LPP SA

WSE:LPP

Earnings Call Transcript 2019-Q3

[Przemyslaw Lutkiewicz, executive]

Good afternoon, ladies and gentlemen. This is a conference dedicated to the outcomes of LPP after the 9 months of 2019. We have several important events and to report, but let's start with financials.

So we have the new first slide. Because we have expanded our online presence so much, we had to divide our business into 2 parts. So we have traditional offline business, and we had nearly 1,750 stores. LFLs was positive over 5%. And the floor space grew by nearly over 12%.

We also had our online business, 30 countries covered to nearly 50% growth year-on-year after 9 months. So some of you may say that we have 24 countries of off-line and 30 countries online, but in total, we have presence in 39 countries.

Well, this is the map to illustrate the situation. The blue color means the online stores. So online stores are in those countries. And here, you can see the EU countries where we've opened our online stores in the third quarter of 2019. And the gray color shows you countries such as Bulgaria or Kazakhstan, and we have only traditional stores, off-line stores opened. So we don't operate online there as well. And the green color, so these are the countries where we are present online and off-line. So this is where we operate online and off-line.

So opening of a new country, new store is an opportunity for us for further expansion for checking, testing the market and the situation. We'll be talking about that more later on.

Here in the table, you can see the growth of our stores year-on-year, over 30 stores, and the biggest numbers of stores were opened in Sinsay.

Now let's move on to LFLs and e-commerce growth. LFLs grew by more than 4% during the third quarter, and July was more or less a weak month because we had to sell off our spring/summer collection. We had more items because the weather in May wasn't that good. So the results weren't that good. And so July was a selloff. But starting in August, we introduced the new collection. So August and September, especially September, came back with good results for our new collection.

We are very happy that in our off-line business, the biggest growth are the -- in the biggest growing markets, so Russia, Ukraine and Romania. And we are still happy about our growth in Germany and the U.K.

So on the right, you can see the online sales year-on-year. We have a growth by over 50% in the third quarter. And because we are developing on the new markets, but we are also growing from those that we've been operating on. So after the third -- 3 quarters, the growth was over 10%. And so we have to remember that in -- as far as online sales is regarded, the third quarter is usually the worst one because this is when our online users go for holidays. But starting in September, the sales are growing very dynamically.

So what was the sale growth in all brands? All brands recorded growth of sales in the third quarter. And here, we have one important thing that needs to be emphasized. You can see that the Reserved and Mohito brands are growing by one digit only. This is because those brands well, the customers of those brands are moving to online sales as online stores are the fastest. The Reserved and Mohito customers, yes, these are the people that use online stores very fast. Cropp, House and Sinsay brands are growing very dynamically in off-line stores. Before, I thought that young people would be buying most of their items online, but it's not the situation because Sinsay, Cropp, House customers buy more in off-line stores, traditional stores, and more mature customers with more money buy more items online.

So what was the sales according to region? Well, the sales growth, very fast outside of Poland, 26% growth. Also Russia, new finance dynamic growth, 27%. Poland is quite saturated. Therefore, the growth is only 4%. And the total sales, that grew by almost 15% year-on-year in the third quarter.

On the right in the table, you can see the revenues per square meters. And you can see that sales in stores is lower by 2% year-on-year. It's because we have bigger stores, and the sales per square meter is a little bit lower. But at the same time, we've got lower cost of those stores. On the other hand, the total sales, when we put together online and off-line store sales, the growth is over 3% per square meter.

An important factor that Eastern Europe, Russia, Ukraine, this is a dynamic growth per square meter, revenues per square meters. Well, this is because they are growing in the local currencies, but at the same time, the currencies last year were quite weak. And this year, they are becoming more and more strong.

Now let's move on to the profit margin. In terms of seasons, the third quarter always comes back with a lower margin because we have selloffs in -- during the holiday period. So well, we've accelerated the exchange of our collections. So in August, we had already autumn collection. So we have some growth year-on-year, but usually, the third quarter is a little bit weaker.

And now a couple of words about our gross profit margin or how the U.S. dollar impacts our gross profit margin because this is the subject that is quite interesting. Well, it will take a little bit of time to explain this.

So we have the collection that we make in Poland, Romania and Turkey. And we use euro or Polish zloty with our suppliers for our producers. But we also have the items that are made outside of Europe, and the currency there is the U.S. dollar.

Let me use the example of one t-shirt to illustrate to show you the whole cycle from the order until it is sold. So on average, 6 months before, we set the terms with the factory. So we set the price, we set the design, the materials, fabrics and so on, and the pricing, U.S. dollars and this is the one we ask the factory to print out the labels. And we've got prices in various currencies, for instance, in Polish zloty, Russian ruble and so on. And when we set this price, we use the budgetary -- budgeted-currency exchange. So we know how much we will spend to buy dollars and we will know how much we will have to pay for the item and how much it will be costing in the store. And then we had a ready item that comes to Poland.

And for instance, today, on the 19th of November, it enters our warehouse. It comes with an invoice and then we take the invoice, and we calculate the money into Polish zloty. And at this moment of time, this item becomes our inventory. And we know the price of purchasing an item in Polish zloty. So we have the price on the product, and we have the cost of purchase of the item. So we know what the margin will be. And then we have the distribution across our stores, online or off-line. And we sell the item during the coming weeks, whereas the payment comes, on average, 4 months later.

And now taking into account the hedging because we are hedging the period since the time we receive the invoice, and we know what kind of money we will have to pay. And then we buy a forward contract that will be settled once the payment is executed.

So we have 3 exchange rates, so budgeted currency exchange rate. So there is an FX at the time of purchase and then FX at the time of payment. So we are hedging the whole situation that we don't have the difference between various times. And this is connected, of course, to risk. And often, I get the questions the -- what were the prices that we were paying when we were buying those items, how that will influence the situation.

So this example of one t-shirt is really nice, but the most important is the sentence below there because we buy those t-shirts every -- on everyday basis. Every day, we accept the items and to our warehouses. Every day, we distribute it over our stores. We do it continuously. We buy it on everyday basis, not once a month or anything like that. So this is a risk that is spread over this time.

And now when we take into account the budgeted-exchange rate and the price of U.S. dollar and the currencies that we use to sell our items, well, we try to manage our prices in such a way that we are able to reach the margin that we provide in our guidance. What is the impact of the U.S. dollar? Of course, there is a -- an impact, too, when there are some peaks and downs, so we buy more expensively or cheaper. But those changes, rapid changes are spread over time. So they don't impact our business that much.

Of course, if the long-term prices change, we change our prices as well, our pricing policy. But our policy of managing margins is as follows: So before, we plan the margin at first. So at the time of budgeted-currency exchange, we plan the margin; and in the end, it is accomplished.

Now let's move to operating costs. Cost of own stores went down by 2% year-on-year, 2 basic elements. So rentals and HR costs are lower year-on-year. Well, we've got bigger floor space but also better rental prices. But on the other hand, we have RFID and better management, inventory management, in our stores. So therefore, the HR costs went down. Some of the costs are moved to outsourced as well. So therefore, we have also external services costs, energy costs or costs connected with construction and materials. So the cost dropped by 2% year-on-year, but the total cost, SG&A costs per square meter, are more or less on similar level year-on-year.

And now the result after the 3 quarters. The growth of sales, 15%. The cost is growing slower, 12%. So we use the leverage, and operating profit is PLN 147 million. So it's much better than previous year. We also have the FX gains and losses. And well, the price of U.S. dollar against Polish zloty changed. The U.S. dollar became more expensive, but -- and therefore, the situation. So our liabilities also grew connected with IFRS. And the net result in total was almost PLN 20 million. And growth of sales, 12%; lower growth of costs, 8%; and the operating profit is over 20% better year-on-year.

Now let's move on the trade liabilities and finance inventory. Well, the inventories were high, over PLN 2 billion. So similar to the previous quarter. But don't be worried. We don't have old collections as at the end of this quarter, maybe sold out in July and August.

So what do we have here? We still have the collection moved by 1 month, which resulted in the growth of inventories by PLN 300 million, but -- and also because we opened many Sinsay stores. So we need to gather all inventories than before the stores are open. The stores are being opened right now. So we have PLN 100 million worth of inventories for the opening of the stores. If not those 2 things, our inventory level would be just as in the previous quarters. So PLN 1.6 billion. So this is connected with our rapid growth and the changing policy of inventories in stores.

But the good thing that the working capital is quite fine. We got over PLN 2 billion of the trade liabilities. So we don't use cash for the trading per price.

And the cash, net cash, was about PLN 600 million. We had a surplus, so cash surpluses. This is the kind of company that we are. But we need this cash to invest. And this year, we spent PLN 237 million on CapEx, the biggest amount for many years. We also have investment in the infrastructure and logistical centers. This is the gray area.

So now recapitulating the 9 months. We are very happy about our foreign revenues and domestic revenues. The foreign revenues exceeded domestic revenues. We also control the cost of our stores, and we are a safe company. We want that.

And now let's move on to the most important corporate events. What are the key events? Well, we've opened a Pan-European online store, and we also opened Ukraine e-commerce. We also opened the e-commerce warehouse in Romania. And we had a very successful campaign with our new celebrity top model, Kendall Jenner. And another piece of information, important one, we've opened the 25th market for off-line sales. So we entered -- made our entry in Finland.

Now Finland, this part of the Western Europe market. So with the Germany, the U.K. and Finland, but the difference between Finland and the -- those 2 markets is that in Germany and the U.K., we've opened only Reserved brand stores. Whereas in Finland, we've opened our 5 brands.

At the same time, a new shopping mall in the city center in Helsinki near the train station, near everything that is happening, we are very happy about this shopping mall. And the revenues, after a few weeks, are actually exceeding all expectations. So we are very optimistic about this country and Pan-European e-store.

One of the main goal here is to increase our revenues and to strengthen our presence in -- on the market that we are operating already. But because this dedicated to the Western Europe, we want to get to know the customers better. And in the future, the market that operate well -- well, online, that are doing quite well in terms of online sales, then they may also open the traditional stores.

These are, for instance, Italy, and well, after we've opened our stores in Finland, that showed us that actually the situation that we have online stores and off-line stores together, well, this is a very good situation because they support each other. And the revenues are growing and our support, so e-commerce support, this is the warehouse that was opened in Romania. This warehouse was dedicated to the Western, to this.

What does that offer to us? When we deliver Romanian customers, we save money, of course, but because the parcels reach the customers quicker from this warehouse, well, the customers buy the items more willingly. So the faster they got the item they've ordered, the more likely they are to buy our products.

And now a slide that shows you our warehouses. We have the Bucharest one. We have the Gdansk one, and Stryków one. We have the online -- the e-commerce warehouse near Moscow. And we will be opening a new warehouse for e-commerce in Bratislava. And Pruszcz Gdanski, this is for the off-line sales for Europe, and near Moscow, 4 Russian stores and the planned one that will be open in Brzesc Kujawski.

I will be talking about Brzesc Kujawski more in a moment. But now let's move on to the Reserved campaign with our top influencer, Kendall Jenner. Well, that was a very successful campaign. In media, well, we were present in online, in Internet and in television, and that was a complete success. 20 million views so far. Well, that was the most successful campaign. So far, we are very happy about that.

And another very important subject is the CSR and the sustainable development. Recently, we established our sustainable development strategy 2020-2025. And we have 4 main pillars that are connected with our strategy.

So the most important ones are the Eco Aware product and production and actually growing that. We work on the safety of the production as far as the fabrics are concerned and the conditions of working are concerned as well as actually eliminating plastic from our collections. So while we're eliminating it from the stores in terms of the packaging, but we are working on reducing plastic from our parcels as well.

Today, especially in our industry, the sustainable development strategy is a key strategy. It's immensely important. It is required by our customers, but also by the industry in general. So we are part of those changes that are happening right now.

And the third part of our presentation, the plans for 2019 and 2020. Let's start with 2019. Right now, we've got 3 columns here. So the starting point, December in 2018. This is when we start. We show you our new goal target in the end of December 2019. And because we changed our trading here, well, the point of reference will be the end of January 2020, at the end of the trading year. Therefore, we show you 3 columns.

But let me say this, you can see that in January 2020, we show a lower amount of floor space in terms of square meters than before. But this is actually normal because all stores keep those -- their store -- other companies keep their stores open until the end of December. And then the contracts are terminated, expire, and they are renewed. Therefore, the changes in the floor space.

A quarter before, I was showing you that we were planning to grow our floor space by 14%, but we are accelerating, and it will be 15%. The growth in Poland is small, but the growth of floor space happens mostly outside of Poland. Russia, Ukraine, this is where we developed quite dynamically, expanded dynamically.

And checking the brands, you can see the tendency, a trend that will be repeated in the future, yes. So the brands that sell best online, so Mohito and Reserved. Well, the growth of floor space is one digit, but the growth of floor space will be happening faster in brands that are dedicated to young people. So Sinsay and House and Mohito. And now dynamic online sales grow. So well, we stand by our goal at 20% growth because we want to reach this 20% growth as compared to the total sale.

This is quite ambitious goal, but we have countries such as Romania or Hungary that reached 30% against the total sales. So we have countries that actually completed this, reached this goal and now a shift in fiscal year.

Well, let me remind you that this fiscal year will take 1 month longer. So we started on the 1st of January 2019, but we will finish it on the 31st of January in 2020. So the fourth quarter will be 4 months long, so October, November, December and January. And then actually, the cycle will be like that. We will start in February and end in January. This is consistent with our operation because we start with new collection in February and end with selloffs -- sales in January.

Because our year will end in the end of January, and the results conference will take place in April, then we will have quite a long break without communication with you because this is mid-November today, and the next meeting should happen in April. So it will be nearly 6 months without communication, without any meetings with the analysts, and we've decided that this is not a good situation. So we decided that after the initial results are out, we will have a very short meeting or teleconference in the beginning of February. So in the beginning of February, we will be reporting some information. It will not be a full information. This will not be the key information concerning the past period.

I know that you have been running your models, your tables, financial list for many years and they use the 12-month long calendar, and we want to offer you the opportunity to actually wrap up your list, your models, January till the end of December. So we will be reporting some information there.

But on the other hand, you will be able to start creating your new models starting February 2020. So we plan to publish the preliminary initial results after 12 months in the beginning of February. This will be happening in the beginning of January. And then -- and in the beginning of February, we will be reporting on the -- after the whole period, 13 month-long year, and then we will have a meeting with you in February to report the initial results. And then in April, we will have a full presentation during our meeting.

And now the target, business targets for 2019, 2020. Well, we stand by our targets connected with the revenues with the positive LFLs and online sales and the growing floor space. The -- we will have 2-digit growth of sales year-on-year, but the guidance for the margin should be a little bit lower by 1 percentage point. So well, we go down to the level of 52%, 53%. This is due to a faster growth of Sinsay brand. And well, Sinsay comes back with lower margins, still, the cost should be under control. This is our priority, and we would like to keep the debt level below the cash level. So we want to have net cash. We would like to continue this situation.

Now let's move on to the 2020. So the floor space will grow by 16%, more or less, and we continue the trend as this year. So small growth in Poland, 4%. Mostly the floor space will grow outside of Poland. And similarly to this year, also Mohito, Reserved brands that are performing best online, just 1-digit growth of traditional floor space and the young brands, House, Mohito, Sinsay will be growing faster.

We will open -- in the second half of 2020, we will open our operation in Macedonia, and now, Sinsay. Sinsay is our brand that we have introduced in 2013. That is a very well developing, performing brand. It is liked by our customers. And because of the levels of the prices, we can saturate the market with this brand, then with the other brands. So we are planning to actually expand the products in this brand, and we want to develop, not only in the shopping malls, but also in smaller cities. So in the stores that are close to the main street.

And another important element of our strategy is the RFID technology, so electronic clip or label. And with the help of this technology, we are able to perform faster to move the items from the warehouse to the store. So the performance is much better. Well, the test showed that this is 3% to 8% of the improvement. 3% is quite easy to achieve, and this is our goal.

Another element that can be achieved very fast is the decreasing cost of HR in the store because we need less hours to actually clip the items, and the processes are shorter. So that all the processes in the back stores and in the stores are shorter. So the total cost of the technology this year for Reserved is PLN 30 million. In total, when we cover all brands with the technology, well, the cost will be twice as much, but half of those costs will be actually -- are returning -- for giving us a return in the form of lower costs. So this will be connected with new savings as well such as bringing the items from the warehouses to the store. Our stock taking will be quicker and cheaper and a better performance in the stores as well.

And the most important element will be introduced next year. We will be using the stores or warehouses that will be delivering the online orders to the final customer. So with the help of this technology, because we will have quite a good knowledge about what is actually in the stores, we will be able to deliver to our online customers from the on -- off-line stores.

Now let's move on to our investment and the Brzesc Kujawski center warehouse. A change happened here. Initially, we said that we will be constructing 100,000 square meter warehouse worth PLN 400 million. But we've changed our mind. We've decided to construct a bigger warehouse and better equipped and more modern. So the cost will be higher, PLN 860 million. And the growth is mostly due to the fact, well, that the material cost is growing. The labor cost is growing, but the main reason for the more expensive warehouse is the equipment, modern machines that are just being introduced on the market.

And we said that we want to invest more into CapEx, so that in the future, yes, we can benefit from it and lower the cost.

And this is the table illustrating the CapEx in the coming 3 years. In total, we will invest PLN 3 billion, PLN 1.1 billion next year and PLN 1.2 billion in the second year and a lower amount, PLN 800 million, next -- in the third year. This is connected with the construction of the new center in Brzesc Kujawski, but also with our headquarters reconstruction.

You can see the stores over almost PLN 2 billion investment in stores, PLN 860 million in Brzesc Kujawski, we have PLN 150 million in the offices. So PLN 3 billion comes -- 2 -- PLN 3 billion investment, PLN 2 billion are own money and PLN 1 billion, we would like to use the loans and bonds.

And Brzesc Kujawski, well, the investment will take 3 years. So we will start in 2020, one building worth PLN 200 million, then we construct another building and installation of machines and investment in machine in the third year. So in 2022, this warehouse should be operational.

How do we want to finance it? PLN 560 million from bank loans, but the loan here has been set with the bank. It's been settled. We need new loan for the machinery because this loan will be offset by the Netherlands government. We will have the guarantee for payment. It doesn't seem to be a problematic, and then we would like to issue bonds worth PLN 300 million. This will be 5-year-long bonds. This will be the senior bearer bonds, and they will be used to actually spend on the investment in Brzesc Kujawski, PLN 300 million, and this is the schedule.

Today, this is a very important day because today, we are starting book building process. It will actually last until today. And then investors will be able to sign up for our bonds. And the day after tomorrow, we will have a decision what will be sold, how much and according to what conditions. So mid-December, we plan to settle the transaction. And with this bond issuance, this is a testing issuance, we focus on the price, definitely focus on the price. And we will know how we did very soon and the opportunities and risks for 2020, 2021, what's ahead of us.

Well, first of all, the collections, good collections that are matching different markets, the customers in Western Europe, Eastern Europe, Southern Europe and individual inventories on market depending on the market, on the stores and so on. And good collections that should perform well and give us good LFLs and growth in e-commerce and growth of floor space should return a double-digit growth of revenues, growth of sales.

Again, an important element, RFID technology. That helped us to decrease the cost and increase the sales, which should translate in the end into an improved operational profit.

And that's all from me. Ladies and gentlemen, I'd like to thank you so much for your attention. And now it's time for a Q&A session.

[Maria Mickiewicz, analyst]

Maria Mickiewicz, Pekao. I've got 3 questions. Let me start from the first one. It concerns Sinsay brand. Well, this brand is supposed to be responsible for almost 2/3 of the growth of floor space next year. And we've heard in the comment to the performance, well, a lower profitability on the level of the first brand. Well, this is more effective brand in terms of cost. What can we expect from the profitability on the operational level? Is it close to other brands or maybe difference -- differs much from other ones?

[Przemyslaw Lutkiewicz, executive]

Well, this brand in terms of the operational profitability, it -- as to our business, well, it puts a lower first margin. But the cost of this brand because of cheaper allocations, well, the profitability on the operational level is better than the average for the group. That's why we accelerate its development. That's why we invest in it. And it also enters new markets and smaller cities, and it helps us to penetrate the market in different countries. So it's a big opportunity for us to focus on this brand.

[Maria Mickiewicz, analyst]

The second question. Now the perspective, the outlooks, the forecast for floor space for the revenues per square meters. Today, we've heard that the cost of salaries should be growing in one -- according to 1-digit growth. So what can we expect in terms of sales next year?

[Przemyslaw Lutkiewicz, executive]

Now taking into account the growing cost of salaries, but with the help of our technology, RFID, because our employees are more productive and we've got bigger sales space and because why the large portion of our operation is happening outside of Poland, where the salaries are not growing that fast, therefore, we agree that the salaries will be growing next year according to 1-digit space, 8% to 9%. But in the cost structure in our company, salaries are not the main item. Most of the time, these are the rentals. So the total SG&A cost per square meter shouldn't be higher than 3% in terms of growth.

[Maria Mickiewicz, analyst]

And the third question on the e-commerce. We can see that your goal, 3-year goal, is quite ambitious, 20%. And now the question is, could you actually highlight what are the appetite in terms of this year, maybe the share in the total sales or the dynamics? Because, well, those dynamics should be 2 digits.

[Przemyslaw Lutkiewicz, executive]

Yes. Definitely 2 digits. We don't really have certain plans, detailed plans. We are still discussing them. But we are talking 30% to 50% growth year-on-year, not taking into account the fact that we are making our entries in the new market. We have potential there. We can actually develop very fast. We've entered -- we've started operating in Ukraine, and that started to perform very well, especially online. And we've got also some markets that have good potential for further development.

Let me tell you this that our first market is Poland, but Poland is half of the whole sales. Other markets are growing quite fast. And the third market is German and Russia then Romania in terms of e-commerce. These are big markets with huge potential. What's important for those markets is the fact that we should find out the most expected approach to our customers in terms of service standards.

In Germany, the e-commerce wasn't growing that fast before because we didn't have this special Klarna-type of payment that let the customer in Germany pay 2 weeks after the item was purchased. Before, we didn't have this payment option. We've been just using bank cards or cash or bank transfer. And it turned out that the fact that we were missing this payment option was the key element of our strategy. Adding this payment option and then, the sales just grew tremendously.

So well, we just have to check market-after-market what are the expectations in Czech Republic, in France or in Germany. So we still have to go through this path and actually start and do the localization and find out about the expectations of the customer. So we will be focusing on the growth of foreign markets.

[Unknown Analyst]

I have a question about the FX gains and losses, especially with regard to U.S. dollar. Is there a chance that they will actually change? And now about the write-off for the tax, is this all? Or anything new is there?

[Przemyslaw Lutkiewicz, executive]

So the first question, how about the trends about the negative differences in FX's -- FX exchange? Yes. Well, the situation may be reversed. So those differences are reversible. Now about the tax, I don't really know the situation completely because the situation is dynamic. So I can't really answer whether there will be a write-off or not. And the third question, which part of the CapEx will be used for the stores renewal, maybe 35%, 40%. So this is for the renewal of stores. Are there any further questions?

[Unknown Analyst]

[ Adam Schlansky ], Pekao [ Veber ] I have a question about e-commerce. Well, I'm sure you've started to calculate the profitability in this part of your operation. So my question is as follows. What is the value of the returns because the market says that there is a lot of returns, and the cost of servicing those returns is quite high because well, the selling process is automated, but the returns are quite physical process? So how are you planning to automate it?

[Przemyslaw Lutkiewicz, executive]

Well, the profitability of e-commerce, as long as we've been operating mostly in Poland, well, the profitability of e-commerce were -- was higher than the average for the group. The further we go outside of Poland, well, the cost is growing, logistical growth is growing well. The profitability is going down. And in recent time, it has been lower than the average for the group. So therefore, our efforts will be focusing on building a scale for a country.

So for instance, let's focus on the Romania. Building this kind of scale in Romania helped us to open this warehouse in Romania. And after opening, 1 month after we've opened this warehouse, we've seen that the cost of servicing online customer in Romania is 6% lower as compared to the situation when we were sending parcels from Poland.

In the coming weeks and months, we will be working on the procedures and processes. And well, according to our calculation, the cost of servicing the customer in Romania will be 20% lower as compared to the situation today. So moving on to the level of the country, we are able to decrease the cost in order to increase the profitability.

And the second part of the question, returns. Well, definitely, we are in this part of Europe where the returns are not that big. This is about 25% of sold goods are returned, but the situation differs market-by-market. So in Germany, for instance, the returns can be as high as 60%. In Poland, these are -- this will be 20%, 23% further if we go the lower R&D returns. Well, the customers are learning, so the returns will be growing. The number of returns will be growing, but definitely, the customers in the east, they use different kind of payments. They have less money, and they are more cautious. So the returns are not as high as in Western Europe.

Well, ladies and gentlemen, we have one more question, and this question has been asked by our online viewer.

So the first question, what is the difference between gross margin between the Sinsay and the average margin in the group?

4 to 5 percentage points. Let me recapitulate that on the operational costs, the cost has decreased as compared to the average in the group. So the margin is higher than the average in the group.

How many years do you need to return the investment in automation in Brzesc Kujawski?

Our financial forecast show around 4 years. So the higher CapEx should come back to us in 4 years.

And the third question is the difference between the amortization and corrections in [ IMFS -- MMMFS ] can be repeated in the future.

So IFRS 16 is a difficult subject for everyone. Also for us, half of our rentals are according to this procedure. Because we've got, for instance, rentals that are shorter than 12 months or 12-month long and then renewed or the rentals that depend on the trading level. So they are not under this procedure. So we will be -- the more rentals, rental contracts will be signed as a variable option, well, the less this procedure will impact us. And this is what we are expecting that the situation improvement.

All right. Since there are no further questions, well, thank you, ladies and gentlemen, for joining us today for your attention. Because this is this year's last conference, let me wish you a great December and wonderful Christmas time and a great New Year. And let's see each other in the beginning of February 2020. Thank you, and goodbye.