HMC Capital Limited (HMC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HMC Capital Limited FY '26 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. David Di Pilla, Group Managing Director and CEO. Please go ahead.

Good morning, and thank you for joining today's call. With me on the call this morning is Group CFO, Will McMicking; and Group Head of Strategy, Misha Mohl. Before we commence, HMC Capital would like to acknowledge the traditional custodians of country throughout Australia and celebrate their diverse culture and connections to land, sea and community. We pay our respects to their elders, past and present and extend that respect to all Aboriginal and Torres Strait Islander people today. I'll start the presentation this morning on Slide 5 for an overview of our first half financial year '26 results. Before we begin, I want to acknowledge the dislocation in our share price. Whilst the market has been volatile, the current share price does not reflect our view around the outlook for our business, specifically the durability of HMC's recurring earnings base, the visibility on AUM growth nor the liquidity and resilience of our balance sheet. Across the group, we are seeing strong operational momentum, expanding fee-earning AUM and growing contribution from long-duration earnings streams from our 3 newest verticals, Private Credit, Digital and Energy Transition. Turning to our first half financial year '26 result. I'm pleased to report a first half that continues to demonstrate the resilience of our platform and our growing funds management earnings base. During the period, assets under management increased to $19.5 billion, up $600 million since June, and we expect this will grow by over $4 billion through active deployment opportunities underway across all our platforms. Operating EPS for the half came in at $0.101 pretax and $0.186 pretax if we include the capital charge generated from the recently announced capital partnership with KKR in energy transition. Our first half earnings were underpinned by recurring funds management income and investment earnings. During the period, we did see a lower contribution from performance fees and principal investment income, which were impacted by the fact that we were cycling against a record performance period for HMCCP and adverse mark-to-market movements in HMCCP during the first half of 2026. These income streams are inherently variable, but the underlying trajectory of our business remains firmly positive. On capital management, we maintain a net liquidity position of $1.6 billion, which reflects the strength and flexibility of our balance sheet. This was strengthened over recent months in the following ways. In November, we increased and extended our corporate debt facility by 2 years to November '27. And in early February, as part of the KKR transaction in our Energy Transition business, we expect to release $155 million of cash proceeds at financial close, plus fully repay the $200 million mezzanine facility in the ET platform. As we move into the second half of 2026, we expect to return to a position whereby we aim to carry 0 core debt and use our balance sheet opportunistically. Finally, the Board has declared an interim dividend of $0.06, partially franked, consistent with our commitment to sustainable shareholder returns while reinvesting retained earnings into high conviction opportunities. I'd now like to turn to Slide 6, where we will discuss our growing funds management earnings. The core strength of our business model is our ability to generate both recurring and nonrecurring income from our funds management activities and principal investments. In the first half, recurring earnings again stepped up meaningfully. This was demonstrated by a 33% growth in management fees compared to the prior corresponding period. This uplift was underpinned by strong deployment across Digital, Private Credit, and Unlisted Real Estate. Today, we have more than $15.9 billion of fee-earning AUM, and the strategic partnership with KKR in Energy Transition will add a further $1.3 billion of fee-earning AUM in the second half of FY '26. I'd now like to move to Slide 7 to discuss a number of our growth initiatives in AUM. This is a really important slide in this morning's presentation and highlights that we are progressing over $4 billion of AUM opportunities across our verticals. Importantly, these initiatives are capital light and demonstrate the strong organic growth in each of our businesses. Starting with our Real Estate platform, where we are now seeing a significant level of institutional investor demand for retail assets. A sub-sector that we have focused on and become a market leader since our IPO in 2019. Specifically, we see strong AUM growth momentum across all our unlisted funds this half. Within HARP, we have this week exchanged on $200 million of acquisitions and are in due diligence on further opportunities. Our HUG, or Greenfield fund, we have committed equity from institutional partners, in partnership with the Coles Group, to support more than $800 million of new acquisitions and greenfield developments over the next 12 to 24 months. Our Last Mile Logistics Fund is now fully deployed with approximately $1 billion of assets and has over $150 million of developments underway. We continue to progress new institutional partnerships across our platform focused around urban renewal and large format retail, which we expect to convert over the next 12 months. Between our listed HDN REIT and the unlisted funds, we see 10% to 15% annualized AUM growth over the medium-term through asset revaluations, developments, investments, and new fundraising. In Digital Infrastructure, our attention is firmly on prioritizing and accelerating the execution of the $1 billion Sydney 1 expansion. Demand from hyperscalers and enterprise customers continues to strengthen, and we are close to handover on the 20-megawatt upgrade program. Importantly, demand for the SYD1 asset has far exceeded expectations at the time of IPO in 2024. It's by many multiples. Today, we have a strong pipeline of demand for the balance of the asset's capacity. Executing on the SYD1 expansion will organically grow our AUM in this vertical by up to $1 billion. Turning now to Private Credit, where under the leadership of Matt Lancaster and Craig Schloeffel, we have invested heavily in bringing the platform to an institutional standard. Our pipeline for commercial real estate loans is very healthy and today stands in excess of $4 billion of loans. Our current plan is to fund this pipeline with the following sources of capital. Our Core Fund, which has doubled since inception to today being $550 million in AUM, is likely to move to over $700 million this half. Wholesale. Our 600 wholesale and institutional investors maintain strong appetite for deal flow and investment in direct loans. We're looking to broaden our funding this half with a $1 billion offshore note offering, a 128F currently underway, and multiple institutional investors now progressing through diligence. Given our strong deal pipeline, we are planning to explore an ASX-listed note structure. This vertical is becoming a major contributor to AUM growth and recurring earnings and should, as it scales, generate strong ROE for the group. In Energy Transition, the strategic partnership with KKR positions us exceptionally well to accelerate growth. We're targeting 20% return on equity. And we now have committed equity in place to develop the first $800 million BESS project, which we expect to go to final investment decision this calendar year. The remaining development pipeline is very strategic and provides significant optionality for future value creation for ourselves and our partner KKR. Finally in Private Equity, our focus remains on delivering strong performance from our existing portfolio while being selective and disciplined in new opportunities. We continue to evaluate accretive co-investment situations, supported by the flexibility of having approximately $140 million of cash on balance sheet within the fund. This vertical has delivered great returns over time and will continue to be managed with a high-conviction value-creation lens. Let's step back. The important message here is that our future unlisted AUM growth will continue to be driven by scalable, capital-light strategies supported by strong institutional demand and a balance sheet that provides meaningful investment capacity. Each vertical has a clear pathway to growth, and we are well positioned to execute across all of them. I'd now like to turn to Page 8 of this morning's presentation. On this slide, we'd like to talk about our high-growth and self-funding platform. Stepping back from the individual priorities, this slide reinforces the strength of the HMC model and why we remain confident in the scalability and resilience of our business. At its core, HMC is a self-funding business. Our balance sheet is deliberately structured to maximize flexibility and return on equity. We continue to target nil permanent core debt, which ensures we have the full capacity of our $715 million corporate debt facility available for new commitments. This approach has been a critical enabler of our growth, particularly over the last 2 years as we established 3 new verticals. We also maintain a low payout ratio, which means the majority of our excess cash flows are reinvested back into the business. On the left-hand side of this slide, our funds management business continues to scale across the 5 verticals. We target 10% per annum growth in management fees supported by recurring revenue across the platform. As these platforms grow, the operating leverage in the model becomes more powerful. In financial year '26, funds management and co-investment income is expected to contribute 70% of our earnings. Our principal investments, such as Energy Transition, target returns of 20% return on their invested capital. These investments provide us with meaningful optionality and the ability to capture outsized returns when well executed. This combination delivers a scalable platform with strong operating leverage, the potential for outsized earnings and principal investments, and critically, a business where the majority of earnings are now recurring in nature. I'd like to now move to our funds management section which starts on Slide 10. As you can see on this slide, HMC today manages $19.5 billion across a diversified mix of alternative asset classes. Our strategy remains centered on high-conviction sectors. Every one of our verticals is underpinned by mega trends with the potential to deliver noncorrelated, inflation-protected returns. Importantly, the majority of our AUM, or approximately 75%, sits in open-ended structures, which gives us a stable, long-duration capital base. We also continue to see growing momentum in unlisted institutional capital, which now represents 35% of our AUM. As we execute the deployment opportunities underway across our business, we expect this proportion to increase to 50% over the next 12 to 24 months. Turning now to Slide 11 of this morning's presentation, where we'll focus on our Real Estate platform. I've already touched on our $1 billion immediate growth opportunities in this business, which will significantly grow our $2.7 billion unlisted platform. The key messages I want to emphasize is the strong performance of our existing unlisted funds, which have generated a 12% weighted average IRR since inception. This is testament to our ability to add value through our market-leading operating and development capability in our target sectors. The HUG strategy, for example, with Coles Group and major institutional investors is a great way that we express this leverage and our deep track record and relationships in developing institutional-grade retail assets. Accordingly, we are well positioned to harness the strong level of institutional investor demand for both core and value-add exposure to nondiscretionary retail assets. Turning now to Slide 12 of the presentation where we'll touch on our Digital vertical. As I outlined earlier, and as Michael Juniper and the management team discussed last week at their results, our priority in this vertical is clear: close the NAV discount through capital recycling and accelerating the execution of the highly accretive approximately $1 billion SYD1 expansion. We do not believe the current share price of DGT reflects the financial or operational results achieved since IPO. In addition, despite the recent noise around AI, demand from hyperscale and enterprise customers for our flagship Sydney asset has materially exceeded our previous expectations. I'm extremely confident in the outlook for the business and our strategy under the leadership of Michael. Our team are actively progressing capital partnering and recycling opportunities across the Australian and U.S. platform. This, combined with DGT's existing liquidity, will enable the business to progress and accelerate the expansion of the Sydney 1 asset and take advantage of strong customer demand. Moving now to Slide 13 of the presentation. During the period we delivered 13% AUM growth for the period to $2.2 billion across our Private Credit platform. We've materially improved the quality and scalability of our Private Credit business since acquiring the Payton platform in mid-2024. Our Private Credit business now operates at an institutional standard of credit assessment, governance and risk management. The business is now positioned to meaningfully scale its revenue base with more diversified capital sources. We are currently in discussion with multiple offshore institutional investors to establish a mandate and are also looking to establish an ASX-listed debt product which would grow our existing core fund to over $1 billion in the near-term. These initiatives will deliver strong operating leverage and higher ROE outcomes for the HMC Group. Turning now to Energy Transition on Slide 14. The $603 million investment by KKR marks a defining milestone and validates the high-quality platform we have built under the leadership of Gerard Dover. The market reaction to the announcement suggests to me that investors do not yet appreciate the significant value and growth we expect to generate from this business and our partnership with KKR. The transaction recapitalizes the platform, pays down the mezzanine facility, and includes a further $250 million of committed follow-on capital from KKR to unlock the value of the platform's 5.7-gigawatt development portfolio. It also substantially reduces HMC's balance sheet exposure to just $180 million. We expect to generate private equity style returns on our invested capital with a target equity IRR of over 20% or a 4 times money multiple over the next 5 years. It is important to remember that this is a development business and accordingly significant value is created when projects reach final investment decision or FID. Since the acquisition of this Neoen portfolio and our investment in Stor-Energy, we have already achieved significant derisking milestones in unlocking the value of our portfolios. The platform now has committed equity funding to develop an $800 million BESS project, which we expect to go to FID this calendar year. This forms part of a 2.3 gigawatt of projects that we expect to reach FID in the next 12 to 18 months. Importantly, we have the flexibility to sell FID-ready development assets to crystallize gains or introduce new equity funding to deliver these projects and materially grow the platform. Either option will deliver positive outcomes for HMC shareholders. We expect this business will contribute meaningfully to the Group's earnings in financial year '26 and beyond. We're looking forward to working with KKR and excited about the potential to explore additional opportunities which leverage our respective capability in the Australian market. Moving to private equity on Slide 16. HMCCP Fund 1 has recorded an annualized net return of 23.5% since inception, materially outperforming the broader market. Albeit delivering a soft first half result, the portfolio retains significant flexibility with around $140 million of dry powder, allowing us to move quickly as dislocations occur or compelling buy-in opportunities arise. We'll continue to focus on situations where our active ownership model can unlock meaningful value and in parallel we are progressing selective co-investment opportunities that can broaden the vertical over time while maintaining the fund's strong return profile. Moving to Slide 17, where I'll discuss sustainability. As the Group has expanded into new verticals, we're updating our sustainability strategy to align with our broader platform and set clear emission reduction targets across relevant areas of the business. In the first half, we continue to make solid progress from advancing decarbonization initiatives in Real Estate and Energy Transition. We continue strengthening our governance framework, as demonstrated in Private Credit recently with the appointment of 3 new independent directors, and are actively continuing to support our community partners through the HMC Capital Foundation. It's an ongoing effort, but we're committed to ensuring our growth continues to deliver positive long-term impact for all stakeholders. I'll now hand over to Will McMicking to discuss our financial results.

Thanks David, and turning now to the earnings summary on Slide 19. For the first half of FY '26, HMC delivered operating earnings before tax of $41.6 million or $0.101 per share. This reflects strong growth in recurring funds management income, offset by lower investment income versus the prior corresponding period. Management fee revenue increased 34% to $84.5 million, driven by fee-earning AUM growth in real estate and private credit, and a full 6-month contribution from digital infrastructure. Transaction and performance revenue reduced to $4.2 million, reflecting the absence of larger transaction revenue that was recorded in the first half of FY '25. Salaries and wages were lower year-on-year following the reversal of the FY '25 $8 million retention provision, whilst corporate expenses increased modestly as we continue to invest in platform capability. Funds management EBITDA for the half was $33.7 million. Investment income of $15.9 million was primarily distributions from HDN and DGT. Interest expenses increased to $8 million due to senior debt drawn to warehouse energy transition assets. An interim dividend of $0.06 per share has also been declared. Turning now to the divisional earnings on Slide 20. Starting with Real Estate, operating earnings before tax was $38.2 million for the half, reflecting continued growth in fee-earning AUM and management fees. In Private Equity, operating earnings before tax was a loss of $3.1 million, driven primarily by lower investment income in the period with a modest contribution from management fees. Private Credit delivered operating earnings before tax of $9.6 million, supported by a 13% increase in fee-earning AUM and strong growth in management fee revenue. In Digital, operating earnings before tax was $15.8 million, reflecting the full 6-month contribution to funds management earnings, stable fee-earning AUM, and investment income in the period. Corporate recorded a loss of $18.9 million, reflecting central costs, platform investment, and net interest expenses associated with the energy transition assets. Overall, this has resulted in total operating earnings before tax of $41.6 million for the first half, with earnings increasingly weighted towards funds management EBITDA across our core platforms. Turning now to Slide 21. Net tangible assets at 31 December 2025 were $1.3 billion or $3.21 per share. Gearing was 20.5% as at 31 December, which increased during the half to warehouse energy transition assets. And following completion of the KKR energy transaction, HMC's investment in the energy fund will reduce from $305 million as at December to approximately $180 million, with the returning investment proceeds being used to repay debt. I'll now hand it back to David.

Thanks, Will. Turning to the outlook and our guidance. We continue to see strong momentum across the platform with funds management EBITDA of $85 million tracking to guidance. Supported by double-digit growth in Real Estate and Private Credit, and the initial contribution from Energy Transition following the KKR partnership. Investment income is expected to be at least $85 million, driven by distributions from our co-investments and valuation gains in our Energy Transition platform. On that basis, we are reaffirming our pretax operating EPS target of at least $0.40 per share. Finally, our dividend guidance for financial year '26 remains at $0.12 per share, consistent with our commitment to provide sustainable shareholder returns while reinvesting retained earnings into value-accretive growth. Before closing, as I noted at the start of the presentation, the current price does not reflect the strength, visibility, and quality of HMC's significant recurring earnings base and the resilience of our financial position. The fundamentals across the group remain strong, with consistent operational momentum and a clear long-term growth trajectory. As outlined today, we have high conviction in the embedded growth within each of our platforms and our ability to continue delivering sustained value over time. And finally, I'd like to acknowledge our staff who have remained focused and committed to our mission. Our leadership teams across our verticals remain as passionate as ever about their businesses, and I would like to acknowledge and thank them and our entire HMC team. Thank you for joining the call this morning and now I'll hand back to the operator for Q&A.

[Operator Instructions] Your first question comes from David Pobucky with Macquarie Group.

Just a first question around expected fund growth going forward. I mean this year was about consolidation, so it's good to see you're still progressing $4 billion plus worth of capital-light growth opportunities across the group. Would you mind just ranking those opportunities in terms of timing, like what you have most confidence on, David?

So I think importantly, David, what we want to really highlight is the year has been, as you correctly point out, one of consolidation and setting the platforms up for genuine sustainable growth. The funding's there, it's in place. So I think if you start with, and probably the best slide that summarizes it is the AUM growth slide in the deck on Page 7. If you just start with Real Estate, we touch on $1 billion of deployment. That's all in place, the partnerships are there, the deployment is happening. So as we said earlier, the HARP fund has this week exchanged on a couple of hundred million dollars of new investment opportunities. HUG has $800 million of dry powder and other investors wanting to come in and join that platform. Then the development pipeline again is near $1 billion. Now that'll take a couple of years to deploy, but all of that is funded, partnered and in place, and obviously we're looking to add to some of those strategic partnerships. If we then go to Digital, the Sydney 1 asset is, in our view, hitting every marker that we set for it at IPO. Importantly, we've got a $900 million plus development project there with what we believe to be a yield on cost of over 15%. Importantly, there's plenty of liquidity in the Digital platform, there's over $600 million of liquidity, we're actively looking at recycling. So again, organically, embedded, another $1 billion of deployment and AUM growth. In Private Credit, I touched on there. Importantly, there we've had really strong growth in our core platform, and our AUM has grown by 13% this half. I touched on earlier that we're seeing really continued strong momentum because of the performance in our Core Fund, and we expect to see that grow strongly this half. In addition to that, we've got an institutional node offering going off into the offshore market at the moment, which we expect to be able to generate nearly $1 billion of inflow from. That has actually generated and garnered a very strong reaction from offshore institutional investors, all looking at Australia as a place that's a pretty well-understood market, rule of law, good enforcement rights for borrowers, and so forth. So we feel as though that's a really strong vertical for us, and again, through those 2 opportunities we see good deployment there. And then in Energy Transition, I think the market has been very harsh in assessing the KKR transaction. Importantly, we have secured development capital to roll out a best project of $800 million. That's secured, it's in place and it's committed. We will go to FID on a project later this year, and that'll be another $800 million of AUM. So in total, you put all that together, that's $4 billion of deployment, and it's all funded, and it's in place, and we're looking to deploy that later this year. So we sit here today, we've consolidated the business through the course -- the back half of 2025, we've got energy transition off the balance sheet, we've got the balance sheet back into good shape, and we're looking really positively to the future.

Excellent color, David. Maybe just one for Will, just in reference to Slide 8 and some of the EBITDA targets that you have for FY '26. I just wanted to confirm whether those are all post-expenses, so if you add them all up, is the expectation that you deliver about $170 million of group EBITDA in FY '26 versus the $50 million you delivered in the first half? Is that the right way to read it?

Yes, that's right.

And just -- sorry, just one last one. The $53 million expected from principal investments in terms of the fair value gains, would you mind just unpacking that in regard to Energy Transition please?

Yes, I don't think we're going to provide the details today, but I mean we have put out a few markers just to give you a sense. So we had some independent valuations of the portfolio, the midpoint was $1.3 billion. We paid $1.1 billion. I guess we're still working through what the ultimate fair value gain will be that will be booked, but I think that probably gives you a bit of a guide as to some of the bookends there.

Your next question comes from Mithun Rathakrishnan with CLSA.

Yes, you've actually got James Druce here. David just wanted to understand the $85 million in guidance. You put -- let me just bring this up. So the investment income of $85 million, so the gap between the $32 million of distributions is really the $53 million from the revaluations from Energy Transition, just wanted to confirm that or is there something else in there?

Yes, we're not giving you an exact number, but yes you could assume that through the KKR transaction, locking in funding, and some very material development progress we've undertaken in that business, we will be realizing some gains this half. Importantly, if you go back in time and you look at the way we put that portfolio together, it was bought incredibly well. We ascribed almost negligible value in the acquisition price to the development pipeline within Neoen, and we've basically invested in Stor at a very nominal amount of money. It's just been really development capital we've put in there. So what we've done since that time is we've ticked a lot of boxes, we've achieved development approvals, we've got off-take agreements coming together, we've secured OEM supply contracts, so we've made a lot of progress. There's a lot of interest in the assets and the portfolio, a lot of boxes have been ticked. KKR saw that coming in. We see that, we see very significant upside in the development pipeline there and we're going to realize some of that gain in this half.

Yes. Okay, that's clear. And then just KKR's been consolidated in the JV, I'm just trying to understand the control that they have over the project, what rights do they have, what veto rights? Can you just provide a bit of color there?

It's a genuine partnership. I think we haven't done a great job of explaining it, but it is a genuine long-term partnership that we've entered into across those assets.

Okay. Do they have -- I mean, what rights do they have in terms of vetoes, have you got unanimous...

No, no, no. We've got joint rights. So it's joint control, equity accounted.

Okay. And then just one more for me. Just on -- we used to talk about some money coming from Capital Solutions in guidance this year, just how that's shaping up?

Look, I think everyone can see the positions. You can see some of the positions, you can't see all of the positions in that platform. We've basically gone to a lot of cash there. So we're just biding our time. A bit of dislocation in markets probably doesn't scare us too much because we've got plenty of dry powder that we've built up in that vehicle. So let's assess that at the end of the financial year.

Your next question comes from Tom Bodor with Jarden.

Just wanted to understand with the energy transition fund, if you expect to be booking revaluations beyond FY '26 in that fund, from an operating earnings perspective?

Look, I think, Tom, what we're saying is that is a dynamic platform now. We've got a great global partner that's very committed. We've got development capital locked in. And so what you can expect to see is that's going to be a dynamic, moving business that we expect to generate private equity-like returns from, and we'll be realizing ongoing returns from that portfolio whether it be through asset sales, value uplift, or potentially an exit over the next 3 to 5 years. So we're feeling very optimistic about it, and we think we've created something that's going to set us up for the long-term.

That's great. And then in terms of looking at sort of the core capital demands for that product, what do we need to see before you'll be sort of unlocking some of this value by introducing co-investors or selling assets to co-investors? I mean, do they just want to make sure that the assets are constructed and performing in line with expectations, or what's the constraint to them coming on board?

So basically the way to think about that Tom is, as I said earlier, the development projects in that portfolio were secured at incredibly attractive entry levels. We have a couple of projects down in Victoria, being the Kentbruck Wind Farm which you would have seen earlier this year received the green light from the Victorian State Government to proceed. A 600-megawatt baseload wind farm in the State of Victoria is extremely valuable. We will look to unlock value from that asset. What we've done is now that we've got the approval, we're now deep in negotiation with off-takers. There's been a strong level of interest, inbound interest from multiple and varied off-takers. I'm not going to go into that discussion on this call, but they are serious players, all looking for baseload generation capacity in that state, remembering there's coal coming out of the system very soon. So that asset is very valuable. So now that we've got the green light we'll proceed to move that along. We've also got a battery storage project being the Moorabool project, that is DA approved. It is adjacent to our VBB asset. So literally right next door, there is grid connection, there is substation connection, there is already an existing contract in place with the Victorian State Grid. We'll probably look to expand that contract as an off-take partner there. So we've ticked a lot of boxes in regard to these assets. As soon as we can get the boxes ticked, being off-take and equipment supply agreement, and a connection agreement, they are the green lights to go to FID, that results in capital, that results in lots of upside, that's going to be achieved in the next 12 months. So we are basically sitting on some fantastic assets there, we've been patient, we've been working hard in the background, we've been operationalizing that platform, and we're really looking forward to the future. It's bright. So bringing KKR in at the sort of on the terms that we've brought them in, with the committed funding we've got, this is development, this is high returning private equity type stuff. So we're very, very excited.

Your next question comes from Solomon Zhang with UBS.

Just wanted a bit of an update on how the HURF fundraising process is going. I guess you were targeting a $1 billion to $1.5 billion fund size and a close in FY '26 so just an update there would be great.

So I think, what we'd say to you is that deployment across the real estate platform has been really good and we've probably ended up with more deployment into HARP and HUG earlier. And so HURF we're still trying to secure the right assets in order to close the fundraising, but there are plenty of interested institutions circling that. We've just got to find the right portfolio of assets, we think we're close now. And so we're looking forward to giving you a pretty exciting update on that in the not-too-distant future.

And maybe just a question for Will. Could you just talk through the cost base and how that's expected to evolve over the next 12 months given, I guess, the head count has increased, but you're still annualizing some of those impacts throughout the expense line?

Yes, I think what we'd say is we wouldn't expect any material change for the second half. We're very focused on maintaining margins, Solomon.

Right. So first half run rate.

Yes.