Earnings Call: Q1 2020

Apr 20, 2020

So good morning and good afternoon, everybody, and welcome to this presentation on the Q1 results 2020 for Sandvik. With us today, we have our new CEO, Stefan Lieding as well as myself, Tomas Elias, our group CFO. So please, Stefan, take it away. Thank you, Thomas. And also I would like to welcome you to this 1st quarter report for 2020. I think I've known or met and talked to a few of you in my previous live, but for most of you, this is the first time we meet. So I would like to say I'm happy to meet you virtually, although I would have wished it was under slightly different practical circumstances. The setup for today is we're going to have a couple of slides to begin with, where I will share some of my first impressions and priorities in the room. I will give a short update on the corona situation, and then we'll dive into the actual report. So let's get started then. Next slide, please. So I was happy that, let's say, the 1st 5, 6 weeks in the role, things were fairly normal. I could travel around, meet the people, see our operations. I have to say, I'm very impressed with the people I met, knowledgeable people, passionate and with a clear business focus. It's also evident when you're out there that the new operating model that we put in place a couple of years ago with an exemptionless model it's taking hold. You can see the responsibility for decisions and the accountability for decisions is out there in the business with the divisional management where it should be. So I'm really pleased to see that. Obviously, we still have a ways to go. These things take a long time to get fully implemented, but I think we have made very good progress in the last years. Then it's also clear that we do have strong market positions in most of our segments. We have good technology, and we are number 1 and number 2 in the segments where most of our divisions operate. So overall, if I take these points, I think it shows we have a very solid foundation, first now to take us through a challenging period ahead, but then also to grow the company more longer term. My initial focus area obviously has been, 1st of all, coming from the outside to get to know the people, the businesses and some of our key customers. Already coming in to the job done this quarter, we were in a slowdown. We have already announced last year efficiency and cost reduction measures. So that was also one of my first priorities to ensure that we continue to execute as we have said on that. Then we have, of course, SMT, where the internal separation project is ongoing and will be ready now around standard time as previously communicated. And then the idea is then that then the board will evaluate and discuss potential next steps. In this period now, when I come in, it's obviously now a good time to get to know our business more and form my own opinions around SMT. And then, of course, growth. We have gone through stabilization of profitability over the last couple of years. It's clear that the focus is now more and more on growth, both organic and through M and A. Then the Corona situation has, of course, emphasized the priorities around execution, savings and efficiency, and that's very clear. So next slide, please. On the Corona situation, as we have said, Q1 was largely as expected. We had disturbances in China in the beginning of the quarter like most with the extended closure of the Chinese New Year. We could say that for us, China has recovered well. If you look at the quarter overall, we were up in China for the group. SMS, that was driven by SMRT. SMS, the short cycle business is flattish or slightly down minus 1% for the quarter. That obviously has a lot of drama within the quarter, with a very big drop in the beginning and then a strong recovery at the end of the quarter. I think we cannot really say yet what is the sort of sustainable run rate there. Obviously, in the recovery, there's also a lot of catch up involved. And potentially even buffering for a third second shutdown, if that's what happens. So we don't really know. We can just say that China has returned well for us in the quarter. Then in March, obviously, we had a global escalation of the situation. We had an impact by production closures and so on in those regions that have locked down and also in other places where, for example, for health and safety reasons, we have to temporarily close down or more permanently for now reduce the capacity of plants. But I think we have managed that well. We have been able to move around capacity as needed. So we have continued to be able to serve our customers there. And on the supply and distribution, there's been a lot of issues during the quarter. For example, most of our air freight is through passenger traffic, which obviously has been impacted. But and also we have had quite elevated seat leaves in many locations that have also made things more complicated to manage. But I think the team has done a tremendous job to manage that. So that's also not really had a significant impact on our business. We have had some extended customer delivery times, maybe slightly higher freight costs and so on, but overall, not not significant impact. Then, of course, we saw at the very end of March a sharp decline in SMS and the short cycle business also in SMT, we know are correlated to SMS. And the drop in the week was 25% organically year over year. Now that was the 1st week where we saw the impact. So we will, of course, have to wait and see going through April now if how the run rate will be going through the quarter. We cannot really comment on April. We think it's not really relevant to compare now these weeks because we have an Easter timing effect. So I think once we're through April, we will have a better idea of where the new run rate is for now, so to say. Overall, going forward, we are fully dependent on how the actual health and virus situation evolves and, of course, government decisions, where to close down, where to start to open up and so on. And I think you're probably as suitable as us to try to understand more than that and what kind of impact that will have given our exposure in various segments that you are aware of. So that's what we wanted to say on corona. Now let's go to the next slide, please, and jump into the actual report. We had an order decline of 11% organically. Of course, that is, again, all time high compares. We were happy to see an additional major order in SMT in the energy sector. We could also now continue to protracted decision times on the order side of SMRT. We've had that for some time. And if anything, it was a little bit accentuated at the end of the period in March. Of course, we continue to see the decline in the short cycle business at a massive -twelve percent, and that also is relevant for SMT, particularly major orders SMT is minus 9% of orders. And then as I mentioned, the drop in SMS at the end of March. This we also had revenue decline of 7 percent organically, which obviously is the main driver for putting pressure on our adjusted EBIT margin, which is 16.6 percent excluding metal prices and 15.8 percent including the metal price effect. We also should note here that we have an FX impact related to hedges in SMRT that had an 80 basis point impact at Lourdesklavel and 180 basis points in SMRT. That was not something we expected, but obviously, it is part of the results. Then we did also see good savings filtering through EUR 360,000,000 in the period, in line with what we have said from the announcement last year. The cash flow, SEK 3,100,000,000 in the period. And then we had a strong balance sheet gearing is now the net gearing is now down to SEK 0.17. And if we include unloaf credit lines, we have over SEK 30,000,000,000 of accessible cash at the end of the period. Despite this solid financial foundation, the board, as a precautionary measure, decided to withdraw the dividend proposal, although we're also intend to reevaluate that when situations fall through. Next slide, please. If we look at the market development overall, we start with our major markets, Both Europe and North America down 14%. North America would have been down 9, which excludes the major orders in SMT. On Asia, minus 6%, as I noted, it says that if you take China in that, we were actually up 10% for China, overall, driven by SMRT minus 1% if you only look at SMS. If you look at our major verticals or segments, it's pretty much down across the board except for construction. If we look general engineering and automotive, obviously, being weak also going into the quarter. And then situation has not improved as the corona situation has escalated during the quarter. Aerospace, I would say, was slightly weaker. Also going into the quarter, as we started to see in January some impacts from the Boeing 737 MAX production closure. And then, of course, that has also been impacted further later in the period. Sequential trend is primarily down, although we have still held up recently well in Australia and South America. Next slide, please. Orders, I think I've covered the most of the things here, minus 11% organically, but you can see in the graph there that we had very tough compares in the same period last year. Revenues, minus 7% organically, driven by SMS, minus 12% SMRT, minus 5, S and P minus 3. If we would have included the Ally Search Office, they would actually be down minus 5 percent in the period. Next slide, please. EBIT Development. As I said, pressure primarily from volume decline of minus 7%. If we normalize for the metal prices to be 16.6 percent, reported adjusted of 15.8 percent. Then I mentioned the FX revolution hedge impact in SMRT in the period, driven by very volatile currencies in some of the mining markets that had an impact of around 80 basis points at group level. Without that, we would have been at around 17.5% on the margin side. And I think that gives a good indication on more how we have responded to the overall volume drop at the group level. Of course, good positive impacts from the savings of DKK 350,000,000 in the period. Next slide, please. So going into the different BAs, starting with SMRT, minus 8 on order, minus 5 on revenues. On the order side, the equipment are down in the high teens. That's primarily driven by mechanical cutting. They are the ones that had very high compares in terms of order intake last year. Also a little bit on crushing and screening. Otherwise, I think also equipment held up fairly well. As the market is largely stable, it's actually down minus 2% in the quarter, but largely stable considering the environment. And then again, continue to have somewhat protracted lead times in the customer decision process. And again, potentially even slightly than estimated that in the quarter. On the margin, 17% this year versus 18% last year. There were a slight decline in absolute adjusted EBIT from the volume drop. But actually, from a margin perspective, they were margin accretive due to good savings and good handling of the volume drop. So this decline is really driven by FX and construction impacts. In particular, this hedge revaluation impact, operationally, it would have been around 19%. Next slide, please. Machining Solutions down minus 12% on both orders and revenues. I think I've talked to most of the dynamics there end of quarter and in China. Margin decline, of course, driven by the volume of 5 20 basis points, partially offset by savings of 210. We also have a negative impact from destocking around 70 basis points. This is a little bit due to that we sequentially reduced absolute absolute inventory since December, but primarily driven by a bridge effect where we last year actually restocked or overstocked. So you get a negative bridge effect there versus last year. So this means if we take away that impact, we are down then about 300 basis points on a negative volume drop of 12%, which we think is quite okay for a business like S&S, of course, very much helped by the existing savings initiatives. And then we also announced earlier in the quarter the intention to close one of our plants in Germany. Next slide, please. S and T order intake minus 14%, minus 9%, excluding major orders. Here, we are happy that we could book major orders in the energy sector earlier in the quarter. It means that we have now filled our order backlog for this quite high value added business for the remainder of the year. Of course, if the current oil price levels continue where they are, we will have uncertainty in the midterm in that business, meaning in 2021. But that remains to be seen how things evolve in the next quarter or 2. In the short cycle part of S and T, we see continued decline in standardized as well as Cantal, and there are minus 9% to exclude the major orders. Margin, down from 10.4% to 9%, primarily driven by volume growth, partly offset by 50 basis points of improvement from the savings. And with that, I'll hand over to Thomas to take us through some of the more detailed financials. Thank you, Stefan. And let's immediately move to the next slide and jump into the financial summary for the Q1. And if I may draw your attention to the upper right hand corner, let's start with the top line. Orders down 11%, the revenue 7% organically, as you have heard. Currency impacted the top line of 2% positively. Structure, minus 0. We have a couple of acquisitions, 1 in SMS and 1 in SMRT, adding to the growth. But we also have the Varel divestiture, which happened in early March, March 3. So we're losing amount now of Rell, and this will, of course, then continue for 12 months going forward in the bridge. So all in all, minus 9% for orders and 6% for revenues. If we then walk down the income statement, the earnings landed at SEK 3,700,000,000 dollars operating earnings compared to $4,600,000,000 a year ago, that's minus 18% and a margin of 15.8 percent compared to 18.3 percent. We will look at the bridge in a minute, period. Founded net, minus 4.16 compared to minus 3.78 a year ago. We will look at that as well in some more detail. Tax rate, 23.1%. That's at the lower end of the range. Working capital, just up a little bit in fixed currencies, but given the top line reduction, the net income came up to 26.8%. Cash flow, almost on par with last year, dollars 3,100,000,000 returns, 16% and earnings per share minus 15%. Next slide, please. Let's look at the bridge. So here we have the journey from Q1 'nineteen to Q1 2020. And if we start with the inorganic development, minus 7%, that's just short of €1,900,000,000 down on the top line, euros 726,000,000 down on the operating earnings. That's a leverage of 39% and a dilution of 170 points. Currency, diluted 30 points in the bridge, I should say. And metal prices valued at 50 basis points in the bridge. And structure, well, it is 0. It's a little bit less than 0, but rounded off 0. So that's from 18.3% to 15.8%. Now let's stop a little bit here for a few seconds on currency. Here, you can see that we had a positive effect on the top line, €4,200,000,000 And the total currency effect was plus €12,000,000 But behind the €12,000,000 we have quite some movements. The translation effect and the transactional currency effect was more than EUR 200,000,000 positive. But then we had negative effects of €200,000,000 on revaluation of hedges and open items in accounts payable and accounts receivable. And as Stefan has already touched upon, it was a little bit unexpected. We had too many open positions, especially on the mining side, for various reasons, timing reasons, etcetera, etcetera. And this happened exactly at the time as the currency starts to go very much up and down. This is, of course, more of a just a Q1 situation. Some of it will come back, but not all of it. So let's move to the next slide. And here, we just want to update you on where we are on the savings plan that we announced after Q2 last year, in July last year. We took a charge in Q3 of $1,600,000,000 for savings of $1,700,000,000 And we have now achieved a run rate of 1 point 4,000,000. 2000 NPEs are affected of an estimated 2,500,000. And the remainder of this program will basically fall out in the Q2 of this year. Next slide, please. Now let's talk a bit on the finance net, and we can start at the top line here. The underlying interest net, which is what we're guiding for, is coming down nicely. It's on minus 126 million now. It was minus €168,000,000 a year ago. Minus €126,000,000 that's in line with the guidance we had for the full year, which is €500,000,000 in interest earning. Pensions, bank charges, etcetera, are being stable, and we'll just continue along these lines. But on the last line here, you can see FX and other asset classes. That's minus 210,000,000 euros What we have here are hedges, which do not yet have a corresponding item in the balance sheet. So these are hedges for electricity contracts, for raw material purchases and for large orders, which haven't materialized yet. And as we don't do hedge accounting, you have to take the temporary revaluation in the finance net. This will all go back, 100% of it, back into the operating earnings when they appear in the balance sheet. This is nothing we can guide about really. You never know where this is going to end up. And in any case, it is just temporary revaluations, which for accounting reasons have to show up here in the final step. But we can give you some help if you want to model it yourself. The electricity contracts, which is basically for the steelworks in SMT, has an outstanding balance of around 500,000,000 the raw material hedges, which is mainly lithium and a little bit of monobium, it's normally around $400,000,000 to $500,000,000 and the FX hedges for large orders, which we have received but we haven't started to work on it yet, normally has a balance of around €5,000,000,000 So based on that, you can model depending on where you think the market is going. So next page, please. Let's talk a little bit about the tax rate. The reported tax rate was 21.8%. And in this quarter, we had quite some one offs. We had some restructuring going on in SMS. We took a charge for that. We have the lost item from the Varel divestiture that was a loss of not a loss, but it was a negative impact of €500,000,000 etcetera. It's €200,000,000 Those charges booked as items affecting comparability, it doesn't all all tax deductible. So when that happens, the tax rate gets pushed up. So if you adjust for that, you end up on 19.2. Percent. So 19.2 percent, of course, is a good and low level, but it's not that fun. It's not that good really because what we had in the quarter as well, it's apart from items affecting comparability, are some inventory valuation movements, to a large extent, connected to internal profit eliminations, etcetera, which has given us some tax income or some tax credits in deferred taxes. So if you take that away because that will not repeat itself, you take that away, you end up with 20 3.1%, which is more like an underlying run rate for the tax rate this year. The guidance is 23% to 25% and 23.1 percent is in the range even though it's at the lower end of the range. So let's go to the next slide and take a look at some balance sheet items. Working capital, slightly up in fixed rates. Look at the right hand side, you can see that in SMS, it's behaving nicely. SMRT, it's developed for seasonal reasons, and SMT is a little bit more volatile. Next slide, please. Cash flow, not too far from the cash flow a year ago, €3,100,000,000 Next slide, please. And here, we have the net debt slide. And as you can see here now, we end the quarter with a net cash position of 1.4%. And just to tie back a little bit to what Stefan said here on the accessible cash. We have ZAR 17,500,000,000 in cash. We have committed credit lines of ZAR 9,000,000,000. We have more bilaterals that we can enter into if we want to. It means that we have more than ZAR 30,000,000,000 in cash and undrawn credit lines, both committed and uncommitted. We will not have any maturities. You can see that in the up material. We don't have any maturities for this year. There will be a $3,500,000 in maturities next year. And then the rest of the debt portfolio is spread out in time quite a long time into the future. So the cash situation as such is good. Next slide, please. Now let's look at some of the guidance here. We guided EUR 150,000,000 of the underlying currency effect. We came in on 2Q4. That's transactional translation. The total currency effect with a little bit unexpected revaluation operation in the balance sheet was plus 12. The net prices in quarter was €201,000,000 we guided to €200,000,000 The bench effect was €116,000,000 but in quarter, it was 201,000,000 The CapEx came in at €700,000,000 interest net €100,000,000 or €126,000,000 and the tax rate was 23.1%. So if we look at the next slide, we have a little bit of an update for the full year guidance here now. We now say that for CapEx, we will be below EUR 4,000,000,000 dollars That is an update. We previously said it's going to be around or about $4,000,000,000 Now of course, given these times, we have put a little bit of a cap on our CapEx. We're going to take it down. So it will definitely be below $4,000,000,000 for the full year. For currency effects, for the next quarter, transaction and translation, which is the only thing we can guide for, we expect plus $100,000,000 for the 2nd quarter. Metal prices, with the prices that we had at the end of the quarter, we believe it's going to be minus 150 for Q2. Interest net, we keep at minus €500,000,000 and the tax rate will continue we haven't changed the range. It's going to be between 23% 25% for the full year. It keeps coming down slowly, slowly because most of the markets where we are big and where we are profitable are tending to move the corporate tax rate down towards 20%. Yes. And with that, I think I will hand over to Stefan again for conclusions and summary. Thank you so much. I think it's fair to say now, following this quarter, it's all about managing our near term challenges as we see it as possible. You saw that we already in March announced initial savings measures. We are focused initially on the short term and temporary savings because they have immediate impact, And that should provide another $1,500,000,000 in additional savings for the remainder of this year. And then we have SEK 1,000,000,000 in structural savings, SEK 100,000,000 that we announced in January and then SEK 0.9 billion that we announced end of March. And that will be fully into effect by the end of next year. We will, of course, continue to monitor the market development. And if needed, we will not hesitate to take additional actions if that's necessary. What we will not do, however, is jeopardize the long term competitive advantage of the group. While we do these actions, we are also taking into account the fact that we need to be ready also for a ramp up and the period that will come after this, hopefully, as short as possible downturn. One of the reasons we can do that is, of course, that we are in a robust financial shape. We have a solid balance sheet, as Thomas mentioned, over SEK 30,000,000,000 in cash accessible to us if needed, and we're in another cash position at the end of the period. This we will use not only to come through this period in a position of strength. We will also use it to take any M and A opportunities that might arise even during this period. We have a strong balance sheet, and we want to grow the company. And we want to add acquisitions both in our core business, but also, if possible, add good technology and know how that we know will strike for the longer term. Thank you. That is all. I'll hand back to Thomas. Yes. Do we have any online questions? Okay. Then operator, I think we'll move into telephone line. So may I remind everybody, put yourself to 2 questions each. And if you have more questions, I would like to ask you to line up again. So please, operator? Our first question comes from the line of Magnus Kruber from UBS. Please go ahead. Magnus Kruber from UBS. First on SMS, I think you mentioned that a 25% decline in the last week of March. How should we think about this going into the Q2? Is this as bad as it gets now with automotive OEMs opening up? Or how should we think about the early part of Q2? I mean, we don't know when this will end up. I mean, it was the 1st week of the drop. And of course, what it tells us is that we are now being impacted and quite substantially. As I said, now we have Easter weekends and stuff, so we don't really draw too much conclusions from how April has started. The decline has started. The rest of the quarter is going to be impacted more by the virus spread and political decisions. Anything that we can see or draw any conclusions from in the past couple of weeks. So I think you knowing our exposure to various market terms and so on, we can probably model or guess how this will evolve as good as we can. Absolutely. And the second question on SMRT on the aftermarket side. You mentioned flat demand, I think, year over year. Have you seen any tendency of miners starting to pull back your spending here in early Q2? Or is it still stable? Yes. In Q1, we were largely stable, as we said. I don't have any commentary on Q2, I don't know. Got it. Thank you so much. I'll get back to you. And the next question comes from the line of Max Yates from Credit Suisse. Please go ahead. Thank you. Just my first question is on the cost savings. So the additional €1,500,000,000 of temporary savings you announced, how quickly would you expect those to see through to the P and L? And should we expect that kind of we get a third of those coming through in Q2 already? Or will it be a slight delayed effect based on putting the measures in place? That's my first question. I think you this is how we have thought about this. We on the one side, we're not going to delay, so to say, savings unnecessarily. Rather, we push the brakes as hard as we can now in Q2. So it is reasonable, at least with what we know now, to assume that Q2 is going to be more of a tough quarter. That's the one side. So we're going to push as hard as we can. On the other hand, of course, there is, in some cases, maybe a slight delay if we talk about April 1st as the benchmark. I can say that some of the measures went into effect fully in April 1 and slightly maybe even before that a few days. Then there are others where they also adjust to existing backlog and so on and ramp down as aligned with the business. So there are a little bit different dynamics there. But I think you can assume probably say that it should be around the 3rd. Okay. And maybe just a follow-up for Thomas. On the managing the inventories for SMS, obviously, that kind of started through the back end of last year. How are you thinking about production levels going into Q2? And kind of knowing what we do now, would you have underproduced a little bit more aggressively in Q1 given other sea sets of wood now being spread more quickly than we thought? And would kind of the 200 basis point impact we saw in the second half of last year be a good guide for how maybe we should think about this in Q2? We are on the right level in Q1. Mean, we have the right inventory levels. Not too much. It's not too little. And then I mean, what's going to happen in Q2, we don't really know. I mean, if depending on what's going to happen, we just have to adjust, but we don't really have any guidance for that. Okay. Thanks. And the next question comes from the line of Klas Berglund from Citi. Please go ahead. Yes. Hi, it's Stefan van den from Klas Bergelind. A couple of questions, please. The first on SMS and I want to come back to this. If you compare this business with Sandvik Tooling back in the days, inventories have obviously come down. You've taken out fixed cost. There are lots of factory closures since 2013. And we've obviously had to say it's impossible to comment on volumes ahead. But assuming that we would have a similar volume decline as during the financial crisis, Thomas, could you help us a little bit on likely effect from under absorption, lower utilization? I think that, that number in 2009 was over SEK 6,000,000,000 Given the changes that you've done to the business, I would assume that the impact would be lower this time around. I know it's difficult to comment, but any indication would be great. Maybe you can take that Josefa. Yes. So I mean I think there's been a lot of good improvement in SMS, obviously, coming in here. At least I've seen the actions that have been taken in the last years. Its footprint, of course, its decentralization activities, which are both, I think, have had a positive from a cost perspective, but also now in terms of speed of sort of taking actions in a downturn. And I think what I can see, they have done it well so far. Of course, there's been a delay in the savings. It was structured. So it will take a while to filter through, but they are doing what they said they were going to do. We had a leverage in Q1 of 55% on the operational side, which again, it's a 3% EBIT drop on a 12% negative volume drop. Drop. How things will or would be if things drop even more, I think it's very difficult to predict. I think the 55% in Q1 is as good as I guess as anything we can probably give you. Yes. Okay. Makes sense. Then my second and final one is a huge step on M and A. Obviously, safeguarding margin and cash flow are the key priorities right now. But when we're through the pain here and then we start looking to engage more on the M and A front, what is your key takeaway when you look at SMS in joining the group and expanding into industrial software? And when you compare it to what you've done at your previous employer, is through M and A roll up store in CAT MN, Metro by D. So how can we see attractive synergies emerging? It would be interesting to hear your SMS. Yes. I want to be a little bit cautious. I'm still only 2.5 months into it, not really past the 1st 90 days. And it's always easy to draw quick or 2 quick conclusions. I think we should definitely come back to it more than the Capital Markets Day in the fall and so on around strategy. But what I can say is I think overall, the strategy that we have in SMS around expanding a little bit out into the software, the value chain around component manufacturing, I think it's a good strategy. I think there's merit to it. But I also know we have talked about it for some time, and we see some good movements lately. But we're definitely going to dig further into that. But I see potential there, definitely. Exactly what, how, how big and so on, I don't know. But I think there's merit to the strategy, and there's definitely potential there. Thank you. And the next question comes from the line of Gerald O'Brien from Deutsche Bank. Please go ahead. Thanks very much and good morning or good afternoon everybody. The first question I have is for a second. I know this is well, that's probably a follow-up on the earlier question. The exact exceptional times when you didn't get a lot of time, but fundamentally what has surprised you the most so far at Sandvik in both positive and negative terms. So that's question number 1. And question number 2 is about the level of activity in Q1 for SMS, which was perhaps not as bad as one could have feared. In your view, was there any sort of pre buy effect in the first few months of the year? With customers building up some inventories as the possibility there could be some potential supply chain challenges? Okay. I'll start with the last one. It's more straightforward. I think we could see early part of March or up until the drop end of March that there were certain regions where maybe we were a bit surprised at the activity level in the positive sense. And then I think we can only interpret that as buffer stockings, securing supply chain and so on. That was in March. It wasn't a lot, but it was noticeable. Then of course, we had a drop at the very last week of March. So I think March overall, in that sense, became as expected, but there were some dynamics within March. Yes, not a lot, but it was noted. In terms of surprises, it's a bit of a loaded question because if you say something, it's what you say, you assume you wouldn't find it. I will say, as I said in the beginning, I'm really pleasantly surprised with the culture in the company and the passion among the people in the company. You meet a lot of people that have been here for 15, 20, 25 years, but not in one role. They have been in different roles, different geographies, different business areas, different functions. So they have really made a career in the company. And I think that's really positive. It's a really strong culture and a lot of dedication. That I mean in a situation like we are now, that can make a big difference. You can go the extra mile despite troubling in times and also hell of a relative challenges. On the negative side, I don't know. I'll come back to that when I had at least 90 days to think about it. Okay. Thank you. And the next question comes from the line of Andreas Koski from Nordea. So firstly, on SMRT. You mentioned that the aftermarket was down 2% in the quarter. But I wonder if that changed dramatically over the quarter? And how did demand look like by the end of the quarter for the aftermarket business? Is that SMRT? Yes. It didn't change dramatically across the quarter. But obviously, logistically, there were more challenges in March towards the end of the quarter. Travel restrictions, health related barriers in terms of visiting customers and so on. But there was no dramatic difference. Okay. So you didn't see close to a double digit drop in the aftermarket business at the end of March or something like that? No. No. And then the second question is on S and T. So when the internal separation of S and T was announced last year, I think it was made very clear that the board's ambition was to separately lift SMT, hopefully, in the second half of this year. So has that ambition changed new CEO? Or is that still the clear ambition? I don't want to comment on what the board's ambition was about them, but I can tell you, to my knowledge, nothing has changed. That's what I can say. Are proceeding a proven to plan, and then we will discuss potential next steps when the internal separation is done on next this year. Okay. So the ambition is to separately list it? I mean, I think what we have to say this, the formal decision that has been taken is to do an internal separation, and then the Board will evaluate potential next steps. That's what has been decided, and that's what I think is clear. Then of course, you don't start a process like this if you don't have a certain intention. But there is a decision point and a discussion to be had once the entire operation is done. Okay. Thank you very much. And the next question comes from the line of Edward Perry from HSBC. Please go ahead. Hi there. Yes, good afternoon and thank you for taking my questions. Firstly, just a follow-up on China and SMS. And I appreciate you mentioned the difficulties of interpreting the data so far. But has the recovery that you saw in March been maintained through the 1st weeks of April? And is the ramp up in customer activity still as strong as your own ramp up in production? Yes. Again, I don't want to comment on April numbers. In terms of customer activity, I have to be honest, I don't really have that view. We can see what we are doing. Okay. And then secondly, on the mining side, we've seen cuts to 2020 CapEx and production start to materialize over the last few weeks. But from your own conversations with mining customers, what is your sense that these budgets will be rolled into and added back to 2021 budgets? Or do you feel spending time lines will simply be pushed further away into the next years? I'm sorry, I have to give a pretty good answer on that as well. I mean, we see hesitations definitely. We have seen for a while. It has we kind of think it may strengthen at the end of the quarter. And yes, but it's been announced cuts in the CapEx, whether that is just pushed out, postponed investments or let's say they are gone, I don't really I cannot really answer that. Okay. You never know until afterwards. The first thing that happens in these big projects is, of course, they postpone it. And then they postpone a bit more and then they postpone it. And then they may be canceled, so you can't really say, right now. Okay. Thank you, both. And the next question comes from the line of Andrew Wilson from JPMorgan. Please go ahead. Hi, good afternoon, Stefan Thomas. A couple of questions, please. Just on SMS and thinking about the cost base, and there's obviously been a lot of work done in the sense of adding the flexibility. So I wanted to get a sense of sort of where we are in terms of temporary labor in that business at the moment. I mean, do we have sort of the shorter time needed to pause and you've got the bigger program, but just sort of how quickly can you be bringing people back on and off given that there's clearly a huge amount of uncertainty in terms of almost week to week where demand develops? Just trying to get a sense of sort of how you're thinking about that. I mean the short Workweek programs we are using, I mean, I think you are aware of how they work in the most regions, Germany, Italy and so on. We have the Swedish program that's fairly new or very new. They give quite a lot of flexibility, I have to say. But of course, it's not that we can vary week over week, but we can assume that we can adjust, I would say, on a monthly basis. We have to be aligned with unions and so on, but we have regular we touch base regularly. And we should be able to adjust fairly well on a month by month basis with these programs within reasonably of ranges, I assume. That's helpful. Are there any particular regions which are proving more difficult to kind of implement that sort of flexibility? Or is it you're feeling pretty good about the flexibility of all of the business? I think I mean, if you look at where we have production and release, Sweden, Finland have this program, Germany, Italy. There is not really that much flexibility in countries like India and China. U. S, obviously, flexible labor market. So it varies. But overall, I have to say, we are quite happy with overall, let's say, impact we can have from these programs, which is, of course, only the labor part. Now you have fixed assets, depreciation and a lot of other fixed costs. On the leisure side, there is some flexibility. No, that's helpful. And then just on to Thomas, please, just to I guess, following up a little bit on an earlier question. But thinking about working capital, if I kind of look through previous downturns at Sandbrook, I can see that generally, albeit with a bit of a lag, there was a pretty good improvement in terms of working capital. Just any sort of help or kind of indications you can give us in terms of how we manage the working capital development over the next couple of quarters and sort of what changes or processes you're sort of putting in place there to help drive that? Well, I can only give you a generic answer really. But of course, I mean the of course, revenues were down 7% in the 1st quarter, So nothing much has really happened. But of course, I mean, going forward, if I mean, if we would run into more negative numbers, of course, working capital would go down and we'll have a nice cash flow impact from that as well. That's just how it works. It has that's how it has worked previously, and this is how it will work in the future. I mean, there are no specific measures or techniques or anything like that to manage that. I would say that the decentralization and the distributed ownership of all the various parts of working capital in the book is the most important tool for us really to manage it. That's very helpful. Thanks, Thomas. And the next question comes from the line of Peter Testa from 1 Investments. Please go ahead. Hi. Thank you for taking the questions. I was wondering if you could just help us a bit on the €1,500,000,000 of short term cost savings to the extent to which these are really reflecting what you described on taking advantage of flexible labor programs or also including other costs? And maybe if you have further opportunity in flexible labor plans outside this 1.5 percent? Yes. I mean, a big part of the 1.5 percent is the flexible labor programs. There are other things, consultants, discretionary spend, obviously, channel, project costs and things like that. Things that have temporary in a sense, but also immediate impact. I mean, when we have looked at this, the various BAs and divisions have made assumptions on how the volume will evolve throughout the year. Obviously, very, very difficult, but they have to do some assumptions in their modeling. And there are businesses that are sort of planning to going up a little bit again later in the year, assuming there is some kind of recovery. If that would not happen, then obviously, we can maintain those programs for longer. So in that sense, there is further potential, but not sort of in the short term, but more at the tail end of the year in that case. Okay. And the other question was just most industrial companies are talking about restraining CapEx and then some industries cutting production rates. When you think about what you need to do with Sandvik through Q2 to kind of prepare yourself for these sort of customer responses in later in the year, what sort of steps do you think you need to take? Where are you focusing to kind of prepare the organization for this kind of customer demand environment in H2? Well, I think that's what we have announced. I think we even though we announced the end of March before, we actually saw the drop in SMS. We, of course, were expecting this to come in a way. So we took the actions we felt based on the assumptions we have made, what were the right ones. And that caters for exactly what we say, production stoppages and CapEx reductions among our customers and so on. So I feel we have the initiatives need with the knowledge we have right now. Okay. So you don't feel the need to address on shift patterns or take account on working capital to sort of bring as a percentage of sales more in line where it was a year ago and so on? Well, I mean, shift path as a zone, that is what we are adjusting now. That seems to be sort of in the temporary labor activities. And so much showed also in the guidance, our own CapEx as you know, is no longer at €4,000,000,000 It's below €4,000,000,000 So that's actually reviewing that as well. On the net working capital, I think Thomas has answered that. Of course, also there, it's the basic uncertainty on the future is what makes this strategic advantage because we also don't want to be out of stock when the upstate comes. So that's the constant balance we are trying to manage. Conclude. The last question comes from the line of Madhvamra Singh from Bank of America. Please go ahead. Yes, hi. Thanks for taking my question. Just following up on the trends in Asia in Q2. In Q1, Asia was actually the source of the OI conflict. So obviously, the impact was more there. But in Q2, given that the rest of the world actually is setting in lockdown, what kind of impact are you seeing in Asia because of that? And secondly, on the SMRT side, if you could talk about the trends on the services. Are you facing difficulties in accessing customer like the mines and the devices for the services? And especially in many of the mining markets, the mines were closed, Were you able to use any of those shutdown times for doing the essential maintenance or were you able to do any maintenance at all during that period using that downtime at all? Thank you. If I start with the SMRT question, as I said earlier, we there were some disturbances, especially in March, related to travel logistics, access and so on. We don't think this had a material impact, but there were definitely disturbances at the end of the quarter in that regard. Whether our customers now going forward will do more maintenance if they do closures and so on, I cannot really answer that. But I guess there is a reason for why they call it care and maintenance when they go into this production stoppage. But I cannot really comment on how it would impact our service numbers. And then in terms of Asia in Q2, as I said, we don't really want to give any forecast for Q2 at this point. Okay. Thank you. Okay. Do you want to say some final words, Stefan, summary, conclusion or? No. I'll just end sort of the way I started. We feel this was a quarter that was largely aligned with our expectations, although the environment is challenging. Then of course, we are prepared now for a tough period ahead as was indicated by the developments in the very last week of March. But we have a solid financial position and we are taking the actions we think are necessary. Thank you. Okay. Thank you.