Sandvik AB (publ)

Hello everyone and welcome to Sandvik's presentation of the first quarter results 2025. My name is Louise Tjedder, Head of Investor Relations and beside me I have Sandvik's CEO Stefan Widing and CFO Cecilia Felton. We will do the normal procedure, meaning Stefan and Cecilia will start with the presentation and take you through the key highlights of the quarter. And after that, we will move on to the questions. And with this, I hand over the word to you, Stefan.

Thank you, Louise. And also from my side, welcome to our first quarter report in 2025. If we start by summarizing the quarter, we see good momentum in the mining business, while cutting tools and infrastructure continue to be impacted by the uncertain macro environment. Also positive is that manufacturing software continues to grow at mid single digits. total order intake increased by two percent and of that the organic growth was two percent and revenue increased by one percent and of that organic was also one percent we improved our financial performance on all key metrics adjusted ebitda margin improved by 1.5 percentage points corresponding to a margin of 19.7 percent and the rolling 12 months margin is now 19.5 We see in particular a very strong positive impact from the restructuring programmes and savings that we have had, and this quarter the positive bridge effect was 307 million. Adjusted profit for the quarter was 3.8 billion, 3.3 billion in the same period last year, and the free operating cash flow was 3.8, slightly improved versus the same rounded number of 3.8 last year. We also continue to focus on our strategy execution and made good progress. Several innovations launched with focus on electrification and also nine acquisitions announced in the quarter, which I will come back to in this presentation. is we start with innovation, a very important launch in the quarter where we have been lagging an offering for cable electric rotary drill rigs. And now we have launched an electric option for our entire range of automation ready rotary drill rigs. So this fills an important gap in our product portfolio and is part of our ambitions to improve our market position within surface mining. If we then take a look at the regions and segments as usual, starting with the regional view first, Europe was down 8%. Here, cutting tools was down 7%. North America was up 4%, cutting tools down mid-single digits. Asia up 9%. China cutting tools down low single digits, while Asia was flat, driven in particular by a strong performance in India. And then we have more of the mining markets with Africa, Middle East up 2%, strong performance in Australia up 12%, and South America also strong at up 8%. Looking then at the segments, you can see that mining has had a strong performance. We believe the market momentum has improved, and in particular, strong performance this quarter in Australia and South America. General engineering, weak, down mid-single digits overall, also down mid-single in both Europe and North America, while China saw an improvement in general engineering of up mid-single digits, while Asia was more flattish overall. Infrastructure, I would say stable, but at muted levels as before. We continue to see more positive picture in North America, but of course, that is also more risk going forward, of course, in North America, given everything that's happening there. Automotive down, and this was the most negative segment in the quarter, down low double digits overall. Europe down low double, North America down low double, and China down a little bit better, but still down high single. Aerospace, positive sentiment there, up mid-single digits in Europe. North America underlying flat in reported numbers, down mid-single digits, where we continue to see a slow pickup of order intake from the largest customers. That is clearly working through some inventories. And then also negative in China with low double digits in aerospace. The other segments, a bit more mixed picture, overall down low single digits, Europe down low single, North America up double digits, driven by some specific segments like rail, that was positive in the quarter, and then Asia down mid single digits. So overall, a quite mixed picture in terms of the demand across regions and segments. If you summarize this, then we see an order intake of 32.8 billion in the quarter, revenues of 29.3, which is a healthy book to bill of 112%, in line, I would say, with seasonality, but a healthy book to bill still. If we look at this from a slightly different perspective, then we can see that this was the fourth quarter in a row with positive organic order intake. And that has also gradually translated into now a positive organic revenue growth of 1%, where we were flat in Q4. Margin development strong 19.7% and in absolute terms up 9% to almost 5.8 billion. I would say this is a good margin level considering quarter one is always seasonally low from a volume point of view. We see strong leverage in all business areas on the back of the structured savings and good cost control we have had. And we are also supported in this quarter by currency accretion in most of the businesses. Mining and rock solutions, strong organic order intake, 26% up in equipment, double-digit growth in parts and services again, aftermarket growth 2%, but excluding a major order in aftermarket last year, up 5%. So here you see a little bit of difference between parts and services and the consumables in the aftermarket, but overall very strong performance. We had major orders totaling almost 1 billion, excluding major orders, organic order intake was up 7%. If we include them, it was up 10%. Very strong margin performance, 20.8, especially then given that Q1 is a low volume quarter from an invoicing point of view. So good leverage, positive impact from savings. And I would say overall, surprisingly good with a very clean quarter from an execution point of view. We had help here from savings and also from exchange rates. Already mentioned the important product launch for the electric rotary blast hole drill rig range and also want to highlight that we continue to see good demand from our digital solutions in the quarter. Rock processing, here demand in mining continues to be stable, while infrastructure then continues to be at a lower activity level, especially in Europe. Total order intake decreased by 3%, which the organic decline was 2%, but if we exclude major orders, it was a positive development with plus 2%. Good margin improvement as well at 15.1. Good savings realization and contribution from the savings programs in particular. Also here, support from currency. Also here, we launched a new important product in the field of electrification, a mobile electric cone crusher that will support our organic growth journey for customers that prefer electric options. We also announced in the quarter the acquisition of OSA demolition equipment, which gives us a full range of demolition and recycling equipment for attachment tools. This is something we have already had in the assortment before, but then it's been a traded product. Through this acquisition, we are bringing this in-house, which is supporting both technology development and long-term from an opportunity point of view. Then going into manufacturing and machining solutions, industrial activity continues to remain at a low level. I already went through all the segments. Also mentioned that software continues to grow at mid single digits, driven by strong performance in the US, while powder in this quarter declined year on year in mid single digits. And here, you know, we had a very high order intake in Q4. We mentioned then that some of that might be timing. So I would say that is most likely the case here, that this is timing between the quarters. Overall, demand for powder is good. And we'll come on to that also when we talk tariffs and restrictions imposed by China that is likely to have a positive impact on us. Total order intake decreased by 3%, organically down 6%. And if we look at cutting tools, then overall down mid single digits. And this represents a stable development in dailies compared to the fourth quarter. So overall market situation, I would say stable going from Q4 into Q1. Also, if we look at the end of the quarter, we didn't see any specific effects such as pre-buys or declines. And when we look at the start of April in the first two weeks, we see the daily order intake being stable compared to what we would expect from normal seasonality and dynamics around beginning, end of months and so on. I want to highlight though, I always say this, we only report what we see in the first two weeks. And of course, the external events in the world means that drawing conclusions from this is more difficult than it has ever been. But this is what we see so far. The margin in SMM was strong given the volume declines, 20.9%, so an improvement versus last year. Again, similar story, very good cost control, quite material positive impact from the restructuring programs here, slightly less help from currency and also some dilution from structure. Mentioned acquisitions. We have acquired seven resellers, CAM resellers in the quarter. And this is an important strategy. It's very value accretive acquisitions overall. It supports our customer relations as we get closer to our customers. And it also supports the synergy realization when it comes to cross-selling among our different software brands. And this is something that Mattias will talk more about at our Capital Markets Day in May. We also wanted to give you some more flavor on the tariff situation and an update on that. First of all, and I think a key takeaway is that at the current tariff rates, the ones that are in effect here and now, we expect a limited margin impact based on all the activities we are doing or have done to mitigate this. I would say the main risk for us, as we see today, is the overall impact on the global economy, which of course is as difficult for us to predict as it is for you. But that is today, I would say, the main risk, not the tariffs themselves. We have here a number of examples of mitigating activities. And of course, all our divisions have different exposures and different footprints. So this is not a list that applies to all of them, but these are examples of activities our businesses are taking. We, for example, have very limited flows between China and US, but those that we have had are being mitigated, for example, through supply chain activities. We are rerouting flows that today might go through the US and then into Canada and Mexico, because that has been a tariff-free zone. And those are, of course, being rerouted, so we minimize that exposure, bringing goods directly into Canada and Mexico. Tungsten raw material is exempt from tariff currently, but there has been earlier in the quarter export restrictions placed on this raw material by China. And that we have seen has led to increased demand for tungsten outside of China. And as you know, we are one of the major providers of that raw material in the world. mostly for our own internal consumption for drill bits and cutting tools, but we also sell externally. So this is a potential upside depending on what happens with this going forward. We have put in tariff clauses and revisited our commercial agreements were applicable. We have also notified customers and partners in several of our businesses of potential upcoming tariff surcharges. We are rebalancing product capacity where in some cases we might produce today in Europe, sending to the US and vice versa. We produce something else in the US and sending to Europe. And of course, depending on the tariff levels, that's something that will be rebalanced. We will also, if needed, increase production capacity in the US. But currently, we don't really see a need for that. But if tariff rates would increase materially, that will also be something we will look at. And I want to be clear here, we're talking about existing manufacturing footprint that we have already in the US, increasing capacity in that. There is no need for any type of greenfield investments. So overall, current situation I think is very much manageable, but there is of course a risk to the overall global economy. I will with that hand over to Cecilia to take us through some more details.

Yes. Thank you, Stefan. So let's dive into the numbers then in a bit more detail together. And as usual, let's start with the growth bridge. And as Stefan mentioned, you can see here that organically, orders grew by 2% and revenues by 1%. Structure contributed positively with 1% on both orders and revenue, while currency had a negative impact of 1%. In total, orders grew by 2% and revenues by 1%. Adjusted EBITDA grew by 9%, reaching 5.8 billion, corresponding to a very good margin at 19.7%. Net financial items came down year over year. I will show you a detailed specification of that in a few minutes. And the tax rate, both excluding items affecting comparability and also on a normalized basis, was in line within the guided range. Networking capital just below 30%, cash flow 3.8 billion, corresponding to a cash conversion of 70% in the quarter. Returns improved and excluding amortization of surplus values, it reached 16.7% in the quarter. And adjusted EPS also improved to 3.01 sec. If we continue then with the EBITDA bridge and starting, as usual, with the organic column, as Stefan mentioned, we had a highly positive leverage in the quarter, although, as you can see, on small numbers. Nevertheless, this gave an accretion to the margin with 0.6 percentage points. Currency also had a positive impact, one percentage point accretion while structure was neutral to the margin. And then that brought us from a margin of 18.2% last year to 19.7% this year. If we then continue down the P&L, looking at the finance net, as I said, this came down year over year from about 500 million to 300, as you can see here. And this is mainly driven by the lower interest net. And that's due to a combination of a positive currency impact, lower interest rates and also slightly lower borrowed volumes. As I said, tax rate, both excluding items affecting comparability and on a normalized basis came in at 23.8%. So pretty much in the middle of the guided range. If we then continue looking at the balance sheet and networking capital in relative terms, you can see here in the graph on the left that we are just below 30%. In absolute terms though, if you look at the bars, you can see a sequential step down versus the fourth quarter. This was driven by currency. In terms of networking capital volume, we had a normal seasonal increase driven by inventory, which is typical for the first quarter of the year. Cash flow then, if we start with looking at the year-over-year development in the table, you can see that EBITDA adjusted for non-cash items was slightly higher compared to last year. CAPEX was a bit lower. And then, as I mentioned, we had a normal seasonal build-up of inventory here beginning of the year. And then that resulted in a free operating cash flow of 3.8 billion. And in the graph, you can see the trend line that on a 12-month rolling basis, cash conversion is at 93%. Financial net debt came down slightly sequentially from the fourth quarter. This was driven by the cash flow. And also our balance sheet target metric, financial net debt over EBITDA, came down to 1.1 in the first quarter. We ended last year at 1.2. Capitalized leases came down or decreased a little bit sequentially driven by currency, while the pension liability was largely unchanged. And that resulted in a net debt of 40 billion. If we then look at outcome versus guidance, currency for the quarter came in at 237 million, capex 1 billion, interest net 0.2 billion, and the normalized tax rate, as I mentioned, pretty much in the middle of the guided range. And then if we look ahead at the second quarter and the full year, we expect a negative currency impact of minus 600 million in the second quarter, based on the currency rates at the end of March. And for the other items, capex, interest net and the tax rate, we have left the full year guidance unchanged. And with that, I will hand back to you Stefan for summary and conclusions.