Sandvik AB (publ)

Welcome to Sandvik's presentation of the fourth quarter and full year results 2022. I am Louise Cheder, Head of Investor Relations here at Sandvik and beside me I have CEO Stefan Widing and CFO Cecilia Felton. We will, as we always do, start with the presentation. Stefan and Cecilia will take you through the highlights of the quarter and some full year. And then we move on to the Q&A session. And with this, I hand over the word to you, Stefan.

Thanks, Louise. And also, I again would like to welcome you to this Q4 report for Sandvik in 2022. The quarter was a good quarter for us. We had stable overall demand for the group and strong revenue growth. If we look at order intake, they were up 3% at fixed exchange rates, down 2% organically. Revenue up 11% at fixed exchange rates and 5% up organically. If we take out our Russian business that we had in prior year to look at the underlying development for the rest of the world, we see organic growth of 2% and 9% respectively. So stable order intake and positive growth on the sales side. We also had record profits in the quarter. And one of the main highlights I would say is that we have now caught up with our pricing. So the cost inflation in the quarter was fully offset by pricing, meaning it's margin neutral in this quarter. There are some mixes between the different businesses. We'll come back to that. The adjusted EBITDA increased by 27%, and we had a margin of 20.6%, up from 19.9% in the prior year and well within our target range of 20% to 22%. We also had some items affecting comparability, mainly related to the structure program that we launched in May of 2022. Adjusted profit, 4 billion, up 17% from prior year. If we look at some of the highlights, the really main highlights from the quarter as well in our shift to growth strategic execution, we continue to see an accelerated demand for both our battery electric mining equipment and our automation solutions. And we go into 2023 with a really strong pipeline. So we are very optimistic about that going forward. We're also very happy to have been able to announce the acquisition of Polymathion. Polymathion is the software and services company in the mining industry working with mine optimization based on machine learning technology. It's a really good complement to the mine planning software we have in Desvik. And this is a company that actually is acquired by Desvik and will be a part of Desvik. A unique offering in the industry, and we're really happy that they choose to be part and become part of Sandvik. Of course, another highlight is that we closed the acquisition of Schenck Process Mining or SP Mining. This gives us a more full solution offering in the crushing and screening space, and it also strengthens our aftermarket business in rock processing in a very good way. I always show one slide on innovation and this time we choose to highlight our Cambrio software company that we acquired in 2021. Cambrio consists today of three different software packages in the industrial software space. All of them have released new exciting versions. GibbsCAM have launched a version now where they have integrated with Sandvik Coromant's unique tooling technology, Prime Turning. It's a good step forward both for Coromant and for GibbsCAM. Sigma Nest, which is in metal sheet fabrication. They have a complete software suite for the connected workshop. A new version with some really good features. Simatron, something we don't have talked too much about. They are market leaders in CAM software for dye and mold, which is an important segment for us. Also here, some good, interesting new features in their latest software package. And overall we see good growth in our CAM software space, slightly above the market overall. Many of you, when I talked to you, you asked about where we are in mining automation in relation to our competitors. I have often said, or I always say, that we are the leading provider of mine automation in the underground space. And that's actually quite well known in the industry. Even despite that, I sometimes get pushback where you say that, well, the competitions say the same. They say they are the leading provider. So I think it's interesting. We now have a third-party report from Global Data. It came in December where they have mapped the underground space for autonomous load and haul equipment. And their conclusion, the report is available for you if you contact them, of course, shows that Sandvik has a 68% market share in underground mining automation. 68%. And the closest peers you can also see in the pie chart here. And the closest peer is actually not the one you might expect. So, interesting reading there. Going into the market trends that we have seen, starting with the main regions. Europe, stable to positive, actually, despite everything that's going on. North America, positive, strong North American market. Asia, for the group, is actually up in the quarter. But if we look at what might be more interesting, the underlying industrial production point of view, it's been a weak market, driven by a dynamic coverage situation in China. The other Asian markets are up. So it's really China on the industrial production side that's been the weakness here. But you can see on the arrows that besides mining and energy, Asia is basically down across the board, driven by China then. If you look at the various segments on the mining side, we would say that we are now stable at a very high level. And the fact that we managed to basically meet the order intake in SMR, it's minus two, but it's positive excluding Russia, it's positive excluding major orders. It's a very good guide for the strength of the mining business as it stands. General engineering is the segment where we have seen weakness. It was actually good in North America, but it was down in the rest of the world. Automotive, a positive development, strong high single-digit growth in automotive. And as we have said, we expect automotive to be supportive for us going into 2023 based on the production forecasts and based on coming from low levels. Energy also continues to be positive, maybe not so surprising. Infrastructure, flattish and weak in Europe, something we also said in the previous quarter. And then aerospace has been continued strong underlying sentiment. In terms of actual reported number, aerospace was actually a bit weaker in Q4, but it's related to timing of orders. Aerospace is one of the few areas in SMS where we might actually get a little bit bigger orders or frame orders for a full year and so on. The underlying development is positive and we expect it to continue to be so in 2023. Summarizing this, order intake of just over 30.7 billion SEC, revenues just over 31 billion SEC. So it's a book to bill of slightly below one. A normal year, this is how it looks like. We typically ship quite a lot of equipment, especially in Q4. So we typically have slightly higher revenues in Q4 than order intake. So it's nothing alarming in that sense. Looking at this splitting out organic and structure, we see then that order intake was slightly negative, minus 2% on the organic front. But with our acquisitions coming in, even at fixed exchange rates, then we have a positive order intake growth. And revenues, same contribution from structure, but also positive organic development by 5%. So we can see the order intake graph starting to flatten out at the high level. And revenues, of course, with a strong order backlog, lagging that order intake curve. EBITDA development has been strong, a margin of 20.6% in the quarter, up in absolute terms by 27%. And we can see the development in the graph. The bars shows a steady progression with improved profitability basically since Q2 of 2020. Absolute numbers, profit of 6.4 billion, first time ever above 6 billion for the company. We had leverage that was not as good though. We do fully compensate inflation by pricing, as I said. Cecilia will go through it more in detail later, but the main negative impact we have had has been that we are taking some provisions for obsolescence in the inventory in SMR. This is mainly a mechanical consequence of higher inventories, and after a while, we start to put in some reserves for it. For the full year or rolling 12, we ended the margin at 20%, which stand in line with our financial target. which I would say we are very happy about a year like this. Going into the business areas then, mining and rock solutions, as I mentioned, stable demand at a very high level. So despite the major orders last year, we more or less managed to meet the same level this year. Also all-time high revenues as we continue to ramp up and deliver on our very solid order backlog. And as we stand right now, orders we are taking is primarily for Q4 of 2023 and also going into 2024, so a very solid position to enter the year from. At fixed exchange rate, the growth was minus 1%, organic minus 2%, and then if we exclude Russia, we can add back 4%, so then it's a positive 2%. Mentioned the major orders, we had two ones this quarter, but not at the level of the ones we had in the prior year period. EBITDA was strong at 22%. SMR is fully offsetting cost inflation in absolute terms and slightly more than that, but it's still slightly dilutive to the margin for them, but good sequential progress quarter by quarter. Also positive is that we see the share of air freight coming down, and that has a positive effect as well on the profitability. And I already mentioned the acquisition of Polymathion. Going then into ROC processing, here the order intake growth was driven by the aftermarket and acquisitions. Revenues were at record high levels as well. If you look at fixed exchange rates, the growth was 18% on the order side, but if you look organically, it was negative 6%. Excluding Russia, it's negative 3%. Here we see some softness on the equipment side, especially driven by infrastructure in Europe. We should also note that some of the businesses here have very solid order backlogs. Attachment tools, for example, have a backlog that is basically already full for 2023. so they are a bit cautious with taking orders too far into the future. So this is a combination of some softness on the infrastructure side and being careful with taking orders too far into the future. Margins at 16%, same as last year. And SRP is still lagging a bit in terms of cost inflation. The pricing has come through as we expected. They still have some more deliveries lagging with not as good pricing that we have to work through. Some dilution from acquisitions, but of course, very happy to see SB Mining coming into the business now in Q4. And then, finally, manufacturing machining solutions, where we, again, see stable order intakes levels, positive in North America, not as positive as North America and Europe, but still good, and both driven by strong performance from automotive. At fixed exchange rate, we have growth of 5%. And in terms of organic number, that's minus one. And if we exclude Rasa again, it's plus two. Here we should also say we have a negative working day impact of 140 basis points. We also have some impact, even though we haven't quantified that. We talked about that in Q3. We had some pre-buys in Q3 ahead of price increases that impacted the beginning of the quarter a bit. We had the same thing now in the end of the quarter where normally we have price increases early in Q1. Might come a bit later this time. So we didn't see the pre-buys that we usually see in December. Difficult to quantify, but still some impact in the quarter from that. In January, we have seen the daily order intake being stable compared to the average of the fourth quarter. Margin, stable, very good at 22.2%. Here it's really good to see that the leverage in the cutting tool divisions are back at normalized levels, meaning above 50%. Solid price execution and good cost control. So really happy with the execution in the cutting tool divisions on that side, really good. Really well done by them, I have to say. We have some delusion from acquisitions in SMM as well, but overall a very solid margin. With that, I will hand over to Cecilia to go through some more details of the numbers.

Yes, thank you, Stefan. All right, so let's start with the table at the top right-hand corner. And here you can see that organically, order intake was down 2%. If you exclude Russia, it was up 2%. And revenues grew organically by 5%. Structure contributed positively 5% and currency with 12%. And that brings total order intake growth to 15% and revenues grew by 23% in total. Adjusted EBITDA, as Stefan mentioned, increased 27% to 6.4 billion. Margin came in at 20.6% and net financial items increased year over year. This is driven by higher debt volumes. Tax rate came in high, 27.7% if you exclude items affecting comparability. And I will come back to the reasons for that in a few minutes. Networking capital came down slightly sequentially. We're still above our informal target of 25%. Free operating cash flow, strong in the quarter, 6.2 billion, corresponding to a cash conversion of 99%. Returns, 16%, and adjusted EPS increased to 3.22 crowns. And if we continue with the bridge then and start with the organic column, here you can see that revenues grew by 1.2 billion. Leverage was zero, as Stefan mentioned, and that brings a dilution of 0.9 percentage points. Currency continued to have a positive impact on the margin, an accretion of 1.6 percentage points. Our acquisitions contributed with 1.4 billion of revenue, 271 million EBITDA, and that was margin neutral in this quarter. And all in all, that brings us from an EBITDA margin of 19.9% last year to 20.6% this year. If we continue down the P&L then and net financials, starting with the most interesting row here, the interest net. Here you can see it increased year over year to 416 million. And this is due to higher borrowed volumes. When comparing year over year, interest rates are still lower as we've had some expensive debt that's matured. Sequentially, of course, rates are going up. Then at the bottom here, you can see FX and other asset classes. This, as you know, are the temporary revaluation effects of our hedges. This was positive 213 million in the quarter, and this is mainly driven by the currency hedges. Tax rate then. So reported tax rate at 28%. If we exclude the one-offs, mainly the restructuring provisions, we came in at 27.7, so still high. There were two reasons for that. First, we had a tax charge related to prior years in the quarter. And secondly, we also hedged the purchase price of Schenck. And there was a gain on that hedge, and the gain goes into the balance sheet as a reduction of the purchase price. but it is a taxable gain, and that tax charge goes into the P&L, of course. So if you exclude those two effects, normalized tax rate was 25.4%, and that is high due to a periodization within the year. If we look at the full year, normalized tax rate came in at 24.1%, so just in line with guidance. Networking capital, then here we were happy to see that both in absolute and relative terms we saw a slight decline sequentially. Inventories increased in volumes a little bit in the quarter, but actually came down in December, which we were also very pleased to see. And as I mentioned, a strong cash flow. You can see that in the graph on the left also when you compare to prior fourth quarters. Cash conversion for the quarter at 99%, 56% for the full year. And if we look at, if we compare free operating cash flow this year versus last year in the table, you can see that earnings were up with a positive impact from networking capital and capex was higher compared to last year. And that brings us to a free operating cash flow increase to 6.2 billion. If we continue then looking at net debt, financial net debt, you can see that in the dark gray bars increased slightly sequentially despite the positive cash flow. And that is driven by the acquisition payments that we've had in the quarter. You can also see here in the graph, if you look carefully, that also capitalized leases and the pension liability increased slightly sequentially. And that brings us to a net debt of 44 billion. And financial net debt over EBITDA, our balance sheet target, was relatively stable sequentially at around 1.3. So still some headroom to our target to be below 1.5. Outcome versus guidance, and if we start with currency, you can see that we came in a bit lower than what we expected, so 1.1 billion. CapEx, we guided approximately 4 billion for the year. We came in at 4.2. Interest net came in higher, 0.9 billion, and the normalized tax rate then just in line with guidance for the year. And looking ahead, we've increased CAPEX guidance to around 4.5 billion for 2023. And this is mainly driven by capacity investments in BEVs, in the BEV manufacturing, and also some larger IT projects that we have ongoing. We expect currency effects to continue to be positive 600 million in the first quarter our best estimate for the interest net is 1.7 billion for the full year and the normalized tax rate here with increased guidance by one percentage point to 23 to 25 percent for the full year and With that I will hand over to you Stefan. I