Kardex Holding AG (KARN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Publication Full Year 2020 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Edwin Van der Geest, Investor Relations. Please go ahead, sir.

Yes. Thank you very much, operator. Yes, hello, everybody, and welcome you to our full year earnings call. A nice afternoon to the people here in Europe and a warm welcome to the people from the West Coast, who had an early start this morning to join us. I hope you all found our press release, presentation and the annual report on the website. Maybe for some of you, it was not so easy since the website is new. You have to find your navigation to the place. Yes, you have to look at another place as you're used to do that, but I hope you're all fine now. Before we start the presentation, we first go through the figures by our CFO, Thomas Reist, and then go to the business and the outlook by Jens. Then I would like to remember that after the presentation, the Q&A session, the questions can only be put by telephone. We don't have a chat function in the webcast, so please join the conf call whenever you would like to put questions to Jens, Thomas or me. Thank you very much. I would now like to hand over to Thomas to start the presentation.

Thank you, Edwin. Also from my side, a warm welcome to this conference call. I start with the highlights and the key achievements 2020. Similar to many other companies also got hit by COVID-19 crisis, this left prices in the P&L throughout every level. The good thing of the story is that the relative profitability could be kept on previous year levels, and these are the main 3 reasons. One is that the LCS business had the stabilizing element or proved stabilizing element in the business model of Kardex. And also LCS business was affected by the COVID-19 pandemic, especially in spring time. But in the second half, they catched up partially. The second element is that we have a high organizational flexibility. This means that, for instance, in the supply chain, supply chain was able to cope with the pandemic and implemented protective measures immediately when the pandemic started. Then we coped also with the reduced capacity levels, meaning that they implemented partially at a short time. The [ government ] was stringent to cost management, and we achieved reduced cost levels because when the pandemic started, we announced the high increase. We reduced the amount of temporary workers. But on this level, we also had windfall effects, meaning that travel cost were reduced and we also cut profit partially from state aid. Nevertheless, we believe in growth in short of our industry, and therefore, we continue with our strategic investments. It's mainly in the supply chain. So in the U.S. factory, but also in our factories in Europe, we continue to invest in the technology. So we put a substantial amount of money into our R&D activities. And we also invest into the digitalization, mainly our SAP project at Kardex sales. Despite the prices, the equity, the balance sheet and also the cash situation remains very strong. Let's look again on the key figures of the past 5 years. Then we see that the ongoing growth part is interrupt based on the COVID-19 crisis. If you look at net revenues, the CAGR of this year, 8.7%, were reduced to 3.6%. And the net revenues range between the level of the year 2017 and 2018. The operating results or the EBIT also there, the CAGR was almost cut in half. Last year, it was 14.4%, now 7.7%. EBIT ranges between the years 2018 and 2019, so only 1 year back. The net cash flow from operating activities. There, we can report almost EUR 15 million of net cash flow, and this is the highest level since 2007. Net profit, EUR 40.7 million in 2020. This range is between -- also between 2018 and 2019. And there, the proposed dividend of CHF 4 per share amounts to roughly 70% of the result of the period. Let's go to the financials. So the details, the income statement. Sales bookings were down by 8% compared to 2019, a bit different from the 2 divisions. So Kardex Mlog profited a bit. They could report higher bookings, but this was all compensated by the strong net backlog at Kardex Remstar. The order backlog is slightly up by EUR 2.4 million or 1.1%. Net revenues there, we need to report reduced levels of 12%. There, both divisions suffered. Good thing the gross profit margin went up by 70 basis points. So last year, we report here 36.4% and now 37.1%. The main reason for this upswing is that the share of the LCS business has went up. Last year, the share of our LCS business was 32%, and now it is 36%. This is the main contributor to the increased profitability. OpEx levels went down by EUR 10 million or almost 10%. There, mainly the elements, travel expenses, but also marketing expenses and variable salaries were cut down and amount roughly [ 1/4 ] below previous year's levels. EBITDA margin and also EBIT margin are more or less on this level. EBIT amounts to EUR 55.5 million. And therefore, we [indiscernible] 2019. [indiscernible] the main portion of the financial result in the interest expenses for professional liabilities we have mainly at Kardex Mlog. And with this EUR 1.9 million, we are more or less on a normalized level. Last year, with the EUR 3.3 million, we had a special effect with the approved interest expenses. The tax rate went down, then we can report a tax rate of 24.1%. This is within our guidance. This is mainly due to 2 reasons: one is that we were able to use tax losses by carry-forwards and global effect is that we have adjusted tax rates at the holding company. The effect of the lower tax rate is that the result for the period of the net profit margin went up by 14 basis points to 9.9%. So results for the period is EUR 40.7 million. Having a look at the balance sheet, we see that there are also quite a lot of influences based on the COVID-19 pandemic. We had reduced business volume, also left traces. Good thing is that the net working capital levels was reduced, more or less in line with the business reduction or business-level reduction. If you look into the details, the noncurrent assets went up by almost EUR 13 million. This is due to the investment activities we had explained broad in cash flow statements. And there, we also reduced the inventory to supplement working capital. The current assets went down EUR 25 million. There are 2 main elements are impacting the current assets: this is the account receivables went up -- went down based on the lower business volume; and also the cash level went down by around EUR 11 million. Nevertheless, cash level with EUR 122 million is quite stable and so we're glad. If you look at the equity ratio, there, we have almost 63%. This is the highest equity ratio we could report in the past years. And I'm not getting highest -- highlight that on our balance sheet, we have no goodwill and with according impairment risk. Looking at the cash flow statement, we see that net cash flow from operating activities amounts to EUR 49 million, almost EUR 50 million. This is EUR is 5 million above last year's level or 11%. The reduced net working capital all compensated the lower result of the period. Cash flow from investing activities. There you see that we invested more than EUR 10 million more than last year. It's mainly due to the supply chain. So we purchased machines, and we also bought the building for the U.S. factory last year. Then we also invested in the European landscape of Kardex Remstar. And we also acquired stakes in the 2 smaller companies, automotive and rocket solution. The amount of free cash flow is EUR 25.2 million and around EUR 6 million or 18% below last year's level. Net cash flow from investing activities, there we see mainly the dividend payments of EUR 32 million we distributed early 2020, and we also bought some treasury [ ships ]. Thank you for your interest. I would like to hand over to Jens Fankhänel now.

Good afternoon, everybody. 1 year has passed very quickly, and we are sitting here again with the annual report. I will highlight a few things about the divisions as usual and then go into a short outlook, cautious outlook, as always, through the group looking forward. So if we go to the next page, we start with the Remstar division. Tom has already mentioned some of these things with his experience. We have a severe hit in our bookings in our first half year for Kardex Remstar, as we already mentioned in our half year reporting. On the positive side, we saw some recovery with bookings on a global scale to Remstar and especially from Q4 onwards, which also continues into the early parts of 2021. As Thomas mentioned, Life Cycle Service. We are very happy with the development there. It had the expected stabilizing effect, and we've been able to record things close to 2019 levels, which given the situation out in the field, is quite an achievement of our teams in the world. Net revenues for Kardex Remstar slightly less affected in the first half year due to the then strong start in backlog. However, based on the bookings, the weak bookings, they have one, there -- we then saw reduced net revenues in the second half year, which was quite the consequence of the bookings as mentioned. What happened in the first months of this pandemic was that we relatively quickly implemented contingency measures, very stringent cost management, which helped us counter the effect, the negative effects of lack of net sales and helped us also to protect the relative profitability levels in Remstar. As you can see, the gross profits on one hand, but mostly with EBIT of 16.5%, slightly upper level of the target ranges communicated. This 16.5% goes to the upper end of 16%, and a ROCE, very healthy of 41%. And the development in Kardex Remstar is spread around the world. North America held fairly stable for most of the year. We saw some recovery signs in Asia Pacific. And in Europe, it was pretty -- reaching us across these countries from relatively solid in the Northern part, still fairly weak in the Southern part of Europe, and we may come back to this a little later in the Q&A. Next page, please. This is the summary of the development. CAGR, unfortunately, dropped a bit with net revenues 13% below 2019 numbers. So that had an impact on the CAGR of now 4.6%. The operating results, fortunately, only dropped by 8% to EUR 56 million for 16.5% on EBIT margin. And then if you look at the revenues mix, you can see that Life Cycle Services took a better share of the business with 32%, so it was less affected and obviously also contributed to better-than-expected margins, margin levels. The geographical split, there's no mistake. It's the same numbers as in 2019. It looks very strange. We had the same feeling when we looked at it first, but it is really the situation. We had different developments, some FX impact, which then effectively led to the same split as we had seen in 2019, with still the majority being Europe, 68%, 23% in Americas and the rest distributed between APAC and Middle East and Africa. Thomas, next page, please? Mlog. I think it's fair to say that, look at the next year in 2020, on one hand, there was a good recovery in bookings, new business bookings after a fairly weak in 2019. We have explained this already with the full year closing in '19 and also with the half year closing. So a fairly strong booking trend continued with EUR 90 million overall. Yes, EUR 90 million overall. And we also saw a very healthy increase in Life Cycle Services bookings for Kardex Mlog, which I believe is a natural effect also of the asset trends with our customers who maybe stopped in some places to invest into new installations, but then invested more money into actually safeguarding their previous investments via extended Life Cycle Services. Net revenues, not as good. We had a drop of 7%, mainly due to the low starting order backlog in new business going into 2020 and also relative to the lead times of these projects for Kardex Mlog. So that was a knock-on effect coming into the year with this order backlog. The other element that we are not so happy with is what we already reported at the half year closing is this valuation adjustment with the negative impact on especially EBIT, EBITDA and ROCE in the first half year. On the positive side, however, Mlog was able to recover and also return to profitability levels that we have seen the years before in the second half of the year. So overall, we had to report an EBIT margin of 3.8%, whereas this was 6.8% in the second half of the year and an ROCE of 17.9%. Next page, please. Net revenue development already mentioned, which now leads over the last 5 years, too, and slightly minus CAGR, not-too-impressive operating results. Also the drop just explained it from EUR 5.6 million to EUR 2.8 million. Revenues mix, we see a slight shift towards new business, some -- sorry, to Life Cycle Service, and not slight, a major shift. The Life Cycle Service from 49% to 54%. And geographically speaking, we still have the major business in Germany, and only a minor part of the business is 20% in the rest of Europe. Thomas, would you please go to the next page? We inserted a page that is relatively new, which is new initiatives on group level. Next page, please, where we would like to share with you our new initiatives that we already mentioned in some information to the market, but it's maybe worth mentioning here as well. On the technology side, we managed to acquire stakes in 2 interesting technology companies, 1 being automotive and the second being rocket solution. On the right-hand side, you see an example of automotive installation, so taking place robots technology that helps excel in ice and picking, simple ice and picking, but also in case picking activities. Rocket, we don't have a picture here, is the latest addition to our technology, which is ready for market launch next week on March 9. There will be a market launch, and then we will be able to tell the market more about the technology itself. Both of them are targeted to actually complement our portfolio and enter into the more item- and case-related technology from where we are today. Both companies are run independently until primarily managed market organizations. And we use an incubator concept for the development of this innovative technology platform. So we give them shield, we give them the security of Kardex and on the other hand, let them do their job without imposing too much bureaucracy on these 2 young English companies. Very lately, we also announced that we have entered into a global partnership with AutoStore. We signed the agreement in February 2021. So strictly speaking, this does not belong to the reporting year 2020. However, all of the preparation for this partnership, all the partnership, talking, the strategic outline within Kardex has been dealt with in 2020. So the formal signing after the approval of our Board of Directors to invest into the buildup of this business in Kardex formally happened in the first part of this year. And therefore, we thought it might be worth mentioning here as well. And the major aim is quite obviously to extend Kardex's portfolio technology-wise with an established technology that is in the market for quite a few years. It's complementary to what Kardex is doing, typically. And therefore, we believe that it will be a great addition to our portfolio, and we can actually offer to AutoStore, our global network and our global customer base. So I think it could be a very interesting combination of 2 companies focusing on high-quality technology, reliable technology and actually help our customers manage their logistics in a better way. Next page, please, Tom. We've kept investing into other things as well. One of these we wanted to highlight is digital marketing. Our digitalization continues. An element of it, you can see, if you look at our new website, extract of the website on the right-hand side. I would say, a fairly modern preference now, presentation of Kardex, which meets modern standard, but that was not the main target. The main target was to actually have a website that helps our customers interact in an easier way with Kardex, and therefore, also hopefully increase customer loyalty with Kardex. Make information easier to find, structure our knowledge, structure our presentation to the market. So this was the main reasons to introduce it, and we went live in early February 2021 as well. We have also invested into digital marketing quite a lot in terms of demand creation of our customers with very sophisticated marketing campaigns, social media usage for covering all these needs of our customers and last and not least, partly driven by the cancellation of physical fairs last year, but also partly because we had it on our strategic agenda anyways. We went to a now hybrid concept for fairs, where we will, in the future, show up on fair in a combination of physical and virtual. And this, by doing so, we can also then make content that normally can only be seen on one fair and then if people are unlucky, if they hadn't visited us on the fare, they can then also see it on the website or in a virtual platform, which I believe will make information provision and information gathering even better than before. Last and not least, we also communicated for the first time what we are doing in terms of sustainability and ESG. You can find the extract of it on our website and we have also included it into the annual report. So that, I believe, gives a very good and comprehensive overview of what Kardex has done for many years already, and it's also committing to in terms of sustainability and ESG. So you are more than welcome to also have a look there and inform yourself. And then I suppose, bring it up in our next investor and analyst meetings as we go. Last page, please. An outlook, it's typical what you expect, not many indications. There's one exception. You will hear -- or you will see it in a minute. I think what we really believe in is a strong recovery of our top line always, of course, under the assumption that COVID will hopefully soon stop to impact the business as much. I don't think it will cease to exist. I think it will accompany us for the years to come. But I think the impact on the economy, the impact on our daily life should hopefully go down and then we should go back to normal business operation and normal customer interaction very soon, I hope. So we expect continued recovery in terms of booking and also then we're [ thriving ] in better net sales and compare them in 2019. Kardex Mlog, I mentioned the slow or the weak starting backlog for 2020. It's the opposite going into 2021. So we believe that Kardex Mlog, together with continued good booking levels, should see a fairly increased net revenues level for 2021, and we also believe that both divisions should be able to demonstrate and deliver profitability levels in the mid- to upper range of our communicated target levels. You know those, Remstar, 8% to 16%; and Mlog, 4% to 8%. So we are positively -- cautiously positive about this expectation to be delivered. In line with our midterm, believe in the market intra-logistics to come out declines as fast as in other industries. We continue our investments in supply chain technology and digitalization to position ourselves for the expected upturn for the market and perhaps Kardex as a whole for the future, so the next steps and the next levels that we want to reach with Kardex. Market conditions still affected. I think you're hearing this disclaimer in quite many of these calls, so I wouldn't elaborate too much on it. Very clear that this could impact the short-term outlook. But mid to long term, we strongly believe in the industry. We strongly believe in our chances in the industry and therefore, our mid- to long-term financial targets remain unchanged. And with that, I would like to thank you for now and would like to hand back to Edwin. Thank you very much.

Yes. Thank you very much, Jens and Thomas, for the presentations. We would like to start the Q&A session now. Moderator, can I please hand over to you to start the session?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from York Runne from AWP.

Yes. So this is York Runne. Could you tell me a little bit more about the -- your clients? Where do they invest? Recently, we can see a regional focus where companies are willing to invest in your technology and where you still see net sales a little bit skepticism. Hello?

Yes. Thomas, could you take this?

Okay. I'll try to answer your question. If I understood you correctly, you asked geographically, whether we see a change in activity?

Yes. If you look at the orders, where do you see a pickup? Is it more -- is it strong in Asia or in Europe, Germany?

No. I mean, you saw the -- it's a different answer. So for 2020, I think I mentioned that the regional distribution is the same as in 2019, but that has not changed in terms of dynamics. And for now, let's say, the first part of this year, it's early to say. It's only 2 months that has passed. We see a fairly good development in the U.S. for now, which we expected there was some delays in orders by the end of the year, I think, partly linked to the elections and the typical, I would say, typical delay in decision-making in the U.S.. This is not uncommon. If we look 4 years back, it was the same. And they are -- we now see a bit of a relief on orders in terms of decisions being taken. So we saw 2, I would say, happy months in the U.S. in the very first 2 months of this year. Europe is a little heterogeneous. We see a, fair how should I say, reluctant not, but hesitant to invest in Germany. We see other countries coming out faster and stronger. And in Asia, it's the same, I would say, we had okay months in the first 2 months, but it's not like a superior uplift. So really, I currently would put positive focus on is the U.S.

Okay. Can I ask another question or am I blocking other colleagues?

Go ahead, York. It's good. Yes, go ahead.

So I think -- with the funds and partnerships you bought or went into in the last year, when do you see a sizable effect of these engagements? When do you expect that there's new products coming on the market that it can be combined with your offer and so on?

Yes. I guess, it's me again. Different answers. If I start with automotive, technology is ready to be used. And now it's about finding -- and we have a twofold go-to-market strategy for the automotive company. One is serving the market as an independent market organization. So they do not just offer their technology to Kardex. Their prime target is to offer it to the independent market and therefore, prove the technology in terms of competitiveness, innovation and so on and so forth. So find partners who integrate their technology in their solutions. The second line is within Kardex, what I call cross-divisional selling and implementation. And there, we are in the process of establishing a standalone subsystem concept, where we use automotive technology together with an Remstar technology or even with an Mlog technology. And this is in the process of being A, designed; B, then also campaigned in the organization. First of all, it starts with the internal marketing, and then it's going out to the market to the Kardex customer base. So in essence, if you ask me, when do I expect an impact on that? I would say we should see the first relative impact in 2022. Rocket solutions. This is a new technology. And therefore, this is really early stages. I talked about the planned market launch in terms of sales launch next week. We, in parallel, already market to the market to interested parties. And also here, we have a twofold go-to-market concept, which is again independent to partners -- independent of Kardex, I mean; and second, within Kardex. And this is also in the preparation in terms of size of the numbers. Here, we are a little more careful, and the reason is this is new technology for us and for the young company as well. So we want to be a little cautious in terms of how many parallel installations we want to put into the market. We want it to be okay. We want it to be mature before we go on a viable range to the market. And last, not least, the buildup of the AutoStore business. I think 2021 and parts of 2022 are mostly business development and building up the business organization-wise and everything. So also here, I would think that we see the first true impact in 2021, leading into 2023. Does that answer your question?

Yes.

Okay. Good. Edwin, back to you.

Yes.

[Operator Instructions] The next question comes from Sebastian Vogel from UBS.

I got a couple of questions. I would ask them one-by-one. And the first question is, if I look at the order intake at Mlog in the second half, the growth was really good, as you said in your presentation, year-over-year. The year-over-year number with Remstar was not that great. Actually, it was negative. I was guessing normally that the sort of trends that are favoring Mlog are eventually also sort of the same trends that are serving Remstar, and I was wondering where this mismatch was coming from.

Sorry. Can you repeat it again, please?

Yes. Essentially, Remstar orders went down by 4%, but Mlog orders went up by 30%. Why was Remstar still so much down? Also, yes, both are in warehouse automation active and therefore, should also benefit from some similar trends.

Yes and no is the answer. 2 effects, I would say, Remstar still -- let's say, Mlog is in the warehouse distribution market. And they also saw quite an interesting incline in 3PL. In the 3PL segment, the third-party logistics providers. And this was a very interesting trend. They have this 4 third-party logistics providers who did not invest into automation or not much. They started due to also the impact of COVID and the lack of people to operate their facilities. They started to take much more interest in the automation part of things. And that is where Mlog benefited from. But don't forget, Mlog had a very poor 2019. We should never forget that. So it's not really like they had to normalized thing. And what we typically look at is a 2-year window for Mlog because we quite often see that these projects in the sales phase has a pretty long lead time before they really materialize. And second, these projects have a very long lead time in realization. So normally, it's better to look on 2-year averages than just on a year by year. Things could shift by the end of the year into the new year. And all of a sudden, you have a EUR 10 million or EUR 20 million project in the next year, which pretty much skews the averages. That's one element of the explanation. Second, Remstar. Even though we've been okay with the U.S. development, it was below last year -- sorry, below 2019. I need to be careful, which I am referring to. Below '19. And second, we had a negative FX effect also in the U.S. So that had a double dip in terms of impact. And Mlog, I said, is mainly dealing within the distribution warehousing industry, whereas Remstar has not managed to move towards this segment enough. So Remstar is really not yet benefiting enough, some trends in e-commerce, trends in warehousing distribution markets. And therefore, it's still too dependent on the, I would say, traditional industry segments they're dealing in, like the machinery, electronics and others. And we all know that this industry segment has been more impacted than the warehousing distribution and e-commerce.

Understood. And the second question are dealing with organic growth numbers. I was wondering, therefore, new acquisitions into Kardex utility and automotive, they did not add any revenue so far, right?

Yes. Only cost.

And then obviously...

No, we cannot [ comment ].

Yes. No, understood. And the other part of organic growth, the FX impact on Remstar, can you quantify that?

Yes, I can take this up. The FX effect on top line, so net revenue is around EUR 4 million, negative effects.

On Remstar? Got you.

On Remstar and Group, yes.

Yes, make sense. And one last questions from my side. Raw material prices are increasing. Steel prices are increasing. I was wondering how well you see yourself prepared to pass that on? Or how much you see as a flat for your margins in 2021?

Thomas wants me to answer this, regarding all the difficult ones he makes. Different answer again. Some of it, we can hand over or pass on to customers. And this is mostly for the Mlog business. When we're talking racking solutions, racking purchases for us, it's very interesting. That's an interesting market where these price increases can be passed on. For Remstar, it's a little different. We have challenges, and that is more on the competitive behavior than on us. We did try to hand -- or depart on saying for this is a very challenging market when it comes to simply saying we have higher costs. So the increase is healthy, a hefty increase on prices to the market. So we have to find means to actually compensate for the increases to some extent, the productivity gains, but somehow also with added-value selling, where we get out of the pure price wars for Remstar. And that's a challenge in itself going forward.

[Operator Instructions] The next question comes from Erwin Dut from Kempen.

Yes, can you hear me?

Yes. Go ahead, Erwin.

Excellent. I -- so I'm not sure whether this is difficult to answer. But do you think Remstar has gained or lost market share last year versus competition in the niches that it operates in?

I wish I could answer that. We don't know yet. And the only -- maybe only because they don't disclose numbers, like the direct competitors, Modula, HEIMO and some locals. They do not communicate their numbers. So openly, like we have to do. The only area where we normally see a relatively reliable number is the U.S. where the community report, the competition report into one report, but that is due to come out in April and May only. So we will know by then. We believe that we do not -- did not lose market share in the U.S., rather the opposite. In Europe, it's different by country. I believe Modula, the 50% of their business must have been very hard. It's very hard in Italy. We all know the situation in Italy. So we believe that they are -- they must have lost quite a bit and informal lines, and I cannot quote those, but informal lines in Modula tell me that they also suffered by about 10% or a little more in terms of top line. But this is informal lines into them, and I cannot confirm straight away that this is true. We see them. We do have pretty comprehensive loss reports when we lose again panel and/or modular. So this is relatively comparable to previous year's statistics. So it's not that we order to suddenly lose more against any of the incumbents. But does it mean we see all of the projects and do they win projects without us knowing? That could be the case, and that's the challenging part to either. Did I answer some of your question, Erwin?

Yes. Yes, that's helpful. Yes. And I have a second question. So if I look at gross margin in the Remstar, it went from, I think, 38.1% in the first half to 43.6% in the second half, which is actually, I think, could actually be an all-time high. the gross margin for Remstar in the second half, 43.6%. Is that purely the mix effect of the services business being relatively high? Or is there something else behind that very high gross margin for Remstar in the second half? And also, you talked a little bit about whether that is sustainable into 2021 then?

The mix one you guessed already, which is LCS, but the other one is also gains in the factories. First half, I think, pandemic and the impact figures more than in the second half. And second, we also benefited from subsidies from the German government for full time work. And that helped, I would say, compensate for some of the losses from the top line in the factories. And I guess you can formulate the answer yourself to your questions. Not all of it can be expected to carry -- be carried forward into 2021. The expectation is a little unclear. So far, the German government has extended the subsidies, I believe, until the end of the year. Not sure whether this is the full expense like we did in 2020, and we need to watch it and then see how much we can compensate and how much will be a drop in this gross margin business.

May I add something -- maybe Erwin, may I add something from our former discussion? So you remember that's also 2019 are still negatively affected because we had this huge capacity utilization with 3 shifts, et cetera, and extra cost that was -- that had a negative impact on the gross margin at that time as well. So this also held the rate. It's also...

Okay. yes. Yes, and then maybe lastly, could you talk a little bit about what the U.S. factory will do from a financial perspective with the business? I mean, how much -- yes. Maybe cost benefits should come from that factory and maybe in terms of revenue uplift that you expected. Can you give a little bit of financial color around if and when the U.S. factory starts up after summer? I'm trying to understand to what extent is the U.S. factory is going to really change the profitability structure of the business.

The U.S. factory, we had to postpone due to the COVID situation. We're expecting it in the later part of Q2 -- sorry, second half of the year, not Q2, of the second half year. So rather towards the end of the year. So for 2021, we don't expect much impact either top line or bottom line, and then we will have a ramp-up period for the factory. It will only produce standard machines in the beginning to actually ramp it up in a moderate and well-managed way. And that will mean that we -- in 2022, we'll probably see a potential negative impact on profitability in terms of overall supply chain because we have an added capacity, which is not fully leveraged on by then and utilize on. And I see 2022 as a ramp-up year for the factory and from 2023 onwards, I would expect the full effect. But it's not just for efficiency and product -- sorry, for efficiency and profitability. It's -- I believe it is also -- no, I know that's why we did it. It's also to protect our market position in the U.S. With the ongoing political debate in the U.S., manufactured in the U.S., we need to have local production close to the customers and also be able to demonstrate to the market that we have a local manufacturing. So it's actually twofold strategy. It's aiming at satisfying this need for us as a company. And second, in the longer term, then obviously also increased profitability. But the main part is really defense and help support our local base in the U.S.

Okay. Moderator, are there more questions to come? Or are we at the end of the...

No, gentlemen. So far there are no more questions from the phone.

Okay. Well, then I would like to thank you all to have joined us. You know we are happy to answer any further questions whenever you have gone through the whole annual report and figures. So I would like to thank you very much, thank Jens and Thomas, and we'll hear you as soon as possible. Thank you, and have a nice afternoon. Bye-bye.

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