AB Volvo ADR (VOLVY.PK) CEO Discusses Q2 2013 Results - Earnings Call Transcript

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AB Volvo ADR (OTCPK:VOLVY) Q2 2013 Results - Earnings Call Transcript July 24, 2013 8:30 AM ET

Executives

Olof Persson - President and CEO

Christer Johansson - Investor Relations

Anders Osberg - CFO, EVP Corporate Finance & Control

Analysts

Fredric Stahl - UBS

Martin Viecha - Redburn

Alex White - JPMorgan

Austin Earl - Marshall Wace

Paul Hartley - Merrill Lynch

Thomas Besson - Cheuvreux

Ashik Kurian - Goldman Sachs

Bjorn Enarson - Danske Bank

Operator

Ladies and gentlemen welcome to the AB Volvo Report on the first six months of 2013. Today I'm pleased to present Olof Persson, President and CEO. During this call there will be no presentation so we'll go directly to the Q&A session. (Operator Instructions)

I will now hand over to Olof who will say a few words before we begin with the Q&A session. Olof, please begin.

Olof Persson

Thank you very much and most welcome to this telephone call regarding the second quarter of 2013 and we have made available the presentation that I made this morning on the net so at our home page you can look at that presentation. And therefore, we thought this that we would go directly into the question-and-answer session and by that I would like to open up the question-and-answers.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from Mr. Michael Tyndall from Barclays. Please go ahead, sir. Michael, your line is open, Michael your line is open, can you hear us. Our next question comes from Mr. Fredric Stahl from UBS. Please go ahead, sir.

Fredric Stahl - UBS

Hi, Olof, hi Christer, I guess you're hiding there as well, it's Fredric here at UBS. I have three questions to please. Maybe, is it possible for you guys to talk a bit about the productivity improvement that comes with all these new products because I'm guessing you revamped the assembly and tried to squeeze out as much as possible from the production side of things as well not just the features of the trucks. That's the first question and then I would like to know, if you look at the FX impact on the truck business, on revenues it was broadly the same as in last quarter but the hit to EBIT was much bigger, so I was wondering if you could give some color on that and if we should expect the same sense of sensitivity in the coming quarters. And finally, Volvo Renault, are you planning to sell that? Can you comment on that? Thank you.

Olof Persson

Okay. Thank you very much. You are absolutely right, Christer is hiding here together with Anders Osberg as well and I should of course have mentioned that in the beginning. Thank you for that. If we look at the, what we have done in the signing the new vehicles both on the Volvo side, on the Renault side but of course also now in the coming on the UD value truck, we have are of course ensured that we have taking into consideration productivity assembly times, assembly and structures and making sure that we do whatever we can to increase both the efficiency in assembly but also making sure that we are getting a outstanding quality on the assembly that we're doing.

We have also worked on lot in terms of looked at maintainability but one thing is of course that we have good assembly and procedures and sequences but it is also very important that when we have services that we can with our dealers and I can show that we have an efficient and a fast moving in [each accessible] maintenance and that is also included very much in the design of the new vehicles.

Giving a number on this how much better it is that's it's I would say too early because we do see, and we do have a (inaudible) improvement based on calculations, then we have our sort of experience from the assembly and production we have done up until now then on the new FH. But overtime we will continue to work on this. So it would take some time before we see the full benefit when the whole system is up and running and completely and that will take some time.

Fredric Stahl - UBS

Is that part of your margin target, the 300 basis points?

Olof Persson

I mean if you look at it one of the sort of items we have there is standard cost of sales some in, some costs of sales you also have of course the standard hours and the standard minutes, and the standard seconds for assembly of vehicles. So the answer to that question is definitely yes.

Fredric Stahl - UBS

Yeah.

Olof Persson

And when it comes to ramps, let me just because there will be a very short answer and we do not comment as you know on those kind of statement or eventually rumors. If we don't take FX on trucks, yeah what you can that, I guess that of course, it's [just home] and you have the have the revaluation of the receivables that this profit and so on and then you have the effect on the flows and this time of course, if you look at individual quarters, you could experience certain volatility but overtime of course, what we have guided before is that we have mainly a really a mismatch on the U.S. dollar. So of course over quarters you can see this volatility and it's correct that you see there some revaluations over the last two quarters. But then of course on the flows, I think this time you had many currencies in the different currency [patterns] will also across product that added to this difference.

Fredric Stahl - UBS

Is it possible to give us an idea what do you expect for the future?

Olof Persson

It's basically impossible to do that. Because as a global company, we have also a lot of cost currency [pairs] that as will affect us. So it's very odd to see how the individual movement between currencies will be either. So it's hard to guide there exactly.

Fredric Stahl - UBS

Okay. Thanks guys.

Anders Osberg

Fredric, I think I'd just add there if you look at page 29, you see the currency disclosure for the second quarter and if you look at it, SEK700 million came from the net flows that's the transaction exposure that we have. Then you look at we have translation effect on operating income from foreign subsidiaries of minus SEK161 million and I would say most of those SEK160 million is actually coming in the trucks result. And if we assume the same profitability now foreign subsidiary and the same FX rate then that amount will be about the same going forward.

Fredric Stahl - UBS

Very good.

Anders Osberg

Depending if what you compared to of course, in Q3, you will other comparison basic.

Fredric Stahl - UBS

Yeah, now that's clear. Thanks a lot.

Operator

Our next question comes from Mr. Alex from (Inaudible). Please go ahead sir.

Unidentified Analyst

Yeah, hi. Good afternoon. I was just wondering if you could provide a little bit more color on what's going on in India. And then also give us an update on your discussions with the Dongfeng JV in china and perhaps a bit around the developments for the truck market in china, thank you.

Olof Persson

Okay, India in general has had a rather though development in, I would say both in the economy and also in the truck market going forward and hence we have done, revised our full year forecast down a bit there. And in terms of our performance, I would say that the Eicher brand and the Eicher operations first perform pretty well and we have managed to keep our market shares on the medium duty, we are as entering into the heavy duty since, what is now [at least] a couple of years or one and a half year, and we are slowly gaining traction there as well.

What we are now looking forward to in India is and we haven't mentioned that so much today is that at the back end this year Eicher as well will come out and launch a complete new range of vehicles for the Indian market but also products that will be possible to export out of India through other markets and as a part of our brand positioning work that we are doing now in different parts of the world.

So in India it's from a market point of view, it's a tough situation and we'll see how it develops going forward, but I am pleased to see how Eicher is taking on the challenges in the good way, when it comes through, our discussions with Dongfeng, it goes according to plan. We are providing the data and the approval procedure is going according to plan. So, we will we stick to our estimation that we will have this up and running through the new strategic alliance at beginning of next year.

And your last was down also about another truck in the truck market in China and what we see so far is that the market is holding in the range that we have discussed and that we give you only the medium duty and heavy duty and one number and I can give you a split of their in terms if you just give me one second.

If you look at the 935,000 for the total market we can see that we forecasted heavy duty being 630 and the medium duty down to remaining 305,000 units for this year and that is the development we see.

Unidentified Analyst

Okay, I mean just in terms of the sort of development over the first half is that, can you give any color on the profile of the year rather than just assume that it's not flat all the way through?

Olof Persson

Yeah, Chris, why don't you give the detail?

Christer Johansson

I don't have all the data here unfortunately, but we had, you know, a fairly weak start. So with the forecast we have, we expect a slight improvement here coming into the second half of this year.

Operator

Our next question comes from Mr. Martin Viecha from Redburn. Please go ahead, sir.

Martin Viecha - Redburn

Hi, this is Martin Viecha from Redburn in London. I would like to ask on the services, given that part of the restructuring programming is increasing service revenue especially in North America. I was wondering if there is any chance we would get a bit more detail on service performance on quarterly basis; like we get for example with my car Scania?

And also on the second question on the truck production, I wanted to ask if the truck production year-on-year has increased or decreased and if you could give us a hint of how much? Thank you very much.

Olof Persson

Okay. If we start with the services and the split up, we do not at this point in time have any plans to give you more disclosure on that and that doesn't mean that we never ever going to do that but then at this point in time, we have no plans of doing it.

And if that were to happen, we have to be very clear that we have the right sort of focus and update on that but let's see. I take it me as a comment from you and then we'll discuss it internally.

When it comes to truck production, Chris, I think you have all the detailed updates up there in year-over-year.

Christer Johansson

We keep it clearly on the production date unfortunately but you can look at the delivery and they are good, you can say, estimation to what is being produced in our manufacturing system, especially as our inventories are not moving a lot now in this quarter.

Operator

Our next question comes from the Alex White from JPMorgan. Please go ahead, sir.

Alex White - JPMorgan

It's Alex of JPMorgan. I have got two questions. Firstly, I am just looking for some clarification on the comment you made in the press call this morning on your rolling fleets in Brazil, I think you said that they are in Latin America, I should say, I think this is around 90,000 trucks. My estimate shows delivered around 30,000 trucks this year to Latin America.

Does that 90,000 trucks corresponds to the total Latin American rolling fleet, because it's 30,000 trucks in one year if you fleets around 90 seems a dangerously high level?

Second question I had was, just trying to get a feel for how deliveries in Europe can develop in Q3? Historically, we've seen sequentially declines of 20%, 25% given the seasonality with the vacation period etcetera, should we expect this type of development again this year, despite the strong orders that we have seen, or did you actually ever produced enough in Q2 so you enter the quarter with enough momentum to better offset before vacation period? Thanks.

Olof Persson

Okay. When I talked about the rolling stock in Latin America, it was for the Volvo brand. We would like to specify that and then we do have other brands in Latin America as well as particularly Mack and the others.

So I hope that clarifies. When it comes to delivery Q3, Chris here, why don't for consistency here making sure that you give the right flavour of that.

Christer Johansson

I think you should expect the reason, you can say we ramped up the Volvo truck production in Europe by 25 trucks a day beginning of June that pace we would of course continue in July.

Now we will have three to four shut down week that we always have and then we will do a slight production ramp up end of August. So September you will have it's like the higher pace in production but you should keep in mind that the [trans] will shut on the assembly side, usually four weeks in Europe. So that type of normal vacation impact you will have.

Operator

Our next question comes from Austin Earl from Marshall Wace. Please go ahead sir.

Austin Earl - Marshall Wace

I've got three questions; if I could bit perhaps take them one by one. The first is just regarding comments this morning about the pre-buy in Europe, is there any way of trying to quantify, how much of the second quarter orders might have been pre-buy?

Olof Persson

I think the short answer to that is not really. I mean what we have to do and what we have done is try to keep an eye and see what kind of order pattern we do have and I think we can conclude that we have seen the pre-buys tendencies in UK and part of it in Europe permitted on focusing on the classic FH in that respect but exactly how much of this and to what extent? It's very difficult to give any number of it.

I will say that, it's up until today and what we see in order book, it is not substantial. But we will have to keep an eye on it, going forward into and there are some here.

Austin Earl - Marshall Wace

Okay. The second question was just on the pricing in Brazil, your comment this morning was you were referring to inflation in Brazil, I just wanted, I mean when you say the pricing was positive, I mean is it positive enough to cover the cost of inflation and also cover the cost of the Euro 5 engine?

Olof Persson

The Euro 5 engine we covered already beginning of this year. So that is done. What I am talking about now in the second quarter is exactly what you talk about is the positive price realization in order to cover the cost increase. And the answer to your question there is yes. We have managed to cover up for the cost.

Austin Earl - Marshall Wace

And last it was just your earlier comments on R&D; if I understood correctly what you are saying is that from a cash flow point of view that it peaked in H1 is that correct?

Olof Persson

What we've talked about it, the cash R&D and the cash R&D is what we've done and our strategic objective is focusing on in order to reduce that with 2 billion up until 2015, giving the starting points last year.

And we are on good way of doing that then you have of course the impact of the amortization, depreciation on that but the cash R&D, we are on the good way and we are continuing to reducing that according to the plan of actually having it to reduce by 2 billion by 2015.

Christer Johansson

And it's just very close to elevated in the second quarter and we have said that it will be about the same level in the third quarter.

Austin Earl - Marshall Wace

And so a couple of starts to come down in Q4?

Olof Persson

Yeah, exactly and then we will drive it.

Austin Earl - Marshall Wace

And just regarding that you were losing to the amortization of capitalized R&D and I just so wondered I mean, the guidance that you provide of this shifting over so that it will be a drag rather than a tailwind in terms of EBIT. What's caused the delay to that? Because correct me it was originally expected in Q1 and then you postponed it to Q2, and now postponed to Q3. I mean, is this just an accounting thing or what's really causing that?

Olof Persson

Because its rather complex, I mean, I've a huge amount of projects running. And according to the accounting you've done based on certain points and gates where we passed those gates and that's why you start to do the amortization and the switchover, and it's very difficult to sort of judge exactly when all the different projects are hitting those different gates. Now I think that we can say that we, as the project goes along you get better and better certainty of it and of course the fact that we now have done all the big launches during this quarter has of course put some of those projects down in that category, which will impact us a little bit on the negative side. So the clarity is increasing and therefore we are guiding the way we are guiding for the next quarter.

Anders Osberg

But the lowest gates you can say and that means that it's more quality and predictability in the numbers that we are giving for Q3.

Operator

Our next question comes from Mr. Paul Hartley from Merrill Lynch. Please go ahead, sir.

Paul Hartley - Merrill Lynch

I've just got two if it's okay. The first one, just covering pension positions, I was just wondering what the cause of the [big of] $3 billion movement has been from Q1 to Q2. So if you could just sort of discuss that. And then the second question is just on some of the expenses that we talked about in the call earlier this morning, and so related to the launches that run the cushion for you, you know over the coming quarter? In the Q1 call I believe you said selling expenses are likely to peak in Q2 so I just wondered that with some of the comments in your opening remarks in the release today, I think there is some sort of indication that customize peak in the second half in that comment. So if you could just sort of allude to that would be much appreciated?

Olof Persson

Okay, Anders, do you want to take the pension?

Anders Osberg

Yeah, quick to then on the first one. It's basic, it's the technical effect from the long-term rates have gone up and therefore you have the discount rates in the calculations also affecting and therefore you get that strong effect that you mentioned.

Olof Persson

And on the lowest cost then and the selling cost, we have now said and I said this morning as well that if you look at Q2, we were running in the range of SEK 500 million higher than normal selling cost. We do predict to see in the third quarter that about the same level, again coming in to the third quarter giving them the lowest cost that we have, both on the Volvo side but also on the Renault side.

Operator

Our next question comes from Mr. [Alex Bolusli] from Societe Generale. Please go ahead, sir.

Unidentified Analyst

It's Alex Bolusli at Societe Generale. Question on brand positioning in Europe, I guess in light of the refresh lineup at Renault Trucks, (inaudible) shipping new FH truck, have that strengthened product portfolio that you talked about? I was just wondering how far down the road that takes you specifically in Europe in terms of brand positioning, any comments on how differentiated you, I guess your twin offering is now in Europe compared to say a year or two ago and maybe flash out a new market opportunities that you are seeing and whether we should be thinking about new price points as well?

Olof Persson

I think there is a new launches that we have had that gives us an excellent opportunity to actually now getting down to the work with the brand differentiation and the new products are differentiated in a way that makes it possible to do that in a good and profitable way. We have during this development work tried to make sure that we on one hand take care of the scales that some of the component gives when it comes to Volvo and Renault combine, but on the other hand making sure that at the end of the day, the product has enough differentiation to actually be able to position different segments.

And then we are definitely doing that and I think that when it comes to market opportunities, it is definitely with this new line. So that we will go after and making sure that we are getting to market share that we believe we will have but also making sure that we cover the biggest segment of the market, both in Europe and elsewhere going forward.

So I am really pleased with this and we are now entering into the phase of course where we are starting to coming back to the price positioning where we now starting to selling those vehicles and making sure that we do that in a good intelligent way. And it's not very often you have the opportunity to actually start on with the two brands that we have it with the completely new line-up, because that gives you also the opportunity to making sure that you address the right customer segment with the right feature with the right price position, but what exactly that is, that is something we keep very closed ourselves of course for competitive reasons.

Operator

Our next question comes from Mr. Thomas Besson from Cheuvreux. Please go ahead, sir.

Thomas Besson - Cheuvreux

Thank you. It's Thomas Besson. One quick question to follow up on the first call this morning. Could you elaborate on the [year two] for Latam in the next three, four classes, we've seen nice improvement in the second quarter. The outlook seems to have changed a lot in recent weeks. Can you give us your view on the second half and on the first half of 2014 for the region in terms of volumes and pricing?

Olof Persson

Well, I think if you're talking Latin America per say it is we talk a lot about Brazil and that's a big, big chunk of the Latin America. But there is of course and has been different movements in the different regions per say, very much if you look into some countries driven by the slowdown in mining and like in Chile, you have other regions who has had a not so strong economic developments like Argentina which has been one, but you have other market that has been going really well. But if we do focus on the big chunk, which is Brazil of course, I think that, what we see today in the order intake, what we see in terms of signals we're getting from the market, it gives us enough confidence to keep the market forecast as we have said today on the same level.

Now we also of course here is the different discussions going on, but I would say that we have to wait and see how things are developing, but what we see today, we differently believe in the forecast that we have look forward. When it comes to 2014, I do not speculate into that. We have a process when we come back to you at the back end of this year in order to talk about the next and we will do that the same thing here.

But I would like also to stress two things, one is that if you look at Brazil, we have been there since 1972 or ‘73 and we have been part of ups and the downs in Brazil for many years and we are well equipped for and well prepared for any sort of ups and downs that we do have and we have done that I think in a good way. And we also as I said this morning investing which is important investing a lot into the service network in order to take care of the rolling populations.

And finally I would like to say also that when if you look at Brazil for a group, it is of course an important market, but if you look at the total revenue of Brazil, it's around 6% including everything is CE trucks spend of the group.

Anders Osberg

Yeah, Brazil is 6% of the group revenues, yes.

Thomas Besson - Cheuvreux

Yeah. Can I ask another one on the region where you invested recently which is Russia and give us on a bit on what's going on there, we have seen a deceleration in the economy and some regulation about used trucks has penalized obviously the local base can you update us on your view on the prospects you have of this?

Olof Persson

I think Christer, you have the latest annual production.

Christer Johansson

Yes, I will say that demand for trucks is still good. The difficult things is basically two things for us, it's the Russian ruble has weakened which of course puts pressure on margins. And the second thing is that they introduced the scrapping fee which is €5000 to €10000 per truck and that we will have to pay up until we have the (inaudible) up and running in our plant in Kaluga But that's not until the end of next year so I would say demand for trucks is still holding in their but it's some pressure on margins due to two factors that I mentioned.

Thomas Besson - Cheuvreux

Very clear, thank you very much.

Olof Persson

Okay.

Operator

Our next question comes from Mr. Fredric Stahl from UBS. Please go ahead, sir.

Fredric Stahl - UBS

Yeah, hi again. I just wanted to try to understand what's happening in your P&L because we're talking a lot about extra costs and obviously dramatic changes to your product portfolio and the potential complication that poses to your production system. And it sounds like that's weighing down your, it should be weighing down your profitability but when I look at your revenues and they're down in the last three quarters, they're down anywhere between 13% to 26%. So pretty dramatic drops and if I look at the drop through margins, the incremental margins on that they look very normal or I would say for Volvo's standards very, very good actually. So you're doing very well despite all these problems, what else is happening in the Group, has there been a step up change in how you manage your production or you manage your cost base, these numbers look very good, ignoring the fact that you might have, even ignoring the fact that you might have all of these disturbances within the business right now?

Olof Persson

As we talked a little bit this morning as well. I mean with the new organization, the new way of working with the focus now on the strategic objectives that we're having in the truck business and the 400 activities even though it has only been seven months that we have this up and running. Of course we are seeing a lot of things happening small and big things, which is contributing and we are big organization, a large organization and that means that all the small activities going on is having a positive effect.

Now, have we more to do that, definitely and I think we are doing but I think we are getting to, let's put it this way. First we had a phase of getting the new organization in place. We had a phase of actually defining the new way of working. The second phase was very much in aligning the whole management team around the strategic objective. The third phase was then to really getting all this activity and scrutinizing the activity and I can assure that those activities really with a focusing on the profitability and the strategic objectives and then now the phase of executing and this is what we're now getting in to this phase and we are going to continue to do that up until 2015.

So there has been a number of different phases in this and I feel comfortable that step by step we're going in the right direction but this is a journey. There is nothing that comes from one quarter to the other, but one good activity adding on to another good activity soon or later also shows results. That is sort of the top level on first, if you have any sort of more detail on a personal note, but at this what happening, And again I also would like to (inaudible) around up a little bit by saying that we are putting a lot of emphasis on actually deliver on what we are saying that we are going to deliver we had the Q1, where we've done decided ourselves that the Q2 should be quarter of launches and increased deliveries, we deliver on that.

And we're now looking forward to the next quarter of concluding the launch side and thereby going out 2013 and into 2014 with a new product before have and in addition to that we have all the other activities ongoing at the same time. So some momentum is gaining and that is of course something you have to have 29 months is 29 months and we need to make sure, we are ready by December 31, 2015.

Fredric Stahl - UBS

Great thank you.

Olof Persson

Thank you very much.

Operator

Our next question comes from Ashik Kurian from Goldman Sachs. Please go ahead sir,

Ashik Kurian - Goldman Sachs

Hi it's Ashil Kurian from Goldman Sachs. I've got couple questions on the production increase from June onwards, one is it mostly done through temporary workers and are you in any way preparing for a potential fall in demand for the first half of 2014, both in Europe and Brazil? And the second question is the fact that you've chosen to go along with the normal four week shutdown and Europe despite the improving orders or the strong orders, does that mean you're expecting limited impact from pre-buy for the rest of the year in Europe or it's just something that you have to do anyways?

Olof Persson

I think on the first one, the answer is yes. We are going with what temporary workers I think, if you look at the numbers now we are up on 17% [cut] down some temporary workers of the whole workforce and this production ramp up has been done with temporary workers. And this is what we going to focus on very much going forward in ups and downs; we're going to do that, the temporary workers in order to. So it would be more agile in adapting to whatever comes ahead us.

When I consider four weeks' vacation, this is something that we have been doing for many, many years and it gives you the opportunity to during a period of time making sure that you do maintenance on the factories. You have the opportunity to protect things and so on and so forth in the factory.

So just because we don't produce doesn't mean that nobody is in the factories, we're doing lot of maintenance to be if there are new investments we use the timing to do that in order not to disturb the production, the normal production.

So, there is no sort of special thinking behind that, this year it's a normal procedure. We do this year as we've done in many, many years in the past.

Ashik Kurian - Goldman Sachs

Okay. Can I just ask a quick question following up on, can you give us an update on the organization of the Renault and Volvo dealers in Europe, have you seen any impact on the volumes the initial process has cost or has it been going smoothly as planned?

Olof Persson

I must say that from a market base, we have seen very good energy and very good ambition levels coming from this, of course there is a big change and let's say a lot of details that we have to work through.

But giving that, I must say that the team has done a remarkable job in speed in order to get this up and running. And as you can understand there is lot of education and there is a lot of training that has to go on.

And we are now starting to see the combined dealers getting into place. We see the new management teams; we start to see the action plans from the new organization in order how to improve the situation, reduce costs, increasing market shares, all that is happening as we speak.

And we are very much on plan doing this and again, I would say that the combination in Europe of this change plus the new products of course gives an enormous boost to the organization in order to have something really new to work with and doing that in a structure which is focusing on optimizing our total footprint on the Volvo and the Renault side, so far so good.

Operator

Our next question comes from [Bjorn Enarson] from Danske Bank. Please go ahead, sir.

Bjorn Enarson - Danske Bank

Two follow-up apart from this morning on construction equipment in China, could you give some color on where you see that the dealer inventories are for you and also your main inventory, you might have mentioned it this morning, also a little bit of a bad line. So some more color construction equipment in China that's the first question.

Olof Persson

And to answer that very quickly that imbalance, we have both on the dealer inventory and on our own inventory, we are very much in balance and this is the work that has been ongoing from say for last I would say at least the last year, they started already last summer, so the inventories and pulled back production when they saw the demand going down. So therefore we have actually never had any big problems with inventory in China and we are definitely now and the bottoming out is there having a good balance and therefore the orders are coming pretty much directly into the end, the production system and helps done the utilization.

Bjorn Enarson - Danske Bank

And for the market if the cycle overhang on the inventory side, is that impacting pricing that you feel something of mainly I guess for the Volvo brand?

Olof Persson

I think on the pricing I haven't heard any negative news, it's a very competitive market, let's put it that way, so it's always a fight for the volumes, but there's nothing unusual on the pricing side, not so much either on the financing side, either that has also stabilized, even though it can a little bit on the, I would say aggressive side in the market. When it comes to the overhang in the industry, there is probably some overhangs still around definitely, it's difficult to get a complete picture of that, but our feeling is that there's probably some overhang left in the industry, but of course if the market starts to pick up that is a market that's cost you quite a few much in of course.

Bjorn Enarson - Danske Bank

Perfect. And then on Russia you mentioned the utilization fee there, are you trying to cover that before your new plant is up and running or/and what's the process there?

Olof Persson

I think what we do is of course we are trying everything we can in terms of pricing and compensating, but it's very difficult to compensate for that time. So it's a balancing act there in order to then sort of work, I would say, through 2014 until when we have the end facilities up and running by back and 2014.

Operator

(Operator Instructions). There are no further questions at this time.

Olof Persson

Okay. Then I would like to take the opportunity to thank you all for joining this Q&A session and our IR department, Christer, is there for answer any questions or further thinking or questions you do have. And then I am wishing you a good summer and talk to you again in relation to the release of the third quarter this year. So thank you very much.

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