Sandvik AB Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: James Moore - Redburn Atlantic - Analyst : I've got three, if I could. And Stefan, I wondered if we could start with the daily trends in China towards the end of the year. If you exclude your good local acquisition, could you talk about whether you're seeing any signs of positive inflection? Should we go one at a time?

Question: James Moore - Redburn Atlantic - Analyst : Okay, thanks. And you mentioned software mix. I wondered if you could step back and just give us an update on the software business for the whole of last year? And any flavor on how the margin progressed compared to the year before, and whether you feel you're on track for the target on the profitability?

Question: James Moore - Redburn Atlantic - Analyst : Great. And just lastly, if I could, on SRP, it looks like your orders in North America grew a massive 40%. I mean, the business has some lumpiness. How sustainable is that? And when we look at Trump's announcement yesterday, where I think there was some stopping of EVs and renewables, it looks as if sort of core infrastructure, bridges and the like, roads and the like, is very much going to continue. Do you think there's been a kind of pause and a wait-and-see for Presidential decision-making that can now unlock that market? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:00AM, SAND.ST - Q4 2024 Sandvik AB Earnings Call

Question: James Moore - Redburn Atlantic - Analyst : Thanks very much.

Question: Klas Bergelind - Citigroup Global Markets Ltd. - Analyst : I have three questions, please. The first one is on powder. Fourth quarter is typically a weak quarter for the powder business, but it's now growing high double digits. And I was just wondering, Stefan, how they're growing like this in a weak quarter? And with that being sort of an early indicator of cutting tool demand, it sounds quite positive when we look ahead into the first half. Obviously, you're saying that cutting tool demand for the first two weeks was stable, but I'm just curious if you agree that this big increase in powder in a typically weak quarter is a positive sign, sort of a green shoot, if you like. I'll start there.

Question: Klas Bergelind - Citigroup Global Markets Ltd. - Analyst : Understood. Interesting, nevertheless. My second one is on SMM and the cutting tool segment. General engineering in Europe, still down low double digit like last quarter. Auto, also down low double digits. That's despite better production data. I think S&P and the like revised up the production numbers several times through the quarter. Was there anything special going on there in terms of supply chain, year-end destocking, et cetera, in automotive, Stefan?

Question: Klas Bergelind - Citigroup Global Markets Ltd. - Analyst : Yeah, no, that's clear. My final one is on mining. The sentiment seems to have improved towards the end of the quarter. Was that both in equipment and in the aftermarket? And did you also see it in deliveries, that the miners that previously sort of hesitated on projects are coming back a bit? There is obviously typically a better momentum at year-end on execution out of the backlog, i.e., sort of a seasonal effect. I'm trying to understand if this was an underlying improvement.

Question: Klas Bergelind - Citigroup Global Markets Ltd. - Analyst : Thank you.

Question: Edward Hussey - UBS Financial Services Inc. - Analyst : I guess, just a quick follow-up on mining to begin with. I've just got two questions. The first one is, clearly, a very strong performance given the performance in both SMR and SRP. But you have said that the underlying market development is flat, so I'm just wondering how you can -- does this mean that you're taking market share, or how should we think about your strong performance relative to the market? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:00AM, SAND.ST - Q4 2024 Sandvik AB Earnings Call

Question: Edward Hussey - UBS Financial Services Inc. - Analyst : Okay. Thank you. And then just second question on SMM margins. So if I remove the quarterly savings achieved in SMM, I calculate there was roughly an 80% organic drop-through on the organic revenue growth. So I think the comment you gave was that pricing and pricing offset volume declines. Could you just talk me through why it is, then, you've had an 80% organic drop-through?

Question: Edward Hussey - UBS Financial Services Inc. - Analyst : Okay. Thank you.

Question: Michael Harleaux - Morgan Stanley & Co. International Plc - Analyst : Just one on the market for electrified mining equipment. If you could comment on how things are evolving, both in terms of your offering, what competitors are doing, and what miners are ready to spend on electrified mining equipment, that would be great.

Question: Michael Harleaux - Morgan Stanley & Co. International Plc - Analyst : Thank you. That was very helpful. And can I ask a follow-up on the M&A strategy? What are the priorities? If you could update us on that, that would be great.

Question: Michael Harleaux - Morgan Stanley & Co. International Plc - Analyst : Thank you. That was very helpful.

Question: Daniela Costa - Goldman Sachs International - Analyst : It's Daniela from Goldman. Just two questions from my side. I'll ask them also one at a time. The first one on pricing, across actually the various divisions, if you can give us a little bit of color of what you expect to do this year, especially on infra, where you're talking -- on SRP, where you're talking about sort of the better sentiment on infra. Has that filtered to better pricing on the orders? And then what you're planning to do on SMM and SMR this year.

Question: Daniela Costa - Goldman Sachs International - Analyst : Okay. Thank you. And then just regarding the China investment you're doing in inserts, if you can talk to a little bit the motivation of the timing right now? Was it sort of a view on end market acceleration? Was it because you were importing inserts into China? Was the competitive landscape changed? Can you talk through a little bit of sort of the timing there?

Question: Daniela Costa - Goldman Sachs International - Analyst : Actually, a follow-up on these. Was Suzhou Ahno number 1 in China? And where they export, are there any Chinese round tool relevant exporters?

Question: Daniela Costa - Goldman Sachs International - Analyst : All right. Thank you very much.

Question: Andrew Wilson - J.P. Morgan Securities LLC - Analyst : I've got two. I'll ask them together because they're quick. The -- just further to Daniela's question on the investment in China, the impact that we saw come through the structure line as a result, would we expect that to, I guess, repeat for a number of quarters? And apologies if I've kind of got the timelines mixed up, would we expect a similar headwind in the coming quarters? And secondly, just on the Americas, specifically around cutting tools. I imagine some of the reasons it was down in the period was as a result of aero being down as a result of the strikes in Boeing. Can you talk about the underlying development, and also if you saw an improvement as you went through the quarter in North America specifically?

Question: Andrew Wilson - J.P. Morgan Securities LLC - Analyst : Thank you very much. Appreciate it.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : I just have two brief ones. In SRP, you mentioned some obsolescence provisions that you had to take, and that impacted the adjusted margin. I was wondering if you see risk that in Europe, we will see more provisions in that regard, whether -- because you have higher inventory levels still. And then on the tooling side, and apologies if I have to ask that question again like the other analysts, I would like to have a bit more detail on the pricing development, because we had now several quarters of negative volume, and usually, that does mean there's more competitive pressure in the market. So can you assure us that you really can compensate for inflation going forward also here in the tooling side?

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Understood. Thank you very much.

Question: John Kim - Deutsche Bank - Analyst : It's John from Deutsche. A couple of questions, if I may. Could you give us a bit of color on the outlook this year for the aftermarket in SMR? What kind of growth do you see in the space? Any change in order momentum, I suppose, your customer activities in major mineral categories?

Question: John Kim - Deutsche Bank - Analyst : Thanks. Very helpful. Can you give us any color on cadence for equipment deliveries this year? Was '24 a bit of an anomaly, or should we expect a similar pattern?

Question: John Kim - Deutsche Bank - Analyst : That's fantastic. Last one, quick one. On SRP, when we look at the Americas order intake, is that more a function of restocking on the customer side? I know you have a weak comp here, but if you could give us a sense of stocking and destocking level, that would be helpful.

Question: John Kim - Deutsche Bank - Analyst : Good. Thanks very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:00AM, SAND.ST - Q4 2024 Sandvik AB Earnings Call

Question: Andreas Koski - BNP Paribas Corporate Investment Banking - Analyst : I have a couple of follow-ups on the -- on China cutting tools. I think, Stefan, you said during your presentation that China cutting tools were down high single digits in the quarter, while Suzhou Ahno grew high single digits. What do you think explains the difference? Are the local players taking market share, or?

Question: Andreas Koski - BNP Paribas Corporate Investment Banking - Analyst : Yeah, I think the H2 run rate for Suzhou Ahno implied annual revenue of around SEK1.6 billion and that can be compared to SEK1.2 billion in 2023. And it sounds like the current investment that you're doing in China will close to double the revenue capacity for Suzhou Ahno, so it's fair to expect continued strong growth for this business. But at the moment, it operates at single-digit margins. What kind of margins do you think we should expect longer term for this business?

Question: Andreas Koski - BNP Paribas Corporate Investment Banking - Analyst : And then lastly, what would you say are the main technological differences between local premium in China and international premium? And are you going to export Suzhou Ahno to Europe and North America to follow Chinese companies when they expand their manufacturing footprint globally? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:00AM, SAND.ST - Q4 2024 Sandvik AB Earnings Call

Question: Andreas Koski - BNP Paribas Corporate Investment Banking - Analyst : And on global expansion?

Question: Andreas Koski - BNP Paribas Corporate Investment Banking - Analyst : Understood. Thank you very much.

Question: Vlad Sergievskii - Barclays Corporate & Investment Bank - Analyst : I will start with the mining demand, maybe going through the key commodities. Gold is your single biggest commodity exposure, and profitability in the gold sector right now is the highest it has been. We also saw some promising CapEx forecasts for '25. Is there any reason this rise in OpEx and CapEx from gold companies will not benefit Sandvik in '25?

Question: Vlad Sergievskii - Barclays Corporate & Investment Bank - Analyst : Very good. If I can ask about copper, where you have very sizable exposure as well, there is a good pipeline of larger brownfield and greenfield projects in Latin America. Is there any chance this pipeline will start converting into projects in '25? Or those main ones are not yet fully mature and this is a story of '26 onwards, based on your customer conversations?

Question: Vlad Sergievskii - Barclays Corporate & Investment Bank - Analyst : Makes sense. And my final one, the SRP margin, please. A very quick one, I promise. So if you look at inventory situation by divisions, the SRP is still standing out as very high inventory relative to historical levels, where the other are more normal. This process of normalizing this inventory, how quickly do you expect it to happen? And are there any margin risks related to this process, either from write-downs or underutilization or anything like that?

Question: Vlad Sergievskii - Barclays Corporate & Investment Bank - Analyst : Thank you very much.