Sandvik AB (publ)

Good afternoon, everyone, and a warm welcome to Summit's presentation of the second quarter results 2023. I am Louise Cheddar, Head of Investor Relations, and beside me we have, of course, our CEO Stefan Widing and CFO Cecilia Felton. We will, as we always do, start with listening to Stefan and Cecilia talking about the quarterly highlights of the second quarter, and then we will move on to the Q&A session. So without further ado, over to you, Stefan.

Thanks, Louise. And also from my side, welcome to the second quarter report in 2023. And especially thanks to all of you that joined today. I know we have some competition this time when it comes to these webcasts. So welcome. If we summarize the second quarter, we are very pleased with the quarter. In the consecutive quarter with double-digit revenue growth, we continue to see a solid momentum with good growth in both order intake and revenues. Order intake growth at fixed exchange rates grew by 7%, organically it grew by 3%. Revenue growth at fixed exchange rate grew by 16% and of that it was 12% organic growth. And of course 12% organic growth and 3% positive order growth in this macro environment we believe is a very strong performance. We also see solid operating leverage. Adjusted EBITDA increased by 28%, corresponding to a margin of 20.5% versus 19% last year. Solidly within our target range and a good operating leverage that we will show also later in this presentation. We had some items affecting comparability as planned related to our restructuring program that we announced last year. Cecilia will go into more details of that. And the adjusted profit for the period improved by 11% to 4.1 billion. We continue to see good achievements in terms of our shift to growth execution. As already said, good growth organically on both revenues and orders in the quarter. We continue to see strong momentum in our mining automation business and also very good to see very strong growth in our rotary drilling division. As you know, we have a focus to grow on the surface and rotary drilling is the single biggest opportunity we have to grow and capture market share on the surface now. So really good to see some really nice order intake and revenue in that division this quarter. We also completed two acquisitions and we have continued to launch some really new and exciting innovations to the market. One that we want to highlight this quarter is our new generation battery pack for our BEVs. This battery pack, we call it the version 4 or generation 4 of the battery pack, has as a main feature that it improves the battery capacity in the same physical size by 36%. For our customers, this of course means longer travelling distances or fewer battery swaps in their operations. We have achieved this with the same high safety battery chemistry, LFP, that we have had in our previous generations. A battery chemistry that is specifically very well designed for underground mining operations. Also positive that this is fully backwards compatible with previous designs, which means that customers that operate, for example, under battery as a service contract will gradually be able to take advantage of this new battery as well throughout their operational lifetime. Many other improvements as well in this battery taking into account the feedback we have received through all the machines that we now have there out in the field. So a very good product launch in the quarter. If we go into the market development. We can see that our biggest regions, Europe and North America, are stable. Up three in Europe, down 2% in North America at the group level. Asia a bit weaker at minus six. If we look at this from a pure cutting tool perspective, which is maybe more of an indicator for the underlying economy or industrial production, Europe and North America are both up in the mid single digits, while Asia is slightly down, driven by China, and China is down a little bit more in the mid single digits. Then if we look at the other three regions which is more mining driven, what stands out is of course the high growth we've had in Australia. We had a bit weaker Australian market in Q1, so we think this is more a matter of order timing than that Australia is particularly stronger than the other mining markets throughout the world. If we look at the segments, we have highlighted mining as stable. Stable at the high level is how you should read that. And of course, we have become a bit spoiled with very good growth numbers here. In fact, as you have seen, order intake was up 6% and both equipment and aftermarket orders are up 3%. Revenues up 18%, so maybe we should have had this up, but again, a bit spoiled with higher numbers, and we think that stable at the high level is the way to express the underlying sentiment in mining, despite the good growth figures that we show. General engineering, however, a bit more negative. And it's overall, in terms of order intake, flat in all regions, about upper percentage points. But of course, there is a price component in there. So the underlying development we consider to be a softening of the general engineering segment. Maybe not so surprising either, given where the PMI has been now for quite some time. Automotive, flattish, good growth overall, but also there are price components, so stable underlying market development. We see a positive development in Europe. We see actually even more positive development in North America, while China has been a bit weaker in the quarter. Energy down in the quarter, in particular driven by North America and to some extent India, while Europe has been positive. Infrastructure has continued to be negative. We have seen that now for almost a year. It started with Europe and now we see a negative development in most parts of the world, in particular driven by the construction part. Aerospace, on the other hand, very positive, double-digit growth, strong in Europe, very strong in North America, also here a bit weaker in China. Then we have what we call other here that we haven't had in the past. It's fully related to the cutting tool business. Some while back this was embedded into the engineering column. Then it's been lacking for a while. But we now want to make it visible here specifically. You can see in the fine print at the bottom what this contains. So these are segments that we can identify, we know what the end customer are, but the segments themselves are too small to highlight in this picture. So things like die and mold, consumer electronics, medical, pumps, rail, defense, etc. We want to highlight it here because there are some of these that are high growth segments for us, so certain quarters we might want to highlight specific things from those segments as well. But it follows fairly well also the general engineering overall. And we also here then see a softening in the market in the quarter. Commenting maybe also a little bit on how the quarter played out sequentially, especially in relation to the cutting tools and general engineering. We did see a bit of a softening towards the end of April. And that's what we see now in the outcome. However, since then, it's been stable. So sequentially, we haven't seen a progressive decline. It's been stable, and that also has continued into the first weeks of July. Looking then at order intake and revenues overall, reported order intake of 31.7 billion and revenues of 32.2. So a book to build slightly below one. Looking at this from a different angle, separating organic from acquisitive growth, we can see again here a nine consecutive quarter of revenue growth and revenues are gradually catching up with order intake. EBITDA development was very positive in the quarter, up 28% versus prior year, 6.6 billion, a margin of 20.5 versus 19 last year, solidly within our target range. And we see good leverage. We have positive impact from volumes and price. So the price component is positive year over year. It is fully compensating for cost inflation as we have seen it in the past couple of years. So that's the perspective we have there. Then we have some negative contribution from structure and currency in total 40 basis points. And the rolling 12 and year-to-date EBITDA figures are both also above 20%. Going into the various business areas, starting with mining and rock solutions, now just over half of the group. This is the second highest order intake we have ever had this quarter, and we see then growth in both equipment and aftermarket. Equipment up 8% in the quarter and aftermarket up 5% in the quarter. And as already mentioned, particularly strong growth seen in the rotary drilling division. In total then it sums to 6% organic growth on the orders side. We had some larger orders. We also had that last year. If we take those out of the equation, we still grew order intake by 3%. Very strong margin at 21.6% up from 19.2% last year. And this is despite the fact that exchange rate had a dilutive impact by 110 basis points. So very solid leverage and execution by SMR this quarter. We also saw continued good momentum on the automation side. Two new very good orders totaling 220 million SEC secured in the quarter. And as already mentioned, some really good product launches, both on the BEV side, but also a new data and software solution for our surface mining operations, which is a priority area for us. Rock processing, so a bit more of a mixed quarter. We also here see very solid demand on the mining side, but a more soft environment for infrastructure. And to remind you, this business is about 60% infrastructure and 40% mining overall throughout the year. We saw a strong contribution from acquisitions here in particular, or specifically the Schenck process, which was good. That's why we can show an order growth of 12% at fixed exchange rate, even though the organic growth declined by 16%. Excluding major orders, the organic decline was 12%. This was also the negative volume in this quarter was also the main reason for a weak margin in rock processing this quarter of 13.7%. But we also continue to see then as we talked about last quarter integration costs for Schenck as well as IT investments that have an impact in the quarter. The IT investments will continue also into Q3, but after that we expect to have finalized that part. I mentioned Schenck Mining, very strong performance in the quarter, and the underlying margin from Schenck is accretive to rock processing, but the integration and carve-out costs in this quarter had a dilutive impact by 110 basis points. Already talked about the order growth, 30% coming from Schenck in the quarter. Again, very positive. Manufacturing and machining solutions. Here, very positive double-digit order intake growth in aerospace. We saw good support from automotive in the high single digits. But then lower volumes in general engineering and energy compensated by price. So negative volume, but a PV that was flattish. Taking us to a total organic order intake of minus one. Here it's important to note that the order intake in the cutting tool business was around plus 3% in the quarter. That's aligned with the revenue growth of around 3%. We also have about 1% negative from working days. So if you want to get a sense for the underlying market development, it was around plus 4%. And the difference between the order and revenue here is driven by timing. Some significant orders in our powder business where order timing then contributed negatively to order intake in this quarter. And as already mentioned, we have seen the beginning of July being stable compared to the daily order intake in the second quarter. So the way you should read this, because we also had a stable comment a quarter ago, is that we saw coming into Q1 stable development, then we saw a bit of a softness coming in end of April. That has then stabilized again, and we now have seen a stable development since then throughout the quarter and into July. Also want to comment on the software part where we saw software revenue growing in the mid single digits in the quarter. Of course it's a relatively small portion of the business so it doesn't really show in the total numbers. Also some good product launches here in particular towards the mid market where we see growth opportunities going forward. On the margin side, I shouldn't forget that margin was 22.3% up from 21.5. Really good leverage in the business this quarter, in particular if we consider the volume development, good price execution and really good cost control. So I think a strong resilience shown by SMM in this quarter and acquisitions then they were neutral to the margin. And with that, I will hand over to Sissi, and then I'll come back with some conclusions.

Thank you, Stefan. All right, so let's dive into the numbers in a bit more detail then. And as usual, let's start with the box at the top right-hand corner. And as Stefan mentioned, growth was strong in the quarter. Organically, orders were up 3% and revenues 12%. Structure contributed with 4% and currency 3-4%. So in total, orders were up 10% and revenues by 19%. Earnings increased by 28% to 6.6 billion in the quarter. As Stefan mentioned, EBITDA margin now well within the EBITDA corridor. Net financial items came in at minus 704 million. And I will show you details here on the year-over-year development in a few minutes. Tax rate excluding items affecting comparability and also on a normalized basis, 24.4, so also aligned with guidance. Networking capital still above our informal target of 25%. Free operating cash flow, 4.6 billion, corresponding to an in-quarter cash conversion of 71%. returns 15.3% and adjusted EPS increased to 3.25 SEC. If we continue with the bridge and starting with the organic columns, revenues increased by 12%, 2.8 billion and generated an EBITDA of 1.1 billion. So a good leverage of 38%, which was also accretive to the margin by 1.8 percentage points. The currency impact was positive on both revenues and EBITDA, but slightly dilutive to the margin by 0.3 percentage points. And acquisitions that we've done over the last year contributed with almost a billion in revenue, almost neutral to the margin, slightly dilutive, 0.1 percentage points. So all in all, that brings us from a margin of 19% last year to 20.5% this year. We've also booked the second and final part of the charges or costs relating to the restructuring program that we announced last year. And if you look at the totals on the left hand side, you can see that the costs came in line with what we previously communicated, so 1.7 billion. We've, however, worked through the details on a bit more granular basis now and revised the estimated run rate savings and FTE reductions, as you can see here. So the estimated run rate savings are now 785 million, and we expect to realize 50% of those on a run rate basis by the end of this year and around 90% by the end of 2024. If we then continue down in the P&L and looking at the finance net, and starting with the most interesting row here, the interest net, you can see that it increased year over year to 411 million. And that's due to a combination of both higher borrowed volumes and also higher interest rates. Then at the bottom of the table here, you see FX and other asset classes. And as you know, these are the temporary revelation of our hedges, mainly currency and electricity. Last year, this effect was positive. This year, it's negative. And that's mainly driven by the currency hedges in this quarter. The reported tax rate came in at 24.9%, excluding items affecting comparability, mainly the restructuring charges. It was 24.4%, so in line with guidance. If we then continue with networking capital and looking at the absolute development in the bars on the left-hand side, you can see that total networking capital increased by 3.2 billion. 2 billion of that was a currency impact and 1.2 billion was the volume impact, mainly driven by accounts payables. Inventory increased slightly in the quarter, 0.2 billion, but was actually down in June by 400 million, mainly driven by SMR. And free operating cash flow then, 4.6 billion. And if you look in the table at the year-over-year development, you can see that earnings were up. The adjustment for non-cash items is mainly related to the restructuring costs. The net working capital build-up in volume, 1.2 billion, as I just mentioned, so lower than last year, and capex a bit higher. And the in-quarter cash conversion was 71%. And on a 12-month rolling basis, which is what you see in the trend line in the graph, we're at 73%. Financial net debt over 12 months rolling EBITDA came in just within the external target, so we're currently at 1.5. Financial net debt increased sequentially to 42.6 billion, mainly driven by the dividend payment, but also a currency impact on interest-bearing liabilities. Capitalized leases and the pension liability increased slightly sequentially, so net debt came in at 50.4 billion. Looking at outcome versus guidance, the currency impact landed at 232 million. Here we guided 200. And then CapEx, 1.2 billion, interest net 0.4, and normalized tax rate 24.4% for the quarter. And looking ahead then at the third quarter and the full year, we've left CapEx guidance unchanged at 4.5 billion. We expect currency to have a negative impact of 100 million on EBITDA in the third quarter. And we've also left the interest net and tax rate guidance unchanged. And with that, I will hand back over to Stefan for summary and conclusions.