Earnings Call: Q4 2020

Feb 2, 2021

Good afternoon, and welcome to this presentation of the 4th quarter results. Today's presenters are Alrik Danielsen, our CEO and Niklas Groesenleb, our CFO. After the presentation that will last for 20, 25 minutes, we will, as usual, have a Q and A session. For that, we will use the chat function in this portal. So please make use of that and post your questions and we're happy to answer them afterwards. With this brief introduction, I leave the word to Alrik. Please. Thank you very much, Patrick. And as very welcome, and I'm so pleased that so many have chosen to tap into today's presentation. I am so happy to see that SKF has delivered a very strong end to this very difficult and volatile Yeah. And to me, it is yet another quarter where we prove that the strategy that we set for ourselves Some years ago is actually delivering the expected results. The transformation of SKF continues, but That we are now on a different level than we were a few years ago, I think it's obvious to see. Look only how we have managed this Very volatile situation. And on a quarter where we had unchanged sales, we delivered margins over 13%, up from 10% last year. Cash flow also, that's always is our forte as you've heard me say many times, but this time Almost SEK 2,000,000,000, SEK 1,900,000,000 compared to SEK 700,000,000 last year, where we've really been able to keep Good track of both accounts receivables, accounts payables and also the working capital. I think it's a good month where we have shown that cash flow is our forte and We'll continue to be so. And what has it resulted in? What we have done, as you know, you remember many years ago when I said that we need to And I just need to take the opportunity now and to thank all the colleagues for making this possible because It is, of course, everybody's hard efforts and everybody taking real charge that has made this possible. So if we go to Slide 3, Industrial Market that we can see that we had strong results. Despite a 4.4 Percent lower sales than last year, we delivered an operating margin of 14.5%. And higher very much higher volumes in Asia, significantly higher volumes in Latin America, but then To arrive to a total that was lower than last year, lower volumes in Europe and North America. We've been very good, I think in adapting to the volatility in the marketplace and there's the hard work That we have done is continuing now to pay off in the industrial business. So now if we go to Slide number 4, We talk about the automotive business, then we can say that for the first time in modern history, I think That we have a double digit margin in the automotive. And I mean, it's I'm really, really pleased. We started During my tenure with the automotive turnaround plan, we have improved. Last year, we started with the last Sort of notch on it, and we are now seeing the results coming through. Having said that, of course, 10% It's an extremely strong result, and there is a little bit of a sweet spot there. We've had tailwinds coming from The 11% volume increase, of course, and there are a few percentage points there that could be attributed to this. But I am confident that you will see now that we will have a better profitability in our automotive business going forward. And I'm so impressed with the team how they have been able to sort of follow this market, especially in the OEM business For both trucks and cars that has been growing so strongly. With these comments, we will now go through The results more in detail, and I will leave that to you, Niklas. Thank you, Alrik. Thank you very much. So if we turn to the next page and we'll start off with sales. So sequentially, Our organic sales continued to improve, albeit from the very low levels seen in Q2 through a moderate decline of 5% negative in Q3 to now an almost flat sales year on year in Q4. Compared to last year, our net sales decreased by 7.7% in the 4th quarter, while organic sales were 0.1% lower than last year. As you can see, the currency effect on sales was substantial At negative 7.6 percent in the quarter, with the largest effect as usual coming from the dollar, the euro and the renminbi. 2020 was, as Alrik said, a very challenging year with massive swings in demand, And we have responded to this in a great way. Despite the tough external circumstances, It's very pleasing to see that we managed to see or serve our customers really well throughout this volatile period. The improved flexibility and lower cost base has also materialized in excellent profits and in strong margin resilience. And with this, I also want to extend a big thanks to our colleagues who everyone have contributed to this throughout the year and throughout the Q4. In the Q4, our adjusted operating profit was SEK 2,600,000,000 corresponding to a margin of 13.2%, which is an improvement of almost 3 percentage points compared to Q4 last year. So our efforts to transform how we work delivered good results in Q4 And these efforts do continue, as Alrik said. We are investing in innovation. We are improving our competitiveness And continue our push within sustainability and we are also adapting our operations, our ways of working. So in sum, Q4 was strong and we continue to transform our business. If we then take a look at the profit margin, our profit improved on flat sales despite strong currency headwind. And this is again back to our continuous investments In innovation, in competitiveness and deliver structural cost savings. So if we go through the bridge a bit more in detail, Firstly, our currency impact was negative by SEK 645,000,000 compared to last year. On the other hand then, our operational performance was more than SEK 1,000,000,000 positive year over year. And commenting specifically on the operational performance, our organic sales and manufacturing volumes were lower by SEK 14,000,000. We had a negative effect from lower sales and production volumes. But on the other hand, we had both price and mix contributing positively in the quarter. What comes to the cost development, it continued to be good. We saw a net cost reduction amounting to SEK 1,100,000,000 compared to last year. And If I comment on the SEK1.1 billion cost reduction, it included a very small SEK30 1,000,000 of government contributions. And you could say that a bit more than half of the cost reduction is permanent. During the quarter, we had a net reduction of approximately 200 permanent employees, and this is part of the competence shift that we have been going through and continue to go through. So for the year, the net reduction in permanent employees was 2,400. And we've continued at the same time hiring more than 1,000 people. If we turn to the next page, looking at our performance within Industrial, as Alrik said, the organic net sales decreased by 4.4%. Sales were higher in Asia, significantly higher in Latin America, While then on the other hand, we continue to have lower sales, actually significantly lower sales, both in Europe and in North America. The adjusted operating margin was 14.5% in Industrial compared to 13.3% last year. And if we think about what contributed to this, of course, cost reductions contributed positively, While on the other hand, the lower sales and production volumes contributed negatively. For Automotive, The organic sales increased quite strongly by 11% in the 4th quarter. So sales were significantly higher in Asia And in Latin America and also higher in both North America and in Europe. Within automotive, we have been successful in delivering on the higher demand to our OEM customers for both trucks and within the car segment. Combined with our work to structurally lower our costs, We managed to leverage on strong sales growth. And the adjusted operating margin in Q4 for Automotive reached 10.1%. When it comes to our net working capital, it was 26.1% of sales At the end of the Q4, which was 1.6 percentage points better than at the end of Q4 last year. We reduced our inventories during the quarter and inventories as a percentage of sales improved compared to both last year and to the previous quarter. And what comes to our receivables and payables, both increased in Q4 compared to last year. Our cash flow in Q4, as Alrik said, was good. Excluding acquisitions and divestments, it was SEK1.9 billion compared to SEK700 1,000,000,000 last year. Here, the net working capital contributed positively and we had lower investments than last year. Saying that, The slightly lower investments in Q4, if you look at it over the whole year 2020, we continue to invest at a similar pace And level as in 2019 despite the economic downturn. The cash flow for the last 12 months was SEK 5,200,000,000. What comes to our balance sheet, it continued to strengthen during the quarter. So we have a strong balance sheet and it strengthened further, and we also have a solid liquidity. Our net financial debt went down in the quarter. And at year end, we had SEK 700,000,000 in financial net debt. And just to put this into perspective, It was SEK 20,000,000,000 back in end 2014. The net debt to equity ratio, excluding pensions, was 9.3% further down in Q4. So to sum up our Q4, We continued implementing our transformation journey. We had flat sales, we had improved profits, we had higher margins and we had a strong cash flow. Operationally, we continue to regionalize and consolidate our manufacturing as well as investing in automation across the board. We also continue to invest in new technology and in customer offerings and will continue to do so going forward. Finally, what comes to sales guidance for Q1, we've seen a gradual improvement in demand during the second half of twenty twenty, And we do expect to see a mid single digit growth in the Q1 of 2021. And with that, I'll hand back to you, Alrik. Thank you Thank you very much, Niklas. Excellent presentation. And what a journey it has been. I tell you, you know, you all know that I am this may not be my last But it's, of course, one of my last. And it's been a fantastic 6.5%, almost I mean, I started 2014. And I must say, it's been an incredible journey. I mean, we have reaffirmed our leadership around the rotating shaft with all The relevant technologies, we have increased our way of working with our customers and So on their needs and having customer focused and application focused solutions. Our green offerings, when we talk about how Not only we reduce our own CO2 footprint and our own waste, how we are now so well positioned not only to Now, but also in the future, help our customers to reach their environmental goals. I mean, this is one of the things that just Blows my mind in how this is happening. And we have created a more flexible organization, Full of real competent and self governing people who really know what to do and takes charge And they take accountability what needs to be done. We have really ramped up our investments in our factories in automation And state of the art manufacturing, we have strengthened our balance sheet. You heard What the figures that Niklas mentioned, and we have improved our profitability. And most importantly, it's not only for today. This is a sustainable development. And I must say, we've had quite a lot of fun doing it, too. So I want to thank all the employees, customers and stakeholders All around the world, also you from the investor community, I want to thank you for helping me and making this fantastic journey possible. Thank you very much. And with those words, I hand back to you, Patrik. Thank you, Alrik. And with that, we go into the Q and A session. Welcome back. We have a number of questions being posted on the chat. Good to see that. First question comes from Daniela Costa at Goldman Sachs. So, three questions actually. First one is, what is your confidence regarding the sustainability of current Orders margins through 2021. Sure. Hi, Daniela. So we've We made a number of improvements within the automotive business and we are quite confident that over time, we'll continue to improve The performance of Automotive, not saying specifically commenting on the 10% margin we had, But we are very confident that we'll continue to sustainably improve the business performance. Second question then, what are the reasons for the sequentially lower industrial margins given still Likely low level of discretionary spending and increased automation efforts lately. Well, Daniela, The Q4 is always the lowest margin quarter we have in SKF. And actually, we have improved our margins very much during the Q4 About the last year, do you if you see sequential, it's always like that in SKF. So this has been a fantastic quarter for industrial margins as well, Giving exactly what you say, all the efforts we're doing to be more competitive. Thank you. And then the 3rd and last question from Daniela. What are your capital allocation priorities going further post the higher than expected dividend increase? Okay. Daniela, innovation, continue to invest innovation and green technology and New solutions and continue to invest in our factories and our transformation. And of course, we're looking at acquiring, And then we will make dividends. Good. Then we have one question from Gael de Bray at Deutsche. Could you please Give a bit more granularity on the 11% growth in automotive. Was it for trucks, aftermarket and light vehicles? And same question for EV versus ICE related demand. How do you see this trending in Q1? Well, if you look at What happened, of course, we had growth both in trucks and aftermarket, strong in Asia, but in all regions. But it was basically sorry, cars and trucks OEM business, that was a strong growth. Aftermarket was okay, some growth, but and in all regions. So it was a real Good all over the board, so to speak. And when you look at EV versus ICE, we are strong in EV. So as EV grows, It is important for us, too. And of course, as electrical powertrains will be sold more and more in the future, we will also do so to this segment. And as you understand, and I've said it before, for us in SKF, the electrical drivetrain The mix the shift over to electrical drivetrain is actually an opportunity. Moving over to risk at Jefferies. Can you please help us understand The 11% organic revenue growth in automotive in light of light vehicle production up 2.5% in Q4. How did inventories move in the quarter? Well, What we see was a true demand from customers around the world and in China. And I haven't seen actually the Our customers' automotive inventories, but the way we see it right now is that sales is continuing. In our inventories, we had basically very little effect on inventories in SKF. Good. Thank you. Then we move over to Citi and Klas Bergelind. A question on savings. On the temporary savings, I get these 200 basis points worth of margin for 2020. I know it's difficult to guide, but how much of this is linked to less travel and other discretionary spend that might not fully come back after the pandemic? Yeah, good question, Klaas. And I mean, out of the if we comment on specifically on Q4, Where we had a bit more than SEK 1,000,000,000 in cost down versus the prior year, More than half, call it 60% or so of those savings in total where such that we deem them as permanent. So the ratio, if you remember, if you go back to Q3 and Q2, where we said that it was roughly half and half. Now we had a bit more in permanent savings. And exactly as you say, it is of course a bit of a gray line. I mean what will travel go back to when it's so to say back to the new normal. But anyway, we deem that more than a bit more than half is actually permanent of our savings. And then another question from Klas on raw materials. Can we talk about likely headwind on the scrap side on current spot rates? Is this SEK 300,000,000 to SEK 400,000,000 and with the effect to come with a 2 to 3 quarter lag from the scrap prices started to increase? Yes. I mean, there will be Headwinds, I mean, I don't know exactly maybe you have a better estimation what it is. I don't know exactly how much it's going to be. And there's another headwind from transportation right now, as you know. But we are confident with the kind of market situation we are right now, we are confident that we will be able to offset those headwinds. So we see this not as in the short in the coming quarters or as a negative. Good. And I might add to that, Klas, that yes, we did see a very slight Negative effect from raw materials in Q4. Yes. But normally we have about 2 to 3 quarters lag from spot prices. Yes. That's correct. Moving over to Nordea and Andreas. It would be very helpful if you could give us some Thought of guidance for what to expect from cost development line in 2021? Yes, if I comment on that. So We've been quite successful in 2020 to take down the cost year on year. And actually, if you go back to Q1 2020, it came down, was it SEK500,000,000, SEK600,000,000 already back then. So of course, one aspect to keep in mind is that the comparable now that we are in 2021, the comparable will become much tougher. Another point going back to what we've said earlier throughout 2020 is at roughly half and half permanent temporary And that maybe gives you some indication. And then of course, as you've seen, the net reduction in personnel was roughly 2,400 persons during 2020. And that will of course then carry over and not all of those were You know, the reduction didn't happen 1st January, so it happened throughout 2020. So you'll see a good impact, positive cost impact from that during 2021 or going into 2021. So maybe I'll stop there. We don't provide as such an exact guidance for the cost, But we are quite confident that both there will be both a carryover from 2020, which is quite obvious. And then, of course, we continue to work on this. We didn't stop end of December 2020, but it's the whole transformation is a continuous journey. And if I may add, I mean, if you see what we've done during this volatile year, I think we've shown that we have a completely different capability nowadays to adapt ourselves quickly. Thank you. A second question from Andreas. Regarding the outlook, could you please share with us what you think in terms of organic growth for your 2 divisions in Q1? Do you expect both divisions to grow by mid single digit figures? Well, The short answer is no. And I guess we do see continuation of automotive still being strong. We do so it won't be the same for both. But going back to Q4 again, I mean, Industrial negative 4 and a bit 4 and a change and then quite strongly growth in automotive And maybe that gives you some idea of calibration in Q1 as well. Thank you. Moving over to the UK and James at Redburn. Two questions. When I look at your guidance for organic sales of about 5% year over year growth in Q1, I calculate it implies that daily organic sales would drop by about 2% to 3% versus the 4th quarter. Is Is it possible this is conservative? That's the first question. Hi, James. Not entirely sure about the calculation behind this. Year on year, mid single digit is our guidance. And if you would compare that to Q1 Our Q4, sorry, I mean, should be around similar levels, Gunther, if you pick a midpoint there from the guidance. And Patrik, if there's anything you want to add there? In terms of daily sales. Yes. Yes, probably. Moving over to the continuation of James' question here. Can you talk a little bit about how December grew year over year And how January developed to help us understand what you imply for February March? Yes, we do try to move away now that we give an indication of the whole quarter from commenting On weeks, one reason is of course that the comparison point, the volatility with COVID starting to hit in 2020 You know, it makes it a bit tricky to look at week by week or even monthly development. But I think if you take a slightly longer perspective, what we did see throughout kind of second half of twenty twenty Also gradual, nothing dramatic, but a gradual pickup, a gradual recovery. And you could say that we saw a similar Development also throughout Q4. So that's maybe an indication of how we see Q1 as well. Good. Mehdi at Bank of America. Industrial growth appears to be softer. Can you please give some color around why this is the case? On the other hand, autos growth is quite strong. What was it driven by restocking or this is part of secular demand growth? Then a continuation of that question, but I'll leave it there for now. Well, the What we have seen in the automotive side, as we have said, we've seen a strong sort of growth In the Q4 and that goes directly into when we deliver, while in the industrial side, there's more industrial dynamics And of course, the kind of general sort of economic following the general economy More than a certain sector like the transport sector has been strong during the Q4. So I mean, I think it was expected that we would have a softer development in the industrial side, but we've been growing okay in Latin America. We have Been growing in Asia and it's been softer in Europe and the United States. You want to add something? No, I think that's quite clear. And a continuation there, I think it relates to pricing to some extent. Can you talk about auto volume growth versus organic growth? Yeah, you take it. Yeah. As a whole, we had a positive price mix in Q4 And that actually goes for both industrial and auto as well. Maybe that's the short answer for that positive price mix. Not a massive one, small one, but nevertheless positive. Good. Let's move on. And now we have a question from Swedish television actually. You received government support in 2020, but finally paid it back. Does that imply that you in hindsight never was in the kind of severe problems that justified government support. That's the first part of the question. The idea with the government Support is to prevent companies from having to when you have a short dip to sort of Get rid of people and keep people employed. And when they changed the rules and we had done the dividend, it was already decided that we were not going to get any. So it was a clear decision. And as you see, we have created a very good result despite This, but on the other hand, unfortunately, there has been quite a few people who've unfortunately had to leave SKF. A continuation of that question from Swedish Television as well. How do you feel when other companies who did not pay back support, give extra dividends this year instead. Well, I am not the person to have any opinion about that, unfortunately. I'm sorry. Good. Then let's leave television and we'll move to JPMorgan and Andy Wilson. Two questions. First one, please can you discuss your expectations on net working capital as percentage of sales in 2021? And how much of the Q4 gains can be retained? So, hi, Andy. So we did improve Our net working capital in Q4, 26% and a bit more of sales, Down from 27%, 28% earlier. And as you know, I mean, our long term goal target Is to take it down to around 25% and we are still quite confident or continue to be confident that that's Something that we can reach. Of course, one thing to keep in mind is the volatility in volumes which affect This quite significantly. We are quite pleased with how we handled it During 2020, so despite the extreme volatility, we managed to kind of keep it at a decent level and actually managed to improve it also throughout the year. So over time, of course, the direction should be down as a percentage, But it won't happen every quarter, depends a bit on the volatility in volumes. Good. Second question on investments. Does the CapEx guide of SEK3.6 billion include lease payments? No, no, no, it's excluding lease payments. So this is comparable to SEK 3,300,000,000 we had Actually in 2020 as well as in 2019 and now we step up a notch. And As we talked about before, I mean, these investments are quite important to kind of not only maintain, but significantly improve our competitiveness And obviously, it has an impact on the ability to manage cost and so on and so on. So we're actually quite happy with Increasing the level here. All the investments we're doing are good investments with good returns. Good. Then 2 questions or 3 questions actually from Andrew, sorry, at Credit Suisse. First question, it's about the industrial business. The sequential margin development, in Q4, it declined by 130 basis points versus Q3. Despite an improved sales run rate, could you comment on the drivers, please? Well, again, I mean, as Alrik said earlier, we have a seasonality in the industrials business and We think the 14.5% achieved in Q4 was actually very strong. It was up roughly a percentage points year on year Point year on year despite sales going down a bit more than 4%. So in that sense, I would actually say that it was Quite a good improvement and definitely the direction is pretty clear. Good. Second question about manufacturing impact in the Q4. Could you please quantify that? Okay. For me. I would say on a general note, we produced on a slightly lower level than what we sold in the quarter. So in the quarter, we had a very slight headwind as we did last year. So not a material impact, put it that way. 3rd question then, market share gains cited during the presentation. Could you please quantify SKF market share now versus 1 or 2 years ago? Are there any notable regional differences? We don't go into quantifying our market This ends, but you can see, you can understand, we're strengthening our position in several segments where You can also see that we're doing well. And this is not for anything that we are growing well in certain segments that you see in our report. So, I think you can see that we are defending our position in many goods in many segments we are growing, and we are more Competitive now than we were a few years ago without going into specific numbers on market shares. Maybe just to add, So what we do see is that we have continued to and continue to increase our market share overall. Good. Then we move further down the list. Ben at Morgan Stanley. 2020 is another year where SKF has done a great job on margins, going up from 11.8% to 12.3%, but Still we see return ROCE coming down from 13% to 10%. Yes, absolutely Ben, you are right here. Margin wise, of course, if you look at absolute numbers, profits, It's not up significantly if we talk about profit. And as we all know, 2020 was quite a challenging year in many aspects and we also had lower sales. But as you say despite that, we continue to improve our margin. Of course when it comes to capital employed, We've added to capital employed. So it's quite natural that we see this development Return on capital employed. We are quite confident and we can see it if you look at the quarterly return on capital employed That it's turning back up now and we are quite confident that we can continue the upward Slope here and improve also return on capital employed. There's a continuation here from Ben as well targeting Investment rates. And Ben, you're right. Is this because SKF continues to invest above its growth rate as it has done for several years. How does management think about this equation? Does it really matter? Or am I making a fuss about nothing here? And how can you get your ROCE back to 16%? I think that Niklas partly, of course, answered it. As we drive Profitability and growth, we will due to the fact that all these investments are actually good investments that lower our costs And make us more competitive that they will drive better profitability. And you can understand that any company, any industrial company today, I would argue, With this very fast changing world, with technology coming in, digitalization, automation, if you don't invest in your core business, No way will you be able to keep your profitability. So from my point of view, this is one of the strengths of SKF now that we are Really investing in becoming second to none as far as our value chain? Yes. I guess In some, I mean, investments, we are quite seeing it quite clearly that it will over time enable a higher profitability. And then when it comes to the overall return on capital employed, we are quite confident also that, that will continue to Improve and of course, part of what you see in this is already coming out of this of course. Good. Question from Seb at RBC about working capital. Working capital looks neat, but with automotive rising fast, what is your view on working capital sales ratio in the coming quarters? Should we expect a rise into the recovery? Question for Niklas? Yes. Again, I mean longer term, we see that SKF overall will go towards that 25% The ratio of sales, but of course there will be fluctuation quarterly And also depending on volume, but longer term that's the direction. Of course, as always, when going into A kind of a not only a recovery, but eventually also a growth in the economy That will tie up a bit more capital. There's no question about that. That's just natural. But over time, we have a clear Good. And another question from Klas at Citi, targeting pricing versus raw materials. Probably a question for Alrik, do you want to take us here? On pricing to offset raw material headwinds, have you already discussed price increases, which will fully offer increased cost inflation? How should we think about price versus cost through the year? And through the year, I don't know. But for the coming Forthcoming with what we have today, what we can see today, the answer is yes on both accounts. I mean, we have already started and we are Thinking that we should be able to offset cost inflation in the next quarter. Here, a question from Lars at Barclays. APAC growth was 7.7% in Q4, largely in line with Q3. What held back growth in APAC in Q4? Was it mostly the Marine segment? Well, what we saw a little bit softening, you want an answer, is railway During the quarter, but of course, aerospace and also a little bit marine. And a specific question on China. And can you comment on China growth in Q4 versus Q3. And potentially also, if they might ask, of course, an expectation for Q1. I think overall, of course, what we've seen in China is a strong recovery. We continue to remain quite positive about the business in China. Of course, now when going into 2021, there's always a question of the bond rates, when Timing of COVID hitting China, but anyway, we remain quite positive about China. What it is? Yes. Alrik, Patrick, anything to add? No, I think we're good there. Another question from James at Redburn directly to Alrik. Hi, Alrik. Congratulations on your time at SKF. With some genuine structural improvements over time, especially on the cost base, what do you think the key challenges are for Richard Gustafsson, your successor? Well, first, I want to say I'm really happy. As I said, Rickard is a really good person and a good leader and will be an excellent team leader for SKF. I'm so happy both for SKF and Team leader for SKF. I'm so happy both for SKF and hopefully for him. And right now, I think we have a good strategy. So it's about implementing the things that we have been talking about. And one of the great opportunities that I think is lying ahead of SKF is The green, clean tech agenda, where you see now how coming out of the COVID crisis is actually coming Reinforced all governments are going for reducing waste and reducing CO2. And we have such a fantastic portfolio of things that we have been talking about, our recon bearings, our reconned oil, our Possibilities to help our customers to reduce waste and I think this is one of these fantastic growth areas. Then, of course, also, like always, innovation. There's so many cool things cooking in SKF. We have become so innovative, And I am really, really I'm going to look at this and I'm sure that there will be coming so many things, New things out of SKF coming going forward that would further strengthen our possibility to both take market share and make money. But I don't have to teach And Rick had anything. He's a seasoned and very good leader. Thank you. Question from Hampus at Handelsbanken, getting back on the automotive segment. Light vehicle production is expected to grow by 14.6% in Q1. How should we think about automotive Organic growth in Q1 given the outperformance in Q4 2020, have you seen any changes in autos due to shortage on semis semiconductors? Well, the answer is not yet. But of course, this is how it works. If there is a true Longer stoppage due to this with some customers. Of course, those customers will not produce and during that time, they will not demand our products. On the other hand, I believe their order books are quite okay. So of course, then they will hopefully try to catch up. And I think maybe still back to one of the earlier questions also. But because if you think Different segments, we do expect automotive to relatively to some other be strong also in Q1. Then on the other hand, Aerospace is more in the weaker category. So definitely, we do remain At least short term positive about automotive relative growth. Two questions from Anders Rosen at Pareto. One question on automotive, which I believe we already answered, so I'll pass that one. But you're also asking about how much long term savings do you expect for 2021? So we are continuing the transformation. We've talked Transformation, which is a pretty broad concept, but we are continuing the transformation of SKF. And of course, one part of that It's cost efficiency and cost down to be very specific. So we do expect to see more of those actions also throughout 2021. Of course, if you from a modeling perspective compare year on year, the comps will become much tougher now, But it's a continuous thing that we are working on transforming SKF. And I think just to add, I think you've seen that we are We are much in a much better control of this now than we used to be some years ago. So rest assured, we will stay on the ball. Two questions from Olof Soderholm at ABG. First question on the outlook for Q1. Do you expect all regions to grow? If not, maybe possible to give some color on what you see out there per region going into Q1? Maybe without specifically giving a number on each region, but looking back Q4 and Q3 as well. And Alrik said it here earlier that I mean what we've seen is Asia very much driven by China You know, continuing to be relatively seem strong. Same goes for Latin America, while then Europe and North America being weaker. And there's I mean, if you look at the economy, of course, Obvious reasons in Europe for the slowness. But also in these regions, there's been a gradual, although not yet You know, in positive territory, but gradual improvement, but relatively seen Asia, Latin America stronger and then Europe and The U. S. Weaker. 2nd question from Olof on automotive and profitability. Do you have higher margins on the EV related products versus the combustion related products? Well, yes. Traditionally, this has been true. And but on the other hand, if you see, we are now improving our profitability on the combustion related products, too. But on the other hand, what is our most sold product? It's actually wheel bearings. And these wheel bearings, they go both On combustion engines, car driven cars or combustion drivetrain cars and On EV cars, so with this latest Sort of we are investing in our to be competitive in our factories. We are streamlining our organizations. We are becoming more innovative. This is the things that is partly what you see the results coming in now. This is the good part. It's sort of A new way of addressing the market. Good. Entirely different question moving To net working capital and a question from Christian at Liberum. Question from Christian then on working capital, which fell by 160 bps to 26.1% in Q4. How much is FX driven and how much comes from lower inventories? Yes. Hi, Christian. I guess, the short answer is a bit of both. There There is an FX impact, but we also see and saw throughout 2020 a higher efficiency Overall, so a bit of both. And as said earlier, kind of longer term, We have a pretty clear goal and also see that we should move and will move towards that goal longer term, So 25% of sales working capital. Thank you. And a question from India on India, from Ravi at Securities Management India, SKF's Group's view of India as a growth market. Definitely. Namaskar. We believe that there's a fantastic opportunity in India. And we have invested In several manufacturing and technology in India, and we are determined to continue To grow and invest in India for the future. India is one of those markets that has the full value chain, feed production, everything, and there's A growing market as well and high technology all the way from all segments, from the most advanced Aerospace to machinery and wind and marine and of Automotive and Industrial Applications. So, it's definitely. Thank you. More strategic question from Ben at Morgan Stanley. A follow-up to his initial question. Instead of investing in SKF's core business, would it be possible to move More into different or adjacent businesses, for instance, like Atlas Copka has moved into vacuum and Machine Mission, Sandvik into verification Could this be something that SKF would consider instead of putting SEK3.6 billion into the core business? But please understand, this is exactly what we're doing. Look, we have our SKF AI out of Israel With it's driven out of Israel. We have an extreme advanced service business where we can help you To detect absolutely everything what's happening inside your machine, of course, with a certain expertise around the motor rotating shaft, but way beyond that. So We are this is what we have been doing. If you look on what we are doing, for instance, as far as reconned oil, when we have a new technology where We clean oil, we recycle oil, but with oil, the whole machine works in a completely different way that gives us not only the possibility To go way beyond the bearing, but also tap into the our customers' absolute needs For a cleantech and a circular economy, when we are looking at many of the different things that we are doing, It's all to take to be that high impact for a trouble free operation Of the whole machine. So yes, but we are already doing this. And I apologize, I mean, if you have missed that, we must sort of Be more clear on what we're doing on that. Another question for Andriy at Credit Suisse. Two questions actually. First one on personnel. The S. GAAP transformation continues. What level of net personnel reductions would be reasonable to expect in 2021. I guess for obvious reasons, we don't want to put A number out there. Again, the transformation absolutely continues and what we did in 2020 was a net Reduction of 2,400 roughly and that's a net reduction. We had a higher reduction and then we hired Some 1,000 people. So there's a transformation of the competence base going on. And a bit back to what Alrik said here earlier, I mean, we've grown the AI center from less than 10 to more than 50, Then goes for the kind of oil rejuvenation and so on and so on. And of course, on the digital side of things, there's a lot of Things happening in terms of transforming SKF and transforming the competence base. But as we said earlier, we will continue the transformation. We are absolutely not done with it Without giving an exact number for 2021. And then your second question is on the temporary cost savings, but I believe Niklas has already answered that. So given that we have 3 minutes left, we will move on to the next question, which is actually our last question as well. It's from Joel at Berenberg, relating back to the Capital Markets Day. And at the Capital Markets Day, you talked about SEK 5,000,000,000 in terms of savings by 2025. Do you consider the Structural savings achieved in 2020 to be part of that SEK 5,000,000,000 or is that yet to start coming through? You'll get the last one. I get the last one, okay. But no surprise. I think the SEK 5,000,000,000 savings was based on 2019 as base here. That's the reference point, to be clear. Alek, final two minutes to you. Well, Thank you for so many questions and for all of you to listen in, and thank you once again. I mean, I'm so pleased. Look, what a Strong result despite the headwind from currency. And I'm so proud That I mean, it's not my last quarter. I still have one to go, but it feels really good to feel that what we started out in 2014 And what I said and what I promised together with the team, what we said that we were going to set out to do, we are on a good way of achieving this, And that makes me so happy. And James, thank you for your kind words. Thank you both. And with that, we will close this Q and A session for the Q4 results. I believe we have answered all your questions in the chat function. But if there's anything more, you know where to reach us. Thank you. See you next quarter. Thank you. Thank you.