Sandvik AB (publ)

Thank you, Tomas. And also I would like to welcome you to this first quarter report for 2020.

I think I've known or met and talked to a few of you in my previous life. But for most of you this is the first time we meet.

So I would like to say I'm happy to meet you virtually, although I would have wished it was under slightly different practical circumstances. The setup for today is we're going to have a couple of slides to begin with where I will share some of my first impressions and priorities in the role.

We'll give a short update on the corona situation and then we'll dive into the actual report. So let's get started.

Next slide please. So I was happy that, let's say the first five or six weeks in the role.

Things were fairly normal, like we travelled around, meet the people, see our operations. I am happy to say I'm very impressed with the people I met, knowledgeable people, passionate and with a clear business focus.

It's also evident when you're out there about the new operating model that we put in place a couple of years ago with a decentralized model, its - that it's taking hold. You can see we - the responsibility for decisions and the accountability for decisions is out there in the business with additional management where it should be.

So I'm really pleased to see that. Obviously we still have ways to go and these things take a long time to get fully implemented.

But I think we have made very good progress in the last years. Then it's also clear that we do have a strong market positions in most of our segments.

We have good technology and we are number one and number two in the segments where most of our divisions operate. So overall, if I take these points, I think it shows we have a very solid foundation.

First now to take us through a challenging period ahead, but then also to grow the company more longer term. My initial focus areas obviously has been first of all coming from the outside to get to know the people, the businesses and some of our key customers.

Already coming in to the job on this quarter we were in a slowdown. We have already announced last year efficiency and cost reduction measures.

So that was also one of my first priorities and ensure that we continue to execute as we have said on that. Then we have of course SMT where the internal separation project is ongoing and we'll be ready around the summertime as previously communicated.

And then the idea is that then the board will evaluate and discuss potential next steps. In this period now when I come in is obviously now a good time to get to know the business more and form my own opinions around SMT.

And then of course growth, we have gone through you know stabilization and profitability over the last couple of years. It's clear that the focus is now more and more on growth, both organic and through M&A.

Then the corona situation has of course emphasized the priorities around execution, savings and efficiency and that's very clear. So next slide please.

On the corona situation, as we have said Q1 was largely as expected. We have the disturbances in China in the beginning of the quarter like most with the extended closure after the Chinese New Year.

We could say that's for us as China has recovered well. If you look at the quarter overall we were up in China for the group estimate that was driven [ph] by SMRT.

SMS, the short cycle business is flattish or slightly down minus 1% for the quarter. That obviously had a lot of drama within the quarter with a very big drop in the beginning and then a strong recovery at the end of the quarter.

I think we cannot really say yet what is the preferred sustainable run rate there obviously in the recovery there's also a lot of catch up involved. And potentially even buffering for a clear second shutdown, so we don't really know.

We could just say that China has recovered well for us in the quarter. Then in March obviously we had a global escalation of the situation.

And we have been impacted by production closures and so on in those regions that have locked down. And also in other places where for example for health and safety reasons we have to temporarily closed down much or more permanently for now reduce the capacity of plant.

But I think we have managed that well. We have been able to move around capacity as needed.

So we have continued to be able to serve our customers there. And on the supply and distribution, there's been a lot of issues during the quarter.

For example most of our airfreight through passenger traffic which obviously has been impacted, but – and also we have had quite elevated sick leaves in locations that have also made things more complicated to manage. But I think the team has done a tremendous job to manage that.

It has also not really had a significant impact on our business. We have had some extended customer delivery times, maybe slightly higher freight costs and so on, but overall month [ph] of significant impact.

Then of course we saw as the very end of March a sharp decline in SMS and the short cycle business also you know in SMT we know are uncorrelated SMS. And then the drop in the week was 25% organically year-over-year.

That was the first week where we saw the impact. So we will of course have to wait and see going through April now, how the run rate will be going through the quarter.

We cannot really comment on April. We think it's not really relevant to compare now these weeks because we have an Easter timing effect.

So I think once we are through April we will have a better idea of where the new run rate is for now so to say. Overall going forward we are fully dependent on how the action helped and virus situation evolves and of course government decisions where to close down, where to start to open up and so on.

I think you're probably as suitable [ph] as to try to understand the more than and what kind of impact that we have given our exposure in various segments that you are aware of. So that's what we wanted to say on corona.

Now let's go to the next slide please and jump into the actual report. We had an order decline of 11% organically.

Of course, that is again all time high compares. We were happy to see an additional major order in S&P [ph] in the energy sector.

We could also note [ph] continued protracted - protracted decision times on the order side in SMART. We have had that for some time and if anything it was a little bit like accentuated at the end of the period in March.

Of course, we continue to see the decline in the Short Cycle business. It's a massive [ph] minus 12% and that also is relevant for S&P, for take away major orders S&P of minus 9% for orders.

And then as I mentioned the drop in SMS at the end of March. This - we also had a revenue decline of 7% organically which obviously is the main driver for putting pressure on our adjusted EBIT margin which is 16.66 million [ph] metal price of 15.8 includ8ing the metal price effect.

We also should note here that we have a FX impact related to hedges in SMRT that had an 80 basis point impact at group level and 180 basis points in SMRT, that was not something we expected, but obviously it is part of the results. Then we did also see good savings filtering [ph] through 360 million in the period in line with what we have said from - from the announcements last year.

The cash flow 3.1 billion in the period. We have a strong balance sheet, gearing is now - the net gearing is now down to 0.17 and if we include [ph] on growth credit lines we have over SEK 30 billion of accessible cash at the end of the period.

Despite this solid financial foundation the board as a precautionary measure decided to withdraw the dividend proposal, although we also intend to reevaluate that when situations softens Next slide please. If you look at the market development, overall, we start with our major markets, both Europe and North America down 14%.

North America would have been down 9% if we exclude the major orders in SMT. On Asia minus 6%,as I've already said that if you take China in that we were up, actually up to 10% for China overall driven by SMRT minus one when we look at SMS..

If you look at our major verticals or segments, it's pretty much down across the board except for construction. If you look you know, in general engineering and automotive, obviously being weak also going into the quarter and down [ph] situation has not improved as the corona situation has escalated during the quarter.

Aerospace I would say was slightly weaker also going into the quarter as we started to see in January some impacts from the Boeing 737 Max production closure and that of course - that has also been impacted further later in the period. Sequential trend is primarily down, although we have still held up reasonably well in Australia and South American.

Next slide please. Orders, so I think I've covered the most of the things here, minus 11% organically.

But you can see in the graph there that we had very tough comparison in the same period last year and I'll come to that [ph] little bit, when we cover the business areas. Revenues minus 7% organically driven by SMS minus 12%, SMRT minus 5%, SMT minus 3%.

If we would have included the alloy surcharges, they would actually be down minus 5% in the period. Next slide please.

EBIT development, as I said pressure primarily from volume decline of minus 7%. If we normalize for the metal prices would have been 16.6%, reported adjusted was 15.8%.

Then I mentioned the FX-revaluation and hedge impact in SMRT in the period, driven by very volatile currencies in some of the mining markets that had an impact of around 80 basis points at group level, without that we would have been at around 17.5% on the margin side. And I think that gives a good indication on more how we have responded to the overall volume drop at the group level.

Of course, good positive impact from the savings of SEK 360 million in the period. Next slide please.

To go into the different BAs [ph] starting with SMRT, minus 8% order and minus 5% on revenues. On the order side the equipment are down in the high teens.

That's primarily driven by Mechanical Cutting. They are the ones that have very high compares in terms of ordering intake last year.

Also a little bit on crushing and screening, otherwise I think also equipment's held up fairly well. And aftermarket is largely stable.

It's actually down minus 2% in the quarter, but largely stable considering the environment. And then again continued to have somewhat protracted lead times in the customer’s decision process, and again potentially even slightly than escalated at the end of the the quarter.

On the margin at 17% this year versus 18% last year, there were a slight decline in absolute adjusted EBIT from the volume growth. But actually from a modern [ph] perspective they were margin accretive due to good savings and good handling of the volume growth.

So this decline is really driven by FX and some structural impacts, [indiscernible] some revaluation impact operation and they would have been around 19%. Next slide please.

Machining Solution is down minus 12% on both orders and revenues. I think I've talked to most of the dynamics there and the quarter and in China margin decline of course driven by the volume growth 520 basis points, partially offset then by saving of 210.

We also have negative impact from destocking, we're on 70 basis points. It's a little bit due to that we sequentially reduced absolute inventory since December, that’s primarily is driven by a bridge effect [ph] where we last year actually restock store [ph] overstocked.

So we did a negative rich effect [ph] there versus last year. So basically if you take away that impact we are down then about 300 basis points on a negative volume growth of 12% percent which we think is quite okay for business like SMS, of course, very much helped by the existing savings initiatives.

And then we also announced earlier in the quarter the intention to close one of our plants in Germany. Next slide please.

SMT, order intake minus 14%, minus 9% excluding major orders. Here we are happy that we could book major orders in the energy sector in the quarter.

It means that we have now filled our order backlog for this quite high value adding business for the remainder of the year. Of course, if the current oil prices others [ph] continue where they are we will have uncertainty in the mid-term term in the business, meaning in 2021, but that remains to be seen how things evolve in the next quarter or two.

In the short cycle part of SMT we see continued decline then in standardized as well as Cantal [ph] minus 9% through the major orders. Margin down from 10.4% to 9% primarily driven by volume drop, partially offset by a 50 basis point improvement from the savings.

And with that, I will hand over to Tomas to take us through some of the more detailed financial results.

Thank you, Stefan. And let’s immediately move to the next slide and jump into the financial summary for the first quarter.

And if I may draw your attention to the upper right hand corner, let's start with the top line, orders down 11%, revenue 7% organically. As you have heard currency impacted the top line with 2% positively.

Structure minus zero. We have a couple of acquisitions one in SMS and one in SMRT adding to the growth, but we also have the Varel [ph] divestiture which happened in early March, March 3rd.

So we're losing a month now of Varel. And this will of course continue for 12 months going forward in the bridge.

So all in all, minus 9% for orders and 6% for revenues. If you then walk down the income statement, the earnings landed at SEK 3.7 billion.

The operating earnings compared to SEK 4.6 billion a year ago, that's minus 18% and the margin of 15.8% compared to 18.3%. We would look at the bridge in a minute here.

Finance net minus 416 compared to minus 378. A year ago we will look at that as well in some more detail.

Tax rate 23.1% that's at the lower end of the range. Working capital just up a little bit in fixed currencies, but given the top line reduction the relative number came up to 26.8%.

Cash flow almost on par with last year at SEK 3.1 billion. Returns 16% and earnings per share minus 15%.

Next slide please. Let's look at the bridge.

So here we have the journey from Q1 ‘19 to Q1 2020. And if we start with the organic development, minus 7%, that's just short of SEK 1.9 billion down on the top line, SEK 726 million down on the operating earnings, that's leverage of 39% and a dilution of 170 points.

Currency diluted 30 points in the bridge, I should say, metal prices diluted 50 basis points in the bridge and structure well, it is zero. It's a little bit less than zero, but rounded off zero.

So that's from 18.3% to 15.8%. Now let's stop little bit here for a few seconds on currency, here you can see that we had a positive effect on the top line 427 and the total – total currency effect was plus SEK 12 million.

But behind the SEK 12 million we have quite some movements. The translation effect and the transactional currency effect was more than SEK 200 million positive.

But then we had negative effects of SEK 200 million on revaluation of hedges and open items in accounts payable and accounts receivable. And as Stefan has already touched upon, it was a little bit unexpected.

We had too many open positions, especially on the mining side for various reasons, timing reasons, et cetera, et cetera. And this happened exactly at the time as the currency starts to go very much up and down.

It is of course more of just a Q1 situation. Some of it will come back, but not all of it.

So let's move to the next slide. And here we just want to update you on where we are on the savings plan that we announced after Q2 last year in July last year.

We took a charge in Q3 of SEK 1.6 billion for savings of SEK 1.7 billion and we have now achieved a run rate of 1.4, 2,000 employees are affected of an estimated 2,5000. And the remainder of this program will basically fall out in the second quarter of this year.

Next slide please. Now let's talk a bit on the finance net and we can start at the top line here.

The underlying interest net which is what we're guiding for is coming down nicely, it's on minus SEK 126 million now, was minus SEK 168 a year ago. Minus 126, that's in line with the guidance we have for the full year which is SEK 500 million in interest net.

Pensions and charges et cetera are pretty stable. And we'll just continue along these lines.

But on the last line here you can see FX and other asset classes that's minus SEK 210 million. What we have here are hedges which do not yet have a corresponding item in the balance sheet.

So these are hedges for electricity contracts, for raw material purchases, and for large orders which haven't materialized yet. And as we don't do hedge accounting, you have to take the temporary revaluations in the finance net, this will all go back, 100% of it came back into the operating earnings when they appear in the balance sheet.

This is nothing we can guide about really. You never know where this is going to end up and in any case it is just temporary revaluations which for accounting reasons have to show up here in the finance net.

But we can give you some help if you want to model it yourself. The electricity contracts which is basically default [ph] for the steelworks in SMT has some outstanding balance of around SEK 500 million.

The raw material hedges which is mainly in nickel and a little bit of molybdenum is normally around SEK 4 million to SEK 5 million. And the FX hedges for large orders which we have received but we haven't started work on it yet normally has a balance of around SEK 5 billion.

So based on that you can model depending on where you think that market is going. So next page please.

Let's talk a bit about the tax rate. The reported tax rate was 21.8% and in this quarter we had quite some one-offs.

We had some restructuring going on in SMS which could charge for that. We have the last item from the Varel divestiture that was a loss of - not a loss, but it was a negative impact of SEK 500 million et cetera, it's close to a SEK 1 billion.

Those charges are booked as items affecting comparability doesn't all – are not all tax deductible. So when that happens the tax rate gets pushed up.

So if you adjust for that you end up on 19.2%. So 19.2% of course is a good and low level, but it's not that fun.

It's not that good really, because what we have in the quarter as well is apart from items affecting comparability or some inventory valuation movements to a large extent connected to internal profit eliminations et cetera, which has given us some tax income or some tax credits in deferred taxes. So if you could take that away because that would not repeat itself.

You take that away you end up with 23.1% which is more like an underlying run rate for the tax rate this year. The guidance is 23 to 25 and 23.1 is - it in the range even though it's at the lower end of the range.

So let's go to the next slide and take a look at some balance sheet items, working capital slightly up in fixed rates. Look at the right hand side, you can see that in SMS it's behaving nicely.

SMRT little bit up for seasonal reasons and SMT is a bit more volatile. Next slide please.

Cash flow, not too far from the cash flow a year ago, SEK 3.1 billion. Next slide please.

And here we have the net debt slide, and as you can see here now we end the quarter with a net cash position of 1.4. And just to tie back a little bit to what Stefan said here on accessible cash.

We have SEK 17.5 billion in cash. We have committed credit lines of SEK 9 billion.

We have more bilaterals that we can enter into if we want to, that means that we have more than SEK 30 billion in cash and undrawn credit lines both committed and uncommitted. We do not have any maturities.

You can see that in the back up material. We don't have any maturities for this year.

There will be SEK 3.5 billion in maturities next year. And then the rest of the debt portfolio is spread out in time, quite a long time into the future.

So the cash situation as such is good. Next slide please.

Now let's look at some of the guidance here, we guided SEK 150 million on the underlying currency effect. We came in on 224.

That's a transaction and translation. The total currency effect with a little bit unexpected revaluation and operation in the balance sheet was plus 12.

The metal prices in quarter was 201, we guided for 200. The bridge effect was 116, [ph] but in quarter it was 201.

The CapEx came in at 0.7, the interest net SEK 100 million or SEK 126 million and the tax rate was 23.1%. So if we look at the next slide, well a little bit of an update for the full year guidance here now.

We now say that for CapEx we will be below SEK 4 billion. That is an update.

We previously said it's going to be around or about SEK 4 billion. Now of course given these times we have put a little bit of cap on our CapEx.

We're going to take it down. So it will definitely be below SEK 4 billion for the full year.

For currency effect for the next quarter transaction and translation which is the only thing we can guide for. We expect plus 100 for the second quarter.

Metal prices with the prices that we had at the end of the quarter we believe it's going to be minus 150 for Q2. Interest net we keep at minus SEK 500 million and the tax rate will continue.

We haven't changed the range, it's going to be between 23% and 25% percent for the full year. It keeps coming down slowly, slowly because most of the markets where we are big and where we are profitable are tending to move the corporate tax rate down towards 20%.

And with that, I think I will hand over to Stefan again for conclusions and summary.

Thank you, Tomas. I think it's fair to say now following this quarter is all about managing our near-term challenges as resilient as possible.

You saw that we already in March announced additional savings measures. We have focused initially on the short term temporary savings because they have immediate impact, and that should provide another SEK 1.5 billion in additional savings for the remainder of this year.

And then we have SEK 1 billion in structural savings, SEK 100 million that we announced in January and then SEK 0.9 billion that we announced end of March, that would be fully into effect by the end of next year. We will of course continue to monitor the market development and if needed we will not hesitate to take additional actions if that's necessary.

What we will not do however is jeopardize the long-term competitive advantage of the group. And while we do these actions we are also taking into account the fact that we need to be ready also for a ramp-up and the period that will come after this hopefully as short as possible downturn.

One of the reasons we can do that is of course that we are in a robust financial shape. We have a solid balance sheet.

As Tomas mentioned over SEK 30 billion in cash accessible to us if needed. We are in the net cash position at the end of the period.

This we will use not only to come through this period in a position of strength, we will also use it to take any M&A opportunities that might arise even during this period. We have a strong balance sheet, and we want to grow the company and we want to add acquisitions both in our core business, but also if possible have a good technology and know-how that would help us drive growth longer term.

Thank you. That is all and I hand back to Tomas.

Yeah. Do we have any online questions?

Okay. Then, operator, I think we'll move into the - to the to the cell phone line.

So may I remind everybody to limit yourself to two questions each. And if you have more questions I would like to ask you to line up again.

So thanks, operator.

Hi, Magnus from UBS. First, on SMS, I think you mentioned a 25% decline in the last week of March, how should we think about this going into the second quarter, it's just as bad [ph] as it gets now with the automotive OEMs opening up or how should we think about the early part of Q2?

I mean, we don't know where this will end up. I mean, it was the first week of the drop and of course what it tells us is that we are now being impacted I mean, quite substantially.

As I said now we have Easter weekends and stuff. So we don't really draw too much conclusions from how April has started.

The decline has started, the rest of the quarter it's going to be impacted more by the virus rather than political decisions. You know, anything that we can see or draw any conclusions from – in the past couple of weeks.

So I think you - knowing our exposure to various verticals and so on you can probably more then lower [ph] guess how this will evolve as good as we can.

Absolutely. Thank you so much.

And the second question on SMRT on the aftermarket side you mentioned a flat demand, I think, year-over-year. Have you seen any tendency the mine has started to pull back just spending here in early Q2 or is it still stable?

Yeah. In Q1 we were largely stable as we said.

I don't have any commentary on end of Q2 as of now.

Perfect. Thank you so much.

Thank you. Just my first question is on the cost savings.

So the additional SEK 1.5 billion of temporary savings you announced, how quickly would you expect those to feed through to the P&L and should we expect that kind we get a third of those coming through in Q2 already or will it be a slight delay, the fact based on putting in the measures in place? That's my first question.

I think you – this is how we have thought about this. Really, on the one side we – we’re not going to delay, so to say savings and necessarily, rather, we want to push the brakes as hard as we can now in Q2, since it's reasonable at least with what we know now to assume that Q2 is going to be you know, a tough quarter.

That's the one side. So we're going to push as hard as we can.

On the other hand of course the risks in some cases may be a slight delay if we talk about April 1st at the benchmark. I can't say that some of the measures went into effect fully in April 1st and slightly maybe even before that a few days.

Then there are others where they also adjust to existing backlog and so on a ramp down as aligned with the business. So there are a little bit different dynamics there.

But I think you can assume fairly safe that it should be around the third.

Okay. And maybe just a follow up for Tomas, on the managing inventories for SMS, obviously that kind of started through the back end of last year.

How are you thinking about production levels going into Q2 and kind of knowing what we do now, would you have under produced a little bit more aggressively in Q1 given obviously sitting there now things spread more quickly than we thought? And would kind of the 200 basis point impact we saw in the second half of last year be a good guide for how maybe we should think about this in Q2?

Thank you.

We are on the right level in Q1. We have we have the right inventory levels.

Not too much, its not too little. And then I mean what's going to happen in Q2 we don't really know.

I mean, if - depending on what's going to happen, we just have to adjust, but we don't really have any guidance for that.

Okay. Thanks.

Yeah. Hi, Stefan and Tomas.

Its Klas from Citi. So a couple of questions please.

And the first on SMS and I want to come back to this. If you compare this business with Sandvik tooling back in the days, inventories have obviously come down, you've taken out fixed cost and lots of factory closures since 2013 and this obviously as you say it's impossible to comment on volumes ahead, but assuming that we would have a similar volume decline as during the financial crisis, Tomas could you help us a little bit on you know likely effect from under absorption, lower utilization?

I think that that number in 2009 was over SEK 6 billion. I mean given the changes that you've done to the business one would assume that the impact would be lower this time around and its difficult to comment, but any indication would be great.

Maybe you could take one, Stefan.

Yeah. So I mean, I think there's been a lot of good improvements in SMS.

Obviously, coming in here at least I've seen the actions that have been taken in the last years. Its footprint of course, it's decentralization activities which are both I think have had a positive from a cost perspective, but also now in terms of speeds of sort of taking actions in a downturn.

And I think what I can see they have - they haven't done it well so far. Of course, there's been a delay in these savings, it was structural or you know, savings that take a while to filter through, but they are doing what they said that they were going to do.

And we have a leverage in Q1 of 55% on the operational side, which again it's a 3% drop on the 12% negative volume growth. How things will or would be if things dropped even more?

I think it's very difficult to predict. I think the 55% in Q1 is as good I guess, that's – and the thing we can probably give you.

Yeah. Okay.

Makes sense. Then my second and final one Stefan on M&A, obviously, safeguarding margin and cash flow are the key priorities right now.

But when we threw the pain fear, and when you start looking to engage more on the M&A front, what is your key takeaway when you look at SMS in joining the group and expanding into industrial software and when you compare it to what you've done at your previous employer, is there M&A roll up story in CAD/CAM, metrology. So how can see attractive synergies emerging?

It would be interested to hear your reflections so far when you've looked at SMS?

Yeah. I want to be a little bit cautious.

I'm still on you know, 2.5 months into it, not even you know, past the first 90 days and its always easy to draw quick or too quick conclusions. I think we should definitely come back to it more during the Capital Markets Day in the fall and so on around strategy.

But what I can say is I think overall the strategy that we have in SMS around expanding a little bit out into the software and the value chain, around component manufacturing, I think - I think it's a good strategy. I think there is merit to it.

But I also know we have talked about it for some time. And we see some good movements lately, but we're definitely going to dig further into that.

But I see potential there definitely, exactly what, how, how big and so on, I don't know, but I think there is merit to the strategy and there is definitely potential there.

Thank you.

Thanks very much and good morning or good afternoon everybody. And the first question I have is for Stefan.

I know this is – well, that's probably a follow up on the earlier question. These are exceptional times and didn’t get a a lot of time.

But fundamentally what has surprised you the most, so far it sounded in both positive and negative terms. So that's question number one.

And question number two is about the level of activity in Q1 for SMS, which was perhaps not as bad as one could have feared. In your view was there in sort of pre-buy effect in the first few months of the year.

We see customers building up some inventories as you know they possibly fear that there could be some potential supply chain challenges? Thank you.

Yeah. I’ll start with the last one, I think it's more straightforward.

I think we could see early part of March or you know, up until the drop end of March. But there were certain regions where maybe we were a bit surprised at the activity level in a positive sense.

And then I think we can only interpret that as no buffer stocking [ph] securing supply chain and so on, that was in March. It wasn't a lot but it was noticeable.

Then of course, we had the drop at the very last week of March. So I think margin overall in that sense became as expected, but there were some dynamics within March.

Again, not a lot, but not – it was not. In terms of surprises, you know, it's a bit of a loaded question, because if you say something, so you assume you wouldn't find it.

I will say, as I said in the beginning, I'm really pleasantly surprised with the culture in the company and the passion among the people in the company. You meet a lot of people that have been here for 15, 20, 25 years but not in one role.

They have been in different roles, different biographies, different business areas, different functions. So they have really made a career in the company.

And I think that's really positive. It's been the strong culture and a lot of dedication that, I mean, in a situation like we are now not to make a big difference.

People go the extra mile despite struggling times and health related challenges. And on the negative side, I don't know, I'll come back to that when I have at least 90 days to think about it.

Okay. Thank you.

Thank you very much. So firstly on SMRT.

You mentioned that the aftermarket was down 2% in the quarter, but I wonder if that changed dramatically over the quarter and how did demand look like by the end of the quarter for the aftermarket business in SMRT?

It didn't change dramatically across the quarter, but obviously logistically there were more challenges in March towards the end of quarter - the travel restrictions, health related barriers in terms of visiting customers and so on. But there was no dramatic difference.

Okay. So you didn't see close to a double-digit drop in the aftermarket business at the end of March or something like that?

No.

And then the second question is on SMT. So when the internal separation of SMT was announced last year, I think it was made very clear that the Board’s ambition was to separately list SMT, hopefully, in the second half of this year.

So has that ambition changed new CEO, or is that still a clear ambition?

I don't want to comment on what the Board’s ambition was. But I can tell you to my knowledge nothing has changed that I can say.

We are achieving a potential plan and then we will reevaluate - we discuss potential next steps when the internals [ph] operation is done later this year.

Okay. So the ambition is to separately listed?

I mean, I think we have to say this, that the formal decision that has been taken is do an internal separation and then the board will evaluate potential next steps. That's what has been decided and that's what I think is clear.

Then of course, you don't start a process like this if you don't have a certain intention. But there is a decision point and a discussion to be had once the entire operation is done.

Okay. Thank you very much.

Hi, there. Yes, good afternoon and thank you for taking my questions.

Firstly, just a follow up in China and SMS and I appreciate you mentioned the difficulties of interpreting the data so far, but has the recovery that you saw in March been maintained through the first weeks of April and is the ramp up in customer activity still as strong as your own ramp up in production?

Again, I don't want to comment on April numbers. In terms of customer activity, I have to be honest and say I don't really - really have that view.

We can see what's what we are doing.

Okay. And then secondly on the mining side, I mean, we've seen cuts to 2020 CapEx and production start to materialize over the last few weeks.

But from your own conversations with mining customers what is your sense of these budgets will be rolled into an added back to 2021 budgets or do you feel spending timelines will simply be pushed further way into the next years?

I'm sorry, I have to give a vague answer on that as well. I mean we see hesitations definitely.

We have seen it for a while as anything, they strengthened at the end of the quarter and yes there has been announced cuts in the CapEx, whether that is just push outs, postponed investments or let’s say that they are gone, I don't really - I cannot really answer that.

Okay…

You never know until afterwards. But the first thing that happens in these big projects is of course they postponed it, and then they postponed a bit more and then postpone it and then may be cancel it, so you can’t really right now.

Okay. Thank you, both.

Good afternoon, Stefan, Tomas. A couple of questions, please.

Just on SMS and thinking about the cost base, and there's obviously been a lot of work done in the sense of adding the flexibility. Just wanted to get a sense of sort of where we are in terms of temporary labor in that business at the moment.

I mean, do we have sort of for the shorter time leaders to put, obviously, you've got the bigger program. But just so how quickly can you be bringing people back on and off given that there's clearly a huge amount of uncertainty in terms of almost week-to-week where demand develops?

Just trying to get a sense of sort of how you're thinking about that?

I mean, the short work week programs we are using, I mean, I think you are aware of how they work in most regions, Germany, Italy and so on. We have the Swedish program that's fairly new or very new.

They give quite a lot of flexibility. I have to say.

But of course, it's not that we can vary week over weeks, but you can - you can assume that we can't just – I would say on a monthly basis we have to be aligned with unions and so on, but we have regular - you know, touch base regularly. And we should be able to adjust further well on the month by month basis with these programs within reasonable ranges I assume.

That's helpful. Are there any particular regions which are proving more difficult to kind of implement that sort of flexibility?

Or is it - are you feeling pretty good about the flexibility all over the business?

I think, I mean, if you look at where we have production and employees, Sweden, Finland, have this programs, Germany, Italy. There is not really about much flexibility in countries like India and China.

U.S. obviously a flexible labor market.

So it varies. But overall I have to say we are quite comfortable with overall - let's say impact we can have from these programs which is of course only the labor part, then you know, fixed assets, depreciation on a lot of other fixed costs, but on the labor side there is some flexibility.

That's helpful. Thank you.

And then just on to Tomas, please. I guess, following up a little bit on an earlier question.

But thinking about working capital, if I kind of look through previous downturn at Sandvik, I can see that generally, albeit with a bit of lag, there was a pretty good improvement in terms of working capital. Just any sort of help or kind of indications you can give us in terms of how we might see working capital develop over the next couple of quarters and sort of what changes or processes you're sort of putting in place that help drive that?

I can only give you a generic answer really, but, of course, I mean, we - of course, revenues were down 7% in the first quarter. So nothing much has really happened.

But of course, I mean, going forward if - I mean, if we were to run into more negative numbers of course working capital would go down, they will have a nice cash flow impact from that as well. That's just how it works.

It has - that's how it has worked previously and this is how it would work in the future. I mean, there are no specific measures or techniques or anything like that to manage that.

I would - I would say that the decentralization of the distributed ownership of all the various parts of working capital in the group is the most important tool for us really to manage it.

That's very helpful. Thanks, Tomas.

Hi. Thank you for taking the questions.

I was wondering if you could just help us a bit on the SEK 1.5 billion of short term cost savings, the extent to which these are really reflecting what you described on taking advantage of flexible labor programs or also including other costs and maybe if you have further opportunity in flexible labor plans outside this SEK 1.5?

Yeah, and a big part of the SEK 1.5 is the flexible labor programs. There are the things you know, consultants, discretionary spends, obviously travel, project costs and you know, big things like that, things that have a temporary in the sense, but also immediate impact.

I mean, well, we have looked the various BAs and divisions have made assumptions on how the volume will evolve throughout the year. Obviously very, very difficult, but they have to do some assumptions in their modelling.

And there are businesses that are sort of planning to going up a little bit again later in the year, assuming there is some kind of recovery that would not happen, then obviously we can maintain those programs for longer. So in that sense there is further potential, but not sort of in the short term of more because the tail [indiscernible]

Okay. And the other question was just and most industrial companies are talking about restraining CapEx and then some industries cutting production rates.

When you think about what you need to do with Sandvik through Q2 to kind of prepare yourself for these sort of customer responses and later in the year what sort of steps do you think you need to take, where you - where are you focusing to kind of prepare the organization for this kind of customer demand environment in H2?

Well, I think that's what we have announced. I think we - even though we announced our activities end of March before we actually saw a drop in SMS.

We will - of course, we're expecting this to come in a way. So we took the actions we felt based on the assumptions we have made with the right ones and that caters for exactly what to say, production stoppages and CapEx reductions among our customers and so on.

So I feel we have the initiatives we need with the knowledge we have right now.

Okay. So you don't feel the need to address on shift patterns or take account on working capital or sort of bringing as a percentage of sales more in line with where it was a year ago and so on?

I mean, shift patterns and on that is what we are adjusting now, that included sort of in the temporary and labor activities. And so much – we showed also in the guidance our own CapEx as you know, is no longer at SEK 4 billion, it's below SEK 4 billion.

So we are definitely reviewing that as well. On the net working capital, I think Tomas has answered that.

Of course, also there it's you know, the basic uncertainty on the future is what makes this tricky to manage because we also don't want to be out of stock when the uptick comes, so that's the constant balance we are trying to manage here.

Okay. Thank you very much for the answers.

So operator, I think we have time for one last question before we summarize and conclude.

Yes, hi. Thanks for taking my question.

Just following up on the trends in Asia in second quarter. In first quarter Asia was actually [indiscernible] so you know, obviously the impact was more there, but in second quarter given that the rest of the world actually sitting in lockdown, what kind of impact are you seeing in Asia because of that?

And secondly on the SMRT side, if you could talk about the trends on the services, are you facing difficulties in accessing [ph] customer like the mines and the premises for the services. And then especially you know, in many of the mining market you know the mines were closed.

Were you able to use any of those shut down times for doing the essential maintenance or were are you able to do any maintenance at all during that period using that downtime at all? Thank you.

First off with the SMRT question, as I said earlier we - there were some disturbances especially in March related to travel, logistics, access and so on. We don't think this has a material impact, but there were definitely disturbances at the end of the quarter.

You know, whether our customers now going forward will do more maintenance if they do closures and so on, I cannot really answer. But I guess there's a reason for why they call it care and maintenance, when they go into this production stoppage.

But cannot really comment on how it will impact our service numbers. And then in terms of Asia in Q2, as I said, we don't really want to give any forecast for Q2 at this point.

Okay. Thank you.

Okay. Do you want to say some final words Stefan in conclusion.

I'll just end the sort of the way I started. We feel this was a quarter that was not in line with our expectations, although the environment is challenging, then of course we are prepared now for a tough period ahead as was indicated by the developments of the very last week of March.

But we have a solid financial position and we are taking actions we think are necessary. Thank you.

Okay. Thank you.+