MYT Netherlands Parent B.V. (NYSE:MYTE) Q3 2024 Earnings Call Transcript

MYT Netherlands Parent B.V. (NYSE:MYTE) Q3 2024 Earnings Call Transcript May 15, 2024

Operator: Greetings. And welcome to the Mytheresa Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s call is being recorded and we have allocated one hour for prepared remarks and Q&A. It is now my pleasure to introduce your host, Martin Beer, Mytheresa’s Chief Financial Officer. Thank you, sir. Please begin.

Martin Beer: Thank you, operator, and welcome everyone to Mytheresa’s investor conference call for the third quarter of fiscal year 2024. With me today is our CEO, Michael Kliger. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Any comments we make about expectations are forward-looking statements and are subject to risks and uncertainties, including the risks and uncertainties described in our annual report. Many factors could cause actual results to differ materially; we are under no duty to update forward-looking statements. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures in our earnings press release, which is available on our Investor Relations website at investors.mytheresa.com. I will now turn the call over to Michael.

Michael Kliger: Thank you, Martin. Also from my side a very warm welcome to all of you and thank you for joining our call today. We will today comment on the results and performance of our third quarter of fiscal year 2024. We are very pleased with our results in a still challenging macro environment. With string revenue growth and positive adjusted EBITDA in the third quarter, we demonstrated our leadership in a clearly consolidating sector. As expected, we achieved a strong double digit top line acceleration of our business, particularly in the United States in the third quarter. We continue to see slower demand from aspirational customers and promotional intensity [ph] in the market by competitors. But our clear focus on the high spending wardrobe-building top customers allows us to win market share in the current environment.

Strong top customer growth, a record high average order value, and excellent customer satisfaction scores underline our intense customer focus which is a key success factor for Mytheresa. We clearly see ourselves as one of the few winners in the consolidating luxury e-commerce space. I wish to highlight today three key messages to you that make us stand out in the third quarter and demonstrate the strength of the Mytheresa business despite ongoing macro headwinds. First, our commitment to multi-brand inspiration with a highly curated offer of true luxury brands drove strong growth, particularly in United States in the third quarter. Second, our clear focus on big-spending wardrobe-building top customers resulted in both, strong growth of the number of customers, as well as the average spending of top customers.

This highly desirable audience makes us the best positioned platform to partner with luxury brands for exclusive activations. Third, our very flexible and resilient business model allowed us to significantly improve our profitability compared to Q3 of fiscal year 2023. Record high average order value, decreasing customer acquisition cost, and stable operating cost ratios highlight this in the third quarter. In summary, we have accelerated our top line growth, we have expanded our top customer business, and we have significantly improved our profitability in the third quarter of fiscal year 2024. Let me know comment in more detail on these three accomplishments. First, let’s look at the growth acceleration in the third quarter. We grew our gross merchandise value, GMV, by plus 14.7% compared to Q3 of fiscal year 2023.

On a 2-year basis, we grew our GMV by plus 35.2% compared to Q3 of fiscal year 2022. This strong growth is clearly above the luxury market average. Once more, our business in the United States generated an outstanding growth with plus 41.6% in terms of GMV compared to Q3 of 2023. The United States accounted for 22.3% of GMV of our total business in the third quarter of fiscal year 2024. And we continue to see the market as a major source for future growth for Mytheresa. The US luxury consumer including the aspirational segment, definitely shopped more again. Most importantly, the highly curated offer from true luxury brands by Mytheresa resonates extremely well with big spending US consumers looking for multi-brand inspiration. We have grown our US business 2.6x over the last 3 years.

We also good growth in Europe in the third quarter with plus 9.3% compared to Q3 of fiscal year 2023. While results in China and Asia were still negatively impacted by strong macro headwinds and uncertainties. The recovery in these markets in the next quarters will provide a further boost to our top line. Second, our clear focus on big-spending wardrobe-building top customers is the fundamental driver of our success. The third quarter fiscal year 2024, our top customer base grew by plus 17% compared to Q3 or fiscal year 2023, and the average spend per top customers group plus 3.3%. Overall, the business was top customer by plus 20.9% in terms of GMV compared to Q3 in fiscal year 2023. With further evidence of our success with top customer is that our average order value increased once more by plus 8% to a new record high of EUR692 [ph] LTM in Q3 fiscal year 2024 compared to fiscal year 2023.

Our superior access to big-spending wardrobe-building top customers makes us the highly desired platform for luxury brands to partner with. The third quarter saw again, many high impact campaigns and exclusive product launches demonstrating our strong relationships and the support of our brand partners. All of them further increased our brand awareness and clearly positioned us globally as the leading digital luxury platform. We’ve launched exclusive Capsule Collections with [indiscernible], only available at Mytheresa, as well as exclusive styles from Loewe’s Paula’s Ibiza collection, only available at Mytheresa. We are also exclusive pre-launch partner for collections from Brunello Cucinelli, and Loewe giving Mytheresa customers exclusive first access to these products.

One special highlight in the third quarter was also that Mytheresa was one of the very few partners globally to launch the collection of the new Creative Director at Gucci, Sabato de Sarno, called Gucci Ancovva [ph]. Please see our investor presentation for more details on our brand collaborations. Reinforcing our focus on big-spending wardrobe-building top customers we also hosted exclusive events for our top customers providing them with money can buy experiences. Examples of events in the third quarter included the celebration of the Kate Capsule Collection in Paris with the Founder and Creative Director, Kate Hartstein [ph] present. In the United States, where our top customer number grew a remarkable plus 48.3% in the third quarter, we hosted events in New York City during the New York Fashion Week, in Los Angeles during freeze [ph], and recently also in Connecticut.

We also strongly believe in the ongoing recovery of the Chinese luxury market, and recently hosted VIC events in Shenzhen and Shaman [ph], as well as in Singapore. Please see our investor presentation for more details on our events and customer experience. Another recent highlight was the customer and brand experience that we created together with our partner, Qurush [ph] during the Shanghai Fashion Week. As part of the official calendar of Shanghai Fashion Week, we hosted 3 events in 24 hours. We created a public exhibition under fashion house, Qurush [ph], celebrating our exclusive capsule collection but also showcasing archive pieces never shown before outside of France. [Indiscernible] was the Artistic Director, Nicolas de [ph] for Chinese Fashion students, and we hosted a VIC dinner for press and our Chinese top customers with the CEO and the Artistic Director attending.

Please see our investor presentation for more details on these remarkable events and the media coverage. Let me conclude my statement by commenting on the third accomplishment in the third quarter, namely the significant improvement in profitability compared to Q3 of fiscal year 2023. Mytheresa operates a very flexible and resilient business model which allows us to react quickly to a changing environment, which we proved in the more difficult recent quarters. Martin will talk in a few minutes about the details of our bottom-line results for the third quarter fiscal year 2024. But let me provide you with some key operational results of the third quarter. Customer satisfaction as measured by our internal net promotor score reached 80.6% in Q3 fiscal year 2024, a strong increase over last year’s Q3 result.

As mentioned our average order value increased by 8% to new record high of EUR692 LTM, also driven by the ongoing expansion of our fine jewellery offer. Our number of first time buyers reached over 118,000 in the third quarter of fiscal year 2024, while our customer acquisition costs, CAC, actually declined by minus 2.8% compared to Q3 of fiscal year 2023, which is remarkable achievement in the current environment. We also continued the ramp up in our new Leipzig distribution center from where we shipped already more than 60% of all customer orders at the end of March. Finally, we also recently launched our new Mytheresa retail media services, allowing our luxury brand partners to place paid media campaigns on our platforms. With all of the above, it should come as no surprise that we are very pleased with our performance in the third quarter of fiscal year 2024.

We believe that our results demonstrate the strength and consistency of our business model delivering profitable growth. We see ourselves as a clear winner in the consolidating luxury e-commerce space. We are extremely well positioned to benefit from the tremendous growth prospects when market conditions will improve globally. To capitalize on these prospects, we are actively evaluating opportunities to support and accelerate our investments in future business growth. This also supports our strong confidence in our medium-term growth trajectory and profitability levels despite the ongoing short-term uncertainties in the macro environment right now. And now, I hand over to Martin to discuss the financial results in detail.

Martin Beer: Thank you, Michael. Yes, we’re very pleased with our performance during the quarter. In line with our overall guidance for H2 of fiscal year 2024 in the past quarter we achieved double digit growth top line and improved our profitability bottom-line. We significantly reduced our gross profit margin slippage and are fully on-track with managing our inventory position. We extended and secured our revolving credit facility for the next years and continue to be the value-adding reliable and preferred partner for the top luxury brands. In a challenging and consolidating market we confirmed our successful leadership position as the clear winner in multi-brand luxury. Mytheresa is all set to become a multi-billion business medium-term, with an ongoing double digit annual growth projectory of high-teen, low-20s [ph], and an adjusted EBITDA margin of at least 8%.

I will now review our financial results for the third quarter of fiscal year 2024 ended March 31, 2024 in more detail and will provide additional background on certain key developments that affected our performance throughout the quarter. Unless otherwise stated, all numbers refer to Euro. In the third quarter of fiscal year 2024, GMV growth was at plus 14.7% compared to the prior year quarter achieving EUR252.2 million. Our track record on top line growth as further evidenced our 2-year growth rate of plus 35.2% and 3-year growth rate of plus 53.1%. Customer engagement and retention continued to be strong during the third quarter with a total of 862,000 active customers. As mentioned, we were able to grow the number of our top customers by plus 17% in the quarter, and plus 16% in the last 9 months.

Our focus on attracting the most valuable high potential multi-brand luxury customers and nurturing their loyalty with excellent curation and service continues to be our winning formula. In the US, our top customer base grew by an exceptional plus 48.3% in the quarter. During the third quarter, net sales grew by plus 17.6% reaching EUR233.9 million. We have 7 major brands operating seamlessly under the CPM, and are able to offer our brand partners both models; wholesale or CPM. From regional perspective, we saw again exceptional growth in the US and strong growth in Europe and rest of world. In the US, net sales grew by plus 44.6% in the quarter, Europe plus 9.3%, Europe excluding Germany plus 13.1%, and rest of the world plus 16.4%. Our global business model and seamless execution worldwide ensures capturing growth opportunities wherever they open up.

Our Global setup becomes more effective every quarter with not only 51.6% of net sales coming from Europe with strong leadership positions, and 48.4% already from the US and rest of world where we experienced exceptional growth opportunities. Our LTM AOV increased plus 8% for EUR51 for order delivered [ph] is remarkable, and improves our order economics notably. In the third quarter of fiscal year 2024, gross profit increased by plus 12% to EUR101.6 million as compared to EUR90.7 million in the prior year quarter and with a gross profit margin of 43.4%. The gross margin slippage further decreased and has come down significantly from 740 basis points in Q1 and 490 basis points in Q2 to now 220 basis points in Q3. In addition, the gross profit margin slippage in relation to GMV was only 100 basis points.

We experienced a solid gross profit increase by plus 12% but still not as strong as we expected as inventory clearance activities of competitors exiting the market impacted the growth rate. As highlighted before, we clearly see improvements in the gross profit margin situation. With again expected double digit growth rate of gross profit in the upcoming Q4, we expect total gross profit to be on last year’s level for the full fiscal year 2024. The overall market environment has not yet normalized but our margin development shows that we are able to contain the effects. We continue our commitment to full price selling which is highly valued or ramparts [ph]. Our adjusted shipping and payment cost ratio increased from 14.3% to 15.3% due to our increasing international sales share and strong growth in countries like the US where we pay all customs duties for the customer.

Due to our continuous efforts to capture efficiencies in the shipping payments and custom setup, we expect to mostly offset further cost increases in the future, and therefore target stability on the cost ratio on this level in the upcoming quarters. Following our strategy of the preceding quarters, our focus remained yet again on the acquisition of high potential customers and top customer retention. We adjusted our total marketing expenses to the overall softer market environment. As a consequence, our marketing expenses decreased by EUR2.6 million to EUR23.1 million during the quarter. The marketing cost ratio decreased by 250 basis points to now 9.2%. Our CAC decreased by minus 2.8%. Despite this little marketing cost ratio, we were able to achieve a net sales growth of plus 17.6%.

This excellent performance on new and existing customers shows the effectiveness of our AI driven performance marketing tools, our increasing brand strength, the superiority of our carriers [ph] offering, and our excellent service delivery. We continue to focus on growth in a cost effective manner. We were able to keep the adjusted selling, general and administrative expenses mostly stable in absolute terms at EUR30.8 million as compared to EUR29.7 million in the prior year quarter. With our strong growth in the quarter, the adjusted SG&A cost ratio decreased by 130 basis points to 12.2% as compared to 13.5% in the prior year period. We will continue to grow in a cost effective manner but will also ensure that we build up the right resources to achieve our strong growth targets in our short and medium term growth trajectory.

As a result, we’re very happy about our approved profitability. Our adjusted EBITDA has improved significantly as compared to the prior quarter. During the third quarter of fiscal year 2024, adjusted EBITDA stood at EUR9.2 million as compared to EUR3.2 million in Q3 of fiscal year 2023. Adjusted EBITDA margin improved by 230 basis points to now 3.9% as compared to 1.6% in the prior year period. For the full fiscal year 2024 ending in June 2024, we continue to target the lower end of our guided 3% to 5% adjusted EBITDA margin. Given the continuous challenging market environment and luxury worldwide, to achieve this profitability level is remarkable and clearly beats peer performance. It enables us to continue to capture market share, to grow strongly, and to fortify our leadership position.

As the market uncertainties are expected to continue, we also expect our profitability levels in the next fiscal year to be around that level. Given our low levels of depreciation and amortization, unique and typical for the Mytheresa business model, we can achieved a strong profitability also on adjusted operating income or adjusted EBITDA. The adjusted EBIT margin was at plus 2.3% compared to a 0.1% adjusted EBIT margin in the prior period. The adjusted net income margin was at a positive plus 1.8% in the quarter. Looking at cash flow; for the quarter given the seasonal inventory buildup, operating cash flow was at minus EUR11.6 million compared to minus EU36 million during the prior year period. The minus EUR11.6 million came after a plus EUR18.5 million operating cash flow in the preceding quarter.

A much lower used operating cash flow in the quarter compared to previous year quarter is mostly driven by reduced inventory purchases. We are on-track on managing our inventory levels. As of March 31, inventory is a plus 11.9% year-over-year, lower than our top line growth, and significantly reduced from the 44.4% at the end of Q1, and a plus 33.1% at the end of Q2 of fiscal year 2024. End of March 2024, our DIO was at 280 days, down from 310 days in June 2023, and approaching the target range of 260 days. Cash flow from investing activities was at EUR4.9 million compared to EUR6.5 million in the previous year quarter. This was mostly driven by the remaining payments for our new distribution center in Leipzig. We continue to have very low CapEx cash flows in our business model, and therefore expect the cash flow from investing activities in the next quarters to return again to below 1% of net sales.

As of March 31, we have successfully entered into a new multi-year revolving credit facility agreement replacing the old one, and securing us EUR75 million cash. This will enable us to fund our continuous growth strategy. As of March 31, the cash utilization of the credit line was at EUR26.1 million with EUR10.6 million cash at hand. We expect an even lower utilization at the end of our fiscal year, end of June 2024. Please remember that besides the revolving credit facility that we use for seasonal networking capital financing from time to time, we do not have any other bank debts in our balance sheet. We have a very strong balance sheet with an equity ratio of 65%. With [ph] what Michael and I talked about so far, it comes as no surprise that we remain very confident in our short term, and especially in our medium and long term outlook.

For the full fiscal year 2024 which ends on June 30, 2024, we confirm our guidance for the top and bottom line at the lower end guided ranges of GMV net sales growth between 8% to 13%, and an adjusted EBITDA margin between 3% and 5%. The ongoing consolidation in our industry is gaining speed, and it becomes clearly visible who are the outperformers. We are gaining market share on an accelerated level and have completed our two major infrastructure milestones securing our successful growth. Our fundamental new IT setup and the new distribution center in Leipzig. Mytheresa is all set to become a multi-billion business medium term with an ongoing double digit annual growth trajectory of high-teens and low-20s, and an adjusted EBITDA margin of at least 8%.

And with this, I will now turn the call back over to Michael for his concluding remarks.

Michael Kliger: Thank you, Martin. We are very pleased with our third quarter of fiscal year 2024 earnings results. We are seeing the top line acceleration and profitability improvement as projected, and are on-track to achieve our fiscal year 2024 guidance. Mytheresa is poised for an extremely successful next chapter in a journey to become the global leader in digital luxury. We believe that Mytheresa offers the best digital luxury shopping experience for big-spending consumers and true luxury brands. And with that, I ask the operator to open the line for your questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Oliver Chen from TD Cowen.

Unidentified Analyst: Hi, Michael and Martin. This is Neil [ph] from Oliver’s team. My question was on US growth; nice job on the over 40% there. What was the year-over-year comparison in the region? And has the growth there been more broad-based across customers and categories or are there specific areas and trends you’d call out as key drivers of strength? And then, what are your key initiatives to lean into that customer going forward relative to Europe and Asia, which is obviously, a smaller piece of the business? Thanks.

Michael Kliger: Yes. Thank you for your question. In the third quarter, we grew our business in GMV 41.6% over the quarter of last year. So a clear acceleration on the already good numbers, double digit growth numbers in Q1 and Q2 which makes us — makes the US business — actually now it was 22% with the largest region for our company. And we are very pleased with this, and we see as drivers similar pattern what we have seen in other geographies; it’s really the top customers, it’s really the big spenders — the number of big spenders, the higher — two highest teeners [ph] in our customer pyramid. This number even grew to 48% of US; so it’s really growth at the top, which then of course, means it’s really growth driven by ready-to-wear.

It’s really growth driven by the big regions for these type of customers. Number one, California; number two, East Coast, Manhattan, New York, Connecticut; but then also of course, Florida and Texas. So highly correlated to the areas where there are these type of customers. And we are continuing to focus on these customers by providing unique experiences for these customers, be it in the US themselves or inviting US customers to come to unique experience that we host in Europe. For example, 2 weeks ago we hosted the event with Brunello Cucinelli [ph], and we welcomed US customs there. Next week we will host an event with [indiscernible], and we will welcome US customers there. So, that continued focus on the high end, plus more brand awareness; we will have as last year, a pop up in the Hamptons [ph] this year.

So it’s a really lot of marketing activities, clearly targeted to those customers looking for multi-brand inspiration, and we see a clear desire by top-end customers to have a platform that solely focuses on luxury for multi-brand inspiration.

Unidentified Analyst: Got it. And then obviously, you did mention — again, the continued green shoots in the aspirational customer in the region. So, are you seeing some a pickup in — like handbags and dresses, shoes, like some of those categories? And just any commentary on, if that was maybe a sequential acceleration from the last quarter? How do your expectations for the aspirational customer backup prior to — compared to the prior quarters?

Michael Kliger: Thanks for reminding that we continue to see those green shoots. So the US is by far the strongest region in luxury spend, and this is also due to the fact that the aspirational customer is coming back. The only thing I want to stress is our fast acceleration in the third quarter is really much, much more driven by our success with the big spenders while we do observe the green shoots on the aspirational customers.

Operator: The next question comes from the line of Matthew [ph] from JPMorgan.

Unidentified Analyst: Great, thanks. So Michael, how would you characterize overall health of your core luxury customer today? Could you expand on new customer acquisition trends and speak to competitive advantages you see today for your model relative to peers in the marketplace?

Michael Kliger: Thanks, Matt. Happy to do so. So our core customer base which are the top spenders is very healthy, very healthy, strong performing; this drives our unique plus 14% like-for-like growth in the quarter. To my knowledge, that is not matched by anyone. And it is driven by the core, and it’s driven by attracting more of these in the last quarter with 17% more, and these customers also spending more, 3.3 [ph]. There is — there are geographic differences; so as mentioned on the call, US is the strongest region, Europe is stable, in Asia we still see uncertainties. But in all the regions it is from the top, and it is our focus on these spenders. And that is also because we focus on that, that’s a key point of differentiation to many other platforms.

We focus on curation, on inspiration; this is what these customers look for. This audience is a multi-brand audience. Thus, it is attractive for brands to create visibility with then, which makes brands willingly keen [ph] to partner with us. We mentioned on the call, again, the unique products but also experiences; we can therefore offer our customers and then it becomes sort of reinforcing cycle to have more unique things. You attract better customer audience, and that makes it more attractive to a partner or brand partners to work with us. And particularly important at the moment while we are, of course, not completely insulated from discounting in the marketplace from too much inventory. It is still the best customer because their full price share is very high, and thus we have come quite a distance from the not so great performance in Q1 to the much better performance in Q3 as we see ourselves to continue on that stretch.

And finally, the landscape is changing as Martin and I refer to; so the landscape of truly inspirational multi-brand platforms that operate on a global basis is getting consolidated. And thus, we believe we have extremely good chances to continue and become a multi-billion player with this focus.

Unidentified Analyst: And then, maybe just a follow-up, Martin. Could you speak to current inventory in the channel; how that maybe impact forward expectations for the promotional landscape? And then multi-year, any structural constraints to returning the 46% to 47% pre-pandemic gross profit rate of GMV?

Martin Beer: Yes. Happy to do so, Matt. I mean, obviously, as you — as we called out in Q3, we still experience a gross profit margin slippage of 220 basis points, also driven by a one-time effect of certain competitors exiting the market, and then we do see some activities there. And so the overall market situation on inventory levels has improved especially on Spring Summer 2024 but there are still uncertainties regarding competitive actions and looking ahead. And always remember — I mean, we are staying true to our costs [ph]; we are focusing on full price selling. We are the least promotional actor in the market, and that speaks to our retaining of top customers and retaining our existing customers. That is why they shop with Mytheresa.

There are no structural barriers to returning to gross profit levels that we experienced before. But it’s still waits to be seen whether this is in the immediate upcoming next quarters or whether this is — or whether this will take more time.

Michael Kliger: Sorry. And maybe Matt, I can add to this. There are of course, two issues in what we call promotional intensity [ph]. There are players that have been overstocked, and are discounting to get up their discounts. We clearly seen the significant improvement in stock levels for spring summer 2024. Fall [ph] season, we will — we also will see the same thing for Fall Winter 2024. So, the clear return to normal is happening. But we do have one additional effect at the moment which short term is not good, medium term is more; as players exit the market there is even more one-time offloading. And so we have seen one-time offloading in the month of February/March; that is not structural, that is actually positive structurally but short-term there’s even more stock coming to the market.

And thus, the strong performance in Q3 makes us very comfortable at those short-term pressures which as I said, clearly give us medium-term upside. We can also mitigate but then in combined with the normal promotion density, we will maybe have more lingering or so [ph]. But the two are quite separate; one is one-time players exiting, the other one is ongoing, and the seasonal buy in the channel as a whole is much healthier for spring summer 2024 and for winter 2024.

Operator: [Operator Instructions] The next question comes from the line of Grace Smalley from Morgan Stanley. Please go ahead.

Grace Smalley: Hi, thank you very much. My question would just be, if you could just comment more on what you’re seeing on current trading in April and May relative to the acceleration that you saw in Q3? And then breaking that down in terms of any change in behavior you’re seeing across different product categories or brands and fashion trends; I know in the past we’ve spoken about consumer preferences shifting towards quiet luxury. So if you’re seeing that continue or any changes there? Thank you.

Michael Kliger: We’re happy to do so. So, while we do not comment on current trading, we did — or Martin did confirm our guidance for the full fiscal year, and that implies if we see continued double digit growth also in the final quarter of fiscal year 2024. So, it’s clearly implied in our guidance that double digit growth continues. In terms of the pattern, it is still true that some of the most strongest brand are what you can categorize as quiet luxury even though it’s not always clear whether you will count [indiscernible] are all the same; I would heavily argue they are not. I stated before and I firmly believe that as we are in fashion this trend will come to an end at some point. And while we have seen great success of a brand like Loewe that does not fit the pattern of quiet luxury, it will also be interesting for the coming season to see how the development — how the new Creative Director, Valentino [ph], is shaping; Valentino [ph], the brand itself, but also the market because fashion is about also fashion trends and cycles.

So I do believe fashion will come back. I do believe it will be good for the sector. And I also believe the quiet luxury brands will continue because they have a strong relevance for certain audience, while overall the market has missed some of the more fashion or aspirational customers and they need to come back.

Grace Smalley: Okay. Thank you. And then just as a follow-up, are you able to just comment how you’re thinking about listening to your balance sheet? And how you go about internally approaching or evaluating potential M&A opportunities versus organic growth opportunities to the extent that you’re able to comment, please? Thank you.

Michael Kliger: I am happy to address the second question, and then Martin can talk to the balance sheet. So as is evidenced by our performance and our positioning, we strongly believe that through our organic growth we can achieve our multi-year targets, can become a multi-billion company; so organic growth is the default strategy. We may look at an organic growth, that is an option. While the focus is clearly on organic but we will not, at this stage, comment on any specific M&A opportunity that is onboard [ph].

Martin Beer: And maybe an addition, Grace. I mean, obviously the balance sheet — no change in the ultimate strength there. 65% equity ratio, very — I mean, we don’t have any additional bank debt on top of the very operational use of the role in credit facility that we were able now to fix for the next years, to have a solid base for the growth, replacing the old one. And so we are — we continue to have that balance sheet strength with having no more longer term bank debt.

Operator: As there are no further questions at this time, this concludes our Q&A session. I would like to thank our speakers for today’s presentation, and thank you all for joining us. This now concludes today’s conference call. You may now disconnect.