Earnings Call: Q2 2020

Jul 16, 2020

Welcome to Granges Conference Call for the Second Quarter of twenty twenty. As usual, here in Stockholm, it's me, Johan Menkel, CEO of Granges. And with me, I have CFO, Oskar Helstrom. We will start his presentation with an update of the general market situation and Granges' performance during the last quarter. After that, Oskar will take you through the financial results, and then we will conclude the presentation with a short summary and the Q and A session. When we now have the 2020 behind us, we can conclude that this turned out to be the most challenging quarter in the modern history of Granges. As we're all aware of, the world is currently severely impacted by the outbreak of COVID-nineteen. The extraordinary measures that have been taken to reduce the spread of the virus have significantly affected market conditions for Granges in the second quarter. We started to see the impact on demand already in the first quarter when the car producers in Asia and Europe closed their production facilities. The same thing followed in North America in the second quarter, resulting in that the end market demand on the automotive side declined with 50%. The demand for our HVAC products, however, held up slightly better, mainly explained by the increased market share in 2020. In total, our sales volume declined by 24% year over year and the adjusted operating profit declined to million in the second quarter. On a positive note, the cash generation continued to be very strong and the adjusted cash flow before financing amounted to SEK238 million in quarter two. Our top priority during the quarter has been to work in accordance with our contingency plans to secure that health and well-being of our employees and take measures to mitigate the negative impact on Granges business from COVID-nineteen. Granges Annual General Meeting was also held in the second quarter. At the meeting, Granges' new Chairman, Friedrich Arp, was elected. The AGM also authorized the board to issue new shares of total billion to finance the acquisition of Aluminum Konin and Granges growth strategy. The difficult market conditions became very evident when looking at some statistics over the recent market development. For the automotive market, the research firm IHS currently estimates a global decline in light vehicle production of 47% in the second quarter. If we look at estimates by region, we can see that the decline in the light vehicle production was largest in Americas and Europe, with 7365%, respectively. Asia is holding up somewhat better, being down only 25% year over year. This is largely due to the China that was first severely impacted by COVID-nineteen in the first quarter, but now has partly recovered. IHS estimates that there was a slight year over year growth in the Chinese light vehicle production in the second quarter. Although the production stops at many car producers now seem to have come to an end, the uncertainty about the real customer demand remains very high as we go into the second half of the year. Currently, IHS expects a gradual recovery of the automotive production and a smaller year over year decline of 12% compared to the 47% in quarter two. If we look at Americas HVAC market, this is typically a more stable market than automotive and to a large extent driven by replacements. It doesn't mean that it has been unaffected by COVID-nineteen and the unit production is expected to have a decline by 19% in quarter two. Given the current market uncertainty, it is very difficult to predict how the HVAC market will develop in the third quarter. To a large extent, this will depend on how the general economy in The U. S. Develops considering the COVID-nineteen outbreak. When looking at Granges sales volume development during the second quarter, we can clearly see the impact of the lower automotive demand in all regions. In total, our sales of automotive materials declined by 41%. In Asia, sales volume was down 28%, in Europe 47% and in Americas, we experienced a 60% decline. This largely follows the pattern of the development of light vehicle production in the quarter. But we see a slightly lower decline for Granges. The key reason for this is that the uncertainty in the market and the difficulty in predicting the market demand has resulted in customers building up additional inventory, which will be reduced over time. If I should mention something on the positive side for automotive, it is the development in China, where we see a higher activity in the second than in the first quarter. Given the current situation, this can likely continue going into the quarter three. For HVAC and other business in Americas, we see a volume decline of only 7%. There are two main reasons for this. First, we have contracted a market share increase as of 2020, as we communicated in our first quarter report. Secondly, the demand for specialty packaging materials for food and pharmaceutical has increased as a consequence of the COVID-nineteen outbreak, especially the demand for materials for food containers for home deliveries and takeaway has increased as a result of the lockdown in many U. S. States. As we communicated in our quarter run presentation, we have activated contingency plans focusing on three primary areas: continuity, cash and cost, to mitigate the impact of COVID-nineteen. In the second quarter, we have continued to work in accordance with these plans to secure business continuity, protect cash flow and reduce costs. Safety always come first in Granges. Our highest priority is to ensure the health and safety of our employees, while maintaining continuity and developing the business. During the quarter, we have continued to adapt operations to the new market situation and we have managed to avoid COVID-nineteen related operational disturbances in our own facilities. While maintaining continuity and developing the business, it is of great importance to secure cash flow. As part of this, we have increased the focus on working capital control and receivables collection. This is an area where we continue to see positive effects in the second quarter. To preserve cash, we have further reduced our CapEx spending and we have revisited the ongoing expansion programs. It is equally important to ensure good liquidity. On June 30, Granges had available cash and unutilized committed credit facilities of about SEK2.1 billion, well above the need for the coming twelve months. Finally, we have addressed the cost base to adjust it to expected market demand in the short to medium term. This means reductions of capacity and manning, primarily through temporary plant closures and layoffs. We have also reinforced our general saving program and limited spend to allow only business critical expenses for the time being. Considering the weak sales and earnings performance in the second quarter, I am however satisfied with the way we have addressed and proactively responded to the challenging situation, especially with the speed of the actions taken. On this slide, I want to give you an indication of what the current status of operation and expansion initiatives in Granges looks like. The production plants in Huntington in Newport in The U. S. And the Shanghai plant in China are currently operating as normal. In Europe, we had closed part of the plant in Finspang by March and the parts that remain in operation have been reduced to about 40% of normal capacity as an adjustment to the market demand decline. During the quarter, we have gradually scaled up the capacity to meet actual market demand. All employees have been temporarily laid off up to 60% of the time and we have reached an agreement with the workers' union, which gives us flexibility to scale up or down the manning level at short notice. In The U. S, we have two plants with the same capabilities, which gives us an even greater flexibility to adjust capacity to market demand. The Salisbury plant was temporarily closed in early April and all production has been transferred to the larger and more cost efficient plant in Huntington. As in the Finspang plant, employees in Salisbury were temporarily laid off during the second quarter. As the expansion investment in Huntington continues to deliver very well and soon is fully ramped up, we have made the decision to extend the temporary closure of the Salisbury plant until year end. As a consequence of this, more than 100 employees were terminated at the June. Depending on how demands develop going forward, we may do further capacity adjustments. As I mentioned earlier, one of the actions we have taken to mitigate the effects of COVID-nineteen is to postpone our capital expenditure. This goes for the maintenance investment as well as for the two ongoing expansion projects in Newport and Finspang. In the fourth quarter of twenty nineteen, we announced the acquisition of Aluminum Konin. The acquisition will strengthen the product offering and presence in Europe and contribute with the strong positions in new attractive niche markets. Aluminium Konin will also add new capabilities and capacity to expand the offering for future transportation solutions, such as electrical vehicles. The completion of the transaction is subject to customer approval from the competition authorities. Due to the COVID-nineteen outbreak, the process to receive clearance will take a longer time than originally anticipated. Therefore, the closing of the transaction is expected to take place in the second half of twenty twenty. With that, I hand over to Oskar for the financials. Thank you, Johan. As Johan has talked about, COVID-nineteen has been the main theme for Granges in the 2020 and for natural reasons, even more so in the second than in the first quarter. The drop in sales volume in quarter two led to a significant reduction in operating profit and operating profit per tonne, as you can see on this slide. The primary driver behind the decrease in profit is the low capacity utilization resulting from the low volume in the quarter. If we compare with Granges' theoretical maximum capacity, the utilization was on average around 60% in Q2, around 70% on the HVAC side and only about 50% on the automotive side. Given that a large part of our cost base is fixed or semi fixed, this had a significant negative impact on the operational leverage in the quarter. And this is especially true for the automotive business, and you can see on this page that the operating profit per tonne is declining for automotive, whereas it's more stable for HVAC. One important reason for this, in addition to the fact that we have a lower volume induction on the HVAC side, is that we have successfully taken out capacity for HVAC by temporary closing the Salisbury location, as Johan mentioned. If we adjust for the capacity taken out in Bury, the utilization on the HVAC side was above 85% in the quarter. Another thing that I think is worth to highlight is the mix shift with more HVAC and less automotive products in the quarter. If we compare from a year over year perspective, this mix shift means an unfavorable profitability effect for Granges due to the historically higher margins for automotive products. Still, if we look at the second quarter in isolation and at the current volume levels, we have presently higher earnings in absolute terms on HVAC than on automotive products. If we look at the second quarter financials and compare with the same quarter last year, we can see that the sales volume decreased by 24% to 70,800 tonnes and that the net sales decreased by 30% to SEK 2,200,000,000.0. The main reason for the net sales decreasing more than the sales volume is lower metal prices than last year. Changes in foreign exchange rates did not have a material impact compared with the second quarter of twenty nineteen. Looking at the earnings, the adjusted operating profit amounted to SEK 42,000,000 in Q2. That's a decrease of SEK215 million or 84% on prior year. The main driver behind the reduced operating profit is the low sales volume leading to the low capacity utilization. In addition to this, we saw some effects of less optimal metal management in the quarter. And the primary reason for this is that it's difficult to optimize the raw material mix in our cast houses when we have large changes in volume and product mix. Over time, this will be adjusted for and optimized based on the new volume level. Similar to the first quarter, we see increased depreciation of in total SEK 27,000,000, primarily related to the completed expansion projects in Huntington. A slightly higher average conversion price contributed positively, and net changes in foreign exchange rates was positive SEK 4,000,000 in the quarter. The second quarter operating profit further includes SEK 14,000,000 of government grants related to financial support in connection with COVID-nineteen. The majority of this is related to temporary layoffs in Sweden. Including the SEK 14,000,000 of government grants, the total cost savings from the COVID-nineteen actions amount to about SEK 50,000,000 in the second quarter. Looking at the profit margin, the adjusted operating profit per tonne declined from SEK2.8000 to SEK600 in the quarter. Items affecting comparability amounted to in total SEK5 million in the quarter. These are related to the ongoing acquisition of Aluminium Konin. Including the items affecting comparability, the operating profit amounted to SEK 37,000,000 in the second quarter. The profit for the period was SEK 1,000,000 and this is not a level that we are satisfied with, but it may be considered acceptable under the circumstances. During the second quarter, the net debt decreased by SEK $312,000,000 to SEK 3,200,000,000.0 or 2.9x adjusted EBITDA. We continue to see a strong underlying cash generation in the quarter and the cash flow before financing adjusted for the expansion investments amounted to SEK $238,000,000. And as Johan mentioned earlier, one of the areas that we have increased our focus on as a response to COVID-nineteen is working capital management. Here, we continue to see a positive development in the second quarter. And in total, we released million of working capital. Part of the release is enabled by the sequential business downturn from Q1 to Q2, but it's also a lot of active work behind this in terms of supplier management, inventory management and not the least, collection. Despite the very challenging market situation for many of our customers, especially on the automotive side, we have managed to keep the level of overdue receivables stable for the during the first half of the year. We have also continued to invest in total SEK 40,000,000 in our expansion programs. Of this, 27,000,000 are related to Sweden and SEK 13,000,000 to The U. S. As you know, we've put the expansion programs on hold, but due to the contracts with the suppliers, spend does not come down to zero immediately. Still, for the second half of the year, we expect very limited expansion CapEx unless we make a decision to restart any of the projects. With the planned reduction in maintenance CapEx and provided that the expansion investments are not restarted before year end, we currently expect the full year CapEx for 2020 to be about SEK $450,000,000. The FX and other component on this slide is primarily not cash related, but it's the result of currency translation effects on U. S. Dollar denominated debt as the SEK appreciated against the dollar in the quarter. In terms of access to liquidity, we currently have cash of close to SEK1 billion and committed available credit facilities about SEK1.1 billion. This does not include the financing arrangement for Aluminium Konin, which is a separate facility. Excluding commercial papers, which are backed by a revolving credit facility and a small working capital loan in China, we have no loans or bonds that are due until third quarter of twenty twenty one. We believe that the financing that we have in place gives Granges the strength to meet both the downturn as well as the expected recovery. With that, I'll hand over back to Johan Menkel, who will provide an outlook and a summary of the second quarter. Thank you, Oskar. Given the rapid development of the spread of COVID-nineteen and the high level of uncertainty in the market, it is currently very difficult to provide an accurate forecast even for the short term. That said, the research firm IHS currently assumes a gradual recovery of the global light vehicle production with a sequential growth and a lower year over year decline in the third than in the second quarter. As commented earlier, the inventory levels are high at many of our customers and we expect that these will start to come down in the third quarter. This will have a slowing effect on the demand for the Granges products in the third quarter. Our belief at this point is, however, that we will see a lower year over year decline in our sales volume in the third than in the second quarter. Our current best guess is that the sales volume in the third quarter will be around the same level as in the second quarter. That goes for the group as well as for the individual regions. Keeping the seasonality of our business in mind, this is however an improvement since quarter three is typically a weaker quarter than quarter two. Further, we expect to see increasing positive effects in the third quarter from the cost reductions measures that we have taken as part of the actions to mitigate the impact of COVID-nineteen. Although the short term implications on COVID-nineteen should not be underestimated, we believe that for Granges, the medium to long term fundamental is still positive. Our focus on supporting sustainability, light weighting and electrification is likely to keep us in a favorable position also in the post COVID-nineteen environment. It may even be so that the current crisis will speed up developments in other areas and create additional opportunities for Granges. With a strong commitment to constantly improve and develop, Granges is well positioned to continue to deliver sustainable and profitable growth throughout economic cycles. To conclude the twenty twenty second quarter report. The COVID-nineteen and measures taken to reduce the spread of the virus affected the markets in which Granges operates, and the demand for our automotive materials declined by over 40% in the quarter. This was, however, partly balanced by increased market shares on the HVAC side, leading to that our sales volume declined by 24% in the quarter. The adjusted operating profit was reduced to SEK42 million, but the cash generation remained strong with an adjusted cash flow before financing of SEK238 million. The profit for the quarter is not at the level that we are pleased with. Considering the weak sales and earnings performance in the second quarter, I am however satisfied with the way we have addressed and proactively responded to the challenging situation, especially with the speed of actions taken. Although the market conditions are expected to continue to be very challenging in the coming quarter, we continue to be positive about the medium to long term outlook and are determined to continue to grow and strengthen our presence and positions globally. Thank you for listening, and now we open up for questions. Thank you very much. And you'll enter into a queue. Please press 01 on your telephone keypad, and you'll enter a queue. Now, I would like to invite mister Roosevelt from Roosevelt to ask your question. Please go ahead. Okay. I would like to invite the next person, Mr. Kho from ABG Sender to ask your question. Please, Mr. Kho. Thank you and good morning. So first question from my side, think relating to the ramp up contribution. Is it possible to get an indication of how many kilotons we're talking about here approximately? I guess you referred to the ramp up of the Huntington expansion program. Yes, exactly. And how much it perhaps contributed on this quarter sort of incrementally? No, but I think that if you recall, we had a plan to reach 75% of the 40,000 tonnes annual capacity there by midyear. It's basically after second quarter, but we indicated already in Q1 that we are ahead of that plan, which was, of course, very positive. So we now exit the second quarter. We have almost reached the full sort of available capacity at this stage of this investment. So we are very close to finalizing the ramp up there. This means that basically, have close to the 40,000 tonnes annual capacity available. And of course, in terms of utilization, we have more or less utilized all of this in the second quarter because this is now the sort of most efficient equipment we have in North America, and we try to fill that first. And that's also what Johan speaks about the temporary closure of the Salisbury facility, the volume that was previously produced in Salisbury has been reallocated to this new investment basically. So it has a very high utilization in second quarter. All right. Thank you. And if I'm not mistaken, I think in the past quarterly reports, you mentioned that you saw a positive contribution from Huntington and Newport. So it's just interesting hearing the given the fact that you mentioned that you put the Newport upgrade on hold. I was just wondering if you could perhaps provide a bit of clarity on how much extra volumes that is coming from Newport? Yes. No, that's a good question, Karl. No, but what we do see I mean, Newport is the facility where we have the capabilities to produce this super thin aluminum foil, and that goes into packaging and pharmaceuticals and so forth. We have seen an increased demand for that type of products in the second quarter. So we are gradually ramping up that production facility and qualifying customers. There has been sort of fairly limited production volume but increasing. The reason why we put the investment on hold in Newport was not necessarily sort of from the CapEx perspective. It was more related to the fact that the equipment supplier couldn't travel to Newport and sort of finalize the upgrade of the last mill there because it's an Italian equipment supplier and they couldn't travel to The U. S. For COVID-nineteen reasons. But we are now discussing to try to restart this investment again because we do see that the capacity that we can come that we can get from the upgraded third mill is going to be sold in the market in a very short future. So that's a decision that we have on the table to make at an appropriate point in time. Understood. And just a final one for me on the CapEx side before just another question is, when you now target a reduction in expansion CapEx, how do you believe that one should think about the planned Finspang expansion? So for example, if or when things would normalize, when would you make the decision to start expansion projects there? And when, if so, could one expect volumes from the facility? I think you previously targeted contributions in the 2021 before COVID-nineteen? Yes, absolutely. I mean at this point in time, we have decided to stop that project. We haven't made a decision yet on when to restart. But if we assume now for a second that we will keep the project sort of temporary on hold for the rest of the year, it means basically that we see six to nine months delay. So you're absolutely right. We expect to see the benefits to start to materialize in the second half of twenty twenty one. Everything else the same, that means we are into the late first half of twenty twenty two, I guess, when you start to see these benefits. But we also need to keep in mind then that, I mean, there's a twofold benefits coming out from this project, right? One part is the additional capacity, that's 20,000 tonnes. Depending on the market development, that capacity may or may not be needed within this time frame. And in that perspective, the delay may not have that much of an impact. But the other part, of course, is that this is going to be quite substantial cost saving for the Finspang facility. And that impact, of course, is something that we want to sort of try to get as soon as possible, of course. So from that perspective, the six months to nine months delay is unfavorable, I would say. All right. Thank you. And final question. You mentioned or highlighted that you received government support this quarter. And do you expect to receive anything in Q3 or Q4 as well? And my follow-up also when it comes to volume, and you say sales volume is fairly in line. When you say fairly in line, if I may, does that mean somewhere around plusminus 5% versus Q2? Or how do you think one should think about it? Yes. Oskar, yes, I can answer maybe the first question there on the government grants, and then Johan can give some more flavor around the sales volume. But if we start then with the government grants, of course, a large part of these grants are related to the temporary layoffs that the Swedish government has sort of made available to companies operating in Sweden. That scheme will continue in the third quarter. And provided that we have sort of the same or similar volume outlook, I foresee that we will continue to receive those grants. I mean it's basically a balance between using the temporary layoffs and getting the grants and doing more permanent layoffs. And that's, of course, something that we are always evaluating as well. But sort of with the current outlook, I do foresee that we will receive grants also in the third quarter. For the fourth quarter, it very much depends on what sort of the business activity will look like, and that's a little bit early to comment on, I think. Dan yes, you had a question regarding the outlook for quarter three. Johan here. And I think the question was if you can assume the volume in quarter three to be in line plusminus 5% with the volume we had for quarter two, and that's a correct statement as we can see it right now. I mean just to give some more comments about that. For the automotive market, we saw that China was, of course, coming in first in this COVID-nineteen crisis. And there was an inventory buildup in quarter one then impacted the sales in China in the quarter two negatively. And we have the same, so to say, pattern in the rest of Asia and in Europe and Americas for quarter three, where there was an inventory buildup in quarter two, which will have to be reduced during quarter three. So China is, in a way, we have a more positive view in quarter three in terms of demand for automotive. But your assumption there, Karl, is fair and correct. Okay. Thank you very much. Thank you very much. So I would like to invite the next participant, Austrian from Bankers Bank. The floor is yours. Hi. This is Austrian Lindstrom from Bankers Bank. Two questions from my side. One, I guess, is following up a little bit on Carl's question there about the government grants. I mean, mentioned here that you had some $50,000,000 in cost savings and government grants in the second quarter. You mentioned in the report that you expect the cost savings to increase in the third quarter, what size of cost savings should we expect in the third quarter? Yes. It's a good question, Oskar. We haven't sort of provided specific guidelines on or guidance on exactly how large additional cost savings will be. It will be also dependent on the volume development here because basically, what we are doing with our cost savings is trying to take out as much as of the fixed cost and as of the semi variable cost as possible, basically trying to convert that into variable cost. But that's, of course, actions behind that. So from that perspective, I would say that we have taken a lot of actions during Q1 and Q2. We have not yet sort of received the full quarterly run rate impact from that, if you wish. And as Johan indicated earlier, we are also reducing now making a permanent reduction of the workforce in the Salisbury plant by the June. That's expected to have additional positive contributions in going into the third quarter. But that said, we haven't given an exact amount for what additional savings that will be expected. The government grants, I think, is fair to assume that they will be on a similar level in Q3, provided that the market activity is similar. Right. And could you say maybe what the run rate is in terms of personnel reduction now compared to at the beginning of or the average of Q2 or? No, I think the way to think about it is we have some comments in the report there on sort of the number of personnel and the average during the quarter. But I think the key sort of difference here that you can think is that we have 128 blue collar employees that have been on temporary layoff in for a large part of the second quarter, and those have now been permanently laid off by the end of the second quarter. So that will be some additional savings coming out of that. That's between, I would say, between SEK 3,000,000 and 5,000,000 from that specific action. But then there are other actions as well, of course. Right. Okay. My second question is more general. I mean, very clearly, I mean, demand from your customers for existing business has slowed dramatically, and hopefully, it will sort of recover now as more factories open. I'm thinking a little bit about sort of the new business acquisition. And has that completely stopped during this past quarter? Are you you know, do you continue to sort of plan for, you know, new models and and supplying new products to to customers? Or is it merely sort of them calling and and focusing on volumes? No. I mean all this Johan here, good question. All this kind of long term activities is, of course, still very active. And I mean just to give you an example, I mean, in the European Union, there's been investment of EUR 60,000,000,000 for the electrification of the automotive industry. And I mean, the market for flat rolled products for battery, which is a nonexisting market for Granges today, has the equal global size as the whole heat exchanger market for combustion engines. So there is a lot of activities ongoing on Granges side with new products. But of course, due to the slowdown in the general market due to COVID-nineteen, a lot of tests and customer interaction has been stopped, of course, for just for practical reasons. But I mean the interest and the demand for this kind of a long term business development is still very valid. And for sure, having a more of a medium to long term view, we are very confident that our products and offerings will well serve kind of the need in the future. So nothing has changed on that side. It's more like short term practical, very difficult to work with new business development since we have not been able to meet customers basically. Thank you very much for the question. We have a question from Julien Bato from Pascal Avelo. Please. Mr. Julien, could you question, please? Yes. Sorry, I was on mute. It's regarding the EBIT per tonne. In Q2, it was obviously very low. And usually in Q3, it's lower seasonally over the last four, five years. So my question is, all exceptionally low Q2 was basically? Sorry, Julian, I didn't catch your question there at the end. Yes. The EBIT per tonne in Q2 was extremely low. And I was wondering and usually, Q3 EBIT per tonne is seasonally lower, right? So my question is how much in Q2 EBIT per tonne was affected by what you described, I guess, around the semi variable cost and the fixed cost? Because what strike me in the P and L of the Q2 is the fact that the below gross profit costs are not moving much despite the much lower volume and revenue. While I guess or I had expected the cost between EBIT and gross profit were a bit more variable than this? No, I think it's a good question, Julien. If I try to start then what you ended with there, part of the cost and how variable it is, I think that it's fair to assume that I mean, the cost of materials, that's more or less 100% variable with volume, right? But then you look at payroll and other operating expenses, which is called in the P and L there. I think it's fair to assume that, that's roughly 50% variable, 50% fixed in the short to midterm there. But of course, there is a large part of this that is semi variable. And the semi variable cost is maybe easy to take out when you have smaller fluctuations in sales volume. But of course, when you have these dramatic volume changes that we have seen in the second quarter, it's basically a lot of hard work to get that semi variable cost out. So that's certainly one thing. But fifty-fifty split, I think, is a fair sort of basic assumption there. But then I completely agree with you, right, that we have a low EBIT per ton in the second quarter. Typically, the Q3 EBIT per ton would be even lower. But then again, this year, as Johan commented on also, we do expect sort of a similar sales volume in Q3 as in Q2 with what we see in the market right now, I should say. And we also see additional cost savings coming through, which means that for 2020, it will be a little bit most likely then be a little bit different than a normal year because we expect to see the EBIT per tonne to be higher in the third quarter than in the second quarter with sort of the outlook we have today. So hopefully, the second quarter is of 2020 is going to be our low point in this. But again, of course, it's an uncertain market, so it's difficult to know that for sure. Okay. Thank you. Thank you. Thank you very much, Mr. Julian. We have next, I would like to invite Matt Lees from Kepler. Would you like to ask the question please? Yes, hi. Well, couple of questions. First, you mentioned the high inventories. And well, my question is if you could shed some light there on in which segment geographically and what customer segment you see high inventories, if there is any difference there? Johan here, Matt, good question. No, I mean, the inventory buildup, as we've seen, is related to the automotive business globally. And I mean, the exemption is China, where we had the high inventory that we see now has been reduced during quarter two, and therefore, will have a positive impact. Whereas the rest of Asia, if you're considering Thailand, India, Japan and Europe and in Americas Automotive, we have the same situation as we had in China earlier this year with an inventory buildup during quarter two that has to be consumed then during quarter three. And that is the reason why we are not maybe fully in line with the outlook for IHS when it comes to automotive vehicle light production. So but then comment on other segments, I mean, HVAC and several of the segments that we are serving in U. S, container foil, we have heat shields and transformer windings and packaging. There, we see actually an increased demand that we have really grown that business. But bear in mind, these are fairly then small compared to the automotive. And for the HVAC business, we see a more or less sort of flat development going forward for U. S. So that's kind of the summary of the different segments and the outlook for them. Great. Coming back to the HVAC segment there. And I guess in The U. S, it's normally a seasonally somewhat stronger quarter, the third quarter. And but could you say something there about the customer activity and how they sort of seem how they run production currently? It seems you are a bit well, you see you downplayed expectations somewhat, I guess, but Yes. I mean when it comes to HVAC and for Americas, we see we saw, I mean, a decrease of some yes, 7% in quarter two, whereas the market, if you refer to the distribution and sale of air conditioning equipment, was actually worse. So of course, we saw a market share gain in U. S. So we declined less than the market. But I think in U. S, in general, there is, of course, a lot of uncertainty in relation to different states and the phase where they are in, of course. So it's actually quite difficult to give a very good view of Americas HVAC business for the short term. But I mean, our position when it comes to the HVAC segment has, I mean, in a way, strengthened during quarter two. And also that goes for quarter three, but it's more the market uncertainty. Okay, good. And could you say something there about The U. S. Pricing in general? Yes. Mean, previously, you have indicated it positive. Yes. We had pricing up single digit figures for 2020, And that is part of the renegotiated contracts that we've been through the past, I would say, quarters here, which had a positive impact on our earnings. So that's kind of the situation for 2020. Right now, we would not really expect pricing gains in the 2021. But I would say on the pricing there in The U. S, Mats, we have previously said 4% to 5% increase in conversion price on 50% of the volume, and that's what we see coming through in the second quarter as well. Okay, great. And finally, just about Konin then. I mean, you expect a closing in during the second half, but it seems you have not been able to sort of well, you have been hindered by the travel restrictions and so on to do the final checkup. And so and well, it's a delay, but I mean market development and maybe also the development of your own business is sort of have been soft given COVID. What's your view on Konin currently? Is it sort of yes, it adds competence and you improve your position going forward in the electric vehicles area, but is there any sort of reason to change the initial view you have that maybe not well, could you shed some light there? If market conditions have been so soft, I mean, that you don't see a short term boost for you to acquire them? Yes. Good. Johan here. And of course, I mean, first of all, I just want to underline that aluminum corn in still is a very high strategic value for Granges, and we still see that, that acquisition will contribute very positive to Granges. And there are many reasons for that. I mean, the aluminum coating has unique capabilities to grow within electrification of EV, but they're also very suited for other nonautomotive business. And also, the company in itself is not so exposed to the automotive industry as Granges in Europe, so of course, therefore, having a much different performance and a better performance. So the we still haven't changed our view on the importance and the strategic value for Granges to pursue this opportunity. But as you said, of course, the process for receiving confirmation from the European Commission has been delayed. And right now, we have basically finalized what we call the pre notification phase, which means that by mid August, we intend to basically file the application. And so that means in practically that due late quarter three then, this can be, yes, finalized at the earliest point. So but I think the only reason for this is that it has been a delayed process due to COVID-nineteen. That's the only reason for this delay as of today. Okay. Thank you very much. Thank you very much. We have a question next from Mr. Gustaf from Handelsbanken. Your question please. Mr. Gustaf Shun from Handelsbanken. Sorry to come back to the volume guidance, but trying to understand that a bit better. I mean, I'm a bit surprised when you say in line sequentially given the IHS forecast we have even in a destocking situation. So I mean, how much is the destocking expected to affect volumes negatively? And perhaps how much was the actual positive effect from restocking in Q2? And then I mean on the guidance, are you taking a lot of height for the uncertainty in HVAC demand for Q3? Or how should we view that? Reason I'm asking is because if I look at this, we have to use both significantly higher negative growth rates versus IHS and a significant negative year on year growth for HVAC to get to sort of similar volumes sequentially. Yes. It's Oskar here. I think I have understood your question there. But I think it's to try to sort of answer a question in a simple way that it could be kind of quite complex to answer. But I think the if you think about Granges and if you think about the automotive production, what we have sort of between Granges and the automotive production is typically one, sometimes two basically component manufacturers or HVAC manufacturers. And there are sort of inventories in these both these levels or one level. I would say the key explanation of the really, by far, the largest one, both up and down here, if you compare with IHS and Granges, is really the inventory in the supply chain. So I think it's fair to assume that the reason why we have increased or decreased less than the car production in Q2 has to do with inventory. And the reason why we expect to not grow as much or decrease more than the car production really in the second quarter third quarter, sorry, is related to the inventory. That's really the single largest explanation. And I think in terms of HVAC, if you compare year over year, we have a much more sort of much better development than the underlying market, and that comes down to what Johan said earlier. It's about market share gain, really. And we also need to bear in mind then that it's really HVAC, but we also have some other products in there, the packaging material and so forth that has had a favorable development compared to last year, really. So it's a set of different factors. But for automotive, inventory is really the big swing factor here, I would say. Great. And then secondly, from my side, I know it's not in your book yet, but any possibility to shed some light on volume and profitability development in Konin? You mentioned better performance, but can you specify that a bit? I mean, we as you said, we are not really, yes, allowed to comment on that since this is not part of Granges today. But what we know and to our understanding actually, they had a good start of the year, actually, what we have seen so far. But I think one of the reasons also that they have a much more diverse product portfolio than Granges' European business. So that's the but to what we know, they had a good start of the year or the first half of the twenty twenty. Next, we have a question from Mr. Julien from Pascal Abilius. Yes. Just a quick one. It's regarding volume in Asia. So Q2 was markedly lower compared to Q1, and you touched on this. But considering Q3 last year was especially weak due to some destocking also, could that be that Q3 compared to Q2 be higher or markedly higher compared to in Asia? And second question is on can you specify CapEx for the full year basically? What is your range now? I think, Julian, you're right there. Q3 in Asia last year was not particularly strong. And so if you I can base the answer on sort of the guidance that Johan gave here. If we look at and say, okay, we have a fairly similar volume level for Q3 as in Q3 this year, I mean, if we take that assumption and apply that to Asia as well, that would mean a if you compare year over year, you would expect a smaller reduction in Asia compared to what you would see, for instance, in Americas and Europe, if you sort of make that calculation. And that also comes back a little bit to what Johan said earlier that we in Asia, we have China that is sort of ahead a little bit of the rest of the world here in terms of the recovery, and that certainly has a positive impact there as well. But that said, sort of the overall sort of picture that we see right now is fairly stable or similar volumes in Q3 compared to Q2 for the group as well as for Asia. In terms of the CapEx, we currently expect with sort of the reductions we have in maintenance CapEx as well as the expansion projects now being put on hold, We expect around SEK $450,000,000 for the full year total at current FX rates. I mean, we've spent little bit more than SEK290 million in the first half of the year. So that means around SEK160 million then for second half. Okay, very clear. Thank you. Thank you. Thank you very much. So Johan here. If there are no more questions, I would like to conclude this session. I would like to thank you, everyone, for participating during today's call. As usual, we received very good and interesting questions, and we look forward to our next call on the October 22 when we present our third quarter report. I wish you all a nice summer as well, and thank you, and goodbye.