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AAK

Quarterly Report May 21, 2010

2874_10-q_2010-05-21_dd266124-1801-4814-b5bf-2ec9ce312ccf.pdf

Quarterly Report

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Operating profit by Business Area, first quarter, 2010

First quarter 2010

  • Operating profit at SEK 178 million was up 13 percent from SEK 157 million last year.
  • Earnings per share was SEK 2.79 (1.59). Including the IAS adjustment and nonrecurring items, earnings per share was SEK 3.10 (2.03).
  • Positive cash flow from operating activities before investments amounted to SEK 315 million (22).
  • Net sales were at SEK 3,510 million (4,223).

Future prospects

(unchanged except for the added third paragraph in bold below)

AAK is today a company with a stronger balance sheet and a good balance between the business areas. The cost rationalisation programme and the working capital improvement project are being executed according to plan.

Volumes for speciality products are expected to continue to increase in Food Ingredients as well as Chocolate & Confectionery Fats. There remains, however, a general uncertainty about the impact of excess supply capacity in the industry and about lower demand as a consequence of the global recession.

Short term volume growth will not compensate for the reduction in margins arising from this excess capacity.

Despite some market uncertainty AAK sees growth opportunities in all business areas. Organic growth for speciality products, in combination with a selective acquisition strategy, is our way forward.

Business Areas – gross contribution per kilo, Q 1* *At comparable exchange rates

Food Ingredients Q 1 +14 percent 1.93 SEK/kg to 2.20 SEK/kg

Chocolate & Confectionery Fats Q 1 -20 percent 5.94 SEK/kg to 4.76 SEK/kg

Technical Products & Feed Q 1 +16 percent 0.82 SEK/kg to 0.95 SEK/kg

IncoAmeAstateKmen Inte trim RQ 1 eQpor 1 Chtang, First Q e Full year Roullingarter, 2010

www.aak.com

SEK million 2010 2009 % 2009 12 months
Net sales 3,510 4,223 -17% 15,884 15,171
Gross contribution 840 877 -4% 3,744 3,708
Operating profit 178 157 +13% 827 848
Net result* 114 65 +75% 415 464
Earnings per share* 2.79 1.59 +75% 10.14 11.34

* Excluding IAS 39 effect and deferred tax related to this adjustment.

Gross contribution

SEK million Q1
2010
Q 1
2009
Full year
2009
Rolling
12 months
Food Ingredients 442 439 1,906 1,910
Chocolate & Confectionery Fats 333 356 1,508 1,485
Technical Products & Feed 65 60 261 266
Group Functions - 22 69 47
Total for the Group 840 877 3,744 3,709

Operating result

SEK million Q 1
2010
Q 1
2009
Full year
2009
Rolling
12 months
Food Ingredients 101 80 427 448
Chocolate & Confectionery Fats 76 74 394 396
Technical Products & Feed 21 13 82 90
Group Functions -20 -10 -76 -86
Total for the Group 178 157 827 848

The Group, first quarter

Net sales

Net sales for the Group decreased by SEK 713 million, negative 17 percent, mainly due to lower raw material prices. The decrease in sales was net of negative translation impact of SEK 204 million. Volumes were down 1 percent compared to last year.

Gross contribution

Gross contribution, excluding translation effects, improved by SEK 14 million, or 2 percent. Excluding translation effects, gross contribution per kilo improved by 3 percent, from SEK 2.43 to SEK 2.50.

During the first quarter of 2010, AAK recognised negative translation effects of SEK 51 million. After including translation effects, gross contribution decreased by SEK 35 million.

Operating result

Operating profit amounted to SEK 178 million (157), an increase by SEK 21 million, or 13 percent. The result includes negative translation effects of SEK 13 million. All business areas improved their operating results compared to the corresponding quarter last year.

Investments

The Group's investments in fixed assets totalled SEK 79 million (71), mainly comprising regular maintenance investments.

Cash flow

Cash flow from operating activities continued the positive development reported during the last six months of 2009, reaching SEK 315 million (22). The ongoing internal working capital improvement project contributed to the improved cash flow.

Cash flow, after net investments of SEK 79 million (69), was SEK 236 million (-47).

Financial position

The equity/assets ratio has strengthened and amounted to 36 percent (35 percent as at 31 December 2009).

The Group's net borrowings as at 31 March 2010 amounted to SEK 2 834 million (SEK 3,186 million on 31 December 2009). The Group has total credit facilities of SEK 5.836 million, of which SEK 5,561 million are committed to mid 2011.

Employees

The average number of employees in the Group as at 31 March 2010 was 2,139 (2,131 on 31 December 2009 and 2,139 on 31 March 2009 ). The increase since year-end 2009 is entirely due to a higher number of employees outside Scandinavia, where operations have grown, partly offset by the reduction of 20 personnel since year-end, as a result of the rationalisation programme in Scandinavia.

The Parent Company and Group Functions

The Parent Company is a holding company for the AAK Group. The activities of the Parent Company are primarily concerned with joint Group activities related to the Group's development and administration.

Insurance compensation

A final settlement with the insurance companies has not been concluded during first quarter 2010. For further information see the comments under the heading "the Group, first quarter" on page 7.

Business Area Food Ingredients, Q 1

Net sales

Net sales for the business area decreased by SEK 520 million mainly due to lower raw material prices. As a consequence of the backto-back hedging of raw materials there is a time lag between movement in the spot price and the financial impact. The Group policy is to secure the margin in sales contracts by hedging the corresponding raw material purchases and stocks. Equally, currency exposure is hedged.

Volumes were down by 7 percent compared with last year, mainly due to lower commodity volumes.

Gross contribution

Gross contribution increased to SEK 442 million (439) including negative translation effects of SEK 24 million. Excluding translation effects gross contribution per kilo increased by 14 percent from SEK 1.93 to SEK 2.20.

Gross contribution per kilo increased by 8 percent from SEK 1.93 to SEK 2.08. Gross contribution, excluding translation effects, improved by SEK 4 million or 1 percent

Margins continued to improve due to the specialisation strategy that has led to a higher proportion of high-value products.

Operating result

Operating profit amounted to SEK 101 million (80), an improvement by 26 percent. The result includes negative translation effects of SEK 7 million.

During the first quarter of 2010 the business area has continued to benefit from savings arising from the ongoing rationalisation programme. These cost savings have been offset by increased costs arising from expansion outside Scandinavia.

External factors/activities

In the market there is a clear trend towards substituting expensive, non-vegetable, fats with less expensive, value-added vegetable oil solutions. This fits very well with the AAK Group strategy and growth opportunities.

The specialisation strategy is to develop organically and selective acquisitions will complement this strategy.

Raw material prices, SEK/ton

Food Ingredients

Q1 Full Year Rolling
12 months
2,062 2,582 9,702 9,182
442 439 1,906 1,910
2.08 1.93 2.12 2.16
Operating profit excl.
101 80 427 448
212 228 898 882
2010 Q1
2009
2009

Business Area Chocolate & Confectionery Fats, Q 1

Net sales

Net sales for the business area declined by SEK 100 million mainly due to negative translation effects. Volumes were 27 percent higher than in the corresponding period last year.

CBE volumes in the first quarter of 2010 were substantially higher than in the first quarter of 2009 and higher than the volumes in the fourth quarter of 2009.

Gross contribution

Gross contribution, excluding translation, effects improved by SEK 4 million or 1 percent. After excluding translation effects, gross contribution per kilo declined by 20 percent from SEK 5.94 to SEK 4.76. The excess supply capacity in the industry has resulted in reduction of gross contribution per kilo.

During the first quarter the business area recognised negative translation effects of SEK 27 million. Including translation effects and gross contribution therefore decreased by SEK 23 million.

Operating result

The operating result of SEK 76 million (74) was only marginally better than the first quarter of 2009. The result includes negative translation effects of SEK 6 million.

The first quarter 2010 started with good volume growth. Later in the quarter it became obvious that chocolate consumption in Eastern Europe is recovering more slowly than in the rest of the world. Eastern Europe is an important market for the business area.

External factors/activities

The global recession has provided a strong incentive to reduce costs and to drive further the substitution of expensive cocoa butter. This increased demand for CBE's has, however, stimulated significant investments in additional manufacturing capacity in the industry. Uncertainty remains regarding the impact of the excess capacity.

Short term volume growth will not compensate for the reduction in margins arising from excess capacity.

Price trend – cocoa butter

The cocoa butter price remains at a relatively high level, although below the all-time high. There is a general concern in the chocolate industry for the long-term supply of cocoa beans and therefore also a concern for the supply of cocoa butter, because of problems in plantations.

The International Cocoa Organization (ICCO) has issued reports and comments on the supply of cocoa beans that document the reasons for concern.´

Chocolate & Confectionery Fats

(SEK million) Q1
2010
Q1
2009
Full year
2009
Rolling
12 months
Net sales 1,103 1,203 4,564 4,464
Gross Contribution 333 356 1,508 1,485
Gross contribution
per kilo
4.41 5.94 5.96 5.52
Operating profit excl.
non-recurring items
Volumes
76 74 394 396
(thousand tonnes) 76 60 253 269

Business Area Technical Products & Feed, Q 1

Net sales

Net sales for the business area decreased by SEK 4 million, or 1 percent. Total volume declined by 6 percent as a result of lower volumes of feed products due to lower milk production in Sweden. The volumes for fatty acids and metal working fluids were stable during the first quarter.

Gross contribution

Gross contribution increased by SEK 5 million, to SEK 65 million, or 8 percent, compared to last year. Gross contribution per kilo increased by 17 percent from SEK 0.82 to SEK 0.95. Part of this improvement was due to a changed product mix compared to the corresponding quarter last year and part was on account of continued favourable raw material prices.

Operating result

Operating profit improved from SEK 13 million to SEK 21 million compared to the first quarter 2009.

A special turnaround plan was implemented during 2009 which lowered costs in the first quarter of 2010 by SEK 3 million compared to the corresponding quarter last year.

External factors/activities

For the fatty acid and metal working fluids businesses within Technical Products & Feed there were some limited signs of recovery.

Technical Products & Feed

Q1 Full year
Q1 Full year
Rolling
(SEK million) 2010 2009 2009 12 months
Net sales 345 349 1,295 1,291
Gross contribution 65 60 261 266
Gross contribution
per kilo 0.95 0.82 0.93 0.96
Operating profit excl. 21 13 82 90
non-recurring items
Volumes 68 73 282 277

Full legal financial information

These pages, 9-17, contain legal financial information including non-recurring items and IAS 39.

The Group, first quarter

The operating result, including non-recurring items and IAS 39 effects, amounted to SEK 193 million (220). The result includes the effect of IAS 39 (fair value of hedge contracts), which had a positive impact on results of SEK 15 million (63).

In previous reports, we have underlined the fact that the IAS 39 effect can impact materially on the result, both positively and negatively, during individual quarters, depending on the contract mix, raw material prices and exchange rate developments.

In the Group's internal reporting, hedge contracts as well as the underlying commercial contracts and stocks are valued at actual market value, thereby securing the margin in the sales contracts. However, IAS 39 allows market price valuation of the hedge contracts only, while physical purchase contracts and sales contracts are not allowed to be valued in the same way.

The difference between the internal market price valuation and IAS 39 market price valuation is the "IAS 39 effect" reported. The IAS 39 effect does not have any impact on net cash flow and it is entirely a theoretical accounting effect.

Result after financial items

The Group's result after financial items amounted to SEK 179 million (134). Net financial items totalled SEK -14 million (-86).

Financial position

The equity/assets ratio amounted to 36 percent (35 percent on 31 December 2009).

The Group's equity as at 31 March 2010 totalled SEK 3,017 million (SEK 2,949 million at 31 December 2009), and the balance sheet total was SEK 8,412 million.

Related parties

No significant changes have taken place in relations or transactions with related parties since the annual report for 2009.

Insurance compensation.

On 4 December 2007, an explosive fire occurred at AAK's factory in Aarhus, Denmark. The incident occurred in the part of the factory where vegetable oils are produced for use as components in speciality fats for chocolate and confectionery products, mainly CBE. All the plants were up and running by the fourth quarter 2008.

To date, AAK has received payments for business interruption in the sum of approximately SEK 421 million. This insurance compensation relates to business interruption in both 2008 and 2009.

Given the complexity of the pending claims handling process with the relevant insurance companies, any predictions of the final outcome are subject to uncertainty. A final settlement with the insurance companies has not yet been concluded.

Risk and uncertainty factors

All business operations involve risk – a controlled approach to risk taking is a prerequisite in maintaining good profitability. Risk may be dependent upon events in the outside world and may affect a specific sector, market or country, and the risk may also be purely company-specific.

At AAK, effective risk management is a continuing process carried out within the framework of operational management and forms a natural part of the day-to-day monitoring of operations.

External risks

The AAK Group is exposed to the fierce competition that characterises the industry, as well as fluctuations in raw material prices affecting working capital.

Financial risk

The operations of the AAK Group involve exposure to significant financial risks, particularly currency risks and raw material price risks.

Operational risk

The raw materials used in the operation are agricultural products, and availability may therefore vary due to climatic and other external factors.

The Group considers that no significant risks or uncertainties have emerged beyond those described in AAK's annual report for 2009.

The dramatic developments in the financial markets have caused a higher level of general uncertainty, which can also entail operational risks and uncertainties.

Accounting policies

This interim report has been prepared in accordance with IFRS, with the application of IAS 34, Interim Financial Reporting, and the Annual Accounts Act. The accounting policies and assessment policies adopted and the basis for assessment are the same as those used in the most recent annual report.

New accounting principles in 2010

In accordance with considerations presented in the Annual Report 2010, note 2, regarding new accounting principles for 2010, a number of new standards and IFRIC interpretations became effective as from January 1, 2010.

Definitions

All financial information on pages 1-6 is exclusive of non-recurring items and IAS 39. For full legal financial information including non-recurring items and IAS 39, see pages 7- 14.

Information dates

The interim report for the second quarter will be published on 18 August 2010.

The interim report for the third quarter will be published on 2 November 2010.

Events after the balance sheet date

No significant events have occurred since after the balance sheet date.

The Parent Company

The Parent Company's invoiced sales during first quarter 2010 were SEK 10 million (8).

The result for the Parent Company after financial net amounted to SEK 7 (-10) million.

Interest-bearing liabilities minus cash and cash equivalents and interest-bearing assets totalled SEK 320 million (227 as at 31 December 2009). Investments in tangible assets amounted to SEK 0 million (0).

The Parent Company's balance sheet and income statement are shown on page 14.

Accounting policies

AarhusKarlshamn AB (publ) is the Parent Company of the AAK Group. The Company has prepared its financial reports in accordance with the Annual Accounts Act and RFR 2.3 Reporting for legal entities.

Changes in the balance sheet

No major changes since year-end.

Malmö, 21 May 2010

Arne Frank

Chief Executive Officer and President

This report has not been reviewed by the Company's auditors.

The information is that which AarhusKarlshamn AB (publ) is obliged to publish under the provisions of the Stock Exchange and Clearing Operations Act and/or the Trading in Financial Instruments Act. The information was released to the media for publication on 21 May 2010 at 12.00 a.m.

Development for the Group

Consolidated income statements

(SEK million) Q1
2010
Q1
2009
Rolling
12 months
Full year
2009
Net sales 3,510 4,223 15,171 15,884
Other operating income 6 3 101 98
Total operating income 3,516 4,226 15,275 15,982
Raw materials and supplies -2,675 -3,287 -10,910 -11,522
Other external expenses -278 -317 -1,311 -1,350
Costs for remuneration to employees -275 -300 -1,197 -1,222
Amortisation and impairment losses -93 -101 -395 -403
Other operating expenses -2 -1 -11 -10
Total operating expenses -3,323 -4,006 -13,824 -14,507
Operating result 193 220 1,448 1,475
Interest income 3 1 8 6
Interest expense -15 -56 -123 -164
Other financial items -2 -31 10 -19
Result before tax 179 134 1,343 1,298
Income tax -52 -41 -466 -455
Net result 127 93 877 843
Attributable to minority 1 10 8 17
Attributable to the Parent Company's
shareholders
126 83 869 826
SHARE DATA
Number of shares, thousand 40.898 41,384 - 40,898
Thereof own shares - 486 - -
Earnings per share, SEK* 3.10 2.03 - 20.19
Equity per share, SEK 73.21 60.26 - 71.56
Market value on closing date 196.00 102.00 - 157.00

* The calculation of earnings per share is based on a weighted average number of outstanding shares. At present, the Group has no outstanding convertible debentures or outstanding subscription options.

Comprehensive income
Q1 Q1 Rolling Full year
(SEK million) 2010 2009 12 months 2009
Income for the period 127 93 877 843
Exchange differences on translation of
foreign operations -59 37 -209 -113
Total comprehensive income for the period 68 130 668 730
Attributable to minority 0 9 -27 -18
Attributable to the Parent Company's
shareholders
68 121 695 748

Balance sheet in summary for the Group

(SEK million) 31.3.2010 31.3.2009 31.12.2009
ASSETS
Goodwill 622 692 652
Other intangible assets 103 130 112
Tangible assets 2,884 3,212 2,978
Financial assets 147 308 131
Total non-current asset 3,756 4,342 3,873
Inventory 2,101 2,809 2,237
Current receivables 2,249 2,935 2,081
Cash and cash equivalents 306 185 322
Total current assets 4,656 5,929 4,640
TOTAL ASSETS 8,412 10,271 8,513
EQUITY AND LIABILITIES
Shareholders' equity 2,995 2,464 2,927
Minority interest 22 49 22
Total equity including minority share 3,017 2,513 2,949
Non-current liabilities 3,442 5,659 3,837
Accounts payable 677 707 568
Other current liabilities 1,276 1,392 1,159
Total current liabilities 1,953 2,099 1,727
TOTAL EQUITY AND LIABILITIES 8,412 10,271 8,513
No changes have arisen in contingent liabilities.

Change in the Group's equity

Total
Total equity incl.
Equity Minority minority
(SEK million) capital interests share
Opening equity 1 January 2010 2,927 22 2,949
Profit for the period 126 1 127
Other comprehensive income -58 -1 -59
Total comprehensive income 68 0 68
Closing equity 31 March 2010 2,995 22 3,017
Total
Total equity incl.
Equity Minority minority
(SEK million) capital interests share
Opening equity 1 January 2009 2,343 40 2,383
Profit for the period 83 10 93
Other comprehensive income 38 -1 37
Total comprehensive income 121 9 130
Closing equity 31 March 2009 2,464 49 2,513

Cash flow analysis in summary for the Group

(SEK million) Q1
2010
Q1
2009
Full year
2009
Operating activities
Cash flow from operating activities before
change in working capital 221 190 1,015
Changes in working capital 94 -168 1,250
Cash flow from operating activities 315 22 2,265
Investing activities
Cash flow from investing activities -79 -69 -313
Financing activities
Cash flow from financing activities -251 128 -1,724
Cash flow for the period -15 81 228
Cash and cash equivalents at start of period 322 105 105
Exchange rate difference for cash equivalents -2 -1 -11
Cash and cash equivalents at end of period 305 185 322

Summary income statement and key figures, January – March 2010

Q1 Q1 Full year
(SEK million)
Net sales
2010
3,510
2009
4,223
2009
15,884
Gross contribution excluding IAS 39 840 877 3,744
Operating profit excl. non-recurring items and IAS 39 178 157 827
Operating profit incl. non-recurring items excl. IAS 39 178 157 897
Operating profit incl. non-recurring items and
IAS 39 193 220 1,475
Net result for the period 127 93 843
Attributable to the Parent Company's shareholders 126 83 826
Attributable to the minority 1 10 17
Operating profit before depreciation/amortisation
(EBITDA) 286 321 1,877
Operating cash flow after investments 236 -47 1,952
Investments 78 71 316
- thereof acquisitions - - -
Equity attributable to the Company's shareholders 2,995 2,464 2,927
Minority interest 22 49 22
Net debt 2,835 5,231 3,186
Equity/assets ratio, % 36 24 35
Net debt/equity ratio, multiple 0.94 2.08 1.08
Operating capital 6,259 8,193 6,569

All financial information on pages 1-6 is exclusive non-recurring items and IAS 39. For full legal financial information including non-recurring items and IAS 39, see pages 7-14.

Key figures Q1 Q1 Full year
2010 2009 2009
Number of outstanding shares at close of period ('000) 40,898 41,384 40,898
Thereof own shares - 486 -
Return on capital employed, % 20.2 -0.2 19.7
Return on equity, % 32.06 -5.72 32.36
Equity per share, SEK 73.21 60.26 71.56
Net debt/equity ratio 0.94 2.08 1.08
Equity/assets ratio, % 36 24 35
Average number of employees 2,139 2,139 2,131
Gross contribution
SEK million
Q1
2010
Q1
2009
Full year
2009
Food Ingredients 442 439 1,906
Chocolate & Confectionery Fats 333 356 1,508
Technical Products & Feed 65 60 261
Group Functions 0 22 69
Subtotal excluding IAS 39 effects 840 877 3,744
IAS 39 effects 15 63 578
Total for the Group 855 940 4,322
Operating result
SEK million
Q1
2010
Q1
2009
Full year
2009
Food Ingredients 101 80 427
Chocolate & Confectionery Fats 76 74 394
Technical Products & Feed 21 13 82
Group Functions -20 -10 -76
Subtotal 178 157 827
Non-recurring items - - 70
IAS 39 effects 15 63 578
Total for the Group 193 220 1,475

Consolidated income statement

All amounts on this page exclude IAS 39 effects.

2009 2010
(SEK million) Q 1 Q 2 Q 3 Q 4 Full year Q 1
Net sales 4,223 4,045 3,827 3,788 15,884 3,510
Gross contribution 877 889 924 1,055 3,744 840
Operating result 157 146 235 289 827 178
Financial items -86 -46 -30 -14 -176 -14
Result after financial items
- thereof fair value movements in
134 431 367 366 1,298 179
raw materials and currency derivatives 63 261 162 92 578 15

Gross contribution excl. non-recurring items, Business Areas

2009 2010
(SEK million) Q 1 Q 2 Q 3 Q 4 Full year Q 1
Food Ingredients 439 463 469 536 1,906 442
Chocolate & Confectionery Fats 356 342 381 429 1,508 333
Technical Products & Feed 60 67 61 73 261 65

Operating profit excl. non-recurring items, Business Areas

2009 2010
(SEK million) Q 1 Q 2 Q 3 Q 4 Full year Q 1
Food Ingredients 80 90 113 143 427 101
Chocolate & Confectionery Fats 74 55 118 147 394 76
Technical Products & Feed 13 19 20 31 82 21
Group Functions -10 -18 -16 -32 -76 -20
Total AAK Group 157 146 235 289 827 178
IAS 39 effect 63 261 162 92 578 15
Insurance compensation - 70 - - 70 -
Total legal operating profit AAK group 220 477 397 381 1,475 193
Financial net -86 -46 -30 -15 -177 -14
Result before tax 134 431 367 366 1,298 179

Development of the Parent Company

Income statement for the Parent Company

Q 4 Q 1
Q 1
Full year
SEK million 2010 2009 2009
Net sales 10 8 42
Other operating income 0 0 45
Total operating income 10 8 87
Other external expenses -10 -8 -50
Personnel expenses -11 -7 -48
Amortisation and impairment loss 0 0 -1
Other operating expenses 0 0 0
Total operating expenses -21 -15 -99
Operating result -11 -7 -12
Dividend - - 87
Interest income and similar items 43 11 28
Interest expense and similar items -25 -14 -35
Result before tax
x
7 -10 68
Income tax 2 0 2
Net result for the period
x
9 -10 70
Comprehensive income
Q 1 Q 1 Full year
(SEK million) 2010 2009 2009
Net result for the period 9 -10 70
Other comprehensive income - - -
Total comprehensive income for the period 9 -10 70

Summary balance sheet for the Parent Company

SEK million 31.3.2010 31.3.2009 31.12.2009
ASSETS
Other intangible assets 1 0 1
Tangible assets 4 5 4
Financial assets 7,702 6,405 5,238
Total non-current assets 7,707 6,410 5,243
Current receivables 59 35 36
Cash and cash equivalents 0 - 0
Total current assets 59 35 36
TOTAL ASSETS 7,766 6,445 5,279
EQUITY AND LIABILITIES
Shareholders' equity 4,323 4,393 4,314
Total equity 4,323 4,393 4,314
Non-current liabilities 3,352 872 906
Accounts payable 2 3 12
Other current liabilities 89 1,177 47
Total current liabilities
TOTAL EQUITY AND LIABILITIES
91
7,766
1,180
6,445
59
5,279

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