Sandvik AB (publ)

Good morning, everyone, and a warm welcome to Sandvik's presentation of the fourth quarter results 2023. My name is Louise Cheddar, Head of Investor Relations here at Sandvik. And beside me, I have our CEO, Stefan Widing, and our CFO, Cecilia Felton. We will start with the presentation. Stefan and Cecilia will take you through the quarterly highlights. And after that, we will do the Q&A session. And with this, it's time for the presentation. Over to you, Stefan.

Thanks, Louise. And also from my side, welcome to our fourth quarter report for 2023. We believe we ended the year with a stable fourth quarter. We continue to see strong demand in aerospace. We have a positive development in automotive and a stable development in general engineering. We also see mining demand to continue to be robust at high levels, while the infrastructure segment continues to be challenging as it has been for most of the year. If we look at the order intake, it declined by 2% at fixed exchange rates and declined by 4% organically. The revenue grew by 2% at fixed exchange rates and 1% organically. If you look at the profit level, we show a resilient margin. The adjusted EBITDA declined by 3%. This corresponds to a margin of 19.5% versus 20.6% last year. At the full year, or rolling 12 months, we deliver a margin of 20%, which is in line with our target range. And of course, in the given macroeconomic situation, we are pleased that we, for a second consecutive year, can deliver a margin within our margin corridor target. This was partly aided by the 2022 Savings and Restructuring Programme, and we said we would be at a 50% run rate by the end of this year. We ended up at 48%, so I think well executed in line with our plans. If you look at the adjusted profit level for the period, it was 4 billion SEK, same as last year. We also continue to execute in a solid way on our strategy. We have made some important investments in this quarter to ensure we strengthen our position in the future. And I will come to that in the various BA presentations later today. We also announced three acquisitions, all of them within SMS. Come back to those as well. and also happy to see a number of really good and groundbreaking innovations launched in the quarter. Those of you that attended our Capital Markets Day will have seen live the new battery electric surface drill rig that we launched at the CMD has received very positive attention from customers. But the innovation I wanted to highlight today here is our launch of AutoMind for underground drills. We have of course had underground drill automation for a long time but here we become the first OEM or solution provider in the industry to provide a common automation platform not only for a fleet of underground drills but also integrated with loaders and trucks. So a customer can choose to automate a single drill, a fleet of drills, or a fleet of machines, leading to increased efficiency and more automation penetration among our customers. If you then go into the market update and segments and regions, and I start with a regional perspective, Europe was flat year over year, 0%, while if you look specifically at cutting tools, it was up in the low single digits. North America was down 9%. Cutting tools, though, were up 2% in the quarter. Asia was up 6%. And here on the cutting tool side, we saw a strong performance in China with double digit growth. Although, of course, that is partly driven by low comparable numbers. Africa, Middle East down 20%, Australia minus one and South America plus 10. And of course, these are markets that are primarily driven by the mining business. If we look at this from a segment point of view, mining, we continue to see robust, stable demand at a high level. Infrastructure, though, continue to see a decline and negative market outlook and so on that we have seen more or less for the full year. And this goes across all the regions. If you take general engineering, we see a stable demand this quarter. Europe is stable, North America is slightly down, while Asia, especially China, is up high double digits. Here we see a change from the third quarter where general engineering was down quite a bit. And we believe there are two underlying reasons. One is that, of course, in China we have a little bit of a different compare. But we also see across the markets that in Q3 we saw... D-stocking in the supply chain, we haven't really seen that as much in Q4, so we believe that now we are back to more underlying demand levels while Q3 was depressed by the D-stocking. In automotive, we see a positive development. It's positive in Europe, it's stable in North America, and also here, China was up in the high double digits. Energy down, primarily driven by a double-digit decline in North America, while Europe and Asia-China were positive. Aerospace, strong growth, double-digit growth, double digits in Europe, high single digits in North America and Asia. And then if we take the other segment, it's a more mixed picture, which is stable overall. Europe is slightly down. North America is strong with high double digit growth while Asia is down. However, here, if you look at China specifically, it is actually up. So I would say a fairly mixed picture, but slightly improving overall versus quarter three. Then looking at order intake and revenues, orders came in just above 30 billion, revenues 31.8 billion, leading to a book-to-bill of 94%. Book-to-bill below 100% is, I would say, normal in Q4 as it's high deliveries and the seasonality of the order intake is more towards the beginning of the year. But we have, of course, in the quarter taken a little bit out of the order backlog, especially in the mining business. But if you look at historic performance, we have built quite a lot of backlog. So I actually think this is in a way positive because we need to get the backlog down to enhance our delivery times and not make our customers unhappy with our lead times. If we look at this from a slightly different perspective and also see the split between organic and structure, we can here see the minus 4% organic order intake in the quarter. We can also see the positive revenue growth in the quarter. And both rolling 12s have flattened out at the level of around 125 billion SEK. Converting these revenues down into EBITDA, we see a margin of 19.5%. Overall absolute numbers down 3% versus prior year. 6.2 billion versus 6.4 last year. I believe this is a good and resilient level, considering we have lower volumes in some of the businesses and we have a currency dilution of 110 basis points, which is fairly significant. And as I already mentioned, from a rolling 12 months point of view, we stay in line with our margin corridor. Going then into the specific business area, starting with mining and rock solutions. Here again, continued stable demand. We see a positive momentum continuing for our automation solutions. We're also pleased to note our largest order to date in surface mining of almost 250 million. However, order intake was slightly negative, 3% down organically. Here, aftermarket was stable, while equipment orders were down 10%. The equipment orders are still at a good level in absolute terms, but we are, for a couple of quarters here, facing very high compares. On the aftermarket side, parts and services specifically has a positive growth, but this is offset by a more weakening market in ground support. Ground support is being impacted partly by a weaker infrastructure segment, but also now some destocking among some key customers. We also saw four major orders in the quarter of almost 1.2 billion, which was good to see. You remember we did not land a major order in the third quarter, so it was good to see that that was an anomaly. Looking then at the margin, a good margin of 20.6%, very solid operating leverage. So even though the margin was down versus prior year, this was driven by a currency headwind of 190 basis points. But again, the organic performance and leverage was very solid in the business. We also continue to launch innovations. I've already talked to several of them. We also launched a new top hammer tool systems that will help our rock tools business with differentiation towards competition and customers. We also continue to invest in surface drilling and have invested into a new surface test mine or a surface test mine. We haven't had one before. So those of you that have visited our underground test mine, that has been very successful for us over the years. And now we also make a similar investment for a surface test mine outside of Tampere. Going to rock processing, a very divided picture, you could say. We continue to see stable demand in mining, while infrastructure continues to be very weak. This means that the order intake at fixed exchange rates was minus 11, and from an organic point of view, it is minus 18. But then you can basically split that into stable mining and a significant decline in infrastructure. It was good to see we booked a couple of major orders on the mining side of rock processing, a total 171 million. And remember that the threshold for a major order is a bit lower in rock processing versus mining and rock solutions. Margin, I think they did a good job in this quarter, 15.7%, only slightly down versus prior year. And considering the negative impact from volumes, that they also had a sort of last quarter with integration costs in Schenck, I think that was a good performance. They also had 80 basis points dilution from currency losses. They had savings and good operational performance that made the margin come in at still, I think it's a good level. Also here, we did an important investment in the quarter. We have invested into a new foundry in India where we do wear parts for crushers. This means that we can have an additional supply chain. We have a foundry here in Sweden as well. But this is important for the growth in Asia and we become less dependent on sourcing from, for example, China with long lead times making it more difficult for us to adjust volumes as the market evolves. So this is a good development to strengthen that business. We also launched a new innovation called DeckMap within the screening solutions business. This is a digital solution where you can scan the screening media panels for wear, so you don't have to send people out to see if you need to exchange some of the panels. Finally then, manufacturing machining solutions. Already mentioned, we saw strong demand in aerospace, a positive development in automation while general engineering was stable. If we focus on cutting tools, we saw a 4% growth of cutting tools in the quarter. we continue to see good development of the software business with high single digit growth but we had a significant headwind coming from the powder business which continues to be impacted by supply chain bullwhip effects as lower demands is combined with the stocking as they are very early in the in their supply chain so significant headwind from that Looking then at the total order intake, it was flat at fixed exchange rate and minus one organically. If you look at how the quarter has started, it has been a stable start of January. I want to highlight or comment that if you want to model the quarter, please be aware of calendar effects. We have Easter moving into end of March versus April, which is the normal. And this has quite a significant impact on March. It's three less working days, which is 15% of the month that goes away. And March is typically a high activity month. So there will be a calendar effect in Q1, which of course we will get back in Q2, but it could be good to be aware of that in your modeling. Margin at 20.2%, negatively impacted by volumes. We also had one of our cutting tool divisions that hit the brakes a little bit too hard to reduce inventories, which led to an underabsorption on the margin. This is, of course, something we always have a little bit up or down, but this time it became a little bit more material, so it is worth mentioning. We have good contribution from the savings program here, 62 million and only a slightly delusion from currency. SMS did three acquisitions in the quarter. Buffalo Tungsten, which will regionalize the supply chain for tungsten powder in North America for us, which is good. It will strengthen our market position there. Esco is a small software company doing software for a niche machining area called Power Skiving, which is important for gear manufacturing, and it's a niche but high growth area. And then Pro Micron, which is a leading company for sensorized round tools, where we have a leading offering in InSearch today. This is a really good complement to the sensor machining business. So we welcome all of these three companies to the group. So with that, I'll hand over to Cecilia to take you through the numbers in more detail.

Yes. Thank you, Stefan. All right. So let's dive into the numbers then. And as usual, let's start with the growth bridge. And here you can see that organically orders were down 4% while revenues grew by 1%. Structure had a positive impact of 1% on both orders and revenue and in total that brings total order intake growth at minus 2% whilst it was plus 2 for revenues. Earnings came in at 6.2 billion, corresponding to a margin of 19.5%. And as Stefan said, we're really proud to have delivered on our EBITDA corridor again for the full year. Net financial items increased year over year, and I will show you a detailed bridge over the development in a few minutes. Tax rate for the quarter was low. Excluding items affecting comparability, it was 20.8%. Normalized tax rate for the full year, though, was within guidance. Networking capital came down sequentially in both absolute and relative terms, but compared to Q4 of last year, it increased. We had a strong cash flow quarter, 5.5 billion, corresponding to a cash conversion rate of 92%. Returns increased to 17.4% and the EPS ended up at the same level as last year. So if we continue then with the EBITDA bridge and start with an organic column, here you can see that revenues grew by 286 million, generating an EBITDA of 59 million. And that corresponds to a leverage of 21% for the group, which was margin neutral. Structure was also neutral to the margin development whilst currency had a negative impact of 1.1 percentage points. And that brings us from a margin of 20.6% last year to 19.5% this year. As Stefan mentioned, we continue to execute on the savings program that we announced in 2022. And as you remember, this program is expected to generate run rate savings of 785 million. In the fourth quarter, we had savings of 94 million, and that then corresponds to an annualized run rate saving of 48%. So here we are progressing according to plan. We are also continuously seeking to drive efficiency, resilience, and making sure that we have an optimized footprint. And therefore, we've decided and announced today a new restructuring program. And this program will generate run rate savings of 1.2 billion, and we will reach full run rate by the end of 2025. Most of the initiatives and the savings are structural, around 85%, and only a smaller part, around 15%, is volume related. The cost for the program is estimated at 2.4 billion, and we will book those costs now in the first quarter of 2024 as an item affecting comparability. If we continue down the P&L then and look at the net financials and starting with the interest net, you can see that that increased year over year. And that's driven by the higher interest rates. You can see the total yield cost at the bottom of the table here. Then if you look at the last row, you can also see that where we have FX and other asset classes, you can see that we had a really positive impact there last year. And as you know, on this row is where we book temporary revelations of currency hedges and orders that we haven't invoiced yet. And also temporary revelations over electricity hedges. So last year, we had a big positive revaluation effect, whereas it was very small this year. As you know, these effects eventually net out to zero. And as I mentioned, the tax rate for the quarter was low. Reported tax rate was 19.6%. If we exclude items affecting comparability, mainly relating to divestment and a capital gain from that, it was 20.8%. Then we also had a correction related to a prior period, and excluding that, the normalized tax rate was 21.7%. Still lower than our guidance for the year. And the reason for that is that we've received a tax credit for R&D spend. For the full year, though, the tax rate on a normalized basis was 23.4%, so in line with guidance. As I mentioned, as you can see in the graph here to the left, networking capital levels came down sequentially, both in absolute and relative terms. We also had a significant reduction in inventory levels, 1.8 billion in the quarter. And we've had reductions across all of our business areas. And now since June this last year, 2023, we've had a gradual decline in inventory levels. And this is a very high focus area for the group. And we are continuously working with bringing inventory levels to more normalized levels again. And that's a work that will continue throughout 2024. If we look at cash flow then, and starting with the table, you can see that earnings net of non-cash items was lower than last year, with a positive impact from the net working capital change, while capex was slightly higher than last year. And that brings us from free operating cash flow of 6.2 billion last year to 5.5 billion this year. You can also see in the graph that cash conversion for the full year came in at 18%. Financial net debt came down sequentially, driven by the positive cash flow, and landed at 35.2 billion. Capitalized leases came down slightly. It was largely unchanged, whereas the pension liability increased somewhat driven by changes in the discount rates. So net debt then amounted to 43.5 billion. Financial net debt over EBITDA continued to trend downwards. We ended the third quarter at 1.3 and now we are at 1.2. If we then look at outcome versus guidance, you can see the currency impact here came out at minus 323 million. CapEx in the end was 5.4 billion, so higher than what we guided. And here we anticipated to be at the higher end of the guidance, but then we had several projects across the business areas that we anticipated in Q1 that came into Q4 already. Interest net and the normalized tax rate came in line with guidance. And looking ahead then, we expect capex for this year to be around 5 billion, so slightly lower than what we had in 2023. Currency effects for the first quarter based on December rates, we estimated around 360 million negative. And the interest net guidance here we expect it to be a little bit lower compared to 2023. So here we guide 1.3 for this year and the tax rate guidance we left unchanged. And with that I will hand back to you Stefan for summary and conclusions.