Ferronordic AB (publ) (FNM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Ferronordic Q3 2021 Report. Today, I am pleased to present CFO, Erik Danemar; and CEO, Lars Corneliusson. [Operator Instructions] Speakers, please begin.

All right. Good morning, everybody, and thank you for listening in to this report on our third quarter 2021. This is Lars Corneliusson speaking. And if we head on straight into Slide 2. We're very pleased that we can report our yet another best quarter to date. We had 47% revenue growth for the group. Demand is strong -- continues to be strong. We had strong operating cash flows as working capital remains low. In Russia/CIS, our own equipment sales in units increased by 5% as the market grew by 40%. However, we had a 48% revenue growth, which was supported by -- and we're seeing product mix with higher average prices and good growth in contracting services. In Germany, in our sales area, the truck market actually declined. However, we increased our truck sales in units by 25%. And we saw also in Germany, good revenue growth of 45%, supported by a good business in the used trucks and a robust aftermarket performance. So all in all, 47% revenue increase, 37% operating profit increase, with an operating margin of 8.9% and an EPS increase of 34%. We'll then move to the next slide, number 3. As I said, 47% revenue increased to close to SEK 1.7 billion , which is the highest revenue we've ever had. In Russia/CIS to 1.3% -- SEK 1.3 billion, sorry, which is up 48%. And as you can see, we increased equipment sales by 44% aftermarket sales by 27% and contracting services more than doubled. Equipment sales in Germany increased by 64%, aftermarket sales up 24%, however, other revenue declined 25%. So all over, a good revenue growth in our markets and in all our business areas. And this then led to operating profit to -- of the record of SEK 147 million. That was driven by the highest result we've had in Russia at [ SEK 181 million ], which is an increase of 46%. In Germany, the operating results, however, declined to SEK 32 million. Our group operating margin, again, 8.9% and working capital declined to 0% of revenue, and we turned them into a net debt -- net -- sorry, net cash position of SEK 75 million. On Slide 4, some more operational highlights. As I said, the market for construction equipment, up by 40% in Russia/CIS. And we see strong demand in the market. There is a pent-up demand. Commodity prices are up, and we see continued increased infrastructure spending from the government. However, the concerns about the increases in so-called utilization fee remain. And our own new construction equipment unit sales grew by 5% to 306. We do have issues on the supply side, and we chose then to focus our sales on bigger machines like articulated haulers, forestry equipment and pavers. And this led then to an average ticket price -- ticket size of in 44% up in local currency and 41% in Swedish krona. We also saw good performance in the aftermarket, which increased by 27%. We continue to reap the benefits of our digital sales platform for aftermarket sales also for machine sales, but it's performing very well, and we actually increased penetration in the aftermarket in a population that is not growing. In contracting services, we continue to develop our operations in Norilsk and we also started a new project at an iron mine in Karelia, which is a -- driven by a customer called Severstal. The aftermarket share of revenue then decreased by 3 percentage points to 21%, and that is as contracting services continues to increase in our revenue share and is now at 18%. Then Slide 5, we move over to Germany where the market is basically flat overall in Germany. But in our sales area, it declined. We see, again, supply constraints in the whole industry. Obviously, demand is currently stronger than demand -- sorry, supply. Demand is stronger than supply, and we see continued recovery in the economic activity and also pent-up demand for fleet replacement. But again, the market growth is held back by supply constraints. And as I said, in our territory, registrations are down 13% and corresponding to 17% of the total German market, but we actually managed to increase by 25% to 174. And obviously, then we continue to take market shares for all to trucks in our area. Aftermarket sales up 24%, partly then as a result of our acquisitions, but also 7% organic growth. And we had gross margin up to 10.4% from 9.8% last year. If we then move to Slide 6. Talking a little about business development. And we appointed the Head of Sustainability in ESG in our head office to coordinate our efforts. We promote electromobility. We have demo and test drives of our electric trucks in Germany in 3 of our locations in the quarter, very appreciated by customers and others. And we imported the first Volvo CE, compact electric. We loaded it to Russia, which we will then showcase and then actually use ourselves in our lean manufacturing center in Ekaterinburg, one of them to make sure that we understand the -- all the aspects of these loaders. And we are very excited about this development and this technology. In Germany, the network expansion and improvement is underway. We have integrated Fulda, Nordhausen and Limburg into our network. We had a groundbreaking ceremony for our Hannover service and sales hub and construction has started. The aim is to have that ready by end of next year. We announced the acquisition of Truck Service [ Bergstrasse ] in early October, and we are continuing our network expansion going forward. We had good used business. And also in the quarter, we accelerated our efforts to restructure and improve our organization and making sure that we segment our teams in a good way to become more customer-centric and more performance-oriented. And obviously, this had costs involved that you will see in the results of Germany, which are restructuring costs mainly. Further on business development on -- actually, I think we have 2 slides [ still ] here, but business development, Russia/CIS contracting services. We had our projects in Norilsk and in Irkutsk for a full quarter was working at their capacity for the first time actually. And we saw more than doubling of the revenue. We have one project in the Northwest region completed and we then redeployed the equipment to Karelia for service-style projects. We see strong demand and utilization at our rebuild center in Ekaterinburg. And also we're very excited about the development of our cooperation with Sandvik. As you know, we started our cooperation on mobile crushes and screens in all of Russia in April this year. And now we have signed an agreement to also become distributor of Sandvik's stationary crushers and screens, which are bigger and more complex installations. And we will do so in all of Russia for the construction segment and in most of Russia for the mining segment. And we will start in January 2022. We're very excited about this. So good development there. On Slide 8, we see the German network expansion to date and the current map of our 14 outlets in Germany. On -- yes, and then I hand over to Erik for economic development, please?

Thank you very much, Lars. If we move over to the next slide, please. I will provide an overview of the economic backdrop that we've been working in. If we start looking at Russia, we can see a GDP growth running at 4.0% in the third quarter and the forecast for the full year is 4.7%. And then a slowdown is expected in 2022 to just below 3%. There is, as in many parts of the world, at this point, inflation pressure in Russia. So the inflation reached 7.4% in September, which compares to 3.7% last year. So there is a cost pressure from that inflation in the Russian economy. Central Bank is responding to that. So we saw a 75 basis point hike in October to 7.5%. That was 300 basis points lower a year ago. So we are seeing a higher interest rate environment in Russia. The ruble depreciated on an average basis, but we've caught up with the big swing in the ruble -- the big depreciation in the ruble that we saw during the outlook of the pandemic in 2020. So only a 2% depreciation. And if we look actually at the end of the period rates, which we use the balance sheet translation, then we actually saw a 6% appreciation of the ruble against the Swedish krona. Kazakhstan, running slightly slower than Russia at 3.4%. That's year-to-date. And however, looking maybe a bit more optimistic for next year, slightly above 3%. And then holding on, well, actually close to 4% for 2022 in Kazakhstan. Germany, 6.9% in Q3, with 3% expected for the full year and then a continued strong recovery in the next year. If we move to the next slide, we present here our index slide of the Russian market, in terms of imported machines, and our performance against that development. And this is indexed in 2011, which is the first full year that [ Ferronordic ] was operating. and you can see that the market is still, despite the growth that we've seen this year, only 66% of the level that the market was at -- in 2011 and even lower if you compare it to 2012 and '13. And we continue to believe that the levels then were not even at cap on the Russian market. There is potential for the Russian market. And even indeed, a need for the Russian markets to grow more, to satisfy pent-up demand and replenish machine fleets. So market, 66% of where it was; our revenue, 188%, so 88% higher; and operating profit, 453% higher. So very good leverage to the development in the market. If we move over to the financial statements to give you an overview and a summary of developments there. On the next slide, please. We can see a total revenue of SEK 1.7 billion, that's up almost 50%, at 47%. The split between our segments, 80/20. 80%, being Russia/CIS, is actually exactly the same as it was last year. But again, 47% growth, so a strong growth in both markets as it were. If you look at the split in revenue by activity, we see the sale of equipment and trucks at around 2/3, 62% aftermarket F '22. That's a bit lower than last year, it was 26%. And then contracting services, which, as Lars mentioned, has doubled and even a bit more than doubled and therefore, make up now 15% of the overall revenue mix. And this number was 11% last year. So that's a 4 percentage point increase there. Gross margin, more or less flat versus last year, slightly lower. SG&A, as a percent of revenue, at 10.1%, that's lower. And that's much driven by the percentage in Russia/CIS at 7.7%, which then offsets a higher -- we would argue, temporarily, a bit inflated level in Germany. The operating margin declined to 8.9%, but that is well above our current financial target of 7%. So a strong result as we see it, and that's much driven by a healthy margin in Russia/CIS at 13.4%. If we look at Germany, we point out there that we have faced some one-off costs as we continue. And Lars mentioned accelerated efforts to restructure the organization to make it leaner and more efficient. And therefore, in the third quarter, we recognized about SEK 12.7 million for the restructuring and redundancy costs. There was also bad debt or credit cost of about SEK 3.7 million and then acquisition-related carrying over from previous periods of SEK 0.7 million. So those are costs that we would probably look at as more nonrecurring. And even with these costs then, if we look on a group level, we arrived at an operating profit, 37% higher than last year at a record SEK 147 million. If we then move to the operating profit bridge that we provide to give an overview in this presentation on the next slide, please. You can see that the big driver of the growth in operating profit is the gross profit contribution from Russia/CIS, which then is really driven by revenue growth with, again, the gross margin being more or less stable. We then have a growth also in operating expenses that comes with that growth in revenue. And having grown the organization also on the contracting services side, a gross profit contribution from Germany, which is, however, more than offset by a growth in SG&A. And also these restructuring costs and credit costs and acquisition costs that I mentioned all totaling around SEK 17 million in the third quarter. If we move one more slide forward and look at some of the important margin and cost trends that we have. Starting with revenue and margin, you can see there that we're again growing over a last 12-month basis. So Russia at SEK 4.5 billion and Germany at SEK 1.2 billion, both contributing to that overall growth. If we look at the lower graph there, we see that gross margin then that I referred to slightly lower than last year, more or less flat. And we also have there on the graph, the operating margin trend, which, as mentioned, is 8.9% and well above our financial targets and as we said, a good result despite the result in Germany, which we believe was at least partly affected by these one-off restructuring costs. If we move to the operating expenses and return on capital on the next slide, please, we can see that we again, looking on a last 12-month basis of rolling have a lower SG&A in relation to revenue, down 0.6% to 9.9%, so below 10%, which we're happy with to see that trend. And that is much again driven by Russia, where it was over the last 12 months, 8.1%, whereas in Germany, it stood at 17% of revenue. To the right, you will see the development of our return on capital employed. 27%, much driven by the strong performance in Russia/CIS and to a lesser extent, driven also by a slightly lower average capital employed, if we would look quarter-on-quarter. Year-on-year, it was slightly higher. Briefly on cash flows, if we turn to the next slide, please. We had strong cash flows in the quarter. Net cash flow from operating activities at SEK 327 million, and this was driven by the strong operating performance in Russia/CIS, but also from working capital actually moving lower from where it was. In Russia, that lower working capital was a result mainly of lower inventories and receivables, slightly higher payables, but less of a contributing factor. In Germany, also lower capital -- lower working capital, and that was mainly driven by lower inventories, but also higher payables. So releasing cash in Germany as well into the operating cash flows. When it comes to investing activities, the main investments relate to machines for our contracting services, fleet or business, and to a small extent, also to investment in the rental fleet in Germany. Briefly on the balance sheet. We can see a growth in balance sheet. There is some currency effect on that, as I mentioned, but mainly driven by those investments that I just mentioned into contracting services. Excuse me, if we move to the next slide, please. I've moved on to the balance sheet. Excuse me for that. Yes, so I refer to the growth in property, plant and equipment, which, again, was driven by those investments mainly in contracting services and to a less or more extent, in rental fleet in Germany, and also some currency effects. Net working capital, again, low -- we were low in the second quarter at 0%, and now even moved to negative working capital at minus 2%. This is, if we look historically, a not normal number. We say in the report that we think normal is typically between 5% and 15%. In Germany and also then -- also a lower working capital situation. Partly, this is obviously reflecting, as Lars mentioned, a short supply situation where the inventory we take in goes out to meet the demand from our customers very quickly, so a very high turnover of inventory. Group net working capital also when we put it together, at 0% from 3% in the previous quarter. Strong cash flows and to some extent, driven by that low working capital, put us also back in a net cash position at the end of the third quarter. And then if we move to financial objectives and see where we're standing today, then as of the third quarter, last 12 months, so reaching into fourth quarter of last year and not to include this third quarter now, we stand currently at 1.2x the 2020 revenue. Our objective being to double the 2020 revenue by 2025. And then again, if we look on the last 12-months basis, our operating margin stands at 7.7%, which is again above our target of being north of 7%. And if we look at our leverage ratio of which -- where we target to remain below 3x EBITDA, again, went below that at a slightly negative net debt or a net cash position, as it were, of 0.1x EBITDA. And with that, I would hand the word back to Lars to comment a bit on the outlook before we take questions and answers.

All right. So if we can move slide to 18, please. So basically, we expect our markets to continue to recover in 2022, most likely at a slower pace, though, and off a higher base. In Russia/CIS, this outlook -- positive outlook, is supported by high commodity prices, pent-up demand, which is still out there and will continue for a long time. And also increased activity within the so-called national projects aimed at infrastructure investments. But obviously, then moderated by the risk of increased utilization fees. In Germany, we see a broader European economic recovery to boost demand. We see good activities. Current uncertainty mainly relates then to supply chain constraints, and we expect these constraints to continue well into 2022. In a longer perspective, we are very optimistic about the fundamentals and business opportunities in our markets. So with that, I'll hand over for questions, please.

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

This is Adrian at ABG. I would just like to start off with a couple of questions on the contracting services segment. You started a new project here in Russian in Karelia. Is it of a similar size to the Norilsk and Irkutsk projects? And also, could you say anything about the ramp-up time line for this project?

No, it's not the same size. It's considerably smaller at this stage than the Norilsk and Irkutsk, and we basically hope to ramp it up very quickly. We have had the equipment in. Maybe not in the neighborhood, but at least in the same region. And we are already -- have started to work, but it's a considerably smaller size than Irkutsk and Norilsk.

Adrian, [ I'll remind you we said ] in the report that we completed 1 project up in the North, and we moved the machines to this other project. So I think for you to think about this, it's more replacing the one that we completed with a new project that obviously [ vary in size ]. So you would expect sequentially more or less the same.

Okay. I understand. And also just to continue, you gave an update on Norilsk, but I could have missed it, but I couldn't find any status on the Irkutsk project in the reports. Could you just give us a quick update on that?

Well, I think what we'd like to report is, in the second quarter, we note that we reached capacity at Norilsk and that we expanded our work in the Irkutsk gold complex that we work in. And in this quarter, we worked at full capacity throughout the quarter. So this, I think, is what you can take there, that in the second quarter, we reached the full capacity. And in the third quarter now, we were operating through the quarter as both those projects, meaning Norilsk and Irkutsk at the full capacity, meaning that variations on the basis of those going forward would be more driven by seasonal and some operational variations. And there are always such variations quarter-on-quarter, depending on where we operate within the mine and given the conditions and et cetera.

Okay. And also within equipment, there was a large year-over-year increase in the average selling price. I'd just like to ask how much of this was from a sort of mix effect in the products that you mentioned? And how much is just prices increasing on the same machines?

Well, we don't give that information. I mean the -- obviously, the main change was from the product mix. I think that's how you should look at it, basically. But obviously, we have been able to take our prices as well. But in terms of -- the main chunk of it is from the product mix, yes.

Okay. And then on the Sandvik deal that you announced your -- is it possible to sort of say anything specific about the expected revenue contribution from this deal? Partly in Q4, but also in 2022.

I think in Q4, though, this is -- I mean, firstly, the new corporation actually starts on January 1, we put in the press release, so the stationary crushers and screens. The mobile crushers and screens, we started in April, and that, we are developing, but it will be a process where we build up our new business area. We build up the customer relations and the expanders. So I think you should probably expect a [ significant ] contribution in the immediate interim. This is something that we do expect to grow over time. And what we have provided, and we think while -- as we've said, over time, we expect to contribute -- will be between 5% and 7%, respectively, of our revenue in Russia, specifically. 5% then being the mobile; and 7% being the stationary, and I think over time, we should probably think in the area of 3 to 4 years and then obviously growing gradually over that period. This is a cooperation that we're very excited about and we see significant potential for it.

Okay. And just a final question coming out a bit on the market. You mentioned for a couple of quarters now the potential of an increased utilization fee as a market risk. If this does come into effect, can you quantify in any way how large of an effect do you see it having on market volumes?

No. To be honest, the rumors have been there for a long time, as you say. The scale and the level of potential increase is not known. It has also gone up and down. And so we -- it's very, very difficult to give some estimations. The only -- what we can say is that the utilization fee is a flat fee, and it does not then have any correlation to the price of the machines. So it's a flat fee depending on what type of model of machine we're talking about. So since we are the price leaders in the market, it relatively affects us less than value products, so to speak, that have a considerably lower price. They will be more affected by an increase if it comes. But since it's so uncertain whether it will come and at what level it will come. If it comes, we can't really speculate on that. I would love to be able, but it's not easy, to be honest.

As far as what we have said, Adrian, is that these fields are fixed. So they impact smaller machines more in a percentage term, lower-priced machines. And in that way, I mean, it is, we think, a negative, of course, a factor of risk for the market. But on a relative basis, given that we price evenly in the market and also at least recent trends in product mix, it could affect us on -- relatively less than other players in the market.

Okay. That was all for me. And congrats on a very strong quarter, of course.

Thank you, Adrian.

Our next question is from Victor Hansen of Nordea.

Victor here, so I have a few questions here, and the first one on Germany. It would be very interesting to hear how you, for 2 quarters straight now, have made such large market share gains in Germany. if you could expand upon that.

Yes. I mean we're very happy with that, of course, and the truth of the matter is that we had poor numbers in Q1 when the old model of Volvo was being phased out. And in Q2, we got deliveries of the first new models of Volvos. They've been very well received in the market, and we have been able to take market share since we received the new models. And of course, we're making improvements in our organization. We're becoming more customer-centric, and that now pays off in market shares. Again, the -- although the supply is actually limited, we should remember that. But in a supply-constrained market, we take market shares. And that, we're happy about.

Okay. And the final one on Germany. Is your plan still to reach breakeven results in early 2022 for Germany with the current footprint? And also, if this is on an adjusted or on a reported basis?

Yes, we still aim to breakeven. We have done a lot of work in this direction, as you know, with the acquisitions, with the restructuring of the organization, which we have been accelerated in Q3. And we are still targeting a run rate of breakeven towards the end of the year.

Okay. And then on Russia/CIS, Lars, you mentioned further potential from the cooperation with Sandvik. And I mean in addition to the 2 press releases you've already sent out and discussed on the call just previously. I'm wondering if you could expand upon this maybe in terms of potential timing or the magnitude. Perhaps what products would be in scope in the future? And perhaps if you have the number, it would be really interesting to know how much of some of these total Russian operations you currently handle, something like that.

Well, actually, I was mainly considering our deep in cooperation when it comes to stationary crushers. I think we basically only been partners with Sandvik for 0.5 year, and now we're expanding the cooperation on stationary crushers. It is a very, very good fit for us. These -- both the mobile crushers and the stationary crushers are working on-site where also Volvo machines are active. And obviously, customers are not similar. Many customers are the same. And the Sandvik brand is very strong in Russia as is Volvo brand. And we see very good business opportunities in itself with Sandvik, but also we see synergies in the sales processes and in the service processes because they are actually on the same sites. So that's what I meant. And I think we can develop this very well. Again, it's a very trusted brand. It's premium products and it fits very well into our [ robustly ] offering efforts complementing each other. That's where we are optimistic. We're also optimistic in being able to apply our digital sales platform. The system we have developed for Volvo CE, we should be able to apply also for Sandvik machines to grow the aftermarket and make use of that data into our customer database and get a better total offer. So we don't -- I can't give you the numbers, the share of wallet, so to speak, that we have with Sandvik in Russia. But obviously, with the add-on of stationary crushers, we have more than doubled our potential in this cooperation. That's what I can say.

Great. Understood. And then, Lars, if you could add some flavor around how the supply chain issues have affected your supply of new units in Russia/CIS. Your deliveries, for instance, were down 17% quarter-on-quarter despite the overall market growing year-over-year. Well above that.

Yes. I mean it's clear. There is no secret here that we have suffered from some supply constraints. We could have sold more if we have the machines available, which we didn't. But again, I think we were quite early on understanding that this is something we need to adapt to and focusing them on machines that are -- have a higher initial price or more complex and gives more aftermarket potential going forward, so to speak, so investing in that. And I think yes, we are losing market share big time, obviously, with only 5% increase in market value increases 40%. But I think for us, the more important is the mix of machines that we were able to sell in the quarter, which is not only for this quarter but for many quarters to come is a very important factor for us, obviously.

Okay. And then -- so net working capital continued its decline, as you spoke about. But could this hurt your ability to deliver in the near term, as it already is, but continually?

I mean with regards to working capital, I mean, what we say, and I think I've reiterated is that these are abnormally low levels that we're seeing in Russia/CIS, mainly Germany. I think we're seeing more in territory where we should be more long term. But in Russia/CIS it is low. It's partly driven by the situation you just discussed in terms of supply. As soon as we get machines whereas as soon as we import machines, they fly off the shelf, so to say, to customers. I wouldn't expect maybe regressively the situation to change in the immediate near term. We write in the report, and Lars stated in the outlook, that we expect these supply constraints to probably remain well into 2022. And then it's likely, if the market remains strong, that the limited working capital situation would remain. But I think long term, it is a low level and we would return to our level somewhere again between the 5% and 15% we mentioned in the report.

Okay. Great. So only a final question. It's a follow up on Adrian's question regarding the Karelia project, the new contracting services project. So first, I'm wondering if you will no longer release a press release, new contracted services partnerships, as we didn't do it with this one. And then I'm wondering what the sales add is and the length of the project.

Thanks for that question. I think when it comes to press releases and updates, it depends on the scale and significance of the -- that project or a project in relation to our overall operations and overall revenue. And as I elaborated on -- to Adrian's question, we completed one project and moved those machines over to another project in the same region, and that will replace that project. So in terms of where we are, I think, the market should expect no big change from that. We swapped one project into another, with more or less, a sustained revenue profile. So that's what I was saying. When it comes to duration of the project, the initial stage is 6 months, but we often see, and we hope that we can extend this project going forward and develop the cooperation further with Severstal several sales as it were in this case.

Our next question is from Kenneth Toll of Carnegie.

Most of my questions have been asked. But some questions I have still. With these national projects in Russia, I mean, that started to benefit your machine sales this year. But how would you say that those projects have been ramped up? Are there more projects initiated? And when are the first projects ending, so to speak? Do you expect much more demand for machines due to these projects also next year?

Yes, the national projects are being implemented and they are being extended and expanded, which is very, very good to see that finally there are serious investments into infrastructure in Russia. And yes, we do expect these projects to continue for many years. There is a massive investments into new highways that will last until at least 2028, unless something very -- something appears that we don't know now. But the plan is for the first ones to be completed in 2028, and then the ones that are coming after will probably continue longer. So we see a good development there. And then the fact is that, as we talked about many times, the machine fleet, due to nonreplacement for so many years, is not -- the fleet has not the capacity to actually perform these projects, neither in Russia, nor in Kazakhstan. And for these projects to be able to be made in the first place, there will need to be an expansion of the machine fleet and that means new machines. And obviously, we're very excited about that. And we don't see any hesitation from the government as to the spending of these funds. So finally, we see good traction and if anything, Kenneth, an expansion of these investments.

Sounds great. Then also we read in the newspapers that the coronavirus is more of a problem in Russia than what it is in Sweden right now, at least. And there was an extra vacation week to dampen the spread of the virus and so on. So in Q4, has that sort of hurt your business with the extra vacation week? And are you seeing more problems now in Q4 than you did in Q3?

Well, yes, you're right. I mean there was a spike of infections and there was a nonworking week in the whole country, and that has been extended in some regions. Not in Moscow and St. Petersburg, for instance, but we have not felt any disturbances on our business. I think most of our team -- our guys and our customers have become very used to working with Teams and Zoom and Skype. And I think we have not felt -- we don't foresee any disturbances from -- at this stage at least.

Great. And then also when you have a shortage of large machines -- a machine, and I guess that a lot of your competitors have not -- yes, they probably had some problems to supply as well. Did that create a good pricing environment, in Russia, specifically?

Well, obviously, when demand exceeds supply, that should drive prices upwards. And hopefully, we will also see that in -- going forward. I can't say that we have noticed considerable movements. But yes, logically, it should. And again, I mean, as you can -- market is up 40%. So some suppliers are obviously less affected by -- or some brands are less affected by this. But it should drive price realization in the market, for sure. That's -- it would be strange otherwise, I suppose.

[Operator Instructions] There are no further questions at this time. So I'll hand back over to our speakers.

Operator, we have a question coming in via e-mail, a question on whether we can speak more about the potential collaborations with the other products or brands similar to Sandvik. If we can comment on any discussions or similar potential. There's a follow-up question whether the increase in sales of used machine contracts, both in Russia and Germany, is more of a strategic shift or it's -- or whether it's more driven by the component shortage and the situation in the markets or external factors.

Yes. I can -- well, to the first question on potential collaborations with other products. We do have discussions quite constantly with producers or OEMs of different equipment, and -- that are complementary to our existing offering. But we don't comment on that, what that might be. But what we also are very concerned about is, of course, that we need to make sure that we have focus and that we deliver and perform on the engagement, so to speak, that we have taken on. And Sandvik is, as we have said, is a big opportunity for us. It's a big potential and a big responsibility to make sure that we get some business stream in Russia to a good stage. So if -- with -- but again, we -- with our network in Russia, with our organization, we are a very attractive partner for potential partnerships for brands. But that's what I can say. We are discussing quite a lot with different potential partners.

Second question was with regards to whether an increase in sales and machines and trucks was more of our strategic initiative or extraordinary market driven.

Well, I mean we always strive to, so to speak, have a good product mix in our sales. We want to sell big machines because it's good for our sustainable profitability in the aftermarket, and it's also very often so that these machines are critical for the customers' operation and productivity itself and for his profitability. And that's where we can make a difference in terms of how we service and in terms of our parts availability, logistics and service contracts and everything else that we do. So yes, we -- this is our strategy and has always been our strategy to focus on, for instance, articulated order where we have a very strong market position and pavers where we have close to half the market. And so obviously, when supply is short, you choose what is best for you in the long term, but we should not forget that we obviously want to have market shares in smaller-type machines as well. But I don't see -- here, I don't see a contradiction in what we're doing both in strategy or due to the supply constraints. It's -- they just happened to fit, and we were successful in doing -- performing on our strategy. We would have liked to be able to sell more, but we simply couldn't. But I think long term, this is a good mix that we have now.

And maybe if -- on specifically the used side, I would say that this is an area that we want to grow and develop. It's part of our offering to customers to do trade-ins. We take their old machines and provide our machines, which we believe are superior and a better solution for our customers. And then we sell the machines that are traded in, of course. But we also see, in itself in the used business, potential to be a liquidity provider to the market, so to say, as the customers change their machine products. It also fits into the work that we have more overall going from new machines, use machines but also the [ legal ] plants that we have. So on the one hand, it is a conscious strategy for us to expand this and develop this opportunity. On the other hand, inevitably, it's also driven by external factors. How much supply there is and how much turnover there is in the used business. So it's a combination of those, I would say. I pass over to the operator again to see if there are any more questions.

There are still no questions from the audio lines.

All right. Then I say thank you for listening in, and have a good day. Speak to you again next quarter. Thank you.

Thank you very much for your interest, everybody, and be in touch if you have questions. Thank you very much. Bye.