Sandvik AB (publ)

Hello, everyone, and welcome to Summit's presentation of the first quarter results 2024. My name is Louise Cheddar, Head of Investor Relations, and beside me, CEO Stefan Widing and CFO Cecilia Felton. We will, as we usually do, listen to Stefan and Cecilia take us through the highlights of this quarter, and after that, we will open up for questions. So now let's listen to the presentation, and please, Stefan.

Thank you, Louise. And also from my side, welcome to the first quarter report in 2024. If we summarize this quarter, we can see the typical seasonality with a positive book to build. and overall I would say the order intake levels are at a solid level in this quarter. We see a strong demand in aerospace, a bit more mixed picture in general engineering. Mining demand is on high levels, while infrastructure has remained weak in the quarter. Total order intake declined by 7% of which organic decline was 5%. Revenues declined in total 6% and of that organic was 5%. And the organic decline on the revenue side of course also had an impact on our margins this quarter. Adjusted EBITDA decreased by 40%, corresponding to a margin of 18.2. These leaves are rolling 12 months EBITDA margin at 19.6. So just like last year, we're starting a little bit on the low side this year. We do see some of the savings starting to come through in the various restructuring programs, and in this quarter it was 128 million SEK. Adjusted profit for the period came in at 3.3 billion. We also in this quarter continue to see good progress on our strategic priority areas. Was very happy to see very strong growth in our rotary drilling division, which is a business we are looking to grow. We also had a repeat major order for our auto mine solutions, mine automation for what is the largest underground mining automation installation in the world. We also completed two acquisitions and we announced a third one after the close of the quarter. The innovation I want to highlight this quarter is our upgraded 800 series cone crusher. This is our flagship crusher for mining applications within rock processing. It's an updated crusher with a new automation and connectivity system, which means it comes pre-prepared to be connected to our digital solution SAM. It also has an upgraded and robust and optimized mechanical design that helps reliability and simplicity, which is key for our customers in this segment. Jumping into the market development, starting with the geographical view, we have Europe being down 9%. If we take a cutting tool look at this, we are down 6% in Europe, and this is primarily driven by general engineering and a weak central Europe. North America, minus 14%, but more positive from a cutting tool perspective. Reported in that segment, minus 4%. But underlying, we believe it's stable and robust. The negative number is driven by timing of order intake for larger customers in the aerospace industry, which can come in March or April. And this year it will come in April instead. So underlying positive or stable, I should say, in North America. Asia, flat, 0%, but here we note the positive development for cutting tools in China with low double-digit growth in China in the period, driven in particular by a positive general engineering. For the rest of the geographies, it's driven by mining, and I will not comment more specifically on them. If we take mining as a segment, we continue to see demand picture being stable at the high level. Orders are slightly down, but we compare now to Q1 of last year, which was the highest order intake quarter ever. And also for equipment, if we take away the major orders, it's only slightly down, which shows that the activity for the smaller orders and especially replacement orders is on a high level. General engineering is down overall, down in the mid single digits, Europe down in the low double digits. And here, as noted, primarily driven by a weak Germany, Central Europe, including Italy. North America stable in general engineering, while Asia, as I noted, positive China up double digits. Infrastructure continues to be weak, but we have here denoted North America as stable. What we can say is that we are not through the destocking yet, but we have seen some positive signs, some unexpected orders from some dealers indicating that they are slowly but surely working through their inventory levels. Automotive is slightly down, down in the low single digits. Europe is down mid-single. It's offset by North America being up mid-single. But here we could say that Europe is slightly more adverse mid-single than North America is positive mid-single digits. So the outcome is slightly down because Asia and China was flat. in the quarter. Aerospace, good growth, low double-digit growth in the quarter, driven by Europe, also China up mid-single. North America, as I said, is actually in the figures, it's down mid-single digits in this quarter, but it's purely driven by timing of larger framework contracts that is now coming into april instead so we still denote it as positive development because that's the underlying market development here the other segments are down overall mid single digits europe down mid single not north america is flattish asia is positive But China is actually a bit negative, mid-single digits. But other markets in Asia, such as India, has been very positive in the quarter. This leads us to an order intake overall of close to 32 billion. We have, though, revenues in the quarter of 29 billion. So a positive book-to-bill of 110%. The lower revenues in the quarter has been driven partly by calendar effects in SMS, driven by the shift of Easter from April into March, but maybe more importantly, relatively low invoicing in SMR, which is a timing effect. We see the year being back-loaded, meaning more sales and invoicing will happen in the remaining three quarters of the year and a slightly more adverse impact than the normal seasonality now in Q1. If we look at the order intake and revenues here from a slightly different perspective, I think the main highlight is, or low light maybe, is that we had 12 quarters of consecutive organic revenue growth, but that then came to an end now in Q1 because of the effects I just mentioned. These lower revenues also had an impact on our EBITDA. EBITDA was down 14%, margin of 18.2%. Cecilia will come more into this dynamic, but I think the short summary of it is very simple. We have temporary lower volumes in this quarter, and it's putting pressure on our SG&A cost coverage. And since this is what we believe a temporary lower volume, it's also something that's very difficult to mitigate short term. We also have a currency dilution of 40 basis points, and we are now sitting with a rolling 12-month EBITDA margin of 19.6%. Going into the business areas, starting with mining and rock solutions, resilient demand, but of course facing record high comps in Q1 of last year. But you can see on the graphs that otherwise order intake is at a very stable level. As I said, we saw strong growth in rotary drilling and we got the major auto mine order of about 300 million SEK. Total order intake declined by 9% and the organic decline was 7%. Aftermarket was stable, while equipment was down 18%, primarily driven then by the major orders, which is mainly then, or it is sitting in on the equipment side. If we digest a little bit the aftermarket number of flat development, we can say that parts and services continues to have a positive development. but it is being offset by another quarter of both destocking in ground support, but also the impact they have from a weaker tunnelling business. We expect to be through that now, if nothing unexpected happens. So we should no longer see that more negative offset from ground support in the aftermarket business going forward. If we look at the margin, 18.2%, down from 20%, impacted then by the lower invoicing in the quarter and the same dynamic I just mentioned for the group as a whole. We have some savings coming through of 15 million and some dilution from currency of 10 basis points. No acquisitions in SMR in the quarter. But happy to see that we continue to strengthen our partnership with key customers. We extended our framework agreement with one of our top three customers, where they will now roll out our remote monitoring service, meaning connected equipment to their entire fleet. And we have also agreed to collaborate on their BEV strategy to help them reach their net zero emission targets that they have as a company. Coming down into rock processing, also here, stable demand in mining, but infrastructure continues to be weak. Some positive signs, as I said, maybe in North America, but we expected destocking to continue for probably another quarter there. Total order intake declined 9%, organic decline was 7%. Here, however, we saw a positive dynamic on the major orders, with major orders totaling 169 million in the quarter. Adjusted EBITDA at 13.3% versus 14.5%. They always have a low seasonality in Q1, but this is of course on the lower side, but we still believe they show good margin resilience considering invoicing was down 15% organically. And this is because of good contribution from their savings and cost initiatives, as well as good execution of price realization. Currency also had a dilutive impact on the margin of 50 basis points. And I already mentioned the launch of the new flagship, Cone Crusher. Manufacturing and machining solutions, already mentioned market comments here with solid demand in aerospace, more mixed in general engineering and automotive, slightly down overall, primarily driven then by weakness in Europe, while we have a resilient North America and some positive signs coming out of China. Software grew mid-single digits, cutting tools then was down mid-single digits, and we also saw some positive signs on the powder side, up high single digits in the quarter, which is positive given this is the quarter we get many of the frame orders for the full year. Total order intake declined by 3%, and that was also the organic number, minus 3%. If we look ahead, or look how April has started, we see a stable development in the first two weeks. And if we look ahead, we can of course see Bleeding indicators improving, but it usually takes a while before we actually see that in our numbers. But the fact that PMIs on average are starting to cross 50 in most regions except maybe Central Europe, that's a positive for us. Adjusted EBITDA margin 20.3%, down from 22.4%, impacted then by the negative volumes in the quarter. Good progress on implementing the savings program, 87 million realized in the quarter, and also here negative impact from currency of 60 basis points. We had three acquisitions coming in this quarter. Two completed, Simquest, a CAM reseller in North America, and ProMicron, a German company developing and manufacturing tools with embedded sensors, which is important for automation going forward. And then I also announced recently Almu, which is a German manufacturer of tools for lightweight machining or aluminum machining, in particular for electric vehicles. So with that, I'll come back for the conclusions and Q&A, but first hand over to you, Cecilia.

Yes, thank you, Stefan. All right, so let's take a closer look then at the numbers together. And as usual, let's start with the growth bridge. And here you can see that organically, both orders and revenues were down by 5%. Structure did not have a material impact in the quarter and currency had a negative impact of 2%. And then with some rounding differences, total order intake were down by 7% and revenues were down by 6%. Adjusted EBITDA, as Stefan mentioned, came in at 5.3 billion with a margin of 18.2%. And I will show you the EBITDA bridge in just a few minutes. Net financial items came down slightly year over year, 506 million. And the tax rate excluding items affecting comparability and also on a normalized basis was 24%. So in line with guidance. Networking capital, 30.9% of revenues. Sequentially in volume, networking capital was flat. We had a good cash flow in the quarter, 3.8 billion corresponding to a cash conversion of 77%. Returns 6.8% impacted also by the restructuring charges in the quarter and adjusted EPS at 2.61 SEC. All right, so if we continue with the bridge then and starting with the organic column, here you can see that revenues were down 1.6 billion, minus 5%, and adjusted EBITDA declined by 637 million. And that gives a leverage of minus 40%, an dilution of 1.1 percentage points. And as Stefan said earlier, this is really driven by the temporary lower volumes that we had in the quarter, which puts pressure on the SG&A coverage. Currency was dilutive, 0.4 percentage points, whilst structure was neutral on the margin. And that brings us from a margin of 19.8% last year to 18.2% this year. The restructuring programs are progressing according to plan. The program that we announced in 2022 has now generated 113 million of savings in total. The year-over-year bridge effect is not the same as the numbers here, as we had some savings last year. And that corresponds to an annualized run rate of 58%. We've also now commenced the program that we announced in January and booked the 2.4 billion of restructuring charges in the quarter. And as you can see here, we also have some savings from the 2024 program now in this quarter, corresponding to 8% of annualized run rate savings. If we continue down the P&L, looking at the finance net and starting with the interest net here at the top, you can see that it was largely on par with last year. And here we have on the one hand higher yield costs, but on the other hand, lower borrowed volumes. Then at the bottom, FX and other asset classes. Here you know that in the past we have booked temporary revaluation of currency hedges on orders not yet invoiced. From 1st of January now this year we are applying hedge accounting in this area, which means that these revaluations will instead go via equity in the balance sheet. And then in total, net financials came in at 506 million. The reported tax rate was 26.1%. If we then exclude items affecting comparability, mainly the restructuring program, we came in at 24%, so right in the middle of the guided range for the year. Then if we move on to the balance sheet and starting with network and capital. Here, if you look at the bars on the left, you can see a slight sequential increase in absolute terms in networking capital. This is driven by currency. In volume, as I mentioned, networking capital was flat sequentially. In relative terms, net working capital increased to 30.9%. And as you can see on the graph on the right, this is mainly driven by SMR and SRP. We had a good cash flow in the quarter, 3.8 billion, corresponding to a cash conversion of 77%. And on a 12-month rolling basis, we are at 83% cash conversion. Then if you look at the year-over-year development, EBITDA adjusted for non-cash items was lower compared to last year. But then last year we had a networking capital build-up of 2.1 billion. And CAPEX was slightly higher this year versus last year. Financial net debt continued to gradually come down in the first quarter to a level of 33.9 billion, driven by the positive cash flow. Capitalized leases increased slightly, sequentially, whereas the pension liability came down a little bit, driven by changes in the discount rates. Our balance sheet target financial net debt over EBITDA increased a little bit sequentially from 1.2 to 1.3. And this is driven by the restructuring charges in the quarter impacting 12 months rolling EBITDA. Then if we look at outcome versus guidance, currency came in at 212 million, capex 1.2 billion, interest net 0.4, and the tax rate, as I mentioned, right in the middle of the guided range. And looking ahead then for the second quarter and the full year, we've left guidance unchanged for CapEx, interest net and the tax rate. And for the currency effect, we estimate this to be plus 120 million in the second quarter based on the currency rates at the end of March. And with that, I will hand back over to you, Stefan.