Earnings Call: Q3 2019

Nov 22, 2019

Ladies and gentlemen, welcome to the Rockwall Report on the 1st 9 months of 2019. Today, I'm pleased to present CEO Jens Biegelsen, CFO, Kim Young Anison, and Investor Relations, Thomas Hado. For the first part of this call, all participants will be in a listen only mode. And afterwards, there will be a question as a session. As a reminder, this conference call is being recorded. I will now turn the presentation over to your host. Please begin. Welcome to the conference call regarding Rockwell International's results for the 1st 9 months of 2019. My name is. I'm director of Group Treasury And Investor Relations of Rockwell International. I'm here together with CEO, Ian Speggerson, and CFO, Kim Jong Unison. First, Ian Stevenson will go through our presentation and give you an update on the results for the 3rd quarter and the 1st 9 months of 2019. Before I hand over the words to Jenspearson, I must ask you to notice slide number 2, which is the forward looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is I will now hand over the words to you. Yeah. So, good morning, everyone. Thanks for listening in. I think this, quarter is, quite uneventful, actually. So we've been spend too much time on the PowerPoint, but I would move through quickly and then into the questions. And so if we move on to slide 4, we saw a Q3, the 3 months. We saw a Q3 that had, it's a very, very good top line. It's the biggest top line I've had in the Q3, but it was also Q3 where we saw the continued volatility with a couple of trends, basically Eastern Europe going except for Russia into very negative territory. So we dealt with that in terms of capacity, we focus also a bit on profitability, pulling down capacities. We had made most of the adjustments already And then, the numbers I think are important here that we had a 1% growth And we delivered about 3% on the bottom lines, but we kept the profitability was nice to see. And look to Slide 5, although it's a 6, it goes right into the quarter. And on On the quarter, when you look at the top line, the real highlight is the continued good top line and growth across the board and systems. And we had the I don't know if you remember, but we had Q1 double digit, Q2 just below on our double digit one again. And we are very pleased with that. And this quite broad based. And here, also, Lappenus had a very good quarter. They normally, they are selling big portion of the business into automotive and they were doing fine. So it was good to see that we had a broad based growth. Move on to slide 7. And when Western Europe, France and UK, UK are the 2 engines. There are also some Nordic countries like Finland and Sweden doing well, Denmark Flat, So but Germany had a difficult quarter again, negative growth, but the land plus 4% care. So happy, happy about that. And when we look at Germany, you have moderate decline on me, building permits, lots of order backlog, and the market is still stuck. And it's not really flying. I should say though that the level is high. It's the high loading. We had to take out some shifts to apply Germany, but fundamentally quite high activity, but not quite as high as the previous year. Central And Eastern Europe there, it was more of a increased trend of decline where only Russia grew more or less. And the and and and it was good to see that both pricing and, pricing and, volumes and top line held up in Russia. The rest of Central And Eastern Europe, I think we had a quarter where You on the one hand had a slowdown in activities, but you also had a de building. We saw that in Q2, where the distributors have too much stock and they're using up the stock. So I think that we have not worked that through I think the distributors have now gotten rid of the excess stock they had. So they had a bit of a double effect in Central And Eastern Europe. North America, Asia, and North America grew. China had a flat quarter, which is very positive, and then the rest of South Asia that got kind of the the Chinese economic impact, there there are almost all of them in negative territory. Profitability, slide 8, underlying, and so pricing is up above last year. And in some segment, the competition is harder to head this segment to project sales, but pricing is up. And profitability generally, I'm satisfied with that. And the big improvement, of course, is is in system division that we see on slide 9, the next slide where you see double digit EBIT improvement in the systems division and more than 20% improvement on on the EBIT. On the insulation business, you'll see the decrease in EBIT And then I would say that that's pretty good, what we see there because we have the one off startup costs because they all fit in the installation division, and we also see all the capacity adoptions that are sitting in there. So pretty good going, I must say. It's a good profitability. Investment activities, we are starting up in Romania now, and the submitting products for testing and certification. Has gone really well. The project in your United States is moving ahead now. No obstacles to that. And Germany is following the schedule we have to. So that's that's progressing and you see there, CapEx, at the high level, depending on progress on-site and invoicing now, we're going to stay on that level a little bit, done, not on this specific level, but we're going to have high CapEx now as we have high activity on the projects. And move to slide 11, Their I guess the main number is that we have kept the networking capital, percentage. And I think that's always important when you have certain markets slowing down. Because that also means that you've been able to be very quick with our production to slow down out of what you're going to build up unnecessary finished goods and inventory in those markets, which we haven't done because we have really been on our toes from that. And we took the big piece of those adjustments that took in Q1 and Q2, but we have kept on top of that. Guidance for next year, the change we did we put in the lower end of the growth mathematically, the enter into Q4. You have a December in front of us. And as you know, December for us, can either it's always a low month. But sometimes we get a lot of snow and it becomes an even lower month and some years like for example, 2014, I don't know if you remember that year. They have a year where mainly Germany just stopped decides really early in the year mid December and not so much revenue. So we see we don't know what sender will be and we don't know if it will snow, but you have uncertainty in the 4th quarter as usual. So with that, I would like to handle the questions. I have Kim with me here also to answer those questions. So please go ahead. Thank We ask you kindly to limit your questions to 2 at a time. Our first question comes from the line of Yves Pohmet from Exane BNP. Please go ahead. Good morning, gentlemen. Just a few questions on my side. My first question would be on the capacity ramp up and your overall strategy regarding capacity. Given the weaker outlook in Europe, and you're mentioning that you shut down some lines, Could you maybe help us in understanding how much net capacity you're actually adding if you're making some lines cold? So that would be my first question. And then my second question, I understand that you have already filed the permit for a plant in France. Could you update us on that and whether you will go ahead with the project and how much would it, what would be the investment cost of that project? And lastly, my last question is on the nitrogen emission regulation in the Netherlands on both the agriculture and the housing market impact it had. Do you expect that to impact the installation and grow down? Thank you. Okay. So on on the capacity, we actually haven't We haven't shopped any lines. So we work simplify because 7 by 24 is 5 ships. In our language, 3 shifts depending on the country is Monday to Friday. So what we have done is that There is no line called, unless it's for a maintenance stop or something like that. But there are no lines So what we have done until now is just to take out the shift to 2. And for example, in Germany, what happens there is you have a very good demand in the south. If that demand agrees a little bit, then we shift off the next shift maybe up in Vermont and Gladbeck, for example. So that's how we work it to just optimize logistics. And then on the capacity, we are adding now, say, half a big factory and 2 big ones. And what that means as a percentage, if not huge on our total, we are still talking about loading above 80% across the board. But how we use that extra capacity is, of course, at, in Romania today, we have quite a stantial export to Romania. We will shift that into the market and have short logistic costs in Norway and Southern Germany. Again, we will delivered from the new factory and take away shifts further away and reduced the logistics and also variable production cost So that's obviously on that. And then 2 big ones and 1 half plant. And the next one in van, You know, German is coming in in H1 next year. And the one in North America, we still have in the second half year. And then depending how the market goes and also the optimization of our other assets within time, the use of that, again, based on logistics, on when we need it. Yeah. So but the progress is good on all those projects. Then on the France case, there's a bit of a different approach. We buy land and here we are just doing the permitting And we do that homework so that we know that it's possible, get ready, but we have not taken a decision yet to build a plant. Just to be clear. Formal decision. Igniterogen emissions in Netherlands. I was in the Netherlands on Mondays. I got to listen a little bit to this. It's a very, very Dutch issue. And to sum it up as I've understood it basically, they use a lot of nitrogen in the farming. And for years, they have been exceeding their own targets and some loss on what you allowed in sensitive areas to mold into the ground. And now they reach a, like, end, but they cannot do that anymore. And what we have seen then, we have seen that lots or building permits are being put on hold. And we also heard that they're taking a decision to lower the speed limit from 130 to 100 the whole Netherlands. It's not implemented yet, but I think they decided it. So definitely, if this continues, this kind of local in house, although I'm not sure you call it a crisis, but it's an issue. It will impact and it has impact the the building industry. I hope that we solve it, but it's the fundamental issue where they go after the nitrogen in the farming or not. And they are very vocal, the farmers, and we started that I don't see it will impact Broadham at all, okay, not at all. Maybe, of course, in terms of demand, that some of the farmers on normal ground will move. So from a production perspective, it won't impact growth on negatively. But of course, it could possibly mean that you get more into our type of farm and the pesticide free one in a control environment where you don't put that in nitrogen on the ground, but it could be. It could be. But we haven't seen I I don't think we have seen that I must admit that growth on this growing really well everywhere. So there could be that there is an effect. We have not discussed it as an effect. We have seen that. Okay. And just to be clear, how big is the landline market for you, especially on the installation market? It's I mean, it's important, but it's not one of our main markets. It's, you know, Germany and Switzerland will be the Netherlands for us. Okay. Thank you. And the next question comes from the line of Christian Johansen from Danske Bank. Please go ahead. Yes, thank you. First question is on your margin guidance. So when I do the implicit numbers for Q4, the margin you're indicating by keeping these 12.8 indicate the decent margin growth versus Q4 last year. So I just wanted to have you elaborate on what should drive this? Yes. I mean, I see the following. I see probably an inflation that is under control and not getting worse. I see maybe some more price pressure in Eastern Europe on the heavy side of the portfolio. But fundamentally, I see and we focus on profitability as size C, we have control of the margins. And then we have the variability on profitability in December. That's it. But underlying, there is no difference in the business We don't see that apart from that December. It's a short month. And we in the year, so from 2014, up to now my 5th December, or that means that we have seen everything on December over this depending on what's happening. So it's a reflection of that that I take it on December and the December then produces and give a a little bit, of course, not at all on the level of October November, then profitability will continue to define. All right. Understood. Then my second question is whether you can elaborate a bit on the differences you see within residential versus non residential, but also within new building versus renovation? We so so we it varies, of course, across lots of market, but if you were to say a section of non residential, I would say there we see that the big warehouses and those big projects, we have fewer projects And then if you look specifically in the case of Germany, for example, you see a moderate decline in permits, on on both residential and non residential, but it's bigger on, non residential. And then France here. France, you see the opposite. Actually, it's increasing in non residential and then residential permits are done, but they have VC renovation off. So they see a very mixed, in Poland, you see actually residential up and then non residential down. So I would say on average, we see that the hesitation about the economy impacted it. The non recitation of the commercial side of things and residential hasn't really been much impacted in the last 3 to 5 months. And then, and that has such effect that the heavy segment, the projects that section of the market has declined. And then on renovation, Since the levels, even though we look at, you know, Poland, you have added really a drop in the demand plus inventory, if I But if you then look into the segments, we don't really see an uptick in renovation apart from countries like France. Where they have the energy efficiency project really driving growth. And then this lag of an uptick, is that due to an already high level and lack of labor and anything? This with Germany. I mean, I try to understand this in the lack of labor and the order backlog. I I I there are many people in Germany that say that Germany is dependent on lack of labor, but it beats me then why it it is on a high level, but why why has it declined if it was lack of labor? So I think it's a mix of thing. It might be lack of labor, but it's also uncertainty in the it and let people hold back and try to wait or starting up new projects and things like that. That's my suspicion, but I I have not manage to get a one to one explanation on what's going on in Germany. But one thing is for clear, the business confidence when you look at that curve, It's down in Germany. Okay. Very clear. Thank you. Thanks. And the next question comes from the line of Tobias Simon from Morgan Stanley. Please go ahead. Hello, thanks for taking my questions. I have 2, if I may. The first one on Assistance Division, we had another strong quarter and it seemed to me like the trends and systems are going in completely different direction as the trends in Insulation one is slowing down and the other one is increasing. So could you just maybe give a little bit more detail what is the driver of that? And also, where do you see systems versus installation in 2020? That's the first question. I'm not going to give you a forecast for 2020, but To be a few have been on this calls for quite a while, haven't you? Yes. Yeah. So you remember we had some issues in in the system division where we were kind of structuring, and we were not really getting it off the ground. And And and there there were a couple of factors. 1 was in, a lock phone where the the business you know, we had problems in Asia. We were not growing and had a loss maker there. And we didn't feel we managed the business as well as we could then use our portfolio. So there, we did the changes. We shut down that Chinese plant. We put a bigger focus. We brought in new management, and that has made a difference. Then what has also happened, I think, is with these acquisitions, that is happening in the big acquisitions AMF now. So all these moves. I also think that, you know, we are we are ready good customer service, good product out there selling. That gives us a little bit advantage why the others worry about integration and other things. So I think that's part of the driver there. But the big aspect is that we are selling and without the working hard. And then you get to grow down where Europe is doing well in drawdown, but there we also had that step up that we saw in mostly Q1, Q2. In the retail market in North America, but we had, you know, stock rebuild, build hesitation, 2018, that has lost momentum and then it came back and stepped up and that has continued. So I think that's a driver. And then I look at, for example, rock panels. Again, a new manager in there. We have, you know, this fire, non combustible facades, after Grenfell, again, quite a push on selling, opening up some new markets. We see that on the top line. And so that's on that. And then on lapping us, there we have rock flow. It's not huge growth, but it adds a little bit to the growth. And then you also have that the friction market I suspect, and one of you maybe follow the automotive industry. I think in the automotive, We have seen a couple of quarters with fewer cars being produced every month. And now I think we have been in the 3, 4 months with a more cars being produced. And I think that probably helps them a bit. So those, we did not forget some No, those were all the businesses. And then traditionally also seating is a little bit later in internal interior seating is a little bit better later on the cycle. So you have been a market slowdown. Systemization will keep going. But I must say what I see here is, sales efforts and really hard work on the portfolio and on the ground that is paying off. So I am adding in a couple of new markets where we hired more people invested in fixed cost and it starts to pay off. Okay. So it's not just a catch up from last year. It's really higher volumes that are here to stay. That's what I hope. And, you know, we always have this view that, you know, I can't say that we keep going double digit all the time, but we always said over the long course, we should be growing faster in the derivative business system division divisions because their footprint in terms of markets are going in and much smaller. So we can always add a new country when we are getting in with a good share and want and keep working it. While in the insulation business, we sit now with penetration into more penetration into the foam, the plastic segment and the renovation at the end of those sliders per market where we are, and then we add new market but at a slower rate because you always need to build a plant. In the system division, you can start with 3 sales guys and move into market basically every 18 months or something, but you need to get success in each market you enter. And I think we are working very hard on that and I hope we will see that continue. Okay, that's very clear. And then my second question, I wanted to follow-up on Eastern Europe. Obviously, besides Russia, the performance was quite weak. So I wonder if you could give us a little bit more detail. I remember last quarter you said the slowdown was partly related to some projects related to the automotive sector that have been canceled. Is it still the key driver? And maybe also on a country basis, which was the worst, which was a bit better, and how do you see the strength going into 2020? Yeah. I mean, I I would say it's it's if you take, the country, say, and I don't give specific country figures, but you'll say, apart from Russia, you can take Romania out, Romania still doing pretty okay. But all the others is double digit down. And they also think there is a certain panic reaction panic reaction on the distributors that we're believing in, increased business all the time that we're overbuilding stocks. So I think that, but but it's pretty low everywhere, I must say. It's in the quarter. Yeah. In the quarter. Yeah. Yeah. And there's also So is it fair to say that part of the reason for the slowdown in Eastern Europe is some of your competitors have cut prices quite aggressively and you have kept prices at the higher level. And therefore, you have lost volume? We we have we have lost a little bit for big progress, but but it's not too bad, actually. But what what one effect that has happened here is that when when people, on the dispute side, really, believed in growth and they wanted to build the stock. We were the only one that could deliver. So we sat with a lot more stock on the distributors and than our competitors. And so we we have we have taken we have paid the price for that now because that was delivered before they're holding back before they start to reorder. So what I would predict, what I predict because the economic factors in Eastern Europe are not that bad. They still have lower GDPs that they want to grow. I I don't know how quickly will happen, but I I think we cannot exclude the central and Eastern European start to stabilize. And then we had a couple of quarters a few years back when it went down very much in Poland and then it came back and then it grew So I think we see a stabilization. If we see a lot of growth, I don't know yet. I will just follow it. It's very volatile, but they tend to overreact. Okay. But it's more an issue of oversupply rather than weak demand. I think it is a demand issue. I think they lost a little bit of confidence and and then they all reacted and I hope it's coming back. And the next question comes from the line of Regis Sia from HSBC. Please go ahead. Thank you. If I may just go back to the previous question about Eastern Europe at double digit decline, in like for like sales. So this is Russia is 1 third of that business and Romania. It's probably a bigger proportion. That would mean the other businesses have fallen, closer to 20 odd percent. May I ask you, what's the impact of the destocking in Eastern Europe? If you get split out between what's the demand weakness and what is due to destocking. And relates to that, we have new plants coming in Poland and impacting the pricing. If you could, split out the 9.9% fall into how much is price impact? How much is volume impact there? So that could be my first question. Yeah. So I'm I I'm I'm not, going to split it up in percent in percentages. But as a general direction, what I feel happened here over the last couple of quarters on that side is that there was a fair amount of stock. So that The double digit decline in some of this market, quite a fair portion of that is the stock reduction. And then I and I think it would stabilize a little bit more and then we see the true market. So I can't split it up like that for you. But, and then on the residential permits, if you look for something in Poland that down, of December to June by about 10% in non non residential, and that is our segment with the big projects. So I those combined, a bit of decline in the market, and then the others. And then the specifics, since we don't sit on the precise stock values. We we we don't know down to the percent. And any comment on the pricing scenario, especially in Poland? The pricing is basically that the distributed segments where you do small orders, CBI, bread and butter business, relatively stable, and then top competition on big projects. And when we put priority on taking down capacity and and keeping a certain price quality, we are not willing to take big projects at large surprises. Okay. And relates to that, in Russia, I think it's a slight better than your expectation, the performance is given that you were hoping there will be some kind of pricing pressure coming because of competition. Are you positively surprised there? And any anything, which I changed between last to this quarter? I guess, what has changed over the last couple of quarters, and this is not a forecast for year. It's the and you've seen it maybe on the stock market index that say two quarters back when we looked into next year, we sat and maybe we've worried a bit about the cliff, more of a respaction scenario. I properly now feel more when I look at all the indicators and how people talk and how the cement industry is doing and other people are doing I feel it's more of a continued volatile environment, but not that, click reduction. And and, and also in Russia, you know, Russia continued. It's growing. So so I think that maybe those horror scenarios, the risk of those feels a bit less likely as I see it. And we have a improvement also of this China Donald Trump discussion. So less of those Super Mac risks, but still a very volatile. Okay. If I can just move to my second question, which is more on which in Europe, you had, this is strong performance in France and UK. Would it be fair to say that this March are growing double digit now? Yes. I don't go into country details, but they're growing very well. And, I think for many players in the market, but the difference at France is world based. Every supply grows. I mean, the UK is is, the demand for stone wool specifically that it's growing. I think the market is not growing. But I think on the high rise is now stone what is seen as the solution you should use and therefore, we benefit from that. So the markets are different. But If it's a single digit, it's a double digit type, I don't reveal for them, but it's got very good growth in both places. Okay. And probably lastly on, on, Asia, you are talking about stabilization in China. Are you kind of looking at a possibility where Southeast Asia also, or, comes to a level of stabilizes in sometime in Q4 given that it closed on China? Yes. I'm a I'm a simple economist type you know, I I never dare to forecast, but when China really went down, and now we have a flat quarter, and it's the 2nd flat quarter we have, when China went down, it took a couple of quarters and then all the others went down. Now China has been stable. So, well, if it goes that way downwards, why not that way when it stabilizes? That's my simple logic, but you could tell me if that's the case, but I, you know, just the the same way up That's the way down. That's my logic. But if that's fair on, on an economist with the proof of that thinking, I I don't know, but that's my thinking at least. I hope we see a stabilization in Southeast Asia. Thanks. And the next question comes from the line of Baus Elma Vonabia. Please go ahead. Thank you. Yeah. Hi, Jason. Hi, Kim. Yeah. Just also a few question from my side. Coming back to the pricing environment, at Q2, you mentioned that you saw price competition mainly from stone wool producers having too much of inventory. Since then, we have seen other technologies also being slightly, you know, lowering their prices due to cost deflation How do you see that impacting Storable prices? That will be the first question. Yeah. I I I I think what's happening in I mean, the EPS is is seems to be a black box and we don't get involved in it. I think on glass, we'll probably, in several market, bit of stabilization at this U. S. And maybe also France. And then on peers that came down because of this chemical, so they have said a bit of price competition, but what we have see now lately on the project, especially in Eastern Europe, is the fact that there's available capacity. And then smallest suppliers that just want to get rid of tons and the target to projects. So that's the picture. And that's pretty much what we have predicted. And that means also that we tend to focus more on the the distribution sites, the small business, take care of that. And then when the big ones come, it's someone really, really go for loading. We have rather than reduced capacity. And we said we can win that business back when we need to, but we, of course, make sure that we are not in any way stepping out to the key strategic subsidometer. So just to be sure, you know, so you're not that concerned about pricing as an overall, you know, theme, so to speak? I'm you know, if you you know me, so you know that I work with Price all the time. And and, it will vary in the markets. We will, of course, have a much tougher pricing environment to go forward. Due to the situation, also new capacity coming online, but we don't want to let go of our pricing approach to increase the prices next year. We're going to come out of this year with a higher price than we had last year. So that's still the ambition and we work it, but yes, the environment is a bit tougher, but my ambition, we have some inflation for Nexa. My ambition is to pass it on. And the increase in prices on average in the business. But the SLS segments, competitive situations where you might have to adjust prices, but fundamentally, I will try to raise them a little bit. So you have price cost inflation going into 2020. That was what you said, right? Yeah. You shouldn't have some release due due to cooking coal coming down? There is relief. You're right. And we have seen the relief because we have like an inflation of the comparable relief, but there is an inflation of exit this year. It's lower than last year. And then next year, it's especially lower second half year compared to last year. And then next year, I think we've seen moderate inflation. But again, I don't know that, but that in the current market environment So that's a guide based on that clause when we come to February. Sure. We would know more, but but but I but the once again, if the inflation would kick off more, then, of course, it would be much more active on price. Sure. Okay. Then yeah. Okay. Coming back to to to the split between the different markets and and also systems and installation, So insulations on reported numbers or local currency numbers are down year over year. Is that purely due to Eastern Europe situation, and mainly due to price? Or how should we think about installation price versus volume? We we have, the prices up on our aggregate for for for that, duration, but then there are quite big mix changes now. So, you know, how do you calculate that when you are losing very high density tons, in the heavy segment because that is declining and you keep going the light segment. So it depends a little bit with your calculated. So you have a higher profitability on aggregate due to that mix shift. Okay. That makes sense. And then just I'm sorry, just continue. No, no, but that's, you know, that's a bit of a lie to grades. Higher margin and then less of those non residential box projects that then slides over into a richer mix. Yeah. Okay. And then just a final question regarding your new chairman. And I know this is early days, but is there anything to add, would that make any possible changes to the strategy, or how should we think about this? Sir, I I I met Thomas the first time in 2014. I worked with him for 5 years, He knows this business's company and the industry better than any other board member. And he has worked for me the last 5 years and he is great at Stonewall. He has been part of making the strategy. He loves the company and we work together. So this is a non issue. It's it's a timing and it's live. And a great opportunity for him, but we just look forward to that. And we as a management team, we keep running the business every day and and we congratulate Thomas to that role. And I also want to thank Henrik. It worked great with Henrik. This is not an issue for us. We are really well supported in our strategy, and we keep working at the macro side every day improving for us. Okay. Thanks. Thanks. And the next question comes from the line of Lauritz Kiego from ABG. Please go ahead. Thank you, Jens Kim and Thomas for taking my question. First of all, well done on the net working capital. I just have one question here in terms of the Q3. It seems transportation costs of or delivery costs of $95,000,000 is down 4% year on year. But as far as I've understood it, when you started guiding in the beginning of the year, said that you've been delivering to some of the areas where you're currently ramping up new factories. What's the reason for delivery being down year on year? It seems like first time since Q3 2016 if this has happened. Thanks, Lois. This is a good observation. It's not only on the digital costs, it's also on the warehousing costs. Obviously, last year, when we had this pressure, in the market to supply, we did have more global warehouse in Costa Versus, which we have now gone out of these many external warehousing costs. And then in general, less transportation, between the countries than we had last year. So that's the main reach So so when we, for example, have the slowdown now in Germany, we cut, and the demand is very good in Southern Germany. We cut, shift first furthest away. You know, we took Denmark in Norway at the beginning of the year, but now we took Northern Germany and especially in the Netherlands. And that means we get closer to the customer on average. So in the beginning of the year, when you were guiding this 4% to 8% sales growth, did you expect to have to sell more in the areas that you are currently ramping up new factories and this has not perhaps happened. And therefore, you obviously, you sell a little bit less in these areas, but you have better margins in these areas. It it it's not so much. So so if you look at it like this, Romania, the typical recovery from Croatia. And we are on the same level or slightly up, this year as last year. We grew it up to a level but it's a good start in level to shift it into the factory. But you need to take a market position and we need to make money on that. It's quite a substantial load and we are built up. But once we get to that level, which we've already there last year, if we then had 5% to 8% growth in Romania versus last year, that doesn't really make a difference on that type of volume we are talking about. And then in Southern Germany, if we take out 1 or 2 shifts, and then especially to not freeze capacity, a lot of the trick is to produce some products to stock. And since it's so bottomless, the decks of warehousing that Kim talked about, you know, you handed it, you need to produce need to bring it there, put it in, keep track of it. And as soon as we can see a chance to say, okay, let's just eradicate one of those flexible external warehouses, we do it. And then you step out to the contract that could be, you know, a 1,000,001,500,000. And, of course, we keep our eyes on that and do the cash and then we can take one out, we do it. So it seems that this pressure that we were perhaps fearing a little bit in the beginning of the year has not really actualized. Does that mean sort of that we are at sort of peak delivery cost now? And now, the portfolio of factories is looking stronger and therefore, we can expect delivered cost to stabilize or even go down a little bit marginally relatively to revenue Yeah. I I I think on a very high level, and then it could change depending on what market goes up and down and that. But Of course, with every dot, factory dot you get in the geography, if that is not placed entirely wrong, That means you you get you get a smaller average sweet spot. If the demand grows comparative. So that's right. But it's incredibly hard to predict it. You can almost look at population growth, look at something. But in some parts of the world, not suddenly, lots of car factories are coming up, and we need to deliver for one and a half year there. And we don't have capacity in the market, then we just need to ship in, and that might be for one another. So it's very hard to to to to nail that down to the medium with forecasting. We can't do that. Okay. Fair enough. Let let's try to return to the topic maybe on on Monday. And this question was in terms of the drum beat price that we've been discussing. Can you see that you've lost any market share when you've been increasing these price the 23% that you've been mentioning. Yeah. Yeah. I mean, it's it's very, very hard, when you have stock changes to to check market shares. But if you look at the competitors that have announced, KingSpan, recticell, armstrong. So it doesn't look like we have lost market share. Then you have single band that gives a very aggregate number for everything, and they are very heavy in France. They have the biggest and France is great. And I can just say that we grow considerably more in France than their aggregate numbers. So when I compare, it looks like our organic growth it's a percentage point above or in some places, 10% above because some people are shrinking. But with the big players, I have a feeling. We are doing pretty okay. We are not gaining very much share. We are keeping our share And then you have this odd small one. So I mean, in quarter, go in and take 2 big orders. We don't get them. So they feel they gain share, but that, this is back and forth game. Once the market starts to take off again, that would even out. So I I felt we have done really, really well. And and I think it's very important for me with my size, but I don't want to sit in the quarter and having pumped in volumes when I'm four times bigger than number 2. I want to do my job and cut and try to match it with what I see as to end demand in the market and keep track of my market share. My my strategy is not to increase my market share with 4% in, in a market, but to slowing down the decline. My view is focus on price and take capacity out and be responsible in that respect. That's a good observation. Thank you very much. Last question that we, that was discussed earlier was this with also factories where sales growth has been a little bit weak in the past couple of years, maybe because of some price pressure, but also a little bit of downturn in automotive industry with its 2, postponements, the factories, etcetera. But now we're seeing sort of a ramp up of Volkswagen and Tesla in Germany, etcetera. Is that any interesting projects that you may be considering making a bid on or is this like electric vehicle maybe We we will we will we will be asked probably for all of this. I mean, that you you all buy that card, the new electrical Porsche, the new one, what is it called? E Porsche. I don't know what it is. The electrical Porsche is a super good looking car. Anyhow, that factory is huge on the building it. We got the whole project. And and we normally get almost all projects with Volkswagen. I can't remember when we are lost Tesla new ground for me, but I hope Tesla doesn't build a factory in form, classic form. I don't think they're with, but I don't know. See about that. But most of those projects are really big factories for car industry. We are very strong. Super. Thank you very much for taking my question and I'll see you on Monday. Okay. Thank you. Thank you, Lardes. And the next question comes from the line of Michael Peterson from SEB. Please go ahead. Hi, thank you for taking my questions. I have a question regarding the guidance that was narrowed a little bit, can you talk about how much that is pricing and how much is that due to volume? We haven't, declined or reduced our pricing forecast. So the pricing forecast off between 1 to 3% is still intact. Yes. Yes. Okay. And then my second question is regarding utilization level in your factories, you mentioned cutting, shifts in Denmark, Norway, Northern Germany, and then, Netherlands, are those running out the more optimal specialization level now, or are they below what you would, call optimal for the Stall all the factories. Yeah. Yeah. You know, we, they're running on a good a good level. I mean, the issue that happens when you're running really, really hard is that if you get the equipment break, it is you you we don't have time to service, except for now, we are still on a very healthy loading. So it's a good loading and we can take away some of these warehouses. So it's good, but of course, we like to run a factory 7 by 24. But the Monday to Friday, we have almost the same VPC and we are not down to subcritical levels anywhere. So good loading and a little bit space to breathe. Okay. Thank you. And then last question, if I may. In terms of the maintenance CapEx, you flagged to the last quarter that was going to increase, and we saw a quite a high increase here in Q3. Have you already started doing like the maintenance, or is that not going to happen until 2020? Come again on that question. You mentioned that the maintenance CapEx was going to increase going forward and what we saw in Q3 was also quite the increase. Have you started the program so to say that you're going to renovate your building? Absolutely. So in the CapEx now, we need to get used to that and that has to do with putting Rockwell in the future. Sustainability caps, if we have started and you saw maybe our award in Norway for the electrical melt. It doesn't give more capacity, but it's a cleaner circular flow, and it opens up certain customers that did not put all the business with us. So we have started to do that. And that property at some future stage, we should have a top because we talk a little bit about these different things. But it's already quite a substantial park where we want to go ahead and invest an upgrade on the environmental technology, the office, energy efficiency, the melting technology, the spinning technology, combine the technology. So we have already started to ramp that up and continue, and I see that keep increasing and we're going to keep working on that. Okay. So the run rate of around 1,000,000 in the quarter, that is what we could expect for next year? I I I can't I can't judge on that, but there is definitely compared to 2 years back. Much higher portion or much. It's going to be a higher portion. But we'll come back to that maybe in the future and clarify a little bit what type of things we are doing No. Okay. Thank you very much. Oh, okay. I think we are basically running out. So I take one more question. And then after that, if if you have questions after that, is send them to Thomas. So it came and Oh, we see you on Monday. Or we see you on Monday. If we don't see you on Monday, you know, then send the question and Thomas and Keith will call you up or respond in writing or whatever. Yeah. So I'll take one more question and then and then we end this call. Any more questions? The last question comes from the line of Masala clan from Handelsbanken. Please go ahead. Thank you for taking the last question of the call. I actually would be really happy if you could maybe compare the expected startup cost for the new factories, which will be a higher cost than previously, with the savings from lower transportation costs How much bigger do you expect the startup cost be in the coming quarter or 2 or are these 2 effects approximately comparable, or is one much bigger decision? Marcella, this is a super difficult question and details that I don't even have it in front of me. I mean, we obviously have it in our budget We have it in our plans and things happen. We reprioritized, but it, you know, at the moment, it's for sure, Today, after this point, we certainly haven't had any benefits from a new factory. Because it's only domain. Yeah. I don't remember. And we are just producing now to get the certifications. Building the first stock. So up to now, it's for sure we haven't got the benefit of the factors closer to the market. And then, but that's precise mix of those 2. So we have a downsides for no upsides yet, but I don't dare to say that would work. And then also when you start a big factory, it's quite a few people you need to take in and train So it's quite substantial, but again, we come back to that when and incorporate that in our forecast when we speak back in guidance in in February. Okay. Thank you. So I wish you all a a a good weekend, and I look forward to see some of you on Monday. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.