Research Update: Sandvik 'A-' Ratings Affirmed On Gradual Deleveraging Expectations; Outlook Negative

We expect Sandvik's funds from operations (FFO) to debt ratio will improve to above 50% in 2024 and well above 55% in 2025 from 43.8% in 2023, thanks to resilient operating performance and significant debt reduction through free cash flow. Although the group's current financial policy framework allows for up to 1.5x reported net debt to EBITDA, which we view as too high for the 'A-' rating, we believe the company is committed to create substantial buffer under this threshold and aims to establish a track record of more moderate acquisition spending and debt reduction amid still-volatile market conditions. We therefore affirmed our 'A-' long-term issuer credit and issue ratings on Sandvik and its unsecured debt. The negative outlook reflects

...- We expect Sandvik's funds from operations (FFO) to debt ratio will improve to above 50% in 2024 and well above 55% in 2025 from 43.8% in 2023, thanks to resilient operating performance and significant debt reduction through free cash flow. - Although the group's current financial policy framework allows for up to 1.5x reported net debt to EBITDA, which we view as too high for the 'A-' rating, we believe the company is committed to create substantial buffer under this threshold and aims to establish a track record of more moderate acquisition spending and debt reduction amid still-volatile market conditions. - We therefore affirmed our 'A-' long-term issuer credit and issue ratings on Sandvik and its unsecured debt. - The negative outlook reflects the potential for a downgrade if we expect the company will fail to restore its S&P Global Ratings-adjusted FFO to debt to at least 55% by 2025 and beyond....

Research Update