Volvo AB

STO:VOLV B

Earnings Call Transcript 2018-Q2

[Joakim Kenndal, Communications Director]

Okay. Then I would like to wish you welcome to this presentation of Volvo Group's results for the second quarter 2018. We will start with the presentation of the President and CEO, Martin Lundstedt. After that, the deputy CEO and CFO, Jan Gurander, will be joining on the stage. But we'll start with Martin. And please go ahead, Martin.

[Martin Lundstedt]

Thank you very much. Thank you, Joakim. Good morning, everyone, and most welcome to the second quarter reporting. Like to take the opportunity actually to say that this was -- the last time for you, Joakim Kenndal, as press officer for the Volvo Group presenting here. You, Joakim, will move on to be Head of Communication for the Group Trucks Asia and Joint Ventures as from mid-August, actually. So congratulations to that, and good luck. So with that, I would also like to say that I'm a proud CEO standing here today, and I have to say that our -- all our colleagues in the Volvo Group has been working really hard, and see -- I think I've seen that it has been a good result, also quarter 2 here. So really pleased with the hard work of all colleagues in the group here. So go through a little bit of the presentation. Second quarter, good increase in the net sales. First time ever we were exceeding, actually, SEK 100 billion in sales; up SEK 16 billion, 16% if you take away currency effects. Adjusted operating margin also SEK 11.5 billion, and that's excluding then the capital gain on the NHL shares that we were selling during quarter 2. Trucks, adjusted operating margin of 11.1%; and Volvo Construction Equipment, 15.1%. So really solid development for the 2 biggest business areas.If we look a little bit into the volume development for the group. For Trucks, plus 15%, mainly then related to North America, plus 32%. And also South America, but lower numbers obviously. But there, plus 43%. And in Europe, plus 3%, also reflecting the situation that we are seeing now, a stable development in Europe on high levels. But I will come back to that also when we talk about the order intake and how we are looking up on that moving forward here. Also, the machine deliveries, very strong development, plus 38%. And that is 19% up for Volvo and 66% up for SDLG, then showing also the very strong development in China, but also solid development for Construction Equipment in all different regions here. Also, what is very positive to see is the continuous growth in our service sales, something that we have been talking about as one of our key focus areas. And as you can see now over the last 2 years, development from SEK 16.5 billion in quarter 2 up to almost SEK 20 billion, and that is obviously one of the areas where we'll continue to have a strong focus. Part of it, obviously, due to the -- or thanks to the high market activity and the utilization of the rolling fleet out there. But also a big proportion, thanks to also activities within the different business areas to increase the service penetration, service contracts and also other type of products. I will talk about one specific product when I come to Volvo Financial Services, also driving these type of developments. So very positive to see, plus 8% excluding FX quarter-on-quarter, and that is obviously a very strong development.Having said that, which is interesting is that even with this strong development, it is lower than the overall plus 16% excluding FX. So if anything, the relative development here has a diluting effect. But still, very good development for also giving better resilience for the group moving forward. On Trucks, good demand globally. We see very strong markets, and I will come back to that more in detail. We have also seen a stabilization when it comes to the supply chain in Europe gradually. As we have been communicating, the -- I mean, when we were standing here 1 year ago, then it had been more apparent with the different bottlenecks, primarily in the European system. Gradually, we have taken those bottlenecks away and we have seen a stabilization. Having said that, Europe is still in a stretched situation, obviously. We have high demand and we have high volumes out from the European production system. But we see a clear stabilization there. And it continued to be very stretched in North America, primarily now driven, actually, by the difficulty to find labor in North America for our suppliers, Tier 1 and Tier 2 suppliers, and we are working with specific programs there. But we can also see that this is something that is not Volvo-specific and not even industry-specific, but more of a general thing that is happening in North America for the time being. Also, a very positive number of new products launched during the quarter. And also, that the FH, the iconic FH for the -- for Volvo Trucks celebrating 25 years also. That has been part of the success story for Volvo Trucks over the last 2, 3 decades here.When it comes to the product launches, following then the reveal of Volvo Trucks, both with the FL and FE for distribution and waste collection and other type of urban applications, Renault has also now revealed their outline for zero-emission vehicles, starting with the Renault Master in the light commercial vehicle segment, up to 120 kilometers autonomous drive with zero emissions. And then also following -- and that will take place during the fall 2018. And then following also with launches in 2019 for the Renault Trucks D-Series and D Wide for applications up to 26 tons, so medium to -- medium-heavy-duty applications, and a range up to 300 kilometers autonomous, showing that we are continuing to build on our modular system, starting from our bus operations moving into Volvo Trucks Renault. And also, during the quarter, we -- actually, we communicated that we will start also testing North America together with one of the biggest customer, New York sanitation department on waste collection for Mack Trucks as well.Another very important event that had taken place is that we have shown in real files now with one of the key customers and one of the most progressive customers in the industry in North America, FedEx, or platooning operations in North Carolina, that has taken place with Volvo Trucks with the vehicle-to-vehicle communication based on our own developed systems, but also on open interfaces in order to host mixed fleets moving forward. Very successful, obviously, both for safety, fuel consumption and further on then for new type of business models when it comes to automation. So promising start here. I'm very proud also that we have this specific partnership, showing that we are well-placed when it comes to technology. Then when it comes to market environment, no drama really. We are actually more or less reiterating our forecast as we did already quarter 1; and also, to the biggest extent, quarter 4 reporting. North America, 300,000; Europe, 310,000. When we look at Asia, some corrections upwards, plus 100,000 for China, medium- and heavy-duty combined, up to 1,250,000; and a correction also upwards for India over approximately 35,000 units for medium- and heavy-duty combined. Otherwise, stable. And maybe as a comment, because I can assume that there will be some questions about how do we look upon, primarily Europe, given order intake, et cetera. And there, it is, as we see it now, continuous high activity level. We have had a level of approximately 300,000 units now both for '16 and '17, and we anticipate that also, as you can see here for 2018. And therefore also, we will see a pretty stable situation, both on deliveries and on order intake. So when we move into the order intake and deliveries. As you can see, globally, plus 12% and -- for orders; and deliveries, plus 15%. In North America, it continues to be very strong: order intake, plus 64%; and deliveries up only then 32%, and that is then related to, as we said, limitations in the complete production of supply system, obviously. And also, that we have done the transition, mainly this year then, for Mack Trucks. You can say that the order numbers could have been even higher if we should not have also done certain activities in Mack. As you can see the figures, for Mack, we are reporting plus 12% in quarter 2, and that is also related to a very extensive order book, where we are deliberately also working together with our dealers and customers to have as clean order book as possible. Because in the long run, you need to have the right balance between order book and deliveries in order not to have any risks of speculation into the order book. So that we have been working hard with primarily then for Mack Trucks this quarter, given the product renewal program. I can only confirm also that the products, both for Volvo Trucks and for Mack Trucks in North America, have been extremely well received. And when it comes now to the order book for 2018, we are more or less sold out.Europe, as I said, continue on a high activity level. If we start with the market activities, we see that customers are having a higher fleet utilization. We can follow that thanks to the connectivity solutions that we have together with the customers. So we see a continuous high activity level. And we see, also, that the order intake is continuing on a good level. Renault, when it comes to light commercial vehicles, is related to the very high order intake we had last year. And that was a [ big ] offer for a couple months, and then we started the sales of the new program last quarter. So that is more related to that event. And when it comes to heavy-duty, Renault is continuing a positive development, whereas we saw a small decline for Volvo Trucks related to a number of events. We are absolutely colluding now and seeing where is, so to speak, the market going when it comes to price realization, customer mix and the product mix. We did also an announcement of prices in the quarter 4 last year when we saw a peak, also in the order intake. So if you take everything into account, we still feel confident about the high activity level confirming the total market estimate of 310,000. For the other regions, again, Asia continue to be strong, a little bit less order intake also related to sanctions in the Middle East; and therefore, also taking out some volumes. But otherwise, strong activities in our core markets. When it comes to the market shares, starting with North America, positive development for Volvo Trucks there. We have been communicating that we were anticipating some improvements after the launch and the introduction of the new product program during 2017 and beginning of 2018 for Volvo Trucks. We are seeing that coming through now in a good way. And the loss of Mack Trucks, as we said, we did start then the product renewal process during week 6, 7, 8 this year, where we were phasing out the current program and introducing then gradually the new program. And also, at the same time, increasing the base -- basic rate in our Mack facilities in order to cope with the higher demand. So also, as you can see, according to plan. When it comes to our output, you can always discuss if the timing was perfect. But I mean, those are events and programs that you're planning for years ahead. But good reception and, if anything, a lot of positive discussions with our dealers regarding the total volumes of our Mack offering. But a very strong and solid demand. And not at least also on the -- on the highway segment that has been a weaker offer for Mack historically with the current program. So that, with the new Mack Anthem, is confirming also our wish of reentering stronger on highway here. Europe, stable, you can say for the 2 brands. In order to be trustworthy, we always say, okay, we see -- continue to see the positive trend for Renault. But I'll say, step by step slowly. But in order to be fair, then you should say that we have a negative trend in Volvo Trucks. I would rather say that we are stable on the levels where we want to see them. Obviously, we want to see a little bit higher market share on Renault. But even more important is to continue to have quality in the business when it comes to price realization, when it comes to residual values and when it comes to the right customer mix. And there, I think, the Renault organization is doing a great job. Stable also in Japan. It was a little bit of seasonality in the beginning of the year. But when we look upon, month-by-month, we are actually having higher market shares and good realization. So also good traction in Japan. Brazil also, I have to say, that is on the heavy-duty side, we are continuing to regain market share and having good quality in the business. The loss we had in 2017 was mainly related to -- that we introduced price increases, and pretty hefty ones on the [ CMI ] heavy segment. But now, we are coming back in a positive way. South Africa and Australia was a good development. Construction Equipment, very good demand across all -- both all segments and regions, and primarily then in China. And in China, we have seen continuous good demand, both for wheel loaders and excavators and for the 2 brands. We have also launched a very important product, and that is the 20-ton excavator, a new update and a new product renewal here. And why is that important? Because here, we have had an offering that is good, but has been a little bit unbalanced when it comes to price, cost and everything. And now, we have a product that is really in the sweet spot here. It has the best fuel efficiency, the best swing and productivity. But at the same time also, we have been working with the cost base and we see that we have a competitive offering in order to continue to penetrate also for volumes. Because this is, by far, the highest volume segment. But take that step-by-step as we have seen in Construction Equipment. So very interesting to look upon. We're also celebrating 60 years for the Volvo Days in Eskilstuna. I don't know how many times have you been there. If you have not been there, you should go there because that is a fantastic event. If you really want to see everything on -- in action when it comes to the full segments, more than 70 machines for all different applications showcased. And in particular, this year, it drew attention to our new rigids -- Volvo-branded rigids for the mining and heavy construction industries, the 70-tonner and 100-tonner. And I saw it was actually Melker driving the biggest one there through a tunnel, and everyone was nervous. But it went well because we have a very good stability in this -- in those machines. So happy ending there.Market environment. Also in this case, no drama. We are not changing any full cost, actually, so we still a continuous good development. North America, 10% to 20%; China, obviously, 20% to 30%. Might be still on the conservative side if you look the order intake. But we also normally see that after a very strong spring season, let's see what it will bring. So we are -- might be a little bit on the conservative side here. And otherwise, unchanged forecast for Construction Equipment. When it looks to our order and delivery side, plus 41%, as I said, in orders. Yes, 19 -- or 20% then on Volvo and somewhat 66% on SDLG. And deliveries, also, positive with 38%. So good balance here. And if anything, also it continues to be strong in Europe. U.K., France, Russia are driving this increase, and also, as I said, Asia, extremely strong then with plus 58%.Maybe -- sorry for that also, maybe I didn't mention South America when it comes to the Trucks side, maybe it looked a little bit awkward with the minus 5% in order intake. That was fully related to Argentina. Extremely strong order intake in quarter 2 last year; and this year, due to the currency situation and, I mean, the IMF program and uncertainty, we had a number of cancellations. So the delta there made it seem that you had a decline in South America, which is absolutely not the case for the other markets. I think, Brazil, for example, was up with 30% in order intake. So that continues in a steady pace, just to comment that also.Buses, a gradual improvement also during the course of the year, not at least when it comes to order intake. Strong in North America, Asia, Nordic Region, plus 63%. In deliveries, we had a small decline in units of deliveries of 4%. Very important also for us now is that we have finally, after intensive development program also launched a new coach and intercity platform in Europe. It has been actually pretty long-lasting -- I should not say old, but long-lasting platform that we have had in Europe for coaches and intercity. And the picture you can see here is the new 9900 coach in the luxury coach segment. And also, the sister coach will be 9700 for primarily intercity segments. Very important to us when we saw also the very good development or the same type of launch that we did in Mexico and in the Americas 1.5 year ago. So promising, and we will have the [ sales stores ] here just after vacation. We have also, during the quarter, demonstrated a fully autonomous city and urban application bus. And also, we are finally after a better tender activity, now starting to see more substantial, fully electric orders coming in. As you know, that we have been working for a long time -- we have even been criticized for being pretty early out when it comes to buses and electrification. But now, we actually are starting to see after a pretty good tender activity level, also orders are dropping in. This one for Gothenburg was important. We've gotten almost as big for Oslo. We got one for Leiden now, also almost as big in the Netherlands, to mention a few examples. So it seems finally that the market is ready to take on these solutions. And we have also been better in providing the full systems, so to speak, together with selected partners. So promising future in this area. And as we have said, this is also the platform when it comes to battery technology, battery management system, modular components for our electrification that we are also using now for Renault and for Volvo and for Volvo Construction Equipment, to mention a number of examples. And that we also will use for Volvo Penta, that you will see in a couple of seconds here. Then, Volvo Penta, another strong quarter, obviously. The sales growth continues. And the very successful work that we have done in industrial all-speed applications in agriculture, construction and material handling, for example, is continuing to give good results and good order intake. We have the temporary effect, also, when it comes to the order intake, and that is compounded then by the pre-buy effect of the European Union emission legislation Stage V. But still, also underlying, we have a good activity level. And deliveries increased by 7%. Two other events during the Volvo Ocean Race, we were demonstrating the fully autonomous, self-talking system with Volvo Penta, just continuing to build on the IPS technology, and the joystick and the easy-boating technology that is absolutely world-leading. So this is just another step so everyone can feel comfortable to have an 80-feet around -- going to [ Samden, Newport or Moshtan ] or wherever you would like to end up with your boat and be, so to speak, in a safe position. So a really, really interesting concept.And also, we have also been communicating now that we are aiming for having fully-electric and electrical solutions for commercial uses from 2021. And the reason for communicating that now is that it's very important to get active dialogue also with our different partners, how to use that for water applications, et cetera. But certainly, continue to build on the strong platforms that we have in the group. Finally then, Financial Services, another very strong development. As you can see, new retail financing is continuing to develop very well, SEK 19.4 billion. Penetration rate is continuing also on a good level given the absolute increase, also to 25%. And what I have to say is, also, in addition to the -- I mean, the traditional retail financing also, we are very, very pleased to see the development of Volvo Financial Services to be an integrated part with other sister business areas when it comes, for example, to point #2, we have parts financing program. Extremely interesting to see how we're using the infrastructure of Volvo Financial Services to do it much more easy for both dealers and customers to do the transactions, the discounts, the packages, the financing of parts. And by that, also increasing customer loyalty, getting better connection and -- both with dealers and customers. So this is only showing that we have an extremely strong platform when it comes to insurance, when it comes to these type of added services out from an existing platform, and one of the most important levers that we have for the continuous service growth as well. Another important area is that we are also participating more actively in the -- in some of the specific segments, like Bus Rapid Transit, BRT systems, for example. And we had successful deal down here in Curitiba. And also, in those segments, it's interesting to participate, because we have a long sight, we know, so to speak, the mode of operation, and a very attractive way of participating actually. And then we are opening capitive financing in Slovenia and continue to increase our global footprint.So by that, I think that was the market and business update. And Jan, you will continue to give us a little bit a flavor of the financial numbers.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Absolutely. Thank you. So good morning. The figures, I think, we'll keep it rather short. I think it's a pretty easy quarter to present. I think the figures talk for themselves. We had, As Martin said, an increase of almost SEK 16 billion in terms of sales, a little bit helped by the currency, approximately SEK 2 billion, going there from SEK 88 billion up to 100 -- almost SEK 104 billion. The adjusted operating income, and we had one big onetime here in the second quarter this year, it is -- was the sale of the Chinese company in Mongolia that generated a profit of approximately SEK 800 million, which is excluded in these figures that we see here. Last year, we did not have any significant one-timers, so we go from SEK 8.4 billion up to SEK 11.5 billion, corresponds to an EBIT margin of SEK 11.5 billion. I think we're pretty happy to see that almost all business areas are contributing to the improvement, that is buses. But bearing in mind, that buses came from the quarter 1 this year where it was in a loss situation, now coming back to the levels we saw before. I think that's good to see. Buses -- and I think it shows a little bit also what we have in buses, this is too low underlying profitability level that we need to increase. Because if we have a low quarter in terms of volumes or something like that, unfavorable product mix, we don't have the resilience in -- from an earnings perspective. So that work continues.Currency was positive this quarter, SEK 672 million. Out of that, approximately SEK 450 million or a little bit more is actually coming from the transaction flows, the rest is -- the SEK 200 million are coming from revaluation of receivables and payables. When we look into the whole year, and you know we talk about all the transaction exposure and what that generates in terms of currency, we think we will be, for the whole year, somewhere between SEK 1.5 billion and SEK 2 billion for the whole year. So we will have, as it looks right now, with the currency rates, quite significant currency, positive currency effects coming in the second and third quarter as well.When we look into the different lines on the -- what is affecting the profitability here, we can see on the positive side, obviously vehicle volumes. We have also then the service sales coming through. And of course, with a high volumes that we have in our factories, I mean, the absorption ratio on the capacity utilization is good. And as a matter of fact, actually, the underlying productivity in the factories is not that bad despite the fact that we have these supply chain disturbances that also, to some extent, affects the factories as well. And we have a positive effect coming from the R&D capitalization as well. We think, when we look into the whole year, that the total effect for the whole year is about SEK 0.5 billion. And Q1 and Q2 is almost balanced, it's a little bit positive actually. But you can say that the whole net effect will come then in Q3 and Q4 this year. And then the negative side, the selling and admin expenses, cash R&D and also then the stretched supply chain. If we look into it, as Martin said before, if anything, we can see here -- first and foremost, if you look into the changeover that we did in the first quarter related to Mack, that one is gone right now. And then we have still disturbances, especially then in North America, in a better situation. So we are, all in all, because the disturbancy costs are lower in Q2 than what they were in Q1, but they are still significant and that's why we continue to mention them.Cash flow. It's -- yes, well, it's pretty okay. But compared to last year, where we had SEK 11.9 billion, it's SEK 8.3 billion here. I think we keep the -- still a good control over the investments in PPE, and then we come to the effects of the working capital. We are growing right now, that means that we tie up more in capital in terms of receivables, nothing strange there. Inventory situation, also an effect of the fact that we are growing, but also an effect of the supply chain disturbances. So we have along the value chain a little bit more in inventory that we should have. It can be anything from the fact that we built up a little bit of buffers to make sure that we don't have more things coming from disturbances; and also, a little bit on semi- and wholly finished vehicles and equipment as well.Trade payables is a little bit also then not so positive, maybe as one should think it is should be. Last year, we had a pretty big effect in the second quarter, and that was due to the fact that in the first quarter last year, we were having stock weeks in North America. So we ramped up in the second quarter last year. That's when you actually build up the payables position. This year, we were, you can say, more stable, so that's why we don't have such a big effect on the payables side as we had last year. So all in all, nothing strange, you can say it will normalize the cash flow situation going forward. So I think we know the reasons why it is as it is. So -- but we need to come back here a little bit more on this side. We can see also that the net financial position, we are approximately SEK 27 billion in cash as we were in the end of the first quarter, which means that, basically, the cash of SEK 8.3 billion has actually been used to pay the dividend as well. So that's why we are more or less at the same level.Looking into the different business areas. Trucks, deliveries up 15%. Very strong, of course, increase in North America, more than 30%; Europe, up a couple of percentage points. And then when it comes to the sales, up 14% currency adjusted, and we can see a 16% on vehicles and currency adjusted 10% in -- on services. And I've said it before, when you have a service increase that is above 5%, that's a good -- that, but also what Martin said, there is of course an underlying effect from the fact that the fleet is growing. We have more vehicles out there. But there is also a lot of hard work increase on the parts -- both penetration on the vehicles, but also service contracts and so on. So this goes definitely in the right direction.The results going from SEK 5.3 million to SEK 7.2 million. And we have the same EBIT margin here on Trucks as we have for the group, 11.1%, going from 9.4%. And you recognize all the items that we have on the group level, it's the same for Group Trucks actually as well when it comes to what goes positive and what goes negative. So more or less -- this is an exact copy, actually, as it is on the group level.Construction Equipment, up 32% in sales. If you currency adjust, it's up 30%. And we can see that delivered machines, 38%, basically all over the different product groups and so on. It's a healthy growth that we have. We can see here also when it comes to the service sales, up 9% when we currency adjust. So a strong sales quarter for Construction Equipment. Looking into then the profitability, goes from SEK 2.5 billion to SEK 3.7 billion; 13.3% last year, 15.1% this year. And here, we can see that we get basically the positive effect from the equipment sales capacity utilization. We have also a little bit of currency here, SEK 170 million. But I think the good thing here with Construction Equipment is that they managed to get this sales increase actually and maintaining the cost level. We have, more or less, exactly flat cost level in CE. So of course, we get a very, very good development on the EBIT on the margins that we are -- sorry, on the extra sales that we get here. So really good job done by Construction Equipment.Buses, as I said before, good to be back in profitability again, SEK 260 million. Fairly, you can say, net sales approximately flat, a little bit down -- down on vehicles, 5%. But here, we can see also a very strong development on service sales, it's up 12% currency adjusted. So a lot of hard work being done there. And when we look upon the different positive things in the -- that affects operating income, it's service sales, product mix, more complete built buses, less chassis. We also have then the -- on the negative side, obviously the lower volumes and also the R&D expenses. And adjusted operating margin of 3.8%. But -- and the work here that continues then to continue to improve the profitability, everything from working through how we work along the -- you can say, along the value chain. A lot of still inefficiencies that we have, but also evaluating also if there is a need for different kind of structural issues. Nothing that we know about yet, but of course we look in everything from big to small when it comes to buses.Volvo Penta, fascinating. 19.9%, almost 20%, in EBIT margin. I think we are all surprised, if we have talked about it 1 or 2 years ago internally, including with our Penta colleagues, no one would have guessed that we will be close to 20% in EBIT margin. So it's just the fantastic work that has been done. Good underlying, of course, sales growth. And managed to get, you can say, the sales growth down into the -- into an improved EBIT as well. So basically, nothing on the negative side, higher sales, product mix, I think Martin mentioned before. And then also, of course, a little bit helped by the R&D capitalization, new emissions, lot of steps coming up.Financial Services, 26% increase of the credit portfolio. I think if you take away the currency effect, I think it's 9% up. And of course, a big effect from the Vehicle in Swedish krona when you translate it to the Swedish crowns. And I mean, almost all the portfolio are in different -- in other currencies than Swedish crowns. Going then from a profitability of last year of SEK 521 million, up to SEK 582 million; and a return on equity of 15%. This is, as you know, when we exclude the positive effect from the changed tax rates in the U.S. If we add them back as well, then we are at 23%. But this is the underlying return on equity that we have for Financial Services. So also here, good and has a stable development as well. So by that, Martin, welcome back on stage.

[Martin Lundstedt]

Thank you, Jan. Now, I think we have done the presentations. So the summary speaks for itself. And I think, Joakim, we're opening up for questions.

[Joakim Kenndal, Communications Director]

Yes, of course. Thank you very much, Martin and Jan, for a straightforward presentation. Of course, there will be questions here and also from the telephone conference. But we'll start here, I think that's the easiest thing. And there seems to be only one person.

[Hampus Engellau, Automotive Analyst]

Hampus Engellau, Handelsbanken. I have 2 questions. Looking at the operating leverage, I think you've been a bit cautious on your operating leverage so far this year. And if I look at North America specifically, it seems like we're seeing more regional fleets coming into retail sales, second half. And also, you indicated earlier this year that prices are better. So maybe, could you discuss a little bit how we should think about operating leverage going forward? Second question is more on run rate. If we look at the production, we saw a big jump in North America on the latest SACT numbers. And are you happy where you're running production now? Or are there any steps that you need to bump for the rest of the year? Those are my questions.

[Martin Lundstedt]

Yes. When it -- I can start with the second question you asked. First of all, I think you should think about as well, we said also, that we are going through then still a little bit over the transition for Mack primarily, even if we are basically through, so to speak, the changeover, we have been ramping up. And now with continuous very good demand, we are, obviously, seeing that we would like to continue to increase that. So we do that step by step. But it's very important for us to keep stability, both for quality, for price realization and for keeping also the customer promises. But if anything, we will continue to increase in steps for Mack. When it comes for Volvo Trucks, also, it is a very strong demand, good order book. And also, in that area, we are taking it step by step. But important for us, also, to get the stabilization in the whole value chain as we have seen in Europe gradual coming. So we will try, but we will do it in a way where we can also manage it both from cost and with customer promises, and also keeping, so to speak, the right quality of the business.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Now, when it comes to the operating leverage. And if we start with the, you can say, the revenue side, obviously volumes is -- it's always good to have volumes. But I think, also, what we have talked about before is a little bit -- maybe work a little bit more with our customer mix as well. We had maybe a little bit of a period when we were a little bit too focused on some areas on bigger fleets. So a little bit looking into the quality of the business, going maybe for more medium-sized fleets, small fleets and retail customers; and also focusing on prices, price realizations as well. I think that's -- that has helped us. And when we look upon the price realization, we said in the first quarter that prices were stable or a little bit up. I think we can confirm that we have managed to get the price realization through here. And it is pretty broad-based. It's not only a question for Europe or North America, it's pretty broad-based. So I think the organization has worked pretty hard with that. So I think that helps us well. Then obviously, on the cost side, I mean, taking away the -- when we went to, as I've said before, the Mack changeover in Q1, that one is gone. And I would see a little bit better, you can say, lower cost coming out from the supply chain disturbances. Not over yet in any way, but it's better. So yes, that's I think the same reasons.

[Martin Lundstedt]

And I think that's the reason also, as I've said during the presentation, why it is important also not to over-read now the European figures. I've seen some comments coming out, et cetera. I mean, we are on a high level. That has been pretty stable, actually, when it comes to the registrations over the last 2, 3 years. And when we see the activity level, it continues. But for us, as Volvo, it has been very important to work with the quality of that customer mix and how it looks like. So I think we are -- the organization has been managing than that in a way that we wanted to see basically.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Absolutely.

[Erik Golrang]

Erik Golrang, SEB. My first question is on Europe. I just want to understand you correctly, you basically said that the drop you've seen in the Volvo side in Europe, the drop in orders in both orders in Q1 and Q2, you would relate to a pre-buy from announced price increases ahead of year-end. Is that...

[Martin Lundstedt]

Yes, because -- I mean, if you take it from a mathematical standpoint, we are keeping our focus as we have had for -- since we actually revealed that for 2018 of 300-ton approximate, 1,000 in registrations. And we are continuing to see that this is a level that we are seeing, so to speak, in the total market. What we have said, that with a stable and good market, we also need to get out better quality in the business, i.e. prices and the right customer mix. And if that is coming to a little bit short-term expense of the order intake, I think that is still where we want to see it. And we can also confirm that activity level by seeing what Renault is doing, for example. So I think they are into these phases, but it's nothing that is making us worried. It's according to what we wanted to see.

[Erik Golrang]

And second question, and turning to Asia. If the market struggles to extrapolate demand levels in the West, I guess there's a bit more room to grow long term in Asia. To the extent it's possible to quickly summarize the different regions there, the various brands across Southeast Asia, China, Japan, India, to some extent as well, decent order growth in the quarter, but what are you seeing there now moving into the second half of the year and '19?

[Martin Lundstedt]

Generally speaking, I mean, the markets that are having matured -- I mean, you can always discuss what is a matured logistical system. But I mean, markets like South Korea, Taiwan, Singapore, to some extent, certain segments in Malaysia, you have Australia, South Africa, et cetera, there it is confirmed that we continue to have a strong growth, both when it comes to the market of, for example, the Volvo Trucks applications, but also market share developments. So I think that is positive to see. But also, markets like China, we continue, for Volvo trucks, now to grow given the fact that e-commerce and other type of application that requires much higher mileage and uptime demands are growing steadily. So from that perspective, strong and steady growth, so to speak. Part of, so to speak, the little bit lower figure is obviously related to the sanctions in Iran that is taking out certain volumes. UD continue to develop well, both when it comes to UD Japan. I mean, we have done a successful changeover of our Quon product. Our changeover product really -- what I would say, good feature is well-received in the market. And also, a very good development when it comes to services and the quality in that type of the business. Also, by the way, Volvo Trucks is almost under the radar, but also have a good development in Japan, actually. Even if that they are low volumes, but with good profitability. And also, on the value truck segment, we're -- as we said, when we really took a step back 2 years ago and created Group Trucks Asia and Joint Ventures, I think for all 3 brands, we see the development that we wanted to see. Step by step, taking market shares in heavy-duty segment, and coming back to profitability both for Dongfeng, Eicher, and also moving in the right direction for our UD value offering.

[Erik Golrang]

And the final question to Jan, I'm trying to sort out the -- how clean the Trucks margin is again. If we -- a year from now when you present the second quarter '19 numbers, I guess, and we've seen that volumes are flat, but for some reason the margin is down a bit, and you'll say that "Oh, in the second quarter last year, we had something-something that was a bit extraordinary." Anything of that nature?

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

First of all, it will most probably not be missed, I think they're doing it. But that's -- I understand your question.

[Martin Lundstedt]

But also is [ slower ]. I can also learn. It has to be the bridge between the 2 Jans there.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Exactly. No, but I think we'll -- obviously, we don't forget what we guide on. So I think we will give an honest answer and talk about the situation that we have in the second quarter this year and talk about that. And then, of course, obvious what has happened in the second quarter last year. So I mean, nothing changed. But I mean, I think it's fair to say that -- I mean, there are room for improvement still in the Volvo Group, as we said. I mean, the machine is not ticking 100%. So we are continuing to work. I mean, we have -- the strategy is there, it's strong and we continue to deliver on that one. And we still see improvement areas, and that is what we will continue to work with internally as well. And as we said before, we are -- it is a good result, but we will continue to work internally. Then we'll see where the market is, that's another question.

[Unknown Analyst]

[ Johan Wettergren ] from Nordea Asset Management. I have 3 questions. First, if you come back to the U.S. Trucks situation, I'm just thinking of what can you share in terms of the dealer inventory situation? I mean, you said that you want to have a clean order book to avoid speculation, et cetera. But I'm thinking about 2016, where we saw some sharp drop in production. What's the status right now and what's the dialogue with the dealers there? And then secondly, on the bus side, the new platform. If you look at the return opportunity that you have in buses, how important is the platform change that you do now? I'm just thinking of production setup, modularization, et cetera, to reach the kind of returns that you target. And what's the -- can you share with some kind of opportunity that you see on buses on the return expectations that you see longer term for that business? And then lastly, on S&P rating, I mean, they changed the outlook quite recently. Given the dialogue that you have with S&P, do you think they'd dare to do something before you see the next trough in Europe? I mean, it seems like everybody's waiting for that trough to happen to see if there's something different with the Volvo Group in returns. But do you think that S&P is waiting for the same kind of trough to see your cash flow and earnings generation in that trough to be able to change your rating? Or what's your best guess?

[Martin Lundstedt]

Would you like to start with that? Or should you think a little bit?

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

You're maybe quicker than I am, so you can...

[Martin Lundstedt]

No, I'll start -- I can start with the North American dealer and the inventory situation. I mean, if you ask our dealers, I guess, you do from time to time, by the way also, I think you will have the answer that the inventory is too low for the time being. They would like to see some more trucks for opportunity sales, if I put it like that, selling from stock. But for us, it has been extremely important to have a very tight dialogue on what type of stocks do we have, where do we have it, what is the mix, et cetera. And not at least for Mack, given the fact that they have such a broad application base also, not at least for rigids and straight trucks. And therefore, it's even more important that we are not stuck with trucks, for example, in the order queue for body-builders. That is also a bottleneck now when you have a very steep upturn. Because we normally say that a truck can be used as a Kanban card, but it's a very expensive Kanban card. So I say it's better to use other type of planning instruments than to have trucks physically standing in the queue. So that is one of the reasons why we have, during this quarter, been working really hard in the Mack system primarily to, I should not say clean out, but have a tight dialogue about what we do already have in the order book, what do we want to put into the order book, because the orders coming into us is coming from dealers. And that is not 100% reflective of what is coming from the end customer into them. And the 12% increase you should read as also a very focused activity from Weissburg and his team to really go through where are we now, how does it look like, given also that we have had the buildup of the order book that is reaching our -- into 2019 for certain application, which is, in a way -- no, it's not good. You need to -- it's better that you actually have that tight dialogue. So I should say, the dealer inventory, no issue when it comes to high levels or not a situation like in 2016. But still working with it to have the right balance. And then when it comes to buses. Yes, absolutely one of the key elements of this is that we are increasing both customer value, but also working on the cost side, both through modularity per se when it comes to components and systems, but also when it comes to the production methods used in order to have a more flexible system on the fully built systems that we have. And this is in line with one of the key strategies we have on buses now, that we've a little bit too many platforms globally. And then you are eroding, so to speak, the volume base for each platform. So that is one of the key elements. And to your point, [ Johan ], you know that -- I mean, we have a good capital turnover in buses, but the base on earnings is too low. So if we have dropped down, it doesn't matter. I mean, 0 x good capital turnover is still 0, so to speak. So I mean, we need to increase that number of percentage points to have a better base, as Jan said, and that is the priority right now as we speak. It's service sales, it's platform modularity, better commonality with trucks, simplification of the number of platforms and a little bit of the pruning that we have been seeing in other business areas.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

But I think also, I mean, we have a very positive -- the way -- the new coach in Mexico, I mean, really took the market by surprise, good profitability as well. So I think we have good hopes also with the new platform here in Europe that's been introduced right now, that can help also on the way. But there is hard work still to do internally, I must say.

[Martin Lundstedt]

Yes, and what I think -- just to add on this. I mean, we're working with the bus team here and it's a very good spirit, is that it's not only launch of a product and a platform from that perspective, they are launching also a number of services around that. So it will be a much more extensive way of doing business, that I think will be also key, the Volvo [ car ] system, for example.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Yes. Then on the rating, I think we have said before, we should have a rating somewhere strong BBB to weak A, and I think we are at that region. I think the -- and if we have a solid and good company with high profitability, good cash flow generation and you have a lower -- you lower, basically, the volatility in earnings and cash flow that we have had, we will get the rating that we deserve, and I think we are on that track. Then how rating agencies, how they evaluate where you are in the cycle and these kind of things is very difficult to know, actually, and I don't want to speculate on how they look upon it. But I think we have been on a good track. If anything, I'm a little bit surprised that it went so quickly to increase or improve the ratings actually. I thought maybe -- out of experience, that it would take a little bit longer time. So we are -- the important thing: Have a good and solid company that produced good earnings, then you will get a good rating.

[Joakim Kenndal, Communications Director]

Okay. We will continue with some questions from the telephone conference. Please go ahead.

[Operator]

First question is from the line of Klas Bergelind of Citigroup.

[Klas Henrik Bergelind, Director]

Martin and Jan, it's Klas from Citi. First one on Europe. I appreciate the reasons here for the slow momentum. You're optimizing for a better price mix. But could you remind us of what can happen to the drop-through and margin in Europe when we will start to see weakness eventually? You are typically pretty flexible on the way down. I think before you've said that you will not see any margin weakness up to a 10% volume drop, but for the margin then to drop, if we fall more than that, you also have a better momentum in services compared to previous cycle. At the Capital Markets Day, you said the service contracts are up 45% in Europe since 2014, which is a leading indicator for more service growth ahead. So if we could start with the resiliency in Europe, please?

[Martin Lundstedt]

No. I think, actually, Klas, that we will stick to a little bit what we have said, that I think we have -- both when it comes to our industrial system, we have a high level of flexibility. We are working on that. And I think also, just ultimately we have showed that even if we talked about the stretch in pricing, et cetera, I mean, plus 16% year-over-year in a quarter is pretty much to be in our industry on a global basis and it has been even more in some of the month for Europe, for example. So I think both up and down we have shown. We are working very tight also with our dealers and our market companies to follow, I mean, inventory situation, how does it look like, et cetera. And I mean, we see a stable and good situation both when it comes to used and when it comes to inventory levels and when it comes to the turnaround of the trade-ins and the balance between used and new, et cetera. So still keeping good and high flexibility when it comes to the industrial system, working very close together with our dealer groups and market companies. And also, to your point, continue to drive services. So I think Europe is -- I mean, we are well prepared in Europe. But having said that, it's something that you always need to be very close at, both for upturns and downturns.

[Klas Henrik Bergelind, Director]

My second one is on the bottlenecks. I'm referring to the slides. The last quarter, you said the supply chain -- or when you look at the slide, was highest or biggest drag before selling and R&D for the group and for trucks obviously. Now it's the other way around, supply chain is at the bottom of the list. I think the impact from the supply chain last quarter, year-over-year, were some SEK 500 million to SEK 600 million. So are we now SEK 200 million to SEK 300 million, with selling expenses still SEK 400 million? So can we get the magnitude of the improvement, please?

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

First of all, you're very observant, Klas, and there is a reason why it's on third place. And -- so it is a little bit -- first and foremost, the other cost items are actually higher than they were, I think, than the other quarters. So but it's on third place. And we do not comment on how much it is, but I think you can, a little bit, see the magnitude of it when you compare it to the other cost items.

[Klas Henrik Bergelind, Director]

Okay, fair enough. I tried. The third and final is on -- just to clarify on price cost. Given the steel cost increases we have now on the back of tariffs in North America, could you talk about price cost on new orders that are yet to be delivered into the second half? Am I right to assume that we could see some margin pressure in North America; but for Europe and international, to more than offset that? And you're obviously talking about optimizing price mix in Europe, so is that going to be net positive? Is pricing going to improve into the second half when you look at the P&L?

[Martin Lundstedt]

First of all, I think we have -- yes, seen, as we have said, also price realization coming through, I mean, both in North America and in Europe during this quarter as well. So we have already seen a positive -- a somewhat positive price realization. Now when it comes to North America, what we have been working with is obviously, yes, we have a cost increase related to the tariffs per se, but also the increased prices also given the tariffs and also the material that we are taking in North America as such. But we have also been working with moving that forward into the downstreams also in the delivery chain here because this is something that we cannot take. And we have a good market situation, so we have been pushing that forward and gradually also in the value chain here.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

And I -- well, I can also say that, I mean, with the raw materials Jan is speaking and the -- continue to actually increase in price and cost for us as well. And as we did last year, I think we managed actually just to compensate that a little bit more with the commercial negotiations that we have with our suppliers. And so far this year, we also managed to offset the balance, and it looks as though we can do it for the whole year. So it's a lot of hard work being done internally to offset, of course, cost increases from raw material, tariffs and so on. But also then that we have to work with the price realization as well. We cannot sit still in between and be -- I mean, squeezed between that. So we have...

[Martin Lundstedt]

[indiscernible]

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Work on both sides of the equation, and that's what we do.

[Operator]

We're now over to Graham Phillips at Jefferies.

[Graham Phillips]

My questions are as follows. So we look at trucks, and you talked about being sold out for 2018. How far into 2019 in each markets would a customer have to be waiting if they were to be placing an order today? And also just around Renault, can you talk a little bit about what the issues are in terms of product and volume there? You talked about pricing and having to rebase. Is this affecting the T truck? Or is this across some of the other areas for Renault?

[Martin Lundstedt]

Thank you. First of all, when it comes to assets that are sold out, it's primary then related to North America where we have had a very strong order intake, and I think you have seen also that in the reports what has worked here. So more important now is that we see, again, already strong momentum in North America, orders exceeding deliveries, et cetera. And in a situation like that, it's very important to be very close to dealers, work through the order book, have the right quality in the order book, making sure that we have not orders that will end up as a speculation in one state and then you cannot deliver to another. So I think that is the name of the game now, to have the right quality there. So then you can say is that -- I mean, how far is that in 2019? I think the fact that we have a situation of more or less sold out until 2018 is what we need as information and really work with those orders and those slots together with the customers as such. And therefore, I think from time to time, when you have these type of order figures, you should take that, both when it comes to Europe and North America, I mean, moderate and not take it as an all-in-all absolute figure as such. Renault, if anything, I think we continue in a very good way the strategies that we have said. We want to grow. We should have a higher market share than 8% to 8.5%, but we should not do it too quick. Because with the brand and the brand heritage that we have had with Renault, if you do it too quick, you will not get out, so to speak, the value that the Renault vehicle lineup is deserving because it's a great lineup. And therefore, I'm happy to see that also, this quarter, we are taking, I mean, some more orders. We are spreading that not only in Southern Europe, but some other key markets. And it's well received, both on the heavy-duty and medium-duty. So I think you -- we are very pleased with the development there. And again, as I said, volume is important. But we have the backbone when it comes to scale, given the fact that we are utilizing some of the most critical modular components into the Renault truck. But more important, have the right quality and prices, and thereby also receiving values going forward.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Exactly. Continue to see that used truck prices are on the right level. And also, it's not only volumes, we see that Renault is also increasing its profitability. So this is a stepwise approach. And on all of these parameters right now, we see that we gradually are going in the right direction. No one can debate about the speed, I think we want -- always want to see more speed, but this is a solid improvement that we see now in the Renault and that's important.

[Martin Lundstedt]

Well done.

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

Yes.

[Graham Phillips]

Do you have any figures you can share with us on the T truck, how the progression of orders or sales has been going this year?

[Martin Lundstedt]

I think you can see it -- I mean, since the majority of still the orders when you on the heavy- and the medium-duty on Renault is related to the T line, you'll see that it has been continuous good and solid development on that as well.

[Graham Phillips]

And just on pricing, there was a -- I'm encouraged by your comments that there were some good realization in the second quarter. I mean, just relating specifically to the U.S. and to Europe -- and there was obviously a bit of a scare story as well that used truck prices might drag down new truck prices. But do you see why there could be some disconnect there?

[Martin Lundstedt]

Now if anything, we -- as we said, I mean, on the used side, both for North America and Europe, we see rather stable prices actually. And also, when it comes to the balance, when it comes to inventory levels, et cetera, it's under control. So I think that we have been able then to have a positive price realization both in North America and in Europe in quarter 2 with, so to speak, stable used prices and -- yes, so I think it's good work done.

[Graham Phillips]

But is there any reason why there could be a disconnect between new and used, do you think, in terms of the new trucks being able to deliver much better productivity for customers, and perhaps the used ones being under pressure because they're not as fuel efficient?

[Martin Lundstedt]

Yes, I understand your question. There's always a speculation about that. But I mean, so far -- I mean, even when we talk about a positive price realization is it's relative, I mean, in relation to the full calculation between new and used trucks is relatively low figures when it comes to the life cycle cost of -- if you go for a used or if you go for a new. So that, I think, is too early to draw any conclusions into that area so far. So let's follow that moving forward here.

[Graham Phillips]

Okay. And just finally on Construction Equipment. Can you talk a little bit specifically about China? Again, there's been mixed signals from sort of the construction markets there. What you're seeing about most recent trends and looking into to the, say, second half of this year for China construction activity. And also just overall, how much of China -- the Construction Equipment business, sorry, of China -- sorry, not China construction, but Construction Equipment, is exposed to mining, per se?

[Martin Lundstedt]

Yes. If we start then with China, it's a little bit -- I showed also in the presentation here, a very strong development during first half of the year. And it has gone both for excavators, both for heavy and the compact excavators as well as for wheel loaders. If anything, we say that it has been such a high activity levels. So if anything, we expect a little bit more of a softer development in -- during the fall. And no drama. But if anything, a little bit softer than we have seen. And I think that's okay because we are also in the situation where we are starting to see certain bottlenecks in the Construction Equipment side as well. But no drama at all. And then when it comes to the mining, it's -- in absolute figures, I don't have it in percentage points, we don't reveal it like that. But it's relative low in relation to unit sales, in relation to construction sales, so to speak. But good -- but growing, I have to say, because we have a better focus on the mining segment. And we have a great offering. But generally speaking, we have not been strong enough on application and industrial segment-based selling, and that is not only for Construction Equipment but of using the total force of the group into specific segments such as mining. What I'm happy to see is that we have closed a number of deals with the mining houses and the subcontractors to mining by combining the full strength of the group, trucks, Construction Equipment and Penta equipment as an example, and even in some cases then, buses. So here, it's more to do on the more general note.

[Joakim Kenndal, Communications Director]

Let's continue with the telephone conference.

[Operator]

Sorry, do you wish to have another question?

[Joakim Kenndal, Communications Director]

Yes, please go ahead.

[Operator]

Okay. We now have the line of Mats Liss at Kepler Cheuvreux.

[Mats Liss, Equity Research Analyst]

Just a couple of quick ones, I guess. First, regarding Europe, Jan. Could you say something about the lead times there of the Volvo order to delivery in Europe in general terms?

[Martin Lundstedt]

Yes. What we can say is that it's still a little bit higher than what should be the normal lead time, so maybe a couple of months we are talking about. I just looked through the order book, it's approximately on the same level as it was 1 year ago or a little bit more. But -- so we are a little bit high -- on the high side still, but trying to continue to work down that, also, with the stabilization of the value chain.

[Mats Liss, Equity Research Analyst]

So November approximately then?

[Martin Lundstedt]

October, November, maybe.

[Mats Liss, Equity Research Analyst]

Yes, sure.

[Martin Lundstedt]

It depends a little bit on segments, et cetera. But I mean, then you have -- I mean, since you have much more of a regular, so to speak, market of how you actually are ordering and putting orders in the Europe it's less -- yes, it's less to [ give up ] with that because you have much more normal flow of underlying orders coming in.

[Mats Liss, Equity Research Analyst]

And regarding the holiday season now coming up in Europe, do you plan to make any sort of changes in production, daily production besides that?

[Martin Lundstedt]

No. I think we are all still sticking to the planned schedules as we have around the globe, actually, when it comes to vacation because we need that also, both for, as always, maintenance and rebuilding activities, both for product renewals and normal maintenance with higher production levels. But we also need that to continue to recover in the different parts of the value chains. Both internally, so we are running sort of production lines and certain areas of our operations; but also for our suppliers, because it is very high levels and they need to breathe also to recover and to build up buffers, et cetera.

[Mats Liss, Equity Research Analyst]

And then, well, coming back to the U.S. there, could you just remind me on the take rate of the Volvo-based powertrain there, including the gearbox, the I-Shift?

[Martin Lundstedt]

Yes. On -- I don't have exact figures now. But I mean, on Volvo, it is, you can say, north -- in principle, north of 90% on the 2 sides, both for engine and for gearbox. And for Mack, obviously it's also a very high-level on -- then north of 90% than the 80-some -- is it 50% now or something on...

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

60%, 70%.

[Martin Lundstedt]

60%, 70% even on the gearbox side, because we are going that steadily also for Mack, so continuous positive development also in that area.

[Mats Liss, Equity Research Analyst]

And you are able to supply the market then and you are not affected by bottlenecking in that area?

[Martin Lundstedt]

No. I have to say in that I'm -- I have to say that we are proud to say that if you look 1 year back in -- than it was really the powertrain area that was the most severely -- severe area when it comes to affecting the output and the stretched supply chain. But gradually, we have been working through that. So lately now, even if it's very tight still, it has been stabilizing and improving. So for the time being, that is not the most critical area. But it is a moving target, obviously, with -- depending on mix and regions, et cetera. But good work done in that area.

[Mats Liss, Equity Research Analyst]

And then Construction Equipment question then. I mean, solid orders there. And I guess, could you say something about the mix going forward there? And is there anything to...

[Martin Lundstedt]

No, I don't think it's -- I mean, big -- some big changes. If anything, we have had a little bit higher order intake when it comes to heavy equipment than the compact, but not super big mix changes.

[Mats Liss, Equity Research Analyst]

Okay. So heavy duty?

[Martin Lundstedt]

Heavy is a little bit more, yes.

[Mats Liss, Equity Research Analyst]

Yes. And finally, about the cash flow there, could you say something about the development during the second half?

[Jan Gurander, Deputy CEO & Member of the Group Executive Board]

No. You see, usually, the fourth quarter tend to be very strong.

[Joakim Kenndal, Communications Director]

Okay. I think we have answered all of the questions. Thank you very much, Martin and Jan. And thank you very much for attending this press conference. See you next quarter. Thank you.

[Martin Lundstedt]

And have a nice summer. Yes.