Earnings Call: Q3 2020

Oct 27, 2020

Welcome to the presentation of our Q3 results. As of this quarter, we'll use videos on Teams instead of the traditional telephone conference. This also means that we will use the chat function for the Q and A session. So please post your questions there and we will answer them after the presentation. Today's speakers are our President and CEO, Alrik Jan Nielsen and our CFO, Niklas Rosenlehr. With that, I leave the word to Alrik. Thank you, Patrick, and welcome to the SKF Q3 call. And I tell you, I'm so pleased to stand here in front of you, also this quarter to present yet another solid set of numbers. As you know, we have been working many years and hard now for to implement our strategy and it's starting to drive the rumbles for real. Despite a 5% lower sales than last year, we managed to create a 13 plus percent operating margin. I think this must be some kind of record in SKF history. I have to look back and see how far back we have to go for to see these kind of numbers. Of course, it's based on this that we're actually doing what we set out to do and it's starting to have these kind of results. Cash flow, if you remember in the second quarter, due to the low sales we were suffering, now we've come back strong and we've shown again that cash flow is a farter from SKF and we have delivered more than SEK2.2 billion, almost SEK2.3 billion in positive cash flow during the quarter. If we look at the next picture, we saw the Industrial business having also very good performance. You can imagine with a drop in organic sales of almost 7%, we managed to kick in with an almost 16% operating margin. And we saw higher volumes in Asia and Latin America. We saw significantly lower volumes in Europe and North America. But nevertheless, we managed this excellent result. And again, thank you to everybody. I mean, it seems like this is going to be my theme. Thank you. Because it's of course a lot of hard work behind it. The picture you see here is a unit that we are doing for tidal wave energy, where we will help to harness the in Scotland, the energy in the tidal streams of the coast. And this is yet another example I think where we're putting our knowledge to use to develop solutions for energy and environmentally friendly technology. We take the next step. We're talking about the different areas. We can see that what we have done and we've been talking Europe for Europe, Americas for Americas and Asia for Asia. This quarter the highlight is on North America, where we have invested 300 we announced investments of $350,000,000 in expanding our manufacturing in Sumter for slewing bearing in South Carolina, that we are putting $200,000,000 investment in localizing manufacturing of shaper roller bearings in Mexico coming from China. It's not only going from Europe or to China, but it's also going the other way around. And this is what's possible with Industry 4.0 Automation and Digitalization. You can basically be competitive with the right technology, competitive everywhere. And this means that we are actually consolidating in North America completely according to the strategy that we have set out. If we turn to the next page, talk about Automotive. I'm so pleased to see that the high pace of transformation that we have been driving now for a while is really starting to give results. And despite a slightly lower organic sales in the quarter compared to last year, we managed to create an operating margin of 7.4%. We continue, as you can see in this picture, this is what I want to show with this, to grow in the electrical vehicle side with with excellent new offers and a good traction in the electrical powertrain all over the world. And I'm really pleased because we know that this is the of course, this is the future. And as of this month, Norbert Neumann is helping me as the new responsible for automotive our automotive business in SKF, and I'm really pleased with that and that will give us increased traction in this area. Next page, I just have to talk about CleanTech and what we're doing. You know, about in June 2019, we acquired a new technology. Now we have developed it. It's our technology. We have a possibility of cleaning oil down to nanoparticles. And you can imagine, it's not only about reusing oil for better environmental very big environmental effects, but also lower costs, but also with absolutely clean oil machines work better. So, it's right into our strategic goal of providing fee based businesses based on longer and longer mean time between failure. I'm really excited we have our first external customers. We are deploying this in Italy, in Germany, in China, in Latin America, and we're quickly now sort of making this technology available. We will talk more about this on the 4th November during our Capital Markets Day, but I am so excited about this and how this fits perfectly into our deliverables around the rotating shaft. And with those words, I think I stop here, And I leave the word to you now, Niklas. Thank you, Alrik. Sequentially, our sales improved significantly, albeit from a very low level seen in Q2. Compared to last year, our net sales decreased by 11.6% in the 3rd quarter. Organic sales were 5.1% lower than last year. The currency effect on sales was negative in the quarter by 6.5%, with the largest effects as usual coming from the dollar, the euro and the renminbi. Starting off with our sales performance. So despite the lower sales, we had a strong operating profit. And as you know, we've been working hard on improving our flexibility and our ability to proactively adjust to market fluctuations. This flexibility has truly been put to a test in the last couple of quarters and during this year, and we can now clearly see that we are delivering on the efforts. I want to extend a big, big thanks to our colleagues who've all contributed to this. In the Q3, our adjusted operating profit was SEK 2,500,000,000 corresponding to a margin of 13.3%. And our efforts to transform how we work actually continues, very much continues. We are investing in innovation, we are improving our competitiveness, and we are adapting our operations and our ways of working and we'll continue to do so. So our profits improved despite the lower sales and currency headwinds as we continue to invest in innovation and invest in competitiveness and also deliver structural cost savings. And let's go through the profit bridge 1 by 1 here. Firstly, we had a currency impact, which was negative by SEK376,000,000 compared to last year. On the other hand, our operational performance was $471,000,000 positive year over year. Specifically commenting on our operational performance, the organic sales and manufacturing volumes were lower by 624,000,000. Dollars We had a negative effect from lower sales and production volumes. But then on the other hand, both price and mix were positive in the quarter. Cost development continued to be very good, and we saw net cost reductions amounting to $1,100,000,000 compared to last year. And as Ulrik mentioned, the €1,100,000,000 included about €100,000,000 of government contributions. During the quarter, we continued to kind of form the company and form the operations, and we had a net reduction of about 650 permanent employees. And this in addition to the reduction we've had in the first half of the year. These efforts will very much continue and as a result, we expect to see a continued elevated level of restructuring costs also during the remaining part of the year. Commenting on Industrial and Automotive. So on in terms of Industrial, the net sales decreased by 6.9%. The sales were higher in Asia and Latin America, while sales was significantly lower in Europe and North America. The adjusted operating margin as Ari commented was 15.8%, we're very pleased with that compared to 13.9% last year. Cost savings contributed positively to the result, while the lower sales and production volumes had a negative effect. On the other hand, for Automotive, the organic sales were about flat, so declined 0.7% in the 3rd quarter, with sales volumes being significantly higher in Asia, higher in Latin America, lower in North America and significantly lower in Europe. The automotive business had an adjusted operating margin of 7.4%, also quite pleased with that, compared to 4.6% last year. And cost reductions contributed positively. What comes to our working capital, it was 28.7 percent of sales at the end of the quarter, which was 1.2 percentage points better than at the end of the third quarter last year. We reduced our inventories during the quarter and inventories as a percentage of sales improved compared to both last year and the previous quarter sequentially. And then on the other hand, we increased our receivables and payables. In terms of cash flow, which is has been is and has been and will be a focus area for us, Our cash flow in Q3, excluding acquisitions and divestments, was NOK2.3 billion compared to NOK2.1 billion last year, also something we are quite pleased with. Our net working capital contributed positively, and we had slightly lower investments than last year. Saying that, we continue to invest at similar levels as last year despite the economic downturn. The cash flow for the last 12 months is €4,300,000,000 So we continue to generate positive cash flows also throughout this economic cycle. In terms of our net debt equity ratio, we continue to have a very strong balance sheet, including liquidity. The net debt to equity ratio was 59.8% at the end of the quarter, and excluding leasing and pensions, it was 8.5%. The provisions for pensions net increased by SEK 636,000,000 in the 3rd quarter, and this was mainly due to changes in discount rates. And with that, I hand back to you, Ulrik. Thank you, Niklas. Well, summarizing, our strategy implementation is giving the results that we are expecting. Despite lower sales and extremely good operating margin with very strong cash flows. We continue to invest for the future in our business. We have that capability and we are pushing new technologies like never before. With those words, I hope we will see you back on the Capital Market Day on 4th November to discuss more about this fantastic journey that we're on. Thank you very much. And with those words, over to you, Patrick. Thank you, Alrik. The first two questions are on margins. Congratulations to a good quarter. Can you give some more information on how you achieved the 13.3% margin? Sure. If I take that one. So as discussed, we had lower sales. And despite this, we had a pretty strong operating profit. And this is something that we've been working on for quite some time. It's very much about the transformation of SKF. And the kind of flexibility and our ability to adjust or proactively adjust to market fluctuations is one of the key things that we have been working on. And of course, as we all know, I mean, the last couple of quarters have been just extremely volatile, so both downs as we saw extreme downs in Q2 and then some stabilization in Q3. So the flexibility that we have been building and continue to build has really been put to a test, and we are quite happy with delivering on that. Specifically, in the quarter, we had negative, obviously negative effect from sales, from volumes, Production volumes, price and mix were both positive. And then cost development continued to be actually very good, SEK 1,100,000,000 and out of that SEK 1,100,000,000 we had SEK 100,000,000 in government contributions. So all in all, I mean, we are quite pleased with it. So why the strong result? It's more it's a combination of many things, and we continue to deliver and are determined to continue to deliver in the future as well. Thank you. Then we've got one question on Automotive. How was the 7.4% Automotive margin possible? Well, there is of course, one of the main reasons is that we had a very, very strong recovery. And if you see, we were almost back on last year's volumes as far as deliveries. And since we have already been working on a sort of a program, as I think I have mentioned also last quarter on a push for a new profitability level in automotive. We have actually been taking down our costs very, very strongly and simplifying the organization, integrating manufacturing, increasing focus on regionalization and things like that. Of course, all that has not come to fruition yet. But during this uptime, then it was possible for us to deliver this result. I don't promise we will now every quarter have the similar kind of margin level, but I'm quite confident that we will long term improve the Automotive business profitability for SKF. Thank you. A lot of questions coming in here. We have received a couple of questions on demand. First one, how did demand develop during the quarter? Yes. I mean, if we look at this for a slightly longer period, I mean, we as you know, I mean, we had a pretty drastic decline in Q2, and gradually during Q2, it leveled off a bit. And that kind of continued throughout Q3 as well. So overall, minus 5% organic and gradual improvement over the quarter. Okay. Second question on demand. How has Q4 started? What is the current rate in October? Sure, if I take that one as well. So, of course, I mean, we need to remember, we at least we keep in mind that it's a very, very fragile economy and market out there. And the best we can do is just to make sure that we have the flexibility and continue to deliver on our long term plan. But specifically, how's the quarter 4 started? Roughly in line with Q3, so that's roundabout -5% year on year. Okay. Can you give some more color on which particular customer segments that did well or did less well during the Q3? Well, you can understand, as I already mentioned a little bit with automotive, of course, coming back very strongly, trucks of highway, weak vehicle aftermarket as well, where we saw also wind, for instance, and all these businesses that are a little bit dependent on stimulus government has been doing very well. Wind in China has been very strong. On the downside, well, industrial drives, railway, heavy industry, not so well so far. And of course, aerospace, and you can understand that aerospace has been very much dampened. Why we were doing relatively well, I think we I'm not I think we actually did quite well. And it's helicopters, it's non commercial airlines sorry, aircrafts that has sort of sustained the business we have. And as much as we now see a quick recovery, it's hard to see how the commercial aircraft business will come back in the short term. So I think we will have to live with a lower sales in that part, whilst, as I said, helicopters and noncommercial has been going relatively well. So in short, anything to add, Niklas? Another question relating to demand in a way. It's on pricing. How did pricing develop in the quarter? So as mentioned, both mix and pricing was positive in the quarter as we've had now for some time, in particular, on pricing. So positive is the short answer. And I can say that we have still not felt any big difference or changes in the pricing in the marketplace yet. So it's still sort of stable. Good. A specific question on the sharp volatility here. There's a question on how you have you lost out on any business due to not being able to deliver given the sharp sequential rebound that we've seen? I would say I'm that's one of the things that I'm extremely pleased with, if I look at how we have handled this. We saw the downturn in Q2. We managed to go down without really building any inventory. And then we have managed to sort of accompany the business up, especially in the automotive field, you know, how short, close to what the customers are truly needed. And here, I think the learning, you know, from before, from what we have done before that you're so close to the customer that you actually can react. And of course, if you look at also on the component side, which is sometimes what holds us back, since basically in Europe, where we have a lot of our manufacturing, we're still below last year. Of course, we have been able to sort of get in the components and so forth. So I would argue that we have probably we think we've done a little bit better than market as far as availability so far in the quarter. Another question on inventories actually. How are the inventory levels in the market? In pipeline inventories as well as I understand it? Well, I my assessment is right now, if you look at it, I think that inventories levels are low at this point. I don't think there's any, I mean, let's say, low in the sense there's no big inventory levels. In the U. S, with some distributors, we saw during the beginning of the COVID, they had already destocking trend in the marketplace. Some of them have a lot of inventory. We I thought it was going to end basically by beginning of last this year. And now with COVID, we have seen it continue a little bit, but now it's actually coming to an end. So my assessment is that inventory levels are not high in the value chain at this point. Thank you. Question on market shares. I would like to ask whether SKF won the market share in China, both in the Automotive or Industrial segments? Well, many times, it doesn't really work like that in the sense that market shares are trends that work over a longer period. So if there are changes, they are relatively small. What I do think though is that we've been good at delivering. So compared to what we what I've seen, what I've heard from others, we have been many times being able to deliver. So in that sense, I think we have done well during the quarter. And there's a lot of new business coming, of course. I mean, there's a lot of new activities going on with customers around the world. So from that point of view, it's positive. Thank you. But of course, that's not this quarter. Another follow-up question on China. There's a question about what is your growth outlook for China Industrial Bearings and in particular, Bearings to the Energy and Construction Equipment end markets? I understand the question. We see, as we have talked about now for several quarters, that the wind and the energy sector in China is very, very strong. And maybe we thought maybe half a year ago, we thought that maybe these subsidies and this push from the government was going to subside by the end of this year. But I'm not so sure anymore how that is going to play out. So maybe that we still have a quite a strong market here. And of course, that's we are investing. We are we have announced investments in China. We're investing in this. We're preparing ourselves. From my point of view, we are more and more competitive. So it's something that we believe is going to be positive. It will go up and down, like all businesses that are dependent on government, but it's good. As far as construction, it's the same. What do you do when you have a situation where you need to give stimulus to the economy? One of the areas where you can actually give stimulus that creates jobs and creates business is within the construction sector. So I think that we will see that not only in China, but also in the rest of the world as a result of the stimulus that we see. But that's from a general point of view. That's not related specifically to SKF. Thank you. Moving over to questions on cost. Can you give some more details on the SEK 1,000,000,000 cost reduction that we saw in Q3? Yes. So SEK 1 point €1,000,000,000 was the total and €100,000,000 roughly in government contribution, so €1,000,000,000 As you saw, we reduced net reduction of permanent employees of 6.50 during the quarter, and this was on top of what we had done already during first half. And then there were a number of other things, some of them short term, some of them permanent. So very much a continuation. I mean, especially with 2 minute of focus on the permanent actions, and we are quite determined to take our cost base down to keep it at a lower level. But it's continuous work and many small streams. Another question. Can I ask about your excellent savings of around SEK 1,000,000,000? What proportion are temporary and will reverse in 2021? And what proportion are sustainable, please? Yes. As you understand, I mean, we it's a bit of a tricky one because how do you categorize what's permanent and what's temporary? I mean, as an example, of course, like everyone else, we've seen a radical reduction in travel. And how much will that come back to eventually is a bit hard to say. But I mean, a very rough view is half and half of that SEK 1,000,000,000 kind of more temporary in nature or more permanent in nature. And I agree, I agree. Having said that, though, of course, we as we continue to simplify and develop and our footprints, etcetera, etcetera, some of these new activities will come in also to compensate what is today and maybe more of a temporary nature. So even though we have now a very strong quarter behind us, we're not going to stop. We're going to continue to on our journey to make SKF more competitive, more agile, more innovative going forward. Yet another question on costs. How sustainable is this cost reduction? I think this is similar to the previous question, but again, I mean, very much echoing what Alrik just said. I mean, this is something we constantly, continuously work on. It's not just a reaction on the economy per se. I mean, we are truly kind of going through a transformation of SKF. So and what we push, what we work on is, of course, the more sustainable ones, sustainable cost savings. So again, rough estimate, but out of the ones we delivered in Q3, roughly half and half permanent versus short term. But we also have a lot of interesting technologies and new things coming in to help our top line going forward in the midterm. And that's also something that is going to be very interesting to follow. We will talk more about that on the 4th November. Don't forget. Yes. And maybe just to add, I mean, for those who kind of consider kind of modeling, of course, going forward, the comparable becomes more challenging. So don't assume SEK 1,000,000,000 every quarter, even though we've delivered now 2 quarters in a row, around about SEK 1,000,000,000 in savings. Question on items affecting comparability. What did the SEK 550,000,000 in the 3rd quarter relate to? Yes. So roughly SEK 460,000,000 out of the SEK 50 related to restructuring. So essentially that's kind of employee related, redundancy related. And again, SEK 650,000,000 net reduction in terms of workforce is what we delivered in Q3. And then the remaining part, roughly €90,000,000 or so related to customer settlements. Thank you. Staying on the topic of items affecting comparability, what level can we expect going forward? Yes. That's a good one and good to keep in mind. I mean, as we've said, I mean, we are on a transformation journey, and we are by no means done with that. So you should expect to see a higher than normal and elevated IAC level also going forward in the near future. Thank you. Then we have a question on cash flow specifically and targeting why was cash flow so negative in the Q2 and now suddenly quite positive? Yes. Maybe just a reminder first on 2nd quarter where we saw a really sharp reduction and -25% in sales year on year. And then by the end of the quarter, it started to level off and come back. And we were actually building some receivables in the end of the quarter. So that was a reason for the negative cash flow in Q2. But as we said back then, should look at this over a slightly longer period of time. And now we did indeed have a strong cash flow in Q3, more normal level, I would say. And of course, results helped. Inventories came down a bit. Payables were good. Receivables, on the other hand, were negative. So many streams, but maybe in a nutshell results, of course, driven inventories down. And then we had a slightly lower investment level compared to last year. And from my point of view, I mean, it's interesting to remember that as long as there's any not any sort of default that a customer big customer is defaulting and there are some money sort of disappearing, it will always come back. So one of the forties of SKS is cash flow, and it's always been. And we will try to see to it that it always is. So when you see these fluctuations, they are completely normal. And when you have this kind of enormous volatility, as long as there's no big things happening, extraordinary things happening, it will eventually come back to the strong cash flow. That's SKF. Thank you. Cash flow related question, I would say, about inventories. How do you see your inventories developing, given both demand fluctuations and also in relation to your 25% net working capital targets? Yes. I mean, we reduced inventory slightly around NOK 500,000,000 in quarter 3. And the net working capital as a percentage of sales, we also improved it slightly both year on year and sequentially. And of course, I mean, long term, and this relates to Alrik's comment about cash flow being a stronghold. That is something that we continue to work on to improve the net working capital efficiency over time, but don't expect any major swings. No. And I know this is one of those things where in 2015, I even sharpened a little bit the pressure on ourselves by increasing the target. And of course, intuitively understand, as we deliver on our region for region supply chain, This is going to be one of these real contributors. So, of course, as we now accelerate our footprint activities, etcetera, we will start seeing more the fruits of this coming into these kind of numbers in the midterm, long term future in the next few years, so to speak. So it will come. In terms of investments done to consolidate the footprint and increase automation, are you considering accelerating this further, given the results so far? Is that possible or are you going as fast as you can already? Well, it's interesting. It's a very interesting, Erik, very good question. What I see here is that when we started this journey, of course, it's you have to learn. You it's relative new what you're doing. You're sort of accelerating. And you see now how we have quite a high speed. And we'll talk about more about this on the 4th November, exactly what more in detail what we're doing. And then you come to the situation where you have now right now very high swings and of course when you have high swings, there are some things also that you may not be able to do that you can do even more easy when you have a sort of a normal stable situation. So I argue we are on a very high speed right now. There could be maybe something we could do to speed up. But first, we need a little bit more stability in the demand, so we can sort of do the things. When things are going this, like it's been doing this year, it's more difficult, even though we're actually doing all the things we're doing. Look, just what we have announced for this quarter with consolidating and investing in the U. S. Last quarter, we announced what we everything we're doing also in Asia and so forth. I think this is a good speed, maybe a little bit faster we could go, but it's already good. Thank you. Okay. Please could you give us an estimate of how much you think the quarter benefited from restocking in the value chain? And a second add on to that. In addition, can you please elaborate on the trends you have seen in October so far? I take that. My assessment in a general term, I don't think there's been a restocking. I mean, there's been an increase of demand, yes, but I don't think there's been really a restocking in the value chain. That's not my sentiment. It's actually so we had a very sharp drop. Then in the recovery, there's been sort of things you need to do that you should have done during the lockdowns that you are now doing etcetera. And in the distribution I don't really feel that there's a lot of stocking in the value chain. Maybe on the contrary, I think there may be even some needs going forward to replenish. And for as we said in the beginning here, just to reiterate that, so far we've seen quarter this quarter starting off more or less like the quarter 3 ended. Thank you. Two more questions. On Aerospace, firstly, can you elaborate on your aerospace exposure and what you are facing in terms of demand development year over year in Q3? And what you expect for the Q4 and for next year? I mean, of course, you can understand that demands are down significantly. The good thing is that when in the factories predominantly affected by the civil aviation, we've already done the restructuring, and we've come very far in that. So honestly, the team has done a very, very big good job in being very fast and very active of getting those costs out of the equation quickly. And why could we do it? Because we realized very early on that the rebound on the commercial side was going to take time. So, it means we restructure, we take our costs down, and then we can follow when we see it coming up, we can follow it. So from that point of view, I think we have done better than I expected. And then when it comes to the non you know, I think it's going on along quite well, and I don't see any reason why in the next coming future there will be big changes. But for us, of course, it's considerably lower total volume in aerospace, and aerospace is not that much of our business. And on a profitability standpoint, we've been doing well in the quarter. Thank you. Second question regards pricing. And from this particular analyst, he says, we have heard from industry contacts that both you, SKF and Timken, recently have announced price increases in Industrial Distribution in Europe with effect from Q4. Is this something you can comment on? Yes. Well, I mean, I think we have gone out with a price increase to distribution. And it's I expect it to do well. So it's a normal price increase. Question on manufacturing. Did you have problems in your manufacturing operations due to the COVID-nineteen infection? Yes, we have. And if you take Q2, I mean, it's already behind us. We of of course, you remember we were strong. But also now, we've had some issues, for instance, in the UK, around the area where we have our Luton factory, there was an outbreak and the authorities went down and cooled down our possibility, so to speak, or impeded our possibility to produce at all speed. But all in all, I think we've handled this extremely good and we've had a few cases, but they have been handled in a good way and we have not had any major disruption apart from this one. Thank you. Question on China. Have you had any discussions with the Chinese government after Sweden's decision to ban Huawei and ZTE? Could this impact business at all? It's so fresh that I can't I mean, it's too fresh, this incident. So it hasn't affected as far as I know, there's we haven't had any questions from the government so far. What I hope for is that, like we heard from President Xi just I think during the weekend where he said let's try to find our differences and let's see to it. I really hope that we understand that a good way forward for the world is to understand each other and trade with each other. So I hope that this will be resolved. And so far, I can't say that I we haven't it's too fresh. And if you ask me if it could, of course, potentially it could. But I think that if you look at SKF, I think all we have been so many years in China, and I think that just as we are, I hope, perceived that local producer wherever we are, I hope that it's seen that we are a good citizen both in the U. S. And China and Europe and wherever we are, and that's going to be the prevailing understanding of SCF wherever we go. Thank you. Question on targets actually. SKF has been very close to its long run margin target over the last 3 years. And this year, despite the end market disruptions, it is returning with very strong margins. Is the long term target still ambitious enough? Or should we think there is upside to it? Well, I mean, the long term targets are what we have. That's what we have, and we'll cover that more in detail in our Capital Markets Day on 4th November. So hope you'll join that discussion. Of course, I mean, this is why we are here. I mean, we are here to deliver a good business and constantly improve the business. So we don't stop even though we have a certain figure somewhere, we don't stop there, but we constantly kind of challenge ourselves and want to go for something better, just part of daily life. And if you recall, I set these targets when I came in 2015. We set these targets we have today because at that time, it was not in my mind that we could reach, let's say, higher than 12% at that time in the near few years where we set those targets. And as we work with SKF, making SKF more and more profitable and more and more agile and what we have presented and what we are showing, of course, you know, we will reach the target and we will set eventually new targets for ourselves. So don't rest assured we're doing the best we can. And I'm always trying to see to it, we're all trying to see to it that whoever is short in SKF should lose money. A question on the actual on dividends actually. And a question from Daniela. Shall we read anything into your Q4 cash flow projections or your capital allocation priorities on the back of your decision to cancel the 2nd dividend? No, no, no. I mean, of course, as we all know, I mean, it is a fragile world, fragile economy. And the decision to not call an EGM and go for the kind of other part of the dividend for 2019 was based on that. But I would say there's nothing else that you read into this as a signal. And you know that we have a policy where our idea is to have 50% of our net profit as dividend. And if you look at the past, we've always been some years above, some below. This year is a very special year. I'm sure, stay with us, you'll get your money. Thank you. A couple of more questions on sales actually. Could you talk about how organic sales developed during the quarter? Actually, what was the end rate at the end of the quarter compared to the beginning? Yes. And that was what we mentioned earlier here today that, I mean, it's almost like you should look back into the kind of worst months going back into March, April. And then there's been a gradual kind of leveling off for improvement or less negative since then, and that's also what we saw during Q3. But again, would not read too much into kind of the weekly or daily or monthly sales because it is just very volatile. And I mean, what we do is that we make sure that we manage that volatility in the best possible way and then obviously grab opportunities on the customer side. Yet another question on sales actually. Was there any particular difference between industrial and automotive throughout the quarter in terms of performance? Yes. I mean, Automotive was relatively seen actually strong. It was 0.7% down year on year, while industrial was roughly 7% down year on year. So in that sense, I mean, automotive actually had a quite a strong or we had quite a strong quarter in automotive compared to industrial. And it goes into the way it works. Automotive factories, if you understand, during the lockdown, they were completely closed. And then when they start again, there's sort of a little bit of a backlog. And then the recovery was much faster, while industrial dynamics made it smoother, so to speak, the effect in industrial. So it goes with the kind of business. Thank you. A question targeting customer discussions and COVID. Has the recent COVID developments changed the conversations you have with customers? Is there any is there more uncertainty now compared to a month or 2 ago? In the conversation, I can't say that changes have come yet because, of course, what you see now as compared to the spring was in the spring it was a lockdown of the value chain. That is not happening this time. Now it's more a curfew, at least in Europe, sort of a curfew where people are not allowed to go out at night etcetera, but during the day things are going about as they were before. So this one is a little bit different from my perspective. So it's more long term. What will this how long will this these curfews be and what are the effects of the on the long term demand of certain products more than actually right now in this moment. Thank you. A question for you, Niklas, from Erik. The leverage on the organic sales was relatively high at close to 60%, 58% to be specific. What drives that? Sorry, the The leverage on the organic sales, the drop through. Yes. I mean, again, I mean, it's a combination of many things, but we've had we've delivered quite well on our cost savings as discussed. And not only cost savings, it's more of a structural change that we are working on. And then on the other hand, it's the competitiveness, the gross margin element of it. I don't know, Patrick, do you want to add anything there? I think you covered it. Well, I think nothing to add there. So we are coming towards the end of the hour here. We've got 10 more minutes and a couple of more questions. You said that you'd take further restructuring costs. What will these enable in terms of savings or layoffs? Headcount was 41,174 people in the quarter. Based on actions taken, where is that figure at year end this year? Yes. And I don't want to give an exact figure on headcount for the year end. But as you know, I mean, we are this is more of transformation of SKF, a building of a stronger, more resilient, more competitive SKF that we are working on. And the headcount figures, the 41,000 that you mentioned, The changes of reductions that you've seen are net reductions. So on the one hand, there are areas where we've actually added, we've recruited really good excellent talent. And then on the other hand, there's areas where we see that going forward, there will be less of a need for talent. So it's a structural change that we are working on. And as I said earlier, we are done with it. So we'll continue to work on it. So it's both reduction, but it's also strengthening certain areas where we see a high And I think that's the way how you should see it. It's not so much one quarter and other. Of course, you can understand during the COVID, we were we have been very, very acting very strongly. But honestly, if you remember going back, we already started this development preparing for it years ago. And when we saw a little bit of a softer market in 2019, we already started with this kind of activities. And there will be I hope SKF will be a fantastic employer for many, many people, and I hope that we will have a growth story in the future where we can grow people again. But of course, digitalization, new ways of working will enable a different kind of efficiency in SKF over the long term. And we are determined to do that, but at the same time being a good employer and taking care of good care of our people. Thank you. Questions from Rizk. First one is on exit rates. I think we covered that one. The second one is more specifically on the impact from Manufacturing to EBIT in the quarter. And I think he's looking for the effect from us under producing or reducing inventories on EBIT. Yes. And specifically, the inventory result on EBIT was negative, roughly NOK 100,000,000 or NOK 110,000,000. I would add something. So as we're close to that, we had a reduction of 6 almost EUR 600,000,000 in finished goods Symmetry. So yes, that would make good sense. Second question, was there an impact from customer or distributor stocking decisions on your sales in either industrial or automotive in the 3rd quarter? No, as I say, my assessment today is that, that the underlying change in automotive was actually sort of demand. Our customers were running at high rates and you see some we talked about it before, you see some areas where the demand is not stocking. It's real. So my assessment is that there's not been so much of this in this quarter of restocking and that some people are probably quite tight on stock. So, that's how I see it. Thank you. We've got a question on ROCE. Can you comment on ROCE, which have fallen from 15% to 9%? Are there one off effects that we should expect to unwind as we go forward? It seems counterintuitive that margins have improved, but returns have not, perhaps FX on the balance sheet. Yes. I mean, of course, one factor to consider here is that IAC or one offs, one off costs have been, as we all know, quite high as we've taken action on the restructuring and building of a new stronger SKF. So that's one element. And then, of course, the other element is that with the actions we've many of the actions we've done, we've actually strengthened or our capital employed has increased. So it's a net effect of that. I would say in the long run, again, no change. I mean, we still very much care about return on capital employed and continue to work on that and pretty confident it will the kind of development will eventually And by the way, I mean, the it's a 12 month rolling figure. So what you see there is, of course, the effect for the past 12 months, including Q2. Getting towards the last couple of questions here. About the new factory in Sumter, the new factory in Sumter sounds highly automated and really technologically advanced. Could you share more about its capability in improving flexibility and efficiency? Yes. I mean, all the investments we are doing now are in this range. We're trying to push all the best learnings from what we're doing in the rest of the world and look on always improving. So what we are doing in Sumter is based on what we have learned before. What we do in Schweinfurt was is learning from what we have done in Sweden and continuously. So this will be an excellent factory. And with the way we look at the demand situation also with less possibilities maybe of products coming from Asia into America in the future with the kind of automation and flexibility we have. We are absolutely sure we have an excellent base for the future out of Sumter that we where we will be absolutely competitive and flexible to demand. So it's going to be a good one. Thank you. We have the very last question before we need to close this conference call. It's about China. Can you talk about how China or your Chinese business has developed throughout the quarter? How Q4 has started in China? Yes. Well, we have we saw a very strong as I think if you follow the general media, you see that and if you look at what the GDP developments in China, you can realize that it's been very strong. And also for us, in many of the areas where we are, wind and in the businesses where the government has been going strong. It's been a strong quarter for us, automotive and so forth. And before, I was a little bit thinking that maybe it was going to level off, especially some of the wind business was going to be a little bit weaker in Q4 because of the national seasonality of the way the government was going to give support and so forth. I'm not so sure anymore. So maybe it started strong in the same way in Q4. And I have good hopes for the conclusion of the business for us this quarter also in China. Thank you. We also got one very final question here. It relates to the overall transformation program at SKF. Can you please give us scope of the overall transformation program at SKF? What are the total savings expected and over what time line? And with that, before leaving the final words to Alrik and Niklas, I would like to welcome you all to the Capital Markets Day that will be held next week on the 4th November, and we will cover this in detail. Yes. And that's maybe the best way to answer this. We will during our Capital Market Day, so this is a good teaser, in doing in a few in just a little bit more actually exactly basically a week from now, we will be going to the more details in exactly how this will play out with much more detail. So instead of me preempting that, why don't you come back and listen to us on the 4th November and we'll give you more details around exactly what's going to happen in SEF in the forthcoming years on this topic. Thank you, Ulrik, and thank you, Niklas, and thank you all for listening in. This was a first in this new format. I hope you enjoyed it. If not, please let us know, and we'll try to adapt. Thank you. Thank you very much. Thank you. See you next quarter. See you on the 4th November, sorry.