Earnings Call: Q3 2019

Oct 24, 2019

Welcome to Granges Conference Call for the Third Quarter of twenty nineteen. Here in Stockholm, 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. 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. Starting with the 2019 highlights. One of the main themes of the quarter is undoubtedly the challenging market conditions, especially on the automotive side of our business. Demand in Asia and, in particular, China remains to be on the weak side, but we did also see lower demand from European automotive customers in the quarter. The demand for the HVAC and other businesses in Americas continues to develop positively, but we are unfortunately not able to capture this growth due to limitations of available production capacity. In addition, we experienced production disturbances in two of our U. S. Plants in the quarter, which limited the production output and sales volume further. As a consequence of the lower market demand and the production disturbances, our sales volume declined by 8% year over year in the third quarter. Due to lower sales volume and additional costs related to the ongoing expansion projects, the adjusted operating profit declined to SEK190 million in the quarter. Higher prices in Americas and favorable foreign exchange rates had a positive impact on the earnings. Further on the positive side, the cash generation continued to be very strong in the quarter. The adjusted cash flow before financing amounted to SEK442 million. We currently have a very large focus on completing The U. S. Expansion projects in Huntington and Newport. We reached a very important milestone in the third quarter when the first coil was rolled in the new rolling mill in Huntington. This means that all the production equipment is now operational and that we will be able to ramp up production volumes over the coming quarters. During the third quarter, we experienced soft continued soft 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 estimates since we presented our outlook for quarter three in July. At the time, IHS estimated a 2% global growth for the third quarter, and that figure has now changed to a 3% decline. This is also more in line with the signals that we are picking up in the market. If we look at estimates by region, we can see that the production of light vehicle was down 5% in Asia in the third quarter. Of this, China was down 7% compared with last year. On top of the reduction in vehicle build rates, destocking of inventory in the supply chain continued to have some negative impact on demand for our products. For quarter four, IHS expect a similar development in Asia as for quarter three when it comes to light vehicle production. We do, however, see some signals indicating that customers' inventory levels have come down in Asia and that destocking in the value chain is leveling out. This would mean a slightly more positive outlook for Granges for the fourth quarter compared to what is indicated by the Asian car production figure. In Europe, light vehicle production is estimated to be flat to slightly negative compared with last year in the third quarter. The destocking in the value chain that we started to see in Europe in the second quarter has increased in the third quarter. And with the light vehicle production decline indicated for the fourth quarter, we expect this to continue for the rest of this year. The Americas market continues to hold up better with an estimated increase in car production of 2% in the third quarter. For the fourth quarter, The Americas light vehicle production figures are expected to be revised down due to the General Motors strike that will impact production in The U. S. At least in the month of October. For the fourth quarter, IHS estimates a decline of 3% in light vehicle production on a global level. Based on what we are picking up in the market, we currently have slightly more pessimistic view on the quarter four outlook for the automotive business. If we then look at Americas HVAC market, which represent a quarter of our sales, we can see that the HVAC unit built in The U. S. Is expected to have an increase by about 3% in the third quarter. Looking ahead, HVAC unit built forecasts continue to show a positive growth expectations in the coming quarters. At the same time, the uncertainty about the general U. S. Economy is increasing. This has led that some of our customers have indicated that they would like to reduce the inventory levels towards year end. As a consequence of this, we expect to see lower demand year over year for HVAC in the fourth quarter. As I mentioned earlier, we experienced temporary production disturbances in The U. S. In the third quarter. The disturbances affected the Huntington and Salisbury plants in July and August. As of September, we are back to normal operations in both locations. Although the experienced issues were relatively minor, they impacted plants that are running at maximum capacity utilization. Because of this, there is no flexibility in the plants to make up for lost production capacity and all reduction in capacity is directly translated to sales volume. In total, the production disturbances had a negative impact on sales volume with 6,000 tonnes in the third quarter. During the quarter, we have strengthened the production organization in Granges Americas to further increase the focus on process stability and availability of the production assets. Moreover, the start of production for our expansion investments will ease the current capacity constraint and create more flexibility to handle this type of temporary disturbances. If we then look into Granges sales volume development during the third quarter, we can clearly see the impact of a softer automotive demand and the production disturbances. The sales volume in Asia decreased by 15%. The reduction reflects the lower vehicle production rate and the destocking at many of our customers, in particular China. On the positive side, sales to industrial applications continued to increase but from low levels. In Europe, sales volume decreased by seven percent in the third quarter due to the weak underlying market demand and increased destocking at our customers. In America, sales volume was 6% lower than last year. This includes a growth of 8% for the automotive business and a decline of 8% for the HVAC and other business. The vast majority of the decline is driven by the temporary production disturbances. With a normal production level, we would have recorded a sales volume growth of about 4% in Americas in the third quarter. As you know, we are getting closer to finalizing our U. S. Expansion projects, and we reached a very important milestone during the third quarter when the first coil was successfully rolled in the new rolling mill in Huntingdon. This means that all new equipment in Huntingdon is now operational. Over the coming weeks, further adjustment will be made to the rolling mill. And after that, we will start to gradually ramp up the production capacity. The Huntington expansion will add new capacity for growth. We expect a gradual ramp up of the 40,000 tonnes additional capacity in Huntington over the coming quarters. Our target is to have 75% of the capacity available by half year, with the full capacity being reached before year end 2020. We have not contracted the full capacity increase for 2020 to allow for some flexibility during the ramp up phase. Per October, the sum of all contracted volume for HVAC and other market segments for 2020 is 10% higher than the expected volume for 2019. This is expected to increase slightly as more contracts will be finalized over the coming weeks. The actual outcome will be depend on the market demand. In Newport, the work with upgrading the rolling mills is progressing to plan, and we expect to have a second rolling mill completed during the fourth quarter. When that is completed, we will begin with customer trials and product validations. Net start up costs for the two projects amount to million in the third quarter. In the fourth quarter, we expect to carry additional start up costs of about SEK10 million. I'm very satisfied that we have reached this far with the expansion projects. Our Americas team has done a very good job in managing these at the same time as operating the daily business at a very high level. With that, I hand over to Oskar for the financials. Thank you, Johan. As Johan has talked about, the sales volume continued to decline in the third quarter. As a consequence of this, we also saw the adjusted operating profit come down somewhat in the quarter and the rolling twelve months profit per tonne declined to SEK2.6000. For the automotive business, the lower sales volume has led to a lower margin, but this is partly offset by improved margins for the HVAC business, where we had a profit per tonne increase despite the lower sales volume. Key drivers for this are the mix optimization and price increases in The U. S. If we look at the third quarter financials and compare with the same quarter last year, we can see that the volume decreased by 8.1% to 85,800 tonnes, whereas the net sales decreased by 9.7% to SEK3 billion. The main reason for the net sales decreasing more than the sales volume is lower metal prices than in last year. The net impact from foreign exchange rates was positive SEK208 million compared with third quarter twenty eighteen. Looking at the earnings, the adjusted operating profit amounted to SEK190 million in Q3, a decrease of SEK40 million or 17.7% on prior year. The negative impact from lower sales volume and slightly higher operating cost was partly offset by higher average conversion price and net changes in foreign exchange rates that was positive by SEK24 million in the quarter. The temporary production disturbances in The U. S. Primarily resulted in lower sales volume. Additional maintenance and transportation costs due to the disturbances was about SEK5 million in total in the quarter. As you heard from Johan, we are getting closer to completion of the expansion projects in The U. S. And the net start up costs for these amounted to SEK22 million in the third quarter. Looking at the profit margin, the adjusted operating profit per tonne declined from SEK2.5000 to SEK2.20000 in the quarter. There are no items affecting comparability in the third quarter, and the reported operating profit is therefore the same as the adjusted operating profit in the quarter. The profit for the period increased by 26% to SEK198 million and corresponds to earnings per share of SEK2.62. The reason for the increase in profit is that we, during the third quarter, received approval for the high technology enterprise tax status in China. Both final approval for year 2018 as well as a preapproval for the period 2019 to 'twenty one. As a consequence of this, we get a combined positive tax effect of SEK77 million in the quarter. With the high-tech status approved, we expect the combined tax rate for the group to be about 18% in 2019 and some 19% to 20% in 2020. By the September, the return on capital employed was 12.8% on a rolling twelve month basis. During the third quarter, net debt remained stable at SEK3.6 billion but increased to 2.7x adjusted EBITDA on a rolling twelve month basis. We continue to see a very strong underlying cash generation in the quarter where the cash flow before financing adjusted for expansion investments amounted to SEK442 million, including a working capital release of SEK259 million. This corresponds to an operating profit to cash conversion of 233%. We also continue to invest in total million in our expansion programs. Of this SEK245 million are related to U. S. And SEK42 million to Sweden. As the expansion investments in The U. S. Will be completed, the positive EBITDA generation from these in combination with Granges' overall strong cash generation is expected to start to bring down the leverage ratio back down towards the target range of between adjusted EBITDA. Over the last couple of years, we have made substantial efficiency improvements in Granges that have made the business more resilient and the ability to handle changes in the market demand has been improved. As we talked about in our Q2 presentation, we have launched additional cost efficiency measures to adjust the cost base to the lower sales volume. Based on the outlook for the fourth quarter, which is a seasonally weakest quarter of the year for Granges, we have complemented the earlier implemented general savings program with capacity adjustments. This means that we will temporarily shut down some of our production equipment in the fourth quarter and that we will stop some of the plants for longer than usual over Christmas and New Year's. The target with these actions is to convert as much as possible of the semi variable cost into variable cost and make sure that it can be adjusted down in relation to sales volume. In addition to the short term measures that will have an impact on the fourth quarter, we have also decided to increase the efficiency in our European white collar organization. In total, this organization will be reduced a little bit more than 20 positions or about 14%. This is expected to have a positive impact on operating costs from 2020 and onwards. The onetime cost for this of million will be recorded as an item affecting comparability in the fourth quarter this year. With that, I hand over back to Johan Menken, who will provide an outlook for the fourth quarter. Thank you, Oskar. Looking into the fourth quarter of this year, we expect that the challenging market conditions will continue. In terms of year over year sales volume development, we expect to see a mid- to high single digit decrease on group level in quarter four. For Automotive Materials, we foresee a mid- to high single digit sales volume decrease globally. In Asia, we expect a stable sales volume compared with last year, partly due to weak comparables, but also due to that customers' destocking seems to level out. For Europe, we expect a low double digit decline as the light vehicle production is expected to remain weak and customers' destocking to increase towards year end. In Americas, we foresee a low double digit decline for the automotive business, partly as a consequence of the general motor strike. For the HVAC and other part of our business in Americas, we expect a mid- to high single digit decrease in the fourth quarter due to increased uncertainty in The U. S. Economy and indications from some customers that they intend to reduce their inventory levels towards year end. When looking further ahead, we will continue to work actively with innovation, efficiency improvements as well as a more sustainable customer offerings, which includes an increased focus on product development for electrical vehicles. With a strong commitment to constantly improve and develop, Granges is well positioned to continue to deliver sustainable and profitable growth. To conclude the twenty nineteen third quarter report, we continue to see soft market conditions in the third quarter. And together with temporary production disturbances in The U. S, this led to that we experienced an 8% decline in sales volume compared with last year. The adjusted operating profit was reduced to SEK 190,000,000, but the cash generations remained strong with an adjusted cash flow before financing of SEK $442,000,000. Our expansion projects in The U. S. Are moving forward and will reach an important milestone in the third quarter with the first coil rolled in the new Huntington mill. Although the market conditions are expected to remain soft in the coming quarter, 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 And our first question comes from the line of Matt Lies from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes. Hi, thank you. Well, just coming back to the development in The U. S. There and you mentioned that you gradually will sort of start to increase capacity in the investments you have made. And I just was wondering on the other side, see a somewhat soft market conditions going forward in the next couple of quarters. How will that sort of affect pricing you could well, expect to see from this additional capacity? Mats, it's Oskar here. I think it's a fair question. I mean, do see, as Johan has indicated, a softer softening of the outlook of the market here, especially in the fourth quarter. In terms of pricing, we are working with long term contracts. Some of these contracts are up for negotiation this year. Some of them has been closed earlier. In terms of pricing guidance for next year, you should think about that as for 50% of the volume, we are looking at price increases of some 4% to 5%. Yes. Great. And well, regarding the additional capacity now, do you expect to, well, see customers sort of signing up for contracts? Or do you expect to sell it in the spot market? Or how well, could you say Yes. Something Johan here, of course. I mean we have contracted a 10% increase in volume in 2020 compared to 2019 for North America. And we have, of course, still flexibility to contract more volumes, which we expect to do during next year. And this is actually an increase. So we are, I mean, gaining market shares in the North American market for next year. And that's also why we are optimistic that we'll be able to gradually fill the new capacity that we will come out to the market for next year. And finally, just about while you mentioned the fourth quarter now that we closed down production to handle, well, inventories and so on. Should we expect a larger I mean, the fourth quarter is still the weakest earnings well, seasonality. And how much sort of extra should we expect there this quarter? You mean extra of what, Max? Extra cost savings? No, no. I mean we have seasonality historically, which is well, the fourth quarter is the slowest of the year. But what the I think what I mean you indicate yes. I think you should think about the volume development in the fourth quarter this year, as Johan guided for earlier here, that we see a combined decline of the group versus fourth quarter last year in terms of sales volume then with mid- to high single digits. So it's a seasonally weakest quarter, but it will also be slightly weaker than fourth quarter last year is what we foresee at this point. But production will run at a lower level than that, I guess. Yes. We will close down some of our production plants for longer than usual over Christmas and New Year's to sort of take out capacity, take out some of the variable cost as well then to manage profitability in Q4. Yes. To add to this, Matt, Johan here. Of course, I mean, the new capacity that we will have now gradually ramping up in Huntington will, of course, be used as much as possible. So the close or longer vacation time will more be affected for the Newport and Salisbury plant. And also, on top of that, the Huntington plant we now have, which is actually a very modern and efficient plant in that kind compared to the other peers in U. S. For the segments that we are serving. I think that's important to have in mind as well. Good. And I guess the cash flow will look pretty good then if you sort of reduce inventory? Yes. We, of course, always strive to reduce working capital in relation to sales volume. If sales volume is coming down, which is sequentially always do between third and fourth quarter, you would see that as in working capital, absolutely. Okay, great. Thank you. Thank you. Our next question comes from the line of Fredrik Olsson from Handelsbanken. Please go ahead. Your line is now open. Thank you. This is Fredrik Alsson from Handelsbanken. I have a question on CapEx. You said $4.00 $9,000,000 in the quarter, of which $287,000,000 relates to the expansion. I didn't hear you, but could you repeat the split on U. S. Sweden there and maybe develop further on how this is going to look going forward into the fourth quarter and then 2020, please? Yes, absolutely, Fred. The $287,000,000 then of that expansion part of the CapEx and SEK $245,000,000 of those are related to U. S. And SEK 42,000,000 of those are related to Sweden. If we look a little bit further ahead, of course, we will push for finalization of The U. S. Projects here now in Q4. So we expect to spend about an additional NOK100 million of expansion CapEx CapEx in U. S. In Q4. And then there will be some minor overspill of that into 2020. In terms of CapEx guidance then for 2020, it will largely be the base CapEx, the maintenance CapEx as we see them for 2020. And our guidance there is that around 80% of depreciation is what we are sort of typically spending on maintenance. That means about SEK400 million next year. In addition to this, we have the Finspang expansion or logistics projects ongoing. Therefore, we foresee some SEK200 million or so next year. And then you have some smaller part of CapEx left for The U. S. Projects, as I mentioned. So this will add up to some SEK600 million to SEK650 million CapEx expected for 2020. Perfect. Thank you very much. Thank you. And our next question comes from the line of Karl Volkvist from ABG Sundal Collier. Please go ahead. Your line is open. Thank you and good morning to you. I apologize, my line was a bit blurry when you talked about the contracted volumes here. So if you could provide some more details on that. You said 10% increase in contracted volumes versus 2019 level. Should one roughly interpret this that you expect perhaps that the Americas volumes could increase by 10% for next year? How should one think about actual volumes? And then when you said the capacity ramp up, you expect 75% by the end of H1. So I'm just curious, how do you expect to see this phasing out in Q1, Q2? And finally, I apologize then, you previously had a target to recoup your production investments during the second half of this year. I was just wondering how should one expect this earnings to come in 2020? You. Karl, very good questions. It's Oskar here. First then regarding the contracted volume. You're absolutely right that right now, we have a contracted volume base for North America then for next year, which is about 10% higher already than the actual volume expectation for 2019. And we are now in the period when you close many of the contracts for next year. So we expect this to increase somewhat in the coming weeks as well. But what this means, of course, is that we have contracted in a larger market share for next year than what we have this year. And of course, that leads us to believe that there is a fair chance of seeing a higher volume in The U. S. In the month and to come here. What this ultimately will be, of course, depends on the ultimate market demand, but our market share of that demand will be higher next year. That was the answer to your first question, I hope. Yes, it was. Thank you. And then your next question was about capacity ramp up for next year. Yes, we've indicated that the target is to have 75% of the 40,000 Huntington tonnes ready by the end of the first half, full capacity ready by the end of the year. The way this works, of course, is that basically when you turn the key to the rolling mill, you will get some capacity there already upfront. And you pick the low hanging fruits when you tune the mill, which means that quite a large part of the open capacity will open up earlier. And then it's a hard work, of course, to fine tune it and get the last part of the capacity available. So if you should think about timing over quarters, you could think that a large part of the capacity will come in the first quarter, a little bit less incremental capacity then in the second quarter. Those would add up to 75%. And then again, a little bit less in the third quarter and an even smaller part in the fourth quarter, and then you're up to 100% before the end of the year. Okay. So a bit front loaded than one could assume? That's how it will work from a sort of technical perspective here. And then your final question was on the guidance here for the full year. Yes, you're absolutely right. We planned originally to recoup some of the sort of startup costs already this year. And with the volume outlook that we now see for Q4, we need to remember that the new contracted volume, that's valid for 2020 and onwards. So sort of any additional capacity available this year will need to be sold on spot. And given the sort of softer market outlook for the Q4 that Johan has indicated, it's not unlikely that we will sell additional volume on spot, but we will get sort of cost efficiency impacts, of course, from the new investments because the new rolling mill is more efficient than some of the existing capacity. But as we indicated earlier, the net start up costs for Q4 is expected to be around SEK10 million, which means that we will see sort of the positive impact on the earnings from the investment that will come in 2020 and onwards. All right. And then just a small add on to the question here. I mean, do you see any sort of indication from customers that they are becoming a bit more uncertain then that they, in turn, are reluctant to sign up for more volumes? Johan here. If you refer to North America, we, of course, in the short term next quarter, we see more uncertainty on the demand driven by that there's been some inventory buildup due to trade wars. And of course, the economy in general leads to maybe hesitation from customer to replace the HVAC units. But we haven't seen any sign for next year of reduction in volume. And you should also bear in mind that the house building rates in U. S. Will go up and this actually is increasing and around 20% of our HVAC demand is driven from the house building rates. So of course, going forward, there will be a need for new heat exchanger in houses in U. S. So I think that's what we see in the more medium to long term. Okay. And sorry for asking a lot of questions here, but just two quick ones here. So when it comes to the tax effect, it was positive this quarter. And then you said one could expect the tax rate effectively for next year around 19% to 20%. I was just wondering, there a specific quarter where you will see a positive effect? Or will it be sort of evenly spread out? We only provide sort of a full year figure for the tax guidance. The tax rate might vary from quarter to quarter, it typically does. So you should view the guidance there as the full year guidance. But it's fair to assume that guidance also on a quarterly level, I would say. Thank you. Thank you. And we have another question registered from Paul Buckliff from ABG Sundal Collier. Paul, go ahead. Your line is open once again. Thank you again. I was just curious perhaps if you could if we weigh it all together for the coming quarters and into 2020, what's your if you could provide us expectations for EBIT per tonne because I think previously, if we assume that you will be able to recoup some of your start up costs in 2020 and then you have some price, what's your view on profitability per tonne going forward? It is, of course, a very good question, Erkkol. We don't typically provide guidance on anything else than volume. But that said, we have, of course, a lot of good initiatives in place in Genghis addressing our cost base. That would, of course, give a positive impact on the EBIT per tonne going forward. That said, I think the most important driver for this in the next couple of quarters will be the volume development. And that's going to come down very much to the end market demand, and that's very difficult for us to have a view on at this point given the quite large uncertainty in the world, I would say. Thank you. And just out of curiosity, do you have any updates on the Trillium product and the commercial ability and so on? Johan here. No, there's actually a lot of activities on the Trillium, and it's clearly so that for the car producers, the OEMs, it's extremely important to have a very low level of flux in their battery coding system because the flux will contaminate the battery. So there is a large interest both from the OEMs and also from our customers. So we are right now having a lot of test and validations with several customers. And we've been also validated to at one plant, at one of our large customers with the Trillium product. And that means, of course, in the longer run that we will also be able to open up for more of their plants globally, which is a very good news for Granges. But it's clearly so that Trillium addresses a lot of the concern with the battery cooling and the flux residue. So we are optimistic about the Trillium future. Thank you. And then just I think previously, you said something about how much of volumes you expect Trillium to be in three or five years. Could you just provide an update on this? It's a difficult question. I can't recall what I said. But I think we said that, of course, over time, there is for the traditional business we have, of course, I mean, 10% or 15% could be based on Trillium. But also, I think what we also see that we can offer Trillium into new applications where we are not today. So of course, that is more difficult to evaluate the potential for the new business, but that's at least give you some figure. All right, perfect. Thank you. Thank you. We also have another question from the line of Matts Lees from Kepler Cheuvreux. Please go ahead. Your line is open. Yes, hi, thank you. Just coming back to the slowdown in China and lower volumes to be expected there. And I just wondered if you still keep the market position you have sort of? Or do you see increased competition from domestic suppliers or more, I mean, Chinese companies? No. Good question, Johan. No, we still see that we are maintaining our market shares in Asia and in China. The competition we have experienced in China has been quite similar for many quarters now in Granges. And yes, having said that, of course, and also in terms of market, as we said, we see still a softening market in the quarter four. But there are some signs, of course, on the commercial side for heavy truck that, that will increase due to the restriction on weight load in China now. There's been several serious accident related to overloaded trucks, which is, of course, will drive at least the heavy vehicle sales going forward, which can be a little bit positive, even though that's a smaller part of the total market. Okay. And just sort of, well, the usual view with question here about the hot rolled capacity there. I mean, you have plans to do something long term, is it something that it's sort of held back by the current market conditions? Or do you see opportunities in this area? I think in the medium to long term, Mats, we are very, of course, positive to Asia and China, in particular. There is still a very low level of penetration here, and the growth prediction is high. So we are, of course, right now, we have available capacity to address the future need. But we are, of course, always looking for good business opportunity in Asia since it's an important market for Granges. To verify, I see the line was a bit unclear. Did you ask about The U. S. Now or Yes, The U. S, sorry. So hot rolled capacity in U. S. Was your question, I think. Yes, that's right. So I mean, it's a standard question. And I guess the question was more related to if the current market conditions are holding you back there or I mean, yes. No, okay. Good. Sorry, I misunderstood. No, we are, of course, looking for that opportunity. But right now, we have a good logistic setup where we can serve part of the demand from our U. S. Plant and part of the demand from Sweden where we have available capacity. So we in the short term, we don't see immediate need to address the hot rolling capacity in North America. Okay, great. Thanks a lot. Thank you. And there is another follow-up question from the line of Pavel Wakrish from ABG Sundal Collier. Please go ahead. Your line is open again. Thank you. I was just wondering from your experience, how long do you think that inventory adjustments in the HVAC market could persist if you compare to inventory adjustments and destock ings within the automotive industry? And what I'm after here is really how long do you think these effects could persist in the market? Karl, it's a very fair question. The answer to that is probably it depends very much on what will happen with the market demand, the end market demand going forward. But to add to that, what we see on the HVAC side, to give you a little bit more flavor, is that what happened in The U. S. HVAC market is that when the U. S. Administration introduced these antidumping duties to China, a lot of the customers here had to find additional sourcing. There are, as you probably know, not so many rolling mills domestically in The U. S. That serves these. We are, of course, one of them, but we are running at maximum capacity. They had to source their material from elsewhere, not from The U. S, but also no longer So they basically went around the world trying to find additional material. A lot of these customers built up safety inventory to make sure that they would manage a situation where they couldn't basically access raw material for their products, which means that the inventory level at the customer are relatively high now, also sort of historical measures. That, combined with some weakening signs of the general economy in The U. S, has sort of led to a situation where there will be a lot of inventory reductions in quarter four to get to sort of a more normal inventory level before year end is what has been indicated to us. No one so far has sort of said anything about further inventory reductions in the next year and so forth. So if that will come or not, it will depend very much on end market demand, I would say. At this point, it's a lot about taking safety stock down. Okay. That is all for me. Thank you. And if there are no more further questions, I will now hand back to our speakers for any closing comments. Okay. Thank you. I would like to thank everyone for participating today on this conference call. As usual, we received good and interesting questions. I hope we have been able to answer them. We look forward to our next call on 01/30/2020, when we present our full year report for 2019. Thank you, and goodbye, everyone.