Sandvik AB (publ)

Ann Sofie Nordh - IR Björn Rosengren - CEO Tomas Eliasson - CFO

Klas Bergelind - Citigroup Markus Amala - Kepler Cheuvreux Andre Kukhnin - Credit Suisse Guillermo Peigneux - UBS Ben Maslen - Morgan Stanley Lars Brorson - Barclays Capital Peder Frolen - Handelsbanken Capital Markets James Moore - Redburn Partners Daniel Schmidt - SEB Enskilda Inc Andreas Koski - Deutsche Bank Philip Saliba - HSBC

Thank you, Ann Sofie, and very welcome to the quarter report presentation. As Ann Sofie said, with me I have to Tomas Eliasson, our CFO, he is new, this is his first meeting.

You will have a chance to present yourself in a little while. Good.

Moving over to the report. And yes say number first is that the result for the quarter is pretty much in line with our expectations.

And the targets we have for the full year. You'll see that the market continuous to be challenging resulting in volume decreases for us of 7%.

And adding to that another 4% for currency headwind. And despite low volume, despite heading headwind from the currency we delivered 12.2% EBIT.

And if you add back the currency -- the negative currency we reached 13.6% which is actually equivalent with last year. So it's positive to see that the cost -- the restructuring part of the work minimizing our cost is now biting in.

And we can see that we have a leverage of minus 10% which we are happy with. Compared to last year we are 1,600 people less and compared to last quarter 600 people.

I am also very happy in the pace we have in restructuring Sandvik towards a more decentralized structure. And during the quarter we have had a press release regarding the merge of Mining and Construction business areas to create this new business area which we call Mining and Rock Technology.

I'll back a little bit more to that further on. Looking little bit at the market.

I mentioned that we see a challenge. There are let say three market areas which are important for Sandvik.

Europe is the largest market then we have North America and then Asia. And if we start up and look at the year-over-year numbers that two numbers that are speaking out.

First North America is 26% down that's awful a lot. But it is important to dig into these numbers a little bit and you can see that in last year first quarter we booked SEK700 million umbilical order in United States.

So if you lift that out it is about 14% down year-over-year. Also very strong number here is Europe which is plus 7%.

As you probably seen we have also a number of oil and gas orders also during this quarter. So if you lift those out it is pretty flat in Europe.

Asia is minus 8%, in that there is China which is minus 20%. So it continues beyond that level.

But in Asia we also have India which is moving very well at the moment. So if you are looking at the different segments that we are operating in.

Mining, our largest segment continues to see challenges. And then I say we are down 8% in volume.

Then we are actually comparing with the strongest quarter last year. If you recall the third became a little weaker and then you have third and fourth quarter where we are pretty much if you look at sequentially on the same level.

So no really deterioration of that business. It's pretty much flat.

Now there a segment which have been under pressure for quite some time is the oil and gas industry. And even though we are seeing some improved oil and gas prices we do not see any improvements in the market.

More contrary especially in United States, as you know, some of our businesses are very much related to the drilling market. And if you look at the number of drills operating on the US market it is actually down 70% compared to last year and almost 40% compared to last quarter.

So no light in the tunnel regarding the oil and gas market. Also to be mentioned that there is spillover in the general industry in US from the oil and gas side which shows that North America is actually down in all different kind of segments here.

Two segments which have shown strength during the previous quarter is aviation and automotive. And that continues to be on a strong level.

If we look at both order intake as well as the revenues it is down 7%. The book-to-bill is 1.03 so it is actually the first quarter in quite some time where the orders are higher than the revenues.

So that's moving in the right -- you can also on this picture see that sequentially the orders are not deteriorating. It is flat on a low level put it on that way.

On the profit side. I mentioned 12.2% EBIT level that is actually year-over-year down 19%.

I also mentioned here that the currency part is about -- if you add up back it is actually the same level as previous year. So then moving over to our business areas.

And Sandvik Machining Solution continuous to be performing and the star of Sandvik. Even though we had volume drop of 4% in orders and 5% in invoicing they managed to deliver 20.3% EBIT level.

And if we add back the currency part of this, it is actually 21.7% which is 0.3% better than last year. So the business area as we working very hard on adjusting the cost.

You know the supply chain optimization programs are biting in and we have a leverage here of 14% for machining solutions. In addition to that machining solutions also had record first quarter cash flow.

Then moving over to mining which is down 8% in orders and pretty flat on the revenues. In addition to that this is the business area who has the biggest effect from the currency changes.

So countries who had devaluation of them is for instance Australia, it is South Africa, it is Brazil and is Canada and all of them are major mining markets. Their business area delivered 13.8% EBIT and if we add back the currency losses there we actually end up to 16.4%.

So that is even significantly better than last year. So I think that's a good development.

If we are looking at the aftermarket it continuous approximately on the same level as we saw on Q4. And on the equipment side we saw a more headwind on that side.

Maybe you remember that we had a very strong Q4 on equipment which we do believe was taking market share. This time it is somewhat weaker in the quarter.

Then on the Material Technology, very happy to book orders on the oil and gas part on the umbilical side which was booked during the first quarter. We have also here book-to-bill ratio of 1.1 so orders are higher than invoicing very positively.

And also here the saving programs are biting and the underlying EBIT is 10%. In the businesses there are some inventory or networking capital build up during this period which had some effects on their over absorption of approximately 1%.

The metal price charges was SEK109 million so somewhat lower than what we guided before. On the Construction side, it is a challenging market also for this business.

At the same time, we also here had a positive book-to-bill on 1.1. And in lot of actions that they have been taking up production facilities we had less under absorption and improved profit.

Then we have Venture which consists of four different businesses and these businesses are very different. Two of the businesses are very much depended on the oil and gas industry.

And one is the drilling and completion or the Varel business which is significantly down and it's under big pressure also when it comes to pricing. So that has a very tough situation at the moment.

But also some parts of the Hyperion business which is related to the diamonds and the drill bits business is also under quite big pressure. We have book-to-bill ratio of 1.1 which is good.

And that orders were higher than revenues. And then we see of course under-absorption impact in their earnings.

So both from -- while the volumes up and we had also on good orders on their processing systems. With that I think I leave over to Tomas to talk a little bit more deeper about the numbers.

I have been on the job for three months now -- sorry three weeks which is oceans of time as you understand so I have memorized all the numbers. And I know all ins and outs of the Sandvik group now.

So this would be an easy ride. Anyway let's get on with it.

And start with the financial summary. I will not comment all of it but some of the highlights.

As you heard both orders and revenues were down 7% organically and then on top of that we have 4% currency. The adjusted operating profit adding back or other restructuring charges in Q1, 2015 was SEK2.4 billion, 19% down, the margin was 12.2% but as the CEO said here if you add back the currency impact we were actually on 13.6% so flattish.

The net operating working capital 28% over revenues compared to 29% a year ago. So continuous down however sequentially up on a seasonal basis from 27% to 28%.

And that of course has an impact on the cash flow. As you can see on the next line SEK1.6 billion compared to SEK2.7 billion a year ago.

Return was 11.2% and the earning per share around SEK1.12. So let's look at the earnings development in a bridge.

The traditional bridge and here we start with the adjusted operating profit [2,977] and there way to SEK2.4 billion. And we can really stop on the first three effects here.

Organic growth, the savings programs and the currency impact. You can see that of course with 7% decline in price of volume, we of course have an impact on the earnings.

The impact however is much smaller than it has been previously over the last quarters. Now as we see how savings programs and efficiency measures et cetera are starting to take effect into the group.

If you see at the upper right hand side of the graph here, the leverage was minus 10% only which is much, much better than previously. The announced savings programs contributed with the SEK250 million and then the currency impact was minus 375.

You can also see here in the graph that currency has a huge impact on the earnings. And I should here mention also that we as from now as from Q1, 2016 have, it's a little bit of change principle for communicating currency effects.

We have previously only talked about translation effects and transaction effects. Those are of course the two big ones.

Now we include revaluation or working capital and revaluation of hedges in the currency effects as well. That is way it should be.

So now we have all four main effects. And this makes the currency impact a little bit larger this time compared to what we guided for.

But this is how we will communicate this going forward as from now. And if we go back to the savings, the SEK250 million of course that's not all the savings that we have in the group.

We have more than that. We have capacity adjustments.

We have efficiency improvement and all that which helps the negative leverage or which mitigate the negative impact of the volume drop in the group. And as the CEO mentioned here we have 1,600 people less now in the group compared to a year ago, that's 3.5% of the total number of employees.

If we then move to another bridge, well really the same bridge but in another way. Here you can see the reported earnings in Q1, 2015 including everything including the restructuring charges and one-offs and then you see the reported sales and earnings and margins in Q1, 2016.

You can see the organic decline had an impact on the top line of SEK1.2 billion and the EBIT was SEK115 billion negative. So that's the 10% in negative leverage.

The currency as you can see as well had an impact of SEK800 million, a little bit more than SEK800 million on the top line and 375 on the EBIT line. And on structure and one-offs the 1704 of course is the big charge that we took in Q1, 2015.

So let's move to the balance sheet and the cash flow. Working capital went down year-over-year in Q1, 2015 although we had a seasonal build up as we always have in the first quarter of every year.

28% of revenues compared to 29% as we mentioned a year ago. If you look at the right hand side here you can see that machining solutions, construction and materials technology are in pretty good shape close to or below the target, the long-term target of 25% and the one who sticks out a bit is mining where we have continued challenges on a working capital side.

On the cash flow side of course as I mentioned the net sequential working capital build up had an impact on the cash flow in the quarter. But this is seasonal build up as always.

And investments were little bit lower than normal. Now what is this mean for the financial net debt?

The financial net debt continuous to go down. It ended after SEK 27 billion.

The gearing is 0.69 now and to be compared with target of 0.8, that's we have, the net debt over EBITDA is 2.0. And you can see that we peaked mid -2014 that was after the Varel acquisition with 2.5 or in excess of 2.5 in net debt over EBITDA and the gearing was close to 1 as well.

And we've come down quite a bit since that point in time. When it comes to guidance.

We guided for the first quarter a currency effect of minus SEK 300 million and the metal price effect of minus SEK130 million and the outcome was minus SEK375 million and the metal price effect of minus SEK106 million. Now the minus SEK375 million, difference between that and the SEK300 million is to large extent depended on the change of principle.

I am looking at IR now right. Yes, if we would use the old method the currency effect would be something starting with the two instead.

For the second quarter we guide SEK500 million in negative currency effects and minus SEK50 million in metal price effects. And when it comes to the full year guidance, it is completely unchanged.

So a CapEx on or below SEK4.1 billion. Net financial items of between SEK1.7 billion and SEK1.9 billion and a tax rate of 26% to 28%.

And with that I'd like to hand back to you Björn.

Thank you, Tomas for those numbers, thank you again. So just concluding up the presentation before we move into question-and-answer.

So the market continues as it is. It is challenging.

No big changes on that part. I think due to the profitability, the cost reduction measures and the programs that we've been driving, we keep a solid profitability going forward.

These changes in our structures are going with a good pace. I am happy with this one.

I think we are moving in the right direction. I mentioned the merger mining and construction.

We also have created eight new so called product areas. We will have fully end-to-end responsibility over costs and then revenues.

We are in the process of hiring older managers for these different businesses and we will able to move out the responsibility for each of this product area to their existing competent centers we have around the world. So that's an important move in becoming more customers focused, more transparent and quicker in our decision making.

By that I think I end this presentation. Then we move over to question-and-answers.

Ann Sofie, please.

Yes. We will take questions both here from the holdings.com as well as from the conference call and from the web.

Should we see if there are any questions here in the room to start with? No, we move to straight to the conference call.

Operator, could you please let through the first question.

Hi, Bjorn; hi, Tomas. It's Klas from Citi.

A couple of questions please. Firstly on the aftermarket in mining, can we talk through parts, services and consumables a bit more detail?

What happened in each segment quarter-on-quarter? I'm particularly interested in services.

Did we see any incremental weakness here offsetting that momentum as well? Or was it relatively stable across the board?

Good. Thank you.

And on the after market side as you know we divided that up in both service as well as in consumable or rock drilling equipment. If we look at the service and spare part business, it is very much similar as a previous.

So there is no deterioration when it comes to the after market there at all. On the consumable side, I'd also like to mention that the pricing part is also very stable on that part.

I mean we are competing actually with ourselves and our competitors on that side. While we move over to the consumable side which is also very flat when it comes to volumes but there is price pressure on this side because we are fighting with the competitors about contracts for this consumable so there we can see some price pressure.

Okay. My second question is on short cycle.

I guess demand improved for you as you went through the quarter; when you look at machining solutions, March is always sort of a big month. But can we talk about the different end markets a bit more in detail?

You have to get this right quarter-on-quarter. Am I right to assume that autos and aero was a bit better for you versus the fourth-quarter, and that general engineering and energy stood out as being a bit weaker?

I think it is -- you are pretty correct on that side, yes.

On -- what happened in general engineering? I mean we are seeing sort of BMIs starting to improve towards quarter exit.

Is this still China, North America that is weak?

No. It's more related to North America and to US where you have the big drop in number of drill rigs and we know that from previous that the general engineering segment is very much affected by the oil and gas industry.

And that continue. As the drilling part of the business has deteriorated during the quarter, that has also affected the general industry there.

I'd like to also mention then that we are comparing this with the first quarter which was actually the top quarter. So it looks of course totally different if you look sequentially compared to third and fourth quarter.

So sorry but Björn are you saying that general engineering was flat now quarter-on-quarter or was it slightly lowering?

It is slightly lower.

Okay. My final question is on tendering activity in mining and looking at commodities.

We've seen a big jump in iron ore then followed by gold year-to-date. Have you seen any improvement, any positive signs in discussions with your mining customers?

Are you not looking at current orders but in discussions? Or has it been similar to last quarter?

We follow of course is uptick when it comes to all these prices on minerals. I think this is -- this has so far not affected any more demand.

And to be honest, we do not may be really think that this is sustainable. There is no really something that in the market that it should be driving this.

This is a little bit of bounce back but we do not believe that we have -- we'll see a big growth. I think we will continue to at least this year be a challenging year when it comes to the demand from the mining business.

And operator can you please let the next question through.

Hi. This is Markus Amala for Kepler Cheuvreux.

I'd like to continue on Klas's question on short cycle demand and then maybe go a little bit more into the regions where we've seen some signs of weakening throughout the quarter, where January and February were actually relatively strong and then weakened towards the end. Have you seen the same thing and especially in North America?

If you saw that and if you can talk a little bit about how April have started. And also on China, towards the end, it's difficult because of the New Year there, but can you give some more color on the trend throughout the quarter in China and if you are seeing any signs of a pickup in demand over there?

Yes. It's correct that during the quarter that March was of course strong month in the quarter.

I think everybody has realized that. I don't think I want to comment April yet.

I wait to that until we move into next quarter report. China, I think it continuous on the same level.

What we see both the aerospace and the automotive to be on a strong level giving good effects for their machining solutions business. The big challenge is I mean it is more related to infrastructure and the mining part of the business but also on the steel side.

So I think that's really why you see the big challenges. North America, it is not becoming better.

I think that is pretty clear probably somewhat weaker than Q4. So that's little bit the feeling we have regarding that.

While we feel that Europe is becoming -- we think it is on a stable level. Of course as I mentioned it looks maybe little bit better when it has plus 7% but at least it feels stable.

If you look for instance automotive industry we saw a stronger part east than we saw on the west side of Europe. So east was little bit better on that side.

But otherwise Europe is pretty good I must say. I don't know if I follow that question enough or if you want me to dig deeper.

No, no, it's good but maybe one follow-up on that, the -- on North America. So there is a lot of talk about the de-stocking and restocking effects across the value chain in the US.

Have you seen any -- is it possible to say at all where we are in that cycle and what your customers are doing? So what does it say when you have your sort of ground over there?

Yes. Maybe Ann Sofie if you have maybe some information.

I haven't really heard anything on that direction; it's more that it is somewhat weaker. Maybe you have heard something Ann Sofie?

No. I mean we just like you do see the data points from distributor et cetera in the US and we've had questions on it through the quarter.

But as of yet well I can't say that we've seen any particular pattern of recovery in the North American as a consequence now. More like what Björn is referring too.

And with that I think we thank you Markus and we put through the next question please. Operator?

Yes. Good afternoon, everybody.

I'll go one at a time as well. Firstly, on the -- just to confirm on the overall production, was that only in SMT, that 100 basis point effect that you cited?

Yes. It is correct.

It is only on the SMT business where you have some over absorptions in the production. None of the other businesses.

Great. And just another quick one.

On the central line, I think trend a little bit better than we expected in the previous sort of quarter's run rate. What should we expect for full year?

Is that a trend? Or should there be normalization later?

I can help with you that, Andre. Like we've said before that the group cost should for the year total up to about a SEK1 billion and it should average through the year about SEK250 million per quarter but there is some seasonality in that also for you to remember where the Q3 is normally somewhat lower and then the Q4 comes back a bit.

But as an average through the year SEK250 million.

All right, thank you. And just final, one question on this umbilical's order that you booked, how would you expect the profitability to pan out there versus what you are delivering right now in SMT?

We all know that it wasn't umbilical order and we all know that's a very profitable part of the business. I don't think I can say more than that.

Nice try, Andre. Thank you.

We go through the next question please, operator.

Hi. Good afternoon.

Actually Guillermo Peigneux from UBS. I'm sorry if this question was asked by Andre, but I was cut off by the operator just right when he was asking the question about overproduction.

So maybe it's the same, but just forgives me if that is the case. Regarding the working capital swing, it's seasonal obviously and it's Q1, but I was wondering which segments have been building inventories for deliveries?

Is it mine related, is this mining systems related or is this also material technology?

Yes. You have probably saw that in material technology we were I think up little more than SEK400 million in that part.

That it is to be delivered in the coming quarter. So we see the build up there is nothing I think we should be worried about.

We gone through that very carefully and we still have our tough targets when it comes to working capital for the full year. So we should see improvement in the coming quarters.

And just to confirm, on the mining part of the working capital showing, I was wondering whether this is just mining systems? Or it's just your continuous operations in mining?

I think it is our continuous operations. If you look at the mining business most of the equipment is of course built through once orders but sometimes there are bigger orders and you are building a number of units before you ship all of them.

And this is actually one of these reasons why you are seeing this increase. We have some big deliveries taking place in the next quarter and many of the units have already been produced.

So I don't think this should be anything to worry about. It is in the quarter -- in the quarter we are up 1% but you know our target and that is what we are go to reach for the full year.

Okay, thank you. And then that's what I -- so what I was trying to get to.

But when I look at the margins, probably I should be thinking about a degree of lower margins into what you reported --?

I reported back that, it is only in SMT that we have in over absorptions of approximately 1% for that building. In the other business areas there is no effect on the margins.

And operator can we please have the next question put through.

Yes. Thank you.

Good afternoon, Björn, Tomas. First, just a quick one on machining and the growth you reported.

I just wondered whether there was any negative working day effect for the timing of Easter this year that would have dragged on March. And if you see any reversal, obviously, of that in April, when you look at your daily sales rates?

Thank you.

It is true that if you look at the March, Easter part of that so it affects, I think it was two days or something like that. Yes, maybe you remember that.

Its two days we talk about March.

In March specifically I think so but I can -- let me consult and back to you.

And previous year I think it was in April but still March was a good month.

Okay. But you would obviously -- on a kind of -- on a daily sales rate basis how was demand trending if you ignore the working days through March and April into April?

I think I hold back on the April. We save that to going forward but it has been an improvement during March.

That's pretty clear.

Thank you. And then on SMT and the SEK600 million of large orders you won.

And obviously, as you say that market is pretty difficult. So how does the pipeline look for further large order wins in oil and gas in SMT?

And then given those wins this quarter, how long does your backlog last in oil and gas umbilicals? Thank you.

That is about six seven months at the moment. That's where we see there the backlog at the moment.

It is difficult to say but it's pretty clear. It is there oil and gas industry so that business is going to be more affected than going forward.

That we do believe. There are still projects and we will try to pickup the one that are in the market.

But sure it is oil and gas market and it doesn't look too bright going forward.

Thank you. And then just finally on your change in approach for the currency guidance, so that now includes the hedges and working capital swings.

Where would those effects have been taken before? Just in the businesses?

Or were the hedges in the central line?

Well, they were included in the organic part in price volume. So which is not really the right thing to do?

So by doing this way now I would say the more correct way, you get a more, much more clearer picture on what is the true organic growth both top line and EBIT effect and leverage. And what is the true currency effect.

Thank you. And operator we will continue with the call, questions from the conference call please.

Yes. Hi.

Good afternoon, Björn. Just two quick follow-ups, if I could, on automotive segment in the US, a slight decline.

I was curious about how you read that? Do you see a sort of slightly weaker underlying market in terms of reaction by your customers to slightly weaker sales numbers in March, i.e., pulling back perhaps slightly inventory levels there?

Or do you see perhaps competition stepping up in that part of your business? And then separately, to the question on mining consumables, I take it that flat volumes on overall consumables of course that's predominantly production consumables, can you just say a word or two about your exploration consumables and how they have fared sequentially?

Thanks.

Yes. I started up with the exploration part of that.

Yes, I have also heard that there have been some signals that the exploration is improving but from Sandvik part we haven't seen that improvement. So the one I was referring too before it is actually their production consumables which I think is pretty steady and related.

We know today that 86% of all our equipment is today operating in the market and that's actually no change from previous quarter. So that keeps pretty steady.

Then moving over to the automotive sector. Yes, you probably recall that during last quarter I mentioned that we saw that it was a de-stock we thought it was de-stocking in the automotive side.

That is somewhat down during this quarter also here but it is -- we do not really want to relate to de-stocking this time. It is probably little bit less volumes.

Thank you. And operator we will have the next question please put through.

Thank you. Hi, Ann Sofie.

Hi, Björn and Tomas. Let me first ask a bit about price and mix.

You mentioned about the pricing details for mining aftermarket, but could you shed some light on the SMS business as well? Are we still sort of on a healthy positive contribution here?

Or any change especially due to the lower general industry activity in the US?

I think it is about -- it is on same level as we said during Q4. So it is up about a percent.

Okay. That's fair.

Another question related to the SMS business. Normally, you tend to build some inventory, although this industry -- this business is very short cycle.

Do you intend to build some inventory in the second quarter? Referring to comments about the working capital during the first quarter, could we expect the same pattern in the second one, that you try some more capital but you get some A's on the profitability in SMS business?

I think they have done a good job. I think they have a very strong focus on working capital and keeping that on the right level which I think they showed also during this first -- which has resulted actually in a record first, quarter cash flow.

On the second quarter, I think it's a little bit too early to say at this but I can assure you that Jonas and his team has a very strong focus on the working capital. And we hope that we can be keeping it on the same level or level.

Yes, yes. I mean that's my point.

Maybe the sort of normal sort of being in profitability might be less gradually through in the course of the years, due to working capital and management basically. Okay, another one on mining, back to mining.

On the divestment of the mining system business, I mean, there are some sort of regulation according to IFRS and stuff like that. And it's -- you are heading for -- seem to be a 12 month before -- after you announced in the divestment, so to speak.

So, you continue to argue that it's going to be divested during the course of this year. Could you shed some light on how the process is going?

Okay. The process goes according to plan.

We still have the objective to announce signing before the end of the quarter. Then of course the closing takes a little bit of time before things are in place.

But there is no change in objective of closing during Q2.

Okay. That's fair.

Sorry for all of these questions, but a small one more. You mentioned about the headcount reduction quarter-on-quarter and year-on-year.

And thank you for that. And if we look at the savings ahead and the 10% decremental on the negative 7% organically I mean and you get these easier comps.

I mean are we looking at soon to have sort of a flat EBIT development or flat leverage so to speak in Q2 and onwards, given this year's comps and then slightly lower negative organic?

I think according to the first -- I would like to say to the supply chain optimization program and this announced savings there. We are today at approximate SEK1.3 billion in savings.

We have the ambitious to reach SEK2.1 billion so there is little bit more to go. We said we try to have that ready by the end of 2017.

And then there are of course activities seen all our operations and that's way I think it should be. If you have less demand you have to adjust your profitability or your cost according to your demand.

And we have an objective for each of the business. Don't know if I am allowed to say but 3% efficiency improvements per business in year that's our target and that's what we need to drive.

So if you don't have any growth you need to adjust your target your cost. Maybe the two months

Yes. Now we said it 3%

I said it anyway.

It's good charge but --

I think it is very clear.

Yes. I don't think that we issued guide or can guide really when the leverage will sort of breakeven and comeback into black numbers.

I don't think we should do that. I mean that number the minus 10% number can and will go a bit up and down.

What we clearly see is that the savings and the efficiency programs are taking effect. That we can say.

And yes so it will continue to improve but we don't have any specific guidance on when it slips over to black numbers.

Oh, I understand. Okay.

Thank you so much. I'll get back in line.

That's it.

Thank you, Peder. And operator we continue with the questions from the call please.

Yes. Thanks.

Hi, Björn, Thomas and Ann Sofie. I've got three.

If I could take them one at a time. Firstly, on savings, the SEK253 million looks a bit more than I might have expected.

But I don't think you've changed your total savings plan. Is the phasing coming in a bit quicker than you thought?

Or will you lift your savings targets at some stage?

I think pretty much in line with our expectations. So this is what we expected.

And just on that, can you say anything about the capacity adjustment, other productivity, 3% savings, you've just let out of the bag for the quarter?

I probably going to eat that up later. No, I mean it's pretty clear.

This is no news, of course you understand that in a business that you need to all the investments we are doing of course you need to have some kind of payback on that side. And I think for any kind of business 3% efficiency improvement is there is of course necessary and should be in every company from my perspective.

Thanks. Switching to China, I just wondered if you can help within SMS, specifically SMS China, on the general engineering side of that, are you still seeing sequential declines.

Our sense is the stimulus is more infrastructure and property, and is not helping the machining industry much in China. I just wanted to check that you are seeing that too.

Yes. It's correct.

And on SMT, I just wanted to ask Andre's umbilical question a different way. We know umbilical margins are very high; late cycle, they have a backlog.

But without putting numbers on it, are you seeing margins in new umbilical orders lower than margins in umbilical invoicing?

No.

Okay. And just finally there on SMT, if the backlog on umbilical sort of runs out in 2017, is there a risk of significant margin drop in 2017 with a mix change?

I don't want to speculate. There are so many activities, one of the important part is the OTC, this -- the piping part, if we go back for 2015 we had the zero orders.

On that side we now we are full half of the way into 2017. So there are businesses to pick up.

You have the business for nuclear which has been dumped for a long period. We are very optimistic that this will start moving in China.

The plan is there which is great upside also. So this varies a little bit.

Of course the oil and gas industry is going to be weak. That is pretty clear for a while.

So of course there would be effects. But that will also be mitigating actions in relation to that.

Thank you, James. And operator can we have the next question please.

Yes. Hello, this is actually Daniel Schmidt and anyway do you hear we?

Yes. We do.

Yes. We do.

Yes. Hi, Björn and Thomas and Ann Sofie.

I was just wondering you announced the merger between construction and mining during the quarter. Looking at the structure right now do you see any sort of further potential in terms of streamlining Sandvik, and particularly thinking about Venture and could you say anything in more in terms of details when it comes to costs taken out, so I assume when you merged mining and construction?

I think we wait with that until we meet in the 24th of May. So I don't have any numbers on that part.

But sure that will be some part when you merge these two business because there are lot of overlapping positions there is but the most important things going forward is that the businesses will be very transparent and the business leaders for each of this product area, they will own their business, that's an end-to-end responsibility. They will own their costs.

They will own their business which means that if you are not growing; if you are not improving you need to adopt your cost part. So instead of having one management drive efficiency and operation, you will have eight managers driving efficiency.

So that is where I believe the big savings those going to come in the future.

I think you have been fairly clear on that since you took charge basically. And what about further sort of streamlining of the structure some Venture et cetera?

I think we will be talking a lot about that to 24. So let save it until then.

All right. And then just final on construction which we don't talk about a lot and I meaning sort more the end market.

It seems to be some anecdotal evidence and also coming from a number sort of companies being report in Q1 so far that construction seems to be picking up in North America, in Europe and even in China. Do you have any sort of comments on this?

First I'd like to say that from my perspective in construction we are in a very small segment. And the new name of the business here is call mining and the rock technology because that is in the rock excavation and rock processing.

That is a little part that we are so it's -- I don't think, it's really fair to compare Sandvik Construction with any of the other construction place because it's a totally different business. We are from my perspective my little good niche where you are working with rock excavation, few competitors' good market technology driven and that's the important their part.

So from my perspective we should not be comparing ourselves too much with the construction companies which are much broader than this. And I know what you are referring to and I read this report also.

It's of course when infrastructure is increasing in the part yes rock excavation has a tendency to ride with it. So far we are not seeing too much improvement on that side yet.

Thank you, Daniel. We have another question from the conference call please.

Thank you very much. So three questions from my side.

And the first one is on the merger between Sandvik Mining and Sandvik Construction. And not what will happen, but could you please explain the main parts, explain the difference in the margin between Sandvik Mining and Sandvik Construction, as it is right now?

It's a good question. Sometime save on to that when you these two businesses were split today split all the assets, all the equipment are produced in the same factories.

They are bought by the same purchasers; they are supplied through the same supply nets out to the market. I am little bit confused myself when you see such a big deviation in margin but to be honest it is related to a number of businesses that we are in there part.

And little bit to a crushing business, maybe much related to mid end market in China. And also on some other products.

To say the main business which are related to the same equipment as tunneling, underground mining, surface drilling or drilling in relation to mining or surface side, these are not so different. On the aftermarket, there are some differences also that when you for instance using a crawler in a quarry for instance, quarry owners are more small businesses, they are normally not running their business 24x7 that means day and night which they have a little bit more time to fix equipment if they break, they sometime move them between different quarry.

So they are not so in desperate need of say service support and spare parts needs. And sometime they try to make some good businesses themselves.

Also when you are sending through distributors, it's normally more difficult to really catch the aftermarket. So there are some parts of it.

But I still like to underline that many parts of what we call construction today is a very, very much related to the mining business that we are going to -- so for moving these together I think it will be little bit easier in the future to follow what is the difference or what is the opportunity for that.

Thank you. And then in the Annual Report, you are saying that quarrying and crushing are global growth areas.

Does this mean that the crushing part in your view is a core business for you?

Of course it is a core business with us. It's one of our business areas we have.

And we are looking to the new setup, I measure we go will have product there yes and one of these product areas is going to be the crushing business. When you own your costs, you own your own business and you follow it by that part, the transparency becomes very clear that means now we have a good opportunity to see what really the profitability is for each of this business area.

And the one who knows me I have a viewpoint on our businesses. If we have a business that is underperforming there could be two reasons.

It could be bad management and in that case we have to change the management. Or it is a bad business, if it is a bad business we have to question ourselves if that we are going to stay in that business.

But with the transparency we will get it will be much easier to make these decisions in the future.

Okay. And then last one on the productivity improvement that should increase by at least 3% to 4% per annum.

Would you say that this -- maybe I missed it during your presentation -- but would you say that this is a step up from what Sandvik previously has achieved? And from what level in that case?

I have -- difficult to imagine the history on that part. I think for Sandvik going forward it should be important.

I don't recall myself saying 4% there but it grows I said say 3% so that's --

I'm actually referring to the Annual Report again. In there, you are saying 3% to 4%.

Okay. Okay.

Maybe I am a little bit too modest at this moment. But it's true, difficult -- I haven't really the history behind me how that has been governance before but from my perspective this is a very important measurement.

And this is a very important achievement from all of our operations. This means if you are not in a growing world, we have to decrease our costs in -- otherwise all the investments we do in improve productivity will not be paid off.

Thank you, Andreas. I know we have one more question from the call.

We only have a couple of minutes left. But please operator let the question through.

Hi. Just a special question on additive manufacturing.

Could you describe your exposure to additive manufacturing? I know that you sell metal powder.

So if you could give us an idea on how large that is within the segment of Materials Technology? Have you added capacity?

And what can we expect going forward? And then the other thing is do you also additively manufacture drill bits?

Or are you considering to do this?

When come to additive manufacturing, we are doing a lot of -- I mean on the research side here. We actually have in our research center in Sandvik and we have all these 3D manufacturing equipment that we are developing and testing and for different kind of production facility.

But so far in our products it is very, very much limited at this moment. So it is more on the research side.

It is true that we have a powder business supplying to that business but to be honest, I don't really know maybe you know how big or important that part is.

I know. But we don't share it.

I am afraid.

I was hoping you would do it, but okay. Obviously -- yes, okay.

I understand it then. But can you give me an idea on whether you have expended capacity significantly this year?

And whether, let's say, your key peers have done something similar like drilling offshore. I mean I've seen that our core has added some capacity.

I mean just an idea on capacity expansion maybe.

No. Well, I can't comment on either size or capacity expansion at this point, I am afraid.

But perhaps we can enlighten you more on the Capital Markets Day.

Yes. I think we should go home and do our homework.

Yes, maybe we can come with some better information at that time. You will also have a chance to talk to Petra at that time and she is probably very much in those -- into those numbers.

Okay. Thank you all for joining us today at this presentation.

And I hope to see you many of you at the Capital Markets Day on the 24th of May. Thank you.

Take care.

Thank you. Bye, Bye.

Thanks.