Okay, ladies and gentlemen, very welcome. It's time to present the third quarter results from Sandvik. We will have the next hour split into a presentation session and a Q&A session. And as usual, our CEO, Olof Faxander, will do the presentation, and he'll be accompanied by Ola Salmén, our CFO, for the Q&A session. Olof, the stage is yours.
Thank you, Jan, and also all of you who are. If we start with the highlights, we can see that we have continued strong order growth, mainly for the construction segment, in China, and other is our JV, that we call Shandong, which is aimed at the Chinese coal markets here. And again, we see continued strong order intake in the quarter. Of course, in the company, with the environment we're living in, and the great uncertainty we have in the economies around ourselves, we do have a significant readiness for changes, for potential changes in the market sentiment going forward here. Looking at the invoicing developments in the various regions, you can see that the highest increases are really in the southern hemisphere, and this is, of course, driven a lot by the...
or mainly by the mining, sector, and the strength that we see in, in that market. Europe and North America continue their recovery, and we have sort of more long-term stable growth rate, in Asia at 10%. Looking at our various customer segments, and looking at the invoicing, compared to the third quarter last year, we have very, very strong, improvements in more or less all, sectors. Consumer-related being, maybe the only sector where we have somewhat, weaker growth rate compared to the third quarter last year. And if we look at the reported EBIT here, leaving it at the lower number, but, not considering those, we did have a, a significant improvement in the EBIT in the company here.
Looking then now specifically at the different business areas in the Sandvik group, Sandvik Tooling saw a continued improved demand as a business area. We have strong demand from areas like the automotive sector, aerospace, and also the energy sector is very strong. On the other hand, we do see some signs of flattening out demand in China. And China, as you may be aware of, has taken quite significant measures to cool off their economy, and I think what we're seeing here of this flattening out demand in China are effects of this. But we don't see a downturn in China, and it's still on a very, very high level, we should remember. The EBIT was close to SEK 1.5 billion for the tooling business area, and we had a margin of 22.2%.
This was driven by increased volumes, which, of course, also led to increased productivity in the company or in the business area. We had some positive price effects and a negative currency effect in tooling of SEK 130 million. Sandvik Tooling displayed a strong cash flow, and return on capital was high at 27.5%, and net working capital at 26% of invoicing for Sandvik Tooling. Looking at mining and construction, we see very strong activity, I would say, continued in the mining sector here, with very strong demand. On the other hand, in the construction area, where we have a more challenging market situation, we saw a different business climate, which was much weaker than in the mining sector.
Order intake, if you exclude major product orders, was up 35% for the business area, so we continue to see this strong growth rate that we, we have seen for some time in the mining sector here, especially. The EBIT exceeded SEK 1.5 billion, which led to a margin of 14.3% for the Sandvik Mining and Construction business area. This is driven by increased volumes, and in some areas, we have very high utilization in our, our production. Return on capital exceeded 30%, at 31.5%, for Sandvik Mining and Construction. Net working capital also for this business area was at 26% of invoicing, and this was driven in a negative direction by longer lead times in the production, which has led to larger inventories in the company here.
And then these two Chinese this acquisition and this joint venture that I mentioned earlier, they're both part of the mining and construction business area, and they were closed in October here, so. Then looking at Sandvik Materials Technology, here we have a somewhat weaker market development. We have some areas that are strong, like for example, the oil and gas sector, and also the aerospace sector, but we have more weakness in consumer-related segments, and also in standard or low value-added products in the materials technology portfolio here. We have had a lot of questions regarding our orders for steam generator tubes to the nuclear industry after the Fukushima accident.
And we're now at the point where we have confirmation that there will be delays in these orders from China, due to delays in their investments in their nuclear power plants. So this will have an effect for us 2012, 2013, as we can see it today here. The reported EBIT for Materials Technology was very low because this is a business area we had the large, the largest one-off effects here. But if you look at the underlying EBIT, it was still positive within Sandvik Materials Technology, and the margin was at 5.6%. Net working capital was quite high at 37% of invoicing, but this is mainly driven by a low level of invoicing in the quarter.
The seasonal effects, you can say, are the biggest in the Sandvik Materials Technology business area here. So the low invoicing per se drives up the percentage point here. So when we come into the fourth quarter, we will continue to focus on the working capital, but also the more normal level of invoicing will reduce this number for the business area. We have announced, as part of the SEK 500 million that we're aiming to save in terms of cost savings in this business area, that we will reduce the manning within Sandvik Materials Technology with about 500 people. Today we formally announced these redundancies in Sweden for the Swedish employees affected by this.
Those who aren't part of the Swedish reduction will be in various countries around the world. The main focus here is really on the white collar side, creating a simpler organization, taking structural costs. So it's mainly on the administrative type of costs that we are making the reduction here. It's only a very limited number of blue collar workers who are part of this reduction here. So this is more a consequence of creating a leaner organization, more cost-effective organization in the company. Looking at the one-off items, we have put up a table here with firstly the actual one-off items we had in the third quarter here, and also an estimated items that we will have in total for this program here.
And also a split there in what will affect our cash flow. And the main cash flow effects are, of course, driven from the redundancy programs that we will have in the company and the cost of those personnel reductions. Looking then at the quarterly financials, we had a turnover of SEK 23.5 billion, which was 22% above what we had the same quarter previous year. And order intake was very strong at SEK 24.8 billion. I talked already about the differences with the reported EBIT being significantly lower due to these one-off items, and it's around SEK 1.7 billion, and then the adjusted EBIT being close to SEK 3.4 billion.
Our cash flow for the quarter was SEK 2.6 billion, a little over that, and after investment activities, the cash flow was a little over SEK 1.4 billion. So to sum up the third quarter here then, we see continued strong order growth and invoicing within the Sandvik Group. So we do have a significant readiness for changes in that environment, but we are not yet at the point where we feel there is any need to do any volume-based reductions in terms of our production capability here due to weaker market conditions. The adjusted EBIT was around SEK 3.4 billion in the company, but was affected by some significant one-off items that we had in the quarter due to our new strategic direction within the Sandvik Group.
We closed our 2 acquisitions or our joint venture and acquisition in China here during October. And this, I think, is a good continued step for us in terms of our growth into emerging markets. And these are, of course, markets where we can expect continued strong growth and probably better growth rates than we will see, for example, in Western Europe over coming years. And we are continuing to work down the direction of our new strategy, and we will have a new organization, as you're aware of, with 5 business areas in the company as of the first of January 2012. So thank you very much. And with this, should we open up for questions?
Yes, time for the Q&A session. I think, as usual, we will have two microphones here on the floor in Stockholm. While we prepare these microphones, maybe we should open up for one question, at least from the international audience. Please, operator, can we have some assistance?
If you have a question for the speakers, please press zero one on your telephone keypad. We have the first question from Mr. Fredrik Stahl from UBS. Please go ahead, sir.
Yeah, good afternoon, gentlemen. It's Fredrik Stahl here at UBS. I'll stick to one question then and come back later. In terms of tooling, you commented to the press, I think, that you haven't seen any change in the demand trend or the demand is unchanged quarter- on- quarter. How should we think of that seasonality? Typically, you have a few hundred million SEK quarter-on-quarter from Q3 to Q4. Is that still valid, or are you saying that, you know, the absolute level of sales or revenue so far in Q4 is flat on Q3? That's on tooling.
Well, I mean, normally, we do, so I would say a bigger seasonal weakness than what we saw in the third quarter. So we have a very strong development, for tooling in the third quarter. So-
But my question was if we should expect the normal seasonality?
Yeah. I mean, so far, we continue to have a good order intake, so we're continuing according to normal patterns here. Of course, dramatic things are happening continuously in the world, so we don't know how that will affect our business during the remaining months of the fourth quarter. But, everything else equal, I think it's reasonable to expect the normal seasonal development as we have.
Okay, very good. Thank you very, very much.
Thank you. Let's switch to the floor in Stockholm. First question?
Yes. Hello, Peder Frölén, Handelsbanken Capital Markets. A couple of questions on SMC, please. First of all, on the total inventory situation, I guess some of that inventory build is due to component lack in the SMC, and that was also a situation we saw in the second quarter. Do you think you will be able to take down the inventory significantly in relation to sales by the end of the year? Maybe a question on the total growth for all of them. And more on the mining side, could you help us with the split in profitability terms between the construction and the mining side, as we are soon entering the new structure?
Finally, mix in mining margin year-on-year, due to a significantly higher portion of revenues from, from projects. How much that affected the EBIT margin in the one year-on-year bridge? That's it.
Well, SMC inventories, the inventory increases we had in the quarter were more or less all related to SMC, and it's due to the high pressure and, I mean, with the very strong demand and high load on our facilities, and, of course, if we don't have components, then the rest of the machine stays in inventory, and we cannot invoice it. So, we had those kind of effects. We will continue to focus on improving our supply chain and trying to reduce inventory. And, normally, SMC is one of the business areas below our 25% target, so nothing out of the group reaches out. So we continue to have those kind of ambition levels for SMC. The split between the businesses will come.
I mean, we presented a preliminary pro forma in, when we presented the strategy, but the full pro formas will come with the full year,
With the full year report, quarterly report in beginning of February.
And the project business, I mean, it was significantly higher than the previous, or the comparable quarter there, in terms of share, and was at 15% of the business. But, and that did impact the margins negatively in the sense that we have considerably lower margins in that business than the other businesses. But, I don't have an exact number to give you there. Maybe a couple of %, something like that. So-
Yeah. Okay. Thank you.
Thank you. Another question from the floor in Stockholm. Now, we switch to international audience, please.
Next question comes from Mr. James Moore from Redburn. Please go ahead, sir.
Good afternoon, everybody. It's James, Redburn. A couple of questions on page 12, if I could, with respect to the restructuring announcements today. Could you help us with the SEK 1,100 million-SEK 1,400 million cash cost of restructuring? You guided to SEK 300-400 million of cash costs in the old SMT announcement, and I'm presuming that must have lifted SEK 100 million or so with the increase in headcount plan. I see you've gone from SEK 400 million to SEK 500 million there. But could you help us by splitting out the SEK 1,100 million-SEK 1,400 million cash cost between the three divisions? I'm sort of guessing SEK 200-300 million in tooling, SEK 400-500 million in SMC, SEK 500-600 million in SMT. Is that roughly the right split? And secondly on that, could you help us with the write-offs?
I see from playing around with the numbers, that you have increased the amount of write-offs in SMT. Could you give us a sense of what the assets you planned to write down were in the previous announcement, and what assets you've now decided also to write down?
Okay, if I start with the split of the cash flow effect between the business areas, it is roughly where you said they are. We are not publishing really all the splits, but they are roughly where you stated they were. And in terms of additional write-downs, there are additional assets within mainly within SMT, a few also within the tooling business areas that we will write down, that we're planning to write down, in the coming quarter.
I will also say that we are aiming to do as much as we can of those restructuring write-downs in the fourth quarter, but it might be so that some of them comes into the first and second quarter of next year.
That's very helpful. Could I just go back to the cash costs? If you were having a SEK 500 saving in SMT on the old SEK 350 or SEK 300-400 of cash cost, should we pro forma the-
Roughly the same rate, I should say. It's about the same rate in all three business areas. A little bit more in mining and construction than the other two, but roughly the same.
Staff there.
Roughly the same.
Okay, thank you.
Thank you. Let's continue with the international audience, please.
Next question comes from Mr. Nico Dil from J.P. Morgan. Please go ahead, sir.
Three questions, please, gentlemen. First of all, could you perhaps give us a bit more color around the dynamics into October? I was sort of wondering how Europe and U.S. is progressing for tooling in particular. Secondly, materials technology, how should I look at the orders here? I noticed sort of that they're back at the Q1, 2009 levels. Just sort of wondering what has structurally come out with all the businesses that you either intend to sell or have written off. Number three is the productivity impact due to the reorganization. Could you give us a little bit of flavor on when you expect this to reach a maximum stress level? So when do you think the organization will reach the maximum stress over the reorganization that you're putting forward?
Maximum stress? Okay. Good question. The Q4 in tooling, I mean, we don't have it for the group as a whole, any October numbers or so, but, I mean, what we do have is related to sort of weekly insert sales. And we don't really see anything in that, that would that is not corresponding to the picture we have given in the report. So, I mean, we continue to see the same development for the first couple of weeks into October as we have during the third quarter, and the same pattern there, with a leveling off in China, but continued recovery in other areas. Then I think your question was, do we have we structurally taken out any parts of SMT, which resulted in the lower order intake?
Well, in the comparable quarter last year, we had some, large nuclear orders, that were in there, so which were enhancing, order intake. But SMC, as a business, has not shrunk, in any way, and not due to the write-offs here, currently. But the new SMC will be smaller. SMT will be smaller as of first of January, when Process Systems and the MedTech business move into the venture business area. The maximum stress level, I think we currently have this situation or we're maybe coming to the, gradually to the end of that period when we've had the biggest, impact. When you make an announcement like we have about the new organization, of course, we're all human beings, and we think about: how does this affect me, in the first instance?
And then, yeah, after you feel you know what you're going to do, then you can get excited about the future, and that's a very human reaction. We're working very quickly now to define where everybody belongs in the new organization and the changes that will happen as a consequence of this. And that work is progressing quite rapidly now. We have set the group executive; we've now set the business area management teams, and we're well underway setting the level beneath them. So, it's moving quite quickly, and our ambition internally in the company is that everybody should know their home in the organization by the fifteenth of December, before we have our Christmas break here.
That's sort of our remedy on reducing the uncertainty by working as quickly as we can, getting the organization finalized. Once we come past the fifteenth of December, when people know their homes, and so I think, then we come out to the biggest period of uncertainty that has come out of this reorganization.
Okay. Thank you, Olof.
Thank you.
Thank you. Let's switch to the floor here in Stockholm. Question?
Håkan Filipson from Adrigo. I had two questions on China. One, could you elaborate a little bit more on, you say you're seeing a flattening. Could you talk a little bit more about how you see the outlook panning out? Is the flattening turning into negative? Where are you seeing it, in which sectors, et cetera? And the second one is, I heard one of your predecessors once talk about China and how Sandvik had entered China on their own, 100% owned companies, in order to avoid problems like copying, et cetera. Now you're doing a joint venture. How significant is that change, and why are you doing it, please?
Well, in general, on China, in tooling, we say that we see a leveling off from the high levels. We do not see a negative trend there. The areas where we do see, or sectors where we do see weakness within the Sandvik group is especially, I would say, in the construction segments within mining and construction. What is happening in China is that they are tightening the availability of capital quite significantly to cool off the economy, and they are getting quite concerned about the high inflation rates they are seeing in the Chinese economy. So this tightening of availability of funds for investments, especially, is causing a slowdown in especially areas like construction, which are very dependent on quite large investment funds to continue.
I mean, the Chinese government has no ambition to bring China, I think, into a recession or so. And when they feel comfortable that they have cooled the economy off a bit, I would guess that they would change that stance. So what we're seeing is quite expected and clearly driven by political policies in China. So that's a few words on the development in China. Joint ventures, we have different degrees of technological know-how in different products we do. We don't make any inserts, for example, in tooling yet in China, and have so far no plans of building an insert factory.
This JV will make a very special type of mining machine, where we will introduce certain technologies here. Maybe not all our state-of-the-art technologies, but still a step into China here. And I think it's very important that one has this balance because we have to be prepared to take certain risks if we want to take part in the Chinese market. If we say that we want to take no risks there, then we also lose a lot of ability to grow in that market. And technical risks, you actually can have in other countries as well.
Then I think the protection in China is gradually getting better, and western companies are gradually daring to be more aggressive in terms of what kind of production they move into China.
So likely to come, follow more joint ventures in future?
Well, that's one way. We, of course, on a case-to-case basis, need to look at what's the best way forward. In many instances, joint ventures may be a good solution. So we will include that in the options we look at going forward, yes.
Thank you. Another question from Stockholm.
Hi, Anders Idborg from ABG. How do you think the delays from the nuclear side will impact SMT's numbers going into next year? You built up a bit of capacity, obviously, for these years, and yeah.
In terms of revenue, we estimate the effect maybe being in the magnitude of a couple of hundred million SEK in lower revenues within SMC during 2012, and probably a higher number compared to our current plans in 2013. So there is an impact there, but it's not maybe really material from the overall Sandvik group perspective. We are looking at different ways to use this production capacity. And for example, parts of the facilities can be used for the manufacturing of umbilicals for the oil and gas sector, where we see a very good market situation currently. So we are reviewing ways that we can still utilize this capacity when we get holds due to the delays of the nuclear orders to mitigate the effects of that.
Thanks. Just a follow-up on the Chinese construction market there. Given what you said earlier, is the Shanbao you closed that deal, or you negotiated that deal quite a long time ago. Are those numbers coming in materially different from what you talked about then?
We have a weaker market on the Chinese construction market today than when we announced that, in the end of last year. So, that, that's clearly the case. But, I mean, this is not, a business we acquired just because of performance over a few quarters or so. It's a long-term step. Shanbao, Shanbao is the largest manufacturer of crushers in, in China. It's a platform into the Chinese construction market, but it's opportunity for us to export products out of China, into, into other regions of the world. So, we have not changed our strategic view of the relevance of that, of that acquisition, but the market situation is weaker today than at the time when we announced the acquisition at the end of the last year.
Thank you. Let's switch to the international audience, please.
We have a question from Mr. Klas Bergelind from RBS. Please go ahead, sir.
Hi, thank you. Here. Just, we wanted to clarify guidance. You talked about an additional charge of SEK 500 million. Are there any additional benefits there? And then, just in terms of the SEK 500 million savings on September second, you said these savings would be over 2-3 years. Why, if you could clarify whether that's slippage in benefit, if that is the case, why so? And then, just as a follow-up question on sort of clarifying the charges. How should we think about the split in the restructuring, the half a billion of restructuring for the mining part and the construction part of SMC? Thank you.
I didn't hear your first question really, so could you repeat that? Because it was impossible to hear it.
Okay. Just in terms of clarifying guidance, you have announced an additional half a billion of charge in SMC. I just wanted to know whether there's any additional benefits. And then just the other part of the question was, you have on September second, stated you would get half a billion of savings over two years. Today, you're saying half a billion of savings over two to three years. Is that slippage? I just want to clarify that, and if it is, why so?
If I start with the mining and construction, benefits from the restructuring cost of SEK 500 million, that's about in the same magnitude as we have for the other two business areas, or a little bit higher, on the higher side than for the other two business areas, in terms of benefits from those restructuring costs, really. And the 2-3 years just reflects that, it will—we are doing some additional measures also within SMT, and it will go into a little bit longer time until we have the full effect of those.
So, I think it's a bad line here. The question was really on the SM, on SMT, not SMC. On SMT, just really wanted to clarify the guidance. On the SEK 500 million of additional charge, is there any additional benefits? That's SMT. Thank you.
I'm not quite following you there. If you mean the write-off, we announced the write-down of the MedTech goodwill when we announced the strategy. And then you mean that there's SEK 500 million more on SMT now, if I understand you correctly, or?
According to your press release, yes. I'm just wanting to know if you could clarify the guidance on that?
Certainly, other assets that we have decided to impair. So the non-cash parts of that are not sort of cost savings that will generate benefits, but it's assets that we have taken a view on that they have a lower value than what we had in our books.
Great. Then, just as the follow-up question was on M&C, Mining and Construction, how would you think about splitting the charge that you announced today across those, what were the two different business units?
We don't have that level of details in terms of the construction and mining. But there will be costs in both those areas, and there will also be savings in both those areas. But in relative terms, most of the savings will come in the construction area. And also, in relative terms, most of the restructuring costs will come in the construction area.
Okay, appreciate it. Thank you.
Thank you.
Thank you.
Let's continue on the international basis.
Next question comes from Mr. Colin Gibson from HSBC. Please go ahead, sir.
Hi, good afternoon, everyone. I have two questions, please. First of all, on slide 8, you give a bridge calculation, but you've got one item, which is price stroke volume, stroke productivity, which is quite a lot of things to try to put into one item. Is there any kind of color you can give us on, in particular, the split there between price mix on the one hand and volume on the other hand? And if you can do it for the group level, is there anything you can do for the divisions as well, where you also have bridge calculations? First question. Second question, SEK 5 billion or thereabouts of CapEx for 2011. We've got CapEx to depreciation pushing up towards the 150% mark.
How should we think about your CapEx, expenditure in 2012? Will it be going up year-on-year, or will you be able to take it down year-on-year? Thank you.
Well, regarding the sort of leverage in the bridge, there are the various percentages per business area. I mean, in the tooling area, we had a very high rate at 57%, and that's a number we're very happy with, and I think a good development and shows the effects we're getting from high utilization of assets there. On the mining side, we had a number that's lower than what we normally see. And one effect of that is that we have a larger share of the project business in the mining than we had the same quarter last year, and that's causing maybe half the difference from the normal level that it should be.
And the other half is that we had dissolved some reserves that we had for obsolescence in our inventory in the same quarter last year, which increased the result, which we don't have this quarter, which is explaining the other part of the deviation from what you maybe normally would expect from mining construction. For the third business area, when it comes to materials technology, I mean, that rate of profit improvement with the additional volume is clearly too low, and I think that demonstrates a need of improving our cost competitiveness, our product mix, and so further within the SMT business. So that's sort of the rundown for the three different business areas that add up to this group table, so to say.
Sure.
The CapEx 2011, maybe first. We lowered our guidance somewhat. CapEx is, these are CapEx payments during the year, and, there's always a degree of difficulty to estimate how much payments drops into this year and the next one. But we have a slightly lower number than now than what we had in the previous quarter here. We are now reviewing what CapEx levels we will have in 2012, so I don't have any number or any guidance to give you regarding that right now.
Okay, fine. So just to go back to the bridge question, is there any way... I suppose what I was really getting at, is there any way you can split out price mix from volume, at the group level?
No, we can't. What we can say is that overall, the price effect is slightly below 2%, and but we don't have the details in the bridge between the price and the mix, and the volumes, and the others. But price effect is slightly below 2% in total.
... Okay, thank you very much indeed.
Yeah. Mm-hmm. Thank you. Let's see if we have any questions here in Stockholm. Seems not to this, so we continue on the international basis.
Next question comes Mr. Alexander Virgo from Berenberg Bank. Please go ahead, sir.
Hi, good afternoon. Alexander Virgo, Berenberg. I just wanted to ask about the materials tech. The low value add portion of that business, how much of the decline was due to the sort of conscious decision to move away from that sort of business, and how much of it was underlying demand? And then perhaps if you can talk about the margins in that business for Q4 and for next year, in terms of sort of ex-metal prices, just where you think that those can move back to, if you like.
In SMT, these are filler products, mainly. I mean, we try to move our mix into the more advanced areas. But I would say the reduction here is mainly market driven more than it is driven by our shift in our mix. So let's see, that was the first question. The second one was about margins. I mean, we don't give that kind of guidance going forward of margin levels for the business areas or for the groups. I don't have any numbers to share with you there.
Okay, thank you.
Thank you. Question here in Stockholm.
Roger Smith. In the last downturn in 2008 and 2009, you appeared to be a bit slower to react to the downturn than some of your competitors. So I wonder if you have changed the strategy with temporary employees, and in, in what amount you have changed those, that situation?
Well, to start with, I mean, if... I think we have a bigger readiness now for a downturn, like we had in 2008, if it would happen. And, it's of course, I mean, I was the CEO during that downturn, and the managers were in many of their jobs, so we had this experience and fresh memory of what's happened then and the measures that were needed to be taken. One, I think, large benefit we have now is that we have clearly lower inventory levels than when we came into that drop that we saw in the end of 2008.
Meaning that, we're likely to have less effects of under absorption of costs and production and so when we have to work off our inventories instead of keeping the production running. So there are a number of measures that have been taken, and I would say the management readiness for these kind of changes is greater now than when we came in 2008, when we had a long period of improving markets, and many had the mindset that this would be going to continue long term. When it comes to adapting the workforce in flexible ways, we have in a number of areas increased the number of temps, probably most significantly in the mining construction business area, in different countries where we have our operations there.
We also have continued to try to introduce time banks, like what we use in Gimo, in Sweden, where we build up a time bank during the good times that we can then reverse when we come into worse times. Instead of making people redundant, we can work off that time bank. And we are trying to expand that system into more and more areas also here. But I don't have any exact figures to give you in terms of what we have changed, so. Okay, thank you. Let's move on to the international arena, please.
We have a question from Mr. Daniel Patterson from SEB Enskilda. Please go ahead, sir.
Yes, Daniel Patterson here from SEB Enskilda. I have two questions on the SMC. Firstly, you say that the supply chain is running flat out and that lead times are long. You've said that before, but my question is, are they getting longer in the third quarter, and what are you doing to combat it? And the second question is, you're also mentioning the rate of price increases is stable. Now, given the tight supply chain at the moment, is it then possible for you, when you're sort of budgeting in your tenders, project tenders, is it possible for you to sort of budget the stable margins or even higher margins, or how do you see this dynamic? Thanks.
Well, the longer lead times, we're of course continuously looking at how we can increase productivity and production rates to service our market, but they're very much influenced by the high levels of order intake in the business. And if you look at that, the effect from that on the price development within SMC, then, I mean, we have been on this trend with a very, very strong market already for quite some while. So, we're continuing also a trend, the price increases into the third quarter, I think, is positive and more or less in line with what we expected here. So does that answer your questions?
Well, partly. I mean, obviously, this is not completely, but my question is really, you know, now that we've seen the hot market on the supply chain for quite a few quarters now, is it now coming to a point where you're being faced with so hard price pressure from your suppliers, it's getting tough for you to, you know, move that on to clients, and we might see lower project margins?
No, that's not my judgment now. No. I don't understand what you mean, yeah. But so I, I think, it's not so that the supplier base has a better pricing power than we do in the market. So I don't think there's a difference there.
Okay, excellent. Thanks.
Thank you. Do we have any more questions from the floor in Stockholm? One here.
Yes, a follow-up on, on tooling. On the raw material side, could you mention a bit, how that will affect you, maybe coming into the fourth quarter next year, given the tungsten prices and, and also your sort of integrated business model in that sense? I guess if you look at the spot prices and so forth, we could expect a rather significant headwind on margin there. But what are you doing to mitigate that? And, are you, in that sense, planning to maybe push prices a bit more than you usually do at this stage of the cycle?
First, I mean, the high volume from tungsten prices, they impact us positively with the volume business there, so we have some recovery in that end. If you compare with the materials technology business, the raw material element in an insert is much, much smaller. So, even quite large fluctuations don't impact the pricing picture or the margins as significantly as they would, for example, in the SMT business. And we also don't work with a model where we price our products based on additions due to raw material prices. We want to give an offering to our customers of value in terms of that they get a better product and better productivity in their production.
And by helping them to succeed in their business, we get a share of that in terms of the price on our products. So we don't have a model where we're negotiating based on the movements of the tungsten price here within Sandvik.
Okay, thank you.
Thank you. Was that the last question here in Stockholm? It obviously was, and we have no more questions on the international arena. So by that, I would like to thank everyone for either coming here or listening in to this. And, as always, we will be back with a fourth quarter report. This time it will be on the first of February next year, 2012. And for all the questions you have until then, you're most welcome to call me or, or my colleague, Magnus, of course, at Sandvik Investor Relations. So thank you for coming. Thank you very much.