Earnings Call: Q4 2018

Jan 29, 2019

Ladies and gentlemen, thank you for standing by. Welcome to Q4 Report 28. At this time, all participants are in a listen only mode. You. I must advise you that this conference is being recorded today, Tuesday 29th January, 2019. And I would now like to hand the conference over to speak today. Patrick Steinberg. Thank you, sir. Please go ahead. Thank you so much. Good afternoon to you all, and welcome to the Q4 conference call for SKF. As usual, we have our CEO, Mr. Albert Donlinson, as the main speaker, present in the room, is also our CFO, Christian Johansen. And Mr. Theo, Head of Media Relations and myself, Patrick. We will spend a vast 30 minutes on the presentation. And after that, we'll be more than happy to answer your questions. With that brief introduction, I will leave the word to to Alrik. Thank you very much, Patrick, and welcome to this Q4 conference call. Well, The fourth quarter was a strong quarter with good sales growth, solid margin and a strong cash flow. We saw continued growth in industrial operations while automotive sales were slightly lower. In total, sales grew organically by 5% and our operating profit was SEK 2,900,000,000, with a margin of 13.7. Percent. We have reduced our inventories during the quarter. Cash flow was strong at 4,300,000,000 and our net debt ratio is now below 50%. In light of our strong performance, the board has decided to propose to raise the dividend to 6 Swedish kroner. If you turn to the next slide, talking about the industrial business, it continues its strong performance. In Q4, we saw increased sales volumes in our 3 largest regions: Europe, North America and Asia, Organic sales growth was 8.8% and operating margin reached 18.3% in the quarter, For the full year, organic growth We turn to the next page and talk about the automotive business, and it remained resilient. In Q4, organic sales declined by 3.7% due to the drop in European car sales, resulting from the implementation of new test cycles and a slowdown in Asia. For the full year, organic growth was 2.1% and operating margin was 6.4%. If we turn to the next slide and talk about our targets, you can see 2018 has been a very strong year for SKF. We've had record sales, record operating profit and record cash flow. Each of the fourth quarter has also individually been the best so far for SKF. If we look at the full year numbers, Organic growth was 7.1%, clearly above the target of 5%. Operating margin was 12.9% compared to the target of 12% and the net debt ratio was 49% compared to the target of below 80%. And the return on capital employed was 17.6% compared to the target of 16%. Throughout the year, we have been working to reduce our inventories, and we're making progress towards the target of net working capital. We are now at 27.8%. So there's still some work left before we can reach the 25% target. If we go to the next page and talk a little bit about, the regions, We saw Europe with a strong industrial demand with significantly higher volumes, in most industries and a growth of 1.5%. Our automotive volumes in Europe were slightly lower in Q4, but there continue to be large differences. We saw higher volumes for trucks and lower for cars due to the implementation of the WLPT test cycles. And the vehicle service market was relatively unchanged. Asia we saw growth of 8% with the industrial business significantly higher demand in most of our customer industries, such as energy, railway, agriculture, energy, food and beverage, marine, to name a few. Automotive volumes were lower than last year, with lower volumes for cars, significantly lower volumes for trucks and slightly lower volumes for our vehicle aftermarket. Organic sales grew strongly in North America, with 11%. We saw significantly higher industrial demand, and some of the segments were industrial drives, aerospace, energy, agriculture, food and beverage, railway, industrial distributions, to name a few. Automotive volumes were relatively unchanged with significantly higher volumes to trucks and high and higher to car segments. Sales in the vehicle market were significantly lower, though. In Latin America, volumes were relatively unchanged compared to last year. However, we saw significantly higher volumes to the industrial and significantly lower volumes. To the automotive. If we then turn to the next slide and talk a little bit about some highlights, we inaugurated just a week ago, our new production line in Valencian in France, where we make bearings for the aero engine side of the business. And we have now a fully automated production line with an autonomy of 35 hours. It's You can call it a ghost channel, if you will. And we had a big event there with customers like Safran, and celebrating now the ramp up of the new lead engine that you know is going to account for a solid growth for SKF during the next coming years. And it was interesting to see coming back and looking at what SKF is doing. We're also in Valencian refurbishing bearings for the automotive sorry, for the aerospace and the aerospace engines. And there was bearings coming back from a German airline of significant size after 65000 hours. And SKF is now going to refurbish these bearings and in about a month or so, they will be back in action. So really good stuff coming out of the aerospace factory in Balencien. And I wanted to share that with you, it was one of those moments of saying, the investments we're doing, they're bearing fruits, and we are now very strong in this segment. So with those words, I want to hand over to Christian. Christian? Good afternoon to all of you. As usual, I will take you through the details of our financials in the quarter. So if you turn to next page, I will start with Sales development, net sales increased by 8.8% in the 4th quarter. We recorded organic sales growth for the 9th quarter in a row, with strong roles in our industrial business, growth in all when it comes to industrial, all three main regions and in most customer industries. Automotive sales were lower in the quarter due to lower volumes in Asia and Europe. So as a total organic sales increased by 5%. Currency effect on sales was positive in the quarter by 4.8%. With the largest effects, as usual, coming from the dollar, followed by euro and Chinese renminbi, but also from Argentinian peso. Structure component was negative 1% related to the divestment of Latt that we closed by end of November. So we have more than 1 month there. If you can turn to the next page. Operating profit by quarter have shown a strong positive trend during the year, also in quarter 4, And as you've heard, the operating profit was SEK 2,900,000,000 in the quarter. 885,000,000 higher than in fourth quarter last year. And for the full year of 2018, We are at about SEK 11,000,000,000 operating income, which is the highest operating income in a single year in history for SKF. And each of the four quarters, as also Alirek expressed, has also individually in the best quarter, so far in SF history. And when it comes to the fourth quarter, it is a record quarter also if we adjust for the net positive effect from divestment and impairment and restructuring costs. So if we move to the next page, I'll take you through the operating profit bridge for the quarter from left to right. Firstly then, the green bar, we have a positive effect from divested companies of SEK 1,261,000,000, mainly related to the capital gain from the last divestment. We have a currency impact positive or SEK 26,000,000 compared to last year. And if we move to the operating performance, it decreased by SEK402 1000000 year over year. But if we adjust for the year over year effect, from impairments, customer settlements, and restructuring, which I come back to, the operating performance increased by 74 1,000,000. So, within operating performance, then organic sales, manufacturing volumes, contributions from there increased by EUR 639,000,000, including positive effects from sales volume, from pricemix, from fixed cost contribution from higher production volumes and also a negative effect year over year of some 110,000,000 from reduced finished goods inventories in the quarter. When it comes to the pricemix, we continue to see a clearly positive effects from pricing. Mix was positive in the quarter with industrial business growing stronger than automotive. On the cost performance, this quarter, you have the cost bars plated in 2 on the slide. So firstly, we have costs in the quarter for impairments of assets and customer settlements and restructuring, were SEK 476,000,000 higher than last year. Impairments and customer settlements were SEK 2 82 well in line with our guidance that we issued to you earlier in December. Restructuring costs in the quarter were 194,000,000 higher than last year, which is more than what we guided for in the third quarter conference call. If you look at the lower box in the cost bar, the Orange 1, so the cost development of our operating cost They were SEK 565,000,000 higher than last year, which is clearly better cost performance than what we discussed is the conference call. So if I give some comments to the bridge, then when it comes to expectations or guidance for quarter 1, take in same order. M and A lost results from divest company is about 50,000,000 in the quarter, a pricemix continue to see clearly positive effects from pricemix in the first quarter. Inventories, we expect to see unchanged finished goods inventories versus quarter 4. But considering then that we built inventories in the first quarter 2018, we will have we will see a year over year effect in the bridge of about EUR 80,000,000 negative. Cost development for 1st quarter, same bridge effect as in quarter 4. So the $565,000,000, so the lower lower one lower boxes. So $565,000,000, is the guidance for quarter 1. And when it comes to restructuring, we have a neutral year over year effect. So if we turn page performance by customer group, industrial, Organic net sale increased by 9.2 percent, increased in all three regions. Strongest growth in Asia and North America, reported operating margin 18.3 compared to 12.8 last year. Contributions from increased sales and manufacturing volumes was positive. Together with a clearly positive effect from pricemix. If you take the underlying performance adjusted for the lot divestment and the costs for impairments and restructuring and currency, we had a positive operating leverage in the quarter. Moving to Automotive. Organic sales declined by 3.7%. Car sales in Europe continued to be impacted by the new test cycles. And in Asia, we saw lower truck and car sales, especially in China. Operating margin was 2.1% compared to 5% last year and obviously was impacted by negative year over year effects from customer settlements and restructuring. And if you take the underlying performance, it was resilient negative effects from lower volume and increased material costs partially offset by pricing. So some highlights to the lower parts of the income statement. Take the financial net in the 4th quarter was negative SEK 266,000,000. Somewhat higher than we guided for. And the main reason for that is that we have in the quarter adjusted the reporting of our Argentinian business to hyperinflation accounting, which gave a negative effect of $58,000,000 in the quarter. For the full year, we came in at SEK 861,000,000, which is an improvement compared to last year. Both coming then from lower interest expenses and a better interest income net. Taxes in the quarter negative SEK453,000,000, giving an effective tax rate of 17% And this was positively affected by the divestment in the quarter. And if we adjust for that, the tax rate was 25%. Last year, 4th quarter, as you remember, we had impacts of the changes of the U. S. Tax rates, which were positive in the quarter. So if you take the taxes for the full year of 2018, EUR 2,600,000,000, the effective tax rate was 26%, adjusted for the divestment, the full year tax rate was 28%, and that should be compared then to the full year adjusted tax rate last year of 31%. So clearly, tax rates have come down. Earnings per share, was SEK 4.63 compared to SEK 4.12 last year and full year SEK 16 compared to SEK 12 full year 2017. If you turn page, cash flow strong in the quarter Cash flow, excluding M and A activities, was SEK 1,937,000,000 compared to SEK 1,800,000,000 previous year. Positive impact from higher operating profit and reduced working capital. And I would also like to add that, as we have talked about, the cash flow is improved, although we have higher investment in property, plant and equipment. Cash flow for the full year, same definition was $6,000,000,000 compared to $4,200,000,000 last year, And here we have, for the full year, increased the CapEx by about 400,000,000 versus 2017. So next page, net working capital, as you've heard, 27.8% of sales at the end of the 4th quarter, reduced from 29% the year fourth quarter last year positively impacted by currency and by the divest of all in your actuation, but we clearly see good progress when it comes to inventories, trade receivables, with sequential improvements over the last quarters. And as we have communicated to you previously, We are reducing finished goods inventory still with good availability to meet our customers' demand. So we move to next page. Net debt equity ratio continued to improve in the quarter. Was 49% by yearend. Net debt equity, excluding pensions, we reduced further to 13% and the net debt in absolute value was about EUR 17,000,000,000 by end of the year. So we have taken that down by more than EUR 14,000,000,000 since the first quarter 2015. And sale of business contributed to the reduction in this quarter by about SEK 2,400,000,000. Turn to next page. So finally then, some additional guidance. Financial net expected to be around $200,000,000 negative. When it comes to currency impact, exchange rate based on the exchange rates by endoftheyear. We foresee operating profit to be positively impacted by about SEK 140,000,000 compared to the fourth quarter last year. And if we take more recent actions rates from the 24th January, the positive effect would be around SEK 200,000,000. Tax rate, we guide for the same level as 2018 or 28%. And then when it comes to, addition to plant and property, the guidance for 2019 full year is $2,800,000,000. So with that, I'll give the word back to you, Ali. Thank you, Christian. Well, to summarize the quarter, you can see that, we have a very strong finish to record year. For SKF, we had a good sales growth, excellent profits and a strong cash flow. In 2018, we saw good growth in both our industrial and automotive businesses. Sales grew organically by 7% and our operating profit was more than EUR 11,000,000,000, given an operating margin of 12.9 percent. Cash flow was EUR 8,300,000,000, We have worked hard to strengthen our balance sheet, and we have brought our net debt ratio down to 49%, well below our target of 18%. In light of our strong performance that would have decided to propose to raise the dividend to 6 Swedish kroner. And entering the first quarter, we expect to see relatively unchanged volumes for SKF. So if we take and move to the next place, and I'll tell you and just read to you the demand outlook since the beginning of last year, we have seen a broad based recovery in most markets, and this has continued into 2018. We expect to see relatively unchanged volume in the first quarter, as I said, demand for SKF products and services is expected to be relatively unchanged for the group, including slightly higher demand for industrial and lower demand for automotive demand is expected to be higher in North America slightly higher in Asia, relatively unchanged in Latin America and select slightly lower in Europe. So with those words, I it's to you, Patrick. Thank you, Anuric. Now I think we will be more than happy to go over to Q And A. So operator, please. Certainly, sir. You. And your first question comes from the line of Andre Kukhnin. I'll go one at a time. Just firstly, Christian, on that other line, I'm sorry to start with the most obscure part of the bridge, but could you give us a bit of color on what turned out better, there versus a discussion 3 months ago. I think from memory, there was raw materials at $160,000,000 that we discussed, and I think normal inflation was kind of just under $300,000,000. And then the other items, so just keen to learn what worked out better and how we should think about it for 2019, please? No, I'm happy to do that. As you as you say, we have done clearly better when it comes to cost management in the quarter than what we foresaw at that time. And a few comments that. I mean, costs are have started to go out. I can just mention that we have net, excluding if you take the divestment, we have reduced headcount in the quarter by around 800 So that the cost management, then what I expected. We also talked about that we had high activity levels, we have a higher activity levels when it comes to R&D, different IT implementations and also when it comes to implementing our footprint activities, And we have executed on that in a better way than what we foresaw. So we come out better than expected that as well. Then when it comes to tariffs, we discussed that as well that we have a part in the bridge now Since we have the gross reporting, we have pricing effects from tariffs, we have cost effects. We come out lower also on tariffs quarter. And this the main reason for that is that there has been a U. S. Government decision taken to exempt some bearing categories. And that obviously means we have less costs. But I would just to emphasize there, as you know, we have reported also that we have been working on mitigations and compensated this. And so we don't have profit effects from that, but we have low costs. So I would say overall, we have done better than what we before. So when it comes to costs. And then a mix of that when you say about the same effect for Q1 twenty nineteen, is that pretty similar? Because you will have a technically you may have a 1 month of tariffs already in that Q1 if nothing changes on List 3? I don't know what you mean by 1 more month or tariffs. We still have 3 months. Sorry. I was yes, so what I meant was that when you say it's the same impact in Q1 twenty nineteen at 565 negative, Do you expect a similar mix of the items? I mean, if you take that inflation is as far as we can read out is as we guided. We have a bit higher inflation on its energy, as you know, energy prices and so on. Material costs are clearly. We are we came out even slightly worse than the than what we discussed for the quarter. So one 180, I don't see any, any changes, for the first quarter when it comes to material so that will remain also in the bridge. And the other items, I mean, the remaining parts will also be there in roughly the same when it comes to tariffs and our activities to implement footprint and different investments in world class and so on. Great. Thank you. And my other question was on pricing. In terms of Q4, can you confirm that price effect was more positive than it was in Q3 or was it broadly similar? And then thinking about 2019, we've heard about your peers looking to raise prices from the start of the year, and frankly heard about you thinking of doing that later on in H1. Could you maybe comment on what your pricing intentions are broadly? Well, you know, this is Alrik. Yes, we are Of course, continuing to leverage on the pricing power there is in the market. And of course, we will follow. And lead. I argue that in many cases, we are the leading one, but this is absolutely clear. And there will be some carryover also in from 2018 into the automotive space, for instance. Got it. And on Q4 versus Q3, can you comment? I mean, Q4 versus Q3 is relatively unchanged, I would say, when it comes to it, it's clearly strongly positive in the quarter. And I mean, moving into quarter 1, of course, you know that we raised prices in 2018, Q1, but we are still seeing the quarter as fairly positive or it will be a clear positive pricemix effect also in quarter 1. Got it. Thanks so much for your time. Thank you. Next question comes from the line of Lars Borson. Thank you. Your line is open. Thanks very much. Hi, Andre. Question. I had 2 if I could. Firstly, on the one off maybe more of a bookkeeping question. But I was keen Christian just to get a little bit of color around the divisional split Am I right to understand that all the EUR 1,200,000,000 of gains coming from the linear actuation sale is all coming in industrial? And secondly, can you help me understand the 274288, what comes in industrial and what comes in auto, please? Yes, that linear activation is an industrial business. For the remaining part, I would advise you with to use the business the proportions of the business as the split. Okay. So that so for me, that means a greater part of the 2 82, sorry, because I thought all the customer settlement really were in auto, which would imply most or all of the impairments, therefore, are coming in industrial. Is that fair? I mean, if you want to go down to those decimals, yes. Well, it matters because the division margin trends are difficult track this quarter. But that's helpful. Secondly, if I could just talk a if we could talk a little bit, Alrik, about the Industrial Distribution segment, is slowing down somewhat in Europe and Asia. You're still seeing a very strong U. S. Business. I think it's been clear this earning season we've seen U. S. Distributors quite busy restocking ahead of tariffs. Could you help us understand a little bit what you see on the ground there and whether you see that supporting your business in Q4 and potentially again in Q1? How we should think about your broad industrial distribution business through 2019? Well, from our call, we guide, as you know, we guide for 1 quarter. And what we see is one of the things that we've been working on very hard during the last year is to get away from this year end buying that we used to have. And a more even demand pattern And the main thing is what I think we see is, is in the U. S, that there is a good business underlying business and that there's actually less of these volatility in the stocking than what we used to have. So all in all, it's as we guide, it's positive. And sorry, just finally, any regional call on the automotive demand outlook into Q1. I was keen to understand what you see in Europe and China, respectively, as we get into 2019. Yes. What we see is basically the same. What the big question of course is when, when in Europe, what's going to happen now and more and more companies actually get their cars homologated. And if we will see some better numbers going forward in Europe, otherwise, it's the weaknesses as we see it also in Q4 continuing. Thank you. And next question comes from the line of Gail De Bray. Thank you. Your line is open. Oh, thank you very much. I got a question about the North American performance, which is obviously pretty strong. And it seems there was some kind of acceleration in demand in the course of 2018, in particular, in Heavy Industries, as well as in the energy segment. So could you perhaps comment a little bit about that in light of the recent volatility in oil and gas prices. And, I mean, also what's your exposure to the U. S. Wind business specifically. So that's, well, question number 12, I guess. And then question number 3 is about the FX impact that we got this quarter, which was actually, I think, smaller than expected and relatively negligible this quarter. And then you expect, of course, a much bigger positive impact in Q1. So I'm just trying to understand what are the moving parts here in terms of currencies really? Well, if you take the energy, I mean, it's we've been doing well in the industry in wind during the end of last year. And as you remember, this is a little bit like it is. You have wind parks being deployed and the business growing and we've seen that grow. So relatively, the energy sector has, of course, been spending in North America for us, but it's not the biggest part of our business by far. So it's relatively modest part of our business. As you know, the industrial distribution is actually the most important segment we have in the U. S. So but we expect still to continue with a good momentum in the heavy industry and in the wind going into the next quarter. When it comes to the currency question, I mean, if you take the Q 4, I would say, you're right, we guided for somewhat higher. I would say one clear negative in that is in Argentina. With the peso there, which has impacted negatively. If you take quarter 1, I would say it's the mainly dollar issue, more positive effect from the dollar. I also would like to add on currency for those I mean, if you take the currency effects in the fourth quarter, if you take the 4.8% in the sales, sales impact on currency, and then you take the $25,000,000 of profit, you clearly see that we have a weak leverage on the currency. And as you know, with our currency exposure, that mainly comes from that we have a negative effects from the strong euro, So if you imply that then when you look at margins, obviously, you will get negative effects margin wise from the currency as such. Yes. But that's how our currency footprint look like. And of course, this is something we are working on. Thank you. Next question comes from the line of Marcus Almira. Thank you. Your line is open. Yes, yes, good afternoon. So just if I can ask about the daily sales rates that you have seen in different regions and the especially in the industrial segments given what's going on in the macro front. So what did you see throughout the quarter in Europe and also North America and then China? And how much what growth did you see in China? And what is the mood there on the ground? That's my first question. I mean, you are down in the you're talking about the differences in days between the quarters and so on. And I I don't have that in top of my head. You know, Patrick, in the quarter, if you have a number of questions. No. Sorry if I can just not the number of days before? So that's not any significant impact. And I mean, when you talk about daily say rates, I mean, that's too narrow. I mean, I don't have that clear for me to share with you But I mean, your question was also on China. And I mean, we in general, I mean, we have we do still see very strong industrial numbers coming in, in China in the quarter in 4th quarter. But as you've heard, on automotive side, car side, especially trucks have been weak, I would say, all through the year related to that you had good sales growth in 2017 related to the legislation change. So trucks have been weak in China. Full year, but cars weakened significantly towards the end of the year. And that's what you what you see there in the automotive numbers coming through. Okay. What I was just going back to the first question that I mean, what I was after was obviously how? I mean, if it weakened, if you saw demand weakened throughout the quarter, it was fairly stable in Europe in particular. That was basically I mean, we don't see any trends during the quarter. No, there's always a little bit with in especially in Europe and the U. S. Just before Christmas and New Year's, there's always a little bit of of a delay, but it's nothing that it's completely normal, so to speak, this kind of behavior. So there's no conclusions to draw from the fact that just before Christmas in Europe and the U. S, usually, usually decries a little bit. But that's like it happens every year. Okay. And then if I can ask on automotive, so we discussed at the Capital Markets Day with the Automotive Management about the WTL impacts on automotive volumes and they were expecting them to kind of bounce back. And are you seeing that? And what are your customers telling you right now? Specific on to the new year? Well, the effects right now that we saw in Q4 from from the different, car manufacturers was, was, no immediate. I mean, there was, a complete in line sort of with the kind of development that we have seen without any major differences. So it's still to be seen, but as we have guided, we think this is relatively correct what we see going forward exactly as we have guided them. Thank you. And your next question comes from the line of James Moore. Good afternoon, everyone, Albert Christian. Thanks for taking my questions. I have 3, if I can, and I'm happy to go one at a time, if you like. My first is on pure price. Thank you very much for the helpful bridge commentary question. And without hard numbers, I may prefer not to. And I listened to your comment about similar in the fourth quarter to 3rd, but can you say in this particular pricing cycle, which quarter you see the peak as being? Is it that we've already had it or you still think that the year on year number could go up slightly into the first quarter or if we already had it in the third quarter. If you could help with that, that would be great. I mean, and that's a hard one to give you a response to sorry, James. I mean, you know also that the that the references are coming up also. So no, I will not comment on that. But we see still clearly positive effect from pricing, yeah? And we will, of course, continue, as we have said before, James, throughout these years I think we have shown that we have differentiated value propositions and that there are good possibilities for us to to capture value. And what we have seen now in Europe, where our competitors are also moving it's also something positive. So there's still a momentum going forward. And I think you will see that coming. However, and the carryover from last year as far as our automotive is also positive. However, of course, depending on what happens with steel prices going forward during next quarters, will, of course, influence the whole dynamics, but it will be on both sides, if you understand. I do. Thank you. And in terms of your world class plant by plant automation efforts, you always said it would take some time before the savings kick in and you've done a number of actions in the last few years. I get the sense that 2019 could be a more meaningful savings here from that than, say, 2018 was versus 2017. Is that fair? Yes, it's there are 2 things happening. When you have a stable demand and we're we've been struggling, as you know, during 2018 to catch up with demand, And during those times, when you're struggling to catch up, you can it's more difficult to implement the changes in the factories. Now once the demand is more stable, our ability to sort of speed on with with our investments and get the reap the benefits of course increasing. I see. Thank you. And we're getting better at it. James, we're getting better at it. Okay, thanks. And lastly, currently just to your point about the margin in the quarter and the negative impact, is that particularly skewed to 1 of the 2 divisions? The currency impact on the 25, I mean, when it comes to I mean, generally, you can say that we have a more balanced currency footprint in automotive. Thank you. So you have more I would say generally more of the currency effects coming in industrial. Thank you. And your next question comes from the line of Andreas Koske Thank you. Your line is open. Thank you very much. Most of my questions have already been answered. So maybe I can ask about your reporting structure. This quarter, you started to mention the restructuring costs again, but you don't want to split it up on the different divisions. Is this how we should expect you to report going forward, I. E. That you will mention the restructuring number, but that you will not split it into the different divisions? I mean, you know, we have taken away the items affecting comparability since a while in our reporting and that will remain like that. But since we had a significant things here in the fourth quarter, and that's why we also released press release in early December to help you to guide you in that. So I hope you appreciate that. But no change in our order structure. And of course, as we make investments in factories and so forth, we will try to be as transparent as we always be. Okay. And why do you not want to give us a split between the divisions more than just the proportion of sales? Or if it is the proportion of EBIT Well, I mean, let's not bring up that. I mean, we don't by the fact that we don't have items affecting comparability as official reporting line. We don't have any official definitions of that we can release in a report like that. So we try to guide you with our comments, and I hope you appreciate that. And yes, so that's how we will when it's, when it's meaningful like in this quarter, we will help you with that. And when we do the bigger footprint events and so on, you get these numbers, to, but we will not change any reporting related to that. But I understand why you're asking. Okay. And then secondly, should I just add so I understand you correctly, you do not expect the pricemix component to accelerate in the first quarter. Is that? We haven't comment on that. We said that we will have a clear positive pricemix component bridge in quarter 1. Okay. And that's what you had in Q4 as well, I guess. Yes, it was a clear positive in Q4 as well. Yes. Thank you very much. Thank you. Thank you. And your next question comes from the line of Johan Skobert Thank you. Your line is open. Thank you. I had a question on China and also the impact from slowing auto in China has that been impacting your general or customers more into the general economy, would you say? Have you seen any impact so far from that? Automotive is, of course, a very important part of the Chinese economy. And And when we listened carefully, we look at how the government is now looking at how to try to stimulus stimulate the automotive going forward. We hope that they will be successful. But it's part of the general economy. Of course, it is. And Can I ask you, Kristian, also a little bit about the cost in the for Q1? When you're guided for 5.65, do would you care to split that into raw material and also what is fixed cost? Yes, I can share that with you. Or raw mats. We talk material, so net effects on all the raw material and price negotiations or what have you. We expect that also bridge wise to be unchanged versus 4th quarter. So we are at 180 negative. So 180 Q1, it was roughly 18 in Q4 as well. Thank you. And next question comes from the line of Andre Kooten. Thank you. Your line is open. Thanks very much for taking my follow ups. I just wanted to double check on pricing. And given everything you said, an intention to raise. Could you give us some color on why you're not going as early as January with this? I mean, we cannot comment. I mean SKF is all we're I think we've proven during the last years that we are good at this, and this is how you calibrates the different markets and how we've been increasing. And it's not only the list increase, as you understand, that's part of the pricing. It's a much, much more complicated, but also with many more possibilities to work with, with price. I think what we what you will see is that SKF is diligently recovering the costs inflation in the marketplace and more than that and that we have a clear intention to continue with the same policy going forward. Okay. Okay. So it's kind of tactical rather than anything structural? Come and meet me one day and I'll explain to you in detail how how pricing in the different market segments and things like that are actually conducted it. I definitely will. Can I just, while we still have maybe time, can I just check on a couple of other things? On VSM, you said that there was down significantly in North America and also down in Asia. Could you give us some color on what's going on there? I mean, I think it's definitely so that as there is industrial dynamics, clearly in this, we believe, in the end of the year. And, but more than that, I cannot say. So U. S. Is a blip in Q4 or sort of change in dynamic? There's clearly a sort of destocking at the end of the year, given the better availability that we see in the marketplace, but I can't say more than that. Got it. And then very final one. On your kind of plan for inventory and flow management for 2019. The guidance for Q1 is clear. And I presume with that, you'll be taking out, at the usual sort of ratio, if you're taking 1,000,000 P and L hit, there'll be somewhere just over $300,000,000 of inventory turned into cash. But how should we think about the rest of the year if we carry on in this say stable ish volume environment, would you intend to take inventory down further and then maybe more for Christian, how would that work on the bridge? Or do you expect to work on the bridge given that you already started in Q2 2018, should that turn sort of too neutral if you're taking out inventory at the same pace as you did in the last 9 months of 2018? I passed the bridge discussion, but I think you've heard, I mean, we were reasonably visit on our ambitions when it comes to working capital to sales ratio going forward at the Capital Market Day, And you also got some flavor on the activities we are working on with integrated planning systems and other activities And also, of course, all what to do with the world class investments, improved flexibility and so on, that should give results. I expect that to gradually give results independently or if you have these or the other because that's we are improving our way of working on that. So I cannot give you a number on that. And of course, if if volumes would drop, inventories would drop more also. But I mean, that's just speculation. Are working on performance improvements and that we should see effects. Okay. And sorry, in Q4, the move on the inventory sequentially on the balance sheet was SEK 160,000,000. And that, I guess, was lifted by FX and then taken down by disposal What was the underlying move in Q4? I mean, in the Q4, in the absolute terms, for in the Q4 year over year effect because you had also last year's effect there. So in the level in fixed currency and so on, somewhere 5.50. So I wouldn't I don't remember exactly it was 2.50 this year and 3 last year or the vice versa, but that's where we are. So it was a good improvement, So 5 50 is the full year inventory reduction, basically, like for like? Full year, it's a Q4 year over year. That gave the 110 that we mentioned. Thank you so much. We thank you very much for listening to this Q4 conference call for SPS. We do look forward to meeting with you within the next couple of days. Thank you so much. Bye bye. Thank you. And that does conclude our conference for today. Thank you for participating. You may all disconnect.