Earnings Call: Q3 2017

Oct 26, 2017

Ladies and gentlemen, welcome to the KINGUS Interim Report for January to September 2017. Today, I am pleased to present CEO, Johan Menken and CFO, Oskar Helstrom. For the first part of this call, all participants will be in a listen only mode and afterwards there will be a question and answer session. Joan Menkel, please begin your meeting. Thank you. Welcome to Granges Third Quarter Conference Call. Here in Stockholm, it's me, Johan Menkel, CEO of Granges and I'm here together with CFO, Oskar Helstrom. We will start this call with an update on Granges performance during third quarter and shortly present the growth initiatives that was recently announced. Oskar will then take you through the financial results. We will then conclude this presentation with a summary and a Q and A session. This is a brief overview of Granges' current operation. We have some 1,600 employees and an annual net sales of about SEK11 billion. We have production facilities in Sweden, China, The United States and since October two smaller but important units in Germany and France for supply of spray forming billets. About half of 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 seventeen, we have continued to see a very good growth in all our markets. We have also continued to execute on our strategic growth plan, which I will come back to in a more detail in a moment. Sales volume increased by 48% to 93,000 tons driven by the acquisition in The U. S. We made in August. Sales volume for the automotive heat exchanger material was 7.6% higher than prior year. We have continued to see strong demand in all our regions in the quarter, most notable due to noting customers in Asia and in Americas. Operational wise, we have also continued to record good product quality and method management in the quarter. Adjusted operating profit reached SEK227 million, up from SEK181 million last year. Both our acquired U. S. Operations and the existing business contributed to the increase. Excluding The U. S. Acquisition made last year, adjusted operating profit rose to 157,000,000. Cash flow before financing activities was SEK 148,000,000. We ended the period with a net debt of SEK 2,300,000,000.0 corresponding to 1.7 times EBITDA on a rolling twelve month basis. In mid September, we announced the next steps in our strategic growth plan for North America. To address capacity constraints and support our customers in the growth plans, we will expand our production facility in Huntingdon, Tennessee. The investment amounts to US110 million dollars over two years and will increase the capacity from 160,000 tons to nearly 200,000 tons per year when it's finalized. This is a good business case for us that we expect will contribute to Granges operating profit from 2019 and onwards. We've also announced our intention to partner up with Mitsubishi Aluminum in North America to establish a production facility for Clari products. A letter of intent has been signed and the aim is to set up a joint venture in 2018. We are currently working on the details and we'll come back with more information once we have an agreement in place with Mitsubishi. I also want to mention the preliminary countervailing duties that were imposed in August on Chinese imports of certain aluminum foil products into The United States. For the product categories we are operating in, duties are set to 22%. Above that, the U. S. Commerce Department is expected to announce a preliminary decision on anti dumping duties before the November. A final decision on both these cases are expected early next year. We are monitoring this development closely. Another important initiative taken during the third quarter is our investment in a production company specializing in advanced spray forming technology. This will enable us to expand within Active Bracing with products such as Trillium that is an innovative technology for braced aluminum heat exchangers. This investment means that we secure both competence and the supply chain to grow in this category of our products. We see great opportunities in years to come as this is an innovative patented technology that offers great advantages for our customers and will increase our competitive edge significantly. That view is supported by the very positive response we have gotten from our customers already. Our investments amounts to EUR4.4 million in cash, which gives 51% of the company. Our partner Alstair Aluminum will hold the remaining 49%. During the third quarter, the global light vehicle production increased by 2% compared to last year. In Asia, the market growth was 3% in the quarter. The growth preliminary driven by Japan and Korea, whereas China was flat in the quarter when comparing with last year. In Europe, light vehicle production increased by 5% in the third quarter, while in The Americas, the market was down 4% compared to last year. If we then look into the fourth quarter of twenty seventeen, the global vehicle production is expected to be at the same level as last year according to IHS. That comprises a decrease of 2% in Asia and 1% in Americas. In Europe, however, vehicle production is expected to grow 6% in the fourth quarter. To summarize the full year 2017, the production of light vehicle is now set to grow some 2% according to IHS. If we then look into Granges sales volume development during the third quarter, we can see that Asia grew by 9.4% to 20,700 tons. This means a significantly higher growth rate than the market. This is partly due to gain volume in new passenger car platforms and the strong sales to our global customers in China as well as a good position in commercial vehicles. In Europe, sales volume was up 3.3% in the third quarter to 15,500 tons. Both sales of heat exchanger in the field and sales of industrial products increased in the quarter. In The Americas, sales volume for the automotive heat exchanger was up by 11% in the quarter. In our acquired U. S. Operations, we continue to see strong demand in the quarter and the sales volume increased some 3.6% if compared to pro form a sales in the full quarter prior year. The growth is, however, limited due to the fact that we are operating close to maximum capacity. Now I hand over to Oskar and the financials. Thank you, Well, the third quarter twenty seventeen is yet another strong quarter for Granges. By the September, the rolling twelve month sales volume reached three and seventy one thousand tons and the adjusted operating profit increased to $925,000,000. That's an improvement of SEK $291,000,000 compared to the year before and it's the highest rolling twelve month profit so far for Reyes. The positive development is driven by a combination of organic growth and improvements in the existing Granges business combined with the acquisition in North America that we completed in mid Q3 last year. If we exclude the acquisition, the rolling pro month sales volume would have been SEK185000 tons and the adjusted operating profit SEK656 million by September. That represents an 8% volume growth and SEK74 million profit improvement compared with twelve months ago. In Q3, the sales volume increased by 48% to 93,000 tons, whereas the net sales increased by 47% to 2,700,000,000.0. The organic sales volume growth was 4.8% in the quarter. The U. S. Acquisition contributed a sales volume of 48,900 tons as compared to 21,800 tons included in the third quarter last year. The underlying growth in the acquired business was 3.6% in the quarter. The higher volume and increasing metal prices had a positive impact on net sales, whereas lower average conversion price impacted net sales negatively. The net impact from changes in foreign exchange rates was negative 73,000,000 compared to Q3 twenty sixteen. If we're then looking at the earnings side, the adjusted operating profit amounted to SEK $227,000,000 in Q3, an increase of 25% from prior year. The operating profit from The U. S. Acquisition was 70,000,000 in Q3, which is SEK 20,000,000 higher than last year. Excluding the acquired business, the adjusted operating profit amounted to SEK 157,000,000, an improvement of SEK 25,000,000 over prior year. The increase in the adjusted operating profit in the underlying business is primarily driven by the increase in sales volume in combination with good productivity and method management in the quarter. On the negative side, we continued to experience a reduction in average conversion price. Changes in foreign exchange rates had a net impact of minus SEK 2,000,000 compared to Q3 twenty sixteen And cost for strategic projects and cost for the implementation of a new ERP system amounted to in total SEK 11,000,000 in the second quarter. During the third quarter, we've also concluded the acquisition balance for acquisition and as a part of this work, we've also conducted a review of the useful life of all machinery and installations in the whole of the Graines Group. The result of this is that we updated the assumptions on the useful life of certain types of assets in the existing Graines business. The consequence of this is a reduction of depreciation that has a net positive impact on the operating profit of 17,000,000 in the current quarter. Going forward, we expect the effect of the change in useful life assumptions to be about SEK 16,000,000 positive per quarter at the current exchange rates. The details of the updated assumptions are described in the notes of the third quarter report. The adjusted operating profit per ton reached SEK2.4000, a reduction of SEK400 compared to Q3 twenty sixteen. This decline is fully related to the fact that we through The U. S. Acquisition had added a business with somewhat lower margins to the Granges portfolio. Excluding the acquired business, the profit per ton increased to SEK3.6000 in Q3, again highlighting the strong performance in the underlying business 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 reached SEK151 million compared to SEK 189,000,000 previous year and corresponds to earnings per share of SEK 2. The lower profit for the period is due to the release of a provision for corporate income tax in China, while a positive impact of SEK139 million on the profit in Q3 last year. Cash flow before financing amounted to SEK138 million in the quarter. By the September, the return on capital employed reached 16.6% on a rolling twelve month basis. During the third quarter, the net debt decreased by million to SEK2.3 billion. This corresponds to 1.7x adjusted EBITDA on a rolling twelve month basis. And that we continue to reduce the net debt this rapidly, I think, a very good evidence of the strong cash generation potential of the Granges business. If we look at the cash flow before financing in the third quarter, we see the contribution of the strong earnings. Working capital increased by million in the quarter and this increase is fully related to the increase in metal price in the period. Other operating items include taxes paid of SEK46 million and investments in fixed assets amounted to SEK74 million. With that, I now hand over to Johan Meintel that will provide an outlook into the fourth quarter and the summary of the third quarter. Thank you, Oskar. When looking into the fourth quarter of twenty seventeen, we see a somewhat lower growth rate than the market when it comes to automotive heat exchanger materials. In both Asia and in Americas, we expect the lowest sales volume in the fourth quarter, while in Europe, we foresee a growth in line with the market. For The U. Abrasion, we acquired in 2016, we expect fourth quarter sales volume to increase compared to last year. Changes in foreign exchange rates is expected to have a negative impact on the operating profit in the fourth quarter given current exchange rates. Short term, we are still experiencing capacity constraints given the good demand we see next year. Investment in new capacity in The U. S. Will come into effect during the second half of twenty nineteen. When looking into next year, we expect a positive development in all our regions. We will continue to execute on our strategy to grow our business and maintain a solid sustainable profit. To conclude the third quarter, Granges is reporting a good quarter with strong demand in all our regions. Sales volume reached 93,000 tons and adjusted operating profit SEK227 million. We surpassed market growth in all our regions in the quarter. Our business in The U. S. Is performing very well. We are now taking the next steps in our strategic growth plan for North America by expanding our facility in Tennessee and by partnering with Mitsubishi Aluminum to add both capacity and important capabilities on the North American markets. We also made an important investment in production of advanced spray forming billets that will enable us to grow our Trillium offering. Net debt to EBITDA improved to 1.7 further down from the June when it were at 1.9 times EBITDA. That confirms our solid financial position. We continue to work according to the strategy that we have set out for 2020. We are positive about 2018 and are determined to continue to grow and strengthen our presence and position globally. Thank you. Now we open up for questions. Thank We have a question from Julian Batu from Pascal Advisors. Please go ahead. Your line is open. Hello? To the line, are you on the end? Yep. Hello. Can you hear me? Yes. We can. I'm so sorry. Just a few questions. The first one, to be really precise, you talked about an impact on this depreciation reduction of EUR 17,000,000, while in your report, you talked about a net impact of EUR 7,000,000. So maybe I'm a bit confused there. Is it EUR 17,000,000 or is it EUR 7,000,000? That's first thing. Second thing is on the net debt. Usually, Q3 is a good quarter for cash flow in terms of work capital. Is that delayed to Q4 due to net price increase? And then the last question is on non actually. Don't really get why EBIT was down compared to Q2 in Noranda isolated since volume were about the same. Thank you. Thank you, Pavel. Very good questions there. So I think I will try to answer them. And if Johan wants to comment afterwards, I think that's Third question then depreciation changes. So we did this review and I think your question was why is the net effect in Q3 only 7,000,000 whereas we expect a higher number as a run rate. I think we indicated SEK 16,000,000 per quarter going forward there. So basically, the review we did resulted in that some of our assets got a shorter useful life than what it has in the books, some got a longer useful life. But for the ones with a shorter useful life that resulted in some write downs in the quarter that's about EUR 5,000,000 in Q3, which will not be recurring. Also, depreciation impact the cost of material to the inventory and it takes about three months before that flows through. So that's also a one off impact in the third quarter. Mhmm. That's another 5,000,000 effect that is that is impacting this in in q three this year. Mhmm. And and then on top of that, when we gave sort of the the guidance there going forward, there's a little bit of of FX changes as well. But that's really the explanation why SEK 7,000,000 in the quarter and SEK 16,000,000 is what we expect recurring going forward. Second question on the working capital. You absolutely right. Typically, we would see a release of working capital during the third quarter and fourth quarter as well. And if you look underlying sort of performance there, this year is not really different, but what we have to bear in mind and what you are also pointing out there is the changes in metal prices. And that has had a negative impact on our working capital in absolute terms. If you would exclude the impact of the metal price change, you would actually see a release of working capital also in Q3 of this year. Third question then was on The U. S. Performance and why The U. S. Performance is different in Q3 in relation to Q2. And I think that's a fair question because the volume that is delivered in the third quarter is about the same as the volume delivered in the second quarter. So why does the profit level differ? So what we're looking at, I think, is is a little bit more than than 25,000,000 SEK in difference. 10 out of these are are related to the fact that the U. S. Dollar and the sector rate has changed between the quarters. I think in Q2, was 8.9 to $1 and in Q3, we have on average 8.1 sec to the dollar. So that that's really a large part of of the explanation. That's the $88,000,000 And for the remaining part, the additional 15,000,000 sec, that is really primarily explained about how the liability for vacation paid is accrued in our US business historically. Employees are in half of vacation on January 1 and half of July 1. So we have to accrue that expense, half of it in January and half of it in July. So we would see that negative impact in Q1 and Q3, but you don't see that in Q2 and Q4. Final thing we can say on this is that there is a slightly higher metal cost in Americas in Q3 than in Q2 due to less optimal metal management. But really, the key difference there is FX and accruals for vacation pay liabilities. Okay. Just to come back on the work capital, would you expect better performance or a release in Q4? Or should we assume a net outflow for the full year? I would say like this, underlying, we would expect to see release of working capital, but it very much depends on what happens to the metal price. Really, what you can say as a rule of thumb, it takes about three months for a metal price increase to sort of the impact of that to run through our balance sheet. So provided that the metal price is stable for three months from now, sort of would probably see the decrease in working capital in fourth quarter. But if it continues to move, that will certainly have an impact. But underlying, we expect to decrease working capital. Okay. And just sorry, last question on FX. Will there be a tranche of the investment in Q4? Or is it pushed back to full almost in full in 2018? Well, so very good question. I mean, I expect you refer now to our U. S. Investment. So we said we will invest $110,000,000 over a period of two years. If you look at how that spend is split, if you look at our plans, it's about $50,000,000 each in 2018 and 2019. And you would see some between 5,000,000 to $7,000,000 in Q4 twenty seventeen. So €2,000,000 from 5,000,000 to €7,000,000 is what we expect to stand in the next coming quarter here. Okay. Thank you very much. Our next question comes from the line of Jan Ernachamps from Danske Bank. Please go ahead. Your line is open. Yes, thank you. I had some questions, partly answered in the first question here. But you had quite a few where you talked quite a lot about what has impacted the earnings in Americas versus last year, but I think we had a good run through versus Q2. Was there anything else that you wanted to add to explain the Americas results? If you can perhaps go a little bit more into details about the impact again from the M and A or from the expectation? Okay. I think the previous question was Q3 performance versus Q2 performance. And I understand your question is more Q3 Yes. Over year. Is that I think that if you look on how much operating profit that was generated in in the acquired business, it's 7,000,000 this year versus 50,000,000 last year. And given that that it was consolidated from twenty first of of August last year, that might not seem as a very large increase in sort of M and A driven growth if you look year over year. But I think when we look at this, need to keep in mind a couple of things. And really the main thing here is that Q3 twenty sixteen was not really representative for the underlying performance of the acquired business. The part of Q3 that acquired business or the Nevada business was under Grainage ownership was was first, it was unusually strong from a sales volume perspective, but more important maybe for this discussion is that from a cost perspective, it was not fully loaded with sort of the standalone costs that we needed to run this and also the depreciations was a bit on the low side in that period. I think we indicated already at the time of the acquisition that we acquired a five percent to 6% margin business and that's really also what we see in Q3 twenty seventeen when this business delivers an EBIT of 5.6%. So I think what we should say is that Q3 this year is a more representative quarter. And if we compare Q3 this year with the pro form a Q3 for 2016, the sort of the whole the business included for the whole full quarter, you would actually see that the year over year development here is fairly stable. We get some benefit of the 3.6% organic growth that we see in this business, but we also see a little bit higher costs primarily due to slightly higher natural gas prices. But fairly stable year over year if you compare with pro form a figures. Okay. Thank you. Perfect. Our next question comes from the line of Jurgen Himmel from Handelsbanken. Please go ahead. Your line is open. Thank you. I'm going to dwell on the acquired units. I'm sorry for that. But if you just look at the run rate right now, would it be a good assumption just to use your EBIT the past four quarters and look at EBIT per ton? Would that be a good run rate for the acquired business? I think that's a very good point there. And as we said that and as I also mentioned a little bit when I commented on the previous question there. The performance we see, I mean, is a 5% to 6% EBIT business that we have acquired. We of course have had intentions to further improve this over time and that's also one of the reasons for the investment project that we are running. But as of now, I think the Q3 performance is a fairly good indication of what this business can deliver in its current state. We need to bear in mind here though the seasonal pattern of this business, of course, so that not each quarter is the same. Q3 is a good representative for the current state of the business. You mean the current quarter or if I look at Q3 and look back for the full year for four quarters or Yes, exactly. If you exclude, of course, third quarter last year that was not representative, but take the fourth quarter starting Q4 last year to Q3 this year, that is a good indication of the performance of this business, yes. Super. That's very clear. And then on the underlying business, I was surprised with a pretty big improvement in underlying profitability. I wonder what that came from. Was it improvements in Finspang or in Shanghai or something else? Yes. It's a very good question, Jung. Needless to say, maybe we are, of course, very satisfied with this development from the earnings management perspective. But I would say it's really three key drivers here. First, it's a good volume growth and growth in the areas where it has the highest payoff for the English, especially then for some of the Asian business. And as you might remember, we have our lowest production cost in our Asian facility. So growth there is, of course, very good for us. And that is one important driver. The other important driver is really good metal management in the quarter in both Sweden and China. We have worked very much with this over the last years and we're starting to see some really good results now. And this is all about how we optimize our metal flow, how we use our raw material, how much we can recycle and so forth. And that showed really good results in the quarter in both our Swedish and Chinese production facility. And third, we also experienced very good productivity in all production facilities in the quarter. So there are several drivers for this, but yes. Great. And on metal management, how should we view this? Is this it volatile between quarters how you execute on method management, maybe dependent on variables that you can't really control? Or is this fully in your own control? And the better you get, the better you execute, the better you will deliver on that management? Yes. I think, first, we talked about this. I think it's important to remember that it's the nature of sort of the drivers involved here. You will always see some fluctuations from time to time from quarter to quarter when it comes to how efficient we can execute on raw material mix and recycling and so forth. But I think what I think is fair to say here is that we have worked a lot with this over the last couple of years and we have raised the bar. So even though we do see some fluctuations and we expect to continue to see fluctuations with this area, so the basic level how we work with metal management has been increased. I don't know if that answers your question. A bit. Maybe I should rephrase it a bit. Does it depend on what type of materials you're having up for delivery in the quarter? So is it a mix in your deliveries where some qualities might be easy to get good metal management execution and some might be tougher where you maybe need to buy more virgin material, etcetera? Yes, maybe the answer to that question is yes. And there are a couple of different reasons for that. First of all is of course, the production mix and the demand mix, what is really demanded by the customers for delivery in a certain time period. But also then the production mix because you might want to create larger batches in your cast house for instance to get the high productivity there. So from time to time, we want to maybe run certain alloy mixes in one month and other alloy mixes in the other month to increase the batch size. That is something that could lead to that this would differ from one page to another. Super. That's very clear. Then on the tariffs on aluminum for The U. S. Market, What if well, first, is this for all the qualities you supply both heat exchanger material and the other rolled products that you sell in Noranda, for example? Is this affecting everything? Yes. You want to hear it. Yes. No, it's not. It's for a material with 70 microns and below, so it's definition foil. And as as I said, the first countervailing duty was imposed here in August and the expectation that there'll also be anti dumping duties announced later this year. Of course, I mean, we saw of course due to this, you can see even stronger demand from the market in The Americas. But we have seen a very strong demand in Americas even before this announcement. But of course, with this antidumping duties in addition to the countervailing duties that will of course have an impact on the supply situation in Americas. Sorry for not really knowing all the technical qualities here. But foil you're talking about, is this going into auto heat exchangers or is it to other markets or other Of course, it goes to automotive heat exchanger, what we call thin material. It goes to thin material for stationary heat exchanger. And of course, large part is also foil for packaging foil. These are the three main categories for this countervailing duties. And will this impact your exports to The US from China or Sweden? Have a very limited export from from Shanghai to to US on this product. And we have already basically transferred this product that we did produce in Shanghai to the same operation. So we would have a very limited impact on on this. But we have a small small portion delivered from China in this category. Do you think there will be an impact in China from supply previously going to The U. S. Market now coming back to China or other markets? I mean, of course, part of this yes, distribution goes from China to U. S. Today. But the main part is this is actually a packaging foil, which is not part of Grainne's business. Okay. So this all of these tariffs shouldn't really have a big impact, maybe to the Noranda business, which should improve a bit then? It has an impact on the Noranda, but also has an impact on the product category unclad fin, which is actually some 20% of what our customer use for producing heat exchanger. So of course, it will have an impact even for our part of our business. Okay. Then on your expansion in Rwanda, can you say anything about you say it's a good return profile, but you only mentioned that it will be positive for profits, which it could be even with both high and low returns. So can you say anything about expected EBIT per ton or anything that could give us a better feeling for what you expect in terms of profitability on the Noranda expansion? I can comment short on that. I mean, first of all, the main targets here are both the existing businesses required, basically, Fin for stationary heat exchanger. And of course, also we are targeting automotive Fin. We see strong demand in in US. And of course, we will buy this investment also increase the scale advantages in the in the plant we have. So of course, there would be an improvement on the on the cost side, but we haven't, I mean, officially quantified any any EBIT per ton figures from from this investment. No. But I think it to your point, I think it's fair to assume that economies of scale will improve and we will go for target higher margin segments. So a fair assumption is that that the margins in the expansion business will be higher than than what we have in our current business today. Yeah. And and add on that. Also, the the Target business is also automotive here, which was not part of the Miranda business before. Okay. But you you don't want to give us a hint that it's two times, three times or four times the EBIT per ton level that you currently operate at in Noranda, for example? No, we can't say that, but we can say that it will be higher. Okay. Thank you. Our next question comes from the line of Matt Leith from Kepler Cheuvreux. Please go ahead. Your line is open. Yes. Hi. Thank you. Well, coming back to The U. S. Business then. Again, I guess you are currently running at quite high capacity, and you have talked about the bottlenecks there. And I mean, on top of this investment program, are you able to handle those bottlenecks also increasing capacity? Maybe a bit easier now when you go into the fourth quarter with slightly lower demand, if you would say something about that, please? Thank you, Johan here. Good question. Now we have seen over the year actually that we've been able to open up bottlenecks and actually increase the capacity. And of course, we've seen a positive result of this work during this year. And of course, we also see in the coming months that we are we'll be able to release some capacity. But of course, in order to really grow the business, capacity investment is needed for the future. But we've seen a positive development all year actually in terms of increasing capacity slightly. And there's still room to increase it. I mean, if you expect demand to improve here next year, could you sort of add some volumes? There is still room. And also what we are right now optimizing our product mix in the brand, of course, to target higher margin business and of course also to optimize the product mix in terms of our capacity capabilities. Okay. And maybe you comment on that, but the Mitsubishi joint venture, do you have any time schedule there when you expect when we should expect the decision or Yes. We have an unofficial time line here. But of course, we have signed this letter of intent. We know it's a bit challenging very well from the past. And we are now working on this business case together with Mitsubishi. But I think it's likely to believe that we will have some kind of a decision during quarter one twenty eighteen. Okay. Thank you very much. Our next question is a follow-up question from Bian Ehrmachand from Danske Bank. Please go ahead. Yes. Hi. This is actually Max Feiden calling me from Danske. I I was on another call, so I don't know how much you talked about this already. But but I would like to know if you could just quantify the costs for expanding declining products now potentially with Mitsubishi in The U. S? Yes. We can, I mean, level quantify this, but this is still under, of course, investigation? And I mean, one of the reasons for partnering up with Mitsubishi is also, of course, to share this investment because it will be a fairly large investment. I think you've I would say around SEK300 million to SEK400 million for the total investment, but we haven't decided the split yet between Mitsubishi and Granges. And to add on that, it depends also very much on what starting point you would take, right? If you start from an existing Granges facility, investments will be significantly lower. If you go for a greenfield, it will be a higher investment. So so that depends very much on on the starting point as well. Yeah. And of course, that's good, Oscar. I mean, we haven't decided if this is a greenfield or if it's add on to an existing drainage facility or or a brownfield. So that is actually a key part of this investigation. The figure I was mentioning was for greenfield. Greenfield, yes. And if you would do it as brownfield, first off, I guess that would be roughly half of that cost. And secondly, do you have room to do that in your existing facility? I don't want to speculate on the cost, but it would, of course, be lower. Otherwise, you wouldn't go for a brownfield. Yes, there is available space in the existing plant as well. But we just need to see if that is the most optimal solution this project. Depending on what Mitsubishi wants, etcetera. That's Yeah. That is one parameter going into this for sure. Okay. Well, yeah, that's it for me. Thank you. Our next question is a follow-up question from Johan Hirtver from Handelsbanken. Please go ahead. Your line is open. Thank you. I'm going to continue with the same question from the former question. The 300 to $400,000,000 investment, what type of capacity was that referred to? We haven't decided that. But I mean, at least an investment would be 100,000 tonnes at least. So greenfield, looks pretty low to be honest. I I thought investments for for for for this type would be higher. But this this year It's very preliminary right now where where we are, of course. So so it's it's it's too early to to give a more precise number here, Yong. Okay. But I think to that point, you know, I think it is something that that the engineers has proved that we are very good at. Historically, it's it's really to to make cost efficient rolling mill projects. And if you look at our rolling mill in China that has a capacity in that region or even slightly higher, that investment is is significantly lower. So so I think we have some very good skill sets that that can prove to be very useful if if we decide to to go for a greenfield project at some point. And if you would add 100,000 tons, how quickly do you need to get up to high capacity for that type of plant to be profitable? Do you need to reach 75% pretty quickly? Or can you gradually expand so you might have 100,000 tons in the hot mill and less later on in the process? Was that quite clear about that? Yes, I understand your question. I mean, it's of course, this investment will be taking in steps and you won't have all the investment and all the capacity ready at one day basically. So you will have to have the hot mill and then you will, in sequence add on cold mill, of course. So you won't have the full investment and then you will be able to run, on a fairly high utilization rate on the cold mill, which are normally the bottleneck in our operation during the first phases. So you won't need a 75% capacity utilization to be on the profit profit level for this possible greenfield or or new new plants. Okay. So the hot mill, you invest full capacity immediately and then you step by step add on capacity on the cold mill, which makes the breakeven level lower initially and you have the ability to gradually expand capacity. Is that correct? Absolutely correct. And looking at your current facilities, do you have physical room to if you would agree with Mitsubishi to have it on your current land, so to speak? Do you have that land to build on? Yes, we have definitely land to build on. So that's part of this invitation. Interesting. And to separate the joint venture business with your current business, that wouldn't be difficult even if the plant was on the same land, that wouldn't be a problem, would it? No, that will not be a problem. Of course, we will build this in a clever way, so to say. So that's more here a problem for us. Sorry, silly question. And then lastly, if you would add 100,000 tons to the market, what type of market capacity increase in these segments would that imply? That would imply maybe about, yeah, 30 or 30% more capacity into this segment. But but today, I mean, this this segment is supplied from basically one one one supply in North America, of course. So there is definitely a strong request or wish from the customer base to have another supplier in the region and that is really part of the business case here. Okay. Thank you. That's very clear. That's all for me. Thanks. Our next question comes from the line of Kenneth Toll from Carnegie. Please go ahead. Yes. I was just curious on the Miranda operations. I mean, you are investing there to get more capacity in a couple of years. But even before that, you're running at very close to full capacity. Do you see an opportunity to change the product mix in order to improve profitability over the next year? And so I'm thinking wondering a little bit how long contracts you have and how quickly you can change the product mix to the battery to improve profitability in Noranda? Yes, very good question. Johan here. Yes, of course, this is part of our strategy and activity right now in the acquired business that we want to change the product mix. I mean, we would like to supply more to the automotive industry. If you recall right, the Miranda business did basically have very, very little automotive business. And now we are already in discussion with with seven of our automotive customer to supply the unsat fin to our existing automotive customers. And that is a a more high margin product compared to the acquired business. So this is absolutely one key activity. And of course, regarding the contract, we are, of course, in long term contracts. So several or a large part of the business in 2018 is already contracted. So there is not possible to change the full business or the product mix. So we have to work on what is available to change. And I would say that's a bit more than half of the business is contracted. Okay. And yeah. But maybe you started talking and thinking along those lines already a year ago when you acquired the business. So Yeah. With that that yeah. So so Sorry. Yeah. So you might have some positive effects in 2018 anyway? That's correct. We started this discussion with the customers. We started with validation already this year. And of course, hopefully, that will have a positive impact on next year's product mix in The Americas. Okay. Thank you. That's all. As there are no further questions registered, I will return the conference back to the speakers for any closing comments. Okay. Thanks a lot for all of you calling in. Thanks a lot for very good questions. By this, I would like to end this quarter three call for Granges. Looking forward to talk to you again. Bye.