Earnings Call: Q1 2015

Apr 27, 2015

Greetings to you all and welcome to the presentation of Sandvik's Result for the Q1 2015. As per usual, we're going to have a presentation by our CEO, Olof Alexander and our CFO, Mats Backman. And I think without further ado, Olof, would you please start off the presentation? Thank you very much, Hansi, and very welcome to this press conference for Samik and our first quarter results. To start with earnings, we did see both earnings growth and margin expansion in the Q1. So I think a very positive development from that perspective. This was in part driven by strong currency effects. We had a positive effect of SEK 770,000,000 in the quarter, but also due to our underlying efficiency measures that are ongoing with a full pace in the company. The adjusted EBIT margin came in at 12.6%, and we were just shy of SEK 3,000,000,000 in EBIT. In combination with that result, we actually delivered the best first quarter cash flow that we have ever delivered in the company. So a very strong cash flow. The Q1 is seasonably normally weaker when it comes to cash flow, but so SEK 2,400,000,000 is, I would say, a very strong performance regarding cash flow. When it comes to the market, the demand continues to be fairly stable. We don't really see any big dramatic changes in the markets or segments with maybe the exception being the oil and gas market and especially the onshore drilling activity in North America, which has been quite weak during the beginning of this year. And our programs are progressing according to plan. We launched earlier in this quarter the second phase in our supply chain restructuring program and the first phase is running fully according to plan. I read someone saying that don't believe that the world is round. All the people who have been saying that the world is flat are right. We do see an extremely flat development in the world economy around us. All markets have more or less been stable from a geographical perspective around the globe. The growth that we saw during 2014 in North America has been hampered and we now see a more sideways movement in the North American market, but still at a very high activity level. Also Asia continues to be quite strong, but a sideways development with somewhat weaker development in China with a gradually slowing growth rate there. On the other hand, India has actually, from our perspective, performed very strongly in the Q1. So but overall, geographically, I would say a flat development for our business. Looking at our segments. We continue to see invoicing decline in the mining sector, And this will likely to be continued in the future driven by our Mining Systems business. On the other hand, when it comes to the equipment and aftermarket parts of our business, there the market is quite stable and we have a neutral book to bill. So the weaker or the negative book to bill in mining is fully driven by the weaker order intake in the Mining Systems business, which is quite normal given the low capital expenditure levels we're seeing with the mining companies right now. Aerospace had a positive development when it came to sales compared to the same period last year. And if you look at the sequential trend, we do still see a slightly positive trend in Aerospace And energy, driven mainly by the weaker oil price, has seen a negative sequential development. Order intake and invoicing were more or less balanced. We had one order cancellation within Sandvik Materials Technology within the oil and gas sector in Asia. This was more or fully compensated by other large orders that were received, 2, in the oil and gas sector. And actually, we got the first nuclear order to China that we've seen since the Fukushima accident. Yes. And Mining Systems, I mentioned earlier as the area within mining where we saw weakness. But otherwise, a fairly stable book to bill and a quite neutral market environment. In the quarter, Sandvik Machining Solutions saw record high invoicing. So we see to continue to see high sales levels for the SMS business. And Mining Systems is hampering the development for mining. And given that these are long multiyear projects that we deliver within the Mining Systems business with a low order intake, it's likely that we will see that gradually tail off going forward, the activity levels in that part of the business. EBIT then reported just over SEK 1,000,000,000, but of course, we had quite large one off items in the quarter here, driven by the second phase in our supply chain restructuring program. What was positive was that we saw a net reduction of employees within the Samik Group of 4 61 people. So this is witness about the efficiency measures that we are gradually driving and executing in the company, which is gradually lowering our cost base to respond to the weaker market environment that we see or the very neutral market environment that we see right now. And as mentioned, record Q1 cash flow, which is something I think we're very proud of in the company. It's a result of good management of our net working capital in the business as well as a cautious approach to capital expenditures around the company. Comparing against our financial targets. Our growth was clearly higher when it came to sales compared to our 8% target. We came in at 12%. But this was mainly driven by the positive currency effects, principally coming from the weak Swedish krona. Return on capital employed was, of course, influenced by nonrecurring charges and so came in at 11 0.5%. Here, we're continuously focusing on holding back our capital base through a restrictive approach to investments and also net working capital reductions and at the same time driving for result improvements in the business through cost saving measures and so. Net debt to equity continues to drop back in the quarter, driven by strong cash flow and, of course, the earnings in the company. And we are well below our 0.8 target in the company. And the proposed dividend is 73% of our EPS. We continue to have a very generous dividend policy in the Samvik Group. We use this slide when we make our presentations really for you to have as a reference about the different activities you can see ongoing in the various business areas around the company. To highlight a couple of areas, firstly, within Sandvik Machining Solutions, we continue to launch new products at a high pace. The 1st April, Seaco Tools launched the next generation of their Dura Atomic grades, which is a very sizable product launch for them. And also Coromant and our other brands continue bearing fruit and resulting in products coming out in the market. Bearing fruit and resulting in products coming out in the market. Mining continues to consolidate our footprint with amongst other closure in Australia, but production unit in the quarter. And we see very good development in the aftermarket and actually start to see some slight growth in parts of the aftermarket business here. Sandwic Materials Technology had a good networking capital development, so they are working with improving the capital efficiency in their business. And within Sandvik Construction, we finalized the closure of our site in swaddling coats within mobile crushing and screening in the U. K. And this will help construction to establish a considerably better cost base within these products for the future. So with that, I'll hand over to Mats to give some comments and then I'll wrap up and we'll open up for some questions. So Mats? Thank you, Olof. I will give some Q1 highlights in some of our prioritized areas and starting with the supply chain optimization program, where we totally have announced the closure of 21 units now. And looking on the first phase that is including 11 units, We have completed 7 of them, 2 of them in the Q1, one for constructions, as Olof said, in Swaddling Coast, U. K. And one for Samick Mining in Australia, Hunter Valley. The remaining four units will be closed in the balance of 2015. When it comes to savings, we have annualized run rate savings of SEK 360,000,000 now in by the end of the Q1. So we are well on track to reach the SEK 800,000,000 in run rate end of 2015. We also announced the second phase of this saving program now in the Q1, and that is including 10 the closure of 10 units. And we actually started the closure of 3 of the 10 units in the quarter. And there's 2 for Samik Mining, 1 in Turkey, Finland, 1 in Nura, Sweden and 1 for Materials Technology in Sheffield, U. K. We are aiming for savings of SEK 360,000,000 of SEK 600,000,000 by and full run rate in 2016. So all in all, the supply chain optimization program is running according to plan. Moving to net working capital. Olav talked about the record high 1st quarter cash flow and the development of net working capital is key in that cash flow performance. We managed to keep the volume flat 4th quarter into Q1 when it comes to net working capital and that is extremely strong looking on enormous seasonality where we are building volume mainly in accounts receivable. But this quarter, we managed to fully compensate for the increase in receivable with destockings. We have destocking of approximately SEK 500,000,000 in the quarter. When you see an increase in absolute numbers, that's fully due to currency effects. Looking on the relative net working capital, we actually decreased the relative net working capital slightly in the quarter And that is despite the normal seasonality where we are or normally see an increase of 1.5% to 2% units in the Q1 comparing to the Q4. So a really good performance when it comes to net working capital in the quarter. Looking on the performance for the different business areas. We now have 2 business areas on target level. And looking on some of the constructions, that's actually the lowest relative net working capital ever for the business area. Machining Solutions continues to manage the net working capital on target level. The best improvement, however, we saw actually within Materials Technology that improved the relative networking capital with 3% units in the quarter, partly due to continued destocking, but also due to prepayments in the energy product business. So that's something we're pushing for as well in order to improve the net working capital. Mining increased the relative net working capital slightly in the quarter, but that's mainly due to lower invoicing and lower top line. When it comes to the inventories in volume, we actually continue to destock in the quarter. So it's had a good performance for mining as well. Looking forward and looking on the guidance. When we released the 4th quarter report, we talked about the positive effect from currencies of SEK 600,000,000 in the quarter. We actually ended up with SEK 770,000,000 for the quarter. And that was mainly driven by a further strengthening of the U. S. Dollar, Chinese yuan and the euro, which gave a much higher impact on currencies than we anticipated when we released the report for the Q4. Looking into the Q2, we are estimating the currency effect to be on the level of SEK 900,000,000 and that is based on the closing rates end March. Looking on metal price effect, we are estimating minus SEK 150,000,000 for the quarter and that is also based on the closing rates end of March for currencies but also for metal prices. Looking on the full year guidances for 2015, we are keeping the guidance when it comes to tax rate 26% to 28%. We are keeping the guidance for CapEx to be below SEK 5,000,000,000 for the full year. And however, we can recognize that we have a lower run rate right now, but we will also have headwind when it comes to currencies on CapEx. We're keeping that guidance as well. When it comes to net financial items, we are actually lowering the guidance for the full year. Previously, we had SEK 2,000,000,000 for the full year. Now we're looking on SEK 1.8 2,000,000,000 supported by the good cash flow we have seen in the Q1. So with that, I think I'll leave for Olof to summarize. Thank you, Mats. So looking then a bit into the future, what are we focusing on for the remainder part of the year? Well, most importantly, I would say, our continued high activity level when it comes to product launches within the Sami Group. We have a plan to launch over 15,000 projects in the company during this year. And I would say during April is the month when the first larger wave of this really has started within Samvik Machining Solutions. So a lot of activities going on with new products which will strengthen our long term competitive position in the market and help us to continue to support our customers in an even better way to make them more productive and, of course, help Sami to strengthen his positions in the market. We're also working a lot with the aftermarket business and to really capture a larger part of the aftermarket business on our installed base. This picture shows a kit for a rebuild of a drifter, a Sammic drifter. And this is one example of how we're trying to make it simpler for the customer to really buy their parts from Sandvik. So you got a fully branded kit with the complete set of equipment you need for that rebuild. You don't to order a lot of items individually. So a simple solution for the customers. They get all the parts and they can make sure that they do their drifter rebuild on time or not missing any parts and get their machine back into production as quickly as possible. So we're quite optimistic about our opportunities of developing aftermarket in the next couple of years in the business. And then we continue to focus on building a linear company. We are closing our manufacturing units according to plan and there's quite a high activity level ongoing with that. You can see the drops in the manning numbers within the Samik Group. So a lot is happening in areas of what we can control as a company. Of course, the macroeconomic development right now is quite tough, and we see very limited market growth. But we have a strong focus of despite that, improving Sandvik's performance through the internal measures that we're taking within the company. So to summarize the Q1 2015, we are seeing good and healthy earnings growth in the company and margin expansion for the Sandvik Group. We see a record high Q1 cash flow. So our work not only with improving results and margins in the company is running well, but we also see good developments in terms of cash flow and performance. So we are managing to actually deliver on both of these areas at the same time right now in the company as we also did in the preceding quarter. We're making good progress on our supply chain optimization program. The factories are being closed according to plan and the new closures are being announced according to plan. And the provisions for the 2nd phase have been taken now in the Q1 of this year. And when it comes to the market development, we see overall a stable demand in most sectors and most geographies with maybe the exception of the oil and gas sector, which has performed weaker than what we saw in the preceding quarter. So with that, I suggest that we open up for questions. Yes, we'll open up for questions and we'll alternate questions here from the audience in Stockholm as well as through the conference call and through the web. And we'll start off to see if you have any questions from here in Stockholm. Yes, please. Yes, good morning. This is Peter from Handelsbanken. Could you please share some light of the demand drop in the oil and gas business for Distil, but also in Varel? Try to help us to quantify that. And tied to that question, more importantly, maybe describe more in detail what you actually are doing to sort of map up that weaker demand here. When it comes to the demand development in oil and gas, we actually see a neutral book to bill within Sandvik Materials Technology. So we have received a couple of new large orders. Then we had a cancellation, which I would say was more approval and political driven than the direct Materials technology is the sequencing and time of the order stock has moved out. So of course, this cancellation was planned for more NeoTribe manufacturing and these new orders are for later in the future here. But we still see I mean, a banner is book to bill and a fairly actually normal type of activity level, not a big drop when it comes to Materials Technology. When it comes to the Venture business and especially Varel, they have about 40% of their sales in North America. I would say in the rest of the world, it's been, I mean, of course, some pressure downwards due to the oil and gas prices, the drop there. But there's been a very dramatic drop in North America. And when it comes to the drilling within the shale gas areas and the onshore equipment, they very rapidly slow down drilling activity with a low oil price and also very rapidly ramp up again if the oil price comes back. While the offshore projects in S and T, they have a much longer time perspective. And you don't stop a multiyear, very large investment project just because of a temporary drop in the oil and gas price, which is what it does have effect in North America. So that's how we see, I mean, a significant effect, especially in the North American business. Offshore, of course, pressure in the market, but not as dramatic as what we've seen onshore. And the rig count since we stood here last time and released Q4 results have dropped by something like 40% further. So it's no small changes that you see in that business right now. Measures we're taking. I mean, when it comes to our venture business, there the drop has been much more radical and faster than what we could anticipate. We've not, of course, fully been able to keep up taking out costs at the same rate as that market has dropped, but we are have a strong focus on reducing our cost base mainly by adapting manning numbers and so to the new activity levels we see in the business. SMT have also taken certain measures during the quarter. We have time banks, so we can flex time within the business over time. So we're using overtime historical overtime to reduce manned time in the mills right now. But we've also had some personnel reductions mainly of temporary employed people and agency workers in the business. The 4.61% of sequential lower full time employees excluded I guess temps or? Well, if they're employed in Sandvik, well, there are certain rules for when even agency workers get into our statistic after a certain point in time, but it's according to common definitions there. And is there most of that is, of course, according to the supply chain optimization program. So could you quantify the Varel part of that? We haven't specified that to that level of detail. But we are seeing a good healthy manning reduction as a consequence of our ongoing programs here. Thank you. We'll have one more question here from the audience in Stockholm before we open up from the conference call. Okay. Anders Schussen, Swedbank. I have one question regarding SMS. You are lifting production slightly, but you see flat or no growth. Is it only seasonal effect of lifting production? Or is it thanks to that you have new products? Well, I would say we have a fairly neutral production. We are maintaining our net working capital. We're not building significant inventory in the business. So we are fairly balanced and that's what you should expect going forward in terms of production and sales within our Machine Solutions. We are actually flat when it comes to inventory and volumes. So there is no stock built up behind Machine Solutions. Okay. So what about all the new product launches you mentioned? You will keep that in line with the ordinary production? I mean we have today a totally different focus when it comes to net working capital quite a lot of inventory in anticipation of the summer shutdown, we are now aiming to have a much more flat net working capital development over the year, which we think will be beneficial and reduces the risk of obsolescence costs and so on in the company. Plus, we get a more effective and consistent utilization of our production base. When it comes to new products, we're also aiming to manage that without having to build significant volumes of net working capital. This is, of course, a significant challenge for SMS to do that when they have both products that are exiting the portfolio and new products coming in. But we have a very high ambition when it comes to sticking to our net working capital target in the company. Looking on the overall development of inventories in the quarter, we only had stock buildup in volume in one business area, and that was constructions. So we had flat or destock in all the other ones. Okay. Thank you. Right. Operator, would you please head through the first question from the conference call please? The first question comes from Mr. Klas Bergelin at Citi. Please go ahead. Yes. Hi guys. It's Klas from Citi. I have a few questions please. Firstly, Olof, on the EBIT margin in SMS, quite a big FX impact here on non transaction. So pretty you could say weak margin underlying. Obviously, you have no growth, but could you help us with the underlying investments in SG and A and R and D? I assume that they didn't start to fall sequentially. You're trying to With the leverage on SMS, you can see that we had more or less flat top line excluding currency, but actually had a slight drop if you exclude those currency effects. And that's due to the during last year buildup of SG and A costs or NS costs, as we call them, in the company that we had to focus and support new product launches and more ambitious plans in the market. So that's the reason why you have seen this that you don't see a better leverage excluding currency effects within Sandvik Machinery Solutions in the quarter. No. Yes, exactly. I'm just trying to understand when will these investments start to annualize? I mean, when can we start to see sort of a tailwind from lower costs as we go through this year? Yes. We built this cost up to and including the 3rd quarter last year. So now we're comparing Q1 to Q1. You will see some increase Q2 on Q2. And then by Q3, you should start to see a more neutral situation here then. Okay. My second question is on construction. Nice to see a 3% margin here. Now reflecting back to what you said during the Capital Markets Day in November, I think ahead of construction, you talked about the actions that could drive the EBIT margin up to 6%, 7% and this was at the current demand level and that most of this could land in 2015. Obviously, today's result seems like the first sign that this actually might work. So I guess a 6%, 7% margin for the full year, is that how we should look at it? Well, you're nearly answering your own question. But I mean Q1 for construction, they're on track with the plan that they presented on the Capital Markets Day. They had, I would say, maybe the most ambitious improvement plan of all the business areas. And I think they should be proud and happy of what they achieved in the Q1. So they've definitely taken a clear step in that direction. They, of course, still have a significant challenge to go to meet the full level that they were aiming for there. But Q1 was definitely a good start and is totally in line with that plan that was presented. Okay. My final question is on the aftermarket in Mining. The outlook for iron ore in particular is getting weaker. We are hearing about the largest producer Vale starting to cap production, e. This is no longer contained to the high cost producers. We heard about Cat talking about renewed aftermarket weakness. What are you seeing here? And how do you look at the aftermarket business ahead given potentially slower production rate? When it comes to especially the parts side, I would say that we start to see slight positive development for Sandvik. Our business against coal and iron ore is mainly driven by our mining systems business, and we have very little aftermarket in those areas. So iron ore per se is not going to have a significant impact on CEMIC's aftermarket, but it does manifest itself in the very low order intake we see when it comes to new projects within the Mining Systems business. So the equipment and aftermarket business is much more driven by base metals, gold, platinum and these other minerals. Thank you. Right. Operator, can we have the next question please? We have a question from Mr. Alexander White at JPMorgan. Please go ahead. Good morning, everybody. It's Alex at JPMorgan. I've got a few questions as well. The first one is just a question around the inventory. Can you just sort of quantify the size of the €500,000,000 destock in each division? And just give us some idea of how much was finished goods and thereby weighing on the margins? In terms of the 500,000,000 I mean the biggest one is actually Samik Mining in that number. And it's quite a lot again related to parts, meaning that it's no kind of immediate effect when it comes to under absorption. So a very, very small margin effect on mining coming from destocking. SM Materials Technology continued to destock in the quarter, and I would estimate the margin effect on in the quarter to maybe around 1% unit. But more importantly, looking on Materials Technology and especially comparing with previous year is the delta in terms of destocking with Q1 2014 because we had a significant stock built up last year in Materials Technology. So the difference in stock built up and destocking this year for Materials Technology is about SEK 400,000,000 year on year. So year on year, we have approximately, I would say, 3% unit impact on the margin for Materials Technology. But in this quarter, it's maybe around 1%. For the other business areas, I would say it's kind of insignificant when it comes to the under absorption effects. Yes. So the overall group leverage there, we did for the company as a whole, I think have a fairly okay or a good leverage in the company. Holding back a bit is SMS. And as we talked about, this focus on building up our sales cost to support our market position and new product launches and then these effects that you see on CEMIC Materials Technology regarding stock build in Q1 last year and some stock reduction Q1 this year. So if you disregard those two effects, actually, I would say the leverage in the company is quite strong this quarter. And looking into the Q2 in terms of production rates, I mean I can see that we make some further kind of adjustments in terms of destocking in Mining and Materials Technology. But I mean it will be maybe on the level of what we did in the Q1, so not that kind of significant. For the other business areas, we will pretty much produce according to demand though. Okay. Great. The second question I had was on SMT. You've touched on it a little bit already, but just interested in how like last quarter you talked about having backlog support through to the middle of this year. With the cancellations, does that now mean that we should be expecting invoicing to decline more materially already from Q2? And then perhaps can you just talk a little bit about what sort of cost opportunities you see outside of the temp reductions that you're already making given you've already been through quite a large restructuring program over the last few years? Well, I think when it comes to Q2, you shouldn't expect any significant changes in the volumes for S and T. There, we still have an order book to support the business as the world looks right now. When it comes to cost cutting, of course, we continuously look at how we should adapt our costs to the activity and market levels that we have. And it's always possible to reduce shift forms or find other ways to take out costs if we feel that is necessary from a market perspective. Do you expect to be able to maintain a double digit margin in that division? Well, I mean we don't give that precise guidance. Now we expect to actually have negative metal price effects in the second quarter. Backing out that, I mean, we should be able to continue around the margins that we have right now at least coming in to the Q2 for the business. Okay. And then the third question I had was just around currency and how you think about opportunities to perhaps use it to price a bit more competitively in some of your segments given you've got fairly important dollar based competitors as well? Well, our primary focus is not to allow price erosion due to the weaker Swedish krona. We feel it's a better policy to aim to maintain the pricing picture in the market and win orders based on having better products and better solutions for our customers instead of doing that by lowering prices and being aggressive in that way in the company. Okay. Thanks very much for your answers. Thank you. Operator, we'll continue with a question from the conference call please. We have a question from Mr. Lars Blosson at Barclays. Please go ahead. Thank you very much. Good morning Olaf, Mats and C. A couple of questions from my side. Mats, if I could start with the EBIT bridge for Mining, the negative €130,000,000 for price volume productivity. I wonder whether you could help us break that down a little bit into the individual components. Also give us a sense for how much sales mix supported margins in the quarter? And then just on the footprint and presumably the cost savings that are still coming through from the 2013 cost savings program. Give us a sense for how much that's added on a year over year basis on the mining EBIT bridge? Thanks. Starting with the mix question. I mean we have a positive mix now in the Q1 and we will have it going forward down forward as well as we can see an increasing share of the aftermarket with higher margins. So it is a certain mix effect in that one. But not maybe that big. But it will kind of increase now over time in terms of the mix. When it comes to savings, I mean the supply chain optimization program for mining is somewhat kind of backloaded. So we haven't seen I mean not kind of significant savings from that program coming through in the Q1. What we need to remember is that we had a supply chain not a supply chain, a rightsizing program last year where we reached the savings of €500,000,000 on an annualized basis already in the Q1. So it's not that much from that one either in the bridge down. So to some extent savings coming through to some extent a positive mix effect in the bridge dam. And then getting back a little bit to the kind of the destocking and under absorption, even though we are destocking heavily within mining, we don't have any significant kind of margin effect from that one in the bridge. That's helpful. Thanks, Mads. If I could just ask Olaf briefly on the end markets. 1 in Machining Solutions, the 2% organic order drop there. Obviously, North America going to minus 8% from up 11% in Q4. I wonder whether you can give us a bit of granularity around that. And also I noted from the press conference all of you were talking about April running on a par with Q1. Again, if you could give us some granularity around this. That was one on Machining Solutions. Secondly, if you could SMS and the specific drop that we see and why it's very significant in North America is related to that. We took a quite large aerospace order. And it's quite unusual actually that SMS has larger orders, but we did have one that came through in Q1 2014. So that was a somewhat inflated order intake that we saw in Q1 last year and that's why the comparables become a bit tough. And that's what it was in North America, so that's why you get the drop coming through there. So I don't think that per se is any reason for concern in terms of the market development there. If you look at sales, these 1st weeks in April, they have been on line with average sales that we've seen in Q1. It's, of course, a difficult couple of 1st weeks. We've had Easter in there and so. But there's no reason to talk about any significant upturn compared to Q1 and of course not any weakening either. Just on SMT, if I could. How much is Petrobras of your order book today? And would it be fair to say that we could be moving into a period where political uncertainty perhaps more meaningfully impact your overall business in SMT? And also if you could talk a little bit about the actual underlying drivers for your commentary on underlying improvement in the aftermarket. I appreciate that coal and iron ore is mainly systems. But what are you actually seeing within the aftermarket business? That will be helpful. Thanks. Yes. Well, it's difficult to comment on specific customers in detail. But in general, I would say we have a quite limited Petrobras exposure when it comes to technically the kind of umbilicals and so they use. They have been using plastic there. And there's been a hope of them shifting into metallic umbilicals as they go deeper. Now with the whole situation with Petrobras and the uncertainty of how they're going to develop their business, I would say Petrobras has been a significant hope for the future for us, but it's not anything that we're banking on right now then. So no near term effect, but of course, the uncertainty about the opportunities of security in them as a large customer going forward have maybe decreased a bit with uncertainty in the company and in Brazil as a whole. When it comes to mining, well, our equipment sales in our aftermarket, we have a neutral book to bill roughly. And so the market has stabilized at this level. I would say we're very much at the replacement activity level in terms of equipment sales and aftermarket activity. We've seen maybe some slight uptick in the market. And as I said, the equipment and aftermarket business is a lot driven by base metals, gold, platinum and this kind of minerals and not as much of on coal and iron ore. That's helpful. Thank you. So do we have any questions here from the audience in Stockholm? Not at the moment. And we'll continue with a question from the conference call. But I cannot cautious of the time here. Can I please ask you to limit yourself to 1 question at a time just to give everybody enough time to come through? Operator, please. Next question comes from Mr. Guillermo Peignelks at UBS. Please go ahead. Good morning, everyone. It's Guillermo Peignet from UBS. I just wanted to check a bit my numbers, if you don't mind. So kind of boring question. If I back out your underlying margins excluding currency, it looks like currency actually helped you by 200 basis points or 2%, which basically means that your underlying margins are around 10%. And then trying to understand the help of your savings, I think I get around 40 basis points, which will be equating to your €90,000,000 savings in the quarter on the quarter rather than the annualized figure. Is that sounding roughly correct? Yes. And I mean we have more details when it comes to the leverage and to the bridges in the material. And I mean it's there, but it's a fair assumption, yes. Okay. Thank you. So currency will be actually the majority of the improvement I guess when it comes to That's the right and CEO comment. That's correct. We have, I mean, a very strong positive effect from currency. Then underlying or not, I mean, we've had very negative currency effects previous years, and now we're getting back sort of part of that from where we've been historically. So Then if I can have a follow-up. Regarding SMS, I think we read comments of January February being weaker than March, which was stronger. But then I think in your comments excuse me, on an interview, you said that April in terms of SMS looks the same as Q1. And I was wondering whether it looks the same as March or January, February or a mix of the whole quarter? I'd say the same as average in Q1 there. So we've seen some difference between the various months in Q1. But as I said, we don't have any room to say anything else on a sort of neutral development compared to Q1 in the beginning of Q2. But if I read that stronger March weaker 1st 2 months, is it like weaker April than March? Sorry for the complexity. No. I think that's I mean, the smaller differences between months, you shouldn't take too big assumptions on that. But I would say you should assume that the beginning of April has started in line with the activity levels that we saw in Q1. How big the oil and gas orders for S and T? Do you have any size that you can share with us? Thank you. We don't specify the specific orders in that size. So but we had two orders against oil and gas. And the 3rd order we received was actually against the nuclear sector. So we booked the first order against the Chinese nuclear sector since the Fukushima accident. So that was also an encouraging positive development I would say there. I can see. Thank you very much for the answers. Thank you. That was significantly more than one question. So operator please the next one please. Next question comes from Mr. Andre Guggen of Credit Suisse. Please go ahead. Hi, yes. It's Andre from Credit Suisse. Just a couple of follow ups. One is, I think you mentioned that you're looking for oil and gas acquisitions in the press call. Your current exposure is quite varied. Could you comment where you're looking and whether it would be reasonable to expect a deal this year? And second one is just on Mining Systems. Were the thinking of systems being about 10% of sales and near 0 of orders, would that be roughly right? Or should we be thinking about different numbers? Well, as far as the I mean, acquisitions is difficult to speculate. We talk about several areas like SMS as an interesting area to expand. There could be potentials within mining, but also the oil and gas sector. And of course, this lower oil price may create opportunities for us. And out of mining sales, Mining Systems was roughly 20% of those sales in the quarter, and we actually had as much as 57% aftermarket sales in this quarter. So that gives you a perspective of the size of mining systems. And sorry, systems of orders? Thank you. Andre, we're going tough here. We'll have to ask you to get back in line and we'll put the next question through please. Next question comes from Mr. Andreas Koski at Deutsche Bank. Please go ahead. Yes. Good morning. Can you hear me? Yes. Perfect. So on mining, if we pickup for equipment demand? Starting to see a pickup for equipment demand? Well, I wouldn't go as far as saying that we see growth in equipment, but the market is definitely stabilized and we do start to see some positive signs in the aftermarket business. So that part of the business feels robust. We have a neutral book to bill. And the weakness in the book to bill for the business area as a whole is wholly driven by low order intake when it comes to Mining Systems. So just to clarify, if orders grew by 7% excluding major orders and you don't have any major orders in the aftermarket business and the equipment business did grow. It should imply that the aftermarket business grew by 10% to 15%? I think you're well, this sounds like a question to sort out with Investor Relations, but Mining Systems do get orders that are not considered as major as well. So I mean all of their orders so the order intake was not 0 for Money Systems, which it sounds like you're assuming and No, no, I'm not. I'm not. I'm just assuming it's not up year over year. Okay. Well, yes, I mean, I would say stable market. We don't feel we can go any further than saying that we see positive market sales on equipment yet, some positive signs in the aftermarket. Can I take a follow-up question also on mining? I am We have to negotiate with Anncie. Well, I have to do equal terms here now. So I'm afraid not. You'll have to get back in line. The next question please. Next question comes from Mr. James Moore at Redburn. Please go ahead. Yes. Good morning, everyone. It's James at Redburn. I'll just have the one then. SMS, your growth, I was surprised to see -1% organic decline for both orders and sales in Europe. European Industrial Production has grown 1%, 2% in the quarter. European Car Production has grown 3%, 4%. I don't know if there's a market share loss or a specific comparative for you or a customer issue. But could you talk a little bit about the European development there? Yes. We see some markets which have been stronger in Europe like, for example, Italy. I would say Germany has had a fairly neutral development. But in the European numbers and having a negative impact is the Russian sales, which continue to be clearly negatively affected in your year on year comparisons. Did you say how much they fell? We have not been specific on Russia as a country. But we have seen a significant drop in market activity in Russia, which is negatively impacting the whole Europe number for Sammic Machinist versions. Thanks a lot. Thank you. Operator, the next question please. Next question comes from Mr. Sebastian Groote at Exane. Please go ahead. Hi, good morning. A question again on SMS, but more on the margin. You said that you want to better manage working capital and have less sensitivity of margins, so less seasonality. I just want to check, I mean, compared to the 21.4% you achieved in Q1, Would you say this margin is sustainable through the next quarters? Or would you see the traditional slight uptick in Q2 and a lower margin performance in Q3, the usual seasonality? Or do you expect something more or less stable from Q1? Well, I mean seasonally, there is some opportunity for margin improvement coming into Q2. But as I said earlier, the strong seasonality that we had before driven by overproduction in Q2 and therefore over absorption of costs as we built inventories and then really giving that back in Q3. That will be much more limited between the quarters as we're running the company now then. But given the guidance when it comes to currencies in the Q2 when we are talking about the SEK 900,000,000, I mean that will have a slight positive effect on Machine and Solutions in the Q2. Can you quantify that compared to the €400,000,000 we had year on year in Q1, what will be the share of the €900,000,000 for SMS in Q2 based on your guidance? I mean, no, we don't get into specifics, but what you can use as a guideline is the share from the Q1, I guess. Okay. Thank you. Thank you. The next question please operator. Next question comes from Mr. Colin Gibson at HSBC. Please go ahead. Cheers, Colin. Good morning everybody. Several questions, but I guess I can only read to ask the one, so I'll pick this one. Varel acquisition last year and you're now saying that the level of business in North America is falling off far faster than you had thought. At this is falling off far faster than you had thought. At this stage, what would you assess as the risk of a goodwill impairment at Varel? Thank you. I would say right now, none. I mean, we've made a long term investment in Varel, and goodwills aren't impaired based on short term market movements. Okay. Thank you. Thank you. Operator, the next question please. Next question comes from Alexander Vorga at Nomura. Please go ahead. Thanks. Good morning. I wondered if you could just talk a little bit around the decision to not to pursue your JV with or not? Thank you. With Varel quickly then, no. We said that 40% of their sales are in North America, where we've seen the most significant drop. And now we're talking about since we released last quarter about 40% drop in the rig count in North America. So that puts things maybe into perspective there. When it comes to Sujio, we put out a letter of intent and did have quite extensive negotiations with them given where our own mid market offer is developing and the nature of those discussions and where we felt those could lead. We jointly from both companies really took the decision not to continue with those discussions. So I don't really have anything to add on that. And we will continue our hard drive with Traumet, with the Carboloy brand and so to organically drive our mid market offering from the company side. Thank you. Thank you. And we have one question from the audience here in Stockholm, please. Yes. Hello. This is Daniel Schmidt from SEB. Just wanted to ask you on net working capital. Destocking was €500,000,000 in the quarter. And you're quite sort of decently approaching your targets of 25% and especially with the inventory. And you mentioned there will be some further de stocking in Q2. What should we expect for the second half of this year? Will that fade quite a lot compared to the start of this year? I mean it already did fade to some extent. I mean looking on the Q3 and Q4 last year, it was significantly higher than we saw in the Q1 and it will continue to fade. But we will continue to kind of structurally address the inventory situations within Mining and within Materials Technology. So you can expect some further destocking on in those two business areas now going forward. Also going forward into the Q3 and maybe into the Q4 as well, but not with a very kind of significant kind of under absorption effect coming from that one. And when it comes to I mean, we have our target to reach 25 percent for the whole group then in the Q1. And I feel we are on track on that one. And especially looking on the inventory and the development of the inventory in relation to sales, We haven't been this low in a couple of years, right, that we are right now than looking on inventories. So that will continue in 2 business areas then to address it structurally then going forward. Thank you, Mats. Thank you. Operator, the next question from the conference call please. The next question comes from Mr. Gantti Simon at Goldman Sachs. Please go ahead. Hi, good morning Olaf. Good morning Mats. My one question is I spent cost split to slightly. 1a, how much of the lower order intake in SMT was due to volume? And how much was due to pricing? If you could split that out, that would be really useful. And 1b, I guess, is can you quantify the FX impact on net working capital? I can take the net working capital question first. I mean if you are looking on the development in absolute numbers of net working capital in the Q1, we have an increase of SEK 1,000,000,000 and that is all currency. So the currency effect is basically SEK 1,000,000,000 in the quarter. Yes. And for S and T, we had more or less no effect from metal prices. So that didn't drive sort of the absolute price of the product either up nor down. And so and we had very limited, I would say, pricing movements also. So it's not price driving the top line development. It's an underlying volume development that you're seeing. Very clear. Thank you. Thank you. And operator, the next question please. The next question comes from Mr. Andreas Koskert of Deutsche Bank. Please go ahead. Yes. Good morning again. Can you hear me now? Yes. So back to mining because you are now changing your aftermarket offering and I understand the extension of the spare kit you presented earlier. But can you elaborate a bit more about what you are doing? Are you doing something with your internal structure you have right now like changing your existing pricing model or something like that? No. And as said, I mean, we are a company that offers productivity to our customers and excellent solutions. So we're not a low cost price competitor in the market, and that's not our ambition to slash prices and try to gain market share that way. What we're looking very much now is our full installed base, the level of sales we have in different regions on that installed base, driving really strong performance management on how much of that aftermarket business we're capturing. So that's sort of a pure operational driver that we have in the aftermarket. Then we're improving our offering when it comes to, for example, products like the one I showed you to sort of have better solutions to offer our customers because they want their machines, I mean with a high availability, high uptime and we need to help them to solve those that problem in an efficient way. We're also continuously looking at various types of sort of IT or information technology solutions. In terms of remote monitoring, following our installed base, having sort of automatic processes to follow-up on service needs and so come up on the machine. So they're both elements of pure driving the organization, which Scott is driving very hard and has a tight follow-up on our salespeople and making sure that we have this sort of the right focus in our organization, but also then continuously developing our aftermarket offering to our customers. Yes. I was actually not thinking about price decreases here, but a change to the business model or the pricing model, which would make it possible to actually increase your prices? Because I think you have been running below Atlas aftermarket business margins for a very long time. And I think it, to some extent, can be because of the pricing model. So that was more what I related to. Well, I mean, of course, I mean, these kind of kits and so on, they give us better opportunities to lock in and potentially maybe expand margins in the future. In this very, very tough and competitive market we see in the mining sector right now. I think significant price increases are very challenging with the current market environment. And there's a lot of pressure from the miners on their cost base. And so to really to gain more business with our customers, we need to prove to them that we offer them a better solution that helps them to be more effective. And if we can help a mine manager to look good in his business by us solving his problems in a more efficient way and Samik at the same time doing more business and we have this win win situation that we really need to build on. If we more forcefully just force changes in our customers, we instead risk, I would say, getting an adverse negative reaction from the customers. So we want to build this in a positive environment where we really give something better for the customer at the same time as we help Samik develop this business. Perfect. Thank you very much. Thank you. I believe we have one more question from the conference call. Please, operator? Yes. We have a question from Mr. Colin Gibson at HSBC. Please go ahead. Hi. Thanks very much. Quick follow-up from me. I think it would be wrong if we let this conference call go entirely past without asking anything about Anders Nyirian, and I'm happy to be the guy who does that. So I understand from reading Industry Wertens commentaries this morning, he won't be proposing himself for reelection as SABIC's Chairman. When do you expect to be able to make a new announcement in that regard, please? Thank you. Very good question. Just shortly about the facts. I mean, there's been a lot of changes going on around the industry, Werden, which is the largest shareholder in Samik. They own 11%. But of course, we have lots of other shareholders, many of you probably on this call as well. But as a consequence of these changes, your Anders has decided to leave Industry Wadden. And as a consequence of that, he's not going to be nominated or he's turned down the opportunity to be nominated again as Samik's Chairman. This news was released early this morning. Right now, there is no new name for a new Chairman for the Samik Group. But as you know, the Board and the Chairman is decided by our owners. And we have a nomination committee with the representation from the largest owners in the company. And they will have to, of course, now meet and discuss how to deal with this situation. For me, it's important that we don't let these kind of changes in any way distort our focus on driving Sandvik, continuing on our journey with making improvements that we are driving in the company. And that would be my focus and the management's focus. And if you have more specific questions about what that will mean in terms of who will succeed, Anders, you really need to turn to the nomination committee in Sandvik, where who will make a proposal for our AGM where then a new Chairman will be elected. Thank you. I'm sorry, I cannot give you any more than that right now, but good question. I'm glad you asked it. Okay. So I think Yes. Thank you very much for joining us today. And should you have any additional question, please don't hesitate to contact us at Sandvik Investor Relations. And before I let you go, I would just like to mention that we'll run our Capital Markets Day on the 16th November. We'll run it at our GEMO site in here in Sweden. And you'll find a link for registration, etcetera, at the Sandvik website. Hope to see you there. Thank you.