Earnings Call: Q1 2020

Apr 23, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 Report 2020 conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session to ask a question during the Q and A session. Please a star 1 in your telephone. I must advise you that this conference is being recorded today, 30 23rd April 2020. I would like to hand the conference over to your first speaker today, Mr. Patrick Spanberg. Thank you. Please go ahead. Good morning. And very welcome to this early conference call on the Q1 results. Speaking today is our CEO with Albert Danielson, our CFO, Nick Klas Rosenlade. And as usual, we'll start with a presentation, but 20 to 25 minutes. And after that, we will be ready to take your questions. On that note, please remember to limit yourself to about two questions at the time. Otherwise, get back in queue. We tonight, I remember you to remind you to post your name before the question because we do have some problems with the voice recognition, with this conference call this summer on. I apologize for that. With that interaction, Alrik, please. Thank you very much. Patrick, good morning, everyone, and welcome to this presentation of our 4th quarter results. We have delivered another very strong set of results despite falling demand connected to the COVID-nineteen. Pandemic. Our cash flow generation is strong, and we have continued to invest in innovation, optimize our operations and reduce costs. Sales were impacted across most regions by both government imposed closures as well as by lower underlying demand. Net sales fell organically by almost 9% to Swedish kroner 20,100,000,000 Sales were 10% lower in Asia, 9% lower in Europe, 12% lower in North America, and almost 5% higher in Latin America. Despite this development, the adjusted operating margin for the first quarter was strong, at 12.8 percent in exactly in line with last year, with an adjusted operating profit of 2 point 572,000,000, a 1,000,000,000. Cash flow was also strong with almost SEK 2,000,000,000, If we turn to the next page, the Industrial business continued to deliver good operational performance on lower sales. The adjusted margin was 15.5%, which is in line with last year, despite a drop in organic sales of almost 7%. Sales were significantly lower in North America, lower in both Asia and Europe. If we turn to next page, The Automotive business, which in Europe, was significantly impacted by customer closures from the middle of March, delivered an adjusted margin of 5.7%. In line with last year's performance, despite a fall in organic sales of over 13%. Sales were significantly lower in Europe, North America, and Asia and relatively unchanged in Latin America. If we turn to the next page, We saw a decline in organic sales of 8.6 percent compared to last year, with net sales of SEK 20,000,000. Sales in North America were 11.7% lower. Sales to aerospace and to agriculture, food and beverage industries were relatively unchanged whilst sales to all other industrial segments were significantly lower. In Europe, organic sales were 8.8 percent lower than last year. Industrial demand was lower than last year and automotive volumes were significantly lower. Within industrial, sales to Railway and to the agricultural food and beverage industries showed growth, while indices of highway off highway, heavy industries, aerospace, as well as the energy and industrial distribution were declining compared to last year. Organic sales in Asia decreased by 10.4% with lower industrial demand and significantly lower demand for automotive. We saw strong development in the energy industry and in marine, while most other industries declined compared to last year. And in Latin America, sales grew organically by 3.45% compared to last year. We saw slightly high industrial volumes and relatively unchanged volumes in Automotive. If we turn to the next page. Well, Proportionary measures by authorities and lower customer demand is impacting many of the regions and industries in which we operate. 1st and foremost, focus is always on creating a safe working environment. For us, this means implementing new ways of working in some areas. In addition, you see that we are running here in our test center for large size bearings, In Schreinfur, we do it remotely. No people on-site. We have adjusted our production output at many of our sites. We were closed for about 1 week longer than normal after the Chinese New Year, but thanks to a lot of hard work from our team in China, we were able to reopen on February 10. We've also seen close sites in India, Italy, following decisions by authorities and closes of summer of the multi plants due to the fact that many of our customers have been closed. During the end of March, we experienced a sharp drop in sales of 25% compared to last year. This is a high level of uncertainty regarding various a high level of uncertainty regarding future demand. We're planning for different scenarios, of course, and we are taking appropriate actions to make sure that SKF emerges from this situation as an even stronger company. Here, we see a picture from the factory to the elastane, which recently became our 2nd completely CO2 neutral manufacturing sites. Together with a factory in Steyr, Austria, the 2 have reduced their combined annual CO2 emissions by some 22,000 tons. And here you can see the solar panels on the factory roof. If we turn to the next page, increasing demands on planned performance puts increasing pressure on machinery. To avoid unnecessary downtime, equipment needs to be monitored more often. As less time and resources are available for manual walk around automation is crucial. Now there's a new way to achieve reliable rotation and a new way to purchase it from SKF. SCAP and light collection, IMX1 sensors allow you to build an automated machine monitoring system powered by cloud based IoT solutions and AI driven analytics. It is wireless, easily scalable and connected to SKF, Rotating Equipment Performance Centers. If you just call anybody listening to SKF, It will be delivered as a kit with, remote instructions how to install it. With these words, I think we're back to you, Patrick. No, sorry. That was you. Thanks, Alrik. Good. And if we turn to the next page, please. And starting off with net sales. So net sales decreased by 5.5% in the quarter. Organic net sales were 8.6 percent lower than last year. As Albert mentioned, for industrial, we saw a decline in organic sales by 6.7% and Automotive declined 13.2% in the quarter. The currency effect on sales was positive in the quarter by 3% with the largest effect as usual, coming from the dollar, the euro and the renminbi. We turn to the next page, please. We've seen a significant slowdown in growth since the peak back in Q2 2018. During this time, we've continued to invest invested in innovation and competitiveness and also adapting our operations to a lower growth scenario and reducing our cost base. So looking at the operating profit development, we've been quite successful in this process. In the first quarter, we delivered an adjusted operating profit of 2.6 $1,000,000,000, which is actually on par with last year despite the decline in growth. We turn to the next page, please. So taking you through the operating profit bridge for the quarter, Firstly, we had a negative small, very small effect from divested, acquired companies of 1,000,000. The currency impact, was a positive SEK 146,000,000 compared to last year. And then in terms of our operational performance, it was SEK 273,000,000 lower year on year. Organic sales and manufacturing volumes were NOK575,000,000 lower, And then we had a negative effect from lower sales and production volumes, but on the other hand, both price and mix were positive in the quarter. Cost development was good. We continue to see a higher realized cost savings than cost increases. Resulting in a positive net contribution to operating profit in the quarter If I take the opportunity to provide some perspective on the bridge for Q2, So from M And A, we expect no material impact from pricemix. We do continue to expect to see some positive impact. And then what comes to cost development in Q2, we do expect to continue to offset cost inflation with cost savings. If we then move to the next page, please. Here, you see the performance by customer group in the quarter. And if we start off with industrial, our organic net sales in the industrial decreased by 6.7%, in North America, sales were significantly lower. Sales in Europe and Asia were lower. While then sales were slightly higher in Latin America. For Industrial, the adjusted operating margin was 15.5%. So pretty much the same level as last year when it was 15.8%. Good cost performance contributed positively to the result while lower sales and production volumes had a negative effect in the quarter. If we didn't spend a minute on automotive, organic sales in automotive declined by 13.2% in the first quarter. With significantly lower sales volumes in North America, Europe and Asia, while sales in Latin America for automotive were relatively unchanged The Automotive business had an adjusted operating margin of 5.7 percent, which is again, in line with last year's 5.6%. The result was negatively impacted by lower sales and production volume, offset by good cost performance. And talk about cash flow. We are maintaining a strong cash flow trend despite having increased our investment in manufacturing significantly over the couple of last years. Cash flow in Q1 Excluding M and A, financing activities was, as Aldrich said, almost SEK 2,000,000,000. So 1930,000,000, compared to 830,000,000 last year. The increase in cash for the last 12 months was SEK 6.8000000000. So net working capital as a percentage of sales was 29.5 percent at the end of the 1st quarter. Which was 0.5 percentage points lower than in the first quarter last year. Moving on next page, please. We do have a strong balance sheet. The net debt to equity ratio continued to improve and was 57.6 percent at the end of the quarter. The net debt to equity ratio, excluding leasing and pensions, was 7.5%. We saw an increase of SEK 1,500,000,000 in provisions for post employment benefits, pensions, in the first quarter. And this was mainly due to actuarial losses on plan assets and currency effects. So the losses were primarily related to the asset values decreasing in line with market. SKS financial liquidity is strong. We have about SEK 16,000,000,000 in cash and committed but unused credit facilities. And then if we move on to the next page, please. What comes to demand outlook, we are of course impacted by the fact that the industries and regions in which we operate are being impacted by by authorities and by SKF's customers, related to the spread of the COVID-nineteen virus As a result of this, a significant level of uncertainty, it's not feasible to provide a reliable demand guidance And then finally, some additional guidance for the 2nd quarter. We expect finance net to be about SEK 250,000,000 negative including IFRS 16 effects. For the full year, we expect a tax rate of around 29%. And as you know, over the last 3 years, we have consistently increased our investments and we have and are accelerating our investments in property, plant and equipment. And in 2020, we expect to see additions to plant and property of around 3,300,000,000. And with that, I give the word back to you, Thank you very much, Nikkla, and I apologize for, for getting you. I'll never do that again. Well, if we summarize, I think we can all be proud of a very strong quarter where we delivered a good strong performance continuously. And despite lower sales, it is, of course, a result, I think, of hard work for a long time and understanding early that something was going to happen. So we could finding ways of working and focus very hard on cost reduction, at the same time, keeping close contact with customers. We delivered a stable operating margin as we have stated, and we have more then offset the cost inflation by savings. With our strong financial position, we are continuing to invest in our manufacturing, We're also continuing to invest in technologies that enable our fee based offering, machine learning, data analytics, and of course, condition monitoring using cloud and edge computing technologies. Looking into Q2, there's a high level of demand uncertainty, as I think everybody can understand, and we are taking everything to make sure that SKF emerges stronger than ever when markets eventually recover. With this, I thank you for listening into the presentation. And I hand over to Patrick. Thank you. Then with that, we are ready to take your questions. And, again, my daughter remind you to, the state the current state your night name and also limit yourself to two questions, of the script time. We're more than welcome to get back in line. Operator, please. Press star 1 in your telephone. Please do also state clearly your first and last name and your company name before you ask your questions. Okay. Your first question comes from the line of Andrew Cookman from Credit Suisse. Please ask your question. It's Andre from Credit Suisse. Thanks so much for taking my questions. I really want to understand the operational gearing in the quarter. Better the 5.75 impact that you show kind of demonstrates about 30% drop through. I think you were showing high numbers before. So could you maybe talk about the components of that in terms of what's needed in manufacturing, versus underlying operational gearing? Have the second question after that. Well, so Nicholas here, I mean, on a very high level, you saw, of course, I mean, with the net sales organically down, 8.6% of 5.5% reported I mean, we had the we have a negative impact on profit, of course. But then, I would like to kind of tune in on the on the cost side, where we have a positive impact as as discussed. So, we have this is, this is not a one off per se. We have been working, as we've discussed in previous quarters, as well, quite a lot on just improving our cost base cost efficiency in general. And as Alrik said here, would say now in hindsight have been pretty timely with seeing the market changes and this has contributed, I think, to our cost efficiency. If you may call it, call it that. So there's no magic to it just hard work and over time. Sorry, Nicholas. I must have misled you. I was just thinking about specifically the minus 5.7 5,000,000 that you have on the profit bridge, for organic sales and manufacturing volumes component, before the cost development, or does that include the cost savings? Hi, Andre. It's back again. No, the fact 75 does not include the cost savings. It's going to include the drop through on the test numbers. It's does include the, effect we kind of program manufacturing, also taking into account the effect that we actually reduced inventories this quarter as opposed to to Q1 last year when we're actually finished goods inventory. So we do have a headwind from from imagery adjustment in that line as well. Right. So that's why so the question was kind of the 5.75 has no positive manufacturing impact. It implies operational gearing of about 30% on the $1,900,000,000 sales drop. I get do you see that kind of ratio as as normal as going forward? Because I think back solving profit bridge in the past quarters on growth. So declines, we kind of thought more about operation gearing at 40%, 45%. Well, we've done well on adopting our cultivating manufacturing. We have a, you know, had a good level of, flexibility in the manufacturer operations, this this quarter, as we did, what's the capabilities as well. So, yes, Okay, great. Thank you. You have to also understand that of course, as if this situation becomes tougher, it will be tougher to keep this kind of appearing. Right. There's more cost to come fixed. Thank you. My my I just also wanted to follow-up if I may on, Nicholas's comment on cost development in second half where you said to continue to offset inflation, clearly more than offset inflation in Q1 by that 300,000,000, if I read the bridge correctly. So I just wanted to double check that message for Q2, whether that's part of the bridge you expect to be to remain at around SEK 300,000,000 or to actually become 0 as a net kind of offset of the call? Well, as you understand or all understand that, I mean, Most companies are taking quite a lot of actions, which are beyond turnover. What's can say, normal of what we've seen historically. And so are we, as SKF? So it's a bit tricky to exactly put a number on it, what exactly it will bring and and what sort of cost benefit we'll see in Q2, but let's say like this, we are working quite hard on it. And And maybe it can be a bit seen as a bit of a careful cautionary comment to say that we continue to offset inflation, I think that's the long term goal for Q2. We are working on more. Got it. Thank you very much. I appreciate your time. Okay. Thank you. Your next question comes from the line of Sebastian Kamal from RBC. Please ask your question. Hi, good morning. Sebastian Kooner from RBC here. Good results as I can see. Key question for me would be, the cost savings that you stated, so maybe similar question to the one before. The cost savings, what is your estimates for now for Q2 and for the year as a whole based on the restructuring that you already announced. I mean, do we expect another, CHF 300,000,000 then in the coming quarters? Or is it even accelerating as you adjust capacity further as my first question? And then another thing that puzzled me a little bit, We have other companies that, as long as soon as they have a lot of service activity, pure service activity, they see margin pressure because it's so difficult to get the engineers on the side. And this does not seem to be the case with SKF I was wondering if you expect a deterioration of the situation of getting people to the sites and maybe see more pressure from the servicing side? So I'll take the cost savings and, if you can take the service question. So again, If we put it into perspective, the cost side, we've now, for a number of quarters, taken out costs, so improved our cost efficiency. And we absolutely work on continue down that same path going forward. And, and as we discussed in the last quarterly call, there's quite a lot, still that we see, that we need to do and can do So we'll continue to work on that. Of course, now in these times, we will take out, cost program beyond where maybe what you can say is a normal trend, but it's just quite hard to say exactly how it will look like in Q2 specifically. Actually, of the cost savings, apart from the volume, what's happening, is that a similar number, then because you know how many people you are releasing, so you have the numbers in front of you. No, so I mean, it's a good point. I, it's more than just, people. Of course, we work on the people side there's a lot of other costs as well, I think as discussed in the last call, IT, for instance, and then another part of the operation, which is not not just people. So, we don't want to give an exact number. Again, the kind of theme that we are working on is that we are going to offset cost inflation. And now we talk about slightly longer term, But of course, as I said, for Q2, there will be, a lot of extra measures taken as well, but a bit hard to say exactly what number that will lead to. And you have to understand the reason is that this is day by day, this is we have never seen this before when one factory is static sales. Now the automotive is trying to start up then we are starting up again to support their startup. How long will it last? It is very uncertain. So it's not meaningful. To give you figures. So please understand it's not that we don't want to. And when it comes to the service side, First of all, you know, we have a lot of value service. You know, we are booked up to our customers through internet, you know, monitoring their machines, etcetera. This has been we have been able to do continue to do this and, I mean, continue to deliver to the growth products and services to the to the aftermarket during the first quarter. We have also worked a long time on actually being able to give assistance remote by not being there, etcetera. So and then we have a global network. So actually, we've had seen during the first quarter situations where there was an issue in, for instance, in India that would normally be attended by specialists from Europe, but now the Indian specialists could themselves that without traveling, so to speak, help the customer. And the similar things actually situations where other service companies have not been able to help our customers, but we, with a general knowledge around rotating shaft, have been positive, have been able to support the customer, even sometimes beyond our normal field of expertise. But this is all before, the real lockdown, if you understand what we're talking about India, the example is before. Now the Indian engineers are not even allowed to visit the customer, the customer in most cases in India is closed. But to simplify, you have less problems because we have more local service engineers, so no one traveling. We don't have this mass service. We don't have this mass with high impact knowledge service. It's not that we go out and service the whole paper mill, for instance, we come with our engineers with high-tech impact knowledge around the rotating shaft, and that lays labor intensive less people who need to move than other service companies maybe because we see this situation that you say that it's difficult to get an expert from one area from one geography to another geography, but due to the fact that we are very spread around the world with good knowledge around the rotating shaft everywhere, these global or international moves have not been needed. But again, I'm talking about the first quarter. Okay. Thank you. Question comes from the line of Olav Sederholm from ABG. Of Seidron with ABG. I have a question on demand, which is of course very difficult, but you mentioned negative 25 percent late March. Is it in any way possible to talk about differences between the two segments? And also if this run rate is a good reflection of so far in April, and just some more color on what you've experienced. Thanks. And what you see is, of course, with the Automotive And Aerospace segments, there's a very close, especially on the OEM market. It's a very close, short value chain And there is an immediate effect, you can say, when the customer stops you stop immediately and you see very short, very quickly, you see the effects of the real market in industrial side. There's more industrial dynamics. It's more myriad of customers behind the effects you see are slower. So you can say that the we saw the real effects of the final demand very quickly in automotive and aerospace, and we are seeing it slower in industrial. And then you can look at things, you can yourself understand that there's no, sort of magic in this If you look at, for instance, VSM, if you can look at the activities at garages, the activity level at garages is quite well correlates with our sales, in a downturn, it comes a few weeks after. In an upturn, it usually comes to weaker when the garage just starts repairing again. And as we say, we still believe that segments like wind and agriculture, which are still needed, and they are very prioritized from many, in many areas, will be continuing. The whole thing now depends on how quickly the world opens up again. And you can understand, that this is a day by day endeavor. Right now, you know, we're working to prepare to support the intended startup about the motive in Europe, well, we just have to see how it goes. Absolutely. Thank you. And could I also ask about China specifically? Are you some others are indicating that China is really back on track. It's a strong recovery and and we're not too far off from sort of pre COVID levels of demand. Is that your view as well? Well, without being specific, I can say there are some segments, like we said, wind and others where the government is stimulating that will most probably be strong. There's, right now, a catch up effect after the lockdown in China, there has been a sort of lack, especially, if you could say, on the heavy vehicle side, and there are some recovery catching up on car sides as well. But the underlying, if you take general machinery, we see clearly that China is suffering from not having access to the export markets. And you have to realize China is not open up yet. You cannot travel freely from one area of China to the other. And people are not completely back to normal. So how much this is sort of a reaction to the lockdown that has been and you are now coming back and then what happens And how much is this a real recovery that could last now that's still to be seen? Okay. Thank you very much for that. Much appreciated. Thank you. Your next question comes from the line of Andreas Koskey from Nordea. Please ask your question. Yes. Good morning. It's Andreas Koski from Nordea. So my first question is on the EBIT margin. So you have an adjusted EBIT margin that was unchanged from Q1 last year despite an organic revenue decline of 9%. And that became, so surprised to me. So could you explain what you have done to be able to achieve this and how large Yes, Nicholas here. So, I think I think you should see this as a kind of a longer theme than just 1 quarter. Again, if we go back to the previous quarter, second half of last year, when we also saw a decline in top line, we talked about the same theme that we have over time been working on obviously timing the market upturns and downturns, that's an important thing because there's always a lag to some of the actions taking effect of being seen in results. And then secondly, continuously working on the cost efficiency. So it is more of a theme, that we expect to continue to work on and also deliver results on, over time. Of course, now in these times, did take some measures in March specifically, that, took costs down But I would say, the impact on Q1 per se, wasn't massive. There were some, extraordinary measures, maybe, but not not massive. Of course, and, due to, we expect to see a bit more But as you can hear, I don't want to give an exact number that out of the good cost performance, 8% was was one off and a wide percent was something that we expect to see in the future as well. But it's more geared towards also expect to see in the future. And on the meat side, you can see you can understand that as automotive OEMs go down quicker and industrial comes down as little has been coming down in a different pace. OEMs when they stop, then if you don't deliver to them, you can understand that we have had a positive mix effect as well. We ought to work hard to keep the mix effect also going forward, but of course, that has been a support in this quarter. Yes. Okay. And when it comes to the short term activities and maybe governmental support. Could you say what you receive or what you're doing on that side and how how that will develop in Q2? Because as you alluded to Tunik last year, there will be a positive delta when it comes to short term cost savings support in Q2 compared to Q1? Yes. So, what comes to different government support, there was very little, in Q1. And, of course, then the, can expect there to be some in Q2. We do, of course, in all the markets where we operate, We do look into this. And of course, appreciative of the support say when the factory is completely closed or something like that. We have people on a short term you know, working short term or part time, quite a few around the world. And in some places, there is some support for that. In some places, there's not So, maybe the easiest way just to look at it is, Jose, avoiding an exact number is that, yes, We expect and hope that there will be some in Q2, very little, if anything at all in Q1. Okay. Thanks. Just to clarify, it sounds like a large part of the savings that you have been able to take out have been taken out disregarding on the volume development. It's more the long term efficiency problems that you have been working with. So assuming, organic growth would have been flat. We would have seen a higher margin this year compared to last year because you still have had the cost savings? Yes, yes, exactly. Okay. Thank you very much. Thank you. Your next question comes from the line of Andre Rosen. Please ask your question. Good morning. It's Andrew Wilson from JP Morgan. And couple of questions. First one, please, just on I guess trying to understand the levels of of inventory in the in the various distribution channels and just whether you think you've seen any indications of pre buying perhaps in Europe ahead of some of the shutdowns. Just trying to get an understanding of sort of where you feel that might have happened and also what you think inventory levels are like in the Chen below in place? Well, inventory levels are compared to demand will of course depend very much on how demand is developing. So it's very difficult to to answer. But I can understand if I were a, inductive distributor, for instance, I would, of course, and I had money I would take a precaution not to sit with that out of stock going into a situation where I understand that there will be disruptions in, in the value chain. So I would argue that probably, as we don't see, sort of a boom of hurting or anything like that. But I would assume that they have not cut back on their stock levels this point, I wouldn't do it if I were them. Now I mean, they also we have seen the ability in some markets where we have been able to to deliver and maybe some others have not been able to deliver for X And Y Fed reasons. It's also a situation where where we hope to be able to strengthen our position going forward. So I think that there's a normal stock level. But of course, if that is a high stock level, low stock will now depend on how demand develops during the next few months. But I don't see any in any herding or bloated levels like, like, like, some years ago when, we had this very seasonal, seasonal, seasonalization with, like, end year bonuses, etcetera. I don't see that. That's helpful. And then just thinking about the networking capital at SKF and the way that you're thinking about managing that, I mean, we kind of look at the Q2 and, I guess, of answer the year, but the Q2 specifically, are there any, I guess, areas of concern within the working capital, whether it be collections, whether it be how you're thinking about the inventory. And then just kind of to that point, how are you thinking about perhaps using the working capital that that SKF can fund relative to some of their competitors, in terms of trying to take share in this period? Yes, exactly. So we look at ourselves and we see we are financially strong and we're working very hard. You can understand to preserve that strength. The cash is the blood of the system. So we need to preserve that. So we're working very hard, meaning we're scrutinizing our customers seeing, working very hard to see that we minimize as much as we can any losses on the accounts receivable side. What is going to happen is very hard to forecast, of course. As far as our own working capital inventory, etcetera, you can also understand we're using whatever we can now going forward to sort of convert that into to cash and use that to be even stronger. And then as Nicholas has said, now it's also a time to take advantage to actually accelerate some of our investments in more flexible cost efficient an automated production to be coming out of this even stronger from that point of view. And also it's interesting how the R and D and innovation teams sort of step up to vacation as they see now, wow, now there are some trends that we've been looking at this digitization of the value chain that we have been working so hard to convince some customers that they should join us in now suddenly, it becomes much easier. So there's an enormous push, of course, on the technology side, and we will not take we will not reduce our activities or our best on new technologies. And so there's even there's even accelerators in types like this. That's perfect. Thanks, Alex. Thank you. Our next question comes from the line of James Moore from Redburn. Please ask your question. Nicholas, I'm glad you're all safe and healthy. Thanks for taking the questions. I've got 3 and, yeah, if it's okay, I'll go one at a time. Firstly, wonderful EBIT given the demand. And can I come back to the excellent 16% organic drop through? And really, the topic of Andreas Koski's question, which is about what is temporary savings versus more structural savings, And you've done a lot of automation action in your time since you've been running the company outbreak. Do you think that SKF's fixed cost versus variable cost structure of the company has actually changed over time such that you become a more variableized business and might we even put any percentages on that? Well, you know, you know the theme that what we've been working on since at least since my tenure very, very diligently. And of course, as we become more flexible it's going to be like you say. And I argue, yes, of course, this is part of it, but it's not only that. It's a complete change of culture in the company. You see today we have a much leaner, more direct organization. We are constantly reducing indirect spendings and automating and working more in 1 as 1 compared to having many different units that have extra sort of back office, if you understand that kind of cost, etcetera. So it's more than than just automation. But you're right. I mean, our ambition now is to accelerate this trend. And our ambition is clearly to become more nimble, more flexible in all and more customer oriented than ever. But to give you a number, I guess. That's very helpful. Thanks. And secondly, your 25% volume drop in the last 2 weeks of March is very helpful. I'm going to be greedy and ask if you could help us compare and contrast China, Europe, and the USA. I mean, I would guess maybe even a small positive for China, the worst in Europe, maybe a minus 30 and maybe a minus 20 for the USA, but that's just a guess based on what I hear from other people. If you're able to put any color on that, it would be helpful. The problem here, James, the problem here is that it is so fast. This has been interesting to see you know, how a factory that was actually closed last week is now operating at half speed, for instance, a business that was looking to have a resilient was suddenly down and other businesses like on the agriculture side, that suddenly you are surprised to say, yes, now there are some customers are waking up to that the harvest season is going to come in in a few months and they need to start repairing, which they haven't been able to do before, etcetera. So it's so dynamic that if you take the answer I gave earlier, when I say, yes, we see, of course, China where we have been operating in China trying to go come back and we see there a sort of a catch up from the lockdown, the lockdown We see that. However, we also understand that there is no way that China would not be affected by not having the export markets that they have. And what is going to be the government's ability to compensate for that, partly if they can. And then you look to talk about the U S. Of course, the U S is behind the curve as far as shutdown compared to Europe, but how far will it go and how quickly will they be able to open up again? So the flavor of the day, this is the problem. That's why I can't really help you more than, you know, James, you're an intelligent man. You have a lot of contacts around the world. You will see this unfolding, and there's no magic to it. You will see it, And it's, I mean, as Alrik says, it's just amazingly dynamic, and, as we all know, what the world has changed a lot in a just in a month here, and it will in the next month as well. Of course, directionally, if you ask now, I mean, we, we, we said, Dave, the 29th, 25% end of March, and, and, what you said James directionally now is probably right. I'm not saying the exact numbers, but just the dynamics between the regions But that's a good indication of how it will look like in May June remains to be seen. That's very helpful. And lastly, just a quick technical question. Do you see anything that suggests a meaningful change in raw material costs in the coming quarter. Do you have a be do you expect another sort of headwind there? Not really. No. No. Your next question comes from the line of Matthew Singh from Bank of America. Please ask your question. Thanks for taking the question. Just a bit more details on your servicing side of business. What percentage of the business currently, are you able to service remotely and if the push come to show how high can you take that number to So that will be the first question. Thank you. There's no figure on that in this way, because it's not for us, it's not only about services, as a service It's also about product and, and deliverables of different kinds. So when we go in and serve somebody, we also deliver products together with the services and so forth. So it's a very complex question. To give you any meaningful number at this time, especially with the uncertainty we have. But I can tell you, I think that there will be a push for utilizing more our offline, sorry, online services in the sense that, you know, we can connect to any machine in any part of the world and monitoring and tell you how it's doing based on our knowledge around the rotating shaft. And I believe that when we come out of this crisis, this is going to be more sought off after than ever before. And some of the conservative companies that have previously said, ah, I do it the same way as I always have done it. In the manual way going around checking my machines, etcetera. I think they're all sort of now looking at how can I now work in a completely different way? And here SKF is ready with our R and D centers, these are remote centers where engineers and technicians are sitting where you can look up your machine to this. So we are now leveraging this, of course, of reaching out to customers and saying, Hey, you are not already hooked up to SKF. If you want to improve your reliability, we can do it, and we can actually send you a key that you can just install yourself to your machine And then you through Internet will come to SKF and you will get expert advice. And then, of course, with the intention to deliver all the sold, so products and and real services when that is possible again. So without giving you a number because I can't, as you understand, I believe that the digitization of the value chain will get a push for the from the situation. But like if you could give some indication, whether half of the services you could provide can be done remotely or not, something like that? I mean, that would be helpful. Well, yes, but you understand if I can do a service, but I can't deliver a product, part of the value of what I'm actually doing is not there to be captured. So I can't answer you. It depends on in a normal situation where supply chains are open, I think this is going to be an eye opener for many of our customers. And potential customers that we have something unique to offer. But to tell you now that in this very difficult time to give you an estimate on this. It would not be be prudent? 2nd question I had was around your supply chain plans, given, you know, such huge level of disruptions in the global supply chain, have you, had any plans to any changes in, you know, like, have more local sourced, or even ultra local sourcing in big countries, is something and also in country? Yes, you can understand. We have, and I think we've been quite informative around this. We are due to the legislation automation, it is now possible to have a region for region kind of supply chain And already before the outbreak of this crisis, this was a clear intention of ours. To supply Asia out of Asia, Europe, out of Europe, and, Americas out of Americas, meaning, distributing our supply chain, which is to date Europe centric capacity for historical reasons. There is in my mind now, a will an accelerated understanding that this is probably a good idea. So yes, we are accelerating this activity. However, saying that this is not done in a month. It's not this is still things that happens over many years. But yes, we are accelerating these activities. Sounds good. Thank you. Comes from the line Good morning, Aldrick Nicholas. Just a couple of quick ones from me. I was a bit late on the call, so I apologize if they've answered. But Nicholas, just on raw materials, and the impact in your EBIT bridge. Can you just confirm that there was SEK 100,000,000 positive impact in the quarter? And can you also just give us a sense for your expectation for Q2 in absolute terms based on current raw material prices? So shortly on Q1, yes, that's correct, but then it was from a profit perspective, offset by the inventory. And on Q2, again, as I said earlier, don't today foresee a major impact from raw materials. Sorry, just to be clear, when you say offset by inventories, that's obviously in a different part of your EBIT bridge, just to be clear. Yeah. Right. Secondly, if I can just clarify your comment on positive pricemix in Q2 in your EBIT bridge or expected, is that both price and mix? Or maybe I can ask a bit differently, is the positive mix view for Q2 partly based on what you saw in the last 2 weeks of March within that negative 25 percent? Well, so the answer on price and mix is yes to both. So both were positive, and think I'll recommend it on it earlier. I mean, it's a bit hard to say whether it's, you know, driven by the last 2 weeks or the 1st 2 weeks or whatever. I mean, it's a total Q1. Of course, we do see a shift or we did see a shift in certain customers buying significantly less and then some segments continuing on a reasonably good level. So that's really driving the mix. And you can At Jim For instance, that the automotive, certain customers, you know, stopped buying, or shut down completely in the latter part of the month. So that had an impact on mix also. But I wouldn't read too much into it. I mean, the numbers are not massively large or massively from what we have seen in the past either. So price mix positive and both components are slightly positive. So the dynamic, just to be clear that you saw in Q1 where OEMs are stopping production or gradually coming back, but the distribution channel more stable particularly in automotive you would think still holds true as you see it down in Q2. I appreciate it's very volatile dynamics, but that's your current assessment. Yes. Well, you can understand it's all dependent. If sales of vehicles comes very strong back, you will have a normal mix If it's still so that what will come first is actually the maintenance of vehicles, you will see that part of the business coming back. Faster. And it is of course, we have a better profitability in the maintenance of vehicles than in the direct deliveries to the OEM. So it's if you go out and put your ears to the ground and listen to what really happens out there, you will yourself sort of be able to have a quite good view of the reality because it's like that. We as I said, maybe you missed that, but we see a correlation between the activities at the garages, for instance, with our sales. And when it goes down, it takes a little bit longer before we see it coming down. But when it goes up, it goes quite quickly and the customer starts ordering quickly. So it depends now how quickly, for instance, in Europe, the country is truly open up for repairs of cars and vehicles and so forth and to stop moving around more. Yes. But I mean, of course, directionally, you are right. That is what's driving mix whether it's aftermarket or not. I know we have more than so on and so on. And then it really depends on how Q2 develops We do expect pricemix to be positive in Q2 as well. It was hard to say, but that's our expectation. Goes without saying that if the downturn takes longer, the price element will be harder and harder to keep. Positive. Alright. Thank you. There are no further questions at this time. Back to you, Patrick. Thank you so much. Thank you for the call. And with that, we'll leave it. And if Janet here for some questions. Please give me a call and then we'll try to talk to them as we go. Thank you and keep up. Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.