Sandvik AB (publ)

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

Olof Larshammar - DNB Markets Anders Roslund - Pareto Securities Graham Phillips - Jefferies Klas Bergelind - Citi Guillermo Peigneux - UBS Peder Frölén - Handelsbanken Capital Alexander Virgo - Bank of America Merrill Lynch Sebastien Gruter - Redburn Markus Almerud - Kepler Cheuvreux

Good morning, and welcome to the presentation of Sandvik's fourth quarter results. I'm Ann-Sofie Nordh, Head of Investor Relations, and I will guide you through the Q&A later on.

But first of all, of course as per norm, Björn Rosengren and Tomas Eliasson will run you through the presentation. Fire away.

Thank you, Ann-Sofie, and good morning also from me. I thought I'd start to talk a little bit about 2017 and the development that we've had.

I think the year has characterized by strong demand. I think we've seen growth in all three of our business areas, as well as in all the segments where we have been operating.

But it's also a year where we have done a lot of activities, and if you startup with the decentralization, we continued the work, and during the year we've been focusing on the group but also to put SMT in the right structure. We have continued our work and the progress when it comes to the product portfolio consolidation and we are getting closer to the end of that project.

We have also managed to end the supply chain optimization program, where we have, during the last two years, closed 23 operating production units. We have deleveraged our balance sheet and we are today on a gearing of 33%.

The net working capital has continued to decrease and we reached a record low of 22%. And also this year we have a record low capital investment of SEK 3.6 billion, which is below 4%.

So that has resulted in an improvement of the operating result that has grown 33% during the year reaching above 16%. We're very happy with that.

So the good year ended with an excellent quarter. We continued to see strong growth in the market, 15%, as well as the revenues went up to 15%.

We have seen strong development in all segments, as well as in all regions, so very strong underlying market. The earnings continued to improve and we managed to reach the profit level of 17% during the quarter.

The balance sheet continued to strengthen and with a low working capital and a good earnings of course managed to reach SEK 5 billion in cash flow, and for the full-year operative SEK 15 billion. In addition to that, it's of course the additional almost SEK 55 billion extra from the sales of SPS to be added on that.

So the proposal from the board is dividend of SEK 3.5 per share. So this is quite an extraordinary picture, and we've been trying to look back if you see such a strong underlying market back in time.

As you can see here, the underlying market is strong in all segments as well as in all regions. You can see here that Asia is up 12%.

Hidden in those numbers is China, which is up 35%, which is extraordinary. Also North America up 17% is strong, and of course Europe, which is the majority of our business 40% in this area is up 16%.

That's strong. And as you can see, all the segments and all the regions are pointing upwards.

So that means that the order intake reached SEK 24.1 billion, which is up 15%. But now we also see in the revenues who's been trailing before also coming up to good level SEK 23.9 billion, which is also 15%.

So strong underlying there. And also the profit has improved 24% compared to last year, and if you exclude the currency as well as the positive metal prices, it's actually 36% or over 18% EBIT margin, so strong development there.

When we look at more closely to our business areas, as normal, Machining solution is taking out. And probably the strongest number in the report here is that we see growth of - underlying growth of 12%, which also is the number where we've been really trying to look backwards to see if we have such a strong number historically.

The leverage is excellent. It's 64%, reaching an EBIT level of 24.5% and that's including a negative currency, so clean from that it's actually 25.3, so these are really good numbers.

But also they managed to put record low net working capital, which of course have generated a very, very strong cash flow from the business area. But also Mining and Rock Technology is showing strength.

We see a growth of 10%, and here, we see the strongest growth actually in drilling and hauling part of the business. We also see that revenues has come up and we know that, as you all know, that they've been working hard during the year to get the deliveries out to customers all around the world and an up-ramping in some of the business with over 100% is quite a challenge for the business, but I think we can give them credit for managing doing that.

Going forward, I'm sure you'll realize that it will be tougher comparison and maybe you'll all remember that the first quarter we were over SEK 10 billion in orders, so that will be of course be a challenging, even though we continue to see a strong demand in the market. The operating profit improved by 60%, reaching 16.2%.

And of course that is both including being negative on currency, as well as Varel, which is underperforming compared to the rest of the business. Still challenging SMT but in line with our expectations.

Here we are very happy to see that we are continue to getting orders, so the underlying demand is strong, and in these numbers, we see the big umbilical orders of SEK 600 million, which is part of these, giving 38% growth. If you take out that big order, it's still 16% up, so we're very happy.

There is lot of activities going on in SMT, and I think 2018 will be an important year to prove that the business is moving in the right direction. You all know that our ambition is to get back to 10% profit margin in two years, so we should be able to see during this year an improvement of that business.

The consolidation project, which I mentioned in the beginning, continues, and we managed in the quarter to close the mining system deal. Also the process system, and couple of days ago, we managed to close the welding wire which was sold to ESAB.

So we have now to complete the project and we hope to be that in the second quarter, where we hope to close the Hyperion deal. We signed an agreement also during the quarter from KKR to take over that business.

So hopefully we can start working more to growing the company instead of selling off the business. So Tomas, please give us a little bit more in depth detail of the numbers.

Yes, thank you, Björn. Okay, so let's move to the financial summary and some highlights here.

Top line, you heard, if you look at the upper right-hand side here, 15% on orders and 15% of revenues, take off negative currency and divestments 10% on each. If we go down the P&L, 24% up in EBIT or operating profit margin from 15% to 17%.

We venture into that in just a few seconds. Cash flow also very, very strong.

Very strong cash conversion in the quarter and for the full-year, which has helped reduce the financial net debt. The net working capital 22%, very, very strong, very good, almost too good in some areas but we'll talk a little bit more about that later.

Return on capital employed in the quarter, 22.4%, and this is excluding the capital gain from the Process Systems' divestment. So this is purely operational, 22% in the quarter and 19% for the full-year.

And at the bottom, you see the earnings per share, everything included but excluding the capital gain from Process Systems. It's 801, so 82% up compared to a year ago.

So very strong development there. And of course if earnings goes up and the financing net is flat or down, you get an over absorption in the finance net, which further drives these numbers up.

Okay, let's go to the bridge. The most interesting part of the bridge is the price/volume/ productivity column, the first column there.

And you can see that the accretion, or I should say, the drop through was 39% and the accretion was 3 percentage units. So if you take 15% year ago, add the organic accretion, you get 18%.

So 18% was let's say the organic EBIT margin in the quarter. Then we had negative effects from currency and from metal prices.

We then move on to net working capital, performing very, very well. You can see on the right-hand side, the three business areas plus other operations.

Everybody is doing very, very fine. SMS, SMRT on historically low levels, but also SMT during the fourth quarter had really a nice pickup.

This was mainly due to a bit customer advance received in the quarter. We don't know what happens in 2018.

We're not going to get an advance every month but this is how the year ended with strong cash flow. The free operating cash flow is SEK 5 billion for the quarter, SEK 15 billion for the full-year.

And you can see on the right-hand side that the main driver of earnings is - sorry, the main driver of cash flow is the earnings, of course as always. But working capital contributed as well and CapEx a little bit up and down but basically on the same level, so very good quarter from a cash flow point of view.

Now the most beautiful slide of them all. This is fantastic.

It makes me almost emotional when I look at it. The net debt has come down from SEK 40 billion down to SEK 16 billion now at the end of the year, where of SEK 5 billion is the pension debt, so SEK 11 billion is the net financial debt and the gearing is 0.33, as Björn mentioned here.

So this is very strong, and it gives us a lot of maneuverability freedom to choose in terms of investments and M&A etc., etc. Also during the quarter, as you - I'm sure you'll remember, we had an upgrade of the credit rating from BBB flat to BBB-plus with a stable outlook.

It's very important for us as a recognition to the work that we've done with the balance sheet and the cash flow. Now a new slide, tax rate.

Of course, tax rate is quite interesting in the fourth quarter. If you look at the reported tax rate in the quarter and the full-year tax rate, it looks strange, business not what we normally have, 16.7% in the quarter and 22.3% for the full-year.

But there are two effects here that explains why we report these tax rates. The first one is the capital gain on the process system divestment that calculate tax on that divestment or all the capital gain is 11%, which is a bit below the normal 27% that we have in the business, so of course that has an impact.

So if you add that back, it's 22% for the quarter and 25.5% for the full-year. Then secondly, we have the US tax reform, and as that came through on December 22, we have made a revaluation of our tax assets and tax liabilities in the US.

And for us, it was a positive or close to SEK 200 million. So it meant that the underlying tax rate, taking that of is 27.3% in the quarter and 27% flattish for the full-year, which is the underlying tax rate that we have.

Whether this tax reform is positive or negative is of course completely dependent on whether you are in the net tax asset or a net tax liability position in the US. We are in the net tax liability position in the US.

That's why it is positive for us. But that's just now, fourth quarter revaluation.

At the bottom, you see the guidance for the tax rate. The guidance we've had for some time is 26% to 28%.

Going forward, of course lower corporate tax rates in the US is of course positive for us. It will have a positive impact for us for the tax rate going forward, but it's not so big that we will change the guidance.

It doesn't take us out of the range, so we will still be in the range but maybe a little bit lower within the range. But we'll keep the guidance at least for now and then let's see what happens.

Okay, some outlook. The outlook numbers for the fourth quarter and the full-year.

Just need to find my slide here. Here it is.

The Q4 underlying currency effect was minus SEK 403 million, we guided minus SEK 415 million. The total currency effect, including all revaluations and hedges and what have you is minus SEK 375, so pretty much in line with the guidance.

Metal price, we guided zero. We had plus SEK 101 million in the quarter.

For the first quarter, up until December 31, we had pretty positive look on the currency effects, and let's say we didn't believe in so much of an effect. Now with the development of the US dollar using the exchange rates by January 31, we believe in minus SEK 250 million.

Metal prices in the quarter plus SEK 100 million. For the full-year, CapEx which came in at 3.6 for 2017 will be around 4 for 2018, little bit more investments.

Net financial items, which not that long ago was SEK 2 billion a year, is now expected to be SEK 1 billion for 2018, came in on SEK 1.1 billion in 2017. And the tax rate, which I just mentioned on the previous slide, will continue to be in the range of 26% to 28% but may be a little bit lower.

But not out of the range - not lower than 26% but lower in the range. Finally, the dividend proposal.

Here you see the reported and the adjusted earnings per share and the dividend for the three years '15, '16, '17, and you see the payout ratios on the right-hand side. Let's say real payout ratio, the reported payout ratio has been quite high over the last two years, 140% and 63%.

With this dividend proposal, it's 33%, comes down a little bit of course because of the capital gain from the Process systems divestment. But if you look at adjusted, it was 57% two years ago, 63% last year and with this proposal, it's 44%.

And with that, I will hand over to you again, Björn.

Thank you, Tomas. Very good.

So moving forward, you all know that our strategy is based on stability, profitability and then growth. I think during the two years now we managed to stabilize the group, as well as buildup strong profit level.

The focus going forward is of course growth. And when we talk about growth, we talk about organic growth.

We talk growth in new technologies, but also through mergers and acquisitions. And we are active, very active within this area.

At the same time, we should know that we are on a top of a cycle and prices are very expensive and we are not prepared to overprice any of the acquisitions, even though we know they are really expensive. We do expect that we will close a couple of acquisitions during the year.

SMT is going to be important. I think it's important that we see improvements, clear improvements during the year for the business that we start moving towards our target of 10% operating profit.

As I mentioned, 2017 was very much ramping up, making sure that we get the equipment out. During 2018, it would be a lot of focus on efficiency improvements and continuous improvements for the different product areas and business units to make sure that we get more profitable and more efficient.

I mentioned then that growth is important and we all know that the most healthy way of growing is organically, that is developing new great products, put them into the market and to take market share. And I think we have a good tradition in Sandvik focusing on new technologies and new products.

And during the year, we launched a lot of new exciting products, and here we just mentioned a couple of them. Perfomax is a new drill from Seco Tools.

It is more efficient tool, specialized for titanium cutting, and this is a new great seller for the business - for the product area. We also seen from Mining and Rock Technology the new series of Rangers with a new cabin, new intelligence, good radios, working radios, and improved fuel efficiency of the engines, a great product which we have big hope for going forward.

We are also taking the direction of moving into titanium, when it comes to the powder. We are market leader when it comes to other parts of powder for additive manufacturing and we are now moving into the titanium place.

And then on the right-hand side here, you see besides two miners I think. Is it two miners or is it Tomas.

That's really two experienced miners.

Okay, there is Tomas and me, and actually we visited one of greenfield operation in Canada, it's called Borden Lake from Goldcorp. It's actually the new gold mine.

What's so special with this mine is that this would be the first totally electrified mine. All the equipment are operating with battery and electric equipment.

And the drill you see on the picture is actually the first totally electric drill from Sandvik or from any suppliers. It's the DD422 IE, I stands for intelligent and E stands for electric.

And in this mine, they have two of these operating and are more to come, extremely exciting development where Sandvik is really in the forefront. With that exciting picture, I'm planning to end this presentation and be opened for questions and answers.

Thank you, Björn. Good way to finish I have to say.

Do we have any questions in the room? Yes, we do.

We'll start here before we move into the conference call. And I know we have quite a few questions lined up.

Yes, please. So I kindly ask you to limit yourself to two questions when we get there.

Thank you.

Thank you, Ann-Sofie. Olof Larshammar from DNB Markets.

Two questions from my side. Firstly, you were talking about growth in 2018, both organically and M&A.

And we have seen a fairly strong uptick this year in 2017 in terms of organic growth and you have handled that in a very good way in terms of operating leverage. In 2018, are you seeing any bottlenecks in your supply chain or in your production, or do you expect leverage to be continued good?

Then the second question from my side is regarding SMT. Göran Björkman has now been head of the division for four to five months.

Could you please elaborate a bit on what he is doing to improve profitability, and also if you think that given the very strong development in the oil price lately that this could also help the improvement in the division? Thank you.

Thank you. Starting with our production units.

I think the 2017 has been, as I mentioned, before really the year of ramping up and it is quite cumbersome for many of our operations where they need to, especially within SMRT, where they need to get the volumes up to some of the production is more than doubling the volumes. I think they managed this well and I think, as you can see on our revenues for the quarter is that we really got the deliveries out and the invoice income on the right level.

Moving in now to 2018, we are of course comparing with much stronger order intakes. And the strongest order we had last year was actually in the first quarter 2017 that where we had over 10 billion in orders for SMRT.

That was the really. So of course this would be more challenging to grow from those levels, even though we see that the underlying market is very strong driven by strong metal prices and demand in the market.

We do believe that at least - you never know about the mining market. It can change any day.

But as we see today, we do expect that at the beginning of the year at least, we should see a continuous strong demand from the market. And I think as long we see the metal prices on good levels that this will continue.

So the focus here is that we'd be more on driving efficiency now on these high levels and hopefully we can see also some growth going forward. As I mentioned, SMT, Göran is on place with his team and lot of focus for Göran with - he has 18 years' experience from SMT and the last 10 years from SMS.

It's of course to identify where all the issues. And I think he has done a good job.

I think it's a combination of about the mix, meaning that pricing - we need to make sure that the pricing is the right for the products that we focus on the areas where we are making more money. The underlying demand is important and we of course seen during the year an improvement, which will support the improvement going forward.

But then it's also to make sure that the cost structure is in line with the demand. So it's full plate for Göran and his team.

That's pretty clear. It's true that or oil price has gone up to levels and we know that the oil industry has managed to get down the breakeven levels to quite significantly lower than before.

So I think the most oil and gas companies are actually making money today where we do hope that we will see improvements. We follow the number of rigs operating in the market and we saw good increase during 2017 leveling off in the mid and of the year, and we see some improvements in the end of the year.

We managed to get orders within the oil and gas, the umbilical order, which was important during the quarter, which is crucial for SMT to be able to deliver good result. We are carefully optimistic that there should be some improvements with the oil and gas market during the year.

Okay, thank you. We have one more question here in the room.

Please Anders.

Yes, Anders Roslund, Pareto. I have two questions regarding growth.

First, Machining Solutions, the 10% achieved now in the fourth quarter, is that year-on-year figure which will be difficult to beat now coming into 2018? Have you seen sort of - do you still see growth?

How has the year started in January?

We normally give just a small indication. I think it continues on a good level from Q4 into this year.

There is no big changes in direction. More than that, I don't like to say.

But it is the same as with SMRT is that there are going to be more challenging numbers to face going forward. That's pretty clear.

But you saw the underlying demand in the market and that has continued at least in the beginning of this quarter.

Okay. And the same question regarding the Mining and Rock Technology.

You reached SEK 38 billion in order intake and you start off with SEK 10 billion as a comparison. Would there be any growth in 2018 regarding the full-year figure?

I guess it's difficult to beat the SEK 10 billion, but how about the replacement cycle and new investments in the mining?

I think from our perspective, the best is not to speculate too much of that. I think the important from our perspective is that the underlying demand has not changed, so that is where the orders come in, there is a continuously - our products are what we call wear products.

It's not these heavy investment as capital goods. They have a lifetime between five and 10 years, and you need to replace them.

So there are these continuous but we of course know that the first quarter last year was enormous on orders, so we do not expect too much growth during the first quarter compared to that, even though we believe it's going to be on a good level. Going forward, it's a big appetite in the market for the moment, but as always this is the best time to prepare for downturn.

So we work with all our PAs to make continuously plans, making sure that we know how to adopt when we cannot. At the same time, the upturn from us has been only 2017, so if you look at the mining market, it started to go down 2012 and it's been down until 2016.

So for us it would be a pity if it's only one year. So we hope for the best and we plan for the worst.

Okay, thank you.

Thank you. Can we move onto the conference call, please?

Operator can you let through the first question?

Good morning, Björn and Tomas. Yes, two questions.

One on Mining and one on Machining please. First one on Mining.

Given there is a split there between aftermarket and OE, can you contrast a little bit the organic growth between those two or how it compared to say a year ago, and what is the margin differential between the two and what could the likely impact be into 2018 if you've got OE growing faster than aftermarket? And then on Machining, I wanted to ask a little bit about the drop-through margins.

Obviously very high, and again thinking into 2018, you're guiding for higher CapEx, I guess, you're also probably going to have higher costs in R&D. What sort of normal drop-through margin would you be expecting in 2018?

Good. Let's start with the mining part.

We had during the Q4 through the aftermarket around 10%, so it's pretty much in line with the capital goods. When we're looking at the capital goods, as I mentioned, we've seen better growth in drilling and blasting than we've seen on the crushing side.

That gives you a little bit. The margin is of course significantly higher in the aftermarket, so a good aftermarket is good, and this is, as we talked about so many times, is that when the market goes down on the equipment, the mix, that means a bigger percentage of the sales become the aftermarket.

That's how you protect the margins in the downturn. But good growth in the aftermarket, so we are happy about that.

10% is a good level. Going into next year, if you look during the year, we started up very high and then it's been pretty flat during the years on a high level if you compare sequentially on the mining side.

So it was a big from the beginning and then on a good level, so the comparison was much lower. So how that would be going forward?

We expect at least in the beginning that will be on a high level. But as I say again, the comparison numbers will be tougher of course.

Then it was on the…

Drop-through in the SMS.

Yes, right. We have 64% drop-through which is normally much higher than what we are used to and should be.

The normal drop-through should be around 40% to 50%. That's the level when we are doing something on the good, and that's also what we're hoping before.

What I can mention is that during the year, we have done quite a lot of investments into the adjacent technologies. SMS is investing big money into additive manufacturing and also to the software business.

We will continue to do that, and we will actually accelerate these investments into 2018 because that is where we are going to be make money in the future. So we have a pretty aggressive investment plan on SMS on new technologies.

Okay, so with the - just a follow-up, sorry. With the SEK 4 billion you're guiding to on CapEx, which I think is about 12% increase on last year.

You don't see that 40% to 50% drop-through obviously in your depreciation, but also other costs in terms of research and development. You think that's sustainable for this year?

I think we mentioned that we are from between 40% and 50%, so that's where we think we should be.

Okay, thank you.

Thank you. Can we have the next question please, operator?

Yes, hi Björn and Tomas. It's Klas from Citi.

So two questions. Just briefly coming back to the drop-through there in SMS, several companies have reported better price cost this quarter.

Was the solid drop-through volume-led or price-led and where can the investments go to next year in digital? I think it was SEK 60 million to SEK 80 million this year.

Are we going to see a step change to SEK 200 million, SEK 300 million. Just to understand a little bit what happened would price versus volume in the quarter and what will happen to the actual investment level ahead?

On the pricing level for the group, it's about 1% that's where we are. And I think the SMS is somewhat higher.

That's approximately where we are on the pricing. Rest is driven by efficiencies and volumes.

And your second question was on R&D expenses for the new product areas.

Exactly.

Well, they will go up in 2018 as compared to 2017 if you do a bridge. We will invest more in expenses.

Any guide on how much, Tomas?

No.

I think we are around 3.5%, sometimes up to 4%. But we would continue to have an active R&D business or active within the product areas, and there are many exciting new products that will be launched during next year and we have a new project that we are running.

So we are not holding back on the R&D side. I think that's important.

So that's the thing which is kind of be growing - driving the organic growth going forward. But it's nothing that is sticking out.

I don't think there is something you need to worry about. We have our percentages.

We try to keep them on approximately the same. Now when the volume goes up, of course there is a little bit more room for investments in R&D.

And my philosophy is where you need to be number one and number two in the business you operate because you need to invest more in R&D than your competitors. So if you sell more, a more successful make more money you can afford yourself to do a little bit more on the R&D than your competitors and that's going to be key for the future.

For sure. Then on SMT, during the CMD in November last year, the new head of SMT give a very solid and honest presentation in my view on the challenges ahead and some of the mistakes under the previous management, saying for example that previous management invested perhaps on a recovery in the oil price.

But now when the oil price recovers, we can see that the recovery still hurts the margin through the negative mix as the recovery is first taking place in core and standard. So we need more of the larger high margin orders there.

The backlog is solid on large orders for invoicing in 2018. so in short, to what extent should we see the mix improved here as we go through the year, as we start to invoice the large backlog?

Are we jumping to 7%, 8% margin and then the operational achievements take the margin to 10% thereafter. Is that the trajectory?

We are not going into all these details of course. But just to give you a little bit overview of the oil and gas market, it's true that the oil price has gone up.

We start seeing some more movements within the oil and gas industry. For our, what we call oil and gas, has been developing good during these tough years.

Our umbilical business has managed to get the orders and keep the factory full, all through these challenging time, which I think it's a great achievement. How the oil and gas industry is affecting SMT, it's more that the oil and gas industry is a big taker of pipe all over, and in the big investment programs.

And when the oil price went down, they become overcapacity among the OEMs [ph]. And that continues to be, even though companies are starting to get their capacity to the right level and the demand goes up somewhat.

So that will be helping a little bit. But that's the main effect from the oil and gas industry.

Göran and his team, yes they are focusing on making sure that we take in orders with good margins. We have, during these tough times, of course also taking in a lot of orders with little less margin because of filling - making sure that we are filling our smelter.

The underlying demand has become stronger, which helps us of course to focusing on the type of orders that are giving better margin. So that's one part of it.

But it is also to adopting the cost structure in line with the development or with the order intake and the demand. So there is a lot on his plate at the moment, but I think they are focusing on the right thing that's still to be proven.

And as I said, we need to see something here during 2018 that clearly shows that we are moving in the right way.

Another way of asking this is perhaps that I think when I look at the order intake there are large umbilicals for '17. I get to 1.5 billion, 1.8 billion of large orders yet to be delivered.

How much of that is going to fall into '18 which will improve the mix?

I think on the umbilical sides, there is not too long order. Here we are talking about four to six months.

That's all we have on orders. So we need to take in orders all the time to be able to deliver out.

So on the umbilical side, the order we'll be taking in, they would be delivered out during 2018.

Thank you.

Thank you, Klas. Can we have the next question please, operator?

Good morning, Björn, Tomas. I'm Guillermo Peigneux from UBS.

I was a bit positively surprised by the outlook on the currency for the SEK 150 million FX. I guess by the way it comes from some of your businesses going into, well, being divested.

But is there any change in the underlying assumptions for the FX calculation. Is there more from Europe into Europe, or is there - this is a normal sensitivity in your business?

And I'll wait for the second question. Thank you.

Okay. Well, it is what it is.

There are no major changes apart from divestments. Of course Process Systems and Mining Systems.

But no, we just took the exchange rates by January 31, and the big mover is the US dollar of course. And when we talk about guidance, we talk about transactional and translational.

And the total transactional exposure in the company is a bit, let's say between SEK 15 billion and SEK 20 billion, depending at a little bit, but annually whereof more than half is US dollars. So that's the big mover.

But there is no fundamental changes as such.

Okay, thank you. And then if I can come back to the mining order intake, is there any particular softness hiatus or softness into the fourth quarter.

You saw more hesitant spending from the mining players there or you just basically coming from up from very high levels or just basically confronting more difficult comparable environment?

Yes, we don't see any change in environment. The demand is very strong and we expected to continue on this level for some time.

But if I may elaborate on my question - sorry for that. But if I look at your order intake now and if I tried to see that into first half 2017, even though it's obviously impacted by the currency and I completely understand that.

But it seems to be, in a way, that what we've seen now is a period of three quarters of probably below book-to-bill, below 1 –book-to-bill, which will result in some kind of weakness if the currencies stays at this level. So is it just basically the cycle taking its place and then now normal more spending coming from the minors, or is this just basically a temporary blip on the intake?

I think if you look at the book-to-bill ratio, the first three quarters were all above 1. I think during the last quarter were more very, very flat, just slightly negative.

So the order is very high. The reason why we got of course lot out is that we've been struggling a lot to get the equipment out with sub-suppliers who had to ramp-up volumes and so on.

So we got a little bit of a kick-out during this last. But from demand side, I think it's no change.

Orders comes during certain times, then it can come a little bit more within a month, then another month and during the quarter and so on. But the important thing and the signals from the market is that the underlying demand continues to be the same strength as we seen during 2017.

Thank you very much. And my last question, could you comment a bit on mining equipment pricing?

Yes, on the equipment side, it's a little bit higher and a little bit less on consumables, which is the same trend as we've seen before. But mining is also somewhat under 1% total.

Thank you. And that is like-for-like equipment or that would include also your new product launches?

That I guess, I don't really know the difference there but normally when we launch new equipment, it's the same you've seen in SMS. You get a little bit more pricing strike.

It is price and mix.

Price and mix, okay.

That makes sense. Thank you very much.

Okay, thank you. Can we have the next question please, operator?

Thank you. Hi Björn, Tomas and Ann-Sofie.

I need to come back to growth. And you've being pretty clear that you want to grow also inorganically and maybe you could share some more thoughts in the management team or even in relationship with the board what to expect here.

The divestments has been in the plan and you argued that the targets are highly prized but at the same time the market is moving. So I'm really looking forward to what type of actions to see during 2018 and should we expect some more.

I'm talking about metrology, software and so forth, or could we actually see something more meaningful in order to take significant decision in the quality manufacturing change? So that's my first question.

It's correct. I mentioned that the focus is organic growth but also through merger and acquisitions.

And the BCCI where we are targeting most and where we'd like to see most happening is within SMS. We've been very active during the year to identify to work together, and I also mentioned before that we do expect that we should get a couple of acquisition, not huge acquisitions but more bolt-on right direction with the right technology going forward.

Yes, the price is a little bit high. I think we have to accept that.

But at the same time, we have to be careful that we don't overpay for these things [ph]. So we'll be prepared.

We are doing our job, and when the opportunity comes, I can assure you we are going to be there and try to complete the...

Okay. Let's get back now to another occasion.

My second question would be then on SMS growth, talking about 16% growth in North America despite the auto side sort of flattish. Could you elaborate a bit about market shares, or if there is any restocking pre-buy effect here?

I don't really see the underlying industrial sort of market growing 20%.

I think out of those 17% we had in North America, we are around 13%, 14% in US. The other part where you see the biggest part is also coming from Canada and from the mining side, pulling those numbers up a little bit.

But it is a strong - the US market is strong for us. There could be some areas where we are taking market share.

But overall it's pretty flat. That we look upon it.

It could be within certain segments that we have been improving a little bit, but at the same time it could be segments where we have a little bit more challenging situation. So overall it's pretty much the same market share as before.

But if you look at the Machining Solutions separately, 16% order growth in North America, and as you mentioned 13%, 14%, 15% in the US. Has there been any change due to the stocking, sort of stocking situation among distributors here on the SMS side purely in North America?

I think nothing directly that we are sticking out. There could be probably somewhat but nothing major I would say.

It's been - for SMS, they've been working hard trying to get their net working capital up a little bit because they are on the limit what they can have to be able to deliver according to the demand. So demand has continued to be so strong, so we really haven't managed to get the net working capital up.

That gives you a little bit feeling of the demand in the market.

That's very clear. Thank you for that.

I'll get back in line.

Thank you. Can we have the next question please?

Thanks very much. Good morning everybody.

I wondered if you could just go into the European growth in SMS, just a little bit, and perhaps discuss the working days impact on Europe in the quarter and perhaps just remind us what the working day impacts were in Q1 and Q2, so we have an idea for the compatibility of growth as we move forward into Q1. And I wondered if I could just clarify, you said January has continued in terms of momentum on SMS.

Thank you.

If we look at the Europe, you've seen very strong - actually strong growth in whole Europe in whole region and Europe has also had about 1.5% of negative working days. So the underlying is somewhat stronger there.

So very strong Europe actually during the quarter.

And in terms of the working day impact in Q1?

1.5% negative.

Okay. And January has started.

That was in the fourth quarter.

Sorry, Alex to interrupt. The number Björn just referred to was actually in the fourth quarter not an outlook for the first quarter.

Sorry, I'm still talking about the fourth quarter. We don't have - what is it?

Minus 1.

Okay, minus 1 during Q1 is than expected.

Brilliant. Okay, that's lovely.

And January, you said I think early on, January has started as Q4 ended. Is that right?

Yes, we said no changes actually in demand during beginning of this quarter.

Okay, great. Thank you.

And then I guess just to pick up your last point there on net working capital and SMS. I think you talked about inventory build in Q4 helping operation margin by 30 basis points or so.

What can we assume or what do you think we can assume in Q1 in terms of that?

On the working capital?

Yes.

Well, I mean - yes, sorry.

Go ahead.

Well, from a working capital point of view, you saw both SMRT and SMS coming in with really good numbers, and especially in SMS, the work at the inventory levels are a bit too low and the reason for that is that the demand has been so strong. And so we've had problems or that not problems but it's been challenging to catch up with customer demand, and this means that we are trying to restore service levels in many of our finished goods warehouses going forward.

So it will have - your context backed, what we're really trying to say here, you context back any major working capital reductions in 2018 as we've had in 2017 for these reasons.

Very clear. Thanks Tomas.

Thank you.

Thank you. Can we have the next question please operator.

Hi. Good morning to all.

I have two questions that I'll start with first one on Mining. Since you track your mining equipment install base, do you know if the average age of the fleet has come down last year or whether it's developed up?

In other words, what's the proportion of your fleet that has been replaced in the last 12 months? Thank you.

No, I don't have those numbers here. I'm sure they know that in our mining operations but I don't have the average age of the equipment.

But look at from 2012 until 2016, there was limited amount of investment, so there are rooms for replacements also going forward.

Okay, thank you. And the second question will be on the productivity gains.

When you presented the targets, you talked about 3% productivity gains to 2%, 3% rate inflation. I'd like to know what were the outcome for 2017 and what should we expect on that for full-year '18?

Thank you.

About 8%. I think it's about 8%, I think, we ended up at during the fourth quarter and the ending of the year.

So of course the revenues are coming up of course with a pretty flat number of employees, the productivity really goes up and we do expect that this productivity improvement will continue into 2018.

But towards - the [indiscernible] target you achieved 8% in the first quarter. Should we think toward the 3% you talk about our you can still maintain this 8%?

I would not go into numbers there but we have, as I underlined during the business cycle, that our businesses should improve at least 3% but there are no limits on the upside. So we do expect that many of the businesses will do better.

So I don't think 8% is extraordinary. I think we are growing, and at that time, you should see good improvement in the productivity.

So I think there is much more to be done in the operations going forward.

And on the other side of the equation on the wage inflation, first of all, cost inflation, do you see pickup in '18 versus the course you had in '17?

Take the inflation side?

Between 3% and 4% I may guess but it's going down at least.

Thank you.

Thank you very much. And we have time for one final question.

Please, operator can you put it through?

Hi, good morning. Markus Almerud from Kepler Cheuvreux.

Two questions. You've hit on all the targets to continue with those and when should we expect you to send new targets?

Next year they were set for end of '18 but you're ahead. So should we wait until next year, or what are your plans there?

That's my first question. And then if I can just ask on mining demand, so orders are a little bit up and down as around SEK 10 billion and half in this quarter SEK 9.2 million in Q3.

If you would characterize demand throughout the year, would you say it's fairly stable throughout the year?

Start targets. Yes, it's correct when we set the targets in May 2016 we are of course expecting a flat market and we are seeing of course tremendous volume improvement.

So we have beaten all those targets that we need that we have setup for 2018 full-year. We haven't really decided that yet.

If it's according to the plan that we had 2016 was that we were going to do it on the Capital Market Day 2019, there on the spring the next capital market day. If we'll do it before, we'll come back on that.

We're not sure yet. But Tomas had promised that we'll not go backwards.

Yes, that promise stays. Not backwards in 2018.

I think demand on the Mining business. It's difficult to say anything more than it continues to be on a strong level and there is a lot of activity out in the market.

In addition to the strong demand for equipment, there is also a strong demand for automation and electrification. These are the two new areas, which are both exciting and we believe it's going to be crucial for our mining business going forward.

So it is very exciting times. It's a great combination, something that we really haven't seen that before.

But I never speculate on mining demand because it normally goes wrong. So let's take it as it comes.

And at the moment, we are happy when it's on the level where it is today. I think maybe that would be the last answer, Ann-Sofie.

Indeed it is.

Thank you very much.

Thank you very much. I know there are still questions out there on the conference call.

Please feel free to call myself or my colleague Anna, and we'll help you the best we can. Thank you for today and see you soon.

Thank you.

Thank you.