Earnings Call: Q3 2019

Oct 18, 2019

Greetings, everyone, and welcome to the presentation of Sandvik's Third Quarter Results. Today, we will have a presentation, and our CEO, Bjorn Lovrien and CFO, Thomas Leaasson, will run through the slides as per norm, after which we will open up for questions. And you have the opportunity to put questions both through the conference call as well as online. And with that said, we'll ask Bjorn to start the presentation, please. Thank you, Anssi. And also, I'd like to welcome you to this Q3 result presentation. But before I start, I thought I should show you our new surface drill rig, the Leopard. And this rig is all ready and it's going to be really a rock killer. And I'm sure it's also going to be epic. So let's look at the demand situation. If we look at Sandvik, we can see today that the demand for our different businesses varies a lot. If we start with our early cycle business, which is more or less related to the SMS part, we see that the lower demand, which we already saw in June in Q2, has continued. And we can see actually price volume down with about 8%, which is quite a big number for that business. On the other hand, we see strong mining demand, and we've seen growth both when it comes to the equipment as well as the aftermarket. So if you put all these together, I think we see a pretty flat development year over year. On the earnings side, I'd like to just mention that Q3 is seasonally very low quarter. And during this quarter, we had equal profitability compared to last year, of course, supported by some good currency exchange rates, reaching 18.3%. I think we see today that the efficiency initiatives that we decided already in Q2 were necessary. And we had, during the quarter, lifted our ambition somewhat, and the number of redundancies will be approximately SEK 2,500,000,000. The savings of this is SEK 1 point 7,000,000,000, and the cost for this program is SEK 1,600,000,000. And this whole cost part, we have taken within Q3. If we look at the cash flow situation, we see the 2nd best cash flow we had ever in the group, reaching SEK 5,800,000,000. And this is driven by good earnings, but of course, also a reduction in inventory and receivables. So let's dig in a little bit to the numbers. And this chart is, as you all know, a good indicator of how the actual demand is in the industry out there today. Here, we can see that Europe is down 10%, North 7% and Asia, 5%. Maybe these numbers are, of course, included for the total business. And the North American growth number of 7 is including large orders that we have received. So if we instead look at the SMS demand, which I think is more adequate for the real conditions out in the market, we can see that Europe is about 10 percent down. Germany is even more 13%. North America is, for the first time, negative. It's minus 4%. And Asia is around 13% down. So that gives a pretty good indication of how tough the market is. Nothing has changed when it comes to the segments, which are really driving the weakness in the market. It's the automotive and general engineering part. And that is, of course, have some relation between the 2. If we look quarter by quarter, we see that all three regions have softened compared to Q2. And it's pretty much in line with what we said what we saw in June last year, maybe a little bit better, but it is a tough market for that business. So if we're looking at the order, as I said, it's a pretty flat market, but it varies a lot between the different businesses. So we are approximately SEK 25,000,000,000 in orders as well as in revenues. Moving over to the profitability. And I said that the Q3 is seasonally lower, and you can see that on the history. We are pretty much in line with last year, and it's, of course, supported by a lot of currency, reaching 18.3%, which is pretty much in line with our expectations for the quarter. So digging into each of the businesses, starting up with Machining Solutions. And here, we see on the orders, it's minus 9%, and the invoicing, it's minus 7%. If you just look at the tooling part of the business, it's minus 8%. And I think that gives pretty much an indication where we are. Looking at the profit, we reached about 22%. In these numbers, we should know that it is being affected both by the powder business, which last year had a good profit, and this year is more or less 0. And that affects the EBIT level approximately 1 percentage point. And also, the reduction of the inventory has also affected the result by 2%. So if you put that back, it's pretty much in line with last year, of course, supported by good currencies on that side. So important is, of course, in this business going forward is all the activities that we are taking to adopt the costs after this demand. So moving to the mining part, where we see a good demand today. And I mentioned that quite a good amount. And this is driven by mineral prices that are on a good level, a high dollar and many of these mines are in countries which have currencies which are significantly weaker. So most of the mining companies today are making good profit. Their earnings continue to improve, and we are very close to 20%. And if we add the take out the Varel part of the business, then it's actually close to 21% EBIT margin. So we start feeling, as I said, very comfortable. This is very much driven by very, very strong aftermarket, both in volume as well as in performance. So that's good. Also very, very strong cash flow from this business. On Material Technology business, it is up 4%, but it is also supported with large order within the oil and gas industry. So it's about SEK 200,000,000 more than last year. I think it was about EUR 700,000,000 this year and last year, about EUR 500,000,000. So good demand on that side. On the more on the early cycle business, it's more challenging. We see that market is being softer. And that's also on some of the activities within S and T to extend the mitigation effects and the cost reduction to be able to support the margins. We are reaching a margin of 6.8% and the underlying of 5.2 percent. I think this is pretty much in line so that we will reach the 10% for the full year. So just to mention that this third quarter is more challenging than the other quarter because we closed many of the factories and also the smelter during the summer period. So but we feel comfortable that we are going to reach the 10% for the full year. So Thomas, please give me some details. I will do my very best, Bjorn, excuse me, as usual, and let's see if we have some EPIC numbers to go with the EPIC products. Let's start with the overview. And in the upper right hand corner, you can see the top line. As you heard, minus 1 organically, both for orders and revenues. Currency added 4 on both orders and revenues. So the total is 3 for both orders and revenues. Structure is not really 0, but rounded off, it is 0. If we move then down into the P and L and income statement, earnings were basically the same as same quarter last year, of course, with a big currency component in it, a positive currency component in it, and we'll come back to that in the bridge. Margin, 18.3% compared to 18.9%, that's 60 points decline. We'll come back to that as well. The finance net, the total finance net was minus SEK 198,000,000 compared to a lower number last year. We'll have a little bit of a deep dive in that as well. The important thing here is that the reinterest net, the paid interest is actually going down quite heavily compared to a year ago compared to sorry, according to plan. The tax rate was 25.8%. Reported was 26 point 1 percent, just like last year. The difference is different tax rates, which comes with the items affecting comparability, about 25.8 percent. And if anywhere there is a downward pressure on the tax rate, it continues to go down. And we'll stick to the guidance for this year, and then let's see what we do with next year when we come to next year. Working capital in the quarter came down, but it's still on too high level. Contributed positively to the cash flow, which we have on the next line, SEK 5,800,000,000, that's 25% up, 25%, 26% up compared to last year, very much driven by the working capital reduction in the quarter. And the earnings per share was basically flat compared to last year. If we just take a quick look on the 9 month period, the year to date period, just a few comments on that one. If you look at the finance net, you can see that we have a much higher number, 2019 compared to 2018. But the big difference is what we had to pay in Q2 for the redemption of the loans that we talked about 3 months ago. There is also some temporary revaluations in the finance net. You can see on the cash flow as well that we had a very strong cash flow in Q3 and for Q1 and Q2 as well. So for the 3 months sorry, 3 quarters for the 9 month period, we're way ahead of what we had last year. So let's move to the bridge now. Starting with the organic development. Price, volume, productivity, the minus 1,000,000 on the top line, that means that's SEK 206,000,000 down in revenues and minus SEK 5.18 on the EBIT line, and that basically comes from SMS. SMRT had a decent leverage, not fantastically high, but decent. S and P was a little bit short, but the big, of course, negative was in SMS, which is losing top line and, of course, fighting with under absorption, etcetera, etcetera. And this is, of course, the reason why SMS is the 1st in line to do these personnel and cost reductions that we have ongoing already now. Currency was minus close to minus SEK 1,000,000,000 on the top line, minus SEK 5 sorry, plus SEK 1,000,000,000 and plus SEK 5.84,000,000 on the EBIT line. That's a little bit higher than expectations, but the underlying positive currency effect was not too far away from the guidance. The difference up to plus €584,000,000 that's €200,000,000 That's really a bridge effect. We had a big minus in SMRT a year ago, minus €160,000,000 This quarter, it was more normal. So when you work out a bridge, you get like €200,000,000 in improvement together with a few other ones as well. And so that's why it's sticking out. And that's why we don't guide our evaluations as well because you never know where it's going to go. So anyway, the total was plus €5.84 for the quarter. So all in all, minus 2% on the margin dilution or sorry, 2% margin dilution for the quarter from organic growth, plus 1.7% in currency and minus 0.3% in structure and nettle effect. So from 18.9% to 18.3 Now a few words on the cost activities that we talked about in Q2 that we have now launched and charged to the P and L and the balance sheet in the Q3. We said a quarter ago that we should take SEK 1,200,000,000 in charges, and we would reach SEK 1,400,000,000 in savings, and it would be 2,000 people. We have increased our ambitions, as Bjorn mentioned here. So the charge is SEK 1571 and the savings is EUR 1,700,000 and it's 2,500 people. And the majority of these savings will be hitting the P and L mid-twenty 20 now. You can see also the split in charges and savings by business area in the middle of this slide here, SMS, SMRT and SMT and also group common as well. There's a little bit of difference in payback periods here. It depends on where it is, which country, how many Sandvik and how many non Sandvik personnel you have in these numbers as well. But overall, the payback is 0.9 years, and it should be that. And it's mainly people. You get always get a payback, which is less than a year in these activities. So 25% increased ambitions compared to what we said 3 ago. Let's take a quick look on the net financials. The most important number here is the top line here, the top line. Is the paid interest net. And you can see now that it's going down below SEK 100,000,000 per quarter compared to minus SEK 150,000,000 per quarter a year ago. We'll be annualized below SEK 400,000,000 in paid interest. It was SEK 600,000,000 a year ago. Couple of years back, it was €1,400,000,000 So it's coming down quite nicely. On the bottom line, you see the FX and revaluation effects on commodity hedges, on electricity hedges, on currency hedges as well. And this is impossible to predict, but we came in with a minus here, really. But as I've said, the important thing here is the paid interest net, which is coming down in a very, very nice way. Because of these temporary revaluation of derivatives, we have changed the guidance for the full year on the finance net from SEK 1,000,000,000 to SEK 1,200,000,000. But the interest net sticks and stays where we have said it would be. Let's move to the balance sheet. You can see on the left hand side that working capital is coming down. It has a positive impact on the cash flow, but it's still on a too high level. You can see that on the right hand side. The relative numbers are coming up, but we have actions ongoing, and we will eventually fix this. Talking about cash flow. Here on the left hand side, here you see the cash flow chart. Q3 was very, very good, 2nd best ever, SEK 5,800,000,000. And you can also see that the rolling 12 month number of cash flow is now coming back to where it should be, meaning close to the rolling 12 month EBIT line. On the right hand side, you see the components. And you can see very clearly that the big driver this quarter was working capital reduction of SEK 1,300,000,000. Net debt continues to go down. Look at the light gray part of these bars. That is the financial net debt. It's down to SEK 5,000,000,000 now. This will continue to go down during the remainder of the year. And within short, there will be nothing left. We will move over to a financial net cash position unless we do something. The bluish one is the pension debt, and the dark gray part of this chart is the capitalized leases. Pension debt is going up because the discount rates are now coming down heavily all over the world, which they always do when the business cycle is going down. But this is just accounting, so not connected in any way to the loan portfolio. The important one is the financial net debt. So let's finish off with outcome and guidance. The underlying currency effect was SEK 3 76,000,000 plus. We guided EUR 300,000,000, so a little bit better. But as I mentioned, the total currency effect here was EUR 584 because of bridge effects in temporary revaluations and also hedge effects and a little bit of mismatches in hedges and invoicing a year ago, especially in SMRT. Metal prices came in at plus 54%. We guided 20%. If we look at Q in that's in quarter, the bridge effect is €11,000,000 in the quarter. If we look at Q4, we guide the underlying currency effect to be SEK 400,000,000. Revaluations, we can't say anything about, but underlying SEK 400,000,000. Metal prices, of course, driven by the nickel price development, plus SEK 300,000,000 Cash CapEx, we estimate to be 4% or below for the full year. Net financials, we revised to SEK 1,200,000 now, not driven by the interest net, but driven by temporary revaluations. And the underlying tax rate will keep SEK 25,000,000 to SEK 27,000,000. Let's see where we go next year. And with that, I'll hand over to you, Janbjorn. Thank you, Thomas. So let's sum up a little bit the quarter. I think on the demand side, it varies very much between our different businesses. The early cycle, more challenging, while the more late cycling is still doing quite good at the moment. I think we will realize today that the measure the efficiency measures we took already after Q2 was necessary, and the ambitions levels has increased somewhat during this quarter. And these effects will come in during the end of the year and then beginning of next year. So we feel very comfortable with that. We are, of course, very glad that the cash flow is coming in as we do expect it. And you know that our ambition is to exceed and last year. And we will have a very strong focus on cash flow and making sure that we are reducing the inventories in the right way during the last quarter. On the other hand, we are doing the separation project with SMT, the internal separation. I think it's going well into as planned. It is a big project. That's pretty clear. It is 160 years marriage that needs to be divided there. So it's a lot of work, but I think it's carried out in a good way. Yes, I think the decentralized Sandvik that we see now is well prepared for the tougher times that we are seeing in many of our business. And I must say, I'm very proud to see that the divisions are really handling these changes in a very professional way. And I think that is going to secure good margins for Sandvik also in the future. So thank you very much for that. And I think we should go over to question and answers. Yes. Let's do that. I think we'll start with the conference call, please. Operator, if you could put through the first question, please. Thank you. Our first question comes from the line of Lars Brorson of Barclays. Please go ahead. Hi, thanks. Good morning, Bjorn, Thomas Anssi. A couple of questions, if I can, on SMS, starting with that, Bjorn. Can you talk a little bit about the trends through the Q3? My understanding is that as we got into the back end of the quarter and into Q4, I. E, the 1st couple of weeks in October, things have deteriorated slightly, particularly in Europe and within that, particularly in Germany. But can you give us some sense of how you exited Q3 and entered Q4 as far as SMS is concerned, particularly in Europe? Absolutely. When we were here 3 months ago last quarter, we said we were a little bit shocked over the weak demand that we saw in June. We also said that July started a little bit better. And I think the whole quarter was a little bit better than we saw in June. I would say that it's very much flat during the quarter. It's absolutely not deteriorating in September. I think September was pretty good when it comes to performance wise, it was a very strong month for both for SMS, but also for Sandvik totally. And start seeing into October, we have not seen any deterioration, but also not much improvement. So it's pretty much with the same kind of daily rates as we saw during Q3. So no big changes there. Just to be clear, that is true for Europe? That is actually true worldwide. Understood. If I can just a slightly higher level question. You said a new 16% trough EBIT margin target just 5 months ago at your CMB implying SMS at around 20%, 21%. It looks like we're heading there pretty quickly. Wonder whether you have any updated thoughts on what you think trough margins in SMS is? No. I mean, we haven't commented any trough margins for any of the business areas. I think we feel very comfortable about the trough margins for the group. I think the businesses are taking the actions they need to do to adopt. And it's a saving program of SEK 1,700,000,000 that will start coming in during the Q4 and beginning of next year, I think they're really taking their actions. You should know, of course, that minus 8% down. And I can tell you also in some parts, the production rates has been much lower than that to be able to get the inventory down. It's quite severe. And this is normal, I think, when you're going into tougher parts. I mean, for a full year, you very seldom see such a numbers. So that can be a quarter which can be a little bit more challenging, but we feel very comfortable with a good margin within the mining business as well as within the SMS business. And yes, it is supported by currency, but I think they are saving money and they are doing a good job to protect the margin going forward. So we feel comfortable about that. I mean, you can look at the history when it's SMS. Okay, 2,009 was very special because it was everybody was going straight up in the air at that time and you slap the legs. But all the other downturns, they never went down to 20%. So I think sometimes people underestimate SMS. Can I squeeze a quick one on FX guidance? Sorry. No, I was just going to say, you have to appreciate that the turnaround in the SMS business is like 24 hours. So when the business cycle goes down, it hits the P and L pretty drastically within a week, more or less. And you have to give it some time for I mean, for the cost activities to filter through. But we are in the middle of that now. So you might have actually a tough quarter like we had in Q2, but we're coming around. We're not worried. I understand, Thomas. A quick one, if I can. Just on the FX guidance, which is said end of September, we've seen quite a material strengthening of the second for a change since September. Any updated thoughts on current FX spot rates in terms of the guidance for the quarter? No, not really. Of course, it's improving now, therefore due to recent happenings in the U. K. And in Brussels. But no, we haven't taken that into consideration. So minus SEK 400,000,000 is or sorry, plus SEK 400,000,000 is based on what we had at the end of the quarter. Thanks, guys. Thank you. And operator, we'll have the next question straight away, please. Our next question comes from the line of Guillermo Peigneux of UBS. Please go ahead. Good afternoon, everyone. Guillermo Peigne from UBS. I have two questions actually. One relates to I guess, it looks a little bit to last questions as well, but I guess it's more related to the magnitude of the or the effort that you need to put in place when it comes to inventories in SMS. I think in your press release, you say 1.9% margin impact in SMS, which is the normal seasonal impact. What kind of guidance would you suggest? Or what kind of level of margin impact we should see in Q4, if I may ask? And I have a second one, then I'll ask later. Thank you. I mean, first, we don't give that kind of guidance. I told the businesses, of course, that the focus should be on cash flow because we need to reach the good levels. But of course, the profit is very important also going forward, and that's what why they're taking the actions when it comes to cost reductions. And they are prepared for that, and we feel comfortable about the actions that we have taken. But we don't go and give any guidance to what reduction in inventory. You maybe remember that last year, yes, I said we were very disappointed about the cash flow in the Q3 because we had some inventory buildup during Q3 last year. And they took the really their responsibility and they lowered the inventory good in the last quarter. And we got the cash flow that we we are, of course, in a much better situation when it comes to cash flow during this year. But still, it's a little bit of work to do during the part. I think also it's important to get inventory levels to the for the group under 25%, which is our target. Thank you. And then on the on Mining Equipment, I guess I wanted to ask about your comments about demand, which are positive on load and hole and Crasen and Screening, but I'm missing drilling there. And I've seen also that Epiroc is announcing some good orders on Boumer E2s and Moltech E battery equipment, suggesting that probably on the drilling bid or on the Ardengrao bid, they are actually now a little bit benefiting from their product launches. Is this something that is realistic to assume? Or is this just basically that at the moment, your business favors your load and hole and crushing and screening operations? I mean, look at our equipment sale all over. It's extremely strong over. That is drilling equipment. We have, of course, set that target what kind of level of orders that we should communicate outside, And those levels are pretty high. I think maybe Ebroek is taking that a little bit down. And we could, of course, inform every rig that we sell, but we sell a huge amount of bolters, long haul drill rigs and phase drill rigs. And we have some really good exciting product launches during this quarter. One is our high speed tunneling rig, which is going into the market with full speed at the moment, which is outperforming anything there is in the market today. The other rig I showed you here, the Leopard, which is down the hole mining rig in the crawler business, which we think is going to be really a rock killer, and that's already started to sell well. I think we have an extremely strong product portfolio when it comes to drilling within Sandvik. So I don't think you have to worry about that. Okay. Let's rock then. Thank you. That's a good idea. Thank you. And we have one question coming through online here, and it's for you, Bjorn, saying that this is your last quarter with Sandvik. And what would be our well, the Q4, the current quarter, will be your last quarter end? What would be your key priorities for this period? I mean, I think Sandvik is in a very good condition today. I think that we have good management in place, both in the divisions and in the business areas. I think all the operational drive is out in the divisions, and they're doing the actions that need to be done. So for me, it's, of course, the covenancing is development, making sure that the actions that we have decided will be carried through in a normal way and making sure that we live up to the demand that there are in the market and in the end, deliver the numbers that we think we should be doing. So I think my job is getting easier now when the structure is in place, and it's really a self playing piano, to be honest. It's a very strong group. Thank you. And then we'll go back to the conference call. Could you put through the next question, please, operator? Our next question comes from the line of Klas Bergelind of Citi. Please go ahead. Yes, it's Hanni, Bjorn and Thomas. It's Klas from Citi. So a couple for me, please. The first one, we look through the arrows on the year over year sequential development. It's really Asia that stands out as changing versus last quarter. It's now down sequentially versus flat before. And I guess that's general engineering now adding to the already weak automotive segment? Or is automotive also getting worse? And linked to that, if demand here in the beginning of October has trended in line with September for total SMS, does that also hold true for Asia or is demand continuing to slide in Asia in October? Thank you. No, not really. I think Asia has been weak for quite some time. I mean, before we see in Europe and Asia, we can we assume getting into these weak numbers. We haven't seen much deterioration there. I think what's differs in this quarter from early is that North America is also showing negative numbers. I think that's the big difference from earlier quarters. All right. Okay. Yes, looking at tariffs, it looks like Asia was an incremental weak spot. That's okay. And the second one is on mining. It looks like relatively stable backdrop if you measure it over this quarter and second, looking at equipment rather flattish development. Is that also what you're seeing in the pipeline when you're discussing with your customers, Bjorn? We're hearing of larger projects being pushed to the right. And if you could comment on the development on the gold side, here we're hearing more momentum soon going forward. I was wondering if this is also what you see. Yes. I think it's important when you talk about capital investment from mines. I've been saying that over and over that our equipment is actually ware equipment. They have a lifetime of 5 to 7 years. You need to have this equipment to be able to operate your mines just to keep your productivity up and I mean to get the tonnage out of the mine. This is not so much related to greenfield or brownfield investments. So from our perspective, I think the demand that we are seeing now, that is the general demand that is needed in the mines. That can vary a little bit between the quarters. You can have a quarter which is a little bit better and then slipping over an order to another quarter. But this is on a quite a good high level. When we're talking more about big projects, our big project organization, we sold off a number of years. We sold it to FLSmidth. And I think this is a business that Sandvik don't want to be in. We want to be in this fast moving equipment and in a very strong aftermarket. Today, we have around 63% in the aftermarket, and it's going well and performing extremely well at the moment. Sure. No, I appreciate that. I was more sort of referring to the greenfield bigger project. But obviously There's been many no, there hasn't been many greenfield operation during this upturn during the last week. We have a number of brownfields, which is more related to a mine taking the next level or extending some of the businesses, which requires some more equipment. But the most of it is actually the output which you are getting through existing mines. Yes. No major change. That's good. Just quickly in the final one. On production levels, and this is for you, Thomas. It was a good cash flow quarter, big destocking quarter. How are you planning to run production into the Q4? I'm thinking as we approach the Christmas period, are you more happy now with the inventory levels there in SMS at the current demand? You overproduced pretty late in the cycle. Just want to understand if you think inventories look more balanced or if you need to cut more into year end. We are not happy with inventory levels, and we will continue to drive inventories down during the Q4 to support cash flow and inventory reduction down to the levels where we want to be. So that is a priority for us during the Q4. Absolutely. We have got more to do. And as you know, our target is net working capital of 25%, and it should be lower in SMS. So I think we definitely have work to do there. Thank you. Okay. Thank you, Klas. Can we have the next question please operator? Our next question comes from the line of Jack O'Brien of Goldman Sachs. Please go ahead. Thanks. Good afternoon. So first question just on SMS. You talked about the minus 8% organic order demand in tooling. Just interested to hear any comments on pricing, how severe that was for the quarter? And then secondly, just on SMS, how we should think about the impact from the tungsten business in the Q4? Because obviously, that's been a bit of a drag on your margins. Thank you. Let's if we start up with the what was it? Prices. The prices, yes. I mean, the price for SMS was 1% up. But important here is that if you're looking at the tooling business, that means our 4 tooling divisions, it's actually 2%. So the pricing continues to be good. The negative effect was on the APT prices for the Wolfram. And that actually pulled down for the S and P totally 1 percentage point. And the APT prices are traded on the big trading, what do you call it, bushel? Yes. Markets, yes. So that's nothing we can do anything about. But the important thing is that SMS is keeping up the prices around 2%. Okay, great. And just on the tungsten impact in 4Q? Yes. I mean, at the moment, the tungsten sales is quite low. And I mentioned that it had a drag on the margin during the Q3, actually as much as a full percentage. How that effect will be Q4, I don't really know, but I'm sure it will have some effect. Just one final, if I may. You talked lots at your CMD about automation in mining, and obviously, this is a huge theme in kind of the ESG. As ESG comes further into focus, Can you give us any examples of traction you're making on the automation side? I think you talked about roughly 40 to 45 minutees where customers were using automated equipment. Can you give an update to that, please? I mean the interest is, of course, huge, and we are still selling many new installations. I do not have the exact number at the moment, but it is growing. Every project takes, of course, a little bit of time because you have to get the whole mine automated and get everything in. But the interest has not gone down. I think the demand for automation continues to increase. Great. Thank you. Thank you. And we'll have the next question please, operator. Our next question comes from the line of Andrew Wilson of JPMorgan. Please go ahead. Hi, good afternoon everyone. I just wanted to ask a little bit around the cost savings and see if you might give us a little bit of help in terms of thinking of the shape of them coming into the numbers. I mean, is it fair to assume that we should see basically an increase in contribution Q4, Q1 and then as we get into the full run rate for next year? And if that's right, maybe you could help us a little bit on the phasing? It is correct. It will gradually work itself in. So you will see some effects during Q4, and it's going to be increased, the biggest part in Q1 and then the final in Q2. I don't have the exact numbers on that, but I mean it varies a little bit how quick the cost can be taken out. It's legal rules and regulations and different situation, different countries. But I think the divisions and the business are working hard to make sure that we are following the plan well, and it is going according to plan, nothing else. But we said in the report that end Q2, the majority of these savings should be implemented. But it will be, of course, much earlier, the first parts will be seen. And in the report and in the presentation, you have it by business area. And as Bjorn says, up and running, the majority of it mid next year. And we will not give any further guidance on that. But I mean, I'm sure you can model it by yourself. I'll certainly try. In terms of just a follow-up to that, just thinking more, I guess, bigger picture about how these plans have come into place. Because as I understand, each of the businesses are kind of given a remit to come forward with their own cost savings and their plans of how to react to demand. I mean, are the businesses still I mean, a, has that taken hold and are the businesses coming up with their own plans individually? And secondly, if potentially we do see a further decline in volumes and maybe if we focus on SMS because it's easier, Are there further levers for the guys the business level to pull in? And are they presenting you with what we would do next if we do see a further deterioration? Sure. I mean they are driving this. So each division look, I mean we have some divisions that are screaming full speed ahead, good orders, good profitability. Of course, they are taking the actions they need to and invest where they need to. We have other divisions that are more challenging environment, and they are taking the decision. We have our contingency plan. They know what kind of margin they need to deliver. And based on that, that's where they're taking these actions. We are based this on what we can see today and what they can see going forward. That's their estimation of the market, and that's where they've been acting. If things would deteriorate more, I can assure you there will be more activities. We have said that we'll protect the margins, and they are committed to that, and we will do that. But at the moment, we don't see any more that we need to initiate at this stage. Understood. And maybe if we can just squeeze in a quick one on the mining side. Just if we think about the aftermarket, I think from the release you talked about growing kind of mid single digits still and it feels that sort of every quarter we just get sustained good news on the aftermarket side. I mean, I guess, is there any reason for us to think that, that would change? I mean, clearly, a lot of it is based on production in the market, but a lot of it also feels like it's still the benefits of some of the changes you made when you came into the group. I mean, if we sort of run forward, is that kind of mid single digit growth, is that still a central place for us to be modeling? I think we've had enormously growth. And you see in the last year, there's actually double digit growth on that business. I think some of this is, of course, on the demand increased demand in the market, but also some of that is from good initiatives taken by our aftermarket business. I think overall, in a very tough market, of course, that probably would be somewhere around 0 in growth. And in good, it should be growing more in the levels that we are seeing now. But it's a little bit difficult. The only thing we know that the aftermarket is very resilient. As soon as you stop buying equipment, the demand for aftermarket service and products is increasing, and that is important. But then there is also a lot of new products within the astronaut, which is being launched. And you know this predictive maintenance, a lot of software products that helps the customer for being more efficient is being put into the market. So there are good growth opportunities on the long run, maybe not on the short term, on the long run. So I think strong focus on the aftermarket and continue to grow that business. That's our objective. And so far, I think they've shown that this is possible. And I'm quite impressed of the development of that market the last 3 years. This is a development I haven't seen anywhere before in my career. Thanks very much, guys. Thank you, Andrew. And we have one question coming through online saying that he had hoped to see an announcement of the closure of the Varel deal through the quarter. Can you give an update, please? Yes. I mean it's been a little bit more challenging closing this deal than we anticipated when we started. But I think we are pretty close. And I think I mean, yes, I can't say anything before we signed any paper, but I believe that within a couple of weeks, I think we should see something going on. But we'll see that. I mean, that will as you all know, the goodwill for the Valerend part as we bought that business is very expensive a number of years ago. There will be a big write off in relation to into the day when we signed that business. So of course, from my sake, it would be great to make that cleanup before I leave. But it will be, of course, a big hit on the profitability there, of course, not on the cash flow, but when we clean that up. It will also, of course, have a very positive effect on the EBIT level for SMRT, which is about 1%. So we'll see where we are, but I feel pretty optimistic that we'll see a signing within short. Thank you. And I believe we have one more question on the conference call. Would you put that through, please, operator? Thank you. Our last question comes from the line of Andreas Koski of Nordea. Please go ahead. Thank you. I have two questions. The first one is on Sandvik Mining and Rock Technology. And it's related to automated machine comparing to non automated machines. Could you just give us a sense or an indication how much more expensive an automated machine is compared to a non automated machine? Just for us to try and to understand what the price mix impact could be if all the miners starts to buy automated machines? Okay. I mean number 1 is when we talk about automation, we actually divide it in 2 things. One part is the actual automation setup, and that is being invoiced by the Automation division. They're doing that. To be able to put the automation on the equipment, you need to have what we call intelligent equipment, very popular name these days. That's what we call an eye machine. And those are computer driven. To be honest, I don't know exactly how much more expensive they are, but I would say most of the equipment that are being sold today are what we call automation ready today. So you buy more intelligent machines. I'm difficult to give an exact number. So maybe you can come back and see later on if we have some data on that. Okay. I understand. And the second question is a little bit more expensive, yes. Yes. Okay. So there could still be some upside from the mix shift or Yes, I think so. Yes. I must ask you about your cost savings program as well because you communicated already in Q2 that 450 people had left SMS. So I can't see what the change is to your cost savings program today compared to 3 months ago, more than you now include those 450 people in your numbers. And can you explain How much you can answer? I can explain that. Yes, I can explain that. The activities, mean, it's not really a program as such. It's activities by division. But if we aggregate it, it was 2,000 people as an estimate at the end of Q2. Now it's 2,500 because the ambitions are increased, especially within SMS, but also in SMRT and SMT to some extent. On top of that comes the 450,000,000 is what we're really talking about in the last 3,000. Okay. Then that explains it. Because according to the slide, it says that 450 people already left the company as of end of Q2. So I thought they were included in the 2,500, but they are not okay. No, that's going to be May, fair. Sorry if that was a bit unclear, but that was not the intention. The intention was to say €450,000,000 plus 2,500,000. Okay, great. Thank you very much. Yes. Thank you. And I believe that was the last question. Is that right, operator? We do have one more question in the queue. Let's go then. Okay. And our question comes from the line of Gael De Bray of Deutsche Bank. Please go ahead. Yes, thanks very much and good afternoon everybody. Sorry, I was a bit late joining the call, so I hope I won't repeat things. But can I ask a few things about SMT? Firstly, did you quantify the total separation cost that you plan to incur as part of the carve out process? And in Q3, I mean, why have you not been a bit more proactive perhaps on the reduction of inventories in SMT given the market for the standardized applications look increasingly difficult? Sure. We can start with the first one on SMT. I think we, in the report, said that around SEK 40,000,000, SEK 50,000,000 we've taken so far. The cost for this will be several $100,000,000 But we will be more specific in Q4 what the action number is. But it's a quite an expensive program. So that but we I can't be more specific than that. When we know exactly all the parts, we will give that number more official. On the other side, on the inventory, it is correct that we are not happy with the inventory actually from any of the 3 businesses, and we think there's a lot more to be done. On the other hand, S and T has shown a tremendous much higher cash flow this year than previous year. So in one way, it looks good, but there is more to be done when it comes to the reduction. And I can assure you that Jorran has a strong focus also during the Q4 to continue to get the working capital down to the right level. Some of this is very much related to the oil and gas industry. And some of these orders of these long pipes for umbilical and so are being delivered in big packages. So you have to complete it before you can ship it over. So there are some of these things affected. But I agree with you, it's not good enough. Okay. Thanks very much. Thank you. And with that, we close the Q and A session. If you have any additional questions as the day progresses, please don't hesitate to contact Amlave Loa Graca or myself, the answer for the audience. But on that note, we say thank you for today, and we'll see you in about a quarter's time. Thank you very much. Thank you. You have a nice weekend. Thank you.