Earnings Call: Q2 2021

Jul 28, 2021

Welcome to CarGalex Q2 2021 Conference Call. My name is Akiv Vesikalio. I'm from CarGalex Investor Relations. The results will be presented today by our CEO, Mikko Vefilainen and CFO, Mikko Pualakka. After the presentation, there will be a Q and A session. Please pay attention to the disclaimer in this presentation. And Remember that due to the securities laws, for example, in the U. S, we are not allowed to discuss the merger with Konecrest in this call. Thank you, Aki. Good afternoon from my behalf as well. Thank you for Joining the CarGadex Q2 2021 conference call. Before I start, a small personal note actually. Tina Altonen, who has been or is the assistant for the Finance Department and Investor Relationships is having her last work day today. And She's been with us for 16 years, and that's more than 60 quarters. So thank you, Tina, for great work and all the best on your Future retirement as well. And now to the actual quarter itself, so it's been a roller coaster ride for the last 12 months. Obviously, we had a probably the shortest sort of down cycle in the history. And as you know from September onwards, we have seen a strong demand returning. Really now highlighted that the record orders we have taken in both in Kalmaran and in Hayab and overall also highest order intake ever In Cargadex history. Looking at the highlights on that one, strong demand, especially in Hayab and Kalmar Mobile Equipment. We also improved order intake in our Automation Solutions as well as in MacGregor, but to a lower level as such. And the quarter did not include any major automation orders as such. Automation orders as such. Sales increased by obviously stronger demand by 13%, and it's good to see that the services business is returning back to growth. The COVID restrictions are still impacting the services growth, but it's good to see that despite the somewhat difficult environment, we are able to return on that. But obviously, one driver The increasing usage of the equipment and required services there as well. Also operating profit increased together with the revenue, Very happy with the MacGregor. Despite the fact that they had lower revenues than a year ago, we were able to improve the operating profit. And obviously, this is driven by the efficiency Efforts we are taking in MacGregor. And I have to say that looking at the market outlook now for MacGregor, we are in a good place to take benefit of Turned good demand into positive operating profit development. Less so in Kalmar where we had a number of issues related The supply chain as well and Mikko will go through some of the details more in his part of the presentation as well. Equipment running hours, this is again comparing the Q1 now to Q2. As you see that there is still some modest growth, but when we actually now looked into the details of this 1, we start to see that very large part of the equipment is now operating at the capacity. So we are not expecting to see major running our Numbers moving forward here and where this actually is ending up as visible in our orders, of course, is that more capacity is required in market In terms of the new equipment, as a lot of the equipment is now operating at the maximum capacities in its respective operations. Market environment actually was strong pretty much throughout all of our segments. Content traffic grew by 13%. We expect the whole year To show strong growth and also we expect that growth to continue into the 2022. Also construction output both in Europe as well as in North America has been at a strong level. We expect that growth to somewhat sort of slow down towards 2nd half as the labor shortage is a material shortage is slowing down the excellent growth rates we have seen. And this is obviously having a clear positive impact for Hayab As are the other economic activities such as the distribution, etcetera, as well. In MacGregor, the market has Clearly shown a turnaround in there. So far this year, we have seen 7.35 merchant ships ordered. That's actually more than the whole last year together. And I think it's quite clear that looking at the current Clarkson estimate of 1065 ships, that's probably going to be Higher number and Clarkson, obviously, we'll update their estimates in September. The offshore oil and gas market is Still actually relatively low, but we see very strong activity increases in offshore wind. And it's quite interesting to see actually that about half of the ships Ordered in offshore segment are now actually into the offshore wind applications as such. So a good growth there, and we are in a very strong position to take advantage of that growth in MacGregor as well. As said, record breaking orders, both in Kaummers and Hayab. We broke the new old record in actually Q4 in Hayab. We broke Record again in Q1 and we got to the new sort of 100 level with more than 500,000,000 of orders in high up, really driven by the very strong Underlying market activity and then the price increases, both in Kalmar Mobile Equipment and Hayap, we have Driven number of price increases, in most cases, 2, in some cases, even 3rd price increase already within this year. Overall, the price levels have increased about 10% from the beginning of the year. Obviously, not all of this will be visible in this year as the delivery times are Extending into the next year, however, we believe that the current price increases will actually Be adequate to cover any increased cost in components and other material cost visible for us at the moment as well. And obviously, we will see a big part of the benefit Coming through then on 2022 where the price level increases are in full effect. MacGregor And has also seen increase in orders. This is not yet materially impacted by the good order volume intake in merchant ships. That will be most likely visible earliest at the end of this year, most likely during 2022. But the offshore wind is showing good Positive development as well as the MacGregor services there as well. This obviously has resulted into an Extremely good order book of more than SEK 2,000,000,000 and it's good to note that this order book is of exceptionally good sort of Miksi in the terms of the higher band Kalmar mobile equipment having a lion's share of the order book now moving forward. Sales and comparable profit improved. When I look at our supply We estimate that we missed about €20,000,000 in top line due to the supply chain situation. Overall, our own processes and factories and systems are actually working without any major limitations at this stage. There are some COVID related restrictions Certain factories, but that has not been a case for us. In the supply chain side, on component availability, we do not see Any major single issues there as such, but there is a wide range of smaller problems and they tend to sort of vary from one to another From week to week as well, and that's slowing us down somewhat. Some of the engine availabilities and a very wide range of materials impacting That somewhat. But overall, a relatively sort of good performance considering the circumstances and no major Sure. Particular concerns at this stage. Good to see the services returning despite the COVID restrictions. And service orders actually increased by 27%, an excellent number as such. And when you look at the business area, Specific, of course, the high up numbers stands out. The year on year comparison, of course, is partly driven by the fact that in Q2 'twenty, The COVID impact had a major impact on the higher installation volumes and accessories. And obviously, that market has now returned and is partly helping. But also we see, obviously, with the high equipment activities and demand for services growing and the demand for spare parts also moving to the good direction. We continue to execute our strategy. It's very clear that the sustainability is becoming And today, especially after the exit of the Navis, enables us to continue our strong investments into the right technologies to serve our markets in robotization, Automation and Electrification. And overall, we see the market demand for that kind of solution developing very Favorably for us. A good example of that one is Dalmar. Today, for example, in electric heavy forklift, Already more than 30% of the demand is now electric, and we see the same development happening in there. In some of the products, we are already in 2nd generation of electric Vehicles and all of our equipment will be fully electrified by the end of this year. Also, we announced a Cooperation to sort of lead the market and technology research together with SSAB in terms of the carbon free steel development and very happy to sort of Looking to opportunities in that market as well. With that one, I'd like to hand over to our CFO, Mikko Polakka, who will cover the business areas. Thank you, Mika, and good afternoon also from my side. Let's start with Kalmar, where we had really a very extremely strong quarter, like Mika said, record quarter for quarter 2. The demand was strong, very much driven by the macro outlook, Also the announced price increases, we have done several price increases this year as well as customers' anticipation for the longer lead times. Growth came to a great extent from mobile equipment and more specifically, especially from terminal tractors, But also other container handling equipment and also forklift trucks and services were performing very well. We did not book any major or basically any automation orders in quarter 2. But in the Automation and Project division, we got certain replacement type of investments, For example, straddle carriers to manage the existing capacity in the larger cranes. Looking at sales development, the supply chain and logistics bottlenecks We're impacting to a certain extent the Kalmar quarter 2 sales. Mika mentioned earlier, on Carcotext level, approximately €20,000,000 Roughly half of this is related to Kalmar. So missing components, certain logistics bottlenecks prevented us to deliver all the planned deliveries in quarter 2. Those will be made in quarter 3 and quarter 4 this year. The sales growth was very much driven by the mobile equipment orders, which we received in the second half of last year. The Automation and Project division sales declined due to the low order intake during the last 12 months. Services Sales development was very good. Looking at Kalmar profitability, it was flat year on year. And here, the main drivers were the extra costs related to handling the missing components, Product lower productivity due to missing components as we have to move products from place A to B, Kind of interim warehouses and then back to the production when the missing components have been received. Also the transportation is more expensive nowadays compared to 6 months ago. Also the lower Navis sales impacted our Kalmar profitability to certain extent as less licensed deals were booked And recognized as revenue in quarter 2. We have also accelerated investments in our R and D activities, And this is related to robotization and electrification, like also Mikka described in the previous slides. We completed Navis divestment on 1st July. So Navis numbers will not anymore We'll be consolidated into Carcotext and Kalmar results as of 1st July. The enterprise value was €380,000,000 And we will book in quarter 3 a €240,000,000 operating profit impact A positive operating profit impact from this transaction. This will also have a positive impact on our gearing in quarter 3. Then looking high up where we have had basically a very excellent quarter in all metrics. Orders developed very nicely. This was an all time high in Hyab's history. Strong demand in all product categories as well as in services driven also services driven Also by the high utilization rates. In if we are looking at the geographical development, The strongest demand was in U. S. A. And Europe coming in the 2nd place. Looking high up Sorebok, also I would say extraordinarily high. This represents more than 2.5 quarters of sales, Also very much reflecting the supply chain situation where we have had longer lead times due to the Suppliers' ability to cope with rapidly increasing volumes. High up sales increased by 30% year on year. And also there, we have had some delays, Approximately also €10,000,000 in Haiyaape due to the missing components and also transportation Delays. We expect to catch up this also in the coming quarters. And then looking at Hayab's profitability, very good development, operating profit up by 82% And strong development also in the relative profitability, driven by the volume increase as well as the productivity improvements, which we have done in 2020. And then moving to Magrekar, where we have seen now recently positive development arising from the market activity improvements. MacGregor has had now 2 consecutive quarters where the book to bill has been above 1, also illustrating the Market Development. Strong development in all divisions, in merchant, in offshore as well as in our services. Looking at the sales. Sales declined, and this is coming from the fairly modest 2020 orders as the markets were quite low that time. Service sales Increased now 10%. If you remember, our quarter 1 service sales were down by 18%, and now the improvement is very much coming from the High utilization activity at Tahoe Rates at Tahoe customers. So the shipping lines are running very At a very high capacity utilization and the services are needed for that. Good development in operating profit, Positive 4th positive quarter now in a row, and the improvement here is coming very much from the Good service performance as well as the cost reduction activities, which we have done basically during the last couple of years. We still continue with the cost reductions, and our objective is to reduce fixed costs by €13,000,000 this year compared to last year, and we are progressing well with this plan. A few highlights about our key figures. If we look the 1st 6 months, our orders are now almost €1,000,000,000 higher Than last year. Despite our sales being 2% below last year's level, We have been able to improve the operating profit, including all items affecting comparability significantly. And the items affecting comparability amounted €52,000,000 significantly lower than last year. The The biggest items in this line were the merger related costs, approximately €17,000,000 The purchase price amortization, €8,000,000 and Navios divestment related transaction costs, euros 5,000,000,000 Our net income was €60,000,000 better than during the 1st 6 months of 2020, which is, of course, very visible also in the earnings per share. And now even though our ROCE is still fairly low, we are in an upward trend there as the operational performance has been improving. Looking our cash flow, €13,000,000 for quarter 2, improvement from last year's quarter 2. We had a strong contribution to cash flow from the profitability from EBITDA, approximately €73,000,000 But then our net working capital increased by €60,000,000 And here, the biggest Component has been the inventory development, especially work in progress where we have had some semi finished products because of the missing components. These will be delivered in the latter part of the year. Balance sheet has remained strong. Our gearing In quarter 2, more or less on the quarter 2 level quarter 1 level. And also the liquidity has remained On the same level as in quarter 1. As I mentioned earlier, the Navis divestment will have a positive impact on our gearing. Should if the Navios divestment would have taken place at the end of June, our gearing would have been approximately 30% instead of 60%. So significant impact from this transaction. We have also refinanced the Majority of our 2022 maturing debt, and we have only one bond amounting to €150,000,000 maturing Next year, so from that point of view also nice debt maturity profile. And for the outlook for this year, we estimate that this year's comparable operating profit will improve from Last year's level when it was €227,000,000 And then with those words, I would hand over back to Aki. Thank you, Mika. Thank you, Mika. Now operator, we are ready for questions. Thank you to our speakers. We'll now move to our first question over the phone. Please go ahead, Karl. Your line is now open. Good afternoon. That's Artyom from Credit Suisse. Thank you very much for taking my questions. My first question is about the strong level of order intake in Keyap and Kalmar, I think last quarter, you have been very vocal about the fact that you've seen a lot of pre buying from your customers ahead of some Shortages, and I think this message is now a bit more moderate now. So I guess my question is, do you think a lot of this demand Due to pre buying and how should we think, I guess, how Q3 has started sequentially compared to Q2 in India? Question, I do think there is an element of pre buy still there. We've been quite assertive with our pricing in the first half of this year. As I said, altogether, We have increased prices number of times and in, I would say, average probably about 10% price increase from the beginning of the year. And that certainly is probably driving Some of the buying behavior, but it's good to remember that the underlying market is also very strong, whether you talk about the container output, Port activity, logistics activity, construction, and that really drives the customer demand as well. And we can also see that in our Equivalent running hours and the fact that most of the equipment is running at the full capacity at this stage as well. Back to the question related then to Q3, what we have seen so far in July is actually pretty much the same pace continuing as We saw into Q1 and Q2, and this is after all the price increases now effectively have come in force already. So it seems to be that the underlying market Shows a strong demand, but I do believe that there is an element of pre buy in the numbers we have seen during the first half. Thank you very much. And my second question is around margins. I think Konik Rains Today, I commented that they see intensifying cost inflation into H2. So Maybe could you run us through major bridge components, which we need to be aware of for H2 like mix, Cost savings, cost inflation, etcetera. Thank you. If I look at the different components on the cost inflation, certainly, we have seen price increase Pressures in many of the components as well as on steel, it's good to remember that we have existing supply contracts in place. So These cost increases, price increases come through delayed. Looking at from analyzing from our So we see that price increases that we have put in force are roughly at the level that we see also In terms of the cost inflation coming through, so we expect the overall impact to be pretty neutral for us for this year. In terms of the mix, as we have seen, the mix has turned now in the last quarters quite clearly more favorable for us with the higher and higher proportion Hi, Ben. And Carl Mag Mobile Equipment from our backlog. Okay. Thank you very much. And my last question is about larger automation orders in Karma. I think earlier this year, you mentioned that There is a very strong pipeline of bigger orders, but time wise, they might be closer to the year end. So I guess, how do those look like? So it's very much the same. I think as I have said previously, what we when we look at the previous cycles, usually the large Port CapEx indexes or the investments happen about 12 to 18 months after we see the traffic Popping up. So we as we have seen the traffic starting to accelerate really from the Q3, Q especially Q4 onwards last year, I think we are looking at The earliest that towards the end of this year, many of them potentially only realize in 2022. But the pipeline is there and it's healthy. Thank you very much for taking my questions. Thank you. We'll now move on to our next question over the phone. Please go ahead, caller. Your line is now open. Hi, Mikael Mico. Akki Magnus here from UBS. A couple of questions. I think could you comment on the supply chain costs you incurred in Kalmar in the Q2 specifically? Yes. I mean, there are 2 types, of course. The one we just discussed was related to the cost of components and raw materials. And as I said, that impact is pretty neutral. In addition to that one, obviously, the kind of the logistics uncertainty in terms of the material availability as well as the shipments is Causing some of the reshuffling of the production as well as the certain sort of tactical shortage of the components that seem to be Shifting from 1 week to another are causing some extra work in there. So where we see sort of cost So clearly on some of the indirect costs related to the shuffling on the production line as well as then the obviously freight rates have also been on the rise as well. We expect those to have some marginal effect in this year. Okay. So in quarter maybe low single digit millions in the quarter? If I remember right, if you look at the freight rates, that impact was 0.1% or? Yes. Okay. And the reshuffling, it's like same magnitude, relatively limited then? Well, it probably was visible in Kalmar if you look at those numbers. And I think Kalmar equipment, I think that because of the nature of the equipment It has type of trucks. So the component shortages are probably more acute there and that has caused a bit more reshuffle in there that in high up there is a less sort of Microchips and Electronics involved with the products. So there was some impact on the cost that was visible in the Kalmana operating profit number. Okay, got it. Thank you. When you continue on the same topic, you also You also believe that you will kind of continue to see some of this into Q3, but it will ease towards year end. Could you sort of give us Some more color on the nature of the shortages and component issues you have, so we can sort of try to quantify the probability of this easing? First, the good news is that our own processes and factories are actually operating smoothly. So we This is really down to the sort of ensuring the availability and timing of the services. I think the Q3 is going to be difficult in many of the areas still, And this is really coming directly from our suppliers and many of them indicate a better availability when we move towards the Q4 then. So I think we will see the sort of the peak of these shortages probably during the Q3 and then coming from our again from our suppliers Easing off the situation towards the Q4. Got it, got it. That's clear. And also just finally, obviously, you had very solid momentum in Kalmar Mobile Equipment. Any chance you could give us some color on the on how the Margin mix looks in the backlog compared to what you are delivering in the quarter and also if there is any risk to those margins on the back of the Supply chain issues? Not as such, as I said, there has been a number of price increases there as well that should compensate for the Supply Chain or the Supply and Component raw material cost increase is there as well. The U. S. Market and some of the logistics products Having a particularly high demand, they tend to have somewhat lower margin than the sort of heavier container moving equipment as So that will have some impact on there. But we do see overall, obviously, the margin developing favorable when we are able to ramp up the volume and deliver against that backlog. Got it. Thank you so much. We'll now move on to our next question over the phone. Please go ahead, caller. Your line is now open. Yes. Hi, it's Antti from SEB. Thanks for taking my questions. And firstly, on the backlog and obviously on the Hi, I'm Carl Mar Mobile Equipment side. Could you talk a little bit about how much do you expect to convert to sales this year of your backlog and how much Stretching into next year and kind of talk a little bit about delivery times in higher bank Kalmar Mobile on the new orders that you are working today. Yes. I think if you would receive an order for Hayab today, you would most likely, depending a little bit on product areas, look at Q4, But in many instances also Q1 or Q2 deliveries already today. The situation in Hayab is not necessarily that Critical, however, because as you know, the truck delivery times have extended as well. And obviously, you don't need them both to be able to sort of Start the operations as well. So, so far what we are looking is to try to match the truck delivery delays on there. Same is true again bearing from 1 component To answer some of the, as I said, the U. S. Logistics equipment, certainly, if you place an order today, you would be looking at the first half 2022 deliveries in certain other equipment, you could still get into the Q4 production slot. But overall, we would be looking Sort of 4 to 6 months delivery times at this stage. Okay. So I'm just looking at the backlog on Haiya, and it hasn't really been ever on this kind of Levels that it is today. So is it kind of the truck delivery times? Is it suppliers? What is kind of the biggest constraint on your, Let's say sales and delivery bookings for the second half? Almost entirely on Supply of the components, again, and obviously, we are asking a lot from our suppliers if you think about how fast the market moved from sort of Really from in last 12 months, the factory capacities and the processes as such are not an issue. It may be In some limited number of factories, some of the COVID restrictions still in force limit how much you can ramp up the capacity. But I would say that almost entirely depending on just Our supply chain able to cope with the higher than expected demand. Okay, okay. And then maybe lastly on the demand in Haierband, this was already asked. But if you look at the order levels, they are 30%, 40% above kind of pre COVID H1 'nineteen levels, and surely there's some pre buying in there. But in which areas do you see that the market demand is actually Substantially higher than it has ever been before, if you look at your client industry segments and product segments as such. It's a great question. When I look if you one way to maybe look at that, if you look at the higher business overall from really 2012, 2013 onwards, It's been growing about 6% to 8% CAGR. So if you would look at the 2019 number and then would assume that 2020 would Been a normal year and then you add on 2022 on there. Actually, after the Q1, we were Pretty much within that trajectory. So you could say that we were compensating for the 20 bp, but overall, The growth numbers were in line what we have seen now for a number of years over there. Now when you look at the Q2, you could say that we are sort of going over that Trajecture is somewhat maybe SEK 100,000,000 SEK 200,000,000 on that one as well. And there is probably, as I said, an element of pre buy. But it's good to remember that there's a very solid growing market underneath that demand as well. Okay. And then lastly, just on the one off costs, and I guess that was Mainly related on the merger side. So could you remind us on also other restructuring expenses that you expect for full year and what the number Should roughly be on the second half? Yes. We have incurred now in the first half of this year EUR 16,000,000 costs Related to restructuring, mainly in macro and some smaller items in high up. For the full year, we expect €40,000,000 Roughly similar number for the second half. Okay. Thanks so much. That's all from We'll now move to our next question over the phone. Please go ahead, caller. Your line is now open. Hi, Mikael. Thanks very much for taking my questions. It's already on Morgan Stanley. Couple of questions from my side, if I may. The first one is mainly on kind of the underlying demand drivers And Mark Brekker. We've obviously seen the first half very strong in terms of contracting in the market. And If I look at kind of your vessel exposure, things like containerships are up significantly. But I know there's A significant lag between an order has been placed for a vessel and you get the order. So if you could remind us how big that lag is. And also On top of that question, I guess some of the players out there, I think Hapag Lloyd last month announced a An order for 6 ultra large containerships. And they said that they think that all the orders have in place now in the Do you see these trends outside of containerships? Or do you think the trend is stronger for longer? First of all, it's very clear that containerships I've been leading the pack now in terms of the orders, and we will take our fair share of that growth in that one. Again, as I said, I would expect Earliest those orders to be visible in towards the end of this year, most likely next year. And it is typically 6 to 12 month cycle for us For the orders, although, of course, shipyard capacity as such is lower than it has been typically. So shipyards should be able Sort of process the ship orders faster than they usually do on that one. When I look at the bulk ship market, we know that traffic actually and the capacity is on the rise at The moment China, for example, is consuming huge amounts of coal at the moment. And there's quite a lot of traffic happening there at the moment. We see the activity level increasing In the bulk ship market as well, it's not yet fully visible in the or not that much visible in the order intake. We do expect that you will see an increase in number of bulk ship orders Moving into the second half of this year as well. And the 3rd element I already highlighted is the offshore wind market there. We clearly see a very high level of activity at the moment. And then also the RORAL activity has been improving this year compared to last year. Okay. That's very helpful. And maybe one question related to high up. And obviously, if I look at your margins, you're Back to 2017 levels, and I understand that a lot of that has been driven by volumes. But in terms of what you're doing in that business at the underlying level, I know that you had in your kind of to the list to optimize your footprint. Is that something you're considering given the Level of activity that you're seeing at the moment? And did you have any impact this quarter from U. S. Dollar movements? The footprint optimization is going on as we speak. Overall, we have taken took a study to take actually a number of Productivity measures in Hayab in the second half last year, they start to be now visible partly in numbers. So obviously, The revenue and the margin improvement is there, but also the cost level is has been under control despite the higher volume intake. The services business is And in very well, we are doing an excellent job there as well. And then our pricing function and I think we really have sort of put quite a lot of effort in improving our pricing processes As well in the last 12 months. And all of those will are visible and will be visible also going into second half. That's great. Thank you. We'll now move to our next question over the phone. Please go ahead. Your line is now open. Yes. Hi, it's Antti from SEB. Thanks for the follow-up. This is kind of regarding capital allocation and your balance sheet is getting much stronger obviously after the Navis, divestments. So and underlying markets seem very strong notably in higher than Karl Marx. So is it time to Maybe accelerate growth investments, whether that would be MSA or investing in the sustainability portfolio? What are you planning to do in that front next 12 months? Absolutely. I mean, the financial position we are in and together with the strategy and if you look at the drivers and the market Sustainability put us in a fantastic position to really start to accelerate further. So you will see us investing more into technology to enable more sustainable material flows. And most likely, we are quite active in the M and A market there looking at the potential targets there as well. Any plans to kind of increase the capacity, whether it's Hyab or Kalmar Mobile as The market seems to be peaking or peaking, but growing on a level that it hasn't been before. Any ideas on that front? Not really necessary. I mean, as you know, we are in this asset light operating model. So we are assembly operations. And the way we can increase capacity is moving into the second, even in some cases, Potentially to a 3rd shift as well. And our view at the moment is that even with the higher demand at the moment, we do not need actually CapEx to answer that. The only potential concern would be somewhat adding capacity is, of course, the labor availability in some especially in some locations, like in U. S. At the moment. So That's probably more an issue for us than any CapEx requirement. Okay. Thanks. Just to confirm to our speakers, we have no further questions queued over the phone. I do apologize. One is just queued. Please go ahead caller, your line is now open. Just to confirm, Francisco, we're not receiving any audio across your line. You may be on mute. Yes. Hi, this is Tom Skogmer from Carnegie. Can you hear me now? Yes, we can. All right. Good. So I can see that other items affecting comparability were almost €5,000,000 in Kalmar, while there is almost no So this is in the other division. So I assume this relates to the merger cost that you have there. And I've seen also that you have increased It's restructuring, what is in the merger related costs. So can you explain what has kind of triggered this big increase In merger related costs and what type of kind of integration planning are you allowed to do and how do you do that at this moment? Yes, I can take that. So in Kalmar, the other items affecting comparability numbers in quarter 2 are mainly related to the Navis divestment. And then what comes to the Cargoek level merger related costs, Those are at the moment, majority of those are related to the merger control related Process. So the integration we do to a great extent with our own resources with some external support, But the majority of those costs are related to the merger control. And we have increased Transaction related costs from kind of jointly cost joint costs which are coming from Cargotek and Konec range from €50,000,000 what was in the prospectus to €70,000,000 And this increase is coming from the Extra work or additional work what we are now taking in the merger control process and what we have announced just Before the end of June. Maybe if I can use this opportunity on the merger. Okay. Thanks. Yes. Sorry, Tommy. I was just going to say this is not related to your question, but there seems to be, especially in the media, some sort of misconception related to this Last phases of the merger control on Phase 2. And we agreed together with the competitive authorities to so called stop the clock process, which effectively Freeze is the process for a very short period, if I remember right, 20 days. And that's really to enable our team to gather the necessary documents and also for both parties to Take some of the summer breaks and this was done in good cooperation with the competitive authorities and it was just a short technical delay that both parties Agreed. And there has been, I think, some misconception around that one. All right. Thanks. And then I realize it's very hard to estimate what will happen to the Supply Chain in the Q3, but is the best kind of understanding you have at the moment that you are capable of increasing Sales in Kalmarin are higher by more than 10% in Q3 compared to the Q2 level despite The holiday season and despite the supply chain uncertainty. So or is this a kind of too aggressive? It's a great question. And I think you pointed quite correctly, it's good to remember that seasonally always Q3 tends to be weak because of the holiday season. That, of course, Great. It's partly to our activities. It relates to the supplier activities and it relates to customer activities as well. So generally, Q3 tends Not to be stronger than Q2, and we still see some of these restrictions. So at this stage, I would not try to estimate there. As I said, it's very tactical situation at the moment, and it keeps on shifting from day to day and week to week as well at the moment. What we do hear from most of our critical suppliers at the moment is that we do see better availability towards the Q4 then. Okay. And then I wonder about this increased steel price. You supply Equipment to vessels where you have a huge steel content to supply large automated The project involving large cranes like automatic stacking yards with a great steel component. So I would just like to understand a bit about How much has, for instance, the price of an RTG crane used in For RNG used in a project, how much has that increased because of the steel price increase here? And then I just also as part of this wondering At the shipyard level, do they have like good feel agreement somehow that they That's kind of explaining partly why the orders are skyrocketing now that they have had options to use low cost Please feel for orders for a certain period of time and after that orders could start to fall back again or so? Yes. If I look at the areas, it's Primarily around Kalmar and Heavy Cranes Automation Systems and MacGregor where the steel content is the highest, we do not really have an exposure for Steel prices because effectively what happens is that we kind of contract the steel price at the same time maybe contract for the customer As well, so it's back to back arrangement. And as such, we know from the moment we close the contract what the price is for the steel components on that one. Same is true for MacGregor, but even more so in MacGregor. Quite often, we actually do not necessarily participate directly Into the steel sourcing, but the shipyards does it on our behalf. And again, they do generally back to back With their customers as well. So for the business areas that have the largest steel components, we don't really have exposure. Obviously, it will impact our mobile Hi, Jab, Pat. Yes, Dave, we really are, as I said, being quite aggressive in sort of pushing our price increases. Again, the steel components Proportion of the overall cost is considerably lower in those product areas. Yes. I'm just wondering about this dynamic kind of effects and order behaviors, etcetera, whether Shipyards have had kind of options for kind of attractive steel prices, boosting orders now and whether the rate So increased steel price could postpone automation orders for you even more because the price of the cranes have gone up by 30% or so by Because of the steel price increases. Yes. I don't think the actual steel prices are up quite that much. Obviously, when you look at the steel prices, we tend to look at Spot prices, and we have seen some amazing increases in there. Generally speaking, people do buy within the certain frame agreements that where the Price movements, of course, a little bit more modest. And I would say also that one of the reasons why Kind of large automation deals have not materialized yet is that customers are having hands full in their existing terminals. So it's Quite difficult to carve out, say, 1 third of the terminal just to kind of reserve it for the automation purposes. So Like Mika said, these are coming to certain extent with the delay when volumes are increasing. Yes. And then perhaps finally, I saw that Marck Terminal stated that their focus is now really moving to automation of brownfield terminals from extending ship to shore Great. So do you expect this could lead to kind of significant orders for you as a company next year already? I mean, obviously, I do ultimately all of the current larger container terminals will be automated. The business benefits are there. The question really is about the pace and especially when we talk about the brownfield, as you know, it's not going to happen overnight. So effectively, what you see happening with Maersk Another company sees that generally you move the one port piece by piece into automation. So you will see Good business coming through, but on smaller sort of portions and over a number of years there as well. All right. Thank you. Thank you. We'll now move on to our next question over the phone. Please go ahead, caller. Your line is now open. Magnus from UBS again with some follow ups. And first there, Just to follow-up on Tom's question there when it comes to the back to back agreements. On the large cranes in particular, obviously, The raw material cost component is obviously quite sizable for those products. So when you say that you have back to back agreements, do you typically offset the, shall we say, the nominal Cost inflation you're facing on those products, meaning that even if you do that, do you still face a margin headwind on those products if Cost inflation, say, 30% or so. Well, yes. And some kind of mix about how the margins moves. Yes. Every deal, of course, is a negotiation in these particular sites. But we do know, first of all, we do not Have surprises in terms of the underlying cost because at the moment we strike the deal, we do know what the steel cost for that will be. Obviously, then pushing that Increased cost that we are having a full visibility on into the customer is always sort of negotiation issue. And in this business, generally, the margins are continuously under pressure, but I don't really see a fundamental changes. I think everybody understands the kind of And situation we are in, the cost pressures related to that one. And it's same for the old suppliers. Yes. And in addition to sourcing activities, we have, of course, also designed to cost activities, which are aiming at improving the Product margins and sometimes some of these activities will be used to compensate cost increases or price pressure. Sometimes We can enjoy more about the design to cost activities. Okay. But it's more as a sort of a pass through in a way, those It is a pass through. And as Mikko was saying, for example, we just announced an introduction of new RTG, which is one of the heavier crane products and one of the improvement there is it's a lighter structure, which also means that there is less steel involved in that product. So That's part of the work you do always. Yes. That's very good, obviously. That's great. And then To comment on the lack of labor in the U. S, I think in particular, I just wanted to check if you had started to see any labor cost inflation moving up in any of the markets? I think it's a it will be an issue. It's already visible in the production in U. S. In terms of just People not showing up and they are supposed to show up even if you have sort of done an agreement with them. So it's been a Certain sort of struggling there, less so maybe on the European and Asian manufacturing facilities. Services technicians is another one. There is a Shortage of those ones and difficult to find new ones. So I would expect that you will see actually labor cost inflation happening in the second half of this year. Got it. Thank you. And just finally, I'm not sure to extent you can comment on this, but I think The time it took before you filed in Europe with the antitrust authorities was a bit longer than you originally anticipated. Is there any sort of Particular reason for that that you could sort of help us with? I don't think so. I mean one thing we've done of course is that we benchmarked Our filing process 2 other filing process has been going on, and we are pretty much in average in terms of the schedules involved. There is always quite a lot of Pre work involved on that one, of course, these are complex products and there is quite a lot of data that authorities are requiring and Just pulling together the required data and submitting that to authorities is no small feat. And we talk about millions of documents in many of these cases. So That requires its own time to then put it together as well. Got it. Makes sense. Thank you so much. Thank you. Just to confirm, there are no further questions queued over the phone at this time. Okay. Thank you for great questions and great answers. Our Q3 results will be published on 20 8th October. Stay safe and healthy. Thank you. Thank you.