Q2 2020 Noah Holdings Ltd Earnings Call
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You ask a question you May press Star then one on your telephone keypad withdraw your question. Please press Star then too.
Please note. This event is being recorded I would now like to turn the conference over to Chairlady. Wang. Please go ahead.
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Having the teleconference agenda today I will start with my viewpoint on Lachlan level, then summarize noahs overall performance in the second quarter of Twentytwenty, the developments of major business segments as well as a settlement, we hope to reach without the clients on the Tencent incident.
Great well present financial results of the second quarter. This call will be concluded after Q1 night, India and the wealth management industry Hefting experiencing underlying transformation in China, which testing accelerated by the Kogan 19 epidemic in my view Twentytwenty is the critical year for the transformation of Noah.
[noise] through organizational capacity building crying insight and process restructuring Noah is changing to be more adaptable to that new environment of wealth management as a management team China.
The de leveraging in 2018, and the rectification of tails in financial industry in China in 2019, the tightening of supervision and the impact of the epidemic and they leave base the product promoted by the new guidance on standardizing asset management business of financial institutions have quickly developed into the main.
During put us in China's wealth management industry [noise] <unk>.
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Among some clients so beyond industry expectations, we believe that soda investor education, and updated client satisfaction other Keith too and they based wealth management for the segment of wealth management. We have made much effort to train caught up driven relationship managers as investment consultants, we love.
Our the self developed mutual funds investment consultancy platform for the second and asset management, we have strengthened our investment research and direct investments capabilities and promoted to direct sales and multichannel institutional sales all of which have made progress to some extent.
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Wealth management asset management operational efficiency, starting from the third quarter of 2019, Noah has ceased the offering of no standardize the single counterparty private credit products and made several transformation to spend the dies the products for which renminbi 17.927 billion or distribute.
It in the second quarter of Twentytwenty up 198.5% year on year, the transaction value of standardize the product in the first half of Twentytwenty, which isn't movies 37.8 billion increase in more than three times over the same corresponding period last year, excluding non standardize the single counterparty credit credit.
Transaction value rose by 45.2% year on year. This data indicated a preliminary success of the transformation and the share of known standardize the single counterparty private credit product thing transaction dilute before the transformation has been completely replaced but that has been the dies the product.
In the field of standardize the product of a new could that capabilities are being developed and we expect more potential for growth in the future in the second quarter of Twentytwenty NOLA achieved net revenues of renminbi 750 million.
[music] upon 2% quarter on quarter and non-GAAP net income attribute to shareholders, a really be 700000, 7 million, sorry, 307 million up 20.1% quote unquote and the impact of Koby 19 epidemic on the revenue of the overseas insurance sales has been offset by the permanent rally.
Of the Asia markets and most successful as it exits of primary market product, revealing our long term products screening and direct investment capabilities and once again illustrating the counter cyclical feature of our business in the second quoted the net revenue of overseas sector was renminbi 100.
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<unk> million down 21% year on year and down 11% of course on quota accounting for 24.7% of the group's total net revenues.
In the southern quota of Twentytwenty, including mutual funds that were 14703 active clients up 48.7% year on year of which tells thousand 343 active clients of mutual fund up 140.3% year on year, while the non.
The of Black card clients was 900 as of the end of June 20, 25.4% year on year.
And your compensation scheme was implemented for the team a relationship managers in the second quarter as of June 30 is the turnover rate of elite relationship managers remains at the industry's lowest level of 1.4%. The online me. She was on books station for relationship managers with lunch, providing more tools for their business development.
In the second quarter revenue from our insurance business fell by 68.6% to young yet and 47.1% quarter on quarter due to the global epidemic and travel restrictions. However, more pre orders have been arranged in response to client demand and we expect once the travel.
Restrictions is limited is lifted overseas revenues will search significantly.
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The segment as a management as of June Thirtyth Twentytwenty. The asset management of Gosa was there may be 169.4 billion down 1.4% quarter on quarter and down 11.8% year on year, mainly due to our voluntary early redemption single counterparty part of the credit funds, resulting a net decline.
I mean, the foreign clipped 5.8 billion inside excluding the impact of early redemption of those credits on the answer on the management of other asset classes increased approximately 3.52 billion quarter on quarter of rich.
Which kind of equity public securities increased it by as I mean, the 2 billion and Renminbi 2.6 billion, respectively overseas as the under management was the Renminbi Ptwenty 5.77 billion accounting for 16.2% of the group's total as it on the management remaining at the same level of the previous quarter.
Got it is a global multi asset class as a management company. We have been continues improving its asset allocation capability and independent fixed income division has been established to meet high network clients demand for stable returns as of June Thirtyth Twentytwenty Bispecific as a category had AIU and agreement.
The 4.66 billion up 44, full up 42.5%, yeah, yeah up 10.4% quarter on quarter.
Meanwhile, Gopher has been strengthening its credit rating and investment research capabilities. The focus of primary market is due on fund of funds as secondary fund and co investment funds, which you and reach Renminbi 107.71 building at the end of the second quarter up 3.2% year on year.
And 1.9% quarter on quarter for real estate investment the strategy is to focus on preferred equities of residential project, which AIU and reach the renminbi 17.24 billion at the end up the second quarter down 10% year over year and down 5.4% quarter on quarter for public Securities. The focus is on farm.
Of target returns with a total of them in the 11.83 billion on the management at the end of the second quarter up 45, or 1%, yeah, Yeah and up 28 upon full for fourth quarter on quarter in Twentytwenty NOLA Gophers key recommended configuration product for high network clients.
Equity and equity debt hybrid products with three year look up to it is not an illusory rhetoric to believe in the value of the best portfolio managers and long term value Noah's research has some but through a three year average holding period, while partially sacrificing some liquidity the level of positive returns is adding.
Rich to meet and serves the needs of wealth management clients.
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In the second quarter of Twentytwenty, well the business management, we initiated the design of a new organizational structural.
Ducted Senior management team building co created new evaluation criteria of senior management and reach a preliminary consensus. Meanwhile, the importance of technology in driving business has been upgraded to an unprecedented level compared with his previous supporting functions. We believe that the investment for us.
Also fee of wealth management and as a manages cannot just say as theory and some instrumental measures should be provided by which relationship managers and clients can gradually reached a consensus all of these can be achieved through technological technological means.
Supported by technology twos clients can identify exactly whether the product drawdown is beyond the originally said risk preference Upended communication is formed among the incident management the relationship manager and the client the previous requirements for wealth management was focused only on duration and expected return.
And the client wealth management was only focused on whether the distribution industry institution has the ability to provide implicit guarantee where the implicit go T is promised and investment return with the only criterion for measuring client satisfaction.
For me into any they based wealth management products. The big is the difference for relationship managers is that not only our investment results important.
Yes.
Energy and profit.
In June 2020, we submitted applications with a license or mutual fund investment advisory in China and in the same month of overseas measure from platform I know what was lunch on schedule will gradually building there was global or <unk> Mutual fund platform. The epidemic has accelerated the company digitalization and.
Online transformation from January 16th Twentytwenty, No hosted the Virtu investment strategies on image.
No. It's staying at home online Daily Conference in February and March and from April 1st 2025, other online marketing programs were launched including Fortune life topping investor No a lifetime now what international zero distance covering all asset classes.
Right at the 65 from manages to ship industry dynamic market trends and investment strategies with clients by the end of June eight series of Investor Education sessions generated a total of 152500 page views covering 30300 clients driven by new market environment.
No was paradigm transformation, we're bound to initiate and developed management style that can adapt to the new markets first of all we will further clarify that global open products and distribution channels should act as too we will drive.
Thats why we will establish a screening criteria and quantitative data platform for mutual funds and private equity kind wise, we will better understand client needs and viewed a complete data base of client requirements now with future depends on the improvement of organizational capabilities, we will be guided by client needs blockbuster.
Eric threatening to create a platform based and mission oriented.
Organization.
Two wheel drive.
Qualifications and performance management, Noah aims to achieve evolution from individual leadership to organizational leadership.
Recently, we have also learned that the regulators might introduce new management measures for independent fund distribution company reaffirming the focus on the sale of mutual funds by distribution.
Institutions for which we have also prepared and operation platform from issue from sales has been launched there will be no direct impact on our business. After the new measures comes into effect and we will still focus on cooperating with leading private equity funds through goes with funding.
The motors.
Our clients will continue to have access to investment opportunities in outstanding private equity products.
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Thanks to cope with the lashing Kashi attended the phones you're hopeful.
Finally, we are now a settlement brand that has been approved regarding the Tensing incident. Noah has been in defense for 15 years, and we are grateful for the trust of a client placed in us.
We respect the market respect commonsense and has attracted a group of clients with mature investment concepts.
Encountering because things are going to in 2019 and experiencing the kogan entering pandemic in twentytwenty. Indeed huge challenges quinoa. However on the basis of continued trust of clients now what do you achieved the initial success of paradigm transformation on the difficult environments.
Plans continue to to trust.
Employees billing United to cushion there was transformation forward with a stronger poster.
In the most difficult moment when the salary of all employees was cut we still maintain the lower turnover rates in the industry. Every one of US has appeared to Noah mission and values and clients have continued to give a trust, which have really moved and inspired the management team as of August 20.
Twentytwenty more than 54% of Kensing clients have continued to place orders with a total amount of nearly 5.1 billion.
This is a difficult choice, but it is an active settlement Brent although we're confident in the victory of this case. We're also very clear that this will be a protracted battle management team upon receiving the approval from the board of directors proposes a settlement parent with client. This plan will last for 10 years.
In the future plans will be on the same side as I have a shareholders and work with us to promote no with progress and long term sustainable development.
After experiencing the Kensington incidents and because of 19 crisis, the spirit of Ono with employees has been refreshed.
And then a waste of good crisis is our belief there were still difficult times ahead owner with employees will do their best and work harder than before.
Thanks client for their patients and thank the team for their dedication and services.
As I mentioned most of our CFO punching towards how bulgari mix of a CFO mr. pinching will present the financial report.
Thank you Laura.
Yes, so floaters analyst and investors that you might recall, we had anticipated very difficult second quarter as carbon 19 per longer recovery of economies.
Travel restrictions continued to worsen and the real impact on domestic economy, especially in global export import situation continues to put pressure on small and mid businesses.
Today. This is why were especially happy I'm very encouraged by the delivery of strong financial results for the second quarter 2020.
On the backdrop that Carbonite has been ravaging the world's major economies.
First of all were not only ahead of schedule to meet the full year guidance RMB 800 to 900 million non-GAAP net income target as we ended up with the non-GAAP net income of 300.
7 million for this quarter and actually 563.1 million for the first half twentytwenty.
Well above 60% of the range, but also reported a record high income from operations of second quarter of RMB 300, almost 320 million.
Upward operating profit margin also improved to 42.7% attribute it to high performance based in Guam and continuously improved operating efficiencies.
But first let me walk you through the revenue or transactional motors over the second quarter.
Although we're happy with the overall income and margins we have to admit that the carbon nine can cause travel restrictions continued to impact the oversee businesses, especially in your insurance transactions, which led to a declining one point commission of RMB 127 million for the quarter, even while we managed to achieve that comes because.
The 20 billion Mark in transaction value this quarter falling out transformation products in 2000 lumpy.
However, we have accumulated over a thousand oversee insurance pre orders there already converted upon the lift or travel ban.
Although our transformation apart our offer is continuing to put stretch for pressure on onetime Commission.
Standardized products transaction value remains people, which was close to 18 billion for the quarter, bringing total transaction value this quarter plenty ones for bill.
[noise] for the second quarter recurring service revenue reached RMB 474.3 million up almost nine up almost 10% year over year, and 5.5% quarter over quarter, driven by increased AUM in public security and PE VC products we.
Also booked in performance based income of RMB 91 million, which was the second highest record for us since the listing of the company arising from private equity products as well as standardized funds, we placed for our clients demonstrating increasing capability of our product selection and investments.
Operating margin also said the historical record for the company since the list a combination of competing factors from increased operating efficiency and also a 50 million government subsidy this quarter, but even without the government subsidies operating margin still 35.2%, which is at a pretty high.
Level, we expect to maintain in coming quarters.
By segment net revenues from the wealth management business contributed 72.6% of total net revenues with RMB 543 million down by 13% year over year of flat from last quarter showing impact by the weak performance the oversee insurance sales now.
He is from the asset management business amounted to RMB 181.6 million up 6.2% year over year, almost 10% quarter over quarter, which made up 24.3% total net revenues.
Our lending business still under strategy ship from direct lending to long facilitation, the new business model bears minimum credit risks as we only provide facilitation services to other financial institutions accounted for 3.1% of total revenues will continue to restructure and upgrade this business segments.
As Charlie was mentioned, we're delighted to see the clear switching and product mix. That's in line with the transformation to standardized products comparing to the same appear mid last year 9.75 billion out 24 transaction values in the quarter was the same.
And go counterparty private credit products, while standardized products only took up 25% of the pie in the second quarter 2019.
After one year persistent efforts and transformation standardized products now accounted for 83.1% of the total financial products distributed.
With determined to put clients' needs first and to source of supply save for products and committed to diversification and asset allocation.
But also on the traditional sprouts side in the meantime were also happy to report we have recently successfully closed the 2 billion fund raising for Gophers EPZ five secondary PE fund.
With the launch of oversee mutual funds mobile App I know, what together with apparel onshore mutual funds version fun Smile at the company has built up a global mutual funds platform offering carefully.
Selected products for our clients around the world.
And in the second quarter, we have reached RMB 10 dealing a landmark in mutual funds.
For the first half 2020 would have incurred approximately RMB 100 million.
She related expenses as we have mentioned in the last quarter that we are putting strategic resources RCM technology related fronts.
And moving to our balance sheet, we continue to maintain healthy financial position and recently standard <unk> Poor's reaffirmed our investment grade rating.
The debt asset ratio has been lower to a historic lows.
Lower than 16% 15.9 with no interest bearing debt all book would believe it's a blessing to maintain strong balance sheet, which can take us through the cycle of economy of uncertainties.
Thats still filled with no challenges.
What would that would that said we're also closely monitoring the market for strategic opportunities I may help us with the growth of our business and also the strengthening of capabilities in the next stage of development.
Moreover.
No I have the increasingly paying attention to responsible investment as a practitioner long term value investment sustainable development Noah holdings.
Limited and Gopher asset management, both become signatories over to you and supported principles for responsible investment.
Or PR industry initiated in April this year April this year.
No as the first independent wealth management from China to participate in this initiative in line with international standards.
Meanwhile, Noahs MFC IDFC rating was upgraded shortly thereafter.
Well, so just released its annual nowhere sustainability report, which is available on newly launched yes, you website.
We also feel very blessed that our employees remain stay safe since the breakout the virus. Thanks to the effective management by local governments paired with more online interactions with our clients.
Sure it out continuously in order to the operation or perhaps two quarters, the wellbeing of our employees clients as well as the committee has been our top priority and was App. We also have emergency procedures in place if any impact in the company cost workplace unexpected shutdown.
When it comes to the Council settlement plant. We believe it's the second shoot dropping that's associated with this matter and that will allow us to move forward would lighter luggage.
It's also plan the reserves cash flow for the company also comes with relatively manageable dilution to the stock price and.
In the meantime, it's also critical for us to be able to secure a group of important clients continue to invest with us.
Surely do you want as mentioned previously the group of clients New investment have already reached over RMB 5 billion that past.
The principal in that particular investment and we're confident this number will only grow once the plan is accepted by ordinance.
Overall, we're pleased with our first half results a year full of uncertainties challenges.
Despite challenging Helen.
Considering we have achieved 70% of the floor of the initial 2020 profit guidance and have the confidence on business development for the coming quarters I'm happy to report that were revise our plenty plenty non-GAAP net income guidance upward by 100 million and the new range is RMB 900.
To RMB 1 billion.
This revision to reflect our stronger transaction values and performance based income expectations as well as overall outlook of the business for the remaining year.
I will now open the floor for question. Thanks.
[noise] you asked the question in your press Star then one on your telephone keypad.
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Withdraw your question. Please press Star then to once again that side than mine, if you'd like to ask a question at this time no paas momentarily to assemble a roster.
Our first question is from Stephanie tone at Citi.
Hi, Hi, there thanks.
Hi.
Thanks for taking my question so.
Two questions.
Regarding the operating margin have seen.
Cool.
In your operating margin in the second quarter. So.
I'm just wondering comes off the outlook juicing.
Thanks.
Hi, I.
Matt I recall previously garden.
Margins the ball.
So do you think a actually like okay.
This guidance.
What is your outlook for the full year and the second question is regarding I'm just wondering.
Hello.
The transaction volumes.
July August so we have seen a pretty strong Asia market football and the demand.
Hi, my back of will be picking up quite strongly so you actually saw you if possible can you share.
So it was a run rate.
Thank you sure Yeah, just give me a secular.
Well, thank you definitely yes.
The second quarter actually is a little bit higher than expected.
The government, obviously is a supporting you know entrepreneurs through the difficult period, and we have received about 50 million.
Permanent subsidies, it's about 40 million higher than average.
Subsidy would normally see in the past quarters, so without that number on the second quarter operating margin will be around 35%.
We're still maintaining the.
30% operating margin guidance for the rest of the year.
As you would imagine that some of the investments, especially our team.
And strategic investment to actually tend to show their impact towards the second half of the year. Some the hiring actually is taking place slowly.
So I believe it will be little bit over 32%, but probably around 32% or for the full years margin.
Internal transaction volumes in July we actually from the numbers would have a theme from a our sales team in August as well it continued the momentum.
I think without too much surprise I will be at least a close to the Oh first quarters level and also the mix of the transactions will be.
So with more private equity items as the Oh, the actual arrangement for the launch, especially they have moving their focus on to a goal for its own product in the product.
I, just mentioned that secondary market as well as some of the U.S. dollar.
So a pretty happy with where we have seen for the first two months in third quarter and I'm, hoping the momentum will continue I, especially in light of some of the news that Hong Kong My lift the travel ban.
For the National holiday, which will be a strong boost in transaction values as well.
Okay.
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[noise] arc five times.
It's okay [laughter] tried to translate on around Alcoa throwing some of my insights here.
First of all in terms the carry income.
For the consist of two two parts one is from the private equity.
There is from the public security funds.
We believe that with you and that we have in though.
T E U M that especially the ER the governments policy as well as activity on the stub work for example, the exiting the existing.
Well actually become more and more apparent.
Going forward.
There will be a statistic on the market.
That's a there is a about cumulatively.
230 billion fund raised four top general partners and no Ashley accounted for about 80 billing of that so obviously, we are enjoying the position of the leader in this industry and also we have about 50 or so.
Companies.
Speed.
Hi, there in the process already listed on the Star ports. For example to recent examples one is the casino as a company that actually we had the original investment about at the cost of 15 million and on paper isn't you know has 100.
Multiple returns as well as you know the takeoff risks have been jobs. The real estate agents you also have investments in there.
And for the secondary market funds.
You know obviously worked with the top Gpus for example, the Hillhouse ER Golly Jingying Greenwood.
So we have a statistic is that some of the class actually been.
Making money since the beginning of the investments. So we're working with the top tier also give us pretty good advantage.
How can they plan to well.
Okay and also for us to make performance fees are internally the fee rate, obviously is as a market level, it's actually quite different depending on different products have different manager. So it's hard to put a number two it in terms of smoothing out to the Volatilities I, especially in transaction values.
I think we're still have a pretty good private equity launching a distribution pipeline for the rest of your as I just mentioned before.
As well as you know some of the insurance and overseas trust business that stuff being suspended temporarily because travel ban and that will expect that to actually pick up for the rest of year old wants to travel bans elevated.
Also you know obviously with the strengthening of the public security products.
You know will help smooth out the volatility.
And one of the main strategic progress. The we have good balanced fund became bond in Stark also as you have you know you may be familiar with we have.
Im mentioning that this type of products actually cover three year lockup affords funds to enable them to actually tools right through the top cycles. We had the original target 20 doubling of this fund obviously, it's probably not going as fast as we wanted to but we're pretty confident that with this become a.
Basically fundamental there for our clients oh allocation to assets.
And what comes to the competitions.
So called Internet players I believe we have quite different customer groups as they do.
You know on average the transaction values that people actually you know cliffs water all platform for mutual funds were good at least in general is around that mailing in March.
Our mutual fund purchases and that will be very very rare for this type of retail internet.
Platform as Jeff mentioned, so we do have pretty different customer segment. So we're not planning to actually.
Go down to that level onto to service the real retail clients I think we're still trying to.
Provide more selections for our clients in a mutual fund product.
Sure I don't see onto them without wanting to BARDA what oh.
Oh, you're not going to what you're going this year.
Oh and they want.
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Certainly the next question comes from even want it yeah, let's say.
Hi.
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No no what do you agree.
Everyone garments.
You got your was there and what kind of them or some sort of units one trying to do something we've been seeing or should we should correct I'm very honored to grow our goals.
Ladies and.
Jeopardy or the research.
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I know Mark why does it.
Ladies if im not sure on your musician here clean.
Sure.
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Okay. So let me.
Translates real quick is.
For the savings product, we actually have the internal data point that there's about a 7 billion at U.M. for.
Our clients, who is the order that 65 years older and for the senior clients.
Especially the ones with age over some of the we have an internal policy that will not recommend or actually help them to place their investment in risky reward riskier product. So that it's almost like a fund of funds for savings products, which you know, it's safer and actually it does have.
A guaranteed by the back up to a certain amount of principle. So we believe that's actually safer choice and also a alternative for our senior clients that who wish to continue invest with us.
In terms the growth of I know I actually did the only come online in June.
We haven't really put the massive effort into most promote that really just a opening that up for internal clients for their you know oversee assets, especially their need a have a purchase election mutual funds.
The next stage one I know a first version stays though stable and that will actually will be launching probably a more massive and a concentrated effort in promoting that probably towards the end of this year or early next year. Currently we have about 5000 users and most of them are existing client.
No.
[noise], although we intend to when okay Matt.
Right, Okay, but I just.
Hi, I mean do would have any other questions.
[music].
I always feel that further questions.
Well actually we do we have a question from Tiki Dallek JP Morgan.
Okay Hello.
Hello.
Okay. Thanks for taking my question are we have a question on the cost I think we see a lot of a lot of cost reduction in mid second quarter, but.
Okay. Thank you have the salary caps and that was soon that government subsidies.
It's rising, but we we won't get a sense, though was a portion that was.
Strategic trend is that like.
Moving towards that's online.
Cost.
Going down in the futures like something like that.
Okay.
Yeah.
Actually no without the government subsidies were still much it's about 35% in terms of operating margin.
Obviously there.
Showed our continuous effort in terms of you know.
Especially moving some of the conference is online with their clients actually did save quite a bit about traveling expenses I mean, thats part of due to the restriction on travel because of the epidemic situation, but at same time also find that sometimes actually people stay more focused and it's actually more.
But for us to have some conferences online obviously, we're not moving online completely we still believe the offline seminars.
Good opportunities for our clients to see each other to shave townson to to be more personable, but that's part of the effort we happen.
In terms of cost reduction and secondly is obviously, we're continuing investing in IP technology and is increasing efficiency in terms, our clients as well as relation managers to.
Operate in business.
So what we'll continue to.
Look for ways to increase the efficiency and also actually effectiveness. Some of the online seminars that we'll be able to use to deliver value and also good investment opportunity for our clients.
Thank you.
[noise] Thinkequity.
This concludes the question and answer session would you like to make any closing remarks.
So I think though would be on you know very it wasn't a challenging quarter and we're very happy to deliver the strong results for this quarter, a as well as a Wi Lan Tam pretty optimistic outlook for the upcoming quarters one go out.
Got you know thing okay, well, thank you very much.
The timing of investors and shareholders will be holding but some of the conference calls after I go to your fleet to reach out to us.
And so happy to talk to you guys. Thank you [noise].
[noise] seem to she she had died down.
[noise]. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[noise].