Earnings Call: Q4 2015

Feb 3, 2016

Good morning and greetings to you all. Welcome to the presentation of the results of Sandvik's 4th Quarter 2015. Today, our CEO, Bjorn Rosengren and our CFO, Mats Backman, will run through the presentation, after which we, as always, open up for the Q and A sessions. And without further ado, I'll just hand over to Bjorn and Mats. Go ahead. Thank you, Anne Sophie, and welcome, everybody, to this Q4 result presentation. As Anne Sophie said, I will start up with presenting a number of slides and after that, we would do the Q and A sessions. If we look at the Q4, we can see that the challenging market conditions continues. And if you look for year over year, we can see that the demand, especially in China as well as somewhat in U. S, is declining. We also see that the energy market continued to be challenging. And there are some spillover effects, especially in North America when it comes to the general engineering part. The organic growth for the quarter was negative. And in the back of the low volumes, our EBIT decreased with 11%. On the other hand, we have 3 business areas, and that is Machining Solutions, Mining and Construction that have a stable or improved EBIT level. The venture business area as well as material technology are being implemented by the low oil price. We are continuing and pushing the internal, the operational improvement and also a little bit of cleaning. And in the 4th quarter or actually in December, we booked NOK 1,500,000,000 as nonrecurring costs. If we then if you divide these costs up, there is NOK 2 €50,000,000 related to the last part of the supply chain optimization program. There is about EUR 320,000,000 in cost adjustments in SMS as well as at the group. And then you have just under SEK1 1,000,000,000, which is related to impairments, mainly to the Chinese market as we are not really living up to the measures that we were taking. The very positive thing in the report, I think, is the cash flow. We had a strong cash flow in the quarter. And in the full year, it was actually the highest ever. And this is, of course, driven by a decrease in the working capital. So I think all our business areas contributed to this good cash flow. So as I mentioned, we've seen less demand in the North American and the Asian region. And as I mentioned, Asia is mainly China, which is down. While we see Europe as being flat and Europe is our largest market. So the order intake is actually down 7 percent year over year. This pie chart actually represents our invoicing, which is down 6% year over year. The small arrows, the yellow one, they actually represent the sequential development. And we see it pretty much flat, somewhat down when it comes to the energy segment as well as the mining side, while we see a strong development of the automotive as well as the aerospace. When it comes to mining, it's pretty clear. It's an effect which is coming from the low mineral prices. On the engineering or the energy side, that is very much, of course, driven by the low oil prices. And just giving you an example, in the U. S. Market, the sequential development of drill rigs actually went down with 20%. And if you look year over year, it's actually 60% down. I think the number of rig count in U. S. Today is about 650, somewhere around there. So it's significant. And of course, these 2 are affecting 2 of our business areas. Machining Solutions Business. I think the development there in volumes follow pretty much the group. I think a lot of good mitigated actions and efficiency measures and structural improvements have the business here have managed to keep the EBIT level, and then I'm talking about the adjusted EBIT level at 20%. And I think that's a good achievement from them. SMS actually has the highest cash flow ever, both in the quarter as well as the full year. So a lot of credits to that. It has been a year of a lot of new products introductions. In SMS, up to 15,000 new products have been introduced. And one of these products is the Walter 170 DC, which is a round tool. They call it the icon of round tools, and it's very much for the automotive industry. Mining. Well, mining, they are both positives and negatives. Of course, they are inflated by weak demand in the market. But even though that they managed to have good orders received and actually flat development compared to the year before. And that's especially a lot of equipment orders which has come in during last quarter. So we're happy that we can move into next year with a good order book. What I'm not really happy with maybe is the profitability, which was lower than we expected, approximately 1 percentage. And that is very much related to 3 things that came up. 1 is the mix between the equipment sales, and that's probably 0.5% effect. Then you have some higher obsolescence compared to a normal quarter. And then on the last part, there were some tax issues in Asia, which actually burdened the profitability for the quarter. We have a new Head of the Business Area, Lars Engstrom. Lars Engstrom is one of my dream team candidates from my Atlas Copco team, and I'm very happy to have him on board. And Lars and I have we have very similar viewpoints how we would like to take the mining business forward. Also in mining, they have new products. And here, we present a narrow vein loader. And by the side, it's also an electrical one, which fits in today world and the drive towards electrical drives. As I mentioned, 2 of our business areas has been affected very much from the low oil price, and that is the material technology as well as venture. If we start up with the material technology, I would say some parts of the tubular, which is called the core and standard, have had effects. We haven't seen too much effect yet on the umbilicals business, and we have a front view of about 6 months. What is very positive with SMT is that they actually got the working capital under 24%, and I think that's the best ever in the business area's history, which, of course, also is driving cash flow in a positive way. The underlying profitability, and I call the adjusted, also including the metal price part, is 7% for the quarter and 8.4% for the full year. Venture. I think that is definitely the business area which been affected mostly from the weak oil and gas industry. And of course, you understand that the Varel business, so we call it the drilling and completion today, it's, of course, directly effective because they deliver the drill bits for the industry. And yes, with such a weak market, of course, they are being quite severe affected. We also have some effects within the Hyperion business. They deliver some of the hard materials and also the diamonds, which are used on the bids. So that is being affected. On the construction side, I think we're having improved profitability both on the quarter as well as the full year. It is a challenging market. We got some exciting orders from Australia, euros 270,000,000 in tunneling equipment, which we are very happy for. Otherwise, I think China market for construction is very weak, while we see a little bit better in the U. S. Market there. So the dividend proposal is €250,000,000 And we do believe it's important to secure the balance sheet going forward to get a little bit more flexibility. It is, of course, within our policy when it comes to dividend. If we look at the adjusted earnings per share, which is 4 37, I think it is, or 27, this is 57% out of that. So I think it's within the range. By that, I will give the hand over to Mats, and he will talk a little bit about the financials. Thank you, Bjorn. Moving into the financials and starting with the order intake for the quarter. We had an order intake of SEK 19,500,000,000, which corresponds to a negative organic growth of 7% in the quarter. Negative book to bill, dollars 0.93. And we also had some order cancellations in the quarter, mainly related then to mining and construction, it's about SEK 200,000,000 in China within crushing and screening. On the positive side, we had a large tunneling order for constructions in Australia, about SEK 270,000,000 Looking on the invoicing, SEK20.9 billion in the quarter corresponds to minus 6 percent looking on the organic growth. And we actually had negative growth in all business areas but mining where we had a positive 3% inorganic growth. And that was very much, as Bjorn said, supported by the strong equipment order intake during the first half of twenty fifteen. Looking on the EBIT side. Adjusted EBIT of some SEK 2,300,000,000 in the quarter corresponding to 11.1% in margin. However, we had a reported EBIT of SEK 770,000,000, but that is also including the one off items of approximately SEK 1,500,000,000 in the quarter. Despite a positive currency effect of about SEK 70,000,000 and savings from our savings programs of about SEK 270,000,000, we still had an earnings adjusted earnings decline year on year with about 11% in the quarter. Cash flow, SEK3.4 billion cash flow in the quarter in operational cash flow. And looking on the full year 2015, we actually had the all time high operational cash flow of some SEK12.8 billion. So very positive on the cash flow side for the Q4 as well as the full year 2015. Investments in the quarter, SEK1.3 billion. Total capital expenditures for the full year 2015 on the level of SEK4.1 billion. And for those of you that attended our Capital Markets Day back in 2014, we had the target for 2015 to be below 5% in terms of capital expenditure in relation to sales. We're actually on about 4.8% for 2015. So I will say a lot of positive development on that side as well there. But the main driver looking on the cash flow development for the year is actually coming from the net working capital. Just looking on the development in the quarter, we reduced net working capital in absolute value with some SEK2 1,000,000,000, whereof SEK500 1,000,000 are related to currencies, but SEK1.5 billion related to volume, whereof the destocking and inventories is the major part of the volume reductions. And in the quarter, we had actually destocking for all our business areas. And we had some under absorption effect looking on the quarter. And I would say that SMS, Machining Solutions as well as Materials Technology had an under absorption effect on the margin. For Materials Technology, about 2% units and looking on Machine Solutions, about 50 basis points in under absorption in the quarter. And looking on the development of the relative net working capital, we're on the level of 25.7%. And this is the best figure since 2010, 2011 where we're actually hitting the long term target of 25%. So very positive development on the relative net working capital as well. And I'm actually extremely happy to see that we have 3 out of 5 business areas today that are below our long term target of 25%. And we can welcome Materials Technology into the 25% family as well in the quarter, and that is a great improvement for Materials Technology. To summarize our savings programs, as we are stating here, we are halfway there when we are talking about the savings both in terms of the savings as such as well as time. We have targeted total savings of SEK2.1 billion with a full run rate 2017. By the end of 2015, we have savings of about SEK1.5 billion. We in the Q4, we announced the 3rd and the final step of the supply chain optimization program. And we have, by the year end 2015, closed 11 out of the 23 announced units to be closed. Looking on the guidance for 2016 and starting with the Q1. We are guiding for or we are estimating a negative currency effect of SEK 300,000,000 in the Q1, and that is based on the closing rates end of 2015. Metal price effect for the Q1, minus SEK130 1,000,000 also based on the closing rates end of 2015. Looking on the full year 2016, we are guiding capital expenditures on the level to be below the SEK4.1 billion that we saw this year. In terms of net financial items to be between SEK1.7 billion and SEK1.9 billion and finally, the tax rate to be between 26% 28%. So with that, I'm leaving for Bjorn to conclude. Thank you, Mats. So if we then look at the summary of the year, it's pretty clear it's been a challenging year in our end markets. We reached €86,000,000,000 in sales or 12.3 percent EBIT. We continue our portfolio optimization program, and we have booked sure, then that was the divestment of the Mining Solutions business. And we are going through all of our businesses going forward and challenging them. We continue to drive the efficiency program, and we have booked during the last quarter SEK 1,500,000,000 as nonrecurring cost, which is affecting the result. We have a cash high cash flow, NOK 12,800,000,000 and the dividend is €2,500,000,000 So look a little bit going forward. We do not actually believe that the market will do any major changes. We think it will be a challenging year, also 2016. Maybe we do sequentially don't expect any further big drops, but probably moving in the same direction as we've done. We will continue to drive efficiency and the operational improvements in the company. We I also am a strong believer in decentralization. We will drive out the responsibilities further out in our operations closer to our customers to create transparency, accountability and speed. We will challenge all our businesses, And I have a firm belief that we should be number 1 or number 2 in the businesses that we are operating or have the possibility to get there. Otherwise, we have to question ourselves, are we the right owner? I do believe that we should work in the direction of continuous improvement, not to expect any quantum leaps when it comes to improvements of the operations, but small steps every year. And we do expect that all our businesses will improve their performance going forward. By that, I think I will end this session, and we will move over to the question and answers. Yes. Thank you. And I think for those brave guys in the room who spited the terrible weather We'll start with the questions from the room. Please go ahead here in the front. Thank you. Peter Froeljan, Handelsbanken, Capital Markets. Bjorn, on your last comment here, challenging the businesses, I mean, we need to see some time passing, come up with an explanation whether you can be number 1 or 2 in each and every one of them. When do you think it's it's time to put the foot down, which parts that do fit in Sandvik or not time frame wise? Machining Systems is one that you already announced, but if we look at further portfolio optimization actions. Yes. Of course, I'm in the middle of analyzing the group and spending a lot of time out in the different businesses. And just to mention that, I'm very optimistic and positive what I have met out there. I think we have a lot of good businesses. We have a lot of good technologies, a lot of good people around. And I do believe that most of our businesses are leading world leading businesses. That is pretty clear. There is, of course, always exceptions. And I'm not planning to give any news today, but I will give you a little bit more flavor when we come closer to the Capital Market Day, which is actually the 24th May in the direction where we're planning to take the company. Of course, the mining solution was a decision which I think is very good. It's moving more into the core business of the mining part and what and that process is moving very well at the moment, and we hope that we will be able to close this before the end of this half year. Mats, if I may continue with the follow-up. Mats, you mentioned or Bjorn, you mentioned that you don't expect any sort of big sequential differences in the demand. You usually talk about Machining Solutions trading conditions in January. So maybe you could comment on that and especially, of course, how the U. S. Market is operating? I would say we haven't seen any big changes to what we saw in the Q4. So I would say a flat development. And it's always kind of difficult to draw any conclusions at beginning of January and I mean, with all the holidays and so forth. So I would say basically flat, unchanged market environment overall. Is it fair to assume that you will not sort of under produce in the Q1 in SMS? I mean we are producing according to the demand. So in terms of structural need to kind of destock or to adjust the inventories, that's mainly related to mining and to some extent to venture. But the effect in terms of under absorption looking on mining is very small. So you couldn't expect that. I mean we are planning to produce according to the demand base. Thank you, Peter. Yes, please go ahead. One more from the whole. Hi, good morning. It's Guillermo Penea from UBS. Actually a follow-up on Peder's questions on growth and focus on SMS, maybe a bit more regional color. It's difficult to see when you have the U. S. A. Going down 15% organically and 13% in Asia, whether there is some destocking going on and therefore, one should actually adjust for that going forward as the destocking stops to some extent? Yes. I mean, it's pretty clear that both Asia or China and the U. S. Are the markets where we have seen the most decline of demand. China, I believe, will continue in a tough part going forward. I don't see any big changes in the near future there. Of course, there are a number of segments which are doing well, and that is the automotive segment and the aviation side. So there, I think we should be able to see good volumes going forward. In U. S, I think the big drop actually came in relation to the oil and gas industry. So sequentially, it's, I would say, pretty flat at the moment. And then a follow-up actually on oil and gas and your comments on umbilicals earlier on saying like you haven't seen it yet and therefore, it's stable. I'm just wondering why the weakness umbilicals tend to be higher margin within Materials Technology and yet the margins have been very weak. So I wonder what does it mean for the rest of SMT. Is that negative and or just basically losing a lot of ground when it comes to margins? And also, what would happen? Because I guess umbilical will be impacted at some point. Yes. Of course, the umbilical business, we all know it's a high margin business for SMT, and it's very much important. We have a viewpoint when about 6 months, and that's where the order book is approximately. And so far, orders have come in, and we have good orders in the pipeline. If the market will go down, which probably we'll do in the future, of course, it can affect the part because it's a very important part of the business. And of course, we need to then in that case, we have a little bit of 4 times there to take the mitigated actions in relation to that. But so far, we have not seen any decline in the umbilicals orders. And then last one, very short, pricing. I missed a bit of commentary on pricing given the deflationary environment we live in, which segments are you see price erosion? I would say if you look at the group overall, it's flat or somewhat positive. There are a couple of business areas which are mostly related, of course, to the oil and gas, and that is the venture business or the drilling and completion where you see a drop in margin. There is also some drop in margin when it comes to core and standard in SMT. Thank you. Thank you. And with that, we move on to the conference call, please. Operator, would you please let through the first question? Certainly. And your first question is from Klas Bergelind of Citi. Please ask your question. Yes. Hi, Mats van Anssi. It's Klas from Citi. A couple of questions, please. First, starting with return on capital employed. There has been a problem last few years hovering around 10% to 12% despite considerable cost capping and a major supply chain effort. This is well below the likes of Atlas. Bjorn, can you help us understand how we can improve asset turns? Is it I mean, when you look at divesting mining systems, that won't help you that much as working cap is effectively 0. The simple logic is that you have to divest units operating low margin with too much capital. But is there something else you can do to get asset turns up? Or do we have to rely on divestments? To improve the capital employed, there's 2 things. You have to improve your margins and you have to decrease your capital employed. So these are the direction we're heading. And I think all our businesses has to be driven in that direction. And I think this year, we have seen good development in the net working capital, which has gone down, and we will continue to pull that. When it comes to all other businesses, yes, we're going to drive the performance and from each of these businesses. And I do expect that each of our businesses will improve year over year, which will give effect on the return on capital employed, of course. I don't really want to comment anything today of divesting any businesses at this part. But as I mentioned there, we are challenging our business structure, and we are looking into all our areas and analyzing if they we are the right owner. Let me ask this in a different way. I mean, we've done a big supply chain program that is currently running. Given low volumes, you can't really see sort of ROCE improving until volumes come back, I assume. So when you've done analysis, what can happen I think on the existing program, you will see effects. That's pretty clear. But we will also continue in each of the businesses to work the working capital down. And that's going to be in each of our operation. And that's a little bit part of what I'm saying that we're in the decentralization. We are moving the responsibilities further out. And when you have the balance sheet and the P and L responsibility, of course, you are very much responsible for your return on capital employed. So that is the direction we will push it. Okay. My second question is on volumes and pricing in the aftermarket in Mining. The weakness there towards the end of the quarter, is that just because of mine closures? Or do you also see the miners canceling service agreements in existing mines bringing services more in house? And also, what are you seeing on pricing? The pressure we saw in rock tools last quarter, is that still confined to rock tools? Or has it started to spread elsewhere? No, it's correct. We're talking about the aftermarket where the demand has been somewhat weaker. On the rock tools, I think that's sequentially pretty much as it was in Q3. What we've seen in Q4 is that also on the spare parts and there where we have seen a slight decline, and I'm talking about low single digit. I do believe that the volumes are still pretty good in the mining market, I mean, the tonnages that are being produced. So it's keeping up. Of course, there are mine closures and there are parking of equipment. Today, I think we have a pretty good viewpoint of our operating unit market share out of the existing business. I think you can mitigate that. But we'll follow that very carefully going forward, and we'll keep you informed. My final question is also on the aftermarket. Can you help us with the split of rock tools, I. E. The spares and wears versus pure service contracts? And within pure service, there is an in sourcing risk building that they intend to bring more services in house. And then we have to understand what is the risk to the aftermarket business. Thank you, Claus. Now we're going to have to let someone else through on the line. I know there's a long line of questions waiting. So I kindly but strictly ask you to limit yourself to one question Next question is from Markus Almerud of Kepler. Please ask your question. Hi, Markus Almerud from Kepler Cheuvreux. First question is on the mining equipment, a follow on to Klas' question on the aftermarket. You talk about positive development. The demand in the mining market is actually going down slightly in the Q4. But we were very happy to see that we managed to get good orders, and that's mainly in relation to underground drilling and also loading and hauling. And I think that's very positive. So that has had a good development during the whole year, and it feels that we have a strong put previously as well looking on the margin. And we are saying that the umbilicals or the more kind of CapEx related businesses, we haven't seen the effects there still there. But meaning that what you see on the margins right now, it's a pressure on the core and standard side, meaning that we have a kind of under absorption effect in the melting shop due to lower demand. First on the spare parts. Can you help us with what product categories or geographically that's taking place? And it sounds like a new trend, so curious to find out what's changed to cause it. Is this the effect of longer term service agreements or spare bus agreements now coming to an end and being renegotiated? Or is it something else? No. It's not actually any dramatic part when it comes to any of these contracts. It's, I would say, the underlying pressure. And of course, we said mentioned that there are, of course, price pressures when it comes to the consumables, but we haven't seen it in the service underlying demand. And we see the mining companies are suffering hard, and they, of course, doing everything they can to lower their operational cost. And I think this is all over. This is not just in certain markets. This is all over. And many of the big mining companies, they are global companies, and they are operating both in surface mining as well as in underground mining. So I think it's a global issue. I don't think we should at this point, I mean, it's a slight, and I think we are careful to give that, but it is not any dramatic changes. And as I said, I think there are opportunities to mitigate. Volumes, the demand decrease by being active and making sure that we are delivering spare parts and service to our existing fleets. Well, I think in Sandvik, we have quite a lot to do. Thank you. I appreciate the color. And just on SMS, in terms of new product introductions, against the up to 15,000 that you've been launching or you were launching in 2015, what is the plan for 2016? And how should we think about the margin impact from those product launches? Because I assume they come with, 1st, some kind of a J curve effect. Yes. They will continue to launch a lot of new products. Maybe 250 was a little bit of a top, but it continues. And there is a lot of focus on R and D activities within the business area and also the other business areas. And they have a lot of new exciting products that will be introduced also during 2016. So they will continue with a very strong focus on R and D. Thank you, Andre. Operator, we'll continue with the question from the conference call, please. Your next question is from Ben Masten of Morgan Stanley. Please ask your question. Yes. Thank you. Good morning, Bjorn, good morning, Mats. Firstly, just on SMT and the weaker order intake. You mentioned greater competition in the standardized tubular offering. Can you just put a bit more color around where that competition comes from? Is it developed economy players? Or is it emerging markets starting to encroach on these markets? And are you having to walk away from business because the net consequence of that is pricing is much tougher? Thank you. I mean, I would say it's probably the kind of the usual suspects. I mean, it's the same kind of competition. But I mean, it's a little bit of a spillover from what we see within the kind of oil and gas segment where all players are trying to utilize capacity in other areas. So that's the main reason behind the increased competition. I mean in terms of pricing, I mean we're clearly stating that we have a negative price effect at Materials Technology in the quarter. So it is on the core and standard business a much tougher situation in terms of pricing, yes. Got it. And then the follow-up just on ventures in Process Systems. You mentioned it's the postponement of projects for large systems. Just which end market areas you see those postponements coming through? I would have thought that would have been a more resilient end market area. Yes. It was a couple of delays, I think, there in Q4 in that part, some orders which were slipped over to the next quarter. There are, of course, some much very much related to the sulfur part, which is the has a relation to the oil and gas industry. But we don't believe any sequential decline in demand when it comes to Process Systems will probably continue in pretty similar as we have seen this year. Thank you, Ben. And then I think we'll continue with another question from the conference call, please, operator. Next question is from Lars Brorson of Barclays. Please go ahead. Thanks. Good morning, Bjorn, Matt Tanzi. Mats, just a quick one on Machining Solutions margins. Can I just confirm that the net proceeds from the divestment of property within that was about SEK40 million, SEK50 million, so about a 50 basis point positive impact to margins here? And secondly, Brian, I wonder whether you could just talk a little bit about what you see in automotive within Machining Solutions. I think I heard you say automotive was doing well in China. That is not what you're obviously saying in the report. It looks to me as though automotive is weighing quite heavily both in North America and Asia. Can you assess what is the underlying market demand versus channel destocking? And to what extent do you think you might be losing market share here? Maybe I should start with the margin question on Machine Solutions. Yes, it's a wash between the property kind of of the property sales and the gains on that one and the under absorption, So about 50 basis points for both. So net 0 if you're looking on both. Yes. Then if we look into the automotive segment and the too strong I mean all markets in automotive has been strong also in Europe, of course. In U. S, we've seen a very strong second half of the year and a little bit flattening off in the part. And I think we follow pretty much. We do not believe that we are losing market share there. In China, on the other hand, we saw that our supply was a little bit less than the general demand. But on the other hand, in Q3, we had higher deliveries than the underlying market. So we do believe that this is some destocking that has been taking place there. We do not have any signals that we are losing market share neither in U. S. Or in China. So that's about it. But it's true that our volumes during the quarter was somewhat lower in China than the underlying demand. Can I just confirm automotive is about 25%, 30% of Machining Solutions and the geographic exposure mirrors that of the overall Machining Solutions? Would that be a fair assumption? Yes, it does. Great. Thanks. And just to say, do we have any more questions from the conference room here? Yes, please. We have one more question here. It's Guillermoppenier from UBS again. Maybe a question on competition as well and for inserts machining solutions. I'm thinking that as a fast moving good, whether you're actually seeing pressure from lower quality Chinese competitors in international markets? Western markets more than emerging markets? Maybe I'll let you answer that, but you are from that business. No. If you're looking on the development of the cutting tool market, it's the kind of the traditional players we can see. It's the Japanese players. It's the big players like IMC, like Kennametal and so forth. We haven't seen kind of local kind of low end competition moving up in that value chain. It's the same existing brands as before. Is it reasonable to expect they will come at some point? I mean, looking back 7, 8 years, we thought that we would already be there today. So I don't know. We are not there today. Thank you. Operator, we'll go back to a question from the conference call, please. Your next question is from Andreas Koski of Deutsche Bank. Please go ahead. Thank you very much. So firstly, on Sandvik Materials Technology and umbilicals. I just wanted to understand how large part of sales umbilicals is today. Would you agree that sales for umbilicals in 2015 was between SEK 3.5 billion and SEK 4,000,000,000? I don't think we are that transparent on the umbilical sales. What do you say? Unfortunately, the answer is no here as well. We don't give that specific details on the sales split. Okay. But at least historically, you've said that the oil and gas exposure in SMT was between 20% 25% is that correct, at least? That's, of course, Americas is, of course, part of that, but you have also the standard and core, which Mats talked about before, which is the part which have been affected so far. We have not seen the effects on the umbilicals at this stage. While we've seen it then in the standard and core. And as Mats said, this is because many competitors, due to lack of market in other parts, are moving in that direction. Yes. I understand that. I understand that. I just want to understand how big umbilicals is for you in SMT. I think umbilicals is an important part of our profitability in SMT. As what we have said is that we have a higher margin than an average margin looking on the umbilicals. I mean it is important, yes. Yes, I know that as well. Thank you very much. And then second question on the remaining savings of SEK 1,000,000,000. The program is expected to close by the end of 2017, but you could you give some sort of guidance how much of that will be materialized in 2016? I think we have the full split as a backup in the slide deck looking on the timing of the different savings done. Yes. You have the Phase 2 of the supply chain optimization, which is due to close for savings at the end of 20 16. So that should give you some guidance towards the phasing of the savings. And I think you see the split on business as well in the information that we have been giving previously, and there's no change to that. Perfect. Thank you very much. Okay. Thank you. And operator, we'll have the next question from the conference call please. Next question is from Alastair Leslie of Societe Generale. Please go ahead. Hi, good morning. A couple of questions on Mining. You've obviously got a new Mining President replaced, Scott Smith, who was charged with improving the aftermarket focus. I know Smith wasn't really at Sandvik for that long, but I was just wondering if you could highlight what progress was made over the last 18 to 24 months in terms of capturing more of the installed base mapping and understanding that and where you stand in today in respect? And then maybe also just obviously with your comments about moving to a more decentralized model and being close to the customers in mind, what the priority now for that division is? Has the focus changed? I think we should give credit to Scott Smith and his actions in the aftermarket. He has really made that as a big focus to the business area. And they started the and I think one of the important parts and of course, the visibility, you have to know where you make money and you not make money in the part. And we have to know where we are, what is our market share in the aftermarket and what is the potential. And I think one of the really good projects that they have been running there is the mapping of all our equipment out in the market. So I think that is a very good start when it comes to driving the aftermarket. So I think he made a good job in putting that focus. That focus will, of course, continue because that is the basis for stabilized and good profitability for the business area. But you'd say you're in much better shape now compared to 18, 24 months ago? I don't it's difficult for me to see because I wasn't there then. But what I hear from the mining operation is that there is a very strong focus on the aftermarket. And I also know that there is a lot of potential in the aftermarket also for us going forward. So that will definitely be priority number 1. When then we come into you talk a little bit about the decentralization part of it. And I'll just give you a little bit of a flavor. I cannot go too much into detail, but I have a very strong belief in the business units that have a full responsibility, then I'm talking about both P and L and the balance sheet. The decision has to be taken close to the customers, and they have to drive the business from there. So we are going through our different businesses, and we are trying to move as much as possible further out. So that is a little bit of 24th May. And if I could just have a quick follow-up on the I mean, when you talked about the softness in consumables and spare parts and services in the quarter, Just to be clear, for you, are the drivers for each of those, are they the same? Or were there different drivers in the quarter? Because obviously, we've heard from one of your peers that consumables was both that pass was okay. Yes. I think they're pretty different. Consumables is very much how are you driving, how much are you drilling. You follow that pretty much. On the service side, of course, that is very much that can be a decision from the customer. I would like to do it myself. I'm buying your spare parts. I'm buying Pirate spare parts. There are a lot of different kind of viewpoints on that. So I think the consumer business is probably the best way to actually see how much is being drilled out there, how many rigs and so on. And there are not too many players, as you know, in the market. There are a couple, and they split the market pretty well. And so you get a pretty good picture of what is the actual situation out there. And so far, we haven't seen any volumes going down yet. The volumes have been flattened out, but they are not going back. So that is how the market looked today. Thank you very much. And I believe we have one question here from the room, please. Anders? Anders Schoesslung, Swedbank. I have two questions, one regarding Machining Solutions and the automotive sector. You've introduced new products specifically for the automotive sector. How are you performing there? Now the new products in this area coming on stream? Or have you seen the full effects yet? And then the second question regarding mining. The aftermarket, how do you see the 2 aftermarket areas, consumables and spare parts, looking into a 1 year perspective? Are there any specific trends? 1st, when it comes to the new products being developed, we have a very big very strong focus on which part of our how many of how big part of our sales are from products that have been launched during the last years. We also have how big part of our sales is coming from products launched the last year. And we can see that both of these have changed and are moving in the right direction. I think that's a and that's a very important stage, showing that the R and D part is actually paying off. I don't have any details. Maybe you have, Mats, directly if you have how are the new products actually performing in the automotive industry. I mean it is according to plan. But then you have I mean it takes some time to reach all the kind of applications as well. So I mean we have a spillover effect into 2016 and going forward before we have the full kind of impact from the new products. But according to sales, I mean, but or according to plans, but it is a tough demand situation. So I guess that's still on the negative side. And on the mining question? Yes, of course. Sure. Yes, the aftermarket, of course, consists of 2 things. It's the service and consumables as well as the service and spare parts as well as on the consumable side. I think we mentioned that there have been a little bit of pressure on the consumable side also Q3, Q4. So I think that's pretty much sequentially on the same side. While as I mentioned before, during Q4, we've seen this small decline in demand. So far, low single digit numbers there, apart. And yes, maybe I didn't really get the question full out. No, the trend for 2016. Do they go together or will there be differences? I think there will be Trends, differences in the trends in the Perforce and Consumables. It's difficult to forecast, but we know that the demand will continue to be weaker. And I think it very much depends on what's going to happen with mine closures or not if it will continue. But I think we probably will see the same trend. Hopefully, we will have a chance to mitigate some of the aftermarket service by being more active in the market there. But probably, you will feel the same trend going forward. Thank you. And now, operator, we move on to the conference call, please, for the next question. It's from Graham Phillips of Jefferies. Please ask your question. Yes, good morning. A question around machining. Can you just confirm that the EUR 40,000,000 to EUR 50,000,000 profit from the sale of asset in that division actually went through in the profit bridge as organic growth? And if also that meant that the drop through margin was actually quite negative at around 60%. Do you think looking into 2016 that reduces? I mean, you've got a minus 7% order to take through. Would that also see perhaps some under absorption on fixed costs? I mean, looking on the bridge when you're talking year on year, the Q4 this year comparing with last year, I think you have positives and negatives that are kind of not included in the organic side in the bridge. First of all, we had a higher under absorption this year comparing to last year within Machining Solutions. And it's about the same effect as we saw in the quarter kind of isolated, about 50 basis points. And so it is basically washed between the under absorption and the gains we have from the sales of the property when you are looking on the year on year bridge for Machining Solutions. No, I understand that. So if we're trying to look at the true organic impact, then we obviously have to take that away, which would imply the drop through decremental margin, if you like, is quite high, sort of 60 odd percent. So if you've got a minus 7 percent organic growth potentially in this current quarter given the order development, then that's going to be again quite difficult to recover against fixed costs you'd expect to see similar No, it's not correct. It's not correct. I mean, if you're looking on the incremental margin or the leverage quarter over quarter I mean, year on year, we have a negative leverage of 24%, and I think that is kind of decent looking on the whole on the kind of integrated business model. On what you need to do then, so starting with the 24%, you can kind of start taking away the under absorption that has a negative impact year on year, and then you can put a property on top of that. But what I'm saying is that the underlying leverage, if you are looking on a year on year, it's the same because it's a wash between the property and the negative effect from under absorption. So I would argue that we have an incremental margin of some 24% and nothing else. Okay. And just in terms of the new solid carbide tool, I'm sorry you might have gone through this at the beginning, but the operator was very late connecting me to the call. Can you talk about what market that's targeting, where you think your overall exposure in this division as well is towards energy and mining because obviously you've got some indirect exposure through the general engineering segment? You're referring to the Walter Nudde Veldtud. Yes, that is targeting the automotive industry. What I said a little bit on the SMS part where the reason why we're seeing the volumes down as a part, the general engineering has been affected by the low oil prices. And I think maybe we were surprised that maybe not only in this quarter, but also in Q3 that the low oil prices would be affect so much the general industry. That means that many of these workshops has been actually targeting the oil and gas industry, which is, of course, suffering at the moment. So that is what we see. We do not see any sequential further decline in the market on SMS than we've seen from between the, let's say, the first half to the second half. But I think energy overall is around, what, 10% or 15% of this division. But of the general engineering, which was about half, a good portion of that is then also related to energy and also other heavy industries like mining, I guess. But I think on the general engineering side, I think the big hit was when they lost their contract, and that was actually between 2nd and third quarter. Then we haven't seen any further on the general engineering. That is sequentially pretty flat. So it's actually you're comparing with the high numbers of the first half of last year. Yes. I guess I was looking year on year. But okay, no, that's fine. Thanks. Yes. Thank you. We're coming towards the end of this session, but we still have some more questions from the conference call. So operator, would you please step one through? Next question is from Andreas Niedi of JPMorgan. Please go ahead. Yes. Good afternoon. Good morning, everybody. My question on Machining Solutions, if you could talk a little bit about pricing there and the ability to price up for particularly the new products that give customers more productivity and whether that's enough to offset that some of these products also didn't last longer and therefore Yes, that's the question, please. I mean, Yes, that's the question, please. I mean, the new products, that's kind of adding ability to increase prices. But in the same time, it's very tough environment looking on the demand. So we can see a much, much tougher environment in order to increase prices for sure. So without any new products, it will be a real challenge to keep that one on positive, I would say. So I would say that the product introduction is a kind of prerequisite to continue our pricing strategy. And my follow-up question on the FX guidance you've given for Q1 that's based on December year end rates. We've seen some emerging market currencies weakening further since then. Have you run the numbers as well for end of January? And also given the impact of €300,000,000 for Q1 already, what will be the full year estimate for the currency impact at current run rates? We are not giving the kind of the full year effect. I mean, we're sticking to the Q1, and we have not kind of recalculated any numbers. We're sticking with the year end numbers. And I think that is good for you then to make your own calculations based on the year end rates. But what I would like to add looking on the minus €300,000,000 I mean the reason for the kind of very negative outlook looking on the currency effect is mainly related to the mining and kind of oil dependent currencies. I mean talking about the Aussie dollar, the Brazilian real and so forth. And so when you are looking on the currency effect as such, it will have the biggest hit will be on mining looking forward. Thank you very much. Thank you. And that implies the end of this session. I know we have more Thank you all for joining us today and we'll see you in about a quarter's time. Thank you. Thank you. Thank you.