Volvo Car AB (publ.) (VOLCARB) Earnings Call Transcript & Summary

Good morning, and a warm welcome to the presentation of Volvo Car AB First Quarter 2023 Financial Results. We're coming to you from our headquarters in Gothenburg. Annwall in Communications at Volvo Cars. And as always, I'm joined this morning by our Chief Executive, Jim Rowan; and our Chief Financial Officer, Johan Ekdahl. At the start, Jim and Johan will walk us through our performance during the first quarter. And thereafter, we will throw it open for a live Q&A. You can participate in the Q&A around in 2 ways, either you can send in your questions using the chat window that you should be able to see at the bottom of your screen, in which case, just typing your questions and I'll take it to Jim and Johan or else move to phone lines. And those details should also be visible on your screen. In which case, then you ask the question directly in this live stream. But I'll come back with more information on how you can participate closer to the Q&A round. But for now, before I invite Jim over here, we want to show you a short film that brings out the essence of our purpose as Volvo Cars. [Presentation]

I wanted to start today's presentation with a short video that reminds us of our great heritage and history that has allowed us to build a very loyal customer base, and it's encouraging to see so many of those customers join our electrification journey, and you will see that reflected somewhat in today's results. Q1, performing and transforming. Our file electric share of sales at 18% versus 8% in Q1 2022. Double-digit growth in retail sales at 10%, manufacturing output up 7% despite high comparable base in Q1 2022. Productivity and efficiency drive is gathering momentum and adding real value. Improved earnings in the quarter are somewhat a reflection of this. The new tech or in Poland has been announced, and we are on track to launch our new small fully-electric SUV. And that's encouraging on the back of the launch of our flagship EX90, which we launched late last year. The response from customers has been extremely strong to the extent that we have closed the order book for model year '23, but we'll open now up again for new orders for model year '24 very shortly, but again, a very encouraging time. Key financials. Retail sales up 10%. Revenue is up 29%, and EBIT margins are up from SEK 5.9 billion to SEK 6.3 billion year-over-year, excluding JV and associates. Despite the multiple headwinds that still exist, we are tracking towards our mid-decade ambitions. 1.2 million units sold as a run rate, 50% fully electric, 50% online and direct sales, 8% to 10% EBIT margin and 40% CO2 reductions. The validation of our electrification strategy is shown here in those charts. As we go all the way back to Q1 2021, we can see that only 2% of our sales were fully electric. Transform to today, and you can see that Q1 2023, that's driven to 18% and a great validation of our early move-up strategy through electrification. CO2 reduction, again, is tracking to our ambitions of a 40% reduction by the mid-decade. And if we look a little bit more detail towards plug-in hybrid and BEV sales, we can really now start to see momentum gathering with some countries already 100% and many more above 83%. And we drill down deeper than that, and we look only at BEV sales, we can see again, dramatic increases in that Norway at 86%, perhaps not surprising. But if we look at some of the other big markets in Europe, the Netherlands, 49%; Denmark, 41% Swette40% and right here in Sweden, 39%. Again, this is a great validation that the early move our strategy towards electrification is paying off for us here at Volvo Cars. And we expect that to accelerate and more markets around the world as things develop. With that, I will hand over to Johan Ekdahl, who will take you through a financial update and some more details.

Thank you, Jim, and good morning. Some more details on the financials then. Retail sales, 10% increase compared to the same period last year, showing that we are seeing an improvement in production year-over-year now for a number of months. Revenue, 29% increase. So significantly more than sales volumes, which also is a proof point that we have a strong brand being able to maintain healthy pricing and also having good mixes of cars, et cetera, some more details shortly on revenue. EBIT increase, excluding JVs and associates from SEK 5.9 billion to SEK 6.3 billion at an EBIT margin of 6.6%, which especially compared to towards the end of 2022 is a good increase, and we'll come back to some more details on that shortly. Cash flow, free cash flow, minus SEK 17 billion in the quarter, however, heavily affected by a number of more structural investments of more nonrecurring nature. So this is in accordance with our plan for the year. More details into revenue then. We see a nice increase from the increased volumes of SEK 9 billion. And as I said further, we also see continued healthy mixes of cars and also maintained good pricing globally, taking us also to an increase of SEK 4.2 billion. We still have a tailwind on FX on revenue, especially on U.S. dollar, and we also have an effect from the contract manufacturing to Poster which takes us then to SEK 96 billion almost in revenue for the first quarter, a 29% increase compared to the same period last year. On EBIT, again, an increase from SEK 5.9 billion on the core, excluding JVs and associates to SEK 6.3 billion or 6.6%. We see a good contribution from the commercial delivery, increased volumes, increased pricing and sales mix effects and also over SEK 1 billion on FX effects on a net basis, whereby the U.S. dollar effect on revenue has been partly offset by euro and other currencies on the cost side. And also an effect, even though we still live in a world with elevated raw material costs and freights, et cetera, we do see a slight improvement compared to the end of 2022 on costs for spot purchases of certain key components and freight, et cetera, which means that we are seeing now in the quarter, an uptick in the profitability compared to Q4 last year. For the full group, including Davies and associates, SEK 5.1 billion in EBIT or 5.3%. On the BEV margins in Q4 2022, we reported 6% or really if we exclude effect from CO2 credits, 5%. So we do see an uptake of a couple of percentage points to 7% for the first quarter of 2023, reflecting also their ability to price and also good geographical mixes. What's also potentially a positive effect during -- towards the end of 2023 is that we see lithium prices now coming down during the first quarter. However, an effect from that will be later during this year due to time phasing effects. On liquidity, we still see a healthy liquidity level. We have a negative cash flow in the first quarter, although the investments in the quarter is both, of course, our currently quite high investments in our transformation of the company and also on future cars and architectures, et cetera, but also approximately half of the investments in the quarter are related to the structural cash transactions, which has been in accordance with plan and include things such as the acquisition of land and building in the Taisho plant in China and also investment in Centa and some other areas, which means that the cash flow for the first quarter is pretty much in accordance with our plan. And finally, I would like to draw your attention to the capital market update that we will have in June in the 8th of June. It will be a virtual fashion and a virtual fashion only. And there, we will focus on a number of things, our strategic transformation to outline that more in detail as well as our journey and the building blocks towards our profitability targets for the mid-decade. So thank you for that. I'll leave it back to Jim, who will summarize this presentation.

Thanks, Johan. And summary. Our order book remains strong. Production has improved, raw material costs while still elevated, are trending in the right direction. Cost efficiencies and resource optimization has started to materialize and add value. Other targeted cost actions are being evaluated to help counterbalance the likelihood of increased headwinds going forward. 2022 price actions are materializing now in the first quarter of 2023. Retail deliveries are expected to grow with solid double digits in 2023. And while uncertainty continues, we remain focused on execution. And that's a nice segue to my last point today, which is the execution of the launch of the new SUV. we're excited by the launch of this new SUV as we believe this will introduce Volvo to a new demographic. The combination of size and price point will allow us to operate in a new market segment, which we think will attract new customers to global cars. I look forward to giving you an update at the next earnings call. Thanks again for joining us, and I hand over now to Annwall.

Well, thanks for that, Jim. We are all settled in now to start the Q&A session, along with Jim Johan, who are alongside me. Let me also invite our Head of Investor Relations, John Hernander. Good morning, John.

Good morning Annwall. Thanks.

[Operator Instructions] So without further ado, let's get the Q&A started. We're getting a lot of questions online already and some callers. So let's take an online question first. Your first quarter is much better than expectations. What do you attribute this performance to? Was it specifically contributed because of lower costs?

Maybe I'll start. I think the encouraging thing for us is that we saw a lot of operational growth in the quarter. So pricing mix. Increased pricing has come through. We increased the price last year, of course, but some of those orders are to that to materialize. We've seen that coming into the mix as well. We have some of the efficiencies that we'll put into the business. And all of those, I think, combined to give us the results we saw here today.

Yes. And I think what's positive is also that we have been able to increase margins despite still elevated raw material prices. So I think it's important to point out..

All right. The other question comes in from Balama. How much more have you sold of the EX90 than what you had projected or forecasted?

Yes. We haven't given specific numbers on that. When we opened the order book on that for preorders just at the launch when we launched that last November, we obviously have internal targets that we had set. And that exceed our internal targets, although we haven't given those numbers. To the extent whereby we've now closed all the order book for that model year. We'll open it up again to the next model year shortly. But suffice to say, we're pretty happy with the order intake that we've seen in that new -- and it shows, again, on flagship EX90 there's an appetite for a large 600-kilometer SUV. So that's great to see.

Right. Let's take our first call this morning then. And first up, let's go with George Galliers of Goldman Sachs.

Questions. Jim, last month, you were very forthright and I think most investors would agree with you that now is not the type of backtracking or blocking when the EU announced the changes to the zero emission targets in order to accommodate e-fuels. Could you perhaps just articulate to investors what your objection specifically was? Was it really an objection to e-fuels or was it more actually just an objection to the whole concept of backtracking and the potential for further backtracking in the future? The second question I had was with respect to the new SUV, which I'm sure will be very desirable per the EX90. However, when we consider the evolution in the battery electric vehicle market in China and Europe over the last 6 months, we have obviously seen a notable increase in competition as well as some pricing aggression in the market. With this in mind, have you had to change your revenue per unit assumptions around that product? Or are you confident that the technical prowess and quality of the product is such that you're able to keep the pricing that you've always intended for that car? And then the final question was just with regards to the cash flow. Obviously, we've seen a substantial outflow in working capital of SEK 11 billion during the quarter after fairly substantial inflows in working capital in the second half of '22. Where does the net working capital sit now? Are you expecting it to see a fairly neutral development over the rest of the year? Or could we see some reversal of the outflow that we've just seen in the first quarter?

Thanks, George. I'll take the first 2 questions, then I hand over to Johan for the cash flow one. Let me start with fuel. Well, first of all, I just think it or distraction in terms of we're moving towards electrification. I think the world is moving towards electrification. The technology and electrification and the underlying efficiency that we get from an internal combustion engine versus an electrical propulsion systems are stacked for a different, maybe 35% efficient in an internal combustion engine regardless of what fuel it runs on and over 90% and an electrified propulsion system. But you don't have any noise, you don't have any vibration. And also you have much, much less servicing costs for the customers, whether that's running our new fuels or any other type of internal combustion fuels. You're still going to have those oil changes and filter change. It's another thing that happens with internal combustion engine. So you've got that. But on top of that as well, when you look at e-fuels, as you move towards that, what happens to the auto cars? How old are all the cars going to be able to run on e-fuel as well as the current fuels? As so where they fill up, what is it going to be every single garage that has the e-fuels? Is it only going to be every other garage? Does that happen if I drive through the whole Europe? Do you need to reposition all the pumps and all of those guys need to take e-fuels as well as current fuels? It becomes massively complex. And I think it's just basically a distraction factor. And it's the use of investment that could go much more into electrified infrastructure and driving towards preelectrification and perhaps more importantly, driving towards zero-emission economy. And so that's my objection to the e-fuels in a nutshell well. It's basically invested old technology. On the second point in terms of the EX90 and the demand for that product has been higher than we expected as we alluding to. I don't have any concerns really that that will be effective or we'll need to look at the pricing of that or the volume expectation for that and partly because we're seeing that strong intake or that strong order book intake even at this stage, but also because I think the people who want to ride in a fully electric 70 SUV, we want to do so a lot of those because they're coming out of our flagship EX90. And so I think we're going to have a huge attraction of that customer base into our electrified model. And then I think will attract new customers. But I think what matters to them is the safety heritage of our company as well as all the brand attributes that they get by being connected to Volvo. So I'm confident that we'll be pretty successful in that price.

And on the on cash flow. Yes, both in terms of working capital and investments, we are -- have a negative cash flow in the first quarter. Investments as we have said, is affected by a number of structural cash transactions that was according to plan. If we look at working capital in the quarter, you can say we have slightly lower production in the first quarter compared to the fourth quarter, which was partly according to plan. We have Chinese New Year, et cetera, affecting that. We also had some disturbances during the course of the quarter, which means that payables, for instance, have been affected by that fact. If we look forward towards the remainder of the year, as long as we don't get any further unexpected disturbances in production, I would say that we should expect that cash flow will be improving compared to the first quarter during the remainder of the year.

Let's take one more online then. How are you planning to meet your volume target for the mid-decade?

Yes. Right so we've already announced EX90. So that's in place, the demand for that looks to be good. We will announce a small SUV very shortly. That's going to take us into a lower price point than we've ever been in the SUV before, a smaller size as well as a smaller segment. And by and large, we've been to, I think, to quite a different demographic. So we see the addition of the small SUV has been completely noncannibalistic towards our existing customer base, which is great. At the same time, we also have all of our current key heads in place. We have the V90 key head. We have the XC90. We have EX90 and at the same time, on top of the XC40 and the C40 that we currently have, we'll have the newest smallest SUV, a large EX90 that will boost as well as 3 other brand-new full electric cars, all by the half of the med decade. All of those combined, I think, drive us towards those mid-decade ambitions in terms of volume. And that's how basically that builds up. I think maybe the impact of the small SUV hasn't been fully factored into how we can get to those ambitions. But that's going to be largely additive towards our current volumes.

Thanks. Let's go over to another call then, and I give the word to Daniel Roeska from Bernstein.

Maybe could you give us some more color on your EX90. If it sold out for the year, was the pricing essentially too low? Was there more opportunities? And another question maybe can you give us some color where you sold the car? So is there any kind of geographic center that the order book currently represents? Or is it fairly in line with your typical geography? And then thirdly, just a pass question on raw maps. We've seen some year-on-year headwinds. When would you expect those raw mat headwinds kind of to turn as we go through 2023?

Okay. Yes, let me take the 90. So yes, we'll not really the volumes on that. I can -- what I can say is that when we opened up the order book, we pretty much opened up for the U.S. It's going to be that can will start as manufacturing life in a factory in Charleston. And so obviously, it makes sense. Obviously, the U.S. was a big target market for that vehicle as well, given the popularity of the XC90 in that part of the world. So we targeted the order books for Europe and for the U.S. But I can't put any more granularity on that for you at this point in time. We simply haven't released those numbers.

Yes. On the raw material question, if we start with lithium, which is, of course, have been heavily affected our BEVs. We have now seen during the first quarter that the lithium prices have come down quite deeply but there will be a certain time phase in because we are indexed quarterly, I could say, and then we should produce the car. So it takes a number of months, so towards sometime during the third quarter and forward, assuming that the lower prices will persist, we will see an effect, for sure, on the lithium prices. On more traditional raw materials, we will also see an effect going through mainly through the second half of the year, also to a large extent due to, well, indexational contracts, et cetera. So the main effects of lower raw materials will flow through, hopefully, during the second half of '23.

Another question online then. This is from Daniel Schwartz. Revenues up 29% versus last year, but net income is down. Do you think you need to restructure your cost base or renegotiate the manufacturing prices with Polestar or take any other measures?

So if you look at the EBIT, when you exclude JVs and associates, we've gone from 5.9% to 6.3%. So that's a positive trend. The JV and associates part then obviously brings into play some of the investments that we're making in some of the costs that we carry for those associates. Part of that is companies like Polestar, which we had signaled earlier that we'll be continuing to fund as it develops as a brand and as it develops its marketplace throughout the world. So we were looking at that and if you look at that underlying without JV and associates, then that's the underlying cost base. Now having said that, we have a real focus on the cost structure of the business, which we've alluded to in the -- both in the CEO and also on our annual report, our corporate report. And the reason for that is I think there will be some headwinds as we go into the back end of this year, I think we're likely to see inflation remain reasonably high. I mean lot the U.K. has been above 10% now for the best part of the year, if not longer. We see increased energy prices and was our order book remained very robust globally. We need to make sure that should consider sentiment change that we are driving the most efficient company forward. And so that's why we're focused on the cost elements of the business and we'll continue to do so.

Thanks, Johan. Let's take another one from Dan & Schwartz. Are there remaining foreseeable extra cash outflows? That's more for more for John and Johan, perhaps. What is the net cash level that you feel comfortable with?

If we start with this additional or structural cash investments, we are having quite a lot during the first quarter. There are some remaining during the last 3 quarters, but the total amount for the last 3 quarters are less than the first quarter alone, if you will. But there are a couple of billions that will also affect the remainder of the year.

Let's take our next caller then, and let's give the word to José Asumendi from JPMorgan.

Just a couple of questions in. Just a couple of questions. Just going back to this minimum balance sheet and net liquidity you want to maintain. You alluded to a few moving parts with regards to exceptional cash outflows in the coming quarters. What's the minimum net equity do you think you should be owning in the balance sheet in 2023 and 2024? And then the second question is a bit more sort of medium term. But obviously, you're taking the opportunity to accelerate the company in the direction of moving to tristation quicker than peers, which is going to be obviously an advantage versus competitors. On the other side, this has, to an extent, a negative impact or some margin dilution on the business. If you see a bit of medium term, but when do you think you will have achieved, let's say, the big point of margin dilution. And then you will be able then to benefit from the remaining elements, which are positive for the market improvement, which are the reduction of listing prices, the reduction of capacity cost and those economies of scale?

Yes. Maybe I'll start on the metric. We don't guide specifically on exactly which level of net liquidity we want to have. But I will say that the first quarter is, as we said, heavily affected by these more nonoperational cash transactions. We also have seen effects in -- or more, you could say, time phasing over the year effects on working capital during the first quarter. So I foresee that we will be significantly better on cash flow for the remainder of the year than we are in Q1. So I don't foresee that we will have an issue on our liquidity level at all during the remainder of the year.

And the one more question on peak point in margin dilution. When does that -- when does that come in and some when does it improve? Johan, if you want to...

We've been clear that, I mean, if you look at the current lineup of BEVs, I mean, those are only 2 models, right? And really we have a sequential small improvement from the fourth quarter those are still sort of built on platforms that initially was catered for also including the combustion under. We also will be quite clear that when we introduced the new generations of vehicles coming to the market, you should see higher profit abide on the BEVs. When the peak is going to happen, I guess, short term, we'll be a little bit dependent on the movement on the raw materials, right? I mean we're seeing lithium declining on spot prices. And as even alluded to, we see that effect in a couple of quarters. So hopefully, from that perspective, if raw materials have peaked, then in that case, we should see our profitability improving, but it's still quite uncertain short term on how the raw materials move, but when we introduce the new cars, which you see also an improvement in the underlying profitability of the BEV vehicles.

Let's take another question online then. This is from Alexia Milan. Could you please comment on the pricing dynamics you're seeing in Europe and China, especially in light of some of your competitors' behavior?

Yes. Let me far then, I guess, with the dynamics and demand. So the demand for our products remains strong. I don't see anything that will be of a concern in terms of all the cancellations. We're not -- they don't appear to be higher than normal. We don't see -- I don't have any concern about order intake. That seems to be pretty stable and pretty robust. Of course, different parts of the world, slightly different, but that's normal. But overall, the intake is strong. And that gives a nice strong backhaul book. With all of that in mind, then I think we owe to ourselves and certainly to our shareholders and our stakeholders that we remain disciplined on pricing, which we intend to do. And that's -- obviously, that's then going to help us fund the future for some of the new technologies and some of the new platforms and models that we need to bring into play over the next couple of years. So the short answer to that is and the company has its own strategy around pricing strategy around present to be as disciplined as possible.

Good. Let's take a caller then, and this one comes in from Pushkar Tendolkar from HSBC.

So I have 3 questions. The first one is on the capitalization of the development costs. So these costs were quite high or the ratio was quite high in the fourth quarter of last year and now in the first quarter of this year. I understand that this may be linked to the EX90 and the small SUV but you've already kind of showcased these models, right? So we should be at the tail end of the development of these vehicles. So just wanted to understand if you can explain that a bit more in detail of -- and especially because this is quite high when probably compare it with your German peers. And then my next question was on the revenues per unit or the ARPUs that you report for BEV and non-BEVs, I see that it's gone up very slightly for the BEVs year-on-year, 5% growth first quarter this year versus first quarter last year and a 15% growth then for non-BEVs. Does that imply that it's a bit difficult to pass on price increases for BEVs compared to no-BEVs. And then the last one, again, on the order book of the EX90, I mean, if you can give any color on how it looks like in China because you're devals in Europe are quite strong. You have this 20% penetration levels, but it's quite low in China. So I just wanted to understand what's happening in China.

Maybe I'll start on maybe the first 1 or 2. On the capitalization, yes, you're right. It's quite high capitalization ratio in -- towards the end of '22 and into '23, which is that we are quite advanced in many projects right now reaching the capitalization phase, as you say, EX90 part of that. And so it is high now and will probably remain high for some time. But of course, when new products then go into production, then we will see a normalization of the capitalization rate and also a somewhat higher amortization rate, which is fully in accordance with plans with the time phasing. But currently, we are at elevated levels. So I think over time, this is a level that is higher than normalized, if you will, for a short period of time. So that's the first question. And then on the second, on the BEV and non-BEV, I think it's important to bear in mind if you compare the development that the BEV are still affected as of now on very high lithium prices, which is one effect. It's also that we have -- it's the C40 and XC40 and from a mix perspective, being able to maintain good pricing. I think in the non-BEV, we also have reasonably high shares of, let's call it, higher price cars like the XC60 and the XC90. So it's not apples-to-apples, if you will, it's also a mix effect that needs to be taken into consideration. We have seen -- I mean, the uptake in margins for the BEVs are also a proof point that we have been able to maintain good pricing. So it's more a mix effect than a pricing effect.

Some more color on the EX90 order book, particularly in China.

Yes. So right now, we're not actually taking orders for EX90. The EX90 will start with production like in the U.S. and then we'll also manufacture that product in China. So at this point in time, we're focused on the European and the U.S. markets on that product for the initial preorders phase, I'd say so. Difficult to gauge how that's going to play out until we actually get a look at the preorders for China.

Let's take one more question online then. This comes from Thana Mariappan. He says how much of the margin improvement in the first quarter comes from pricing and volumes versus cost-saving initiatives.

We don't give the exact numbers, but it's a combination. I would say that we have been able to maintain good prices also in Europe, seeing price increases from last year flowing through. We have good mixes of cars. So I would say that maybe slightly more of the effect on the pricing side, but we also have seen -- starting to see in our cost efficiency efforts flowing through an indirect cost and also have seen a slowly progressing positive trend on other costs more in gross margin, such as spot purchases of key components, freight, et cetera, especially comparing to the end of 2022. So I would say it's a combination of the 2.

All right. Maybe we have time for another caller then, and this is from Nordea, Agnieszka Vilela.

Jim, I appreciate the fact that demand for your products remains healthy on a global level, but you also mentioned some regional fluctuations. Can you just give us some color on what regions are doing less well right now?

I guess, let me answer that in a different way because it depends on -- those ebbs and flows, depends on the inflation rates of those countries, the competitive landscape of each of those countries, new models that come into the market in those countries at specific times as well as subsidies have been introduced to those countries or where the subsidies have been taken away. For an example, so we saw here in Sweden, for example, when the government removed those subsidies for BEV cars specifically, we saw that an effect on the take-up rate. So it's difficult to say what causes that at any particular point in time. And I think it's normal that you will have these regional fluctuations because of the front of a lot of turbulence in the market. As we've seen take China coming off the back of the Shanghai Auto Show, and we saw that anyone who is paying attention to that. So many new EV models being launched in and on that show. It's not surprising that, that caused you some turbulence. Now how many of those start-up companies or how many of those companies that want to get into the EV market eventually make it in the longer term, that's still to be seen. How many of those companies run at a cash. It was easier to get money a couple of years ago, a much, much more difficult now. So how many those make it to Phase 2 of the development, who knows. So we are kind of more focused, if you like, on the global demand and what are the trends for us as a global company that has global products. And in that sense, then we're pretty happy with the strength of the demand that we've seen and that plays back to the strength of the brand. And I think you attract people to a brand for different reasons. Part of it is safety, but there's a lot more than just to say on which we're starting to see now as well as we add in our genuine thoughts around sustainability and of course, the new technology that we're putting, I think, are allowed to increase that. So don't have a corresponding country by country, but the global trend is positive.

Yes. If you look at Europe or we have the order intake and order book I mean the absolute level of the aggregated order intake in Europe has been fairly stable over the last few quarters. So there's nothing happening there based on aggregated let but as you see are fluctuations and all the is.

All right. That's helpful. And then just a follow-up on pricing. You seem very determined to stick to your price increases while we see competition heating up a bit now. Do you think that you will reach closing some volumes? Or how do you think the competitive landscape will develop from here?

Yes. So I mean that's the volume versus value creating to some extent. But we play in the permitting the premium segment of the market. Even a new small issue will absolutely play to the premium segment of the market. I think it's different. I think if you're in the mass market sector and you're chasing volume for different wages, then they may be the price pressures that are a little bit more pronounced. For us, we have a strong order book. We have strong demand. We have new products coming out. We think we have relevant technology. We have a small percentage of the total car market. So for us, we don't need to drive that substantially to be massively successful and I think price discipline price and cost discipline. So on one side, we want to remain very disciplined on price. But we also want to, at the same time, make sure that we're taking cost out of the business where we think that can be done with that affect long-term strategy of the business. So that sort of long-term outlook is that we will stay disciplined as long as possible.

Let's take maybe 1 or 2 more. This comes in from Dorothy Creswell. It's about the order cancellation at I guess we've answered that question. But let's take another question from you Dorothy you've also post, which is can you provide a little more detail on what measures exactly are involved in your productivity and efficiency drive? And can you share any numerical detail around the savings potential from that?

I can't share the detail, but I can't say that there's no specific areas was obviously the bigger part of the business obviously yield more in general terms by percentages, obviously, that's just not market. But at every part of the business globally that we think it's -- I think it's good management, it's good discipline. It's a good practice that we will continually look at ways in which we can become more efficient. We're obviously adding digitization to the company as much as we possibly can. That's reducing our administration cost as we add more digital technology to the company. But we're also adding different ways and processes through the organization and other doing in a more efficient manner. We're trying to get -- again, it comes back to discipline. We're trying to get disciplined around the breadth of offers and stuff that we saw that we don't add up too much complexity in the supply chain or in the manufacturing process. So it's widespread. There's lots of different focus points and different programs running and the great engagement through the company.

All right, then I guess with that, we should wrap up this Q&A round. Thank you, everyone, for your questions and your participation. Of course, if you have more questions, you can reach out to the global press office or which are to our Investor Relations team. You have the contact details, and we'll be there to answer more questions if you have. But from all of us here, thank you very much for watching. We'll be back again.