Sandvik AB (publ)

Hello everyone and a warm welcome to Sandvik's presentation of the first quarter results 2021. My name is Louise Teder, Head of Investor Relations and beside me we have our CEO Stefan Widing and CFO Tomas Eliasson. We will as usual start with the presentation where Stefan and Tomas will take you through the highlights of this quarter and then we move on to the Q&A session. And here you can ask your questions on the conference call or online in written. And with this, it's time to kick off the presentation and over to you, Stefan.

Thank you, Louise. And welcome also from my side to Sandvik's first quarter report in 2021. I will come back to a version of the picture you see in front of you here right now. This is our Top Hammer XL surface drill system. based on the Pantera DP1600i rig that we launched in the quarter. And it is one of the contributing factors to that our surface drilling division had an all-time high order intake in the quarter. But let's start with the big picture. We have a positive momentum in the business with a broad-based improvement across most of our segments. We had a very strong order intake of plus 12% versus last year. We see a positive momentum in both the mining and construction segments, which are at a record high order intake in this quarter. We also see continued improvement in our short cycle segments driven by automotive and general engineering in particular, but also several of the short cycle businesses in SMT. Demand in aerospace and energy segments continue to be low, but we started to see some signs of improvements in oil and gas towards the latter half of the quarter. We also deliver strong earnings in this quarter, adjusted operating profit margin of 19.2% versus 15.8% last year. Our rolling 12 months EBIT margin is at 17.6 versus 17.9 in the same period of last year. So this means that after 12 months of COVID, we have an average margin that is almost the same as the 12 months prior to COVID. And that is something we are very proud of in the company. Of course, this is supported by good savings and Tomas will talk more about that in his part of the presentation. This is also the first quarter that we present Sandvik rock processing solutions and Sandvik mining and rock solutions at two separate BAs. It's been a huge effort by the team to make that happen. make the separation while also keeping focus on customers in a time of record high order intake but they have done that in a very good way so we are happy that we have done that now. In this quarter we have also launched a new company purpose and an updated strategy for 2025 so we continue also to focus on long-term improvements for the group. If you follow us closely you have most likely already seen our updated strategy. It is in the annual report. You can also find quite a lot of material on our website, home.sandvik. We have a new purpose. As you see in the middle of this circle, we make the shift advancing the world through engineering. We have reinforced our core values, customer focus, innovation, fair play and passion to win. And we have added or refined six strategic objectives in the outer circle that the whole group will focus on going forward. We have three foundational transformational shifts, shift to growth, the digital shift and sustainability shift. We have three more foundational objectives related to be the employer of choice, our customers first choice and to be agile through the cycle. For each of these, We have also defined concrete targets where we aim to be in 2025 to ensure that we drive also good strategy execution. I talked about the Top Hammer XL, which is a new product we launched in the quarter. Here we are essentially taking the Top Hammer drilling technology and make sure that it can be used also for larger hole diameters where you usually in the past then have had to use down the hole drilling. This means higher efficiency, up to 50% better fuel efficiency and up to 20% higher productivity. So a really great innovation from the surface drilling team here. And it's not only the new drill rig, it's also a new rock drill and new rock tools that goes with it. So something we look forward to see what it can do in the market going forward. The starting Q1 has been encouraging. Looking then at the market development and starting with our main regions, Europe minus one and North America plus five. These numbers would have been plus five and plus seven if we take away the major orders we had in SMT oil and gas last year. So the underlying development shows a strong momentum here. Asia plus 26%. Here China is plus 23. And for SMS, China is plus 11. And last year, China was minus one for SMS. They were not that much impacted by COVID in the quarter as a whole. So strong underlying performance there in China. And then the rest of the regions are very much driven by the high order intake in the mining side. Looking at the segments, strong year-over-year improvement in mining, clearly. General engineering are now back at the same level, maybe slightly above last year, which we are happy with. Also here, we were not that much impacted by COVID in Q1 of last year. So this is positive. Automotive is strong, continued sequential improvement and high single digit improvement versus last year. So strong underlying demand there. Energy, as I said, still at the low level versus last year. We started to see towards the second half of the quarter increased customer activity on the oil and gas side, and we booked a few smaller orders on the umbilical side also towards the end of the quarter. So we see things picking up there, promising signs. Construction, strong order intake in the quarter, but the underlying demand we still consider to be more or less on par with last year, where we had some impact coming from COVID. Aerospace, again, not much of an improvement. I would say it's the only segment now where we're still waiting for things to start to pick up. We see promising data from customers and travel, but it's not yet visible in our order books. And this also translates to why some specific countries are maybe a little bit weaker. Sequentially, mining continues at a very high level. Engineering, general engineering is going up versus Q4. Automotive continues to strengthen versus Q4. Energy and aerospace, as I said, staying at a fairly low level then and construction improving. From a regional perspective, all regions are improving sequentially versus Q4. Order intake then plus 12%, close to 26 billion in the quarter. Revenues trailing a little bit at plus one, but obviously looking forward to converting that order intake also into sales here going forward. EBIT development strong, almost 4.2 billion in the quarter, plus 12% operating profit year over year. A margin of 19.2%. Would have been 18.7 versus 16.6 if we exclude metal prices in SMT. We have a headwind from currency of around 30 basis points in this. But yeah, a very strong operating leverage based on just how the math plays out here. Good savings and again, good rolling 12 months level. Going now into the various business areas and starting with mining and rock solutions. Order intake up 36% year over year to an all-time high level. We had several divisions, load and haul, underground and surface drilling that are all at an all-time high level. And we also booked some larger orders in the quarter. You should note that we have lowered the limit for what we call a major order from 400 to 200 million. So it might show up a little bit more frequently on this list going forward. Revenues trailing a bit. Of course, there are lead times in this business to translate the order intake into revenues, but still up 8% and a strong trend. margin of 20.5% in a quarter that is seasonally, traditionally weaker for mining and rock solutions. So this is an all time high margin for a Q1 for them. Then we have, of course, the DSI acquisition is progressing. We have received some good regulatory approvals in the quarter. The process is moving ahead. might close end of Q2, might also slip into Q3. But sometime around mid-year, we expect it to close. Sandvik Rock Processing Solutions, I mean, really happy. The first time we report this externally, they have a fantastic quarter. Order intake up 28%, revenues up 19%, profit up 36%. A seasonally typically weak Q1, and they still deliver 16.4% EBIT margin, which is very good, I think. Here, the order intake is split into both strong equipment and strong aftermarket. Aftermarket up 22% is partly improved then by catch-up effects from last year. We can see in the mix that it's a high portion of spare parts, which indicates that some customers were running the equipment maybe a little bit longer. We also see in some of the businesses, like on the mobile side, customers placing larger orders to secure deliveries in the future, since we have had very strong order intake in some of those businesses. The strong margin is of course driven by the revenue increase, but also that they had an ANS spend that is maybe slightly lower than we expect them to have going forward. Shifting to manufacturing and machining solutions, happy to see that they are back on par with last year on the order side. Revenues are trailing a little bit as we have seen in the past quarters, which is normal in an upturn. If we dissect the order intake a little bit, we also have a strong order intake in Wolfram, the power business, which is a very good leading indicator. Wolfram is helping the order intake with about 200 basis points. On the other hand, we have a similar negative impact from working days. So the underlying order intake rate for the quarter is flat if we compensate for both of those factors. Really happy with the margin here, 22.9% despite the 3% drop on the top line. A good impact from structural savings programs here. Also here we are launching new products. I'm happy with the first product we are launching with what we call the data matrix. Here we have put a QR code that is unique on each insert. So we can track and trace each individual insert in the production facility, which is important in, for example, aerospace. We can also attach specific data to each insert that will ultimately help also with productivity. So it's a first launch. I'm excited about what the technology will bring going forward. SMT, finally, minus 13% on order and revenues. If we exclude the major orders in Q1 last year in oil and gas, they are up 3%, excluding those. I would say if we exclude then oil and gas and aerospace, all of their other businesses see a strong momentum in industrial heating, consumer-related segments in strip, application tubing, and so on, are all doing very well. Also happy with the margin, 7.5%. percent if we exclude metal prices versus nine percent last year some of you ask from time to time what smt would do without umbilicals we can say that invoicing for umbilicals has been very low in the quarter so this is this is a good answer to that question as i also mentioned we did see activity picking up in oil and gas towards the end of the quarter Pipeline is growing and we took some first smaller orders. When this will translate into a more noticeable improvement, that remains to be seen. But at least we see activity levels picking up. The process for the listing is continuing according to plan. A big workload for the team to conclude on those activities, but we are progressing according to plan. which is to proceed with a listing done in 2022 as previously communicated. I will come back at the end.

Now I hand over to Tomas for a while. Thank you Stefan. So let's jump into the numbers and start with the financial summary as usual. If you look at the upper right hand corner, you can see the components of the growth, everything included, 12% organically for orders and 1% organically for revenues. We have quite a heavy headwind when it comes to currency, so minus 9 for both, giving a total growth of plus 2% for orders and minus 8 for revenues. If we then walk down the income statement, the operating earnings adjusted 12% up, 4.2 billion. And a really nice margin improvement from 15.8 to 19.2. The net financial items came down. We'll come back to a specification on that. Tax rate also looking good, but we'll come back to a specification on that. Working capital below 25%. So let's start with the margin and look at the bridge here. And, of course, if we start with the organic development, price, volume, productivity, the leverage looks a little bit off, plus 288%. But, I mean, the top line number is very low, plus 227 million. That's 1%. And then earnings up 654 million. That gives you a leverage of 288%. Now, the question here is what is behind this development apart from a good operational efficiency and financial performance? Well, it's the savings, of course, the savings programs. So let's go immediately to that analysis here now. And here we have an update of all the savings programs, same format as you have seen over the last four quarters. And we can see here that we have both permanent savings, that's the first section, and we have temporary savings, that's the second section. And the way this works is that on the permanent side, we have the program from mid-2019, which is still giving a tale of year-over-year effects, a total of 70 million in this quarter. Then we have the new program that we have worked on through all of 2020, volume-related and structure-related savings programs that gave 125 million, together close to 200 million. Then on the temporary savings, as you might recall, we've had like 500 million, 600 million on both work time reduction and other temporary savings, which is basically discretionary spending. short-term working weeks or work-time reduction came down in the fourth quarter as many of our businesses went back to full-time. And this time you can see that work-time reduction has gone down to 60. It's mainly a part of SMM and mainly in Germany, which is still on short-term working weeks. The discretionary spend is just below 300 million, so that is coming down as well. Some traveling has increased or started mainly within the countries, within the big countries like Canada and the US and Australia and so on. International travel is still restricted. So all in all, 550 million in the quarter. And the game plan for this has always been that in 2021, temporary savings will go down and they are coming down as volumes are picking up. And they will be partially replaced by temporary savings. Especially the program from 2020 will continue to increase in speed during the year. And then in between, we have a business cycle recovery. So those are the three buckets on the road going forward. So let's move on. and look at the finance net look at the first line here which is the important one here the interest net is 90 million compared to 126 a year ago we have a lower debt we have paid back some of the bonds during the year so all looking good the guidance here is below 400 million for the full year we have that in sight The tax rate, we have guided 22 to 24%. We came in on 20.7 in the quarter, excluding items affecting comparability. It was a capital gain, which we took out from adjusted earnings. But we have an accounting correction in the quarter as well on the tax side. So if you adjust for that, we have a normalized tax rate of 22.4%. So we're still within the range. Moving forward, we can say that we don't foresee any changes really in the range. So this is probably the bottom of where the tax rate will be. It has come down from 27, 28 percent five years ago now to these levels here. And this is what we see unless something happens, unless some big countries will start to increase income tax rates for corporations. But we don't know anything about that right now. Going over to the balance sheet, working capital, of course, working capital is lower than a year ago, as you can see in the graph on the left-hand side, driven by the volume reduction or the volume decline during 2020. But sequentially, it is picking up. And of course, as order intake picks up and the activity level goes up, working capital will go up as well. You can see on the right-hand side that three of the four business areas have a higher relative number, of course, building up for deliveries in the second quarter and during the summer. However, SMM, as you can see, is actually going down in relative numbers, but that's not intentional. We need to build inventories in SMM as well to secure stock availability as well. It's just that the sales was a bit better than we had planned for, so production didn't keep up really. Okay, next slide, the cash flow. Cash flow came in good. If you look at the right hand side here, 2.9 billion in the quarter compared to 3.2 a year ago. And of course, as we are now in a business cycle recovery, we will see impacts here from working capital going forward. But I mean, we will still have a good cash flow. The net debt then, with this good cash flow, continues to improve. We are in a net cash position, including pensions and leases. The gearing is negative 0.02. If you take out pensions and leases, we have a financial net cash position of 10.7 billion. All right, let's look at some of the guidance. Look at underlying currency effects. We guided for 750 million negative. We came in at minus 789. So basically spot on. This is translation and transaction effects. Then if you add the revaluation differences here in a bridge way, we ended at minus 483. And this is mainly due to a big negative revaluation effect in Q1 a year ago. The in-quarter revaluation effect in Q1 2021 was very limited. So this is just a reversal of that negative effect a year ago. Metal prices guided for plus 60. We came in at plus 119. This is mainly driven by nickel. Cap ex 0.8. Interest net, as you heard, 0.1. and the underlying tax rate 20.7, but a bit more than 22 if you adjust for the accounting correction. Guidance for the second quarter 2021 and full year. We have not changed the capex guidance. We still say below 4 billion currency for the second quarter, just taking the exchange rate by the end of March 2021. We see mathematically that it will be 350 million negative, but then you never know where the currencies will go. But if you just use that, those rates, this is what you get. Metal prices plus 50 in the second quarter and interest net, well, 400 million or below, as we said, and the tax rate sticks 22 to 24 percent. And with that, I'll hand back to Stefan for summary and conclusions.