Alleima AB (publ) (ALLEI) Earnings Call Transcript & Summary

Hi, everyone, and welcome to the presentation of the Second Quarter 2024 Interim Report for Alleima. My name is Emelie Alm, and I'm Head of Investor Relations. I am joined here today by Goran Bjorkman, President and CEO; and Olof Bengtsson, CFO. So as usual, Goran and Olof will take you through the results, and then we will have a Q&A session. And you can ask questions through the conference call and you can also write them in the webcast. You can download the presentation from alleima.com. As always, safety is a top priority for us, and I trust that you are safe now and that you know the safety routine of where you are located. So with that, I would like to hand over to you, Goran.

Thank you, Emelie, and hello, everyone, and thank you for listening. So let me start with the highlights for the second quarter, which I think was a well-executed quarter. We delivered a flat organic revenue growth with revenues at almost SEK 5.4 billion. The organic order intake growth rolling 12 months declined 4%. But this is clearly more a consequence of the timing of orders rather than a lower demand compared to last year. Overall, market sentiment is improving from already high levels in some and from low levels in other segments. And we believe we now have bottomed out in the short-cycle business of Industrial and Consumer segment and is now turning to order growth, still from low levels. So all in all, the previously weaker segment has improved and the previously strong segments are continued strong, and we are comfortable with the high-quality backlog. We are often talking about our diverse business model that we are exposed to segments in different parts of the cycle. And I believe that shows even more in a market downturn. Alleima is a different company now than, for example, in 2019, which at that time, considered a great year, where contribution to EBIT nowadays is much more diversified than it used to be. Strong free operating cash flow of SEK 486 million, and all of this is a result of consequently staying with our strategy of growing our business in more profitable less volatile niches as well as our price leadership and the organization flexibility. Our adjusted EBIT margin at 11.1% in the quarter is a clear proof of that. All this while we continue to benefit from global megatrends that generates business, such as a sustainable transition, which we'll come back to later in the presentation. Moving to sustainability. As I said many times now, Alleima is generating a positive impact through both our operations and our product offerings. I would like to start with our operations. Safety is always our top priority. We are continuously and actively implementing measures to maintain safety as a top priority. If I look at the results, quarter 2 was roughly in line with quarter 1, but not as good as quarter 2 last year, while the rolling 12 months injury frequency rate is increasing. We just have to continue to put safety first and drive all the ongoing initiatives to improve. Our utilization of recycled steel remains high at 81%, slight sequential increase, but decreased year-over-year due to product mix. And our C2 emissions are decreasing. We stay below the 100,000 tons for Scope 1 and 2 overall in 12 months period, which is a reduction of 5%. And in the quarter, we are decreasing our emissions by 4% compared to last year. And lastly, the proportion of female manager is increasing steadily. Still recognizing this is only one aspect of our broader diversity inclusion initiatives. So if you look on how we do improve sustainability through our offers in the quarter, Kanthal signed an important strategic partnership with Danieli to join to develop and scale up Kanthal's verified electric solution for high temperature process gas heating called Prothal DH. Process gas heating is a key component to enable 0-emission DRI plants to move away from the high-CO2 emission blast furnaces in the steelmaking process. The solution Prothal is compatible with hydrogen, natural gas and also combinations of the 2. This creates flexibility for our customers in their choice of technology. During the quarter, Strip launched a new compressor valve still called Freeflex Versa, which boosts energy efficiency in many white goods. And the demand for cooling system is increasing with population growth, urbanization, high living standards and climate change impacts. All of these are factors that contributes to this. And the International Energy Agency reports that cooling systems account for around 10% of global electricity consumption. Meaning, of course, that energy-efficient cooling could make a big difference in total electricity need. In the quarter, Tube secured orders for heat exchange and straight tubes for [indiscernible] for biofuels in China and in Europe. And this is the first time [indiscernible] will be used for production biofuels in those regions. And in U.S., Tube received an order of heat exchanger tubes to renewable diesel refinery. I think all these are prime examples on how Alleima is making a positive sustainable impact through our product offering. I think it also showcases our ambitious R&D efforts elevates us as the technology leader. So let's look at the market development. Overall, we see a more positive market sentiment now compared to last year and also compared to last quarter, but the recovery in some segments is from low absolute levels. However, the macro environment has improved compared to last quarter, but still not very strong. And I'll walk you through each segment, starting with oil and gas. The underlying demand is still on really high levels. The project list of upcoming tenders and potential future orders is very strong. But as we booked several significant orders last year, we've filled our backlog heavily for quarters to come, we are meeting high comparables and, therefore, not growing order intake year-over-year in this period. Industrial, we noted a recovery of the low refined products, and we -- and by the look of things, we think this market has troughed and that demand is slowly increasing, even though market is not very strong. Chemical and petrochemical, strong demand in Asia, as we've seen for a long time now, and the underlying demand is really there. And we are gaining from build out of several projects, lately not related to urea production. Demand in Europe is also improving from already solid levels. And also, North America is now showing signs of recovery although from low levels. Industrial heating, weaker demand year-over-year, and we see some hesitance in placing orders for some customers at the moment, and some of this is related to investments in the solar industry. Consumer, still a soft market, but with also signs of recovery, mainly driven by the white goods industry in the Strip division. Mining and construction, still a strong market, growing year-over-year, mostly driven by a strong mining industry. Medical continues to be strong markets, several drivers. We booked significant orders in the quarter, mainly related to continuous glucose measuring, but momentum is strong across the whole product portfolio. And nuclear, as you know, that business is sort of has naturally long lead times. But high activity continuous discussions are ramping up, and we are booking orders both for new and old technologies. Transportation demand grew year-over-year, with high activity for aerospace titanium tubing. And as for the hydrogen renewable energy, we see -- it's a bit mixed at the moment. Some slowdown in activity related to hydrogen fuel cells, and that is totally related to the delays of customer ramp-ups and we expect this to remain a bit slow throughout the year. But this is a wide segment, and we see good momentum in other areas like, for example, tubes, to be used for production of biofuels, and this remains one of our top prioritized segments over the longer time. So to comment on order intake and revenue. Organic order intake growth was minus 4% for the rolling 12 months. And we -- but we noted a sequentially improving order intake. I think this number was minus 8% a quarter ago. The year-over-year decline was mainly due to lower oil and gas -- but remember from high comparables, and we still view this market as very strong, also industrial heating declined year-on-year. In most other segments, organic order intake were positive year-on-year, with sequential improvement, an absolute level in order intake on a high level, above SEK 20 billion. Total revenues of almost SEK 5.4 billion, flat organic growth from a record high quarter 2 last year. And as I said in the last quarter, we believe we have reached the trough in the short-cycle business in Industrial and Consumer segments, but they are still showing negative revenue growth compared to a year ago due to thin backlog. With the rolling 12 month book-to-bill on 102% in the quarter, a solid backlog with good mix, we still see clear opportunities for a slight revenue growth in the upcoming year. Moving to earnings. The adjusted EBIT decreased by 8% to SEK 592 million, with a margin of 11.1%. Our product mix remains strong, and it is clear that there are a lot more products contributing to the Alleima EBIT now compared to only a couple of years ago, not least Kanthal's Medical business. The slight margin decline in the quarter was, however, impacted by the lower contribution from the Kanthal division due to lower sales volume from industrial heating. But still, Kanthal's margin of 18.3% is not a bad level over time. Kanthal has firmly increased their lowest level. Strong free operating cash flow of SEK 486 million. This is strong for a second quarter, but I have to say some of this is a catch up from quarter 1. We believe this graph tells an important story about where we have been and the journey we have started. Quarter 2 has been a solid quarter. And if we zoom out a bit, we are on very high historical levels. And please note that the comparables in quarter 2 2023 are high as this was the best quarter in Alleima history, both in terms of revenues and earnings. And also remember that our contribution business, the lower refined industrial segment declined for 7 consecutive quarters and is now looking at its turnaround. And volumes in the steel mill are still around 20% lower than in 2019. Key success factors are keeping price leadership also in tough times, not filling backlog of poorly priced orders. We're also continuously optimizing our footprint and improving flexibility in the cost base, and we're far more agile now than we have been in the past. But most importantly, we'll focus on growing attractive niches, improving mix. Today, we have a much wider span of products contributing to our earnings. And we believe we are only at the beginning of this journey as mix changes happens over time, and we continue to execute our strategy to pursue growth within segments with higher profitability and less cyclicality, which then, in time, will make Alleima as a group just that, less volatile and more profitable. So let's move to the divisions, starting with Tube. Tube noted organic order growth of minus 4% for the rolling 12-month period and was impacted by a weaker intake in oil and gas segment and the North American chemical and petrochemical and industrial segments, partially offset by Mining and Construction and Nuclear and continued strong development in Chemical and Petrochemical in Asia. But even though order intake in Oil and Gas declined, which it did, there's still a strong underlying momentum in the sector, and we will continue to capitalize going forward. For OCTG, we're now booking orders, end '25 and into '26, and mid-'25 for umbilicals. And the organic order intake decline is rather a consequence of timing of orders, the strong backlog and high comparables from last year when we were building backlog. And please note that the industrial and chemical petrochemical segment in North America now turns positive from low levels. Book-to-bill, 105% rolling 12. I think this is still a solid backlog. Organic revenue growth of 1%, mainly driven by the oil and gas segment. Product mix remains strong, and we are implementing price increases successfully, and the margin grew to 11.7%. Positive FX of SEK 30 million year-over-year. Kanthal, coming from a very strong 2023, Kanthal's Industrial heating segment has seen a bit of a slowdown in the last quarters, which is affecting both order intake and revenues. We noted some caution among customers. I'd say, however, we believe this will turn around again towards the end of the year. The Medical segment, however, is maintaining its strong momentum, growing in both order intake and revenues. Revenues declined 3% organically coming from the lower deliveries industrial and industrial heating segment, while Medical stood strong. Book-to-bill 96%. We are still consuming a bit of order backlog at the moment, but Kanthal's ability to adjust capacity and reduce costs where needed makes us confident about the margins going forward, even though they are meeting high comps going forward in quarter 3. Adjusted EBIT margin was 18.3% in the quarter, which I think is a good level given where we are coming from, with lower volumes in industrial heating and especially in the Solar segment, which is a highly profitable segment, this is a strong result. Strip has been heavily affected by the weak consumer-related demand. But where we are now, for the second straight quarter, have seen some indications of a market recovery, especially then in the white goods industry, where one of our more important products is the compressor valve steel. However, still with some uncertainties and relatively low levels. Organic order intake was flat on the rolling 12-month basis due to growth in the Consumer and Transportation segment, offset by negative growth in Industrial and Hydrogen and Renewables. Our coated strip steel for -- fuel cells for Hydrogen and Renewables segment are still facing a subdued demand due to delays in our customers' ramp up. In the quarter, revenue declined organically by 6%, still with the impact from the thinner backlog. However, the consumer segment is now growing, although from low levels. Book-to-bill 96%. EBIT margin grew from -- to 10.2% from last year's 10.0% from an improved product mix and better cost position. And with that, it's time for Olof.

Thank you, Goran. And let's look at the financial summary for the quarter and the half year then. So if we start to the right by looking at the table there, we see a rolling 12-month order intake at high SEK 20.1 billion. And organically, on a rolling-12 month basis, we are down 4% on the order intake, still meeting some high quarters on 2023 and it doesn't -- I mean, the minus 4 doesn't come from a low demand as we see it, but soon from time orders. And it's also a sequential improvement from the last quarter that had 8% rolling. Further down the table, currency, we get some help from the currency on the order intake. Alloys are negative 4%, and that comes mainly then from the alloy surcharge then. That is based on the, mainly, on the nickel price. And if we compare the nickel price in the [indiscernible] nickel price in the quarter versus the same quarter last year, we're actually 17% lower from nickel price. So that explains that number. If we go to revenues, almost at SEK 5.4 billion in the quarter, also impacted by lower metal prices and, consequently, also a negative surcharge there. But organically, our growth is flat compared to a very strong quarter last year, where we had an organic growth of 18%. And looking at the 12-month rolling number on the revenues, we're just below SEK 20 billion, that gives a book-to-bill of 102%. And just to give you a little bit of help, looking into the third quarter here on the alloy surcharge we're expecting and that is obviously based on the assumptions at the end of the second quarter. We are expecting alloy surcharge effect of minus 4% on the rolling 12-month order intake and minus 3% on the quarterly revenues. But that can, of course, change if metal prices change a lot from our assumptions. Now looking then at EBIT, comes out at SEK 592 million in the quarter, lower than last year, mainly coming now from lower revenues in some segments and the adjusted margin coming out at 11.1%, showing resilience. And again, metal price fluctuations have impacted our reported EBIT, which comes out to 12.8 versus 6.2 last year as the nickel prices had increased sequentially between the quarters. Nickel -- the average nickel price is 10% higher in the second quarter compared to the first quarter. So there's a difference between year-over-year and sequential development of the price, also to keep that in mind. Further down, net financial items for the quarter coming out at a positive SEK 137 million, compared to a negative SEK 39 million same quarter last year. The main difference here comes from revaluation of financial instruments, not included in our hedge accounting scheme, effects by SEK 125 million in total. There's also a small correction from last year being done of SEK 39 million. But the underlying interest net is positive. We have a good cash position, as you know, and that's currently yielding approximately 3.8% interest income. Tax rate. The reported tax rate is fairly low in the quarter. I prefer to look at the normalized tax rate. And if we look at that year-to-date for the 6-month period, it comes out at 23.8%, so on the low side of the guidance. Free operating cash flow at SEK 486 million. I'll get back to that in a later slide. And finally, adjusted earnings per share increased by 25% to SEK 2.23. And that is, of course, helped by the positive [indiscernible] and the lower tax rate. We then look at the bridge, going from SEK 642 million to SEK 592 million, that's SEK 50 million down. Organically, we are down SEK 77 million. That is the FX adjusted and that is coming, you can say, both from Tube and Kanthal, but also from higher sample costs in the quarter, we call it common costs. And if you look at the common costs, I think you should be careful not to draw any conclusions from the quarterly outcome because that can be affected and is affected by project-related costs that has happened in the quarter. You should sooner look at the half year pace. And if you compare half year to half year, you see that there is a slight increase, but it's not in the same magnitude. And so I think that the half year shows the right pace of the central costs. Kanthal and Tube are also impacting here, as I just mentioned, Tube received last year a subsidy for high electricity cost, and I think that explains most of their deviation. While Kanthal is affected by the revenues in the heating segments. We had a positive effect from FX, and that mainly relates to Tube, about SEK 30 million. And we have no impact from structure, no acquisitions impacting the quarter. So that is a brief explanations to the development of the adjusted EBIT. Going to the balance sheet. Net working capital this graph to the left, lower than last year, but slightly up sequentially. Year-over-year, it's mainly the lower metal prices that I just talked about, that is impacting the numbers. And the sequential development comes mainly from slightly higher physical inventories from seasonal buildups, as we also have sequentially higher metal prices that also, of course, impacts the inventory numbers. But I should also say that we have a strong focus on the physical inventories. There's not so much we can do about the prices of the metals, but of course, the physical inventories is a big focus area in our divisions. And I must say that we are doing good progress in reducing our inventories -- our physical inventories. And that also shows in the net working capital percentage coming out at 32.7% versus 33.2%. Of course, helped by lower metal prices, but also, of course, with the work of optimizing the inventories, the divisions. Looking to the right to the capital employed slide, we see a lower capital employed, decreasing to approximately SEK 15.8 billion from SEK 16.4 billion last year, and the year-over-year change comes mainly then from the lower net working capital as the fixed assets on the balance sheet are fairly stable year-over-year. Return on capital employed, which we measure excluding cash, is -- it's based on the operating profit, including the metal price effect, it was 9.3% based on rolling 12 months, which is a slight decrease from last year's 11.1%. Again, it's the metal prices impact in Europe. Next slide is cash flow. We have a good strong cash flow of SEK 486 million in the quarter. That's a big improvement from last year, coming from a higher reported EBITDA. We are -- there is a slight impact from the net working capital changes also increased CapEx, and we have quite a lot of growth projects ongoing. And there is also, I should say, there is a spillover effect from the first quarter where we had some delays in invoicing, we talked about them. And also the fact that the Easter came in the middle of the quarter end, that delayed some incoming payments. So there is definitely a spillover effect. But if you look at the half year number, it's still a much better number than the 2023 number. So a good cash flow, which takes us to a strong financial position. Despite paying a dividend of SEK 502 million in the quarter, we have a strong financial position. If you look at our financial targets, 0.3x net debt to equity, we're far below that, we are actually at a negative 0.2x in the quarter. If we prefer to look at net debt to adjusted EBITDA, we are at minus 0.1x. So far below the target. Net pension liabilities, if we look at the different parts of the net debt, they increased to SEK 761 million at the end of the quarter. That is an increase from SEK 569 million and that comes mainly then from lower discount rates applied to the pension liability. It's mainly the Swedish liability that impacts here. Leasing liabilities increased to SEK 457 million. And then we have our cash, the net cash position of SEK 1.5 billion. That is actually an improvement if we measure year-over-year by SEK 1 billion, SEK 560 million was the number a year ago. And that also then includes the fact that we have paid SEK 502 million in dividends. So in total, a cash accumulation of SEK 1.5 billion compared to a year ago. Looking at the total net debt comes out at SEK 277 million then, and that is an improvement from a deposition of SEK 448 million a year ago. So to summarize, we're backed by a strong financial position, net cash position and also an unutilized revolving facility of SEK 3 billion. Looking at our latest guidance then and the outcome of that. If we start on CapEx, we came out at SEK 212 million in the quarter of SEK 353 million year-to-date, and we have guided for SEK 950 million for the full year. And remember that the second half of the year is normally higher in terms of CapEx. Currency and translation effects came -- we guided for 23, we came out at 25 or 27, if we also measure the hedge impact. So we're well in line on that number. Metal price effect, we have a deviation. We guided for SEK 100 million negative and came out at SEK 96 million. But when we make our guidance, we normally base that on the prices prevailing at the end of the quarter. And if you recall, during the second quarter, we had a peak in metal prices, mainly in nickel. I think we were approximately somewhere around $19,000 per ton when we made the guidance, and it's -- the nickel price has been well above 20 million -- sorry, $20,000 per ton during most of the quarter. However, falling back quite a lot at the end of the quarter. Normalized tax rate coming out at SEK 23.8 million, and that's at the lower part of our guidance, '24 to '26. So if we then look into the coming quarter or the quarter that we just entered into, Q3, we are keeping our guidance for the full year of SEK 950 million for the CapEx. We have quite a lot of ongoing projects. If you recall, we had SEK 850 million of CapEx last year. But this year, we have a Tube China investment. We have the silicon carbide investment in Kanthal in Scotland and the U.S. and also the Japanese project that Kanthal recently announced. Approximately SEK 400 million of the SEK 950 million are maintenance-related CapEx. Currency effects fairly close to 0, we believe, negative SEK 15 million as the kroner currently is slightly stronger than in Q3 last year. Metal prices a difficult one here. We believe that we will come out at a negative SEK 50 million based on the development so far and the prevailing metal prices and dollar rates at the end of the quarter. Of course, things can change share if the metal prices increase, this will be less negative. Same goes with the -- if the dollar strengthens. And we are sticking to our guidance with the tax rate to be between 24% to 26%, but most likely at the lower part of that range. And then I would like to hand back to Goran for an outlook for the quarter.

Thanks, Olof. Well, we view the development positively in several of our customer segments and the underlying megatrends are expected to continue to support the development in a somewhat cautious economic environment. Backlog is solid in our key segments, and we have good visibility in our near-term deliveries. Product mix is expected to be similar to the one in the second quarter. Order intake, revenues and adjusted EBIT are normally lower in the third quarter compared with the second quarter, and that is, of course, due to the seasonal variations from summer shutdowns. Cash flow is normally higher in the second half of the year than in the first. So let me summarize. I mean we are noting a sequentially improved market sentiment in most of our segments. Macro environment seems to improve, of course, still some uncertainties. But we are now cautiously positive looking ahead as we believe markets have troughed. Over the last quarters, we have had a solid backlog for most segments and weaker backlog in other segments and approximately 20% lower volumes in our steel plant compared to 2019. And I think we have navigated well and we've been successful in adapting to this mixed demand, choosing the right orders and being flexible in our production and with our cost base. And this is in combination with our strategy to grow in highly profitable and less cyclical niches, making us a much more resilient company than we used to be. Of course, with a stable and higher margins over time. Our order backlog remains solid with a good product mix looking ahead. I will remain committed to execute our strategy. The Medical segment is once again proving itself as a reliant pocket of growth. Chemical and petrochemical in Asia as well. Industrial heating even it has been softer market for some time, absolute levels are still high, and we are confident that this business for the future in line with the energy transition. And the same goes for the hydro and renewable energy segment. With that, I'd like to hand back to Emelie.

Thank you, Goran, thank you, Olof. So with that, it's time for -- to start the Q&A session. [Operator Instructions] And so, operator, please go ahead.

[Operator Instructions]. Our first question comes from Adrian Gilani from ABG.

Yes. A couple of questions from my end. First of all, in Q1, you had the 100 basis point negative margin effect from the lost sales on the new ERP system. Was there a reversal of this in Q2 that sort of boosted the margin? Or in that sense, more than just sort of the normal catch-up effect on that?

That's a good question. I'm not sure we have done that math. We clearly don't have the same problems as we had in quarter 1. The delays we had in quarter 1 has been reduced. Exactly how much of that has helped the quarter 2, I actually don't know, but your reasoning is correct.

Okay. I understand. And then on the oil and gas segment, if I recall correctly, you previously sort of stated that you expect it to remain strong for at least the rest of the year. At the same time, you -- on the arrows that you used to guide -- you lowered the arrow for oil and gas now. So should we interpret that as new orders being a bit weaker, but the order backlog was to support strong growth for the rest of the year? Is that a fair assessment?

I think -- when -- the arrows are maybe sometimes a little bit difficult. And I think you should view it as -- I mean we view it as a strong market as we viewed it a year ago. And we -- of course, a year ago, if you look at the order intake, we booked a lot of orders in quarter 2 last year. I think we fill the backlog with about half a year. And I think that is, of course, something you cannot do every quarter. So I think you should not read as we think it's weaker, but it as strong as before. We have a lot of potential orders and tenders and project lists going forward.

Okay. That's clear. And then on the industrial segment, now that you are sort of seeing that demand improving in the short cyclical part. Would you say that the under-absorption effects that you've been talking about on the margins in recent quarters that, that's not fixed? Or are you still not back to normal utilization rates?

There are still units that are running at a lower volume than we would like to. But if you look at from a bridge effect quarter-over-quarter, I would say that, that is flat. There is no under-absorption effect in this quarter.

Okay. And a final one from me. I think you get this question every quarter, but is there any progress on the decision to restart the idled production line for the nuclear pipes in [indiscernible]? And what's the sort of status on that in general?

Yes, there are progress but really nothing to report. I think the most important question for us is to judge how much we need, meaning, at what pace would we potentially ramp it up, and I still foresee a decision during this year.

The next question comes from [ Jana Greenberg ] from Handelsbanken.

So I have 2 questions. And the first one is also regarding oil and gas. You talked a bit about is causing a lower order intake. And I wonder if we should expect something similar for the rest of the year that it will be hard to meet the high comparables? And my other question, if you can give some more details regarding the negative demand development in industrial heating and what your expectations were on when it might recover? If it was towards the end of the year or what's your expectations for this?

We start with oil and gas. I mean, as I said, we continue to see this as a very strong market. Today, we are booking OCTG, we're booking already now into 2026, umbilicals into mid-'25. I foresee -- I mean, in both of those cases, there are a lot of orders to continue to win. But of course, comparables could be against us when we look at the order intake growth as such, but it's a continued strong market in oil and gas. Industrial heating is -- I mean, that is -- that has been weaker now. I mean it's still quite good levels, but it's been weak now for 3 quarters. In discussion with the customers, they expect end of the year to improve, and then that is also what we expect.

The next question comes from Viktor Trollsten from Danske.

Perhaps, firstly, on the 2 margin, the under-absorption from the short-cycle business. I'm a bit puzzled that you said that you have no impact in the quarter, given that just looking on the bridge that you show just a little bit you said that negative volume or organic impact had a negative EUR 77 million impact year-over-year. So no impact, is that sequentially? And could you provide [indiscernible] for the impact year-over-year, what that is?

Please repeat that question. I'm not following you.

No, but I guess that it sounded like you have no negative under absorption effect now during Q2. But I guess just doing the math myself that in the EBIT bridge, you have a SEK 77 million negative organic impact on 0% organic sales growth. So it seems to be some volume impact year-over-year, which, I guess, is from short-cycle business. Could you help me understand the under absorption?

The under absorption effect compared to quarter 2 last year is flat. So there is no under-absorption effect. And if you're -- sort of part of that question relates to leverage in Tube. I think, first of all, it's not easy to make leverage calculation when order revenue growth is sort of around 0% because it gets very sensible that calculation. We -- I mean we had, we call it energy subsidies, last year, roughly at the same level of the FX effect in Tube this year. So those 2 balance each other. And if you exclude those, the improvement in the EBIT margin in Tube is actually fair.

Okay. So -- but I'm just thinking that it has sounded like in recent quarters that capacity utilization has been rather low from low volumes from short cycle. I guess, it has picked up that quickly sequentially. I mean it's not fully understanding that you don't have an under-absorption now until [indiscernible].

Viktor, the -- I'm not saying that the absorption is good in all parts, but we had effects already last year. So it's the bridge effect that is flat. There is still units within Alleima, where we would like to see more volume.

Okay. Okay. No, I -- and then on, given that you said that short-cycle markets have picked up a bit at least. I guess, that the lead times from [indiscernible] is a bit closer than for the average group. Is that correct? And what sort of [indiscernible] should we be thinking of?

Yes. But absolutely. I mean that is the sort of the definition of the short-cycle business. I'm not sure, it's maybe 3 months, something like that 2, 3 months.

So when could that grow year-over-year in terms, would that be already in Q3 or -- because it was down now in Q2 in terms of sales, if I don't misunderstood here.

Maybe Q3 is not the best quarter to compare.

In quarter 3, we have a standstill. But this will grow during [indiscernible].

[indiscernible]. Yes, yes, yes. No, that's fine. That's fine. And then just finally on Kanthal and Medical, is it possible to share how large share of Kanthal is Medical now in terms of order intake?

No, no, we don't share that. They had some good orders, Medical, in the quarter, but we don't share those numbers. And I think what we have said before is that even though Medical is not sort of a project-related business that we have in Oil and Gas and Nuclear, we have customers that place orders, not every month. So of course, that could go up and down a little bit. But the underlying -- the underlying demand in that business is strong.

[Operator Instructions] The next question comes from Igor Tubic from Carnegie.

I just have one follow-up question, and that's with regards to what you said that you are implementing pricing increases in the Tube segment. Is that primarily in the Oil and Gas? Or do you see that across any of the other segments as well?

We're going to disclose our price increases, of course, the business is the strongest we have the best opportunities. But oil and gas is clearly good.

Okay. And when you say price increases, does that relate to the gross profit, so to say, excluding the alloy surcharge? Or is that -- absolutely. Transaction price.

You can call it you could call it organic price increases base prices. Yes.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Emelie Alm for any closing remarks.

Yes. Thank you very, very much, operator, and thank you all for listening to the call and for all your questions, and we look forward to catching up with you soon. So thank you and goodbye.

Thank you.

Thank you.