Sandvik AB (publ)

Hello everyone and a warm welcome to Sandvik's presentation of the fourth quarter and year-end results 2021. I am Louise Cheddar, Head of Investor Relations here at Sandvik and beside me I have as usual our CEO Stefan Widing. Today we're also joined by Cecilia Felton, Acting CFO and Head of Group Control here at Sandvik. Stefan and Cecilia will soon take you through the quarterly and year-end highlights. And after that, we will take your questions. And you can ask your questions either in written, online or on the conference call. Without further ado, it's time for the presentation. And over to you, Stefan.

Thank you, Louise. And also, I would like to welcome you to this fourth quarter report 2021 from Sandvik. If we would summarize the fourth quarter in one word, it would be growth. We had strong organic and acquisitive growth in the quarter. We saw a broad-based demand, positive development in all business areas and more or less all regions and segments. We'll come to a little bit more details on that later. The order intake growth in the quarter was up 23%. All business areas reported double-digit organic growth. We also saw solid contribution from our acquisitions, and the total order intake growth in the quarter at fixed currency was 36%. I'm also pleased with that we have, in a successful way, navigated through some of the supply chain challenges that's been present in the quarter. So organic revenues grew by 14%, and total revenues grew by 26%. We also had a number of other events that contributed to us feeling that we finished the year strongly. We have seen a high interest in our automation and digital offerings. And in particular, our mining automation solution recorded a record high order in the quarter for the world's largest copper mine. We also signed another six acquisitions in the quarter, bringing the total to 14 for the full year. And at the end of the year, we also signed up for the science-based targets initiative to further advance our sustainability agenda. We saw improved earnings and we ended the year with a solid financial position as well. Adjusted EBITDA increased by 16% and came in at 18.4%. Adjusted profit for the period improved by 14% to 3.8 billion. We ended the year with a gearing of 0.35, so well within our financial targets, and we saw a good cash flow generation of 4.6 billion. Combined all of this, the board have felt that we can now recommend to the AGM a dividend of 4.75 for the year. We continue to push forward and accelerate our digital shift. Obviously, a highlight in the quarter was the announcement that we have signed an agreement to acquire Desvik. the leading and fastest growing company in the world when it comes to mine design and mine planning. They have over 10,000 licenses spread among key customers across the world, really high rates from customers in terms of satisfaction, and strong, solid, profitable growth. Deswick will complement our existing offering in automation and software in a very good way, contributing to extending our lead in this area. As part of this, we also decided to establish a new division that we call Digital Mining Technologies. It will consist of three business units going forward. Our automation solution, new tracks, which, for example, contains our anti-collision awareness system. And this week when they come into the group. And this we do to put even more focus on this and accelerate the execution of our strategic priority to lead the development in this area. Electrification, automation, digitalization, and end-to-end optimization of the mine. Then we always also emphasize innovation in the quarter. This time we have chosen to highlight the 2022 version of Givscam. Givscam is a portfolio company that came in through the Cambrio acquisition. GIVSCAM has a specific differentiation in the market in that they support a very broad array of CNC machines, including a lot of older and legacy machines. For us, this is really good and positive because we have a really wide footprint with our cutting tools. So having then a software offering that can address a wide part of this market is really important for us too. So good to see also continued innovation from them in this front. Now going into the market development, if we start with our three main regions, you can see positive development in Europe up 17%, really positive in North America up 47%. This is driven really by strong performance across the board, but notably the mining and infrastructure businesses as well as SMT had very strong growth in North America in the quarter. Also SMM was very strong, but not at the 47% level. In Asia, we are minus two. Here, SMM in particular is slightly positive at plus three in the quarter. And then you have the other regions driven by very strong growth in mining. If you look at the segment view, super strong demand in mining. Still, some of the arrows show flat simply because we go up against very high comparison in some regions. General engineering has been strong, double-digit growth across the board in the quarter. Automotive shows down, and that's simply a year-over-year compare. Q4 of last year and Q1 of last year in automotive was strong. Automotive was in the recovery phase, and then the component shortages hit. So it's down year over year, but it's flat sequentially. So from Q3 to Q4, automotive held up in a good way, we think, if you compare to the underlying automotive production. Energy, infrastructure, and aerospace are all strong. In particular, energy and aerospace continue with strong double-digit growth recovery from before. So overall, I would say, with the exception of automotive, which we are all aware of the dynamics around that, very strong development across the board. Order intake then, to summarize, up 23% organically, 36% total growth. Organic revenues up 14%, 26% in total. And you can see, if you look at the bar graphs here for Q4, that Q4 was a fantastic ending of the year, with absolute numbers higher than we have ever reported in the past. If we then look at the profit development, we had an adjusted EBIT of 5.1 billion, margin of 17.5, EBITDA margin of 18.4. And as we have said, this is the number we will focus most on going forward, the adjusted EBITDA, so we don't get the PPA sort of confusing the operational performance. This was a leverage of 14%. It is on the weaker side, definitely, and we'll come to some of the dynamics there. One thing to note is that we had M&A transactional costs that diluted the quarter of 60 basis points and 80 basis points if you take a bridge effect from the prior year. And we'll come to also the savings development and so on later in the presentation. Going then into mining and rock solutions, orders all-time high for the fourth quarter in a row. The organic increase was 30%. Total growth of 52% on the organic side. And the aftermarket recorded the highest order intake level that we have seen. We announced two major orders in the quarter. One large one in tunneling infrastructure of a billion. But more strategically, we want to highlight the one for our auto mine solution. Total order of 400 million, of which 250 were related to automation solutions. And that's the highest order we have seen. across the industry for automation solutions so far. So very positive there. If you look at the margins, a solid underlying margin as well, 21.1% impacted negatively by 190 basis points from DSI as pretty much expected and communicated. Positive contribution from margins offset by reversals of temporary savings and M&A transaction costs. Should also say that they have specifically some freight costs that are related to moving from boat to air, especially for spare parts that are also impacting the volume leverage that they have in the quarter. Otherwise, of course, the highlight was the desk week announcement, which we have already talked about. Rock processing solutions, also strong development. Organic order intake up 18%, revenues up 15%. Here we see a strong development in equipment of 51%, but that is against the softer compare. The aftermarket on the other side saw flattish development, but that is against a stronger compare. So I wouldn't read too much into the differences here. It's more related to the comparables. Overall, strong development. Also positive is that despite some rather significant supply chain challenges to move this equipment out, they did record high revenue. So at the end of the day, they sold it, but it came at the price. They were impacted in the quarter by higher freight costs. So the margin of 15.9 positively contributed to from higher volumes. but negatively offset by cost inflation items. Freight in particular, but also a little bit of energy. They have their biggest operation in southern Sweden, and those of you that follow the dynamic around that in Sweden in Q4 knows that there's been some exceptional energy levels in southern Sweden in the quarter. They also have reversal of savings, and they also have an impact from a restructuring charge. We are doing a consolidation in China, They are hit by about 18 million SEC from charges that we cannot take against the provision we have for restructuring charges in the quarter. But that is now done and the site has moved. Going then into SMM, I would say strong development in the quarter. Order intake up 11%, revenues up 12% organically. We see, as I've said, continued positive momentum in general engineering across the board. Significant step up in aerospace, double digit organic growth, particularly pleasing considering that has been one of the factors that have lagged versus the general market recovery. So happy with that. We also see very solid contribution from our acquisitions. Total order intake growth in the quarter was 23%. If we look at the dailies, we saw a Continued positive development throughout the quarter. We had a strong ending in December. And the January start has been on par with that. So similar as December, slightly better than the average for Q4 as a whole. My usual caveat always is it's early days, few days. So we'll see how it develops going forward. But at least positive start so far. The margin, 20.7%. Here we had a positive impact, of course, by higher volumes. It was offset by reversal of savings, and you can see it below there. It's a relatively significant impact of over 100 million SEK from that. They had M&A transaction costs of around 100 million. Here we also had some more, let's say, temporary adjustments or costs in the quarter. They are part of running the business. I mentioned some examples like various accruals, but we want to highlight them since we know things like price and cost inflation is high on the agenda. SMM did compensate for cost inflation with price in the quarter, but there were some other various temporary items that hit them in the quarter. Very positive in the quarter as well was the signing of GWS tools, fairly significant acquisition around a billion second revenues, strengthen our position in round tools and strengthen our position in the North American market, both which are strategic priorities for us. And then we also signed another two smaller but important software acquisitions in industrial metrology and simulation and verification. SMT also very strong demand, up 40% on order growth organically, really across all segments and regions. The trend in oil and gas continue to be positive. Umbilicals orders in the quarter of 265 million. It takes their total order intake for the year to a level which means they are quite comfortable going into 2022. We are still way off from peak levels, but it's a solid business now and positive development going forward. Considering that they had much lower invoicing from oil and gas in the quarter, we believe they delivered a good margin. So it's a weaker mix, but still a margin underlying of 9.2%. SMT was also hit by energy prices. Even though we had 75%, When they are as elevated as they were in Q4, the remaining 25% still comes through in the result. There are also other input materials such as gas used for energy generation that have elevated cost levels. SMT is taking action around this. That is fairly exceptional. One thing is that they are adding energy surcharges to some contracts going forward to mitigate some of this volatility that we see in the market. Also positive, SMT signed a small but important acquisition in Girling in the quarter. Girling is a tube engineering company with competence and technology around tubes for hydrogen, which is a key growth area for SMT going forward. So positive development from SMT. With that, I hand over to you, Cecilia.

Thank you very much. Stefan, and let's go straight into the numbers then. And let's start with the box on the top right corner. As Stefan mentioned, organic growth was very strong in the quarter. Currency had a positive effect of 2%. Structure contributed with 13% and alloys 1%. So all in all, that gives total order growth of 40% and revenue growth of 30%. Net financial items came in positive, 108 million, and I will go into the reasons for that in a few minutes and also why the tax rate came in relatively high at 26.3%. Networking capital landed at 22.3%, well below our informal target of 25%. Cash flow, as Stefan mentioned, 4.6 billion. returns at 18.9 and the adjusted EPS grew year on year driven by higher earnings. So let's look at the bridge then, and let's start with the organic column. And here you can see that revenues increased by 3.1 billion, 14%. And that gave an EBITDA of 419 million, which then translate into a leverage of 14%, which, like Stefan mentioned, is a bit on the low side for the reasons that he also commented on. Currency had a positive impact, both on revenues and adjusted EBITDA, and an accretive impact of 0.7 percentage points. The metal price effect in SMT, there we had a positive bridge effect from alloys on top line of plus 300. The metal price effect on EBITDA, here the bridge effect is minus one, as we had metal price effects of 129 million, both in Q4 this year and in Q4 last year. Structure had... dilutive effect of 1.7 percentage points, and that also includes the M&A transaction costs that Stefan mentioned. So all in all, that brings us to an EBITDA margin of 18.4% compared to 20.5% last year. Moving on to the savings then, and starting with the permanent savings at the top here. You can see that we have a bridge effect of 230 million. We had 35 million of savings in Q4 last year. So that gives a total in quarter effect of 265 million, which corresponds to a run rate of 1.1 billion. Now, we've previously announced that we are targeting a run rate of 1.3 million in annualized run rate savings. We've revised that downwards somewhat to 1.2 billion. And the reason for that is that some of the structural initiatives within SMT are no longer considered necessary. So all in all, we've then delivered 90 percent of the permanent plan savings. And we have a small tail coming into 2022. If we then continue with the temporary savings, you can see here that we've pretty much reversed all of the work time reductions. When it comes to the other temporary savings, we had savings of 500 million in Q4 last year. We've reversed 195 of those. And that means that we still have 60% of the savings remaining. Now, as we mentioned previously, this will be the last quarter now where we will show the temporary savings. And the reason for that is, as you know, we are comparing to a spend level pre-COVID, which we don't think we will return to. Instead, we will continue to managed discretionary spend as part of the ordinary business. If we continue then with the net financials and starting with the first line, the interest net, which is the most interesting to look at here, you can see that it's declined year over year to 87 million. And that is because we have replaced some of the old quite expensive debt with new debt with lower yield costs. You can also see on the line here other financial income and costs, a big positive, and that includes a capital gain of 173 million from divestment that we made in the quarter of our financial holding. And then the last line here in the table, FX and other asset classes. As you know, this includes the temporary revaluation effects of our hedges. These will eventually net out to zero. It's a big positive here in the quarter that's driven by the electricity hedges and currency hedges. If we continue then with the tax rate, reported tax rate was 26.6%. If we adjust for items affecting comparability, it's somewhat lower at 26.3%. Now, that is quite high, as I mentioned at the start, and the reason for that is that we've made a correction to the internal profit elimination from the Q3 result. So if we adjust for that, the normalized tax rate is 23%, so in line with the guidance for 2021. If we then move on to the balance sheet and starting with net working capital, You can see on the graph on the left hand side that total net working capital continue to increase in the fourth quarter for the group, mainly driven by higher inventory levels. In relative terms, though, as I mentioned at the start, you can see we are well below our target of 25 percent. On the graph on the right hand side, you can see the development for the business areas and in relative terms, all business areas had a lower networking capital in Q4 as opposed to Q3. And that's also in line with normal seasonality. Free operating cash flow. If we start also here with the graph on the left hand side, you can see that earnings, the blue line continues to overtake the orange line, which is free operating cash flow. And that is because we are investing in inventory as we are growing the business. You can also see this translated into to the table on the right hand side where you can see that earnings increased year on year. But this year, as we've been Increasing networking capital in the fourth quarter that has a negative impact on cash flow. The opposite was true for last year. And CapEx was somewhat lower than last year. And then that brings us to a free operating cash flow of 4.6 billion for the quarter. Net debt. Financial net debt increased from 7.4 billion in Q3 to 16.8 billion in Q4. And here we've increased interest-bearing debt by 12.6 billion. We made payments for the acquisitions in the quarter of about 10.5 billion. And then we have the positive cash flow from operations. Adding on the capitalized leases and the pension liability, we end up at a net debt of 26.9 billion and a gearing of 0.35. Comparing the outcome then for the fourth quarter compared to guidance, underlying currency effects of transaction and translation came out at 76 compared to the guided 150. The total currency effect was 131. Metal prices in the quarter, as I mentioned, came in at 129 million. We guided 50. And CapEx, interest net, and the normalized tax rate came in in line with the guidance for the full year. The dividend proposal, as Stefan mentioned at the start, is 475, and that corresponds to an adjusted payout ratio of 42%. Looking into 2022 then, both the first quarter and full year guidance, CAPEX, the guidance is to be below 5 billion for 2022. And as you know, we previously said that the normalized CAPEX level is about 4 billion. So this is a bit higher and there are two reasons for that. The first one is the structural effect from the acquisitions. And the second part is higher investments, higher spend on digital investments and capacity increases. And that then lances as a guidance below 5 billion. Currency effects based on the end rates of December are expected to be positive 400 million for the first quarter and the metal price effects plus 80. interest net and the tax rate, we've left the guidance unchanged. And with that, I will hand back over to you, Stefan.