Sandvik AB (publ)

*NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content.

A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.:

[00:00:00] Hello, everyone, and welcome to the presentation of the third quarter results of Sandvik. We will go through the presentation, followed by a Q&A session.

And my name is Emily Ahlem. And with me today, I have our president and CEO, Stefan Widing and our CFO, Tomas Eliasson.

So with that, I would like to hand the call over to you.

[00:00:21] So thank you, Emily. And we will stay on this picture for a few seconds.

This is our auto line concept is a fully automated, battery operated electrical loader which showcased this at a digital event a couple of weeks ago. It is a concept, but it is real.

It's live and it's fully working. If you haven't already seen it in operation, I encourage you to go to social media platforms and you can see a video clip of this operating in our testimony in Tempora.

I think this is a fantastic piece of technology that showcased the technology leadership that our small businesses have in this industry. Before I go into the Q3 results, I also want to comment a little bit on the other announcements that we have made today.

First of all, the board has decided to proceed with the process of preparing us empty for a separate listing on the Nasdaq Stockholm Stock Exchange. We believe this is the right thing to do, both for us and to the rest of the Sandvik group.

We are aiming to do this in a way that we presented to the shareholders for a final decision in 2022, provided that the circumstances of the end right at the time. Why 2022?

Well, the process itself will take about 15 months to complete and then we are late 21 or 22. And given the current market environment as well, we don't feel the need to do this in a hurry.

So we rather wait a little bit longer and aim for a 2022 listing. [00:02:03] We have also announced that we are preparing for forming a new business area.

We will, based on our crushing and screening division, create a business area called Sandvik Processing Solutions. We see further growth opportunities in this area.

They are operating in a separate part of the value chain compared to the other s.m market divisions. And we also believe that we can increase the transparency of both of these businesses and how they are performing.

So overall, we believe this is a positive step forward. This we aim or we will do January 1st in 2021.

And for both of these, we will, of course, also talk more about these announcements on our capital markets day on November three. So please join that one as well if you want to, to learn more if we go into the quarter.

This has been a quarter characterize of a gradual recovery, but it has also been a mixed picture, depending on what end customer segment or geography we are looking at in ASMs, we have seen a gradual recovery in particular driven by automotive and general engineering, while aerospace and energy has been characterized by flattish development versus earlier quarter. Innocents, of course, continued headwinds related to oil and gas capex while, for example, industrial heating is having a positive development the year over year.

And then finally on the mining side, we have a robust development in the quarter. Orders are even up versus prior year, driven by good order intake in equipment with some headwind in aftermarket that I will come back to in these still fairly tough market conditions, we execute strongly and deliver a resilient earnings performance, a margin of seventeen point three percent, down 100 basis points versus last year, entirely driven by currency.

[00:04:03] This is, of course, supported by strong savings, both permanent and temporary. In the quarter of one point four billion sic and our adjusted rolling 12 months, eBid figure is now at sixteen point eight, so well above our trough margin target.

We also execute well on the cash items, continue to reduce inventory and have good control over our leading to four point nine billion in cash flow in the period. And we are now at a very low net gearing at point five.

We have announced and concluding one acquisition in the quarter as well. And two, divestments, the joint venture that we had in China, as well as the exploration business in Aston.

Marty, if we look a little bit into the future, we expect the gradual recovery to continue. However, as long as we are in a pandemic, we expect the market.

Listen to remain uncertain, depending on how things develop in the overall world and the economy, we are focusing on what we can influence and are focusing now on shifting some of our temporary savings into permanent savings to ensure that we are ready for the business activity we expect going into 2021. Looking down a little bit on the market development here, we can see that our main markets, Europe and North America, are down around 20 percent.

[00:05:30] Asia much better at minus four. But this is also a mixed picture.

The rest of Asia is more in line with Europe and North America, while China is plus eight in the period. So China is bringing up the Asia picture in a quite significant way.

The other regions, more mining driven or flattish or in the case of Australia, up significantly because of some very good orders that were received in the quarter. Looking at the segments year over year, mining plus two percent.

So a sideways development year over year, which under these circumstances we see a very positive. The others are down, down year over year as expected.

If you look a little bit on the within the quarter trends here, we have seen a continued improve sentiment in mining metal prices hold up and continued opening up of mines in general engineering. We have seen a recovery more towards the end of the quarter.

Same with automotive. We should say that both of these we can say that July and August were characterized of more sequential flattish development in the quarter while the recovery really started to pick up in September.

And the energy construction aerospace, we have not really seen any improvement in the quarter sequentially, like for the rest. If we summarize this order intake at minus 11, this would be minus nine, excluding major orders in estimate and revenues follows us also minus 11 percent.

[00:07:09] Event development, very strong, three point five billion in the quarter and adjusted with market margin of seventeen point three percent. This is an average of minus 19 percent, which is very strong for us, excluding metal prices, even better, seventeen point five versus eighteen point one.

And as I mentioned, the negative margin development is basically entirely driven by currency effect. Why we offset the organic decline through savings initiatives.

And this is true for all business areas. If you go into the business areas and start with some pretty positive order intake at plus two percent revenue at minus two.

So in both cases, a good performance equipment had another really strong quarter plus 20 percent following a strong performance also in Q2 aftermarket, down minus nine. This is because of a couple of different reasons.

First of all, we had very strong compares sequentially quarter versus last quarter, Q2, we were up plus six percent. So it shows that activities are going up.

On top of that, we have some lingering access issues in in some minds, some minds have opened up, but they are not allowing visitors if they can avoid that. So non-critical maintenance and repair are being pushed out while we can see that more consumables, rock tools and so on are doing better.

We can also see apples to apples, that specific mining sites that are open, they are actually increasing aftermarket versus prior year. So underlying sentiment positive.

And we are not really worried about this. [00:08:54] It will come back then.

I also want to focus on another innovation that we also launched a couple of weeks ago. We have launched our first battery operated 18 tonne loader.

This is the first product coming out of design engineering together between Sandvik and after some acquisition we did a couple of years ago. And this is a loader that have been designed from ground up to be battery operated.

And also this, I think, shows the technology leadership that we have in this area. And Sumathi also delivers strong margins, 21 percent in the quarter, up from prior year, also supported by good savings activities.

We have also announced the divestiture of our exploration business in October. This is a small part of us, Sumathi.

It's about one percent of sales, so it will not have a major impact. But it was a divestment that we felt was the right thing to do because they had not performed to the level that we expect some division to perform.

Then you have also seen the announcement that we are creating a new business area sandwich processing Solutions, or SRP, effective January 1st, small note here. As part of this, we will also change the name of our Sumathi to some big mining a rock solutions, or some are simply too aligned with the nomenclature of our other business areas going to assess them.

A gradual recovery, still minus 19 in order intake and revenues following a little bit behind on minus 21. [00:10:29] This is natural in an upswing that orders are leading revenues, Europe on the average.

So to at the minus 19, North America twenty five. And then get even some minus 15 here.

Asia is again being improved by China. China minus one in the quarter.

North America versus Europe is also partly driven by a higher mix of aerospace in North America versus Europe, aerospace, no improvement in the quarter. They are still at the minus 50 percent level.

So that this one offsetting factor to the to the improvements we have seen in automotive and automotive, we are in the quarter in the low teens, negative numbers. As I said, the main improvement that's really come towards the end of the quarter daily order rate in September were in the negative mid teens.

So this shows that in July and August, we really had no improvement compared to how we entered the quarter. But then we saw an uptick in September.

They sustained continued in October. We are better than mid teens, but still in the negative double digit range in the first week of October.

Despite this very strong margins considering minus 21 percent on the topline, eighteen point eight percent from Assamese Strong Savings Initiative. And in this quarter, also, even though they brought down their inventories, they did that last year as well.

So it wasn't year over year. It was a neutral impact on the from the production levels.

And that we should also note that the new structure we announced in July is now implemented as of October 1st. [00:12:13] We have two segments here, Machining Solutions and Manufacturing Solutions, operating as two different business segments.

Going down into T minus 34 percent an order intake, and it would have been minus 20, excluding a couple of major orders that we got in August of last year, obviously still challenging figures. Revenue is a little bit better, minus 13 supported by backlog here, continued uncertainty in oil and gas.

Also, aerospace is obviously soft, but that's a small part of this family business. The positive development in the quarter is that industrial heating or Cantal has started to turn around and they had a positive year over year order intake in the quarter.

Cantal is one of our early cycle divisions. They started the decline over a year ago and it's positive to see them now starting to turn around.

Hopefully that will also lead to positive development in other businesses going forward, despite this drop in topline as he delivered a strong margin for them, four point nine percent is almost the same level as last year. So very well executed by the team.

They're good savings impact from them. Then, of course, the big announcement today is that we are proceeding towards preparing them for a separate listing in 2022 if the circumstances are deemed right then at the time.

With that, I'll come back at the end, of course, but I'll now hand over to Thomas for some more numbers.

[00:13:51] Thank you, Stefan. So let's jump straight into the financial summary and start in the upper right hand corner looking at the top line.

And as it happens this time, the numbers are exactly the same, both for orders and for revenues. So minus 11 percent, as you've heard, minus eight percent on currency, quite a big number.

Now, when the krona is strengthening against the U.S. dollar structure minus two, which is basically the divestment of oil and gas.

So all in all, minus 20 percent on the top line, if we don't jump into the income statement, further down, earnings came in at three and a half billion reduction or decline with 24 percent or 23 if you exclude metal prices. Margin came in at seventeen point three.

And we'll dig into the break in just a few seconds. Finance that came in that plus 529 million compared to minus 198 years ago.

A little bit of an odd number, but I'll spend a half a minute to explain to explain to you the details in that one as well. In a bit.

Tax rate, twenty three point six, well within the guided range, strong cash flow, four point nine billion or ten and a half for the nine months returns. Fifteen and a half.

And it's not so much the margin, it's more the capital turnover that goes down, not when the topline is decreasing and earnings per share adjusted to point nine. So let's move to the break.

And, of course, let's look at the organic part or price volume productivity minus 11 percent on the top line. That's 2.8 billion in revenues within about the impact of the 500 million, a little bit more than 500 million.

[00:15:49] That gives us negative leverage over 19 percent. So basically in line with the margin that we had.

So the dilution on the margin is very close to zero or minus point one percent, basically nothing. If you look at the next column, you see the impact from currency eight percent.

That's one point seven billion. Also here, half a billion in earnings.

So this gives 100 bits of margin dilution. Metal prices takes off 30 structure adds 40.

So all in all, as Stephan mentioned here, 100 percent of the margin dilution in the quarter came from currency. Now, of course, if you look at the fantastic performance here organically, where does it come from?

It comes from the savings programs, of course, very much. And if we then jump to the savings programs slide here, this is what happened in the third quarter.

This is the same picture as we had after the second quarter. We have the three programs here, the first one being the savings program that we launched in 2019.

It was delivered or executed by 2020. But as this is a year over year break, we will continue to have a year over year tail effects in Q4 as well and a little bit in in Q1 before it's over the next two lines or the temporary savings work time reduction.

Four hundred and seventy million. It was six hundred and five million in the previous quarter.

Are the temporary savings mainly discretionary spending is executing very, very well, delivering very well, 630 million. That's a higher number compared to Q2.

[00:17:35] But we must also remember that not all of the divisions in the business areas were up and running full speed in these programs on April 1st. It came in a little bit later, some of them in May in the third quarter.

We have been running full speed for the three months for all our entities. So a higher number one and only one point four billion in the quarter in savings compared to one point five in the second quarter of this year.

And as we have mentioned several times, these temporary savings will taper off as the business recovers. Much of it will be gone by year end, but not all of it depends on how we enter 2021.

And we have to replace some of these short term savings with permanent savings. And you see the number in the bottom right hand corner, one point three billion in savings already announced in programs during the first half of the year.

And depending on how the business develops during the second half of this year, there might be more announcements. So we'll see on the next slide, we have the net financials plus five hundred and.

Denied. But the really important number here is on the first line, it's the interest that that is what's connected to the debt level and to the interest rates.

And that came in at seven to nine million compared to ninety nine million a year ago. We had some maturities at the start of this year.

[00:19:02] So, of course, the debt level, the gross debt level goes down the year to date number on interest debt is now 300 million. And I'll talk a little bit more about the guidance in a few slides.

Then in the middle, you have something called other financial income and costs. And here we account for the capital gain of the divestment of the 10 percent stake we had in the year in China.

And as this is an associate company and not a consolidated company, you account for the capital gain or the capital loss in the finance net, strangely enough. But that's how it is.

Next slide, tax rate. We report twenty point one.

But also here, the divestment of the 10 percent stake comes in because this was a Swedish holding. Swedish holding means that it's tax exempt.

So if you add back that the underlying tax rate on our continuing business is twenty three point six, well within the guidance range, although in the lower half of it, working capital improved. And you can see what's on the right hand side, that the relative numbers came down for it somewhat and for Siméus, whilst it increased a bit for some time.

But we should mention here that inventories came down in all three business areas. And speaking of working capital, of course, in recessions or business cycle downturns, you always get a little bit worried about credit losses or and over reduced and all of that.

[00:20:38] But we can confirm that we have no increase in credit thanks to our customers. We have actually a decrease of overreduced and we don't have any increase in credit losses.

So it's working fine. Next slide, the cash flow came in strong, as I mentioned, four point nine billion.

If you look at the table on the right hand side, of course, if you have less earnings, you have less cash flow. But we continue to release money from working capital and we are reducing capex.

If you look at the left hand side, you can see that when business declines, cash flow is normally higher than the earnings. And you can see it develops exactly like that when business is up like it was in 17 and 18, earnings is higher than cash flow.

So according to expectations, my favorite slide, at least for the time being, the net, that development here, cash flow with a strong cash flow. We continue to reduce the net debt.

The total net debt is three point one billion. But if you look at the financial net debt, it's actually a net cash position of eight billion right now.

And the total gearing, eight point five continues to go down. Then let's look a little bit at the guidance we gave you in the previous quarter.

We guided for underlying currency effects of 250 with the weakening of the U.S. dollar strengthening of the krona.

We came in at 480 to total currency effect, including all types of reevaluations, 525 metal prices. [00:22:19] We guided 50 came in a 25 CapEx point.

Six accumulated two billion right now for the year interest, as we just talked about. Point one and the tax rate, twenty three point six.

So let's look at the guidance now for the fourth quarter and the full year. And we did one change two quarters ago.

We changed the CapEx guidance. We said it's not going to be for any more.

It's going to be three point five in the light of the recession with the downturn in the business cycle. And of course, now with two billion for nine months, it's not going to be three point five billion.

It would be something less. But well, you just have to wait for the fourth quarter to see the full year.

No currency. We expect to be minus three fifty for the fourth quarter.

Metal prices plus 50. Interest net minus 500 is the guidance we have.

We are on 300 now for nine months. So it will be quite a bit below 500 before the year ends.

And the tax rate? Twenty three to twenty five in three months.

At the Q4 report, we will come back to you and give you a new updated set of guidance for all these items here, also, including the tax rate. So with that, I hand back to you, Stephanie, for summary and conclusions.

[00:23:41] Thank you, Thomas. So we are happy with.

The execution that we have had in the third quarter, there is a gradual recovery, although it's an it's a mixed picture across segments, we have continued to show strong earnings resilience throughout this period. We continue to generate good cash flow and we have a strong balance sheet.

Looking ahead, we expect the recovery to continue, although market conditions will remain uncertain as long as we are in the middle of a pandemic and we are right now focused on shifting some of the temporary savings into permanent going into 2021. We are also very happy about the additional announcement that we have today.

We are proceeding towards preparing SMPTE for a separate listing and that we are creating a new business area, the Growth Processing Solutions, starting January 1st in 2021. Thank you very much.

And with that, I think we go to Q&A.

[00:24:42] Yes. Thank you, Stefan.

Thank you, Thomas. It's now time for us to start the Q&A session from the conference call.

May I please remind you to limit yourself to two questions. And if you have further questions, please line up again.

So, operator, please go ahead.

[00:25:21] Yes, high school, financial market class on safety. So the first one on this mess, if we if we back out dragged from our own oil and gas, which must be down well over 50 percent in the quarter, then it seems like rest of it, semanticist, maybe down 10 percent.

And that's obviously a pretty solid improvement compared to the second quarter. And you say October has started down low double digit for total less.

Less. So what is October doing X around oil and gas only?

Are we perhaps flat? It sorts of looks like it.

So I would start there.

[00:25:59] So aerospace, as I said, was down around 50 percent in Q3 and automotive, as I said, in the low, low teens. The rest were more like in the mid to lower teens as well.

So it's not really 10 percent. If you do the math on that, then October.

I mean, we have given the information we have that in total we are still in the double digits, but it's better than the mid teens. Then there is no reason to assume any difference in terms of this segment mix.

So to say we're going to continue to see aerospace being tough while automotive and the figures that have come out only recently here as well indicates a continued recovery there.

[00:26:54] You know, in my in my mind, 10, I, I backed down with oil and gas as well. So that must also be done 50 percent right now.

[00:27:04] No, not really. Uh, not for us.

Yes. No.

[00:27:08] Ok, call my second one is on the cost savings for you, Tomasso, obviously temporary actions and a run rate, four billion. You did one billion in the quarter.

And we have one point three billion of our structural savings to kick in next year. And that's obviously a pretty big gap to bridge.

Of course, work time reduction will not go on forever, but this 670 million other temporary savings or 2.5 billion run rate, how much of this can translate into more structural savings? I'm thinking changed.

We are working less travel, more online sales, more meetings of teams and so on and so on. And we have come off the call with Volvo and they were very clear today.

Are that holding on to the savings as much as possible? She was just curious how much of that other temporary savings can basically translate into perhaps a little bit more structural savings at least, and be in the mid-term?

[00:28:02] That's a little bit difficult to say, of course. But I mean, we don't believe that travel will come up, come back fully even in the first quarter of next year.

So some of these temporary savings will continue into 2021 and there will be some short term working weeks as well, depending on which businesses is going into 2021. But, of course, where we try to learn and we try to see what we can do more remotely, I mean, we still have to see customers, but maybe some of the administrative work can be done in another way if you want to come and stay at home.

[00:28:35] No, I agree. I don't think we don't really have a forecast for that.

I would say the same thing where we're going to aim to take this learnings and make the best out of it. But it's very difficult to predict exactly what we can achieve with that.

[00:28:50] Very, very quick, quick final one. Just a clarification on crushing and screening being separated as old business area.

Do you include mechanical excavation there or is that outside now?

[00:29:03] Mechanical cutting? It remains in and in some of the other pockets.

[00:29:10] And just curious, on your market share right now, entrusting the screening space and if you could help us, I know you're leading in terms of margins, at least on the stationary side. But just curious, on the on the relative position in stationer in mobile, if you could give us some indication, it would be very helpful.

[00:29:30] It is a more fragmented market, which is one of the reasons that we are doing this, because we think there are some more opportunities. I don't have a top of my head that a good market share there.

So I think we'll have to refer to it or to come back to on that right now.

[00:29:48] Thank you, Charles. I think and its stuff, you know.

Okay. Bye now.

[00:30:00] I still think Thomas, UBS. I think you mentioned some low teens decline in estimates specifically.

I mean, first of all, start organic or nominal. And also, I think if we compare that number to the five percent decline in global production or 10 percent in Europe, it's a big difference.

Is there any risk that sort of that difference has been driven by? It's just a larger percentage of the total delivery mix.

[00:30:30] Because it's organic to begin with outside its currency? Correct.

And sort of say it's the price of volume. The number I mentioned there is a there is a gap versus production.

I mean, what we see registrations down one and a half percent in Q3 at least. I haven't seen the final outcome on production.

We have seen forecasts, you know, minus six, up to minus nine, but with maybe the latest data indicating the better part of that. But even without, there is there is a gap.

We are not foreseeing that that has to do with Evey's. We believe its supply chain driven.

Uh, you know, things have turned up towards the end of the quarter. We saw the same thing in March.

You know, factories had shut down and it took two weeks for us to see any impact. I'm not surprised that we see a similar lag in the supply chain when things go upwards.

So we don't foresee this to be in any way a structural difference. It's a time lag.

It's our view.

[00:31:41] I think it's been done also on the separation of crushing and screening could be put into context what the margin has been for that business in the past, as well as for the rest of this market business. And how should we think about normalized margins, respectively?

[00:31:59] You will get more data on the capital markets. We will share some of this in a much more clear way.

What I can say is that they have done a fantastic improvement in the past five years and it's now a good business. There are still dilutive to Sumathi, but not materially.

And the return on capital is very good. It's a fairly, you know, capital light business actually compared to some of the others.

So we will share more exact figures on the capital markets. They see.

We'll have to wait until the.

[00:32:34] Absolutely. Thank you so much, Stephan.

[00:32:46] Thank you very much. First thing I was thinking, and I'd like to start off with the order intake in my team had been ready for any larger orders for the equipment side.

But wrong about how much of this would you say is some sort of pent up demand from Q2 and how much is underlying driven by the improvements we've seen in metal prices? Hmm.

[00:33:10] I don't think there's any pent up demand from Q2. We had strong equipment orders sold.

Thank you to you. Of course, there's always timing aspects to the orders of equipment, but with two straight quarters with good intake, I, I cannot say anything else that we have a good momentum.

And it is the underlying sentiment is positive, driven by metal prices and capex.

[00:33:42] Great. Just following up on the comments you made about the new crushing and screening of the mission, do you want to say anything on whether you view this call for sanity going forward?

I saw that you gave the 2019 margin for this. I thought that I was slightly below the trough target.

So how do you view this going forward?

[00:34:03] Yeah, the fact that we turn it into a business, I think says that we do believe that this is part of our core business. Um, and, um, uh, going forward, we'll also share some again on the capital markets, some ambitions.

We have, uh, this this will be accretive to our profit margin target going forward. That's our ambition.

[00:34:28] Great. Thank you.

[00:34:40] Thanks very much and good afternoon, everybody. My first question relates to the processing business.

Could you perhaps just elaborate a little bit more on the main differences between processing and the rest of mining? You know, in terms of business model and in particular in terms of competitive dynamics?

And do I understand correctly that the main rationale behind the separation of that business is actually to put it in a better position to lead the consultation process of this specific part of the mining industry? The second question relates to estimates.

Could you give us some granularity on the respective operational performances of the two businesses, Arias Machinery Solutions and Manufacturing Solutions in this quarter?

[00:35:40] So regarding crushing and screening or the new processing solutions business are crushing, and screening is what we would characterize as downstream in the process while the rest of us marches upstream. So rock and roll blasting hole or rock excavation.

And then we go downstream, we take the extracted rock, and we start to process it to extract the valuable minerals. Those two parts of the value chain are distinct even in, you know, the customer site.

It will we will talk to different people. And the decisions typically are different as well in terms of investments and so on.

And if you look at the competitors, I'm not going to name many here, but it's clearly different competitors in these two areas. They could also say that they have a bigger part towards diminution and in that sense, construction.

So they have a higher mix of construction versus mining as well. So it's a clear and fairly straightforward split in that sense.

And I believe we're doing this. They will also, you know, drive their own core business and the rest of us and more will drive their core business in the rock excavation part of the value chain.

It is a more fragmented part. As I said, there are more opportunities in terms of growth in that area.

So that's what we were going to aim for. Now, when you mentioned, you know, we want to take a lead in the consolidation of this part, I mean, there is, of course, speculation out there.

We are not aiming for any big acquisitions in general. That's not part of our M&A strategy.

We would prefer bolt ons and maybe medium sized. That's our strategy.

And that doesn't rule out any options. You never know what happens, but it's not part of our core strategy.

In terms of their Siméus question, we will comment more as well on that split on the capital markets day. So I want to wait with that.

We have them down the split in Q3. So there is no separation in terms of reporting or performance, so to say, in Q3.

Between them, they were all part of asthmas.

[00:38:12] Ok, understood. Thanks very much.

[00:38:23] Hi. Thank you very much.

I have two questions. One, which sort of following through on, like the S&P announcement, you obviously looked at the case over the last few months and you decided to go ahead with it.

Can you explain a little bit why you decided to go ahead with it and whether and for example, why S&P and why not set aside smartie versus estimates? For example, why do those fit together?

That's my first question and know the second question. Just more on detail in terms of I think Thomas said his favorite slide was the one on net.

That just wondering on the on capital allocation, what type of level of off of balance sheet are you comfortable on a more medium term view? And I think in the past you have commented about the potential sort of strategic moves around that one that's so interested.

On what balance sheet do you think is adequate going forward? Thank you.

[00:39:22] All right. I'll take the first one as some.

Yeah, I when I look into this, I see a business that is world leading and it's a world leading materials technology company. It's high performing versus its peers within Sandvig.

They are always coming in third. Um, and, uh, you know, that's number one.

It's they are not seeing as high performing within Sandvik, which is not a good environment to be and from a people perspective, but also, of course, not from a capital allocation perspective, if we have capital to allocate, uh, I mean, it's our job to allocate. That's where it gives the best returns.

And I believe from that that there's some tea on its own will get recognition and be able to perform much better as a standalone entity. Um, that's those kind of reasons are not valid for the other parts of the.

So that's the reason why we are now decided to do this for us some tea but have no plans or on the agenda to do it anywhere else.

[00:40:30] Yes, on the net that yes, of course we are we are piling up money in the balance sheet, of course, and the leverage is not that high and it's not very efficient and it impacts the return, the total return in a negative way. So we need to do something with the money.

But we are entering a period here now when an even more intensified a growth agenda, both organically but also through M&A. So the headroom is big.

It's good. There's a lot of headroom in the balance sheet now.

First of all, we have a strong operational cash flow every year, but we can also use the muscle in the balance sheet and the optimal balance sheet. I mean, we said in net the gearing max, point five, we are in point of five right now.

So just do the math on that. And so our plan or our base plan, according to our strategy and our ambitions, is to use the balance sheet for acquisitions going forward.

If we would completely fail within the next three or four years, which we will not. But if we would, then we would need to do something else with the money.

Of course, we realize that too, but not now. It's acquisitions.

[00:42:00] Thank you. I just had a quick question on you, your aftermarket, you talk about having some access issues to certain customers, I presume.

Could you could you give a little bit more detail around sort of where that is, exactly what's happening there and whether that was something that was sort of more during the start of the quarter and has eased or whether that's something that's been sort of fairly continuous. Thank you.

[00:42:26] Yeah, for now, it's in I mean, it isn't in specific regions. So South America, South Africa, India, for example, it is also in other places.

But it's it depends on the situation of the pandemic development and to some extent, also how the history has been and how sort of careful they have become in what is stuff at the end of Q2 was that minds opened up again that were closed. This with access issues.

It has continued throughout the quarter. And I think we will see some of these.

It will continue as long as we have the pandemic situation, because obviously everyone is trying to secure their own operations and minimize the risk and take care of health or safety of people and so on. Of course, it cannot go on forever.

At some point, you cannot push out critical maintenance and repair if you want to continue to operate. But so it's difficult to say exactly how long it will continue.

But it's not something that we're just in the beginning of the quarter.

[00:43:37] Ok, and just my follow up question, if well, you talked about the automated load, the battery, the battery powered loader, I mean, could you give us a feeling of kind of if we look at your equipment orders this year, is there any way you can give us some details around the proportion of orders which were from automated equipment, perhaps out of any detail around how much it makes up of your install base? Just to give us a sense of kind of how big these businesses are right now within kind of the equipment orders that you'll take this year?

[00:44:13] Yeah, I don't have a quarterly breakdown on the automation part of the order intake. And I'm not sure if that means a lot either.

It comes and goes in batches, so to say. But it is a continued trend.

We have said always through this that, yes, this will increase the interest in this because obviously that's another argument for automation. If you can also make your operations more secure from a pandemic point of view.

But on the other hand, these things take time, isn't it, that you have to plan for them when you, uh, when you plan for the design and so on. So we don't expect the short term impact on this, but it gives us another argument for why this will become interesting mid to long term.

[00:45:07] Yeah, are you finding you're selling them primarily to mines that are fully automated or are you actually selling sort of pieces of equipment just into existing mines that are maybe replacing non automated equipment and therefore you have sort of interoperable, automated and non-automated fleets in the same mine?

[00:45:26] It's much more common that they have automated as some machines, some trucks, for example, or loaders, fully automated mines are still relatively rare, I would say. Or they are.

[00:45:43] Ok, thank you very much.

[00:45:56] Thank you very much, so I can start with a sort of follow up on your cost savings, because, Thomas, you said that the one point one billion that you had in temporary savings would probably fade away by the end of the year. Can you give us some sort of sense of what we should expect for the fourth quarter in terms of temporary savings?

[00:46:20] When it comes to work time reductions, mainly work time reductions. We guided for one point five billion when we started this, and we still believe in one point five billion, more or less for work time reductions for the other discretionary spend part.

We don't really have a guidance. It depends on the activity level.

Depends on traveling very much on traveling. Uh, not I don't know if we want to say anything about that or.

[00:46:53] Yeah. And what we can say is that we have businesses now because of recovery that are starting to ramp up marketing and sales activities and so on.

Travel is still difficult. There are other things you can do.

So if anything, it will be less in Q4, but that's a positive because it means that the business is coming back. So.

So but then the trade-off of that depends really how things develop here in Q4. Yes.

[00:47:22] And then I would like to come back to Max's question about the mining off the market, because I think in Q2 the mining off the market was down 14 percent. But you said that June or at the end of June.

I don't remember exactly was flat. And then it seems like it deteriorated again in the third quarter.

So maybe if you can talk about the profit in the third quarter, or are we still running down like 10 percent in September and the beginning of October as well for some of these aftermarket business?

[00:47:55] I think what this speaks to, I think, is how careful we should be to draw trend lines in this environment, because it was down a lot in Q2 in the first months. What we can say now is that there was probably a bit of a catch up effect as well in June then and then we have seen this.

It's not really time, but that's a high single digit decline in in in Q3. Again, it's still sequentially up six percent.

So it shows that activities have increased. Actually, we had a very high compared of last year in as well.

So that also needs to be factored in. And also, as I said, the consumers are tools that you need to produce.

They were flattish. It's really the wear and tear.

So to say that is down because of these access issues. So that's sort of the dynamic.

And as I said, it's not that it was only in the beginning of the quarter. I think we will see this during the pandemic for as long as they can push this out.

How long that is? We don't we don't really know.

We will. We will see.

But I think the important thing to say is. The underlying sentiment is positive.

They are producing, so eventually they will have to also service on a per.

[00:49:22] You know, I know we only have two questions, but I just want to say one thing so we understand it correctly when you're saying that your strategy is to do both on acquisitions and no larger deals. Is that true for Sims two or are you looking for larger deals in The Sims?

[00:49:38] I know about it. Let me clarify what I mean by that bolt ons are at the divisional divisions that do acquisitions and become might become a business unit or they are brought into the division.

When I say medium size, it does it is essentially a new division in the group, divisions in the group. Well, there are exceptions, but let's say over a billion, less than 10 billion in revenue.

That's what I mean with the mid-sized larger than that can happen. I'm not ruling it out, but it's not part of our strategy.

Because of the risk level and all of those things.

[00:50:21] Understood. Thank you very much.

Yeah.

[00:50:33] Thank you know, some of them took questions from my side at first, it would be interesting to hear a little bit more about the background of the exploration drilling business. And, you know, I know that profitability's, we contacted all the ports in Montreal, but isn't this, you know, very close to the of the products that you're offering?

And my second question is related to ask some food and order intake has been a bit below surface during the most quarters. And if you could elaborate a little bit about the order book going forward and especially on and on umbilicals, and if you have seen a trend of, you know, customer pushing out water delivery, that's for those products.

Thank you very much.

[00:51:26] All right. Thank you.

So exploration, yeah, let's me first say that my first reaction when I came in and saw that when the business came and said that they wanted to look at divesting this, this was my first reaction. That's why this must be very close to everything else we're doing.

Matter of fact, it is not it is very specific products, very specific products. And it is also typically not the same people who sell it to exploration and development or production.

Drilling it is quite or is separated. So we don't see any negative impact in that sense on the rest of the business.

That said, I'm not saying I wouldn't regard it as a core business. We have decided to divest this now because quite frankly, we did not do a good job a number of years ago after the financial crisis in the restructuring of that business.

And it has suffered ever since. And when we look at it, the time and money it would take us to get that into shape, it was not worth it.

While a smaller company that we have now sold it to fully focus on exploration and maybe a different expectation on returns. It's OK for them.

I'm not saying that we would never go back into exploration. We don't see any path to that now.

But I'm not saying that this is not something we want to do, but we couldn't do it in a good way here. So I think this was the best way forward.

SMPTE, yes, they have been living on backlog for some since Q2, and it is primarily the longer cycle umbilicals and to some extent aerospace as well. But it's primarily on the on the umbilical side.

They have some backlog left in Q4 as well, not 200 percent, but they will also deliver in Q4. We expect a tough 2021.

We don't expect it to be empty. We still get smaller orders and we still expect to get orders also next year.

But it will be a low a very low umbilicals year next year. That's what we are planning for, at least one when we rightsized the business.

[00:53:52] Ok, thank you very much.

[00:54:04] Thank you. Hi, David.

Hi, Thomas. Emily, a couple of quick questions for me, if I can.

And first, on assignment in China, I think I heard you say down one percent in Q3, down four percent in Q2. We talk about some improvement back in June, July.

It looks a bit underwhelming. Pontificator think we've seen sort of broader industry data suggest the pickup in that market.

Could you have been a little bit weak with what's going on in your Chinese business and presumably the greater reliance on some of the larger global accounts with your equipment business might be a slight headwind versus your former product business. But I want to just maybe understand a bit better at what you see in terms of the underlying dynamics in China.

[00:54:45] Yeah, no, this is to say we you're right. I said minus one.

And what we see is it's we have a lot or a lot. A big portion of that business is key accounts or global companies that are also exporting out of China.

And that's been, uh, tough for a while. The domestic market has recovered better now.

Uh, a fairly big part of our business in China is also in the premium segment. So we are tilting towards the global accounts in that sense as well.

So, of course, that has an impact on this one.

[00:55:26] Just as you look into the fourth quarter, do you see any evidence of a broader based pick up in the Chinese?

[00:55:33] I mean, in general, because of automotive coming back more, that also helps because that's fairly strong in China. Well, that helps.

But that's all we can say right now.

[00:55:47] Thank you very much. I can if I can.

Thank you very much. Operator, I think we have time for one final question.

[00:56:03] Yeah, good, good afternoon. Just quickly, I just was wondering if you could just elaborate a little bit on the process of spinning S.A.

I don't wish to seem churlish, but obviously you're saying it could take another 15 months or so. I mean, given the internal separation is complete.

I think if you go back a year before your time, Stefaan, we were talking about having this process completed by the end of 2020. You're now talking about in 2022.

Why is it that it's going to take so long from here and given the intent of what's already been done?

[00:56:36] Yeah, I don't I cannot comment on what was said in the past. I can say there, even if we would now.

And I mean, the internal separation has been progressing as planned. With the exception of that, there was a quarter delay because of covid, and it's now completed.

So let's say we are one quarter behind plan, even if we will now push this through as quickly as possible. The earliest time we could do it would be at the very end of 2021, probably early 2022, because when we say internal separation, it's legal structure, it's capital.

It's just, you know, ERP systems out in the legal entities and so on. But there are still things that needs to be done in terms of some generic systems, in terms of building the organization, you know, Treasury and all of these things that you don't have if you don't have, if you're not a standalone company yourself.

So the time plan, the quickest we can do it this in in 15 months and then it's 12 to 15 months. And then when we look at that and say, OK, then we are at the end of the one out of 2022, we rather have another quarter of so to be able to execute in a good and efficient way here and then we are in 2022.

And then given where the market is, we said, OK, let's be clear that not it is we're aiming for 2022. It's not.

It's not that we are on purpose, delaying it may be more than a quarter because we simply want to have a more robust time plan. And then, of course, we have also said it has to be right, the right circumstances done, but that is what we're aiming for.

So, again, I don't think. We are delaying it much more than the original plan, regardless of what was said.

[00:58:42] Can I can you just add a few comments on that one? It's like Stefan said, here we have all the businesses in separate legal entities.

Now we have the signed ERP systems that said that we have operating models for everything. But it's like you have built a house.

But we haven't moved in yet because we don't want to start driving double costs until we actually know that that we're going. So we have a lot of people to recruit in Treasury and tax and investor relations and what have you.

We have to commission the ERP systems, et cetera, et cetera. We have to get the engine running, so to say.

And that takes a while. Then when we're up and running, you have to run the business internally with some big as a 100 percent shareholder or shareowner for two quarters for six months to get clearance from Nasdaq.

Then you can list.

[00:59:36] Ok, thank you.

: