Earnings Call: Q2 2021

Jul 16, 2021

Quarterly report

Welcome to Grainger's conference call for the Q2 of 2021. Here in Stockholm, it's me, Johan Mencken, CEO. And beside me, I have our CFO, Oscar Hellstrom. We will start this presentation with an update of Grainger's performance during the last quarter and highlight some important events. After that, Oskar will take you through the financial results, and then we will conclude the presentation with an outlook and a Q and A Sesen. When summarizing the Q2 of 2021, we can look back on another very good quarter for Graingers. We continue to experience strong market across all regions and end customer markets during the quarter. This contributed to an all time high sales volume of 131,000 tonnes, which represent an 86% growth over quarter to last year. Excluding the acquired sales volume from Graengeskornin, the 2nd quarter sales volume was up 51% compared with last year. Here, we do need to keep in mind that quarter 2 in 2020 was heavily impacted by COVID-nineteen and that comparable therefore are very weak. The adjusted operating profit increased to SEK309 1,000,000, largely driven by higher sales volume supported by continued good cost performance. Cash generation was very strong in the second quarter, and we delivered a cash flow before financing, excluding expansion investment of SEK 334 1,000,000. This contributed so that our net debt is now back in the target range at 2x EBITDA. During the quarter, we have also continued to execute on our growth strategy. We reached an important milestone in our Finspong expansion project when the first coil was rolled in the new cold rolling mill in the beginning of June. We have also increased our focus on new materials for battery applications and have decided to increase our capabilities in 2 of our production facilities to meet increasing customer demand. I will come back and talk more about this shortly. Following the efforts we have made to grow and diversify Grainger's product portfolio, We today have leading positions in 4 key end customer markets: automotive, representing 42% our sales volume in 2021. HVAC with 22%, Specialty Packaging with 16% and other niches with 20% of our sales volume. Short term sales to the automotive industry is primarily driven by the number of vehicle produced. Longer term, the increasing share of hybrid and electrical vehicle as well as a general lightweighting trends will have further positive impact on demand for Grainger's products. Sales to the HVAC industry in short term driven by consumer confidence and the general activity within the building and construction. The increased requirements on energy efficiency of HVAC unit is expected to have a further positive impact on demand for Grainger's products in the longer term. The demand for materials for Specialty Packaging is relatively stable in its nature and reduces some of the cyclicality and seasonality in the product portfolio. Sales to other niche applications are largely driven by the general economic activity. That said, in this product category, there are also several very interesting applications with very high growth potential that may be new core markets for Graingers in the future. Good example of this are for instance our products for renewable energy, green transformers and electrical vehicles batteries, which we'll talk more about later today. As I mentioned earlier, all our key markets developed very positively in the Q2. If we start by looking at the geographical dimension, we can see that the demand for grening's product increased the most in Europe. This is driven by that Europe was part of our business where we saw the largest negative impact of COVID-nineteen in Q2 last year, partly due to the comparatively large automotive business. In total year over year, demand for our products increased 78% in the European market. Also, the North and South American and Asian market continues to recover, growing by 50% and 41% respectively in the quarter. Demand for our automotive products increased by 75% globally compared with last year. Here, we experienced a very strong development of sales in the beginning of the second quarter, but a slowdown in the second half of the quarter. The slowdown is a result of customers canceling orders or ordering lower quantities as the semiconductor shortage has led to line stops and lower production rates in the automotive industry. We currently expect the semiconductor shortage to have an impact on our automotive sales in the Q3 as well. Demand for HVAC products increased by 51% in the Q2, driven by continued increase in HVAC unit production, low comparables and an increase in market share for Graingers. Demand for Specialty Packaging Material increased by 29% in the Q2, Although the year over year increase is lower than for automotive in HVAC, this is actually a better performance since packaging demand did not drop much in quarter 2 last year. Demand for materials to other initiatives increased by 29% in the second quarter. As you probably know, we are currently running an expansion and logistic improvement project in our Finnsbank facility in Sweden. This product has a dual purpose. 1st, to improve the efficiency, which will reduce both the production cost and the environmental footprint, which would be very important in order to sustain competitiveness going forward. Finnsbank is an old facility and it was not originally built for the type of production that we're running there today. It is a well managed site, but the production flow is not as efficient as in other Grainger's locations. The product we are running will improve the Flow and reduced internal transportation by 80%. We will also replace all diesel trucks used to move products in the plant to modern electrical trucks and automotive vehicles. Finally, we will install a new fully automated and energy efficient annealing furnaces. Once completed, this will be a game changer for the Finnsbank plant. The second purpose of this project is to expand the current production capacity by 20% or 20,000 tonnes. This new capacity will target growth in materials for heat exchanger as well as for other products like for instance battery applications. Unfortunately, we had to put this project on hold in 2020 due to the COVID-nineteen, but we are now back at full speed. And we have reached a very important milestone in this project in early June when the first coil was successfully rolled on the new cold rolling mill. This is actually the first new cold rolling mill to be installed in Finnsbank since the 1960s. And the design and installation is a collaboration between our Chinese and Swedish engineering teams. The investment project is expected to be completed in the second half of twenty twenty two with benefits materializing in 2023. As we have talked about before, Graingers works actively to support the green transition and the electrification of the transportation industry. So far, We have worked primarily in the field of efficient cooling for battery using our leading expertise in heat exchanger material and design. The electrification also creates additional opportunities for Ringers outside of the current product portfolio. For instance, rolled aluminum is used to produce both the cathode and the cell casing for lithium ion batteries. And the demand for this material is expected to increase significantly over the coming years. With its global footprint of aluminum rolling mills, Graingers has the unique capabilities to serve emerging battery value chains in all geographical regions with high quality aluminum materials. In terms of market potential, recent estimates suggest that the increased EV penetration will drive the demand for our current core products in the automotive Hex from current about 800,000 tonnes per year to more than 900,000 tonnes in 2025. The demand for rolled aluminum products for battery fall and casing is estimated to be at a similar level in 2025, indicating the size of this opportunity for Graingers. We are already today producing test material for better casing, which we're able to supply using our existing asset base. To capture additional growth in battery market, we have made a decision to invest SEK100 1,000,000 over 2 years to add capabilities for commercial production of initially 10,000 tonnes of cathode foil in the production sites in Shanghai and Finspong. Over time, we expect better applications be very attractive new market niche for Graingers. Grahengis has also recently announced a new collaboration with the primary aluminum and energy company Hydro to reduce the climate impact in the automotive industry, both for heat exchanger and battery applications. Through the initiative, Grainger source primary aluminum from hydro, which has a certified carbon footprint that is less than a quarter of the global average. With the global transformation into a more circular and resource efficient economy, Our customers are increasingly recognizing the importance of using sustainable materials. We see clearly that Tier 1 and OEM customers are focusing on not only reducing their own carbon footprints and emissions from the use phase of the application, but also on reducing the emission upstream the value chain, especially in relation to materials and metals. Sourcing low carbon prime aluminum produced using hydropower is one of the key priorities in our sustainability and climate strategy. Since emission from sourced metal accounts for more than 90% of our total carbon footprint. The collaboration with Hydro reinforces our focus to reduce climate impact along the value chain. And we strongly believe that building close relationship with our customers, suppliers and other business partner is key to support the automotive industry and other end markets to become more sustainable. With that, I hand over to Oskar for the financials. Thank you, Johan. And as Johan mentioned earlier, we made a strong second quarter and we saw both the sales volume and the operating profit recover compared with the Q2 last year. In terms of the margin, the group's adjusted operating profit per ton increased from SEK0.6 1,000 in Q2 2020 to SEK2.4 1,000 in Q2 2021. If we look at the two business areas, the Eurasia margin, excluding Graingerskornin, increased from negative 0.9 In 2020 to positive 1.9% in 2021. And the corresponding development for Americas is 1.9% to 3.2%, which is also the highest margin to date for of Grainger's Americas. An important driver behind the improved margins is the improved capacity utilization that is around 90% for the group in the quarter. And in addition to this, the most important drivers behind this positive development are slightly higher average conversion price and continued good underlying Productivity and Cost Performance. This is of course the good development, but I would still like to highlight some important items that have a negative impact when comparing the year over year margin development. First, as you can see on this slide, Grahengs Kornen has a below average Operating profit per ton of SEK2 1,000 in Q2. This is a good representation of the performance that can currently be expected from Kornin. And as you may recall, we have previously guided for a full year operating profit per ton of SEK1.9 1,000 for Grens Kornen. If we exclude Grinskorn, the adjusted operating profit per tonne was closer to SEK2,500 for the group for Q2. 2nd, as we also mentioned in our guidance for the Q2, we have a large negative impact on operating profit Unfavorable currency development if we compare with Q2 last year. And in total, the net impact of the FX changes was negative SEK36 1,000,000 in the And thirdly, the second quarter is also impacted by extraordinary cost items of SEK 10,000,000 related to to fire in our facility in Nieuwpoort and SEK7 1,000,000 related to repayment of COVID-nineteen associated government grants in Sweden. If we exclude the impact of Koning, currency and extraordinary cost to get a better understanding of the underlying performance of the business, The adjusted operating profit per tonne will be closer to SEK3 1,000 in Q2. If we then look at the Q2 in more detail, we can see that the sales volume increased by 86% to 131,000 tonnes and that the net Sales more than doubled to SEK 4,600,000,000. As Johan mentioned earlier, this is a new record level for Grahengis. Excluding acquisitions, sales volume increased by 51% and net sales by 74%. And the main reason net sales increased more than sales volume is the increasing aluminum price. The net impact from changes in foreign exchange rates was on the other hand negative SEK 4 SEK29 1,000,000 compared with the Q2 last year. Looking at the earnings, the adjusted operating profit Increased to SEK309 1,000,000 in Q2, SEK267 1,000,000 higher than in prior year. Of this, the acquired Conim business contributes with operating profit of SEK 48,000,000. And drivers of the positive development are, as I mentioned before, the increased sales volume and capacity utilization, Slightly higher average conversion price and continued good underlying cost performance. That said, we do see Some increased inflationary pressure in the quarter, in for instance, the cost for packaging material and transportation. Depreciation increased within total SEK 19,000,000 and that's primarily related to Graingerskonen. Net changes in foreign exchange rates was negative SEK 36 SEK1 1,000,000 in the quarter. There are no items affecting comparability in the quarter and the profit for the period increased to SEK226 million and earnings per share increased to SEK2.12 in the second quarter. During the Q2, net debt decreased by SEK160 1,000,000 to SEK3.5 billion. In terms of net debt To adjusted EBITDA, this corresponds to a decrease from 2.4x to 2.0x. That means that we are now back into our target range of between 1x and 2x EBITDA TA on a rolling 12 month basis. As you can see on this slide, we had a strong underlying cash generation in the 2nd quarter And the cash flow before financing adjusted for the expansion investments amounted to SEK 334,000,000. That corresponds to an operating profit to cash conversion of 108%. We have continued to invest in total SEK94 1,000,000 in the expansion of the grains business through the ongoing programs in Kornien and Flinspan. During the quarter, we also distributed SEK 117,000,000 to our shareholders. Needless to say, I'm very pleased that we are now back at the debt level within our target range. And I'm also happy that we managed to get there in a quarter where we also paid the dividend to our and shareholders. If we look at the Graenys Americas business area, we continued to experience strong market activity in the 2nd quarter of 2021, driven by a strong underlying market demand combined with the continued market share increase. In total, sales volume in the 2nd quarter increased to 69,000 tonnes, which is 10% above the volume in the 1st quarter. And this is also the highest sales volume in an individual quarter so far for Grainger's Americas. The adjusted operating profit For the Q2, increased to SEK219 1,000,000 which corresponds to an adjusted operating profit per tonne of SEK3,200,000. The improvement in operating profit was driven by increased sales volume in combination with a slightly higher average conversion price Whereas additional cost of SEK10 1,000,000 related to the Newport Fire had a negative impact. Net changes in foreign exchange rates We're also negative by SEK 27,000,000 in the quarter. And without the cost for the fire and the same FX rates for last year, the Americas Operating profit would have been SEK 256,000,000 or SEK3,700,000 per ton. I think this indicates that our Americas business has a very strong momentum right now. That said, we also had some challenges in Americas during the quarter. And as you know, we recently finalized The upgrade of the 3rd and final cold rolling mill in our Newport plant. And we were just about to start the second phase of the sales volume ramp up. In late May, the 2nd rolling mill in Newport that has been in operation since early 2020 was damaged in a fire. Luckily, no people were hurt, but the damaged mill is expected to take between 6 9 months to rebuild. And during this time, the Newport facility will once again operate with 2 instead of 3 mills. And this means that the current production level in Newport can be sustained That the volume ramp up originally planned to take place in the second half of twenty twenty one will be delayed into 2022. The mill rebuild will be covered by insurance and currently no further cost for this in addition to the SEK 10,000,000 that we've already taken in the second quarter is Also growing as Eurasia continued to experience a strong market Activity in the Q2 of 2021, although not as strong as in the Q1. As Johan talked about earlier, the demand from the automotive industry was initially Strong but softened towards the end of the quarter due to increasing impact of the semiconductor shortage. The sales volume in the second quarter reached 70,000 tonnes, which represents an organic 65% increase over the Q2 last year, but a 10% decline over the Q1 this year. The adjusted operating profit for the 2nd quarter increased SEK136,000,000 corresponding to an adjusted operating profit per ton of SEK 1,900,000. The operating profit includes cost of SEK7 1,000,000 related to the repayment of the COVID-nineteen associated government grants in Sweden. And net changes in foreign exchange rates was also negative with SEK 8,000,000 in the quarter. In addition to the year over year performance, I think it's also worth to briefly look at the development from the first to the 2nd quarter. As you can see on the right on this slide, the margins is coming down slightly from SEK 2,600 SEK per ton in Q1 to SEK 1.9 in Q2. And key contributors to this are obviously the sequentially lower Sales volume and the grant repayment and the FX that we mentioned. But in addition to this, the Eurasia business is where we see the largest effect of external cost increases on transportation and packaging material due to that this is where we have the overseas export business. On a more positive note, the integration of Graeniskorning continues to move forward according to plan. And since Graeniskorning has a broader product portfolio, it was less impacted by the Softening automotive demand in the quarter and we continue to deliver a stable sales volume of 24,000 tonnes and an adjusted operating profit of SEK 48,000,000. And we expect to see a similar performance from Graingerskonen in the Q3. With that, I hand over to Johan, who will provide an Outlook for the Q3 and a summary of the Q2. Thank you, Oscar. Although the COVID-nineteen pandemic is still ongoing, The market demand is generally anticipated to remain on a healthy level in the coming quarter. Typically, the Q3 is a seasonably weaker quarter then the Q2 and we do expect to see this pattern also this year. Given the still somewhat unusual market situation, it is, however, not really possible to say if what we see is seasonality or if it's an effect of the sequential slowdown in the automotive sales due to the impact of the semiconductor shortage. That said, we currently expect the sales volume in the 3rd quarter to be lower than in the 2nd quarter by lowtomidsingledigit percentage. Moreover, increased cost for strategic projects will have a negative impact on the profitability when comparing the Q3 to the Q2 this year. Looking further ahead, I strongly believe that we You'll be able to capitalize on the strong platform we have established for Graingers with a strong commitment to sustainability, innovation, digitalization and continuous improvement. Graingers is well positioned to deliver sustainable and profitable growth for the coming years. To conclude the 2021 Q2 report, the Q2 was a record quarter for Graingers with a strong market, all time high sales volume and solid increase in operating profit. In total, we delivered a year over year growth of 86%, of which 51% was organic. Cash generation was very strong in the Q2 and this contributed to that our net debt is now back into the target range at 2x EBITDA. During the quarter, we have also continued to execute on our growth strategy. We have reached an important milestones in our Expansion and Logistic Improvement Project in Finnsporng and have taken a decision to invest to increase our capabilities for production of cathode foil for batteries. Sustainability is a strong driver and enabler of our long term competitiveness and value creation. The recently announced collaboration with Hydro on low carbon aluminum is a good example on how we are helping our customers to reduce their carbon footprint from Sourced Materials. Finally, looking into the Q3 this year, we expect a healthy market condition to remain. As most of you know, this was my last presentation as Grainger's CEO. And it has been fantastic 18 years for me at Grainger's. I've had the opportunity to work in several roles and different parts of the Grainger's global organization. Starting in Finnspong as a global key account manager for Grainger's Japanese customers. Then I moved to Shanghai for heading Graingers Asia, a very important and expensive phase for the company. In 2012, I moved back to Sweden to become the CEO of the company. And during the last 8 years, Grahengis has achieved a lot, and I just wanted to mention a few important accomplishments. In 2014, Graeme has returned to the stock market at NASDAQ Stockholm and received several long term shareholders. In 2016, we did the acquisition of the U. S.-based company Noranda, which was important as we broaden both our geographical position and our product portfolio. Then I also want to highlight our latest acquisition, Aluminum Cornyn, which suits us very well. Together, we create a strong platform for optimizing the product mix and for sustainable profitable growth in Europe. We have also expanded and upgraded our plants in Finspong and Shanghai with new Capacity and Capabilities. And during these years, we have strengthened our automotive and HVAC core markets and broadening the portfolio by creating new core and Customer Markets. And throughout the years, Graingers has tripled capacity and sales. We have also developed new products and deliver high value products and services to our customers around the world. One future product is our aluminum powder that will be used for 3 d printing products. Finally, growing a success depends on our strong company culture and company values, but most importantly on our great people. My colleagues throughout the whole organization, you have been very instrumental for the success of Graingers and where we are today, and you will continue to be. I would also like to thank our customers and shareholders for your trust and support. And with this, I leave the floor open for questions. Thank you. We have the first question from Gustav Sverin from Handelsbanken. Please go ahead. Yes. Thank you very much, operator. Hello, Johan and Oskar. If we start with your automotive volumes in the quarter, When you say that this is weak and a bit towards the end, can you say anything about sort of exit rate versus the quarter as a whole? And perhaps related to that, when we look at your volume guidance for Q3, should we view that as fully explained by Lower order volumes, so relatively flat, 8 track or is there still some lower seasonality in Q3? That's my first one. Good morning, Gustaf. It's Oskar here. I think it's a very valid question there. I think when we look at Automotive in Q2, it started off very strong. It ended Fairly strong as well, although not as strong as it started. I think that's maybe the way to look at it. But of course, If we look sequentially how it developed, we see some 5%, 6% decline sequentially in automotive from Quarter 1 to quarter 2. And of course, that's the net of the full quarter. Looking ahead a little bit Into the Q3, I would say that the automotive product segment is really where we do see The big changes quarter to quarter, we expect basically all the other market segments to remain fairly stable and that the underlying demand remains fairly strong. So we have a guidance for the full quarter Of a lowtomidsingledigit percent on sort of overall sales volume. And if you look at how to get there And that calculate, I think, the automotive impact and assuming everything else fairly stable, I would say that you have a mid single digit decline for the automotive there from a Sequential perspective. Yes, perfect. Very clear. The second thing for profitability, America is Looking very strong again, but I'm a little bit surprised on the margin contraction in Eurasia sequentially even though we have lower auto volumes. Coal is now on par with So the only going is and again, yes, auto volumes are done, but for Eurasia, you looked at lower FX headwinds versus Q1 and mix looks better than Q4 when we had sort of similar EBIT per ton. You mentioned this lower conversion price. So if perhaps you could Mention a few words on how much that is impacting, how much is cost inflation. And is there anything on top of the SEK 7,000,000 that is disturbing the picture in Q2? I think the most significant I mean, if you look at the cost base and how that develops Let's start with the sales. Obviously, the largest impact quarter to quarter there in terms of profit comes from The lower volume and as you clearly point out, Gustave, it's largely automotive related because it's in Eurasia where we have the largest automotive business. If you look at the cost structure, it is fairly similar quarter to quarter, but there are some differences. And in addition to the one off items and the FX there that I highlighted, we also do see some Inflationary pressure here quarter to quarter. And from a good sort of viewpoint there for grain is, of course, Our largest raw material cost is for aluminum. That's a pass through by contract to our customers. So It's still sort of a fairly limited impact, but we do see higher costs for transportation and packaging material specifically. And that's A driver sort of when you look at the quarter to quarter performance in Eurasia as well. And if we look at your earnings in Q3 sequentially, I mean, just to be very clear, we should, of course, have this negative mix impact on EBIT Per ton due to the auto volumes. But on top of that, this strategic extra cost that you're referring to, Could you say a bit more on what that refers to and perhaps the size of those as well? From time to time, you will do larger strategic Type of projects. And we have in the past had these type of costs as well for Graingers. We typically don't say exactly what it is, but to give you a little bit of flavor of what this project Specifically, it's about it's very much connected to our sustainability agenda. And I think the cost to expect here It's around SEK 10,000,000 to SEK 15,000,000 and you should certainly view that as a one off cost item for Q3. Perfect. And then lastly on this €100,000,000 investment you're making in the foil business. You mentioned the market size of, I think, was it 900,000 tonnes by 2025. Just a bit curious to hear your Ambition in terms of market share here. And I didn't quite get the timing. Did you say this is supposed to be up and running within 2 years? Yes, I can give you some more flavor on this, Johan here. Yes, I mean the whole opportunity for Grainger within the battery segment is fairly big actually. And as you said, around 900,000 tons of demand in 2025 in a market where we basically are not in today. So it's basically the same size as the other market, our core markets for heat exchanger materials. And we are very active here and we are working with basically all large battery producers globally to deliver test material in casing and also we are developing this cathode foil, which is actually the most demanding material and the cathode foil will really be the heart of the battery production. And Graingers has very unique capabilities to serve these products to these global customers in all regions. So of course, looking forward, we see that Graingers has a very good opportunity to reach the similar market share that we have in the heat exchange metal for combustion engine. And so that gives you maybe some more flavor. I mean it's Overall, we are entering into a growing market here, which requires really demanding products with high technical expertise. Yes. And just to add to that to your question on timing there also, I mean, this is SEK 100,000,000 that we have sort of Dedicated over a 2 year time period to the battery foil segment. And We do expect to start to have some of these capabilities available already early next year and then We build additionally throughout 2022 on this as well. Okay, great. Thank you. Good luck in the future, Johan. Thank you. Next question from Erik Paulsen from Nordea. Please go ahead. Yes. Hi, there. I'm hanging on to Gustaf's question there regarding the increased costs, etcetera. And you mentioned there, euros 10,000,000 to €50,000,000 I guess for the one of cost items for the Q3. Is it so then that we shouldn't look upon this in terms Sequential EBIT development going down in Q3. It's just those costs that are incurred in the actual quarter. Is that correct? I think that yes, those costs are to be viewed as a one off item in Q3. And I think in terms of guidance, of course, we are guiding for a little bit of a softer market on the automotive side, a little bit lower sales volume, although Fairly normal seasonal pattern, if you wish. And then you can always argue if there is a seasonality in 2021 or not, as Johan said earlier. In terms of cost structure, excluding this very specific one off item that we are guiding for, I think it's fair to assume A similar cost structure in the Q3 as in the Q2. We do see I mean, we do expect to have some Additional negative FX as well, but not as much as we have seen in Q1 and Q2 this year. So I think in terms of cost, Q2 is a fairly good sort of starting point for your Q3 estimate. So then we can expect still a sequential improvement in Q3, you expect that? You mean in terms of earnings, sorry? Yes, adjusted EBIT. Well, we do expect to see the sales volume coming down. And of course, that is the largest driver of the earnings. So based on that, I wouldn't necessarily expect to see earnings increase sequentially, but I would say probably rather quite stable. Okay. And my final one is on the current available maximum capacity now in North America, which you have. How many kilotons is that at the moment actually? And what is your current capacity utilization? I think in North America, I think you should view it as that we have 200 in Huntington, 40 in Salisbury. We should have had the 20 in Newport, but unfortunately then due to the fire, Newport should currently be viewed as around 10,000 tonnes of Capacity, which adds to a total SEK 250,000,000. And in terms of capacity utilization, We have an average of around 90% in the group in the second quarter. U. S. Or Americas is above the average and Eurasia is slightly below the average. All right. Great. Thank you very much. And Johan, good luck. Thank you. Thank you. Next question from Oskar Lindstrom from Danske Bank. Please go ahead. Yes. Hello. This is Oscar Lindstrom at Danske Bank. First off, Johan, just thank you for taking Graeme is on a very impressive journey. And I think especially the Comen acquisition has been seems to have been very well executed and also Well timed expansion. So best of luck in the future as well. A couple of questions for me. The first one here is on the automotive volumes, What you're saying now that you're not only sort of, as I understand it, a slowdown in the market, but actually you mentioned cancellation of Orders. And my question is, is this slowdown accelerating or has it accelerated also Obviously, throughout Q2, but also going into Q3, or Is it more of a drop and now we've seen it and you feel confident about where the volumes will end up for the Q3? And I presume also we'll These lower volumes in the Q4. Could you say a little bit more about that? Sort of How deep, how long and kind of what confidence level do you feel around this automotive market? It's Oskar here. I can start a little bit and then Johan can add to that sort of from a more commercial perspective. But if we just look at sort of The developments we have seen, we saw a slowdown, as we said, in the second quarter. Some customers canceling orders and that happens from time to time of course. But When we do sort of look into the Q3, we see the automotive market continuing to decline From the Q2, but not necessarily from the demand level that we saw in the second half of the quarter. So from that perspective, it's more stable. Whether or not it will be stable going into the Q4 or not, I think it's a little bit early to say here. It's Not necessarily easy to have that type of visibility at this point because there are so many different things impacting here in terms of Shortages of semiconductors as well as other components for the automotive industry there. So but sort of looking into the 3rd quarter, we expect to see more or less the same demand levels that we saw in the second half of the second quarter. So fairly stable from that perspective. Yes. I can just add on comment to that. I mean, It's really the cancellations are very much due to the shortage of the semiconductors. But we can also say that there are a lot of activities on the customer side in validation for new programs, etcetera. So there you see a sign of a healthy market, more you mean mid- to long term, but right, short term of course there are some cancellation. Sorry. And are you able to Shift volumes, which were initially intended for the automotive market to other segments Or doesn't that doesn't work or? Yes. I mean, we can do that. Of course, they always Quite some lead time very much depending on what kind of product there is. But of course for yes, but for some parts of the product, we can shift to other markets if the automotive market should be a little bit weaker for short term. So we have that flexibility and we also historically have been doing that successfully. So I think that is one of the strengths in our capability and also in our global footprint. Because other markets seem to be rather strong. So that's why I was wondering if you could use this So to say for these markets. Indeed. So Finally, I just want to ask About the synergies in the Conan acquisition. You say there are synergies, But you haven't given us any numeric guidance. What's the latest Here on synergies from the Cognion acquisition. No, that's a good point, Oscar. And there are certainly many different types So of synergies there, and I think we have talked about the types of synergies before. But the synergies that we do see Short term and expect to see short term are primarily synergies on the sourcing side and there we have started to implement those. But In terms of timing there, it was a little bit unfortunate for us that we closed the acquisition so late in the year Because as we also talked about a little bit earlier, metal is our largest sort of input and it's primarily There that we can get the large scale effects. But due to that we closed so late in the year, a lot of the metal contracts for 2021 We're already negotiated. So many of the synergies that we have sort of negotiated now and so forth Will come into play in 2022 and onwards on the sourcing side. But that said, there are realized synergies already, but they are a little Smaller to the nature. And sorry, those synergies should show up in the Corning results Primarily. Show up both in the Korny result as well as in our Finnsbank result because Synge is sort of impacting both ends here, right? It's basically the European footprint then that we are trying to optimize here. Just a comment there. I mean, so the synergies are also maybe Oscar mentioned that, but it's also related to productivity synergies, but also later on to more of Sales Synergy, where we have the ambition to basically slightly change the customer portfolio of the Corning plant to address more High End Products going forward. Right. Thank you very much. Yes, that's fine. Thank you, Oswald. Thank you. Thank you. Next question from Karl Bostwick from ABG. Please go ahead. Thank you and good morning. First question, have you seen any Differences between the electric vehicle automotive side and the internal combustion engine automotive side, If that is possible for you to distinguish if we look at the sort of core legacy products. Yes. Hi, Karl. It's Olske here. I'm not fully sure what your question is about. Are you thinking more like demand Is higher for EV and that type of production is keeping up better or sort of what is it that you're Yes, That's my question. I understand semiconductors have an impact on both drivetrains, but still would be interesting to hear if you have any thoughts about Differences in demand development. That is a good point. I don't personally, I must admit. I don't know if you want to have any Comments on this. No, but I think the same pattern as we've seen before. There are large many activities on the OEM side to develop a new platform, Volkswagen and PSI and the others, Daimler. And they're all related to EV. So that we are part of that and we also be part in delivering to some of these platform. And most of them will come into play from 2022 and onwards. But also there are expected to be over time quite good. I mean, a decent demand on the combustion engine as well actually. So We foresee quite good market for both. But of course, long term, the growth high growth rate is really within the EV. And just a brief reminder here, but you have your own global market share, but would it be fair to assume that the kind of Overall, how the multi multi market is split now between electric vehicles and ICE is sort of also reflecting Your own business exposure. I know you're talking about the increased content per vehicle in the electric drivetrains, but just would be interesting to hear If you have a sort of rough estimate of a split within automotive going to the different drivetrains. But we have a good question. And basically we have the ambition and target to have the similar market share for EV as we have for combustion engines. And there is no reason to believe that we should not be able to do that actually. We have a very good capabilities globally and all the customer relation. And of course, on top of that, we have the new customer segment in terms of the battery producers. I think it's worth to point out there also Carl that if you look at what it looks Like today, right, and the current market, the heat exchanger producers to the ICE cars and the EV cars, it's the same type of And it's the same company is producing the heat exchangers for both types of cars and it's our customers basically. So from that respect, it's At this point in time, at least, not very much of a difference to Grainne as if it's EV car or ICE car from a customer perspective. Understood. And about the rolling mill and the unfortunate fire, Is it one of the you mentioned Newport, but I mean is it the new mill that you were about to install that also Fortunately caught fire or is it sort of old equipment that had this mishap which has impacted the overall expansion? No, it's I would say yes and yes. There are 3 rolling mills in the Newport facility. And they are All of them are originally from the late 19 no, they're probably a bit newer. The plant is from the late 1950s, but these are Slightly newer than that, but it's old mills. What we have done in our expansion and project here is that we have refurbished all three mills. And we had just finished the refurbishment of the 3rd and final mill. And then the one of the 2 earlier refurbished mills Unfortunately, then caught fire. So it's old equipment, but it was basically very recently refurbished. What was that the answer to your question there, Karl? Yes, exactly. If it was sort of at the time you were About to install the new one then this accident happened or if it was the sort of mill that was fully up and running? It was a mill that was up and running, but sort of if you want to be a little Positive here. You can say that the 3rd and final mill has that we just finalized the upgrade of Has the same capabilities as the mill that was damaged in the fire. So basically what happens from a practical perspective is that The 3rd mill will just replace the 2nd mill and we will continue to produce at the same volume level as we did before. The difference is that since we only have 2 out of 3 mills in operation, which was the case also prior to the upgrade of the 3rd mill, We will be not be able to sort of get that final growth ramp up to happen in the short term. It will happen next year after we have basically repaired the damaged mill. And so you can sort of view this as the business will be stable. There will be the ramp up the final ramp up will be delayed some 6 to 9 months while we repair the mill. Understood. And about partly this aspect and also the 10 kilotons in cathode foil expansion, How should we think about timing during next year? Will both of them be sort of impacting volumes Towards the second half for the Newport Fire situation, can you mitigate that already during the first half? I think that we should be able now depending a little bit on how quick we can rebuild the Newport Mill. But I see no reason why it shouldn't be rebuilt and finalized by the end of the Q1. And then of course, you need some time To sort of commission it and so forth. But with what we know right now, I would say it's fair to assume that the ramp up that we plan to Sort of take place now in second half of this year. It will probably be able to start in the Q2 of next year. In terms of timing of the battery foil, this has of course to do with adding capabilities And to be able to produce this. And this is something that happens right now. And then we will gradually, of course, bring these new capabilities into production. But then of course, this is also an area where we will need We do a lot of validation similar to what we do with our heat exchanger material and so forth and we're validating new customers. So I think it's a little bit early to say when exactly we can start to see commercial volumes ramp up here. But I would certainly hope that we can see some commercial volumes from primarily from our Shanghai facility then that is sort of The ones that are furthest ahead here and that, that would come in next year. But I think it's a little bit early to say once We are sort of ready with customer qualifications and so forth. Understood. And just to sort of recap your Comments on Q3 profitability. If we look at EBIT per tonne, EBIT per tonne Q3 compared to Q2, What do you think will be the main drivers? Just a sort of brief recap would be very helpful. I I think there are 4 items there, right? I think you do expect to see a slightly lower sales volume, which we all know is a very important Driver of the EBIT. I think that you can say that we do see some negative year over year FX as well, although not as big as in 1st and second quarter. I think in terms of the cost base in general, if you exclude One off type items both in Q2 and in Q3. I think it's fair to assume that the cost base will look Fairly similar in the 3rd and the second quarter. And then finally, we do guide for these strategic project costs In the range of SEK 10,000,000 to SEK 15,000,000 that will be a one off type item in Q3. And then I think if we add all that up, It's something that everyone can do for themselves, I guess, and come up with an impact. But these are the 4 main drivers I think it's worth to take into account When looking ahead in Q3. Understood. Thank you. And Johan, thank you for the interaction and best of luck going forward. Thank you. Thank you. And last question actually This is from Mats List from Kepler Cheuvreux. Please go ahead. Yeah. Hi. Thank you. A couple of questions there. Coming back to this automotive in the Automotive guidance. And you mentioned I mean demand for new cars and so on and inventories are low at car producers. And You have this shortage of semis. Would you say that there is a sort of or could you say something about the inventories In your part of the value chain, are there sort of a concern also? Or is it more that you have seen Some sort of production stoppage impact and so on. It's a very good question there, Matt. And I think that I mean, obviously, we are not an automaker. We are a Tier 2 supplier typically. So we are I mean, there is a little bit of delay between the demand for Grainger's products and the automotive production. I think that we have talked about automotive in slightly negative words today and say that, okay, we do expect to see the slowdown into Q3. But To your point there on inventories and so forth, I mean, if you look at the year over year sales forecast For light vehicle production forecast, latest IHS numbers, it's more or less stable compared with Q3 in 2020. Whereas if you look at sort of our guidance saying that we expect The Q3 numbers to be slightly lower than Q2. That means still that we would expect to have Year over year growth in automotive demand for grain is in the range of 20% or so. So of course, that indicates That there is something happening with the inventory here maybe in the supply chain and that there might be either Some kind of restocking activity is expected in Q3 here. But I think it's It's also worth to point out here that sort of from a year over year perspective, we expect to grow more in automotive than the underlying light vehicle production is expected to grow. Okay, great. And then, I mean, you have this new customer segment of battery producers. And Do you see the same sort of market share opportunity there compared to what you have with the heater changes I believe it's going to the automotive segment. I mean, we are starting from a very low level and for some of the Components like for casing and cathode foil over time, we can expect that, but not for all the parts of the battery. But I mean, you have to bear in mind that this is basically a market that we are not at today. So we are very optimistic in that sense. But we are also just to give you some more flavor. I mean in several of these battery products, we are passing different test steps here. So we are passing at the customer side with good results. So we're also learning with this new customer type what is the requirement, etcetera. And I think it's to add As a CEO. Just to add to what Johan said there and indicated, of course, That there are different types of rolled out a 1,000,000 products for batteries. And the cathode foil and casing are the one that we believe Our fitting Graheng is capability is the best, right? And there we think we will have the largest market share potential in the medium to long term. Do you see new competitor there or is it sort of a new area of growth? No, we don't see really new competitors. It's of course some of the existing players are also working with this. But I think One more time to stress out what the opportunity we see within casing and Catapult. I mean Catapult really suits our global footprint very well in terms of the mill size and width. And in terms of casing, we have a good sustainability offer, which is very important for these products. So I think In that respect, Grahengis has a very good position to capture growth. Okay, great. And then About HVAC there. I mean, in the U. S, you saw a pretty good surprisingly strong market last year, gradually during the quarter. Is it sort of Too early to say that you will see a similar development this year or are there other issues like capacity and so on that And there's you from making the same well, starting from the same positive Performance at start, yes? No. I think the HVAC market in general is performing very well. And looking into 3rd quarter, we expect to see a continued strong market. And All jokes aside here, it's certainly not a disadvantage to grain is that it seems to be very hot in North America right now and that typically drives Consumers to upgrade air conditioning equipment and so forth. And that's of course everything else is the same that that's Positive for the HVAC demand. So we expect that to have a positive development. I mean it was positive in Q2 and we expect it to continue to be positive in the Q3. Okay, great. All right. Thank you very much. And well, Johan, good luck with your new Well, work at Latv. Thank you for your help and so on. Thank you very much, Mats. All right. If there are no more questions, I would like to conclude this session. And thank you, everyone, for participating today. As usual, we received good and interesting questions. And for those of you who would like to listen to our presentation of the Q3 report for 2021, It will take place on the 21st October. In the meantime, I would like to wish you all a great summer. Thank you and goodbye everyone.