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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump First Quarter 2023 Financial Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Ms. Elisabetta Cugnasca, Group Head of Investor Relations of Interpump. Please go ahead, madam.
Thank you. I am Elisabetta Cugnasca, Head of Investor Relations of Interpump Group. Good afternoon or good morning according to your time zone, and welcome to Interpump's First Quarter 2022 (sic) [ 2023 ] Financial Results Conference Call.
As usual, I have to bring your attention to the disclaimer slide insert in the annex part of the presentation, I hope you were able to download from our website. Afterwards, it's my pleasure to give the stage to Mr. Marasi, who today, I am introducing you as new Group Chief Executive Officer. As a matter of fact, last 28 April, the newly nominated Board split Chairman and CEO role and Mr. Marasi was appointed as Group CEO.
Thanks, Ms. Cugnasca, and thanks to all of you for the attendance. Due to these conferences, please allow me to take a couple of minutes for some personal remarks. As some of you probably remember, I joined Interpump in 2016 with the double act of M&A responsible and Head of Hose and Fitting division. During these years, following the growth of the group and the expansion of these businesses, I had the opportunity to add different businesses role and act too. Among them, of course, the one that I appreciated the most has been the leadership of Walvoil Group in the last couple of years.
Since last 28 April, I'm wearing an additional act, the one of Interpump Group Chief Executive Officer, for sure, the most important and demanding of my entire professional life. I feel mandatory to express now my deep gratitude to many people. I would like to thank Mr. Montipo first for his trust and mentorship, my colleagues who help me and support me in this time and the financial market, too, because discussion with analysts and investors has been an important step in my growth path that allow me to understand topics, which have to be clear in mind of someone who has a responsibility to lead a listed company.
Having said that, let's have an overview on the first quarter '23 and consequently on the entire 2023. The result of the first quarter 2023 was significantly better than our rosiest expectations. Speaking about top line, despite an unprecedented growth achieved in 2021 and in 2022 and some fear of a softening market demand, we enjoyed a further acceleration from the fourth quarter '22, and this resulted in an organic growth higher than 18%.
Moving to profitability and margins. The very strong organic growth and the full deployment of the countermeasures adopted to face inflationary trend resulted in an EBITDA margin of 25.3%, a number that is unprecedented in Interpump Group's history. In addition to this and despite the impressive organic growth, the cyclicality that characterized the first half of the year and the peak in CapEx, we have been able to improve the cash flow generation from EUR 6 million to EUR 14 million in the quarter, stabilizing the inventories level, thanks to a less critical situation regarding supply chain and logistics in comparison to the situation of the last 2 years. We expect to improve significantly the cash flow generation in the following quarters, in line with our promises of last summer but we already did with the first steps.
Furthermore, we maintained our focus on M&A growth path, going on with the implementation of our risk management approach through direct specification and this resulted in Indoshell Mould and I.Mec acquisitions. Finally, we started to implement the first actions of our 2023-2025 ESG journey, and this resulted in the approval of the new code of ethics and the creation of the Sustainability Committee. Moreover, with the concrete and practical approach that you know distinguishes the group, we took the opportunity given by the appointment of the new Board to anticipate the most important step related to the formalization of succession plan action, that is the separation between the Chairman and CEO roles.
And these results, what does it mean for the remaining part of the year? It means that we are expecting, for the full 2023, a higher-than-expected organic growth rate. And in particular, we believe that our mid-single-digit organic growth rate anticipated last February for 2023 will become a nice single-digit organic growth rate. On top of this, we expect to consolidate further the record high profitability results achieved in the last 2 years to improve the cash flow generation and to continue with our excellent growth strategy with always keeping an eye open on what is going on around us. The milestone of our medium and long-term growing strategy is profitability excellence, and we are ready to promptly adapt ourselves and our industrial footprint infrastructure in case of market change.
After this first snapshot, let's deep dive on the first quarter '23 figures. Regarding sales, with an organic growth of 18.7%, as I said before, 18.7% is the best result of the last 3 years, excluding COVID rebound of the second quarter '21. Considering performance drivers, we mentioned a 14% volume growth and 4% price growth. Both divisions performed very well with a well-balanced growth rate, and in particular, Water Jetting performance was supported by complete solution products.
Some color on the sales evolution by geography. U.S.A. were up by close to 19%; Italy by around 20%; Germany by close to 30%; France by more than 20%; and Canada by close to 25%. For updating partnerships among the second countries, China, which last year was [ Group Shangri-La ], in this quarter grew double-digit by more than 11%.
Sector application. Industrial vehicles adaptors up by almost 14%; agriculture and forestry up by 20%; earth moving machines up by more than 30%; lift by 25%; construction by more than 30%; food and beverage, up more than 20% and so on. Another important point is White Drive. The investment done to increase manufacturing capacity and to reduce bottlenecks are bearing fruit. And in the quarter, sales were up by almost 28%.
Moving to profitability. The EBITDA margin of 25.3% is a record, not only for the first quarter, but this is also a historical record for a general point of view for Interpump Group. Across the group, we are fully benefiting of the very strong and balanced organic growth and the full deployment of the countermeasures adopted in 2022 to face inflationary trends. Regarding White Drive, for the second quarter in a row, EBITDA margin stood at 21%, driven by improvements on both sides of the world.
In Europe, the rationalization between Poland and Germany is going on. And finally, investments done last year in U.S. are bearing fruit. Last week, I spent 3 days in the Polish plant of White Drive, and I'm very proud to say that our colleagues fully embrace Interpump managerial approach.
On a final remark, please do not let you misled by the last part of the insurance reimbursement regarding Romanian fire that accounted EUR 3.6 million that we received in the quarter. With our usual transparency, we underline it to you, but please keep in mind that this is not a gift. This is the compensation of all the activities and losses and expenses we are doing to make the factory working again. And hopefully, next summer, the production in our Romanian plant will be back.
Moving to CapEx. As you know, we are going on with the post-COVID production expansion plan. And gradually, we are rolling out the equipment phase after the land and building one. I would like to remind you, annual figures because of -- on CapEx, we have a medium to long-term strategy, which could not be properly judged by quarterly numbers. In 2021, almost 50% of our CapEx were dedicated to buy land and build factories. In '22, this percentage went below 40% and today is below 30%.
To give you some color, please allow me to switch to Walvoil CEO act. We are completing, as you know, the enlargement of our plant in Reggio Emilia, a state-of-the-art building that was honored by the visit of the Italian President of the Republic on last 29 April. And as a matter of fact, Mr. Mattarella, on Labor Day, visited the Reggio Emilia 2 companies, one of which was Walvoil and it was, of course, a great honor to be chosen as one of the best example of the so-called Mechatronics, absolutely the best gift for Walvoil's 50th birthday that we will celebrate in few weeks.
Moving to cash flow generation. It's important to underline that the CapEx plan is ongoing. But at the same time, we are delivering the commitment we took last summer to significantly improve cash generation with the first result in the fourth quarter 2022. Now we are going on this path despite the negative effect of the exceptional sales growth, which is driving up receivable. In terms of inventories, I would like to assure you that we slowed down our purchases after the active phase of exactly 1 year ago. And we are now stabilizing our inventories levels, thanks to a less critical situation regarding supply chain and logistics in comparison to the situation of the last 2 years. And the limited increase in value is explained by the inventory accounting methodology based on the average cost, and therefore, inflationary trends are kicking in the evaluation of the inventory. We expect anyway to significantly improve the cash flow generation in the following quarters, in line with our promises of last summer which we already did with the first steps.
Concluding with acquisition, I would like to dedicate a few words to the 2 most recent acquisitions because from a different point of view, they are very, very important. Indoshell, the foundry, this is a completely different acquisition compared to all the other done by the group in its history, a unique one. We bought, many times, companies which represented an upstream integration process. Eurofluid in October '22 was last example, but we never got to the raw material level.
With the pandemic years 2020-2022, what the pandemic year taught us and our constant focus on risk management pushed us to take the opportunity to buy an Indian cast iron foundry. Walvoil India has been working with this foundry since many years. And therefore, this was not a leap in the dark. We already invested in this, few months, to improve the factory and working condition to align with the group's state-of-the-art standard.
Now we will concentrate and invest in order to increase the production capacity. And we estimate that at the end of the year, Indoshell will be able to deliver 8,000 ton of cast iron. Our plan is to secure a very significant part of Walvoil Group needs of cast iron, that I remember you is the most important raw material used in the group, and then start to gradually support the group outside of the country -- group companies I mean.
I.Mec, as many of you underline us several times, in most recent years, our acquisitions were more focused in the Hydraulics sector in comparison with Water Jetting and Flow Handling. It was not our choice. It was the result of how complicated, competitive and long an acquisition process could be. With I.Mec, we are finally reinforcing again our flow handling activities and commitments. The company today has, as a most important reference market, the tile and ceramic one. But this technology is consistent with the one used in food and beverage, pharmaceutical and cosmetic sector. We started a part with Bertoli. We progressed with Inoxpa and Mariotti & Pecini and now I.Mec.
I believe that I gave you all the important details on the first quarter results. But summarizing all of them, the first quarter 2023 is the best quarter in group history in both terms of sales and profitability.
Now I will leave the floor to Ms. Cugnasca for the ESG updating.
Thank you, Mr. Marasi. I will be quite fast since we have already updated you in the past months step-by-step. We implemented 2 actions of our 2023-2024 period plan, which aims the building of Group ESG Foundation. The Governance 2, we approved a new code of ethics which now incorporate group ESG commitment. Governance 1, we create inside a new Board, the Sustainability Committee and Executive Director inside it, its new CEO. I believe that is the best evidence of how group is taking seriously the topics. This last mention, allow me to underline you the concrete step related to Governance 2, the formalization of group succession plan. This would be prepared in the next few months by our Board, but we anticipate the most important step, the separation of Chairman and CEO role with the appointment of Mr. Marasi as Group CEO.
You are aware of the fact that completeness is our mantra. We had the chance of the Annual Shareholder Meeting and new Board appointment, and we executed, all of which from a governance point of view is from a different standpoint. Last April, the new remuneration policy was approved. We know that there is still room for improvement, but we introduced important novelties. From then beyond, we introduced ESG targets. We gave more visibility on financial targets, and we inserted the clawback clauses. For the longer term incentive plan approved last year, as promised, we aligned the holding period to the best practices. For discretionary bonus and indemnities on termination, we introduced threshold and we fine-tuned calculation methodologies.
Summarizing, we are working hard to improve.
Thanks, Ms. Cugnasca. Some final snapshot. The first quarter 2023 has been the best quarter ever. We upgrade our 2023 organic sales guidance from mid-single-digit to high single-digit. We will never give up working to consolidate and protect profitability. We are actively and successfully pushing our M&A strategy. We have separated the Chairman and CEO role.
Thank you. We are ready to take all your questions.
[Operator Instructions] The first question is from Matteo Bonizzoni of Kepler.
I have 2 questions. The first part relates to the evolution of the order intake and backlog. I remember when there was the last call in February for the full year release, you said that, if I'm correct, at the end of January the bucket was up around 20% year-on-year. I just want to check what has been the evolution after January, so in terms of book-to-bill as regard to intake in the last few months, and if you can also comment for the -- separately for the division and also in terms of backlog growth at the end of April or what is your last check. This is the first question. The second question relates to CapEx. So free cash flow in Q1 was still impacted by working capital, but also CapEx was relatively high. It was around EUR 40 million, if I'm correct. Can you provide a broad indication for CapEx for the full year?
Thank you, Matteo. Regarding order intake and backlog, I can confirm that the backlog remains above -- well above EUR 1 billion in total. And I say that is stable month after month. And this would mean that the order intake to bill ratio is around 1. It is clear that this number is different from the crazy numbers that we were seeing 1 year ago, but we are really comforted that the demand from the market remain strong, and the backlog remain so high because in this sense, we have a full visibility, and we can operate with a proper time horizon on our factories.
Regarding cash flow, it is clear that in the first quarter was finalized by 2 factors. The first one, the very, very strong organic growth that led to a significant increase in receivables. This is -- and second, the concentration of some real estate-related CapEx in the first quarter. But my indication is not to consider that CapEx will be for the full year 2023, 4x the CapEx that we are seeing in the first quarter. And I confirm once again that we will be around 5% of our sales.
The next question is from Domenico Ghilotti of Equita.
My first question is related to the operating leverage in Water Jetting. So can you elaborate on why, despite the strong improvement in sales, the operating -- so the margin was pretty stable? And if you can -- so you are very clear on the guidance for the top line, can you elaborate on the expectation that we should have on the margin side? So I didn't catch the point actually.
Okay. Regarding operating leverage on Water Jetting, I believe that what we have seen -- I mean, 27.8% against 28% in the quarter is absolutely not meaningful in the quarter. We maintained our excellent performance in Water Jetting and profitability. And as we have commented many times, our operating leverage is limited by the recourse to outsourcing, at least in the short term. And then we are absolutely happy of the results also in terms of profitability that we have achieved in the 2 divisions in the first quarter.
Regarding margin expectation, you didn't catch it because we didn't mention. But as always, our aim and our full commitment is to protect and to maintain our excellent results.
Maybe I'll rephrase the question. So what are you seeing in terms of price contribution going forward? So if I'm not wrong, it was just 4%, so was not a big driver of the first quarter, but should we expect at some point a reversal of the price impact?
No. Also in February, when we commented the guidance and expectation for the year, I was commenting that our expectation for further price increase or price contribution for the year should have been very limited. And the results of the first quarter are a demonstration of this. And considering the evolution of raw material price, that are pretty stable, some reduction in energy cost and some increase in labor cost. I would expect no significant variation from this level of price going forward in the following 3 quarters. Then I would not invite you to consider any further price increase in the remaining part of the year. I will consider that this number will remain stable.
I'm more concerned about possible price cut...
We have already give back something in terms of removal of energy cost-related surcharges, considering that the peak energy cost, in particular in Europe, has been experienced in the third quarter of 2022. We have applied in the fourth quarter '22, year-on-year, some energy cost related price surcharge. Considering the strong reduction of the spot energy cost in the final half of last year, we have already reduced and removed the energy surcharge in the first quarter 2023. But overall, if you consider the group on a cost basis, I believe that the counterbalanced effect between some price increase, some catch-up of the price increases applied during 2022 and some removal of surcharges will end up in the full year, we'll have a limited price effect. We saw 4% in the first quarter, and I believe that we will stay around this number.
[Operator Instructions] The next question is from Bruno Permutti of Intesa Sanpaolo.
I have one question related to the reimbursement. I'd like to understand if, during the year, you expect to have extra cost related to the reopening of the Romanian facility more or less in line with the reimbursement we would expect to have? Or you can clarify what is exactly the impact there and the adjustment we should consider on the EBITDA. And a second question relates to the receivables. You mentioned that you had an increase in the receivable in the first quarter. I would like to understand what is the time horizon in which you expect to have a normalization or a cash-in of them. And if on the supply side, on the other side, you weren't able to increase payables and I mean, is there still -- are there still tensions on the supply side or now there is the situation can be considered normalized for what you are seeing?
Sorry to bother you, we will answer you immediately to the first question. But afterwards, can you please repeat the second one because we had a gap in your voice? So after -- no problem, it's probably our fault. So after the first answer, then will be -- will please repeat the second one, please?
Yes, it was related to the receivables and to understand better what could be the time horizon in which you expect to have a normalization of receivables? And part of the question is, why you couldn't increase payables? And how is the situation on the supply side? So if there are still some tensions or if situation is completely normalized, so that you can also manage your net working capital little bit better.
Okay. In -- regarding your first question regarding the insurance reimbursement for the Romanian plant fire, it's important to underline that we have booked in the first quarter, EUR 3.6 million. And we will have, as a positive effect in the second quarter, other EUR 5-point-something-million that will be more than enough to cover the completion of the restructuring and the restart of the Romanian plant. Then it is clear that we are still facing operating losses and operating cost for managing this situation and for restarting as soon as possible, the full production capacity in this manufacturing plant. But the insurance reimbursement is not a one-off, it's not an adjustment, coverage of these costs and operating losses will be enough to cover the cost that we will have to face and we have budget until we will ready again to operate this plant in full.
Regarding working capital, receivable and payable, it is true that we have increased receivable and we have increased the payable. Of course, receivable are on turnover and payable are on passes and then the effect is significant. Just for the record, receivable increased in the quarter by EUR 57 million, then a significant jump. That is the consequence of 18.7% increase in sales.
Regarding the supply chain status, I confirm that the situation is now much better than the one that we have lived in '21 and in '22. It is not completely efficient. It is not completely back to normal, but this has improved a lot in terms of availability and in terms of logistic time and cost.
Okay. And then for me, a follow-up on the first question related to -- so you had more or less a quite high operating profitability in the Hydraulic sector, if we assume that you had more or less a compensation between the additional costs on the insurance reimbursement. So can we assume that for the remaining part of the year -- I do not say I understand that probably the first quarter was very strong in terms of organic growth, and you probably will have a slight slowdown in the second half of the year, nobody knows but this is probably the -- in this moment, not a reasonable assumption. So -- but the point is we were used to operating profitability around 22%, now you have 25.3%. So probably the truth could be in the middle or for the remaining part of the year for the Hydraulic in this segment?
I'm not commenting on precise results or expected results by quarter or by division. What is absolutely clear is that the margin in Hydraulics in the first quarter were not, as you said, quite high. They were spectacularly high because 24.3%, 260 basis points more than the corresponding quarter of last year is really a spectacular performance. What we have already commented in February regarding the expected profitability or EBITDA margin for the year is to protect and wherever possible, to increase the profitability. Of course, the results of the first quarter were driven by the impressive organic growth. In the second part of the year, we do not expect any slowdown. Otherwise, on the contrary, we are increasing today our guidance and our outlook for the year, and we are pretty confident that we will be able to maintain our excellent level of profitability.
[Operator Instructions] Next question is a follow-up from Domenico Ghilotti of Equita.
My question is the usual, if you want, update on what is the current pipeline of potential opportunities, if you have seen something more closer to potential acquisition or if it is the same. Can you just give us an update on that?
It's very good, also the evolution of our M&A opportunities and situation. We have closed 2 important acquisition in the first part of the year, not really important in terms of sales, but important for the reason that we have commented before for different reasons, but both of them are absolutely critical. And we are very confident that based on the current environment or the number -- the quality -- to see that we have on the table, that we will do something as in the remaining part of the year. And we see even more important over a mid to long-term time horizon, our strategy and our opportunities to consolidate further several of the markets in which we are already present will absolutely remain in place and will be larger and larger and we are absolutely optimistic looking forward.
The next question is from Alessandro Tortora of Mediobanca.
I'm going to say some follow-up on what I heard before. The first one is, Fabio, if you can comment a little bit on, let's say, the White Drive performance in the first quarter, considering the strong growth seen in the first quarter? So if you can help us to understand, let's say, a sustainable pace of growth or driver this year? So that's the first question. I don't know if you want to go one by one or I can continue.
All right, complete.
Okay. Then the second question is on the backlog level which you mentioned before. Can you help me to understand how these, let's say, compares versus the beginning of the year, just to understand the trend? And also, do you see significant differences in terms of trends between the 2 divisions, if I -- I may be corrected, but presentation, you were suggesting is still on the way up in terms of, let's say, other acquisition? Then if you can comment a little bit also the performance of North America. Overall, the performance in the Water Jetting division, where, let's say, it led the growth in the quarter? And last is tough, let's say, if you can give us a guidance also on net financial charges. I see a slight increase in this quarter -- in the first quarter. So if you -- let’s say you can help us to have an idea on these items for the full year, please.
Sorry, one point, the fourth question on Water Jetting, you were referring to sales evolution or to something else because sales were up organically in 16%. So probably you are referring to something else.
I'm referring to sales and I'm referring to North America Water Jetting performance.
Okay. Regarding the first question about White Drive performance, I'm very, very happy and comforted to see that many of the investments that we have immediately decided -- all that we have decided immediately after the division are finally entering in full production and are giving us a better and more important manufacturing capacity. This is absolutely fundamental and absolutely important on a financial point of view because as you have noticed, we have achieved 28% growth in the quarter for White Drive. But even more important, this increased manufacturing capacity is absolutely comforting for me and for the group because we are now able to serve better our customer base because we have removed many bottleneck and many capacity constraints that we have found in the company when we acquired it. And with all these investments and some outsourcing, some optimization, we have been able to significantly increase our manufacturing capacity to support better the market to protect and expand our market share and to give the customer a better service and a better customer experience.
The second question regarding Water Jetting order acquisition, I confirm you that like seen in the last couple of quarters, the acquisition of orders and the momentum for Water Jetting is even stronger than the very good one of the Hydraulics division. And this is particularly important because the order backlog in Water Jetting is also made by systems or agreement with a longer lead time for the definition of the technical steps for the customer and the longer lead time for the execution. And this is very comforting because of the visibility that this stronger backlog give us.
Regarding the North American performance, without entering in too many details, what is important to underline is also the exchange rate effect. The exchange rate is a greater factor that this year is some headwind. We had some contributions, some comfort last year. The exchange rate evolution this year is moving on the opposite direction. But we don't care too much, considering how diversified we are and how balanced we are in terms of manufacturing capacity and sales breakdown. And there is nothing that is important to mention in this, in particular on a quarterly result.
The last question was regarding -- was related to the financial charges, and it is linked that [indiscernible] the significant depreciation of the dollar against the euro is bringing higher exchange losses. Then the jump in net financial charges is explained by the currency exchange evolution.
Okay. So Fabio, sorry, just to understand, let’s say, the 10 million was made up of because I don’t see -- sorry, the carrier performance, so basically it's made up of mainly FX losses, as you said.
Yes, we are approximately EUR 3 million in the quarter in exchange losses. You will see the details in the quarterly report.
[Operator Instructions] Mr. Marasi, there are no more questions registered at this time.
Okay. Therefore, thank you very much for everybody of you for listening to us, and let's speak at the beginning of August. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.