AB SKF (publ)

Patrik Stenberg - Head of Investor Relations Alrik Danielson - President and CEO Christian Johansson - Chief Financial Officer and Senior Vice President

Peder Frolen - Handelsbanken Lars Brorson - Barclays Markus Almerud - Kepler Cheuvreux Andre Kukhnin - Credit Suisse Daniel Cunliffe - Liberum Klas Bergelind - Citi

Good afternoon and welcome to this conference call on the Fourth Quarter Results. As usual the call will take about an hour.

Present today is our CEO, Mr. Alrik Danielson; our CFO, Christian Johansson; Theo Kjellberg, Head of Media Relations; and myself, Patrik.

As usual we will start with the presentation and we will follow through with a question and answer towards the end. And as usual again, I would like to ask you to try to limit your questions to one or two in order to make good [indiscernible] in the Q&A session initially.

With that, I leave the word to Alrik. Please go ahead.

Thank you, Patrik and good afternoon and welcome to this conference call on the fourth quarter results. If we turn to the second page, key events in the fourth quarter, I would like to start with that.

I'll focus on developing our rotating equipment performance offer continues with the development and launch of the next generation of Enlight Centre. Cloud based data collection platform, it is designed to increase value in our equipment performance agreements, increasing the efficiency in service delivery and then providing [ph] all time information and data exchange with customers on critical machinery.

During the quarter we also launched the SKF SimPro Expert, the new advanced simulation software tool that gives customers the power to develop applications taking advantage of SKF bearing arrangements across a wide range of applications and service connections. In the automotive business we are making progress with the powertrain electrification area.

Our components have been selected by several automakers including supplying bearings for the next generation electric powertrain platform of a leading European OEM. In the industrial side, we have finalized an agreement with the Croatian rolling stock producer, Koncar for the supply of bearings and axleboxes for its latest low-floor electric and diesel-electric multiple unit trains.

If we move to the next slide, another interesting example is the new multi-year agreement with ArcelorMittal serving 14 of the steel mills across Europe and Northern Africa. Through a long term process of documenting total cost of ownership savings we've been able to illustrate the value of working with SKF, thereby securing long term business of bearing units, seals and remanufacturing services.

If we turn to the next slide, continued organic growth looking at the financial performance for the fourth quarter, we saw continued good growth and considerably improved operating margins. We've had a strong finish through 2017 a year characterized by strong demand in most markets.

In the fourth quarter net sales at SEK 19.5 billion grew organically by over 8% with near double-digit growth in automotive. The improved sales volumes and factory utilization rates contributed to an adjusted operating profit of SEK 2.51 billion, SEK 350 million higher than the last year and adjusted operating margins of 10.7% which is an improvement of 1.4 percentage points compared to last year.

During the quarter we continued to see positive effects from the price increases we have implemented and sequential improvement trends that we have established over the last couple of quarters has continued in a positive way. Industrial business continued its positive developments and significantly improved adjusted operating margins of 12.9% driven by higher sales volume, improved factory utilization rates and improved budgets [ph].

The automotive business has delivered an adjusted operating margin of 5.9 in the quarter. Cash flow generation was strong in the quarter and we continued to reduce our net debt by another billion which is taking us well below our net debt to equity target of 80%.

The Board has decided to propose an unchanged dividend of SEK 5.5 which would equal to a direct return of about 2.8%. Moving to the next slide and our sales by market, the last year we have grown both within industrial and automobile and in all regions.

When we look at the fourth quarter, organic sales rose by 9.1% in Europe with strong sales for the heavy, special and off-highway industries, industrial distribution and through the energy industrial general industries as well as the automotive industry. North America sales grew by 4.7% by industry which saw slow sales to the heavy, special and off-highway industries.

Railway, industrial, general industries, and through the industrial distribution while sales to the car and light truck industries grew net revenue unchanged. In Asia, with really [ph] strong growth in most businesses except for energy where we continued to see low volumes and total organic sales in Asia grew by 10% in the quarter.

Our organic sales in Latin America grew by 7.3%b compared to the fourth quarter of last year and we saw good growth in industrial distribution and automotives. In the Middle East and Africa, organic sales grew by 13.3% in the quarter.

With those initial words, I leave it to you Christian.

Thank you, Alrik and good afternoon to all of you. So if we turn to the next page, sales development, I'll start there, we continue our expected season's healthy growth in most of our markets and across most of our industries, both in industrial and automotive with just a few exceptions.

Organic sales increased by 8.2% in the quarter, currency effects were negative about 4% in the quarter and the structure component was negative 0.6 related to the divestment transaction that we closed in the second quarter. So in total net sales increased with 4% in the quarter.

If we turn to next page we have the organic sales picture by quarter which now is forming a bit of a plateau at about positive 8% which we are very pleased with and this is obviously a different pattern than the usual business cycles curve that we used to see. The working days impact as you might remember was positive in the first quarter with about 1.5% versus last year.

If you go with the same amount from days in the second quarter and now the third and the fourth quarter working days wise it is about a half working day less than last year in each of the quarters. If we turn to the next page, adjusted operating profit, excluding items affecting comparability was SEK 2.92 billion some SEK 350 million higher than in the fourth quarter last year as was mentioned, and if you take the 12 months moving value of the full year 2017, we same measurement or at SEK 9.1 billion.

If we go to the next page, we come to the profit bridge and I will spend some time on this. We have the quarter-over-quarter versus last year developments starting with items affecting comparability which was SEK 72 million positive year-over-year calculated in last year's exchange rates, we have items affecting comparability of negative SEK 75 million this year versus SEK 155 million last year.

Restructuring costs this year were SEK 172 million and we have this year a curtailment gain of SEK 163 million related to changed conditions in our pension plan in Germany. I will come back a little later with some more comments to that one.

The remaining amount in the IAC related impairments, re-classed process that was divested in the second quarter contributed last year with SEK 21 million which we obviously don’t have this year and the currency impacts on operating profit was negative SEK 278 million in the quarter, main effects coming from dollar and dollar related currencies and the sterling [indiscernible]. If we move to the operating performance, this increased by SEK 658 million year-over-year.

Contribution from organic sales increased by SEK 757 million including the fixed cost contribution from manufacturing from increased production volumes. Price mix was positive compared to last year and the improvements ran on pricing from previous quarters continues.

As you might remember from our last quarterly call, we commented that we ended about flat year-over-year in the third quarter and we would move into the positive quarter forward and this we also did, although just a few turns of the percentage. We do see a sequential improvement quarter-by-quarter on pricing and we expect slow but gradual improvements on price or price positions to continue in the first quarter of 2018.

And with that moving to unite [ph] we had a higher sales if we look back in the fourth quarter of 2016 and we had larger goal as we might remember. The program continues, however, compared to the fourth quarter of 2016 our costs in the fourth quarter now are SEK150 million lower than last year.

For the full year of 2017 the cash [indiscernible] amounted to SEK 620 [ph] million so about SEK 100 million less than in 2016 and the cost in the P&L including amortization around SEK 740 million in 2017 full year about SEK 100 million higher than 2016. I think this is well in line with the guidance that we have given for the full year.

If we look at here nice for 2018 we expect to have an activity level using a lower cost so positive P&L affecting the bridge compared to 2017 about SEK 100 million on full year of which SEK 50 million in the first quarter. Look at cost development we saw material cost in the fourth quarter came out in line with our expectations and the total material cost was negative about SEK 100 million versus the year before and we continue to manage that to compensate some of the raw material effects with positive effects from commercial activities expectation changes and consumption.

For the first quarter of 2018 we expect the material cost impacts to be somewhat worse about SEK 150 million negative year-over-year. Raw material surcharges continue to increase and we will see somewhat less impact from the compensating activities in the stock for 2018.

If we take the cost development beside material costs we had quite a good quarter I would say. We see the inflation and extra costs in the upturn coming; however, productivity and more positive outcome on quality related costs in year-end reconciliations compensated here.

We continue to have good cost control on our fixed costs and if we take, we don’t have the slide in the pack this time, but the fixed cost index in the quarter four were excluding [indiscernible] so we have an unchanged cost level since the end of 2014 measured in fixed sections rates. Headcounts have increased somewhat in the quarter; however, staff positions are fewer than in the end of last year despite the business upturn.

Coming then to finally to the inventory development in the quarter in fixed actions rates finished goods inventory increased in the quarter versus quarter three with SEK 300 million. Last year we kept our finished goods inventories flat in quarter four which also was what we guided for this year, but I would say the increase is not due to lack of demand, rather that we based on the outlook we continue to show higher service level of our customers.

And our estimates for quarter one is that finished goods inventories will increase by about SEK 300 million and last year we had the same increase SEK 300 million between quarter four and the first quarter of 2017. That was a lot of information, but I guess we can come back to that in the Q&A.

So if we move to the next slide, some comments by customer group there. Organic net sales within industrial increased by 7.7% in local currencies versus last year, significantly higher in Europe, higher in both Asia and North America compared to last year and the adjusted operating margin was 12.9% compared to 10.1 in quarter four last year.

Contributions from increased sales and manufacturing volumes that also was very positive and the price mix contributed positively compared to last year. If you take the measurement on full year in industrial we ended up 13.7% up from 12.1% the year before.

If we go to automotive, organic sales in automotive grew by 9.6% in the quarter, group sales growth was from cars and light tractor as well as from trucks. Strongest automotive markets continue to be in Asia; however, demand was also good in Europe.

North America sales were relatively unchanged comparatively in the quarter. Operating performance has continued to strengthen in automotive and the adjusted operating margin was 5.9% in fourth quarter compared to 5.2 the year before and for the full year automotive ended the year at 7.2% up from 6.5% in 2016.

Some key comments to the P&L over the quarter, gross profits, gross margin up to 1.1% quarter over quarter, adjusted for one-time gross margin improved 0.8% year-over-year as the nice balance decreased from 14.2% [ph] from 15.1% staying there adjusted for items affecting comparability we ended the quarter at 13.8% versus 14.6%, so 0.8% improvement. Financial net relatively flat year-over-year, exchange rate fluctuations had somewhat more than negatively impact this year than 2016.

And then if we go to taxes, in the fourth quarter we had a positive tax cost, so positive SEK 179 million giving a positive tax rate of 10%. The quarter was impacted positively by the U.S.

tax reform that was decided at end of last year by approximately SEK 770 million. I will come on that a little bit more on the next slide.

So finally then net profit basic earnings per share in the quarter SEK 4.12 possibly impacted also on the tax comment that I last gave and for the full year basic earnings per share is SEK 12 versus SEK 8.75 [ph] earlier in the year before. So if you turn to the tax slide, here just a few comments there.

The decided a tax reform that reduced the federal income tax with about 14 percentage points and if you include the state taxes the corporate income tax in U.S. in 2018 for SKF set up in U.S.

will be around 25% a reduction from 39%, so it's a 14% reduction. The revaluation of deferred tax assets and liabilities in U.S.

gave then a positive tax cost in the quarter of SEK 770 million and the negative effects in equity on other comprehensive income over SEK 400 million. The U.S.

tax reform will lower our tax in U.S. going forward with around U.S.

$10 million. And if we consider this U.S.

tax reform also other changes in other countries like Argentina and France that also have some tax reform changes here entering 2018 we expect our tax rate in 2018 to be around 29% and versus the third and we had guided for this year. So next slide cash flow, positive investments before financing excluding M&A activities was SEK 1.8 billion in the quarter compared to just about SEK 1.5 billion the year before and working capital decreased by around SEK 800 million in the quarter while investments versus last year and investments were around SEK 40 million higher than the fourth quarter the year before.

And if you take the 12 months period on the same estimate we are trending now SEK 4.2 billion in cash flow. So net working capital on the next slide, 29% of sales at the end of the fourth quarter, so 1 percentage point lower when in the fourth quarter of 2016 and this was positively impacted by currency.

We see good progress in accounts payables as we see in the slide, receivables have improved to 17.2% while inventories increased somewhat to 22% and as I mentioned before we have constantly increased our inventory levels than being healthy outlook during the quarter here to keep higher value to begin service levels for our customers. If you take the next slide, net debt, we continue to decrease our net debt despite that we had increase on the post employment benefits this quarter of around SEK 400 million, so despite that we have a net decrease of close to a billion and as we see on the right you'll see our net debt to equity is now at 71% and excluding pensions at around 30%.

So coming back then to the German pension plan, where we have agreed with all involved stakeholders to change conditions form 1st of January 2018 which means that our service costs for our pensions in Germany will be reduced. This will happen in steps in the years to come and in 2018 the reduction will be about SEK 40 million.

When it comes to our, the balance sheet our pension liabilities in Germany, we will not see any effects in the short term, except for the entertainment gain that we talked about for quarter four. However, over time, as the population change leads to the new defined contribution plan, the pension debt will be reduced.

So finally then, on the guidance for quarter one, we expect the financial net to about SEK 225 million negative in the quarter. And if we come to the currency effects based on the actions raised by end of December, the currency impact on operative profit is expected to be around SEK 300 million negative in the first quarter compared to first quarter last year.

And if you look at the snapshot here on the rates that we had January 29, early this week, the currency effect in the first quarter will be somewhat higher, so negative SEK 350. So finally then, as for the full year tax level at about 29% as I said and in line with what we have communicated when it comes to investments we guide that property, plant and equipment, the additions to plant and property about SEK 2.

4 billion for the full year, up somewhat from the, as we seen in the report we came out in line with guidance SEK 2.2 billion this year 2017. With that, I will turn it over to you Alrik.

Thank you, Christian. And we go to the next slide on the outlook and during 2017 we have seen a broad based recovery in most markets, and we have grown by about 8% organically for the full year.

Entering 2018 we expect to see continued growth in all major regions in the first quarter as reflected in our new market outlook. And then compared to the first quarter of 2017, the demand for SKF's products and services is expected to be higher for the group including industrial and automotives.

Demand is expected to be higher in Europe, relatively unchanged in North America, and significantly will be higher in Asia, and slightly higher in Latin America. Demand compared to the fourth quarter 2017, the demand for SKF products and services is expected to be slightly higher for the group in industrial and higher for automotives.

Demand is expected to be higher in Europe, North America and in Latin America and lower in Asia. So we go to the next slide and I will turn over to Patrik for the wrap up.

Okay, thank you, thank you, Alrik. A quick reminder here before we going into the Q&A session, about the upcoming events.

Tonight and tomorrow we hope to meet with some of you here in Stockholm and next week we will be traveling in the U.S. to New York and Boston.

The next opportunity after that would be at some of the upcoming conferences during the spring. I hope to see you there and with that we move directly into Q&A.

Operator, please?

Yes, thank you, Alrik, Christian and Patrik. On the prices, I think you probably gave the information you want to give, but let’s assume we are up like 30 bps or so sequentially and I guess what you alluded to that the pace will continue.

My question is really, I hear out that both you and some of your competitors increased prices quite significantly in the distribution market in North America. We are talking 5% to 6% which means then that this gradual whatever bps it is, should be able to continue for quite some time.

How should I think of the predictions of the curve here, are we seeing continued price component improvement even after second half of 2018, now I am only talking about aftermarket or distribution prices?

You know, this is Alrik here. You know like, I think like we have consistently said throughout this is the recovery is also actually mid 2016.

As we come now to a more bullish market base there is a different dynamics and as also you see a general understanding that prices will have to be adjusted also by our competitors gives a momentum. We still continue to say the same things we have said throughout this recovery.

There is also pricing power. There will be a possibility for us to offset the kind of costing figures we see and with good work we cover margins.

And the same that make it say targets that opposing the OEM market will have yearly contract in some times five-year contracts, you don’t go and break a contract with the customer. You sort of work with them and as these contracts come to an end you have the opportunity to renegotiate the prices and we see the same dynamics today as we saw before.

I think, and maybe additional to that, and you have heard us saying this before, but I think also we have delivered exactly what we have said, so if it is 03 or 05 quarter-by-quarter for a few quarters, so that’s you know it is difficult when you are saying end of 2018 will not recover or try and change but at least we guide that for what we can see in the short-term that will continue.

Yes, and respect for the one question, then in the mix here is that significant since you talk about price mix is positive, so is mix negative or positive in the quarter, if you just sort it separately?

I mean, mix as you know we have got mix usually have a bigger impact than products. I mean it swings.

Obviously, you have, I don’t want to comment it on the quarter, but I mean you have the automotive industrial mix which in this case for this quarter is negative. And you have, I mean since the inventory has been built up in the distribution channels over the quarters, you have now more of OEM versus aftermarket mix which then I mean underlying also is negative there.

So, but I mean it is the component as part of the bps we are talking about obviously.

Yes, that is very clear. Thank you for that, I will get back in line.

Hi, thanks. Christian, just on the bridge, if I could just ask through the impact from inventory re-stocking in the quarter, I know it’s a recurring question, but quite meaningful in Q3.

I think we talked about 100 million or so impact year-over-year on your EBIT line, could you have us with that in Q4 and can you just confirm which I think you mentioned that there will be no inventory build sequentially in Q1 versus what we saw last year, i.e. that it should be neutral in this current quarter?

Lars, thank you for 300 million on the fixed finished stock, obviously had some fixed costs contribution there. And as we have said you have to have a view on that yourself than with the mix of automotive and industrial there.

So, there is a bit cost contribution on the 300 that we have in quarter four and you are right, we guide for 300 in Q1 which was also the inventory that we had in Q1 2017 so there should not be year-over-year inventory P&L effects there if we are right in our guidance.

That’s helpful. Secondly, if I can just ask Alrik on the U.S.

side, I had expected more of a recovery in automotive in Q4. Your car segment is flat year-over-year, BSM is down.

That runs a little bit counter to what I think we talked about in October with some I thought more temporary issues particularly on the car side. Can you help us understand where we are in terms of that business and also what's embedded in your outlook for Q1, you are obviously flat year-over-year in North America for the group, I wonder how you see automotive within that?

I think we are doing well in automotive if you look at - you remember we talked about some changes in programs that were keeping us down. I expected this to come back a little bit quicker when we talked a quarter ago.

Now, I see that mainly the recovery in the U.S. from the sales point of view is more flattish than I previously expected.

But it has nothing to do with our relative position. I argue we are still in a slow position and going in the above markets.

So, the situation also when you look at it they were strong, very strong end of the year in the VSM in the U.S. last year and of course any comparison to that was difficult to meet.

So, from that point of view how we are doing, I think we are doing fine in the U.S. from that point of view.

So, it was demand, if we have a good strong automotive quarter from a demand point of view you will see that reflecting in our skeptics too.

And maybe then also in addition on the VSM side Alrik was right with the reference quarter there that we had. It is also that if you look at, I mean replacement market and if we look at our product scope we are bearing some seeds and if you remember, and you know this I would say the main period of replacement is when a vehicle is somewhere eight to 12 years and if you calculate backwards you come to the years of the remodel [ph] and if you look at the population effect that we got those years that impact aftermarket on automotive is somewhat.

So there also I would say that we had I mean, it's not the science, but that impacts certainly the VSM somewhat weaker performance.

I understand, I understand it and I appreciate the underlying market issues, I was more after the sort of company specifics, and maybe I can ask one final one before I let you guys go, and I'll go back in the queue. You are pointing to significantly higher demand in Asia in Q1, that's on a very tough comp.

I think you grew organically 13% there. I was curious just already to get a little bit of color around that particularly what you see in China both on industrial distribution, but also some of the bigger OEM segments that as you go into 2018?

Yes, I actually came back from China from last week and it’s interesting. There is a very high level of confidence I think with most of our customers going forward in their both domestic business plan, but in also in the way they look at the world.

Anything specific you can point to that's driving growth?

No, I mean there's a lot of activity, there is a lot of upgrading of the equipment, there's a lot of hard work to boost output and in general lot of positive discussions.

All right, thanks.

Hi, Markus Almerud from Kepler Cheuvreux. Can I start with just seeing that we are one of your peers who is warning for bottlenecks going forward and they need to keep an eye out for them, are you seeing any bottlenecks both in Europe and in the U.S.

and you subsidizing the value chain?

During this, this is Alrik. During this upturn, there have been bottlenecks in the value chain as far as field supplies been some of the steel industry has had to ramp up and I think you are well aware that and of course when you’re ramping up hard it then creates bottlenecks in the Industrial value chain.

We think it’s coming to become more and more normalized, but there are some product lines also for us there where supplies impact. We need to be able to mitigate that to our customers stay happy, but that’s one of the reasons that we see continued demand and also in the value chain.

Okay, but it's more behind you rather than going forward this is not…

More behind than going forward, but there were still product groups, it's not even, there are some product groups where demand and surprising you to best and of course has the order book a very strong sometimes. You know, you struggle when the product portfolio is very wide, et cetera, but I think these problems are more behind us than anything else.

Okay, then if I can just ask a quick question about the dividends, if you can just, so unchanged dividend despite better operating environment, good cash flow, improved balance sheets what was the reasoning behind keeping the dividend unchanged?

I think, if you're - we have a dividend policy there with that's about 50% of our net profit should be distributed and if you think it now you are at around 4 to 6. So we have been above the 50.

So I think we are well in line with the guidance that the whole thing is working with when I think it is sufficient.

And I also Alrik we had a good plan of continue to grow and invest in our business and I’m sure that as we continue to perform well the shareholders that stay with us with find a good development also in this going forward.

Okay and then just finally if I can, just going back on the Lars' question about the inventories, just a housekeeping, the $300 million that you built in Q4, can you remind us what you built in Q4 last year, so what was the Delta? Did you build $300 million sequentially as well in Q4 last year?

Just I get the year-over-year delta?

Q4 2016 I must still fall back in my, we have put together [indiscernible] if you remember the better, what we get in Q4 ‘16 versus Q3.

We are plus that’s – sequentially.

Okay, the Delta was also $300 million perfect. Thank you very much.

Good afternoon and thanks for taking my questions. Firstly on pricing, thank you for confirming the dynamics from the price increases that you implemented last year, but we're also hearing from the channels that there are plans of further price increase from some of the bearings makers.

Can you comment it’s all whether you are planning further price increase during 2018?

We always work on price increases as we as is normal in a situation like this and I think and just reiterate what we've been saying is, that there is pricing power we're working diligently to do it. I think it’s very positive to see that it's a general market trend now to do this.

And we are absolutely clear on the fact that we will be able to have a good development also going forward just like we have been working hard and had a good positive development also during 2017. The reasons it takes a little bit of time sometimes is because of course some of the contracts et cetera, they renegotiate this not always immediately takes sometimes one year to take up to two years before you actually make a renegotiation.

And this is making it a little bit slower than you would may be expect if you don’t know this. But I just say we have pricing power, it is possible we see a good development from the marketplace in this sense and this resource that we will be able to continue in the past that we have always.

Thank you. And on negotiations with the OEMs, I think from previous calls you said that there will be an opportunity to renew at high prices as the year turns.

I guess now with being the 1st of February could you comment on how these negotiations have gone, so far this year broadly?

Well, you know, the ones that are - we are at the end of January of course the things that we are talking about now are and maybe, but there is no different. I think that I've been trying to say all along there is a no difference.

There is a good dynamic in the marketplace, has kept it competitive. Our other players are also increasing prices.

There's nothing sort of to add if you understand what I mean. This is we're in positive market trends.

Okay, got it. Thank you.

And can you still hear me?

Yes.

Great, thank you. And can I just ask another question on the much broader topic on kind of cash generation versus capturing the growth opportunities and where priorities lie?

Obviously you've had a quite a bounce in demand and have committed some cash to working capital or to inventory to capture that. But going forward when do you expect to come back to kind of normal cash conversion situation because we see EBITDA up SEK 1.5 billion, but free cash down SEK 3 billion in 2017 and we see the ‘17, Q4 up, but that's versus a, I think the weakest quarter in prior five years.

So I just wanted to see it's 2018 or is it you see that you see that beyond that when you have cash catching up?

But I think, I mean if you take it also on the broader as we have discussed here and the questions that we have got, I mean on the growth and capture the growth and we have been in on an 8% growth the full year, but do you have bottlenecks in the supply chain and so on. I think we have tried to maneuver this in a way also and we have commented before that we have bought some steel in advance when we have seen the bottlenecks are coming.

We have double sourcing on steel in order to really to take the opportunity here when the market is growing here. So obviously we have prioritized that and we have taken that conscious decision.

So to answer on your question whether it would be Q1, Q2, ‘18 or outlooks it’s difficult to say, it depends how the market goes and also on this questions that you’re on the bottleneck and on because we are determined that we are going to see to that we're growing share in this market. And that means we need to have availability and service level and in the interest environment we have now we have, we are judging that to be the right thing to do.

So, but certainly when you don't have that market and may be when you start to soften the priorities will turn.

But even with relatively good growth we should be able to start working on these issues when the supply chain situation normalizes going forward.

Great, thank you and very last follow up on energy as a segment looking at your pluses and minuses that seem to have taken quite a sharp turn for the negative in North and Latin America kind of from two to three pluses to three minuses. Could you comment on that and what part of energy seeing that and in context to that Europe is I think holding up really well, is this renewables related?

Yes, well there's a lot of, if you take Latin America you can understand that that's where it goes out. We have very strong position in Latin America as you understand and during the fourth quarter there were very few insulations made actually in Latin America.

So, but as soon its starts coming again we will be back.

And North America from a..?

Well, North America we saying there has been some negotiations may be where we are not running to be - if we don’t get a fair value for the product maybe we haven’t finished shaping it as hard as we would have normally, but basically it’s going to be a similar situation.

Got it. Thank you for your time.

Thanks very much. Good afternoon everybody.

Clearly you've showed pretty strong growth in automotive this quarter, but I mean the question is, what's really driving the relatively disappointing incremental margin for that division at least comparatively to industrial? And then perhaps also still looking at automotive to what extent do you think that the strong growth you've achieved in Q4 relates to the exceptional strong production figures that we saw in France last quarter and what is the risk that this could actually retreat someone in the first quarter?

Thank you.

I may be I'll start on the first and then eventually we have to ask again we did not capture automotive questions right. But the first one I think we had a very good leverage in this fourth quarter on the gross, I mean profitability depending on how you calculate it.

The leverage on the sales volume is very good in industrial terms, so I think we get the leverage out on the volumes that we see here.

Well if I may I think it is very strong in the industrial division, but actually not so strong in automotive.

I mean relatively to the margins they have I don't think it was a bad quarter for automotive either.

It's okay.

All right.

I don't know if you look at the adjusted or if you look at the reported. If you look at the, but I think it is good, but I mean you have a positive.

If you take on the report the pension plan closure in Germany it is more favorable if you look into individual development of one-offs more favorable to the investor, but it’s good. We adjusted one in automotive I don’t think it was particularly weak somehow these quarter.

And as you please, what do you mean by what happened in France?

I think the car production figures were extremely strong in the fourth quarter. And just I wanted to know to what extent it helps you on the top line in Q4 and whether this is something that could be perceived as being really exceptional?

But of course, where there is a lot of cars produced and we are expecting to those platforms. We sell more products and if there should be a turn let’s say in the car production it should be different it will of course affect us.

And what we argue is to say is that we have good position with the car industry, we are strengthening our position not at least in Asia and that is what is company statistics.

So really when perhaps in broader terms talking about Europe, you don’t see the good growth or the very strong growth you had in Q4 as being exceptional at all, that's not excepted to?

It will depend on car demand in the quarter. You know how quickly when it has change in the van, they'll probably change in production and it is good, production stays good it is going to be good for us.

Then if it increases its going to be even better and if it does not well it will be, but we foresee as we have done in general a continued demand, good demand.

Okay, thanks. Thanks very much.

Good afternoon. Thank you for taking my question.

I’m sorry to labor the point on pricing. I know everybody is asking every which way, but I wanted to make sure I really properly understood how you’re thinking about this.

So basically you see an ongoing improvement in price mix which is good news, but you did call out in your opening remarks quite a big step up in raw materials in 1Q. My question is, as we look forward into 2018 you are reasonably confident that your gross pricing will offset raw materials.

So that by the time we get to the end of this year your net pricing is effectively positive, so just - oaky and that trajectory should be better this year than last year, correct?

Well, we are doing anything we can that it will be so, yes sir. And then you put it very well, can I quote you, it was excellent they way you put it.

Well, thank you. Second question, the demand outlook in North America sort of effectively stable is that simply due to a tough 1Q comp last year or is there anything that you're seeing in the industrial environment or the automated environment that makes you a little bit more careful?

Well, we see mainly in the U.S. a flatter demand pattern as we said before.

We had expected and even little bit stronger in Q4. We see little bit flat in the automotive side.

On the industrial side well, we think where it’s quite a good demand you’re going into good underlying here. Activity made on some segments you know, where demand could be lower in some segments but in general it’s a very strong underlying demand in industrial.

So yes.

That’s very clear. Thank you very much.

Hi, thanks for taking my question. Just to come back on the automotive point, I was just looking at the clean operating margin you get to a drop through rate of around 17% for the quarter.

Now obviously given how strong the top line growth was, I really thought it should have been a bit more, I'm just trying to sort of understand what's holding them back, is it the mix original equipment versus let’s say the aftermarket, is it just the net pricing and the negotiations that are going on with automotive customers which are sort of holding this back and so just thinking of how we should think about this in 2018 as we go forward? Thanks.

Now, I think we, you could say that you, I mean we have obviously not reflected deep on this since we - overall within automotive trends in absolute in the right direction and of course in the leverage in different quarters it might vary. We could have some mix effects here by the fact that we have somewhat more model than VSM in this, but for the rest you should see this discount I mean between the quarters, but the trend as we see it is positive here, so you don't have any warnings on automotive.

We don’t by this we don’t say that – because the way you look at it is, we think it's been a good drop through in the automotive and then if you look at I think we're holding this well and…

Yes, should we sort of expect an acceleration in terms of drop through as we head into 2018 and some of those contracts likes you said start to get renegotiated or is it something that let's say currency or so on should hold it back and given how strong proxies…?

No, but you're right, you are right, the truck is strong. We are well positioned in trucks I would say in most, in all regions.

We have an 8% target for automotive. We are driving towards that.

We are guiding for positive automotive volumes also into Q1. If the drop through is this or that in the quarter I cannot comment on that.

But I mean the trend is positive, prices are discussed and so on and so on. The positive development on automotive should continue.

Okay, thank you.

Hello, thanks for taking the question. Just a follow up question on the cash flow and dividends.

So obviously dividend was flat this year. Cash flow is improving.

You have pension eventually falling. Discount rates Germany, U.S.

moving sharply and you are 71%, so you could assume that ’18 may fall into the 60s range. So I guess the question is, on that flat dividend are you trying to send a message in terms of you need cash for working capital and you see the growth coming through, how should we think about of M&A because historically once you fall into that sort of 60s net debt to equity including pensions level, you have seen not just rising dividends, but actually as you've seen at some of your Scandinavian peers dividends, special dividends such to not to think about the message from that, how we should think that as we move to’18?

Thank you.

First off you should firstly see that our Board and owners see that we give a good return on by our organic growth and also continue to grow. So that's our main ambition and we have talked about what we do on factories, technology upgrade, world class investments and our ambitions want to see to that, get more efficient type their industrial footprint and so on.

So we have a very clear agenda on that that the Board is fully confident that we will continue to invest in. And that's also why we guide up on the investment side, so that’s the main driver of us going forward.

But of course this is thus muscles make to look at acquisitions in a different way and we have to also see that dividend once you take a decision to paying the dividend with you, you want to be absolutely sure that this is for the long term, et cetera, then I think that there is the ones that the shareholders will stick with us. They will in one way or another gets the money and hopefully by us performing better and better.

Okay, thank you.

Yes, hi Christian and Alrik. It's Klas from Citi.

Sorry, but I have to come back to price and mix and here is my reasoning. Unite was a bigger positive than I thought and you built inventories which I didn't have, so that's two positives and the cost development was in line with my forecast and the overall drop through was in line with my forecast, some 40%.

That suggests there are other flattish price mix maybe up a bit 20, 30 basis points. Now the comments I heard on both are stronger and more OEM sales suggests to me that mix to be quite a lot negative, but obviously been positive is a pricing perhaps up 70, 80 basis points which is a big step up.

I just want to understand that relationship?

I mean you calculate a lot there I mean obviously, but it's good to hear that our guidance and what comes out seems in your spreadsheet to fit together. That’s great, but I mean, I don't want to…

Nut what we can say, what we can say is that, what we've said for a long time. There is the pricing momentum, you see how our competitors also going in and looking at it.

It’s a good demand in the marketplace. There is an increasing understanding from the customer base that raw materials have been going up et cetera and there is an understanding for that this needs to be and should be offset so that’s a good positive momentum.

That’s true.

Good. Then when it comes to - last quarter you said mix was neutral, distribution pricing was up 1%, OEM pricing was down by December month, you had a flattish price mix.

Is OEM pricing still down by 1% and we saw a big spike in distribution. Well, how is the relationship between the two?

I don’t have a comment to that very close.

All right, My third and final one is on the inventory increase you said, flat finished goods inventory when we started the quarter. Demand is a bit better, but it's really driven by automotive.

I just wonder why you had to hike production as you went through the quarter? Is it simply that you want to keep your delivery promise building safety stock in a better price environment?

Also you can't keep the delivery promise and now asking for better pricing. So is it safe to stock increase rather than you're in for out?

No, but it is to meet our customers’ expectations, our commitments, the deliveries to customers. I mean that's the main driver for us.

And when you grow and you understand that, when you grow and you also have more goods in transit, more deliveries on the sheets or maybe the customer et cetera, et cetera and reports when you have a strong demand situation especially ramping up if not to try to squeeze down inventories and optimize that as supposed expecting on that the customer with continued to demand your products. There were complete sides as you understand is a value chain.

We had thought that that was a better bet. And that’s why we have not focused on driving down the inventory in the fourth quarter.

This money is still with us. So as soon as you get more normalized and say less of the deal you can start working on these things and then we will get the money back.

Yes, so obviously, was just at the industrial side of the business was a bit weak than I thought and obviously the industrial side carries most of the manufacturing relative to [indiscernible] and so that was my question?

Thousand and tens, and 20,000 products sold all over the world you know from different factories. So yes, had a contact operation, and so don’t worry.

The money exchange will be done.

No, totally and one very, very quick final one and that is on energy coming down lower in North and South America, we all know about the wind weakness. Can we talk about the pricing in the energy segment?

This is typically high margin for you there. I mean you are one of the biggest suppliers and should we be concerned about the mix in OEM, within OEM getting weaker as wind is falling?

No, I don’t think you should worry about the mix. That’s clear, no.

However, you can understand that for instance it’s not good when an industry that you serve is having sort of more difficult times as far as margins and that’s not good. And sometimes then it maybe they are pushed to do things which may make it so that you may be planning sometimes not to take the business, because they are in a situation where they'd rather go for a norm, so quality supplier.

So it's more that kind of dynamics. You will not see a negative mix effect from this.

Thank you.

No, thank you. I think we are up for our dedicated hour here.

So we thank you very much for listening in and if you have any additional questions, we are always happy to, I’m happy to take your calls after this call. With that, we say thank you.