Earnings Call: Q3 2018

Oct 23, 2018

Greetings, and welcome to the presentation of Sandvik's results for the Q3 2018. I'm Mansa Pinout, Head of Investor Relations at Sandvik. And today, as you may notice, we have a new setting for this presentation, but the format remains the same. Our CEO, Bjorn Rosengren and our CFO, Thomas Aliasan, will run through the presentation in due course, after which we'll open up for Q and A, both from the conference call, but also there's an opportunity to put questions through online. And with that said, I'll hand over to Bjorn and Thomas for the presentations. Thank you, Anssi. And also I'd like to wish you all welcome to this Q3 presentation. Starting up with a little bit of highlights of the quarter. We see strong development in all three business areas. We see also solid development in more or less all our segments that we're operating in as well as the 3 geographical areas. Profitability, 18.9%, which I think is a good number for the group and happy with that. And not least, you who listened to me last quarter was a little bit disappointed with the cash flow. Now we generated SEK 4,700,000,000 in cash flow, which is well in line to be able to reach our targets for the full year. Yes. Let's talk a little bit about market development. And we see, as I mentioned, strong growth in all three major geographical areas: Europe, up 10% North America, 14% if you look at U. S, out of that was 13% and then in Asia, 10%, which is in line with what we've seen in also in China, which was 10%. The segments are pretty strong, all of them. Besides that we can see on the automotive, which is flat as well as in the mining. Sequentially, I think it's pretty much in line with the previous quarter. So on orders and revenues, we were up 9% in the quarter and 10% in revenues. We can see that we have a book to bill ratio which is just under 1%. And if we look at the full year, we actually reached 104%. So looks good also for the future. On the EBIT development, I mentioned I was happy with reaching 18.9 percent or SEK 4,000,000,000 almost SEK 4,600,000,000 in this is a 37% increase. But if you exclude the currency part out of that as well as the structure and metals, it is a 25% increase, which I think is on a good level. Normally, as you see here on the chart that the 3rd quarter is seasonally lower than the other quarters during the year. So if we take a little bit of deep dive into our operating units, so starting out with SMS. And you all know that SMS is the best indicator of the market. We saw solid growth, 8% in orders when it comes to price volume. We saw a good EBIT margin of 25.4%. This has also been a very exciting quarter for SMS. It was the big show in Chicago, the IMTS, where all the 2 manufacturers are gathered every 2nd year. And on this show, we received the prize also for the most innovative product of the show. Exciting, I find, and that was the silence, too. So shows that we are on the front line when it comes to new product development and technologies. Then moving over to Mining and Rock Technology. We had an order increase with 8% and revenue increase with 14% and a profit margin of 18.1%. And I'm happy with this 18.1%. To give you a little bit more in-depth in that number is that if you would take the FX out of that number, it's actually 18.6%. And if you instead lift out the Varell of that business, as you know, is out for sales at the moment. It is actually 19.3%. And I think we start seeing this business now coming up to the levels where I think it really deserves. On the order side, 8% might be seen as a little bit shy. I think still like to say that the momentum in the market is good, and I've been traveling around pretty much during this quarter and visit a lot of customers. I think with the metal price levels that we have, both on golds as well as copper and I think nickel, we feel that this is a good level for continuous strong demand. Then to SMT or Material Technology, I think it goes from clarity to clarity. I'm extremely happy to see orders continue to go at a high level, 22%. And if we take out the large order for umbilicals during the quarter, it's still 17% up, so actually good numbers. We're also seeing improvement in the performance in the EBIT levels. Where we are underlying is 5 point 7%, which, of course, is significantly better than the previous year, and the reporting is 6.9%. I think this is in line with what we do expect to be able to reach the 10% next year for the full year. So I think it's doing well. I think the management and the whole team are delivering great according to the plan. Also like to mention there a little bit on the oil and gas market that the underlying investment climate in the oil and gas market is actually showing good indications, and we are pretty optimistic moving forward. Thomas, by that, I'd like to hand over to you and a little bit in-depth in the numbers, please. Thank you very much, Bjorn. So let's jump into the numbers. And let's start with the financial summary, as usual. Orders were up 9% organically and revenues 10%. Currency was plus 6% on both orders and revenues, and structure was minus 5%. And structure here was the divestments of Process Systems and Hyperion and both of the Y businesses and then also the acquisitions of the Metrologic and Innrock. Net net, minus 5%. So all in all, plus 11% for orders and 12% for revenues. If we then continue down the income statement, look at the earnings, SEK 4,700,000,000 compared to SEK 3,400,000,000 a year ago, quite an improvement. And SEK4.7 billion sorry, SEK4.6 billion is not bad for a 3rd quarter, 37% up and also the margin, 18.9%. It's very, very strong for a 3rd quarter, 18.9% compared to 15 point 4% a year ago, and we'll have a look at that in the bridge in a moment. The finance net came in at minus SEK 140,000,000, an improvement compared to the minus SEK193 1,000,000 a year ago. Behind that, the most important item is, of course, the interest net. And the interest net came in at minus SEK150 1,000,000 in the quarter compared to minus SEK 202 1,000,000 a year ago. That's a reduction of 25% on the back of reduced debt as well as recapitalization of the subsidiaries. Tax rate, 26.1 percent in the quarter. Reported was even lower and we'll have an extra look at that also in a little bit. Working capital was reduced sequentially, which had a positive impact on the cash flow. But however, as you can see, the percentage was up and we had a little bit of a buildup in inventories in all three business areas. And of course, inventory management will be a focus area for us for the coming quarters. Cash flow, SEK 4,700,000,000 also a good improvement, recovering very good for the Q3. And finally, returns and earnings per share showed very good improvement. So let's have a look at the bridge on the next slide here. And if we look at the organic part, a 10% improvement on the top line, SEK 2,100,000,000, SEK 839,000,000 in EBIT effect. That gave us a leverage of 39%. And the leverage was good in all three business areas, euros 47,000,000 for SMS, 35% for SMRT and 45% for SMT. That gave us a margin accretion of 2.2 percentage units. Currency added 0.5% and structure of metal prices and one offs and structure added 0.8%. So if you strip out currency, you strip out structure, you strip out metal price effects, the margin in the quarter was 17.6%. So 15.4% plus, 2.2%, very strong margin. Now on the next slide here, let's take a little bit of a dive into the reported tax rate because we have some things going here now in this quarter. As you can see, the reported tax rate was 22.5 percent, but that includes the capital gain from the Hyperion divestment, and that came in with a very low tax rate. So if you strip that out, the underlying tax rate was 26.1%. And the guidance that we have for the year is 26% to 28%. It's been like that for quite a few years now. And we said at the start of the year that the guidance will remain 26% to 28%, but in the lower range, and that's where we are right now. And then we'll see what happens with the guidance in 2019, but we'll come back to that early next year. Okay. So let's move on to the balance sheet. Working capital, as mentioned, was reduced in the quarter even though the percentage was up. On the right hand side, you can see the working capital by business area. It's a bit up for all three business areas, especially and especially for S and T. But cash flow is improving, and we still have our ambitions, and we're focusing on it. On the next slide here, cash flow. You can see that in Q3, the cash flow recovered nearly SEK5 1,000,000,000 according to plan. If you look at the right hand side, you can see earnings contributed, working capital contributed and CapEx was around SEK1 1,000,000,000. So SEK4.7 billion in cash flow compared to SEK3.7 billion a year ago. And that, of course, takes us then to the financial net debt or the net debt really, it's both financial net debt and pension debt here, reduced down to SEK 15,000,000,000 gearing is SEK 0.22 sorry, SEK 27,000,000,000. And of course, we had some divestments in the quarter, but also some acquisitions. So the net net was SEK0.7 billion from divestments and acquisitions. So the bulk of the reduction was operational. And this will continue going forward in Q4 and in 2019. So a very, very strong balance sheet. So let's take a look at the guidance. First, Q3. What happened in Q3? We guided SEK 650,000,000 plus in currency effects. We came in at SEK608,000,000, so in the neighborhood. The total currency effect though was EUR381,000,000. The total currency effect includes revaluation of working capital and hedges and what have you. There's no possibility to guide about that. It is what it is. You don't know what it is until you come to the last day in the quarter. Metal price effects, we guided SEK100 1,000,000 plus came in at SEK39 1,000,000 in the quarter. And that's the in quarter effect. It's not a bridge effect. Then for Q4, we guide underlying currency effect of SEK400 1,000,000 and we guide metal prices on minus SEK100 1,000,000. And then for the full year CapEx, we keep the SEK4 1,000,000,000 as a full year guidance. We're on SEK2.7 billion year to date right now. Net financial items stays on SEK1 billion as we've been guiding since the start of the year. And the tax rate, as we have discussed, will be between 26% and 28%. But as you can see from the year to date numbers, it's more closer to 26% than anything else. But we don't know until it's over, until we have the full year. And with that, I'll hand back to you Bjorn for summary and conclusions. Thank you, Thomas. Yes, if we summarize the quarter, we can say that good demand in all three of our businesses, also in the different segments as well as geographical areas. The development of the profit, EBIT margin continues in the direction that we are driving the company. We had a good quarter when it comes to innovation. We had a fantastic price at the IMTS show. But also during this quarter, we were included in the Dow Jones Sustainability Index also this year, but we were actually 92% better than our audited peers. So we are very happy for that. It shows that we are going in the right direction. But maybe the most important of all is that Sandvik is a very strong company today. We have an enormously strong balance sheet, which has been working. We have a strong cash flow, which we expect to continue in the near term future, which will put us in a situation where we are close to being debt free. This gives us a lot of muscles and opportunity when it comes to the growth which we are focusing on and opportunity when the valuation of some of the targeted assets are becoming on the right level, we have a good striking power. So with a lot of optimism and courage, we are looking forward to an exciting future. Thank you very much. By that, I actually want to give over to Anssi for the question and answer part. Yes. Thank you. And with that, we'll open up for questions, both from the conference call, but also please feel free to use the online option. And operator, would you please put through the first call from the conference call, please? Of course. First question is from Klas Bergelind from Citi. Please go ahead. Your line is open. Yes. Hi, Bernie Thomas, it's Claus from Citi. A couple of questions from me. First on S&S and Automotive. You're seeing stable demand in Europe and Asia, a slowdown versus last quarter, but not as dramatic as I think many would have thought. European light vehicle production is down 3% in the quarter. China is down 5%. So first of all, are you taking any market share? Or is this just simply that we should expect a lagged effect where you expect incremental weakness into the 4th quarter as it takes some time to get the inventories in the channel out. I think you alluded here on my screen that you saw weakness in China towards the end of the quarter. So what have you seen at the start of the Q4 in automotive, please? I think the Q4, if you look at I mean, we have had a couple of weeks here. It continues approximately on the same level as we saw in September in the Q3. So it's on a good level. Normally, the Q4 is on a higher level than we see in Q3, which we are following pretty much for the business. Yes, you mentioned there that we saw some weakness during the end of Q3 on when it comes to automotive in China. If we're looking at the quarter, I mean, what we've seen, SMS, I think, is a good indicator, of course, for the automotive industry but also for the whole industry. And what we saw during the quarter, which was somewhat softer in China, was actually compensated in North America when it comes to demand. It's, of course, difficult for us to predict the future. And I think from our perspective, we read the newspapers and we read the same as you are doing about the automotive industry. So of course, we are preparing ourselves in a good way to be able to handle that when and it will affect us. Okay. So but obviously, the Q4 will always be higher than the 3rd because of seasonality. But on daily sales in automotive, there's nothing that you've seen in terms of weakness across Europe and China? I mean, obviously, China a little bit, but I mean, I can see, of course, for the whole part, not just for the different part, but it continues on the same level on the daily rates as we've seen in the previous quarter. Okay. My second one is on mining. The weakness in the copper price thus far seems to be driven by currency. We understand that most projects are going ahead, even the greenfields that have been announced. At the same time, we see this result season some early signs of that discretionary spend or larger orders now being pushed to the right, owing to the increased uncertainty around macro and tariffs. When you look at your project pipeline, Bjorn, in mining, do you see any hesitation from the miners now? I know when I met you in September, that wasn't the case. I wonder if that has changed. I've been actually spending quite a lot of time out in the market visiting customers in the regions. And you know that I have spent quite some time also in South America where we see the copper, but in Chile with El Cente and Codelco and so on. And I think it's quite a good mood in the market. A lot of big decisions has been taken within copper. We all know that the most of the copper market is going underground at the moment, which means big investments. We know that the copper rates are actually getting less, which means that you have to dig out more rocks. So I think it's a pretty good sentiment among copper today. The price is not so bad, to be honest. It's around 6.2%, 6.3 which is quite a good number. Historically, we say when it stays over 6%, we say that the market gets pretty good. And of course, it's driven also by the high dollar. That means that in many of these countries where you do the mining, some of these currencies are significantly weaker than the dollar. So of course, they make quite good money on there. So I mean if you go out and listen to the market, it's pretty good. They are pretty optimistic out there. I agree that I think maybe 8% was a little bit shy from what I expected. Maybe I would have hoped 10% for the part. But I would say that September was better than summer. It was more quiet during July August, and then we saw a good pickup in September. So I'm to be honest, I mean, I'm pretty optimistic for the next quarter. It's difficult, of course, to see moving too long forward, but the sentiment in the market is quite good on mining. Okay. Good, good. My final one is on the moving parts in SMRT. Am I right that Varel is a 13% margin on EBITA, midstream Mining and Construction, perhaps 10% and therefore, Drilling and Hauling, slightly above 20%. And in that light, if that is the case, where is the upside to the SMRT margin when you look into 2019? Because those margins across the 3 verticals are in line or near others in the sector with solid market shares. I just want to see the opportunity. I mean, how can SMRT be the number one on profitability across drilling, hauling, barrel and in crushing and screening? My heart is there, and I'm pretty optimistic about the SMRT future. Let me give you a little bit an insight. I can, of course, not comment all the margins that you have said, but I will give you the Varell. It was not that strong actually quarter for Varell. It was down in 7% underlying, which is quite significantly lower than we saw during the Q2 there. So if you look at SMRT without Warel, I said we actually need 19.3%, so good. So where do we see the upside? We see continued strong development in the aftermarket. And you know from before that the aftermarket is key to the success in the SMRT. It gives stability. It gives profitability and also agility in downturns. So that continues to develop in a fantastic good way for Sandvik. And I think this is not only driven by that the market is growing, but also that we I think we are doing a better job when it comes to the aftermarket. But the most important, and I said it before and I underline it here again, that is the automation. It is so exciting. More or less every mine around the world, I mean, maybe you visit a number of them, are today looking into automation. So I think that is going to drive the business going forward, but it's also going to get Sandvik closer to customers, you can develop your aftermarket and your support business, but also drive equipment. So that's where I'm the most optimistic. And there are so many exciting projects on the automation side going forward. And the technology is there, so it's quite a unique opportunity we have at the moment. Thank you, Claus. Operator, can we have the next question, please? Of course. Next question is from the line of Guillermo Peigneux from UBS. Please go ahead. Your line is open. Hi, good afternoon. Guillermo Peignere from UBS. I actually wanted to ask about ground tools in Machining Solutions. How much of revenues in Q3? And if we could have basically that as well for 2018 so far. And also what was the growth relative to the other part of SMS in relative terms? I don't think I can give you that split when it comes to round tools, but it's correct that round tool is actually growing faster than you are seeing on the insert market. And that's, of course, the change in the market. And here, this is the same with Sandvik that we managed to grow with this market quicker on the round 2 side. And what the exciting thing is because you know and we always said that there should be less margin when it comes to round tools, but I think we have been able to prove that we can keep the good margins also on the round tool development even though that is actually growing a little bit faster than the insert market. And a follow-up on that. I believe, and correct me if I'm wrong, that part of the round tools franchise is manufactured by yourself and part of it is actually round tools that you buy and then you do photovoltaic deposition. And I wonder whether you have also more or less a split or a fill in, how much is what? So how much is produced by you at Sandvik and how much is just bought and then coated? No, I think we produce the majority of the round tools also. It varies a little bit also between the different brands. For instance, if we see WALTER has always been the one with the highest percentage of round tools in the market. But we see, at the same time, both CECO growing very quickly there, but also Coromant, very strong development in round tools. So the majority of what is being sold is actually produced in house. And my last question is obviously relating again to the SMS division on the inventory levels and the 60 bps help you get obviously on a year on year basis. But I was wondering whether it would have been given all the signals that we do have in car production and in some of the trends in different cycles, whether you know in order to preempt or try to anticipate the cycle, some inventory destocking or more aggressive inventory policy was needed? Or are you confident with your inventory levels as we stand right now? Of course, I'm not happy with building up SEK 250,000,000 in inventory during the quarter. And when we look at SMS, it was actually higher. We're talking over SEK 400,000,000 there. But the important thing is that half of that is actually coming from buying of powder as well as recycling components for the future. That, I think, will get down pretty fast. We are running our production facilities a little lower now because we need to get inventory in time. We have pretty tough targets when it comes to networking capital going forward. So I think all our operating entities, and this is not only SMS, it is SMT that need to focus on this, it is SMRT. They all have different reasons for why the inventories are high, but I can assure you that it's a strong focus in all our operating entities. And we are determined to reach our target when it comes to net working capital as well as the cash flow going forward. So the focus is absolutely there. We'll be working hard during this during the Q4. So I need to prove it for you guys, but that's the objective. Yes. And one mustn't forget that we I mean, we're in a situation now where we have growth on growth. I mean, we've been growing for like 8 quarters now and running the supply chain in strong growth for that long time. I mean it's a delicate balance. I mean the growth numbers this year is not as big as last year. So yes, it's a focus area right now. Yes. Thank you very much. Maybe I can risk another one. Remind me, I can't remember now whether your electrified mining equipment is running on modular batteries or you need basically to stop the machine to recharge and load the battery backup, therefore, just basically having more downtime? Thank you. Let me talk a little bit about electrification because I think this is an exciting area for the future. And it's the same in the mining market. We talked a lot about battery driven loaders and truck and also drill rigs. On the drill rigs, it's a pretty simple solution because you have these batteries there. When you're tramming the drilling back and forth, you use the battery. And when you drill, you actually connect to the grid, which you always do with a drill rig. So at the same time as you are drilling, you are actually loading your batteries. So that is a seamless flow. When it comes to loaders and trucks, it's a little bit more difficult. And I think we have the same challenges there as every electric car in the market, and that comes to how long you can run on the batteries before they are they had to be recharged. So far in the market, this market hasn't taken off yet. There are a couple of mines who are running test units in the market and trying to get acquainted with it. I'm convinced that to get the mining permits in the future, you need to be there with this electric. For Sandvik, we are in quite a favorable position when it comes to this electrification because we actually started to work with electric cables on loaders long before anyone else. And we offer today a full range of loaders where you actually connect yourself to the grid with long cables that are. So a combination where you need to tram one of these trucks or loaders up for the ramp, you can actually connect yourself to the grid while you are tramming on a flat surface, you can use the batteries. When you are using the grid, you are also loading the batteries. So there is a lot of different tries, different technologies that we are experimenting with at the moment. And I think in a couple of years, you will start seeing some mines buying this equipment, but it's still an early stage and it's a very few units that are really actually operating operationally in the market yet. But I'm convinced there will be and I can assure you that Sandvik is being in part of that development and we're going to be in the front line. Thank you so much. Very helpful. Thank you. Thank you, Guillermo. And both you and Klas work as a good reminders for me to remind you to limit yourself to 2 questions each, please, because I know there are a lot of people waiting in the line to put their questions through. And with that said, operator, would you please put the next question through? The next question is from the line of Matthew Spur Exane BNP Paribas. Please go ahead. Your line is open. Yes. Afternoon, everyone. Thanks for taking the question. I had one on the Mining and Consumables. Can you talk a little bit about the consumables development? It's been sort of up and down. The commentary this quarter in Mining Consumables reads quite nicely, but some peers and competitors, it sounds as though it's still quite a tough area. Is it different for you because of where you've got stronger market shares? Or is that still difficult? When we talk about consumables within the mining industry, I think we have, of course, a strong market share in more or less all the areas where we are operating. The consumables, together with the service business we call the aftermarket, which they represent 65% 60% to 65% actually of the total sales of Sandvik. We had during the quarter a good development, just under 10% development on the consumable business. So that reflects a little bit of what's happening operationally in the mine. The service and the consumables, that's the activity level that we are seeing. So it's moving quite good at the moment. Okay. And then can my second one be on back to SMS and sort of the demand profile. So I think you said that the Q4 started on the same sort of level as September. I didn't quite catch what you said September or Q3. Can you say how the exit rate was in September versus the rest of Q3? Just trying to get an idea of whether there was a slowdown towards the end of the quarter or not. The slowdown we saw, that was within the automotive in China. That's the part. Otherwise, I think it's on a flat level. Okay. Thanks. Thank you for the two questions. Much appreciated. And we'll have the next question put through, please, operator. Next question is from the line of Max Yates from Credit Suisse. Please go ahead. Your line is open. Thank you. Just the first of when you were booking them and you perhaps now booked them already in October or whether that was a reflection of seeing sort of some increased hesitancy across today, even though, of course, a lot of orders is coming in. What I said during the quarter actually is that, yes, I thought maybe 8% was a little bit shy in relation to my feeling of activity in the market or my feeling, our feeling, how our girls and boys out in our operating entities is seeing at market. But you probably saw there was no really large order booked during that quarter, and I think that's a little bit of timing. I'm pretty convinced that we'll see that before the end of the year. Okay. And maybe just one for We'll inform you also when that happens. Okay. And maybe just one for Thomas on the FX in the quarter. And obviously, I appreciate it's sort of very difficult to predict how the FX sort of plays out with the working capital revaluations. But I guess the difference between what was guided and reported was more than perhaps we used to. So could you maybe explain just what the key differential was between those? And if there's any sort of way that we can try and anticipate if the €400,000,000 guidance for Q4 may end up being sort of materially different to that and whether there's anything we can look at in terms of certain currency moves through the quarter to try and understand that. Well, we only guide translation and transaction effects. We guided SEK 650,000,000 for the 3rd quarter. We guide SEK 400,000,000 for the 4th quarter. And we're pretty sure it will be SEK400 1,000,000 if the currency rates don't change compared to where they were just a few weeks back. We give no guidance on revaluation and revaluation of hedges, etcetera, etcetera. There's no guidance whatsoever on that one because it's so difficult, not really. It can be €100,000,000 or €200,000,000 either way, but it's you never know. I think one important thing to say that during this quarter, there were a number of activities that happened that made it a little bit bigger. And I think that could be explained with 3 major things or 4 major things. Yes, sure. Well, there were some. I mean, you had the big currency devaluation in Argentina, for example. We had Turkey. We had Russia. I mean, there were a few currencies like that who had quite an impact. It doesn't explain the whole thing, but SEK 80,000,000, SEK 90,000,000 or something like that out of that. And that's just revaluation of the hedges for those currencies? It is well, no, it's not revaluation of hedges. In these countries where you have, let's say, non convertible currencies, you report in U. S. Dollars, but you have another currency underlying. So it means that you run into a big balance sheet revaluation when you have these kind of currency changes, really. Okay. Thank you. And I mean, I wish we could guide on that, but you can't really. That's why we have decided not to guide anything around that. You never know. Yes. Makes sense. Thank you. Thank you. We'll have the next question put through, please, operator. Next question is from the line of Graham Phillips from Jefferies. Please go ahead. Your line is open. Thank you, Bjorn. Thank you, Thomas. My two questions. One is on CapEx. You've obviously retained the guidance of $4,000,000,000 but it does imply quite a pickup in the Q4. What is this being spent on? Where could that actually be engendering some extra growth? What would be the outlook for 2019? Thank you. If we look at the CapEx a little bit is that I think we guided for the full year just over SEK 4,000,000,000 and we are a little bit lower. So I think many of this is actually being summarized from our operations from below. We don't go in and question these at the moment. But when they come, we actually they need to be, of course, approved in the group management as well as, if they're bigger, even up in the Board. So even if we guide that it might be SEK 1.4 billion, billion, I'm still pretty convinced that we'll be under SEK4 billion for the full year. Just as a follow-up. I mean, intrinsically, I mean, where are you investing to add to additional growth from underlying markets? I mean, clearly, that's where you can get some leverage. I mean, it varies a lot. I mean, in some places, we are investing in new IT system structure. That's driving a little bit of capital. We are not building any new factories. In some cases, we are maybe moving 2 distribution centers into 1, and that creates some capital investment that you need some return on. So there are small things that we are doing, yes. But of course, everything needs a good return on investment. And we like to see to investment in these areas where you can see growth in the future. Yes. And if I may just add to that, I mean, we have not invested in any capacity expansion really at all, with maybe some exception. But it's product development. And as Bjorn says, it's IT systems. It's efficiency and productivity, those kind of investments. So maintenance is going down quite dramatically. We don't have any numbers for you, but the trend is very clear. Okay. Thank you. Well, perhaps related to that then, I mean, you've obviously got some good growth figures coming through. Let's say, SMS is growing 11% organically in North America. Europe, 7%. The aftermarket growth in Metals and Mining, that looks like and my math's trying to look at maybe what it was last year. I know you restated things up maybe 15% or 16%. I mean, you're clearly outperforming it. I know you gave some indication of why that may be, but do you think also in rises or something else that you are rises or something else that you are outperforming underlying sort of indicators. I mean, mining production is only growing a few percent and IP numbers and GDP numbers substantially lower than what you're reporting from SMS growth in those two regions. No, I agree with you. And I think we've seen this during the 2 last years a very strong growth in the aftermarket business, and that's related to significantly more activities from our side. And when we are talking market share in the aftermarket is how much of the service of our equipment is done and how much we can deliver both when it comes to spare parts, wear parts as well as service hours on these units. We look at that carefully. We make sure in each of the regions that the focus is there and that is driving. I mean, when it comes to SMS, it's from the hand into the mouth, as we say. The customers have deliveries within 24 hours. So there's no reason for anyone to stock up in any parts. If a distributor does that, of course, that can happen, but you know that the majority of our business is actually sold direct into the market. And I think everybody is very careful today in stocking up. I think this is a big difference from historically. So I think SMS is pretty much showing the activity level that is taking place in the segments that we operate. And no price increases influencing those numbers of significance? No. The price increases are good. I mean, we are high up and we are reporting a 2% price increases in the market, which is should be there, absolutely, and I think it's on a healthy level. Okay. Thanks very much. Thank you, Graham. We'll have the next question please, operator. Next question is from Markus Ambre from Kepler Cheuvreux. Please go ahead. Your line is now open. Markus here from Kepler Cheuvreux. I'd like to start out with the mining and rock. If I could just so what part of your installed fleet is now replaced? And I'm talking about drilling and load and haul in particular. And is it also possible to say anything on the average age at the moment of that fleet? And related to that, how do you think this automation electrification will pan out? So will it be when you have upgrades of machinery? Or will it be new projects mainly? Or who do you think will be the main buyer? Will it be across the board? Okay. Let me start with the last one. I think it's an important question because when it comes to automation, sometimes these are being done when you're going to a new level, you're making a certain change in the mine. That's when you see the big investments, where you see a fully automated mine level. When it comes to small automation, I mean, a lot of customers are trying out. And today, if you're looking at our portfolio, the Alta Mine, it's everything from have 1 loader to have a couple of them or have a full fleet. So you can actually start with a smaller and then you can add on to it. And a lot of customers are trying this and experimenting and seeing what kind of effects they get by these investments. A a more quantum leap step in the mine. And you have also the possibility also to design the mine, which is perfectly suited for an auto mine. When we look at the CapEx on the equipment, I've been very clear on this for a long time that it's difficult to call our loaders and trucks and drill rigs as capital equipment. It is ware equipment. They have a lifetime of 5 to 10 years depending on how rough they are being treated in the difference. When you exceed 5 years, you actually need to either replace them or you have to actually upgrade them in a way which, of course, generates a lot of revenues. We don't have any numbers exactly how much that has been replaced, but you know that the number of equipment we have in the market is between 15,021,000 units operating in full speed today out in the end of market. So there is always a big demand for equipment. What determines buying of equipment or not buying equipment, that is normally not the actually the mine manager or the individual mines. That normally comes from the cash being generated from the boards. So more or less, all the mines, they want to buy equipment all this time to be able to deliver good productivity levels. But they sometimes when the profit levels of the mining industries are lower, they can actually cut the cash flow into the operation. At that time, they run them a little bit longer. So that varies. But at the moment, with the metal prices that we have today, it's quite healthy level, especially when you have the dollar so high compared to many other of the so most of the mining companies are actually making good profit levels today. So that should continue to roll and there is always a demand from it. So there will never be a time when they have replaced the whole fleet. This is happening all the time. And then just one other quick one on just a general wording of your release. So you're right that you see demand intensifying in all 3 major geographical regions and improving in all customer segments except Automotive and Mining. Is that compared to second quarter? So you are seeing it intensify and accelerating or is it compared to last year? That is compared to last year. I will also show in the paper sequentially, and all of those are flat, if you look at this. Okay, perfect. Thank you very much. Thank you. Thank you, Markus. We'll go through with the next question, please. Next question is from the line of Alexander Virgo from Bank of America Merrill Lynch. Please go ahead. Your line is open. Thanks very much. Good afternoon, Bjorn, Thomas. And so just a quick follow-up, I suppose. Trying to quantify the impact on margins for Q4 of your inventory management, if you obviously had a bit of a better tailwind in Q3 of 60 bps. I'm wondering if you can give us any indication of what you think the headwind might be for reversing or managing that down a little bit in Q4? I can't give you any numbers there, but I think it's the right observation that when we take down the inventory, not in all parts, I mean, when it comes to the mining industry, it looks a little bit different because that's a lot of equipment that is being under production and some of them are already ready. So they have to be sold out to the market. When it comes to SMS, yes, of course, when you take down the inventory, yes, it affects it will have effects on the margin. I can't quantify it at this moment. I think that depends on a little bit how successful they are to take down the inventory during the Q4. Okay. But I suppose if we start off with the 400 basis points, euros 400,000,000 or so you mentioned earlier on, is that if we take that as our starting point, that's a fair assumption. Is that right? No. I don't want to go into any details on that part. I can assure you that we are they are fighting hard to continue with good margins in that business. But yes, it can have small effects on the margin when we take down inventory. I think that's about what I can say. Okay. That's lovely. Thanks very much. Thank you. We can just clarify that 60 bps, that was Machining Solutions, not the total group. The total group was 20 bps. Yes. That's also true. Thank you. Thank you. Can we have the next question, please? Next question is from Sebastien Trotter from Redburn. Please go ahead. Your line is open. Yes. Good afternoon. My first question is on the balance sheet revaluation of EUR 230,000,000 in the quarter. I mean, could you split this impact by division? And related to this issue, would you say we should add back this impact to the EBIT to get a clear picture of your underlying margin performance? Or should we stick with this impact to better forecast following quarters? You mean the hedging and balance sheet revaluation part or the balance sheet? Do we give that by division? No, we haven't. No. No, we don't disclose that by division as such. And I mean, it can be 0 next quarter. It can be a plus next quarter or a minus. We don't know. We don't have any specific guidance on that. But in terms of how you treat that, would you say we should exclude this impact from your EBIT performance in Q3 to get a clearer picture of your underlying margin performance or you won't do that? No, no, no. I think the underlying FX is SEK381 actually. For the group. And that's for the group. And that is what you have to look. Yes, it was just from the translation and transaction, it was higher, euros 600,000,000 but the effect that the underlying running is €381,000,000 So this time, it was negative, but it could next month, if you see some of these currencies in certain market get strengthening against the dollar, for instance, that would be effect that some of the hedges are placed in a different way that would also affect could be effect positively. So it's extremely difficult to actually to forecast in a quarter going forward, and that's why we don't do it. I mean, I'm not sure if I understood the question fully, but I mean, the effect of all the currency, all the various currency effects for the group and for the business areas are immaterial. So you can see how much it is and how much it impacted the margin and the accretion or the dilution or whatever it is. So that we report. Okay. The on you are toward the end of your 3 year plan and 7% CAGR in EBIT. You will probably exceed I mean, you will exceed the target by far. When can we expect an update on this on the next 3 year plan or if it's 3 or 5? And should we assume the focus would be more on growth and less on profitability in the next plan? I cannot go into the details there, but we're planning to do during the Capital Market Day or just before during the springtime, I think that's the time that's when we had the 3 years that we promised and what we've been delivering on. We will put the right targets, which is adequate to the situation where we are and how we see we want to drive the company in the future. But I agree with you. I think when I came into the company, I was not satisfied with the margin of how we drive the group. And you know we were at the 12% EBITDA, But today, we are running at 19% for the group. So that is, of course, a different situation. I still see upside, of course, because we work with continuous improvements in all operations and we're going to push that, of course, hard. But it's true going forward that I believe the value in this group is going to be generated by growth going forward. That's important. And maybe if you go back to 2015, we had 17 of our businesses loss making at that point in time. Today, none. So it's more units who are in growth mode than stability, profitability, but there are still some where we have work to do. The other part, which I think is important for the future to drive value in Sandvik, is also to show that the group is resilient to downturns. I think that's extremely important, and that's what we've been working on the last 3 years to make sure that we do not go back in margins where we once were, but that we can protect our margin also in a downturn. I think that's the big focus in Sandvik today. That's very clear. Thank you. Thank you. I think we'll have time for one more question. If you put that through, please, operator? Of course. Next question is from Andreas Koski from Nordea. Please go ahead. Your line is open. Thank you very much. Good afternoon. I would like to ask about the inventory buildup in Sandvik Machining Solutions as well. Did you say that you built inventory by more than €400,000,000 for Sandvik Machining Solutions impacting the EBIT in the quarter? No, no, absolutely not. It's half of that, I would say, approximately. Okay. And how does that compare to the buildup in Q3 last year? How much did you build then? Good question. Do you have that number? Not me. Do you have that number? I don't remember at the top of my head right now. Okay. No worries. But may I ask about Q4? Do you have those numbers? Because now you plan to reduce inventories in the 4th quarter, and I think you built inventory in Q4 last year. I understand you don't want to give any guidance of how much you will decrease inventories in the Q4 this year. Correct. Do you remember or do you know how much you built inventories in Sandvik Machining Solutions in Q4? I don't actually remember how that was. In Q4, we had issues with the I can come back to you. We can do that after the call, and I can we can come back to you with the details then. Yes. But it was a completely I mean, we can say right now, we have a completely different situation. The demand was so strong. It was stronger and stronger and stronger. We actually had problems with delivering to our customers. We don't have that problem today. We have some issues within SMRT to get the equipment out to the customers. But sure, it was, of course, on the upturn when it comes to the drive of the market. And of course, we are now on a very high level, and we are seeing sequentially the numbers being pretty much in line there. So the focus is to getting down the inventory. On SMS, yes, I told you about half of that SEK 250,000,000, which is related to SEK 200,000,000, which is related to EBIT effects. The other part of that part is actually powder and scrap that was bought into the group. So no effect on that. It's correct. We will focus on getting the inventory down. And I think in SMS, it can have some effects of the margin. But don't make it too dramatic as we are pretty confident about the Q4. Yes, okay. And maybe you can help me with the dynamics here because I don't have all the details. But if demand for Sandvik Machining Solutions again on a daily sales rate stays more or less unchanged in Q4 compared to Q3, What would that imply in terms of year over year growth? I come to a number of maybe 4% or 5% year over year organic growth. Is that the number you recognize if you just look at the daily sales rates going into Q4? I will guide you in that direction. We'll wait and see when it comes, and we'll make sure that we take care of the volumes. If at that level or if it's somewhere else level, we'll be adjusting our production and our deliveries in accordance with that. But if we start getting into guidance forward, it becomes a little bit wrong. Okay. Thank you very much. Thank you. Thank you. And with that, we'll end this presentation and update. Before we finish, I'd like to remind you that we have announced the date for our Capital Markets Day, which will take place on 21 22 May next year. And then you'll have the opportunity to visit our test mine in Tampere in Finland. So of course, we hope to see you there then. But before that, we'll see you in about a quarter's time. Thank you very much. Thank you. Thank you very much. Bye bye.