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[Ladies and gentlemen, thank you for your patience in holding. We now have your speakers in conference.] [Operator Instructions] It is now my pleasure to introduce Mr. Pablo González.
Good morning, everyone. Thanks for your participation on the call. Let me start by making a few brief comments. Our first quarter results were better, both sequentially and compared to last year. Our pricing and cost initiatives are helping us deliver better results in a challenging economic and cost environment. On the revenue side, private consumption in Mexico is stable, with volume growth in our categories slower than we would like. In spite of this situation, a positive price and mix comparison resulted in record top line and growth for the 14th consecutive quarter. On the cost side, we continued experiencing significant raw material pressure with some prices growing at double-digit rates. But we have higher manufacturing efficiencies. Our cost-reduction program yielded very positive results and the exchange rate comparison was favorable during the quarter. In summary, we faced a challenging environment, but our actions allowed us to deliver better results and we'll continue to post sequential improvement. Xavier will provide additional comments on the results.
Hello, everyone. During the quarter, our sales amounted to MXN 10.2 billion, a new record and a 7% increase versus the first quarter of 2017. Volume grew 2% while price and mix were 5% higher. Consumer product sales were 3% higher. Away from Home products grew 8%, and export sales increased by 97% as we have additional tissue available for export from the Morelia machine that started off late last year. Cost of goods sold increased 5%. We experienced a negative raw material price environment. [Virgin] fiber prices kept increasing, and they currently cost at least more than 1/3 more -- they cost at least 1/3 more of what they did a year ago. Domestic recycled fibers and most all derivatives also compared negatively, adding to the pressure. On the positive side, energy was down versus last year, and the exchange rate was also favorable with a 7% year-over-year stronger peso. And most importantly, our cost reduction program continued to yield very good returns. The amount of savings generated in the quarter amounted to MXN 250 million and altogether, helped us offset the strong raw material price impact. So gross profit margin was 36.5% for the quarter, 130 basis points better than last year and prior quarter, respectively. SG&A growth of 10% reflects increased distribution expenses as well as added advertising and point of sales investment to strengthen our brand and support our recent innovations. Operating profit increased by 10.5%, and the operating margin was 19.8%. During the quarter, we generated MXN 2.4 billion of EBITDA, an 8% increase. And EBITDA margin was 23.9%. Cost of financing was MXN 299 million in the first quarter compared to MXN 277 million in the same period of last year. Interest expense was higher from increased debt and higher interest rates. Foreign exchange rate -- the foreign exchange gain in the period was MXN 43 million compared to a loss of 33 million in the previous year. As a consequence, net income for the quarter was MXN 1.2 billion, a 10% increase. Finally, earnings per share were 0.39. Pablo now will talk about the rest of 2018 before we take your questions.
There are numerous indicators that suggest the Mexican economy could continue to grow at about the same rate as previous years. Exports, tourism, credit growth, remittances and job growth in the formal sector of the economy will all be tailwinds. Also, the high level of inflation, which has affected real wages and thus domestic consumption, is starting to come down and may accelerate its downward trend. So all this, together with a likely temporary boost from the electoral process, may help domestic consumption in the coming quarters. Having said that, given the great uncertainty surrounding the NAFTA modernization and the coming presidential elections, it is very difficult to predict the behavior of the Mexican economy in general and of private consumption in particular. As you all know, negotiations to reach a new NAFTA deal have taken an added urgency. And if an agreement in principle can be reached soon, it should have a positive effect on the exchange rate. But on the other hand, the presidential election is 2 months away, and the perceived and actual outcomes could have a stronger impact. So the current peso-dollar [parity] could be very volatile in the coming weeks or months and could impact inflation, consumer and business sentiment and thus, growth in consumption. Under such an uncertain and challenging environment, we're focusing on the effective and efficient execution of our innovation plan to strengthen our brands as well as our revenue and cost management programs, and we're doubling our efforts to ensure that we deliver good results under different possible scenarios. On the revenue front, to support our brands, we have a strong innovation plan, and we'll increase our advertising investment for the year. We will continue to look for opportunities to selectively increase prices and reduce promotional spending, and we will continue to work to improve mix. On the cost front, we expect that the pressure in virgin fibers will remain throughout the year. Recycled fibers [with] moderate increases, and we're projecting stability on most other raw materials in dollars. The large and continuous cost increases, particularly on fibers, where prices have increased in 12 of the last 14 months, amounting to more than 30% in dollars, have been and will continue to be a strong headwind. So operating efficiently and again achieving a very positive result in our cost reduction program will be key. So far, we have identified 850 million for the year. We will continue to work diligently to identify additional opportunities. The CapEx for the year will be approximately $100 million, mostly focused on innovation, capacity expansion and cost reduction. And finally, our Shareholders' Meeting in March approved the payment of a MXN 1.58 per share cash dividend. This amount is in line with last year's dividend and reflects our commitment to distributing cash to our shareholders while maintaining a healthy capital structure. In summary, we had a challenging but better first quarter, and we expect more challenges and higher volatility for the rest of the year. So we are taking all the necessary actions to continue to improve our results. With that, let me open it up for questions, and thank you all again for participating in the call.
[Operator Instructions] Our first question comes from Nicolas Larrain with JPMorgan.
I have 2 actually. If you could discuss a bit on trends in volumes that [would now] -- that we -- have the tailwinds from exports, how should we see volume growing? Or how are you envisioning volumes throughout this year? And also in cost, I know you mentioned that you should continue to see some pressure from fibers, specifically virgin fiber. But given this new capacity volumes in exports, how do you see the evolution of margins throughout the year?
Thanks for your questions. Well, first, in trends and volumes, as I mentioned, we are seeing in the categories a mixed picture. Really, depending on the category, we're seeing from slight declines to slight increases and stable. So as you know, the economy decelerated for most of 2017 and into 2018. And the inflation has certainly had an impact on volumes. Growth is really coming on the consumer side from price and mix. How will volumes continue to perform going forward? As I just mentioned, there are certain factors that might make our volumes react and be slightly more positive going forward. But on the other hand, there's great uncertainty given NAFTA and given the presidential elections and the impact that can have on the exchange rate and on inflation and then accordingly, on volumes. So it's hard to predict what will happen to volumes going forward at this point. What I can say is that they're pretty stable. Again, some categories with slight declines and some with slight increases in growth, mainly coming from price and mix. On the export side, as you know, we started [our addition] of Morelia mid -- late last year. So for at least the first 3 quarters of this year, we will continue to have strong growth from volumes of parent rolls that we're selling particularly in the U.S. market. So that growth should continue for at least the next couple of quarters. Our margins overall, as you know, sequentially have improved. And I think margins on the consumer side and the professional side are healthy. Margins on exports, as we have given priority to putting all these volumes in the U.S. market, those margins have been a drag on our results. And we are currently working on improving prices on those volumes, so that those margins in the export segment can start to improve starting in this second quarter. In terms of the cost side, again, the biggest impact we have seen, and this is not new, we've been mentioning this for the past several quarters, it has to do with virgin fibers, which are basically between 30% to 40% above last year. And we've seen in these fibers increases in 12 over the last 14 months. This coming month might be the 13th of 15. The reasons for this are really stronger overall demand for pulp. As you know, China's recycled fiber quotas, which have had an impact, and I would always say also planned and managed downtimes and overall managed supply, keeping supply tight so that they can be able to increase prices, and that's why they've been able to do it so frequently and again, in such an important way. Going forward, I mean, some of the experts believe that we might see a bit of a relief late this quarter, early third quarter. But then prices coming back up again during the fourth quarter and most likely throughout 2019 given that there are really no big capacity additions in sight for at least 2020 or 2021. So it will continue to be a very challenging environment. And although some of these experts believe again that we will get this relief, they've said that before and we haven't seen that relief again because the suppliers are managing their supply in an effective manner. So we will see what happens. But our expectation is that we will continue to see pressure on virgin fibers going forward. On recycled fibers, we saw domestic increases of double digit versus last year during the quarter. Imported recycled fibers also saw increases, but they're still below last year levels. Going forward, we expect more moderate increases in the second quarter and most likely flat for the rest of the year. In oil derivatives, we also saw increases, and we expect those derivatives to be flat for the rest of the year. But again, that could change if oil prices continue to increase. And as you all know, OPEC has just announced that they will continue to -- with their production cost to try and stabilize and maybe even increase a little further the oil prices. So we'll see how that -- the impact of that can have on these derivatives. Energy was a tailwind, was a positive, and we believe energy will increase from this quarter onwards but will continue to be under last year, so it will be a favorable element. And of course, exchange rate, which was better in the quarter. You tell me what's going to happen in the coming quarters. I mean, just last -- just yesterday, a more than MXN 0.30 devaluation as some of the polls started to sink in. So we'll see what happens with the exchange rate. We believe there's going to be great, great volatility as the elections near, and then we'll see what happens after the results. But that's really the great unknown. So I think that gives you a picture of where we see virgin fibers, recycled fibers, oil derivatives, energy and again, the big question, exchange rates.
Our next question comes from José Cebeira with Actinver.
I would like to know a little bit more about the reduction in the electricity costs and if this is expected to continue during the year.
Thanks for the question. Look, I think the -- as you know, the energy cost in Mexico relate to a formula that's put forth by the CRE and the formula that -- with which they started the year, taking into consideration prices of gas. Another element was favorable versus last year. So we saw again an important tailwind for the quarter. Having said that, what we've seen in the past couple of months is that they've been adjusting that formula, and the adjustments have increased prices sequentially. Again, we believe that we will most likely continue to see some increases. But the energy costs will continue to be lower than last year. So they should be a favorable element going forward, maybe not in such a big manner as they were in the first quarter, but they continue -- they will continue to be a favorable element.
Our next question comes from Rodrigo Cruz with Bank of America.
It's actually Bob Ford from BofA Merrill. It's been a tough environment. [It's great to see you guys, good surprise] in the marketplace. Pablo, can you just talk a little bit about competitive dynamics? We think we're seeing some pretty broad follow-through in terms of competitors following price increases so far, and I want to get your take on that. And then when you look at the FX, where does FX begin to trigger the need for additional pricing?
Thanks for your questions. On the competitive environment first, yes, we have seen competitors increase prices, for the most part. Those who haven't increased prices have announced that they will move forward in the coming months. So that's a positive sign. Now having said that, the environment continues to be very aggressive. And even some that have increased prices have increased promotional activity via discounts or bonus packs. Quite frankly, it's interesting to see how some, when they have their conference calls, the headquarters call that they should be and will be looking to increase prices globally. But then when you see the actions locally, there seems to be somewhat of a mismatch. But I would say overall, we do see better prices and that's certainly a good sign. Now we have the promotional heavy summer promotional season here upon us, and it'll be interesting to see how competitors decide to play this one out. On our part, we plan to reduce the length and depth of promotions versus last year. And we will monitor competitive activity closely to see whether we need to react or people follow what we're expecting to do. So again, still aggressive, but a little bit better on the pricing front and we will continue to monitor that closely. Now in terms of additional prices, given, Bob, the again length and depth of the increases we have seen and particularly on pulp and the expectation that pulp will continue to push cost up, we will, no doubt, continue to take advantages of any opportunities. We have lagged the again very important price increases of the pulp because we can't pass prices onto the market as quickly as these guys have been able to pass on costs to us. So we have lagged, and that means that we need to take advantage of every opportunity we see out there and stay on it because the pressure will be there. So we will, again, look for opportunities and reduce promotional activity. And hopefully, that will continue to help our results. But we will monitor competitive environment closely to make sure -- if we are competitive and we continue to do well as we have this quarter and our market positions continue to be strong, that's great and we will continue to move forward. If, on the other hand, we believe that certain categories or certain brands are being weakened because competitors are being much more aggressive than we are, we will respond accordingly.
And Pablo, you mentioned the summer promotional campaign. And I was curious, this year being a World Cup year, does the Cup at all shift the complexion of promotions away from some of the traditional consumables into things that may be more oriented around observing the games?
Probably, there should be additional promotions, I'm sure, on TV and many other things that have to do with not only watching but many people getting together to watch the games. But I expect that most of the retailers will use that as an additional factor. But we'll continue to look for some of our categories and some other categories to bring people into the stores. So I do expect them to continue to look into our categories and try and play the promotional game, as they always have, on the summer season. But again, we'll see if we can be -- like I said, reduce length and reduce debt and still be successful in such an environment.
That's very helpful. And just returning again to the FX. I mean, right now, I think we're down another MXN 0.15 on the FX rate. And specifically with respect to the FX, where do you see that kind of triggering the need for additional pricing?
It's a good question, Bob. Again, if we would see the exchange rate probably at MXN 19.50, so a little bit over MXN 1 of where it is, there's no doubt, we would have to move forward with more pricing. But again, we have lagged pricing for some time because of the length and depth of the increases in costs. So MXN 19.50 would mean that we would have to again come out with list price changes. But we continue to look, even now, for some other opportunities because we have lagged on the cost and pricing. So we will continue to be very aggressive in any opportunity we see at any point.
And when you look at excess capacity in the industry, is any rival sitting on any meaningful amount of excess capacity where they might opportunistically lag more than they have already?
I think not to a great extent, Bob. But we do see particularly one participant who has brought some new tissue capacity, and they're using it to provide private label at very attractive costs to retailers and we are reacting accordingly. But I don't think that, that's -- I mean, again, it's not meaningful additional capacity. It's just some additional capacity that came into the market. And I suspect that as this participant continues to push his products, particularly within wholesale and growing wholesale, which they are doing well, that additional capacity should be limited and thus, the opportunity to be more aggressive also.
Our next question comes from Mohammed Ahmad with FGP.
My question relates to just confirming a couple of comments that you already made. One, just on consumer products volume growth. I think in your notes, you said it -- the domestic market is flat. So should I assume that consumer products volumes to be 0% for the Q1 compared to, say, minus 5% in Q4 and plus 1% in comparable quarter last year? And I have one other question.
Sure. Thanks, Mohammed. Thanks for your question. Now here's a breakdown. I mean, volume in consumer products was a little bit over 2% under last year, and this is because of a good volume comparison in first quarter of last year, one. Two, because of the Easter holiday that this year was in March versus last year in April. And that always has an impact on volumes, and this one was an impact, particularly at the very end of the quarter. Three, the -- and we've been a talking about this also, the inventory management of our clients. Also -- or four, sub-domestic consumption. And so those are the factors that made volume be under last year. It's still an important improvement sequentially. It's approximately 7% volume improvement from first quarter to the fourth quarter of last year. But given all of the other factors that I just mentioned, volume was down, and price and mix was almost 6% increase, with price a little over 4% and mix making up for the difference. And that's really what allowed us to grow on consumer products.
So -- sorry, you said plus 7% sequentially. What is the normal seasonality Q4 to Q1? Or what will be the average for the last 3, 4 years?
Usually, volumes in fourth quarter and -- are slightly, but just slightly, stronger than volumes in the first quarter. So the fact that this first quarter, volumes was better sequentially is a good sign.
So basically, you're saying maybe minus 1% normal to seasonality to plus 7% this time around?
Correct.
So that's a massive improvement then, or just a little improvement.
No, it's an important improvement, no doubt.
Okay. My second question was on the margin side. You did have the new mill come into production. I think you mentioned in your comments just now that the margin is actually dilutive impact on overall business. So just from a consumer business margin perspective, what kind of improvement would it have been?
Well, as you know, Mohammed, we don't break down the margins by business. And this is [very simple to our] competitors. [We're really the only one that reports publicly]. And we believe that we open it up, it will be a competitive disadvantage. These guys would know exactly where we stand. Why, we'll confirm, is that exports was a drag on our margins. And on the consumer side, we continue to see sequential improvements on our margins and they are healthy margins.
Our next question comes from Luis Willard with GBM.
I'm sorry if I get a repeat question. I got cut off right at the beginning of the session. It's only 2 questions. The first one, you mentioned in your comments about the strategies and the initiatives that you made on the point of sale regarding additional promotional efforts and investments. Can you talk a little bit more about that and if you see 2018 as recurring -- as these investments recurring onto 2018?
Yes, Luis. On the point of sale, I mean, really, this has to do with our innovation plan to strengthen our brands. And I think this year, we have a very strong innovation plan. We've pretty much, to this point, have changed our lineup in bathroom tissue, are also changing our lineup in diapers. We've made some innovations in wipes. We made some innovations in soaps. And then we really have put a quite of bit of innovation out there in the market. And we feel very comfortable with the pipeline that we have coming for innovation. And what we're doing is one, spending on advertising to support those innovations and strengthen our brands, which you know is one of the key metrics we follow. We want to make sure that our brands are healthy and strong and well positioned out there in the market. So given that we have a strong plan -- a strong innovation plan, we're putting more investment behind it. And we're also putting a focus on making sure those innovations are well lined up, presented, exhibited at the point of sale. So again, it all comes from a strong plan to support our brands and then how we execute to make sure those innovations really get to the consumer and are well understood. And we -- to the extent we continue to push innovations forward into the market, that's certainly something that we'll put a lot of focus on.
Okay, Pablo. And if I may, the second question. Your inventory -- your rotation of inventories continues at levels historically high. And as we go further down 2018, do you see this number rationalizing towards, I don't know, maybe 40s or something like that on the back of the movements of price and volume that you expect through the year?
Look, our -- we believe our inventory rotation is healthy, but we've seen better rotations in the past. And really, the fact that our inventories grew a little bit for the quarter has to do with 2 things: one, that again our volumes in consumer product compared to last year were still down, and we expected slightly stronger volumes. So in the end, we ended up with a little bit more of a finished product inventory that we would have liked to. And two, given the strong cost pressures, we anticipated some purchases to take advantage of current costs versus costs that could be coming in the future. So we will continue to manage our inventories aggressively. And although they are a good number in terms of rotation, we believe we can improve upon that number. And I think you will see that happening in the coming quarters.
Would you say that managing inventories aggressively on the raw material side would be a way to protect profitability and free cash flow versus FX volatility? Is that the way to read it?
Look, it would be a way to protect margins on cost and cash flow if we were making purchases beforehand, and then you would see raw materials not continuing to increase. But again, the fact is that it's helping us on the cost side, but raw materials continue, unfortunately, on the pulp side to increase almost every month. So it helps, but it doesn't have the impact we would -- that we could expect it to have in other -- some other circumstances.
Our next question comes from Alex Robarts with Citigroup.
Yes. I wanted to start first on going back to your comments around the volume trend in the first quarter. Could you help us understand perhaps a little bit more about the market share dynamics in the core and Away from Home segments, if you could perhaps tell us how things were on the back of your price increase? And we have talked about in a couple of -- in the last 2 calls, the inventory, the low inventory strategies of some of your customers, particularly more recently, in the traditional channel. I wonder if you could give us an update on that. And then I have one last question on SG&A.
Sure, Alex. First, on shares, let me put it this way. Our shares vary by category, of course. But overall, we have the same value share sequentially. Now our volumes, the volume trends, volumes have improved in part because even though volumes are soft in most of the categories as we mentioned in the fourth quarter, as we moved ahead on pricing and competitors have not followed suit, we had lost some volume and some share in particular categories. We have seen some of that share. And with that, some of those volumes come back as competitors have started to move forward on pricing. And some -- be more reasonable, if you will, on promotional affiliate. Again, it's a mixed bag. But overall, our value share continues to be strong, and it's pretty similar to where we were last year. On the inventory side of the retailers, what we've seen -- I mean, last year, we talked about particularly the Modern Trade being very aggressive on inventories starting by the biggest participant and then having some others move forward on inventories. And what we've seen from the market, that we expected this to happen, was that most are following suit. So as they've seen Modern Trade move forward with inventory reductions, we've seen most of the channels, wholesale, convenience, et cetera, also follow suit and try and reduce inventories. So some clients working on reducing inventories, and those who had already done it, being very careful and managing inventories, still in a very, very conservative manner. So this is still impacting volumes, and we expect that to continue in the coming quarters until it settles down. But it's certainly having a much lesser impact than it had last year when the big guys were moving forward to reduce inventories.
Sorry. So to understand, on the traditional channels and perhaps, that is where there's some residual low inventory activity. Is that fair to say?
Yes. I think -- let me summarize it this way. I think we're seeing traditional channel trying to mimic what modern channel has done, and some in modern channel have not reached their objectives. They moved forward, but they have not completely reached their objectives.
Got it. Okay, okay. And as I think about your comments around the market share, the volume share, and I think back several years ago during fiscal reform when you really focused on keeping that volume share steady or close to steady with the argument that timing gain [indiscernible] lost share back, is that tough or the dynamic in a decelerating economy or when real salaries continue to decline? Is it perhaps your thinking that you'd forego more share in the coming quarters with the view of trying to keep [on] offsetting some of the cost increases? Or might there be a time at some point this year where you'd kind of call it a floor and focus on the volume share?
Look, as we've said all along, Alex, we monitor the strength of our brands and our positioning and thus, our share both in volume and value very, very closely. And to the extent we feel that our position is still strong and our brands are performing well, we're okay. The minute we feel that our strength -- one of our brands is weakening or that our volume growth is really challenged because of what competitors are doing, no doubt, no doubt, we will be -- we will react. What we expect is given the big pressure that we all have faced again for a protracted -- for a long, long time really because of the virgin fibers, that most will move forward because it could be said that we all need to improve our margins, and that's why we've seen some competitors move forward. And to the extent that's happening, we will continue to look for opportunities. But make no mistake about this. If they become much more aggressive in their strategies to steal share away from us, we will react, and we will continue to focus then on some of the other things we've been doing to improve our margins, particularly operate more efficiently and be more aggressive on our cost reduction program. As I mentioned, we've already identified this year MXN 850 million. That's things that we have perfectly identified and are already executing. We are very confident that we might reach again the MXN 1,000 million mark and -- for the year, and we will continue to look for more. So we will use all the levers we have to improve our margins while being very -- while protecting our positions and protecting our shares because for the long term, that's very important that we continue to focus on that.
Very clear, very clear indeed. The last question, just on SG&A, and I appreciate the reference as to why there was an increase in that SG&A line as a percentage of sales with the reference to incremental distribution cost. And I was just trying to understand. You've talked about some of the distribution expenses related to the soap acquisitions and kind of bringing that business up to where you want it to be. Is there -- where there other elements around the distribution cost pressures that might suggest a step-up? Or is this perhaps something again related to a short-term trend?
Sure, Alex. I think the distribution expenses, the increase in distribution expenses really had to do with, among many others, but 2 things in particular: one, the increases that we saw last year on gasoline prices, which certainly impacted costs; and two, let me call it a reorganization that we did to try and improve in an important way our service to our clients. I think going forward, what we could expect as we made this reorganization, we put quite a few things in place. They are giving us good results. But as we've executed, we also had started to identify opportunities to continue to deliver good service while bringing down those costs. So I don't expect from a reorganization standpoint that cost will continue to go up. On the contrary, I think we will see improvements going forward in terms of gasoline costs and overall distribution costs because there seems to be a lack of transportation out there that we're all having to deal with. We'll see how that behaves. But at least, what we can control, we believe we're doing better and we will do better at a lower cost.
[Operator Instructions] Our next question comes from Howard Gleicher with Aristotle Capital.
A quick follow-up on some of the questions on the competitive environment, but perhaps maybe looking out several years instead of quarters and taking pricing out of the equation. There are some indications that perhaps some of your competitors would be able to close the gap on the features or quality between yourself, which has always been far superior to others. But perhaps they could close the gap over the coming years with a renewed emphasis or an ability to enter the premium market, and diapers is an example. Are you seeing any of that? Are there indications of that? Would you be able to sort of maintain the quality leadership that you've had over the long term?
Thank you, Howard. Thanks for your questions, very good questions. Look, over the years, and there's no doubt that competitors have improved their technology and the performance of their products. As they've done that, we have worked hard to maintain our differentiation and our superiority in our technology, on our products. And we are very conscious that this is a never-ending battle and that they will be very aggressive going forward as they work with new materials, new technologies to not only try and catch up, but I'm sure to try and have better products than we have. Now having said that, we, ourselves, of course, are working on important innovations going forward. And we are, together with our partner, Kimberly-Clark Corporation, spending on R&D aggressively to make sure we maintain that edge and maintain superiority and are always or try to be always first to market with not only new technologies but certainly, superior technologies. And as we do that, we will try and pass that on to our different tiers because as you know, we have a tiered channel differentiation strategy. So it's very, very important for us to continue to innovate in the upper tiers, so that then we can trickle down innovations to the lower tiers. We've been very successful doing that in the past, and we, I'm sure, will continue to be very successful doing it in the future. And we love a challenge that our competitors are getting better and getting closer, and we will step up our efforts and respond to that channel.
At this time, we have no further questions. So I will turn it back to Mr. González for any closing comments.
Nothing more to say. Just thanks so much for participating in the call. I hope you have a good second quarter, and I look forward to talking to you guys in July. And of course, Azul and Fabian are ready to take any calls to answer any additional questions that you guys might have. Thanks again. Talk to you soon.
Ladies and gentlemen, that concludes this morning's presentation. You may disconnect your phone lines, and thank you for joining us this morning.