Earnings Call: Q1 2017

Apr 24, 2017

Greetings to everyone, and I would just like to welcome you to the presentation of the results for Sandvik's Q1 2017. As per norm, we will run through the presentation under the management of our CEO, Bjorn Loringren and our CFO, Thomas de Beerslund. And then subsequently, we will run through the Q and A session. And without further ado, I will just hand over to Thomas and Bjorn for the presentation. Thank you, Anssi. And also, I would like to welcome you to this Q1 Q1 result presentation. I think the quarter which we have behind us was a very strong quarter for Sandvik. We continue to develop in many areas in a positive direction, and there are 3 areas which I think sticks out a little bit more than the other. And the first thing, which, of course, from our perspective is very positive, is that we see orders continue to strengthen. So this quarter, orders were actually up 16%. Steaking out in the order side is, of course, Mining and Rock Technology and a large team standing over here who actually were up 30%. I think these are numbers that we haven't seen since the rise of China in the beginning of 2010. So that's very, very positive. But all business areas actually contributed to this good order intake. The second is, of course, the EBIT margin. And this is the 2nd quarter in a row where we are over 15%. And as if you have listened to me before, I think quality companies deliver EBIT level over 15%. So that's extra fun. Of course, there is a lot of currency and also Ally surcharges that have been positive for the quarter, but the underlying improvement of the EBIT level is 18%. And that should put in relation to our target, which is to improve by 9%. So I'm very happy with that. And as the 3rd and not least important, that's the cash flow. The cash flow actually doubled compared to last year and is actually the highest cash flow that we have had in the group. So that's very positive. That's, of course, driven by the good profit but also by keeping the net working capital on a good level, which is actually under 25%. So that's very positive. So if we look at the different markets, we see good growth in all our 3 big regions. Europe starting up, it says 5% here. But if we exclude the big order where we received last year, it's actually 11%. So for the first time, we're really seeing Europe taking off in a positive direction. North America, up 41%. I think it talks for itself. But in these numbers, there is one large mining order, about EUR 250,000,000. So if you exclude that, it's about 25% for the mining side. Asia, 7%, a little bit lower than we saw previous quarter. But if you look at China by itself, it was up 31%. So China is strong, while it was a little bit weaker in rest of Asia. I think India was negative for the first time in a very, very long time. I don't think that's a big issue. Recently, I visited India, and I think the momentum and the positive miss in the market there is on a level that should generate good growth in the coming quarters. If we look at our segment, our targeted segments, I think all of the segments were flat to positive. Also here, of course, sticking out is the mining side, very positive. But very positive also, the general engineering, which is positive. And I personally believe that, that's driven also by the oil and gas industry, which is coming back in the North America. Positive, continues to be good is the aerospace. The other, automotive, flat. We have also on the oil and gas, and construction is pretty flat so far. Maybe some of you saw here that the automotive in North America was negative. And I think that should be seen from a very high level. There were, I think, produced 17,000,000 cars in North America last year, so it's from a high level. In Europe, we saw a flat development in the automotive industry. And in actually, in China, it continues to grow and strengthen. So at the order, I said 16% up the underlying that's the underlying organic, and then you have to add, of course, the currency there. The book to bill ratio is 114%, which I think is a good sign for future growth in revenues in the coming quarter. The revenues were up 5%, which is not that big. And we just so you know, our order has been pretty high now for the last two quarters. So in the coming quarters, we should see an improvement of the revenues trailing. From the mining, we see normally about a 6 month delay between orders and invoicing. EBIT development. I mentioned that one of the positive. It's actually 45% up. But if you exclude the currency effects and the alloy surcharges, it is 18%. And I think that's a good level. So it continues to improve. And this is driven mainly from efficiency improvement but also, of course, volume improvements from what we've seen before. So if we now look a little bit closer into each of the business areas. Machining Solutions continues to impress. Strong orders this time, up 10%. That sounds a lot. But if you actually dig into it a little bit more, there we had during this quarter 3 percent more working days. So if you exclude the working days and also a big order that we received the Powder and Blanks Technology, the underlying is about 4%, 5%. So that's about how you should see the level for SMS at this moment. If we look at the margin, 23.2%, a very strong continuous improvement where we're seeing there. And SMS continues to have good control over the operations, and the net working capital continue to go down, which, of course, generated an excellent cash flow for the business area. Then to Mining and Rock Technology. And the one who has listened to me, this is the area where I think we have the best improvement potential. And I think Lars and his team showed that that is good during this quarter. We made 14.1 percent EBIT, and that's an improvement from 9.6%. So I think that's a good number. But if you dig a little bit deeper in here, I think what's good, if you lift out the Varell business out of the mining, it's actually 15.2%. Percent. So now we are talking. Now we're coming much closer to the levels where I think this business should be delivering on. We can see that orders were up the max 30%, but the invoicing still only 6%. So that's what I said, it's trailing. Also credit to the whole team to keeping the net working capital under 25%, I think, and that's also why we generated a really good cash flow from the Mining and Rock Technology business. If you look at the different metals that you are seeing there, it's actually a gold, silver and zinc, which is driving. We are still waiting to see some improvement from the copper, but the copper price is going up slightly. So maybe in the coming quarters, we could see some more activity in that part. If you look at the different businesses we have, you know that I think the most important part of the Money Raw Technology is the aftermarket. And they really showed strength during this quarter, 11% up. And I think that should be put in relation to how the market is developing. And we know that the mining that we have a strong belief that we are really taking market share now, that we have a strong belief that we are really taking market share now on the aftermarket, which is the important part, not least in tough times. We're also seeing good volumes in the underground business. Loaders and trucks is doing amazingly well, but also the drilling. We also start seeing really good momentum in the surface part, while it's a little bit more slow on the coal mechanical excavation part of the businesses. Then moving over to Materials Technology. Also here, we see some growth, 5%. If we then exclude the alloy surcharges improvement there, it's what we call a black 0, just a little bit growth. This is supported by the great order that we received in the oil and gas industry from Leviathan. It's actually a gas order for umbilicals, which is actually keep helping us to keeping up the orders on hand on a healthy level. We also do expect that we should, during next quarter, get one of these SAICI orders to help to secure the full year. So that looks quite promising. Volumes is at minus 1 here, but if you take away the metal surcharges, it's actually down 6%. So that's actually what is driving the weaker earnings, which is the underlying which is actually 6.3%. We do believe that the coming quarters will offset this lower part, and we think we will reach the targets that we have set. So we are quite optimistic to a number of good quarters for S and T moving forward. So, Anke, scrooge. Did you have any money? Well, don't listen to him. He's from Gothenburg. Okay. Yes, we do have some money if you want to buy something or build something somewhere in the world. Okay. Let's jump into the numbers and start with the overview. 16% order growth and 5% revenue growth organically, as you've heard. If you look at the upper right hand side, you can see the currency effects, 5%, taking an order to 23% and revenues to 10% in total total. The operating profit or the EBIT was up 45% or 18% excluding FX and metal price effects, 16.1% in EBIT margins. Net working capital reduced again down to 24.5%. Should mention that the rolling 12 month number is a little bit above 26%. So we still have some way to go to reach this 25% target, but we're approaching. Cash flow was slightly up 94%, up to SEK 3,700,000,000, a very good quarter and returned 18%. And also earnings per share grew healthy. So if we then jump into the bridge, we can see we see the quarters here, Q1 compared to Q1 year over year. We can start on the right hand side, the structure and the one offs. It's just metal price effect and alloy surcharges here, euros 235,000,000 on the EBIT line meant an accretion of 1.1 percentage unit. Currency, euros 400,000,000 on the EBIT line, 1.1%. Then on the left hand side, you see the organic price, volume and productivity, €800,000,000 in revenues and €458,000,000 in EBIT. So a drop through of 56%, which we're pleased with, 1.7% in organic margin accretion. If we then move to working capital, to the balance sheet, you can see that we continue to decrease. As you can see in the graph here, Q1 is always up a bit seasonally compared to Q4 sequentially. It's been like that all the time. There is a buildup in Q1 for deliveries to come, but you can also see that the increase in Q1 2017 was much, much less than what we've had over the previous years. The percentage is down to 24.5%, as I mentioned, a very good performance. On the right hand side, you see the business areas. And SMRT and SMS continue to perform very strongly. SMT has a buildup ahead of deliveries in the coming quarters. The cash flow was up a very strong quarter, probably the best in modern times with SEK 3,700,000,000 in free operating cash flow. And you can see on the right hand side where it comes from. As Bjorn mentioned, it's mainly driven by increased earnings. So EUR 1,400,000,000 up from earnings. And working capital is normally negative in the Q1, but you can see here also that the negative was much, much less than a year ago, EUR 500,000,000 better than a year ago. CapEx was slightly up. And the last graph is this beautiful one. It's the net debt. And from the peak level in 2014, the net debt has come down from SEK 40,000,000,000 down to SEK 26,000,000,000 right now. And the gearing is SEK 0.63. So we have a target of 0.8% within reach. And also, we should mention that we after the 1st or sorry, the 4th quarter closing and the release of the Q4 result, we had a new outlook from Standard and Poor's, and the negative outlook was taken away. And we've got a positive outlook. So we now have BBB with a positive outlook. So we'll see what happens. Now outcome and guidance. The if we look at the Q1, €401,000,000 year over year in currency effects. We guided for €400,000,000 so that was pretty spot on. The metal price effect here, we guided €129,000,000 And maybe we should mention that this is the in quarter guidance, not the year over year guidance. So the €129,000,000 was the actuals and 0 was the guidance. And the big difference is chromium and the U. S. Dollar movement. So for the Q2, we guide €400,000,000 in year over year currency effects and about 0 in metal price effects. The metal price effect a year ago was also close to 0. So it is 0 both in quarter and year over year basically. The CapEx, we keep at EUR 3,900,000,000 as guidance. Net financial items, we keep EUR 1,400,000,000 to EUR 1,500,000,000. I should mention that we had EUR 3.87,000,000 in the Q1, so EUR 3.87x4,000,000. That's a little bit more than EUR 1.5, but that's because we have some FX and hedge valuation temporary valuation differences in the finance net. If you just look at the pure interest rate net, it was down with 25% in the quarter year over year, close to EUR 100,000,000 down. Then we had FX and hedge valuations going the other way, but that's just temporary. So that would flow back and forth. It's a little bit difficult to predict. So we keep the guidance of 1.4% to 1.5%. Tax rate, 26% to 28%. We had 26.9% in the quarter. And before I finish, maybe I forgot something which is a bit important on the cash flow side here. You can see that we had SEK 1,900,000,000 a year ago. We have SEK 3,700,000,000 this quarter. That's quite an improvement, nearly 100%. Now we don't guide on cash flow as such, but I just want to say that don't expect 100% up every quarter for the rest of the year. We do have starting to have some positive numbers now on the top line. I mean, I'm talking about revenues now. And as Bjorn mentioned here, this fantastic order intake will transform into revenues stronger and stronger during the year. And even though capital efficiency, as you have seen, is improving all the time, growth eats up a bit of working capital. So I think we can safely say that it's not going to be 100% up in Q2, Q3 and Q4. So be a bit careful in your Excel sheets. Okay. So with that, I hand back to you, Bjorn. Good. Thank you. Just as an and our direction towards a decentralized structure continues. I think we start seeing all our product areas with full management teams in place, and we see improvements in all different corners. As you know, we decided to divest 3 of our businesses, 2 of them because that we call them noncore, that is the Process System as well as Hyperion. We started the process during this quarter for Process System, and that is moving well. It's a great interest for the business, and we're expecting to get well paid for that business. When it comes to Mining Systems, I'm sure many of you are curious where are we in the divestment there. We've had a good quarter in the works here, meaning that we decided instead of selling the whole businesses one lump, we divided into 2 businesses. And one of the businesses, which is the component business, is this conveyor component business, which we are selling separately. We are close to signing there. We have a buyer, and the development, it moves the right direction. For the project business, which is a big part of the business, we also here have a buyer, and we are close to signing a letter of intent there. So we expect now to have it closed during the Q2. So I feel very comfortable about the development here and that we should be able to close the deal within the quarter off. With that, I think I end the presentation, and we move over to question and answers. Yes, indeed. And we'll start here in the presentation hall, please. We have a question at the front. Yes. Thank you. Pietro Helene, Handelsbanken. A couple of questions regarding the leverage, if I may. Firstly, if you look at the order intake in the mining business, and you mentioned that's not only aftermarket is strong, but also the underground and the replacement of equipment. Could we discuss the future leverage in the mining business? Extremely strong right now, obviously, with little invoicing increase and very strong savings increase. So what to expect there in the long term? Moving over to the SMS business. The EUR 50,000,000 sales provision, could you explain that? Is that sort of is that something that we should look at nonrecurring? Or it's actually provisions for salespeople doing better than expected? If we start with the SMS business and the SEK 50,000,000, as you'll notice is that the group is going a little bit better than we anticipated from the V and A. So in those EUR 50,000,000 is actually built up for the short term and long term incentive programs. So that's lifting it to a certain level. That's where it came in. So if you add to that, it's actually nonrecurring. I mean, it moves up. It's in the special extra during this quarter. You should not expect that every quarter. So when you look at the leverage, you could actually put that back and you end up then at 47%, which I think is a reasonable level. You start the year with an assumption. But then, I mean, if things develop much, much stronger, you immediately have to change your provision. Then on the leverage on the mining, I think we try not to speculate much within this part. But of course, in the improvements, and I mentioned that you probably we did a lot of cleaning during last year, and some of that is still taking out. So we are now moving in more to levels that we should be seeing going forward. It's correct that the volumes are up, but they are not extremely up. How the leverage will develop, I think we'll wait and see to that to the next quarter. But I think we're starting coming up to see levels where I would like to see the business. And if we can keep it on this part or improve it somewhat, that would be great. Another way of asking that question might be on pricing on the mine and different revenue streams of mine. So are you pleased with the when demand is returning on the equipment side? Or you manage to sort of also look at decent prices? I mean, the competition ought to be rather tough out there with a lot of capacity. No, but it is correct. We're seeing a positive pricing now in the mining part. So what we saw before, which was negative, there, has now changed into positive. Of course, when your production facilities are full, it doesn't really make sense to sell equipment with a lot of discounts. So that definitely helps the pricing situation for mining. Thank you. I'll get back in line. Thank you, Peter. Do we have any additional questions here in Stockholm? Yes, please, on this. Okay. Anders Jones from Sunpro Bank. How does the demand picture look like in the SMS business given this issue with working days and underlying 4%, 5%, what's the trend in the quarter? We normally give you a little bit of an indication here. And I would say there's no big changes. I think we continue. I mean, we look normally, we look at the invoicing per day, and that continues to be on a similar level as we see now under the Q1. Are there any differences from the in the different geographies? I don't have that information yet. I can only see the what's actually going out from our distribution center. But we'll see that pretty soon when we have Q1 ready. So we'll come back to that during next quarter. Okay. And then the final question about the Materials Technology business. What do you see there from the order side? I mean, I was, of course, happy that we received this big oil and gas order from the data, and it's actually the gas order. And if we're looking at what has happened during the last year, mainly the big orders is forward. And gas, there is a big demand for gas in the market. That's, of course, what's driving these kind of investments. It was a pretty flat in orders. That's pretty clear, but we are quite optimistic in the coming months when it comes to order side on the S and T. It looks pretty okay. I can't say more. It's like everything an order is never an order before it's signed. You have it on your table, But it looks pretty okay. Okay? Thank you. And with that, we'll move into the conference call, please. Operator. Do we have the first question? And our first question comes from Claus Bergelin from Citi. Please go ahead. Your line is now open. Yes. Hi, Dion and Thomas. It's Claus from Citi. A couple of questions, please. Firstly, on SMS. Europe is flattish ex working days. I mean it's good to see the better momentum in North America. Given the strong momentum in PMIs in Europe ongoing since September of last year, flattish growth underlying is a bit disappointing. Could we drill down a bit more by end markets in Europe? Is there something at all that stands out on the positive side? And did you see any improvement in Europe in the beginning of Q2? I'll start here. Yes. I think from the beginning, if you look at SMS, I think we have positive development in all three regions. So if but it's correct when you're saying that the working days is mainly affecting the European market, which continues to be somewhat positive. I don't think I have any direct information about the different segments. The only thing we can see is that the automotive industry continued to be flat. We are seeing an improvement, of course, in the general engineering side. Otherwise and of course, also aerospace. Also aerospace is positive on that side. So I think we are pretty optimistic about the European market. Of course, North America and China is sticking out more than Europe at the moment. That's where we're seeing the best growth during this quarter. But it feels that it's pretty healthy in the industry and that the whole market seems more solid than we've seen before. And can I just follow-up on energy? It seems like energy and SMS took a leg down in Europe. Was this just a tough comp on larger orders? Or was that an underlying improvement? That's the underlying. I would say that's the underlying. Of course, it depends on how you measure this, but I think it's the underlying, yes. But would you say that sorry to leave with the point, Bjorn, but would you say that the general engineering side is looking healthy and that, that accelerated ex working days? Do you feel more optimistic about general engineering? Yes, probably. Okay. My second question is a follow-up to Peter's question on SMRT and on the lead times and potential bottlenecks in the supply chain. We've seen very strong growth here, and we've seen momentum since the Q3 of last year. Do you now see increased bottlenecks? And what is the implied lead time for when you get an order on the drill rig to when you can deliver it? And is that the key reason for pricing moving higher? Or is it just because of higher input? Sure. I mean this is an assembly business mainly. So it's, of course, getting the whole supply chain up and moving. And you're seeing the acceleration in orders during the second half of the last quarter and this quarter. Of course, it takes a little bit time to get everybody up and running. So I think that's the if we look at this quarter, for instance, I mean, where we had on the invoicing pretty weak during the 1st 2 months, and then we had an extremely strong March. We start seeing things moving in the right direction what kind of equipment that you are ordering, but it would probably what kind of equipment that you are ordering, but it would probably difficult to get any big deliveries before the end of the year. So it has been pretty full. And I mentioned, you see, if you look at the orders, it's a 30% up. That's on the whole business. But if you're looking at the underground business and also the surface business, it's significantly higher. So we're talking really high numbers there. So of course, they are under pressure. That's true. But at the same time, they are assembling equipment in the fact that they're working together with sub suppliers and using the facilities we have at the moment. So I think they're doing a good job. It takes a little bit time to get up. And then the pricing is definitely related to this. I mean, I think selling a drill rig today with discounts is more throwing money away. So I think this is a good opportunity to keep the pricing on a good level. My final one is on also mining in terms of quotations. Key commodities such as iron ore and copper rolled over towards the end of the Q1. Has this slowed down quotation levels at all? Or are we still looking at the same solid activity when you look at your pipeline? Copper is very important for us, and we start seeing movement there. So that's but it hasn't really taken off yet. Iron ore is significantly less for us. I mean, it's related some of that, of course, in Northern Sweden, we have some. And then in South America and Brazil, that's where you see the big iron ore part of the business. But that hasn't really taken off. Thank you. Thank you very much. Operator, we'll have the next question, please. Cautious of the time here, and no offense to you, Klas, but can we please limit the questions to 2 per person, please? Thank you. And the next question comes from Ben Mazon from Morgan Stanley. Please go ahead. Your line is now open. Yes. Thank you. Good afternoon, Bjorn, Thomas and Anssi. A couple on mining for me, please. Bjorn, you said that drilling and the underground segments are the ones that are really driving the recovery. Can you talk a little bit about what you see in the crushing and screening segment at the moment? Are you seeing any pickup in that business? Sure. Also, there is also good improvement in the crushing side. But of course, it's not on the huge numbers that you're seeing in the underground. But definitely, crushing is picking up quite well also. Thanks. And then just on the split between equipment and aftermarket within Mining, can you give us a split for orders and revenues maybe as just how much of the business is aftermarket now? And just clarify what the growth rate was. I think you said it was double digit, but in the release, it says single digit. I think when we were a little bit lower, it was about 65%. We're probably around 60% at the moment. Okay. Great. And then the growth rate? Mining on the aftermarket is 11%, if that's what you referred to. Okay. I'll circle back on that. And then just finally, Bjorn, you mentioned Vorel, and it sounds like it's not contributing much to profit or it's still in loss. Just what are you seeing in terms of demand there? U. S. Rig count is looking better. And when can they get back to profitability? Sure. I mean the Varel business is very much related. It's in the Middle East but also in North America. And where we've seen a good pickup is, of course, on the North American market, which is very much related to the number of drill rigs. I think the numbers we saw late was just over 800. So it's growing. The last 5 months, Barel has contributed with a positive EBIT. It's still on around 5% level, but and the pipay is actually affecting negatively 10%. So if you add the pipays on there, it's actually negative still. So it's not contributing that well. But I think the underlying business is improving. And as I said, 5 months with positive EBIT margin, I think, is a good improvement from last year. Maybe Thomas will add a little bit there. Yes. So what that means is that it's been cash accretive for 5 months. If you take out the PPA part of things. So it's sort of taking that out. It's kind of mid single digits in terms of EBIT margins. And Q1 showed a steady growth in order intake for barrel as well. So it should get it should improve further as we go through the year? It follows pretty much the drill rigs in U. S, to be honest. And we'll have the next question, please, operator. The next question comes from Alexander Virgo from Bank of America Merrill Lynch. Please go ahead. Your line is now open. Thanks very much. Good morning, good afternoon, everybody. Just a quick one on SMT, please. I think the Leviathan order ends up being about 11 percent of the growth. And you talk about the alloy surcharge also adding about 500 to 600 basis points. So I'm just wondering if we kind of look at everything on an underlying basis, is it right to assume the business is down order wise sort of 10 percent or so? And then second one, just a follow-up on the impact on EBIT of working days as we look forward into next quarter? Presumably, we can expect that to drop through at the similar sort of operational leverage you've seen in Q1. Thank you. Yes. Starting up with the SMT there. We actually had a big order last year also, so which was actually bigger than the Vytan. So it has actually a negative effect on that part. So it is not underlying, it's actually a little bit more positive. Can you take that one? Yes. And the other one, sorry, can you repeat the question, please? Working days in Q2? Yes. I'm just obviously, I mean, you had a much stronger impact from working days in Q1 than I think most people are expecting. So presumably, that all reverses in the second quarter. I'm just checking that, that should drop through with the usual amount of operational leverage. Yes. I mean, it all goes back in Q2. Okay. Thank you. Thank you. And we'll continue with the next question please, operator. The next question comes from Markus Almer from Kepler Cheuvreux. Please go ahead. Your line is now open. Hi, Markus Anmuth here. I'd like to start with just to look again at SMS throughout the quarter to follow-up on Anders' question. If you could talk a little bit about the daily sales rate, did it grow stronger into March coming out of January, February? That's my first question, please. And especially if you could talk about North America. Sure. It's correct that we saw stronger in the end of the quarter, and the level continues to be on the same level, yes. Okay. And then if I can ask just on S and T and the umbilical projects. So you talk about you're optimistic here about projects going into the coming quarters. Is it still the same type of political orders? And can you talk a little bit about the discussions in just the regular oil projects? Are there any discussions at all? And then have they progressed any? And is there more optimism now as oil prices have come up? Or is it pretty much the same? No, it's great. I think there is more. What we see, of course, is the gas side of the market, which is driving most of the projects at the moment. I think that continues. It's difficult for me to comment if it's a political order or not because it's actually both kinds that are expected. So yes, it is mostly gas, correct. And these projects, as you probably understand, they you have a pretty good visibility when they are going to come and to replace. And I said, we are very optimistic that it will be placed during the quarter. But an order is never signed before it's signed. Okay. Thank you. Thank you. And do we have any questions here in Stockholm? Yes, we do. Please, Daniel? Yes. Hello, Daniel Spitz from SEB. Jan, you've clearly sort of mentioned that you are in the process of divesting 3 of your businesses. And one might be coming before the summer. And do you have any sort of could you give us any timing on Process System Hyperion and also the fact that you've stated, at least last year, that you need to invest those proceeds into some sort of software platform for the Machining Solutions business? I don't know if I understand. First, I can just mention, out of those, there are 3 businesses we are selling. The Manu Systems, I expect that to be closed during Q2. On process system, that is taking place. We have a big interest in this. We are in the due diligence. A number of players are now in the last phase, and we have a due diligence process that will continue to end on May where the final bids are coming in. So we expect to have a closing on this one before the end of the quarter. Hyperion is still in a start up phase, so we are preparing. It's a little bit more complicated spin off than we have on the other businesses. That process will start in August. So it's moving the right way, and it's a good business. And we're looking at both of these businesses. They are developing well. So that's going to support the process. And what about sort of the need to buy a software platform for SMS? I got the feeling that, that was something that you're not going to build greenfield or organically. Has that changed? Software platform for SMET. Oh, you mean for the growth? Now I know what you're referring to. Yes, that's the growth strategy which was presented by SMS where they look at different growth opportunities going forward. And in that growth strategy, it is, of course, to strengthen the core business. It is also investing more in software. We have made a number of smaller investments within the software. So we have created like a common business for SMS where they are developing the software part of the business. Then we also look for opportunities to grow the measurement part of the business as well as the 3 d printing or additive manufacturing and also on the comm side. So these are the growth opportunities. We have cars on board since 1st April and now taking over the strategy from Jonas. Of course, he's reviewing the plans that are in and making sure that they are in line with his and his team's viewpoint forward. I don't expect any big deviations from that, but at least a little bit update and class should land before we really get momentum going forward. That's how it's going. This class is new, but his internal has been in the company for many years. He's been running Coromant for the last 5 years. So it takes very short time to get him full speed up and running. Thank you. Thank you, Daniel. And then we'll move back to the conference call, please. Operator? Yes. We have a question from Andrew Wilson from JPMorgan. Please go ahead. Your line is now open. Hi, good afternoon, everyone. Just a couple of quick questions. On S and S and obviously the very good improvement you've seen in the Q1, can you just talk a little bit about what you've seen in terms of pricing and whether you've seen a kind of step up, I guess, with the obviously improved backdrop? Yes. It's moved positive. So if you look at SMS, I think it was up 1.7% positive pricing, which I think is a direction. But it should be noted that Q1 is normally the best quarter when it comes to the pricing side. But definitely, significantly improvement from the 0 we had in the last quarter. And then on the mining aftermarket. And just to clarify, I think, on Ben's question. I think in the release, it talks about being up a single digit number year on year, and I think you've talked about being plus 11%. I just wanted to clarify if that what the right number was. And I guess secondly It's 11. It's correct. It's 11. So it's a very good number for that business. And I think from my perspective, one of the most positive numbers for SMRT. Yes. And that was, I guess, leads nicely into the question I wanted to ask about, which really was exactly how you're delivering growth to that degree. I mean, you talked very clearly about the market share gains. I guess, just give us a bit of color in terms of exactly what you're willing to share on. Yes. When we're talking market share within aftermarket, it's actually against yourself. So we look at the whole fleet. And you know we have about 8,000 units that are operating out there. We know exactly where each of these units are operating, and we also know how much spare parts and service each of the units are consuming. So when I say a market share improvement means that we are taking a little bit bigger market share of our own fleet. So it's actually not against any competitors. It's our own job to serve a bigger part of our own fleet, and that's how we measure that. And we'll have a question here from Stockholm, please, from the audience. Thank you. Pieter from Handelsbanken. You mentioned savings. Thomas, you also mentioned the sort of EBIT growth ambition that you sort of released on the CMB. If we look at the report and we add sort of the savings comment, it's around €130,000,000 or something like that. €135,000,000 So how should we think about this going forward? And also, the real question I want to ask is, are you reaching a higher sort of ambition or it runs faster than expected? Obviously, you talked about the improvement of EBIT in a flat volume scenario, and we need to sort of calculate the volume improvement out of the equation again. But still, are you reaching higher? Or is it just going faster? And hence, what will happen to the savings and the efficiency gains, well, for this year? Just can add on a little bit just to get a little bit of understanding then. When volumes goes up and you start getting choked in your production facility, it becomes a little bit more difficult to drive these kind of efficiency improvement programs within the operations. Even though, as you know, we have a productivity improvement target for every unit within the group that meets 3 percentages points. And how do we measure that? That's actually sales per employee. So that's how we measure the improvements. That will continue. And of course, it will be easier when the volumes goes up. That's natural. While when you're in a downturn in volumes, you have to actually take out more people than you have and than you need. So it will be difficult to get more efficiency. Even though we have our supply chain optimization program where we have closed 19 factories out of 23, and we expect to do the final of these during the rest of the year. So there are still these activities going. Then I also like to underline this that with the new structure, with the so called operating entities with full accountability, I do expect that each of these units will improve their performance. And that comes one thing, of course, for your sales job, but your S and A costs, your COGS, your pricing, you have to drive your businesses. So I mean, this is an ongoing story, and this will never end. And this is built into the, what we say, this continuous improvement. And me and Thomas, we actually follow that down to product. There's around 34 units every month. And we have the famous scorecards that Thomas and his teams have developed, which actually gives us full accessibility of all the performance in every business unit. And I can assure you, we put a lot of pressure on that. Yes. We are a real pain for the organization. There is no getting in the way. As you mentioned, Pierre, that we have the 7% EBIT CAGR growth for the 3 years. That's right. We did 3% in last year. It means that we should do 9% average CAGR now in next year. But we did 18% now in this quarter. But there's still 7 quarters to go, of course. And I mean if you just look at the numbers, I'm looking at ANSI now, but if you look at the numbers, I mean from to 18 here, it's SEK 2,300,000,000 that we need in profit improvement to do the 7% CAGR. And like SEK 1,000,000,000, billion, EUR 1.3 billion comes from the announced savings programs, then there's another EUR 1,000,000,000 from efficiency, productivity, etcetera, etcetera. So we're tracking, but there's still 7 quarters to go, and the comps are not getting easier, as Bjorn mentioned. And the next question comes from Andreas Cuski from Deutsche Bank. A couple of questions on Mining and Rock Technology. Firstly, on the demand situation. In Q1 to Q3 last year, you had an order intake of around SEK7,500,000,000 per quarter. Now in the Q1, you exceeded SEK10,000,000,000 in orders. Do you think this is the new normal level? Or have you seen a lot of larger orders, although they were not, yes, recognized as large orders in your report because they were lower than SEK 200,000,000 each? I think being in the mining business for so many years, as I have been learned to understand that there are no new normals. Now it's like it's always been. It goes up and it goes down. But if you look in the short term, if you look at your tender activity, you see no reason that it should slow down in the next couple of quarters at least. I think there is a big demand for improving the fleets in the different mines around the world. And as you know, we have we are 2 suppliers in this part. So we are in a very pleasant working environment for us. So we will get the questions as well as our competitor in this part, but that's going to be driving. I do believe that as long as we see the metal prices on this level, this is a level where the mines are making money. When they make money, they need to invest in our equipment because we call it capital equipment. From my perspective, it's not capital equipment. It's actually ware equipment. It's what I said before. They have a lifetime of 5 to 10 years. But after 5 years, they start becoming expensive to maintain and to get efficiency out of the equipment. So of course, with the fleet that we have in the market and so many years without big investments, I think there's a huge demand for equipment going forward. If sweet spot when it comes to equipment for the mining industry. Okay. And then secondly, I have to ask about the operating leverage as well because it was 70% in the quarter. You had a book to bill of EUR 1.22, which corresponds to a difference of around SEK1.9 billion between orders and sales. If we would apply a 30% drop through on that kind of gap when you bridge it, you would reach a margin of 17%. If we would apply 70% drop through as you had in the quarter, you would more than double your EBIT in SMRT. So how much of the cost in SMRT are fixed? And how much are variable? How should we think about the drop through now when revenues are going to ramp up? When you say these numbers, I look at Lars in the corner, and he looks very nervous when you say those numbers. But it's correct that you should not expect a 71% drop through that. That's pretty clear. What level we will get, we'll wait and see. Let's see what's going to happen in the next quarter. It depends a little bit on how efficient they manage to get it through their production facilities and so on. And keeping, of course, the S and A costs on a lower level because that's the key. We have to make sure that we don't believe that these are like new normal levels and lift our costs in relation to that. I think we should expect that this is temporary, and it will be lower later on. So we need to keep the costs and the efficiency in our operations at that. And I'm looking at Lars, he's nodding, so he agrees by being. Do you have some kind of indication to give on how much is fixed and how much is variable? No. No, sorry, I can't give you that part. But Okay. May I also ask on your new product area in Sandvik Machining Solutions Yes Yes. Well, 1st, of course, you know then when UNH has left and it we lost a couple of months in the development there. But as soon as Klas came on board, we went full speed ahead, and we have actually the management team in place now. We'll come out with a press release any day with a name and other parts. So Matt comes to work to drive this business forward. But you should still know that this is only a fractional part of the group's business. It definitely has so far no influence on the performance of the group. But it is exciting, and we're really looking forward. And I'm personally, it takes this very eager to see that we start seeing some development within this business. So I would be all over there. Okay. Thank you very much. Thank you, Andreas. Do we have another question from the conference call, operator? Yes. The next question is from James Moore from Redburn. Please go ahead. Your line is now open. Yes. Hi, everyone. Bjorn, Thomas and C. Thanks for taking my questions. I have 2, one on SMS and one on the strategy. So on SMS, I wondered if you could help us understand the 31% China organic sales growth. I'm really trying to think about its sustainability. And I wondered if you could help us with 2 things there. Is there a big difference between automotive growth and general engineering growth? And do you have a sense of how much of the 31 is inventory build, and whether that restocking is about to end or has more to go? My second question is on savings. And you talk about the continuous improvements from underperformers, decentralization. I think you put a $1,000,000,000 hard number on that in your original budget. Where do you think that number is today? I have a sense that it's moving upwards. And if we index the original to 100, are we at 110, are we at 150, how is that internal story developing? Okay. And that's why don't you take that last question? Yes. I don't think we have guided specifically SEK 1,000,000,000 on that. I think coming back to what I said here 10 minutes ago, I mean, we have SEK 1,300,000,000 or something like that in the announced savings programs, the supply chain optimization 1, 2 and 3 and all that. And then the gap up to the SEK 2,300,000,000 that we want to achieve in the EBIT improvement plan for the 3 years is SEK 1,000,000,000, and that includes everything, including decentralization, efficiency, productivity, etcetera, etcetera. But it's not a specific program as such. It's just that number that we are going to achieve. That's what we're going to push for. Yes. Then if we're looking at the SMS performance in China, as you saw, that was at 31%, so it was good. I think we're seeing good development in the automotive industry. That continues to be, but we also see aerospace and also general engineering. And did you have a sense of how much of the demand is restocking? We don't see that as restocking at all. And just circling back to that $1,000,000,000 gap, Thomas, if I could. Is there a way to I guess, you're tracking this very carefully, your 30 odd business units all the time. Would you be able to, without putting a number on it, say in qualitative terms, whether that's developing favorably? We're doing okay, but we don't have any guidance on it. Okay. Thanks. James, if I could just clarify that. The 31% growth in China, as you just mentioned, is actually for the group, not for SMS specifically. For SMS specifically, growth in China was 21%, just so we're clear on that. Sales? Orders. Thanks. And with that, we're actually running out of time. And there may be a couple of questions still at the conference call. If you do have any more questions, you know where to find us, either myself, Anne Sophie Norg, the Head of Investor Relations or my colleague, Amavil Ogo Rakka in the Investor Relations department. And I'd just like to finish off with reminding you of having our Capital Markets Day on the 21st November in Germany. Please go on to the website and register your interest to attend. Thank you very much. Thank you so much.