Sandvik AB (publ)

Ann Sofie Nordh - Investor Relations Björn Rosengren - President and Chief Executive Officer Tomas Eliasson - Executive Vice President and Chief Financial Officer

Peder Frölén - Handelsbanken Capital Markets Anders Roslund - Swedbank Klas Bergelind - Citigroup Benjamin Maslen - Morgan Stanley Alexander Virgo - Bank of America Merrill Lynch Markus Almerud - Kepler Cheuvreux Daniel Schmidt – SEB Andrew Wilson - JP Morgan Andreas Koski - Deutsche Bank James Moore - Redburn Partners

Thank you, Ann Sofie. And also I would like to welcome you to this Q1 -- first quarter result presentation.

I think the quarter which we have behind us was a very strong quarter for Sandvik. We continue to develop in many areas in a positive direction, and there are three areas which I think sticks out a little bit more than the other.

And the first, which of course from our perspective is very positive is that we see orders continue to strengthen. And so this quarter orders were actually up 16%.

Sticking out in the order side is, of course, mining and rock technology, last team [ph] standing over here who actually were up 30%. I think these are numbers that we haven't seen since the rise of China in the beginning of 2010.

So that’s very very positive. But all business areas actually contributed to this good order intake.

The second is of course the EBIT margin. And that this is the second quarter in a row where we are over 15%.

And if you have listened to me before, I think quality companies deliver EBIT level over 15%. So that's extra fun.

Of course, there is a lot of currency and also alloy surcharges that have been positive for the quarter but the underlying improvement of the EBIT level is 18% and that should put in relation to our target, which is to improve by 9%. So I am very happy with that.

And at the third and not least important, and that’s the cash flow. The cash flow actually doubled compared to last year and it's actually the highest cash flow that we have had in the group.

So that’s very positive. That's of course driven by the good profit but also by keeping the net working capital on a good level, which is actually under 25%.

So that's very positive. So if we look at the different markets, we see good growth in all our three big regions.

Europe starting up with 5% here but if we execute the big order where we received last year, it's actually 11%. So for the first time we're really seeing Europe taking off in a positive direction.

North America, 41%; I think it talks for itself but in these numbers, there is one large mining order, about 250 million. So if you exclude that, it's about 25% for the mining side.

Asia, 7%, a little bit lower than we saw previous quarter but if you look at China by itself it was up 31%. So China is strong, while it was a little bit weaker in rest of Asia.

I think India was negative for the first time in a very very long time. I don't think that's a big issue.

Recently I visited India and I think the momentum and the positive investment [ph] at the market there is on a level that should generate good growth in the coming quarters. If we look at our segment -- our targeted segment, I think all of the segments were flat to positive.

Also here of course sticking out is the mining side. Very positive but very positive is also the general engineering which is positive.

But I personally believe that that's driven also by the oil and gas industry which is coming back in the North America. Positive, continues to be good is the aerospace, up and the other, automotive flat.

We have also on the oil and gas and construction is pretty flat so far. Maybe some of you saw here that the automotive in North America was negative and I think that should be seen from a very high level.

They I think produced 17 million cars in North America last year. So it's from a high level.

In Europe, we saw a flat development of the automotive industry and actually in China it continues to grow and strengthen. So at the order, I said, they’re 16% up, the underlying – that’s underlying organic and then you have to add of course the currency there.

The book-to-bill ratio is 114% which I think is a good sign for future growth in revenues in the coming quarter. The revenues were up 5% which is not that big, and as you know, our order has been pretty high now for the last two quarters.

So in the coming quarters we should see an improvement of the revenues trailing from the mining. We see normally about a six-month delay between orders and invoicing.

EBIT development, I mentioned that one of the positive is actually 45% up, but if you exclude the currency effects and the alloy surcharges, it is 18% and I think that's a good level. So it continues to improve and this is driven mainly from efficiency improvements but also of course volume improvements from what we've seen before.

So if we now look a little bit closer into each of the business areas. Machining solutions continues to impress.

Strong orders this time up 10%, that sounds a lot. But if you actually dig into it a little bit more, then we had during this quarter 3% more working days.

So if you exclude the working days and also a big order that we received in the Powder and Blanks technology, the underlying is about 4-5%. So that's about how you should see the level for SMS at this moment.

If we look at the margin, 23.2%, very strong continuous improvement where we're seeing there. And SMS continues to have good control over their operations and the net working capital continued to go down, which of course generated an excellent cash flow for the business area.

Then to mining and rock technology, and the one who has listened to me, this is the area where I think we have the best improvement potential. And I think Lars and his team showed that, that is good during this quarter.

We made 14.1% EBIT and that's an improvement from 9.6%. So I think that's a good number.

But if you dig a little bit deeper in here, I think it was good. If you lift out the barrel business out of the mining, it’s actually 15.2%.

So now we are talking -- now we're coming much closer to the levels where I think this business should be delivering on. We can see that orders were up 30% but invoicing still only 6%.

So that's what I said, it is trailing. Also, credit to the whole team for keeping the net working capital under 25%, I think and that's also why we generated a really good cash flow from the mining and rock technology business.

If you look at the different metals that you're seeing there, it’s actually gold, silver, and zinc which is driving. We are still waiting to see some improvement from the copper but the copper price is going up slightly.

And so maybe in the coming quarters we could see some more activity in that part. If you look at the different businesses we have, you know that I think the most important part of the mining and rock technology is the aftermarket.

And they really showed strength during this quarter, 11% up, and I think that should be put in relation to how the market is developing. And we know that the mining output from the mine is about 1% up per year and not more than that.

That shows that actually that we have a strong belief that we are really taking market share now on the aftermarket, which is the important part, not least in tough times. We’re also seeing good volumes in the underground business.

Loaders and trucks is doing amazingly well but also the drilling. We also start seeing a really good momentum in the surface part, while it's a little bit more slow on the core mechanical excavation part of the businesses.

Then moving over to materials technology, also here we see some growth, 5%. If we then exclude the alloy surcharges, improvement there, it’s what we call a black zero, just a little bit growth.

This is supported by the great order that we received in the oil and gas industry from Leviathan, that’s actually gas order for umbilicals which is actually keep -- helping us to keeping up the orders on hand on a healthy level. We also do expect that we should during next quarter get -- to help -- to secure the full year.

So that looks quite promising. Volumes is at minus 1 here but if you take away the metals surcharges, it's actually down 6%.

So that's actually what is driving the weaker earnings, which is the underlying, which is actually 6.3%. We do believe that the coming quarters will offset this low level [ph] and we think we will reach the targets that we have set.

So we are quite optimistic to a number of good quarters for SMT moving forward. So Uncle Scrooge [ph].

Did you have any money?

Well, don’t listen to him, he’s from Rosenberg. Okay, yes, we do have some money.

If you want to buy something or build something somewhere in the world. Okay, let's jump into the numbers and start with the overview.

16% order growth, and 5% revenue growth organically as you've heard. If you look at the upper right hand side you can see the currency effects, 5%, taking then order to 23% and revenues to 10%, in total total.

The operating profit, or EBIT was up 45% or 18%; excluding FX and metal price effects, 16.1% in EBIT margins. Net working capital reduced again down to 24.5%, should mention that the rolling twelve month number is a little bit above 26%.

So we still have some way to go to reach the 25% target but we're approaching. Cash flow was slightly up 94%, up to SEK 3.7 billion, a very good quarter and returned 18%, and also earnings per share grew healthy.

So if we then jump into the bridge, we can see -- we see the quarters here Q1 compared to Q1 year over year. We can start on the right hand side, the structure and the one-offs, it's just metal price effects and alloy surcharges here, SEK 235 million on the EBIT line meant an accretion of 1.1 percentage unit, currency SEK 400 million on the EBIT line, 1.1%.

Then on the left hand side, you see the organic or price volume productivity, SEK 800 million in revenues and SEK 458 million in EBIT, so a drop through a 56%, which we're pleased with, 1.7% in organic margin accretion. If we then move to working capital, to the balance sheet you can see that we continue to decrease.

As you can see in the graph here, Q1 is always up a bit seriously compared to Q4 sequentially, it's been like that all the time. There is a build-up in Q1 for deliveries to come but you can also see that the increase in Q1 2017 was much much less than what we’ve had over previous years.

The percentage is down to 24.5% as I mentioned, very good performance. On the right hand side, you see the business areas, and SMRT and SMS continue to perform very strongly; SMT has a build-up ahead of deliveries in the coming quarters.

The cash flow was up, a very strong quarter, probably the best in modern times with a SEK 3.7 billion in free operating cash flow. And you can see on the right hand side where it comes from, as Björn mentioned it's mainly driven by increased earnings.

So SEK 1.4 billion up from earnings and working capital is normally a negative in the first quarter but you can see here also that the negative was much much less than a year ago, half a billion better than a year ago. CapEx was slightly up.

And the last graph, this beautiful one is the net debt. And from the peak level in 2014 the net debt has come down from SEK 40 billion, down to SEK 26 billion right now, and the gearing is 0.63.

So we have the target of 0.8 within reach. And also, we should mention that we -- after the fourth quarter closing and the release of the fourth quarter results, we had a new outlook from Standard & Poor’s and the negative outlook was taken away.

And then we got a positive outlook. So we now have triple B with a positive outlook.

So we'll see what happens. Now outcome and guidance, if we look at the first quarter, SEK 401 million year over year in currency effects, we guided for SEK 400 million, so that was pretty spot on.

The metal price effect here, we guided SEK 129 million, and maybe we should mention that this is the in-quarter guidance, not the year over year guidance. So the SEK 129 million was the actuals and zero was the guidance.

And the big difference is chromium and the U.S. dollar movement.

For the second quarter we guide SEK 400 million in year-over-year currency effects and about zero in metal price effect. The metal price effect year ago was also close to zero.

So it is zero, both in quarter and year over year basically. The CapEx, we keep at SEK 3.9 billion as guidance, and net financial items we keep SEK 1.4 billion to SEK 1.5 billion.

Should mention that we had 387 in the first quarter, so 387 times 4, that’s little bit more than SEK 1.5 billion but that's because we have some FX and hedge valuation -- temporary valuation differences in the finals net. If you just look at the pure interest rate net, it was down with 25% in the quarter, year over year close to SEK 100 million, down, then we had FX and hedge valuations going down the way.

But that's just temporary, so that would flow back and forth, it's a little bit difficult to predict. So we keep the guidance at SEK 1.4 billion to SEK 1.5 billion.

Tax rate 26% to 28%, we had 26.9% in the quarter. And before I finish, maybe I forgot something which is a bit important, on the cash flow side here.

You can see that we had SEK 1.9 billion a year ago, we have SEK 3.7 billion this quarter, that is quite an improvement, nearly 100%. Now we don't guide on cash flow as such but I just want to say that, don't expect 100% up every quarter for the rest of the year.

We do have -- starting to have some positive numbers now on the topline, I mean I'm talking about revenues now and as Björn mentioned here this fantastic order intake will transform into revenues stronger and stronger during the year. And even the capital efficiency as you have seen is improving all the time.

Growth is up, better working capital. So I think we can safely say that it's not going to be 100% up in Q2, Q3 and Q4.

So be a bit careful in your Excel sheets. Okay, so with that, I hand back to you Björn.

Good. Thank you.

Just in the end, our direction towards decentralized structure continues. I think we start seeing all our product areas with the full management teams in place and we see improvements in all different corners.

As you know, we decided to divest three of our businesses, two of them, because we call them non-core, that is the Process system as well as the Hyperion. We started the process during this quarter for Process system and that is moving well.

It's a great interest for the business and we expect it to get well paid for that business. When it comes to mining systems, I'm sure many of you are curious where are we in the divestment there.

We’ve had a good quarter in the works here, meaning that we decided instead of selling the whole business as one lump, we divided into two businesses, and one of the businesses, which is the component business – is this conveyor component business which we are selling separately, we are close to signing there. We have a buyer and the development -- it moves the right direction.

For the project business which is a big part of the business, we also here have a buyer and we are close to signing a letter of intent there. So we expect now to have it closed during the second quarter.

So I feel very comfortable about the development here and that we should be able to close a deal within the quarter off. By that I think I end the presentation and we move over to question and answers.

Yes indeed, and we'll start here in the presentation hall, please. We have a question at the front.

Yes, thank you. Peder Frölén, Handelsbanken.

A couple of questions regarding the leverage if I may. Firstly, if you look at the order intake in the mining business and you mentioned that not only aftermarket is strong but also the underground and replacement of equipment.

Could we discuss the future leverage in the mining business? Extremely strong right now obviously with little invoicing increase and very strong savings increase.

What to expect there in the long term? Moving over to the SMS business, the 50 million sales provision, could you explain that?

Is that sort of -- is that something that we should look at non-recurring or is actually provisions for salespeople doing better than expected? Thank you.

I start with the SMS business and the 50 million, as you’ve noticed is that the development of the group is growing a little bit better than we anticipated from the beginning. So in those 50 million it's actually built up for the short term and long term incentive programs, so that's lifting it to a certain level, that's where it came in.

So if you’ve added to that, that is actually non-recurring. I mean it moves up, it's in special extra during this quarter, you should not expect that to every quarter.

So when you look at the leverage you could actually put that back and you end up down at 47% which I think is a reasonable level.

You start the year with an assumption but then I mean if things develop much much stronger, you need to change your provision.

Then on the leverage on the mining, I think we will try not to speculate much within this part but of course in the improvements -- and I mentioned that, we did a lot of cleaning during last year and some of that we’re still taking out, so we are now moving in more to levels that we should be seeing going forward. It's correct that the volumes are up but they are not extremely up.

How the leverage will develop, I think we'll wait and see to that to the next quarter. But I think we're starting coming out to see levels where I would like to see the business, if we can keep it on the spot or improve it somewhat that would be great.

Another way of asking that question might be pricing on the mining -- different revenue streams of mining. So are you pleased with the -- when demand is returning on the equipment side, do you manage to sort of also look at decent prices?

I mean the competition would be rather tough out there with a lot of capacity?

This is correct, we're seeing a positive pricing now in the mining part. So what we saw before which was negative there has now changed into positive.

Of course, when your production facilities are full, it doesn't really make sense to sell equipment with a lot of discounts. So that definitely helps the pricing situation for mining.

Thank you, Peder. Do we have any additional questions here in Stockholm?

Okay, Anders Roslund, Swedbank. How does the demand picture look like in the SMS business given this issue with working days and the underlying 4%, 5% what's the trend in the quarter?

We normally give you a little bit an indication here and I would say there's no big changes. So I think we continue.

I mean we look -- normally we look at the invoicing per day and that continues to be on the similar level as we see now under the first quarter.

Are there any differences from the – in the different geographies?

I don't have that information yet. I can only see that what's actually going out from our distribution center but we'll see that pretty soon when we have the Q1 ready.

We’ll come back to that during next quarter.

And then the final question about the materials technology business. What do you see there from the order side?

I mean, I was of course happy that we received this big oil and gas order from Leviathan, it’s actually a big gas order, and if we're looking at what has happened during the last year, mainly big orders, it's actually coming from the gas side and that's also where we see the most positive looking forward. And gas -- there is a big demand for gas in the market, that's of course what's driving the standard investments.

It was pretty flat in orders. That's pretty clear but we are quite optimistic in the coming months when it comes to order side on the SMT.

It looks pretty pretty okay. I can't say more -- you know it's like everything -- an order is never an order before it's signed.

You know, you have it on your table. But it looks pretty pretty okay.

Thank you and with that we'll move into the conference call please. Operator, do we have the first question?

Yes, hi Björn and Tomas; it’s Klas from Citi. A couple of questions please.

Firstly on SMS, Europe is flattish ex working days. I mean it's good to see the better momentum in North America but given the strong momentum EP mines [ph] in Europe ongoing in September of last year, flattish growth underlying, it's a bit disappointing.

Could we drill down a bit more by end market in Europe, if there is something at all that stands out on the positive side and did you see any improvement in Europe in the beginning of the second quarter?

I think from the beginning if we looked at SMS I think we have positive development in all three regions. So it's correct when you say that the the working days is mainly affecting the European market which continues to be somewhat positive.

I don't think I have any direct information about the different segments, the only thing we can see is that the automotive industry continues to be flat. We are seeing an improvement of course in the general engineering side.

Otherwise -- and of course also aerospace – also aerospace is positive on that side. So I think we are pretty optimistic about the European market.

Of course, North America and China are sticking out more than Europe at the moment, that's where we’ve seen the best -- the best growth during this quarter but it's still pretty healthy in the industry and that the whole market seems more solid than we've seen before.

Can I follow up on energy -- it seems like energy in SMS to collect down in Europe, or this is a tough comp on large orders or was that an underlying improvement?

I would say that’s the underlying, yes. Of course it depends on how you measure these but I think it's the underlying.

But would you say that, sorry to belabour the point, Björn but would you say that the general engineering side is looking healthy and that accelerated ex working days? Do you feel more optimistic about general engineering?

Yes probably.

My second question is a follow up to Peder's question on SMRT on the lead times and potential bottlenecks in the supply chain. We've seen very strong growth here and we've seen momentum since the third quarter of last year.

Do you now see increased bottlenecks and what is the entire lead time for when you get an order on the drill rig to when you can deliver it and is that the GT reason for pricing moving higher or is it just because of higher input?

Sure. I mean this is an assembly business mainly, so it's of course getting the whole supply chain up and moving.

And you’ve seen the acceleration in orders during the second half or the last quarter and this quarter. Of course it takes a little bit time to get everybody up and running.

So I think that’s -- if we look at this quarter for instance, I mean we had on the invoicing pretty weak during the first two months and then we had an extremely strong March. We start seeing things moving in the right direction there but it is normally, we say six months, if you place an order today, it varies of course which -- what kind of equipment that you’re ordering but it would be probably difficult to get any big deliveries before the end of the year .It has been pretty full, and I mentioned -- you see – if you look at the orders, it's a 30% up, that's on the whole business.

But if you're looking at the underground business and also the surface business it's significantly higher. So we’re talking really high numbers there.

So of course they are under pressure; that’s true but at the same time they are assembling equipment and the fact is they’re working together with sub-suppliers and using the facilities we have at the moment. I think they're doing a good job.

It takes a little time to get up. And the pricing is definitely related to this.

I mean I think selling a drill rig today with a discount is more throwing money away. So I think this is a good opportunity to keep the pricing on a good level.

My final one is on order money in terms of quotations, key commodities such as iron ore and copper rolled over towards the end of the first quarter; has this slowed down quotation levels at all, or are we still looking at the same solid activity when you look at your pipeline?

Copper is very important for us and we start seeing movement there. So that’s -- but that hasn’t really taken off yet.

Iron ore is significantly less for us and I mean it’s related some of that of course in northern Sweden, we have some and then in South America and Brazil, that's where you see the big iron ore part of the business. But that hasn’t really taken off.

Thank you. Good afternoon Björn, Thomas and Ann Sofie.

A couple of mining for me please. Björn, you said that drilling and the underground segments are the ones that are really driving the recovery; can you talk a little bit about what you see in the crushing and screening segment at the moment?

Are you seeing any pickup in that business? Thanks.

Sure. Also there is also good improvement in the crushing side but of course it is not on the huge numbers as you're seeing in the underground.

But definitely crushing is picking up quite well also.

And then on the split between equipment and aftermarket within mining; can you give us a split for orders and revenues, maybe as to just how much of the business is aftermarket now and just clarify what the growth rate was? I think you said it was double digit but in the release it says single digits.

I think when we were little bit lower, it was about 65%, we're probably around 60% at the moment.

And then the growth rate?

Mining -- on the aftermarket is 11%, if that's what you're referring to.

Thanks, I’ll circle back on that. Thank you, and then just one, Björn, you mentioned barrel, and it sounds like it's not contributing much profit or still in a loss, just what are you seeing in terms of demand there, US rig count is looking better and when can it get back to profitability?

Sure. I mean the barrel business is very much related -- it's in the Middle East but also in North America and where we've seen a good pick up is of course on the North American market, which is very much related to the number of drill rigs.

And I think the numbers we saw late, it was just over 800, so it's growing. The last five months barrel have contributed with a positive EBIT, it's still on around 5% level but – and the PPA is actually affecting negatively 10%.

So if you add the PPAs on there it's actually negative still. So it is not contributing that well.

But I think the underlying business is improving and that's a five months with positive margin I think is a good improvement from last year. Tomas will add a little bit there.

Yes. So what that means is that it’s been cash accretive for five months, if you take out the PPA part of things.

So it’s sort of taking that out, it’s kind of mid single digits in terms of EBIT margins. And Q1 showed a steady growth in order intake for barrel as well.

So it should improve further as we go through the year?

It follows pretty much the drill rigs in U.S. to be honest.

Just a quick one on SMT, I think the Leviathan order ends up being about 11% of the growth and you talked about the alloy surcharge also adding about 500, 600 basis points. So I am just wondering if we kind of look at everything on an underlying basis, is it right to assume the business is down order wise sort of 10% or so?

And then second one just to follow up on the impact on EBIT of working days, as we look forward into next quarter, presumably we can expect that to drop to at the similar sort of operational leverage you’ve seen in Q1? Thank you.

Starting up with the SMT there, we actually had a big order last year also, which was actually bigger than Leviathan. So it has actually a negative effect on that part.

So it is not – underlying it’s actually a little of positive.

The other one, sorry, can you repeat the question please? Working days in Q2?

Yes, I mean you had a much stronger impact from working days in Q1 and I think most people are expecting, so presumably that all reverses in the second quarter, I am just checking that, that should drop through with the usual amount of operational leverage?

Yes. I mean it all goes back in Q2.

Hi, Markus Almerud here. Just to start with -- just to look again at SMS throughout the quarter to follow up on Anders’ question.

If you could talk a little bit about the daily sales rate, did it grow stronger into March coming out of January, February? That's my first question please, and especially if you could talk about North America.

Sure. It's correct that we saw stronger at the end of the quarter and the level continues to be on the same level, yes.

And then if I can ask just on SMT and the umbilicals projects, so you talked about you’re optimistic here about the projects going into coming quarters; is it still the same type of political orders and can you talk a little bit about the discussions in just the regular oil projects, are there any discussions at all and then have they progress, any and is there more optimism now as these oil prices have come up or is it pretty much the same?

Now, it's great; I think there is more -- what we see of course is the gas side of the market which is driving most of the project at the moment. I think that continues, it's difficult for me to comment if it's a political order or not, because it's actually both kinds, that are expected.

So yes, it is mostly gas, correct; and these projects as you probably understand -- you have a pretty good visibility when they are going to come and to replace and I said we are very optimistic that it will be placed during the quarter. But you know, an order is never signed before it's signed.

Thank you. And do we have any questions here in Stockholm.

Yes, we do, please.

Yes, Daniel Schmidt from SEB. Björn, you’ve clearly sort of mentioned that you are in the process of divesting three of your businesses and one might be coming before the summer.

And do you have any sort of -- could you give us any timing on Process system, Hyperion and also the fact that you've stated at least last year that you need to invest those proceeds into some sort of software platform for the machining solutions business?

I don't know if I understand – first, I can just mention out of those -- there are three businesses we are selling. The mining systems I expect that to be closed during second quarter.

On process system that is taking place, we have a big interest in this, we are in the due diligence; a number of players are now in the last stage and we have a due diligence process that will continue to end of May where the final bids are coming in. So we expect to have a closing on this one before the end of the quarter.

Hyperion is still in a start-up phase, so we are preparing, it’s a little bit more complicated spin off than we have on the other businesses, that process we start in August. So it is moving the right way and it's a good business and we're looking at both of these businesses; they are developing well, so that's going to support the process.

And what about sort of the need to buy software platform for SMS, I got the feeling that, that was something that you're not going to build greenfield or organically; has that changed?

Software platform for us – or you mean for the growth – a ha, now I know what you're referring to. Yes, that's the growth strategy which was presented by SMS where they looked at different growth opportunities going forward.

And in that growth strategy it is of course to strengthen the core business. It is also investing more in software, we have made a number of smaller investments within the software.

So we have created like a common business for SMS where they are developing the software part of the business. Then we also look for opportunities to grow the measurement part of the business as well as the 3D printing or additive manufacturing and also on the comp side.

So these are the growth opportunities. We have Klas on board since first of April and now taking over the strategy from Jonas.

Of course he is reviewing the plans that are in and making sure that they are in line with his and his team's viewpoint forward. I don't expect any big deviations from that but at least a little bit update and Klas should lend before we really get the momentum going forward.

Klas is new, but his interns have been in the company for many years, have been running Coromant for the last five years, so it takes a very short time to get in full speed up and running.

Just a couple of quick questions, please. On SMS, and obviously the very good improvement you’ve seen in the Q1.

You just talked a little bit about what you’ve seen in terms of pricing, and whether you’ve seen a kind of step-up I guess with [indiscernible]?

It's moved positive. So if you look at SMS I think it was up 1.7% positive pricing which I think is the direction.

But I should be noted that first quarter is normally the best quarter when it comes to the pricing side. But definitely significantly improvement from the zero we had in the last quarter.

And then on the mining aftermarket and just to clarify, I think on Ben’s question. I think in the release it talks about being up a single digit in year on year and I think you've talked about being plus 11.

I just wanted to clarify, what the right number he was and I guess –

It’s correct, it’s 11%. So it’s a very good number for that business and I think from my perspective, one of the most positive numbers for SMR.

Yes and that was – I guess leads nicely into the question I want to talk about, which really was exactly how are you delivering growth to that degree, I mean you talked very clearly about market share gains, I guess, just give us a bit of color in terms of exactly what you're winning share on?

And I want to talk to market share within aftermarket is actually against yourself. So we look at the whole fleet.

And you know we have about 8000 units that are operating out there. We know exactly where each of these units are operating and we also know how much spare parts and service each of the units are consuming.

So when I say a market share improvement means that we are taking a little bit bigger market share of our own fleet. So it's actually not against any competitors, it's our own job to serve a bigger part of our fleet and that's how we measure that.

And we'll have a question here from Stockholm please from the audience.

Thank you. Peder from Handelsbanken.

You mentioned savings. Tomas, you also mentioned the sort of EBIT growth ambition that you sort of released on the same day.

If we look at the report and we add sort of the savings coming, it's around 130 thirty million or something –

135 million.

Yes. So how should we think about this going forward?

And also the real question I want to ask is, are you reaching a higher sort of ambition, or it runs faster than expected? Obviously you talked about the improvement of EBIT in a flat volume scenario and we need to sort of calculate the volume improvements out of the equation again but still are you reaching higher or is it just going faster and hence what will happen to the savings in the efficiency gains, well, for this year?

Maybe I just can add on little bit – just to get a little bit understanding then, when volume goes up and you start getting choked in your production facilities, it becomes a little bit more difficult to drive these kind of efficiency improvement programs within the operations. Even though as you know, we have a productivity improvement target for every unit within the group.

That means 3 percentage points and how do we measure that? That's actually sales per employee.

So that's how we measure the improvements, that will continue and of course it will be easier when the volume goes up, that's natural, while when you’re in a downturn in volumes you have to actually take out more people than you have and than you need. So it will be difficult to get more efficiency, even though we have our supply chain optimization program where we have closed 19 factories out of 23, and we expect to do the final of these during the rest of the year.

So there are still these activities going. Then I also like to underline is that with the new structure, with the so-called operating entities with full accountability, I do expect that each of these units will improve their performance and that comes -- one thing of course for your sales reps, but your S&A costs, your COGS, your pricing you have to drive your businesses.

So I mean this is an ongoing story and this will never end and this is built into the work, -- you say, these continuous improvements. And me and Tomas we actually follow that down to products, that’s on thirty four units every month and we have the famous scorecards that Tomas and his teams have developed which actually gives us full accessibility of all the performance in every business unit.

And I can assure you we put a lot of pressure on that.

Yes, we’re a real pain for the organization. There is no getting away.

As you mentioned, Peder, we have the 7% EBIT CAGR growth for three years, that's right, we did 3% in last year, which means that we should do 9% average CAGR now in the next year but we did 18% now, I mean this quarter. But there's still seven quarters to go, of course.

I mean if you just look at the numbers -- looking at those, you know -- but if you look at the numbers, I mean from 15 to 18 here it's 2.3 billion that we need in profit improvement, to do the 7% CAGR, and like 1.2 billion, 1.3 billion comes from the announced savings programs, then there's another billion from efficiency productivity et cetera et cetera. We're tracking but there's still seven quarters to go and the comps are not getting easier as Björn mentioned.

Operator, please, we’ll have another question from the conference call.

Thank you very much. A couple of questions on mining and rock technology.

Firstly on the demand situation, in Q1 to Q3 last year you had an order intake of around SEK 7.5 billion per quarter. Now in the first quarter you exceeded SEK 10 billion in orders.

Do you think this is a new normal level or have you seen a lot of larger orders, although they were not terrific -- recognized as large orders in your report, because they were lower than SEK 200 million each?

I think being in the mining business for so many years, since I have learned to understand that there are no new normal, and like it’s always been, it goes up and it goes down.

But if you look in the short term, if you look at your tender activity, you see no reason that it should slow down in the next couple of quarters at least.

I think there is a big demand for improving the fleet in the different mines around the world. And as you know we have two suppliers in these parts, so we are in a very pleasant working environment for us.

So we will get the question as well as our competitor in this part but that's going to be driving. I do believe that as long as we see the metal prices on this level, this is a level where the mines are making money.

When they make money they need to invest in our equipment because we call it capital equipment; from my perspective it is not capital equipment, it's actually wear equipment, it’s what I said before they have a lifetime of five to ten years but after five years they start becoming expensive to maintain and to get efficiency out of the equipment. So of course with a fleet that we have in the market and so many years without big investments, I think there's a huge demand for equipment going forward.

If the mines are prepared to take it now or later, I think that that we will see. We are in a sweet spot when it comes to equipment for the mining industry.

And then secondly, I have to ask about the operating leverage as well, because it was 70% in the quarter, you had a book-to-bill of 1.22 which corresponds to a difference of around 1.9 billion between orders and sales. If we would apply a 30% drop through on that kind of gap when you bridge it, you would reach a margin of 17%.

If we would apply a 70% drop through as you had in the quarter, you would more than double your EBIT in SMRT. So how much of the costs in SMRT are fixed and how much are variable -- how should we think about this drop-through now when revenues are going to ramp up?

When you say these numbers, I look at Lars in the corner and he looks very nervous, when you say those numbers. But it's correct that you should not expect the 71% drop through, that's pretty clear.

What level we will get, we will wait and see, let's see what's going to happen in the next quarter. It depends a little bit on how efficient they manage to get that through their production facilities and so on.

And keeping of course the S&A costs on a lower level because that's the key. We have to make sure that we don't believe that these are like new normal levels and lift our costs in relation to that.

I think we should expect that this is temporary and it will be lower later on. So we need to keep the cost and efficiency in our operations at that and I am looking at Lars, he is nodding, so he agrees with me.

Do you have some kind of indication to give on how much is fixed and how much is variable?

No, I am sorry I can't give you that.

May I also ask on your new product area in Sandvik Machining Solutions, additive manufacturing and how that is developing. Have you now hired a new management team and what are they focusing on?

Yes. First of course you know when Jonas left, we lost a couple months in the development there.

But as soon as Klas came on board, we went full speed ahead and we have actually the management team in place now. We will come out with a press release any day with the name and other parts.

So that comes to work to drive this business forward but you should still know that it's only a fractional part of the group's business and has so far no influence on the performance of the group. But it is exciting and we're really looking forward and I personally take this -- very eager to see that we start seeing some development within this business.

So I would be all over there.

I have two; one on SMS and one on the strategy. So on SMS, I wondered if you could help us understand the 31% China organic sales growth.

I'm really trying to think about its sustainability and I wonder if you can help us with two things there. Is there a big difference between automotive growth and general engineering growth?

And do you have a sense of how much of the 31% is inventory builds and whether that restocking is about to end or has more to go? My second question is on savings, and you talked about the continuous improvements from under-performers decentralization, I think you put a billion hard number on that in your original budget.

Where do you think that number is today? I have the sense that it's moving upwards, and if we index the original to 100, or we had 110, and we had 150, how is that internal story developing?

Why don’t you take that last question?

Yes, I don't think we have guided specifically on that. I think coming back to what I said here, ten minutes ago, I mean we have 1.3 billion or something like that in the announced savings programs, the supply chain optimization 1, 2, and 3, and all that, and then the gap up to the 2.3 billion that we want to achieve and the EBIT improvement plan for the three years is one billion and that includes everything, including decentralization, efficiency, productivity, et cetera but it's not a specific program as such, it’s just that number that we are going to achieve.

That's where we're going to push for. Now, then if we are looking at the SMS performance in China, as you saw that was a 31%, so it was good.

I think we see good development in the automotive industry that continues to be, but we also see aerospace and also general engineering.

Did you have a sense of how much of the demand is restocking?

We don't see that as restocking at all.

And just circling back to that one billion gap, Tomas if I could. Is there a way to -- I guess you’re tracking this very carefully, third of your business units over time, would you be able to, without putting a number on it, saying qualitative terms, whether that's developing favorably.

We're doing okay but we don't have any guidance on it.

And if I could just clarify there, the 31% growth in China just mentioned is actually for the group, not for SMS specifically. For SMS specifically growth in China was 21% just so we're clear on that.

Sales?

Orders. End of Q&A

And with that, we're actually running out of time and there may be a couple of questions still at the conference call. If you do have been any more questions, you know where to find this, either myself Ann-Sofie Nordh, Head of Investor Relations or my colleague Anna Vilogorac in the Investor Relations Department.

And I’d just like to finish off with reminding you of having our Capital Markets Day on the 21st of November in Germany. Please go on to the website and register your interest to attend.

Thank you very much.

Thank you so much.