Genus plc (GNS) Earnings Call Transcript & Summary

Good morning, everybody. It is wonderful to see you here at Buchanan this morning in the room, and I'd also like to extend a welcome to those of you who are joining us via call I hope everybody has seen our H1 interim results, including the presentation that was posted this morning. It is now Alison and my pleasure to host a Q&A session, and we look forward to the discussion. Doriana, do you want to start?

I have 2 questions. Firstly on China, just to give a -- can you give a summary -- can you give us a summary of what exactly is going on in the market which is holding prices to a level which is unsustainable, obviously, it's the second year around and what are expected -- the expected element that might actually change the current situation in terms of the market? So maybe I start with this question or shall I go through all the questions and then...

Okay. Yes, maybe I'll say a few words and then hand it over to Alison. The question is about China. I would say that, in general, the China economy is very challenged. I think we see that across many different sectors. There's obviously the youth employment, there's demographic factors that play a role as well. And so that's had an impact on demand, right? Think about the construction sector in China, which provides a lot of jobs and puts cash into workers' pockets. That construction sector isn't firing on all cylinders. And obviously, that's an understatement. And so that is an impact also on the consumption of pork. So I think that's on the demand side a reason. And then as it happens in China, restructuring of an industry and rationalization and capacity exiting the market is a slow process. And as such, we've seen this market, these prices be below the point where producers are making money on average, maybe the most efficient producers are generating some cash or making some money. But on average, the industry is performing very poorly. So that has an impact on demand for us. I think it's important to recognize that our business, our PIC business, in China is still in the early innings and that we're still investing in that business, and we actually made investments in our supply chain there with 2 farms. We're playing the long game in China, half of the world's pigs live in China. I've traveled to China twice during my time with Genus, once in September with Alison actually, and then later in January, again, to visit customers myself, put my ear to the ground and hear what's going on there and actually came back optimistic. I believe that we can absolutely grow our business in China. We do need a bit better market circumstances because that will trigger kind of the shipments to go out. But we've won, as we noted in the presentation, several very large players in the pork industry. And so that will support our business going forward. And once we get them on the royalty model, I do believe we can build a much more stable business in, in China as well. So that's on the porcine side. Maybe on the bovine side. Look, on the bovine side, I was also surprised by the, I'd say, the severity of the contraction as well as the speed. And so we saw about 20% of the dairy herd being cold in China. Naturally, that led to lower demand on the bovine side and producers are just trying to not part with their cash. And we saw just a demand reduction across the board, so meaning sexed as well as conventional products on the dairy side. And Alison, you want to add to that?

Yes, I guess the only thing I would add is just on porcine for a minute. We've seen prices very muted for over a year now at about RMB 14, RMB 15 per kilo. Interestingly, literally in the last couple of weeks, the input costs for producers have improved a little bit. So when you look at the ratio that we show in our chart in our presentation of price to corn, it's just getting above [ 6 ] now, but that is literally in the last 2 weeks. So we are taking a very cautious for the rest of our financial year and assuming that producers continue to have a tough time.

Okay. And my follow-on question on this one is, I think you alluded in the release that you're looking at ways to accelerate your cooperation with BCA. I mean, currently, you have a deal that is hinged on the approval of PRP. Can you give us a little bit more color on what exactly are the venues that you might be exploring bringing it forward, changing the terms, anything along these lines?

Yes. As you note, we have an agreement in place with BCA, Beijing Capital Agriculture. Once we get -- once we obtain the PRRS resistant pig approval in China, a JV will be formed with them. That is the existing agreement. The relationship, the working relationship with them is very good. They are very excited and optimistic about the prospects for PIC China. And so we are exploring whether potentially we can pull that deal forward. And so there's interest on their part to discuss that. Alison?

Yes. No, I think just to remind everyone of the agreements we have in place upon commercialization, we would sell 51% and of PIC China to the BCA forming a joint venture with them. And the broad terms of that transaction is currently articulated is a price of $120 million to $160 million for that share in PIC China.

Can you remind us what the final price was going to depend on?

It's -- There's a formula in the agreement, which relates to the performance of the business. And -- but there's -- it's -- if the price falls within that range. Basically, you can't fall that balance out that range.

And -- my final question is on the actions that you are -- you've been taking for ABS to improve performance. Just to clarify, it sounds like you've already achieved the annualized level of GBP 10 million savings for -- I mean, with the action already taken. I just wanted to clarify whether there is a belief that there could be more on top of it. I think in the presentation, there was a mention on some actions taken in the U.K. that might be applied also to other markets. Can you tell us a little bit more about that, please?

Yes. you're absolutely right. I mean the ABS value acceleration program is a comprehensive program. It does include cost action, and you rightly referred to the GBP 10 million annualized savings that basically have been achieved already, those cost actions have been taken. But at the heart, the value acceleration program is not only about cost action, yes, there could be more cost action but ultimately, it's about driving higher margins and better return from ABS. And so as such, this program is not necessarily driven by the current kind of market headwinds. It is something that we started working on in September, October time. And we're deploying a data-driven approach to look at our customers and to look at our markets and to look at the returns that our go-to-market organizations are generating. You may know that if you look at the cost stack in ABS, there is a pretty high cost in our go-to-market organization, so to salespeople, technical service people. So deploying these people on the right customers in the right markets is absolutely critical to ensure that we get an appropriate return on differentiated products, but also on the services that we deliver to our clients. So that part of value acceleration actually kicked off in January, right? So that's underway at the moment. As I mentioned, the data-driven approach, and you referred to the U.K., we've seen some very positive results in the U.K. around our service delivery. Okay, that is the U.K. So we're now building on that and making it a much bigger program. Yes?

Okay. If I could just remind our online audience, if you'd like to ask a question, please raise your hand on the Zoom webinar. So online audience, please raise your hand if you'd like to ask a question. Back to the room.

It's Andrew Ford from Peel Hunt. Just a couple for me. So in PIC, you're still sort of clearly winning some customers both sort of around the globe but also in China. Can you give us sort of an idea of how that weak sort of end consumer environment sort of impacts your strategic progress? Does it help? Does it hinder? I'll start with that one.

Yes. Look, I would say that in the current climate, it is more difficult to win customers because they're all about preserving cash at this point, right? I mean they are extremely cost-focused. And actually, they are near-term cost focused. Now we can help them with that. I mean we have a proven track record of genetics helping our clients to drive economic benefits. So there is a value proposition there. but they also need to take some deliveries to kind of get the genetics into their system. So they're extremely focused on cash preservation. So I'd say the fact that we have continued to gain market share with PIC across the globe. I think is a testament to the strength of the PIC business. It is obviously the genetics, but it is also the supply chain, and it is also the quality of our go-to-market teams and our service teams. And so I think in China, the fact that we have gained customers that are among the largest producers, right? You see some of the names in the deck, Shuanghui, which is owned by the WH Group, who also owns Smithfield, for example, [ TecLex ], they're very large and important players. It shows that there is potential in China. And I don't need to remind the group here that, look, we went through COVID, which was -- had a major impact in China, of course, and we couldn't travel there. So I'd say that our business was kind of handcuffed for a while. Those handcuffs are off now. And so we have people that are traveling into China. We're training our sales teams. There's a very active engagement that you're seeing now kind of that having an impact on our ability to gain customers in China.

I'd add to that. In the other markets, we -- regardless of the market circumstances for producers, PIC is regularly gaining share. And that's not just because they win new business with new customers, but they are aligned to the most successful producers. And those producers in tough circumstances are continuing to gain share themselves. So there's that, but also just gaining share of the addressable market they have with the customers they have. And we see that time and again, North America, Latin America and Europe.

And just another 1 on the sort of the VIP program. So some of it is going to be coming out of R&D. And obviously, R&D is incredibly important for the business. And sort of how are you looking at reallocating that expenditure? Is it sort of more ABS? Or is it sort of PIC? How is the pipeline changing? And just what's the thoughts, current thinking on that?

Yes. So first of all, maybe just a couple of words then on the review that we did on R&D. Look, I think Genus has phenomenal R&D capabilities. I'm incredibly excited about the quality of our scientists, the quality of the work that we're doing. I think it is truly world-class. And just I think PRP is definitely a testament to the innovation capability of Genus as is the Sexcel Genus IntelliGen technology, which I think is incredibly sophisticated. Now that being said, I mean, of course, our R&D expenditures have grown ahead of our profits and ahead of our top line growth. And so as a new CEO coming in, I think it's natural that you want to kind of look under the hood, right, and so of what's going on in that R&D machine. And so we decided to do a review of our R&D activities. And we basically reviewed all of the projects that we have going on in the company. And we looked at them through the lens of 4 criteria. So is it aligned with our strategy. How attractive is the market, so the size of the market, the growth of the market, but also IP opportunities, right? Then we looked at can we deliver a solution, so can we technically delivery solution, but also commercially, can we bring it to market, right? And then it's looking at the overall balance of the portfolio between long term, short term, across species, risk levels and so forth. And I think that's a healthy exercise to do. We use score sheets, data-driven approach. We engaged the entire leadership team but also the next level. And there was face-to-face workshops. They all came together with facilitators and worked through all of that. And coming out of that, I feel even more encouraged and excited about our R&D activities because we now have an even sharper focus on those projects that we believe will really drive value in the future. And you mentioned PRP. So absolutely, if you think about gene editing and that capability, we'll continue to focus on that, and we'll point that into disease-resistant animals, meaning we'll go for other diseases other than PRP as we go forward.

I think it's also just to differentiate what people already abbreviating is there. The value acceleration program is specific to ABS. The R&D strategic review is a separate exercise and it's a onetime exercise. The value acceleration program is ongoing.

That's very clear. And just lastly, on the final settlement with ST. Obviously, there's some financial benefits, obviously, to come from that. But sort of maybe commercially, what else do you see that being more beneficial now you've been able to go after some of the customers, it was maybe a bit harder to you before?

Yes. I mean it's a settlement outside of the court, right, regarding the IP litigation. Yes, I don't think I can comment on it much further, I don't know, Alison. I mean there's no limitations for us in terms of what we produce and where we sell in that regard.

We just got to a point where both parties decided they just want to stop spending money with lawyers. And it just made sense to reach a settlement, and we did.

We make the lawyers rich, yes.

It's Max Herrmann from Stifel. Just going back to, firstly, China and the large potential customers. I know historically, you haven't had a huge penetration of those, the big producers, but you have been in active discussions with them about potential projects. I wonder how that's progressing so just to get some color on the ongoing discussions and obviously, then you've just been out there, so talking to customers?

Well, as I mentioned, we have a real focus on porcine in China given half of the world's pigs live there. One should also consider a PRRS Resistant Pig, of course, ultimately is a tremendous potential in China. As I just mentioned earlier, there was the COVID kind of period where there wasn't any travel in and out. You can imagine with a young organization in China where you have people that aren't as tenured as our teams are elsewhere in the world, it does require quite a bit of training, coaching and guidance. We're able to provide that now. And you see that come through, right? I mean we've won a number of customers that are quite significant in terms of size, right? I mentioned Shuanghui, which is part of the WH Group. TecLex is mentioned there and [indiscernible]. So that's progressing well. but please understand that it will take time until these businesses ramp up. So think about 18 to 24 months until we're going to see the benefit of that. And the market environment plays into that as well.

And then in terms of the PRP and obviously the sort of delay in the U.S. approval. I know that sort of didn't really matter in terms of it was other approvals, Mexico, I think Canada and Japan that you really needed approvals there in order to -- because of the export opportunity you needed to get the U.S. launch going anyway. So I just wonder where you are with those regulators and whether there's any learnings from this kind of review of obviously, the post approval commitments that you'll have to make in the U.S., what that means for those markets?

Yes. Yes. Yes. Look, I would say right off the bat that it's not an exact science dealing with the regulators. Obviously, it's an iterative process. At any point in time, they can raise questions, they can stop the clock. They can even come back having reviewed dossiers, they can come back, which was the case with the FDA. We submitted our dossiers this -- last summer and we have very good discussions with them and excellent engagement. But we were surprised by the fact that suddenly in December, they came back and they went back to our earlier submissions and asked new questions that were not expected and that they had not raised earlier. So that's what drove the delay there. And so those questions are around what we call the post-approval compliance. So it's around the product costs and the procedures around how you take tissue samples, how you ship those samples to our genomic lab in Wisconsin, the validation of the test that we perform there, then how do we collect the data, how do we retain the data in what systems do we retain the data, what are the procedures around that. So I would say that we are very encouraged, actually, about the significant involvement and engagement from the FDA around post-approval compliance. It gives us even greater conviction that the approval will be forthcoming. And we also received some more positive news actually since we issued our trading update last week where they now accepted our genotypic and phenotypic submissions, yes, durability submissions. So clearly, there's progress. What is outstanding now is the environmental assessment and then it's the post-completion, the post-approval compliance, which is around what I just mentioned, data collection. It's also about the inspection of our facilities. So representatives will go out to our farms and to our labs, and they will basically take stock there. So all of that is happening as we speak. Now your question was around the other countries. Yes, you're absolutely right. For us to commercialize the PRRS Resistant Pig in the United States. Our assessment is that we need approval in Canada, in Japan and in Mexico. So is the submission in Canada is ongoing, and we have submitted dossiers. Submission is not complete, but it's underway. Japan, we are preparing for it and doing the translations Mexico is still -- and I think we spoke about that in November is not a very clear procedure or process. It's just nonexistent, that process. So we have significant support from the Mexican pork producers who are keen to get this technology approved in Mexico. And we are working on the basis that once we have the U.S. and Mexico -- sorry, U.S. and Canada approvals along with Colombia that we're in a better place to accelerate the approval in Mexico.

Seb Jantet with Liberum. Two questions, if I may. One, I just want to come back to the VAP as we're now going to call it. I appreciate you don't necessarily want to call out the kind of the benefits that you might get from, let's call it, the second phase of the VAP. But I kind of just thinking back to the kind of the -- some of the comments you made in the past about the achievable margins in ABS. And you've talked before in old margin currency about 20%. And I think today in old margin currency, you're at about 12% maybe. And you've called out about 300 basis points so far. Do we still think that 20% is achievable from what you've seen?

I think we need to do a bit more work. So the work that's -- it's true, just with the action we've taken, we've improved margins. But with the work that's underway now, I think we're really going to discover, really the extent of the margin improvement or profitability that we can develop in the business. So what I can say is I'm absolutely sure there's more margin improvement there. We wouldn't be doing this work now if we didn't think it was there. But I'd like to reserve my answer until we finish the current work that's underway.

If I can just build on Alison's point, right? I mean if you think about it, we've taken cost action. We've decided to integrate 3 units. IntelliGen was under the R&D organization, but it's now reached a scale and size where I believe it's better served as part of ABS, a commercial P&L organization. We're bringing in new leadership. We'll start on April 15. Leadership that I have confidence in, somebody that has driven transformative change in large-scale organizations around globally. But we also have this data-driven approach underway, which we kicked off in January, which is around making sure that we generate go-to-market productivity, if you will. So that's still quite early. I think we'll have greater visibility on what the targets should be probably by the end of this fiscal year. So we look forward to sharing more information, of course, with you as and when we have it available. But I think probably September is a good time for that.

And then sorry to harp on about China. But if I start digging around all of the big kind of producers in China, you get quite an interesting picture, a lot of companies with very high levels of net debt-tO-EBITDA, loss-making, restructuring. I mean it's quite messy, right? And clearly, not something that's sustainable. I'm wondering how do you -- and some of your customers think this is going to pan out? Are they going to pan out with some of these businesses going under? And does that have an impact for you guys? Are some of the business that you're existing already serving businesses that are in those financial distress?

Yes. Yes. Look, I think it's a very important point, and we need to be very thoughtful around who are our partners in China. And who are the players that ultimately are going to win in China because it is clear that restructuring needs to happen. I think we all know that in China, sometimes restructuring can take a very long time due to the involvement of the government. There may be banks that have certain connections to the government. And there's pressure from local municipalities and provinces that want to retain certain producers. And of course, they are important to the farming communities. They consume grains and nutrition and feed. And so all of that plays a role in China. I think it plays a role in other parts of the world, but more so in China. So yes, I think that's for us very important to partner with the ultimate winners and that's what we're reflecting on and we're doing our own due diligence and making our calls on that. Charles?

In my experience, this is probably the toughest ag market that I've certainly seen Genus go through. What do your team feel about the current situation? And do they see this as an unusual situation or a new norm? What needs to change for recovery to come through?

Yes. I mean, Alison, I don't know if you want to comment on that?

I think you're right, Charles. It is tough, both the porcine market and in the bovine markets. And I was talking actually to a colleague last night in our bovine business, he's been around forever. And I was asking about 2016 because that's the last time that ABS' volumes declined. And funnily enough, China had a massive downturn. Brazil was down and North America was down. So we are seeing that at the moment. And similarly, with porcine, yes, there's no question as Jorgen highlighted in the presentation that the North American producers are really having a very tough time. Europe, not so at the -- now, now that production is reduced prices are better. But what I would say is, I think what's interesting is particularly about the North American producer chart. There's lots of evidence of a cycle and some pretty ugly red bars at the moment, illustrating losses, but it's particularly in the North American market, it's a textbook commodity market. And one thing is for sure, it will turn. And in any case, in the meantime, PIC is such a strong business that it can still grow even in this environment. with 97% of volumes under royalty, the North American team know what their business is going to be in the next 12 months.

And specifically on North America, it was a slower rate of growth than you've seen for really quite some time. Was there any -- obviously, some of the producers have been cutting back and that impacts on number of piglets being weaned and so that has a direct impact. But do you see any sort of green shoots coming through for the second half or going into next year?

[indiscernible] Really what happened was that there was no expansion, yes. But yes, PIC North America has more business going forward. It has won other business despite the climate. So their growth will actually be a bit higher in the second half than what we saw in the first.

I would just add, look, I think China played a large role, not only in China, right, because everybody was exporting to China. If that demand is down, that has a ripple effect elsewhere, and we're not seeing that improve. But of course, you all know very well that commodity costs have come down a lot. If you think about corn, for example, right? So that will help producers in the United States. So I think they're going to be in a little bit better condition going forward.

And PIC Europe actually had a pretty good result in the first half despite the market -- sharp market downturn just now that, that market is starting to stabilize and producers are making money again. Are you starting to see them expand? And you can see an improvement in that growth rate in Europe because [ you've been ] taking a lot of share?

I don't think it's right to say they're expanding. The PIC is. So PIC Europe is very good business, and they continue to take share.

Jens Lindqvist at Investec. Coming back to Max's question on the PRP regulatory process. I mean Colombia is a very big competent geography. Could you tell us what post approval compliance requirements were put in place in Colombia? And if there's any specific aspect that the FDA might take a different view on? I mean, if this is multigenerational data on pigs post approval, would there be a cost of maintaining a study population of pigs for that purpose?

Yes. Look, I'm not aware of the post compliance requirements in Colombia. They -- I mean it's a determination in Colombia, right? So they have -- it's not an approval. So they don't -- they have determined that the PRP is equivalent to a conventional pig. And so as such, there's basically no further requirements in terms of data collection or -- so it's quite a different regulatory framework from the one that we're seeing in the United States.

May be just would highlight in terms of the compliance requirement for the U.S., it's not all farms, just to be clear. It's just the 2 farms where we have our PRP pigs and the labs that we use.

And moving on to ABS and perhaps in the price initiatives. Is it safe to assume that this is mainly on the beef side of the business given the rise in proprietary content?

This program is focused on ABS across the board. So dairy, beef as well as IntelliGen.

And could you remind us of the volume split just between the conventional dairy?

Oh, dairy is about probably...

about 80%, 20% beef.

Yes.

Final question then if I may. On the -- I must admit I lost count lightly on the exceptional charges because there are some related to the cost cuts already identified, some associated with the VAP, some with the R&D rationalization and then someone -- and some with the ST litigation. Could you just break that down from again, please?

Sure. So yes, so our exceptional costs in the first half were a bit over GBP 7 million. And included in that spend was GBP 2.9 million in relation to restructuring costs for ABS, which have been incurred so far. In this half, we will have an exceptional charge in relation to the ST settlement, and that will be around GBP 5 million. The reason being that we've been carrying a provision on our balance sheet and we'll offset that against the settlement amount that will incur. There will be GBP 1 million in relation to restructuring costs having concluded the R&D review. And there may be other restructuring costs coming from the value acceleration program in ABS and more work to be done, as we said, in this half. And there'll be other legal costs. There always are some legal costs, too.

And for next year, sorry?

Yes. As we go into next year, we'll have what will be done with ST. I think you should assume a similar level of restructure -- sorry, exceptional costs. We don't know yet exactly what it will be, but I think for the purposes of your assumptions consider it similar to this year.

Damian McNeela at Numis. If you could talk -- a couple of questions on China. Just -- I know you started to win royalty business with some of the bigger customers. But can you sort of give us an indication of -- there's a level of quantum? I'm assuming you're not going 100% of their volumes on day 1? And how are they thinking about the progression of the relationship? Is this sort of more of a trial period initially could it extend all the multiyear agreements? Just a bit of a level of sort of what to expect over the next couple of years.

Yes. I mean you're right in saying that we don't have 100% of their business, but they are large players, and they are multiyear agreements. So it's not a one-off relationship. It's a relationship that should build over time. And yes, it could add significantly to our Chinese business. I don't know Alison if you...

And then on the BCA. The initial agreement was dependent on commercialization of PRRS and hence, the price hike of $120 million to $160 million. If you go early, do you have to renegotiate that price tag? Or is there a floor at $120 million on the JV?

Well, that agreement, obviously, would have to change because those terms would be different because we wouldn't be at the point of commercialization if we brought it forward.

Okay. That's what I thought. I mean you probably won't give us this answer, but on ABS and in the U.K. and then the extent that you've seen good progress, what margin is the U.K. delivery?

I'm not going to answer that.

Fair enough. I tried. And then on the last one, just on CapEx -- sorry, pure R&D, I think it was just over GBP 11 million in the first half, down 8%. Should we expect that to annualize at 22.5-ish? Or should we expect sort of -- what's the kind of like run rate for R&D going forward?

I think for this financial year, yes, the spend in this half will be similar to the first half of the year. We will have a bit more spend from a regulatory perspective in relation to PRP, but we're talking GBP 1 million or so -- so yes, you're about right in terms of FY '24. But then, of course, in FY '25, we'll be spending less because of that GBP 5 million change.

I know there's not guidance at the minute, but when we look at FY '25 for group profitability, there's clearly cost savings coming through from R&D, GBP 5 million and then talking about GBP 10 million in ABS, how much more profit growth should we expect from the base given the fact that we probably shouldn't expect a material change in ag markets?

Yes. I think the way to sort of think about all of this is First of all, the, if you like, the hard savings, which have already been actioned or confirmed. So on a year-on-year basis, you've got the GBP 5 million from R&D. And then there's GBP 3.7 million from ABS because we're cycling savings that are already recognized in this year. There was a onetime expense as well. in ABS in the last half in relation to inventory provisioning. And I think with PIC, excluding China, what you have to believe is how strong that business is, regardless of the market circumstances that they will continue to gain market share and grow. And what they've demonstrated over a long period of time is that growth rate is about 7%. And if you think about the costs that are being incurred or how profit has been impacted in this half, we've seen an increase in the product development costs and an increase in the commercialization cost for PRP and they're flatlining. So some decent profit growth should come from PIC ex China. PIC China itself is a bit more difficult to forecast. We are assuming a really tough half this half of PIC China, which means at the end of this financial year, it will be making a very small profit. So the question is, do you believe it can make a little bit more in FY '25 from a very, very low base. And what I would say is that PIC China has been impacted this year by higher supply chain costs because we've taken on 2 farms. The Hong Kong farm, which was a farm we always planned, that's a nucleus farm and Luodian Farm, which is a farm that we actually took on from the BCA last half. And that was a very strategic decision. They didn't want to continue managing that farm. They've recognized PIC a brilliant at it and they -- rather they did it. So we've taken that farm. And it's -- geographically, it fits very well with our network. But that's it, we're not intending to extend our supply chain further in PIC China for some time because we've now got capacity that's almost 100% the capacity we had a few years ago. So we're very well set up for the growth when it comes. And then when we think about ABS. The question is, can it grow more? Let's leave China out of it. Let's assume China is just continues to be tough for some time to come. But the rest of the business do we believe that there is a bit of volume growth there. Yes, we do. And also, we do believe that there are going to be further benefits from the work that we're undertaking in this half. And IntelliGen, as you saw, grew in the first half we have every reason to believe that they will be able to grow as well. So if you add all that up, which you are -- you can get to quite a handsome growth in profit in FY '25.

So just as a reminder for the people who are online if you'd like to ask a question, please raise your hand. We have no questions at the moment. So is there any further questions in the room? Okay. We just wait for just 2 seconds. Just see if there are any questions online. So no further questions online. Jorgen pass back to you for any closing remarks.

Well with that, we're concluding this session. I want to thank everybody for your interest in Genus and for the very good discussion and the questions that you have.