Earnings Call: Q3 2019

Oct 22, 2019

Ladies and gentlemen, thank you for standing by and welcome to today's Q3 Report 2019 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question I must advise you, the conference is being recorded today, and that's Tuesday 22nd October 2019. Would now like to hand the conference over to your speaker today, Patrick Stemberg. Please go ahead, sir. Thank you. Thank you so much. And welcome to this conference call on the 3rd quarter results. Today's speaker is, as usual, our President and CEO is Albert Donuelson and also our Senior Vice President and CFO, Nick Gladys Grozinger. As usual, we will start by presenting the results. And after that, we will have a Q and A session. The results presentation will probably take some 25, 30 minutes. And after that, we hope to be able to answer all your questions. So with that, brief introduction, I'll leave the word to Anurag, please. Thank you, Patrick. And good afternoon, everyone, and welcome. And thank you for joining and listening to our third quarter results presentation. Those of you who follow us will know that we have been working hard in the last 12 to 18 months to prepare for the economic downturn, which is paying off. As you can see in our results today, a stable underlying margin this by the declining in decline in volumes with a solid cash flow. We focused on our region for region manufacturing footprint, increased investments in manufacturing technology as well as maintain the focus on costs. So much so that for the first time doing my tenure CEO costs inflation has been offset by cost cutting activities. There's still a lot of uncertainty out there, macro and political, but the best thing we can do is to keep on doing what we have been doing, focusing on keeping costs under control strengthening our competitiveness through innovation and investing in our factories and keeping the customers need in focus. If we turn to the next page and look at more in detail on the Q3 results, we've seen a third quarter with stable margins on lower volumes and a strong cash flow. We have managed the business well in a weakening economic environment and our efforts to reduce costs are contributing to a strong and stable operating margin in the quarter with an underlying margin of 11.3%. We had higher realized cost savings than cost increases, as I mentioned, resulting in a positive net contribution to operating profit in the quarter. As expected, we saw a decline in inorganic sales of 3% compared to last year, with net sales amounting to EUR 21,000,000,000. Sales were relatively unchanged in Asia, slightly lower in Europe, significantly lower in North America, and slightly higher in Latin America. Cash flow was SEK 2,100,000,000, set compared to SEK 1,600,000,000 of last year. A strong performance, highlighting our ability to generate a strong cash flow even in periods of weaker demand. If we turn to the next page and talk a little bit about our industrial business that had yet another strong quarter with an underlying operating margin of 14.1% with a negative organic growth of 1.4% compared to last year when sales grew by 9%. Sales in Europe and Asia were relatively unchanged, significantly lower in North America, but increased in Latin America. The reported operating margin of 14.7 percent was impacted negatively by restructuring costs and positively by VAT credits. If we turn to the next page and talk a little bit about the automotive, well, our automotive business had an underlying operating margin of 4.3% on an organic growth that was negative with 7%. With significantly lower sales volume in North America and Asia, lower sales volumes in Europe and significantly higher sales in Latin America. The reported operating margin of 1.1 percent was impacted negatively by costs related to customer settlements and restructuring. If we go to the next page and quickly look at our different performance parameter, we see that last year was a very strong year for SKF as we know. We had a record sales, record operating profit, and record cash flow. In 2019, we're seeing a moderate in growth rates, moderation in growth rates, but we are continuing to deliver solid performance with good operating margins and return on capital employed. RS 16 methodology on leasing, but we are still well below the target of around below 80%. We continue to work on reducing our net working capital and at the end of the quarter, we were at 30%, still about the target of 25. So as we've said, there's still more to do. But as we implement our strategy on manufacturing and sales, I'm sure that over time, we will reach our targets. If we go to the next slide and look at the different regions, we can 3% compared to last year with net sales amounting to SEK 21,000,000,000. Sales were relatively unchanged in Asia, slightly lower in Europe, significantly lower in North America and slightly higher in Latin America. In Europe, organic sales were 3% lower than last year, with relatively unchanged industrial demand, while automotive volumes were lower compared to last year. The negative development in Europe is mainly due to tougher market conditions in Germany and Italy. On the other hand, for example, Eastern Europe and the Nordic countries have performed well. The fact that we do relatively well in Europe despite the large market, Germany and Italy struggling is something that we see as a strength. Sales in Asia were relatively unchanged. Organic sales in Asia were 1% higher than last year, we saw good development in China. Sales in North America were 11% lower, driven by a broad based underlying decline in industrial activity. This was accentuated by destocking as a main distributor and the impact on certain OEMs, which has SKF as a significant supplier and therefore also an exposure for us. In Latin America, sales grew organically by 4%. Compared to last year, we saw relatively unchanged volumes within industrial and significantly higher volumes in automotive. If we turn to the next page, and talk about one extremely interesting acquisitions that we have done we have just recently signed a deal to acquire Percenso, and it's a developer of AI driven industrial analytics. For to further strengthen our rotating equipment performance offer. We continue to focus on developing our fee and performance based business with customer wins in a number of markets. As a reminder, we also acquired Ricard Oil a quarter ago We are very excited about continuing to strengthen our EP service business offer to our customers. And by that, if we turn to the next page and look at, I cannot have a quarter without, sort of celebrating that we had yet we have had many contracts, but one specific Nordic paper in Seffler in Sweden, where we have signed an agreement for 5 years for to in a fee based and a bonus based relationship together work to reduce costs reduced environmental impact and improved machine availability and productivity. And you know how passionate I am about this. I know that these REP agreements are good both for the supplier, but most of all for the customer. And I can just encourage you all of their out there when you meet customers, tell them about SKF Rep offers. If we turn to the next page, I can just say that now I will leave the word to Nicolas. Thank you, Ulrich, and good afternoon, everyone. If we turn to the next page, I'll take you the details about financials in the quarter, starting with sales. So net sales decreased by 1.4% in the 3rd quarter. Organic sales were 3% lower than last year as Albert mentioned. For Industrial, we saw a decline in organic sales by 1.4%. And automotive declined by 7% in the quarter. The currency effect on sales was positive in the quarter by 4.2%. With the largest effects, as usual, coming from dollar, europe and renminbi. The structure component, I. E, the divestment of last year was negative 2.6%. We turn to the next page, please. Operating profit by quarter has shown a positive trend during the period rather than this slide. The operating profit in the third quarter was $2,300,000,000, which includes restructuring and settlement costs of 2 $72,000,000 as well as a capital gain of $180,000,000. The underlying operating profit was 2,400,000,000 in the quarter, and this represented a margin of 11.3%. Moving to next page, please. We go through the operating profit bridge for the quarter. Firstly, we had a negative effect from divested companies of 72,000,000 as mentioned, this related to the lot divestment last year. We had a currency impact, which was a positive SEK106 1000000 compared to last year. And in terms of operational performance, we had a decrease of SEK 343,000,000 year over year. And if I comment on this SEK 343,000,000 a bit more in detail, The organic sales and manufacturing volumes was SEK 218,000,000 lower. We had a positive effect from pricemix. We had a negative effect from lower sales and production volumes. The cost development was good, and we had a higher realized cost savings than cost increases, which we are very pleased with. And this resulted in a positive net contribution to operating profit in the quarter of 60,000,000 compared to last year. Note that this figure includes higher restructuring and customer settlement costs than last year. So $272,000,000, as mentioned, Roche was $86,000,000 last year, and it was offset by a positive VAT credit, which was the 180, as I mentioned. We also highlight that we had a capital gain from land sale of SEK 185,000,000 in the third quarter last year. And a short comment on material costs. So we had a negative material cost impact, but this slightly less negative than what we guided for. And we do see good cost flexibility production and more cost reductions cost reduction effects than we forecasted. So summarizing the breach from an underlying operating profit perspective, in simple terms, we had a negative 70 from divestment, we had a positive 100 from FX, and then we had a negative 150 from operational performance. If you wonder what this $150,000,000 is, it's simply the $343,000,000 adjusted for the land sale, $185,000,000 that we had last year. Let me take the opportunity to provide a couple of comments and perspective on the bridge for Q4. So Q4 twenty nineteen. So in terms of M and A in Q4 last year, we had a positive effect from the divestment of LAB. The lot business of $1,300,000,000, $1261,000,000, to be exact. That we will not have this year. In terms of pricemix, we expect to see a continued positive effect from pricemix in Q4. And in terms of cost development in Q4, we do expect to offset the cost inflation with cost savings. So in rough terms, cost inflation of $2.25, so that's a negative material, kind of costs negative $50,000,000, offset by savings of roughly the same, so $275,000,000. Lastly, in Q4 last year, we also had costs for restructuring and impairments and settlements amounting to SEK 556,000,000 this was negative. If you turn to the next page, please, performance by customer group in the quarter. In terms of Industrial, as mentioned, organic net sales in Industrial decreased by 1.4%. Relatively unchanged. Sales in Europe and Asia were relatively unchanged. We had a lower sales significantly lower sales in North America. But we saw an increase in sales in Latin America. The reported operating margin for Industrial was 14.7 compared to 14.3 last year. Price mix contributed positively, while then higher material costs and lower production volumes had a negative effect in the quarter. Operating income was also negatively impacted by restructuring costs and positively impacted by the VAT credits that I mentioned. The underlying operating margin was 14.1%. In terms of in terms of automotive, our organic sales in automotive declined by 7% in the 3rd quarter. We had a significantly lower sales volumes in North America and Asia. We had lower sales volumes in Europe, and significantly higher sales in Latin America. The automotive business had an underlying operating margin of 4 3%. The result was negatively impacted by lower volumes and increased material costs And the reported operating margin was 1.1%, and this was impacted negatively. By customer settlements and restructurings. Moving to the next page please. Cash flow was strong in the quarter, something we are very happy with. Cash flow, excluding acquisitions and divestments, was $2,100,000,000 in the quarter, as Alrik mentioned compared to $1,600,000,000 last year. The increase is mainly due to lower working capital, which is then partly offset by lower operating income and higher investments. The cash flow, excluding acquisitions and divestments for the last 12 months, has actually increased from 5,800,000,000 last year to 6,700,000 this year. Turn to next page, please. Net working capital was 29.9% of sales at the end of the 3rd quarter, which was 0.9 percentage points higher than in third quarter last year. The increase is mainly explained by exchange rate development. Next page, please. Our net debt equity ratio was 67% at the of the quarter, the net debt to equity ratio, excluding leasing, was largely unchanged, while we saw an increase in provisions for post employment benefits, I. E. Pensions. And the net debt, excluding pensions and excluding leasing, was 12% of equity by the end of quarter. Finally, some additional guidance. On quarter 4, 2019. We expect the finance net to be about SEK 250,000,000 negative, including IFRS 16 effects. And based on the exchange rates at September 30, the currency impact of the operating profit is expected to be positive by about SEK 250,000,000 compared to the third quarter last year. For the full year, we expect a tax rate of about 29%. Note that our previous guidance was 28%. Over the last three years, we've consistently increased our investments, which is something that has been, very much part of the strategy. And we'll add to our competitiveness We are actually accelerating our investments in property, plant and equipment. And in 2019, we expect to see additions to plant and property of EUR 3,100,000,000, and this can be compared to our previous guidance of EUR 2,800,000,000. And with that, I'll give the word back to you, Ulmick. Thank you. Nick, Lars, well done. Can we if we turn to the next page, I give a short summary then. And like I said in the start of the presentation, the team has done a fantastic job, I think, preparing for and managing the business during the start of this downturn. Cost cutting is of course one important aspect here, but we should not forget that we're also accelerating our investments and for instance, moving more production capacity to Asia. We're also investing in innovation and this combination with our property, plant and equipment investments is further strengthening our competitiveness. Looking into Q4, we expect to see lower volumes, but we also expect to continue to offset cost inflation by cost savings. Thank you. And by this, I go back over to the next page, sorry, we should focus to you, Patrick. Sorry, sorry. Thank you, Albert. And I think with that, we have concluded the presentation part and we are more than happy to take your questions. So operator, please. Thank you. Ladies and gentlemen, we'll now begin the question you. And your first question comes from the line of Klas Bergelind. Yes. Hi, Olliek, and A Class's Cloud from Citi. So, first, Olliek, on the growth, it trended like we thought, but you had more savings than guided on those 3 times more. And the net effect on one offs was not that different versus my assumption. So obviously, a job well done on savings, but it signals a little bit that pricemix is a bit slower. Can we some guidance on how mix and pricing trended in the quarter? I think I got pricemix in the second quarter to be around 1%. Is it much lower or is it roughly around the same level? Some indication there would be useful. Yes. Hi, Clive. It's Nicholas here. I'll steal the answer from Malrick here. So, pricemix asset was positive. To give you a bit of a sense, it was less than the figure you just mentioned. And if we look at the two components, we actually had a positive price, but we had a somewhat negative mix And again, the net of these, were kind of still a positive pricemix, if that helps. And then my second one is on the cost savings. It seems like underlying cost inflation came in line with the guide 225,000,000 better raw mats by 50,000,000, 50 savings line that were better. Can we break down these savings a bit more Nicholas? How much is it from the factory upgrades and the previous restructuring charges versus more new variable cost savings? And how should we think about this line going forward? I mean, is it less travel, less focus in the front? And just so we understand a little bit about how to think about the cost line? Yes. I think on a and I'll let Patrick here comment if he might have additional comments well. But I think the way to think about it is that, I mean, the effect of this was due to the actions that we've taken earlier. And you can say that by and large, it's related to kind of manufacturing where we saw a positive kind of price development or not price, but cost development. What comes to other costs I mean, we have, we have, it's ongoing actions essentially, and it's something that we work on and we do see, see multi ten out there. But, but in Q3 specifically, it was mostly related to manufacturing. And for me, it was definitely not that we focus on sales full speed that we will never stop. That's good. That's good knowledge. We'll take plus your heat on travel I always travel alone. I always travel alone. My final one is on Asian on the industrial side. You obviously benefit from being big towards wind and rail, but I was surprised to see that heavy drives distribution are developing better this quarter. Obviously, you always have comp effect, but is this linked to more domestic growth infrastructure that is holding up in China at the moment? With the export side of the economy being weaker. I was a little bit surprised to see that some of the outside of rail and wind developed better. If you could comment on that, Alrik. Yes. Well, you remember, I, we actually foresaw this already in the initial of this quarter, the past quarter that that Asia was going to be a little bit stronger for us. And I remember some people say, are you sure? And we saw at that time how actually even though we're looking at lower growth rates in Asia, in China, it's actually growing. And our position is good. And And I think with all the investments and all the activities we're doing in China, we have a strong position and So in a way, Asia actually developed as I thought it was going to be. Thank you. And your next question comes from the line of Alexander Virgo. Thanks very much. Good afternoon, gentlemen. I wondered if you could just develop the pricing comment a little bit more. I mean, thinking about it on slightly longer term view. You've talked historically about your pricing developing from tight supply demand dynamics and obviously commodity prices as well. And I think relatively speaking, both of those are probably reversing now in terms of trends. So I'm just wondering if you could talk a little bit about how we should think about the pricing dynamics over the next 12 to 18 months. And I guess in particular, how you think that plays into your annual contract negotiations, for 2020? That would be my first question. Well, in general, If you have a good differentiated product, you can always have, providing value to your customers, you can always, even in we're in not so good times actually make good money and defend your value with a customer through a good price development. However, you are absolutely right. Of course, they're part of the portfolio that when demand is slowing, there will be an increased tendency of, competitors actually wanting maybe to give away some price. And that's like we've said before, that's nothing new. And but we haven't seen it yet. As we say, we believe that still in Q4, we will have actually a positive development on this side. Okay. Thank you. And then as a follow-up just on, North America and your comments around truck markets in particular, I think, quite interesting, given the dynamics around orders and production that we've seen develop over the last couple of quarters, I wondered if you could talk a little bit about what's driven the, guidance in auto beyond just the auto exposure. Well, if you look at the U S, we see in some markets a softening coming, and this is what we are sort of alluding to when we when you look at our guidance, then we also have, as have said we have a few distributors, which is natural in a downturn who are now, when availability is good from the market, from the suppliers, actually looking over their inventories. And so there's some industrial demand dynamics also in this, but what we see is that there are certain sort of focus of industry where we see weakening, but that the underlying business once this industrial dynamic is sort of taken out will we hope improve. Okay. But I mean, I guess, how do you see your development in trucking in particular? I guess, both your In trucking particular, yes, well, you know, honestly that we will we see that when, when production is changed and when, when, of course, there was a situation where, that there was some uncertainty with the strike and so forth that infected some of our customers, but that was really very short. But of course, as we see, the order book going down and eventually, when that hit real output. It will be seen. That's absolutely clear. Thank you. And your next question, it comes from the line of Gail De Bray. Your line is open. Yes. Good afternoon, everybody. I have two questions, please. The first one is on the Automotive business. How do you explain that the your performance is actually looking a bit light compared to the global auto production. I mean, I think your top line dropped 7% while I think it was down 3% for global auto production. So is this a question of mix or a question of selectivity, perhaps a question of product offering? I mean, any color on that would be great. The second question is on the restructuring cost. You've booked so far this year. I think if my maths are right, it's probably up to 1,000,000 for the first 9 months of the year. So that's a significantly higher number than usual. So maybe could you give us an update trying for the full year and help us quantify the corresponding savings you expect to generate perhaps going into next year? Well, if I start with the first question and then Nicolas will take the second. Basically, you put you put the finger on the different components that is in there. You can understand that on the in the OEM side of automotive you don't lose market share between 1 quarter to another. And I argue even that lately long term, we've actually had quite good order intake in our automotive business at large. So the effects are what you said. It depends on where you are, what the products you're on, what platforms, what geographies, etcetera. But you can also note that on the vehicle service and actually we've seen sort of a breakthrough and we're strengthening. Yes. And on the restructuring, I'm not sure I immediately recognized the $6.50 number, but anyway, again, a point taken, that it's a substantial number. I mean, obviously, these are very difficult to guide for, because they are kind of one off currencies. Some of them relate to, to our manufacturing work. So moving production for instance to Asia and then running down some current production in other places. That means, for instance, headcount impact. And then now in Q3, he has made we had some specific customer settlements, in the $270,000,000 number. So So again, while we would love to kind of provide guidance on this, it's just, by definition, a bit difficult. Okay. Thank you. But maybe a quick comment on that. I mean, we will, of course, I mean, we have a multiyear program related to world class manufacturing as you probably no, and also footprint, for instance, increasing our manufacturing kind of capabilities and volumes in Asia. And this will over time result in some restructuring costs. And your next question, it comes from the line of Andrew Wilson. Please go ahead. Your line is open. Hi, good afternoon, everyone. Can I just start on just a question around the working capital and just some of the inventory moves? I don't know if I missed it when you were talking about the Q3 bridge, but in terms of inventory moves kind of year on year, did you quantify whether there was an impact in the Q3? And also if there was expecting to be an impact from inventory moves in the Q4, please? Yes. So inventory is obviously something, as I'll recall, to mention that, as is well known. I mean, we have target of working capital, our net working capital of 25 net sales, and we are now hovering around 30 plus minus something, something small. It will take time to take it down because it very much relates to our footprint and world class manufacturing kind of programs, but definitely ongoing work, specifically in in kind of Q3, we actually took down inventories a bit, but not as much as last year. And there are some specific reasons for this, for instance, Brexit, safety stock and then building manufacturing capacity in China. And Yes. And if those are the Q4, I mean, this will be ongoing work. So we will continue to work on taking down inventories, but we should not expect any kind of big, one off kind of step downs. So would we expect a bridge impact in terms of the manufacturing levels in the Q4? Patrick here, yes, but this way, we reduced inventories quite significantly sequentially during the fourth quarter of last year. We do expect it, the other one being us preparing for moving production into our newly built plant in China. So two good reasons. I would argue, so we'll probably have a slight slightly lower reduction of inventories in the fourth quarter than last year. Perfect. And if I can just ask one follow-up and apologies if this is just my misunderstanding, but in terms of the customer settlements, fairly without necessarily ident individual customers. Can you just perhaps provide a little bit more detail on kind of where that comes from and sort of why that results? And if it's something that we should sort of expect to be, I guess, a feature of the business or whether this is sort of a genuine one off in this quarter? No, this is something that has originated way back. And sometimes in order to be able to continue in relationship, you just have to sort of agree and this is what we've done. And maybe to to add to that. So we had the 2017, including both restructurings and settlements So you can say that, maybe roughly half of a bit more than half of that for settlements and a bit less than than half of that was, restructuring. Thank you. Your next question comes from the line of Andre Kitching. Yes, good afternoon. It's Andre from Credit Suisse. Thank you for taking my questions. Firstly, can I just follow-up on the cash question and on inventory? And working capital moves. Could you quantify how much you took the inventory down by on underlying basis in Q3? 2019 because on balance sheet obviously has gone up sequentially. And then, looking at receivables, don't know if my numbers are right, but they appear to have gone down by nearly SEK 5,000,000,000 in Q3 'nineteen versus Q2 2019, 19.9 going to just over CHF 15,000,000,000. So just wanted to check what, kind of drove that, how you achieved it and whether we should treat that whole sort of 1,000,000,000 of cash from that, as sustainable going forward? Patrick here, if you look at the inventories sequentially, where there's slight production, less than we had last year, still a reduction, but a small one in volumes, if you adjust for the FX, which is quite significant in the quarter given the weak Swedish krona. Right. And on a, maybe that's something that we need to come back to separately, but just to, again, provide you a bit of a kind of longer term perspective on this. I mean, we've, we've worked on kind of over time. And, we've seen a, kind of a positive development there, again, over a longer period. Obviously, when the economy goes down, that's an area where where you probably can expect less positive, less kind of low hanging fruits available going 41. So I don't know whether that helps. I want to provide a specific number for Q4 per se, but there should be a bit bit cautious in terms of how much more we can actually improve it. Okay, got it. Got it. I'll double check my numbers as well. Maybe it was just quick to update it. And then, other couple of questions I have are, firstly, on the negative mix that you mentioned, Could you give a bit more detail on that? Because, I guess, interdivisional mix should be positive given that industrial is outgrowing automotive. So just wondered what kind of product or other mix is there that's driving? I mean, just to give you an example, I mean, it's think about industrials and look through the kind of list in the report of various industries, they are I mean, there's, industrials is, goes without saying, is more than just industry. It's multiple industries. And as an example, one thing which can affect the mix, is if we have more wind, so large, very large applications or bearings, compared to smaller ones. I mean, they consume more steel in simple terms. So that's an example of what kind of the mix. Got it. Thank you. Finally, just on that cost development line, I wanted to make sure that I've got the components right. So if we look at the 1,000,000 that you provide on the bridge as a positive, taking out the 185 year on year effect of a 1 off last year. Am I right to hear that you kind of implied that there was a 1,000,000 negative raw materials inflation within that and around 225,000,000 negative normal inflation? Yes. Correct. Okay. And if I go through the rest, then please bear with me. So you had the customer settlement of, I mean, I guess it's working out to be somewhere around 50,000,000 dollars, $160,000,000 for what you said? Yes. I said we don't want to provide a specific number, but again, mentioned, if of the 270, you can say that a bit more than half was settlement and a bit less than half Okay. And then the VAT settlement offsetting that of 180, and then the restructuring cost was then sort of slightly higher year on year than the $90,000,000 last year? Well, again, $90,000,000 or $86,000,000 to be specific last year, SEK 272,000,000 this year. And then then the SEK 180,000,000 related to VAT positive. Right. So it kind of implies over SEK 300,000,000 of positive cost savings, right, excluding these one off effects? Yes. So if you have negative $272,000,000, then you have adjustable last year 86 and then you have a positive 180, I mean, essentially they equal each other, the positives and negatives. Okay. And then you're guiding for 2.75 for Q4 against that kind of over 300, right? Of saving. Okay. Can I just final one on this? Your number of employees has gone down kind of from back end of last year. I think I've run some quick maths there. And now kind of the savings seem to be catching up, but your number of employees have stabilized now since kind of Q2 level. Are there further actions planned to kind of sustain the savings or is this kind of the program and we see the shape of it of kind of playing out around 250,000,001,000,000 savings a quarter. No, definitely. I mean, this is part of the normal, the way we treat the business normally to try to increase our efficiency and of course, adapt ourselves. So This work continues. Okay. So the kind of the stabilization of number of employees now that we've seen since what you've reported in Q1 roughly, that's kind of just been phasing of programs and we should see further reductions as we Yes. Well, so, without commenting specifically on number of employees and how that will evolve in the future. We do kind of continuously on a continuous basis, work cost base essentially taking it down. It won't be even every quarter, because every now and then there's specific activities, for instance, related factory or so footprint, activity. And then we have a number of other kind of initiatives also we are looking into. So don't assume it will be exactly the same number every quarter, but directionally, we are working on taking down our costs. Thank you. And your next question comes from the line of James Moore. Your line is open. I've got 3. Maybe we could also go one at a time. My first question is about future pricing actions. Have you got any actions that have gone into the distribution channel or planned to go into the distribution channel? Or can we assume stable prices? Now given the demand environment and the metal price environment? We're always it's interesting how you come back to the same question all the time and I appreciate it. We are continuous in Q4, you will see a positive pricing. We see that. We are always working on how we differentiate ourselves and do good profitability on our business. I think we have taken businesses lately where I see there's still improved profitability. As we say, of course, in a general metric, will be more difficult to increase prices in a less buoyant environment. But for now, we still see a positive price mix going into the fourth quarter. Thanks, all right. And Secondly, I think it would be fair to say that your industrial development in North America was worse than you expected. And when I look across the industries, It looks like aerospace, industrial drives, energy, electrical, industrial distribution were all meaningfully worse the development of last quarter. So it seems to be quite broad spread. Given that you called Asia very well, what was it that made the U. S. Harder to forecast are the lead times much shorter or something different? And really what was it that changed in the quarter? Mean, of course, we can't be happy with negative 11%, but didn't come as a kind of a total surprise either. So we course, on a very generic level, we continue to see kind of a fall in industrial activity And then specifically related to SKS. So the industrial activity has not come down 11% we came down a bit more, we have seen destocking distribute the destocking. And then, an impact coming from certain OEMs, which we have significant exposure to without going into specific names. But it's essentially a handful of cases, and as Alrik mentioned earlier, this kind of destocking is a very, very kind of obvious or typical one, where it's a larger customer of ours who decide to kind of take down inventory levels, and it affects us. Just on distribution inventory levels, they appear to me to be at a 10 year 20 year high in some cases in the U. S. Do you think the U. S. Inventories are particularly high compared to the rest of the world? And do you see a destocking phase continuing? In this particular case, I think it's more of a new way of working one of our biggest partners and they are sort of in a coordinated way of doing this now and it's the 2nd quarter they do it. We hope that in a quarter or so, this will be over and they will be back at, at, buying from us according to their, how they sell. But there's always true is, of course, that there are some, and that even though we've been working hard to reduce industrial dynamics, as you know, in worldwide, there is still industrial dynamics, meaning stocking or destocking when when that opportunity is there in the value chain. So I think on I think North America, obviously, there's work to do, no question about that, then to offset that, as we discussed earlier, it's not North America, but China is something we are actually very, very pleased with. Okay, thanks. And lastly, just on China, you have a very big wind business relative to the rest of the world. And given the new tariff environment, We're seeing 20%, 30% increase this year in onshore and 100% in offshore. Can you remind us whether your Chinese wind business is skewed disproportionately to offshore versus onshore versus the normal market shipment breakdown? My friend, we work with the main producers and then following them in their in the quest to supply. And we I can't tell you, off the bat onshore and offshore, but of course, you can imagine, we are one of the main suppliers who bearings at large in China. So of course, we are, on both, on both these applications. But are you seeing sort of extreme growth rates in China wins that could comp next year or the year after? Just so that we're aware of something else. Yes. Well, there's 2 things with wind, of course. One is capacity. I mean, how much capacity for these kind of bearings is there around? And as you can imagine, for a while now, due to that there has been a quite a renaissance of wind during the last 18 months a little bit more, you can imagine that there's a lot of capacity utilization already taken in in the wind business in Asia. And your next question comes from the line of Ben Uglow. Your line is open. Oh, good afternoon and thank you for taking the questions. I guess the first one is just qualitatively, our I wanted to understand why you wanted to or what was the main driver of the decision to kind of reduce the outlook Is this really all about North America, I. E. The change that you've seen in North America during the quarter And if it wasn't for North America, would you actually be feeling that things were basically quite stable? What we do is that we see, of course, as we guide, we took it down a notch, but of course, we're looking at the upper level of that interval that we are foreseeing for the quarter. But of course, we're looking at both North America, but also Europe soft name. Understood. And if we come back to if we come back to North America, if you look at what you've seen in terms of distributors and the channel and customer conversations is what you're seeing today similar to what happened when industrial production went negative in 2015 2016, and that was largely due to oil. Or is it fundamentally different? If you had to characterize what's happening in North America now versus then, do you see them as similar or different? Well, you know, it's a what I can say is that, that, there are if you take the underlying sort of business from this particular distributor that I've been talking about, the partner we have, which has been destocking, there's still they see some softening maybe, but they're still selling, quite well. There's more that we see certain sectors that are softening clearly. And that's how I see it. Understood. Understood. And then just a final question, just on China, I know your business is broad based, but if you had to characterize China throughout the quarter, did you think things were stable getting better? Do you see as we head into the fourth quarter, any green shoots in China? Well, the interesting thing is that we look at China and we see a lower grade, but a lower growth, but the growth is still, it's still, quite strong. We didn't perceive that there was a lot of sort of support of the economy from the government during the quarter. So maybe there's even a some kind of resilience coming from that point as well in the future because even though we look at lower grade growth, we still look at growth. Understood. And then final question, if you look at your mix of businesses and we look at sort of China may be stable to better if we look at auto production rates, which are surely going to ease over the next 3 to 6 months. Why would you not be a bit more confident about your outlook? I'm playing devil's advocate here, but what I'm trying to understand is why are things not ex North America a little bit better? This is always it's interesting when you look at these kind of forecasts. If you look at how we have been guiding during the last years, since I came in here, we've actually been guiding quite accurately. I am, I mean, the wrong you look into the future, it's you can't be proud of how you look into the future because honestly we're still looking into the future, right? So you don't really know, but this is what we see. So when we look at the ability of some of our customers also to use the Christmas holidays, etcetera to adjust their inventories and so forth. It's prudent of us, I think, to look at the guidance the way we've done it. Understood. Thank you very much for your time. Thank you. In the courses of time, we have bring people still on the list for putting questions. So one question at a time per person, please, and then we'll be able to closing time. Thank you. Thank you, sir. And the next question comes from the line of Olof Sederholm. Your line is open. Yes, hi, gentlemen. It's Olof Serum from ABG Sundal Collier. Just a quick The cost savings, they're quite impressive and they keep picking up the pace continues to gain pace. So how should we see this going forward? I mean, not Q4, but if you could offer some insights and maybe on a longer time period 2020, do you think you'll be able to continue to offset cost inflation with cost savings? As I said earlier, we should not expect an even quarterly development where every quarter is the same that we exactly kind of matched the cost inflation. But we do, I mean, maybe different to some of our different self the market. We have not announced a program per se, but we have multiple activities internally which we push and follow-up on when it comes to costs. And we do expect these to contribute positively going forward also kind of throughout 2020. But I would caution again and just highlight that don't assume kind of an even distribution every them. Okay, great. And just very, very quickly, sorry, the raw mats, are they, the decline in raw material prices, is that picking up pace as well for you? Yes, I would say we are seeing a benefit from the price also in this quarter, and we expect to continue next quarter, but still in total a raw material headwind due to the mix. Essentially, we sell more bearings that consume a higher proportion of raw material. Understood. Thank you. Sorry for going for 2. Thanks. You earned it. You earned it. Thank you. Thank you. And your next question comes the line of Sebastian Kune. For me is your production plants. You now have roughly 94 plants, I think. The auto business is doing very poorly low margin. How many of your 94 plants are now significantly below the on equity or a return on capital employed that you have as a target out of the 94, how many are really underperforming at the moment? That would be my main question. And I would have a small follow-up. Yes, Sebastian, a short answer to that. We don't really have that data. We have that data, but a bit hesitant to comment on individual factories per se. But what you can say, Sebastian, is you have to understand that for automotive units that are wheel related, we have specialized factories. Most of the other components that go to the automotive are also making industrial bearings. So the actual effect of the downturn in, in, automotive is less affecting us less on a global basis in those areas where we make the products where we also make industrial bearings. Understood. So it's more the product price that is an issue for the margin understood. Quick follow-up, if I may. Yes. You got the line. Electric cars, I think you have a very large market share for the for Tesla for the MEP platform of Volkswagen. And are there other like Chinese players where you have a dominating market share for the bearings in the powertrain of electric cars? Or is it We work globally. We work globally with, with customers around electric powertrain. That is my answer to this, if you understand. It's not only You've seen us talk about some of our gains that we've done in Europe and so forth, but we work globally on this. We are globally one of the leaders when it comes to working with electrical powertrains in the world. And dominating that segment? Yes. I mean, of course, dominating is a very strong word, which we absolutely want to avoid for different reasons, but we are we are strong player. We are strong player, yes, definitely. Okay. Thank you very much. Thanks. Thank you gentlemen. And your last question comes from the line of Jack O'Brien. Your line is open. Hi, good afternoon. Thanks for taking the question. It's on the negative mix point again. You've talked about various industries, but is the real question here that you earn a higher margin in North America and a lower margin in Asia. And therefore, as growth slows in 1 and increases in the other, that really what's driving the negative mix? No, it's more kind of when we talk about mix, we do refer to kind of applications or industry segments rather than than industries. Okay. So it's not part of the geography, sorry. If simplistically we were to assume that Asia moves from 25% of sales to 35% of sales on a multiyear view you wouldn't see that as negative or detrimental? No, no, no. We actually have decent, we're actually quite good, good margins. Also in Asia, China. Thank you, sir. There are currently no further questions from the phone lines. Now we conclude the presentation and the Q And A session and we thank you all for listening in. You have any additional questions, we would be happy to take them by phone. Or if anything else, we will be in Stockholm for meetings tomorrow and in London on Thursday. So with that, bye bye. That does conclude our conference for today. Thank you all for participating. You may now disconnect.