Sandvik AB (publ) (STO:SAND)

CMD 2017

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Nov 21, 2017

Glad to see you all here. Welcome to Tubingen. Welcome to Walther. It's a great pleasure to be here in Tubingen and be at JustWalter. 1 of our really successful brands within the group. And Mirko being the President for Walter, a very successful leader within Sandvik. I said I'm really glad to that so many of you have taken the time. We know your time is precious to come here and look a little bit not at where we normally go to Sandviken, but look into some of our exciting assets outside Sweden. Walther is one of our 4 brands within SMS, as you all know, where all the brands are doing very well. And I just want to tell you a little story. I travel a lot in the world. I visit many of our operations For I think it was about half a year ago, I was in India. At that time, I put on my Coromant hat. Sorry, Mirko, at that time. Anyway, we visited the GE where Coromant has a global agreement with, which means that Coromant is actually supporting all the factories around the world. And you who follows also GE have seen that there's been a lot of insource during Immelt's time at GE. So there's a lot of fabrication everywhere. We had a great meeting and have a huge factory down in India outside actually in the Shakhan region, outside Fungpune. And we were sitting in the meeting and the guys they actually even the President for GE in whole India came to the factory at that day just to host my visit. And they said, yes, we are very, very happy. We are very happy with Coromant's way of supporting us around the world. And in this factory here, you represent about 70% of the business. But guys, watch out. There is another company that is really developing fast and taking market share new now, And that company is Walter said. I said inside myself, I think I can live with that. Anyway, this shows a little bit the strength of the businesses that we are in. It is now 1.5 year ago we met since last time and that was in Sandviken. At that time, we presented the strategy, but also the financial targets for the group. A lot of things has happened since then. We have a lot of changes in the group and it has been a tough time for many people in the group. But I'm really proud of the organization and because they have not just accepted the changes we have taken, but also embraced it in a very positive way. So it is a strong Sandvik. So what have we done? Starting up, we have completed the decentralization. We have also put in a new performance management systems. These are the so called famous scorecards, mainly I think many of you heard. And I would like to give a lot of credit to Thomas and his team who has actually made life much easier for me and my colleagues traveling around the world, but also our own businesses to really understand what the performance is in our different businesses. For me, it's crucial. We have completed more or less the optimization program that we have done with all our factories. We're getting close to the finish on that project. But there is also a lot of initiatives from all our product areas and business units around the world to drive efficiency. We have cleaned up out of our portfolio. We have made the changes in our portfolio strategy and we are getting closer to that. We will be ready in the middle of next year and completed with that. And last, not least, maybe you remember me, I said that time, I was at that time dreaming that Sandvik would reach the level of 15% EBIT margin. I said a quality company delivers 15% EBIT margin. 1.5 year later, we have surpassed 15% and are today close to 16%. I think they've done a great job. Strong balance sheet gives striking power. During this 1.5 year or 2 years, we have managed to take down the gearing from 1.2 to 1.6 where we had a target level of 1.8. This gives us the opportunities that we need. If we continue in this pace as we are doing now, including the divestments that we are doing, we can see that Sandvik will be debt free by the beginning of 2019. 3rd and not least, that is we are investing in the future already today. Give you a couple examples. We have started the new PA for additive manufacturing and we are actually employing young talented people in high pace. We have made a number of acquisitions within the software part within the group. Comara is one of the one, which was actually done by Mirko here in Walter. We have Promatec and we have Fabu, which is another software company from Silicon Valley. So we have created an embryo, a foundation for building our software part of the business. And we are developing our powder technology and we are moving in to the powder of titanium. There are more things, exciting things that we're doing. We will hear a lot today, not least from mining and rock technology because we're talking about automation, we're talking about platforms connecting us with the customers. So in the end, we have to deliver shareholder value. I think some of you recognize this picture. For myself, it's my way of looking at Sandvik. Sandvik is not one company. From my perspective, Sandvik is 32 different entities, operating entities with full P and L responsibility. This is important. So when I look at this picture, I see the Sandvik Companies. The size of the bubbles actually represents the size of the product area or business unit. The x axis represents the profit which is done in 1,000,000 of Swedish kroner. And on the y axis, we actually see the profit margin. So looking at this one, and maybe some of you remember the one I showed last time, The big difference from this besides that most of these bubbles have moved up in this direction is that at that time we had 7 businesses that was actually underperforming with a below 0 result. Today, we have no businesses delivering 0 result even though we have a bubble here on 0 and some of you might recall which PA it is. I will not say it today. Sustainability is important for Sandvik and in our way forward. And when we look at sustainability, we look at it from 2 perspectives. 1 is how we can support our customers to become more productive, sustainable. The other one is how do we develop our own operation to become more sustainable. So besides supporting our customers when it comes to sustainability, for us it's also important that all the employees in Sandvik feel proud of the company. But it's also important that you investors see Sandvik as a sustainable investment going forward. And we are proud that also this 2nd year in a row, we have managed to be part of the Dow Jones Sustainability Index and we were actually better than 97% of all the companies that were audited. I think this is a small sign that we take this serious and that we are moving in the right direction. So moving forward, the mega trends in the world, I think we all know them. It's about urbanization. It's about large cities become bigger. It's about lifting standards of living in all the world. So that puts demand on infrastructure, but also on energy supply. At the same time, we have a lot of environmental challenges. But we also have a lot of opportunities, and connectivity is one of these, which actually can enable us to help us to become more productive and more efficient in everything with us. But these are up here. So if we channel this down and look at the trends that is actually affecting Sandvik. So one of these area is material evolution. I think this material evolution is affecting all three of our business areas. And increased infrastructure, new technologies puts a lot of demand on commodities. And our mining guys say here, yes, that's good. We have to dig deeper today to actually catch the same amount of minerals for the same demand that we have today. This calls for automation. So in the future, our customers, the mining company has to be more efficient to be able to deliver that. Connectivity is also important for all our businesses. But if we look at SMS, this is an enabler for us for not just being a hardware supplier. The environmental challenges, it's actually driving the electrification on everything. From our perspective, this can be both challenging as well as an opportunity. Electric cars, yes, it's a challenge for us. On the hybrid side, on the other hand, there is an opportunity because you have to cut more. When we look at the mining business, we look with this electrification. Yes, we have electric loaders, electric trucks and electric drill rigs. This is an opportunity going forward. And the last is new manufacturing technologies. We have the 5 axis cutting machines giving opportunities for the future, but we have also the additive manufacturing where we have just moved into. So from my perspective is that Sandvik stands strong. We are well prepared to meet these challenges. Sandvik is a global well recognized player when it comes to material technology, but we have also deep knowledge when it comes to applications of all our customers around the world. We are a player, a world leader when it comes to mining equipment, especially in underground. And we are market leaders in the majority of our 32 businesses that we are operating. Our balance sheet is stronger today, gives a lot of opportunities. Being a market leader within our segments gives also opportunities when it comes to new product development because we invest more money than our competitors in new product development. And I hope you will see that a little bit during the day, a lot of exciting stuff coming. And of course, the sustainability, it is core in everything we do. So looking forward, new technologies, this is exciting. We look at technologies and new products. And the objective for this is what we heard Mirko say before, it is actually driving the productivity of our customers and in that way be able to charge higher revenues than other players in the market. And when we talk about productivity and trying to see the price is secondary and the productivity is important, just tell you a story. Some of you have already heard this story and that's actually a good friend of mine, Alrik Danielsen, some of you know him, he's the CEO of Escoff. He called me one day and said we need to have lunch Bjorn. Of course, you are a good friend, but you are also a good customer to us. So we had lunch and he said, Jevion, I think we are not fully satisfied with what Coromant because Coromant has a contract with Escoff. We are not fully satisfied with what you're doing with us. You need to sharpen up. And I said, okay, you are an important customer. You buy for SEK 80,000,000 every year from us. So you are very important to us. So I need to go and talk to Klas. So Klas is here also. I called Klas. At that time, he was Head of Coromant. And I said, Klas, what the hell are you doing? What are you doing? Are you not supporting one of our most important customers? He says, yes, we are doing what we can, but maybe he did not tell you that they have just sent us a letter that you need to reduce your price with 20% on all your products. Klas is a good soldier, so he said, if you want me to lower the price with 20%, I'll do it. And I said, no, no, no, no, no, no. Do what you normally do best because that's what you do. So what did they do? Yes, they went in, in the normal way with the whole team and they have so called performance sheets. So it's about improving the productivity during the next 2 years. I think it was a 15% cost decrease in the cutting process in ESCO F's factories. And then I met Alrik on an ad meeting, he came out to Bjorn and said, I don't know about this Sandvik, but you lifted the price with us and you still have all the business. Proves a little bit that it is about productivity and not about price. So this is just a small appetizer of what you're going to see from the mining guys later on. But this is the first drill rig, which is actually driven by batteries. It's a great product, a lot of opportunities going forward. So SMT. SMT is underperforming today. I think you're all aware of that. This actually started already 2014 when the oil price fell. Since that time, we have had a sliding revenues orders, which has also affected our EBIT margin. We can see now that the order side is moving upwards And there is a lot of actions being taken to improve the performance. Joran will talk more about that together with Micki that will come up. When you look at SMT, it's important to see that not all the parts of SMT it's underperforming. We have a lot of good business. We have tube special. We have Kantar. We have Powder, which are doing well. And then it boils down to what we have said many times, it is the core and standard part of the SMT business and also part of the strip business. And we will come back to that and and his team will go back and tell them a little bit what kind of actions are we doing. So then we come to the magic question that I know many of you are asking for. So what is going to happen with SMT? Is it in or out? So what I say then, whether it's in or out in Sandvik, we first have to clean up the company. We have to make sure that SMT is delivering 10% EBIT margin. Then we might think about what we will do with this business here. But now on, it's focused on performance improvement. So what have we done? Sure, we have a new decentralized structure, which we talked about. We have a new management. Yaron, he will present himself there. And we have a cost efficient program that is being taken place. The next step, it's more about portfolio trimming. What is going to be the future? What are the opportunities in the market for the SMT business? Yes, we will come back to that a little bit further on. I mentioned the portfolio management. Yes, we have 4 companies that we have been divesting or that we are divesting, And we are coming closer to an end. We expect to do the closing of the SBS by the end of this year, and we expect to do the signing of the contract with Hyperion before the end of the year and the closing before the half year. Then we have the mining systems, we have the wire business and we have the Hyperion and SPS out of the business. That business represent approximately 10% of the group's revenue and 4% of the EBIT margin. This will give a cash in action to the group of approximately SEK 10,000,000,000 which will strengthen our balance sheet. So moving forward, we're talking about acquisitions. We need to grow forward. What do we think about when we are talking about acquisitions? Yes, number 1, the acquisitions are driven by our product to strengthen the strategic direction of being number 1 or number 2. And they each acquisition need to strengthen the strategic direction of being number 1 or number 2 in the different businesses. We are interested to do business both in the core business as well in adjacent technologies. But we know that the adjacent technologies have a much higher multiple and we do accept that. And that's why we are focusing on small to medium sized companies to grow in because in the long term, we want to safeguard our credit rating for the group. Going forward, we say stability, profitability growth. 1st year, housekeeping 2nd year, improving the profitability and now 3rd year, it is moving in the acquisition direction. So when we talk about acquisitions now in Sandvik, we talk about 4 different not acquisitions, growth, we talk about 4 areas: 3 that we can't control and one that we cannot control. The number 4 is actually the market development. And we have now seen a little bit more than 1 year a strong market development, which this represents, which it has grown the group quite significantly lately. But the more sustainable growth of the business, that is more related to 3 different areas. The first one is the organic growth, and that's the everyday work from the so called product areas and business units. It means developing new products, new technologies and win orders and market share in the market. This is the most profitable way to grow forward. Another exciting area which is coming and that is, of course, the digitalization, new adjacent technologies where we are investing into today. These are the growth areas of tomorrow. We have a number of projects that you will listen to with the guys coming on after me. And then the 3rd part is, of course, the M and A acquisitions. So here we say both in core business as well as in edge agents company, that's where the focus will be coming forward. And this will mainly be done by the PEAs that are delivering profitable and stable businesses. So just to summarize a little bit all the priorities we have in our 3 businesses. When it comes to SMS, which is clearly the star performance in everything they do, here we have a stable, profitable product areas. We focus on growth. We would very much like to see SMS grow forward. Feel the pressure? Klas answers. 2nd thing, mining and rock technology. Also here, we've seen a great development lately. Stability, we have the new structure in place and the profitability has come up to over 16%. How do we grow that forward? Yes, of course, if there comes up some interesting acquisitions, but there are limited amount of exciting acquisitions within this phase. But there are growth opportunities and these are mainly coming from the aftermarket that is moving well today and the automation. I think we never seen as much interest from our mining customers around the world around automation as we are seeing today. SMT, priority number 1, fix, make sure that the business delivers its 10% margin. Then, of course, we can see some growth opportunities and that's mainly in the business from Cantal and in powder, where we are today performing well and the businesses are growing. But in the other two businesses, strong focus on getting the house in order. And for the group, yes, we are talking about capital and cost efficiency, make sure that our head office is lean and mean going forward. I will now hand over the stage to Thomas before you have the opportunity to listen to our operating entities that will give you a little bit of an in-depth of what I've been talking about today. Thank you very much. Thank you, Bjorn. And we're now going to look at scorecards for 20 minutes. Well, not really. So good afternoon, everybody. What we'll do now is to we're going to have a financial run through or the performance of the company. We're going to connect back to where we were the previous Capital Markets Day in Q1 2016. I'm going to talk about what's happened up until now, where are we now and then talk a little bit about the future, not too much, but a little bit. So and we'll use the income statement and the balance sheet as a vehicle for this. I'm going to do some deep dives in some familiar areas and also in some areas we haven't talked so much about with you previously. So let's start with the top line. And you have the revenues on the left hand side and the organic growth on the right hand side. And if you look at the revenues, Q1 twenty sixteen was quite challenging. We describe the situation as challenging market conditions. The top line have gone down with more than 10% over the last couple of years. And we set out to improve the profitability and the return in a flattish market environment. Since that, as you all know, the market has come back. Order intake, of course, late 2016. Revenues positive as from the start of 2017 with pretty good numbers. If you look then at the gross margin, going back to Q1 twenty sixteen, again, we were quite proud that we had defended the gross margin despite we had lost more than 10% of the top line. Now as revenue started to come back and growth came back, the gross margin is improving, as you can see, quite dramatically. But there are still more things to do. It doesn't stop here. We still have some supply chain consolidation to do, price management, of course, as always and productivity. I'll now go into 3 areas here, which has an impact on the gross margin. First, a bit on raw materials, which we normally haven't we haven't talked too much about that, but we thought we would give you just an insight in the raw material impact on our cost in the gross profit. And if you look at the middle of this pretty busy slide, you can see the circles here with the orange section that is the raw material part as a percentage of revenues for each of the business areas, SMS, SMT and SMRT. And you can see in SMS that the raw material component, which is mainly tungsten or Wolfram is pretty small. And also half of what we produce or source, we actually sell to externally to the market. We use half of it. So we have kind of a natural hedge in this as well. On the SMT side, raw material, of course, has a larger impact as a percentage of sales, but onethree is hedged, 40% we have alloy surcharges for and the rest is, of course, exposed. And as you can see on the value bar, it's mainly nickel, but nickel is quick. It's fast. It comes and goes. And then SMRT at the bottom does not have any pure raw material exposure. There's an indirect exposure of steel, of course, but that's always subject to negotiations, of course, with the suppliers. The second thing I would like to show is the currency exposure. There's always a lot of talk about currency, especially now when the corona is weakening again. This is the transactional currency flows. It's around SEK 15,000,000,000 net in foreign currency transactional exposure expressed in Swedish krona. And you can see that the major currency is U. S. Dollars here, of course. A lot of the mining markets are priced in U. S. Dollars. They pay in U. S. Dollars, of course. Sandvik has a huge not huge, I should say big manufacturing base in Sweden and a pretty big one in Finland as well. So we manufacture predominantly in euros and in SEK, but we have 90% of the sales outside of Sweden or the Nordic region really. The third thing I would like to show is the productivity curves. We have talked about it. We haven't shown it, but this is what it looks like. If you go back to 2016, you can see that all the productivity numbers basically were flat, flattish to negative. We measure productivity in a very simple way. We measure just sales per employee, permanent and temporary employees. You might think it's a simple way to do it. But I mean, at the end of the day, when you move employees, you actually you get cost you get cost down over time. If you drive sales per employee long term, it actually works, more revenues less cost. And that's a good equation. And you can see here that for the group and for all the business areas except SMT, we are now in positive territory. The target is, of course, 3%. So meaning that if sales goes up 10%, we need the productivity to be 3%. If sales goes down with 10%, we need productivity to be even more. Okay. Now move over to SG and A. Going back again to Q1 2016, we said that 100% of the EBIT margin dilution was due to the under absorption of SG and A or I should rather say our inability to adjust SG and A as we lost more than 10% of the top line. And you can see how it went up and peaked at 20%, 26%, 27%, no, 26.5%. And we said our goal is to come back to where we started and it does come back now. We're soon at the same level in percentage as we were when they started. And admin cost is going down. R and D, which is the small part, 3%, 4% is going up a bit. That's a deliberate or discrete decision. And sales is going up, of course, as deliveries are increasing quite dramatically. We're shipping to the customers and sales expenses and sales driving expenses. But there is more to do here as well. I would say that we are kind of approaching the territory now where we should be regardless if the business is up or down. Okay. Now all of this top line gross margin and SG and A, of course, ends up with the EBIT margin. And as Bjorn mentioned, here in Q1 2016, we said a bit boldly that a quality company starts at 15% EBIT margin. We were a bit lower than sort of 12 ish. We are now on 15.9% at Q3. And what is important here to state is that we our ambition is to continue to work with small improvements, structural efficiencies day by day, week by week, month by month, quarter by quarter, year after year, small, steady improvements. We don't want to put ourselves in a situation where you have to do enormous restructuring charges, take off a couple of $1,000,000,000 or $3,000,000,000 or $4,000,000,000 or something like that and then start a big program. It's much better if you do it every day, every month, every year going forward. Okay. Now a bit below then the EBIT margin, the finance net, we haven't talked about that at all really with you. But we are doing a lot of things here. The finance net is or was, I should say, around SEK 2,000,000,000 annually, whereof the interest net, the biggest part was SEK 1,600,000,000 to SEK 1,700,000,000 is now coming down quite rapidly. What you see here on the chart is the interest net. Going back 2 years, SEK 400,000,000 every quarter. That is now coming down to SEK 200,000,000. It's being cut in half, which means that the interest rate will go from SEK 1.6 billion, somewhere SEK 1.6 billion, SEK 1.7 billion, down to SEK 800,000,000 annually. The total finance net will then come down to just about SEK 1,000,000,000 on an annual basis. And what we're doing here is that we are recapitalizing a big portion of our subsidiaries out in the world where we've had a big, big chunk of extremely expensive local debt in various countries. We have SEK 40,000,000,000 in equity in the group. So we're shifting around about SEK 10,000,000,000 and we recapitalize the subsidiaries. That combined with the debt reduction that Bjorn has talked about and that I will show in just a couple of slides here, will cut the interest net in half. And how important is that? Well, it is important because this means around SEK 70 to SEK 75 post tax impact on earnings per share. And that's quite a bit if you think about Sandvik having like SEK 5, SEK 6 in earnings per share. So it's amazing how much you can do, but just restructuring your subsidiary financing. Right. Okay. Now talking about earnings per share, this is where we are. We did $5.48 last year, 12 for 4 quarters, 12 months. We have reached now $5.70 after 9 months. So it is improving, of course, operationally improving, but also with the help of reduced finance net as well. Over to the balance sheet. Working capital on the right hand side continues to go down. Of course, it's not as quick in 2017 as it was in 2016 because we have strong growth now and strong growth eats up capital. That's just how it is. But cash flow is still good. Cash conversion is good. We just have to try to keep it as close as we can to 100%. But it will eat up a bit when you grow. Then of course, if you would sort of go the other way, you will have a huge release of cash. Now and I was going to say not end of story, but the P and L and the balance sheet, of course, what and the cash flow, what kind of net debt do we get? You heard from Bjorn here, the net debt is now down to SEK 25,000,000,000. It peaked at actually SEK 40,000,000,000 in 2014. The gearing is down to SEK 0.6000000000 to be exact. And on the right hand side, you can see net debt to EBITDA. We were up on well, 3 in 2014. We are now down to 1.5. We often get the questions of what kind of firepower do you have. Well, and we never answer that question because we don't have any real I mean, real official targets on net debt, EBITDA, etcetera, depends on what you're going to buy. But if you sort of if I sort of connect with the discussion on Sandvik in a net cash position, let's say you have SEK25 1,000,000,000 in net debt right now. Let's just pick a number here that we get SEK10 1,000,000,000 for all the businesses that we're selling, then we're down to SEK 15,000,000,000. And then assume then that we, let's say, pound down operationally the debt with SEK 6,000,000,000, SEK 7,000,000,000 every year. That gives you a net cash position in 2019, okay. Just assuming now hypothetically. Assume that we have an EBITDA in that point in time or maybe something around SEK 20,000,000,000 or whatever, that gives you a firepower of SEK 40,000,000,000 that's theoretically. So that's kind of the range. So it's somewhere between those numbers from maybe SEK 20,000,000,000 up to maybe SEK 40,000,000,000 in 2 years, but that's 2 years from now. Okay. Let's move on to then return. On the right hand side, you can see the return on capital employed. We are now on 18% and the target for us is to reach 17% by the end of 2018. So, we have good hopes to reach that. We have the target in sight. On the left hand side, you see the combination of EBIT margin and capital turnover. And of course, we started this improvement of return on capital employed with just margin expansion in EBIT. And then as you can see in the chart, last three quarters, we have seen a very healthy improvement of turnover as well. So we now have a combination of increased capital turnover and increased margin that drives return on capital employed. Then I think I'm coming to the last slide and that is no, last but one slide, capital allocation. We will continue as we have for some time to allocate capital to debt reduction, to dividend, to M and A. I mean, we are of course, we are conscious of our credit rating. It's very important for us. And it is important to continue to reduce debt and of course, to maintain the dividend policy. But we believe that reducing debt, maintaining the dividend policy will still give headroom for quite some increase in M and A going forward. The balance sheet is strong and getting stronger. If you look at the right hand side, what will impact the cash flow in the near future? Well, working capital, we are growing. It will have some negative impact on the cash flow. Net financial items, on the other hand, will have a positive impact going forward. Tax, we will believe be flattish 27 percent, around that number or 26% to 28% as the official guidance is going forward. CapEx, basically the same level as we have now, between SEK 3,500,000,000 and SEK 4,000,000,000. Now, we have the last slide. And here, a little bit about targets. As you know, we have 4 financial targets. We have return on capital employed. I talked about that. We aim to reach 17%, but we are on 18% today. So we'll reach that most likely. We have the gearing below 0.8%. We are at 0 point 6 2 today. We have the dividend policy to have 50% payout ratio. I mean, we can do that. No problems at all. But then we have maybe the most interesting one and that is earnings. We have a fixed earnings growth target for this period, 2016, 2017 2018. It's 7% on average for these 3 years. That means in money, which you maybe can see on the right hand side, that means SEK2.3 billion. If you look at the left hand side, we have reached SEK2.7 billion right now after 7 quarters out of the 12 quarters, which is in the period. As I started here, what we assumed has not happened. I mean, we assumed a flattish top line development and we said SEK 2,300,000,000 not market driven, all non market driven, self help, so to say. Now we have help from the market, but we still have efficiencies kicking in, etcetera. We have supply chain optimization. We have productivity, etcetera, etcetera. But the market driven improvement is just as big or even a little bit bigger. But this is just an approximation, no exact numbers, but this is how we see it. So anyway, we're not going to give you a new number today. You have to do the math yourself. You have to do your own assumptions. But given these numbers, we aim to reach SEK 2,300,000,000 in improvement at the end of next year and we have reached SEK 2,700,000,000 already now. Well, I can say that we have no plans to go backwards next year. Good afternoon. It's a real pleasure for me to talk and present Sandvik Machining Solutions. My name is Klas Forsgren. And during the presentation, we will cover an introduction about myself and Friedrich Wegorden, our Head of Strategy and Business Development with an extensive background from Manufacturing and Strategy Implementation as well. Then it also will be about our current performance and a little bit about the background. It's not the last quarter, quarter 3 that is important, but what has made that happen. Moving forward, talk about key market trends and what we are doing aiming forward and then summarize it all. And here, Erik and myself will share presentations. So my background very briefly, 25 years within Fredrik, as And Fredrik, as I introduced earlier, you will meet and learn more about Fredrik later on. So to start with what is Sandvik Machining Solutions. It consists of many different PAs and 4 of those PAs are driven towards end user markets. It is driving application knowledge, product performance and customer excellence at the end towards the market. 3 of those are positioned in the premium market. It is Sanvik Coromant, Walter and CECO. And I'm so happy to be here and see what Mirko and his team has done with this facility. And then we have Dorme Pramet, targeted the mid market, a more price sensitive type of market and building their success around that. Cutting across, we have a supply product area. It's called powder and blanks technology. It delivers powder, I. E. The ingredients for the inserts that we manufacture, rod blanks for the round tools, but then also it's a vital part in our recycling efforts. And you may have heard that we if we sell 100 kilos of hard metal, we recycle roughly 50% of that into our own facility. Then looking towards the future, we have also additive manufacturing and digital, and this we will talk more about later on. Drilling in a little bit deeper into it, what type of products do we talk about? Of course, we have the inserts, the consumables, the pulse of the manufacturing industry, so to speak. But also round tools growing in importance, coming stronger and stronger. I will talk a little bit more about round tools later on. And then more investment driven, if we can talk about investment driven tools within our industry, tool holders and tooling systems. And then at the bottom then, supporting us with powder and then the early stages of business within the 2 other areas. The industries we serve, the industry segments is automotive. It's the largest part. It consists then, of course, of engine and transmissions and all the components there is. Aerospace, a sector, a segment that has been growing quite substantial over the years and that we have taken great market shares towards. Oil and Gas, roughly 9% and then General Engineering, the large, the rest. And in general engineering, of course, you have many different sub segments. If I would like to highlight a few, it is medical as one example. Another one is small part machining, I. E, tiny small components. And the third one would be electronics, computers and cell phones. We are a Northern Hemisphere type of company, I. E, where manufacturing is, there we are present, I. E. It's in Europe, 55% our turnover. It's 20% each, so to speak, on the other sides. And then we have 4% below and the majority of that is in South America. We are close to our customers. We have more than 100,000 customers that we constantly serve. Some 85% of our product assortment is standards, consumables or stock standards and 15% of what we sell is more customer driven, custom tooling. 60% of what we sell go through direct channels and 40% through distribution. Depending on market, it varies quite a lot. In North America, of course, a distribution driven market, much more distribution than compared to Europe. And I think also the last area, up to 70% our sales goes through electronic means, web or other type of electronic transactional setup. And here, we have increased substantially over the last couple of years. So before I move into the current performance, what I'm trying to say here that is we have a strong footprint, we are close to our customers, we are selling on value and we are driven customer productivity. That is what we are. I think you know more about the details of the quarter 3, and I will talk about quarter 3 and then go back a little bit and talk about what was driving that then because it was not only that quarter that gave it, of course. It was a strong underlying growth. It was starting in China, improving in Europe and coming back over in North America. But it was also quite substantial margin and earnings and margin improvements. And one area that I'm very, very pleased with, that is our record low net working capital. But then also in other areas, we did improvement programs, but of course, also influenced by the sales as such. But going back a little bit then, I think this is a fairly interesting slide or couple of slides, and it links in quite a lot to what Thomas showed earlier. We started to improve in returns close to 2 years ago. We continued with EBIT margin improvements over the last couple of quarters. It was supported by improved capital improvements. But I think the most important thing is not the numbers, it is what is behind the numbers. And if I start with a cost and productivity point of view, over the last 3 years, when the business was down, since then we have taken out 10% of FTEs. It's through efficiency programs, through consolidations and different type of activities. We have also, due to better stock control, improved forecasting, etcetera, been able to decrease our net working capital, not only in stock, but also in all the other areas when it comes to payables with 5 points. If you would have asked me 3 years ago, I would have said that could not perhaps happen, but we have shown that we were able to do that. Then to top it off, the last year, as Thomas said, I mean, we have started to move up in revenue as well. And all in all, I mean, that is the explanation behind. And my point here is, it's a strong committed journey over a couple of years and accelerated during the last couple of quarters. And what is my summary here then? I think we have started to turn around how we do business. And later on, when I come into the future, you will see that operational efficiency as one area is very important moving forward as well. This graph, I think all of you have seen in many different variations. My main point with this graph that is, we don't plan that it will be at early 2000 type of cycle anymore. We plan for a market that is slowly, but steadily going up, sometimes more rapidly and sometimes a little bit more soft. And that is what we have seen the last few years. But the core of what we deliver and the essence of the value of Sandvik Machining Solution, that is this metal cutting. It's the knowledge, it's the applications, it's the connections with customers, not only in existing production, but also in new projects. So we are working very close to customer. And this competence and this knowledge within machining, we are fairly convinced that we can expand that into other areas. We can expand it into it's a clear trend and we see a lot of value when it comes to verifications and evaluation, I am metrology. More and more metrology is coming in line and in machine. When it comes to preparation, preparations about equipping machines and putting cutting tool data early in the process, that is our home turf. We can move into that. And then when it comes to design planning, etcetera, if the right tool is already and the right application is already chosen when you design something, it's fantastic gains to be driven from an end user's perspective. And we believe that we can expand that. And more about that will come later on. I will divide this now into 2 different eyes, 2 different glasses. 1 glass eyes, pair of eyes, we'll talk about core and some trends within core and then also how we are developing our strategy there. Later on, then Friedrich Viegorden will come up and talk about adjacent areas, what trends we see there and how we are going to develop that, and then we will tie it together at the end. If I start with round tools, gaining share, A lot of things are happening when you manufacture. It's more net shape. It could be additive or it could be different ways of producing tools. But it's also machines, higher velocity, higher accuracy, etcetera, that drives the development of the need around tools. And what is great here, I mean, we are really progressing here and we'll come back to that as well. Electric vehicles, I think everyone talks about that and you heard Bjorn mention it a little bit. If I try to gather numbers here, it's difficult to understand if it is. Sun says within 5 to 8 years, 4 percent to 7%, perhaps, so the total manufacturing will be electrified battery driven cars. Others says a little bit less and some others says a little bit more. What I'm very, very convinced on about that is that in between it will also be hybrids And hybrids is a fantastic opportunity for us. It is in between 20% to 20 5% more machining done on a hybrid vehicle compared to a combustion driven vehicle because you have the 2 parts, if I simplify. So medium term, it is better for us. Another area that is increasing in demand, and I think those of you that have followed us over many years knows that material development is playing in our cards hands. I take aerospace as an example. Over the years, titanium, composites, that type of material in order to say weight has increased. Aerospace is very often starting the trend and then it moves into automotive and other areas. And what we know, this is trickier materials to machine and we are experts on those. So, strategic direction. First of all, new product launches. And I have to say, I mean, I've been in this industry for 25 years. And sometimes I think that people believe what more is there to invent. Can it be anything more? The TigerTech up there, it's a coating of an insert that generates quite substantial customer gains. New innovation in core. Even more fascinating, if you move down to the lower corner, a drill by design, by look looks like everyone else, but it generates substantial productivity for the customer. In the upper right corner, the core mill, lightweight, Frederik will talk more about that, using additive manufacturing to produce that in house, I. E, we are part of the industry we serve. 35% to 45% of our COGS is exactly the same type of COGS that our customers, metal cutting. So all the improvements we are doing to our customer, we can use also in house. And then perhaps the most exciting of them all, using new programming techniques in order to machine in a more efficient and productive way, The Y Parting or the Coroterm Prime. Not only new tools, but also new programming technology. We can earn money on the tools and we can earn money on the programming technology. And coming back then to RB, an industry with not enough innovation. We have a lot of innovation and inventions to make in the range of 30% up to sometimes 300% of productivity gains for our customers. I love this industry. Another area that is increased services and customized offerings. You are sitting in one of those, one of those centers. Each and every week, each and every day, Mirko Merlo and his team are meeting customers that they are trying to solve their problems and generating opportunities for them and generate sales opportunities for But more and more of this is also moving into a digitalized world. Nowadays, I mean, you get advices on how to cut, how to machine, how to buy, etcetera, on your different platforms. So this is gluing together. The core is the competence and the knowledge and that we have. Round tools, once again, I look upon this as a fantastic opportunity. First of all, the development of market is moving in that way. Secondly, we have a lower market share than in other areas. It's an opportunity to grow. We can do it organically and we can do it also if we find a good enough M and A target as well. I know that those of you that have followed us over the years, you have heard the story that round tools is not that profitable as inserts. But in the high premium area, we can generate a very, very good profit. Operational excellence. I think we have injected Sandvik Machining Solutions and all the individual PAs with this type of new DNA. We can always do it a little bit better. It could be small, small steps each and every day. And sometimes, when needed, we take a little bit of a larger step. We do a consolidation project, etcetera. And this we will continue to do whether the market goes up or is flat or is down. It's a change that has happened and I'm so pleased to see this. So my summary while inviting Fredrik up here, that is, we are driving core in an increasingly accelerated pace, and it's paying off. Please, Frederik. Thank you, Claus. So I'm Fredrik Viegarten, Head of Strategy and Business Development for SMS. I've had this role for a couple of years now. I get to talk about the really interesting stuff today in my view, which is great. I'll share a bit about how we see the market trends and strategic direction for SMS in the field of additive, but also digital manufacturing. So starting at looking at some of the market trends. This is historically how we have seen the manufacturing process, very much divided into discrete process steps with systems and softwares very much linked to these process steps. Ourselves, competitors and other players in industry also identify themselves within these processes. For us, that has meant identifying us with machining, as you heard Klas talk about, as a tooling supplier, a business worth approximately SEK160 1,000,000,000. Now this world is changing and it's driven by the introduction of digital technologies. So what's driving that? Well, I think you can all relate to how these are changing the everyday life for us as private individuals. The way we look at the information gathering, the way we interact with the world around us, the way we consume services. We see a clear trend that, that expectation and that behavior is being brought from the private life into the work environment. We also see the introduction of mass connectivity, the Internet of Things and that gives rise of enormous amounts of data. That combined with increased computing power, improved data security is enabling a whole new level of digital services in industry. Clearly, we believe this is going to change the way we look at manufacturing going forward, but it's also going to create enormous opportunities for value creation for companies like us, but also for our customers. Another trend that's sort of hard to miss these days is the trend And in And in our view, it's one of the most interesting sort of up and coming future manufacturing technologies. Customers today ask for lightweight materials, the ability to create new product designs, they want to reduce waste, they want to minimize their environmental footprint. Additive technologies can help customers with all of those things. That said, we need to remember that additive is a very, very young technology. Only in the last couple of years, we've seen the shift from it being used as a R and D and prototyping tool to actually become a manufacturing tool. But only in this year, we actually see an acceleration of that trend in specific industries, such as medical and aerospace. It is important, however, to recognize that not all components are suitable for additive manufacturing. For it to be relevant, it needs to fulfill very specific criteria, be it expensive materials, complex designs, cases where you want to get rid of sub assemblies and actually have one complete part. In those areas, additive could be fantastic. But when you look at all the components that are being produced in the world today, experts and industry peers that we talk to estimate that the share of components is actually very small, Probably around 1% of all components in the world will actually be relevant for additive. So it's not like it's going to turn the entire industry upside down. That said, looking at the growth prospects again, there was a US2 $1,000,000,000 industry in 2016. It's estimated to be a US5 $1,000,000,000 industry by 2020 and exceed US10 $1,000,000,000 in 2025. So fantastic opportunities. One of the key questions for us has, of course, been what is this going to do to the metal cutting industry. And as you can probably understand from my previous descriptions, we see it much more as an opportunity rather than a threat. Yes, it will take away some of the metal cutting in the world, but the upside is believed to be much greater than that. So moving from the market trends into the strategic direction and what we want to do. Starting with Digit, I want to kick us off by showing a short film. This is where we belong. The world leader in cutting tools. The innovator on an endless pursuit of high precision, higher quality, higher speed. The productivity expert in the sufficient chain from A to Z, we call the manufacturing process: seamless, flawless, lean, right? In fact, this process has significant room for improvement. Islands of disconnected players and fragmented systems, manual procedures, unnecessary steps, waste. But what happens when CAD models can be optimized based on machine data? When CAM systems can foresee production costs? When machining strategies can be improved by data from metrology and cutting tools, in real time, to move. For us, new competitors, new challenges, new possibilities, and the shift has only just begun. Now it's time for us to start connecting the dots in this new ecosystem to expand our position with new digital platforms, new partners and new offers. And with several systems and applications in place, we've already started. No one can tell exactly what the future of manufacturing will look like, But we know what we need to do to get there, and we will. Because in the end, productivity is not just about cutting speeds and feet. It's about cutting the distance from A to Z. And this is where we belong. So one of the key takeaways from this little film is this increased interaction within the manufacturing process. And as Klas mentioned earlier, we see metrology moving not only in line closer to machines, but actually into machines, so very close to our home turf and our core competence. We see increased cooperations between ourselves and CAM suppliers. We see signs all over the manufacturing chain that this is happening. And again, one of the key ingredients to be successful, our firm belief is that the application knowledge, knowing the components, knowing the processes, that's going to be absolutely key to be successful going forward. And that's where we have our strength and we need to leverage that strength going forward. With that, we want to add value throughout this entire process. Obviously, in machining, that's our home turf and we know that space. We have solutions into preparation in tool management, vending solutions, for example. I'll get back to that shortly. But also in the areas of metrology and the design planning phase, understanding the components, materials, etcetera, is absolutely key. So through partnerships, acquisitions, we want to broaden our reach throughout the manufacturing process. It was mentioned in the film that we already have stuff ongoing. TDM Cloudline is the, I think, the latest addition to the product lineup. It's a cloud based tool that enables customers to track and manage their tools and their tool assemblies. As we develop these products, we try to be extremely customer centric, always having a concrete problem to solve. In our view, there is too many sort of digital solutions out there still searching for a problem to solve. We would rather go down the route of identifying specific customer problems and it doesn't have to be about sort of changing the world, but solving real problems. And TDM Cloudline is a good example of that because believe it or not, customers are actually spending a lot of time and effort and headache on trying to fix poor tool data and keeping track of it, different formats, etcetera, etcetera. Our ambition with this product is to help them to solve that specific problem. The product has been developed with usability in mind. So a lot of programs or programs and products in the market today are fairly complex. User friendliness hasn't really made it into manufacturing yet. We're trying to break new ground. So in just 5 clicks, you can actually have a complete tool assembly with this product. We've also broken new ground in the way we've built the program, start to finish in 3 months using sort of new modern ways of building digital products. So there's a lot of interesting stuff for us also internally in the launch of this product. We did the first launch for the market at IMO in September of this year, tremendous interest, attracting partners and customers in a scale that has taken others a year to achieve. So we've had a fantastic reception. Currently running beta testing. Sales will actually start next Friday. So if you're into fiddling around with tools, you can go online and sign up. Another example in machining is this product. It's the Korobor Plus from Sandvik Coromant. Sandvik Coromant launched their digital product lines or did a pre launch in 2016 and there's been more content coming out throughout this year with the Silent Tool Plus. During next year, products like this, but also combined with digital solutions around process control, will also be launched. The interesting thing with this one is that it's not only sensor equipped, it actually also has a motor that enables it to automatically adjust cutting diameters without having operators doing the manual fine tuning that needs to be done today. So there's a lot of innovation in this piece. We'll leave it here so you can touch and feel afterwards if you want to. Moving into additive and what we're doing there. And before we get into sort of the customer offering, I think it's important that we talk about the starting point for Sandvik, because I think it's fairly unique. This is a simplification of sort of what you need to create an additive product. Obviously, on the material side, and you'll hear SMT talk more about it later this afternoon, we have a world leading position in terms of providing powders for additive manufacturing. When it comes to the actual printing technology, we were fairly early in investing in R and D facilities to run not just one technology, but several technologies. What are the materials that work well for what applications? How do you mix materials and processes to get the optimal product. And then we have post processing, and this is around heat treatment, sintering and the final machining to get a good component with the right characteristics. Obviously, that's the home turf of SMS. That's what we do all day long. So from a manufacturing or technology perspective, we have a fantastic starting point. And the last bit, which I don't think should be underestimated, is the customer reach. Claus mentioned that we have 100,000 direct customers today. We have a distribution channel that allows us to reach them in 24 hours. Obviously, it's the same customer base that will be looking for additive products going forward. So all in all, we have a fantastic starting point. A lot of players wants to get into this market, but I doubt that there are many others with the breadth of capability that we have. And that breadth of capability is really important as we talk about the strategic direction and the type of products that we want to offer to the market. First of all, and it's a fairly obvious one. Again, powder is important. It's going to grow. We have a fantastic starting point. Combining the capabilities and metallurgical a metallurgical perspective from SMT with our distribution and customer reach, we think we can take that to the next level. Secondly, around manufacturing services, being the biggest part of the additive market today, essentially contract or Lego manufacturing. We think there is a point in time sort of short to medium term when we need help customers to sort of get up to speed. Long term, we don't want to be a contract manufacturer, but short to medium term, there is something there that we can offer to customers. And thirdly, on advisory services, and this I think is the biggest one and probably the more complex one. So we have a bit of a deep dive into that. Advisory services, again, from a fairly broad perspective, we believe that's the strength of our offering. 150 years of experience when it comes to metal alloys. We have alloys that are that's 30,000 feet up in the air, subsea, nuclear power plants, we have that know how. We can turn some of that into powders for the future. Again, the printing process, I'll talk a bit more about that, but expanding our capabilities of understanding different technologies, setting process parameters is going to be key. And then the whole post process development. And the key for us is not just offering these things in isolation, if we can find this combination and that's what customers are asking for. They don't know how to move into additive. And if we can help them from A to Z and get their journey started, we think there's tremendous value in that. And we see good interest from customers already. Another key target for us within Additive is obviously also enabling our own internal development and creating and building products for ourselves. Klas showed a picture of the Core Mill 3 90 early and we actually have it live here in 3 examples. One sort of old school, one additive old school material and one additive titanium. This one being 80% lighter than this one, creating significantly less vibration in operation, driving productivity up by 50%. So fantastic internal innovation for us to sell in our normal go to market models through our PAs. Again, feel free to come up and fiddle around with them later. So as you all understand, we are in sort of the build phase of our additive business. We've built centrally around the R and D center we have here in or up in Sweden. We need to continue to do that and strengthen the capabilities. But during next year, we also look to expand this footprint and establish competence centers in the key markets in the world. This could be done leveraging the productivity centers we have around the world. It could also be done through acquisitions if we find footprint in that way. That remains to be seen. But clearly, during next year, we want to expand and sort of move into the world in the space of additive. So with that, I hope I was able to give you a quick overview of the market trends that we see and the strategic direction that we're following in the space of adjacent. With that, Klas? Thank you, Fredrik. And let us fastly wrap this all together, so we can allot some time for Q and As as well then. We are a customer centric company. We will continue to deliver customer value through different processes, through different products and so on. We are technology and innovation driven company, and I think you have seen and I hope that at least you have been a little bit thrilled as I am on all the opportunities we have in our industry. It could be old school or new school. We have an operational excellence system that is a part of our DNA, and we will continue to move that forward. And then we are adding now M and A capabilities, starting to understand, 1st of all, finding a funnel, what and who should we acquire certain companies. And then at the end, I mean, you need to fall in love from both sides. I cannot promise any specific time, but I can promise you that we are working hard with it. If I briefly summarize it, we have possibilities steaming from the machining capabilities, using different ways of working, driving core and adjacent. And our vision, our dream is to move from a niche player in machining and start to embrace a larger part of the manufacturing world, delivering increased growth, maintain high profitability and returns, and this will be done step by step. Time to go underground. I'm Lars Shengstrom, heading up Mining and Rock Technology. I'll cover the first part of this BA session and then we'll go digital with Pat Murphy, my PA President for Rock Drills and Technology that will take us into the world of automation and software. A presentation in Mining and Rock Technology has to start with safety. Safety is something that's extremely important to us and we have a good record comparing to the industry. We're doing very well. We're also proud members of the Mining Safety Roundtable, where we interact with many of the mining houses, the big mines around the world as the only OEM. So it's a place to envy to be in. And it's not only that we're focusing on our own operation when it comes to safety. It's really an important aspect of when we develop products and solutions and especially, of course, in automation, which is a very good enhancement of safety for our customers. Okay, moving, please. So let's look a little bit on our products and applications to start with here. So this is an exploration drill. Then we move to surface rig, smaller surface rig top hammer, this is a pedestal drill and this is going nice. Tunnel rig, bolting rig, we're putting in rock bolts, then we have a 2 boom jumbo for mining applications, production drill, underground, long holes, A continuous miner mechanical excavation is used there. The road header also mechanical cutting. Raised border to make shafts between different levels, loader and a truck, load and oil business, then we move surface again, mobile crusher, stationary crusher. That was a fast run through of our main applications and products. We'll go on here, I hope. Right. Last year, just after the Capital Market Day, the new business area, Mining and Rock Technology was born when we merged Mining and Construction into 1 business area. Now we are 15, 16 months into the journey. We run the business in a very decentralized way. I have 8 product areas that are responsible for their profit loss and balance sheet empowered to run the business and that's where we take the majority of decisions. In front of the customers, we coordinate this through our sales areas. We have 14 sales areas and it's pretty clear that it makes sense that these businesses that very often go to the same customers are coordinated in front of the customer. The journey has been excellent so far. We have seen that the management teams are taking control of the business, drives efficiency, and I think we're well on the way. This is the team that runs it. It's pretty much the same team as I showed you prior to going into this organization at the last Capital Market Day, a few smaller changes. I think they also look a little bit older than the photos, but So, if we look at the performance then, we can see that we have a good growth, you know that. And for me, top line is one thing, but how you really assess if you're doing well is if you're taking market share or not. And of course, that's not a precise science, but we start with the aftermarket. I'm fully convinced that we're grabbing market share and I'll come back to that later in the presentation. If we look at the equipment side, comparing to the data that's available from peers that are releasing public reports, We have definitely maintained and grown in some areas market share. So I'm pleased with the top line development. Profitability last 2 quarters have been 16%. Last quarter, yes north of 16%. So we're almost at 16% year to date, meaning after the Q3. Leverage here, if we compare to last year, is more than 60% year to date. So we really and that's FX neutral then. So we really get the profitability from the top line down to the bottom line, which is important. The starting position we have, one should expect that from us as well because I don't think we did run our business in a very good way before. But we're doing now and we see it's developing. Bjorn mentioned it, we're within striking distance in an apple to apple comparison to our biggest competitor, no names, but you know who. Then it's up to you to define what striking distance is, but it's fairly close. Net working capital, 25 percent. We were hovering around 28% to 34% in 2016. So here, we also see a good development. Our business now is 72% in Mining. This is year to date after 3 quarters. Construction, 25% of our revenues. Oil and gas, 3%. If we look with the uptick on equipment now, equipment in the 1st 3 quarters of this year was 37% of our sales and the aftermarket 63%. This is year to date after September. I would say a more normal figure when the if there ever is such a thing like a normal market, then the aftermarket will constitute about 70% or close to 70% of our revenues. Commodity prices, that's, of course, an important thing. And you know from before, gold is 30%, copper around 25% in our commodity basket of our business. And here you see the development week by week up to week 45. So commodity prices with our weighted basket is on a rise. And of course, this is good for the business and the longer it lasts, the longer the trend upwards goes on, the better it is. And you can see definitely here that we had tailwind from this and that's of course driving volumes. Now I'm going to take you through a journey on our product areas and how we categorize them on the stability profitability growth scale here, And I'll also go into the business units. Some product areas have multiple business units. A business unit is something we also run with a dedicated management team, full profit loss balance sheet responsible. So it's a PA within the PA sort of. If I start with mechanical cutting, they are far to the left on the scale, but of course driven very much by coal. That's the main application for these part of potash as well. Coal market is picking up somewhat, but we don't see so much activity, at least not yet, in orders of new equipment. Rebuild, where you give new life to machines that have quite a few years on them, that's picking up. So we see more activity in the aftermarket. A lot of focus goes into the RMDS, taking this mechanical cutting into hard rock cutting, meaning being able to do rock strength for more than 200 megapascals. We now have our first machine in our own mine in Austria working since a couple of months and we're this is quite a big evolution step. So we're working on teething challenges and so on. And once this is done, the machine will go down to South Africa. From the interest of the market, we can clearly see that the market really believes in our concept here and we just have to get the initial bugs out. And there is a lot of NDAs being signed and customers being very much interested in this. If we move on to Rock Tools, Rock Tools consist of Varel, 70% is oil and gas is Varel, the rest is mining. Here, as Bjorn mentioned, that we have a very good development, a little bit uptick from more rigs in the U. S. Market, where it's about it was down on 3 70 rigs, low level in early 2016. It's up around 9 100, 9 25 rigs now. Rest of the world is very stable. That drives our business. So Varell, the management of Varell is doing a good job in focusing on cost and capital efficiency. And as you heard Bjorn saying, if we take away the part of the goodwill that's amortized, the PPA, they've been approaching 10% EBIT certain months with a healthy trend. So that's good. Rock Tools, the traditional drill steel business, big focus for us here has been working on the logistics cost. Logistics cost is quite high cost in this business and we've been working out a lot of it to improve actually the EBIT in the Rock Tools business by 2 percentage points by being more efficient in the way we distribute the products. The focus on the products go into utilizing Sandvik's material expertise in cemented carbide, playing around with different things in the carbide and also changing the configuration of the bits, how you put the carbide, all to give longer life. And here, we have had some interesting product releases. So then if we go into surface drilling, 3 BUs, pedestal drills, boom drills and exploration. Pedestal Drills to the left, that's where you do big rotary blast holes, 12 inches around that hole size. Here, we're definitely not the market leader. Our biggest competitor is ahead of us, but here we're working intensively to closing the gap. So a lot is going into product development here. We released the first 12 inches rig year ago with highly automated features as well. The larger rig is coming. It's about to be finalized and then there's more to come. So this is very much a product development focus here to get the population out there. And some people might see this as a problem. I think it's a fantastic opportunity to get it right. Exploration, small business, profitable when you run it in the right way. We didn't run it in the right way before in our old structure. We split up aftermarket parts and service and equipment in various parts of the business. And that's a recipe for not being so successful. It's now moved together under one business unit management team and they're starting to forge the things together. If you look at the market, it's not so much equipment being sold yet. There were a lot of idle rigs, but this exploration equipment being sold yet. There were a lot of idle rigs, but this exploration activity is picking up and will definitely the activity in the market will be double digit in the years to come. On the boom drills, we have a very strong position. Here, the focus is improving profitability and releasing new products where we have some parts of the assortment that can always improve. If I move into Crushing and Screening, you heard about mobile crushing, good development, pretty much following the projected path. The focus here is we pruned a lot of some of the products that weren't profitable and focus is on the aftermarket. A little bit more challenging since the business is going through dealer sales, but it's growing, the aftermarket business for mobile crushing, so that's good. Stationary crushing focuses very much on lifecycle costs on the aftermarket and reborn concepts where we rebuild the crushers and secure the aftermarket for the years to come. That's the big business here. If we compare it to the market leader here, we have had a very good solid profitability development in the last year and a half since we formed the new organization. Up to the right, you see the breaker business, small nice business of hydraulic breaker attachments going on excavators and so on, significantly higher profitability than the average of the business area and a nice business. The focus goes on to go into the right performance segments with the right product and to line up more OEM sales where you sell these to people that do excavators and so on. So very healthy business. If we then go into load and haul, this is really now we come into the hard rock underground. Here, we're doing extremely well with our larger trucks and loaders and it goes well for the range. Before we introduce the 51 and 63 tonne truck and we have them in I Series, meaning ready for automation, We're going to repeat the same process now. So in December, I'm going to Perth in Australia for the launch of the corresponding loaders with intelligence in. So it's going to be 14, 17 tonne in December and a 21 tonne coming out shortly after. Of course, electrification of gear is coming here. It's starting on the smaller gear due to battery capacities and so on. What we're now looking at is we're taking a little bit of a different approach to the mainstream here. We believe that what you see in automotive will also happen here in underground mining, meaning fast charging of batteries. We don't believe that the market wants significant battery packs that has to be swapped and you have to keep spare in the circuit and you have to excavate to have space for them and so on. So we're going for fast charging where you basically could charge a battery in 15 minutes and the battery stays on the vehicle. Our first machine on this concept is now in Canada for proving itself. This business is also very much maps on where they're going. I think you need to have that in this fast moving area, but you also need to stand on a very solid platform. More than 200 machines that have been automated over the years for us started in 2004, more than 25 customers, the machines have clocked up more than 2,000,000 lost time injury free hours and that probably would be interesting for others to compare themselves to. Underground Drilling, another very well run business. The aftermarket here is also very important. We see clearly that we're doing well here. We launched, let's talk a little well, it's big pickup. You heard Bjorn saying it's more than 100% ramp up of capacity here. And we're having our hands full doing that in Tampere and Leon now, ramping up, adding satellites, adding short term people to get the stuff out. If we talk about electrification of vehicles here, we were launching the DD422 iE that you see on the picture in Las Vegas in October in 2016, and it's going very well. Canada is driving the electrification and we sold units there, but also in Sweden. So it's not it's an evolution process. It's not like this replacing diesel equipment overnight, but the journey starts. Okay, let's go on. One more click. Aftermarket, we talk a lot about the aftermarket and you've seen that we have mid teens growth rates in the aftermarket in the last couple of quarterly reports. What is it that we're doing in the aftermarket? Well, it's really no magic. It's hard work based on fact, structure and execution. So it's not a magic recipe, but this is something we've done over the years now. It's all about knowing where the fleet is, how the fleet is run. Once you know that, of course, you have a good start. Then you couple it with your sales and you have consumption models. A loader that's run this way should consume that much. And of course, you need to know how the equipment is run, under which condition. So basically, you get then market share by spare part. You can know market share by part in theory and then you can start to address your potential. We also have worked a lot and as a part of the execution, you need to have the products. So we have globalized products, we have service and repair kits for components. We have Sandvik, Gengren, lubrications. We have different products and services depending on product and application. We're still working with the dealer structure to have products for the part going through dealers that is tailor made for dealers to sell and you could go on. Of course, different kind of rebuild, reborn concepts. It's very important. We put service people closer to the equipment in order to service them. In our customer support centers, we see more and more business coming in through our e commerce platform, almost 50% of the over the counter order lines come in that way and the customer service centers are changed to be proactive to working with developing the aftermarket with proactive things. Then it's strong execution, as I said. It's about having the systems, the structure in place, identify where is the gap, take ownership, have a plan, close the gap by doing the right things, utilizing the product assortment. It's nothing more than that. It's no magic. It's just hard work. That's what we're doing. And here you can see up there that it's really paying off. This is the orange line shows the weighted commodity production development and the bluish line is showing what kind of development we have over the years here. So here, we're really taking market share on our own equipment, which is good. And just to say why is aftermarket important? 1, it's always there. 2, it's very profitable if you run it the right way. 3, the most important thing, it's the best way to sell the next fleet of equipment. That's where you win or lose the next battle for the next fleet. I am knowledge. I was born of data, the seed of all knowledges. I am certainty instead of an opinion, the firm foundation, the pedestal to build your success on. I am the one that gives you the means to make smart decisions. I am insight, and I am awareness from which understanding and expertise stem from. I am a true boost to your productivity. Functionality and performance depend on me. Still, despite all of my qualities, I am nothing on my own, but everything with you. I am knowledge. Meet me at my Sandvik. I was hoping for mobile phones with a flashlight on, but I guess I didn't get that. No, seriously speaking here, the digital is coming in here. We have digital portals now, so you can really hook up if you're on such a subscription and have the equipment with any device starting to get information, Sandvik Insights, Sandvik Productivity Reports. And eventually, this will also be used for predictive maintenance. So with this portal, you can easily draw real time data, you can get location tracking, you can get productivity reports, volumes, engine hours, bolts set, so on and so forth, alarms of the equipment if something is wrong, You can get service bulletins. You have your tailor made spare parts book for exactly the piece of equipment and with the configuration you have. You can easily order, you're hooked up to the e commerce platforms, you can easily go in there and choose what you want to order and so on. So this is something now where we have more than 600 pieces of equipment hooked up. This is going out basically on with all new equipment. So we have more than 1,000 customers that signed up to be utilizing this. So this is going to be a very important tool in the future for how we conduct our aftermarket business. And then to segue into, I think, what is the main attraction here in our business area, the automation presentation, We work a lot with this. We have a very solid position, as I tried to explain before, giving some reference data about our installations. We have worked with establishing our digital strategy and there are 3 pillars. The one to the left is about automation where the machines can start to replace what the operator did before with better repetitive functions and you do it the same way, it's leaner to the equipment. Then the connected equipment, which I've been alluding on, how important it is with My Sandvik. And then eventually, the strategy where you basically use the connectivity and start to really process the data in a meaningful way that gives the customer higher productivity to lower cost. And that will be my segue into Pat. So you will take over from here. Please. Thanks very much, Lars. Again, my name is Pat Murphy. I'm the President of the product area, Rock Drills and Technologies, which the automation business unit sits as well. So just to recap a couple of things that Lars just mentioned. This is our digital offering framework, how we think about our digital offering in SMRT. And it's a product of a strategy work that we started over a year ago. We launched internally in May 2017 and then externally to customers in September 2017 to help clarify where we're going with this and where we're investing as well. Digital is a very confusing topic sometimes. There's a lot of different buzzwords in the industry. We thought it very necessary to make a simple framework that everyone could talk about employees and customers alike. So just to recap what these are and just with a couple of examples. Autonomous equipment and features, for example, we have auto mine loading and hauling automation production system, as Lars mentioned. Connected equipment, the best way to think about that is we're connecting the installed base of our fleet into the industrial Internet effectively. And the main offering we have there is MyCemic, which is a customer portal, has a business B2B e commerce functionality. As Lars mentioned, electronics, electronic part catalogs, also basic reporting as well, how many hours the machines are accumulating, etcetera. And then our more enhanced, let's say, information management system is in the 3rd pillar called analytics and process optimization. We have long been selling process optimization software, but this is really coming together now on a platform that we call Optimine. So I'm going to go into Optimine a little bit more detail in just a minute. So first of all, why digitalization? It really comes down to 3 things. When we talk about mining and construction customers, we're going to improve health and safety, reduce cost per tonne mined or meter drilled and increased productivity as well. Those are really the three things that our mining customers want when they approach us for digitalization discussions. On the right hand side, you'll see a more granular description of some of the benefits of digitalization and I'm going to be taking those in turn in some of the following slides. At the end of the day, it's about increasing the transparency into the mining operation and then where you identify opportunities to do things like continuous operation, run the machines over shift change, run extended hours on the machines, avoid downtime through predictive analytics as Lars alluded to, and overall increase the optimization of the operation. So if we take that last one, it's a good segue into Optimize. So that's the 3rd pillar, analytics and process optimization. I'm going to start on the right hand side here, where we have a suite of software tools and technologies that we call Optimize Short Interval Control. Short Interval Control is not a term that Sandvik has invented. It's an industry term for how you actually control what you're doing in the shift in the mine during the current shift so that you can affect what happens in the next shift of the mine. So you're basically increasing the clock speed of the operation effectively by providing transparent information. So we have specific software modules there available in the OptiMine umbrella. Location tracking is where you can basically track your assets around the mine where they are. Sounds pretty funny, but in a lot of cases, it's very difficult to find out where the machines are, especially in a big mine. Some mines have a couple of 100 kilometers of workings even. So if you can find the machine when you're starting the shift, that's a good thing, generally speaking. That means you can get to work faster. Location tracking helps with that, and it's got centimeter precision accuracy. Actually, it's the same navigation, location tracking technology that we use in our automation system as well. And that's industry leading. 3 d Mine Visualizer is now a more enhanced 3 d Mine model development tool, where you can map with laser scanners as you're driving around the 3 d workings. And that helps to feed in not only to location tracking, but you can also do things like calculate automatically the amount of rock excavated. You can determine if your previous blast has gone to plan or not and that allows you to make adjustments for the next shift. So scheduling is kind of like a Gantt chart tool that's it's OEM agnostic. It doesn't matter if you have a fleet or not to be able to use this. Of course, we prefer that it's a Sandvik fleet, but it's not absolutely required to schedule what's happening in the current shift. So it's a short term mine planning tool. And then linked to that is task management. So we can send to operators underground or on surface via mobile devices, whether they be tablet computers, whether they be mobile phones, commands and tasks to do based on input from a mine operation center where somebody can see the big picture of actually what's going on. And by the way, the people with those tablets can also see where they are on the mine as well, kind of like a Google Maps for underground. We have a drill plan visualizer and that shows not only the orientation direction of where you've drilled based on your original setup, also the type of rock that you've been drilling in. That's why you see a color gradient there. So that's useful if you're doing, for example, Alars showed the picture of the long hole production drill. If you'd be drilling into ore and you would want to know how to correlate the drilling data to the grade that you're drilling, that could be a useful piece of information that you could feed forward to the mill, for example. That's what drill plan visualizer is about. So those are more or less tools that are based on local servers at the mine sites. But now what we've been doing for the past over 12 months is developing this new module called Optimine Analytics. And that's about putting the digital plumbing in place to get all the data continuously flowing from the underground mine operation into dashboarding and into, in fact, what we call our mining IoT hub, the cloud service. It's actually run on Microsoft Azure currently. But with Microsoft and with the help of IBM and their predictive analytics engine, we've been building predictive models on what the machines are going to do in the future and in terms of their life cycle component health as well. So Lars mentioned that's predictive modeling is quite useful for gaining insight into what's going to happen. That's very useful from not only a short interval control point of view, but also a medium term planning point of view as well. You'd like to know if your machine might be unavailable in a couple of weeks' time. So of course, that's all about to be able to leverage that, you need to have a lot of data. And that's an area that we believe we're uniquely positioned as an OEM compared to any third party who would approach this type of software. And there are, of course, many of those out there who are bringing Internet of Things platforms to the mining industry. So this is all very exciting for us. We've been piloting Optamine Analytics now with a couple of customers with very good feedback and results. And it's important to mention that it's also integrated with the customer digital ecosystem, meaning that there are open interfaces there. We recognize that we don't control the total software suite that's available at the mine site, okay? There's many different players. There's ERP systems. There's other types of safety systems. It's not our goal to have the total end to end scope of software used at the mine site. So this software has to be very easy to interface with all of those other systems. So that's what we've created Why do we do this, you ask? Well, because it helps us to get a lot closer to the customer, helps us to understand what's happening with the fleet, it helps us to improve our products and helps us to gain better aftermarket share, all of the above actually. Stepping back just once again to look at the benefits of digitalization. This is an interesting way to look at the productivity gain and how that can arise. This is an illustrative production profile originally furnished by one of our customers, Bowleden, and then we've adapted it and modified it a little bit. But it just shows the concept of how the production rate at the mine site typically fluctuates over the course of a 24 hour period. And it does that because of many reasons. There's shift changes. There could be delays. I mentioned the trouble sometimes in finding equipment. There could be scheduled losses. Maybe the operator is not rostered for that particular day and not available. There could be unscheduled losses. There could be unplanned breakdowns as well. So this is the kind of variability that you get when you look at our production profile. So by applying digital technologies, remember again the 3 pillars automation, connectivity, analytics and process optimization. Then you can fill in those peaks and valleys. You can enhance production where production did exist. And in fact, you can put production where production didn't exist by filling in those valleys as well. So this smoothens out the production profile. It enhances the production profile and creates a more predictable situation for the mines, which is something that they really, really value. So if we put all this together and look at the digital ecosystem through the lens of the mining applications that we serve, those being drilling, loading and hauling, crushing and screening, mechanical cutting, for example. Then this is how we look at the digital ecosystem when it comes to surface and underground mining. This is obviously a fictitious mine. You would never be deploying all of these types of equipment in the same place or you'd never be running like this vertical shaft next to this open pit only at that depth, for example, but it just illustrates the point. If we take the bubbles one at a time, let's talk about some of the things that we have going on here. And by the way, this is not the mine of the future. This is the mine of right now as well. So we've deployed these technologies in various mines around the world. We have the truck, the TH663 driving up the ramp here under automation and continuously supplying data to the operation center at the surface on the right hand side. We have a loader fitted with a 3 d scanner for the purposes of mapping the mine and detecting any changes that might have happened since last week or yesterday or 2 months ago in terms of the tunnel that might be converging, for example. We have a drill, a long hole production drill here providing data about the ore body back to the control center for the purposes of crushers as well on the right hand side to ensure the right fragmentation is actually going up the shaft and going to the mill. So all of these assets are providing data. You'll notice that some of the assets there are from other people as well. They're not all orange. Some of them are white as well. So that's really important in this type of ecosystem that you have interoperability when it comes to information exchange as well. The other thing that's very important to recognize is that all of this data is collected in a network system. It's delivered to an automation control room. In this case, it's AutoMine control room on surface, an information management system. So OptiMine is being run on the bottom right hand side here. And then both of those systems are exchanging that information with Sandvik's basically IoT mining hub to make sure that this particular customer gets the best advantages out of the equipment based on what we've learned elsewhere as well. So it's really critical that you have the connectivity to be able to do this. And on that note, we'd like to announce a new global partner today, which is Cisco. So we've been working with Cisco for a little while now, some months. We've been testing components. We've done some customer deployments with Cisco. And now we formalize this into a partnership as well. And I think I already discussed what we bring to the table, but Cisco is obviously a leader when it comes to networking technology and networking security. One of the most important things we do when we deploy an automation system is we need to guarantee a certain amount of uptime for the automation system itself. So by bringing Cisco to the table on these deals, we have the ability to give a very high level of assurance of reliability of these networks that the automation systems run on. So we're very excited about this. So if we talk now, something I'm guessing you're probably quite interested in, which is the commercial logic of the digital offering as well. In this one slide, this sums up how we think about it. So if we look down on the bottom left hand corner, premium pricing and market share, I mean, that's obviously key for us and that's kind of the way right now that we're capitalizing in the best way on this technology. We get technology leadership. We get more and better tonnes and safer tonnes for customers and that makes us a lot more competitive. But of course, whenever we put in something like OptiMine or something like AutoMine, we also generate digital revenue, of course, from the project implementation, license and service fees that go along with that as well. And then, of course, in the case of My Sandvik, we also get an enhanced we facilitate the order of parts for our customers as well, which also creates additional business for us. When we put a machine on automation now, looking at the 2nd tier, we talk about additional revenue and profitability. A lot of people don't think about this. When you run the machines on automation, they run a lot more hours. That generates a lot more consumption of consumables as well. So that's additional business for us. We also have contracts in place where we pay for performance. Those are typically related to things like uptime or more typically things like availability agreements that we have in place to maintain the equipment aftermarket for the reasons that Lars just mentioned are very central to our commercial logic of digital here. If we look at the 3rd tier, new sources of revenue, we don't have any of these in place right now in terms of gainshare, but if we would be working with a customer and the customer has an objective to increase their productivity by X, we're looking at ways to engage in contracts there where we would then agree to if we were able to achieve that target, then we would be entitled to a certain portion of that benefit as well. And it's no doubt the case that we've expanded the market size already with these technologies. In other words, we've made ore reserves that have been marginal earlier to mine. We brought those into the realm of feasibility that we can actually mine those now because of the fact that we're able to drive the cost per tonne down by deploying these technologies. Okay. So this is this in a nutshell tells about why we see the benefit to digital here. So the customer gets a lot of benefit, But to the extent that we're the leader here, we can also get a lot of benefit ourselves. And just to give you a concrete example, we're not talking about something theoretical. We have many examples, but this is a really important one for us. We have a very progressive customer Resolute Mining, who is listed on the Australian Stock Exchange. They're a gold miner. They have operations in Australia and in West Africa as well. They approached us for an automation production system for their greenfield gold mining operation in Mali in West Africa. And a few years ago, that would be an area of the world that probably wouldn't have come on the radar for automation. It has historically, up until the past few years been very much restricted to the realm of, let's say, sophisticated Western mining operations. But now Resolute, unlike a lot of their peers in the industry, they've seen the potential of this technology. It's proven technology. And in fact, it's required that they use this technology in order for them to realize their all in sustaining cost per ounce of gold mined as well. So this is a key part of their business plan, the fact that they've adopted Sandvik Automation. This is their slide. We didn't make this slide. They graciously agreed to let us use this slide, but this lays out some of the rationale of why they would turn to Sandvik for an automated production system. And again, I'd like to highlight here a couple of times it appears proven technologies. So these are not things that are in the future. We've deployed the systems. We have them available. We're working with customers like Resolute to deploy them now. So we asked the CEO of Resolute and he was more than happy to oblige to just give a short his short comments about why they've selected Sande because of partner here. So we have a short video that I'll end the presentation with. This is John Welborn, CEO of Resolute Mining. Resolute Mining Limited is an Australian gold producer. We've been exploring, developing, acquiring and operating gold mines for more than 28 years and have produced 8,000,000 ounces of gold. Currently, we operate the Syama Gold Mine in the South of Mali and the Ravenswood Gold Mine in North Queensland, Australia, and with the owners of the Bibiani Gold Mine in Ghana. I think digitalization in mining is a great opportunity. For Resolute, it's a fantastic way of us focusing on productivity and the priority we have in reducing the cost of our operations, mining industry promising wonderful improvements. From Resolute's perspective, we have the advantage of having a long history of technical success in operating gold mines. And we need to be very careful about choosing the right technology that's going to result in absolute capital savings and or operating costs and safety improvements. And that's what we're focused on. In reality, for the sublevel cave that Resolute's building at Syama, Sandvik are the only equipment provider that can offer the full suite of equipment in an automated setting that we require. The ability for Sandvik to collaborate with us, with Resolute in the design phases of our underground mine has been really important. Not only is this around the equipment we're going to use and how we're going to operate it, but it's the actual design of the underground infrastructure and the ability to match that with our ambitions to have an automated mine that uses equipment provided by Sandvik that operates in a way that's going to increase productivity, lower costs, provide safety benefits and be a genuine mine of the future. And that's the unique capability of Sandvik and the partnership that we're working on. We have an ambition to grow our portfolio, to operate long life mines at low cost. And if Sandvik are providing equipment that has the productivity gains through automation, through maintenance savings and through safety benefits that we're expecting and hoping for will be a more profitable miner. We'll expand our operations both at Syama and in the region, And we'll have a mutual relationship that builds value not only for Sandvik, but for Resolute, our shareholders, our host countries and all of our stakeholders. And that's what we're working towards. So not any summary slide, but just to try to wrap it up a little bit from the BA. We're pleased with the development in the 1st three quarters. You can always do better and that's our ambition, of course, to always improve the way we do things. Then sometimes you have tailwinds, sometimes headwind in the market. And it's pretty clear that we have had tailwind in the 1st three quarters. But I'm pleased with the way we've taken the bottom line down to the profitability line as well. We reduced our net working capital. We're growing the so important aftermarket and that's something I'm religious about for the three reasons you remember, but I'll repeat them. It's always there. It's very profitable if you do it the right way, and it's most of all the best way to sell the next fleet of equipment. So we will stay religious about that, working on it. We also there's definitely our organization is young. We only had it for 16 months. And as Bjorn described on a question earlier that having this big ramp up in volume in most of the PAs, especially the equipment PAs, of course, that takes a little bit of focus away from the continuous efficiency and process improvements. So there is an untapped potential for the future there definitely. And then finally then going back to where Pet ended up, we see much more activity on the automation side. The mining world seems to be moving in the digital direction like the rest of the world and that is good because, of course, to be successful there, you need to have proven equipment that can be automated and you need to have a solid experience of actually doing it. And I can only echo Jan Wilburn even though I'm probably a bit more biased than he is that we have that capability. And something that we sometimes forget to add to the picture, we have a third very important link to this that we have a set of mining expertise people that we call transfer mine in our business area that can go out like, of course, they're branded, but they're really seen as a consultancy firm and they know a lot about mining processes and best practice and they naturally fit into the equipment and the automation experience when we go to mines like Siamine, Mali. So it would be an interesting development here, but I'm sure that automation will grow even more important in the future. Welcome to the S and T part of today's Capital Markets Day. My name is Bjorkmann and I am since 3 weeks back the President of Sandvik Terriers Technology. This is the agenda today. I will start with making a short update on the business area and then move into our current situation, our current performance or maybe I should say our current poor performance and then guide you through our portfolio. And to do that, I have a help with Michael Anderson, who is Head of Product Area Tube and Annika Roos, who is Head of Product Area Powder. But first, let me introduce myself, Joremkorikmann. I have spent my whole career in the Sandvik Group and actually I started in SMT where I spent my first 18 years running tube production. I've been Head of Tube Finance. And before leaving to SMS and Sandvik Coromant in 2008, I was Head of Primary Products. In Sandvik Coromant and SMS, I have been leading the production unit consolidation program, the lean efficiency program with good success. And now back to S and Ts in 3 weeks. A red thread through my career has been operational excellence, performance management, strategy design, strategy execution, a lot of change management. And I think I've got I have a strong okay. And I think I've got myself quite a challenge here, and I think what I've been doing in the last 27 years will be good to have also going forward. The business area. We are, as you know, a high value added company in Advanced Alloys and Advanced Materials. Looking into the pie charts in the middle, I think there are good opportunities to grow our business further outside Europe. Looking into the how the share of advanced alloys are, we certainly want to and need to increase that share. We're pretty CapEx heavy when I look into our segments. And of course, that is due to our strong position in the Energy segment being Oil and Gas and Nuclear. We have recently made adjustments to our organization. So this is our current setup where we now have moved a lot of both resources and responsibilities from central functions out to our 4 product areas, tube, kanthal, powder and strip. With this, we have moved decision closer to the business and increased accountability. I will be back on that, but I think this is very important enabler for the journey I see that we have ahead of Our current situation, this is not the most proud slide. And of course, being only 3 weeks on this job, I will not be able to give you a very detailed and comprehensive strategy. What I will do is to share my view and initial findings on the business area. This development with reduced revenues and which has hit our profit margins and profit levels a lot is, of course, not satisfactory and not at all acceptable. There has been taking or we have taken mitigating actions. Mikael will describe much more of that from the 2 perspective, and I think those decisions are the right ones. But sorry to say, those decisions should have been taken about 2, 2.5 years ago. So we are late. And it looks like SMT has been betting on an increased oil price. And I think going forward, we need to secure that we can be profitable on today's levels around $50 to $60 per barrel and also prepare for an even worse scenario. During my 1st weeks, of course, I've asked a lot of questions and I've received a lot of answers. Based on that, I think I can see that we are not at the level when it comes to operation excellence and commercial excellence that I would expect. It looks like if I start with the operation excellence, it looks like we have a kind of a the program culture where we do nothing, we do nothing, we do nothing. And then when it's too late, we act and then we have to act big. Not only that, that means that you're always late, it also costs more and it takes a lot of energy the organization. My way of driving operation excellence is quite different. This is something we need to do every day, every week, every month, every quarter, every year. And I think we're also setting clear expectations that the organization needs to deliver on. Even a flat volume scenario, we need to improve competitiveness, meaning that in a flat volume scenario, we should improve our own productivity, beating inflation and improve cost efficiency. That is not the case right now. Looking at commercial excellence, I think we have some very fantastic products and in some cases excellent market position. And I think we have a responsibility to lead the price game in those areas and I'll see opportunities when I ask around in my organization. On top of these internal challenges, there are, of course, also external challenges, oil price as I want to mention then, But also we see increased competition in Asia. We see Chinese competitors climbing up the value chain. There is also opportunities. We have strong industry economic fundamentals right now. There is a transition to powder. Annika will describe that much more. Also a move from gas furnaces to electric furnaces, I think we're also well suited for the sustainable offer. But maybe or I'm sure that at least short term, the biggest opportunity is to turn weakness into strength. I will address operation excellence. I will address commercial excellence in a very clear way and focus much more on strategy execution than making plans. The actions that we have already taken, are they enough? Once again, only 3 weeks. But if I do my math, looking at where we are and where we need to be within 2 years, having a couple of years of inflation, my conclusion is that it's not enough. So of course, we need to prepare for more. Today, I will not be able to tell you what that is, but of course, it's about cost. It's about good leverage on the growth opportunities we have, but I think also we need to look in to our footprint and our cost structure. As I mentioned, I have been leading the operation excellence and the consolidation program within SMS. We managed during these years to deliver and actually also over deliver on our commitments. And during the years of, I mean, 2014, 2015, 2016 with the volume headwind, we still managed to increase gross profit during those years. And I see no reason why that should not be possible also in S and T. Moving into the portfolio. Mean, it's clear that we have 2 product areas that generate value and we have 2 with issues. We start with the positive ones. Powder, I mean, the only focus on powder now is to grow, of course, grow with good leverage. I will not destroy your presentation, Annika, you will describe that. Looking into Canthal. Canthal without wire, which is now under divestment, is a decent or good business, whether you're around 12%. And there's great growth opportunities in Cantal. And of course, I will expect a healthy leverage on that growth and that is the main priority for Cantal. Moving into the ones not performing as expected and I'll start with strip. Strip, I think Strip is just underperforming. Looking into Strip, there is lots of operational issues, quality problems, lead time problems, output from bottlenecks, etcetera. Of course, there is also a need to refresh the product portfolio, but a lot of operational problems. So for me, Strip is somewhat of a turnaround case. And I've been very clear with the strip leadership that my expectation of strip that they should be above average on profitability for the business area. Moving into Tube. Tube is more complex or at least it's bigger. So tube, we need to look at from 2 perspective. We have one very profitable part, the specialized part is the oil and gas, it's the nuclear, it's the rock free, steel, etcetera. There, of course, the focus is to grow. Then we have the standardized offering, which is underperforming. Many of the mitigation action is addressing that question, and I will not destroy your presentation either, Michael, but I think improving cost positioning and I think also improving, I would say, mix optimization between the standardized and the specialized, that is one of the strategic nuts to crack for us. So looking at the total, if you love strategic implementation, this is the perfect job. We have some of the businesses with good profitability, good growth opportunities and there we need to speed up and execute on those. Then we have a number of businesses which we need to turn around. And as I said before, mix optimization is one of the important parts. I will come back and make a summary after my colleagues has made the presentation of Tube and Powder, but thank you, Froson. Michael? Thank you, Joran. Let's go to Product Area Tube. My name is Mikael Andersson. I'm the Head of Product Area Tube. And as Joran showed, since the change of the organization, the full supplier of long products and seamless tubulars in advanced materials. Product area tube is around SEK8.7 billion on sales and is directed to 50% towards the energy industries. Naturally, this exposure, considering what has happened during the last years with the falling oil price traded at 62 today, but being down at 30 2015 has brought this business into a very low level of profitability, not in comparison with targets nor with historical proven levels. And obviously, that is my key message here today, how are we going to address this, especially considering the description of the 2 bubbles. Tube is big and there is one profitable forward looking part and there is also this standardized part that is underperforming. And I'm the first one to agree with Joran, we were too late on taking actions on that. I will share those actions as of today. There are two sides of addressing the standardized business. One is traditional cost cutting, no fancy stuff here. The second one is related to a more proactive and forward looking activity. We start with the left side. This is the cost adjustment side of the standardized business. So we have started a manning reduction. We're aiming for that for the main site in Sweden, in Sandviken, our biggest site for this organization, reducing the staff headcount with 20% or similar to 210 jobs. The second part is aiming to reduce A and S costs for this standardized portfolio, a portfolio that is advanced to some extent, but is carrying just too much of ANS considering the type of portfolio. The third part of this is a structural review of the distribution infrastructure. This has so far rendered in a conclusion to close down our operations of distribution in U. K. And further out, we have also launched a spend cut program in the main site in Sweden of 10% aiming for savings there. I will get back to this. The other side, regionalization, decentralization and partnership. The whole Sandvik is going through this decentralization and so for Tube And one component of that is decentralization on a geographical perspective. So being a big organization, the standardized part, we have broken that down into 3 regional business units. And why are we doing that? Basically, to enable a stronger accountability for the business, being closer to the markets we are serving, making quicker decisions and taking the responsibility for that business and the result. 2nd one is around local offering and sourcing. This standardized business is also carrying a significant portion of net working capital. And we are now looking, thanks to the regionalized business units, to identify opportunities to find sources of raw material also in the regions, partly disconnecting us from the traditional way of sourcing everything from the Swedish metallurgy and the melt shop. At the same time, we're looking through the go to market models, very much changing from a perspective of a go to end customer perspective, going more on this standardized portfolio for a mill to distributor model. And this is also one of the reasons why we have made the conclusions about the U. K. Operation right now. Finally, I think I mentioned the partnership. It has been a time when S and T always have thought being alone is the strength, but I don't think that is the truth going forward in these fast moving markets. To put some timing perspectives on this program, Joran mentioned there has been many programs in SMT. I'd like to give you an update where we are in this activity list. The first part, the regionalization, that was launched in January this year, and we are currently up to speed in all the 3 regions, in APAC, in EMEA and in Americas with full business teams and business leaders taking the responsibility for the business driving the needed actions further. We have also launched that cost adjustment in the the negotiations the negotiations with unions, meaning first redundant employees of those 210, which we are also reaching according to our ambition, will start leaving the company already now in quarter 4 as we are speaking, where the majority of those 210 will leave throughout quarter 1 and quarter 2 and a small portion also in the second half of twenty eighteen, realizing the savings identified in that part of our activities. Finally, the supply chain and go to market has already started. As I mentioned, the first out was the identification of what we need to do with the distribution operations in U. K, but that will continue, especially for the European business. And finally, the last part of this short term program is the local portfolio adaption and partnership for regional material supply. So having said that, there is not only the standardized part of our business. I would like to take a chance to make a comment about considering our exposure to the energy industry and especially the oil and gas industry. This first picture of the oil price development is nothing I need to lecture you about. You're all very well aware of that. The fact is that this is something that we look on as a macro indicator telling something important for our business, but that is not the point here. I would like to make yet another point, especially towards our subsea business in umbilicals. And that is the fact that even though we have seen this price fall in especially crude oil, we have continued to see a steady flow of projects going all the way to awards when it comes to gas field development. And that is important for us because that is also part of our business. So if I look at how we look at the consequence of the current situation for oil and gas for our sake, for the Tubular business, The Subsea is seeing for us now a slow recovery after the cost adjustments in the supply chains, and I will share a few pictures on that more specifically on our umbilical business. The conventional onshore very much focused to Middle East, For us, that means advanced oil production tubing. We do not see that coming in growth coming 2 years. But forward looking, it will be a moderate activity for us. No record years, the coming years for our oil production tubing. But from 2020, we see a pickup of that. Downstream is maybe the good news, and that is something that also gives us some tailwind for the standardized business. Here, we see a change in behavior from refinery side, petrochemical side, where going back to practices around maintenance and investments are looking better. And we see that in our order intake through quarter 2 and quarter 3, telling something about increased prices and better mix after a period where that has been very tough and very hard when it comes to downgrading on materials. So all in all, it's not only about the oil price for us, it's also about the dynamics of the gas field development, very much more related to national interest of power generation supply. So this was a picture shared with you, those of you that participate last year in the Capital Markets Day. This is a picture of our project funnel or our picture of the project funnel for subsea umbilical projects. And it has 2 characteristics. One is the development, the funnel perspective from design, tender, decision and award and the other one is the type of natural resources we identify in those projects. So behind all these bubbles, there is a named project in a specific geography. The blue ones are gas development fields. The orange ones, they are the oil fields and the gray ones are oil and gas mixed. And it made sense to share this last year considering the uncertainty in the industry. And of course, it was very unsure how much would be landed from a Sandvik point of view during the year. Today, we know the answer on that. So this is the updated version of the same picture And we can first make 3 conclusions from this. The first conclusion I make is, thanks to the very strong position we have in this specific industry, we actually managed to capture all the important projects securing a good load and revenue going forward. And last month, we announced to the market also that we was awarded the 2nd largest umbilical project ever, which was, of course, really nice. But the second part is also about this. We see that even going forward, there is a healthy funnel of projects that will not be the best of years, but it will definitely not be the low point either considering how it looks. Both big and small projects are in the funnel and are expected to pass through the project funnel. And of course, the last point to make here is related to the relation between gas and oil. Once again, we see that the majority of the bubbles are blue bubbles, And that tells us something about we will continue to capitalize from this development of securing oil gas field development for national interests. And that is important part of our umbilical business. So making the last comment, making a few words about our niche products. I actually brought 2 of them with me. Some are really big, so I can't show them, but these are 2 very interesting ones. Now there are great opportunities also looking forward. As you remember, there's one part of Product Area 2 that is profitable and should grow. I'll start with this example. This is a control line. Control line is a niche product. Funny enough, during this crisis in the oil and gas industry, there has also become a very strong push, of course, for cost efficiency, increased lifetime of wells, higher integrity of wells and because of that also movement towards smarter wells with more intelligence and more control. And our product, the control lines, which is actually an This is the nerve system between the software, the top site and the bottom of the well. How to connect these two entities? It's an extremely important component, and we have been very successful in expanding the business of this product. The way we do that is through small investments, very capital efficient in key regions, offering the oil service companies a way to find a standard for a high quality product, but with a local presence. And we started this in Brazil. It was a success. So we're now expanding that towards other key hubs in other regions in the world. The second example I will show, and then my time will be out, I think, is a digital tube. For you, it looks like a normal tube, I suppose, from the distance, but this is an innovation. Imagine a tube with integrated sensors. This is a seamless tube with integrated sensors capable of capturing real time data in any industrial process, may it be a heat exchanger in a refinery, an umbilical or a steam generator tube in a nuclear power plant. The innovation is, of course, partly the technology how to integrate sensors into the walls of a tube. But the second part is naturally also the business model we are looking at capitalizing from here. It's not the product. This is a service for us. This is a way where we can offer a way to optimize processes for our clients. And this is just about to be launched. We have it in trial for a couple of commercial sites and it has shown really good results. So I'm looking forward to what this can bring from a growth opportunity. And I will place them here. You can take a look at them afterwards if you'd like to. And by that, I would like to say thank you and I hope I helped you to see a little bit more about what's in the plans for Product Area Tube considering the challenging situation. So now we're going to talk about Powder. Welcome, everyone, or good afternoon. My name is Annika Roos, and I'm Head of Product Area, Powder. And this is a new product area within Sandvik Materials Technology and also the smallest one. Since this is a new product area, I'm also new in my position, and I started in this assignment in September earlier this year. But I'm not new to Sandvik. I've been here for quite a long time, starting more than 30 years ago, and been in different positions in different business areas along that time. Powder Technology has been part of Sandvik since the end of '70s. And while this is a minor part of the business, we also see a very interesting growth in this area. Metal powder market is growing in more than 10%, and that's why it's a very good business for us to be in. We heard earlier Fredrik Wegorden from SMS talk about additive manufacturing and the opportunities that we have within Sandvik in this area. And the powder from my product area is a very important enabler to make these plans come true. So what is it that we really do in product area powder? We sell and produce more than 1,000 different grades of metal powder. And of course, this is a very good platform for us to grow from. And my assignment is to grow this business as quickly and effectively as possible. So what part of the market is it that we are addressing? We can divide the powder market in ceramics and metals. And here, it is the metals part that we are interested in. Also metals part, you can divide into different segments. We have low alloy and tool steels, and that is not what we are interested in. We are focusing on the advanced alloys and stainless steel areas. Here we find alloys based on nickel, cobalt, titanium and of course also stainless steels well, advanced stainless steels, and that's where we today are market leader. Also, this segment can be divided into different type of powders. We have coarse powder that is usually used to produce net net shape components with a bit of larger sizes. There is fine powder used to produce near net shape components of very, very small sizes. And then we have additive manufacturing that is a little bit in the middle area there. And we can supply a powder for all these type of areas. And to do so, we have 3 different sites. The biggest one, it's located in the UK in Neves, where we primarily produce the fine powder, which is a specialty. We also have a plant in Sandviken in Sweden and also in Surajamar. And as you see, the different type of coarse fine powder and also powder for additive manufacturing, we see fairly good growth numbers. Powder Technology brings a lot of value to customers, and you can see some examples listed in this slide. Here we have seen examples of drastically reduced lead times. We see reduced production costs and we see the possibilities to produce designs and material properties that's not even possible to produce today with conventional production methods. And of course, our unique metallurgy will be a very good asset to develop new alloys in this area. But for our customers to be able to utilize all these advantages, they need to process the powder. And then there are different type of processes that you actually can use. We talk quite a lot about additive manufacturing, and that's only one of it. We also see metal injection molding, spray forming and hot isostatic pressing, different methods that are used to produce components. And we provide powder for all of these type of processes. The focus is to grow our external business, But we also have a very important role internally to help different product areas within Sandvik to develop powder technology also in our own processes to benefit from what the powder actually can offer. So what I need to do to accelerate growth and to maintain our leadership is summarized in these four bullets. First, we need to expand capacity and also build further capabilities. We need to do more of what we're doing today, especially in the stainless steel areas, but we also need to build the capabilities knowledge into new areas. And here, one of the focuses is titanium. This we need to do organically, but we also need to explore our opportunities in partnerships and acquisitions. Together with the Additive Manufacturing product area in SMS, We need to continue to build competence in the Additive Manufacturing area. And also, as mentioned, it will be very important for us to build up the knowledge and our internal capability to use the light powder technology also in the other product areas within SMT. So with this, I would like to thank you for your attention and also hope to see you here in a few years talking about the fantastic growth story for Powder. Thank you, Annika. So to summarize the SMT part, I mean, it's clear and you all know it, our financial performance is not at all acceptable. And I think it feels good to say that here now because I think we have a lot of opportunities going forward. I would be much more worried if I saw that everything was in place, that everything was managed in the perfect way. But I see that is not the case, and that's why I see we can improve a lot. And we will focus on, as I said earlier, commercial and operational excellence. And here, I see that the new decentralized organization is one of the most important enablers for that because I will expect nothing more than that we deliver on our commitments. One important strategic matter for us is to shift our business into a more profitable mix. That's, as I said before, quite an interesting nut to crack, but I think we, in the discussion, have some good ideas how to do that. And my main focus and the main focus for my team is to improve the way we execute. So the focus will be strategy execution going forward.

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