Kendrion N.V. (KENDR) Earnings Call Transcript & Summary

Good day, and welcome to the Kendrion's Third Quarter Results 2021 Analyst Call with CEO, Joep van Beurden; and CFO, Jeroen Hemmen. [Operator Instructions] Today's conference is being recorded. Joep van Beurden, Kendrion's CEO, will start today's call with a short statement, after which there will be time for questions. At this time, I would like to turn the conference over to Joep van Beurden. Please go ahead, sir.

Thank you, and good morning, everybody. Welcome to Kendrion's Q3 2021 results teleconference. My name is Joep van Beurden, Kendrion's CEO and with me on the call is Jeroen Hemmen, our CFO. I will start the meeting with some remarks regarding our Q3 results after we will have time for Q&A. We will post a recording of this call and of the Q&A on Kendrion's website as soon as it's practicable. I would like to draw your attention to the fact that certain statements contained in my remarks and in the answers to your questions constitute forward-looking statements. These forward-looking statements rely on several assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside the company's control that could cause actual results to differ materially from such statements. Before reviewing our Q3 2021 results, I would like to reflect a little on the current economic and market environment that we are operating in. As COVID-19 is slowly receding across the world, the economic implications become clearer. And what all of us now experience is that the adverse effects on pretty much all businesses are far more substantial than expected in 2020. When COVID caused most of the world to be locked down, we were dealing with a demand crisis. Economic activity was low and revenue dropped. The drop in demand was somewhat predictable, allowing governments across the globe to take mitigating measures and allowing companies to plan and focus on cash preservation, cost, and cash flow. Today, economic activity is back and demand is back. However, this time, we are facing a supply crisis and not just the much talked about shortage in the supply of semiconductors. This supply crisis is much broader. Steel, plastics, building materials, shipping containers, oil, natural gas, even the availability of labor. We are facing shortages everywhere, affecting in essence, the entire economy. So demand or supply shortage, what's the difference? Well, the difference is that the supply shortage is far less predictable and more volatile. The supply prices causes upward price pressure on raw materials, compressing gross margins and it affects working capital as customers across the supply chain demand delivery as soon as it's possible, forcing everyone to keep stock of raw materials that are not supply-constrained. So in our view, the current market environment is more difficult than a year ago in the midst of the COVID-induced demand crisis. And therefore, proud of our Q3 performance in a tough environment, we have continued to substantially grow revenue and profitability. Topline growth was healthy in all our businesses: Industrial Brakes, Industrial Actuators and Controls, and Automotive. In my view, we are navigating this supply crisis well. We have been resilient as we were last year and more than that, we have continued our growth. So why are we so resilient? Many of our stakeholders view Kendrion as an automotive Tier 2 company with a bit of industrial side business. That may have been the case in the past, but today, the reality is different. Kendrion is an actuator company focused on products that help enable the global push towards electrification and clean energy. Whether it's brakes for wind power, robotics, automated warehouses, sound actuators for electrical vehicles, or induction technology helping industrial processes move from oil and gas to electrical solutions in all our business groups and in China, the broad push towards electrification determines our product development decisions. And it has determined these decisions for a couple of years now and has been amplified by the INTORQ acquisition in 2019 and most recently, by the addition of 3T to our group. It has resulted in a balanced diverse portfolio exposed to the global and accelerating trend towards electrification and clean energy and not overly dependent on any specific vertical or market segment. So amidst all the shortages, we have continued to deliver significant growth in revenue across all our business groups in Q3 and during the first 9 months of 2021. I'm proud of our global team who have managed the impact well. Let me talk in a bit more detail about the Q3 dynamics and some of its highlights. Our industrial businesses continued their strong performance of the first half into Q3, with organic revenues exceeding Q3 2019 levels in both Industrial Actuators and Controls and Industrial Brakes. Higher raw material prices reduced the industrial value-added margin somewhat, but we expect this effect to be temporary as our own price increases kick in. Short-term demand looks healthy. And in the longer term, we expect our industrial businesses to continue to benefit from the global energy transition towards electrification. In the Automotive segment, demand is volatile due to the severe and ongoing semiconductor shortage. The shortage reduces the production in the sector significantly, putting pressure on our automotive revenue. Longer-term, we remain well-positioned as the transition towards Autonomous, Connected, Electric and Shared mobility, accelerates. On September the 21, we announced the acquisition of the Dutch electronics and embedded systems developer 3T. The acquisition offers significant growth potential for our industrial business in combination with the control technology activities of our business group in Industrial Actuators and Controls. 3T also strengthens our software and electronics development capabilities, benefiting our automotive group, specifically the development of our sensor cleaning and sound actuation platforms. Integration has started and 3T has already positively impacted our profitability. Now let me review our financials in a bit more detail. Third quarter revenue came in at EUR113.2 million, which is 15% higher than in the third quarter of 2020 before exchange rate effects and the consolidation of 3T, per September the 21st, revenue rose by 14%. Following the strong first half, economic activity remains on a high level with both industrial group's quarterly revenue now exceeding the pre-pandemic revenue of Q3 2019. And that is, in our view, a strong indicator of the underlying growth potential in our industrial segment. Organic revenue growth in IB of 21% year-over-year and in IAC of 25%, speaks for itself. In automotive, revenue is affected by the semiconductor shortages that have led to a sharp reduction in global car production. The commercial vehicle-related revenue, especially in agriculture and trucks in the U.S. have been performing well, while the coach segment remains weak. Despite the supply issues, Automotive revenue increased with 6% compared with Q3 2020. Revenue over the first 9 months of 2021 totaled EUR 347.8 million for the group, which is an organic increase of 19% compared to the EUR 293.3 million of the first 3 quarters of 2020. Automotive realized 21% organic revenue growth, with revenue ending up at EUR 179.1 million. IB revenue increased 17% to EUR 93.1 million and IAC is 18% to EUR 75.6 million. Our profitability results well. EBITDA, the normalized operating result before depreciation and amortization, increased with 9% to EUR 12.4 million compared with EUR 11.4 million last year. Operating leverage in Q3 was affected by the lack of predictability in the supply chain. This restricts our ability to temporarily and dynamically reduce our costs. Also related to the supply constraint and increased raw material prices that is somewhat affected the added value margin. That margin was 48%, in line with Q2 and 0.4% below previous year. Industrial Brakes has been most affected by the material price increases and has taken pricing action to improve added value margins. Revenue growth and the reduction of capital expenditure in the previous year has decreased the depreciation charges as a percentage of revenue to 5.3%, in Q3 2020, this was 6.4%. EBITA increased by 30% to EUR 6.5 million with the EBITA margin increasing to 5.7% from 5.1% a year ago. Normalized EBITDA for the group in the first 9 months of 2021 increased significantly to EUR 44.3 million, 34% higher than in the first 9 months of 2020. Normalized net finance costs for the first 9 months of 2021 amounted to EUR 2.8 million compared with EUR 2.5 million over the first 9 months of 2020. This increase is due to the higher applicable interest rate markups. Normalized income tax expenses for the first 9 months of 2021 amounted to EUR 6.0 million, which is a normalized effective tax rate of 29.5%. Our financial position is strong. The total net debt increased to EUR 141.2 million at the end of Q3 2021, up from EUR 112.7 million in Q2 2021. Net debt at the end of Q3 2021 includes EUR 23.3 million of cash out and EUR 1.9 million IFRS16 lease liabilities from the acquisition of 3T. Free cash flow in Q3 was negatively affected by a EUR6.0 million organic increase in inventory levels. The build-up of buffer stock for the anticipated closure of our Austrian Automotive plant and late order reductions from passenger car customers contributed to the increased inventory. We have taken measures to reduce the inventory going forward. Our capital expenditure is in line with our planning, with the year-to-date investments now at EUR 20.2 million compared to EUR 11.2 million over the first 9 months of 2020. Of this, EUR5.6 million relates to the construction of our new factory in China, which is progressing according to plan. The leverage ratio at the end of Q3, including the consolidation of 3T, stood at 2.4, down from 2.9 at the end of Q3 2020 and well below the financial covenant of 3.25. Kendrion's solvency ratio remains strong at 44.4% at the end of September 2021 compared to 45.7% year-on-year. Our outlook is cautiously optimistic. On the one hand, we see that the economy has expanded rapidly and that the activity levels and consumer demand are high. On the other hand, demand is volatile and supply chains worldwide are impacted. We expect the current economic environment to persist in Q4 2021 and well into 2022, but trust, we can navigate these challenges well with our balanced product portfolio, global exposure, and strong strategic position. We remain positive about the growth trajectory of our 3 business groups and in China, our strategy and product pipeline, and are confident, we are well-positioned to benefit from the accelerating transition towards clean energy. We expect added value margins to come back to pre-pandemic levels and remain positive about the business fundamentals and our main objective, deliverable, sustainable, profitable growth. I now open the line for your questions.

[Operator Instructions] Our first question today comes from Frank Claassen from Degroof Petercam.

Two questions, please. First of all, on the raw materials position and the price increases, do you think you have seen most of the raw material price impact now? Or could we expect more? And could you also maybe quantify the price increases and elaborate on how easy it is for you to pass on the raw material prices? So that's the first subject? And then secondly, on China, could you elaborate what you saw in Q3? Is it in line with the group? Or did you see signs of slowdown? So what is happening on the ground in China at the moment?

Okay. Thank you, Frank. So a few words on raw materials in China, and then maybe I'll hand back to Jeroen for some more color on that. But the generic remark on the raw materials is that the impact going forward, of course, for us, is hard to gauge. There is upward pressure on things like steel and also in semiconductors for obvious reasons. And the visibility, in our view, and how much more there is to come is unclear. But we are in a position, and we are, in some cases, contractually and in other cases, not contractually, but this is, of course, the pricing action we take to pass this on, but maybe we can talk a bit more on that later on. On China, it's actually very much comparable to what we see in Europe and also in the U.S. The supplies are constrained quite broadly, that leads to some volatility in demand. On the Automotive side, the chip shortage also causes their production to be lower than what could have been sold based on the demand that you see also elsewhere. At the same time, we're managing all this volatility quite well. And our revenues there are developing in line with our planning, which, of course, means that we are seeing good growth certainly through the cycle. The other thing to say about China is that we are -- currently we have started the construction, having received all the approvals of our factory. And we have started the construction and expect by the end of the summer 2022 to move in, in that large, much larger facility to also accommodate for the growth that we're going to expect over the next couple of years in that part of the world. Jeroen maybe a bit more color on the raw materials?

Yes. So let's say the current price increases that you see, for example, for steel and copper, which have luckily been flattening somewhat in the last months. I would say the majority is currently in the prices, although as there are also some contracts that expire in the coming months. So that is, throughout the year, you are confronted with some upward pressure for renegotiated prices. I feel confident, as you've mentioned, that our price increases will keep up with the price increases that we are confronted with. There are some delays, especially in IB. But yes, like I said, I feel confident that we will be able to pass on the great majority of the price increases as we are currently doing. We are not disclosing the exact impact but just to give you a bit of an idea, yes, it's somewhere between 1.5% and 2% of revenue.

[Operator Instructions] Our next question today comes from Tijs Hollestelle from ING Bank.

Yes, my first question is about the Automotive business. Was it loss-making in the third quarter because of the higher expenses dealing with the demand volatility.

Yes. We not disclosing quarterly numbers for business group. But what I can say is that the initial units perform as equally, as in the first half-year. And obviously, on Automotive, the lower revenue compared to the second quarter had impact also on the profitability, but we're not disclosing specific numbers per unit.

Okay. So the bulk basically came from the weakness in the industrial. And that's also my second question because your remarks in the press release about the inability to dynamically control the cost base. I do understand, let's say, the comment itself, but when we were discussing the second quarter or the first half results back in August, the industrial business is already growing quite firmly above 2019 levels. I think that operating margins were also quite healthy. I think that most analysts, but also shareholders, investors, gave you a lot of compliments for that. Did you, at that time, not already were planning these additional investments to deal with the growth because, yes, a bit more headset on that would be helpful because I believe you only mentioned back then that the more global issues that could hamper, let's say, the results, but this seems like a massive investment program and also if I translate that to the number of FTEs that is still growing quite rapidly. So a bit more color on that would be helpful.

Yes. Let me -- because I'm not sure you're reading -- you're making the right imputation of that remark. So we are facing -- there's more demand than we and everybody else in this current economy can supply, right? That is the supply-constrained environment we're currently in. What you see is that in Automotive, it's the delta between supply and demand is specifically is the largest. And the reason that we mentioned that there is not a total inability, but it's more difficult to dynamically control the cost has to do with UltraBay. So if you know before the quarter starts that your revenue is going to be roughly at a certain level, you can take action. If that demand pattern from the customers is highly volatile, you're contractually obliged to deliver what is in -- what is basically in the order books. And if you then at the last minute, get a cancellation, and in some cases, specifically on the Automotive side, that happens, then basically, you have your inventory. So that's also the pressure on the working capital. And you have your people ready to produce. So that is basically why this unpredictability impacts both the working capital, but also a little bit the ability to control the direct labor cost, if you like. Now on the industrial side, I think the performance on the industrial side has been extremely strong. I mean, really, really good. And that is to do with the fact that the gap between supply and demand is somewhat smaller. And we have managed, I think, very well to -- in a difficult environment to source as much raw materials as we could possibly get. Why -- this is why you see growth numbers in IB year-over-year of 21% and in IAC even of 25%. So there is certainly not a shortage of investment or a capacity crunch or anything that would that hamper that other than the supply constraint that we talked about.

And maybe, if I may add. So if you bridge the result of the second quarter to the third quarter, as you said, so in the second quarter, we got a lot of compliments on how we manage it. The -- let's say, the profit shortfall compared to the second quarter, 90% of that or 80%, 90% of that is caused by lower volumes. And this is partially seasonal at the third quarter with the holiday season in it and also in automotive, as we explained, where we had lower volumes than in the second quarter. And in addition, but that is not the bulk of it. Indeed, we compare to the second quarter also, we lost some direct efficiency because this volatility did not improve in the quantity. It got a bit worse. But 80% of the shortfall has to do with the lower volumes compared to the second quarter.

And also, I mean, I like your comments on the outlook that the global situation on this is unlikely to improve in the next quarter or maybe a little bit, but it will go gradually. Do you think it could also get worse before it gets better?

I mean difficult to gauge. We don't expect it. We also, of course, Q4 is on the way we don't see that. But on balance, as we say, we use that we're cautiously optimistic. So I feel we are managing through the volatility with all these different elements quite well. If you look at the order books, specifically on the industrial side, where, as I mentioned, the gap between supply and demand is a little bit more modest than on the automotive side, that looks very strong. But the fundamental driver there, and that's why I think it's also very relevant to not forget that currently, revenues on the industrial side are ahead of 2019. The underlying growth trends are, if anything, accelerating, building well. And this is not just a Q4 statement, this is 2022, 2023 statement. So our ability to manage through this volatility, plus the position that we have, which is also true, a little bit longer-term for Automotive around electrification makes us, well we say, cautiously optimistic going forward.

Okay. Yes. And then one final question, if I may. And I have asked it before, not because of my favorite subject, but probably because I'm not fully understanding it, but year-to-date, over the first 9 months, you have a positive impact of EUR5.2 million from the P&L line item change in inventory of finished goods and work in progress. If I understand your remarks on that line item in previous sessions, that measured over a few quarters, it more or less had a positive and negative balance each other out. So it could very well be there is, let's say, a EUR5 million negative impact on the -- to be reported EBITDA number in the fourth quarter. If I take the cost base, let's say, off an equal, there's basically 0 EBIT if this line item adjusts itself. Can you shed some color on that, please? Because they are making these estimates are quite difficult because everybody is also looking at your longer or medium-term targets. And the starting point, in this case, it's very hard to make, I must say.

Yes. So that -- it's a bit technical, but -- so the EUR5 million is indeed now the accumulated increase in finished inventory. So basically, we produced more than we sold. This is typically the case every year, that in the first half-year, we produce more than we sell and in the second half-year that reverses. So then we sell more than we produce. That also has to do with holiday days. This year, also due to the volatility, especially in Automotive, with some order cancellations, that means that you have some more inventory on the shelves that we would want to have partially delivered, partially not delivered because of order cancellations. I do not expect that the whole EUR5 million will reverse in the fourth quarter. That is simply not in the works. But in the long run that number is 0 because, in the long run, you sell as much as you produce. But it's not -- the EUR5 million is not 100% profit or loss because there are also -- it's products that you produce. So you also have raw material cost, you have direct labor. So as a rule of thumb, I always calculate with an EBIT impact, rounded out 20% of that EUR5 million. So you could say that in the first 9 months, we had a tailwind from producing on stock of approximately 20% of that EUR5 million, and that is EUR1 million, which at one point, indeed, will reverse over the coming quarters. Does that answer it?

Yes. No, that helps, indeed because I'm trying also to see, let's say, the quarterly connection between the cost of goods sold because I understand as you take those costs, but it is very difficult to deduct that from the historical data. So indeed, if you then would sell or recognize revenue on these already produced, yes, then your cost base for the rest would be enlightened. It's more or less okay. It helps, I mean. So a bit of the spending was dropped from there.

Yes. But important to know, so there's not something -- it is not that the current balance sheet of the group of P&L foresees that in the coming quarters, we will have a EUR5 million negative impact on EBIT because of this. That is not the case. So roughly 20% of that is -- so when you talk about EUR1 million spread out over the coming quarters.

Our next question comes from Maarten Verbeek from The idea.

A couple of questions from my side, please. Firstly, when we look at the automotive group, which reported an organic growth of 6%. And when I compare that to the European car sales of car registration growth of minus 25%. Could you explain why this gap is so huge?

There's a couple of things to note. And of course, there's also sell-through numbers in car registration. Of course, there's also a little bit -- it's inaccurate if you like, and there's always a timeline, but I mean the difference between plus 6% and minus 25% is highly significant. So first of all, as we noted, as you well, also, there's about 1/3 of the revenue that's related to commercial vehicles. So cars and on the commercial vehicle side, although buses are not that strong, farm equipment and trucks, heavy trucks, specifically in the United States are actually doing reasonably well. So that helps a bit. But the other, I think, more important reason is, as you know, is over the past 3 years, we have one a significant amount of nominations, more than the current size of our business. Now given the fact that compared to a couple of years ago, there were 25% less cars being sold, those nominations are under pressure by the same 25%, as you can well imagine, the market is smaller than, of course, that will be smaller, too. But at the same time, we do have quite a number of new products ramping. And as compared to our original expectation because of the state of the market, maybe not ramping quite as large as we would have expected 2, 3 years ago, but still are limping and that is the other reason why we have still a small plus, while the whole market is currently under more pressure than what we experience.

So you're not afraid that your clients have built up some inventory.

No. That is -- I mean, the visibility that we have in that is highly -- it's very limited, as you know, but no, we don't see that. We certainly see the -- I mean, the volatility is real, the pressure on the total revenue is there. I mean if you look at analyst reports, they estimate that another -- that about 10 million cars could have been produced and sold if the balance in the demand is there, if it wasn't for the supply constraints. Now that means 10 million cars means a lot of actuators for us. So you can imagine that these numbers would have looked completely different if the supply situation is normal. And so the difference between demand crisis of last year and the supply crisis of this year that I highlighted is real and presents us with a unique set of challenges. And as I said in my earlier remarks, I feel we manage those well. And that includes a small growth number for automotive in a market that really doesn't support that.

Talking about the inventories at your end, it rose by EUR6 million. Could you break that down into what you have currently as an increase in finished products and more or less the increase you have taken on your balance sheet to secure your manufacturing process.

Yes. So round about EUR1.5 million is finished products. So the remainder is raw materials. On the one hand, to indeed secure your production process, but it's also driven by the volatility that we mentioned before. So when you are faced with all the cancellations and increases varying week by week, makes it more difficult to manage your inventory. So in the third quarter, it's actually a bit higher than where I would want it to be. So we are now taking measures to bring that down more to a level as what we will see in the second quarter, which I think is fine in the current market circumstances.

In the presentation, you also mentioned that 3T had a positive impact on the margins that you have achieved in this third quarter. Could you more or less inform us about the revenue and the EBITDA contribution after 3T in the course of 10 days?

Yes, it's tiny, of course. But it has been. I mean, we said when we announced the acquisition it's going to be accretive immediately and that has happened. So I mean, since September the 21st, of course, as you say, it's 10 days, not even. So it's a very small impact, but it was there. And of course, in Q4 that we get the full of the benefit of the full quarter. Now it's a small addition. It's quite important, though. It is accretive. It's highly profitable. It's another EUR12 million of industrial revenue in an area of IAC that's actually showing excellent growth. I mean, there is enormous demand for software and embedded systems for control technology. This is what they do. And then on top of that, which is a bit longer term, we get the benefit of these capabilities for automotive as well. So it's a small acquisition. It's immediately accretive. It's justified on the basis of strengthening our industrial control technology group, plus some additional automotive benefits. So we feel very good about this.

This quarter, you made quite some investments, more or less similar to the one you have achieved in the first half. For the fourth quarter, we should expect a similar CapEx level as we have seen in this third quarter?

Roughly, yes. I expect a bit less than in the third quarter also because we are normally -- business is almost closing in the last weeks of December. And it's typically a bit lumpy, but -- yes, so maybe EUR2 million less than in the third quarter, but that's what you should be looking at. And of course, I mean, quite a bit of that also, of course, is for the China building. That continues because we started the construction. And yes, the investment level also on the industrial side is indeed quite substantial because of all the growth we see coming.

I just want to ask that. For China, more of a similar amount in Q4 or it will be a little bit less.

Yes, a little bit less than so far, year-to-date, it's close to EUR6 million. I think it will be a little bit less in the fourth quarter, but a substantial part of the fourth quarter investments. And also, in itself, that is quite lumpy because it also depends on the building progress. So if something falls in December or in January, obviously, impacts right away, our investments for the year. Yes, let's say, EUR3 million, EUR4 million in the fourth quarter related to the building.

Normally, you also mentioned on a quarterly basis what your free cash flow was this quarter, you only mentioned it has been affected, amongst others by the inventory level, but would you also mentioned the inventory level of your free cash flow this quarter?

Yes, you can derive it. So then I can also state it. So it's minus EUR 3 million for the third quarter, driven by the higher inventories, but in particular, also as anticipated the higher CapEx level. And then lastly, could you remind us about the leverage capital ratio development for the next coming quarters?

Sorry, leverage capital rate, yes. What do you mean? What do you mean by leverage capital ratio?

For the current quarter, it was 3.25, but a according to me, that will come...

The covenant? Yes. That is flat -- sorry, I didn't understand. That is flat at 3.25.

To year-end?

To the year-end and also next year, it's -- yes, 3.25.

[Operator Instructions] Our next question comes from Johan van den Hooven from Edison Group.

I was disconnected earlier in the call. So hopefully, I'm not asking the same question. The first one is about gross margin, the gross margin effect of 30 basis points so far, but you also announced on price actions within Industrial Brakes. Is it then fair to assume that you are sort of aiming for a flat gross margin in Q4? Second question is about 3T, it's EUR 12 million, and it's a bit more focusing on our model. But I guess it's -- the revenues will first fall lies in industrial with potential revenues in the Automotive sector in the future and you already mentioned you're highly profitable, but is that 20 plus? Or is that the wrong reason to look at? And then the third and last question for now about the planning for the plant closure in Austria. Can you provide us, please, a sort of timetable and the possible nonrecurring costs related to the closure?

Well, first, maybe on gross margin, so added value margin, as we call it. So it was 48.0%. So the first -- for the group. So the first remark to make is that despite the upward pressure and of course, some of the delays that you get because, first, your raw materials go up, and typically, pricing actually takes a bit of a while. It takes usually a while. We have managed reasonably well. Compared to last year, indeed, I think, 40 basis points lower. As you mentioned, Johan. However, last year, of course, we also had a different mix because also in 2020, automotive was more affected than industrial on the revenue side. So it's, I think, managed well. I think today, so far, the biggest impact was actually in IB. And there, we have taken pricing action that we expect to -- it's already happening in Q4 and in Q1, that will help us a little bit. So overall, I think gross margin will have always been around that 48% level EBIT value margin. We expect that we can manage the pressures reasonably well and keep it roughly at that level. On 3T, all of the revenue is indeed industrial. This is an industrial acquisition. So it strengthens IAC in one of the segments, as you know, we call this our cash engine, but there are a few -- quite a few segments also related to energy transition, by the way. That are growing nicely. This is one of them. So it will help also the profile and the growth opportunities in our cash engine quite a bit. And over time, initially, the capabilities that we are now -- is now part of the Kendrion Group. And also the ability for us in our new locations in Amsterdam, in Eindhoven to attract more software and hardware engineers will derisk the developments we have on the automotive side and then specifically sensor cleaning and sound actuation. And that will, indeed, at some point, it's hard to then to de-risking to say, will translate into revenue, but it is clearly a strategic benefit, a very important strategic benefit, given the fact that we are focused entirely on electrification in automotive and autonomous driving, as you know. And then the -- Jeroen maybe you could talk a bit...

Just a sub-question for 3T about profitability is, of course, i.e. in the cation how high, highest.

Okay. So we are quite profitable even compared to our industrial units, roughly 20% EBITDA margin,.

And then on Austria, I think it was a final question. So some production lines have already been moved to CBU. We are continuing to work on that. And that was also mentioned as one of the reasons that the inventory is a bit higher, not the only reason that we are currently building buffer stock to enable us to also transfer the larger lines to Romania and to Germany. As it looks now, it remains a bit fluid. We will close the Donaueschingen plant in the second half of 2022.

Yes in the 4-K view last year, you mentioned some expected nonrecurring costs, was it sort of EUR 1 million to EUR 2 million? Is it still the same? And it was.

Yes. But negotiations with -- with the unions on that are not finalized. So also that remains fluid. But that is still the best number that we have. Yes.

Year-to-date this year, this, I think, are there any restructuring costs, so also not related to Austria. So that's still to come a bit in Q4 and most of it in next year.

Yes. So far, we have a couple of hundred thousands in mainly retention bonus to make sure that we keep personnel on board until the closure, but severance costs related to the employees, which is the majority of the expected one-off cost, most likely fall into 2022.

Thank you at this moment, there are no further questions. I would like to hand over to Joep van Beurden for any closing remarks. Please go ahead, sir.

Jeroen and I would like to thank everybody for your attention and for your questions. If you have any follow on, then you know where to find us. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you very much for your participation. You may now disconnect.