LABL
#I think we didn't expect the rundown to be as quick as it has been.
We certainly expected to lose the $20 million worth of business, but probably at a slower rate than it's going to happen at now.
So yes, it's a little bit more of a drag than we expected it to be for Q2.
Certainly, if you look at our wine business in Europe, we saw ---+ we always see a weak August because everybody is on holiday, and it was particularly weak this year, so we would expect to have a stronger Q3 now with a stronger mix of European wine and spirit business.
And that's typically our busier quarter for them with more of that type of business in our mix overall, we should see some rebound there.
I think in North America in general, it has still been softer than we would've expected, generally speaking, and we continue to see that softness in October in North America.
I don't think either of us particularly focus on the food and beverage market in North America.
However, we have had some legacy business there and that's what we have chosen to shed and that's the most impactful on our growth rate is that couple of percent drag in volume terms.
And the other second most impactful item is key customer contract renewals, which are generally positive for us but initially carry some price downside.
Yes.
We see that, from Q3, that we are investing a lot more in our internal audit process and this year will be a combination of internal resources and some external resources and going forward more internal.
And so that will have a 0.5% type of impact on our SG&A going forward.
I think just the increase in the compliance environment.
What past audit three years ago, some of those things doesn't pass audit today.
The compliance hurdles are higher and we want to be a gold standard in that regard, but we never had any issues at all, but we are to make sure there are no issues, we are increasing our activities in that area and our resources in that area.
Sure.
Our target range is the low 3's% and we were in the low 3's%.
We basically have a very hard stop in, as you know, at 4%, and we are comfortable in the 3's%.
And we do leverage up from time to time into the high 3's% for an acquisition, and then use our cash flow, our strong cash flow, to deliver very quickly.
The good thing is that that $100 million or so of smaller acquisitions in aggregate revenue terms is basically self-funding these days in terms of the free cash flow we generate plus the free cash flow the comes from those acquisition earnings.
It doesn't knock our leverage around much at all.
So we can certainly do that each and every year with minimal effect.
And then if we are able to add medium-sized acquisitions every second or third year, we can do that and still keep our leverage under our consistent 4% ceiling.
Yes, it is because it is virgin territory for us.
It's not so much about what the GDP growth rate is in those markets.
We have $50 million worth of business in Asia, which is a $10 billion, $12 billion market for us.
So it's really about us taking share, and taking share with our customers holding our hand and encouraging us and supporting us when we have the footprint.
And we've seen that consistently, as we've created a new footprint, that we have been rewarded by our global customers supporting us as well as growing with the local market.
So even though GDP growth rates might be slowing, they're still better than developed markets, and our customers are saying to us they want us in developing markets, because they want the same solutions packages they get from us in developed markets.
So yes, we will continue to do that.
Obviously, we will continue to do it at a measured rate.
The constraint, again, is going to be how well and quickly we can integrate rather than opportunities to do deals.
Plus the strength of the US dollar, it doesn't hurt in terms of timing of acquisitions in most parts of the world at this point either.
There are a number of what we would consider very large deals, $0.25 billion in revenues and up.
And they would test our ceiling, but we could do those deals, if we chose to, using some equity.
When we look at those deals vis-a-vis the medium and smaller deals, the most impactful thing is the multiple and the second most impactful thing is the synergies.
And we see those larger deals go with a larger multiple.
So whilst they can be immediately accretive and, hopefully, we can continue to get some more out of them, they are less accretive pound for pound than the smaller or medium-size deals, and there's probably less opportunity because they are more professionally run to get synergies and improvement as there is with smaller to medium-size businesses.
So yes, they are possibilities for us, but at this point in time, they are probably less attractive than a continuation of a combination of smaller deals and from time to time a medium-size deal.
Yes, the large deals are not one plant.
The large deals may still be 20 small plants, so you still have 20 times the work as you would do if you were buying 20 small businesses.
So you don't get less work on the larger deals.
You have the same amount of work to do but you have it probably in a more condensed time frame.
So the risk is, if anything, I think higher.
It's a good question.
I think that if we take, say, something that is used broadly across our space, EBITDA, we are at 18% EBITDA, more or less, and I think 20% is achievable and sustainable if you're in the right segments, and you've got the right mix and you do the work correctly.
So we think we know how to do the work correctly.
Our mix is slowly but surely changing, and the mix is heading towards higher growth, higher margin segments.
And with that mix change over time and with continual improvement in our existing book of business, there are some underperforming plants, particularly the ones we haven't owned for so long.
We believe that it's important for us to continue to challenge ourselves to get from 18% to 20% EBITDA, and that is something that is doable and sustainable in our space.
Acquisition costs are very dependent on the acquisition itself.
And last one we did in Southeast Asia was acquiring a publicly listed company that was listed on the Malaysian Stock Exchange, and that was, if you like, unusually high in terms of costs.
And so normally they're not at that run rate and likewise the French business also just having a French laws and so many different plants, that was a little bit higher than its typical batting average.
So it's always dependent on the acquisition, but if they are acquisitions that are not publicly listed and not terribly complex, I might expect them to be more in line with what we've experienced in the past, which is typically a couple of hundred thousand dollars per acquisition and not circa $2 million for a handful.
I think that, overall, for us, we still have the same view that we've put forward, and that's we can still expect to see double-digit core EPS growth in fiscal 2016, and still target $4.00 for fiscal 2017, as we previously stated.
Our Q3 is typically a bit weaker than the other three quarters, so to the extent to which we can get the same in H2 as we got an H1 is a bit more challenging for us given the Q3 being softer.
Having said that, we do expect a stronger Q3 than usual with the change in mix, particularly in more European businesses that have a busy quarter at that time of the year leading into <UNK>tmas.
So overall, we are happy to say that we would still expect double-digit core EPS growth for fiscal 2016 and we are still targeting $4.00 fiscal 2017 for EPS.
It was a little heavier, but we've got a longer period of time.
So three of our top 10 very key customers for us, we are delighted to have renewed those and in one case for four years, and in others for two to three years, so very positive overall.
And certainly we will be positive over that period of time.
But it's not unusual for us to have a lag and take a hit for a quarter or two on the price side before the extra volume starts to come through, and we expect that to be the case this time.
And the price discount has been a little heavier than usual.
We are done.
Obviously, you have to fight for business all the time, but in terms of electing to exit specifically decent portions of low margin business, we are done once we are through this $20 million that's moving out this fiscal year.
I do.
And when I said working capital for us, it was more accruals than payables that was the mover and shaker so to speak.
And our inventory and debtors are impacted by acquisitions.
So when you look at the ---+ and FX, of course.
So when you look at those movements, and the Q will be filed today, so that information is out there.
In terms of the Greensboro, North Carolina plant.
We do.
Yes, we do.
We do.
We took a non-cash charge this quarter, but we do have some severance and relocation costs that will be coming in Q3, and that I think is circa $1 million.
I think, for the foreseeable future, unfortunately, yes.
Future acquisitions may help dilute that somewhat, but I think it's fair to say that we expect to be a higher rate on an ongoing basis.
Yes.
I think instead of being in the 8% range, it is going to be in 8.5% to 9% range.
Annualized.
For fiscal year, yes.
Annual revenues for this fiscal year, $75 million.
$75 million, yes, out of an average annual target of $100 million in terms of aggregates.
Our tax has been offset by FX in the first half of the year, and we expect the FX to sort of dial down in Q4 and then hopefully be gone in terms of a meaningful impact.
But over the course of the year, second half of the year, tax will be a net plus vis-a-vis FX, but not significantly so, so we will need to see improvement in earnings as well and that's what we are expecting.
Thank you very much for your time this morning.
We are certainly continuing to be focused on the rest of the fiscal year and then in fiscal 2017.
And there are still certainly significant opportunities for us, both on the acquisition front and in terms of improving our current book of business.
We are very keen to make sure that we try and do both each year rather than have years as in the past five years where we have done a good job of one but not the other, and then they have ultimated.
So we're adding resources to try and do more faster in both those areas, and we are excited about working on that in the time ahead.
So thank you for your time this morning.
