Ryman Healthcare Limited

Thank you for standing by and welcome to the Ryman Healthcare full year results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr Dean Hamilton, Executive Chairman. Please go ahead.

Kia ora. Welcome to the Ryman full year result presentation. My name is Dean Hamilton. I'm the Executive Chair. With me today was supposed to be Rob Woodgate, our CFO, but unfortunately he tested positive for COVID yesterday and so is an apology for today. We've got quite a bit to get through today. We've got an hour. The intention is I'll speak for around 40 minutes and then open for Q&A. If we don't get through all the questions, I invite you to follow up through Hayden and we'll do the best we can to answer those over the course of the day. Before we get into the numbers, I wanted to provide some context on change. Having joined the board a year ago, becoming chair two months later, the board and management have been working hard to oversee significant change at Ryman. Shortly after I joined, I met with a number of you. There was a strong message of wanting to see change. Hopefully we can show that we've listened and we are well down that path. just walking through the key areas of change. We've had the board refresh. We've had three members retiring in the last 12 months, and we have four new board members now in their seat. We have two further retirements in calendar 24. There's a new chair of the board, and there are new chairs of all Ford subcommittees. In terms of management refresh, We had the group CEO resignation on the 22nd of April, and I am stepping into the executive chair role while a group CEO search is underway. We've had a number of new executive appointments. We have a new group CFO. We have a new head of corporate finance and treasury, and we have a new chief transformation and strategy officer having combined two previous roles. We've leant into resetting our remuneration. We have a new minimum share purchase plan for directors. and the majority of the SET are on a reset remuneration structure as of the start of this new financial year. I'll touch on both of those later. In terms of performance measures, we really are going to focus today on what we believe are the future key performance metrics of the organisation. We're going to transition our build rate discussion from near complete to completed and able to be occupied. We're going to be moving towards a focus on settlement of sales with an accounting recognition policy also under review there. And we've really leant into improving our financial disclosures, which we'll touch on over the course of the day. We've leant into our balance sheet assessment. We believe we've taken a much more conservative approach. As we transition that, this has led to a number of non-cash items running through the P&L and balance sheet, which has made for obviously a messy result to read through as we transition. Strategic urgency. The Fit for the Future programme has commenced. We're underway. We've got a real focus on improving our new developments, driving up the profitability and efficiency of our existing villages, over time resetting our revenue models. and really considering what scale of service and support sits outside our villages. On assurance, we issued our first external auditor independent policy earlier this year. We currently have underway a RFP for a new auditor for 2025. We expect to complete that process and have that announced at the annual shareholder meeting. And obviously during the year, we suspended our dividend policy. So a lot of change happening in the organisation. Just to get everyone centred on the non-financials, at Ryman we have 48 open villages. Nine of those still have construction going on. We have 10 greenfield sites, five in New Zealand, five in Australia, excluding the three sites now held for sale. We have over 9,180 retirement village units, over 4,300 care beds across both countries. and a land bank of some 5,370 units and beds. Also announcing today, pleased to have won for the 10th time the Reader's Digest Most Trusted Brand in New Zealand for Aged Care and Retirement Villagers category. In terms of the financials, By way of a deduction, we met our earnings guidance, reporting $270 million of underlying profit in line with the guidance of 265 to 285 that were released in February. We will be focusing on our new financial metrics, which is cash flow from existing operations, cash flow from development activity, and the IFRS profit before tax and fair value movements. There have been a number of changes in our accounting estimates, which have impacted the result, and we'll go through those in subsequent pages. We've purposefully increased our disclosures today, breaking down our operating expenses, gross and that is capitalised, showing that by village and non-village. We've moved our disclosure on resales cash flows to include unit refurbishment and direct selling costs, so we can see a net cash flow. We've broken down our receivables, and there's a clear reconciliation between the manager's net interest and the carrying value of our investment property. Further changes are under consideration, as mentioned earlier, accounting recognition, potentially moving to settlements rather than sales, and breaking down our village P&L between care and retirement living. We're making good progress on that, and I'm optimistic we'll be reporting on that later in this financial year. The financial metrics, we've highlighted the three that we're focused on. Cash flow from operations was $43 million, which was up $52 million on the prior year. Cash flow from developments was a negative $230 million, albeit a $150 million improvement on the prior year. Net debt of $2.51 billion, which was in line with 30 September as we had guided. IFRS net profit before tax and fair value. a significant loss of $324.5 million for the year after $284 million of one-off costs, which we'll detail subsequently. Obviously a disappointing outcome as we reset the balance sheet carrying values to what we believe are more conservative levels. On the statutory P&L, you'll have the full annual accounts with you, I'm sure. These and the associated notes will hopefully provide additional information. At a high level, it was pleasing that our revenue was up 18% to $690 million. We'll break that down on the next page. Total expenses up 25%, but excluding one-offs of $40 million was up 16%. We've taken impairments of $243 million, which we'll detail later. We had a lower fair value movement of only $180 million positive as we moved to an independent valuation of our assets. investment property rather than a director's valuation. This has seen the removal of a 30% DMF market participant adjustment which was previously adopted by directors in assessing the revenues from future residents. There's been a substantial income tax credit. The net impact of further tax losses this year as we get to deduct interest capitalised to new developments. We have reduced further taxes in future years given the removal of the 30% DMF from future cash flows. down to 20%. And both of those tax credits have been offset in part by the law change in New Zealand, which is seeing the loss of tax depreciation on commercial buildings. Revenue, we've provided a breakdown of revenue across care, service departments and independent retirement units. We've shown the drivers between volume and price. You'll see on the table there, we had total care revenue increase of 20%. In there, we've got imputed income of RADs, which is a new accounting policy for Ryman. Given the scale of that balance in our Australian business, we ourselves and our auditors look to the accounting policy and treatment of those in the Australian market, and the majority of the larger players now treat those as leases under IFRS 16, and the requirement is to infer the interest income on those RADs into revenue. and equally take the same number out of expenses, such that our net profit before tax is unchanged from this accounting treatment. So we include the notional imputed income on RADs. It was up 20%, excluding it, it was up 18%. We've had a 6% increase in occupied bed days, which is pleasing as we're filling up our new villages, and our total revenue per occupied bed day was up 14%, which is a combination of two things. We're filling beds in Australia, which have a higher daily rate, And secondly, there was a 9% increase in New Zealand funding from July 23. On the service side, revenue was up 15%, 6% on volume, 9% on revenue per occupied day. Again, a combination of filling up our SAs and increased revenue per unit. On the independent RVs, a combination of village fees and deferred management fees increased. Allocated there is up 13%, 6% growth in occupied unit days through our new village developments and a 7% increase in revenue per occupied day. On the expenses, we've shown our gross expenses and split this between capitalised and the P&L and village and non-village. We've got $30 million of one-offs running through our gross and our P&L, $27 million through the employee line and $3 million through the admin line. More on that in the next page. Our building and grounds costs are up $11 million, or 17%. Our insurance and rates are all up significantly, and I think that's obviously not just common to Ryman. Those costs are up across the board for most organisations, if not every organisation in Australasia. Our direct selling costs are shown here. These are our sales staff plus our new resident incentives. Growth in this line has been through the incentive line, not our direct selling staff costs. We've got some noise running through the capitalised versus non-capitalised approach. Our villages in 23 had $16 million of capitalised costs. This was largely new village marketing and losses on new village openings that were capitalised. That was down to $8 million in FY24. Going forward, that will be nil. The impairments and one-offs. Obviously, significant non-cash impairments and one-offs through the P&L approach. The bottom part of the table shows our impairments of $244 million. We've taken a hard look at our land bank and at our paused sites. In our land bank, we've taken two more sites to the held for sale, that being Kaumarama and Karuri, and we've written those down to independently assessed market valuation. We no longer believe those two sites can justify the further incremental investment required to complete them and we believe that we are better off selling those. Our Mount Martha site settled during the year, and our Newtown site is currently under unconditional sale, hopefully settlement later this year. In terms of our land bank sites, we've looked obviously at all of our sites, in particular three we felt uncomfortable with the carrying value for, Takapuna and Ringwood were started but we've taken those back to the land bank and Mount Eliza we've also refocused on. All three are challenged on the current design and the current market in terms of bill costs, the cost of debt and the known returns on care. We've written all three down to independent market valuation. We like all those three sites. We may well develop on these, but all three need a redesign from what was originally intended. Lastly, in the impairments, we have the care centre impairment of $23 million. There's a much larger care centre impairment, which we'll touch on shortly. This is the piece that runs through the P&L, essentially where there aren't sufficient reserves to take this back through. The balance of the care centre impairment under accounting rules runs through reserves. If we move up to the one-off costs, we have costs relating to swap amendments of $10 million. That dates back to November 22. A gross $14 million offset by a $4 million gain. That will be the last that we see of that other than a $4 million gain. The $4 million gain stays through to 2028, the original date of the swaps. The close of our employee share schemes, we had a myriad of employment and leadership share schemes that are well underwater, given what's happened to our share price. We've had to work our way through those. We believe that will be sufficient to wrap up those schemes. The Holidays Act accrual, another $18 million on top of the $6 million, is obviously disappointing. We're not alone on this in New Zealand. This has been a common issue for New Zealand companies through the interpretation of the Holidays Act in New Zealand as to how we accrue for leave payments when people go on leave. For us, this affects some 20,000 staff back to 2010. The advice during the year we received was new advice that we don't believe we can offset overpayments with underpayments. This has required an additional accrual. We now sit at close to $25 million of accrual. We'll start to pay this in cash over the next two years. Our focus on cash flow from existing operations. This is how we think about our open villages. Three pieces within here. Firstly, if you look to the table on the right, our village operations. We lost $12 million in cash, which was a $40 million reduction on the prior year. The DMF was up, which is as we'd expect, but our cash expenses were $50 million above our care and village fees. We're not alone in this. The weekly fee shortfall is impacting all retirement village operators in New Zealand, and our weekly fees are not keeping up with our rising costs. This has been exacerbated by our fixed fees for life. It has not worked well in the really high inflation environment that we've had in the last three years. By example, we have some 2,500 residents in our New Zealand villages paying less than $120 a week. If that was marked to our today's rates, that would add an additional $10 million to our P&L. There has also been a movement in net working capital between the two years which has exacerbated that change. In terms of further down the cash flow statement, we have our resales. Net $149 million, up a pleasing $47 million. We've had a good year on cash settlements. Our units were up 13%. Our prices were up 6%. We now show the refurbs and sales costs to get to net. The sales costs shown there are for the resales line. And as discussed earlier, that increase of $9 million is primarily increased resident incentives in what's a tighter market. You'll see below the non-village cash flow of $75 million, some $8 million ahead of last year, and lower net interest with a lower average net debt in FY24 post the rights issue, more than offsetting the higher interest rate environment. Moving to cash flow from development activity, $150 improvement to a negative $230 million. New receipts were down slightly to $509 million. Our volume of new sales settlements was down 17%. Our average price was up 11%. A combination of fewer openings. particularly in Australia, and a slight build in new stock, some 60 units more uncontracted new units at 31 March this year than prevailed last year. Our capital spend overall was $181 million lower than last year. We had $57 million on final payments on previous land acquisitions. We spent $502 million on direct construction, and we capitalised $108 million of interest last based on the roughly $1.5 billion of land and WIP that we're carrying in our balance sheet. Free cash flow on the next slide is the combination of the previous two slides, existing operations and development, a combined negative free cash flow for the year of $187 million, a pleasing $203 million improvement on the year before. We continue to target a positive number for free cash flow in FY25. Underlying profit, we're aware the business has historically reported against underlying profit and we guided to it given the outlook provided in the cap raise in the full year last year. Why we like it less than cash and IFRS P&L, the margins are on sales not settlements. It includes an assessment of near complete sales and the development margin is only on the independent units. It doesn't capture the cost of the balance of the site such as amenities or care. For these reasons, we believe cash flow from operations separately reviewed to cash flow under development is a much more informative way of assessing the performance of the business. We'll touch on those margins later on when we talk about AORUS settlements. In terms of our balance sheet, a number of changes to the balance sheet. There's a number that are simply moving between the categories as we go across between aged care, and investment property. Others are write-down, and lastly, the impact of a change estimate of market participant on the investment property as discussed. We've broken it down on the right-hand side, but in property plant and equipment, assets held for sale, and investment property. The property plant and equipment has our land bank in it, has the care assets in it, and has WIP on care assets. Assets held for sale are the three sites that were spoken about, which are carrying at $75 million. And the investment property, you'll notice the significant number there of $399 million. Directors are required under accounting rules to provide a market participant test when assessing for fair value. Directors had previously used 30% as a DMF on future residents as potentially what a new participant would do. but we have reassessed this. It's now a tougher economic environment, and some of our bespoke pricing has demonstrated that there is price sensitivity to a 30% DMF. We believe it's appropriate to take a much more conservative approach to valuation, and we've assumed a 20% DMF for future residents. In terms of capital management, our total equity stood at $4.4 billion, down $246 million year-on-year, This is a combination of a $4.5 million profit being more than offset by the balance of the care asset write-down taken through reserves as required under accounting rules. The NTA now stands at $6.01, excluding tangibles and deferred tax assets per share. Our gearing is up slightly to 36% given reduction in equity. We were in full compliance with all bank covenants at 31 March 2024. In terms of funding, our weighted average tenure of our debt at 31 March was 3.1 years. This has improved slightly post-balance date as we refinanced the $136 million out into FY26, as highlighted. We have no drawn debt due in the next 12 months. We have 63% of our funding is at fixed interest rates. Our weighted cost of debt is up 110 basis points to 6.5% year-on-year. Moving forward to settlements of auras. These next two slides are on a cash basis, so these are settled auras, which is what we're focusing on internally. The units were down 70%, as discussed. Fewer new unit deliveries in Australia, and as we show later in the stock slide, carrying 60 more unsold units than March 23. We had good 11% price growth year on year, albeit that can be influenced by location. As you can see, we're averaging over $1 million now for independent units. On the resale side, we had 13% growth in volume to 1,060 units, which is pleasing. A unit price growth of 6% on average in what we believe is a flat or declining house market. Again, also pleasing. We're starting to see growth in volume in Australia as our villages mature. And I'll call out that 500 serviced units were resold and settled, shows continued demand for that product in our mature villages. Linking back to underlying profit, we show the booked sales of Auras and the gross margins on this page. So this is not on settlement, this is on booking the sale. Gross development margin on new sales was 23% in the old language, down from 29%. a combination of construction cost inflation and delays, increasing our cost to build, and secondly, a mixed impact as we work through our higher margin villages, which are now rolling off. Again, the booked resales of Auras tying back to the underlying profit, similarly trajectory to settlements, gross margin at 28% down from 31%. In terms of our stock... At balance date we had 436 units that were completed, available for sale but not contracted. This represented 4.8% of our 9,187 units at 31 March. This is a slight improvement on the 450 uncontracted completed units at September. On the top chart, new units are up on March 23, dominated by independent apartments. Murray Halberg, Mirren Corbin, Keith Park, Deborah Cheatham. Our service departments are down to 43 unsolved. On the bottom chart, our resale units at 198 are down on September and are similar to last March. In terms of development, it's been a busy year. Two villages are completed, William Sanders and John Flynn. Three have opened, Northwood, Patrick Hogan and Burt Newton, where construction is continuing. We have 10 active sites and we're working our way through these. We've had a strong focus on our land bank, putting Ringwood and Takapuna back into it and deciding that Kaui and Karori no longer work for us and are holding them for sale. We're certainly adopting a very disciplined approach to new capital allocation. We're raising the hurdle on new developments, and there's no doubt in a 6% to 7% interest rate environment and construction inflation where it is, and a softer sales environment, we need to be very disciplined about allocating new capital. In terms of capital recycling, our inability to recycle development capital over the last five years has been a major source of pain. As shown in the table, of the current 10 projects in flight, we expect they will fall $500 million short of recycling after their first sell-down. Not on this page are the six recently completed villages. They will also fall short by a collective $280 million. In short, we've overbuilt and not been able to recover it in price. A combination of factors. We had too much on our plate. At our peak, we had 14 open sites. The physical scale of our amenities and care were too large. Construction inflation has been significant through COVID. And added to this, the 400 basis point increase in interest rates that occurred largely after the commencement of these large builds has made a significant difference. The capital intensity of what we were building exacerbated all of these factors. We had to pause and slow, given our capital envelope, and that just compounded costs, interest and allocations. I think the team has now got their hands firmly around the 10 in-flight projects, and we're confident of delivering these on time to cost, assuming no further deterioration in the environment. The good news out of all of this, if there is, we are delivering high-quality product today. that will grow in value over time through high occupancy and DMF growth. The remaining capital recycling is estimated at a positive $800 million. So this is on a to-go basis. $600 million on these 10 sites and a further $200 million on the remaining sale down of the prior six recently completed villages. So some $800 million positive recycling still to come. In New Zealand, we have six villages underway. We'll finish Merriam-Corbin shortly. Our care centre opened in early May and is starting to fill. We have five in the land bank and three not here that are for sale. Newtown, Kaumarama and Karori. In Australia, we have four underway. We'll finish Burt Newton this year. Five in the land bank. Our build rate. We've shown the 736 build rate for FY24 under our previous methodology. Going forward, we'll report against completed and able to occupy units. It's much simpler, it's more objective, and it ties more closely to settlements and cash, which is our ongoing focus. Build rate on our new methodology. Going forward, we intend to guide to a three-year completion estimate. With the first year with some specificity, The next years, two to three, we will combine, given the fact that things can slide across balance dates. For FY25, we expect to complete 850 to 950 units. 650 of these are in the main buildings at our four sites looking to complete. For FY26 and FY27 combined, we expect to complete 1,000 to 1,200 units. So looking over the next three years, we expect to complete 1,850 to 2,150 units, or on average 600 to 700 over that period. Our land bank of 5,371 units, some 3,100 in New Zealand and some 2,200 in Australia. Approximately half of the bank is at sites currently under construction. We bought a new site at Deborah Cheetham on the back there, as you can see in the picture. This will be a great incremental MPV to this successful site. A quick run-through of the development portfolio. The William Sanders in the top left is complete. Murray Halbig on the top right is completed for now. We're not going to start the last 116 units. We'll reassess this later after we've sailed down the current stock. Mariam Corbin, I was there a couple of weeks ago. Main building looks great. It's opened and is starting to fill. We'll be off this site in a couple of months' time. Keith Park, good progress. Main building to open later this year. Patrick Hogan, a more traditional townhouse-style development. We are working our way through those townhouse releases. James Waddy, getting nearer the end of James Waddy. Kew Millstone is a main building to open in the next couple of months and progressively filling that. Kevin Hickman was there the other week. A lot of construction going on here. Good progress on the main building that you'll see in the centre of the site. Northwood, we're working our way through this recently opened Christchurch Village. Nellie Melba, you'll see in the photo, the final stage four is underway. It's now out of the ground. We have a small block of land to sell in the foreground. This has been a highly successful development for Ryman. We've recycled our capital and we're currently running at full occupancy. Burt Newton, we expect to complete this financial year and be off site. Mulgrave, I was there a couple of weeks ago. It's going to be a great site. Our early releases have all sold out. Deborah Cheatham, likewise, was there. We're making good progress on the new townhouses, as you can see, working from left to right in that picture. The main building opened a year ago, and it's filling up. It is, however, fair to say it's a competitive market down on the peninsula for care. Strategy. Strategy. As discussed at the start, I think we're making good progress on the hygiene factors, whether that's our disclosures, our accounting estimates, our key metrics, our board and management refresh, our remuneration. Obviously, the key question is where to from here. As a board, we are seeing it increasingly clearly. We have a well-respected brand in care and retirement living. We're in an industry that we know will have increasing demand for a long period of time. But what we need to do is urgently rebuild our balance between great care and great financial performance. In doing that, the resident has to be at the centre of everything we do. We create value at our villages. Everything else we do needs to be in support of that. We need to create a culture of performance that coexists with our core care DNA. We've got $13 billion of assets that we need to drive improved performance on. We have five key focus areas to drive our business improvement. One is the performance of our 48 villages. How efficient are we at these villages? We believe there's opportunity in labour and in procurement. In terms of revenue, as a generalisation, I believe we are under-rewarded for our great product and services. On Kia, the government funding models just aren't working. Governments need to lean in, and more on that shortly. In retirement, the sector is suffering from weekly fee shortfalls, given the sharp rises in rates, electricity, insurance and labour. We are no different. We need to look into what is the optimal revenue mix of weekly fee, DMF, or our step-throughs from independent to serviced. At 20% and fixed fees for life, I believe we're underpricing our great product. For new developments, we need to reset what we build next. We have to recycle capital and get positive NPV on every project. We need to determine how much care and where. If the Australian Government are first to fix their model, which it looks like they're about to be, then we would definitely build differently there. And lastly, what scale of amenity do we provide? In services and support, what do we do outside of our villages? Our overhead has grown faster than resident numbers over the last five years. We need to get fitter in this area. Underpinning all of this, we need to drive a performance culture that balances great care and great financial performance. I believe there's plenty of opportunity for our improvement. Aged care. This has been an area of significant deterioration in performance in the sector and at Ryman over the last five years. Government funding has simply not kept up with the rising cost of providing that care. That said, Ryman has kept building care, presumably thinking it would get fixed. However, to date, it has not. I walked through our facilities and our wonderful staff are providing outstanding care to vulnerable older people. Quite simply, this has to be paid for. I do think we're finally seeing a likelihood of change by governments in New Zealand and Australia as they see a breaking-age care industry with closing beds and not enough new builds that will shortly become a healthcare industry problem in our public hospitals in New Zealand and Australia. In Australia, we've been working closely with the government and the Aged Care Taskforce, which reported recommendations to the Australian government in March 24, including support for a co-contribution model. We believe this review is a positive sign and await to see the final proposed legislation. In New Zealand, stage one of a review by Te Whata Ora, which was commenced under the previous government, and the Sapir report, which is well worth a read, outlines failings of the current model. Stage two of this review is underway with recommendations on potential future funding expected to be provided back to Te Whātauora in June, July this year. You will have seen on Friday a further review announced in New Zealand with the select committee inquiry into aged care under the new government will commence in July. Also looking at potential options for future improved funding. The model needs urgent change to ensure bed numbers are not only retained, but there are incentives for significant new builds to be built. With over 4,000 care beds across New Zealand and Australia, we are intently interested in being part of the solution, and we see a light at the end of the tunnel. On sustainability, we've made good progress across our sustainability goals this year. We've released today on our website our 2024 sustainability report. In our annual report due out next month, we will include our first climate-related disclosures. At Ryman, we remain committed to decarbonising our operations. In terms of governance and remuneration, the top four pictures on the Board of Directors are all new in the last 12 months. Both Geoff and Claire will be retiring this calendar year. Geoff at the upcoming ASM, Claire at the end of the year. Importantly, we have four new chairs of all of our standing committees. We've stood up an interim committee to oversee the executive chair with Paula, James and Anthony. Paul will chair that committee and become the lead independent director whilst I'm temporarily in an executive role. The executive team, we're underway with an executive search for a new group CEO. We've got a relatively new executive team, all of whom I'm pleased to say are committed to driving improved performance. On remuneration, we want to provide transparency. On Richard's departure, we made a final payment of $1.5 million under the terms of his contract. That included $225,000 of at-risk entitlement that he had relating to the FY24 year. This represented 12% of the total available at-risk remuneration of some $1.84 million. Richard forfeited his FY24 LSS compensation and any future LTI as a non-compete for six months. Whilst I am temporarily the executive chair, my chair fee will be suspended. I will be paid $100,000 per month and have committed to reinvest a third of this into Ryman shares. There are no additional incentives. We've made significant progress on executive remuneration. We wanted to simplify to move to more market normal structure. We wanted the at-risk components to be more closely aligned with shareholder outcomes. In terms of the board, we've also adopted a new minimum share plan with the requirement for each director to purchase shares equivalent to their base fee over five years. We believe we're making significant progress on remuneration alignment. In terms of looking forward, in general the economic environment remains challenging. Higher for longer interest rates are having an impact on housing values and liquidity in the market. We're still seeing inflation in our costs, insurance, rates, electricity, nurses, caregivers, as will the whole industry. Key for us in FY25 will be our ability to maintain our current high occupancy rates and sell and settle new units and beds as they come on stream through the new main buildings. We're provided three outlook statements as we get our turnaround underway. We continue to forecast positive free cash flow for FY25. We expect to spend $700 to $820 million of capex across new and existing operations. We expect to complete 850 to 950 new beds and units. In summary, we've listened and we are making changes. We know we need to improve financial performance, particularly in a challenging macro environment. We believe we've got a clear line of sight to making those improvements over the next two to three years. We do need to keep the resident at the centre and we need to balance care and great financial performance. We will continue to take a very disciplined approach to capital allocation. Thank you and I'll now open it up for questions, firstly by phone and then by web.

Thank you. If you wish to ask a question via the phones, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Bianca Flutteris from UBS. Please go ahead.