-year and contributed twenty six point one percent to total revenue.
mtngh_fy18_call_audio_04032019,5,121.48,135.15,2,Digital revenue which includes mobile financial services increased by thirty four point six percent and contributed twenty four point eight percent to total revenue.
mtngh_fy18_call_audio_04032019,6,174.3,189.33,2,We executed well on our capex for the year and most of our plans were delivered strongly which supported the improvement in coverage customer experience as well as quality quality of service overall.
mtngh_fy18_call_audio_04032019,7,190.32,194.18,2,And this led to very strong subscriber growth in the process.
mtngh_fy18_call_audio_04032019,8,195.22,199.16,2,During the period our site roll-outs were are follows.
mtngh_fy18_call_audio_04032019,9,199.99,212.98,2,six hundred two g sites were rolled out one thousand one hundred three g sites were rolled out and two hundred fifty four g sites were rolled out in twenty eighteen.
mtngh_fy18_call_audio_04032019,10,213.97,227.18,2,The improved network coverage coupled with aggressive sales and product offerings are responsible for the significant subscriber growth that we observed in twenty eighteen.
mtngh_fy18_call_audio_04032019,11,228.68,247.76,2,Just to give you some detail on the subscriber performance subscribers increased by 12.7% year-on-year to 20.1 million.
mtngh_fy18_call_audio_04032019,12,250.0,261.82,2,And active mobile money subscribers increased year-on-year by seventeen point eight percent to eight point four million which which is the M T N definition for both data and Mobile Money.
mtngh_fy18_call_audio_04032019,13,284.29,298.02,2,Up to the end of December twenty eighteen MTN Ghana's market capitalization was GH9 .7 billion making it the third largest private listed company on the Ghana Stock Exchange.
mtngh_fy18_call_audio_04032019,14,299.78,305.6,2,M T N Ghana has declared twenty nineteen as a year of the customer in line with our BRIGHT strategy.
mtngh_fy18_call_audio_04032019,15,305.94,323.26,2,The B in BRIGHT is for customer experience with our prime focus on customer experience as a tool to create value for shareholders to drive more value for our customers and to continue to drive and increase our growth overall.
mtngh_fy18_call_audio_04032019,16,324.35,334.52,2,we'll continue to work towards our vision to lead the delivery of a bold new digital world to customers and to make their lives a whole lot brighter in twenty nineteen.
mtngh_fy18_call_audio_04032019,17,335.03,337.27,2,And we expect an exciting year ahead of us.
mtngh_fy18_call_audio_04032019,18,338.4,342.19,2,With that I will hand over to the operator for questions and answers.
mtngh_fy18_call_audio_04032019,19,342.58,346.19,2,Thanks again to all of you.
mtngh_fy18_call_audio_04032019,20,366.21,375.39,3,I I have a few questions uh so what I'll do is I'll I'll ask a couple now and then I'll I'll circle back to the back of the queue and see if there is time for some follow-ups.
mtngh_fy18_call_audio_04032019,21,376.0,379.12,3,Uh to start first kicking off with uh guidance.
mtngh_fy18_call_audio_04032019,22,379.73,386.55,3,Uh you provided us an outlook uh in your prospectus document uh around the medium-term.
mtngh_fy18_call_audio_04032019,23,387.06,390.29,3,Uh as you say twenty eighteen has been an outstanding year for you.
mtngh_fy18_call_audio_04032019,24,392.31,397.94,3,Uh can you uh frame your expectations around the medium-term uh guidance that you provided in in that i p o document?
mtngh_fy18_call_audio_04032019,25,397.94,398.42,3,i e.
mtngh_fy18_call_audio_04032019,26,400.41,405.96,3,you think you should be should be on track to to meet it or or beat it and any risk to to not actually meeting it?
mtngh_fy18_call_audio_04032019,27,406.45,410.27,3,So that would be on the outlook versus uh the i p o document.
mtngh_fy18_call_audio_04032019,28,410.87,426.62,3,And and then switching gear just to uh something a little bit smaller within your uh cost line items your your dealer commissions uh those are up uh for a little bit over forty percent uh year-on-year it looks like uh running ahead of your your revenue growth.
mtngh_fy18_call_audio_04032019,29,427.01,434.41,3,Can you explain why why the dealer commissions are are growing so fast and if there are plans in place to address that into twenty nineteen?
mtngh_fy18_call_audio_04032019,30,434.47,434.89,3,Thank you.
mtngh_fy18_call_audio_04032019,31,443.81,448.9,4,Okay Um Modupe here.
mtngh_fy18_call_audio_04032019,32,448.9,463.57,4,On the issue of um expectations uh based on the outlook um what we have put in our in our in our prospectus was based on our BRIGHT strategy which was what inaudible.
mtngh_fy18_call_audio_04032019,33,464.02,469.03,4,And um in terms of where we are today we are on track in delivering that.
mtngh_fy18_call_audio_04032019,34,469.71,476.71,4,So we do not see any major risk uh in terms of um delivering those numbers.
mtngh_fy18_call_audio_04032019,35,476.71,486.34,4,And the twenty five two five million subscribers um overall uh twenty million data and fifteen million financial services.
mtngh_fy18_call_audio_04032019,36,557.8,571.36,4,Um towards the end of the year we tried to pass some of those costs back to the customer cuz of a consumer tax.
mtngh_fy18_call_audio_04032019,37,610.81,614.97,5,Uh what are the trends in terms of uh you know four g smartphone penetration?
mtngh_fy18_call_audio_04032019,38,615.48,626.09,5,And uh the second part is with regards to um what sort of impact the the Ghana shilling will have on your performance.
mtngh_fy18_call_audio_04032019,39,640.17,643.48,1,Apologies for that.
mtngh_fy18_call_audio_04032019,40,644.41,645.19,5,Sure no problem.
mtngh_fy18_call_audio_04032019,41,645.43,665.8,5,Uh the first part uh I guess if you could just touch on the drivers for mobile data going forward.
mtngh_fy18_call_audio_04032019,42,714.72,714.99,5,Correct.
mtngh_fy18_call_audio_04032019,43,716.35,716.85,1,Okay.
mtngh_fy18_call_audio_04032019,44,745.4,751.39,1,We also expect to see more affordable smartphones coming on the market moving into twenty nineteen.
mtngh_fy18_call_audio_04032019,45,751.39,754.28,1,Um this trend started last year.
mtngh_fy18_call_audio_04032019,46,754.76,759.11,1,But I wouldn't say the impact on the business has been significant at this point.
mtngh_fy18_call_audio_04032019,47,760.28,767.36,1,Note that in h two typically you have the seasonality effect as well in q four from all the festivities.
mtngh_fy18_call_audio_04032019,48,767.61,769.79,1,So that also drives part of the performance.
mtngh_fy18_call_audio_04032019,49,878.55,892.34,9,Uh hi thanks for the call.
mtngh_fy18_call_audio_04032019,50,892.37,901.15,9,Um I'm interested in uh hearing ab uh about any update of the competitive environment in Ghana um and whether any competitors uh have changed strategies.
mtngh_fy18_call_audio_04032019,51,905.44,907.79,6,Sorry can you can you repeat the question again?
mtngh_fy18_call_audio_04032019,52,908.76,909.19,9,Yeah.
mtngh_fy18_call_audio_04032019,53,909.34,917.24,9,Uh i am curious to get an update on the competitive environment in Ghana and whether any competitors changed strategies.
mtngh_fy18_call_audio_04032019,54,921.5,935.41,6,Um so in terms of the competitive environment there I'll say the most significant changes during the year or coming into twenty nineteen is the acquisition of a four g license by Vodafone.
mtngh_fy18_call_audio_04032019,55,935.41,938.63,6,Um so that's the big change that has happened.
mtngh_fy18_call_audio_04032019,56,938.63,943.56,6,Um the second one would be their measure of Airtel Airtel Tigo.
mtngh_fy18_call_audio_04032019,57,943.71,946.15,6,This happened before the prospectus was released.
mtngh_fy18_call_audio_04032019,58,946.15,947.42,6,So this may have been covered already.
mtngh_fy18_call_audio_04032019,59,947.42,951.81,6,So these are the two the two significant effects within the competitive space.
mtngh_fy18_call_audio_04032019,60,962.36,962.61,9,Yes.
mtngh_fy18_call_audio_04032019,61,962.86,963.28,9,Sorry.
mtngh_fy18_call_audio_04032019,62,963.28,963.7599,9,Uh sorry.
mtngh_fy18_call_audio_04032019,63,963.76,965.61,9,If I'm not being specific enough.
mtngh_fy18_call_audio_04032019,64,992.82,995.21,6,We expect that to happen in the next couple of months.
mtngh_fy18_call_audio_04032019,65,995.65,1006.56,6,Our our primary view is that today we have approximately thirty eight percent smartphone penetration and therefore would expect that penetration to continue to increase.
mtngh_fy18_call_audio_04032019,66,1006.87,1022.51,6,The pie for data will continue to increase and therefore would expect the impact on our growth to continue to be about the same um from the from the perspective of an increase in pie plus an increase in smartphone penetration in the market place.
mtngh_fy18_call_audio_04032019,67,1037.97,1042.8301,10,Um I just had a quick question on the uh the digital business excluding memo.
mtngh_fy18_call_audio_04032019,68,1043.51,1052.5,10,So you said mobile money was seventeen point seven percent of revenue and digital excluding memo was twenty four point eight percent of revenue.
mtngh_fy18_call_audio_04032019,69,1052.5,1058.33,10,So digital excluding memo was seven percent of revenue or about three hundred million CD.
mtngh_fy18_call_audio_04032019,70,1058.5,1066.52,10,Um last year in the I P O documents it looked like the digital business excluding memo was three hundred ten million.
mtngh_fy18_call_audio_04032019,71,1067.3,1074.79,10,So I I don't know if your bus digital business shrink or if you've redefined you know digital the digital segment.
mtngh_fy18_call_audio_04032019,72,1074.91,1077.36,10,Um but if you could help us understand that it would be appreciated.
mtngh_fy18_call_audio_04032019,73,1104.26,1113.26,6,What this means is uh we had a lot of complaints over the years from customers saying they did not necessarily really subscribe to specific services.
mtngh_fy18_call_audio_04032019,74,1147.02,1147.35,10,Okay.
mtngh_fy18_call_audio_04032019,75,1147.35,1153.86,10,So so it's fair to say that the business did shrink slightly in twenty eighteen?
mtngh_fy18_call_audio_04032019,76,1157.42,1172.3101,10,Um and then and on on the data side um you know obviously data consumption was up ninety two percent um I guess is that but but revenue was only increasing thirty percent.
mtngh_fy18_call_audio_04032019,77,1176.6,1184.9399,10,Um is that simply you know a mix in data consumption between four g and three g data's cheaper on four g than three g?
mtngh_fy18_call_audio_04032019,78,1184.9399,1193.72,10,Is it you are lowering the tariffs overall or or can you help us understand what drove the the wide discrepancy in those two numbers?
mtngh_fy18_call_audio_04032019,79,1202.5601,1206.3201,6,Um the actual launch was before but coming into q four twenty seventeen.
mtngh_fy18_call_audio_04032019,80,1206.96,1215.85,6,Now one of the things we did last year consciously once you you move onto four g your data consumption rate increases significantly.
mtngh_fy18_call_audio_04032019,81,1216.41,1226.8,6,In in order to be able to manage customer expectations we increase the number of megabytes pair CD that the four g users actually purchase.
mtngh_fy18_call_audio_04032019,82,1227.0699,1227.37,6,Right?
mtngh_fy18_call_audio_04032019,83,1227.37,1236.37,6,So that's the that's part of the effect you're seeing in the numbers there where there's a significant growth in terms of traffic versus the revenue growth.
mtngh_fy18_call_audio_04032019,84,1237.1801,1251.66,6,The second the second element is we we have also intensified our customer value management activities which is a segmented approach to try to target and move data customers across the data usage chain.
mtngh_fy18_call_audio_04032019,85,1252.15,1260.7001,6,Um and to do this we've had to give out some free Mbs to get people to try our network out and continue to drive their increased usage.
mtngh_fy18_call_audio_04032019,86,1260.76,1272.01,6,So these are the two main you're seeing probably the larger effect being the four g drive um to get people's usage pay CD much higher than it is in three g and two g.
mtngh_fy18_call_audio_04032019,87,1272.71,1272.83,10,Gotcha.
mtngh_fy18_call_audio_04032019,88,1276.3199,1276.59,10,Okay.
mtngh_fy18_call_audio_04032019,89,1276.6899,1279.89,10,Uh I'll get back in line questions.
mtngh_fy18_call_audio_04032019,90,1319.26,1319.37,6,Okay.
mtngh_fy18_call_audio_04032019,91,1319.99,1333.5399,6,So first of all the the license that Vodafone got was a two by five megaheads eight hundred spectrum price of thirty million dollars.
mtngh_fy18_call_audio_04032019,92,1369.75,1373.17,6,We've actually applied to the N C A um to renew.
mtngh_fy18_call_audio_04032019,93,1387.78,1393.26,6,The two g which expires in December twenty nineteen and the International Gateway that expires in August.
mtngh_fy18_call_audio_04032019,94,1393.26,1404.4301,6,So we're way ahead of the three month period to actually get specifics from the N C A not withstanding that we have initiated a process and we're expecting to hear back from the N C A in due course.
mtngh_fy18_call_audio_04032019,95,1407.99,1408.55,11,Understood.
mtngh_fy18_call_audio_04032019,96,1422.62,1429.4199,6,If if if I may I mean it's um would have to wait for the N C A to actually do the evaluations and come up with the price.
mtngh_fy18_call_audio_04032019,97,1446.75,1457.7,6,The December 2019 expiry affect every single player in the industry not just M T N.
mtngh_fy18_call_audio_04032019,98,1498.22,1506.15,10,Um can we just talk about the the main drivers of the increase you know revenue increase sixty one percent a year?
mtngh_fy18_call_audio_04032019,99,1506.36,1511.33,10,Um so if you know I think subs were up about eighteen percent.
mtngh_fy18_call_audio_04032019,100,1511.33,1523.52,10,So if you could just talk a little bit to that the the increase in the sales and then also on the uh the commission side they increased thirty eight percent but decreased as a percentage of sales from about fifty one to forty four percent.
mtngh_fy18_call_audio_04032019,101,1530.7,1531.3199,6,Sure.
mtngh_fy18_call_audio_04032019,102,1531.4399,1533.24,6,So yes you're right.
mtngh_fy18_call_audio_04032019,103,1533.24,1538.61,6,In terms of of mobile money we saw a seventeen point eight percent increase year on year.
mtngh_fy18_call_audio_04032019,104,1538.61,1545.5701,6,And I think your question is the revenue grew by about sixty percent of the back of an approximate eighteen percent subscriber group.
mtngh_fy18_call_audio_04032019,105,1574.13,1580.42,12,So you would have two main components of your growth which is transactional frequency plus the subscriber growth.
mtngh_fy18_call_audio_04032019,106,1580.42,1585.02,12,And that's why you're seeing a much faster revenue growth than your subscriber growth.
mtngh_fy18_call_audio_04032019,107,1585.02,1588.36,12,So it's quite normal for inaudible industry for that to be the case.
mtngh_fy18_call_audio_04032019,108,1589.25,1595.5801,12,However if you peel the onion a little bit more and we're also expanding our activities in the ecosystem.
mtngh_fy18_call_audio_04032019,109,1595.88,1601.9299,12,So first of all we're seeing a lot more transactional transactional activity in merchant payments.
mtngh_fy18_call_audio_04032019,110,1602.63,1617.5601,12,We're seeing more more merchants more bill payment companies coming onboard and all of these will be expanding the ecosystem to enable that transactional frequency that I referred to to actually happen or or or to actually materialize.
mtngh_fy18_call_audio_04032019,111,1618.1899,1622.3601,12,And so so these are the key drivers of inaudible growth um that we're seeing.
mtngh_fy18_call_audio_04032019,112,1636.4301,1640.01,12,We finished last year about sixty thousand merchants.
mtngh_fy18_call_audio_04032019,113,1640.72,1640.8099,13,Okay.
mtngh_fy18_call_audio_04032019,114,1644.7,1648.5599,13,And and how is that in comparison to two thousand seventeen?
mtngh_fy18_call_audio_04032019,115,1649.22,1655.7001,12,cuz most of our merchant activity happened last year where we had just started out in twenty seventeen.
mtngh_fy18_call_audio_04032019,116,1660.52,1664.25,13,And then the commission question just why it decreased as a percentage of sales?
mtngh_fy18_call_audio_04032019,117,1665.1899,1669.9399,12,Sorry can you just repeat that question?
mtngh_fy18_call_audio_04032019,118,1671.16,1671.39,13,Yeah.
mtngh_fy18_call_audio_04032019,119,1671.39,1678.9601,13,So so MoMo commissions you do breakout in the financials and it was um the absolute number increased thirty eight percent.
mtngh_fy18_call_audio_04032019,120,1679.14,1685.67,13,But if you look at it as a percentage of MoMo revenue it declined from fifty one percent to forty four percent.
mtngh_fy18_call_audio_04032019,121,1713.71,1727.58,12,So it it is just really the fact that we're expanding our business into products that are less commissions generating loans for example pension payments things like that are all non-commission generating transactions which are contributing to the total revenue.
mtngh_fy18_call_audio_04032019,122,1728.37,1728.46,13,Okay.
mtngh_fy18_call_audio_04032019,123,1734.74,1738.86,13,And then um just the last couple questions.
mtngh_fy18_call_audio_04032019,124,1739.88,1748.87,13,i i I might of missed it but in terms of um CapEx what um wha what's the estimate for for twenty nineteen CapEx needs?
mtngh_fy18_call_audio_04032019,125,1764.13,1764.4,13,Okay.
mtngh_fy18_call_audio_04032019,126,1764.97,1769.4601,13,And then the management fee is the management calculated as five percent of sales?
mtngh_fy18_call_audio_04032019,127,1769.46,1771.45,13,Or just five percent of telecom sales?
mtngh_fy18_call_audio_04032019,128,1771.6,1775.21,13,So if mobile money grows does it affect the management fee or not?
mtngh_fy18_call_audio_04032019,129,1776.58,1780.1,14,Sorry the last part of the question was?
mtngh_fy18_call_audio_04032019,130,1781.6801,1788.0199,13,Uh does the management fee get paid on mobile money or just the telecom side of the business?
mtngh_fy18_call_audio_04032019,131,1855.99,1867.15,13,So the the costs came in slightly higher than the I P O was predicting um at about twenty five two point five billion versus two point three seven billion.
mtngh_fy18_call_audio_04032019,132,1867.87,1873.39,13,Uh and just was wondering what which which expenses came in higher than expected and why?
mtngh_fy18_call_audio_04032019,133,1939.02,1952.72,14,And then of course three your OpEx will also be uh im impacted uh by it.
mtngh_fy18_call_audio_04032019,134,1960.9301,1962.48,14,And 2.5 percent for the educational fund.
mtngh_fy18_call_audio_04032019,135,1962.48,1976.63,14,So it meant that for every purchase or any transaction going forward from August of twenty eighteen um that had an affect on the cost.
mtngh_fy18_call_audio_04032019,136,2006.05,2007.9301,14,You see the costs are going on.
mtngh_fy18_call_audio_04032019,137,2007.9301,2015.73,14,And I would add that towards the end of the year we eventually decided to pass on all those costs back to our subscriber.
mtngh_fy18_call_audio_04032019,138,2016.4399,2021.16,14,Uh not not a hundred percent but at least just to minimize the affect on the business.
mtngh_fy18_call_audio_04032019,139,2021.85,2022.1699,14,Uh…
mtngh_fy18_call_audio_04032019,140,2026.0601,2026.9401,13,Gotcha okay.
mtngh_fy18_call_audio_04032019,141,2027.3199,2027.88,13,Um…
mtngh_fy18_call_audio_04032019,142,2030.84,2036.01,13,and then just the direct network operating costs increasing seventeen percent.
mtngh_fy18_call_audio_04032019,143,2036.2,2043.4301,13,Um I mean is this you know transition costs were up thirteen percent.
mtngh_fy18_call_audio_04032019,144,2043.4301,2045.78,13,Network maintenance costs were up forty three percent.
mtngh_fy18_call_audio_04032019,145,2045.91,2055.3799,13,Um is this what we should expect going forward or you know I guess what were the drivers of the network operating costs and how do we think about it?
mtngh_fy18_call_audio_04032019,146,2062.1899,2067.97,14,So um some of these numbers had to build during the during the year.
mtngh_fy18_call_audio_04032019,147,2081.72,2088.8499,14,So all of that pass through costs that would impact- impact uh impact on the network operating costs.
mtngh_fy18_call_audio_04032019,148,2107.9099,2128.5601,14,And the third one would've been that even though c p i was trending down uh for most part of 2018 uh the agreements we have with the inaudible companies actually takes inaudible based on the year end exits um for for for the site rental.
mtngh_fy18_call_audio_04032019,149,2128.5601,2136.4502,14,inaudible one two percent would apply for the whole of 2018 not withstanding the fact that the CPI was probably only nine percent or 9.5.
mtngh_fy18_call_audio_04032019,150,2141.6499,2143.3899,14,So that's how it works.
mtngh_fy18_call_audio_04032019,151,2149.3301,2149.74,16,Hello?
mtngh_fy18_call_audio_04032019,152,2150.3701,2156.1799,16,Good afternoon.
mtngh_fy18_call_audio_04032019,153,2156.3201,2180.6699,16,I have a question on market share.
mtngh_fy18_call_audio_04032019,154,2211.77,2212.24,16,Thank you.
mtngh_fy18_call_audio_04032019,155,2226.99,2230.26,12,On the voice side the market share is forty nine percent.
mtngh_fy18_call_audio_04032019,156,2233.8301,2237.8198,16,Okay thank you very much.
mtngh_fy18_call_audio_04032019,157,2237.8899,2244.1001,16,I'd like to know if compared to twenty seventeen are you losing customers or gaining customers?
mtngh_fy18_call_audio_04032019,158,2245.47,2248.72,12,No we've actually gained market share since twenty seventeen.
mtngh_fy18_call_audio_04032019,159,2249.49,2254.53,16,Okay thank you very much.
mtngh_fy18_call_audio_04032019,160,2254.5601,2271.49,16,And the final question concerning trade receivables i I would like to know whether uh let's see within what period do you see that the receivables you have in a year are finally paid off?
mtngh_fy18_call_audio_04032019,161,2282.9299,2283.3599,14,Hello.
mtngh_fy18_call_audio_04032019,162,2286.77,2291.28,14,But normally within a year they they should be it's a rolling it is a rolling balance.
mtngh_fy18_call_audio_04032019,163,2291.28,2295.8401,14,So take for instance your interconnects.
mtngh_fy18_call_audio_04032019,164,2295.99,2302.51,14,So the connects have probably sixty to ninety days payment settlement um from from all parties.
mtngh_fy18_call_audio_04032019,165,2303.1599,2304.3,14,So it keeps rolling.
mtngh_fy18_call_audio_04032019,166,2304.3301,2305.6099,14,You always wanna have a balance.
mtngh_fy18_call_audio_04032019,167,2314.76,2321.7,16,Are there any that do not pay at all?
mtngh_fy18_call_audio_04032019,168,2323.6201,2326.9102,22,The best uh accounting practice uh uh best practice feel uh doubtful for whatever reason.
mtngh_fy18_call_audio_04032019,169,2327.4099,2344.05,22,And but lists phonetic even given by those standards it less than 10%.
mtngh_fy18_call_audio_04032019,170,2344.05,2366.1899,22,So on the average but my point is that the fact that we gave provision for credit loans does not uh translate into uh a credit loans it's just based on what the uh the standards or the guidance that is given to you.
mtngh_fy18_call_audio_04032019,171,2385.02,2386.96,22,It doesn't mean that's bad.
mtngh_fy18_call_audio_04032019,172,2402.29,2403.6602,20,Um two questions please.
mtngh_fy18_call_audio_04032019,173,2456.23,2463.0,18,Your second question was I believe on price and if I heard you right um if there have been any changes to pricing during the year.
mtngh_fy18_call_audio_04032019,174,2463.1001,2465.1599,18,Um there haven't been any changes to pricing.
mtngh_fy18_call_audio_04032019,175,2466.46,2468.79,20,Okay thank you.
mtngh_fy18_call_audio_04032019,176,2476.75,2478.0898,21,Um hi everyone.
mtngh_fy18_call_audio_04032019,177,2479.0,2480.1199,21,Uh thank you for the call.
mtngh_fy18_call_audio_04032019,178,2480.1201,2482.95,21,Uh just two questions from my side please.
mtngh_fy18_call_audio_04032019,179,2483.73,2486.72,21,Um the first question has got to do with mobile money.
mtngh_fy18_call_audio_04032019,180,2486.72,2494.6001,21,Uh if you could maybe just give us an indication of the growth rates of p two p versus cash out.
mtngh_fy18_call_audio_04032019,181,2494.6001,2502.3301,21,Like are you seeing p two p becoming a greater proportion of revenue generating transactions over the past twelve months?
mtngh_fy18_call_audio_04032019,182,2503.47,2519.8699,21,And then the second question is could you possibly provide an outlook for where gearing or debt height will evolve over the next twelve months you know and split between local or dollarized debt.
mtngh_fy18_call_audio_04032019,183,2520.27,2531.3699,21,You know how are you looking at the capital structure of the group going forward and how should one view your dividend policy over the next twelve twenty four months.
mtngh_fy18_call_audio_04032019,184,2532.02,2532.8301,21,Thank you very much.
mtngh_fy18_call_audio_04032019,185,2535.3799,2535.98,18,Okay.
mtngh_fy18_call_audio_04032019,186,2535.98,2548.54,18,Um so the first question and I i'll leave the second question to to the CFO of MTN inaudible the first question was on P2P growth versus cash out group and whether we're seeing faster growth on p two p versus cash out.
mtngh_fy18_call_audio_04032019,187,2549.04,2554.7,18,The answer to that is yes we're seeing p two p growing faster than cash out um but it is marginal.
mtngh_fy18_call_audio_04032019,188,2554.7,2555.74,18,I'll say both…
mtngh_fy18_call_audio_04032019,189,2555.74,2567.6702,18,Both have trended in the same direction with p two p and not ahead of cash out growth and would also expect that to pair the current product mix and the focus of the business to…
mtngh_fy18_call_audio_04032019,190,2568.45,2576.0801,18,To um to drive more merchant payments as well so would expect p two p to continue to grow much faster than cash out is growing.
mtngh_fy18_call_audio_04032019,191,2577.6899,2581.5801,18,I'll hand it over to to the CFO to answer the question on debt and gearing.
mtngh_fy18_call_audio_04032019,192,2581.6101,2598.55,22,Right on the question on debt as you're probably aware that we have um a medium term facility five year medium term facility for 510 million um CD's phonetic and all our debts are local.
mtngh_fy18_call_audio_04032019,193,2599.0701,2616.6802,22,So we intend to operate within those um within that uh facility we are not thinking of um having additional debt at this moment and um the debt um and the facilities we have are more than enough to meet uh a level of business at…
mtngh_fy18_call_audio_04032019,194,2616.6799,2616.78,22,At…
mtngh_fy18_call_audio_04032019,195,2617.23,2617.95,22,At the moment.
mtngh_fy18_call_audio_04032019,196,2619.1299,2624.8601,22,In terms of what um you should make of our dividend policy.
mtngh_fy18_call_audio_04032019,197,2647.77,2662.5898,22,And the only reason for that was because even the earlier guidance we had with respect to the retaining earnings and the optic of the IPO you know eh the bubble of the view that you know we should uh attend the…
mtngh_fy18_call_audio_04032019,198,2663.01,2666.99,22,Uh review the retained earnings as far as possible so they varied that policy this year.
mtngh_fy18_call_audio_04032019,199,2667.52,2671.77,22,Um uh for the uh finance dividend that we proposed.
mtngh_fy18_call_audio_04032019,200,2672.2,2695.01,22,So going forward at least we still would maintain the guidance that we would uh operate minimum up to sixty percent of our uh uh if it's 60% payout and uh with that inaudible not to vary like inaudible and then all those who do the same and uh and from the market as well there now.
mtngh_fy18_call_audio_04032019,201,2755.6299,2757.4199,18,So in terms of 5G today we…
mtngh_fy18_call_audio_04032019,202,2757.97,2759.71,18,We really have no…
mtngh_fy18_call_audio_04032019,203,2759.71,2771.45,18,No facts about the imminence of the five g spectrum in Ghana um and therefore we're unable to comment with any sort of facts backing this on…
mtngh_fy18_call_audio_04032019,204,2771.45,2773.0598,18,On what our position is at the moment.
mtngh_fy18_call_audio_04032019,205,2773.6201,2774.4902,18,Um however if…
mtngh_fy18_call_audio_04032019,206,2774.49,2778.8899,18,If in due course we do get something specific that has a…
mtngh_fy18_call_audio_04032019,207,2778.8899,2781.01,18,A more realistic window and…
mtngh_fy18_call_audio_04032019,208,2781.01,2785.6399,18,and we understand the terms of this then we can provide the right answer to that question.
mtngh_fy18_call_audio_04032019,209,2830.0701,2830.9802,18,So we…
mtngh_fy18_call_audio_04032019,210,2830.98,2842.1902,18,We all through the telecoms chamber did not agree with the fine and we're currently pursuing a legal discussion with the regulator on this.
mtngh_fy18_call_audio_04032019,211,2842.73,2847.4399,18,Now until that process concludes um I won't be able to comment…
mtngh_fy18_call_audio_04032019,212,2848.1699,2850.55,18,To comment at this stage but we are in…
mtngh_fy18_call_audio_04032019,213,2850.55,2855.6201,18,In a legal discussion with the regulator to try to resolve this based on our disagreement with the…
mtngh_fy18_call_audio_04032019,214,2855.6201,2856.8801,18,With the basis of the fine.
mtngh_fy18_call_audio_04032019,215,2876.6699,2885.0999,23,Can you explain how will mobile money agent who attributed this cash in cash out activity as compared to other competitors in mobile money.
mtngh_fy18_call_audio_04032019,216,2886.4099,2887.8501,23,Like how many agent…
mtngh_fy18_call_audio_04032019,217,2921.4399,2922.25,22,Um I…
mtngh_fy18_call_audio_04032019,218,2922.25,2934.22,22,I believe that cuz there is no exclusivity in terms of agents that there will be a broad overlap with the competitors but I'm not able to share the numbers with the competitors in terms of mobile money.
mtngh_fy18_call_audio_04032019,219,2936.97,2941.1101,23,Okay I got it thank you and just a follow up question on this if I may.
mtngh_fy18_call_audio_04032019,220,2941.5801,2956.8398,23,Like if the transactions are shifting to p two p where the agent doesn't get commissions on that and how do see the dynamics for over there like um the agent loyalty towards our M uh M T N?
mtngh_fy18_call_audio_04032019,221,2963.45,2964.2,22,Thanks for the question.
mtngh_fy18_call_audio_04032019,222,2964.2,2964.4299,23,Yeah.
mtngh_fy18_call_audio_04032019,223,2965.78,2969.8799,22,So just to clarify the…
mtngh_fy18_call_audio_04032019,224,2969.8799,2973.5601,22,The P2P dynamic is a mobile money dynamic not an MTN dynamic right.
mtngh_fy18_call_audio_04032019,225,2973.5601,2983.6301,22,So there should be no reason for an agent to behave differently to MTN because of a p two p dynamic that's implicit in mobile money.
mtngh_fy18_call_audio_04032019,226,2984.54,2998.3501,22,Now uh to answer the second part of your question is the uh today we have approximately 50% penetration of more money now inaudible and we have another fifty percent to go.
mtngh_fy18_call_audio_04032019,227,2999.28,3008.99,22,Once the transactional activity staff to increase all transactions will continue to grow at a similar rate so we would expect agent activity to continue to grow significantly.
mtngh_fy18_call_audio_04032019,228,3009.02,3016.3201,22,Um and probably much faster than the rate at which the agent network will grow which would mean that the earnings per agent should go up.
mtngh_fy18_call_audio_04032019,229,3016.98,3029.01,22,So I'm really not sure um you know where the issue is but I don't see any major concerns on the agent side at this stage for the level growth we still have within the market to continue to grow.
mtngh_fy18_call_audio_04032019,230,3031.25,3032.76,23,Understood thank you.
mtngh_fy18_call_audio_04032019,231,3060.26,3065.5901,17,Um and I'll be happy to take them and then um provide feedback.