Ferrari N.V.
Q2 2016 Earnings Call Transcript

Published: 2 Aug 2016

[Operator:]

Good day and welcome to the Ferrari NV 2016 Second Quarter Results Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Ms. Nicoletta Russo, Head of Investor Relations. Please go ahead.

[Nicoletta Russo:]

Thank you, Ally [ph], and good day to everyone on the call. There are one topic that we plan to cover today, the Group's second quarter and first half 2016 financial results. In light of this, the call is expected to last around 45 minutes. All relevant materials are available on the Ferrari Investor Relations website. Today's call will be hosted by the Group's Chairman and CEO, Sergio Marchionne, and Mr. Alessandro Gili, Group's Chief Financial Officer. At the end of the presentation, they will be available to answer your questions. 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 second quarter 2016 results presentation, and the call will be governed by this language. With that, I'd like to turn the call over to Mr. Marchionne.

[Sergio Marchionne:]

Thank you very much. I'm going to be doing the least amount of lifting on this call today. I'll get Alessandro to take you through the numbers. I'd just like to make three points before we start. The first one - and then obviously we'll take questions at the end. The first one is, as the headline says, it is a record quarter. I think we're quite satisfied with the progress that we're making with Ferrari. I think we're totally in line with the forecast that we have for this business going forward. We continue to focus on a couple of objectives. One, obviously, is producing - getting to about a billion worth of EBITDA as quickly as we can and obviously to reducing our debt levels as quickly as we can. I have no negative news to give you about the quarter itself in the sense that I think that the order books are quite strong. They continue to reflect the strength of the brand but more importantly, I think the strength of the product offering that we have in the marketplace. And so the indications that we've given for 2016 are minimum conditions that we think we can get to. We'll see at the end of the third quarter how far it will take us. The third quarter is a bit of an anomalous quarter because of the fact that we have the summer shutdown, although there'll be obviously a number of products that will be hitting our dealers and they ship out of here during that period of time. But more importantly for us is the trajectory that the company is on, consistent with all the forecasts that we've given you in the past and I think that we're looking forward to a phenomenal 2016. The other thing and one of the things that has come up from our discussions in the past has been what happens technically, technologically now for Ferrari going forward? We spent some pretty intense periods of time here over the last 90 days to try and delineate the future of Ferrari from a product standpoint. I think we have made great progress in terms of getting our thinking straight about both engine development, the impact of hybrid technology on these cars, the way in which we will be presenting them in terms of architectural choices going forward. This is a - it's ongoing work. It will be the single, largest challenge that we have on the GT side of the house, and it's something that we'll hopefully be able to talk about at least in terms of concept within 2017 as we celebrate the 70th anniversary of the house. And we would expect there will be some product that will come out of that process somewhere between 2018 and 2019. But I think the important thing is that the next phase of development of the house is under development, which all indications are that we will continue - we will be able to continue this process of technological innovation, which has been at the heart of our house here since it was founded some 69 years ago. I cannot avoid talking about Formula One. I think it's an issue that has certainly been at - from a journalistic standpoint it's been front and center. It's a matter of phenomenal attention from both our fans and I guess internally with inside Ferrari. If I told you that I was happy with the development of the Scuderia over the last few months, and certainly in terms of the 2016 season development, I would be lying. I think there were a number of changes that were made, some [indiscernible] senior leadership changes that were made last week. We have made some more in terms of the organizational structure on all the Scuderia over the weekend. I think we're in the process now reconstituting the technical team to drive both the completion of the 2016 car and to drive the development of the 2017 vehicle, which as you well know reflects the change in the rules and the regulations that govern the sport. I am - regardless of the amount of work that needs to go on now in terms of sort of realigning processes and flattening the organization which is consistent with the management style that I've sort of embraced for a number of years now. I think I can only give you the comfort of telling you that I think we are, as one would expect, we are the repository of a huge amount of talent inside this house. I've found and I've been speaking to a lot of people both from the technical side of GT and from the Formula One, I've found phenomenal talent inside the house. I think it is important for us to leverage that know-how, to leverage that talent pool and that's what we're doing. I think that a lot of the aspersions that you see in the press about the quality of our leaders are misplaced. I think the fact that we were in need of a transfusion of intelligence, of technical intelligence from the outside is completely overdone. I think we have made a decision to develop our both the 2016 and the 2017 car based on our own skills and our talent from the inside. I think we have sufficient depth to accomplish that task. And I think I look forward to a more successful last portion of the season in 2016 and certainly a basis on which the 2017 car can start its life in the early part of next year on a much stronger basis than it has today. On that note, I would like to pass it to Alessandro. He will take you through the details. Obviously, we'll be able to answer questions as we go.

[Alessandro Gili:]

Thank you, Mr. Marchionne. Good afternoon, everyone, and thank you for listening in on the call. Moving on page three. Our shipments grew to 2,214 units, showing an increase of 8% or 155 units, led by the solid performance of the new models, the F88 GBT, F88 Spider and the F12 Tour de France, partially offset by LaFerrari that finished its limited series run. World net revenues reached €811 million, up 5.9% or 6.2% at constant currency. Adjusted EBIT reached €156 million with a margin increase of 310 basis points. Our net profit for the group adjusted for the charges related to the Takata airbag inflator recalls was up 35% to €104 million. This is a record quarter in these [indiscernible] Ferrari. Finally, at the end of June 2016 our net industrial debt was €763 million, better than March 2016. On July 5, Ferrari unveiled the first images of the open-top LaFerrari, the new limited edition special series whose details will be provided at the Paris International Motor Show later this year. On July 7, Ferrari with Luxottica Group announced the signing of a sponsorship agreement for the Raven brand to appear on our Formula One cars. And we are confirming our full year guidance as follows

[Unidentified Company Representative:]

None. I think we'll just take questions.

[Operator:]

Thanks, gentlemen. [Operator Instructions] Our first telephone question comes today from John Murphy of Bank of America Merrill Lynch. Please go ahead. Your line is open.

[John Murphy:]

Good morning, guys. Just a first question on the LaFerrari open-toppers. By their - I'm just curious if you can give us a gauge on timing of launch and possibly the vying targets or limits, if you will?

[Sergio Marchionne:]

First production second half of this year completion in 2017.

[John Murphy:]

And volume?

[Sergio Marchionne:]

I'm sorry.

[John Murphy:]

Okay. Can't blame me for trying. And just also curious on the order backlog given all the unrest and volatility we've seen in the world in Europe and some of the things that's actually happening here in the U.S. if anything has changed in your order backlog as far as units or mix?

[Sergio Marchionne:]

Absolutely nothing. It's been a non-event. Even the BREXIT issue which we watched very, very carefully has not caused a dent in our, in our numbers. Now, you know we're going to have to watch until this thing fades out completely, but based on what we know today, there is certainly no significant deterioration. Actually, there's no deterioration in the order book and there's been no increase in cancellation of orders, there's been no distortion in demand. Look, we're certainly part of our duty here as we update you quarterly on these numbers is to give you indications of softening of conditions. We don't see any.

[John Murphy:]

Okay.

[Sergio Marchionne:]

It reflects - I hate to sound like an old lady that keeps repeating herself, but it reflects the strength of the brand. I mean it's just not - it hasn't been the fact that we saw this back in the 2008 and 2009 crisis, the fact that as long as we're not really severely damaged even though there was the rest of the so-called auto industry had gone through upheavals, this business had weathered the storm quite well. So let's see it.

[John Murphy:]

Okay. And then on personalization in the quarter, obviously that was a positive. I was just curious if you can give us the percentage up ticking in pricing? I know you guys have talked about that in the past. Just curious what the penetration and uptick on price was from personalization in the quarter? And where you see that going?

[Sergio Marchionne:]

I don't know whether Alessandro is going to tell you that. But I'm going to leave it there.

[Alessandro Gili:]

Yeah. I think we've provided in the past it's higher than 16% in contribution to our top-line revenues.

[John Murphy:]

Okay. And then just lastly, Sergio, you mentioned something about hybrid technology a little bit more clearly than you have in the past being a little bit more mainstreaming in your product lineup. Is that the kind of technology you believe we're going to be seeing in the powertrain sometime in 2018, 2019 and 2020 for the broader product portfolio for Ferrari?

[Sergio Marchionne:]

Absolutely. I don't think it's avoidable. And I think that we're - we might as well make it truly Ferrari. And that's the whole objective here is to make it so unique that it cannot be - it cannot be emulated, regardless of what you hear from Elon Musk, whom I love dearly as a friend. But I think Ferrari needs to put its thumbprint on that technology, and that's what it's doing. So stay tuned.

[John Murphy:]

Great. Thank you very much.

[Operator:]

Thank you. Our next telephone question today comes from Martino De Ambroggi from Equita. Please go ahead. Your line is open.

[Martino Ambroggi:]

Yeah. Good afternoon. Thank you. Two questions on the guidance. First, actually on the adjusted EBIT bridge for the second quarter, there is a viable defined as other, representing €14 million of improvement in the quarter. You are specifying now the composition of these variable. But should we expect similar trends going forward for this item? And if it's possible to elaborate a little bit more first? Second, R&D capitalization, the balance is a portion of the €11 million in outdoor costs and R&D. And the third is on the full year guidance because assuming the floor of your EBITDA guidance. Basically, the improvement is $50 million. If I remember correctly, $50 million is also the FOREX effect you have for the full year which is essentially recorded in the second half. Am I right?

[Alessandro Gili:]

Let's start with the last one. Yes, you are, you're correct on the $50 million. We've provided in the path, so I think moving in the guidance [indiscernible].

[Martino Ambroggi:]

But if, mainly. It mainly, or bodily in the second half.

[Alessandro Gili:]

It basically, is totally in the second half. You've seen that the combination of the Q1 and Q2 is a flat number.

[Martino Ambroggi:]

Okay.

[Sergio Marchionne:]

On other, I think we are including all the other businesses technically, so sponsorship commercial and brand just to give you some flavor. Obviously, brand revenues are growing. And obviously that's contribution there in terms of prohibitability since we are operating with some new stores. Sponsorship is growing higher than last year. We have some new sponsors and indeed always exclude for the quarter the new sponsorship agreement with the Raban which is going to be in Q3 and Q4 obviously. And the other positive impact is obviously related to our engines and that are ranked to the other Formula One teams. And partially to other activities very small this quarter. And as well, we have some contribution from, for our financial services activities. So the all contribution from all the other activities of the quarter. And just to finish off the discussion of the engine rental business. After months of diatribe and discussion within the F1 strategy commission, we've sort of now agreed that the three major houses, perhaps four if Honda joins the group, will be the main providers of engine solutions to the grid. And so, the future of that business is relatively guaranteed quantums that come down throws the rental charges for the engines. But, so I think you will stabilize this sort of pre-opportunistic approach that people have taken in terms of providing engine solutions. So I, it's going to become a stable part of the business going forward because the commitment to provide engines to the rest of the grid is actually pretty shared amongst the engine manufacturers.

[Alessandro Gili:]

And on your last question beyond the D&A, actual industrial costs, and R&D are improving because of the D&A impact which is lower this quarter than last year. I think we've commented multiple times that we did 458 phase out and LaFerrari in particular phasing out. Now we are facing a D&A which is lower than Q2 2015.

[Martino Ambroggi:]

So this is not strictly related to R&D capitalized?

[Alessandro Gili:]

No. No. Technically not.

[Martino Ambroggi:]

Okay. Thank you.

[Operator:]

Thank you. Our next question today comes from Monica Bostio [ph] of Banca IMI [ph]. Please go ahead. Your line is open.

[Unidentified Analyst:]

Yes. Good afternoon, everyone. I would have a few questions and the first one is, if you can, can you comment a little bit more on the American performance which was flat? Is it because of the phase out of the limited edition F60 America? Or maybe that's something else because I was quite surprised about the American performance on one side, and I was particularly positively surprised about the Greater China. So I was wondering if you can comment a little bit more also on the back of the new Annual Wealth Report from Capgemini which reported a higher wealth from Asia Pacific than America? It's the first time that I've seen this figure since the last 10 years. And second question is on customization. If I have understood well, customization and personalization are now above 16% top line. Is it the target for the full year? Or maybe for the full year it could be higher? And in the long term my estimates account the 20%, but as things are I believe that maybe there is room for a 25%. Am I right? And last, the last question is on the recall on Takata airbags. Do you - just a check - do you have accounted all the expected recall costs in second quarter? Thank you very much.

[Sergio Marchionne:]

Let me try and deal with the - some of your questions and I'll leave Alessandro to answer the more technical thing about whether we are talking CapEx and R&D stuff. The recall issue, obviously we have booked everything we know that needs to be recalled. I think that the notes have been relatively clear about the purpose for the recall. This is a relatively large issue for the wider auto industry. You saw the BMW numbers come out and they booked a provision today. SCA booked one last week and it is a process which is unfolding. I think the provision that we have taken reflects what we know needs to be repaired, and I think we'll take it from here. But I'm not aware of any additional charges that need to be taken at this point in time. In terms of your comments about this high net worth population shifting from the rest of the world or the Americas onto APAC, I think it was an expected transition. I'd just remind you the wider population of people that are out there, we only sell 8,000 cars a year. And so our ability - our penetration rate into that population is minuscule compared to the size of the population itself. It's only encouraging to us in terms of the potential reach of this brand and how quickly it could grow to try and cover this growing population of people who have the means to be able to afford our products. Your comments about North America, I'm not surprised that North America has flat lined or not moved substantially year over year. It's really a question of product flow. Alessandro talked about the fact that the FF has come out and we're going to produce the GTC4Lusso beginning in the second semester you will see numbers restore. There was certainly an expectation that the FF could come out of service within 2016, and that's impacted numbers. The F12 is, Alessandro mentioned, year was light. So these are not surprising developments. I would read nothing into it. As a matter of fact I can only confirm the strength of the order book in the Americas simply based on the value of the 488 both the convertible and the hardtop. So I - and you see in American numbers come out of the U.S. this morning, although most of the majors were down, the market continues to show a significant strength. I'm not worried at all.

[Unidentified Analyst:]

Okay. Thank you very much.

[Operator:]

Thank you. We'll move to our next question today. This comes from Thomas Besson of Kepler. Please go ahead. Your line is open.

[Thomas Besson:]

Thank you very much. It's Thomas Besson of Kepler Cheuvreux. I have three quick questions please. The first one, I'd like to check with you that the CapEx figure for the second quarter was only €32 million versus approximately €61 million for depreciation. Is that correct?

[Alessandro Gili:]

You're talking about the gross CapEx for the quarter was actually €90 million.

[Thomas Besson:]

Okay. Thank you. Can I check with you as well that the long-term goal is still 9.2 amongst vehicles? Or you think that there is potentially rumor at one point to go beyond that?

[Sergio Marchionne:]

I think we'll stick to the forecast that we gave you in the past. There's no momentous change. I think we need to grow the brand in total consistent parallel fashion with the growth of the market. That's not aspired to be something that we have never been. We just won't. But I think - I go back to what Monica mentioned earlier in her remarks. The potentially available population of customers to Ferrari is a growing population. And it's global and I think that we have the global footprint in terms of distribution to service that customer base. And I think that's important for us to go forward. I think it's a key element in the development of our portfolio. I think we need to be able to tweak these positive element market conditions and I think that we have done a number of things here, and you will see hopefully and as we keep on revealing these products, that we have understood that requirement. And I think you'll see numbers growing accordingly. Well. Somebody asked me the question on this thing and the consistent question is what are we doing on pricing? And I think the right - the short answer is that we're doing everything we can and we have started moving price on some of our vehicles now, and we have done it in an intelligent way to make sure that we give advanced warning to our customers. So it'll take some time to work its way through but the pricing actions are in place and we'll continue to take them as we see opportunity arise.

[Thomas Besson:]

Okay. Thank you very much.

[Operator:]

Thank you. We'll now take our next question today. This comes from Ryan Brinkman of JPMorgan. Please go ahead. Your line is open.

[Ryan Brinkman:]

Thank you. Good morning. Looking at SG&A in 2Q it was flat, but you discussed some moving pieces in the footnotes there on page seven

[Sergio Marchionne:]

As an absolute number you want to see the leverage as a percentage of total revenue UL. So it will take some time as we go to the banks. But look, I mean this is not a high spending environment, to be honest. I'm still using chairs from 1952 in my office. It's not as if we're treating our customers much better than we're treating ourselves, to be honest.

[Ryan Brinkman:]

Great. Thank you. And then just a last question. Cadence of engine volume how might that progress throughout the year as Levante is launching? Thanks.

[Sergio Marchionne:]

Well, look we've had to put out an additional shift to try and deal with the demand. So the indications for the Levante are quite good from when I spoke to the other side of myself, and I checked year to book on the Levante. The Levante autobook was quite strong. I think we're waiting for U.S. introduction to happen in third quarter of this year so I think it'll be fine. And I think...

[Ryan Brinkman:]

Thank you.

[Sergio Marchionne:]

To the extent that we've added on the third here it's because our factories see this as being a permanent condition.

[Ryan Brinkman:]

Good.

[Operator:]

Thank you. We'll now move to our next question. This comes from Massimo Vecchio of Mediobanca. Please go ahead. Your line is open.

[Massimo Vecchio:]

Good afternoon, everybody. My first question is a follow-up on Brexit. The fact that Aston Martin and McLaren are U.K. based, do you see definition in terms of pricing for your segment? Or this is your customer base is such that it's not a problem for you?

[Sergio Marchionne:]

Not.

[Massimo Vecchio:]

Okay. Second question is on the guidance. Can you share with us a little bit of granularity, how much conservatism is in the guidance? And how much is probably a more global risk raising worldwide? Or any other factor which we are not seeing?

[Sergio Marchionne:]

Mr. Vecchio, I've already gone beyond my normal level of conservatism. I told you that we consider these to be minimum points. If I had a better view, I would have given it to you. Just wait until the year unfolds.

[Massimo Vecchio:]

Okay. Got it. Last question, tax cash out, how can we expect the total number in 2016? And the timing of that, because this is a bit confusing?

[Alessandro Gili:]

You need to consider that in the second half I think we've commented it in the past, we will have the second advance on taxes as well as the payment of the balance of 2015 taxes. Therefore the free cash flow generation is going to be in line with the guidance that we provided of the net industrial debt. And the second half obviously will have positive contribution of free cash flow.

[Sergio Marchionne:]

Alessandro has beaten this horse dead into the ground over and over again over the calls. 2016 is an anomalous year. It's a catch up of 2015 and a clean out of 2016. Once we go through this year, then I think we'll get into a regular cycle and you won't have a problem understanding our cash flow. But it is a transition year.

[Massimo Vecchio:]

All right. It'll be entirely in the third quarter? Or you are able to split income way also in the fourth?

[Sergio Marchionne:]

The payment of taxes will be mostly fourth quarter.

[Massimo Vecchio:]

Fourth quarter. All right. Thank you very much.

[Operator:]

Thank you. We'll now move to our next question. This comes from George Galliers of Evercore. Please go ahead. Your line is open.

[George Galliers:]

Hi, and good afternoon. My question was with regards to special models. Clearly in the wake of the LaFerrari Open and I think also in Venice those attending were shown a plan for another 350 special models around the 70th anniversary. Do you see any saturation point with regards to special models? Or do you think the strength of the Ferrari brand is so much that for example you could produce and sell 1,000 every year without any kind of saturation of the market then.

[Sergio Marchionne:]

I think a thousand every year is an absolute exaggeration. I think it's actually is contrary notion of a special series. I can only tell you that if I to sort of appease all the customers who have written to me on both the LaFerrari and the open edition of the Ferrari, the one that's going to be unveiled in the fall auto show that I think you would be, we will be well above the numbers that we've talked about as being a limited edition. I have noticed certainly in terms of the approach that we have taken, we have noticed no level of saturation or discomfort with the numbers that we've pointed out. I'm still, we still - and the cars are completely sold out and they were sold out on an unseen basis by the customers. I mean I don't know how to describe this to you. These are the cars that are selling just on the including and the fact that they exist and so I certainly do not want to change the dynamic to the extent that I keep on going back and I'm making Monica [ph] saying to the extent that we go back to this high net worth individual discussion. I mean obviously that's, you know we will tater and cater the population to reflect the population. Well, one of the things we cannot do is change the uniqueness of those products and the scarcity associated with them and I - you know for those of you that are interested, it was an interesting, again, I'm the wrong guy to talk about this, but I was fascinated by the Edimis Barkin bank and it was an interesting article that showed up, I think it was a couple of weeks ago on the economics of the bank and it taught me once those things happen, one they're very difficult to replicate and secondly you have to be very, very faithful to the principles that govern distribution so you cannot fall, you just cannot fall in love with the motion of making more money off a limited run. It will kill you in the long term and we're never going to change that dynamic.

[George Galliers:]

And related to this, I've just given the huge excess demand. When you come to price these cars, how do you think about that? Do you look to maximize profit? Do you look to respect your customers and what you think is an appropriate level? Or do you have entire no gross margin target that you apply versus the actual cost to build them?

[Sergio Marchionne:]

A combination of all those things.

[George Galliers:]

Okay. And then finally with regards to the Corta, in the revenue bridge you reported €40 million improvement and you mentioned specifically with regards to championship ranking in Formula One, can you just clarify which season that relates to? And in terms of from a cash perspective, what is the seasonality with respect to payments from Formula One which you received both television and also for a championship position?

[Sergio Marchionne:]

Well there's no television, so it's 2015. The revenue that was recorded in 2016, I have to rely on Alessandro to tell you the timing. I don't know what the timing is.

[Alessandro Gili:]

Yeah. The timing is pretty straightforward distributed to all the quarters.

[Sergio Marchionne:]

It's the...

[Alessandro Gili:]

No particular timing, seasonality.

[Sergio Marchionne:]

So it's quarterly distribution evenly split over the quarters.

[Alessandro Gili:]

Yeah.

[Sergio Marchionne:]

So just to make your life here - create some more honest in your life, we need to rank second after comp dislocation in that revenue stream for 2017. So we're working our butts off to make sure that that happens. So as soon as we hang up, I can go fix that problem.

[George Galliers:]

Great. Well good luck with that. Thanks.

[Operator:]

Thank you. Well now move to our next question. This is from Adam Jonas of Morgan Stanley. Please go ahead. Your line is open.

[Unidentified Analyst:]

Good afternoon. This is Neil Mehta [ph] on for Adam Jonas. Can you explain to us the historical rationale behind the typical five-year product cycle for your non-limited edition models? Sergio, Alessandro, both of you have noted on the last couple of calls that certain models, namely the F12 Berlinetta have had a harder time competing in the marketplace late in their cycle and they're in their fifth year of commercialization. So aside from just introducing special edition versions, like the F12tdf, how feasible or unfeasible is it to accelerate a model's product cycle when the - there are signs out there that the order book may be thinning out? Thanks.

[Sergio Marchionne:]

But are you operating as Adam?

[Unidentified Analyst:]

I am. I am. He's actually in Spain right now so I'm filling in for him.

[Sergio Marchionne:]

Well just send Adam my compliments on his travel schedule.

[Unidentified Analyst:]

I definitely will. Yeah.

[Sergio Marchionne:]

Just to answer your question, I don't think the F12 - I think you need to be very careful about why the order book is thinning out. The only reason why - there's a tradition in the sales to rejuvenate the product portfolio over a cycle. And if people know there's a new F12 coming in some form, they will obviously wait. And that's why the book thins out. It's not something endemic to the car. And as a matter of fact we have seen - over the last 90 days we have seen an improvement in the order intake on F12s, notwithstanding the fact that over some period of time we will replacing that car and that's not far off, the replacement cycle. But the market knows and our customer base and people that deal with our products know that eventually these products will be rejuvenated. And when that happens, they'll buy the new one. But I - and by the way in terms of coming up with the tdf, the Tour de France is indicative of the expression of the highest level of technology at the end of the series. We've done this with the 599 Judeo. We've done it now with the F12tdf. So get used to this. We will continue to do this because it allows us to experiment with technology in a limited series. A lot of the technology ended up being mainstay in the GTC4Lusso. So that's how we run this business, so get used to it.

[Unidentified Analyst:]

All right. Thank you.

[Sergio Marchionne:]

And you'll see it again with the 488 when it comes and at the end of the cycle.

[Operator:]

Thank you very much.

[Sergio Marchionne:]

Anything else I can do for you, whoever you are?

[Unidentified Analyst:]

No. Thank you. That's good.

[Operator:]

Thank you. As there are now no further questions in the queue, I would like to hand the call back to Ms. Nicoletta Russo for any additional of closing remarks.

[Nicoletta Russo:]

Thank you, everyone, for joining us in today's conference call. The IR team is now available for any follow-up you may have. And I wish you a lovely day. Bye-bye.

[Operator:]

That will now conclude today's conference call Thank you for your participation, ladies and gentlemen. You may now disconnect.