Concentric AB

STO:COIC

Earnings Call Transcript

[Operator]

[Operator Instructions] Today, I'm pleased to present David Woolley, CEO. Please go ahead with your meeting.

[David Woolley, CEO & President]

Hi. Good morning, and welcome to the Concentric Q3, adding my welcome to that as well as Marcus. Our apologies for the slight delay at the start of the presentation. And hopefully, you are looking at the Q3 2021 interim report.We have a very full schedule, a very exciting schedule, so apologies again for that delay. If we go to the next slide, we should be able to see the agenda. And the agenda is following a normal pattern, except we're going to talk about that very exciting acquisition. So I'm going to start to talk about the summary for that very busy, that very hectic third quarter 2021. Then we're going to tell you about the very bright future that we sit together with Concentric coming together with E&P. Then I'll hand over to Marcus Whitehouse, who will take us through the financial results.And then it'll come back to myself to tell you about the Q4, how we see the future or the view towards the end of 2021. And of course, at the end of that, we'll open the floor to Q&A and let's see if we can come up with some good answers to very good questions. So if we go to the next slide, we'll see the summary for quarter 3 2021. And then if we go to the next slide again, we're going to go and we'll see the highlights of the sales and the revenue for quarter 3 2021.So we can say that the business world, certainly around trucks and construction machines and the world we live in has been a very, very, very busy time. If we look at the end market demand, we've seen quarter-on-quarter increases. We've really enjoyed this continued growth in demand. Europe is up quarter-on-quarter, 1% more. The Americas is a full 16% up quarter-on-quarter. And I think I need to draw everyone's attention to that reality that we're living in and everyone will be talking about.The supply chain difficulties around the world is very well reported and the supply chain is still struggling to keep up with demand. But here's the key point for Concentric, despite the supply volatility despite the shortages, the Concentric team, globally, has done a fantastic job to actually find the material, get the material around the world and then get it made and shipped to customers.In reality, of course, we are struggling to cope up with full demand. But Concentric, I am deeply pleased to say, is not the reason why anyone is stopping. And so at this point, I'd like to stop and say recognition for our team. They have done a fantastic job globally. And absolutely, we've been recognized by our customers as the solution, not the problem. So I'm really pleased and proud of what our team are doing.If we look at Q3 sales year-on-year, then there it is, we're a full 59% up year-on-year to this SEK 515 million. And once we go through the adjustments for the negative impact of currency and the positive impact of Allied Enterprises, the business we bought back in January this year. Even on a constant basis, year-on-year, sales were up 57%. The order bank remains very, very strong. And so if we look at this graphic, where the book-to-bill is 108%. But if you look at those past 5 quarters now, this will be the fifth quarter where the book-to-bill is greater than 100%.And so we're really riding the wave really enjoying the challenge. So if we go to the next slide, then it's arguably the more important slide. What did we do with this very strong sales. We've done a great job of finding material and keeping customers moving, but there it is. The operating income for the quarter was a very full SEK 140 million against the prior year of SEK 57 million, a mathematical doubling.The operating margin came in at 22.2%. Again, back in the COVID year, the team did an excellent job. But with this very strong position out, operating margins up to 22.2%. The cash conversion for the third quarter was at 76%. And again, for Concentric, that's slightly lower than we would want to do. But what we will talk about later is we have seen it build in inventory and we have seen the value of inventory, not the cost of inventory. The inventory now, we would say, is actually pretty precious to us. But the takeaway, again, the cash flow from operating activity is a very good SEK 69 million.We will always talk about net debt on the business. And what you'll see there is the net debt is now down to a negative SEK 136 million, which gives us a gearing ratio now down to minus 10%. So we aren't losing track of how we look after cash and debt in the business.If we take away the reported pension liabilities that we carry, then our gearing is actually down to a negative 36%. A point on this slide, we do have big pension responsibilities which we take very seriously. We've managed the pension liability very well. And so in the quarter, we've actually seen a positive gain of SEK 103 million, which means our pension schemes are actually in very, very good shape. The graph at the bottom of that page really speaks for itself. We've seen the dip of COVID. We've seen the recovery and the Concentric team does what the Concentric team does. And whether we will talk about Concentric business excellence, what the team have managed to do is convert that very good sales into excellent profit.If we go to the next slide, please. We'll see the space slide talking about the very exciting acquisition of EMP, Engineered Machine Products. So if we go to the next slide again, we'll see the wording that will surround it. So a matter of fact, the deal was completed. It was signed earlier, but it was completed on Friday, the 29th of October. And it's difficult to understate just how important this transaction is for Concentric.Certainly, as the words would say, this is the single most important event for Concentric since we launched onto the NASDAQ Exchange in June of 2011. This is the dream acquisition that we've been working for, for so many years. In terms of the scale, the financial scale of EMP, well, overnight, we increased our group's sales, our revenue by 50%. Our employees will therefore increase by 50%, too, from 900 to 1,350. And the point we'll say in the coming slides, we'll try to articulate as well as we can, the strategic significance of what this means to Concentric.We've said in a number of times, the e-wheel, the e-vehicles, the e-construction machines are on the march now. And what we said repeatedly is in terms of -- we don't mind whether it's fuel cells or battery or hybrid, Concentric and EMP absolutely have the solutions to be that excellent provider. Later in this presentation, I'll talk more about it. But with EMP that has a culture very, very similar to Concentric, so I think the integration is going to be seamless.We have overlap in terms of great electric products, electric oil pumps, electric water pumps and conventional pumps and machining, but they also bring to our party, cooling systems, integrated cooling systems. And so every electric bus, truck, fire engine, digger, any construction machine, the heat exchanger side is a fundamentally key part of a full solution provider and that's what we have right now. We can be that excellent full system supplier.And again, into the mechanics of all of this, EMP has a great position in North America. Concentric has a great position globally. So we can bring a lot of the EMP know-how and product around the world and vice versa. That platform in the U.S. gets even stronger to take Concentric further into that market.The summary at the bottom is the combination of Concentric plus EMP equals greater value to our customers, and therefore, greater value to our investors. And if there was ever a time that you could use the expression, 1 plus 1 equals 3, well, this would be that time. Next slide, please.Internally, this document is very well known, and we've shown it out in the market, too. This is our technology pyramid. For the businesses or the investors that understand Concentric, this is where we are. The bottom of that technology pyramid is the pump, and that's the foundation of our business. It's also the foundation of the EMP business.But when we go up the technology pyramid, we come to the motors, then we go to the controller, then we go to the software. Over these last 5 years, we've talked to investors about our ambition to take control of software and controllers. It is the pinnacle of the pyramid. It is the IP. It is that excellent added value to our customers. Now EMP delivers this in spades. We have a great team around software and control, but we have now an order of 8 or 9 or 10x more with the EMP team. So this is absolutely going to strengthen our position in the market.EMP have been into e-motors since 2005 as compared to Concentric 2016. So they bring with them a lot of knowledge, a lot of capability. And the 2 businesses with that very similar culture will integrate beautifully well. If we go to the next slide, please, you'll see the -- you'll see our technology triangle again. And it is not to be forgotten, as we said in that last slide, the foundation of these businesses is actually the pumps. That's the value we bring to the market for many years for diesel engines and gas engines and other applications.Concentric has world-class world-beating pumping solutions, super efficiency, super reliability, down the years, 0 warranty over decades. And what we see that we can bring this to EMP, EMP have a pump team, in part of the integration, in part of the synergies, we are really going to strengthen the pumping capabilities of EMP. Concentric already has the range of pumps in low pressure through to high pressure. So we have every solution that we need for the emerging electrification market. Next slide, please.And I didn't want to leave this section without talking about a positive future. And that is when we look at the motors, clearly, DC brushless motors are a key part of our offering for our customers. And if we look today, both EMP and Concentric have developed super suppliers, which means we have the technology and the competitive edge and the capacity to grow with our customers.But I'll make the moment -- I'll make the point to say we -- I don't think we've done yet with acquisition ambition. And there is a possibility here, an opportunity here to say there's that one space that we can look at going forward, too. Next slide, please.So what you should be seeing is the last part of our technology pyramid. And this is trying to draw to your attention the importance there of the thermal systems. EMP bring the software controllers. We have it. They have it. It strengthens us. But there it is. You cannot have an electric bus, truck, fire engine, construction without electric fans and electric cooling systems, electric radiators, oil coolers and water coolers. And this is where we see now there is an absolute step change in our offering to our customers.The ability to walk into the customers and be a total solution around the battery, condition and monitoring and cooling, the e-motors, the fuel cell conversion. We, absolutely, now are the full solution. EMP have delivered this now a number of times in the U.S.. So we can see real time. It's not a hope and a dream. We can see these solutions on the highways in U.S. right now, and we can pull this globally. Next slide, please.Just to spend a few moments looking at EMP. You get here the picture. This is somehow deeply exciting. EMP, the business has been around since 1981. It's been in the ownership of the large family since 1991 and it's a super business. I've mentioned culture before. They are so very similar in culture and management style to Concentric. It's something of a dream come true.They are headquartered in Escanaba, which is in Michigan. And at that site, they've got their largest manufacturing machining site. They have their product development site, which works on the software and the controllers, the e-motors and heat exchanges. And they also have a facility in the south of Indiana, too, where they actually assemble pumps. And we'll talk later in this presentation.There is a great overlap between key customers, too. And we know EMP over many years, and we know how well they are respected at our shared customers. They have a very extended -- an extensive sales force distributed around the U.S. And as that graphic shows, both in the business east, they're very strong where many customers are. But they're also very strong in California, which is where, of course, a number of these electric vehicle operations are based. So great sales coverage, too.In terms of space, 506,000 square feet, 50,000 square meters and the 450 people we've already mentioned. Next slide, please. Now what we should be seeing here is the on-highway technologies. And again, investors have seen this graphic before. It's the see-through 3-dimensional version of a coach and a bus. And it's the same as before, but different.We've said that Concentric has really stolen a march on the market. We have demonstrated product that will last 50,000 hours absolutely fit and forget, the solution provider. And we've seen with Concentric, we have the high-pressure pumps for steering. We have the low-pressure pumps for oil pumps for the e-motors and we have the water pumps for the batteries and fuel cells.What this brings to us, EMP's picture looks almost identical to this. But there you say it again, you see the electric fans and you see the radiators for cooling the water and cooling the oil. And again, this graphic is super to show you. It really is now a joined-up and full solution. Next slide, please.Now in terms of the -- this is the off-highway version of the world, and we said for a number of years, of course, this whole market is driven by emissions legislation, the move to CO2 neutrality, the move to 0 emissions. And of course, it's led on highway. And of course, it's led in the cities where we go through 0 emission zones. But again, I draw your attention to that reality just behind that. Every single one of our off-highway customers in construction and ag are working on vehicles, whether they're electric, whether they're battery, whether they're fuel cell and our solutions are absolutely transferable.So again, we've seen some press releases in terms of our off-highway successes. There are more to come. And the only final point to make on this graphic is -- as well is that wheel loader would not work without heat exchangers. So again, that opportunity for full system supply is just so exciting. Next slide, please.Now this is a slide to talk about some of our global customers. But of course, this is drawing out the commonality and we'll now to talk about commonality of culture, commonality of product, commonality of customers. There, you see the green boxes are our customers that are very important to both Concentric and EMP. It's a super overlap. And again, their reputation, EMP reputation and Concentric reputation is strong in all of these known to be solution providers. Next slide, please.This graphic, of course, then is the same graphic, but it's a statement of the obvious. What we see is EMP has customers that Concentric does not. And so therefore, it opens the door for further growth. And the other part of this slide would be Concentric has 900 customers that EMP do not have around the globe. So again, the runway now for global growth for extending that super capability around software, around controllers, around electric solutions and cooling solutions, yes, there's almost no limit here. If we go to the next slide, we're going to see the introduction for Marcus to talk about the financial results for Q3.

[Marcus Whitehouse, Chief Financial Officer]

Super. Thank you, David. If we just move on to the next slide, please.We'll start, as we always do, the Q3 2021 market data. You'll see from the graph, from the information displayed, quarter 3 was a slightly more challenging quarter. Some of the growth that we've enjoyed quarter-on-quarter wasn't there in the third quarter. And in fact, overall, the market blended to our geographies and products only gave growth of just over 1%.Still, year-to-date, we have got growth and again, in all end market applications and across all regional geographies, resulting overall again, blended to our rates and geographies of 39%. And it was also interesting to say that the full year outlook by those preparing and issuing the market indices strengthened the full year outlook, up 2% from the previous quarter to year-on-year growth now of 18%.We still believe that some of the market in that third quarter was constrained with some of the supply chain issues that we've got consistently across pretty much all of those end market applications. Next slide, please. Here, we've got the Q3 2021 results. Our trading performance, as Dave has already touched upon, sounds were SEK 515 million, up 59% as reported, 57% underlying and a little less headwind from FX this quarter than what we've seen in the previous 2.Full year sales year-to-date in September now are SEK 1,420 million up 27%, again underlying 30% increase from the COVID year last year. Pleasingly, within this set of results is our operating income. We have got a reputation of being able to manage our strong margins despite the turbulence or economic uncertainty. We displayed that last year, and we continue to display that again this year.Operating income for the quarter is reported at SEK 114 million, that's a 100% increase against a COVID-affected quarter 3 of 2020. And year-to-date, we're at SEK 316 million, up 65%. Again, the drop-throughs that we're seeing a good -- in the quarter, the profit drop-through from the incremental sales was 30%, whilst the drop-through on the year-to-date sales was 42%.Interestingly enough now, the margin that we've enjoyed for the quarter and for the first 9 months of the year are pretty much identical, 22.2% for the quarter, up 4.7% on the year -- the prior year; and 22.3% on for the year-to-date, up 5.2%. We continue to manage costs and cost is a headwind to the business at the moment, whether that be through air freight, sea freight or some of the metals that we are buying. But again, we've been quite successful in the quarter, have been able to push those costs on to end customers to maintain our strong margins. Next slide, please.Here, we've got the segmental analysis by region. What you can see is Americas, up 61% year-on-year; Europe, up 49% year-on-year for sales. And that displays the comparison, the year-over-year. Europe was more affected in the second quarter of 2020 by COVID. Americas, more in the third quarter. And as that recovery has come through in 2021, we're seeing that slight disparity against the rates on year-over-year. But both are showing now good signs of recovery this year.More pleasingly as well is the book-to-bill ratio. Both Americas and Europe and Rest of World are above the 100% mark, with Americas at 114% and Europe at 105%, giving us a good basis to go into the fourth quarter of 2021. Margins as well have been pretty much flat. And again, that is quite remarkable, given the turbulence that we've seen within our supply chains and the pressure that we've had on cost. 14.5% for the Americas, 22.8% for Europe, again, just really pleasing to see that and a little better than what our expectation was when we were giving guidance for quarter 2.If you move to the next slide, please. Well, just touch on cash flow and gearing. You all have seen cash flow from operating activities in the quarter at SEK 69 million, up 35% compared to the same period last year, SEK 217 million for the first 9 months, down 1% compared to last year. But it's the cash -- the profit-to-cash conversion ratios that I just want to draw attention to.In the third quarter, profit to cash was 76%. For the first 9 months, it was 91%. Third quarter was hampered with us just holding a little more stock. And again, we don't see that as cost, its value. We're having to hold that stock to give us that confidence that we can build and support our customers, and we're prepared to carry that middle extra inventory during these turbulent times to ensure, again, we are not a problem to our customers, we are a solution to them. So -- and overall, for the first 9 months, 91% profit to cash conversion ratio, more than an acceptable position.Net debt, minus EUR 136 million. Gearing, we've already touched upon, negative 10% and an improvement from where we finished at the end of last year, which was plus 8%. A big part of that has been the pension revaluations where the majority of that revaluation was due to discount rate changes in the first quarter. But again, a good and pleasing place to be at the end of Q3 2021. Next slide, please.Two graphs that you will see, I'm only really going to focus on the top one. You'll see from there, quarter 1, quarter 2, quarter 3 2021, the cash flow from operations are represented as SEK 8 per share has been pretty much flat for that period. Again, great, great performance. What you will see, though, is the working capital. And as we just touched upon, it is now increased. It's up to 3.3% of sales, a little lower than what we've seen over the last couple of years, not a level that's caused us any real concerns. And as I said previously, a level of inventory we're prepared to hold to give that continuity to our production and reassurance to our customers.Final point I'd like to make really is we continued on our sales growth this quarter. We're seeing about 10% growth quarter-on-quarter in quarters 1, 2 and 3. Year-to-date, we're seeing underlying sales growth year-over-year of 30%. We continue to manage strong margins despite that cost pressure on the business. Year-to-date now, we're at 22.2% and the business continues to generate cash, 91% of profit to cash conversion ratio. But the business is in good shape going into to the fourth quarter.Although the fourth quarter will look different. We have got that transformational acquisition of EMP. We will be working to do some of the adjustments required on the PPA, the purchase price adjustments. And of course, we will have debt in the fourth quarter that will change it a little bit. But as I say, what a great position to be heading into the fourth quarter. I'll now hand back to David, and we'll pick up the outlook for quarter 4.

[David Woolley, CEO & President]

So if we go next slide to the separator for the Q4 2021 and then go to next slide and pick up the text for Q4. Let's see if we can give you a good steer on what we expect the world to be for at least Concentric and EMP. Well, the first and the most obvious point to say is that our fourth quarter will now contain 2 months of trading with the combined business of Concentric EMP. So we will see that step-change in sales level and profit will be very positive, too, I would like to add.When we look at the market indices to try to see where the indices reckon the world is going to go to. Marcus had already mentioned it, they are still positive, and they are still suggesting, from an industry point of view, that year-on-year, it's going to be 18% up for 2021. And in between forecasts, the indices have increased by a further 4%. So let's see a positive direction. When we look at our reality, the actual schedules, the dialogue with customers, with engine customers, our hydraulic customers, what we do see is that the demand is improving quarter-on-quarter.Logistically, this availability of raw materials of capacity. We know that this is absolutely constrained in the world generally. And again, I'll congratulate our teams. They have done that fantastic job to get material from around the world to our plants, to our customers. And I have no doubt that they will continue to do that. And at the same time, as we would have mentioned and you've seen in the results, the dramatic increases in prices for metals, commodities have been absorbed and passed forward. The increases for freight surcharges have been agreed and passed forward.We got to a point where we now have quarterly freight surcharge review with customers. The team is performing extremely well. And we're also pleased at the level of customer engagement where customers have taken a very pragmatic view to do whatever is necessary to get material around the world into their factories, so a great team effort, Concentric team and Concentric plus customer team. We absolutely understand that these difficulties are going to continue across Q4, and they're going to continue into the next new year, maybe for the first 6 months, if we were allowed to speculate. However, as said before, our team has not let us down and they're not going to start any time soon.The word we use, the orders received and basically expect to be fulfilled in Q4 2021 is broadly similar to the third quarter of 2021. So that talks about flat. But pointing out something as well. We do carry a level of arrears and backlog, and our ambition is to reduce that backlog. So there may actually be a chance to lift the sales just slightly a little bit again.Final point in there, if we look into Q4 and beyond, we have that great excitement. Concentric always had a bright future. Concentric was always that nimble high-performance business. But the future just got a whole lot brighter as we join together with EMP.And on that very good note, I'd say let's go to the next slide. which we will find the Any Questions slide. And we would really like to see what questions might come through.

[Operator]

[Operator Instructions] Now our first question comes from the line of Mats Liss from Kepler Cheuvreux.

[Mats Liss, Equity Research Analyst]

And congrats on the deal, a very good outlook there as it seems. And I was just -- had a couple of questions, first regarding that. I mean, you talked a lot about the complementarity and the ability for you to cross-sell EMP's offering globally. And I guess, are you able, at this early stage, to give some indication of the potential sales synergies implemented in this acquisition.

[David Woolley, CEO & President]

Okay. Mats, thanks. Lovely to have your question again, and apologies for, again, the delay at the start of the presentation. Thanks for your patience.So do we believe that the cross-selling is possible? Absolutely and utterly yes. In terms of indication of numbers, I wouldn't be so rash to do that. But let me paint some of the picture. The businesses are very complementary, but our routes to market are very slightly different. EMP has generated a catalog of products, of oil pumps, of water pumps, of fans and of radiators. And that catalog of product has served them very well to become a great sales tool into the customers, North America and outside of North America.The Concentric model has always been very much very, very bespoke to customers' needs. So if you bring the 2 businesses together, you will see that on that very broad spectrum of selling from high-volume, bespoke, through to lower volume led by catalog, absolutely now we have a much broader footprint. We have the ability for a much wider range of parts, which we will sell very profitably, but it will also give us the ability to be yet more nimble to get prototypes and product in front of customers in an urgent and fast way.So again, it would be rash of me to give numbers to the expected growth, but we do see that positive. One of our next steps now is to work out, we absolutely owe the market and the investors now a Capital Markets Day. And that will be sometime in 2022, to be defined. But our joint teams are now working very industriously to work out how bright can that future be. It's bright. It's how bright. So if you'll bear with us for a time, once we update our 5-year strategic plan, then we'll try to give very clean and clear financial targets to say this is what investors can see. But it can only be positive.

[Mats Liss, Equity Research Analyst]

Sure. And then on the other side, I mean, the costs, possibly -- I mean, it doesn't sound that you have a lot to do short term maybe. But longer-term, is it sort of -- do you see the opportunity to maybe integrate platforms, product platforms and then make things, well, easier for you, about R&D costs and so on? Are there integration opportunities in that area?

[David Woolley, CEO & President]

And Mats, again, it's a very good question. And clearly, in the last 6 months, our team have been working diligently hard together, the extended team. What do we see? We've got very strong teams here formed being in Concentric in North America and Europe. The center of excellence for the electrification, as pertaining to the software and the controllers, the mass, the critical mass is going to be based in North America.That does not mean that we lose our expertise, electrification, design, engineering and manufacturing around the world, not at all. But the center of excellence for that software and controllers will be North America, absolutely. We just have now 8x, 9x the capacity to actually accelerate and kickstart our movement into the market. So electrification, absolutely very clear strategy. We will execute it and we'll execute it in a way that Concentric does. We will under-promise and overachieve, I am sure.However, if we look at the other synergies, Mats, it's the green deal. And if we look what EMP does in terms of machining, in terms of robotics, in terms of purchasing, there are synergies just everywhere. We have great suppliers, but we're going to have better suppliers. We're now going to have leverage on our spend, which just increased by 50%. We've got the global supply base across Asia and into America. So again, rush to put numbers towards that, but we are truly excited by the synergies that will come out of this deal.We do not plan to change, wholesale, the expression, "It's not broken, don't fix it." EMP is on its own 2 feet, a very profitable business. And we are going to maintain the EMP brand. It's a great brand. Why would we want to destroy value? And they have 2 very good platforms in Escanaba, Michigan and Greenfield, Indiana. So no, we will maintain those areas, because we're going to need that capacity for growth.Are there opportunities to align products? Absolutely so. Again, to be worked out. But if we look from right deep down in terms of vertical integration from machining castings through to pumps, through to electrification of pumps and our thermal systems, again, the possibilities are excellent. And again, going back to the Capital Markets Day, we'll try to articulate that in a better way. But suffice it to say, we are truly excited.

[Mats Liss, Equity Research Analyst]

Well, sounds reassuring. And then, I mean, short term, I guess, for the fourth quarter, you indicated that we -- well, yet to even contribute, of course. But looking at the market situation, I mean, there's been some slowdown in the ag segment as it seems. And this one reason that you have these strikes going on in the year.

[Marcus Whitehouse, Chief Financial Officer]

Are you still there Mats?

[Mats Liss, Equity Research Analyst]

Yes. You didn't hear my...

[David Woolley, CEO & President]

No, no. I heard the question. I'll pick up on Deere, and Marcus will pick up on forecast. Clearly, we supply Deere globally. And when I say global, I mean, we supply John Deere into China. into India, into France and into Mexico. We also supply them into North America. So absolutely, the strike is no one's friend, but the impact to Concentric is actually comparatively light. And John Deere has taken a very professional view to try to run the factories and pull material in. So I can see there's going to be an interruption on this, but the impact to Concentric and EMP is actually comparatively light.

[Marcus Whitehouse, Chief Financial Officer]

Just going on to the forecast, Mats. Yes, we still see and we do see that slowdown, and we have seen the issues, as David shown with Deere. We still think that the sales for that fourth quarter, with the orders that we have around us, will give us pretty much a Q3, Q4, very, very similar in terms of sales, potentially a little bit of upside to it.We aren't going to give guidance for EMP other than what we've put within the CEO letter, which is what the full year sales are forecast to be for EMP. And then again, all-out condition is there is going to be a level of seasonality with a partial month in December for the festive break. So that's as far as we probably will go at the moment. We're just going to obviously digest, get on top of the business a little more. And then hopefully, as we go into next year, we'll give some clearer guidance.

[Mats Liss, Equity Research Analyst]

Right. And just finally, about the cost there. I mean, you mentioned that you're able to pass on cost but with a delay. Have you sort of peaked in the third quarter? Or will there be a similar level? Was there an impact on the margin side in the quarter that you weren't able to balance with passing on them to customers?

[David Woolley, CEO & President]

Minimal, I would say, Mats. Minimal. With most of our large customers, we have contracts for the last 20 years surrounding metal price escalation. And so by definition, there is always a 6-month delay there. So there's not a lot of drama around the metal price recovery other than the delay.For smaller customers where we don't have those metal escalators, then again, I compliment the team. They've been very proactive and the customers have been very understanding because they recognize the commodity position. And then they behave very professionally to cost recover metals.The other factor, which is, I think, new, I will draw comparisons with the recovery from the great crash in 2008. The recovery has been steeper than that, much steeper than that. And one of the features of this recovery is that the cost of freight and containers around the world upon which we demand a lot has moved dramatically. A $2,000 cost to move a container is now a $10,000 cost to move a container.Again, the teams have done a great job. We've come up with freight surcharge escalation reviewed each quarter. And so it's coming through and so that's the comment you've seen. Absolutely, there is a quarter delay but it's coming through. The customers have behaved very responsibly. So there's always a delay going through. But if we're looking, as we are into the Q4, those freight indices, those freight costs are still actually climbing. So again, we expect this to [ target ] into 2022.

[Marcus Whitehouse, Chief Financial Officer]

And just for the margin, Mats, I'm expecting the margin that we've seen in the third quarter to be very similar in the fourth quarter. The only thing that I will just add to that is we obviously will have the acquisition costs that we will have in the fourth quarter, which are going to be in the range of perhaps SEK 18 million to SEK 20 million. But again, will be more of the exceptional nature. But again, just for reference.

[Operator]

[Operator Instructions] And as we have no more questions registered, I hand back to our speakers.

[David Woolley, CEO & President]

No, that is super. Thank you so very much indeed. Have a great day. Have a great week, and we look forward to the next chance to talk again. Thanks so much. Bye now.

[Operator]

This concludes our conference. Thank you all for attending. You may now disconnect.