RHI Magnesita N.V. (RHIM) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for joining us in London today for our 2022 full year results. Before we start, I want to highlight 3 key points. First, RHI Magnesita's margins are resilient throughout the cycle. And in 2022, we have demonstrated this again. In the refractory business, we can pass on higher cost to our customers. If the cost increases that are due to the higher costs, apply across the whole industry. For our customers, refractories are essential. They cannot operate without refractories and without security of having those and therefore, security of supply is paramount. I come back to this quite important point just in a minute. We needed to increase prices by EUR 600 million in 2022 compared to the average prices in 2021, just to offset the cost increases that we had occurred in raw materials, in energies and in freight, and we did it. Second comment. We are making good progress on our M&A strategy, the strategy to consolidate the refractory industry, especially in those regions in which we have been underrepresented previously. In 2022, we completed our signed acquisitions in each 1 of the key geographies: India, China and Türkiye. Furthermore, we invested into a very strategic recycling business in Europe, MIRECO. This will help us to reduce our CO2 footprint, but it will also help us to decarbonize the entire refractory industry. Third remark, we used our balance sheet to serve our customers in 2022. And we will continue to do this in the future. In 2022, as I mentioned, we had to significantly increase prices, and while we did this, we also gained market share. Why? Because we invested significant amount of money in increasing our inventories. And therefore, we could deliver whenever our customers needed material. Supply chain disruptions that we all experienced in 2021 were overcome and are now managed. This also has changed the way we look at working capital. And the way we look at our overall gearing level, we give you the details of this later. So now let's go into the numbers. With the sales volumes in line with 2021, revenues were EUR 766 million higher. This came from price increases, fully offsetting higher cost, as I mentioned before. We increased margins even slightly to 11.6%. In the fourth quarter, volumes were already quite subdued in most markets, indicating what we see now a weak first half in 2023. We remain absolutely focused ladies and gentlemen, on health and safety in the workplace. Our lost time injury frequency rate was at 0.2 per 200,000 hours. This is better than most industrial companies, but it's still not 0. So really too high. We have launched new awareness and training programs to reduce finger and hand injuries because they make up a big part of what we incur. Inside our own company, but also with many, many of our contractors that we have on our own sites and on the sites of our customers. Let's go to the financial highlights. Revenue, EBITA, margin, EPS, all increased. Working capital intensity also increased, driven by our conscientious decision to increase supply chain inventories globally to improve customer service. Solid EBITDA performance for the year maintained gearing levels at the expected levels. Driven by cost induced price increases, steel revenues increased by 30%, even though our shipment volumes were 1% lower, mostly because of the second half. Our volumes overall clearly outperformed well steel -- steel production numbers, which were at 7% outside of China. We assume a 2023 contraction of volumes of up to 5% due to weaker demand. We outperformed in every region with significant price increases everywhere. India, ladies and gentlemen, is where the growth will be for the foreseeable future, driven, of course, by the transformational growth of the continent. This development will be refractory intensive, this development in India. Steel, cement, metals, glass are going to be the foundation of the India growth story, very much driven by infrastructure. We are pleased to have completed the acquisitions there that will now receive additional investments in order to support the growth of our customer into the future. In the Industrial segment, we also experienced about 30% revenue growth with stable margins here. In our Industrial Projects business, we caught up on delays from 2021 and showed overproportionate growth. Lower cement volumes year-on-year already indicated signals of a downturn from the construction industry. We expect softer volumes in industrial overall also in 2023. We learned in the past 3 years to respond faster to volatility in the markets. We moved really, really quickly to install equipment that allowed us to diversify our energy sources in Europe. We added inventory levels in most of our geographies to respond quickly to supply chain challenges, including local strikes that we now see more and more. We keep adding local manufacturing capabilities to act even faster to changing customer needs. And we made progress acquiring some excellent businesses and adding them to the RHI Magnesita family. We have made 2 acquisitions in China, 2 in India and 1 each in Türkiye and in Europe. There will be around EUR 200 million of cash outflow from these acquisitions that will still close in 2023, which are Dalmia, Hi-Tech and New Emei in China. Overall, these acquisitions are expected to add EUR 25 million to EUR 30 million of EBITDA this year. We have a well alive pipeline of similar bolt-on opportunities to come in the next quarters or years, depending on how fast we can agree, of course. Let me talk about those a little bit. The first thing to say about Türkiye is that all of our employees in this country are safe from harm. And they are out of danger from the recent terrible earthquakes in this country. RHI Magnesita has made a donation of EUR 80,000 to several international and also some local channels to give immediate aid to those affected, and we will do more as more help will be needed over the course of the next quarters and years. Our operations in Türkiye are not impacted due to their location. They're not close to the epicenter. But there is severe disruption in the South where many of our customers are located. And during the year, last year, we completed the acquisition of SÖRMAS. And SÖRMAS is 1 of the leading refractory companies in Turkey and particularly well established in the industrial market where we have been weak. As RHIM was mostly active in raw materials in the Turkish market, we are now a fully integrated refractory player with the ability to serve our customers in Türkiye much better than before and export less of the raw materials and use them in the country. In Europe, we invested to build a new secondary raw material business named MIRECO. This has enabled RHI Magnesita to achieve our 10% recycling target 3 years ahead of the original objective. More importantly, though, MIRECO will supply secondary raw materials to the entire refractory industry and attempt to recycle all of our customers' waste by building a truly circularity business model. There's still some ways to go because it requires a lot of changes in our own product design, but also with our customers. In India, we had already built a market-leading presence through the combination of RHI's India sales network RHI CLASIL and Orient Refractories into RHI Magnesita India, the listed company that we had, we've done this in 2021. With 2 acquisitions now completed in January 2023, we have extended this platform into the industrial segments through Dalmia and into the Flow Control segment through Hi-Tech. Both of these acquisitions are operating at below plant capacity with the opportunity to increase production there by around 50% with relatively limited additional CapEx. This will now give us the space that we need to grow together with our customers seamlessly over the next few years. In China, the new alumina-based refractory brick plant in Chongqing is due to start operations in the second half of 2023. In January of 2023, we reached agreement on the acquisition of Jinan New Emei. This expands our presence in the key flow control segment of slide gates, nozzles and control systems in which we were not present in China until now. The facility we bought is a super modern, totally automated and robotized facility that was constructed in 2022 just completed. We have released -- we have reassessed our gearing targets during the course of this year due to 2 main drivers. First, our customers very positive reaction to a more performing supply chain based on structurally higher inventory level. Our design -- our desire to continue to participate in the industry's consolidation by making acquisitions is the second reason why we reassessed the gearing level. Our margins remained relatively stable throughout even severe downturns. Our business is much less volatile than the business of our customers. And therefore, we see a relatively low level of risk with a higher gearing level. After careful consideration, therefore, in our Board, we have decided to increase our leverage target range to 1.0 to 2.0 on a normal basis and with the flexibility to exceed even 2.5x if we have attractive acquisitions to deliver for a period of time. With this, I will hand over to Ian, and he will lead us for the numbers. Ian?

As Stefan has highlighted, the business delivered a strong performance in 2022. We successfully demonstrated the benefits of prioritizing the seamless supply of our customers. This focus is reflected in the strong revenue growth, which drove a 37% increase in EBITA to EUR 384 million. Below the EBITA line, EPS growth was more limited at 7% year-on-year. This given mark-to-market currency movements of EUR 23 million, an increase in net interest expense to EUR 21 million and a higher effective tax rate of 25%, which was at the top end of our guidance range. We are recommending to shareholders an increase in the final dividend to EUR 1.10 per share a full year payout of EUR 1.60 per share, in line with our maximum 3x dividend policy. Revenue increased 30% to EUR 3.3 billion with each of steel and industrial up 30%. The revenue bridge clearly shows the positive impact of our price increases which amounted to EUR 600 million, roughly evenly split between the first half and the second half. We also had a currency benefit of EUR 177 million. This comes from the strength of the U.S. dollar, the Indian rupee and the Brazilian real. We delivered EUR 68 million of revenue increases from our strategic initiatives to grow our business and solutions in India, in China and in Flow Control. This was offset by EUR 79 million volume reduction in the base business. EBITA increased to EUR 384 million with the second half being slightly stronger than the first half. Changes in sales volumes and currency benefits were relatively small compared to the large increase in our cost base of EUR 542 million and the EUR 600 million increase in prices that we were able to realize. The largest cost increases came from purchased raw materials, energy and people, both in our plant and in our SG&A. Fixed cost absorption was also lower, given that production was down 14% year-on-year as we focused on aligning finished goods inventory with demand. Our strategic sales initiative and the production optimization plan together contributed an incremental EUR 24 million to EBITA on top of the savings delivered in previous years. The EBITA margin increased to 11.6%, up 60 basis points year-on-year with a much improved refractory margin of 9.1%. The contribution from our mining assets compressed to 2.5%, representing EUR 81 million of EBITA. The margin reduction was due to a combination of lower market prices for the raw materials that we produce, which is the basis for our calculation and higher production costs at our raw material sites. Whilst this lower backward integration margin is not expected to be permanent, the trend continues into 2023 as raw material prices have softened further with weaker demand and lower freight rates. We experienced unprecedented cost inflation in '22 with the cost of goods sold up 22% year-on-year in constant currency terms. Our input cost inflation was 18% with the cost of energy up over 40% and purchased raw material up 20% year-on-year. As guided, the cost inflation did slow in the second half. It's good news for COGS that the cost of our key inputs, sea freight, energy and raw materials are coming down from their highs. However, this will lead to lower pricing for refractories this year as competitors will be able to accept lower prices. And this will put pressure on us if we want to retain the market shares that we've gained and this is why we're guiding to some price reductions impacting our revenues in '23. This on top of the decline in refractory sales volumes of up to 5%. Moving to working capital and starting with the chart on the bottom left. Last year, working capital increased by EUR 240 million to EUR 918 million, with a 25.4% intensity. The increase is largely explained by inventory and by accounts payable. And if you look at the chart on the top right, you can see that last year, inventory increased EUR 72 million to EUR 1.048 billion. Part of this is explained by currency and by consolidating new M&A. The big moves, though, were in volumes and in costs. From a volume perspective, we made good progress in the second half of '22, reducing inventory volumes with our volumes down 23%, during the course of the year. Finished goods are now at target coverage ratios based on forecast demand. Raw materials are still slightly above our target ratios with the potential to reduce further this year. The volume reduction was offset by the sharp increase in the cost of inventory, particularly in the first half. You can also see that accounts payable reduced to EUR 507 million given low raw material procurement in the second half of '22 to reduce inventory levels. As Stefan mentioned, we have seen real benefits from carrying higher levels of inventory in the past year as we've been able to stand out as a reliable supplier for our customers. This has delivered material benefits in the form of market share gains and price increases. And as a Board, we believe it is likely to carry higher levels of working capital than targeted pre-COVID to prioritize security of supply to our customers. During '23, working capital remain around its current level of 25%. Turning to gearing and to liquidity. Pre-M&A, the group moved into a deleveraging phase in the second half of '22. After being EUR 75 million operating cash flow negative in the first half of the year given the working capital build, the business generated EUR 230 million of operating cash flow in the second half. We finished the year with net debt of EUR 1.168 billion and leverage of 2.3x. There was some under spend on CapEx, which should be factored in around EUR 20 million, which moves into 2023. We continue to retain robust liquidity with EUR 1.1 billion of cash and committed but undrawn facilities. We have a long-dated debt maturity profile and 3/4 of our interest rates are fixed -- giving us a weighted average cost of debt currently of 190 basis points. This is a strong position to be in as base rates are rising and the cost of debt on newly refinanced facilities increases. You would have seen that we recently requested approval from the shareholders of RHIM India, our listed Indian subsidiary to issue new shares for a potential equity raise of up to EUR 170 million. The group intends to retain its majority shareholding in the RHIM India and possibly participate in the equity raise. This is simply a request for authority at this point, and there should be no expectation that any equity will -- any equity raise will proceed or what the size might be. Moving to CapEx. We spent EUR 156 million on CapEx in '22. This is down on our guidance of EUR 200 million largely as EUR 20 million of project CapEx was delayed into this year, and we suspended the second phase of the Contagem project in Brazil. In 2023, we expect to spend EUR 200 million, this is the EUR 160 million we previously guided, which includes EUR 85 million of maintenance CapEx. In addition, we have the EUR 20 million of carryover from last year and EUR 20 million of CapEx on the announced M&A. Moving to guidance. Finally, we sought to provide more granularity on the guidance for this year, since there are a few moving pieces. Our base case is not for a major downturn, but a certain amount of softening is built in and already visible in our order books. We are working on the assumption of our sales volumes being down by up to 5% with softer refractory pricing year-on-year. Overall, our EBITA expectations for the base business pre the announced M&A is broadly in line with where analyst consensus is at EUR 325 million of EBITA. In addition to that, we expect the announced M&A to deliver an incremental EUR 25 million to EUR 30 million of EBITDA with EUR 10 million of depreciation, so net EBITA contribution of EUR 15 million to EUR 20 million. And this gives us EBITA for 2023 of approximately EUR 314 million. We are also guiding to an EBITA margin of 10%. This is down year-on-year, in particular, due to the lower backward integration margin. Analyst consensus had a higher margin, but we get to broadly the same figure via higher revenues. Thank you. And I'll now hand you back to Stefan.

Let's talk sustainability. Our sustainability performance continues to improve with an acceleration in our recycling rate. Recycling is the fastest lever that we can pull to reduce CO2 emissions. The external sustainability ratings of RHI Magnesita by independent analysts recognize this progress and also recognize our commitment. In 2022, we saw our lowest recorded CO2 emissions since we began to track them in 2018 at 4.2 million tonnes compared to the 5.4 million tonnes in the baseline year. With an 8% reduction in emissions intensity, we are way on our way towards the target of a 15% reduction by 2025. We are still, however, far away from being satisfied. We need to reassess fuel switches towards natural gas in light of less available natural gas in Europe. So this is a counter problem. Customer perceptions of recycling in Europe are changing gradually one by one, we can convince them of the real sustainability benefits. Other regions still need to follow. But we have much more to do, of course, leading the reduction of CO2 emissions in our industry is RHI Magnesita's role as the market leader. In the long term, only 0 emissions are the acceptable objective. We have identified the reduction of 1 million tonnes by 2035, or another 20% to 25% of the 2022 emissions. These reductions are possible with available technologies and they should be affordable under the expected economic conditions to come. The main measures are further increase of the recycling rate, energy efficiency measures and fuel switches to lower CO2 emitting energy sources. Beyond that, CO2 reduction requires new technologies that are not yet available today, mostly focused on eliminating the process emissions, and they require a cost competitive source of hydrogen to replace emissions from fossil fuels. Those are the 2 big things that we need to do after 2035. We have hydrogen burning pilot projects ongoing to ensure that we can use this fuel as soon as it becomes available. We have investments into new CCUS, carbon capture and utilization and storage technologies ongoing. The recently published alliance with MCi Carbon from Australia as the most recent and the most exciting technology venture that we're engaged in at the moment. A total decarbonization would also entail the decarbonization of our external raw material suppliers, especially the magnesite, dolomite infused alumina-based raw material producers in China. We are engaged with several of them. What we learn and what we develop, we will make available to all refractory companies and to all refractory raw material suppliers alike in order to really decarbonize this entire industry. Strategic initiatives. Outside of Brazil, the production optimization plan is now substantially complete. We have had delays at Brumado in the installation and commissioning of the new rotary kiln, the project will only start up in late 2023. We decided to keep operating the Mainzlar plant in Germany, which had been earmarked for closure originally. Taken together, this means that we will only add around EUR 90 million from cost initiatives into the 2023 P&L. The sales strategies are tracking towards EUR 40 million EBITA at the moment as a contribution in 2023. As you can see, we are positioned -- we are posting good gains in India and in the solution contracts. India will grow even faster in 2023 than it did in 2022 due to the integration of the M&As. We are expecting as Ian has mentioned, up to 5% lower sales volumes in 2023 compared to 2022 due to the downturn that we are experiencing right now mainly because of a globally weak construction market outside of India since the fourth quarter of 2022. Refractory pricing will also be lower in 2023. Overall, our earnings expectations are in line with analyst consensus. The impact of lower volumes and pricing will be a reduced EBITDA margin to around 10%. The impact of lower EBITDA in 2023 and increased spending on M&A will result in a net debt-to-EBITDA level of 2.3x or above, depending on M&A and EBITDA development. Whilst 2023 is expected to be slower, our longer-term strategy, however, remains in place, we will continue to pursue value-creating acquisitions. We will operationally continue to improve our customer delivery capabilities. Our ability to supply the full range of products, services and technology is unmatched in the industry by any competitor. We will continue to improve their own operations also. Thank you for listening. Looking forward to your questions. Mark, you want to start?

So Mark Davies Jones from Stifel. 2, if I may. Firstly, on the volume outlook. I think we've talked in the past about some destocking amongst your steel customers exacerbating those trends. Where are we in that process do you think? Is there any scope for the second half being a bit better than the first half this year as that process works through? I ask that 1 first.

Yes, there is. We always talk about our order book. We have something like a 6-month visibility. And what has happened since October is, the order book has -- is a little bit lower than in the 6 months before, but it's moving month by month. So we don't see yet an increase of volumes, but all the discussions we have with our customers tell us that eventually there should be an uptake mostly in North America and a little bit in Europe also.

And then the strategic change in approach, structurally higher working capital, structurally higher debt. What's the rest of that is a sort of permanent solution to a temporary situation. So I think earlier, you were suggesting that has the exceptional pressures on supply chain, logistics and all the rest of it, normalized, you could get back to something lower again, but you seem to have changed. I see the advantage of taking market share, but surely, some things will get easier again.

Yes. So this is a structural permanent increase of working capital levels. And you have to look at the working capital reach, not so much at the absolute level because, of course, that fluctuates very much with cost. So it is permanent for the time being. Let's say, for the next 3 years or so and therefore, we changed the structural guidance of the gearing because we -- but of course, it's a step-up and then cash flow generation will come from there. And we think it's very worthwhile to have a completely secure supply chain for customers. We don't expect supply chain challenges to go away anytime soon. We still have container shipping reliability at way below 50%. You have new alliances being discussed in container shipping, but you have also a trade block disputes going on. So I think we have to expect things that we don't know yet. And therefore, we went for -- we decided that this is a structural change. Could we 1 day improve this? Maybe.

It's Jonathan from Barclays. Just a couple of questions as well, please. Firstly, just maybe 1 for Ian. If you could just sort of bridge the margin from 11.6% in '22 to 10% in '23, what are essentially the big sort of moving deltas within that sort of margin decrease, please?

Thank you. So we had 11.6% EBITA margin in '22. We're forecasting around 10% this year. 3 components. The first 0.8% is around the lower backward integration margin. So in the second half of last year, we were looking at a margin of 1.7%, we expect that to continue in 2023. The second is that we have some EBITA margin dilution coming through from the M&A. So whilst M&A like the acquisition of Hi-Tech is significantly earnings accretive. MIRECO joint venture, Dalmia, New Emei in the near term will be slightly dilutive before the synergies then support margin accretion going forward. So that's a negative 0.2%. And then the third piece is negative 0.5% around lower refractory pricing, driving margin dilution, particularly around the lower cost for energy and raw materials. So our European production footprint, costs are going to be higher on a relative basis because of higher energy costs. And that gives us a bit of a competitive disadvantage against import material into the European market, but also against some of the domestic production in markets that we compete in.

That's very clear. And the second 1 is could you just talk a little bit about how we should think about the cash conversion level in '23, obviously, '22 is quite depressed. Are we going to see a sort of a step up in that sort of operating cash conversion from you?

Yes, certainly. So we would expect a meaningful improvement in our cash conversion this year. We've provided the key building blocks. So we expect our CapEx to be around EUR 200 million. We would not anticipate a meaningful increase in working capital with low levels of activity. So that was the core reason why in the first half of last year, our cash conversion was weaker. So we would be expecting through the course of this year for cash conversion to improve quite nicely.

Vanessa Jeffriess from Jefferies. Just wondering about the cost savings a loans. Do you expect the EUR 410 million next year now that you're doing the CapEx next year? Or is it still a little bit lower structurally?

Next year, you're talking 2024?

2024, yes.

We will get close to this.

Now, the Germany plant isn't closed. It's a little bit lower.

So I think we're comfortable that we will do that EUR 85 million during the course of this year. We expect there will be some modest further increases coming through in 2024, but we have made a decision to not close the Mainzlar plant and unlocking the benefits around Contagem really would depend on that project progressing. So I wouldn't take a meaningful further increase in the EUR 85 million for next year.

And then when you say softer pricing, could you please go into that a little bit? Is it kind of 5% down volumes, 5% down on pricing?

So what we will see is lower costs for purchased raw materials for energy and for sea freight. Our expectation is that we're going to need to respond to competitors pushing down prices. That will happen starting in the East, and we've already seen that coming through in China moving to the West. At this point, as you can see from our guidance, we are looking at very low single-digit reductions impacting our margins. So that's our expectation.

But that's the pull-through, right? This is the pricing we have to give beyond even cost decreases. That's why we have a margin squeeze.

It's Harry Philips from Peel Hunt. Just thinking about the M&A pipeline and saying it's sort of looking quite full. Just one, I suppose the sort of areas you're thinking of, I'm guessing, more emerging market type [indiscernible] 2 sort of product-wise? And then three, where do you see the competition coming from in terms of seeking those particular assets, please?

So there hasn't been much of a competitive action on consolidation, at least not to the same extent that we have pursued this yet. Vesuvius has made acquisitions every year. So they are in the same -- they're moving in the same direction. But there is a new player now in the market, which is an American private equity that has bought the French refractory business from Imerys and that has bought Harbison-Walker, the 1 of the big players in North America. I think we should reasonably expect that they will continue to look for opportunities also and build a large refractory player. So the consolidation from our perspective, is accelerating. What are we looking at? We're going to continue to look in Asia, because there are many countries in which we're not yet present, including China. And in India, probably we have now for the next couple of years done most of the things that we can do. And we're going to look in the industrial market where more and more we learned that we're not as strong as we maybe thought some years ago that we are. So there's more opportunities here than we thought. And product-wise, we're looking at the nonbasic refractories, alumina-based, silica-based refractories.

Dom Convey from Numis. I just wonder whether you could give us a little bit more color on how you see the margin story and obviously the balance sheet evolving through 2023 because it feels, obviously, that you're anticipating a steady improvement second half on first half margins, but there could well be a bit of a pinch point on the balance sheet, perhaps at the 30th of June, what that might look like?

So Dom, from a margin perspective, I think our base case expectation is that we're going to look at a backward integration margin of around 1.7%. Could that improve during the second half of the year? That will very much depend on 2 things. One is how freight rates evolve and secondly, how the base prices of our produced raw materials perform. We would anticipate that as production increases potentially in the second half of the year that will get backward -- slightly better fixed cost absorption, and that will then support some modest growth in our refractory margin weighted towards the second half of the year. But as I say, on average, we're looking at 10%. In terms of our gearing, our expectation is that we will hit peak leverage, excluding any further M&A at the middle of this year with the underlying cash generation of the business supported by working capital reducing during the second half of this year. Clearly, it's going to be important when we present all of our leverage numbers that we look at the last 12 months for these assets. So when you have acquisitions like New Emei, which are purchased halfway through the year, we will need to pro forma those for a full 12-month impact.

Mark Fielding from RBC. In terms of the industrial bit, could you just talk a little bit more about what you're seeing from a demand side, I suppose, thinking in the past, you said you had about 12 order backlog in the glass side of things. And just how that's evolving? And even on cement, you said there were some more risks around the end of this year than last year because of the timing of closes and things just...

Okay. So let's split between cement and the industrial projects. On the industrial projects, we've had a quite strong 2022 because of this backlog and we're still looking at a very solid 2023 also because there are still projects under execution as part of the longer-term CapEx cycles in all the different industries, glass, nonferrous metals, other areas, chemicals. On the cement side, the situation is quite difficult -- different. With the reduction of the construction demand pretty much all over the world, except India since October -- September, October. The cement demand has really started to lever off. So we see a weaker cement season '22, '23, than we would have anticipated 6 months ago because that construction weakness, originally we were anticipating in Europe but not in other regions, that is pretty universal now. And therefore, the cement business 2023 will be weaker. Kilns are running longer and the repairs simply are skipped.

Just a separate question. Just a little bit more around the pricing side, I think it's an evolution there because I mean, there's sort of been a general thought in the past that as raw mats go down, for example, and some of the surcharges and things roll off, there will be a bit of a lag on that. And potentially as a net win-win input costs and things go down for a short period. But obviously, you're pointing downwards. Is it just that people are moving faster because of the softer demand environment or?

This is what we expect exactly because we have the raw material costs, shipping costs, energy costs all coming down at the same time. And at the same time, we hit soft demand pretty much everywhere. We expect this overzealous passing it through.

It's Jonathan from Barclays. Just 1 quick follow-up. Just in terms of the net debt EBITDA guidance at 2.5x, that you say you're pushing it higher than that for the right deal? How far would you happily push that net debt EBITDA? And if it was a reasonably sized or quite a large size deal, would it be -- could it be solely or would it be solely funded by equity? Or would you look at other possibilities to fund the right?

Our business as recently as the middle of last year has operated at leverage at 2.7x. As a Board, we were comfortable operating at that level given the resilience of our underlying cash flow and given the structure of our debt. So 2.7, 2.8, I think, is probably as far as we'd reasonably wanted to go for compelling M&A. Clearly, if we were going to want to do M&A that would stretch the balance sheet further, we would need to look at how we would fund that.

Any questions? We have a webcast. Any questions on the webcast?

[Operator Instructions]

It doesn't seem to be any questions on webcast either, thank you very much for coming this morning. Happy to continue the discussion over a cup of coffee before you leave, and then during the course of the next weeks, goodbye. Thank you.

Thank you.