Imperial Brands PLC
Q3 2014 Earnings Call Transcript

Published: 9 Nov 2014

[Executives:]

Alison Cooper – CEO Oliver Tant – CFO

[Analysts:]

Erik Bloomquist – Berenberg Bank David Hayes – Nomura James Bushnell – Exane BNP Paribas Fulvio Cazzol – Goldman Sachs Adam Spielman – Citigroup Chas Manso – Société Générale

[Alison Cooper:]

Good morning everybody and welcome. I’m Alison Cooper, Chief Executive and I’m joined on stage by Oliver Tant, CFO and we have with us here today several members of our senior management team. I will take it that you have read our disclaimer. I’m going to start with a reminder of our strategy, which is focused on building the quality and sustainability of our earnings to maximize returns to shareholders. There are four key priorities that we focus on. The first is about strengthening our portfolio, focusing investment and resource on our brands with the strongest equity; our Growth and Specialist Brands. Within our overall portfolio also sits our non-tobacco subsidiary, Fontem Ventures, through which we’re developing new consumer experiences. The second priority is the development of our footprint. In Growth Markets, we target long-term share and profit growth. These are markets with typically large volume and/or profit pools, markets where we’re underrepresented and where we see great potential for Growth. Returns Markets are typically more mature. We tend to have a significant presence in these markets and focus on sustainable profit performance, whilst actively managing our share position. To support the development of our brands and markets we continually focus on driving efficiency across the business and we’re now two years into our cost optimization program, which is on track to deliver savings of £300 million a year from 2018. And the fourth priority is the use of cash. We’re improving the efficiency of our balance sheet, focusing on working capital and cash conversion as we further embed stronger capital discipline throughout the business. So how have we performed against each of these priorities this year? I’d like to pick out a few key highlights. We generated strong underlying growth in our Growth Brands, improving volume and market share, supported by good early results from our brand migration program which began during the year. We also increased the net revenue contribution from our Specialist Brands. At the start of the year we announced a stock optimization program to improve the effectiveness of our route to market. This was a joint initiative with trade customers to reduce the level of stock they hold. The program was successfully completed and resulted in more than nine billion sticks being taken out of the supply chain. And Fontem launched its first E-Vapour product, Puritane. Initially sales were exclusively through the national retailer, Boots. But Fontem’s now widening the brand’s availability in the UK by partnering with additional retailers. We have continued to grow profits in our Returns Markets, in spite of particularly tough trading conditions in Returns South. Net revenue in Growth Markets was up 7% on an underlying basis and we’re pleased to be expanding our footprint by establishing positions in Egypt and Japan. We’re also excited about the US deal we announced in July and the opportunities it gives us to significantly strengthen our position in another key Growth Market. Our cost optimization program delivered more than £60 million savings, which has been re-invested to support our growth agenda. And over the course of the year, we reduced our level of net debt by £1 billion. Some of that came from our partial divestment of Logista and foreign exchange benefits. What I’m particularly pleased about is the great work across the business to improve our working capital position and drive greater cash conversion. I’d like now to hand over to Oliver who will run you through a few of the key financials.

[Oliver Tant:]

Thank you Alison and good morning everyone. We’ve delivered a great deal this year and have laid a solid foundation for sustainable growth in profits going forward. The progress we’ve made is I think only partly reflected in the reported numbers you see here. As you know we engaged with our distributors to help reduce their level of trade inventories, which is why we’ve focused more on underlying movements in the P&L. What the results show is that although we effectively only sold just under 51 weeks’ worth of product in FY14, we’ve managed to maintain the same level of operating profit on a constant currency basis. Volumes were down 7% on a reported basis, though just over 3% of this was driven by the stock optimization program. Exchange rates on translation reduced both operating profit and EPS by 5% with our adjusted EPS showing growth in constant currency terms of around 2%. In true CFO fashion I will come on to talk in more depth about cash and debt shortly. But suffice to say I’m particularly pleased with the solid progress we’ve made towards embedding a higher level of cash conversion which has contributed to a £1 billion reduction in our closing net debt. Increased discipline around cash and the allocation of capital are key to our overall objective of maximizing sustainable returns to investors. In line with our guidance the dividend announced today of £1.281 is up 10%. Our stock optimization program is now complete. We will continue to monitor day’s stock in trade carefully and of course continue to optimize inventory levels as part of business as usual. We will report underlying numbers throughout FY ‘15 as we previously promised. We’ve worked with our distributors to remove over nine billion sticks from their trade inventories, reducing the level of stock they hold in specific countries such as Russia, Taiwan, Iraq and several other Middle East markets. The stock program leaves us with a more efficient route to market and enables us to respond quicker to changes in market dynamics. So whilst a constraint on our results this year we are confident of the longer term benefits going forward. Adjusting for the impact of our stock optimization program you get a better picture of how we’ve really performed. From a volume perspective we remain in line with the overall movement across the markets in our footprint, which also declined at around 4%. Net revenue in the second half continued to grow at a rate of 2%, with the rate of growth in Growth Brand volumes and net revenue increasing, driven in part by the step up in our brand migration program. Net revenue was up 7% in Growth Markets and down 1% in Returns Markets, driven by pressures in Returns South. Overall an encouraging picture with further indications that we are continuing to build the overall quality of our revenue. Growth Brands have continued to improve market share, driven by JPS, West and Parker & Simpson, which is now launched in 27 markets. Brand migrations added to organic growth, delivering a step up in volumes and net revenue, particularly in the final quarter. Growth Brand contribution to net revenue, which was up almost 300 basis points, is another indicator of the enhanced quality of our sales. Supply constraints in Cuba meant that growth in Cuban cigars during the second half was lower than expected. In spite of this, Specialist Brands maintained their overall share of our business, growing net revenue by 2%. We saw a strong performance in our snus business in Scandinavia which was up over 30% as well as continued growth in the US from Backwoods, our mass market cigars brand. Our overall share position in Growth Markets was up slightly to 5.8% and our financial performance was good, with underlying net revenue up 7%. We made good progress in a broad spread of these markets including Italy, Greece, Scandinavia, Taiwan and Cambodia. Results in Russia were undermined by difficult trading conditions, as industry volumes continued to decline following excise increases and changes to regulation and the route to market. In the USA, we improved our share position in a number of key states. Overall our Growth Brands in these markets now represent 38% of net revenue, an increase of 150 basis points. Our performance in Returns Markets has remained resilient against a generally challenging economic backdrop, with affordability concerns contributing to increased competition in the value segment of many markets. These trends, together with the challenge we face from declining dark tobacco in Spain and France, have contributed to a decline in net revenue in Returns South. This has been partly offset by growth in Australia, Ukraine and Germany in Returns North, and overall we increased operating profits by 1%. JPS, Parker & Simpson, West and Fine all performed well, as we continued to build the quality of our revenue. Growth Brands now account for 43% of net revenue, an increase of over 300 basis points. In logistics, distribution fees increased by 2%, which given the tough economic environment across Southern Europe, is a pleasing result. The continued growth of direct delivery pharma sales, growing sales of convenience products and continued cost control measures have helped to mitigate the impact of declining tobacco volumes. A 3% decline in operating profit was largely due to one off items. As you know, we regard Logista as non-core and in July we completed a partial IPO. We divested 30% of the business for a little under £400 million, which has gone towards the repayment of Group debt as part of our ongoing focus on capital allocation. We generated further cost savings in the year to support investment in our portfolio and footprint. Savings have come from global procurement and various operational excellence initiatives in manufacturing. Going forward the brand migration program will continue to play a key part in simplifying our portfolio, enabling more targeted investment. To support this and the ongoing development of our key Growth Markets, our investment in FY ‘15 is likely to exceed our cost optimization target of £85 million. We remain on track to deliver our overall target of generating £300 million of savings a year from September 2018. Alison spent a little time earlier re-visiting our overall strategy and talked about our quality of growth. That is partly to do with deriving more of our earnings from the strongest brands in our portfolio, as well as strengthening our footprint. It is also, however, about realizing cash from the business since its cash that funds returns to shareholders. As well as focusing on working capital we are also looking closely at capital allocation to ensure we maximize value from our assets. As regards uses of cash, our commitment to dividend growth of 10% or more remains a priority. Our share buyback program was turned off during the year in conjunction with the announcement of our U.S. acquisition. Going forward we will use excess cash to reduce net debt, which I’ll come on to shortly. I have talked a lot about improving cash conversion over the past six months. It is an area I feel particularly passionate about. We now have a specific team in place which has a remit to embed new processes around the management of working capital. As you can see, it’s starting to yield benefits. We’ve started to reduce our tobacco holdings of leaf stock to a level better matched to market demand and we’ve improved credit balances through a more consistent application of existing supplier terms. Increased focus and discipline around investment has also enabled us to reduce our net CapEx spend by a little over £50 million. These are ways in which we can enhance the sustainability of shareholder returns without having to sell a single pack more. Cash conversion was 5% higher year-on-year and 9% higher than the average level achieved over the past three years. The business has been here before however. So our priority is to embed the processes and ways of working that have helped drive the improvement. That improvement in cash conversion has contributed to a significant reduction in our net debt, which ended the year £1 billion lower at just over £8 billion. In addition to the positive deltas in both working capital and CapEx which contributed to this reduction, we generated £0.4 billion through the Logista IPO as well as seeing a £0.3 billion positive movement driven by the strengthening of sterling. The reduction of net debt remains a priority for the business going forward. The 30% IPO of Logista created a minority interest charge in the P&L of £10 million. On a pro forma basis the full year impact of this would have been a little over £40 million, which at an adjusted EPS level is £0.044. Our average cost of debt for the year was 4.9%. The acquisition facilities we put in place back in July do not come into play until we complete and our new revolving credit facility currently remains undrawn. As we stand today therefore we expect to see a similar average cost of debt in percentage terms in 2015. After the year-end we took the opportunity to move an additional £2 billion of our existing debt onto fixed terms, taking advantage of low interest rates in the market and reducing the financial exposure of the business to rate rises over the longer term. Despite this, we still expect our total cost of finance to be similar in FY ‘15, given the reduction in net debt. Our reported rate of Group tax for the year was particularly low at 4.5%. This is due to a large credit for deferred tax on intangibles. Our adjusted rate, which is a far more useful comparison of business performance year-on-year, was 21%, a level we expect to maintain going forward. Exchange rates on translation reduced both our adjusted operating profit and adjusted earnings this year by 5%. At current spot rates we expect the movement in exchange to have a circa 2% impact on FY ‘15. As I said in my opening slide we have achieved a lot this year, building a strong foundation for growth going forward and we will continue to focus on driving material cost efficiencies and improving capital discipline. Both of these are fundamental aspects of generating sustainable returns for shareholders. Thank you. Now back to Alison.

[Alison Cooper:]

Thank you, Oliver. I’d now like to share a little more detail about the work we are doing to strengthen our portfolio and develop our market footprint. Let me start with our brands. Our portfolio strategy is about simplifying and strengthening our portfolio, investing more in our quality assets; our Growth and Specialist Brands. In 2014, these brands grew 270 basis points to now account for 54% of total Group net revenue. Our objective over the coming years is to drive revenues from these brands to around 80% of our Group net revenues. Let me show you some of the progress we’re making. This has been a significant year of equity building for Gauloises, with the launch of several portfolio initiatives including; a fine cut offering in Morocco and France; queen size variant which has proven to be very successful, particularly in Iraq; our new retro-focused Generation range in France; as well as several variants as part of a natural solutions range, which include additive free and biodegradable filters. As well as these product innovations we have recently revamped the pack and globally re-launched the brand with a new campaign to evoke the essence of joie de vivre and spontaneity which the brand represents. This is the start of a process which will see us invest in new campaigns to support all of our Growth Brands. Moving on to the JPF chassis. JPS has been a huge success story this year, and a major contributor to the 9% increase in underlying Growth Brand net revenue. JPS has grown by almost 15% in underlying volume, over 15% in net revenue, and increased market share in markets such as Spain, Italy and the UK. The brand’s biggest impact has been in Australia where it’s grown around 600 basis points to achieve a spot share of around 17%, which makes JPS the leading brand in the market. We have continued to roll out our fine cut variants, which are now in 16 markets and have grown volume by 12% for the year. And Fine, a key brand for us in Asia and Africa, has grown net revenue by over 30% on an underlying basis. Fine’s strong performance in Cambodia has been particularly pleasing, securing a 38% share of market; up 300 basis points. Finally, we have now rolled out Parker & Simpson into 27 countries. Parker & Simpson has been the destination brand for several of our early migrations; I’ll come back to more on that later. Within the West chassis, we launched a new variant of our leading UK brand, Lambert & Butler. L&B Blue has been a great success, achieving over 1.5% share of the market in a little under five months. News continues to forge ahead with make your own volume growing strongly, whilst for West, slimmer formats in Central Asia, share growth in Taiwan and a growing presence in Japan all contributed to the brand’s overall growth. Our new global design for Davidoff is now in nearly 60 of markets, covering close to 90% of global volume. We’ve seen share move up across our top 10 markets for Davidoff with pleasing progress in the Middle East. And our new flagship Davidoff store in Dubai aims to build on the success we’re achieving in this geography. In Russia we launched Davidoff GlideTec and won an innovation award for Boudoir Superfine, a slims variant we launched last year. Brand migrations support our ongoing objective to enhance the quality of our earnings. But let’s be clear, it’s not the brand we are migrating, it’s the consumer. Through a combination of visual prompts via the evolution of the pack, which you can see here in this example from Taiwan, we have successfully begun the process of migrating consumers away from Portfolio Brands and into our Growth Brands. We have now started 22 migrations and completed five. The average retention rate we’ve seen to date is encouraging and here you can see more examples of migrations that are ongoing, with Brooklyn moving into the West family in Spain and Moon moving to Parker & Simpson in the Czech Republic. Migrations play a key part in helping to simplify and strengthen the portfolio and we’ll keep you updated on how the program develops over the coming year. It is also important to remember that retaining the consumers from the migrated brand is just the first part of the story. Over the longer term success will be measured by our ability to enhance the quality and sustainability of revenues which is also about attracting new consumers to our strongest brands, focusing our investment and resource to grow their equity, consumer awareness, and appeal. Before moving on to talk through footprint developments, a brief look at what we’re seeing from a market volume perspective. We’ve seen the rate of volume decline ease across our footprint as a whole during the second half of the year, driven by improvements in many of our key Returns Markets. Over FY ‘14 the market declined at a rate of just under 4%, an improvement versus the position at the first half. We’re encouraged by this but caution is needed, as increased activity in the value segment in many of our markets is driving a proportion of this improvement and there is the possibility of deeper declines in Russia to come. Our plans for ‘15 do not factor in any further market size improvements at this stage. Let’s now take a look at some of our Growth Markets. We made progress this year expanding our Growth Market footprint, with Egypt and Japan both good examples of how we are investing to build the sustainability and diversity of our earnings. Egypt is a significant market of around 80 billion sticks, in which we established a partnership with one of the country’s leading distributors earlier this year. After launching in the summer, we’ve worked hard on consumer activation and distribution with Gauloises and Davidoff. They’re now available in around 80% of retailers and achieving a market share of 0.6%. Japan is also a material market with a large and stable profit pool. We’ve been building a strong position in the convenience channel, which is around 60% of the market. Q4 data shows that West has a share of around 0.7% and we’re focused on adding to this as we continue developing our capabilities and scale going forward. And we continue to achieve great success in Scandinavia. We have made further share gains in Sweden, where Knox is now the second largest snus brand in the grocery channel, whilst in Norway, Skruf has grown to become the country’s number one brand. Delivering share growth of around 400 basis points and growing Skruf Slim Fresh to become the number one variant are fitting ways to mark the 10th anniversary of the Skruf business. Italy is a great example of a market in which we have built share steadily and consistently through investment in our Growth Brands. During the first half, we grew the share of JPS through a focus on increased distribution, whilst the second half has been all about awareness and equity building activity, particularly around the iconic black and gold imagery. JPS has responded well and is now at around 2% of the market. In Iraq we’ve seen positive momentum in Parker and Simpson, supported by the Royale Club migration. However, the political and security situation has clearly had a negative impact on our business during the second half. With sales activity focused on main cities only, volumes were around 3 billion sticks short of where we would expect, using the implied volume trend in the first half. We’re continuing to monitor the situation and are working with our distributor to minimize the impact, whilst ensuring the safety of our employees. The tobacco market in Russia has undergone significant change over the past year, brought about by rapid excise increases and tightening of regulation, which is yet to be fully reflected in volumes. Consequently, we expect the rate of market decline in Russia to increase over the coming months. Our market share was broadly flat, with an improved performance in the second half reflecting a strengthening of our position in East Russia and Siberia, where Maxim is particularly strong and growing, driven by queen size and large formats. In the U.S. we have continued to make progress with USA Gold, with our share across our focus 19 states growing sequentially through ‘14 and year-on-year in the final quarter. The new GlideTec pack is now widely distributed across more than 20,000 retailers and we’ve been focused on building consumer equity in the second half with a new direct marketing campaign. The U.S. is a significant Growth Market for us and one in which we again grew profits this year. Before moving on to discuss some of our key Returns Markets, let me briefly recap on our proposed acquisition of assets in the U.S. As you know we require the approval of both our shareholders and the FTC, and are expecting the deal to conclude in the spring of 2015. As far as allowable we have been laying the foundations to hit the ground running in the U.S. Our integration team is looking at how the combined business will be structured and how we’ll operate from day one. As we said back in July, this is a transformational deal for Imperial in the US. It will strengthen our portfolio, enhance our scale and capabilities and make us a far more visible and material player in a significant profit pool. Let me now turn to our Returns Markets, starting with Returns South. Spain continues to be a difficult market with a high degree of price sensitivity in the sub value segment and a contraction in fine cut tobacco, with excise increases narrowing the price gap to cigarettes. However, recent economic improvement and a stabilization in illicit trade have contributed to a lower level of market decline than we saw in the first half. We’ve seen a stabilization of our performance in blonde cigarettes and a good performance from our Growth Brands. The Moroccan market continues to decline at a high single digit rate, driven by increases in excise and a rising level of illicit trade. During the year we launched MQS, a more modern incarnation of Marquise, as well as Gauloises fine cut in order to enhance our portfolio in the value segment. As a result, our market share decline slowed during the second half. Our high share in the traditional brunes market in France continues to impact our overall position in this market. With competition in the lower price bracket still a key feature we continue to focus on modern fine cut variants of our Growth Brands and both Gauloises and News make your own variants are doing well. The trading environment in the UK has been challenging, particularly within the value segment, where we’ve seen an increase in price discounting from competitors. We’ve continued to adopt a pragmatic and patient approach to this, competing strongly through the flexibility that our broad portfolio offers. We’ve achieved success with L&B Blue in cigarette, as well as in fine cut with Gold Leaf and GV Smooth, a modern version of Golden Virginia. We’ve driven significant increases in product availability over the past year, having evolved our route to market and sales force structure. The introduction of availability representatives, a new program of trade investment and more scientific approach to distribution has been welcomed by customers and is building engagement. The German market remains consistently steady, with a small decline in cigarette volumes and broadly flat volumes of fine cut. Growth Brands continue to perform strongly, particularly JPS, Davidoff and Gauloises. And this month sees us launch two new variants of JPS in Germany, Black Line and Silver Line. These will extend our JPS portfolio and strengthen our cigarette offering in the value segment. All in all, another good year for Germany. Further success in Australia, where we’ve significantly grown both market share and profit, has been down to the consistently solid execution of a simple but focused approach to portfolio, pricing and customer engagement. The growth of JPS in both cigarettes and fine cut has been key. A number of excise increases, the latest of which came in at the start of September, have driven the growth of the sub value segment. This is now over a third of the market and JPS accounts for half of it. Contrary to what some might have you believe however, this is not all about price. Others are priced lower in the market but three quarters of total consumer purchases are still above the price floor. Our success in building the equity and share of JPS in the dark market is more down to customer engagement than low price. As in the UK we’re competing through expansion of the portfolio, recently launching both JPS ‘tubing tobacco’ as it’s known in Australia, and a lower priced cigarette offering through Players. The notable rise in non-duty paid consumption in Australia highlights the adverse impact of plain packaging and the ongoing increase in excise. This will no doubt continue with the most recent tax increase having landed just a couple of months ago. Our strategy will remain the same going forward as we continue to focus on leveraging the equity we’ve created in the JPS brand to grow share and profitability. Fontem Ventures, continues to develop its portfolio of innovative products in lifestyle consumer goods categories. At present, the key commercial focus is on e-vapour. The e-vapour category has shown strong growth over the last three years, and we believe that the market is primed to grow still further if the consumer experience is right. Fontem’s Puritane, is largely focused on the healthcare channel. We believe these product offers a superior consumer experience, as well as offering guarantees of quality and reliability. Our application for a license from MHRA in the UK is currently progressing. Beyond Puritane, Fontem is currently focused on extending its presence in Europe with a second e-vapour product, which we expect to see launched during the first half of the year. We’ll continue to take a measured approach in this space and believe we are well positioned through Fontem and the acquisition of Blu, to capitalize on growth opportunities. Last year we further strengthened our business and we will build on that in FY15 as we continue to focus on our key four priorities. The portfolio focus is on further driving the performance of our Growth and Specialist Brands – that’s where the quality of our portfolio lies. Migrations and further investment will support their on-going development. From a footprint perspective, the focus is on building momentum across our Growth Markets, whilst maximizing performance in Returns Markets. And of course, we have the completion of the U.S. deal to look forward to. We expect this in the spring of 2015 and intend to hit the ground running with integration and the and integration and implementation of our plans to turn around those brands. Effective cost and cash management support our growth strategy. You’ve seen further evidence of the progress we’re making with cost optimization and we’ll be adding to that over the coming year. Embedding stronger capital discipline in the business really paid off for us in 2014; cash conversion back in the 90s and a significant chunk of our debt reduced and there’s more to come here. We’re a stronger business going into 2015. The external environment is still challenging but the actions we’ve taken have strengthened our ability to grow the business against this backdrop. And we look forward to adding to our track record of shareholder value creation in 2015 including delivering on our existing target of dividend growth of at least 10%. Thank you. That concludes today’s presentation and we’ll now take any questions you may have. The presentation is being recorded. So if you wish to ask a question please use the microphone in front of you and press the button to speak giving your name and organization.

[Erik Bloomquist – Berenberg Bank:]

Hi, Erik Bloomquist, Berenberg. Two questions, firstly with respect to brand migrations, if that was about 1% of volume migrated into 2014, and I don’t know if that’s the correct number but what do you expect in 2015 and beyond to get toward that 80% of revenue coming from your Growth brands and specials brands? And then secondly if you would comment on why you see accelerated increase in the decline in Russia from what we had this year. Is that really attributed to a greater impact from regulations that we put in place because of course the tax impact is lower in 2015 relative to 2014. So I’m wondering why we should expect an increase in volume decline. Thank you.

[Alison Cooper:]

Okay. First in relation to brand migrations the overall growth in Growth brands in the year was 7% across the business and therefore on the element migrations within that was roughly 5% if that growth if you take that from an over achievement against the market perspective is roughly half. So half is organic and half is migrations in 2014. We’ve got a big program in ‘15, so we do expect a large chunk of further volume to be migrated but as you might imagine we’re learning as we go I’m going to put a number on it at this stage because everyone make sure we pace this migrations appropriate and it’s not a question of saying we’ll do and we just do it, but we learn as go along and we adapt as we along as necessary with the some of the larger migrations. But I think as we go far as saying we’ve got a big program for ‘15 but we’re not going to put a number on it at this stage. In terms of the market decline in Russia I mean really our view is what we’re seeing currently coming through and I think is a compounding effect because you got regulation coming through but then you’ve also got the excise increases coming through. I agree it’s a slightly smaller percentage but still big increase in January. And obviously you got the economic environment as well. So I think the whole piece in Russia currently looks as though we are going to experience some prolonged more significant declines in that market and that’s currently our best view.

[David Hayes – Nomura:]

Hi, David Hayes from Nomura. Two for me if I can. Firstly just on the pricing dynamic, I think in the third quarter update pricing was very strong, you indicated about 9%. Fourth quarter looks like it’s down sort of between 3% and 4% with the UK taking pricing in July, so just surprised about that drop down. I wonder if you could talk about the dynamic on quarter-on-quarter. And then secondly Australia I think in the first half you called out specific numbers on volumes, up 12, sales 10, profit up over 20. Just wondering what’s getting on Australia, if you can give the update on those numbers in second half in terms of the impact that competition is having, thanks very much.

[Alison Cooper:]

Okay.

[Oliver Tant:]

You’re right in the sense that in quarter three, I think sort of price mix comparison was about 8% and it’s clearly lower for the full year. I mean we think we need to be cognizant of the fact with the timing of price increases across our footprint there is from year-to-year in this place, has some major impacts on comparability of those numbers. Also we ended up with an adjustment which we referred to in our accounts which arises as a result of credit that we received in the U.S. in quarter three for around about $40 million which is also impacted the quarter three number. So it’s principally down to timing of price increases across the footprint. But there has been that one exceptional item which will have influence the quarter three dynamic.

[Alison Cooper:]

In terms of Australia, I mean overall for the year without being specific on the number we still into double digit territory in terms of operating profit growth in Australia. So I mean the strategy we taking Australia has being very consistent both with the price positioning we’ve taken on the JPS which is a highlight in the presentation, is not at the bottom of the market, but also the customer engagement aspects for us have being hugely important around our success in that market and we reported consistent for two-three years around the approach which is really was driven the success over the time both in terms of share but in continued very good profit progress too.

[David Hayes – Nomura:]

Let me quickly come back on the pricing point on the general basis. I mean pricing next year. I mean pricing next year, it’s a [inaudible] because some of it’s already put in place. A lot of people talked about pricing dynamics in terms of your peers the last few weeks. Do you think pricing next year looks very similar as an environment would you say there are things that mean that it will be less, can we talk about the mix dynamics as well or better for various reasons. I think too by the outlook it’s all in that. Thank you.

[Oliver Tant:]

And looking at the over – if I look across our overall footprint and clearly we look for why we see cross opportunities across the total footprint for us. I’m not really seeing anything particularly significantly different if I look across ‘15 in terms of opportunity. I mean it’s clearly an affordability dynamic going on it some markets at the moment and has been the case for the last couple of years. But that’s an aspect as well I suspect as we see improvements in volumes in market as we’ve highlighted some bright spots. That’s again a dynamic that will improve as consumers get more confidence about their spending power as well. We will go to Chris next.

[Unidentified Analyst:]

Hi, just three things. Number one, on the dividend and the dividend growth I mean clearly your converting cash at the moment is less than 100% and you are growing even after adjusting for currency or EPS at less than 10%. Now I know you got a cover and you got a good cash cover on this but what sort of stress testing exercise is due to internally on the sustainability of that 10% growth, I was wondering perhaps you could share a bit with us because we can obviously do our own counts and then the second point I was just wondering to get back on to one of the things just on the dimension you mentioned Blue sticks and you mentioned Fontem in your presentation. The e-Cigarette market really in the last six months appears a loss of the more higher ground with the regulators concerned and I wonder what – and even in certain sort of voluntary environment, I’m wonder perhaps if you could flag out what the problem might be there?

[Oliver Tant:]

I’ll likely to go for the dividend one. Very simplistically 10% growth in our dividend based on approved £1.2 billion cost for dividend is £120 million and that’s obviously after tax we got an effective tax rate of around about 20% so the pretax additional profit that we need to generate to be able to pay that 10% dividend out is about 150 million. Our operating profit is a little above $3 billion, so $150 million on $3 billion that we need to be in the sort of 4% to 5% operating profit growth territory to sustain that 10% dividend growth through incremental earnings year-on-year. Our underlying number 7%. We I think that probably answers it in the context of the current year, you have to be sort of careful about anything in relation to talking about our future in the context of where we are with the circular at the moment and any future progress but you can see how the algorithm works in the context of the current year and therefore what the framework might be that we would use to give ourselves confidence about our ability to continue to pay that dividend of that level as we move forward.

[Alison Cooper:]

And we also consider the other levers that we have because clearly profit is one, the focus on cash is clearly very helpful in that regard as well that Oliver highlighted, as we look at the whole capital discipline piece generally. So there is a number of things we look at around whole aspects of the business that give us confidence around the ability to continue to pay them.

[Oliver Tant:]

I mean Chris just briefly on that one, so we got £3 billion broadly of operating profit, 90% cash conversion, £2.7 billion of cash generated after that our operations. We pay out $1.2 billion in dividends and I guess there is $1.5 leftover, we’ve got roughly $0.9 billion in interest and tax. So actually we’re in the credit in the context of the operating the performance of the business generating cash flows that sustains our return to shareholders and give us cash for our purposes paying down debt, investing in the business and other things that we may choose to do over time.

[Alison Cooper:]

In terms of – maybe you can pick up on the regulatory piece or maybe just before you do. We still think the consumer experience is right here. I highlighted that in the presentation. The opportunity we see in this space is to develop the consumer experience. You can see where the trend in the U.S. much more towards tax systems, away from [cigarettes] because they provide a much better experience for the consumer. But there is still more to do in that space. So from an Imperial perspective once the deal completes we’ll have blue which we think is a great brand in terms of its equity to build on. We’ll have clearly we’ve already got the IP with the Dragonite acquisition and that’s progressing well for us in terms of that IP strategy and then also we got the technology developments both in Silicon Valley with Blue in Beijing and Hamburg with Fontem currently and I think therefore the total portfolio of opportunity we will have following that deal completion will give us the opportunity to get our consumer experience to really capitalize on this space but linking it back to the regulation clearly this is also an important factor around content development which we are very focused on.

[Unidentified Company Representative:]

Reflecting on it actually have e-cigarettes lost the moral high ground or no. I’m finding it difficult to actually answer that because I don’t think they have. If I look at the debates that have been going on in Moscow in the last few weeks with the [SETC] with the FDA, in the UK with the MHRA, the debate is still exactly the same they are still grasping with how to regulate e-cigarettes. And there are few countries, France would be an example where the hatred of tobacco spills over into the way they think about e-cigarettes. And so you do get e-cigarettes lumped together with tobacco control. But I think [inaudible] back to me and I think we are pretty much where we have been for a while and which is there will be variety of ways that e-cigarettes are regulated with either the consumer or pharmaceuticals or it will be of both and the regulators recognize it as [tobacco] free cigarettes going forward.

[Alison Cooper:]

James?

[James Bushnell – Exane BNP Paribas:]

Hi, James Bushnell from Exane. Two questions please. The first just come back on Russia you have spoken about the volume outlook. I wonder if you could first say whether you recently followed the price increase from the market leader and also how you see mix evolving in that market overtime. So that’s question one. My second one will be one price competition more generally, in your view has price competition increased in 2014? Why do you think that is what do you think happening going forward, thanks?

[Alison Cooper:]

I’ll ask John to talk a little bit more about the Russian brand I commented previously.

[Unidentified Company Representative:]

To your question regards to pricing in Russia yes, we have announced price increases last week in Russia. We expect further price increases going forward. Obviously in Russian market there is bit on unclarity at the moment around the excise outlook and therefore the specific tax with discussions which you are aware of around minimum pricing and potentially restricting packs of cigarettes above 20 which are currently growing very significantly in the Russian market. We are prepared for various different scenarios and obviously we have point of view as to how think should develop but we will remain cautiously optimistic the things will progress well. With regards to mix development we continue to have a strategy which is to focus on the premium end with Davidoff as well as on mid-priced brands with West, we are making good inroads in 2014 which we look to continue through 2015 as well as you probably will see very significant progress that we have made at the bottom end of market with the Maxim brand where we have commanded significant share progression throughout the year 2014 based on very specific price proposition as well as very significant equity build we have been to do in the 2014 year and again which we hope to continue in 2015. So in terms of mix development we are very focused on both premium end as well as on the economy end of the market.

[Alison Cooper:]

And I think…

[James Bushnell – Exane BNP Paribas:]

How do you see the market developing in terms of mix. So there is been a sort of a condensing of the market so premium has lost a bit of share, the low price have lost share, do you see that changing in anyway?

[Oliver Tant:]

Well, very different scenarios possible. There is up trading happening, there is also down trading happen in the Russian environment and with the current excise plans of the Russian government what we probably see is continued very significant price increases whereby price at the economy end have almost doubled in the last three years and as a result of that consumers will be looking for value and therefore will be trading down. At the same time when oil or gas in specific prices will increase we will see increased wealth which has an up trading elements for consumer. So it would be net-net most likely in our view be a dichotomy of the premium end actually growing, bottom end of the market actually growing and mid-tier pricing potentially being squeezed in the middle of year.

[Alison Cooper:]

In terms of your question on price competition there is undoubtedly price competition going on in different markets more aggressively in some than others, if I look around the world and once again [Pete] will talk about in the market like Australia, UK is being talked about Italy is other one, Turkey I suppose most recently as well in terms of the current repositioning and if I – I think there’s probably three reasons why we are seeing some of that activity in different markets, one explicit to Turkey and as well to Italy, potentially two other markets but explicit to Italy is much more around excise and looking to drive excise is driving a little bit of activity there at the moment. Other markets around individual company growth agendas. So they are looking at different markets and saying where do I see an opportunity to grow and if you want to grow in number of markets around the world the activity tends to be in the value segment and that’s where we see consistently, even longer term in Russia, I suspect, not only as you say the growth at the top and bottom end, it is as prices rise in market we tend to see down trading. That’s been the case in markets across the globe, it’s the usual dynamics. So that I think the growth agenda for various companies in the industry, but I also think there’s an affordability dynamic. I think you have to recognize in a number of markets affordability has been a key issue for consumers over the last couple of years. We have used fine cut as a tool to address affordability in a number of market to make sure the consumer don’t go into illicit trade but actually stay in the legal market and I think other people in the industry, maybe cigarette brands do is to take a similar approach as well but the affordability is still a key dynamic. But I anticipate as we start moving through the next couple of years, just as we anticipate maybe a slightly better volume environment to come at some point then those affordability pressures are going to start easing as well to some degree. So I think that’s something that should unwind to some degree over time. But those are probably the three key reasons. There is definitely a number of markets where as always there’s competition going on, that’s been I think specific in ‘14, but as you can see we still delivered a good price mix result despite that environment and a good overall result.

[Unidentified Analyst:]

Hello.

[Alison Cooper:]

Yeah.

[Unidentified Analyst:]

Hi, [inaudible] yes. I guess one short term and one longer term one. The short term is kind of about Davis question on pricing, you told volume in Q4 ticked up, so is that – should I take away from that you are exiting the year with improved volume performance or were there any one-offs in terms of loads and things that affected that? The longer term is really I guess a question on Returns markets. You mentioned [long and hard] in Results market were the trade-off between pricing investment, margin and cash generation. That’s seems to me to repeat the whole project. So how should we think about market share in Returns markets in principle are you prepared to let it drift gently as has this year or as you get the portfolio under control would the algorithm be sort of maintain market share but drive sort of cash and margin, that’s sort of philosophical question I am asking so?

[Alison Cooper:]

Yeah. Q4 improvement is really a reflection of the fact that we are seeing an improving market share trend at the back end of the year and that’s coming through in the overall performance in Q4. We are seeing quarter-on-quarter improvement particularly Q4. We have seen that pick up for the overall group share and also you can see clearly we’ve seen some of the market volume declines and maybe rate as well in the second half. On Returns markets what you are really highlighting is our definition of Returns market. Returns market are where we have a significant position, we have a significant share and we are looking and it’s quite a regular discussion and debate. You don’t necessary set a course and you stick to that for the next five years. These are competitive markets, there are lots of tactical things going on in these markets, but the objective is to at least hold share and to maximize returns. Now for a year or two in terms of the market environment, if that means [inaudible], shares slip a little bit, that’s an option we have given the overall margin dynamics what’s going on in the market. Clearly permanent share decline in any one of this markets is not the objective. So that’s what we are looking to do in terms of managing these markets. We already have substantial positions to really maximum those from a Returns perspective but a sustainable returns perspective not a one year view.

[Fulvio Cazzol – Goldman Sachs:]

Yes, hi, this is Fulvio from Goldman Sachs. Just three questions from me, can you elaborate a bit on the Cuban cigar issue that you highlighted for the second half. Could you also give an update on where we are with plain packaging in the UK? And then lastly bit of housekeeping, on the 4.9% interest cost projection for 2015, does that also include any assumed capital raising for – to execute the deals in the U.S.? Thank you.

[Alison Cooper:]

Okay. I’ll pick up on Cuba, you can pick up on UK plain packs and you can pick up on cost of debt. Cuba, it is a supply constraint because of a number of things that have happened through the overall August, over the last year or so and also we are seeing quite increased demand as well for Cuban products globally. So it something we’re actively managing. It’s something we have a very full plan now with the Cuban government to actually address and take forward and it’s working through basically. So I think it should be temporary. There is a chunk of work to be done here because we’re talking about and I recall the product that you need, it takes a little bit of lag through the supply chain to resolve it. So there is no real issues in terms of out of stocks at the trade end because people tend to carry reasonably high levels of stocks of these products but it clearly does inhibit our sales in the short term as we unblock those supply constraints. UK plain packs?

[Unidentified Company Representative:]

Extensively from the UK plain pack space not much has changed in a sense that the consultation closed in August. We are expecting a response and already and haven’t had one and the draft regulations have been notified to EU in September and there have been Ireland and UK between them have had a number of detailed opinions recorded which is basically objections from other member states in the EU which then prolongs the notification period to six months. So we’re in that six month period now which expires at the beginning of March and with an election sort of couple of months later. So that’s the broad….

[Oliver Tant:]

And on the interest point, the average interest cost in FY ‘14 was 4.9%. I mean obviously there is quite a lot going on around our interest charge we talked about an increased level of fixed interest as part of that overall interest book which is at least in the short term dealt with some awkward pressure on our overall interest cost but then the longer term as we say we expect it to be strongly beneficial. We’ve actually, not in the context of our new revolving credit facilities actually started to draw on those yet because our cash flow performance has been so strong that we’ve not required to eat into them. So we’re not getting the benefit if you like of the reduced interest charge and overall terms affording to them. We clearly have a much lower interest cost on the debt that we’ve raised in connection with our U.S. transaction than we had when we refined that before completion that we will continue to have a substantial improvements in the sort of average cost based on the inclusion of that debt in our overall book. We are going to give you more guidance on that when we come to talk about the U.S. transaction in more detail but as things currently stand we are at 4.9%. We’ve obviously got the advantage accruing of more and stronger positive cash flow which will also affect quantum of our interest cost moving forward.

[Alison Cooper:]

Adam?

[Adam Spielman – Citigroup:]

Hi, it’s Adam Spielman from Citi here. It’s traditional to ask three questions but I hope I can push it to four. First of all and most importantly Alison, can I pick with something you’ve just said. You said a couple of time affordability is a key issue but with GDP hopefully improving it should become less of a constraint. I guess is that saying that if GDP doesn’t improve, that actually getting pricing is now quite tough because affordability is key. So can you just expand on that because it does seem a bit of contradiction? Secondly, I think you said in Australia there’s 75% of purchases were above the floor level. I wonder if you could explain what that means. I don’t understand it. Getting on to the easier questions, cash conversion 90%, I assume that’s sustainable or have you sort of squeezed working capital a lot and it’s going to get back to normal. And finally you said in Russia and Morocco the market share trends had improved in the second half. I’m just wondering if you could give us your latest market shares in those two markets. I know you thought about whether we’re looking at stability going forward in those two important markets. Thank you.

[Alison Cooper:]

Okay, let’s start on the affordability point. I think affordability for me is more around what’s going on with the mix dynamic in lot of markets and therefore you’re linking it to the question that James asked around what’s going on competitively and we are seeing a degree of competition at the value end in some markets which is not around the fact that we don’t see the ability in number of our markets to take a price increase but then you have the mix dynamic that you need to manage in terms of the affordability piece with the consumer. So it’s much more of a mix management point for me then us having to shy away from our ability to increase price where we see an opportunity in a number of our markets. In Australia, the point about on the floor prices is really there is still an equity point for consumers in that market and therefore it’s not around just what is the cheapest brand, there is something around the brand that the consumers are buying and we work very closely with the trade there to get the advocacy from our customers around the JPS brand in particular in that market. So there is something around the equity with the brand still very much there and it’s not just about base price. So JPS doesn’t sit at the bottom part of the market as well as its 50% of that value segment but it’s not the floor of the market. On cash conversion.

[Oliver Tant:]

On the intention of maintaining it in the 90% range, I mean as far as I am concerned benchmark within the FMCG sector is between 90% and 100% and we will from an ambition perspective be very focused on being within that range. In answer to your question, Adam no we’ve not squeezed things unduly hard at the end of this year, in fact quite the contrary we’re putting in, as I mentioned earlier on processes that will enable us to sustain this type of performance on an ongoing basis. From my perspective it’s absolutely critical at the end of the day profits were only as good as the cash that they generate and whereas you can from time to time have one-off instances that might give rise to a reduced cash conversions sort of restructuring project, I mean actually a business over the short to medium term ought to be generating its profits and cash [out] should and will.

[Alison Cooper:]

And on the share point Russia was still around the 8% level, so it’s stable year-on-year Morocco was still in the mid-70s.

[Adam Spielman – Citigroup:]

Can I quickly come back, if coming back to your answer, so you said affordability is a key question and the reply was I think that you can still take pricing but mix is really what you mean by it. I suppose the implication from that is actually mix has been worse recently than it has been in the past or am I misreading that too.

[Alison Cooper:]

It’s interesting I find the focus on this quite fascinating at the moment because I think I said to you earlier we’ve just been through two years in the industry of the toughest environment that I can remember the industry in terms of the industry dynamics and for us managing mix in particular if I wind back, I don’t know 24 months or 18 months ago maybe, it was much more in focus than it is now and it continues to be a factor and the affordability phase in terms of mix in market is something that I say we actively look at and actively manage within our portfolio. But the reality is this has been a tough environment for a couple of years now if anything the volume situation looks like it’s hopefully going to get a bit better as we look forward, but also anticipate that if we really do see some of these economic indicators coming through there may be a lag but the affordability pressure will also ease as well overtime. So that’s really what I am looking at in terms of these dynamics. For us mix management has been front and center, I mean of our four sales growth drivers one of them is about portfolio and inherent in that is actually the mix piece in any market that we operate in.

[Adam Spielman – Citigroup:]

Thank you.

[Alison Cooper:]

Dave?

[David Hayes – Nomura:]

Hi, David Hayes from Nomura. Just picking up on that mix point, I guess for a moot point, or a moot question, but is there [inaudible] you and the industry is making are making the value brands to attractive, too high quality, too much innovation and therefore you are actually encouraging the dynamic and if you like that differentiation if you look back over the last five years between a premium offer and a value offer has narrowed too much and I guess to you, specifically how do you manage that? How do you make sure P&S and JPS has come in to the market isn’t too high quality or cannibalizing on that basis. And the second questions on the U.S. deal specifically I k now you can’t talk it about too much but obviously we are still waiting for the big decision from the regulator. If the regulator came back and said you need to share another 3%-4% share whatever it might be would Imperial step-up with equity or [inaudible] to do that, is that an option you would look at or would that mean from a finance perspective the deal with not be something that you want to issue at the point. Thank you very much.

[Alison Cooper:]

Okay, I think I’ll answer your first question around the other way if I look at consumers and the price of cigarettes in a number of markets, I think it’s important at the value end of the market that you are offering consumers something more than just the price point and here we are talking the value end of the market, we are not talking [inaudible] and prices in the market, yeah and therefore if you want to keep the consumer paying a decent level of money even at the value end you have got to build these equity cues into the brand and it’s not just a question of a price point. So, I think it’s a very important factor that we do make at the value end an equity proposition. Wheat we have been doing, the work we are doing with JPS in particular with the new equity work behind that, and Parker & Simpson and those brand, it’s really important you do get that proposition right. Otherwise the opportunity going forward in terms of increasing the price of the brands and everything else you haven’t got anything that does really go to the strength of legs to keep growing and keep moving forward. And inherent in that is the strategy around our Growth brands. We want strong brands, yes they maybe position us as a value proposition for consumer. That’s where the whole world is going but it needs the equity there to compete and to be able to hold price increases as we move forward as well.

[Unidentified Company Representative:]

As regards to the U.S. transaction we firmly believe that the FTC will approve on the basis of the existing propositions going forward and that’s the basis of all the advice that we had. To be honest therefore the funding of what might occur in a scenario where maybe that isn’t the case is slightly academic from our perspective and also to be honest with you there are considerable other uncertainties around what it would involve, what the price might be whether we’d be the buyer, what the shape of it would be to make any comment really on how we might fund something that we believe to be a relatively remote event.

[Alison Cooper:]

Chas?

[Chas Manso – Société Générale:]

Yeah, Chas Manso from Soc Gén. Yeah, coming back to this affordability issue given your portfolio skew [inaudible] mentioned that in – affordability would be a positive driver for Imperial versus its peers, but you are saying that market shares are per se flat. So does that mean that it has – you just put it the whole world is going to value, that’s you are not getting your fair share, that incremental share is going to your competitive. Maybe talk about the value strategy? And secondly is having said all that you just had a market shares picked up in Q4. Could you sort of go through the main areas, the main markets where you saw those market share improvements? And lastly on brand migration, when you are talking about the pilots in the last set of results you are talking about conversation of 100% plus. Could you update us what the conversation rate is on the more, on the newer migrations?

[Alison Cooper:]

Okay, I’ll pick-up on the affordability point, Oliver if you can just give a little bit of color on the Q4 share and please John, talk briefly about the migration piece of conversion. The points around our position in the terms of the value segment I think everyone’s got a strong position in the value segment, if I look globally and you are seeing JCI in terms of Winston’s strongly positioned in the value segment. As you know that scenario we studied in some detail around it’s likely ongoing success in the U.S. and then also we are seeing calendar reposition done to the value segment quite significantly in some markets recently. Lot of the drivers we have seen with the rest of the competitive tends to be in the value segment as well or price discount reversions of more high price brands as well. So everyone is playing in the value segment. I don’t see us as having any particular advantage. I think it’s very important for us though in a number of markets to make sure that we are positioning ourselves correctly in that segment and making sure we are profitably growing in terms of that positioning in the value segment and not looking to do anything that would aggressively grow our share but in a way that isn’t good for our profitability going forward. Q4 market share?

[Oliver Tant:]

Yes, in terms of market shares, we have clearly as we have been talking about with you on several occasions a very significant focus on improving market share in general and the role of the Returns marks as we just discussed is very much to deliver operating profit growth whilst – and the goal is actually maintain market share. We have made significant improvements in that and throughout the year with momentum more gearing towards later end of the year, quarter three and quarter four and also related to pricing and price leadership in various countries having been stabilized and getting into an environment like in Germany for example where we see a very positive momentum happening in that quarter three, quarter four, like in UK for example where we have launched L&B Blue and with L&B Blue have reclaimed 10% market share for the L&B brand which we haven’t had for several years are two very prime examples of that in the Returns markets. Likewise in Growth markets where we are actively looking to grow share and profitable growth with that market share growth, seeing very positive momentum happening both in Iraq, overall in the Middle East, specifically Saudi as well in Taiwan, various African markets. We have had good improvement happening in market share in that quarter four. So overall, reasonably pleased with the momentum that we are having on market share both in Returns as well as in Growth markets.

[Unidentified Company Representative:]

So on migrations, so far so good. So we are doing very well. Every migration is based on specific business case and we typically expect 90%, to retain 90% to 100% of consumers. Now obviously when you migrate there is always a chance of a short term dip but longer term you are much better off because first of all you get economies of scale. I mean obviously to make an advertising campaign for 50 markets is more efficient than to make it for one specific brand and one specific country. We are moving consumers to stronger equities and so JPS is a much stronger brand than some of the brands that we are starting from. And we also have much better speed to market right, again rather than making 50 adverts you just make one and then we can roll out our initiatives much faster. And so that’s what behind our migrations also in the coming years.

[Alison Cooper:]

Okay, thank you. So it would not be a question of affordability, David, it’s [inaudible].

[Unidentified Analyst:]

I’ll try not to beat Adam on number of questions by doing [it myself]. The – so the first one just a quick clarity I guess 3 billion stick impact in Iraq. Obviously Iraq was big focus on stock optimization. Is the 3 billion stick for the stock optimization?

[Alison Cooper:]

Yes.

[Unidentified Analyst:]

Okay, and then the second one, is just on investment that you mentioned earlier more than $85 million targeted sales, for the next year and you obviously have done more than $60 million, I’ll say $65 million for argument’s sake this year. I just want to know the delta on the investment, was it in ‘14 is that delta is big on the $85 million in 2015 or is the delta smaller, or do you have to support more migrations so the delta’s high showing a quantum of that change? Thanks very much.

[Alison Cooper:]

Oliver will answer that question?

[Oliver Tant:]

I think as we look forward, I mean we clearly the answer is we do have investment brought in to our plans, but having said that we are treading carefully with the migration activity and I think Alison has made it clear that, that we will measure the pace of that based upon some of the experience we have through the year. So to be honest with you, at risk of not wanting to be too explicit about it because it is clearly one of the levers that we may choose to pull if we want to slow down [inaudible] pricing because it’s better slowed for effectiveness or other factors will influence the way in which we want to develop our in-market presence. So the answer is it will exceed but our quantum will probably depend on our experience as we move through FY ‘15. In relation to FY ‘14, I mean you will see in overall terms that actually we have done in terms of cost management and that’s comes through in some of our numbers and we have in terms of investment we will broadly maintain their investment levels through the period as far as the NPL element is concerned but it’s not the only element, there are other elements across the P&L account we are critical to supporting our brands and markets in the country performance where there has been significant activity.

[Alison Cooper:]

Okay, thank you everybody. Have a good day.