Earnings Call: Q4 2018

Jan 31, 2019

Welcome to Granges Conference Call for the Fourth Quarter of twenty eighteen. Here in Stockholm, it's me, Johan Menkel, CEO of Granges and beside me, I have CFO, Oskar Helstrom. As usual, we will start this presentation with an update of Granges' performance during the last quarter and touch upon some important events. Then it's time for Oskar to guide you through the financial results. After that, we will conclude the presentation with a short summary and a Q and A session. Looking now into the 2018 highlights, first, I would like to say that I'm pleased that our growth continued despite the softening market conditions we have started to see in the fourth quarter. In total, our sales volume reached 87,000 in the quarter and increased by little bit more than 1% compared with last year. The main growth driver in the quarter was the HVAC and other business in Americas that increased by close to 3% despite limitations of available production capacity. Our automotive business remained stable compared with last year. This is a better performance than the underlying market as ISS estimates the light vehicle production to have declined by more than 3% in the fourth quarter. Adjusted operating profit rose to million, up from SEK179 million last year. Higher prices in Americas is an important driver of the earnings increase. Offsetting this, we carried some additional costs in the quarter related to the production disturbances in Finspang in the third quarter and costs related to the ongoing expansion projects in The U. S. Profit for the period was million and earnings per share SEK1.97 in the quarter. Cash flow before financing activities came in strong at SEK133 million despite heavy CapEx investment of SEK316 million. We ended the quarter with a net debt of SEK2.5 billion, corresponding to 1.8x EBITDA on a rolling twelve month basis. Our Board of Directors proposes a dividend of SEK3.2 per share, which represents an increase of 7% over last year when we paid SEK3 per share in dividend. Finally, I'm also pleased to mention that Granges is now a member of ASI, the Aluminum Stewardship Initiative. ASI is a global non profit organization, which has the ambition to maximize the sustainability performance for the aluminum industry. For Granges, sustainability is an integrated part of our business model, and we fully support ASI's commitment to promote greater sustainability and transparency in the aluminum value chain. It is my strong belief that going forward, good sustainability performance will be a prerequisite to maintain our value and relevance to our customers. During fourth quarter, we experienced a softening of the market conditions for the automotive part of our business. If we look at some market statistics, the research from IHS has made a quite substantial revision of the estimate since we presented our outlook for quarter four in October. At that time, IHS estimate was a growth of 2% globally for the fourth quarter, and that figure has now been revised to more than 3% decline. Based on the signals that we are picking up in the market, I wouldn't be surprised if the actual outcome in quarter four is even lower than that. If we look at the regions, we can see that the production of light vehicle was down 4% in Asia in the fourth quarter. Of this, China was down more than 11% compared with last year. We have not yet experienced this level of reduction in our customers' orders, but what we have seen is that inventory is starting to build up in the supply chain. This is likely to have a negative impact on the demand levels going into the first quarter of twenty nineteen. With what we see right now, the flat demand development that IHS forecast for Asia in quarter one twenty nineteen seems a bit too optimistic. In Europe, light vehicle production is estimated to be down 4% on last year in the fourth quarter, whereas 2% growth is estimated for Americas. This pattern is expected to continue into 2019 and is relatively consistent with how we are experiencing current market condition as well. For the full year 2019, IHS forecasts a growth of about 1% on a global level. Touching briefly on the market for HVAC product, the HVAC unit built in The U. S. Is expected to have an increase by about 8% in the fourth quarter. Looking into the coming quarters, we expect to see that HVAC build rates continue to grow. Here, we need to remember that we are currently capacity constrained in Americas, and we will not be able to take part of this growth until our new production capacity becomes available in the second half of twenty nineteen. If we then look into Granges sales volume development during the fourth quarter, we can see that the sales volume in Asia decreased by 3%. The reduction is to a large extent driven by lower sales to the automotive industry in China, whereas sales to industrial applications like wind power industry continued to increase. In Europe, sales volume remained stable in the fourth quarter. Sales of heat exchanger material was about 1% down, while sales of industrial product increased slightly in the quarter. In The Americas, sales volume was about 3% higher than last year, driven by strong demand for both automotive and HVAC products in the fourth quarter. I'm especially pleased with the close to 3% growth that we see on the HVAC and other side. Since we are running close to maximum capacity levels in our U. S. Plants, it means that we have successfully executed on productivity improvements in order to deliver this growth. I also want to give a short update on our expansion projects in The U. S. The expansion in Huntington is on track for start up in third quarter this year. Then it will be a cautious ramp up of volumes during second half of twenty nineteen. And from 2020, we will see full effect from this new 40,000 tonnes capacity. We have now actively started to sell this new volume. In Newport, we are reopening the idle facility to reenter the market for light gate foil for various consumer applications, which is very exciting. So far, the response from the customers have been very positive. We've already restarted the mills in current conditions and are right now running tests with very good results. The mills will be upgraded in the first half of this year and the plan is to gradually start shipping products after the summer, but we are already shipping test orders to customers for validation purposes. In terms of financial impact, we expect start up costs for the two projects of about million per quarter in quarter one and in quarter two this year. As we move into commercial production in the second half of the year, we expect that the profits in quarter three and quarter four will compensate for the start up costs in the first half of the year. For the full year, we expect both projects to contribute positively to the operating profit. In general, I'm very satisfied with how these projects are being managed by our Americas team. When summarizing the whole of 2018, I'm pleased to see that we have delivered on our financial targets for the fourth year in a row. Even though we report a modest volume growth of only 0.5% for the full year, this is higher than benchmark figure for light vehicle production that showed a slight decline in 2018. The return on capital employed was 16.5%, which is on the same level as for 2017. During the year, we have increased our profits, but we have also increased our assets primarily through expansion investments in Americas. We ended the year with a net debt of SEK2.5 billion, which correspond to 1.8x EBITDA, well within our target range of 1x to 2x EBITDA. Our Board of Directors proposes a dividend of SEK3.2 per share, which is an increase of 7% from last year. Given that the Annual General Meeting approved their proposal in May, it means that 35% of the net profit will be returned to our shareholders. Now I hand over to Oskar for the financials. Thank you, Johan. During the fourth quarter, our sales volume and operating profit continued to increase, but at a somewhat slower pace than what we saw in the first half of the year. Nevertheless, if we look at the full year 2018, it's the best year so far for Granges with a total sales volume of 375,000 tonnes and an adjusted operating profit of SEK 1,050,000,000.00. Also in relative terms, the operating profit continued to increase to SEK 2,700 per tonne from SEK2.5000 per tonne in 2017. And as you can see on the right hand side chart, the profit per tonne improved for both the automotive and the HVAC business in 2018. If we look at the fourth quarter financials and compare with the same quarter last year, we can see that the sales volume increased by 1.1% to 87,400 tonnes, whereas the net sales increased by 12.5% to SEK 3,100,000,000.0. The higher increase in net sales and in sales volume is driven by a slightly higher average conversion price in combination with the net impacts from foreign exchange rates that was positive SEK $216,000,000 compared with the fourth quarter twenty seventeen. Looking at the earnings, the adjusted operating profit amounted to 191,000,000 in Q4, an increase of close to 7% on prior year. The key driver behind this increase is the slightly higher average conversion price in combination with changes in foreign exchange rates that had a net impact of positive 32,000,000 compared to Q4 twenty seventeen. During the second quarter twenty eighteen, Granges completed a transfer of production of volumes that are exposed to U. S. Antidumping duties from Shanghai to Finspang. Consequently, no additional costs have been taken for antidumping duties in the second half of the year. Instead, during the fourth quarter, The U. S. Announced that the antidumping duties on aluminum sheet would not be implemented retroactively, as earlier indicated. And for Granges, this resulted in a positive effect from a release provision of SEK 13,000,000 in the quarter. This was partly offset by costs for Section two thirty two tariffs on imports to The U. S. From Sweden of SEK 3,000,000 in the quarter. And consequently, the net impact of the additional U. S. Duties was positive SEK 10,000,000 in the fourth quarter. As some of you might remember, we experienced temporary production disturbances in our Finspang plant in the third quarter. Although this was addressed already in Q3, we carried an additional cost of SEK 13,000,000 in the fourth quarter, primarily related to additional manning in production and costs for express transportations to meet delivery commitments. No further costs for this is expected going forward. As you just heard from Johan, we are getting closer to start of production for the expansion projects in The U. S. The Newport plant is partly up and running with test orders and customer validations. And as a consequence of this, we took additional costs of SEK 12,000,000 in the fourth quarter. As Johan also mentioned earlier, we foresee that these start up costs will increase to about SEK 15,000,000 per quarter for Q1 and Q2 this year before we start to scale up the commercial production in Q3. In 2018, we rebalanced the timing of vacation expenses in Americas to get a more even distribution over the year. Although this is neutral from a full year perspective, it has a negative impact of about SEK 5,000,000 in Q4 when comparing year over year. The adjusted operating profit per ton reached SEK 2,200 in Q4, which is SEK 100 higher compared to 2017. There are no items affecting comparability in the fourth quarter, and the reported operating profit is therefore the same as the adjusted operating profit in the quarter. The profit for the period reached SEK 149,000,000 and corresponds to earnings per share of SEK 1.9 SEK1.97. Cash flow before financing increased to SEK133 million in the quarter. And by the December, the return on capital employed reached 16.5% on a rolling 12 basis. Granges has always been a business with a strong underlying cash generation and 2018 is no exception from this. If we look at the cash flow before financing activities and we exclude the CapEx for expansion investments of $470,000,000, this cash flow amounts to SEK 1,000,000,000 for 2018, implying an operating profit to cash conversion of 100%. If we also take into consideration that The U. S. Sanctions against our supplier, Ruzal, has led to an increase in working capital of SEK165 million in 2018 and we exclude also this effect, the underlying cash conversion is 116% for 2018. That's something that clearly illustrates the cash generation potential of the Granges business. The strong cash flow contributed to the reduction of the net debt in the fourth quarter. In Q4, the net debt decreased by million to SEK2.5 billion. This corresponds to 1.8 times adjusted EBITDA on a rolling twelve month basis and remains within our long term target range of one to two times. Looking at the cash flow before financing in the fourth quarter, we can see that the earnings contributed with SEK $283,000,000, Release of working capital, primarily driven by the seasonal slowdown, contributed with a further SEK $220,000,000 in the quarter. Other operating items refer to taxes paid of SEK 54,000,000. Investments in fixed assets amounted to SEK $316,000,000 in the fourth quarter. Of this, 182,000,000 is the CapEx related to the expansion of Huntington and the restart of the Newport facility in The U. S. As we have discussed throughout 2018, new U. S. Trade legislation, both in terms of tariffs as well as sanctions against the aluminum company, Rusal, has had a large impact on the aluminum market. And this is something that is impacting Granges as well, both in positive and in negative ways. First, the U. S. Department of Commerce has introduced countervailing and antidumping duties on aluminum foil and sheet from China with a combined duty rate of up to 200%. To avoid being exposed to antidumping duties, Granges has transferred the production of all volumes imported to The U. S. From China to Sweden during the first half of twenty eighteen. And following the release of provision in Q4 that I talked about earlier, the total cost for antidumping duties for Granges ended at SEK 3,000,000 in 2018, and we do not expect to pay more of this going forward. On the positive side, the antidumping duties has led to rapidly increasing market prices in The U. S, and this is having a benefit for our domestic U. S. Business. The general Section two thirty two tariff of 10% is affecting Granges supply chain from Sweden to U. S. These additional tariffs are, to a large extent, being carried by customers, which is reducing the Granges impact to about 15,000,000 on an annual basis going forward, given the current customer agreement and FX rates. We do, however, believe that the majority of our products should qualify for exemptions from the two thirty two tariffs, and we have filed for this with support from our customers. We originally expected to receive the answer from the Department of Commerce during Q4, but due to The U. S. Government shutdown, we are still waiting for this. As for the sanctions against Rusol that prohibited U. S. Persons and limited non U. S. Persons to transact with Rusol, they were finally lifted on January 27. And for Granges, this means that we can continue to buy aluminum slabs from the Rusal smelter in Sunsval in Sweden, and we do not expect to see any additional costs for having to resource this material elsewhere. In addition, we expect that Rusal will now reenter into our supply chain financing program and restore the consignment stock at our Finspang site. This will have a positive impact on our working capital and cash flow in the first half of this year. I will now hand over back to Johan Menckle that will provide a summary of the fourth quarter and provide an outlook for the first quarter. Thank you, Oskar. As I talked about earlier, we have experienced a softening in the market in the fourth quarter, and we expect that this will continue into this year. For the first quarter of twenty nineteen, we expect Granges overall sales volume to decrease with low single digits compared with the first quarter last year. For Automotive Materials, we foresee a mid single digit sales volume decrease on a global level. In Asia, we expect a close to double digit reduction driven by destocking in the supply chain. For Europe, we foresee a mid single digit decline. And for Americas, we expect a low single digit growth. For the HVAC and other part of our business in Americas, we expect a low single digit growth in the first quarter. When looking further into 2019, we will continue to focus on our growth initiatives. During the second half of next year, we will see new volumes coming in as a result of the expansion project in The U. S, as we talked about earlier. We are taking an active part in developing solutions for electrical vehicles and we're also optimistic about our potential to improve our operations in Europe and in Asia. To conclude, the twenty eighteen fourth quarter and year end report, Granges had another good quarter with the sales volume increase of a little bit more than 1%. The adjusted operating profit increased by close to 7% to SEK191 million. When summarizing the full year 2018, we can look back on a new record year both in terms of sales volume, operating profit and cash flow. We have also continued to deliver on our financial targets. Our Board of Directors are proposing a dividend of SEK3.2 per share, an increase of 7% from previous year and in line with our dividend policy to distribute 30% to 50% of net profit back to our shareholders. Our growth projects in Americas are proceeding according to plan and will have a new capacity available in the second half of this year. Although the market conditions are expected to remain soft in the beginning of twenty nineteen, we continue to be positive about the medium term outlook and are determined to continue to grow and strengthen our presence and positions globally. Now we open up for questions. Thank you, ladies and gentlemen. There will be a brief pause while questions are being registered. Okay. And our first question comes from the line of Kenneth Toll from Carnegie. Please go ahead. Your line is now open. Yes. So you write in the report that you have a good success in the materials you sell for electric vehicles and that is a good driver for your order intake. Could you give some more information on the order intake for such products? Is it several orders? What kind of volumes are we talking about? Is it from one customer or is it several customers? Is it only orders for Europe or also for The U. S. Or China? And please elaborate a bit. Yes. Gerard, Johan here. Yes. I mean what we are seeing and are doing actively now is to be very engaged in the quotations for primarily battery cooling systems. And that's basically for the battery cooling system itself, but it's also chillers for battery cooling. And I mean, there's not really a large sales to this, but we are already into some models. And we see especially very positive response from the market, specifically for the Trillium material for specific heat exchanger. But we cannot really right now give a figure on the volume here, but I think it's early days here on the EV and EV sales. Okay. But can you say if there is it only from one OEM? Or are there several OEMs? Or is it only Europe or also Asia and North America? Okay. No, we are basically working with all our customers and all OEMs. And we're also working with, in some part, new customers in terms of battery producer. So there are several customer interactions in this area. And we are also already today delivering some applications for battery cooling to several customers, still in small volumes, though. Okay. And is it and then it is a global product, more or less? Yes. These are all global products. There are quotations for global platform for battery cooling. Okay. And when do you expect that volumes could be a significant or a contributor that we could see in terms of volumes and profitability? I mean, it will take at least a year or something like that because what we are quoting now is for platform coming up in 2020, 2021 or in that time horizon. Okay. Great. Thank you. Thank you. Our next question comes from the line of Johannes Gruncilios from Handelsbanken. Please go ahead. Your line is now open. Yes. Hello, everyone. A couple of questions. But, on The U. S. Expansion, you are very specific here and telling us that there will be a cost here of SEK 50,000,000 per quarter in Q1, Q2. But you're also saying that it will be a positive net contribution here on the operating profit for the full year. Can you say anything about how we should interpret the Q3 and Q4 in terms of incremental EBIT? Johannes, Oskar here. It means minimum SEK 30,000,000, obviously. But could you say give some more color on that one, please? Yes. No, but it's a fair question. And partly, you already answered it. It certainly means at least million dollars We hope for a little bit more than that. But what we're saying is that what we expect is that this should be positive for the full year, which means slightly more than NOK 30,000,000 in the second half of the year. I mean and what we will start to do is we will gradually ramp up production volumes during Q3 and Q4, which means that you will expect a more positive profit from this project in Q4 than in Q3. Okay. Then I'm looking into Page eight in your presentation, and thanks for providing much more clarity on the or indicating the profitability or EBIT per what's auto related and what's not auto related. So that's fantastic. Have you my question is what kind of operating rates are you running at in Finspang and in Asia at the moment? Because we can see in the slide that your EBIT per ton contribution increases here. But as I understand the situation, you're running not at full speed in your lost volumes in Asia. And how sort of sensitive is the EBIT per ton to volumes? No, think a very good question, Johannes. And if we start with the capacity utilization then and what we said also in Q3 is that the Finspang plant in Sweden is basically running now very close to maximum capacity utilization since we had to transfer The U. S. Business the part of The U. S. Business that was produced in China to Sweden. And consequently, the opposite is true as well that we now have available capacity in our Chinese plant. So our Chinese plant is currently operating at around 80% of capacity utilization. So we certainly have room to fill that with other products going forward. And then in terms of volume sensitivity in general, what we say and the guidance we have provided on that is that if you look at the cost base we have, obviously, the cost of material is something that we can view as around 100 or close to 100% variable with volume, of course. And if you then look at the payroll and other operating expense, that can be considered to be between 5060% variable, which is sort of giving an indication on the volume sensitivities of this business. Okay. Yes, that's. And my final question is on pricing in The U. S. Because and maybe you can elaborate a little bit on it, but I remember you were saying you were raising prices in the 2018 with, let's say, 7% or so for half of The U. S. Volume, and the intention is to raise prices for another 50% of The U. S. Volumes with about the same for 2019. What's the status there? Are you still expecting have you achieved the 7% price hike is the first question? And then are you looking at sort of at the same ambition for 2019 as before? Yes, that's still valid. There are prices increases around 7% to 10% for the 50% for 2019. And we also see a very strong, basically, commitment to the new capacity, and we have locked in main part for 2019, almost everything, and also a majority of the capacity for 2020, 2021. So this is still valid, the comments we made in yes. Yes. Okay. Good to know. And will that then imply that there will be a sort of a step up in earnings in Q1 versus Q4 because of new contracts kicking in? Yes, you would see that to some extent in Q1 this year. We do see a price increase for our Americas business. But we need to remember here that part of these contracts or a large part of these contracts are also valid from the second quarter, which means that you will see the price increase effect gradually coming in during the first half of this year for the Americas business. Okay. Thank you very much for answering the questions. Thank you. Thank you. Our next question comes from the line of Max Frieden from Danske Bank. Please go ahead. Your line is now open. Thank you so much. Just a follow-up question on the price increases. So in 2018, you had a similar profile in price increases for half of your volume. So can we just assume that that gradual that comment on the gradual price increase that you made for 2019 is the similar pattern as you had in 2018? Yes. I would say that that's a fair assumption, Mike. Thank you. And then another one on price. In Huntington, again, very good with the Page 18 presentation. But if you look at the additional volumes to 40 ks tonnes, should we assume that, that will be at a similar profitability level as you're running at now? Also a very good question. I mean coming back to a little bit what Johan touched upon earlier, we are selling this new capacity now, and we have been very successful in doing so. We have worked very actively with the mix because we want to fill this plant now with a favorable mix or as favorable as we can. And that also means that we foresee to have a little bit higher price level on this new volume than what we have on sort of average for the Americas business. The second thing, of course, is that what we are doing here is that we are adding capacity to an existing plant with existing overhead structures and so forth already in place, which means that from a profit perspective, we are not adding so much additional fixed cost here. So I would say that we expect the profitability from the new volumes here to be higher than what you can see on average there on Page eight. Thank you. And on the Newport facility, I think you mentioned this many times, but just to repeat or clarify, the profits there for the zinc gouge aluminum is well above group average? Or was it more in line group average? Or could you help us guide in any way you want? Absolutely. No, but sorry, it's a fair question again. This is, of course, a product it's a niche market, and there are not very many suppliers of these products in The U. S, only two, including us, which means that we are competing here with quite expensive exports imports, sorry. And that means that the price level in this market is very attractive. So from a profitability perspective, what we said here is that we certainly expect this to be higher profitability than the average U. S. Business and sort of also higher profitability than sort of the HVAC business and the other business that we are running in Huntington. Okay. Is that above group? It's above the average of the group, yes. Okay. And then finally, I can probably do the math, but it might be easier just asking the result effect from the working cap release. Could you give an estimate of how much you expect that could contribute to cash in the first half? Yes. What I can start with saying, I can start with commenting on the negative effects we have experienced in 2018. And that's in total SEK 165,000,000. The majority of that is due to that's resolved, we're forced to exit our supply chain financing program. Then it's the consignment stock in Finspang that they had to take away. And in addition, we built some safety stock also of resolved slabs in order to manage a situation or transition to a new potentially new supplier. We don't know for sure. I mean, the safety stock part that we can control ourselves, right? Whether or not Resolve will restore the consignment stock or enter into our supply chain financing platform, it's not entirely up to us. It's other parties involved there as well, but we certainly expect that they would do so. And provided that they do during Q1, we will start to sort of release this working capital gradually during Q1 and Q2. It basically takes three months to restore the effect on the supply chain financing side. So depending on when this starts, it will take three months. And we expect this to have a positive impact during the first half of this year, but not necessarily the full impact in first quarter. Okay. Thank you, Oscar. Thank you. Our next question comes from the line of Matt Liss from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes, hi. Thank you. Just a couple of questions. First, regarding the outlook there, you mentioned you expect loads in the decline then somewhat more in the automotive part. And I guess you also mentioned the inventory buildup in China. But when you indicate the mid single digit reduction in automotive, that includes the destocking part. And I mean, you expect to be able to deliver, well, a decline mid single digit volumes? Yes. You want to ask it. Yes, the mid single digit decline includes the inventory reduction part, mentioned in the report. And of course, this goes for especially Asia then, as mentioned in the report, where we see and, of course, in Americas, we have a slightly, yes, positive view on the demand for automotive. Great. Then in Finspang, you're ramping up production, I guess. Could you give some more flavor regarding that project? Yes. We have decided to increase the capacity by 20,000 ton, but also to improve the operation efficiency substantially in the Finspang operation. And that project will basically start to cost by the second half of twenty nineteen. So during the first half of this year, it's more in the planning phase. And I think it's also important to emphasize on that this is a capacity and an efficiency improvement project for the operation, which will, of course, have a positive view on the cost position for Finspang going forward. Great. And then finally, just coming back to Kenneth's questions about the EVs there. In China, for instance, do you see other competitors trying to enter this market? Or is it about the same? I think it's relatively, I mean, the same competitors that we are meeting for as for our more combustion engine related business in China. But I think it's I mean, all in all, the demand for rolled aluminum will be higher on an EV car compared to a combustion engine. So that's, I think, is a clear conclusion from the market. And as I said also, we are very active in many quotations and in working hard with the customer in their improving or helping them in their design solutions. So it's still quite early days, but the quotations that we are working on are really for a global platform for the large OEMs like BMW and Volkswagen and the others. Yes. So the quality demands are the same in an electric vehicle, there's not well, the ability for new competitors? Yes. Mean, no, it's actually there are some additional challenges for battery cooling. One specific area is what we call the flux residue. When our customer produce heat exchanger, they're adding salt. And especially the battery cooling is more sensitive to this salt for the performance of the battery. And then, of course, we have the product that already is in a commercial use, a Trillium product, which is very suitable for this and where you will have a very low, so to say, flux residue still on the heat exchanger. And it's also a benefit for the customer because they don't need to wash basically the cooling plates in their production. So some ways, there are more demanding products than other heat exchangers. Okay, great. Thanks a lot. Thank you. Our next question comes from the line of Kenneth Toll from Carnegie. Please go ahead. Your line is now open. Yes, thank you. So two questions. You talked about the opportunity to reduce working capital now when the sanctions on Ruzal is gone in the first half. But also in the second half, you are starting up production in The U. S. So I was wondering that should build some working capital when those volumes are coming up. Should we expect normal sort of working capital build as share of sales for the new capacity in The U. S? And are there higher depreciations hurting the P and L in the second half as a result of The U. S. Capacity increase? Fair questions. Yes, of course, we will build working capital when we start. In terms of what to expect there, I would say that the type of business that we are running in The U. S. Is running a little bit lower on the working capital than the group average. But in the start up phase, I think it's fair to assume that you would add working capital for this at group average level. Then over time, we should be able to reduce it a little bit to the more slightly lower than group average level. And in terms of depreciation, yes, we do foresee that depreciation will increase following the expansions in The U. S. And what we foresee now is that, that depreciation in 2020, when this will be fully up and finished will be about SEK 40,000,000 to 50,000,000 higher than the current depreciation level. And that will, of course, start to come in as we start to depreciate this in the second half of this year. Yes. Okay. And then also in the presentation, you talk about that in Asia and Europe that your sales to non automotive customers are developing well to other industrial applications. So how large a share approximately do you sell to nonautomotive customers in Europe and Asia roughly? Yes. Today, of course, the majority in both Asia and Europe are to the automotive industry. I would say it depends Europe, a little bit less to industrial applications between 510%. And in Asia, it's around 10% that goes to industrial applications. Okay. Thank you. Thank you. Our next question comes from the line of Karl Bockfist from AVG Sundal Collier. Please go ahead. Your line is now open. Thank you and good morning. My question concerns, as our people have been talking about as well, pricemix. If we simply look at aluminum prices both in dollar terms and fiat terms, year on year effect should be negative. I was just curious to see on a group level what you expect from pricing contribution into 2019. Karl, yes, just to make sure I understand, you're thinking about the raw material prices here or our conversion price on top of raw material price? Well, I think that's a fair question. I'm curious about both components, Yes. Of Okay. If we start then with sort of the raw material price or the aluminum price, it's yes, we are typically not commenting so much on what we expect there on sort of the commodity price development because it's very difficult for us to really have a view on that. But that said, that is also not the key part of the pricing for Granges since for us, the raw material or the aluminum price is a pass through. We basically we pay something to our suppliers for the raw material, and we pass that on to our customers. So that part is expected to have a neutral impact in 2019, irrespective of how the aluminum price develops. If we then take the second part of the pricing, which is the conversion price or what we add on top of the commodity when we sell to our customers? We talked about earlier here that we expect to see a price increase in Americas and that I think is pretty well described already. We also expect to see a slightly positive pricemix effect in Europe at although much lower positive impact than in Americas. In Asia, we foresee that the development that we have seen now over the last couple of years with gradually declining market prices, although from high levels, we should say, that, that is continuing into 2019. And if we sum all this up, we expect to see a positive pricemix effect in 2019. But that is also I mean, when you talk about the mix here, we should also say that this is, of course, a comment that is very much based on the sort of volume outlook because this can change if, for instance, Asia would continue to decline, if Americas would grow a little bit more and so forth. But what we see now is a positive pricemix effect for 2019. Okay. And then I have a question concerning the new Trilium products. Are you seeing a high demand for this? And in a few years, how much do you expect this product and other types of new innovations to account for in terms of volumes? Yes. Johan, we see a great interest for the Trillium project due to the fact that it's, I mean, very suitable, especially for battery cooling. And if you look a bit in front of us, what will happen in our industry is that, of course, the battery cooling system will represent a large part of the total demand for heat exchanger material. So in that sense, we foresee a very strong demand for the Trillium product going forward. And I think it will become a very, I mean, important part of our business. But it's still quite early days on the EV development, and there's a lot of quotations. So I think we will expect this in a few years to come, but gradually from this year and forward. And just to also emphasize on your question there, I mean, we have also, I mean, increased our patent portfolio during 2018. So there are also other interesting new developed product that we are starting to commercialize during 2019. Okay. Thank you. And then the final question from me would be, have you seen anything on the material cost side? Has there been any change in mix between scrap and new materials and price mixes here there, which could explain in part the press lower materials sales and also what you see going forward? Okay. Yes, we are the sort of the raw material mix is something that we work quite a lot with there in our sort of metal management team. And what we are trying to do, of course, is to, as large extent as possible, replace primary aluminum with recycled aluminum that we buy on the scrap market because that will give us a lower input cost. And during this year, have made quite good improvements, especially in The U. S. In terms of sourcing scrap and recycled aluminum instead of primary aluminum. And this is something that we that has had a benefit for us for our material cost in 2018, and we continue to work on this in 2019. And I expect that we will be able to improve this further. I don't know if that was a question or answer to your question or if your question was more sort of from an external perspective. No, no. I think you answered it well. I mean, how should we think about the mix between recycle and primary between the different regions and if you're seeing any major changes between the recent quarters or year over year and what you expect going forward? Yes. I mean, it's because what you can say is that there are in each region, is a sort of a different type of market for the recycled aluminum. In Europe, for instance, the aluminum recycling market is very well developed. It's easy to access scrap metal and so forth. In China, it's a little bit different. The market for aluminum recycling is much smaller. So therefore, for that reason, we are using less recycled aluminum there. In The U. S, the Noranda business that we acquired in 2016 originally also had a primary part, which means that they didn't use almost any scrap material or recycled material. That's something we are now trying to change because in The U. S. Also there is a developed aluminum recycling market. So you can access that. And that's, of course, something that we are working very much with. Today, we will see some changes in Europe. And in Asia, the changes would be smaller due to the nature of the markets. And just a side comment here, Johan. Think when it comes to scrap recycling and I think it's really clear, and there are lot of indications now also from the OEMs that sustainability will become much more in focus going forward. And the CO2 footprint is, of course, very important for the consumers, and that also implies a focus on this in the automotive value chain. So of course, to increase the scrap in your production, make sure that you can source aluminum that has a very low CO2 footprint is a very high has a very high priority going forward. And there, Granges is working very actively, and we are quite confident that this will also, in the future, create value for our customers, our work on this side. Okay, perfect. Thank you very much. Thank you. Our next question comes from the line of Max Frieden from Danske Bank. Please go ahead. Your line is now open. Hi, again. I just had a more technical question on the Trillium. I don't know if you talked about this several years ago, but do you need to do a large production adaptation or resetting in your facilities in order to produce Trillium today? No, we don't need. And as if you recall, I mean, we did the year before last or last year actually, a small acquisition in two production units, one in France and one in Germany, that will enable us and make sure that we have the Trillium material in house. And when it comes to Granges operation, there is no additional need for investment to adjust for Trillium production. Yes, that's now I remember. Okay. Maybe just a follow-up on the because since you're eliminating the fluxing, as you say, do you expect better profitability for Trillium when commercialized? Or is it too early to say at this stage? The Trillium is a more advanced product, meaning that it create more value for the customers. So it should have a better profitability than the average product. Thank you very much. Thank you. Thank you. Our next question comes from the line of Matt Liss from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes. Hi, thank you. Well, just a follow-up there on Matt's question about Trillium. I guess, as I remember it, there are some costs involved for the customer to make the changeover to Trillium, guess. And could that be easier to well, take in an electric vehicle world? Yes. There are not that much, of course, additional costs for the customers. Just more that they need to manage the production. But I mean, one of the benefit with Trillium is also that it has what we call a better brazeability, meaning that their bracing process is less sensitive and can basically make the production in one way more easy. But one of the disadvantages has been that the customer need to take out the flux residue on the heat exchanger, and then that's why they need to wash the whole heat exchanger. And with the Trillium concept, there is less need of washing. So that's a clear benefit for the customer. Okay. So there are no additional investment for the customer to make a changeover? It's more related to their production, and they have to make sure that they can produce because it's a slightly new different design and different bracing furnaces or not furnaces, but processes. So there's not really a hardware investment as such. It's more to learn the process. Okay, great. And then just a final one on Page 13 there in the annual report, comment on the IFRS 16 changeover. And I guess, well, the impact is not that material Or could you give some comment there? Mentioned the what will happen, but you don't mention any more figures. Well, you mentioned the $270,000,000 there. Yes. No, but you're absolutely right there. And I think you have certainly drawn the right conclusion here, Mats, that we are applying IFRS 16 as of January year. But here, we need to remember that we don't have that much leased assets, which means that there it's not going to have a big impact on our numbers. The number that we are highlighting here, EUR $270,000,000, that's sort of the number that you need to know. You don't need to recalculate that much other things in our P and L or balance sheet. Okay, great. Thanks. Thank you. As there are no more questions registered at this time, I hand the call back to you, speaker. Please go ahead. Okay. If there are no more questions, I would like to conclude this session. Thank you, everyone, for participating in today's conference call. Thanks a lot for very good question and active participation, interesting questions. We look forward to our next call on the April 26, when we'll present the first quarter report for 2019. Thank you, and goodbye.