Edited Transcript of RWC.AX earnings conference call or presentation 23-Feb-20 10:00pm GMT

Flipping to Page 7. With improved operating performance and cash flow in the half, we have declared a dividend of $0.045. This is an increase of 12.5% over the prior period. Gerry will detail later the drivers of this cash improvement.

Now on to Page 8. This is an important slide, where we set out the story of the half. As I indicated earlier, revenue performance dictated the results for the half. In the Americas, we were comping over a strong prior period and the phasing of promotional activities across halves. We also had the first full period of a wholesale customer moving to private label versions of some of our products. Nonetheless, looking through these factors, we achieved like-for-like sales growth of over 4%, which we believe is indicative of the underlying performance of the business and certainly ahead of market growth.

Asia Pacific and EMEA presented very challenging markets during the half. Importantly, in our Australia and U.K. core plumbing and heating segments, we achieved growth well ahead of market. In the Americas, and in fact, globally, we did not meet our targets for new products with sales ramping up, but more slowly than we expected. With volumes lower than planned, we moved to actively manage our inventories across the globe. While this negatively impacted earnings through lower recoveries, which can be seen in the margin rate in Australia and the U.S., it was the right decision to make and contributed to the improved cash result.

On the COGS side, we had a favorable move in copper cost as well as solid delivery from our continuous improvement and procurement programs. As mentioned, John Guest U.K. performed very well, driving up their EBITDA margin by 150 basis points. We also announced and are now executing a project to consolidate manufacturing sites in the U.S.A. The NPAT for the half was impacted by several tax-related adjustments, which Gerry will detail later.

On Page 9, we consider some of the macro factors that play during the half. The primary drivers of the Americas revenue I noted earlier. Nonetheless, we did see a softer market at the start of the year, as presented at our Investor Day, it was still a growth market, but certainly more subdued than the prior period. And we saw other industry players in the U.S. relatively flat through the middle of the year. Despite this, we did achieve good growth in our retail and hardware channels across the U.S.A. and in Canada.

In Asia Pacific, the main issue was Australian new construction. The total starts were down in excess of 20%, with multifamily, which is our focus, off even more. Notwithstanding this, our team delivered a result that was marginally up against the prior period. This was achieved through some customer and product-specific activities that effectively drove share gain.

Conditions in the U.K. were tough. The overall market was well down, our core plumbing and heating business, which is weighted towards repair and maintenance performed well. Our other product areas in the U.K., which are more new construction or discretionary purchases, were softer than we originally expected. Europe also presented a very challenging market during the half. And our FluidTech business on — in Continental Europe was down on the prior period.

At the FY ’19 full year presentation, we set out our priorities for the coming year. I think it’s appropriate to review our progress against these priorities, and we do it here on Page 10 and 11. We’ve already spoken to the points on Page 10 and are making progress in each area, but certainly have more work to do, and they will remain a focus going forward.

Jumping to Page 11. We continue to actively manage capital expenditure with appropriate adjustments to project timing. During this year, a sizable amount of CapEx is dedicated to our U.K. ERP implementation. This project is progressing as planned. New products have always been an important contributor to the RWC business, and that will continue to be the case going forward. During the period, some of our newer products, while growing, ramped up at a lower rate than anticipated.

On an ongoing basis, we review our product development and commercialization progress and adjust as necessary. We will recalibrate to focus our existing resources on products and product extensions, where we have established brands, credibility with end users and strong channel access. Where one or more of these is lacking, we will look more at partnering, co-development or acquisition in order to balance the risk and the time and cost required to yield and commercialize the new products and solutions.

In terms of external factors, we believe we have our arms around U.S. tariffs and Brexit logistical impacts. Of course, we now also have a coronavirus to consider. I will speak more to Brexit and the COVID-19 virus later.

So with that, I’ll pass to Gerry to go over financials.

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [3]

——————————————————————————–

Thank you, Heath, and good morning, everyone. I’ll begin on Page 13 of the presentation. And before I dive in, please note that the comparative EBITDA figures for the first half of FY ’19 have all been restated here for the impact of the new accounting standard, AASB 16 on the treatment of leases.

At the group level, we reported net sales of $569.3 million for the half, which were up 4.6% on the prior comparative period. On a constant currency basis, net sales were up 0.4%. Results across the regional segments varied, and I’ll discuss each region’s performance separately later in the presentation. Reported EBITDA for the period was $126.3 million, down 1.8% on the prior year after adjusting the first half FY ’19 result for the impact of the new lease accounting standard. Further adjusting reported EBITDA from the first half FY ’19 for the costs related to the John Guest acquisition, EBITDA this period was 8.1% lower.

Margins benefited from the impact of lower copper cost in the form of brass bar as well as continuous improvement savings and incremental John Guest synergies delivered in the half. Offsetting these benefits were the negative impact of lower manufactured volumes as we work to maintain appropriate inventory levels in the face of lower market demand. Also negatively impacting margins were the planned higher SG&A investment and the absence of other income items in the prior year, primarily related to a U.S. insurance settlement.

At the EBITDA level, movement in foreign exchange rates also had a slightly negative impact. While translational FX certainly had a positive impact, it was offset by the negative impact of purchases between Australia and China and the negative year-over-year impact of the translated value of certain working capital balances.

Turning to the net profit after tax. Reported NPAT for the period was $50.1 million down 22% versus the prior period. Adjusted NPAT was $63.7 million, down 21% versus the prior period adjusted NPAT. NPAT this half was adjusted to reflect 2 tax items. The first is $7.9 million related to the amortization of certain intangibles for taxation purposes under long-standing U.S. tax rules that are not amortized for accounting purposes. And the second is a onetime additional net tax expense of $5.7 million relating to the reassessment of certain tax items from prior years.

On to Page 14 and cash flow, which was a standout result this period. Cash flow from operations, that is before taxation, capital expenditure and financing, was $132.8 million ahead of the prior year by 91%. This result reflects the change in reported EBITDA as well as a significant improvement in working capital requirements during the period. Pleasingly, cash flow conversion improved to over 100% in the period, up from 58% in the first half last year. While this result certainly reflects improved credit management and tight control of inventory levels, it also reflects the absence of 2 onetime items in the prior comparative period, one that had impacted receivables and the other that impacted payables.

While not factored into the operating cash flow conversion ratio, capital expenditure was also down this year from the first half FY ’19 from $35.5 million to $25.4 million. The prior period included $8.3 million spent on the repair of the roof at the Alabama manufacturing facility as a result of hail damage. The total capital expenditure of 4.5% of sales is comfortably within the targeted range of 4% to 6% of sales. It includes $11.7 million of growth capital; $6.3 million incurred on maintenance expenditure; and $7.4 million spent on long-term IT projects, primarily the replacement of the ERP system in the U.K.

Let’s move on then to Page 15 to review the balance sheet. The balance sheet at 31 December 2019 continued to be in a strong position. Our net debt declined over $30 million from 30 June 2019, which reflects the strong cash generation, proactive working capital management and disciplined CapEx allocation. As a result, leverage also decreased. The net debt-to-EBITDA ratio at 31 December was 1.57x, down from 1.67x at 30 June. Importantly, cash on hand also declined by almost $45 million as we used excess cash to pay down debt and reduce external interest costs. Overall, we believe that we have a strong balance sheet and the available liquidity to support the continued growth of the business.

I’ll now talk about — a bit more about the performance in each segment. So let’s turn to the Americas segment first on Page 17. The Americas segment recorded net sales for the period of $346.8 million, which was 7.2% higher than in the first half of FY ’19. Net sales in the period included the positive impact of favorable FX, reflecting the weakening of the Australian dollar relative to the U.S. dollar. Adjusting for this movement in FX rates, net sales growth in the Americas was 1.4% on a constant currency basis. This half-over-half growth rate was further impacted by the previously announced decision by a wholesale customer to move to a private label strategy as well as the timing of key promotional activities, which in FY ’19 occurred in the first half of the fiscal year, but in 2020, are planned for the second half.

Adjusting for these 2 items, like-for-like sales growth was just over 4%, which as Heath mentioned, we believe is indicative of the underlying growth in the business during the period. Note that the prior period saw underlying growth of 14% as distributors built additional inventory for the 2018-2019 winter season, while this year has seen a return to more typical seasonal trading patterns. That said, driving the sales performance was continued underlying growth in demand for RWC’s core SharkBite PTC fittings, accessories and pipe, particularly in the retail and hardware channels as well as Holdrite and other key product categories in wholesale.

Pleasingly, the business continued to enjoy strong and productive relationships with all key channel partners, including The Home Depot and Lowe’s as well as our key wholesale partners. We continue to introduce and trial new products and systems and to discuss opportunities for growing and strengthening our respective businesses.

One area of underperformance was the adoption rate of newer noncore products. While steady sales growth was achieved across the new product portfolio, total revenues generated by new product categories did not meet target for the period. Sales of John Guest FluidTech products in the U.S. were also below expectations, while strong sales were recorded in the hospitality sector, volumes to the OEM market were curtailed due to a particularly strong prior period comparatives ahead of last year’s new product launches by OEM customers.

Margins were positively impacted by lower raw material costs and the impact of continuous improvement initiatives as well as incremental John Guest synergies. Offsetting these improvements were the negative impact of tariff-related price increases, lower manufactured volumes on overhead recoveries and higher freight costs as well as planned investments in SG&A primarily related to new product development and business growth initiatives. Both the impact of foreign exchange rates on translated revenue and earnings as well as the new accounting for leases under AASB 16 had positive impacts on results.

Moving then to Page 18 in the Asia Pacific segment. Asia Pacific delivered net sales of $125.4 million, a decrease of just over 3% from the prior year. External sales were up just over 1%, with new product revenue growth, partially offset by weaker sales into the new housing construction markets in Australia. Intercompany sales to the Americas were lower due to the expansion of production capacity in the U.S. and the lower sales volumes experienced in the Americas during the period. As a result, EBITDA for the period was $22.8 million, down 16% on the first half of FY ’19. The decline in EBITDA and EBITDA margin primarily reflects the impact of lower internal sales and production volumes.

Moving then to Page 19 and the EMEA segment. Net sales in EMEA were up 1% on a reported basis and down 1% on a constant currency basis. Pleasingly, sales in the core U.K. plumbing and heating market rose 3% despite the backdrop of weak market conditions and political uncertainty. These market conditions did impact U.K. specialty sales where demand is more sensitive to economic factors.

In Continental Europe, results were mixed. Overall, sales were up with lower sales of higher-margin FluidTech product in Germany, offset by — I’m sorry, lower sales of higher-margin FluidTech product in Germany, offset by higher sales of PEX pipe in Spain. Sales to the automotive sector were also lower due to the ongoing planned withdrawal from that market, which was exacerbated by broader weakness in the automotive sector.

Reported EBITDA was up 18.1% on the prior corresponding period. After adjusting for the one-off cost of integration recorded last year, adjusted EBITDA was up 6.1%. EBITDA margins improved 150 basis points with the impact of John Guest synergies offsetting the impact of lower-than-planned production volumes, unfavorable mix and investment in SG&A.

And with that, I will pass it back to Heath.

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [4]

——————————————————————————–

Okay. Thanks, Gerry. Let’s turn to Page 21 and 22, where we set out our view on the COVID-19 coronavirus and then Brexit. We are managing the potential cost and logistics relating to items we source from China. And at this point, we see no major disruption to our business. We have only a handful of components where we are needing to actively manage at this point in time and are proactively juggling airfreight and sea freight slots right now. Of course, we do manufacture a substantial volume product at our own facilities in Australia and the U.S.A., so this helps to reduce our exposure. Nonetheless, this is a significant issue, and we will continue to monitor closely and address as necessary.

On Page 22, and we’ll talk about Brexit. We continue to carry additional inventory of both raw materials and finished goods as a buffer to any future cross-border challenges. The situation with regards to future import duties remains to be resolved both for raw materials into the U.K. and finished goods into Europe. While we would clearly prefer there to be no tariffs, we believe our business can weather a move to WTO tariff terms. And as we have mentioned, the uncertainty around Brexit has negatively impacted the market. Our outlook assumes no further deterioration in the market conditions.

Now to Page 23 and our outlook for the second half. We do expect improved revenue in the Americas. This position is based on having locked in promotional activities for the second half and on the point of sales data we are seeing at our major customers. In EMEA, we will achieve higher volume in keeping with normal seasonal trading patterns, but we expect the underlying market demand to remain subdued. We’ve already spoken about the U.K. ERP implementation. We are well placed with a strong team in place and have experience with multiple implementations over the last several years.

As such, we do not forecast this implementation to result in any material impact in the second half. We do not expect there to be an uptick in the Australian new construction market. And as a result, the Asia Pacific segment revenue will remain subdued through the second half. In the second half, we will achieve ongoing benefits from our continuous improvement and procurement activities and from John Guest synergies.

So moving to Page 24 and our guidance for the year. We expect adjusted NPAT to be in the range of $140 million to $150 million. This corresponds to an EBITDA range of $265 million to $280 million. The NPAT range excludes the one-off costs associated with the closure of the Tennessee plant, estimated to be USD 4 million. There are a number of key assumptions relating to this guidance: firstly, favorable raw material impact in the second half, with average copper cost expected to be no higher than USD 5,900 per ton; an adjusted effective tax rate in the range of 24% to 25%; and an Australian to U.S. dollar exchange rate of $0.68. The guidance is contingent on no further deterioration in trading as a result of issues, including COVID-19, Brexit and other external factors.

Now to Page 25. And I’m very pleased to announce that we are releasing today our initial social impact report. While we acknowledge that this is just our initial step, we are pleased to have formally begun this journey. I am confident that the energy and passion our people have for this area will drive continually greater benefits for our stakeholders and the communities in which we operate.

So now finally, on to Page 26. To wrap things up, I think it’s important to highlight that the fundamentals of the RWC business remains strong. Our core business in our major markets of the U.K., U.S.A. and Australia are solid. We have a robust and diverse business across end users, channels, geographies, product and raw materials. And our belief in our ability to grow the business ahead of market and to improve margins remains high. Importantly, our strategy remains unchanged.

As we set out in September, our focus is on generating demand with our end users and leveraging our distribution network, with solutions that improve the efficiency and effectiveness of those users. Going forward, we will concentrate our efforts on those product solutions that are best aligned with our core end users and commercialized via our strong distribution network. Where we believe we are not ideally positioned, we will look to alternative ways to develop and commercialize the required new products. Of course, we will continue to pursue opportunities to drive further efficiency improvements and to optimize our manufacturing footprint as well as our systems and processes.

So that concludes the presentation. Operator, I would now like to open up the line for questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) Your first question comes from Peter Steyn of Macquarie.

——————————————————————————–

Peter Steyn, Macquarie Research – Analyst [2]

——————————————————————————–

Heath, Gerry, just I was particularly keen to understand what you’re referring to around the recalibration as it were of your product sets being closer to the core as opposed to having — underperforming what you referred to as noncore products. Is there a sort of big reset happening here? How significant is this in the context of the group sales? How do we think about this?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [3]

——————————————————————————–

Yes, sure. And that’s a good question. Look, it’s certainly not a major reset at all. On an ongoing basis, we review where our time and effort is going and what the returns are and what they look like going forward. Certainly, when we refer to core, either those products and those distributors, which are really close to our daily business, we have really good success in driving that business, and that will be our focus going forward.

Certainly, those things we’ve got into, I’m not sure we call them noncore, but they’re further from the center. And now we’re into the likes of sort of water quality products, usage monitoring products and so on. We absolutely still believe in those products, believe they are an important part of the future of the plumbing industry. What we are looking at closely is, is there a better way to commercialize those products. Is that continue doing what we’re doing? Is it change our own focus, is it to work with a partner? In some cases, would someone else be better off having those products? And then we buy them back under a royalty arrangement or whatever it is. I mean that’s an active work in progress, but it’s not a major reset.

——————————————————————————–

Peter Steyn, Macquarie Research – Analyst [4]

——————————————————————————–

And then I was keen to just pick up on working capital and particularly the cash conversion. You obviously had a fairly significant adjustments in the prior period on payables, which would have helped your performance on a year-on-year basis, but keen to just understand what the big moving parts are from a cash conversion point of view and how comfortable you are that those are sustainable on a go-forward basis.

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [5]

——————————————————————————–

Yes. Thanks, Peter. It’s Gerry. Yes. Look, last year, clearly, there were a couple of one-off impacts that we discussed at some length. I think certainly, the payables last year, there was a supplier we had agreed to pay more quickly in exchange for a lower price. And then we had a very large new customer come on board with sort of longer-than-new — longer-than-average terms, which had an impact on the receivables balance.

Obviously, neither of those were distinct impacts this period. We’ve kind of cycled through that. So I think just looking at the overall performance, part of it was making sure that we didn’t allow inventories to grow too much. I think last year, if memory serves, inventories were up about $25 million. And I think the increase in the first half of this year was about $10 million. Now we always have increases from — in the first half of the year as we build in anticipation of a possible winter activity, but we kept that more controlled this year.

And then I think from a receivables perspective, it was just tightly managing our credit, making sure that we improve some of our collection activity. I believe that — look, I think conversion rates over 100% are not, in and of themselves, sustainable in the long run, but I certainly believe what I said at the last half, which is that I would expect us to be able to deliver in the 90% range on an ongoing basis, which is more consistent with our historical average. I mean there’s no doubt 105% was a bit better than that. But I don’t think there’s anything particularly one-off about that result.

——————————————————————————–

Peter Steyn, Macquarie Research – Analyst [6]

——————————————————————————–

Presumably things like producing more in the Americas on the next — certainly, as you ramp up in Americas, that will probably help your inventories at the very least on an ongoing basis. And it seems like you’ve changed approach on receivables slightly as well.

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [7]

——————————————————————————–

Yes. Look, I think that’s a fair point. In the long run, the less we have on the water, the less we have in that long supply chain, the tighter our inventory levels can be. I think that’s right, yes, absolutely. And look, we did have, as we’ve talked about, we had very high sales at the end of the first half last year as a number of customers bought ahead of what might have been a winter event. And so this year, those sales are much more kind of normally split between first half and second half. So I think that in and of itself just created a natural — naturally-led receivables to be not quite as high as they were last year.

——————————————————————————–

Peter Steyn, Macquarie Research – Analyst [8]

——————————————————————————–

Sorry, just one very last question, just on guidance for the second half. It seems like you’re expecting cadence in the second half to be fairly similar relative to your prior expectations. So it’s really a first half challenge. Is that sort of a fair way to think about how you’re thinking about the second half relative to how you thought about it back at the AGM?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [9]

——————————————————————————–

Look, I think, yes and no. Yes, we expect the cadence in Australia and U.K. and Europe to follow the first half. But I think that cadence is probably off from — certainly, in the U.K. and Europe from what we expected at the time of setting the plan.

——————————————————————————–

Operator [10]

——————————————————————————–

Your next question comes from Brook Campbell-Crawford of JPMorgan.

——————————————————————————–

Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division – Analyst [11]

——————————————————————————–

Heath and Gerry, just 2 for me, actually. Just in August last year, you talked a fair bit about getting extra product on shelves within your biggest customer in North America, including some ProLock product. Just interested to hear how that’s gone, how demand is picking up for that product suite and if there are plans to roll that into more stores. That’s the first question.

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [12]

——————————————————————————–

Okay. Look, getting additional product on the shelf is sort of ongoing forever activity. There’s nothing in the first half that’s a particularly big one-off or a particular spike. I think we’ve got various trials underway, and they’re telling us what we need to know. We’ll make the decision and the customer will make decision in the fullness of time of what that means going forward.

As we look into the second half, there are some additional products that will be sort of getting out into the market, which we’ll — and we’ve got a pretty good view on that, which is partly why the second half outlook in Americas is stronger. But there’s no specific details or information to relate regarding sort of key product ramp up or take off at this point.

——————————————————————————–

Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division – Analyst [13]

——————————————————————————–

Okay. And then in — last year, I think, in August, you made a comment around point of sales being around that 7%, 8% range, I think, in — for your business in North America. Just interested to understand where you’re sort of seeing that over the last few months? Is it still consistent with that level of growth?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [14]

——————————————————————————–

Look, overall, as we dive into the numbers, and there’s a lot of numbers there, of course, based across different customers and even countries, the point of sales number we’re getting now. It was just a little softer in the middle of the year than we first believed. It has improved in the last few months, and I think that’s kind of indicative of the overall state of the market in the U.S., at least in our industry in the market. And certainly, the numbers now are positive, and that’s what gives us the confidence to forecast an increased number in the U.S. in the second half.

——————————————————————————–

Operator [15]

——————————————————————————–

The next question comes from Abraham Akra of Jefferies.

——————————————————————————–

Abraham Akra, Jefferies LLC, Research Division – Equity Associate [16]

——————————————————————————–

I’ve got a few questions on my end. Firstly, in regions with Fergusons that offer a white-label competing product to your suite, are sales more impacted relative to other regions?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [17]

——————————————————————————–

Sorry, could you — the line is not really clear. Would you mind repeating that question again, Abraham?

——————————————————————————–

Abraham Akra, Jefferies LLC, Research Division – Equity Associate [18]

——————————————————————————–

Yes, sure. No problem. So in regions with Fergusons that offer a competing white-label competing products, are sales more impacted relative to other regions?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [19]

——————————————————————————–

Look, Ferguson have their private-label product across the nation. So there’s sort of no regional variations up there to compare with, quite frankly, so.

——————————————————————————–

Abraham Akra, Jefferies LLC, Research Division – Equity Associate [20]

——————————————————————————–

Yes, sure. Secondly, let’s take a note that — your organic sales growth in North America has been falling over the past 18 months or so. Is this an indication that SharkBite’s market share gains are slowing? And moving forward, revenue growth will be more market-linked? Or new product-driven?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [21]

——————————————————————————–

Look, there’s a few things in that. So it’s — revenue in the U.S. has always been lumpy, and it depends on what’s going on with new outlets and new products and new users that we can gain and so on. And if you look at ’19, half-on-half was drastically different. So the underlying growth rate of the U.S. business, taking out the one-offs from prior periods, the first half was around 14%, whereas the second half was low single digits, and that absolutely matches or is in line with the activities we see happening. That will go forward. I think that will — when we look back at the end of this year, this year, we’ll have a — 2 completely different halves in the Americas that will be different to the profile of the halves in the prior year. That’s just the nature of the beast.

You mentioned new products and will they become more important. I think new products have always been important for our business in relation to ShareBite outside SharkBite. And when you look at the size of the SharkBite business in relation to our overall business, it’s a smaller percentage now than what it was 3, 4, 5 years ago, with other products growing and the acquisitions of Holdrite and John Guest. So absolutely, the growth of those products will become proportionately more important going forward, and that’s sort of been our objective for quite some time, is to grow those new products. That said, SharkBite, strong growth underpins the business, a lot of runway left for that product. So it’s a good engine to drive the business with a lot of other products and opportunities on top of it, frankly.

——————————————————————————–

Abraham Akra, Jefferies LLC, Research Division – Equity Associate [22]

——————————————————————————–

Great. Just lastly, one more for me. Has the delivery in full and on-time metrics deteriorated due to coronavirus occurred? Or is it pretty much according to your plan when you build up in inventories?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [23]

——————————————————————————–

Look, at this point, we’ve seen no impact at all. As I mentioned, there’s a handful of items, components we’re sort of actively managing right now. We think we’ll be fine, but if one of — around the fringes if one or two of those causes us grief, then that could impact in a month or 2 time, but at the moment, I think we’re pretty comfy, so.

——————————————————————————–

Operator [24]

——————————————————————————–

Your next question comes from Peter Wilson of Crédit Suisse.

——————————————————————————–

Peter Wilson, Crédit Suisse AG, Research Division – Associate [25]

——————————————————————————–

I wanted to follow-up on the new product that’s not selling to expectations. Can you give us some specifics on which major product ranges aren’t selling well? And how they do or do not fit into new criteria?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [26]

——————————————————————————–

Look, there is — we have a really broad range of new products that have been released over the last 12 months or so. I mean that goes across the [Prologue] product, even EvoPEX is still, in our mind, a new product. The Streamlabs product falls into that bucket. Some of the Holdrite HydroFlame products fall into that bucket, and look, each of those have always, in our mind, had a different time frame for ramp-up. Some are shorter, some are medium, some are longer term. So we’ve got different ways of sort of evaluating or considering those.

If you take the Holdrite, the HydroFlame product, that’s a great product that is growing really strongly. Did it grow quite as strong as what we thought? No. But is it doing really well? Absolutely. So that’s one where we will, if anything, probably put more effort into it as opposed to less.

At the other end of the spectrum, Streamlabs is a challenging product. I mean it’s a category-creating product, which as I said on the — earlier on, we absolutely believe in that product. Its got an important place in the industry going forward. It’s a slow ramp-up product full stop, and when you put it in the context of the U.S. plumbing market, it’s even slower again. So we’re putting — we have been, for a while, putting some time and effort into considering how best and where best do we ramp that up. And is that something we’re best to doing on our own, should we adopt a different process and so on. So there really is a broad category of products there, each with sort of a unique set of circumstances.

——————————————————————————–

Peter Wilson, Crédit Suisse AG, Research Division – Associate [27]

——————————————————————————–

Okay. Can I ask you, the revenue from the new products, on a net basis, did that more than offset any lost revenue from either products that they replaced? Or the constant range rationalization that you’re doing?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [28]

——————————————————————————–

So not really were any of those replacement products. Evo, [Prologue], Streamlabs, HydroFlame are all really genuinely new products for us. I guess at the edges, maybe EvoPEX could cannibalize crimp a little bit, but not to any significant degree is that sort of a factor.

——————————————————————————–

Peter Wilson, Crédit Suisse AG, Research Division – Associate [29]

——————————————————————————–

Okay. And then you’ve called out 2 factors to adjust the like-for-like sales. One is Fergusons and the second is deferred promotional spend. Can you give us the relative materiality of those 2 factors?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [30]

——————————————————————————–

Well, look, I mean, if we get to the wholesaler, as we said at the full year results, I mean it’s — represents less than 1% of our group revenue. When you put it in the context of growth in the U.S., it’s worth a couple of points. And then the new products are probably a similar order of magnitude, quite frankly. So that’s…

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [31]

——————————————————————————–

What was promotions?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [32]

——————————————————————————–

Oh, the promotions? Yes, and the promotional activities is really — that’s sort of roll in of new items, new point-of-sales material. I mean there’s a whole range of things that fall under there that we know are programmed. That’s worth a few points of growth, potentially.

——————————————————————————–

Peter Wilson, Crédit Suisse AG, Research Division – Associate [33]

——————————————————————————–

Okay. And just one last one on that promotional spend. Just a couple of things, I guess, when you last updated the market end of October, I’m just curious why that, I guess, deferred promotional spend wasn’t then well understood. And then secondly, as we look into the second half, what’s the multiplier there? If you spend $1 on marketing spend, what kind of margin uplift do you expect?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [34]

——————————————————————————–

I’m sorry, Peter, I just missed that last bit of the question.

——————————————————————————–

Peter Wilson, Crédit Suisse AG, Research Division – Associate [35]

——————————————————————————–

So you said in the second half, you will spend at marketing. I’m wondering what the multiplier is. So if you spend $1 on marketing, how much margin uplift should we expect from that?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [36]

——————————————————————————–

Okay. Look, we’ve — don’t think of it so much as spend as more a sort of front-end sales commercialization activities. I mean there’s a really broad array of things we do across any period, whether it be new items on a shelf, a new product release, a new material in a store, that sort of — the cost associated with that, unless it’s a major new product, the costs associated with that are within our normal operating cost. It’s more a case of what bump will that give us to revenue in the period, and if we know we’re going to put some extra products on the shelf, we know what sort of revenue impact that will be in the near and midterm. That’s really what we were referring to here.

——————————————————————————–

Operator [37]

——————————————————————————–

Your next question comes from Lee Power of CLSA.

——————————————————————————–

Lee Power, CLSA Limited, Research Division – Research Analyst [38]

——————————————————————————–

Is it possible just to break Europe down? The trend across the first half and what you’re seeing in the second half? I mean you obviously called it out as an issue at the AGM. Is it something that’s deteriorated more since then? Or is it mostly the U.S. that’s been — that’s kind of caused guidance to pick up?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [39]

——————————————————————————–

Look, I think Europe is a — I mean, there’s a decent amount of business we have in Europe right now. It is heavily FluidTech-oriented, so the John Guest small bore push-to-connect fittings, although, as Gerry mentioned, we do also have the PEX pipe that we manufacture in Spain.

The pain for us during the half was the FluidTech side. So that sort of traditional John Guest business, that was off compared to the prior period. Our expectation was that we could grow that. It is — that business is sort of a combination of distribution business and OEM business, and was, frankly, soft across both those channels. While it is a repair and maintenance product, it’s — it has a pretty significant discretionary element to it. I mean if you’re going to put in a new filter system in your office, and we get a lot of fittings on that, that’s the sort of project you will defer if things are tough. And there is no question, things were tough in Europe in the half, and we think that will continue to be in the second half.

Look, the other factor in all that in Europe, which is not a long-term focus for us, is the automotive sector. We’ve spoken about that a little bit in the past, and our expectation for that to sort of decline over time. It declined in this half, probably a little more than we expected. Again, automotive in Europe, particularly Germany, was well off this half. So there’s a number of factors there that were challenging.

——————————————————————————–

Lee Power, CLSA Limited, Research Division – Research Analyst [40]

——————————————————————————–

Okay. And then what are your key customers actually saying to you around certainty of supply chain for them around coronavirus? Because I would have thought, if anything, you would have got a benefit for some of your key competitors in terms of your exposure to China and manufacturing it.

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [41]

——————————————————————————–

I — look, I think we are in a good position relative to our competitors, generally, as you pointed out. That said, the way where Chinese New Year has fallen and everyone tends to get inventory in ahead of that, it’s how it comes out of Chinese New Year in terms of the pick up rate in shipments that will really dictate how the industry fares over the next 2, 3, 6 months, I believe.

——————————————————————————–

Lee Power, CLSA Limited, Research Division – Research Analyst [42]

——————————————————————————–

Okay. And then just one final one. What’s the — I’d say, CapEx is cut slightly, what drops out of that?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [43]

——————————————————————————–

Ah, Ger?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [44]

——————————————————————————–

Yes, look, I think it’s really just a couple of things. One is, it’s just the timing of some of our capacity expansion. There were some projects that, kind of given where volumes are, will probably push out to the first half of next year just to try to align the capacity expansion with the demand. So that would be a bit of it, and then there’s some IT projects that have also been deferred for a little bit, just in light of the focus on the ERP implementation in the U.K. and making sure we have all the resources focused on that. So I think those would be the 2 things that make up the difference.

——————————————————————————–

Operator [45]

——————————————————————————–

Your next question comes from Keith Chau of MST Marquee.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [46]

——————————————————————————–

A few questions. The first one, just on margins, the gross margins in the Americas business. So obviously, they’ve taken a bit of a step back. Part of that’s due to some of the nonrecoveries because of inventory management in the period. Just wondering, outside of that, we’ve had some benefits from input costs. Just wondering if there — if there’s anything else within that margin or manufacturing in the U.S. more broadly, which has resulted in a bit of a weaker margin performance. Have there been any additional shifts added? Any internal missteps? Things that could have been done better? Anything of that nature that you’d like to comment on?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [47]

——————————————————————————–

Yes, Keith. I guess the short answer is no. I mean it was a strong operational performance. I think we did see the benefits of reduced raw material cost, primarily copper. That flowed through nicely the continuous improvement. Most of the John Guest synergies at the gross margin level we’re in the U.K. So I think, really, in the U.S., the 2 positives were around copper and continuous improvement, and really, the single biggest negative was the under recoveries associated with the lower volumes. I think the other bit to consider is just at the gross margin level, we’re impacted 50 basis points, maybe a bit more, just from the impact of tariffs. Because you have tariffs that come through the revenue line that have no margin associated with them. So it’s a bit artificial, but that does probably — I mean, that does contribute to the decline in those margins. And as I said, it’s sort of in that 50 to 80 basis point level.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [48]

——————————————————————————–

Okay. So it doesn’t sound like — the tariff issue, you’ve been able to pass that on at all to your customers? Or at least share the issue with them?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [49]

——————————————————————————–

I wouldn’t necessarily say that. We’ve been able to pass quite a bit on, but if you put the price up at the revenue line, but then you completely offset it with sort of — you raised the revenue, then you paid the tariff, at — once you get to the gross margin level, you’re kind of at 0. So it’s not — I mean, it was slightly — it did slightly impact our EBITDA margins as well, so not all of it was passed on. But I mean I think even that bit that was passed on would have a negative impact on our gross margins. Just on a percentage basis, not on a dollar basis, it nets out. But on a percentage basis, it would.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [50]

——————————————————————————–

Okay, understood. And then perhaps a follow-on, on that question. In terms of the nonrecoveries, I know in the second half of last year, the business was impacted by destocking within the channel. So is there an expectation in the second half that you keep kind of working down inventories and in relation to that, what do you think is the state of the distribution channel at the moment in the Americas and in Europe?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [51]

——————————————————————————–

Look, I think in Europe, I think it’s fine. It sort of didn’t suffer from the same issue as last year. It had the same issue as last year, is that really is an Americas scenario. I guess as painful as it was that we didn’t ship a whole lot of extra stuff at during December, it’s actually better for the long-term of the business, that the channel is more sort of sensibly placed. Because as you said, is there was a lot that got shipped in the first half of FY ’19 that we then had to unwind. Second half ’19, it feels more balanced this year. I think that’s part of why the first half was compared to — well, definitely part of the reason why the first half this year was tough — a tough comp against last year. And if you think about what Gerry said is that the inventory build this year was well below what it was last year, that’s also in the context of lower shipments in the first half. So I think there’s a lot of work that went on from an inventory management point of view. Again, it hurt us quite significantly from an earnings point of view, but the right thing to do, going forward in this half, inventory generally feels okay. There’s definitely more improvement we can make there. But it’s not a drastic change that we’re anticipating from the start of the period to the end of the period.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [52]

——————————————————————————–

Okay. And then just on to the cost profile of the business. Obviously, the ramp-up in SG&A and product development expense we’ve known for quite some time, started in the second half of FY ’19 and carried through into the first half ’20. Going into the back half of this year, do you anticipate any further meaningful step-ups in SG&A and product development expense?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [53]

——————————————————————————–

Keith, look, there were some costs certainly added in the first half of this year. Some heads that were added from just a building management capability perspective, which will — they’re not new heads in — nothing new in the second half, but it will be incremental in the second half relative to last year. And similarly, some of — not all, but some of the new product development costs, some of the commercialization costs and just business development costs will be incremental in the second half relative to last year. But I think, certainly, in terms of adding capability, we’re done. That was a onetime step-up, I think. And as Heath alluded to, we’re certainly looking at ways to do our new product development and commercialization activities more efficiently, and so well aware that we’re looking at opportunities there to certainly not grow them and maybe be more efficient in that regard.

So yes, I mean, I think there will be a further step-up in the sense of comparative second half this year versus second half last year, and then we should be good.

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [54]

——————————————————————————–

Look, I think a good point to make — I mean Keith, you’ve been following us for a while now and understand sort of the cycles of our — of the business. But we have to invest a long way out. I mean we’re making decisions today that impact whether or not products on the shelf with our customers in 2.5, 3 years’ time.

So we always have to invest ahead of the revenue, and sometimes, you got to be behind, and you have to scramble to catch up through overtime and airfreight and whatever else. Other times, you get a little bit of ahead of it, and I’d say that’s probably more an indication of where we are right now.

So yes, there are some really specific activities that Gerry spoke to. Stepping back from that, from an overall point of view, we’ve been here before. We know where we have to focus and adjust, and we’ll do what we need to do.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [55]

——————————————————————————–

Okay. Are you satisfied that the spend that’s being put into the business now will have the same level of effectiveness as you’ve seen in the past? And I’m not sure if that’s an easy question to answer, but have you done any kind of backward-looking exercises thinking, okay, well, we put in spend on x year, and I know you just mentioned 2.5 to 3 years, but do you think that’s still a reasonable time frame for commercialization for new products?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [56]

——————————————————————————–

I guess gosh, there’s a lot in that. So yes, we have spent a lot of time looking backwards, and I think part of our recalibrate, which may or may not be the best word, is influenced by what we’ve seen as giving us the best bang for our buck, if you like.

So that will be sort of — we’ll adjust accordingly, again, not a major reset, we’ll just adjust. But that’s certainly being informed by, I think, being really honest with ourselves about what’s been successful in the past. But if you look at those 2 big buckets of spend, some of its capabilities, corporate capabilities, which is just dictated by the size and the shape of the business we are now. That’s — we have to do it.

The other bucket is the development cost, and that’s really where we’ve put a lot of time and effort into trying to make sure we’re getting sensible returns. But look, balanced across short, medium and long term, I mean, we need to have some things that will yield the revenue in 4, 5, 6 years’ time. But if we’re going to do that, we absolutely need things that will yield revenue next half and the half after. That’s an ongoing process, and believe me, we’re well into that right now is to — and considering where we tweak and where we continue as is.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [57]

——————————————————————————–

Okay. And Gerry, just wondering if you’d be able to quantify for us what the — what you think the dollar incremental spend will be in the second half relative to last year, if possible, please?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [58]

——————————————————————————–

Look, I think I mean, it’s going to be a similar sort of increment to what we had, I think, in the first half of this year. I think it’s probably going to be in the range of, I don’t know, it would be a double-digit number. Closing in on high-single digits to low double digits. So think around $8 million to $10 million.

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [59]

——————————————————————————–

Okay. And then just one final one, following on from Peter’s question. Going into the second half, do you expect new products to be put on shelves to exceed that of any product rationalization?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [60]

——————————————————————————–

You mean product coming off our customer shelves?

——————————————————————————–

Keith Chau, MST Marquee – Building Materials & Packaging Analyst [61]

——————————————————————————–

Yes, yes. So the needle of (inaudible)

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [62]

——————————————————————————–

So (inaudible)? Yes, more on the shelf than coming off, without question. I don’t think we’ve got a whole lot of plans to take anything off shelves at the moment, it’s all incremental, generally.

——————————————————————————–

Operator [63]

——————————————————————————–

Your next question comes from Raju Ahmed of CCZ.

——————————————————————————–

Raju Ahmed, CCZ Equities Pty Limited, Research Division – Equities Analyst [64]

——————————————————————————–

It’s Raju Ahmed from CCZ. Looking at your guidance, FY ’20 earnings guidance, the revised one, in there, you mentioned copper price to be no higher than $5,900 per ton. Going back to the FY ’19 full year results for the prior guidance, you mentioned, it needed to be no higher than $6,200 per ton. I just wanted to get a sense of whether that $5,900 that you’ve quoted now, is that for the balance of the year? Or is it an average for the full year FY ’20?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [65]

——————————————————————————–

No, it’s a fair question. It’s for balance of the year, and given the lag we have in kind of the way copper prices impact our business, right, we buy brass bar, which really reflects — the bar we’re processing today would reflect copper prices from 4 to 6 months ago. So given we’re now almost at the end of February, we feel pretty comfortable that we can deliver that number, right? Most of the copper — or sorry, brass will be processing. The remainder of this year is going to be based on copper that’s already been secured. So I think we feel pretty comfortable with that $5,900, but that — but in — coming all the way back around the original question, that is for the second half of the year, not for the full year.

——————————————————————————–

Raju Ahmed, CCZ Equities Pty Limited, Research Division – Equities Analyst [66]

——————————————————————————–

Right. Okay. What was it for the first half?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [67]

——————————————————————————–

I think it was in — it — just over $6,100. Between $6,100 and $6,200.

——————————————————————————–

Raju Ahmed, CCZ Equities Pty Limited, Research Division – Equities Analyst [68]

——————————————————————————–

Okay. All right, very well. My next question is around — I just wanted to deep dive a little bit more into any prospective impact from the COVID-19. You mentioned on the call, if I heard it right, that if there is an impact, it will probably start to manifest in maybe a month or 2 if the status quo is maintained. Can you just give us some color around what is the impact at the granular level? Are you reliant on certain components that goes into a SharkBite or another sort of product suite, and it impacts the final assembly? So it manifests into an inability to supply a product? Or is it a delay? Can you just provide some color on that?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [69]

——————————————————————————–

Yes, sure. So I guess importantly is, our core SharkBite fittings are manufactured either in Australia or the U.S. So we’re fine for those core products, which I think is quite important.

There are some SharkBite accessories that we source from China. So they sort of come into focus, and then there are also components we source from China that go into other valves and other products. So look, in the event we didn’t get a particular component for a valve we assembled here in Australia or in the U.S., then that would simply prevent us from assembling that valve when we needed to.

I would say, the inventory that we had going into the Chinese New Year shutdown is pretty strong, pretty robust as it is every year. We also see our vendors ramping up. Although in China, although a little bit slower than normal, they’re sort of ramping up to a good spot. So when we look across all of the items, whether it be a finished good or a component we source out of China, we’re really down to only a handful that we’re having to sort of proactively manage. And even at this point, some of those sea freight will still be fine. In other cases, we probably will need to secure some airfreight to get them in on time. So it’s not a major issue for us, but we are obviously watching quite closely.

——————————————————————————–

Raju Ahmed, CCZ Equities Pty Limited, Research Division – Equities Analyst [70]

——————————————————————————–

Okay. And the last question is probably more for this calendar year rather than FY ’20. From your experience, does U.S. election year have any influence on volume sales, particularly around newbuilds?

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [71]

——————————————————————————–

Well, I guess for us, newbuild is not a major part of our business in the U.S. and historically, we’ve not seen any impact of an election cycle on our business. So we don’t anticipate there to be one this year.

——————————————————————————–

Operator [72]

——————————————————————————–

(Operator Instructions)

Your next question comes from James Casey of Baillieu.

——————————————————————————–

James F. Casey, E.L. & C. Baillieu Limited, Research Division – Senior Research Analyst [73]

——————————————————————————–

I just had a question with relation to Slide 19, in particular, the synergies you’ve called out. I assume the $12.3 million in synergies relates to the first half, and then you’ve called out the synergies for the full year to exceed $30 million, but that’s on a run rate basis. What percentage of those synergies are you retaining? Because if I back out the $12.3 million in synergies from the first half ’20, it looks like the underlying business has deteriorated quite dramatically. So I guess my question is, of the $30 million in synergies, how much do you expect to retain?

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [74]

——————————————————————————–

Look, I think there are 2 different components there. So if we look at the synergies — first of all, the $12.3 million in the first half included just under $5 million, sort of $4.5 million, $4.8 million, that we achieved in the first half last year. So that was in the base. So what was truly incremental this period was the $7.5 million, but we wanted to demonstrate that the run rate was there that we talked about, that at the end of last year, we were at a $20 million run rate. And I think at the end of this year, we’ll be at the $30 million run rate. Certainly, I think those cost synergies, which really come primarily from heads leaving the business, consolidation of locations, just running the John Guest business with fewer heads because we’ve integrated with our own business. I mean that is retained in the sense that those heads are gone. I mean admittedly, there have been things that have gone the other way, but they’re unrelated to the synergies. So the synergies are there, and we’re retaining them. As we look at some of the other things that have gone the other way, we’ve articulated both at the full year guidance and now the incremental spend we’ve made in SG&A, and then also, this period was impacted almost to the tune of $5 million by the under recoveries. So yes, there have been things that have gone the other way that have effectively offset the benefit of those synergies, but the synergies themselves are retained because we can track those back to consolidation of sites, people who’ve left the business spending that we’re no longer doing, et cetera.

——————————————————————————–

James F. Casey, E.L. & C. Baillieu Limited, Research Division – Senior Research Analyst [75]

——————————————————————————–

Okay. And just one final one. Do you know the AASB 16 adjusted FY ’19 profit number at this stage? Just so I can compare that to the guidance. (inaudible)

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [76]

——————————————————————————–

The FY ’19 comparative, right?

——————————————————————————–

James F. Casey, E.L. & C. Baillieu Limited, Research Division – Senior Research Analyst [77]

——————————————————————————–

Correct.

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [78]

——————————————————————————–

(inaudible)

——————————————————————————–

Gerry Bollman, Reliance Worldwide Corporation Limited – Global CFO [79]

——————————————————————————–

Oh, for the full year, yes. No, we don’t — we have not disclosed that. But certainly, we have for the half. We put the comparative table in, I think, the appendix, too.

——————————————————————————–

Operator [80]

——————————————————————————–

There are no further questions at this time. I will now hand back to Mr. Sharp for closing remarks.

——————————————————————————–

Heath Sharp, Reliance Worldwide Corporation Limited – Group CEO, MD & Director [81]

——————————————————————————–

Very good. Thank you very much. I appreciate everyone dialing in this morning. Thank you for your interest, and that’s it from us. Have a good day.