Earnings Call: Q3 2015

Oct 23, 2015

Greetings to you all, and welcome to the presentation of Sandvik's Third Quarter Results. My name is the same, Anssa Finoud, Head of Investor Relations. The voice is, however, a little bit different today. I apologize about the huskiness. It's got a bit of a cold. Today, we're going to read through the presentation. As per norm, he's going to be our CFO and Acting CEO, Mats Backman, who does that. I would just like to point out that all the numbers and comments we make in this presentation relates to the ongoing or continuing operations. And that said, Mads, please go ahead. Thank you, Anne Sophie. Good morning, and welcome to this Q3 presentation of the Sandvik results. And I'm starting with a short summary with some highlights from the Q3, and we continue to have a very strong cash flow. Operational cash flow for the quarter of SEK 4,000,000,000. And if I'm looking on the year to date numbers for the 9 months, we have actually the best cash flow ever in the company's history of SEK 9,400,000,000. So very positive on the cash flow side. This is supported by a continued focus on net working capital. We released some SEK 1,700,000,000 in terms of volume in net working capital in the quarter. So on the positive side, the cash flow. Looking on the demand side, we saw a weak demand in the quarter with an order intake of some SEK 19,700,000,000 and with a negative price volume of 8%. And I will elaborate a little bit more on the development in the different markets and customer segments later on in the presentation. We reported an EBIT of SEK 2,300,000,000 in the quarter with an EBIT margin of 11.2%. We saw a positive currency effect of some SEK 370,000,000 and we saw savings of approx SEK 200,000,000 in the quarter. However, the positive currency effect together with savings couldn't fully compensate for the negative effect we had from volumes in the quarter. So we had a decline of operating profit year on year of 7%. We continue our portfolio review and our internal efficiency measures. We announced our intention to divest Mining Systems during the quarter. We are continuing with the supply chain optimization program and savings year to date are according to plan. And we're also looking on additional efficiency measures in order to mitigate the volume development we have seen. Last but not least, we are everyone looking forward to our new CEO, Bjorn Roosengren, to join Sandvik November 1. Moving over to the order intake by markets. What you can see on this slide is the share of the order intake in the different regions. And the red arrows shows the order intake compared with preceding quarter, so the sequential development in the different regions. In North America, we saw a slight decline in the quarter. The same goes for Europe. However, you need to remember that we have a seasonal effect in the third quarter. So adjusting for seasonality in Europe, the trend was rather flattish instead of declining. Asia, slightly declining. And looking on Asia, it's all about China. We had a negative development sequentially in China. But looking on the other important markets in Asia like India, Japan, Indonesia for mining for an instance, we actually had a positive development in the quarter. South America, slightly up. But please remember, it's from a very, very low level when you're looking on South America. Africa, Middle East and Australia, slightly down during the quarter. Looking on the different customer segments. I mean, all in all, we had an organic development of minus 6% in terms of invoicing. And if we're looking on the different customer segments, we had 2 segments that was performing over and above plus 5%, indicated by the blue color in this chart. And that was mining. But again, mining is growing, but growing from a very low level. And we also had a positive development within Aerospace. And Aerospace is a little bit the opposite. That's from a very high level that we are continuing to growing on Aerospace. We had 3 customer segments in red in this picture, meaning that we had the price volume development less than minus 5%. Energy, driven naturally by the development within oil and gas. Construction and also general engineering. And general engineering, to some extent, also affected by the development within the Oil and Gas segment, where we can see an indirect exposure into General Engineering being negative. And for the other segments, we saw a flat development in the quarter. If you're looking on the red arrows, it shows the demand trend compared with preceding quarter. And we have 3 segments that shows more of a negative trend in the quarter. Starting with Energy, again, it's all about the oil and gas side. General Engineering also affected by the indirect exposure to oil and gas. But also on mining, but I mean when we're talking about the demand trend, it's more kind of an uncertainty in mining rather than a negative trend. Just to conclude, order intake minus 8% in terms of volume in the quarter. We had a negative book to bill of 0.95% in the quarter, and we saw negative organic growth across all regions. 2 segments that we want to highlight that had a relatively better performance than other ones, and that's the Aerospace but also Automotive to some extent. Looking on the invoicing, SEK 20,700,000,000 in the quarter and about minus 6% in terms of the price volume development. And we had the negative organic growth of 4 out of 5 business areas with only mining showing price volume growth in the quarter and very much supported by the strong order intake on equipment during the 1st 6 months of the year. Looking on the EBIT numbers, I mean, as I said, we had the year on year adjusted earnings decline comparing to last year, minus 7%, and that is despite the positive currency effect and what we can see coming from savings. In terms of cash flow, as I said, a record high cash flow in the quarter. I would like to highlight one item when it comes to the cash flow, and that was that we had a lower CapEx in the quarter than we normally have. And we are actually adjusting the full year guidance when it comes to CapEx to about SEK 4,000,000,000 from previously SEK 4,500,000,000. So that is also contributing to the total cash flow for the company. Net working capital. In absolute value, we decreased net working capital with some SEK 1,800,000,000 in the quarter, and it's all about volume. We had a volume decrease of SEK 1,700,000,000. Looking on the relative net working capital, we have chosen to show 2 lines in this one in order to illustrate the structural effects from bringing out mining systems from the rest of the operations. So we have a structural effect from mining systems of about 2 percent unit on relative net working capital. I think that is important to remember. Looking on the relative number for the quarter, 29.6%. That is actually the 2nd best third quarter in this if you're looking from 2,007 and forward. And the only quarter that is better than this quarter in terms of 3rd quarter is the Q3 of 2010. That was actually the quarter ahead of the only quarter where we have been hitting the 25% relative net working capital target. So it looks very good, I mean, in the big picture for net working capital. We have also chosen to show a bridge analysis explaining the margin development comparing to the Q3 2014. So if we start with the Q3 2014, we're reporting 12% in EBIT margin to be compared with 11% that we present this year. And this year's operating profit of SEK 2,300,000,000 and then we have done an adjustment in terms of structure and one offs in order to get comparability between the years. And in the minus SEK 250,000,000 that contains of the metal price effect adjustments. So we had a negative metal price effect this year of €130,000,000 and a positive last year of €170,000,000 giving a delta of about SEK 300,000,000 year over year. We also had a slight adjustment of SEK 30,000,000 negative in order to adjust for structure, and that relates to divestments that we did within Materials Technology last year. And finally, a positive adjustment that are getting to the total of $250,000,000 and that's $80,000,000 adjustment for purchase price allocation related to Barel. So we had a higher purchase price allocation last year than we have this year, so we're being chosen to adjust for that one. And then we had a currency effect of EUR 370,000,000 ending up with a residual of EUR 290,000,000 in terms of delta important to remember that we had a higher destocking this year comparing to last year, and we had a result effect from under absorption of destocking of about SEK 100,000,000 for the group as well. So if we're adjusting for that one, we have an underlying leverage of about minus 20%, which I think is decent given the market development and the volume development. Looking on the savings, we have communicated a saving target of SEK 1,700,000,000. We now have a run rate end of September of some SEK 845,000,000 when it comes to savings. So we can say that we're halfway through the savings program looking on the outcome as well right now. And the first step of the supply chain optimization program that is running according to plan, and we can see the savings coming through as previously communicated. Looking on the guidance going forward, we are guiding a negative currency effect or excuse me, a positive currency effect of SEK 100,000,000 in the 4th quarter, and that is based on the closing rate in September. We are guiding for a negative metal price effect of EUR 100,000,000 also based on the closing rate in September. And looking on the full year guidances, we are changing the guidance for capital expenditures to about SEK 4,000,000,000. I think it's important also to highlight that this is an underlying difference when it comes to the capital expenditures because I mean the carve out of mining systems doesn't really affect the capital expenditures as it is a very low capital expenditure business, the mining systems. So that is on the underlying business. And we are keeping the guidance when it comes to net financial items as well as the tax rates. Summer of the quarter, and I think I will not repeat myself. I think we went through all the items already. So I would like to move straight into the Q and A, Anne Sofie. Yes. We'll open up for questions. And I would just kindly remind you and ask you to stick to one question at a time with one follow-up. And while we do that, shall we start to see if we have any questions here in the room? Yes, please, Anders. Yes. Anders Schlosland, Swedbank. I would like to hear the usual comments about the Machining Solutions demand situation in the actual month? And also a little bit about production levels in Machining Solutions, how much below and cost from the absorption? And what do you look forward into the Q4? I mean, if we start with the demand, I mean, the 3rd quarter is a little bit of a kind of a tricky quarter in terms of seasonal effects. But what we I mean, we saw the normal seasonal effects in July, August. And looking on the September number, and September is pretty much the whole quarter for Machine Solutions. And what we have seen so far when it comes to the order intake is the same level as we saw in September. So no change on the demand side in that area. When it comes to under absorption from destocking, I would say I mean, looking on the total destocking for Sandvik, we had 2 business areas with an under absorption effect in terms of profitability. And I would estimate for Machine Solutions in the Q3 that we had about 1% unit in effect from under absorption. Going forward for Machine and Solutions, I mean, we are planning to produce according to the demand in the Q4. So I can't see foresee any big under absorption effects in the Q4 for machine solutions. No major changes in your production levels for the Q4? No. I mean the tricky thing with the 4th quarter is, I mean if we see a kind of a shift in demand historically looking on the 4th quarter, then we will get the whole impact towards the end of December really when the customers are kind of prolonging the holiday shutdowns then. And that you never know, but apart from that, no. And no specific trends regarding the big geographies, Europe, U. S, in Machining Solutions? In terms of sequential development, we can't see anything dramatic. I mean, what you see in the year on year is we have very strong comparables looking on U. S. And Asia, mainly China. So in terms of the sequential development, flattish, maybe slightly negative, but nothing kind of dramatic sequentially. Okay. Thank you. Thank you. Operator, can we take one call from the telephone conference, please? Thank you very much. Our first question comes from the line of Guillermo Peigne from UBS. Please go ahead. Good morning, everyone. It's Guillermo Peigne from UBS. I think in 10 years, this is the first time the operator pronounced my name correctly. So I'm very, very happy, very pleased with that. But I wanted to ask actually one question and one follow-up. First on mining invoicing versus orders, do you think it's fair to assume that at the moment the mining division looks a little bit over invoicing relative to the order intake and therefore we should see that if orders do not recover from these levels, we should see revenues going down to order levels and some kind of impact on margins as well? I mean in terms of the equipment, I think what you need to remember that we had actually a pretty strong first half of twenty fifteen when it comes to the order intake on equipment. What we have seen in the Q3, it's, I would say, more uncertainty in the market because, I mean, if you're looking on the year to date numbers in terms of order intake on the equipment side, I mean, it looks pretty good actually. On the aftermarket side, what we have seen there is, I mean, increased competition and I would say some price pressure when it comes to rock tools. But to I mean, it's difficult to say in the current environment and especially looking on then. Thank you. And then a follow-up regarding actually pricing trends in cutting tools. Can you comment on those? I mean looking on the overall price effect for the quarter, I would say from a group perspective, we are flat in prices. If we're starting from the positive end, it's Machining Solutions, I mean, positive pricing. And we can see that continue and also supported by introduction of new products. Positive positive numbers for the quarter, but that's more driven by kind of internal activities where we're addressing pricing. Mining, more kind of flattish when it comes to pricing. And then we definitely had a negative pricing effect looking on Venture, for an instance, driven by oil and gas and also slightly negative for Materials Technology, mainly driven by the impact on current standard in terms of Tubular. Thank you. And my last follow-up, Corporate Line is just to be around 300, 200,000 looks like 2 quarters in a row of circa 200,000,000. I was wondering whether that is a new level or should we be still thinking about 200,000,000 to 300,000,000? Thank you. I mean the 3rd quarter is seasonally low quarter for group common causes. But I mean, saying that, we can also see impact from the cut in terms of spend and the savings that we are going through right now. So I think it's fair to say, I mean, on an average level, around EUR 250,000,000 for the year. Thank you. Thank you. Operator, can we next take the next question from the conference call, please? Thank you so much. And our next question comes from the line of Sebastian Kreter from Exane. Please go ahead. Hi. First question is on Machining Solutions. Just coming back to your comment on the destocking in the quarter. If we look on Page 15, networking capital to sell is still going up in Machining Solutions, has been the case for the last 3 quarters, which is rather strange when demand is weakening. So what do you see in terms of receivables and payables in that division? Second question will be on mining aftermarket. Could you give us some color on the share of the aftermarket as a percentage of total sales in the Q3? And can you help us on SMT final question? What is the impact of lower nickel price on the top line in the Q3? And what is volume driven? Thank you. So many questions, so it's difficult to remember. That. Take them 1 by 1. When it comes to networking capital for Machining Solutions, I mean, we had first of all, you need to remember that we had a kind of a decline when it comes to invoicing of 5%. So if you're looking on relative numbers, I mean, that is definitely an issue for the relative net working capital. When it comes to stocks, I mean, we have a destocking. And I mean, we like I said, we had an effect of under absorption from destocking for Machine Solutions of about 1% unit. So I guess you can kind of calculate backwards a little bit. We are decreasing on payables. And I mean that's coming with a lower investment level and also when we are addressing spend. So that's the only item that is going in the wrong direction because I mean naturally, you have a positive effect from accounts receivables when you see a decline in sales. But again, please remember that we have minus 5% when it comes to the invoicing. When it comes to mining, the share of aftermarket, if you're looking on the 3rd quarter numbers, it's 67% to be And I need some help, And I need some help too. No, no, no. You can find it in the bridge analysis in the with the backup slides. But the EBIT effect is EUR 130,000,000. Yes, but I'm looking on the top line impact, the pass through of a lower nickel price. What is volume driven, price driven and what is nickel price pass through to customers? Yes. Please look on the backup slide when it comes to the bridge for Materials Technology. But the EBIT effect is 130 when it comes to change in metal prices, and it's all driven by the nickel price. Okay. Thank you. And we'll take the next question from the call, please. Thank you. Our next question comes from the line of Andreas Koski from Deutsche Bank. Please go ahead. Yes, good morning. Thank you for taking my question. I want to know a bit more about your backlog and the duration of the backlog because you have a book to bill of €0.95 in the quarter. And I want to understand when your revenues will reach the order level if demand stays where it is. I mean, it's a completely different situation if you are comparing the different business areas. We can focus on Mining and SMT maybe because you had a book to bill of 0.87 in Mining and 0.9 in SMT. So if you focus on SMT and Mining, that's okay. Yes. I mean starting with Materials Technology. What I think is very important to highlight looking on the order intake as well as the order stock is that the part of the Materials Technology business kind of exposed to a CapEx within oil and gas, that is mainly on the umbilical side. And umbilical, that's a really important segment looking on the profitability for Materials Technology. And when it comes to umbilicals, that is a business that is very late in the cycle. And we still have, looking on the order backlog, I would say 6 months order backlog on umbilicals. But given that the late the business being late in the cycle, we can still see orders that are out there for the Q4. So that will kind of take some time before you see the full effect. When it comes to mining, I mean, we had a decent first half when it comes to the order intake on equipment, and that's what we see in the order book right now. We saw some uncertainty, but I think it's very, very difficult to kind of proceed the development and going forward for equipment. So I guess that's the key. When it comes to aftermarket, I mean, it's not that much of an order backlog on that side. No. And if I remember correctly, I think you've said that you have had no order backlogs on the equipment side basically, and the backlog you have had in mining has been related to mining systems. But now it looks like you have some sort of back rewards for the equipment business. But I suppose it's not longer than a quarter or at maximum 2 quarters, right? No, no, no. I mean, I think 1 quarter is a fair assumption. Yes. Okay. Good. When it comes to the equipment. And you are right. I mean, when I mean, historically looking on the order book for mining, it has been all about mining systems with large orders. But for equipment, 1 quarter, I think, is a fair assumption. And now more and more savings are coming through. So do you think you will be able to defend your margins when sales comes down through more and more cost savings also in coming quarters? I mean, that's what we're aiming for. Yes. Good. And then maybe this is a bit premature, but can you say about what you expect for CapEx in 2016? Do you think you will be able to keep the level at €4,000,000,000 or lower? Or if you put it in relation to sales, below 5% of sales? I think it's difficult. I mean, we will provide you with the guidance when we are getting that for 20 16. But I mean, as what you can see as an overall target is the 5% in relation to invoicing, and that's what we're aiming for. Okay, great. Thank you very much. Thank you. And I believe we have one question here from the room, please. Yes. Hello, Daniel Schmidt of NTB. I just wanted to ask you if you can update us a bit more on the divestment of mining systems, where you are in the process, what should we expect in terms of time frame? And also the sort of the rationale behind the book value of SEK 2,300,000,000, is that a reflection of the indications that you've had in the market? Thank you. When it comes to the process as such, I will not give a kind of an update now other than we have ongoing discussions with potential buyers. When it comes to the write downs and the impairment we took in the Q3, I mean, that's kind of reflecting what we see in terms of the value for the business. And from an accounting point of view, we need to show that. But nothing on the time frame sort of. If you look 6 months out, do you think this will be sold by then? I mean that will be guessing. We are getting back with more information when we have it. Thank you. Thank you. And operator, please can we have the next question? Thank you very much. And our next question comes from the line of Andre Kukhnin from Credit Suisse. Please go ahead. It's Andre from Credit Suisse. Can I ask a question on SMS demand to follow-up the previous discussion? Firstly, could you tell us how the demand evolved during the quarter? I know there's a lot of seasonality there, but I guess you've got the selling dates you've got the data for each day of selling. So you could compare that if you could share how that evolved? And then secondly, what you indicated for Q4 being broadly stable or maybe small down, is this kind of seasonality adjusted or not? I mean, you have I think the question you're referring to was the kind of the destocking under absorption effect. And that is, to a large extent, season into that one when we are taking out volumes in inventories in Q3. So that's more of a seasonal effect. When it comes to the demand in the quarter, I would say, I mean, like I said, flattish kind of slightly negative in terms of sequential development for Machine Solutions. But I mean talking about the development within the quarter, it's really difficult given the kind of the holiday season and July, August. So kind of just stating that what we saw in September is basically what we see now in terms of the order intake. So So I wouldn't kind of point out the trend within the quarter, no. All right, got it. And can I just double check on Venture? Are you planning any specific cost cutting measures in this business given how the margins have evolved? Yes. I mean, we are. And that is kind of a continuously ongoing efforts. And especially looking because I mean, we have done quite a lot when it comes to Varel because I mean, they were really early in the impact from the drop in the oil and gas prices. What we have seen now in terms of more kind of indirect effects into Process Systems and into Hyperion indicates that we need to do more, and we are doing more also from a structure point of view. Because it's interesting to see, I mean, if you're looking on Process Systems, for an instance, we can see indirect effects on the industrial processing, for an instance, where we can see effects on the sulfur market that also have an effect on Process Systems. So yes, we have additional ongoing cost measures within venture as well. Got it. Thanks very much. Thank you. Thank you. And operator, we'll continue with the call question from the conference call, please. Thank you very much. Our next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead. Hi, Markus Almerud from Kepler Cheuvreux. A couple of questions. First on Europe, the European order intake, you say, is minus 6%, which is a bit weaker than I expected. Can you just elaborate a little bit on what sticks out and which end market is dragging it down? You're talking about it being sequentially flat if you take away the seasonality, but if you can talk a little bit more on that. And then secondly, if you could just update us on the commodity exposure in the remaining mining business in terms of how much is gold, how much is copper, etcetera? Thank you. Taking the last one first. I mean, we have reduced the exposure to iron ore and coal quite a bit with taking out mining systems from the figures. And I think you can see the exact share actually in the supporting material. But what is important to remember is that it's decreased exposure on iron ore and coal on that one. On the first one, when it comes to Europe, I mean, again, looking on the businesses that are heavily impacted by seasonality, mainly Materials Technology and Machining Solutions, it's mostly kind of seasonality. And within Europe, we see the same pattern as we have seen previous quarters. I mean, a high volatility and a negative trend more towards Eastern Europe with Russia, more kind of stability looking on Germany, for an instance. So no kind of significant changes from what we have seen before in Europe. Okay. Thank you. And then finally, if I can just ask about the aftermarket. You said that the you gave us the Q3 numbers, but what was the share of aftermarket in the 1st 9 months? And then also, did you keep all of the aftermarket and service sales? Or did you have parts of it coming with the mining systems as well? Thanks. No. I mean, aftermarket in terms of mining systems is almost kind of non existing. So it is the continuous business. And taking out Mining Systems, I think we have a kind of a similar picture in terms of the share of the aftermarket of the total invoicing for mining, meaning 2 thirds of the business. Okay, excellent. Thanks. Thank you. And we have one question here in the room. Please Anders again. Yes, hello. I have one question regarding construction. It seems that you had better order intake for a couple of quarters, while sales is significantly lower. Is that are you having a better pipeline now or? No. So if you're looking on the order intake, we have some major orders that are kind of disordering a little bit when you're making the comparison between the invoicing and order intake. I think it's mainly due to major orders. When it comes to the underlying market development, it that is not reflected when you see the major orders. There's no change looking compared to previous quarters. Those major orders, will they be shipped in the Q4 or next year? Or I mean, partly Q4 and into next year as well. Okay. Thank you. And we'll continue with a question from the conference call, please operator. Thank you. Our next question comes from the line of James Moore from Redburn. Please go ahead. Yes, good morning, everyone. Hi, Mats. Can you help us a bit more understand the impact of oil in both Venture and SMT? Specifically, can you say roughly how much Varell revenues have dropped and what the book to bill looks like and whether the margin, which I think had already gone from 16% to low single digit, is now in loss. Just trying to understand how that might develop. And on SMT, I'm more thinking about next year. Is it that oil hasn't dropped so much in SMT? And will next year? And can you sort of scale how much it's dropped so far and how much you think it drops next year? And I'm thinking about margin mix. I guess oil based margins are way higher than standard and European consumer style margins. So can you help us quantify any mix effect into next year in SMT? It's not quantifying exactly. I can give you some guidelines on that one. Starting maybe with the Varel side. I mean, we are still in positive territory if you're looking on the margin for Varel because what you can see in the total number is the purchase price allocation effect of some SEK 50,000,000 in the quarter. So taking out the purchase price allocation, we have a positive margin with Varel. When it comes to the impact on Barel, I mean, as we have a really heavy footprint when it comes to the unconventional U. S. Oil and gas, we saw a more of a kind of immediate effect on Barel from that one. So I don't think you should kind of assume that we will see a dramatic shift from where we are right now going forward. And especially as you have seen more of a stabilization looking on the rig count in U. S. So that goes for Varel. Looking on Materials Technology, I mean, like I said, we have in terms of umbilicals, we have an order book that last or an order book until end Q1 next year. We will we are still anticipating to see orders in the Q4 when it comes to umbilicals. So that impact will be kind of later if we don't see any kind of changes in the underlying environment for Oil and Gas. What we see in terms of the profit effect, and I think that is important to realize when you look at Materials Technology, We can definitely see an effect on the more kind of core and standard business within Turbola that is indirectly an effect of what we see going on within oil and gas because we can see a much, much tougher competition in that area and more players are getting into it to the core and standard side of it. So that is definitely something that is negative in terms of underutilization and in terms of kind of the productivity within Materials Technology. And it's also price pressure in that area. Thanks. If I could just follow-up on Automotive. I was surprised with your slightly stronger comments than I'd have expected given global auto production seems to have slowed to 1 and some talk about heading to minus 1 next quarter. Is that a market share issue or a timing issue? No. I would say it is probably more a timing issue built into that one. Okay. Great. Thanks, Mats. Thank you. And we'll continue with a question from the conference call. Please, operator. Thank you so much. And our next question comes from the line of Alexander Virgo from Nomura. Please go ahead. Thanks everybody. Good morning. Just a quick one. I wondered if you give us a little bit more color around the continued softness in rock tools and mining, I suppose, particularly, but also I think you called it out in construction as being stable. So just wondered if you could give us a little bit more detail around, I guess, particularly the pricing dynamics and really what's driving that in terms of any comment you can make with respect to the conversations you're having with the customers? Thank you. I mean in terms of price pressure on rock tools, it's I mean it's the competition. I mean it is much tougher competition. And we can see kind of a more price pressure from contracts rather than the kind of over counter sales for rock tools. Yes. Okay. Thank you. Thank you, Alex. And operator, we'll have the next question, please. Thank you so much. And our next question comes from the line of Lars Borsen from Barclays. Please go ahead. Thanks very much. Good morning, Mats, Anssi. Just a follow-up on SMS, if I could, Mats. I was a little bit surprised to hear your comment earlier that you didn't see anything meaningfully dramatically by region within SMS. I thought Europe was notably weaker at minus 4% in the quarter. We've talked about that being the spot earlier. Does that reflect underlying market trends here? Or I mean, I would have expected you to be taking share on the back of your product rollout. So I was very surprised to see the 4% decline there. And then on APAC, better or at least declining less than in Q2, again, a bit surprising given what we saw was a sequential deterioration in China. Can you just talk through those two regions, please? I mean, looking on Europe to start with, what you from a sequential point of view, I mean, it's a lot of seasonality built into the figure. So it's really kind of hard to do any conclusions looking on mainly July, August in Europe. I would say seasonally adjusted more kind of a flattish development in Europe. When it comes to Asia, like I said, a negative effect from China. I mean, so we continue to see a very difficult market situation in China in basically all customer segments looking on the development in China. While we saw a more positive development if we're looking on Japan and India, for an instance, in Asia. So the issues with China continues. Thank you. And then just secondly and finally, if I could, on balance sheet and dividend into 2016. Obviously, strong working capital, as you pointed out in the quarter. You're scaling back a bit on CapEx, and you should presumably see some proceeds come through from the sale of mining systems in the not too distant future. I wonder whether though in light of the current demand trends, what your thoughts are on leverage and dividend payout specific? I mean, you've been quite generous in the past few years. I wonder whether we should start to set expectations here to a payout ratio or policy payout rather closer to the policy level at around 50%. That would be helpful. Thanks. Yes. Board. What I can refer to is, a discussion for the board. What I can refer to is our financial targets we have when it comes to dividends because we're talking about 50% of EPS. And I think that is probably kind of good starting point to see the long term targets when it comes to dividends. And I mean, looking on the balance sheet, we are improving because I mean, it's extremely important looking on the cash flow development. And looking on the net gearing, we're now below the 0.8 as we have as a long term target. So I mean, that is a that I think is a good progress. Thanks. Thank you, Lars. Can we have the next question please, operator? Thank you. Our next question comes from the line of Ben Uclo from Morgan Stanley. Please go ahead. That's great. Thank you for taking the question. I'm standing in for Ben Madeline. I wanted to come back on the mining aftermarket again. I just want to understand the specific price dynamics within that business. And I'm not completely familiar with how big Rock Tools is as a proportion of your overall mining aftermarket sales. But are you saying that this is something the price pressure is confined to rock tools? Or is there any risk at all that, that spreads to other product categories? So that was number 1. 2nd related question is, are we talking about mid single digit declines in that category? Or is it something more serious, I. E, are you seeing deep price pressure in one area? Or is this just a fairly gentle downtrend? And then finally, how do you expect aftermarket pricing to develop over the next 1 to 2 quarters? Again, a lot of questions. Let's see if I can remember them. If we're looking on the the market, I mean, the 67% of the total, that contains Rock Tools, Services and Parts. Rock Tools is definitely less than 50% of the total kind of aftermarket exposure. And looking on the price pressure, what we see within Rock Tools, I would say, I mean, as you stated, I mean, it's less dramatic using your words. I mean, we haven't seen any kind of a huge impact. I mean, Dan, I mean, looking it's difficult to say, I mean, given the more uncertainty we see in mining and the development we have seen in the quarter with the mining houses closing capacity and so forth, I mean that might have a bigger impact going forward. And maybe that's still to be seen. But I mean, what I would like to highlight looking on our portfolio for aftermarket is that we have done a lot when it comes to developing our services, for instance. So that's more of a kind of a self help when we're improving the penetration on our installed base. So we're doing a lot of positive things as well within aftermarket. Okay. So is it I guess what I'm asking is, is it fair for us to assume that this effect that you're seeing right now in rock tools could actually be more broad based within your mining aftermarket over the next 6 months? I mean, I can't kind of answer that and give a forecast. But what I can conclude is that if we have the mining houses starting to kind of take down capacity, we will probably have more idle equipment out there. And idle equipment would have an effect as well on the spare parts, for instance, but we haven't seen that so far. Thank you very much. Thank you. Can we have the next question, please? And we only have a couple of minutes left, so can I kindly ask you to strictly stick to one question going forward and see if we can squeeze in all the remaining participants? Thank you. Thank you very much. Our next question comes from the line of Andreas Willey from JPMorgan. Please go ahead. Yes. Thank you very much. My one question is a follow-up on Europe where we earlier discussed kind of the weaker picture on the Machine Solution side as well. Could you maybe give a little bit more commentary around that? Because a lot of the data we get on European car production, European appliances, it kind of it doesn't look like Europe is getting worse, but you've seen shown weaker development here. If you could give some color maybe by geography or important end markets, why Europe is not improving like maybe some of the overall macro data is telling us? Thank you. No. I mean, again, looking on Europe for Machine and Solutions and adjusting for seasonality, I wouldn't say that we have a negative effect in Europe. We are talking more of a kind of a flattish development in Europe. Of course, again, for Machining Solutions, I mean, the seasonality plays a big role in the Q3 every year. And that makes it a little bit more difficult to kind of judge the trend in the quarter. But I mean, what we said adjusted for seasonality, more or flat development for Machining Solutions in the quarter. Thank you. Thank you. And the next question please, operator. Thank you. And our next question is a follow-up question from Andre Kukhnin from Credit Suisse. Please go ahead. Yes, thanks very much for taking the follow-up question. I just wanted to ask on Mining Systems, the business that is up for disposal. Book to bill is 0.35 in Q3, which seems to be down substantially from H1. Is Q3 performance indicative of underlying or was there a particular sort of drop off or something else just to gauge sort of how that may look for the full year? No. I mean, I think it's more kind of normal given the market environment we have because I mean it's a very high volatility when it comes to mining systems because we have very big kind of single orders, and it always depends on where we get it between the different quarters. So I think it's no change when it comes to the market environment in that end. Got it. Thank you. And actually, if I may, just one more question. Yes, please go ahead. Thank you. On pricing, there's been quite a few comments. If I just dare to summarize and run through it, and if you could tell me what I've got wrong, that would be great. So what I've got is positive pricing in SMS, that was clear, and negative pricing in Venture in Oil and Gas and in mining new equipment and rock tools in aftermarket and then negative pricing in SMT. And then my read is that elsewhere is more or less kind of in line flat. Does that make sense? Just to stress, when we talked about mining, we talked about the flat pricing overall for mining. Okay. Overall flat with pressure in rock tools kind of implying better elsewhere in aftermarket and flat in OE, something like that? Yes. Great. Thank you very much. Thank you. And we have a final question please, operator. Thank you very much. And that question comes from the line of Peter Testa from 1 Investment. Hi. I'm sorry to come back on this SMS question on Europe again. I mean, if you look at the year on year local currency order numbers that go from minus 1, 0 to minus 4, and this is a year over year number, not a seasonal number. And so really would appreciate if you could help us understand how the new product introductions are phasing in, the extent to which these are supporting business or whether there's some other individual year over year factors which are playing through in Europe? I mean when you're looking kind of year on year, we have had a kind of a overdevelopment before the Q3. So I think that is that's more kind of due to the comps. But looking on the sequential development, again, I would say more kind of flattish adjusted for seasonality in what we can read in the quarter. And our order intake is really supported by introduction of new products, and we can see that as a kind of positive in the new sales ratios as well. So we are supported by new products. But in this more kind of difficult market situation, it's always kind of more difficult with introducing new products as well in terms of difficult with introducing new products as well in terms of productivity when productivity might not be the kind of the main issue for customers. But looking on the underlying, we're definitely supported by the introduction of new products, yes. Okay. Thank you, Janssen. Thank you. And thank you all for joining us today. And before we finish off, I would just like to remind you all that regarding the CMD, we have postponed it. It was originally planned for 16th November. We're pushing that into 2016, and we'll come back with the new data as soon as we can. Have a good day. Thank you. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you very much for your participation. You may now disconnect your lines.