Safe Bulkers Inc. (NYSE:SB)
Q4 2016 Earnings Conference Call
February 24, 2017 08:00 ET
Loukas Barmparis - President
Konstantinos Adamopoulos - CFO
Polys Hajioannou - Chairman & CEO
Magnus Fyhr - Seaport Global Securities LLC
Thank you for standing by, ladies and gentlemen. And welcome to the Safe Bulkers Conference Call to discuss the Fourth Quarter 2016 Financial Results.
Today we have with us from Safe Bulkers, Chairman and Chief Executive Officer Polys Hajioannou; President, Dr. Loukas Barmparis; Chief Financial Officer, Konstantinos Adamopoulos; and Chief Operating Officer, Iaonnis Foteinos.
At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today.
Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning future events, the Company's growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct.
These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially may include but are not limited to changes in the demand for dry bulk vessels, competitive factors in the market in which the Company operates, risks associated with operations outside of the United States, and other factors listed from time to time in the Company's filings with the Securities and Exchange Commission. The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect to thereto or any change in events, conditions or circumstances on which any statement is based.
And I now pass the floor to Dr. Barmparis. Please go ahead, sir.
Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the fourth quarter of 2016. Let's start our presentation with the developments in our industry.
The charter market has somewhat improved from the historical lows observed in the first quarter of 2016 as shown in Slide 3. Presently Cape market is at $8,000 per day compared to $154,000 at the same period last year. The Panamax market is at $7,500 per day compared to $3,000 for the same period last year. Asset values as shown in Slide 4 have also recovered. The five year old Cape is sold at about $23.5 million compared to the low of $21 million last year and the five-year old Panamax is sold at about $14.6 million compared to $11.1 million lows last year. However, asset values remain lower on the 12-year historical averages which include also the high values of the big years of the previous cycle, as well as the recent historical lows.
Let's examine the status of the supply and demand equilibrium. Slide 5 we've seen formation about the net fleet change in Cape's and Panamax's. Dark blue bars denote deliveries and light blue denote scrapping; while the numbers above represent the net increase. We observe small net increase in the number of Cape's in 2016 and minimal for Panamax where the vast majority of our fleet lies, 35 out of 38 vessels in total.
The excessive order book of the past years is substantially exhausted this year as show in Slide 6 without accounting for potential cancellations or slippage. We believe that they problem of the order book is a result one way or the other. Some of the reported vessels have already been cancelled, some will be further delayed for 2018 but the important factor is that there are no new orders for new fleets. Achieving a stable fleet size, the equation for a potential sustainable recovery is related directly to the global development which dictates the demand for dry bulk services.
In the context -- in this, in the next few slides we show certain information in relation to demand. In Slide 7, we present certain data in relation to iron ore trade. Chinese imports supported also by domestic production as well as global exports are showing growth. A couple of tips; in January 2017 iron ore imports in China grew by 12% year-on-year. Second an additional effect is the increase on miles due to strengthening exports from Brazil where a substantial investment has taken place.
In Slide 8, we presented the betterment of coal demand. The percentages in the bars represented decrease or increase against previous year. After a substantially weak 2015, the year 2016 showed increasing strength for coal imports in China while global demand seeks to stabilize. In January 2017, coal imports were up by 64% year-on-year. The import substitution in China continues supported by Chinese government in an effort to control local inefficient coal miners. In addition, China relies heavier coal, as it remains strategic fuel for electricity production.
Demand for grain as shown in Slide 9 supports historically the dry bulk transportation demand. With each seasonality, both in second periods that circulate [ph] as a result of concession offset and portals whereas increased on miles effect due to long distances travelled. They keep takeaways visiting like that. One, excessive pass order book will be exhausted in 2017. Two, no additional dry bulk orders have been placed. Three, stabilization or decrease of dry bulk fleet. Four, general financing constraints remain, we face [indiscernible] financing. Five, the additional effect of installation of ballast water driven plant in all bases after September 17 as well as other regulations; keep in mind that about 15% of the total fleet is more than 15 years old and should install ballast water treatment plant at latest when there is a for special survey within the next five years. In addition, after 2020 we have the implementation of low shelter regulations.
Six, China is a key player in dry bulk transportation through development plans for infrastructure projects and for urbanization and substitution of Chinese domestic production. And seven, the prospects for global growth which have been enhanced recently lean to improved market conditions and improving assets although there are rising concerns over protection in policies.
Ms. Konstantinos Adamopoulos will now present in brief key points about financial performance.
Thank you, Loukas and good morning to all. Let's now move in Slide 11 with our quarterly financial highlights for the last quarter of 2016 compared with same period of 2015.
Net revenues increased by 6% to $31.7 million from $29.9 million mainly due to an increase in charter hires. Our time charter vessel increased by 8% to $8,936 per day from $8,251 in the same period in 2015. Daily vessel operating expenses decreased by 9% to $3,711 compared to $4,072 for the same period in 2015. Daily generally administrative expenses which include daily management fees payable to our managers and daily costs secured in relation to our operation as a public company were reduced by 15% to $1,083 for the fourth quarter of 2016 compared to $1,238 for the same period in 2015. We still remain profitable; however, our adjusted gross per share for the fourth quarter of 2016 was $0.09 percolated in a weighted average number of 87,364,672 shares reduced as compared to our adjusted loss per share of $0.13 during the same period in 2015 calculated an weighted average number of 83,504,256 shares.
In Slide 12, we present our quarterly and full year fleet data compared with the same periods of 2015. Liquidity's in a cyclical industry like ours is a key point and I will now show you in the next slide what we have achieved.
In Slide 14, we are focusing on our expense both OpEx and G&A including everything. Dry docking and initial supplies, we manage to reduce the aggregate figure from $5,530 per day for 2015 to $4,147 for 2016. This is a 12% reduction and it present $9 billion annualized saving compared to our performance during 2015. And about $10 million or $0.21 per share or savings compared to the average expenses of our peers.
In Slide 15, we show that the effect we have achieved by our cost cutting effort was sustainable during all three quarter of last year. In the dark two bars we present our ECP and show the improvement of a market from its lows during 2016.For us, it is important to be able to demonstrate that we have a positive operational cash flow, as we have already controlled the financing and bank cash out.
The liquidity will be there, helps us go through this cycle and can be used opportunistically of the right market conditions. We have only one remaining new built schedule to be delivered in 2018 as shown in Slide 15. In order to finance this we already have base of $16 million for preferred shares or the only company on this vessel were to an unrelated investor, at the dividend of 2.95%.
In total, we have $32 million in CapEx. And we need to spent only $15.5 million from our own liquidity. In comparison as of 2017 our liquidity was $114 million.
Moving on to last Slide 16, we show information about last year cash flows. In 2016 we achieved positive operating cash flows of $13.5 million supported by our low operating expenses, which were there is order of our course using efforts throughout the year.
We may be the only company among our peers in the lowest part of the cycle to have positive operating cost covering all expenses and more than two-thirds of our interests. We’re proud of this achievement and we were able to demonstrate to our investors the company can be obeyed it profitably even during the worst part of the shipping cycle.
We had also positive cash flow from invest back to me this due to all the actions we did since the beginning of that year in relation to a new building contract and vessel sales. In relation to financing cash flows we have returned money back to our lenders to reduce our assortment debt but at the same time we've reduced principal payments by loan deferrals and amendment and wave of governance for the following years.
Overall, we believe that the company with a liquidity of $114 million as so February 2017, with post income operation and controlled cash flows and financing activities as we have only one new build remaining, is well positioned to withstand [13:42] starting market, while the remaining positioned to take advantage of improved market conditions if and when the market turns.
Our press release presents a more detail our financial and operational results. We now are ready to take questions.
[Operator Instructions] Your first question comes from the line of John Chappell [ph]. Your line is open. Please ask your question.
Thank you. Loukas, I want to ask you your -- you are in a very unique position right now the liquidity the minimal capital commitments, minimum debt amortization. So how do you kind of prioritize the use of that liquidity right now and then I'm thinking about three potential options, on the one hand in this market environment which is improving but still not great. Is it beneficial just to have cash on the balance sheet to show your financial strength, especially as it relates to negotiating with banks. Secondly as you pointed out asset values are at the bottom but from a historical basis they're still quite low. So an opportunity presents itself there and then third we talk about this every time I see you, you also have some expensive debt out there in the in the form of the preferred.
So how do you kind of prioritize the strong liquidity sort of the situation we're in today with either playing defense as far as keeping cash in the balance maybe playing so often.
Okay. I think that you've said and described all possible actions very well, the truth is that yes we've seen this cashing out balance sheet, and we want to see the market improves the next weeks and next month in order to take several decisions, we can fairly say the important thing is that we have booked a number of our vessels for a longer period of time, I mean not the spot for us anymore but I mean for one year or two. For rates that substantially higher compared to our cash break-even point which is lower than 7,000 which means that there are where we're quite sure that the company EDP will increase gradually from operating activities we have limited outflows in financing activities and of course we have the option to reduce [indiscernible] was also priority. We have been reach out, out there which is also a priority which also we have the possibility at a certain point of time to acquire a second vessel if we've seen if we can -- we can find the right vessel in the market.
So all these options are open and we want to wait for a little bit to see how the situation in the market improves.
And then just as a follow up to that there has been apparently some increased activity in the second end market and maybe a concern that the bottom has been reached, and you know we know how volatile this party can be when it starts moving up in the sentiment shifts in the right direction, at today's rates quite strongly. So how long are you willing to wait before maybe being a little bit concerned that you've missed out on the best of the opportunities of the cycle.
Hi, this is Polys, thanks for the question, John. Yes we believe that the bottom has reached the first half of 2016, February, March last year. So we are off that bottom. The current levels are improving slowly, there is a competition that the rate market improves for ships. As soon as we start fixing charters at a profitable levels we will concentrate into the second hand market. These were not afraid if we lose the market by $0.5 million or $1 million, what we are interested is before we make an acquisition to secure some profit double charters. So we would not do as we have 39 ships including the new building. We have enough ships to make good return if the market real improves. And I think we will strike at the right time and not right now but there is so much competition.
That makes complete sense, thanks Polys, thanks Loukas.
Your next question comes from the line of Chris Wetherbee. Your line is open. Please ask your question.
Hi guys, this is Alex for Chris. I have a question on rates, became a bit better than we expected, we were interested in what the dynamics for chartering in the market was again today. And at what level do you think longer term charters should be like.
Yes, look right now nobody expected the market to be that strong in January and February, and I think it was stronger than expectation because charters of range from fixing ships for periods in November when it was pushed on freight rates. They said we would wait for Q1 when traditionally rates go down during the Chinese New Year. And so the beginning of January we saw a lot of chartering activities for one year period business, which encouraged us to start fixing some shoots for short periods six months or 12 months period. You know right now we are seeing a one year period rates for good ships approaching $10,000 a day. Which is a very good level and at this level the company should start locking in some more charters. As soon as we do this we have clear picture of our cash flows, we will start concentrating maybe on opportunities.
I think that the market cannot really in 2017 move a lot higher than $10,000 to $11,000 a day. As we have -- as we will have maybe in the next two or three months, because there are still order book to be delivered here. There's still a slow Spitfire thought in that in the fleet. You know ships are still in the performing on slower speeds. So we think there would be needed some time before this factor in we still believe that seven hundred prices cannot rise hugely before we clear these two factors are clear. And we still believe that second hand prices cannot rise hugely before we clear these two factor, the order book and the slow speed. So I don't believe that we will lose the market by waiting little bit longer and I don't think that freight rates will shoot up in the course of the next six months to levels that we would say that you know present opportunity and we should buy ships now.
So I think that kind of level if we manage to set some charters around the $10,000 mark, I think this would be way above our expectations few months ago and this is what we plan to do.
Okay, thank you, that was helpful. We are seeing the order book project and at the moment you guys have any insight house scrapping is developing.
Yes, scrapping at this point will be reduced, it's obvious they are only ships that have to be scrapped will be scrapped, or ships that they have to face ballast water treatment liaison and for expensive business survey. So I don't -- I don't expect that we will ship -- we will see any ships built in 2001 or 2002 to be scrapped like we saw last year. I think that ships over 20 years would be going to the scrap yard whatever the market is, so these shore where we're talking about 1997, 1998 will still be going to the scrap yard but the pace will be much slower than last year.
Okay, thank you. And one more thing on the expense side; seems like voyage expense come down materially over the past nine months. Can you kind of provide some in depth clear on this ship, and do you expect this to be a norm going forward.
Yes, this should be the norm because as the market improves you know you are getting your rates on DOP, which means on dropping out or pilot, on the last attraction point. So you don't need to ballast the vessel to a loading area, so you can ship completes in India, you don't need to ballast to South America before you get paid. You would be deceiving the higher from the last attraction point, this is a norm of the market. So if the market maintains the current levels we expect that these values for expenses should be reducing.
Okay, thank you that was very helpful.
Your next question comes from the line of [indiscernible]. Your line is open, please ask your question.
Thanks, a few things that I was going to ask have been covered but one thing that I was curious about is on the preferred financing that you have for the new building that's coming online next year. I believe that you mentioned the rate on that but I was curious about just the dynamics. Is this something that you could also finance as well with regular bank debt, or is this effectively a loan, I'm just interested in how that exactly works.
Look I mean these are for July 2018. We have that option from now until then that call back. I think the company seen a strong position and we are -- let's say -- also right now our reserves have built up; so I don't find any problem to finance this acquisition, this when the time comes, and we will consider very carefully next year about the preferred.
This -- allow me to look at this preferred equity for participating in the last vessel, at a very reasonable level, I don’t think you can find a lot of bank debt if they have much lower rates. And these you can find around 20.5% so I think company interest to maintain this preferred at a very reasonable level.
Did you ask also about the preferred look [ph] on the vessel?
Yes, that's what I was referring to.
Okay. So the vessel is preferred of the vessel will be issued in February in next year upon delivery. So basically this is part financing of this – let's say it's about 50% of the outstanding bid. This will be shipped next year in 2018.
Okay, yes and is it possible to get bank financing as well as that or is this effectively how we should think of the financing for the vessel.
I don't think that we get that bank financing for that.
Okay, that's very helpful and you said the rate was just below 3% I believe this is what you said, correct?
Yes, okay. Very good, that was my other question. I appreciate it. Thank you guys.
Your next question comes from the line of Frank [ph]. Your line is open, please ask your question.
Hi guys, clearly not Frank, hello there. I want to ask you Ploys about a statement that you are not ready to buy vessels yet, you think that more a fortune time to do that, I am wondering if that implies that, you are expecting some weakness in the asset values going forward. We have seen that diversion between the time charter where the market, I understand that parcel this is seasonal. I was wondering if you said that we are going to have some weakness the next few month that will give you the opportunity to buy some more ships.
No, it's not exactly this logic we kind. We want to wait for to fix some vessels from the existing fleet at profitable numbers, at numbers are they are in the region of $10,000 to $10,500 a day. Right now in January February as you have seen we pick some ships between $8,000 and $9,000 a day for 6 months to 12 months. These are not profitable numbers for us, these are loss-making numbers but they're still much more healthier than we thought they would be for the first quarter of 2017. And our initial listing measure we were running and cash flow projections, we were running the Q1 of 2017 at $6,000 a day, so fixing anything they have on six-month period is quite better number. But we want to cover some ships up $10,000 and $10,500. Because we have more than ships younger ships, I believe this could be achievable during the export season of South America and thereafter when we start covering this ship we will jump in and consider new acquisitions.
Right now there is a lot of competition between private owners because they are seeing a market at better levels. So we're not prepared to go and compete at these very moment but if we get some charters done in the next two-three months, we will feel comfortable enough to go and compete or find the right opportunity when some people will not be greatly focused on the rates and on secondhand ships and they go and invent at that time. I don't think that freight market will shoot up and will surprise us more than already done; simply because as I said, I still see that there is shorter book this year and still we have the slow speed factor in the fleet which is going to -- if freight rates for example reached $12,000 a day, our charters will distract our ship to start proceeding. You know, the fuel oil price are 330, it will start instructing us to proceed after 13 or 14 knots. This immediately releases another 10% or 15% supply onto the market. So I don't think that 2017 is a year that we will regret not investing in ships. I wish I am wrong but I don't think it will be happening; so there will be plenty of opportunity to invest in secondhand ships.
And given your view on steel production in China and steel demands and the flows from Brazil that they are expected to increase; what do you think about the – is than you normalized rate when the market balances, obviously not in 2017 but 2018, 2019; at what levels do you think it makes sense for them to consider that the normalized rate for a Panamax vessel versus the $20,000 which is the long-term historical average?
First of all, we have to see an improving market for Cape sizes. At the moment it's just starting, we don't know if this will be sustained and if this will be carried in higher numbers. We still see ships being fixed from Australia to China at $6 freight rate. I think when we start seeing Cape size numbers moving higher then we will feel that it would be a sign that there would be better times ahead of us but it will take time. I said before in the past in other quarter conferences in quarter press releases; when we discussed that we expect freight market to reach a balance including the speed factor within around middle of 2018. So we should not rush, I mean let's not forget that six months ago we were earning rates of $5,000 and $6,000 a day on modern ships. So we should not rush and do rush the season, we are here for the long run. So I don't believe that you know we will be fixing ships this year at $12,000 or $13,000 a day for one-year Panamax's or Cape sizes at $20,000 a day. So we have to be patient and we have to be conservative and nobody lost by being conservative.
And Ploys, we have seen a tremendous volatility all these years in the dry bulk market which is highly correlated this volatility with destocking and destocking cycles of China. Currently even though reset iron ore at the Chinese ports, they are at relatively high level. I was wondering how long does it take until this event come down or how long would it take until we see activity picking up again? Is this something that can happen the next two-three months or could the Chinese drive down the event orders at very low levels and possibly see the weakness in the spot market lasting six months or longer?
Look I don't believe the market is balanced yet, so -- yes, market will remain volatile until it reach a balance. And stock building and stock depleting will be affecting the freight market rates, especially on the Cape sizes. So volatility for 2017 I think will be the trademark for this year. Of course it will be volatility at better rates than we had last year. So from the point of view we stand to gain. I think that the iron ore stocking and unstocking will not affect the healthy -- the healthiness of the market once we reach the balance of supply and demand including the speed factor. In this according to our calculations will be next year; middle of next year. So after the middle of next year, when we reach balance of supply and demand, there will be no new order book; provided there is no new order book which I believe will not be in the order book. And provided that the speed factor is taking out of the equation which people tend to ignore that chapter can adjust the fleet speeds by 10%, 15% which means an extra supply in the market. And when we reach this balance then it will be relevant to us -- the building of stocks in China or the depleting of war of iron ore stocks in China because we will have a healthy market. So until that point that we reached the balance which is to our estimations middle of 2018, I think that the market will remain volatile but at healthier levels than we had of course in 2016.
Thank you, Polys. Just one last question, a little bit personal in terms of plans for the future of the Company; first of all, I want to ask you why did you do this offering of $17 million? Your Company clearly -- the one that needs the least of any additional capital versus every other company; it has a lot of liquidity. I was wondering why such a small amount? And given the fact that we have seen a lot of the stocks in the space rallying especially the larger -- the ones that they have large market caps and greater liquidity and the market is improving. Since you ordered your own close to 60% of the company, would you consider potentially buying back -- taking the company private if you see that the stock price does not reflect the intrinsic value of your company?
Look, the equity raising we did last year, you know, it's also -- it was a decision we took in October/November time when we saw that there was not -- no activity by the major chapters into period fixing. So we -- our Company is call Safe Bulkers, so the name safe is before anything else. So we took a decision since there was opportunity for a small raising we did on to raise more money and dilute our shareholders, including ourselves. We thought that since charters are not coming forward and they are resisting to fix ships; despite the market was improving they were resisting to fix ships for six months or one year; we had to do something to have some extra liquidity.
Charters, there were calling a bluff or they were trying to dictate the market. They said that why to fix now; Q1 market will be $6,000 a day, five $5,000 to $6,000 a day. We come back and we fix at that point. I was in Paris [ph] for the first three weeks of 2017, charters clearly saw that they lost this opportunity, it won't be coming and despite that this by the Chinese New Year was imminent and they would start fixing ships at $7,500 or $8,000 to $8,500 a day. So the offering at that time we did it, it was a right decision and what we're doing right now fixing ships for 6 or 12 months at $8,500 or hopefully in the next two-three months at $10,000 a day; again it's a right decision.
Now to take a private company, you know, we had many opportunities in the past to do this; we proved that we are not interested into doing such moves. This company as a public company will remain a public company.
Thank you very much.
Your next question comes from the line of Magnus Fyhr. Your line is open. Please ask your question.
Thank you. Good afternoon, gentleman. Just a question on the fleet composition; I mean you're very focused on the Panamax segment; three Cape sizes. Maybe you can talk a little bit about if you think you're rightly positioned with the current growth developments about the iron ore or in coal and the other commodities. Once you start playing off, hence would you be interested in going into the Cape size segment?
Yes, I think the Cape size segment, the investment is bigger and since we only have three capes and those are long-term period charters, the company does not have the connections and the relationships we have in the Panamax, post-Panamax market. I believe that we should stay focused on the market we know. We have around 100 different charters we're doing business in the Panamax to post-Panamax market. We have very, very close relationship with the Top 20 names in the sector. In the cape size sector you really need to be an owner with 20 cape sizes to build relationship with people like BHP [indiscernible] which are the three people controlling 70% of the market; that's why you see that the big players -- the players in that market cape size they all have fleets of more than 20 ships and we are not in a position to make a fleet of 20 cape sizes. So we stay with what we know.
I believe we have demonstrated over the years that we are the best operator of Panamax and post-Panamax fleet. We have on this sizes the lowest cost in the market and the best frictions of the market. So if we maintain this track record which is our target, I still believe we should stay stick with the sector we know better than others and not try to be too clever on other sectors that were really very small. But the other accounts also have about 12 post-Panamax's waits to take let's say advantage when the market -- the cape market is improved. And the important thing with this -- let's say two things that nobody is taking care off.
First of all, all this post-Panamax's mainly are from -- except two are from Japanese shipyards which means that they are far more competitive and economical compared to the other Chinese vessels that are in the market. The second point is that we have already fitted – and let's most of them, fittings to pass the new Panama Canal show; this is our tool for the iron ore and the new Panama Canal that we take advantage as the trade is developing. So our fleet is very fine, it's very well stored and structured.
That's good to hear. Just one last question; what do you make out of the current developments in the coal market? I mean it would seem a lot of the coal trade be independent on the government policies regarding work dates in China; and also in India, I guess they are trying to be self-sufficient. You know, longer term you would think with the pollution issues in China that they would try to get less dependent on coal. I'm just curious to see your thoughts there.
Yes, you know, in the future you think that they will be less dependent on coal. On the other hand, their needs and their quality of life is improving and the populations are increasing and the demand is increasing and electricity consumption will be going up; so, so long we don't see new buildings hitting the market in any big force like we had in 2010, 2011 and 2012 and also in 2015 and 2016. I think that we are very well placed with the fleet average rate of six years old to capitalize on modest increases of coal demand; we don't need huge increases, I think that coal will always be the backbone of energy production in China. And you see that the Chinese -- they will be reducing production of domestic coal which is higher sulfur content and for pollution reasons.
On the other hand, you see them that they believe in the coal industry and they are investing in coal mines everywhere in the world; in Australia in East Africa, in Indonesia; everywhere you see Chinese investing money in coal mines. So we are optimistic in the long run but coal will be the driving force of our market.
Okay. Just one…
There are clean technologies; there are technologies that you can use for clean coal energy production. The issue is that as long as the Chinese start to implementing such technologies, then they will find this advantage. And of course also another point to remember is that only a marginal percentage of coal use in China is from imports; most of it is from domestic production; so the substitution that can take place in the future is far higher.
Okay, great. Thank you so much.
There are no further questions at this time. [Operator Instructions] There are no further questions, please continue.
Thank you very much for being with us in this conference call and we are looking forward to discuss again with you in the next quarter. Thank you to all, and have a nice day.
That concludes today's conference. Thank you for your participation. You may now all disconnect.
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