Earnings Call: Q3 2018

Oct 25, 2018

Welcome to Granges Conference Call for Third Quarter twenty eighteen. Here in Stockholm, it's me, Johan Menkel, CEO of Granges and beside me, I have CFO, Oskar Hellstrom. As usual, we will start this presentation with an update of Granges' performance during the third quarter and touch upon some important events. And 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. To start, I want to briefly go through Granges' current operations. Granges is a global aluminum rolling company with some 1,600 employees and an annual net sales of more than SEK11 billion. We have production facilities in Sweden, China and in The United States. About half our sales volume is to the global automotive industry, where we are the market leader globally. The other half is split between the American HVAC market for building and houses and other niche segments in The U. S. When looking at the third quarter of twenty eighteen, we have had a stable development with sales volume and operating profit slightly higher than in the third quarter last year. In total, sales volume was 93,400 tonnes in the quarter, up 0.4 from last year. In Asia, volume was somewhat higher driven by good development in China, where sales total moved to customers rose 3% in the quarter. In Europe, sales volume was down 2.5, with sales of heat exchanger materials some 5% lower. Production disturbances in Finspang due to issues when commissioning new equipment led to lower deliveries and higher cost in the quarter. The problems have been addressed, but it will take another two weeks before we are through the backlog of orders. In The Americas, sales volume increased by 1.2% from last year. We continue to see very good demand in North Americas, but growth is still limited by available capacity in our plants. Adjusted operating profit rose to million, up from SEK227 million last year. The production disturbances had a negative effect of SEK22 million in the quarter. The move of production from Shanghai to Finspang has led to less efficient metal management in Shanghai, while we continue to experience positive effects from price increases in The U. S. Profit for the period was SEK158 million. Earnings per share increased to SEK2.09 in the quarter, up from SEK2 last year. Cash flow before financing activities was SEK81 million and includes CapEx investment of SEK236 million. We ended the quarter with a net debt of SEK2.6 billion, corresponding to 1.9x EBITDA on a rolling twelve month basis. In September, our technical seminar was held in Xiamen, China. The technical seminar is a biannually and it's an important event for the whole industry. More than three fifty customers and other industry representatives participated this year. Focus was on solutions for electrical vehicles and for the wind power industry. During third quarter, the global light vehicle production is estimated to have decreased. Research firm IHS made a quite significant revision in its estimates since we presented outlook for quarter three in July. At that time, IHS estimated an increase of 4% in the third quarter. That number has now been revised down to a decrease of 1%. I wouldn't be surprised if the actual outcome in quarter three has been even lower. In Asia, the market was down 2% in the quarter as production of light vehicles in China was about 4% lower. In Europe, light vehicle production was down by almost 3% in the third quarter, while in The Americas, the market was up about 4% compared to last year. If we then look into the fourth quarter of twenty eighteen, the global vehicle production is expected to grow 2% compared to last year according to IHS current estimates. That comprises a flat development in Europe and a growth in both Asia and Americas. Our view isn't as optimistic as IHS. I found it more likely that they will revise the outlook further as we proceed in the quarter. If we look into 2019, the outlook for production of light vehicle is still a growth of some 2% for the full year according to IHS. If we then look into Granges sales volume development during the third quarter, we can see that Asia was more or less flat at 20,008 tonnes. In China, the growth was 3% in the quarter. Sales to the wind power industry in China continues to increase. In Europe, sales volume was down to 15,100 tonnes. Sales of heat exchanger material was some 5% lower, while sales of industrial products increased in the quarter. In The Americas, sales volume was 1.2% higher at 57,500 tons in the quarter. That comprises a sales volume to HVAC, NR and Other of 49,003 tonnes and to Automotive of 8,002 tonnes. This morning, we also announced the decision to invest in our European operations to make it more efficient and to grow the business. In total, the investment amounts to SEK400 million over two to three years. This is an important move for us that will enable a clear improvement of operating results in Finspang. We will add some 20,000 tonnes in new capacity and at the same time improve logistic flows on-site considerably. We will also add capabilities, which enable us to address new market segments. The plan comprises several elements that together will lead to more competitive and profitable European business. By this project, we are also taking important steps forward in our sustainability efforts by reducing transports on-site and converting from diesel to electric forklifts. The project will start immediately. We expect the supplementary approval from Swedish Ottovers during the first half of twenty nineteen. From full year 2022, we expect effects from this project to be fully visible. The investment decision in Finspang is also attractive from a market point of view. As more consumers are demanding electric and hybrid cars, we see a very good growth for advanced materials for heat exchangers in Europe in the coming years. That includes, for example, applications for battery cooling. Granges is well positioned to take advantage of this growth as we have extensive R and I resources and offer the most advanced products. We can partner up with our customers in the development of new applications. We have seen lately that automotive OEMs now tend to select liquid cooling as the preferred technology for battery cooling. That is positive from a Granges perspective as it increases demand for our core products. Our patented technology, Trillium, is an excellent example of a product that brings additional advantage to liquid battery cooling solutions. Today, we have discussions going on with several of the leading European OEMs regarding battery cooling solutions. Still, the volumes are low, but a ramp up during 2019 and 2020 is expected as many of the leading car brand has announced that high volume electric car platforms will reach European markets from 2020. As I mentioned earlier, wind power was one of the focus areas at our Chinese technical seminar in September. Granges Shanghai has made great efforts in developing vacuum bracing solutions that meet the tough requirements in offshore wind turbines. The conditions are extremely challenging when it comes to corrosion as the equipment constantly is exposed to moist, salty air and must remain functional for long periods of time due to high service cost. By entering this market at an early stage, we have been able to set the standard for the materials used in new installed offshore wind power mills. We have also been awarded sole supply by large wind turbine suppliers. Today, we have a leading road in this market and we see potential to continue to grow this niche going forward. I also short want to comment on our expansion projects in The U. S. The expansion in Huntington is on track for the start up in third quarter next year, and it will be a cautious ramp up of volumes during second half of twenty nineteen. From 2020, we will see full effect from this new capacity. We have actively started to sell this new volume. In Newport, we have restarted the mills in current conditions and will run tests in the fourth quarter and first quarter of twenty nineteen. The mills will then be upgraded in 2019 and the plan is to gradually start shipping products in the spring next year. This means that we reenter the market for light gauge foil for various consumer applications next year, which is very exciting. So far, the response from customers have been very positive. From January, we will increase prices for the remaining 50 of our current sales volume as these contracts are renewed. The increases are in the range of 7% to 10%, excluding metal. Now I hand over to Oskar and the financials. Thank you, Johan. The positive earnings development that we saw in the 2018 continued in the third quarter, but at a lower pace. The single largest driver behind this slowdown is the production disturbances that we experienced in Finspang during the quarter and that Johan mentioned earlier. Although the sales volume continued to remain relatively stable year over year, the rolling 12 adjusted operating profit increased to SEK992 million. That's an improvement of SEK67 million compared with the run rate earnings one year ago. If we look at the third quarter financials and compare with the same quarter last year, we can see that the sales volume increased by close to 05% to 93,400 tonnes, whereas the net sales increased by 22% to SEK3.3 billion. The higher increase in net sales than in sales volume is primarily driven by increasing metal prices and this in combination with the net impact from changes in foreign exchange rates that was positive SEK $253,000,000 compared with the third quarter twenty seventeen. Looking at the earnings, the adjusted operating profit amounted to SEK230 million in Q3, an increase of 1.6% on prior year. During the second quarter, Granges completed the transfer of production of volumes that are exposed to U. S. Antidumping duties from Shanghai to Finspang. As a consequence, no additional cost has been taken for U. Antidumping duties in the third quarter. Instead, a retroactive adjustment in duty rate had a positive impact of SEK 9,000,000. This was, however, offset by costs for Section two thirty two tariffs on imports from The to The U. S. From Sweden, making the total direct impact of additional U. S. Duties neutral to Granges in the quarter. The transfer of production from Shanghai to Finspang has also led to slightly lower contribution from The U. S. Import volumes due to somewhat higher production cost in Sweden compared to China. Following the volume transfer, the capacity utilization in the Finspang plant is now at a very high level. The high utilization means that the flexibility in the production process is limited and that is more difficult to compensate for potential operational issues. The temporary production disturbance in Finspang in the third quarter had a net impact of negative million. Half of this is due to increased cost and half is due to reduced sales volume. Although the situation has already been addressed, an additional cost of about SEK10 million is expected for the fourth quarter. For the Shanghai plant, the volume transfer has led to a less optimal product mix from a scrap recycling perspective. This had a negative impact on the metal management performance in the third quarter. Although the product portfolio will be reoptimized over time, decreased metal management performance is expected also for the fourth quarter. On the positive side, slightly higher average conversion price had a favorable impact in the third quarter, And changes in foreign exchange rates had a net impact of positive 30,000,000 compared to Q3 twenty seventeen. As we talked about before, from 2018, we are rebalancing the timing expenses in Americas to get a more even distribution over the year. Although this is neutral from a full year perspective and also has no impact in the third quarter, it will have a negative impact of about SEK5 million in Q4 when comparing year over year. The adjusted operating profit per ton in the third quarter reached SEK2.5000, which is close to SEK100 higher compared to Q3 twenty seventeen. There are no items affecting comparability in the second quarter 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 reached SEK158 million compared to SEK151 million previous year and corresponds to earnings per share of SEK2.09. Cash flow before financing amounted to SEK81 million in the quarter. And by the September, the return on capital employed reached 16.8% on a rolling twelve month basis. During the third quarter, the net debt decreased by SEK 56,000,000 to SEK 2,600,000,000.0. This corresponds to 1.9 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 third quarter, we can see that the earnings contributed with SEK320 million. For the working capital, we see a relatively neutral development in absolute terms in the quarter. This does, however, include a negative effect of SEK 30,000,000 related to the buildup of an additional safety stock of rolling slabs in Finspang. This will be used to secure production should the wind down period for U. S. Sanctions against Rusal not be extended post December 12. Other operating items refers to taxes paid of 19,000,000. Investments in fixed assets amounted to SEK $236,000,000 in the third quarter. Of this, SEK88 million refers to investments to maintain and improve the current production facilities and SEK147 million is the CapEx related to the expansion of the Huntington facility and the restart of the Newport plant in The U. S. During the third quarter, we launched an MTN program and refinanced part of the debt by issuing two bonds with a total value of SEK600 million. The program has a frame amount of SEK3 billion and will be used to finance the existing business as well as continued future growth. Long term, it's positive for Granges to have an MTN program, but it is not expected to have a significant impact on the financing cost in 2018. As we discussed in our first and second quarter reports this year, new U. S. Trade legislation, both in terms of new tariffs as well as sanctions against the aluminum company, Rusal, has had a large impact on the aluminum market. This is something that is impacting Granges as well, both in positive and negative ways. First, the U. S. Department of Commerce has introduced countervailing and antidumping duties on aluminum foil and sheet from China, which has a combined duty rate of up to 200%. To avoid being exposed to the 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. Consequently, we did not pay any additional antidumping duties in Q3 and do not expect to do so going forward. On the positive side, the antidumping duties has led to rapidly increasing market prices in The U. S, and this is expected to greatly benefit our domestic U. S. Business going forward. 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 the customers, which is reducing the impact to Granges to about million on an annual basis. This is given the current customer agreements 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 expect to receive the answer from the Department of Commerce during Q4. And after that, the impact to Granges of the new tariffs will be clearer. As for the sanctions against Ruzal, they prohibit U. S. Persons and limit non U. S. Persons to transact with Ruzal. As we have previously mentioned, one of the Resolve subsidiaries, the Kubal smelter in Sunsvall in Sweden, is a supplier of aluminum slabs to the Granges operation in Finspang. To secure supply of rolling slabs to Finspang in the short term, we have built an additional safety stock of slabs. For the medium to long term, we have a multi sourcing strategy for slabs. And since the sanctions were announced, we have reduced the risk by securing metal supply from non Rusal sources. Should the situation around Rusal not be resolved and the sanctions come into effect in December, we do, however, expect to see a slight increase in material and logistics costs in 2019. Needless to say, we continue to monitor the developments in this area very closely. I will now hand over back to Johan Menkel that will summarize the third quarter and provide an outlook for the fourth quarter. Thank you, Oskar. When looking into the fourth quarter of twenty eighteen, we expect Granges overall sales volume to increase with low single digits. For Automotive Products, we foresee a stable sales volume on an overall level. That comprises a higher sales volume in Europe, while we expect sales to be somewhat lower in Asia and in The U. S. For HVAC and R and other, we expect sales volume to increase with low single digits in the fourth quarter. Our outlook for fourth quarter implies a slightly better development than the market when compared to IHS forecast. As mentioned earlier, we have experienced production disturbances in Finspang in the third quarter due to problems when commissioning new equipment, the problems are solved, but will cause a negative effect also in the fourth quarter, estimated to about SEK10 million. When looking into 2019, we will continue to focus on our growth initiatives. During second half of next year, we will see new volume coming in as a result of the expansion projects in The U. S. We are also optimistic about our potential to improve our operations in Europe and in Asia To conclude, twenty eighteen third quarter report, we have seen a stable development during the third quarter. Sales volume increased slightly to 93,400 tonnes. Adjusted operating profit increased to SEK230 million, including a negative effect of SEK22 million related to production disturbances in Finspang. We had had less efficient metal management in Asia, while prices increases in The U. S. Has worked on the positive side. Cash flow before financing activities was million and return on capital employed was 16.8% and we ended the quarter with a net debt of 1.9 times EBITDA. Thank you. And now we open up for questions. We have a question from Johannes Gonseleis, Handelsbanken. Please go ahead. Yes. Hello, everyone. It's Johannes here, Handelsbanken. I have a couple of questions, but the first one is what you're saying about China here that you are less efficient in terms of metal management. Could you possibly provide any sort of guidance there or more color or perhaps give a sort of a financial range what this impact is about? Johannes, yes, I can certainly do that. I mean really, the effect we see in China is has a lot to do with how efficient we are in recycling our own process scrap. Basically, for us to have an efficient metal management, we need to have alloys that can absorb a large part of our process scrap in order to recirculate it efficiently in production. A large part of the volumes that went into The U. S. That was transferred from Shanghai to Finspang were of the type that could absorb a lot of process scrap. And as a consequence, we have a less favorable product mix in the Shanghai plant right now from a metal management perspective. And if we talk about the ranges here, the impact is around 10,000,000 or so in the quarter. Not everything is due to the transfer of products, but a large part of that is. Okay. That helps a lot. Then I was more thinking about what you're seeing and hearing when you talk to clients now and if you look into your order books, etcetera. I mean, obviously, the stock market investors are extremely nervous about a major decline in demand here for most manufacturing companies. But what kind of worrying signs are you seeing, if any, at the moment? Johan here. We can comment on that. I mean we see in our order books, we have a visibility of three months. And as I mentioned, of course, we have a slightly more negative view of IHS prediction than the one we communicate here. But still, for our products on the global level, we see a positive demand, and especially in Europe in the next quarter. Yes. So I mean, if we would see the IHS scenario playing out perhaps a little bit weaker than that, I mean, you're still confident to go and deliver good volumes? Yes. If you look upon our global business, if you look upon the automotive business, there is a prediction that electrical and hybrid cars will increase by almost 45% in the next coming four years. And here, we have a very good solution. So we expect a strong demand for these kind of applications, even though the automotive market might be a little bit weaker. But the demand for heat exchanger materials for electrical vehicle is actually higher than the normal average demand for ICE car. So that is positive. And then looking into Americas, where we see a strong demand in general, especially from the HVAC and R market. Okay. Then back to China. I mean, the metal management is an important thing, obviously. I know that you also are running with quite low utilization rates at the moment. When do you expect the facility to be more running at normal production levels? Yes. We are, of course, running at slightly lower utilization rates following the transfer of The U. S. Volumes. But I would say that it's still at a relatively high rate on an overall level. So I think we can say that we have a good utilization in our China plant. But there is, of course, some room still for growth. And there, I think that Johan highlighted a quite interesting new market segment for us, the wind power segment, which is a lot focused on Asia. And of course, then from our perspective, it's going to be produced in the Shanghai plant. Yes. I mean where do you see wind power to take significant volumes for you? Is that more in 2009 Or is it more of a 2020, 'twenty one story? It's a long term, I would say, journey here. We see a very strong growth rate, but starting from very low volumes. But I mean, if you're looking for the prediction of the wind power expansion, especially in China, it's at 20x actually in the next coming ten years. And especially the offshore wind power turbines has a very tough environment that suits we have a good solution for that kind of segment. So we started that journey, but it will take a couple of years. That's all for me. Thank you. Michael, do you know what's the Our next question comes from Amy Ostland, ABG. Madam, please go ahead. Hi, there. So my first question is regarding the capacity investment in Finspang. I was just wondering, could we just expect sort of a linear I mean, the CapEx is just linear, this EUR 400,000,000 over two years? And then when we will start to see the volumes coming in? It's Oskar here. Very good question. I mean we will start the project basically immediately, but that doesn't mean that the CapEx spend will come immediately. So we foresee that the CapEx spend will start sometime in mid-twenty nineteen and then be relatively even spread over the two years following that, which basically means that around $100,000,000 in the second half of twenty nineteen, around $200,000,000 for 2020 and around $100,000,000 for 2021. And then you would see the benefit of this project really coming in from 2022 and onwards. Okay. Got you. And then I'm maybe you have mentioned that, but you mentioned sort of that the liquid cooling system is sort of gaining ground. And I don't really know the how much heat exchanger material do you need for each of the cooling systems and compared to sort of a combustion engine? I mean, could you just give us sort of brief or I mean, I don't know, just so we can sort of calculate a bit on it. Yes. It's I mean, of course, it's a lot of technology activities ongoing right now, and it's not really certain what technology that will be out there. But the trend is really towards liquid cooling for battery cooling, which means that they need cladded bracing sheet to produce this. And these cooling equipments are fairly large, which result in a higher need than in a normal ICE car of around 20% to 30% if that technologies goes up or even higher. Okay. And for the two other cooling types, that will be sort of the same as the combustion engine? Or would it still be higher? I mean, you can actually say that. I mean, the total demand, if the technology will be liquid cooling, would be in the range of 40% to 50% higher than the demand today. You very much. We have a question from Bjorn Anderson, Danske Bank. Please go ahead, sir. Hi, this is actually Max Frieden from Danske. A couple of questions from me. On the price increases for the rest of The U. S. Business, so 50%, if I'm not mistaken, please correct me if I'm wrong, you say 7% to 10%. What was the price increase on the volumes that you increased prices on this year, if you compare apples to apples? This year, we have increased around 50% of the volume as well, and that we've said previously communicated around between 510%. So we basically foresee a little bit of a higher price increase in 2019 than in 2018. Perfect. Then in the European business, if you look at the capacity utilization rates and lies it with your investment here of SEK400 million and you talk about costs or sort of one off costs in Q3 and Q4. But isn't this high capacity utilization rate and your plant sort of not being optimally structured going to keep margins down in that facility until you get the new capacity up and running? Yes. We can comment on that. I mean, of course, one of the driver and rationale for the investment is to improve the efficiency and thereby reduce the cost of the overall production. For example, we will reduce the transportation 5x internally. But of course, what we're doing now in the European operation in Finspang is constantly working on method management and on the cost item that you can impact. And of course, on top of that, we're also working very actively on a product mix change that will have a positive impact. So I think we're working on the areas where we can impact until the investment is fully completed. Okay. What is product mix change? Because to my understanding, I presume that these sort of higher priced products are maybe a little bit thinner and that takes more capacity utilization or just if you could explain? Yes. I mean, the product mix, I mean, during the years, we have learned a lot more about our cost position on a very detailed level, meaning that we can better understand and plan for what scrap we need for certain products and where we have competition and where we have the profitability per each article, so to say. And that we have been using very strongly during our discussions with customers, of course. And I think that knowledge is a great impact for Granges business in general. It's many dimensions here actually. So and then, of course, we have the Trillium product that we're now launching in a bigger scale that is a more advanced product with a better value for customers and thereby also a better price. Okay. And then China, you mentioned the past years that you need to expand capacity in China. Now some of those volumes are moving to Europe. But looking at your positive growth outlook on electric vehicles, wind power, etcetera, we will be very, very close, I presume, for a capacity expansion again in China. If you could either confirm or deny or and also give sort of a time view of where you see this happening? Yes. Absolutely, Max. No, I mean, we're overall positive long term to Asia and specifically to China due to the fact that electrical vehicles will grow there much more than elsewhere. And also, we have other segments such as wind power. So of course, we're working right now to address the long term capacity challenge we're having in China. So there is nothing to report today, but this is something that we want to solve in the coming years, of course, how to address the growth we see in Asia and in China. Okay. So and could you okay, I'll do the math myself. Finally, I just have one more question, and that was the Light Gorge, if I'm pronouncing that correctly, products that's going to be ramping up. Can you say anything on the profitability of that product? If I'm not mistaken, it's like really, really thin aluminum into packaging and consumer goods, if that's a more profitable business than your traditional HVAC business? Yes. Very good question, Max. I mean the nature of this product is it might seem simple at first glance. It's really like really thin aluminum foil. But it's really, really complicated to go that dagat thin engage, which means that it's a very complicated product to produce. And therefore, it also requires, of course, a high price. This is also one of the products that has been absolutely most affected by The U. S. Antidumping duties on China, which means that it has a very, very, very attractive price level in The U. S. Right now, which means it's higher priced than many of our current products in The U. S. We also need to keep in mind then when we're discussing that the opening of the Newport facility that we're adding very little additional fixed costs, which means that the majority of the cost that we're adding is variable. And that's also, of course, something that will benefit the profitability for the products manufactured there. So we are very positive to the profit level without any mentioning any specific numbers. Okay. And I'm sorry for repeating myself here because I had another call, so I didn't I missed the first part. But in terms of tonnes in capacity for the Light Gorge, how much is it? And when are you starting to produce this? Yes. It's in 20,000 tonnes in total, the start up of the Newport. Of course, there is potential to increase that capacity if we find this market attractive to continue to develop. And the start of production has already started, and we will start to deliver products from quarter one next year and towards the remaining of the year. So we will see actually deliveries from this already next years. Okay. Thank you so much. I remind you that if you want to ask a question, you will have to press 01 on your telephone keypad. We have a question from Matt Lief, Kepler Cheuvreux. Please go ahead, sir. Thank you. A few questions there. First, I guess, RUSAL is an important supplier for you. And I guess there are some issues going on there. But could you say something about your ability to sort of meet different scenarios there? I mean if yes, if and what? Absolutely, Mats. So basically, there are sanctions against Ruzal, but they are not really in effect yet because the wind down period that you have for doing transactions with Ruzal has been extended several times, and it's now set to end by December 12. Of course, the consequence of this is that it has given us quite a lot of time to work on different types of solutions for this. So basically, from our perspective, we have in the short term now built additional slab stock in Finspang so that we can continue to supply throughout December and beginning of next year, even if we would not get any additional deliveries from Rusal. Going in then to next year, as of January, we have additional slab suppliers qualified that can deliver on basically all the volumes that, that result would have supplied. So we are not really worried anymore of any sort of supply issues coming out of this. From our perspective, it's more a cost play because we have worked with the Kebal plant in Zunsval for a very long time. We like them very much as a supplier and would like to continue to be supplied from Zunsval. If we go for other supply, there will be certainly higher transportation costs because there are no other suppliers that are that close to us as the Sun Swal plant. And you would also foresee some additional costs when sort of running new material in your production initially and so forth. So it's more on the cost side rather than on supply side that we will see effects in 2019 if Resolve is no longer there to supply us. Okay. We will see then. One about I mean, not about electric cars here, but do you use the same sort of material technology when you supply a potential electric vehicle platform that you use when you supply combustion engineering platform? Johan, yes, yes, we do. And that's also really the confirmation we received from our customer that when it comes to battery cooling, which is, of course, the new heat exchanger here, the liquid braced aluminum heat exchanger is the technology that will be for that kind of cooling equipment. So and there, you need our products. So yes, we see the same kind of technology for battery coating as for engine coating. Good. And then about the well, the wind power segment in China, the potential change over there to aluminum, I guess, because that's not used currently, is that right? So you're sort of using a new type of material in that segment of the market? Yes, you're right. I mean, it's of course, the wind power market in China has very strong prediction to grow, which China is putting a lot of efforts to. And traditionally, the heat exchange oil coolers has been in steel, but we have now worked together with some of the Chinese customers to develop an aluminum alloy that can withstand a tough corrosive environment. And of course, lightweight for wind powers are also extremely high importance. So it's a promising segment for Granges, and we have made a good entry into that segment and with good customer relation. And of course, starting from low volume, but expected to increase in the coming years. And you don't expect to meet any other competition in that area? Or you're pretty well, alone currently, I guess? Well, of course, there's always a competition. But I mean, this you should bear in mind that the product here for the wind power suppliers or the heat exchanger is in a very tough environment. And the alloy developed that the alloys that we have been developed is not that easy for many of our competitors to produce. And you can also imagine that the service cost for this type of heat exchanger is extremely high if you have to change them out on the sea. Sure. Okay. Thank you very much. We have a question from Johannes Grunselli of Handelsbanken. Please go ahead, sir. Yes. Hello again. Just had one more question and that's related to the production disturbances in Finspang. Obviously, they are related to high capacity utilization, and we've seen these issues in other industries having very high capacity utilization for now. I mean how do you see the risk that something of this could happen again over the next few quarters? Very good point, Johannes, and it's certainly connected. I mean with the volumes we transferred now, we are at capacity utilization in the Finspang plant of around 90%, which is a very high level. And what does it mean then? Well, of course, it means that if you're running at a high capacity utilization, you are less flexible in your production process so that you I mean, have more it's more difficult to make adoptions and so forth if you have disturbances in your production. What triggered this specific event that we saw in third quarter was that we actually commissioned some new equipment in the hot rolling mill in the summer maintenance stop there in July, and we had some startup issues with that. So there was a very specific trigger for this event and then the higher utilization made the sort of consequences maybe a little bit larger than they otherwise would have been. Over time, we will, of course, now be more used to running at this higher level, and it's going to be easier to plan for running at this higher level going forward. But it will be more sensitive if things happen and if you have disturbances. Yes. So yes, it was a specific trigger for this one, and I can imagine it was a quite big disturbances compared to if something else I don't know what can come up next, but we shouldn't see this sort of magnitude in the production issues if you have something. Am I right in the thinking here? I mean, this was I mean, we haven't seen this type of disturbance for many years in Granges. So this was a relatively large one from that respect. You're right. And an additional comment, Johan here, is also that on top of that, we also moved production from Shanghai to Finspang with new products. And you always have a challenge when you're producing new types of product in the production facility. And that is already done now by now. So we won't have that move. And the further cost, you mentioned, I guess, 10,000,000 that you will charge that will be impacting the fourth quarter. Is that your calculation on, yes, volumes that you lost? Or how did you come up? I'm basically thinking about is the issue completely sold now? Are you comfortable with this estimate of 10,000,000? Yes. I mean we have addressed the root cause, and we are actually running at we are actually hitting production records in Finspang in the hot rolling mill after this stirrups, right? So production now is running very smooth. The costs that we foresee for fourth quarter are basically additional costs for express transportations meet our delivery agreements with customers and costs for additional manning that we will need in order to sort of work down the backlog. So that's a very direct costs that we have estimated to be about $10,000,000 then for the fourth quarter. In terms of the sales there, we, of course, foresee to sort of regain some of the sales that we lost in the third quarter in the fourth quarter. And that's also one of the reasons why we are guiding for a little bit higher growth in Europe in the fourth quarter. Okay. That's very helpful. Thank you. We have a question from Matt with Kepler Cheuvreux. Please go ahead, sir. Yes. Thank you. Just two questions. First, the energy cost, could you say something about the potential impact going forward there in the fourth quarter? Yes. We don't see any particular changes in the energy cost levels in the fourth quarter compared to what we've seen earlier in the year. Great. Then I guess you halted the Mitsubishi joint venture plans there. And are there anything more to say there about the future? Do you have those plans on hold totally? Or could we expect some other measures to be taken to, well, get the production facility in place in The U. S? Good question, Johan. No, I mean, the objective is still to have a full range of capabilities in North America for the automotive products. So we are working with that. We still have a dialogue with Mitsubishi, and we are also looking into other solutions to address that. But there's nothing more to report today, unfortunately. But we are working on that topic. So Mitsubishi is still an opportunity. You haven't sort of halted? Not fully. But I mean, as of today, it's not likely that we will have announcement on Mitsubishi and Granges in the near time. Zero one on your telephone keypad. If you want to ask a question, you will have to press 01 on your telephone keypad. There are no further questions at this time. Please go ahead, dear speakers. If no more questions, I would like to conclude this session. Thank you, everyone, for participating in today's conference call. Thanks for very good questions. We look forward to our next call on the 01/31/2019 when we present our year end report for 2018. Goodbye, everyone, and thank you.