Earnings Call: Q1 2013

Apr 23, 2013

Very welcome to the presentation of the First Quarter Results for Sandvik. My name is Magnus Larsen, Head of Investor Relations. As you have already noticed, we have made some changes compared to what you have been used to in the past. We are presenting the results at 10 Swedish time. We have made some interesting and we believe improvements to the interim report as well. And we are making some changes also in the hour that you have ahead of you. The Chief Executive will soon present the presentation in a manner that you have been used to. Then we are adding an extension to the presentation of some 7, 8 minutes that in an area of our choosing. First out is the Chief Financial Officer that will let you in on our thoughts on operational excellence. Now the area will change, but the extension we believe will stay for the quarters to come. Apart from that and also in order for everyone to or as many as possible to be able to ask questions, we kindly ask you to limit your questions to 1 at a time with 1 follow-up question as well. But without further ado, please Olof go ahead. Thank you very much, Magnus, and welcome everybody here to this presentation of our Q1 results for 2013 and also a big welcome to all of you watching this over the web. Looking first at some highlights for this Q1. Well, we had quite a mixed demand picture for the Sandvik Group. On one hand, we had Sandvik Mining, which continued to experience quite difficult market conditions. We're also now the gold sector is being affected by weaker gold prices and so we have lower investment activity in mining. But on the other hand, we actually see quite positive developments or at least stable to positive developments for the other four business areas. And all four of those business areas actually had positive book to bills in the Q1. So this slightly positive development we saw for Sandvik Machining Solutions, Sandvik Materials Technology. Samvik Construction actually had a very big pickup in order intake compared to the preceding quarter, 43%. And we saw roughly, you could say, stable demand for Samik Venture. Our EBIT came in at SEK 2,557,000,000 and that resulted in an EBIT margin of 11.6%. This EBIT number included certain one off costs. And if you exclude those, we came in on an EBIT close to SEK 2,700,000,000. We also, in this result, had significant headwinds from the currencies. We had a negative effect of around SEK 350,000,000 due to the especially strengthening of the Swedish kronor against other key currencies here. And our return on capital employed on a rolling 12 month basis on the Q1 was 17.6 percent for the group. Cash flow came in at SEK2.2 billion and we continued to see inventory reductions for the Samik Group, not as large as the ones we saw in the Q4, but still fairly sizable at SEK 400,000,000. This was though negated to a certain extent by an increase that we saw in our accounts receivables in the quarter. Looking geographically, actually, we had our smallest drop in the areas where we had a negative trend in Europe. So Europe has stabilized at this lower level that we have been seeing. I mean Europe was in 2012 the only continent for Sandvik where we actually had lower sales than the preceding year. We did have a positive trend in Latin America, but in all other parts of the world, negative sales or lower sales this quarter than the same quarter last year. North America, we continue to believe or see a positive trend and the drop of 12% in North America is more attributable to Ebola to how certain orders or invoicing of certain orders fell out between the quarters than a big shift in the actual market sentiment in North America. Looking then at our various customer segments here. You can see that we had increased invoicing in the mining sector, in the aerospace area and in energy compared to the same quarter last year. The other sectors where Sandvik operates actually had lower invoice in this quarter than what we saw a year ago. And the most negative trend on a year on year basis was in the engineering sector. If we look at the sequential trends compared to the preceding quarter, mining had the most negative trend in the general market sentiment and developments, while the other areas more or less had a stable trend or construction, we would even we even dare to put a positive arrow there where we think that we have the most positive trend of of these sectors. Looking then at the order intake. Year on year, it's a very significant drop. But as you can see on this graph here, we had an extremely high order intake in the Q1 of 2012. Sequentially, actually, the order intake was up by 9% compared to the Q4 last year. So that was a positive development there. We took major mining systems orders of NOK 950,000,000 in the Q1. And in our previous quarterly report, we were flagging for a potential cancellation That actually did not materialize, and that project will be delivered to the customer here. So that was not backed out of our order intake as we expected in the Q1 here. Invoicing was down sequentially, and this is, of course, an effect of the quarters we've had with lower order intake in the company here. So invoicing was about SEK 22,100,000,000 for the Samik Group. And in pricevolume terms, that was a change of minus 5% for Sandvik. Looking at our EBIT, as I mentioned earlier, came in at just below SEK 2,600,000,000 for the company. Adjusted for one off charges, we came in at around SEK 2,700,000,000. And despite quite significant drop in invoicing compared to the preceding quarter, we more or less managed to maintain the similar level of EBIT margin in the company, which I think is a strength that we are adapting in an effective way to the weaker market conditions we are seeing in the world around us. Our cash flow came in at SEK 2,200,000,000 which was clearly lower than what we saw in the preceding quarter. We have had 2 very strong quarters in Q3 and Q4 last year in terms of cash flow. But still being a Q1 compared to our historic 1st quarters, this was still a strong cash flow, I think, for the company. And our net working capital was more or less flat. We had a continued inventory reduction. So we're continuously successful in adapting our inventories to lower levels, but that was negated by amongst other increases in our accounts receivables. So in value terms, net working capital was more or less flat. But when it comes to percentage of sales, since we had a drop in sales, it actually moved up 1% to 28 percent. Our bridge analysis for the quarter looks like this. We had a negative operating leverage of 5%. And the reason for that is lower production levels in especially Sandvik Mining and Sandvik Machining Solutions due to inventory reductions and so and a general lower utilization rate in our production system, plus the big drop we've seen in the Wolfram price compared to the Q1 last year to the Q1 this year, which has had a significant impact on Ventures results. Currency effects were SEK 350,000,000 on the EBIT line and SEK 1,300,000,000 on our invoicing line, on our top line. Okay. Looking then more specifically at our individual business areas and starting with Samvik Mining, we continue to see fairly low activity in the mining industry. We did see some increased order intake compared to the preceding quarter and stable demand for our aftermarket business, our rock tools, our service business, our spare parts to our customers. But the lower order intake and the lower investment level with our customers is affecting our sales of equipment and, of course, also mining systems. EBIT for Samvik Mining came in at SEK 1,200,000,000 and an EBIT margin of 14.6%. For Sandvik Mining, we had negative currency effects of about SEK 140,000,000 Return on capital employed. Looking at the rolling 12 months for invoicing. Machining Solutions started to see some slight signs of increased market activity. We saw stable demand on a very high level from aerospace, but also this was negated to some extent by fewer working days in the quarter. Amongst other, Easter was in Q1 compared to Q2 last year. Our adjusted EBIT margin for Sandvik Machining Solutions was 18.4%. And within the quarter, we had nonrecurring charges of SEK 140,000,000. So all the nonrecurring charges we had in the quarter affected Sandvik Machining Solutions. Currency effects for this business area were SEK 125,000,000 and we did have lower production volumes, which was also affecting our result in the quarter. Returning capital employed, 27.5 percent for Sandvik Machining Solutions, and net working capital came in at 27% of sales in the quarter. Sandvik Materials Technology, I feel, continued to perform actually on a very good level here. Their adjusted EBIT, excluding metal price effects, was SEK 373,000,000 actually resulting in an EBIT margin of 10.7 percent for Sandvik Materials Technology, which I think is a strong number in the current market situation that we experience today. And the strong EBIT performance is, of course, a result of the continued successful implementation of the turnaround program that we have been running within Sandvik Materials Technology. Business conditions have continued to be strong in the energy sector and also we've seen some signs of improvement for more standard products within the quarter for Sandvik Materials Technology. Sandvik Construction saw an improvement from very weak levels. And as I said, order intake was up 48% 40 3% compared to the preceding quarter. So that was a very strong step up in the order intake, and we have a strong positive book to bill for Samvik Construction in the quarter here. Earnings were in part affected by a large share of systems deliveries or project deliveries within the quarter for construction. Samvik Ventures EBIT came in at just over SEK 100,000,000 and there was a big effect compared to the preceding quarter here due to the sharp drop that we've seen year on year in the tungsten price here affecting the result for Wolfram Bergbauhite. We also announced in this quarter that we're going to close our Irish site within Diamond Innovations, one of the 2 main production sites we have in that business area and consolidate all of that production onto one site in the U. S. And this will entail one off restructuring charges of around SEK 200,000,000 that will fall into the Q2 as a consequence of consolidating these productions onto one site. So I will stop there and hand over to Emil, who will make some comments about his theme here and then I'll come back and sum up and take your questions. Thank you. Thank you, Olof. So as Magnus mentioned in the beginning, we will take the opportunity to give some brief updates to you in connection to the quarterly reports on some of the current subjects that we are discussing inside the company. An important one that we definitely have on our agenda at the moment is operational excellence. And what do we mean by operational excellence? We believe that we have a tremendous opportunity as we are a global company, large company and a global company to leverage all these different assets. When the strategy was announced, it was called 1 Sandvik to become to be number 1. Opportunities we have at hand is to even better leverage our global scale and our global skill for the benefit of the company as a whole. We can also leverage our global reach because we have access to different cost structures, different cultures and different knowledge bases through being present in 130 countries. We also can generate value by better industrializing best practice sharing. So any good idea somewhere out in our company becomes quickly and easily available to their colleagues somewhere else. Furthermore, of course, simplifying, automating and making processes more scalable is very important. And that will drive synergies, cost efficiency and also help us to focus on our business differentiators rather than other things. So the investment rationale and what we're looking for when we're looking at different opportunities to improve our operational excellence is, of course, that anything that we can automate or make more efficient or scalable that helps us put more focus on our competitive edge is valuable. So management attention will be focused on our customers, on our R and D and other areas where Sandvik delivers incremental value as a company. Needless to say, we're looking for cost competitiveness long term. And also in order to significantly change our working capital profile, we have to look at restructuring and simplification and harmonization among our supply chains, for instance. We are we do believe that operational excellence will help us become a more agile company and that is very adaptive to market changes. We look to become more flexible, transparent and fast moving. And we also, of course, believe that people get motivated by working in a world class environment where you feel that you are best in class in the areas you operate in. So workforce motivation is a very important aspect of this. We have a couple of initiatives that were kicked off as a consequence of the new strategy in 2011. We have a group approach now to sourcing of indirect materials where we try to leverage the company scale in order to get more competitive terms and conditions. We have announced an IT infrastructure outsourcing together with IBM. We just recently announced that we will establish a global financial shared services model together with Capgemini in order for us to both lower cost, but maybe even more importantly improve quality and standardize across some of the more transactional finance processes. We are in the process of establishing a global more global and consolidated HR function. Has been ongoing since 2011. We have implemented a more consistent approach to performance management and that involves both how we follow-up our different businesses internally, set objectives and follow-up, but also on an individual basis how we then turn that into and connect that into personal objectives of our employees. We also have Olevik that does a very important job in terms of facilitate R and D Corporation in order to get more on the total than we would get within each of the business areas. So we have a number of examples that we have ongoing already. But we do believe we have more opportunities ahead. And here are a couple of examples that are driven either within business areas or on an overall perspective. Supply chain alignment and improvement and harmonization to make our delivery flow really simple and straightforward. That will help us serve our customers better. It will help us improve working capital and it will reduce cost. Best cost country sourcing, this is leveraging our global reach so that we make sure that we buy where cost is most competitive without of course impacting the quality of our input. Footprint optimization, where should we be? How can we reduce the number of locations where we operate in and in order to make fewer steps in our process. We're looking at possibilities to harmonize among our IT landscape and also to make sure that our IT systems becomes business supporting, so that less time is spent on looking backwards and more time is spent on the analytics and the conclusions in a forward looking perspective. Finally, simplification of governance structure so that we minimize the time we spend on administrative activities and becomes very, very straightforward and connect make the company as close to the business as possible and connect all of us to the business. This will require some investments naturally. But based on the benefits we see, we think it's both worth the time and the money in order to do so. Olav? Thank you very much, Jernigan. So of course, driving continued operational excellence, I think, is one key opportunity, of course, and the value we create to being 1 company together within the Samik Group. And we'll be a focus area for Emil and many people in the top management, of course, to continue to get these kind of synergies and benefits out of the group besides, of course, in general, just developing our business, which we also must do. So then to summarize the Q1 2013, we saw a mixed demand. Mining with continued more tough market environment and really for the 4 other business areas stable to possibly positive development in their markets. We have continued to reduce our inventories, not as much as we did in the Q4 when we had we reduced our inventories by SEK 1,400,000,000, but we did get a reduction of SEK 400,000,000, which I think is a further positive step of managing our net working capital, which is important in these times when we see weak market conditions. So I think we're doing that in a positive and good way. We've had very heavy headwind from the currency in the quarter, SEK 350,000,000 hitting our EBIT due to this mainly the strengthening of the Swedish krona compared to other currencies. And we're continuing to drive for operational excellence within the Samik Group, of course, to become even better in the future. I think many of the things that we are driving in terms of improvements in the group, like, for example, the performance we can see in Samiq Materials Technology, are really starting to bear fruit and to be really measurable and visible in our numbers as well. So with that, that concludes our presentation. And then I would like to open up for your possible questions here. Okay. Thank you very much, Olof. Thank you, Emil, as well. So we're steaming away with the Q and A session then. Just a reminder, let's keep the questions to 1 with 1 follow-up questions, enabling as many people as possible to ask questions. Let's take the first question from the floor and we have one over here. Hi, good morning. It's Guillermo Pinha from UBS. I think you started the presentation with the commodity prices dropping and the gold price falling. And I was wondering whether is it too early to see any of your customers reacting to that additional, let's say, cautiousness towards order intake going forward? Well, I said the market current market situation within mining is looking fairly weak. Preceding quarters, we've talked about gold being one of the areas which actually was holding up while especially iron ore and coal is where it really started to be weak first. So of course, that's a further negative with the weakening of the gold price here. At the same time, I think you should remember even though we do see reduced CapEx levels and CapEx plans for the mining companies, we're not seeing large amounts of cancellations today. So our customers are so far continuing to complete their projects and our aftermarket business is holding up, which means that they're continuing to run their production. They're not stopping production. So we're not seeing a big downturn in volumes for the mining companies. They're adapting their growth plans for the future and therefore reducing their levels of capital expenditure going forward. And that's what we're seeing in our reduced order intake within the Samik group. And then the follow-up is regarding aftermarket precisely. I was sort of hoping for a small up given the fact that the mining companies are lifting production rates at the moment. And I think your comments were for more like kind of stable environment. How do you see that progression going forward? We're not experiencing uptick in production rates, more stable production rates compared to the preceding quarter. That's our impression that we're getting from our customers right now. Thank you. Thank you very much. Do we have another question from the floor? Yes. Hello. Andreas Koski from Nordea. I have a question on Sandvik Machining Solutions. How much lower was your production levels compared to your sales level? Well, we reduced inventories with about SEK 400,000,000 in the group and that was mainly relating to Samik Mining and Samik Machining Solutions. So we don't we haven't split that up in detail like we did the preceding quarter, but then it was SEK 1,400,000,000 inventory reduction. So it was of a total different magnitude than what we're seeing in this quarter. Okay. And what would we expect for the next quarter? Are you aiming for inventory buildup ahead of the summer? Yes. We will see in certain business areas a certain inventory buildup like we always have like, for example, in Sandvik Machining Solutions due to the summer shutdowns we have during July in Sweden, for example. But for the longer term, I mean, we still have a plan to reduce our net working capital in the group, and we still have our long term targets of achieving a 25% against invoicing level. So our ambition is to gradually continue to rationalize the amount of net working capital in the group. But we will have a seasonal effect in the Q2 due to the summer period in Europe. Okay. Thank you. Thank you very much. Next question comes from the international audience. Operator, could we please have some help here? Our first question comes from Natalia Maevea from Citi. Please go ahead. Good morning, everyone. Natalia Maimaeva from Citi. I have a question on restructuring program. Last year in November, you announced a plan to achieve over €1,000,000,000 of cost savings in addition to what you already have successfully achieved for last couple of years. I just wonder if you can give us a bit more color on the timing and phasing of this cost savings. Were there any already in the Q1 or the bulk of this cost savings is much more back end loaded? If you can give us the color on the timing, how should we think about that SEK 1,000,000,000 coming through? Yes. Well, we've only seen limited effects. We announced that program on the 28th November last year. So, so far in the Q1, we've only seen limited effects of these cost savings coming through. And this we expect to gradually ramp up with a full effect by the end of this year. Then I can mention just with the one off charges that we took SEK140,000,000 which was all related to Machining Solutions in the Q1. Of the previous announced expected one off charges, we still have SEK180,000,000 to come within Sandvik Mining and that will come gradually during the coming quarters here as we realize the saving efforts that we have planned for here. Thank you. That's very clear. Thank you very much. Operator, could we have another question, please? Our next question comes from Mr. Andrew Kukhnin from Credit Suisse. Please go ahead, sir. Good morning. Thank you for taking my question. I wanted to ask about the competitive landscape in Construction Equipment and the low end of mining equipment and crushing and screening. Are you seeing any changes there? Is there evidence of new competition? No, I wouldn't say that we see any evidence of new competition in the low end part of the market. But it is quite tough in the Chinese market due to the lower level of infrastructure investments that we've seen over the last year or so within China. But I mean, we have a strong position through the acquisition of Shambao that we did and we have a very good offering for that part of the market. And we're now trying to build the sales from Shambaugh into other regions of the world, into India, into Latin America, into Africa as well here. So I think we have a lot of opportunity to actually expand when it comes to the mid market within construction. Got it. Thank you. And a quick follow-up on the inventory reduction question. Looking beyond Q2, where understandably you'll probably not cut or, in fact, build inventory into the year end, Would you target to achieve say similar reduction in inventory this year as you did last year? Or is that too high, too low just to give us an order of magnitude? Well, I think we had very, very high inventory reductions towards the second half. Actually over the year, we didn't reduce that much, but a bit of inventory buildup in the first half of the year. But I mean, our target is to gradually adapt our net working capital to this 25% level and that's what we continue to work against. Okay. Thank you. Thank you very much. Do we have another question from the floor? Okay. Anders Jooslin, Swedbank. I have three questions. First regarding Machining Solutions. Could you talk a little bit about the production or sales level of Machining Solutions so far in April? Number 2, the Chinese We'll take the 1 on 1. But I mean, well, April has started sequentially stable or possibly somewhat further positive compared to the Q1 here. So if anything, we see a slight positive trend going into the beginning of the Q2 here. What was your next question? Thanks. Next question is regarding China and the nuclear tubes. There seems to be some positive order intake and some cancellations. Well, I mean, there's a big retake on the whole nuclear power program in China and this may lead to further cancellations for Sandvik going forward. I mean, we have frame agreements and certain orders in our order stock based on the original plans that China had to invest. And as it becomes clearer which projects will go ahead and which won't, we may need to make adaptations there. But the net effect, was it that you canceled, that you reported? The net effect in the Q1 was roughly 0. So we had cancellations, which were roughly the same level as other orders that we got in. Okay. And then on the 3rd Thank you very much, Anders. Let's try to This is good. Okay. That's about restructuring. Could you just elaborate what we should look forward to further? And you mentioned the SEK 180,000,000 here and the SEK 200,000,000. Are there other? Well, I mean, once we decide if we decide on any programs, we will, of course, communicate that. I guess SEK 200,000,000 is the ones for diamond innovations that you mentioned. So that's something new that we're announcing now with this quarterly report. It will, of course, depend on how the market develops going forward. Then we might have restructuring initiatives in areas like Jaime was touching on when we consolidate production in our mining business or other areas of the company onto fewer sites. But then we will be doing those kind of investments AIM, of course, of getting a reasonably short payback on those kind of restructuring activities. So you can never outrule future restructuring, of course, in a company like Sandviken. Thank you very much. Another question from the floor. Taneli Schmid from SEB. Can I just continue follow-up on the SMT question on nuclear? Your wording in terms of price pressure is, I would say, slightly more cautious than compared to earlier wording. And you're discussing the sort of the currency benefits from Asian competitors. Could you specify that in more detail? It has to do with sort of Japanese competition? Or can you give us some details? Well, in Asia, our main competitor on nuclear tubes is in Japan. So, of course, they've had a big drop in their currency and we've had a big increase of our Swedish krona where we have our manufacturing facilities for our nuclear tubes. So there the competitive landscape has shifted against us due to these currency movements. And you've seen this in the past 6 months then I guess. And is it increasing or stable? Well, I mean the currencies, it's difficult to speculate how they will move. I mean but going forward, if the corona levels off on these high levels, I mean, that's, of course, a challenge for Sandvik with the production that we have in Sweden, for example, Yim or Sandviken when it comes to SMT. And so that, of course, gives us a competitive disadvantage compared to our competitors in the euro zone or in the yen zone or so. Thank you. Thank you very much. Operator, could we please have assistance with the question? Our next question comes from Mr. Lars Olsand from DNB. Please go ahead, sir. Thank you very much. Good morning. Olaf, quick question on Mining. On gold and copper, the two areas of strength in Q4, clearly weak now in Q1. It seems weak commodity prices here very quickly translated into weak demand for you in these segments. Can you elaborate on where you're seeing the weakness here? Is it on the new equipment side? Or are you seeing an element of weak aftermarket, I. E. Consumables destocking? I think I commented already already actually on that. But I mean in the aftermarket, we see a stable picture right now. So we do not believe that our customers are or see that our customers are reducing production rates. They are, on the other hand, reviewing their future investment plans and postponing projects or reducing the pace that they're planning to invest at. And so they're maintaining their production. They're not canceling, as we see, their current projects. So we're not seeing any material amount of cancellations. But they are not booking new orders or starting placing orders for new projects on us and that's resulting in a lower order intake for us affecting equipment and affecting mining systems predominantly, but not rock tools, services, spare parts in these areas. Thanks. And just on Machining Solutions, if I could allow be allowed one follow-up. What did you see as the quarter progressed? I mean, you talk about a slightly positive development in Machining Solutions. Can you talk a little bit about what you're seeing in North America where you saw further deterioration year over year in Q1 and also in Asia Pacific where again on a year over year basis you didn't see much of an improvement versus Q4? Well, I mean we see compared to Q4, we believe we see a stable to slightly positive development for Machining Solutions. And as I said, North America, we had a big drop in invoice and we believe that's timing of different projects and how invoicing fell that we had that more negative number. We're still quite have a quite positive view on the market in North America. And you can see that in our order intake numbers that we had this quite strong positive book to bill for our business areas in North America. Thanks. Thank you very much. Another question from the international audience, please. Next question comes from Mr. Aaron Ibbotson from Goldman Sachs. Please go ahead, sir. Yes. Hi there. Good morning. I was actually curious about your comments on the sort of pickup in construction and relatively strong demand intake Q on Q. I wonder if you could elaborate a little bit on which areas you're seeing sort of increased order intake? And then I have one quick follow-up on Venture. Well, I mean for construction, we actually saw, I would say, across the board. And that's where we compared to the sentiment we've seen during this autumn, actually seen the biggest shift towards a positive direction has been in with the construction business. They're affected by very low invoicing in Q1 due to low order intake in preceding quarters. But as you say, had a very good order intake in Q1 and we feel that's a really positive indicator of the trend in the construction market. But I mean, we see that in many areas and it's not one of our product areas specifically that's picking up, but actually fairly much across the board that we see a good order intake for the various types of offerings that we have from our Construction business there. I could perhaps add to that as well that normal seasonality also has the Q1 being stronger than the Q4. So that of course plays into this. Okay. And then just a quick small one on Venture. I mean, this sort of SEK 100,000,000 type level, is that something we should expect to continue if you're not seeing a pickup in terms of prices? Or how should we think about that? There was a very sharp drop if you look at the development of the APT price, which is the commodity that's traded for tungsten between Q1 last year and where the levels we've been at right now. Actually lately the trend has been positive again for the tungsten price. So hopefully we'll see a positive trend. But of course, when we have a big drop in the commodity price, we have inventories bought at more expensive levels and then that translates into lower margins. And that affects these outs over a quarter or so. Okay. So part of this drop was inventory write down rather than? Yes. Our effects is that we have higher priced materials that we're using for our production today than what we had in a stable pricing environment for raw materials. Okay. Thank you. Thank you very much. Let's take the next question from the floor. It's Guillermo Pointer from UBS. Another question, sorry. On SMT regarding the new competitive landscape, fact that you have the capacity to serve the nuclear markets. Would you be competing on price? Or are you basically sticking to your price and just getting less volume? Well, the challenge is not us losing market share or so. The challenge is that the size of the overall market for steam generator tubes is much smaller than what was anticipated when these investments were made. And on a global basis, the pace of investment into the nuclear sector is much lower and especially in China is much lower than what was expected previously. So this means, I mean already in 2011, we announced at our Czech facility that we also invested in for nuclear and actually redirected the parts of that production that we can use to produce umbilical tubing towards the oil and gas sector. And there we can sell the products and we can have a good margin instead. With the long term lower capacity utilization, we'll also have to review potentially some of the capacity in Sweden if we try to redirect that to other profitable areas where we can sell these tubes other than nuclear, so to say. Thank you. Thank you very much. Let's have another question from the floor, if there is any. Not for now. Let's move, operator please, Our next question comes from Mr. Martijn Prosevski from Bernstein. Please go ahead, sir. Good morning, everyone. A couple of questions, please. Just first on Mining. Given the weakness we're seeing in orders, should we expect a positive mix shift in margin kind of over the coming quarters with more aftermarket service in the mix? First question. Then second, in terms of the pickup we're now seeing in Materials Tech, do you think we'll be now in an uptrend? And if so, will you be kind of more willing again to look at the disposal of this unit? And then lastly in terms of coal prices? I would take let's see. Your first question was regarding The mix in mining. The mix in mining, sorry. Well, we what will happen due to the current order intake level is that we have a very long order stock on mining systems. So for before the invoicing of mining systems tails off and we're not getting any cancellations, That takes much longer than the order to consume the order stock on equipment. So it's likely that the share of in our mining portfolio will increase somewhat going forward given that the market continues in the same way that it has. And Mining Systems does have a diluting effect on our margins since that's lower margin business than what equipment and aftermarket business is. And so how long is that expected in the backlog? So how long will that work through? I mean these mining system projects they run over maybe 2 years or so while they're being constructed and gradually invoiced there. So I mean Mining Systems could potentially be a higher share of our sales over quite a few quarters to come. Of course, depending on how the overall market for mining develops. But it takes much longer time for the invoicing of mining systems to tail off with a low order intake than it does for the equipment side. Okay. And then the second question was on just Materials Tech and the pickup there, the sustainability and the strategic kind of view on that asset. Well, I don't want to comment that far. I mean, we are quite happy, I would think, with the development of the step change program so far anyway. And I mean, at the 10% EBIT margin, roughly underlying EBIT margin for the business. It is performing fairly well in the portfolio and I cannot say that it's weighing us down very significantly anyway when it's performing at these levels. So I don't feel that's really an urgent problem based on the current financial performance of the business. Thank you very much. Thank you very much. Operator, could we please have another question? Our next question comes from Mr. Colin Gibson from HSBC. Please go ahead, sir. Hi, good morning, everybody. Can I ask first a question about receivables? You commented a lot a couple of times the increase in receivables in the quarter. If you could just give us a little bit more detail on why that was and whether there'll be any improvement going forwards? Well, I mean, it was an effect of increased invoicing and the mix of invoicing towards the end of the quarter that meant that we ended up with somewhat higher receivables in the group. So you'd expect that to normalize relatively quickly? Yes. Well, of course, that would depend on if we have an increasing invoicing trend on that or receivables increase as well. So that, of course, is connected to how the market develops. Understood. And could I please just ask a follow-up question on pricing generally for the Sandvik Group in the Q1 of the year? As you look across the various business areas, has in those in those cases, we've had a positive trend. It's only been very, very small positive movements with, I would say, Machining Solutions in the most positive end of the spectrum and Materials Technology more or less flat. Thank you. Thank you very much. Operator, please do we have another question? Our next question comes from Mr. James Moore from Redburn. Please go ahead, sir. Olof, Emil, Magnus. Could you help us understand the EUR 140,000,000 organic EBIT drop in the Mining division on the €290,000,000 organic invoice increase. I think we might normally expect €50,000,000 to €100,000,000 with 20 something type drop through. And it's obviously a lot worse than that. And if pricing is flat and you're getting some savings in, what is driving that given it's quite an assembly business? Is it mix? Is it something else? Well, I would say the loss of volume having, I mean, inventory reductions instead of inventory buildups means that we have a totally different over or under absorption situation in the business area. Okay. And could I follow-up with a question about lead times? I wondered if you could just run through the mining division to say where we are really on project versus OE lead times and within OE, whether you could comment on the lead times for the major product categories of crushing screening versus drill rigs versus loaders and haulers just so we can think about the mix of how the OE demand decline in the mining industry will affect you? Yes. But normally, we've been working with a 6 to 9 month order stock during 2012. And that has, of course, been shrinking now for equipment due to the fact of the weaker order intake or the negative book to bill that we have. So we have normally between I would say 3 to 6 months order stock for equipment price now. Is it different from different areas? No, I cannot go down into the specifics. But Magnus, if you want to call Magnus, he can try to give you some more color on that. But I don't think we're prepared to share those kind of very, very detailed information of our delivery times of our full product spectrum. Spectrum. Thank you very much. Thank you very much. Operator, please another question. Our next question comes from Mr. Joakim Haugland from Chevre. Please go ahead, sir. Hi. I have a question regards to inventory reduction at your customers. You say that in Machining Solutions and Materials Technology, it's standard products and well, general demand that is picking up somewhat sequentially. Have you identified in any way how your clients are handling their own inventories? And can these sort of positive indications maybe an effect of slightly lower inventory reduction at them? Thank you. That could be an element of that. But I mean in these areas especially for Machining Solutions, we don't believe there to be very high inventories in between our sort of delivery and the actual consumption of the product. So there's not a big amount of inventory. For Materials Technology, I mean there's a certain amount of distributor sales and so on. There could be some inventory movements. But we what we're saying, we believe to be more general underlying market movements and not any inventory movements with our customers. Okay. And you get these indications from customers when talking to them? Or is it your general view of the things? Well, of course, we interact with our customers all the time and that's the feedback we're getting. Then Sandvik in general has a very, very high share of direct sales to our customers. So we have very little that's going through distributors in our various business areas. So normally, we do not have a distributor building or redosing inventory between ourselves and our customers. Okay. Thank you. Thank you very much. Operator, please could we have the next question? Our next question comes from Mr. Sebastian Gieder from Societe Generale. Please go ahead, sir. Hi, good morning to all. I have one question. You have been CEO for more than 2 years now and you have several restructuring plans and changed top management. And 2 years later, earnings are well below where they were in the Q1 of 2011 on more or less the same revenue level. So where do you think the group underperform compared to your initial expectations? And how do you plan to fix this? Thank you. Well, I mean, we are we see a considerably worse market situation today than what we did a year ago. So I mean, that's, of course, impacting our results and clearly lower volumes. I think we've done very well with improving the results based on the market conditions in both Construction and Materials Technology. And that's very measurable and clear difference in the performance of those business areas compared to historical performance. When it comes to Mining and Machining Solutions, I think we still have a lot of work of improving and enhancing our profitability in these areas. In mining, in terms of restructuring our footprint, improving our supply chain, working with sourcing, and these are things that we will be working over coming years with. And in machining solutions, even though we are a market leader in this area, I believe we also have quite a lot of opportunities still to improve both our manufacturing footprint and the efficiency of our processes within the business area. And these are areas that we will continue to focus on going forward. And a follow-up, if I can, on Machining Solutions. You said you're a market leader, but you seem to underperform in emerging markets where you are declining faster than in developed markets over the last 2 years. What is driving that? Is it market share losses? Is it a weak development of the 10 big brands compared to local players? Can you give us some color on that? Well, in emerging markets, I mean, we do have a bit of it. A I think we've been developing well and in line with markets when it comes to our premium brands. I think weakness in our portfolio is that we have not had a mid market type offering in our portfolio. And we have started by launching the CAR BELOI brand, which we did last year. And we will continue to look at different ways to address the broader spectrum of the market than we have been doing with our products mainly focused on the premium segments in the market. Okay. Thank you very much. Thank you very much. Operator, please the next one. Our next question comes from Mr. Alexander Vergo from Berenberg Bank. Please go ahead sir. Thanks. Good morning. Just a quick follow-up on the order intake in construction and the mix effect, whether the systems business or the mix or per share of the system business in the order intake is dropping and whether that will have a proportional improvement or accretive effect on the EBIT margin? Thank you. For construction? Yes. We don't expect any big shifts in the share of systems compared to other parts of the portfolio going forward in the same way as we can see in mining. And as I said in construction, the order intake is picking up now, which will result in increasing shares of equipment sales and so now going forward. So what's that? So I'm assuming we should have a somewhat positive shift towards more equipment and less systems as a consequence of the current market sentiment that we're seeing right now. Great. Thank you. Thank you very much. The next question please. Our next question comes from Mr. Kenneth Torel Johansson from Carnegie. Please go ahead, sir. Yes. Hi. On the mining side again, if we look forward not just 1 quarter, but maybe 2, 3 years, Do you see a big risk of lower pricing on equipment as we see falling demand right now? And are you are customers getting more price sensitive already now you believe? That's the first question. On mining equipments. Yeah. Well, normally in recessions that's not been the case that you've seen drops on the equipment. You see drops in investment levels, but not something that we are experiencing today or that we're expecting at the moment. Okay. A follow-up then on the service side of the business. When you listen around to a lot of equipment manufacturers, a lot of them is targeting higher sales in service risk is that competition may increase there as well so that it will be price competition and more competition going forward. Do you see such risk in a 2, 3 year time horizon? Not really in the aftermarket in that sense. I think the important thing is, I mean, we need to deliver a package to our customers. And actually, often the service element is not only a profitable business, but also something that's very important for the customer because they're going to look at owning this machine, the availability they're going to get from the machine. And if we can support our customers with a high availability on that equipment, they will buy our services. But I don't think it's really the pricing is the main thing. The main thing is how well we will be able to service our machines on the various mine sites and what sort of availability numbers we can offer our customers through that service. And if we can offer good availability numbers there, they will buy the service from Sandvik. Okay. So it has more to do with the production rates in the mine rather than anything else basically then? I would say so. That's my judgment, yes. Okay. Thank you. Thank you. Operator, I know we have some more questions. Could we have the next one, please? Our next question comes from Mr. Peter Freund from Handelsbanken. Please go ahead, sir. Yes. Good morning. Thank you. When it comes to mining again, I mean, if anything, the demand has weakened further since your November restructuring. Could you explain really why, so sorry, you postponed the restructuring that you aim to take and how you feel you're running in your cost saving production rate versus the underlying sort of slope of demand? Maybe explain that for us in more detail. Thank you. Within mining, I wouldn't say that we have postponed, but I mean there are accounting rules for when we can take the restructuring costs the SEK 180,000,000 that we still have to take. So I still believe that we're on plan with the restructuring plans that we announced in November. That's very clear. And a short follow-up, Olof. Could you please share the magnitude of the tungsten price effect on the venture EBIT? We haven't shared that number exactly, but it's quite significant. Okay. Thank you. Just adding to your first point also, the restructuring charges that we took in the 4th quarter were also related to mining. So we've met the actions that we've taken during the Q1 with the provisions that we took there. So we're steaming ahead with the restructuring. It's don't read anything else into it. Thank you. Okay. The next question please. Our next question comes from Mr. Peter Lindemark from GMV. Please go ahead sir. Hi. Could you just give us some indications if there is anything that will swing the margin significantly going forward? You were at 12.2% adjusted margin in Q1. You had some inventory destocking, so say it's around 12.5%. There will of course be some seasonal differences, but it will also be a bit negative mix with more construction and less mining. Is anything that will take up these margins significantly in the near term? I mean, okay, you get 1 percentage from end of this year, maybe beginning of next year, but until then. Well, I mean, to start with, we have a quite integrated business model within the Samik Group with a large amount of the production flow integrated. So I mean volume is a very important aspect of our profitability. And in weaker markets, we will, of course, have a negative effect from having in many areas a fully integrated production flow. And that will be a benefit we get back when markets pick up. So volumes is of course a big driver for us when it comes to our margin. Then currencies, I mean, they hit us with about €350,000,000 in the first quarter. We expect very any strengthening in the euro, weakening of the kroner, so that's any strengthening in the euro, weakening of the kroner or so that's an outside effect that, of course, can have an impact. Then we continue to work with our efficiency programs. Efficiency is in line with what Jaime was talking about in terms of operational excellence through the group. And the €1,000,000,000 cost saving that we've only seen very initial effects of in the Q1, the €1,000,000,000 we announced in November that will gradually Yes. Yes. I'm sure it will come with more efficiency programs if the market stays like it is. But assuming that it stays pretty much like this on the mining side, etcetera, when could we expect more restructuring programs announced there? Will you see this program coming through first and then make another step? Or will you continue to be We're continuously of course reviewing the situation. It will depend on how we view the market. Then I think I would like to point to again that actually in 4 out of our 5 business areas, we did have a positive book to bill in the Q1. So we do not see for those areas any further deterioration in the market compared to where we stand today. Great. Thank you very much. Thank you very much. Mindful of the time also, that was our last question. And it concludes the session for today. I thank you for your attention and wish you a nice day. Thank you very much everybody.