International Flavors & Fragrances Inc (IFF) 2005 Q3 法說會逐字稿

Good day and welcome to the International Flavors and Fragrances third quarter 2005 earnings release conference. Today's call is being recorded. Your speakers for today's call will be Mr. Richard Goldstein, Chairman and Chief Executive Officer, and Mr. Douglas Wetmore, Senior Vice President and Chief Financial Officer. Gentlemen, please go ahead.

Thank you. Good morning and thank you for joining IFF's quarterly earnings call. Before I begin, I need to make some cautionary remarks.

This call may contain statements that are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. Forward-looking statements and projections are inherently subject to significant economic, competitive, and other uncertainties and contingencies that are beyond the control of Management. The Company cautions that these statements are not guarantees of future performance.

Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from any forward-looking statements and projections are specified in the Company's 10-K filed with the SEC and IFF's other filings made with the SEC from time to time. IFF does not update forward-looking statements and expressly disclaims any obligation to do so.

Before I turn the call over to Doug to review the quarter in some detail, I would like to make a couple of comments. First, despite a difficult operating environment during the third quarter, and results that did not meet our expectations, I am encouraged by the significant progress we have made in various areas.

For example, I'm pleased with the growth we are achieving with our largest accounts. Growth with these large global, regional, and local customers is a key pillar of our long-term strategy. Year-to-date we have grown sales to our top five customers by 6% in local currency terms. This growth is on top of 7% local currency growth achieved for the full year 2004.

Secondly, I am pleased to note that we continue to see good growth in certain of the key geographic markets we have targeted, and we will continue to invest in these markets for future growth. Most notable about these targeted growth regions are India, which has grown at a compound rate of 12% over the last four years, and Latin America. We have also achieved good growth in China, Vietnam, and Indonesia and throughout eastern Europe.

However, the growth in China and southeast Asia could not entirely overcome weaknesses in Japan and Australia, nor could 20% growth in eastern Europe overcome weakness experienced in major countries in western Europe. In terms of our investments to drive future growth, in November we will open our new state-of-the-art fragrance sales and creative center in Mumbai, India. While sales in India have increased 14% year-to-date on top of an impressive growth in the past few years, we believe the market for potential fragrances in India is only beginning to blossom.

In addition, construction of our new state-of-the-art chemical facility in China is on schedule for completion and commissioning in the second half of 2006. This new facility will greatly contribute to helping fulfill the needs of our global, regional, and local customers.

Third, we operate in a challenging pricing environment, while at the same time continuing to experience increases in material costs. We are working with our customers on ways to mitigate the impact of raw material cost increases with a combination of price increases and product reformulation. However, the end results is that our margins are not where we expected they would be at this stage of the year, and we recognize that we have more work to do.

Finally, we remain committed to our investment in research and development. New and innovative technology, combined with our collaborative approach to working with our customers will prove to be important differentiators in the years ahead. Our primary objective is to provide our customers with technology and innovation, products and service that will help them win in the marketplace.

By remaining focused on innovation, superior service, and operating discipline, I am confident that we can differentiate ourselves from our competitors and drive market share gains to create value for our shareholders.

Now let me turn the call over to Doug to review our financial performance for the quarter and afterwards we will be happy to take your questions. Doug?

Thanks, Dick, and good morning, everyone.

Before I begin, let me point out that the sales comparisons with 2004 throughout my remarks exclude the results of the European fruit business that we sold in the second half of 2004. Relevant details regarding the fruit business are included in our press release and in various filings with the SEC.

Third quarter 2005 sales totaled $493 million, decreasing 1% in comparison to the prior year quarter. Sales for the quarter were relatively unaffected by currency, and the decline in local currency sales was also 1%. Our sales performance was led by a 1% local currency increase in flavor sales. Again, excluding European fruit sales from the 2004 comparative.

On translation, such flavor sales increased 2% in reported dollars. Flavor sales, most notably in North America and Europe continued to be unfavorably impacted by lower selling prices for naturals, most notably vanilla. Selling prices for vanilla generally move in line with the cost of the underlying raw material. Now, we will anniversary the impact of the decline in the selling price of vanilla during the course of the fourth quarter 2005.

Fragrance sales declined 1% in both local currency and dollars. Fragrance sales were led by fine fragrance, which increased 1% in both dollars and local currency. In this regard, it bears mentioning that fine fragrances had a particularly difficult growth comparison versus the prior year third quarter when fine fragrances grew 9% in local currency and 12% in dollars.

We continue to win a significant share of new fine fragrance launches and the performance reflects the benefit of a number of new wins. However, as has been the case in the fine fragrance industry for the last several years, erosion of some older fragrances has continued and in the current quarter nearly offset the benefit of the new wins. Functional fragrance products were down 1% in both dollars and local currency and aroma chemicals declined 5% in both local currency and in dollars.

Sales growth by region is detailed in our press release that we issued earlier this morning. As has been the case for the past several quarters our sales performance was strongest in India and Latin America. Net income for the quarter increased 62% in comparison to the prior year as reported. Excluding the impact of restructuring and other charges from the 2004 quarter, and the tax benefit related to the American Jobs Creations Act of 2004 from the 2005 quarter, net income in the current quarter would have decreased 18% in comparison to the prior year.

Now let me briefly touch on the various aspects that impacted earnings in the current quarter, and the corresponding comparison to the prior year. The 2004 quarter included net income attributable to the European fruit business. As we've mentioned in the past, proceeds on the sale of the fruit business were used to reduce debt but the lost operating profit from disposition of the business was not replaced by corresponding interest savings.

Also with respect to 2004, the third quarter included restructuring charges of totaling just about $20 million pretax. Those charges related to the disposition of the fruit business and the closure of our Dijon manufacturing facility.

In the current quarter, gross profit as a percentage of sales was 41.9%, compared to 42.9% reported in the prior year quarter. The margin decline, as we've discussed in past calls, was mainly attributable to higher raw material costs which we have not yet been able to fully recover through increased selling prices. Energy costs, most notably at our chemical plants, and higher freight costs, have also contributed to the declining margin.

We continue, as Dick mentioned, to experience margin pressure, but we have made some improvement as the year has progressed, and we recognize that more progress is required. And while the pace of raw material price increases has abated somewhat from that seen earlier this year, material costs, as well as energy costs, continue to rise.

SG&A expenses in the current quarter include certain costs associated with customer claims for damages related to the product contamination matter reported in the second quarter this year. The Company will seek full indemnification from suppliers and the suppliers' insurers, and to the extent required, its own insurers; however, based on accounting rules applicable to such circumstances, we were compelled to recognize the costs associated with the claims without yet being able to recognize the benefit of insurance coverage.

Third quarter results also included net tax benefit of $23 million, representing about $0.24 per share, relating to the Company's intention to repatriate in 2005 approximately $250 million of dividends from foreign subsidiaries under the provisions of the American Jobs Creation Act. The benefit results from reversal of prior accruals associated with expected repatriation of foreign earnings, for the accountants on the call, that's APB 23 deferred taxes. The net benefit of the reversal is partially offset by the U.S. tax cost of the eligible repatriated foreign earnings as provided for in the Jobs Creation Act.

We continue with our many research and development efforts. Related R&D expense totaled 9.1% of sales compared to 8.5% reported in the prior year quarter and that's consistent with our intended level of R&D spending. SG&A expenses as a percentage of sales increased to 17.4% from the reported 16.5% in the prior year quarter. The primary reason for this increase was the customer claim amounts I previously mentioned.

Year-to-date we have spent about $61 million on capital, and we currently expect to spend about $85 to $90 million for the full year 2005. That's in line with expectations. And during the third quarter, we've repurchased approximately 605,000 treasury shares under our plans, and at September 30, 2006, we had a remaining authorization under our latest program of about $192 million.

With that we'll now open the call to questions. Operator?

Thank you. [OPERATOR INSTRUCTIONS]. And our first question will come from Jeff Zekauskas.

Hi, good morning.

Good morning, Jeff.

Just a couple of questions. First, can you talk about your overall volumes and price? That is, it looks like your prices may be up a little bit and your volumes down. Is that right?

We have had a little bit of improvement in the pricing situation, Jeff, and that's pretty much consistent with what we've talked about in the first and second quarters where price increases were going to take effect over the year. I think your analysis is probably correct, but the volume, you shift between fine and functional fragrances as a good example.

The volume of fine fragrance shift in terms of value is much less than the volume shift for functional fragrance. And since functional declined a little bit, you're correct, the volume declined. Also from a chemical perspective, while chemicals have declined in sales value about 5%, I think our volume is somewhat less than that, and I think that's reflective of a combination of product mix and pricing.

Was your price mix more than 1%?

No, I wouldn't say, so not in the third quarter.

The second question is, in your debt due, there's, I think, a 552 million number.

yes.

Can you talk about that?

Well, the big chunk of that is the $499 million of note that mature on May 13th, 2006. They used to be classified as long term, but given the maturities within 12 months they've actually moved to current in the second quarter this year, and our intention will be to refinance those with a combination of overseas debt as well as our commercial paper program in the United States, and that's really one of the key uses of some of the cash that will be brought back under the homeland during the course of the third and fourth quarters this year.

Is that dilutive or accretive? In other words, when you refinance all of this, so your net interest charge is going to be higher or lower or the same, and what's the magnitude?

Well, you only know once you refinance, because it's always based on pricing, but the financing in Europe there's 150 to 200 basis points favorable spread. Borrowing in Europe is a little bit less expensive than borrowing in the United States, but you'll also recall that we we had a pretty good run in terms of locking in a very low rate on that $500 million of debt. For the last couple years it's been locked in at about 3.1%.

I think if we were to refinance that just 500 and refinance it on May 13th of '06, in the United States, our cost of debt would probably go up. But I'm really not in position to comment on that because I have no idea what interest rates will do over the course of the next six months or so.

Well, for your planning purposes, do you expect this to be accretive or dilutive?

For planning purposes we suspect interest rates are going to increase a little bit, but we're also decreasing the debt overall with some of our cash flow. So at this point in time, it's kind of piecemeal commentary on '06. I don't really want to comment on that, but I suggest that maybe you just look at interest expense being neutral in '06 versus '05.

Just a question for Dick. So IFF's earnings are going to be flat for three years in a row, and in general, volume is very, very difficult to grow in the flavor and fragrance industry, even with a very successful research and development program as you've had. But if the Company is going to hit -- if the Company is going to outperform the S & P 500 index, you're going to need to accelerate your operating income growth if you can, to a much higher level than where it is now.

So my question is, do you have to rethink your general cost structure in a significant way in order to accelerate your operating profit growth, or is it the case that you actually think that you can get your sustainable volumes up above 4%? It just seems that structurally the Company is facing sort of very large issues.

Jeff, those are good questions. I think that there are opportunities to always improve on the cost structure within the organization, but the underlying push has to be to be able to increase our sales volume, principally in Europe and to a lesser extent in the U.S.

If you look around the world in terms of our performance by region, in the developing markets, which we really anticipate should be the areas for real underlying volume growth going forward, we're doing, in my view, we're doing a good job in places like China, in places like India, in Latin America, in eastern Europe. Where we have had the greatest difficulty and where incremental resource will be applied is western Europe in particular.

Now, we're not alone in having difficulty with sales in western Europe. But that is a region which is important to us as a base, and always has been in terms of the amount of business we do there, and we have to tackle the issue of being able to get greater volume growth in western Europe. And we do, in fact, have plans in place which will not be visualized in terms of impact of impact of our results until next year.

In the U.S., there are also areas where we can improve in terms of our push in terms of sales volume and those are going to be tackled as well. But I can assure you that in the interim -- that is, while we're waiting for the volume to kick in -- that as we put together our plans for 2006, all elements of the cost structure of the business are being looked at.

The one area where I continue to believe it would be a mistake to cut is in research and development. I believe that the engines for growth historically and in the future for our business are tied to proprietary technology, and that comes principally from our research engine, both hard technology, and as I referred to in the past, soft technology.

Is that helpful?

It is somewhat helpful, but you have your work cut out for you, as you grow your -- as grow your research and development spending to increase your sales.

Would acquisitions be a possible means to accelerate your growth? And in general, what's the acquisition environment like these days, Dick?

There are two forms of acquisitions, Jeff, as you know. There's, quote, "the rollup methodology", which I am not a fan of, because I really don't think rolling up a series of small flavor and fragrance businesses around the world will create long term value for a business. There undoubtedly will be further consolidation within our industry amongst the largest players.

We will certainly be active in looking at anything that becomes available. I've said before, and I continue to hold with the view, that the -- any acquisition that we would make would need to provide strategic benefit to the Company. And in today's economic environment, there are multiple forms of strategic benefit. But when we did the BBA acquisition, it wasn't merely to acquire top-line growth. It truly provided strategic benefit in terms of strengthening the fiber of the business, and we would look to that in any acquisition that might become available.

All right. Thank you very much.

Next we'll move to John Roberts with Buckingham.

Good morning, guys.

Hi, John.

is there an easy explanation for why the North American functional fragrance business is down 8%? Obviously the consumption of the end products isn't down anything like that.

I think an element of it is simply the fact that they had a very strong performance in the third quarter of last year, and it is a difficult comparison. Functional fragrance had a 9% increase in the third quarter of 2004, and actually for nine months last year they were up 10%, and I would also suggest that that probably was not in line with consumption, and our sense at the time was that a lot of that had to do with restocking, because our customers and the distribution channel had lowered their stock levels such a degree that they were afraid that they were actually going to lose sales.

And even in the third quarter last year and earlier on we were saying that the pendulum had had probably swung too far the other way and that we anticipated that there would be some pull-back from that level of sales, and that has continued. We have not lost any significant pieces of business that would account for the decline. I think it's more a matter of order activity and stocking levels.

Is it stocking changes of customers' ownership of your products or the customers' inventories of their own products?

I think it's a combination of both. We don't really have a microscope to look inside at their inventory levels. Certainly we may have some insight into their plants, because that helps with us our production planning, but as it relates to the distribution channels and all the way to retail, we don't have that insight.

Is it something that normally goes away in one quarter?

We suffered a lot of destocking effect really during the latter stages of the '90s and early on in 2000. As I said just a moment ago, the pendulum really swung back, because we were absolutely surprised at the level of functional sales through the first nine months of last year, which is why we provided the caution at that time.

So it's very difficult to say. I think it's most pronounced in North America, and to a far lesser extent in Europe, and beyond that, you really don't see the stocking and destocking effect because many of the other regions just don't have the distribution channels and the warehouses to fill and handle that level of stock.

Thank you.

We'll now hear from Scott Hill with Brown Brothers Harriman.

Hi, Dick and Douglas.

Good morning, Scott.

Just following up on Jeff's comments a little further if you could, and I guess when I look at the comments that you're making around pricing and the consequential double whammy with the margin squeeze, what is it which is really causing the inability to pass along these higher costs?

Is it cyclical weakness, in your view, in these certain end markets? Is it structural? Do you have certain competitors behaving ire rationally? Are you just disadvantaged strategically relative to your ultimate customer base?

Give us some sense of whether these are temporary or permanent issues, because the drag on operating margins is very significant, not only in terms of the top-line growth dynamic, but hopefully you can recover.

Few let me try to explain some of this, Scott. First of all, I would underscore with our largest global accounts, our growth with them, I think, is quite good. And that's that 6% number that we referred to in the call. And we have found that our largest customers have been receptive to understanding the -- what I call both the petrochemical and the base raw material price increases.

There are issues with respect to timing on when you can get your price increases, and they, frankly, vary from customer to customer, depending upon when their fiscal year ends and depending upon when they are prepared to accept the phasing. I think if you look back, as I look back, through history, through the last time that we had had this type of inflationary movement in petrochemical based products and other raw materials, the move then, and I'm now going back to the late '70s, was you were going to get your price increases from your customers on a regular basis.

Because this is a relatively new phenomenon, from the customer going to -- from us, as a supplier going to our customers, and our customers going to their customers, I think there has been a much -- a greater lag in the receptivity level of accepting and taking the price increases. It's been exacerbated, mind you, by the fact that you are not in a position to know exactly where oil is going to land, and it has fluctuated, and, therefore, has given rise to more than one need for a discussion with a customer in terms of price increases.

In terms of the marketplace, the marketplace, the marketplace is, of course, a bit uneven, and there are those who might be prepared, and indeed if one reads the public statements of some within the industry, they are prepared to accept the margin compression. Our view of life is that we really think that the partnership relationship with our customers is predicated on being able to have the resource available to be able to provide them with innovative products in the future, and for the most part, I believe that they know and understand the need for us, therefore, to be able to pass on our price increases.

That will not apply to all customers, and to the extent that it doesn't, I think that there you will find that there will be some loss of business as a result of it.

But, Dick, it's very interesting, right, that your ability to pass along commodity feedstock cost is actually more restrained than what we're seeing in the commodity chemicals business itself. And that really speaks to the whole issue of structure, industry structure, are we really misunderstanding the industry structure that it just can't support the kind of pricing dynamic that you hope is there.

I don't really have an answer for that, Scott, but I would suggest no. I think it's -- there's elements of that, that really, the pricing is supported by the technology and the creativity when you're the only game in town, or one of only a couple of games in town, but I wouldn't necessarily suggest that it is structural at this point in time. And I think that's why we're holding fast to the investment in R&D, because we know that that is really going to be the key factor that differentiates ourselves from our competition.

Scott, if our major global customers and major -- significant regional customers, were refusing to engage in a proper discussion with respect to the need for price increases in these times, then I think that the issues that you raise would have -- would, in fact, be applicable. And we're not seeing that. We are seeing timing issues and phasing issues, and to the extent that there is reluctance at all, I have to say to you it is not the larger and most important accounts within the portfolio.

So are the timing issues really on the smaller guy? It's kind of interesting, your comment was very illuminating, when you look at the largest global customers, you're able to get 6% or so top-line growth. Looking at your overall numbers it paints a very dire picture for the rest of your portfolio, your ability to get anything there. So are the timing related issues with the small guys, the smaller customer base?

I think some of it is timing and some of it just may be -- loss of business to fringe players in the marketplace who take advantage and are prepared to work on lower margins. Remember, we do operate in what I call the 20/80 rule. That's 20% of our customers represent more than 80% of our volume.

And I also think that it's consistent with the comments we've made for the last several years when we recognize that it's the large global and large regional players that are, over time, going to assume or take more of that business because it's -- obviously through acquisition or just through organic gains in market share.

So a key element of our strategy is to be working very closely and growing our business with the large global and large regional and regional and local players. I think key to that is to remember that when you have some of the local players, such as in China, Indonesia, and Brazil, they may operate only in their home countries, but they are very sizable enterprises within those countries.

Can I bother you with two follow-up questions? Do you have time?

Sure.

One, I'm really interested, when we came to visit your facilities, I guess last -- was it November or December? I forget. Can you update when we might see some visibility into the encapsulation technologies that you guys were really highlighting? That was such interesting stuff, and we haven't heard much from you in terms of when that might go.

It is interesting, and it is very, very good and solid technology. As we have tried to explain in earlier calls, and I think even when we had you down through research, we are somewhat in the hands of our customers in terms of when they wish to restage a product in order to put new technology into the marketplace. I can tell you I had this discussion most recently with one of our largest global accounts, and it is my expectation that we will find this technology in the marketplace in 2006.

Now, I know that it is later than what we had said in earlier moments. Our expectation was, in fact, that we would actually see orders in 2005 and, in fact, there was the hope that we would actually see a product on the shelves at the end of 2005, and that has been delayed somewhat. Having said that, the problem is not with the technology. The problem is one of -- timing and working it through with our customer to see it into the marketplace.

There are other technologies which I think you were exposed to down in research on the flavor side with which we're working, and we are making, in my view, very significant progress on that side of the ledger as well. It would be obviously a great benefit for us to be able to tell you precisely when we expect to see these things in the marketplaces, but the process doesn't lend itself to that type of precision.

Lastly, any update on the recovery from the contamination-related issues in terms of like timing and magnitude from your direct claims or insurance? When might you see , financial benefit from them?

Well, our experience so far is that insurers, just as some of our customers work on their own schedule, our insurers work on their own schedule as well, sadly. But we're working very closely with our customers and with our various insurers as well as working with the insurers where applicable of the supplier of the contaminated material. And it's just a matter of timing.

I wish I had the answer for you, because that would also dictate some of the accounting. But as I mentioned in my comments, the accounting for recognizing the claim and the timing of that, and then meeting the criteria for recognize a corresponding insurance recovery or insurance receivable, are different, and we hold to a pretty firm and fast line in terms of making sure that we comply with those accounting guidelines. So I wish I knew the answer for you. Obviously we're interested in sooner ran than later, so we're going to continue to push ahead on all fronts.

Thanks, guys. Have a nice day.

[OPERATOR INSTRUCTIONS]. We'll now hear from Peter Thompson with Coho Partners.

Morning, guys. Can I ask you, I love the trends obvious well the large customers, but can you disclose to us what the five largest customers are, a percent of total, so we can understand --

Sure. It's in our 10-K. It's roughly 27 to 28% of our sales, and our top 30 customers represent just over 50% of our sales. And so, of those top 30 you would probably recognize off the top of your head about 25, and the balance are some very significant large regional players in places like Asia.

Okay. Can you give us any kind of clarity of kind of the growth patterns in the group between six and 30?

If you took the, if you went from 6 to 30, I think you'd find that we were probably -- overall growth of 2%.

Year to date 2%, and that's up on about 5 to 6% growth for the full year 2004, and in all of those cases, both with the 6% for the top five and 7% for the top five last year, that's all local currency growth.

Sure. Appreciate that. That's encouraging for sure.

I think the add-on to that is that it's important to understand, it's going to be those top five and also the top 30 that are most interested in the developments of technology and are going to lead in terms of new product launches and innovation and that really aligns very well with our strategies.

Just one last one on western Europe, just to to get a little more specificity if possible, as you try to get volume growth in that part of the world, what would be a reasonable expectation for 2006?

We're not in the position to -- we're just in the process of our budget cycle for 2006, and I think it might be a bit premature to provide any piecemeal guidance, but certainly we're looking for some growth in Europe, particularly western Europe. We had outstanding growth in eastern Europe of 20-some percent, year-to-date.

It's just a matter, as you've heard us talk for the last several years, you'll remember that we've said western Europe generally, or at least the largest countries of western Europe, are just in a very weak macro economic situation, and hopefully some of the changes that are taking place in Germany and to a lesser extent France might enable a little bit of growth in those countries, but I think it might be a bit premature to see a big turn around in 2006 from a macro perspective.

But we are looking for improvement, for sure, in France, Germany, Italy, and Spain.

Perfect. Well, listen. Good luck.

Thank you.

I think we have time for one more question if there is one more, otherwise that will be the end of the call. And that question will come from David Winters with Wintergreen.

Hi, gentlemen. How are you?

Hi, David.

You know, IFF is a great company, and I'm wondering, are the issues that everybody's really been focusing on, are they really industry issues? They're less IFF-specific issues?

Well, I think that they are in some respects industry issues, in that context what I really refer to is that the entire industry is, in fact, experiencing the type of impact on raw material pricing, and also obviously, petrochemical pricing. It's for each player within the industry to decide how you -- they choose to respond to those issues.

We've taken the view that the long-term health of the business and the long-term value to our customer base is to work through with our customers in an amicable fashion a way in order to maintain recovery of our margins. I believe that in the long term, that is the best for IFF. And it's the strategy to which we intend to hold with. I can't speak with respect to our competitors.

But fundamentally, I mean, is there a loss of pricing power in the industry, not only getting squeezed on raw materials, but that the weaker players -- I'm wondering if the business itself has just become fundamentally tougher, and you seem to have done all the right things. You've bought back -- did you a deal, you fixed the company, you bought BOA,, you're buying back stock, you cleaned up the balance sheet, you sold off assets, you've done a lot of the right things.

Thank you.

And I know it hasn't been easy, but always this has been an amazing business, and I guess the question that I'm asking, and it sounds like others are asking as well, do you think that essentially the economics of the business have changed because you've had such concentration in the consumer products area and it's just harder for you to get prices?

I think that tissue on pricing is one that results from there having been a long sustained period of time within the business community where it wasn't necessary, because we were not seeing inflationary times. And, therefore, I think that there is what I call a hiccup at this point going on in terms of educating and gaining acceptance of the need for us to be able to recover on those price increases.

At root, I continue to believe that our value to our customers is recognized. If you talk with the -- particularly the larger customers within the industry, they will tell you that the distinguishing feature for a vast majority of the products they are selling are taste and smell, and that the cost within their end product is in the end, that component of taste and smell, is quite small.

And, therefore, I am confident that in the fullness of time, those dynamics will, in fact, play out, and that's not necessarily true with a simple provider of corrugated. So the answer is that I do believe that the fundamentals still exist. I do believe it is still a great business. I do believe it's the players with innovation and capability to provide differentiation that our customers will look to, and will continue to look to.

I just think that we're at the moment going through a difficult patch as a result of a series of factors on the raw material side and on the petrochemical side.

Thank you very much, and I wish you all the best.

Thank you very much. That will be the end of the call, Operator.

Thank you. That does conclude today's conference call. Thank you for your participation.