SFS Group AG (SFSN) Earnings Call Transcript & Summary

Good day, and welcome to the SFS Group AG Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO of the SFS Group AG, Jens Breu. Please go ahead.

Good morning, and welcome to the presentation of our first half 2022 results. Today's speakers are Volker Dostmann, CFO; and myself, Jens Breu, CEO of the SFS Group. The agenda over the next 60 minutes will be positioning of SFS, key takeaways, development by segment, development of key financials, guidance 2022 and group priorities, Q&A before closing. I will start with the positioning of SFS, where SFS accompanies you usually unnoticed 24 hours a day, 7 days a week, reliably through everyday life. Our precision components and mechanical fastening systems are embedded in the successful products and processes of our customers and fulfill their service with high reliability in the required precision and cost effectiveness as needed for mission-critical applications. The end markets we serve ranked in order of sales achieved are the construction, automotive, industrial manufacturing, electronics, medical as well as other selective industries. Our focused business activities aim for tailored solutions for selected niche applications. In the segment Engineered Components, this includes automotive and industrial applications under the brand of SFS as well as electronics applications under the brand of Unisteel and medical applications under the brand of Tegra Medical. In the segment Fastening Systems, we serve the construction industry under the brand of SFS, under the brand of GESIPA, automotive, industrial applications and distribution. The segment Distribution & Logistics pursues its development under the brand of SFS, with our Swiss customer base in the application range of industrial manufacturing and construction. And new under the brand of Hoffmann, we serve the European and increasingly over the U.S. and Chinese industrial customer base with tools, workshop equipment and personal protective equipment. As such, we create over and within the 3 segments, synergies in tooling-based technologies. In the segment Engineered Components, this means that the engineering partner of our concentrated customer base through the development and industrialization of tooling-based customized precision components and assemblies. In the segment Fastening Systems, as solution provider to our thousands, mainly midsized and small customers by the development and distribution of application-specific tools and fasteners. And in the segment Distribution & Logistics, as system partner to our thousands of midsized and small customers as well as some large strategically targeted key accounts through the development and trade of tools, fasteners and work equipment. For us, business model and end markets differ by segment. In front of the customer, we are united by applying the SFS value proposition over all segments uniformly, meaning creating products and intelligent solutions with high added value for the customer, both strengthening the partnership and leading to greater differentiation. This aim requires a corresponding attitude or, as we call it, the constant desire to inventing success together. In relation to the total cost of our customer product, the direct cost of embedded SFS products accounts often for less than 1%. However, the associated costs on the customer side such as internal processes and environmental costs can be several times higher. Our value proposition as well as our focused business activities lead then in combination with the megatrends on which we base our business strategies on to sustainable growth through the cycle. On the growing market segment, we understand niche markets with above-average growth potential having a strong link to the underlying megatrends. By applying our operational excellence, core knowledge in building up and managing robust supply chains, high-volume production technologies, time-to-volume expertise and best-in-class availability, we deliver to the customers the quality and reliability we are known for. By leveraging our global business platform through offering local-for-local business development capabilities, we are enabling our divisions to continuously increase share of wallet with customers, at the same time, allowing customers to achieve a reduction of supply chain complexity, a truly well-orchestrated and, over the years, further fine-tuned formula for growth and sustainably high margins through the business cycle. I will continue now with the key takeaways first half 2022, which can be best summarized as growth exceeds expectations. Good growth, as I said, above expectations, was achieved in all regions and end markets, except for Automotive. As a further highlight, the transaction with Hoffmann has been closed on May 11. In result, first half 2022 gross sales climbed to CHF 1.223 billion or plus 27.8% versus prior year, consisting of organic growth of plus 9.8% and also the first time consolidation of Hoffmann, which accounts for a growth of 19.3%. Normalized EBIT margin rose by 11.5% to CHF 179.5 million, resulting in an EBIT margin of 14.7%. CHF 16.6 million of expenses were normalized in connection with first-time consolidation of Hoffmann. Profitability was impacted by uneven capacity utilization and inflationary pressure on costs. Highlights from the sustainability report for 2021 are published -- or were published on June 3, 2022. The number of work-related accidents were reduced by another minus 12.8%. The CO2 emissions were reduced by another 11.9% on a like-for-like basis. Thomas Oetterli was appointed new Chairman of the Board at the Annual General Assembly, succeeding Heinrich Spoerry. Continuing with the development by segment. Starting with the headlines of the Engineered Components segment, which has experienced varying conditions in the end markets served. Overall, good sales growth has been achieved, leading to first half 2022 reported sales of CHF 523.4 million or plus 6.4% year-over-year. Industrial, Electronics and Medical took advantage of the market conditions and realized good growth. The Automotive development was just slightly below previous year, impacted by shortages in the customer supply chain. Project-specific capacity expansion in Automotive, Electronics and Medical are on track. The EBIT margin of 15.9% has been impacted by uneven utilization of production capacity and overall increasing costs. The key message of the division Automotive, shortages in supply chain hamper development, further underlines the just-mentioned development of the segment. Reduced customer demand has been encountered due to shortages in customer supply chain, for instance, with semiconductors or cable harnesses. The division's own raw material availability was not impacted and performed as per our expectations. Investments in project-specific production capacity expansion in Heerbrugg, Switzerland are on track. Ramp-up of production started. Continued localization of ABS components production in Nantong, China have been carried forward to ensure optimal supply of locally present customers. Looking out, the automotive market is expected to gradually recover in the second half compared to the first half. Nevertheless, our target to outgrow the market remains unchanged. The key message of the division Electronics, continued high demand of end users and supply chain in Electronics alike points towards organic growth driven by strong demand mainly in Lifestyle Electronics. Mobile Devices was with slightly positive development, while demand for HDD applications was subdued. However, consistently good product availability and efficient supply chains allowed for market share gains and supported growth, too. The COVID-19 lockdown of totally 10 days in Nantong, China had only limited business impact. The expansion of the Nantong platform is progressing as expected. Looking out, a moderate development at the high level is expected for full year 2022. The key message from the division Industrial, growth trend maintained in most niche markets, underlines that the division remains on growth track in nearly all niche markets. Particularly strong order intake was observed in the first quarter, partially driven by inventory restocking effects of the customer side or the customer side. Demand for aircraft components picked up and showed significant growth. Nevertheless, market conditions remain uncertain due to implications from COVID-19 pandemic. Growth is expected to level off in second half compared to the first half but still resulting in overall organic growth in the full year 2022. The key messages of the division Medical, record-high order intake in first half year, underlines the positive sales development in all application areas. Demand for instruments and implants for orthopedic surgeries recovered as backlog of postponed, elective surgeries clears. Shortages in availability of skilled labor and temporarily raw materials hindered a stronger development. Ongoing operational excellence efforts allow efficiency gains and improve competitiveness. Building up the global medical manufacturing platform remains a key priority. Unchanged market conditions in second half compared to first half or expected, leading to positive development in full year 2022. We're coming now to the headlines of the Fastening Systems segment, where market dynamics remained unchanged for the 2 divisions. Strong demand in construction industry supported both divisions and resulted in first half 2022 sales of CHF 334.5 million or plus 14.1% year-over-year. Other markets served by Riveting developed well, except for the automotive market, which was impacted by shortages in the customer supply chain. Continued high attention on management of supply chains allowed to maintain good delivery performance and enable both divisions to win new customers. High capacity utilization and thorough cost and price management resulted in a record EBIT margin of 19.1%. Looking into the details on the development with the Construction division, we can summarize it by continued strong demand above expectations. The division continued its growth trajectory and exceeded expectations. All application areas in both Europe and North America contributed to the development. Only limited effects from interest rate hikes and rising inflation were experienced. However, uncertainty on future demand remains high. Production capacity expansions in North America has been initiated to support the customer demand and further localize production. The division expects good organic growth for full year 2022. Rising interest rates and input prices are main risks to the future demand. Coming to the key messages of the Riveting division, where the development varied by application area. Overall, only flattish sales development with stable growth in the industrial manufacturing and construction-related applications was achieved. Demand from automotive market remains subdued due to shortages in customer supply chains. The relocation of the production site from Nansha to Nantong in China yielded expected initial efficiency improvements. Demand from automotive customers is expected to recover gradually in second half compared to first half. Overall, the division expects a rather flat development in full year 2022. The headlines of the Distribution & Logistics segment state the transaction with Hoffmann, which was closed on May 11. Overall, good market demand led to reported sales of CHF 365.7 million or plus 111.9% year-over-year, thereof organic plus 7.2% year-over-year. Hoffman is contributing to the segment as the new division D&L International since May 1, 2022. Strong demand from industrial manufacturing customers led the path to organic growth. Business with customers from the construction industry newly accounts for less than 10% of sales of the segment. Good material availability throughout the semester support both division's growth. Strong normalized EBIT growth of plus 115.4% to CHF 34.9 million resulted. The normalized EBIT margin reached 9.6%. The key messages of the D&L Switzerland division is that the growth trajectory was upheld. The division showed solid organic growth at a comparable rate to the prior year period. Growth was mainly supported by industrial manufacturing customers across the major product group, tools and fastening systems. Market demand from construction industry was positive at a high level. Sales generated from direct channels like sales representative and e-Shop carried forward with further good development. The division expects a stable development in second half compared to first half, resulting in organic growth for the full year 2022. Closing the development by segment with our new division, D&L International, which was able to participate at a good market momentum. D&L International participated at a positive environment in the industrial manufacturing industry and achieved good growth mainly in Europe and North America. For the first time after the outbreak of the COVID-19 pandemic, physical product shows were held again. Ramp-up of LogisticCity remains the key priority and is planned to be finished by end of 2022. Martin Reichenecker, Head of the Division, joined the Group Executive Board in May. Stable development is expected in the second half compared to the first half, leading to organic growth for full year 2022. With that, I conclude my explanations. I will now hand over to Volker for covering the development of the key financials.

Thank you, Jens. Good morning, and welcome, everybody, from my side. We look at a good start in 2022, which was carried on one side by a sound organic growth compared to last year but certainly shows a distinct mark from the first-time inclusion of Hoffmann. While supply chains on customer side remained very challenging, we recorded satisfactory order intake. We reported CHF 1.2 billion in sales, including 2 months of sales from Hoffmann being included as from May onwards. Again, our team managed to adapt capacity successfully despite short-time changes in demand patterns. Looking at the sales bridge, we show in a decomposition organic growth versus prior year of CHF 93 million or 9.8%, which is reflecting pickup in demand but also effectuated price increases due to raw material and partially energy costs, which have been forwarded to our customers. Pricing accounts for approximately 1/3 of the organic growth. All segments contributed to this development, which overall is well above our full year guided growth of bracket of 3% to 6%. Most important step in perspective of sales is the addition of Hoffmann into the result of SFS. Hoffmann has been consolidated as of closing in early May and is reflected in our performance, as I said, with 2 months. FX effects for first half year amount to minus 12% and minus 1.3% as the sale exposure to U.S. dollar and euro are partially balancing each other out. Organic sales development per quarter is along the development of the global economy, which we have seen negative to flattish growth pattern for 2018 until Q1, Q2 2020 when the COVID-19 pandemic started to show its impact. After a period of years rebound in growth, we see a flattening out and a normalization. Predominantly supply chain issues on our customer side, namely in the automotive industry, made demand uneven and utilization, therefore, [ dropping ], leading to operational efforts on the SFS side to ramp up and ramp down capacities on a short-term basis. Our teams managed to adapt quickly the resources and ship the capacity, which allowed to drive growth during this phase. However, we see volatility remaining on a considerable high level, and increasing uncertainties on the supply chain, energy shortages and the conflict in the Ukraine will persist for the quarters to come. Looking into our end markets, we see a step-up towards industrial manufacturing based on the value proposition of Hoffmann. Organically, we have recorded in all end markets, except automotive organic growth. In automotive end market, we see a minus 1.5% development, whilst the market decrease is approximately by minus 8%. From a geographical point of view, region Europe, excluding Switzerland gains on importance, whilst we see growth in all regions. As the first time consolidate Hoffman, we have normalized our performance for acquisition accounting topics, predominantly the inventory step-up. The impact from this normalization is for the first half year at CHF 16.6 million or 136 basis points on EBIT. We expect the total impact from these items to be plus/minus CHF 20 million. In the purchase price accounting, the acquired inventories have been valued, including a part of the sales margin. This so-called step-up is amortized as this inventory is sold and decreases the margin during this period by the according portion. This impact will be fully absorbed in financial year 2022, and we are confident to finalize the acquisition accounting within Q3 2022. Uneven utilization, cost discipline and described pricing initiatives impacted our EBIT margins for the first half of 2022 to a normalized level of CHF 179.5 million or 14.7%. Normalized EBITDA is at CHF 233.7 million or 19.1%. As described before, we are challenged with uneven capacity utilization as opposed to first half year '21, where we had continuous and high demand. Further, we record a leveling up of energy cost up to the tune of 20% as well as cost pressure from labor and raw material side. Passing on these cost elements to our customers shows to be more and more challenging. We report earnings per share of CHF 3.42, compared to first half year '21 or CHF 3.52. At our current earnings per share of CHF 3.42, we show a very attractive performance. When you keep in mind that this includes the burden of the acquisition accounting described above, that amounts for first half year 2022 to [ 36 ] per share. As shown, we have seen growth in all of our end markets besides automotive during the last quarters. Given the uncertainty mentioned before, paired with the considerable cost increases, which will continue to impact our P&L, we are, of course, carefully monitoring profitability as we go forward. The seasonality, which we reported comparing first half year, second half year, over the last years will most probably not apply anymore for the future. This is also based on the change in our mix. Being confronted with the weakening of the euro, we see our exposure in euro/Swiss francs lowering as we shift weight as a group overall. Our hedging positions proved to be very sound and shelter us from stark shifts in FX environment. The ability to grow is continuing on a steady path after coming back from the impact in 2020. We see good opportunities to keep such pace also in the future. At the normalized EBITDA of 19.1%, we show a strong performance for first half year '22 in the long-term comparison. Net working capital is influenced by nominally higher receivables at lower DSO but also significant buildup in inventories. We deem our delivery reliability as a very important value proposition. Therefore, we have deployed a significant part of cash flow on the replenishment of raw and half-finished goods to be ready and timely in answering our customers' demand. On a group level, the net working capital remains below 30% on an annualized basis or on a total level of 105 days. However, we are addressing inventory levels to be aligned with demand patterns closer in second half of 2022. Our strategic investment projects keep going. In Switzerland, whole automotive in Heerbrugg is taken into operation. The expansion in Nantong, China has started. Expansion in Costa Rica for Medical are underway. The project of migrating our ERP environment to S/4HANA is partially recognized as CapEx under the bracket corporate. Projects are on track and will continue as planned. We expect CapEx reported to be in a range of plus/minus 6% for the year. Free cash flow is, given our net working capital development and the ongoing investments, showing a low result. Based on our outlook into second half year, we expect cash flow for the year to be clearly 3 digits or in the range of 2018, 2019 numbers. With the Hoffmann transaction, we are reflecting an expected net debt situation. Having successfully refinanced the acquisition, we are on a projected path to establish an equity ratio above 50% as per year-end. Unused credit lines are in the range of CHF 340 million. The bond financing of the acquisition is hedged into euro and related revaluation of this so-called net investment hedge are shown as changes in hedges on the equity table and do not impact our P&L. Purchase price allocation is not yet finalized. As said, we expect to close this by year -- by end of Q3 2022. Return on capital employed remains on an attractive level given the slightly lower EBIT compared to first half year '21 and has shown higher net working capital levels. Adding back all the goodwill positions, we show a return on invested capital of 9%, which is at the current capital allocation and risk-free rate, considerably higher than our back of 7.2%. We have summarized the KPI for the first half year and can state that we have seen solid growth in challenging environments, reacting on fluctuating demand. Cost increase is and will be demanding. We will be focusing on cash flow and continue to show attractive returns as we go forward. With this, I thank you for your shared interest and give back to Jens, who will lead you through our guidance.

So welcome back to the guidance and group priorities. High level of flexibility will be required in the second half of 2022 because how the economy will perform in the second half of 2022 is far from certain. Geopolitical tension, the war in Ukraine, an impeding energy shortage in Europe, sustained disruption in supply chains and ongoing restrictions as a result of the COVID-19 pandemic are increasingly having an impact on the global economy. The associated high inflation is having a negative impact on consumers and supply chains in form of rising prices and costs. Against this backdrop, SFS expects business activities to slow in the second half of 2022. Nevertheless, SFS expects sales growth to remain unchanged at 3% to 6% for the year as a whole before the consolidation of Hoffmann. In addition, a sales effect of CHF 720 million to CHF 770 million for 8 months of Hoffmann consolidation in 2022 is expected for the current financial year. For SFS Group as a whole, including Hoffmann, an adjusted EBIT margin of 12% to 15% is expected. The change from the previous SFS stand-alone guidance of 13% to 16% EBIT margin is attributed solely to mix shifts resulting from the acquisition of Hoffmann. The reported earnings per share as per half year is CHF 3.42 per share. This includes a onetime P&L impact from the Hoffmann transition of CHF 0.36 per share. The full year impact is estimated at CHF 0.43 per share and should result in an earnings per share of greater than CHF 7. This outlook is based on the assumption that there will be no significant worsening in the underlying economic conditions or pandemic-related restrictions. Due to the strategic international positioning of the D&L segment and the resulting mix shift, SFS revises its medium-term guidance. While the sales growth target for the entire company remains unchanged at 3% to 6%, the target range for the adjusted EBIT margin is newly set at 12% to 15%, solely due to mix shift resulting from the Hoffmann acquisition. Arriving at the last slide of [indiscernible] part of the presentation and covering the SFS Group priorities. As strongly rooted in our DNA, we aim to focus on specific priorities and relevant megatrends, which means strengthening innovation, especially in the megatrends of demography, digitization and autonomous driving. Under the key priority, growth, we focus on further investments in future growth projects, namely Engineered Components as well as working on establishing international presence with Hoffmann. On the customers side, we ensure a reliable supply capability and continue improving customer centricity of our organization. Under profitability, we focus on balancing production capacity with demand and touring full supply capabilities while keeping costs under control and forward increases within the supply chain. Under sustainability, we continue to integrate sustainable acting and thinking holistically in the business model and corporate strategy while continuing high focus on protecting employee health and safety. Next, we also would like to pound out to the upcoming Investor Day on September 15 in Heerbrugg, focusing on the segment Engineered Components and Fastening Systems. With that, we are at the end of the presentation of the first half year results 2022 and now available for your questions. We will start with the questions from the telephone.

[Operator Instructions] We will now take our first question from Jörn Iffert from UBS.

It would be 3 to 4 quick questions. The first one would be your organic EBIT growth in the first half before the one-off was quite limited, and your guidance on the midpoint also would include the very limited organic EBIT growth. Does that also reflect that you maybe overearned on margins a little bit last year and now you're hit more by the rising costs? The second question would be, please, on your very high margin Fastening Systems, which is likely coming from the construction market. Are you seeing any signs of slowdown that your customers, for example, start to reduce their crews. And the last question, if I may. You -- did I understand correctly, you're looking for EPS for full year 2022 above CHF 7, and this is before the CHF 20 million one-off, right? Just a double check.

Okay. Yes, Jörn. Jens speaking here. On the EBIT margin development, we certainly expect in the second half of the year that will have more headwind due to rising costs and lower utilization of the production plans, so as we referred to, we would then see a slowdown in the business activities, which will certainly have an impact. Besides that, I believe we also need to consider price increases we continuously give into the market, and that's the other element of uncertainty. Depending on the customer groups and the industries, it's not solely just up to us to decide whether we can follow up the price increase. It's also in agreement with the customer, and that's something we do not have in our hands. So high uncertainty on the economic side, as we mentioned, but also uncertainty on how well and how quickly we can fall out cost increases we get from the energy sector, for instance, but also, for instance, from the labor market or other cost elements. Raw material, on the other hand, we have seen to come slightly back or flattened out. So from that side, we do not expect a major increase. Your second question on the Fastening Systems slowdown. Seasonally, we expect a normal pattern as we usually do. We have not seen that our customers reduced their crews in the market overall. We still expect the capacity will be maintained, and we also expect in 2023 that there is a solid and robust construction market out there available to be served. In terms of earnings per share, yes, the greater than CHF 7 is before any impact of onetime costs due to acquisition.

Okay. And then the greater EPS, above CHF 7, this would indicate that the EBIT is likely around the midpoint of your guidance around, what is it, CHF 350 million, CHF 360 million. I mean is this a fair assumption you're looking for as a base case?

That's probably an assumption, which could be taken by [ you here ].

We will now take our next question from Charlie Fehrenbach from awp.

Just one question for a better understanding. Did I understand this correct that you expect a total of one-off costs for the integration of Hoffmann Group of around CHF 20 million? So for the second half, you would just have to book something between CHF 3 million and CHF 4 million. Question one. And my second question is, what are the implications of possible energy shortages in Europe in the coming winter? And how do you prepare for that?

Thank you very much. And yes, we will normalize the inventory step-up. This is not the full cost of the integration. But we see rest of the cost as neglectable on that level. The inventory step-up is what we have in the course of the acquisition accounting. As said, these amounts are not finalized but are, in total, in the range of CHF 20 million. And that would lead to these roughly CHF 4 million going into second half, as you indicate correctly.

Second question, what will be the impact of energy potential energy shortages in the winter of 2022, 2023? Overall, I think we have to explain that, first off, our main energy carriers is electricity, followed by gas we need for heating and also gas we need for our processes overall. But in general, we can say we are not a very intensive energy user in our processes. They are within the supply chains, other manufacturing processes, which consume more electricity and gas, for instance. So due to that, we expect, and based on experience, we believe that customers usually run out of other production materials first before we even will get into a shortage. So we expect similar like in COVID-19 and the following recovery that we can attract, that we can selectively gain additional market share or better availability, but we do not expect that we have a sharp impact due to energy just solely on SFS, we would expect. We swing with the market as it goes up and down in activity in the industrial sector and selectively gain some additional customers due to having a better position. Although we certainly have a good inventory in place, so if there are shortages on a rolling basis, a few hours or a few days, we can still cover our customers' demand with our inventory. And secondly, also to keep in mind, we have a strong local-for-local strategy, meaning in North America and Asia, we usually would not see any limitation. So the local plans would serve and continue to serve well our customers. If we see shortages, we would mainly see them within Europe. And once again here, we have the fallback position of our inventories and, secondly, that we are not as energy-intensive as other ones. On the buying side, certainly some of the costs will increase as we will experience.

We will now take our next question from Andreas Müller from ZKB.

I have 3. One is -- I was wondering if there is a difference between SFS stand-alone and Hoffmann in pushing through pricing increases, given the somewhat different exposure of the 2 businesses? And do you have sense any change in the last 6 months in the ability to pass on prices in general?

In general, we can say it differs by segment. In the segment Distribution & Logistics and Fastening Systems where we mainly have small and midsized customers, the ability to increase prices is larger. And in the segment Engineered Components, where we have the larger tiers and OEMs were strong framework agreements usually govern this relationship, there, we do not have such a freedom to increase prices. So in terms of forwarding it to the market, certainly more flexibility within D&L and Fastening Systems and we do not see much difference between the different organizations, whether it's Hoffman or other organizations within those 2 segments.

Okay. That's clear. Then I was wondering, in EC, what does it mean for the EBIT margin in H2 with the recovery you see in customer orders from -- in the Automotive division? Do you see an overall better capacity utilization, better pricing, meaning also that margins could be good supported in H2?

Yes. We see a range of implications overall. We certainly see that we have ongoing discussions with the customer to increase prices. That's certainly a plus we would expect on the second half of the year. We also expect that utilization should be slightly better. That's also a plus in the second half of the year. Then towards the very end of the second half of the year, we have some supply agreements on the electricity side, which are running out. That's probably a negative. And then also we have the increase of the Swiss franc compared to the euro, which also will be negative. So varying developments, I would say, overall, but certainly the strongest lever is utilization of the plants which we have to keep in mind. And their visibility is there week by week and not more at the moment. That's still the challenge we have to face that we do not have greater visibility.

Okay. Can you then -- last question, clarify the CHF 5.2 million in the segment corporate. What is in there? And what will be the pro forma run rate for the full year?

I have to ask back, Mr. Müller, CHF 5.2 million, you were referring to what?

Just the CapEx?

Mr. Müller?

Yes. Sorry, I was on mute. No, I was referring to the EBIT bridge from the segments -- the 3 segments into the overall EBIT. It was minus CHF 5.2 million in the -- hold on, the corporate .

Are you referring to our half year report? Or are you referring to the slides?

To the half year report, Page 24.

In a second.

Half year, 24, on the left-hand side, really the first table there.

Okay. We are recording their consolidation effect, and we are having one of the major projects at SFS, strategic projects ongoing, which is S/4HANA, which has a part that is not capitalized. I said, we are having a part of the efforts going in there that is capitalized. And a considerable part of this CHF 5.2 million is linked to the project that is expensed.