Fisher & Paykel Healthcare Corporation Limited (FPH) Earnings Call Transcript & Summary

Welcome to the Fisher & Paykel Healthcare's Results Conference Call. My name is Cynthia, and I will be your operator for today's call. [Operator Instructions] Please note, this conference call is being recorded. I would now like to turn the call over to Marcus Driller, VP Corporate. Please go ahead.

Thank you, Cynthia. Well, good morning, everyone, and welcome to Fisher & Paykel Healthcare's 2023 Financial Year Results Conference Call. On the call today are Lewis Gradon, our Managing Director and Chief Executive Officer; Lyndal York, Chief Financial Officer; Paul Shearer, Senior VP of Sales and Marketing; and Andrew Somervell, our VP of Products and Technology. Lewis and Lyndal will first provide an overview of the results, and then we'll open up the call to questions for the team. We'll be discussing our results for the year ended 31 March 2023. We've earlier today provided our 2023 Annual Report, including financial statements and commentary on our results to the NZX and ASX. These documents can be accessed on our website at fphcare.com/investor. With that, I'd now like to turn the call over to Lewis.

Okay. And thanks, Marcus, and welcome, everyone. So today, I'm going to be referring to the investor presentation pack that we released to the NZX and the ASX this morning. We do have limited time and our roster of analysts is continuing to grow. So I'm very conscious of leaving plenty of time to get to all your questions. We're thinking that we'll try to move through these initial slides a little faster than we normally do today. And for this audience, we think it's a little more meaningful to focus on our second half performance. So let's start on Page 4, our second half results. And we're coming out of 3 years that we're impacted by COVID-19, and we think this result is encouraging as we can see market conditions progressing towards more of a normal state over the last 6 months. Operating revenue for the second half was $890.5 million, that's up 14% on the prior corresponding period or 12% in constant currency. Net profit after tax for the half was $154.4 million, which is flat compared to the prior corresponding period, and it's a 3% decline in constant currency. So let's turn now to Page 6 for Hospital. Hospital operating revenue was $584.8 million for the half. That's up 9% or 7% in constant currency. For the full year, Hospital hardware sales were down 53% in constant currency compared to the 2022 financial year. And that is a year that was much more heavily impacted by the global COVID-19 surges. Hardware sales have still benefited from surges during FY '23 in some locations. But in those countries or regions that did not experience COVID-19 surges, hardware sales look to be tracking somewhat close to pre-pandemic patterns throughout the year. New applications consumables revenue for the second half was up 14% on 2022. That's 13% in constant currency. And given that we are lapping a period significantly impacted by COVID-19, we think this is a very pleasing result, and we believe it indicates steady progress in increasing use of our therapies. Overall, in Hospital therapies, we'd say we are beginning to see periods of stable ordering patterns in the second half of the 2023 financial year and into the early months of this year, FY '24. We'll turn now to Page 8. Homecare operating revenue was $303.9 million. That's up 25% on the second half of 2022 or 22% in constant currency. I would say, mask revenue was particularly strong at 28% or 24% in constant currency. Now we launched our Evora Full mask in the U.S. in May 2022, and it's been a significant contributor to mask revenue. That is one of the most positive mask launches we have ever experienced, both in terms of customer feedback and sales performance to date. Now I will pause there and hand over to our CFO, Lyndal York, for more details on the financials, and then I'll speak to guidance after that. Over to you, Lyndal.

Thanks, Lewis, and good morning, everyone. On Page 9, gross margin for the year was 59.4%, down 325 basis points from last year or 369 basis points in constant currency. The cost of freight continues to be elevated, and compared to pre-COVID-19 rates, impacted our constant currency gross margin by approximately 230 basis points for the year. This is a similar impact as we saw last year. We saw hospital customers destocking leading into the year, and in response, we reduced our production volume. This resulted in manufacturing inefficiencies due to underrecovery of overhead costs, which are largely fixed, and labor costs. We've also started to see the impact in our margin of labor and materials inflationary cost increases. As anticipated, we saw an improvement in our second half constant currency gross margin, which was up 179 basis points over the first half, driven by lower freight rates and price increases. We have shown over the decade prior to COVID that through our regular focus on efficiency, continuous improvement and cost-out, we've been able to achieve an annual average of around 125 basis points improvement in our gross margin. Over the last 3 years, our focus and effort has been on increasing production, sourcing materials and getting our product to customers to treat patients at all costs, if and when they needed it. Our usual operational focus on margin maintenance or improvement was secondary. This is reflected in the decline in gross margin you can see over the last 3 years. We've returned now to our usual practice of working on efficiency, cost-out and margin improvement. However, we are also facing significant inflationary pressures on our input costs. We are confident we will return to our target of 65% as we've shown we can do. We are aiming for annual improvements of around about 150 basis points on average to return to our target. For FY '24, we anticipate an improvement of approximately 200 basis points in constant currency from FY '23, with ongoing improvements from freight rates, price increases and manufacturing efficiencies more than offsetting inflationary increases in labor and materials. At May exchange rates, that would translate to about a 100 basis point improvement in our reported gross margin. Moving on to Page 10. Total operating expenses grew 11% or 7% in constant currency. Operating margin was 21% as we continued our focused investment through the demand fluctuations over the last few years. R&D expenses grew 13% to $174 million as longer-term projects accelerate. R&D expenses were 11% of revenue for the year. We have estimated that approximately 60% of our R&D spend will be eligible for the 15% R&D tax credit this year and expect about the same level of eligibility for FY '24. SG&A expenses increased 10% to $432 million or 4% in constant currency. We have set a target operating expense growth for FY '23 based on approximating an 11% compound annual growth rate from FY '19. While we exited FY '23 with pretty much the number of people we were targeting, it took us longer than hoped to bring them on board. This 9% increase in people during FY '23 will lead to a higher expense growth next year, reflecting the lower-than-target growth in FY '23. We are anticipating operating expense growth of approximately 12% in FY '24 at May exchange rates. This is largely driven by the full year cost of the people added during FY '23 with a small increase in people in FY '24. Moving to Page 11. Operating cash flow this year was $238 million, reflecting the lower profit. Our working capital also increased in the year as receivables grew, reflecting the phasing of sales at the end of each year. Payables reduced, reflecting timing of purchases from suppliers. Virtually all of our operating cash flow was generated in the second half of the year as we reduced inventory by $33 million in the second half. Capital expenditure, which includes purchases of intangible assets, was $211 million for the year. The increase of $42 million from last year is primarily due to land and buildings. We completed our third building in Mexico and continue to progress our East Tamaki campus development, including earthworks for our fifth building. In September, we paid a deposit of $27.5 million for the acquisition of land for our second New Zealand campus. The second payment of $190 million was made on the 11th of May. Capital expenditure for FY '24 is expected to be approximately $450 million, including the payment made this month for the land. The balance sheet remains strong. Net cash at the 31st of March was $38 million, and our gearing ratio was minus 2.3%. During the year, we put in place net additional borrowing facilities of $450 million to have sufficient funding for our strategic acquisition of land and completion of our East Tamaki campus building works over the next few years. With the $190 million paid this month for the land and the continued infrastructure investment, we expect to have higher debt and interest levels and have a gearing ratio over our target range of minus to plus 5% for the next 3 to 4 years. For FY '24, we are expecting net interest expense of approximately $16 million, up from $4 million this year. Turning to Page 12. We've declared a fully imputed final dividend of $0.23 per share. This represents a 2% increase on the final dividend declared last year and continues our track record of increasing our dividends to shareholders. It will be paid on the 7th of July. This brings the full year dividend to $0.405 per share, up 3% on last year. Our dividend reinvestment plan remains available for eligible shareholders, with a 3% discount to the market price. Looking now at foreign currency on Page 13. Foreign currency movements positively impacted our profit after tax by approximately $10 million compared to the last year primarily due to the New Zealand dollar being weaker on average through the period. Now back over to you, Lewis.

Okay. Thanks, Lyndal. So now let's turn to guidance on Page 14. We have provided revenue guidance of approximately $1.7 billion for FY '24, and that's at May exchange rates. Almost all parts of our business have had a myriad of influencers during FY '23, and they've got quite disparate and distinct impacts on each half. So rather than trying to normalize those effects, revenue guidance for consumables is based on the recent ordering patterns during stable periods, and that's territory by territory. The assumptions incorporated in that guidance for our Hospital business are: a normal flu season, no hospitalization surges during the year, and anesthesia growing strongly off a fairly small base. For Hospital respiratory consumables, our assumption is that we continue to see the steady progression that we've seen through FY '23 of increasing usage. And that's been prescribing physician by prescribing physician, respiratory therapist by respiratory therapist, department by department and patient presentation by patient presentation, and they all overlay. At the moment, our sales efforts are focused on consumables growth on the installed base of Hospital hardware rather than on incremental hardware sales. And Hospital hardware is difficult to forecast at the best of times, with no clear or stable patterns being normal. And it's even more so at present. So we used a different approach for Hospital hardware in our guidance compared to consumables, and as a result, we called it out, although we don't feel it's particularly material to the year's result compared to the rest of the business. And we specifically called out $115 million of Hospital hardware is what's included in our revenue guidance total. And in the absence of those stable ordering patterns, this number is approximately in line with historical growth rates of pre-pandemic levels. Now Homecare care is largely driven by OSA masks, and we're lapping a very strong FY '23 where we benefited from the very successful introduction of our Evora Full OSA mask in the North America and a reduction of the CPAP supply backlog and potentially some competitor issues. As we move through FY '24, we see market conditions continuing to return to more of a historical norm. And then overall, these assumptions would result in approximately similar revenue growth rates for Hospital and Homecare product groups for FY '24 at May exchange rates. Now Lyndal has already provided an outline of our expectations for gross margin and operating expenses. But just let me reiterate that during the pandemic, we had a responsibility to get as much product as possible into the hands of our customers. And now as demand progresses towards more of a normal state, we're shifting from a supplying-at-all-cost mentality to supplying in a sustainable and profitable manner. And as we do so, we're confident in our ability to return to our long-term gross margin target of 65% within a 3- to 4-year time frame. And our FY '24 operating expense guidance is largely driven by the full year cost of the people that we added during FY '23. So I end my remarks there. I think we can now open the line to questions, Marcus.

Yes. Thanks, Lewis. Cynthia, if I could ask you to please open up the lines for questions. And before we begin, can I please ask everybody to limit your questions to 2? This is to ensure that everybody has an opportunity to participate. You do have further questions, you're welcome to rejoin the queue, and we can do our best to cover everything off within the hour.

[Operator Instructions]

Thanks, Cynthia. The first question in the queue comes from Gretel Janu at Credit Suisse.

Just to start with the guidance. So you have OpEx growth faster than sales growth. I understand that to do with the sales force. But when do you expect to actually see a return on that investment you are making in the sales team? And when should we expect the revenue growth to exceed OpEx growth looking out past FY '24?

Sure. Thanks, Gretel. I think we need to go back to fundamental strategy in FY '23 -- the FY '22 as well actually, which was to make sure we have salespeople in place to support the hardware that our customers have acquired. That was step one. Step two, grow the anesthesia sales force. And then the next strategic target was to advance our R&D product pipeline. So that's what we've done through '22 and '23. I think going forward, if we need to -- or I think probably the next comment is we're always going to have our eyes on that operating margin target of 30%. That's probably the fundamental driver. And if, over time, we need to take operating leverage to get to that operating margin target, that's what we'll do. And that has been our history prior to FY '19.

Understood. So we should basically think of FY '24 then as kind of the new reset and then after FY '24, then we should return back to that kind of normal margin improvement story. Is that correct?

Yes. In the sense of -- historically, we've been able to make gross margin improvements year-on-year. We would expect to get back to that style of operating. And also, historically, if we need to make -- take operating leverage to get to an operating margin of 30%, that's what we'll be doing.

Great. And then just secondly, just in terms of Hospital consumables and the stocking, destocking issues that you had that impacted in the last 6 to 12 months. Has that now been completely resolved? Are buying patterns of vaccine kind of pre-COVID levels now?

So yes and no answer to that. We think that in the major markets, it probably has been resolved. Typically, when you have a COVID surge, there's a bit of an overhang of destocking, and it's really, really hard to estimate that because it overlaps so many other movements. But we think on the whole, there might be a little bit of residual destocking in FY '24. But at the moment, anyway, thinking probably not material.

The next questions come from David Low at JPMorgan.

Well, if we could just start with the utilization trends. I mean I heard what you said there about going doctor by doctor and department by department. But if you could perhaps shed a little bit more light on what you've seen, you were obviously pretty interested in new applications growth. Just wondering if you could sort of flesh out what you're seeing on the ground and what the trends could be over the next 12, 24 months.

Yes. Let me start with that, and then I might pass over to Paul for some color. But I think that is the summary. It is doctor by doctor, therapist by therapist, department by department, patient by patient. And I think that probably shouldn't come as a surprise to us. That's been the history of the business. We haven't really seen any sort of spontaneous change anywhere. It's really just that steady progression. And I think we're seeing it in all regions. I would say that probably all salespeople have seen evidence of that steady progression. We do see evidence when we're working with an account, we get a result. And then if you think what kind of result and what kind of evidence, there's a bit of everything, I would say. Every scenario you can imagine is in there. Paul, do you want to add some color?

I can't read much more -- but David, I'm just echoing everything Lewis has said, just been away for the last couple of weeks around the various sales teams. He just heard from everybody, they're making progress. We're making -- we're getting Airvos into departments, into emergency room, obviously, in the ICU, into the wards. We're getting patients put on some of those Airvos. We're working with commission to commission. We're just making good steady progress.

I think maybe one final comment, David, is if you look at new apps second half constant currency, 13% growth. I mean that's lapping a global Omicron spend up. So we think that's a pretty good result. And we think that's evidence of that steady progress.

Yes.

Okay. I mean we're very used to kind of measure it on a utilization number of consumable setups per annum per device. Is that a data point that you track? Can you give us any sense as to where you think things are now versus where they were pre-pandemic, please?

Yes, I'd really like to get you off that metric if I could. And I'll give you a couple of the complications. First of all, we've got a very flexible installed base, right? Most ventilators in intensive care for invasive use these days, they're going to deliver nasal high flow noninvasive ventilation or invasive ventilation. Most noninvasive ventilators are now being in intensive care. They'll be in emergency departments. They'll be in respiratory wards. They're going to deliver nasal high flow and they're going to deliver noninvasive ventilation. So when we go to a metric like that for our installed base, the installed base is quite flexible. Then the second reason that makes that metric not so useful for us is that very different patterns of usage that you see throughout a hospital, right? In an ED, you might have 3 or 4 patients a day on a piece of hardware in a surgical unit, may be one in an ICU. Average patient stay might be 3 or 4 days. And when you get to a ward, a patient could be there for a week or longer. They've got really different patterns of usage. I think 10, 15, 20 years ago, the metric was fine for us. We were largely ICU. We're largely one therapy, and we're largely one set of hardware. So I think, at that time, it made sense. Now it just doesn't add up for us because of those different patterns of usage. And as I said before, we see kind of every variation on the thing. We can see hospitals pretty well penetrated -- or better penetrated in wards than they are in EDs and vice versa and so on. And then thirdly, there's another phenomenon going on there, David. And that is -- and we tried to illustrate this a little bit on one of the slides in the pack this time around, somewhere in the 30s, I think. But as a hospital gets more penetrated, as they get more hardware, apparent utilization can drop. And this is kind of if we -- if you had 3 or 4 Airvos in your 50-bed ED, you're using them flat out all day, every day, and utilization looks really high. If you bump that up to 20 Airvos, it looks like utilizations drop, but that's actually a great outcome. And if you go to the extreme example there, if we had a hospital with an Airvo in every single bed, that would be the lowest utilization we would ever see, and it would be the greatest success we could ever have. So a long-winded answer to your question, David, but I just really want to explain that we're not being coy about it, it's just not a number that has any utility for us.

All right. My question is I would like to understand what metrics we could look at as an alternative, but we can perhaps touch on that another time.

I think just -- we'll go there. Look, it's really about patients treated. That's the goal. That's what we're after, and that's the measure of progress. And that is reflected in consumables.

Thanks for your questions, David. Really appreciate it. Next questions come from Matt Montgomerie at Forsyth Barr.

Maybe just a question on OpEx, Lyndal. You made the comment in your remarks, just that you're expecting a small increase in people in F '24 on the back of a 9% increase in '23. That seems low to me. Are you, therefore, saying that you're currently comfortable with the headcount within the business to drive utilization of your installed base? It sort of doesn't really align with strategy in prior commentary.

Yes. Let me take that one, Matt. No. So the small increase in people is largely in the sales team. That's the main driver, and it's continuing to build out the anesthesia sales team, and it's continuing to support the hardware that we placed in our geographic expansion.

Okay. That's fine. And then maybe just further on David's question before. Slide 37, I appreciate this improved color and disclosure. Can you maybe just talk to these numbers in terms of usage and locations in a pre-COVID world? And I suppose it's just another way of asking sort of the uptake trends that the other analysts have asked.

Yes, let me just get to Page 37. Yes. So look, we really are trying to illustrate that point of you've got different usage, different apparent utilization or different turns rates depending on where you are in a hospital. And we have taken -- this is actual data from a hospital, it's at the pretty good end of Optiflow adoption. So that's an excellent example. And I think if you start -- the point there is if you look at where are the Airvos on the right-hand pie chart, you've got 3/4 of the installed base, these in wards. And in this case, that's generating about half of your consumables. And it's probably underpenetrated. We've got 11% of our hardware in intensive care. That's generating about 1/4 of our consumable. Intensive care in this case, and this would be quite common, is pretty well penetrated with Airvos. That's generating a quarter of our revenue. And then you look at the other 13% of the installed base that's in emergency departments. That's generating the other quarter of the consumables consumption in this case. And that's quite an underpenetrated ED. So I think all we're trying to illustrate here is that 10, 15 years ago, this was largely in ICU. And if you look at a more advanced adopter case study, you can see a very clear trend to usage outside ICU. And you can see really there's a significant opportunity outside ICU that's being realized there. That's all we're trying to illustrate on that slide.

Next question comes from Craig Wong-Pan at RBC.

My question was just on the gross margin improvement, the sort of expectation of getting back to that 65% over 3 to 4 years. Should we think about that as like a gradual improvement up to that level? Or is there going to be step changes as you get sort of volume increases and manufacturing efficiencies?

Yes, Craig, thanks. It's going to be a gradual change and it's not going to be linear. So it will be sort of -- that's we said, on average, about 150 basis point improvement per year. We're looking at a bit higher than that in constant currency for FY '24 as we will be able to get a stronger improvement in the manufacturing inefficiencies that we had in '23 as we move into '24. The exact timing of that and the quantum will be a bit dependent on the inflationary cost increases that we're seeing and mitigating in our usual practice of improvements.

When we're working on gross margin improvement, there's so many levers that are all being nudged. There's so many moving parts there.

Okay. And then my second question, just on the Hospital hardware sales that came from COVID. Are you able to give some color on how much that was in FY '23?

Yes. Look, the sum we do may be right or wrong. But to answer the question, we take FY '19 as a base year, and we've put 3% to 4% growth a year off that. And we'd call that normal. And there's not a lot of -- there's no other rationale to that. So if you apply that to FY '23, you get around about $40 million coming out of -- due to COVID, $40 million.

Next questions come from Dan Hurren at MST Marquee.

One for Lyndal. I just wanted to ask about that 12% OpEx growth. And some comments you made in the past that's getting harder or it's been hard to spend up for that spend than you might expect. Can you just talk about the operating environment and the risk that you might underspend that number in '24?

Yes. We were talking about that mainly last year where we were aiming to add quite a lot of people through FY '23, and that's what we were really referencing and why in '23, we were saying, look, we're targeting this sort of growth, but it is dependent on adding a lot of people. And as I mentioned, we have actually managed to add them through '23. It just has taken us a bit longer to get them in place. They're actually largely in place now. So that's why we're seeing that growth into '24, which is largely baked in now.

Got it. Okay. And just a follow-up -- a second question, just I think, follow-up with some other questions about COVID and the operating conditions. You mentioned China COVID and the U.S. flu season in the January update, and you're guiding to basically no COVID and a normal flu season FY '24. So I was just trying to get an idea of what that second half hospital level would have looked like under normal conditions. And perhaps if we look at your pre-January revenue guidance, is that a fair assumption of what it would have looked like if those 2 events hadn't occurred?

Yes, I think so. I'm still trying to process the question.

So look, I'm just trying to figure out how much benefit there was from that strong flu season and the China COVID that you mentioned in January. And the way I'm thinking about it is that your pre-January guide -- revenue guidance, is that kind of indicative of where you would have been had you not had that COVID surge in China and the strong U.S. flu season?

No, that's kind of -- well, let me take that one by one maybe. So when we look back at FY '23, we've got a whole range of competing myriad of effects going on there. We've got destocking running through, probably abating but maybe still in the second half. We've got some potential overstocking here and there in [ markets ] running through the year. As you mentioned, you've got your seasonal flu impact, we've got seasonal RSV impact. And those are all happening at the same time as you've got some underlying growth in clinical usage. So -- and they all overlap of it. We don't have a fundamental data point for any of those things. So what we have tried to do for you is try to have a look at exactly your question, how could you potentially normalize that? The only way we can really do that is look at the recent stable trends, have a look at our normal historical sales trends and overlay them. So when we do that, we get a net benefit to the second half of somewhere around about $35 million in FY '23. But then on the flip side, we would have a penalty, if you like, to our first half of around about $45 million. So I think I just want to emphasize those are kind of rough analytical sums at the top line, I'm talking about Hospital consumables, at the top line. And probably the number I'd be going with would be the net impact is about a benefit of about $10 million for the year. You would add about $10 million to the year. That is a rough sum.

Next questions come from Tom Deacon at Macquarie.

Maybe just the first one on margin recovery. Can you just give us a bit of color in terms of where you see that coming from compositionally in '24 trade and manufacturing inefficiencies? And maybe a second part, what kind of hospital revenue performance do we need to see upside to the GP margin recovery guide in FY '24?

Yes. Thanks, Tom. So for those improvements in '24, we're thinking that we probably get about 100 from freight, about 50 from price increases and about sort of 150-odd for manufacturing efficiencies. And then that sort of adds up to the 300 that we're facing cost increases of about 100 basis points coming in and offsetting that in there. Actual sales of hospital consumables next year shouldn't materially impact that because we can sort of either build or deplete inventory depending on what revenue does. So it's slightly less dependent on revenue. But obviously, it could have an impact depending on how materially different that is.

Understood. That's helpful. Maybe just going up to the top line for my second one, and you kind of alluded to a couple of points here, but just to get some clarity. What are you thinking in terms of respiratory hospitalizations and that profile in 2024? And how does that feed through into your hospital revenue guide? Are we expecting lower COVID, a little bit of a lower sort of more normal flu season this year? Can you just give us a bit more color there?

Yes. I just want to give you one insight. This guidance does come from country by country, territory by territory, region by region. We add it all up, and then we try and analyze it, what it might mean at the top line. So these are kind of implications of this guidance. And I think the implication is comparable flu season '24 to '23. That's one of your questions. COVID, I mean, we've got COVID bubbling along in '23. It's probably going to bubble along in '24. I think the implication is probably pretty similar in terms of hospitalization taking out the surges. Does that help?

That's helpful. What about sort of RSV? Would you assume a similar RSV season given that we do the imposition of some vaccines in the latter part of this year with the FDA approvals of for clients [indiscernible].

Yes. So when we go region by region, RSV was mostly material in North America. We haven't seen great data, but we haven't seen much evidence or database evidence out of Europe. And then also, when we look at influenza or the flu season, again, you see probably a pretty normal-looking U.S. number. Europe looks a little bit light. So when we try and analyze it and we aggregate that all up, it all kind of comes out to about normal. So I think that's the assumption and guidance. It's normal, and it's -- if you aggregate that all up, you're potentially lapping normal.

Next question comes from Saul Hadassin at Barrenjoey Capital.

Just a couple of questions from me. Just in terms of the revenue guidance in fiscal '24, Lewis, are you able to give a bit of more detail regarding your thoughts on traditional app sales growth versus the new app sales? Are you effectively thinking new app sales will drive all of that growth, just noting traditional consumables were a bit flat through FY '24 -- sorry, through FY '23?

So we typically think of traditional in the mid-single digits. We think it probably is impacted by COVID surges, overstocking and destocking. But we think to a much, much smaller extent than new apps. So I think there's an effect going on in there. But when we're doing our analysis, we kind of assume that effect is less material than the new apps effect. So we assume it kind of tracks along in that mid-single digits.

And does that translate to maybe a teens type growth for new apps consumables?

Yes, exactly, yes. So mid-teens for new apps.

Great. And then just one more, just on that commentary around recovery of the EBIT margins back up to that sort of 30% target. So -- is it right to assume that if you reach the gross margin target within the next 3 or 4 years, would that EBIT margin naturally inflate back to 30%? Or are you expecting OpEx growth to remain robust over the next few years, in which case you would have to assess those levers around OpEx to get that margin back up to that 30% level?