Sandvik AB Q4 2025 Earnings Call

Thank you. And also from my side of course warm welcome to the fourth quarter report in 2025. If we summarize the quarter we see a strong ending to the year with double digit order intake and revenue growth. We see a strong demand in mining and infrastructure is continuing to improve. There's a mixed demand in cutting tools with strong demand in for example aerospace and defense while automotive remains weak. We also see a strong demand in both software solutions and powder solutions. Total order intake grew by 4% and the organic order intake growth was 15%. Revenue increased totally by 1% and organically by 12%. We also see a stable margin on the significant currency headwinds. Adjusted EBITA came in at just below 6.4 billion corresponding to a margin of 19.6% which is a slight improvement versus last year even though the figures round to the same number. On the rolling 12 months basis the margin is 19.3% up from 19.2% in the year before. The savings in the restructuring programs had a positive bridge effect of 131 million in the quarter and the adjusted profit for the period came in at 4.2 billion up from 4.1. We also had a strong free operating cash flow of 6.77 billion corresponding to cash conversion in the quarter of 110%. A couple of strategic highlights as always. We continue to see strong momentum for digital solutions in mining. In the quarter we booked two large automation orders which were significant. We also see strong growth in our software offering in mine planning and overall digital mining technologies booked good double digit order intake in the quarter and for the full year the business also grew in the double digits. In intelligent manufacturing, our metrology business unit launched a new version of their software where we now include our copilot AI technology also in this software. We also launched a new machining module which is important for us because it means that the metrology software will based on the measurement recommend machining process updates to ensure that the component is more aligned with the intended design. So we start to connect the loop between metrology and machining. Rock processing launched a new jaw crusher platform with significant new automation features, also significant productivity gains and longer service life. And this platform also received Sandvik's internal innovation prize award in 2025 because of the significant improvements in the product. If we look at the market development and we start with the geographical perspective, Europe was up 13% and here cutting tools was up in the mid single digits. North America up 9% with cutting tools up in the high single digits. Asia up 14% and China cutting tools up in the double digits. And then mining markets Africa Middle East up 5%, Australia up 43% and South America up 13% so growth across all geographies. Go to mining as I said we continue to see strong demand basically across the board. General engineering here underlying it's stable but we do see low double digit growth driven then by good double digit growth in China. Europe up low single digits and North America up mid single digits. Infrastructure we see continued improvement in particularly driven by North America but overall on a global scale we still characterize it as a fairly stable development we also see some signs of improvement in Europe. Automotive is a bit weaker overall up in the low single digit. Europe is flat, North America up mid single and China is down high single digit. Aerospace strong up in the double digits and both Europe and North America is up in the double digits while China was down in the double digits primarily driven by timing of orders. In the other segments we are up high single digits. Europe is up high single driven and in particular by defense. North America is up mid single while China is flattish. Summarizing then the order intake and revenues, we book orders in the quarter of 32.7 billion, revenues 32.5 and this is a positive book to bill of 101% which is fairly unusual in the fourth quarter where we typically have strong deliveries of equipment. But thanks to the strong order intake, we still maintain a positive book to bill also this quarter. Looking at this from another angle, we can see the order intake continues to be strong in the solid double digit space. We also see revenues picking up also in the double digits and this is of course a consequence of that we are also now delivering and invoicing mining equipment at a higher level than before showing that we have managed to ramp up production to meet demand in a good way. Adjusted EBIT improved by 1.4% in absolute terms 6.4 billion up from 6.3 last year this corresponds to a margin of 19.6%. And here we see solid leverage on the higher volumes. We also have good price execution and good savings but then offset by the strong currency headwinds. The currency impact came in at almost 1.2 billion negative a dilution of 130 basis points and as you know this is a more adverse headwind than we had guided for when the quarter started. Of course driven by a continued weakness of the US dollar and a continued strengthening of the Swedish krona. Rolling 12 months then a margin of 19.3%. Going first into the mining business we continue to see a strong momentum with strong demand both for our underground and our surface solutions. We see a double digit organic growth across all our equipment divisions as well as parts and services and digital mining technologies. Total order intake increased by 5%. The organic growth was 17% and the growth of equipment was up 39%. Excluding major orders we were growing organically by 12%. The adjusted EBITA came in at just below 3.4 billion sorry 3.8 billion corresponding to a margin of 21.5%. We have good leverage on the higher volumes but it is offset by the very negative currency. The operating leverage was 32% which we are satisfied with in this business. The currency then was negative by over 700 million year on year corresponding to a dilution of 120 basis points. Rock processing here we saw order intake in the mining part of the business declining year on year on tough mining comps. The underlying market demand was robust. We saw solid demand in infrastructure driven in particular by US demolition and recycling as well as for the first time in a long time I would say improvement in aggregates and we also see positive signs in Europe. Total order intake declined by 9% but organically it was a black zero and excluding major orders it was an organic growth of 2%. Adjusted EBITA came in at just below 400 million. This corresponds to a margin of 14.5% slightly down from 14.6%. Operating leverage 41% good savings offset by currency impact almost 100 million negative impact corresponding to a dilution on the margin of 170 basis points. And then machining and intelligent manufacturing of course the last quarter we will present this in this form going forward you will see these two businesses being reported separately. Mixed demand cutting tools strong demand in aerospace and defense as said while demand general engineering improved but it was primarily driven by strong development in Asia and China while automotive remained weak across more or less all the regions. Orders in cutting tools overall increased in the high single digits partly due to low comps for example that Boeing was on strike in the fourth quarter of 24 but also positive contribution from price and tariff surcharge charges. We see a double digit growth in intelligent manufacturing and also in powder solutions and total order intake increased by 5% and the organic increase was 15%. If we look at the start of January, we continue to see a stable development compared to the fourth quarter. If we look at the daily order intake and take normal seasonality into account, the adjusted EBITA came in at 2.4 billion corresponding to a margin of 19.7% which is up from 19.4% in the prior period. We see good price execution, very good savings and also structure supporting margins then partly offset by a negative currency. The savings had a positive effect in the quarter of 103 million. Acquisitions had a dilutive effect of 20 basis points. All currency then had a negative impact of 330 million corresponding to an 80 basis point dilution. With that, I'll hand over to you Cecilia to take us through the details.

Thank you. So if we go into the conclusion we see a strong financial performance both in the fourth quarter and in 2025 overall. In the fourth quarter we have double digit organic growth in orders and revenue and improved margin and strong cash conversion. For the full year, the organic order intake and revenues increased by 11% and 5% respectively and the margin came in for the full year at 19.3% despite tariffs and significant currency headwinds. We also continue to make good progress in our strategic priority areas. We have a continued good innovation pace and we welcome several new companies into the group. We see strong progress in our digital offerings, strong growth in both intelligent manufacturing and digital mining technologies. And in my view, this has been the strongest year we have had when it comes to the development of our digital businesses both in terms of financial performance and the strategic progress we have made. We also continue to make successful traction in the surface mining business and we see strong growth in important regions in machining such as India and the local premium segment in China. And for us this is not only the last quarter of the year also the last quarter of our five-year strategy period the shift to growth strategy period and if we summarize this period we see a strong and good financial performance throughout the period with strategic progress despite the significant macro and geopolitical challenges that we have managed throughout the period we have strengthened our offerings we have gained traction in important growth areas and introduced many leading solutions. So overall we go now into the new strategic period advancing to 2030 as a stronger group. Thank you. Let's go to Q&A.

On China cutting tools, it's a combination. We see an underlying growth in the demand picture but we also see an effect from pre-buying not because we are raising prices sort of here and now but because of the increased tungsten prices some customers are buying they're increasing their inventory levels basically to because they anticipate some level of price increase. We are not seeing it anywhere else. This dynamic we have seen in China specifically.

I wouldn't say we have seen any specific change throughout sort of the past quarters. Of course, gold and copper are key drivers. They remain above 60% of our total exposure. But of course, we are also seeing many other commodities, silver, palladium, etc. That are strong. So yes, maybe led by gold and copper but a strong demand across the board.

For mining we have a margin corridor of 20 to 22% and we also have a normal leverage of around 30%. So that gives a rough framework of where what we are aiming for in terms of the margin. When it comes to higher equipment growth there you need to look at the incremental leverage of those additional equipment sales. Even if you look at the full margin of equipment versus aftermarket, of course equipment has a lower margin but the incremental margin that we get on additional equipment sales should not be dilutive. And just add to that, I mean this is something we have been talking about for a few years based mainly on comments from others in the industry. If you want proof that what you say is correct then just look at Q4. We had significant increase in equipment deliveries and we see a solid operating leverage. So no negative mix impact.

I think the main thing that impacted sort of from a comp perspective in 24. As I said, there were strikes in the US in particular and then there were maybe a few other segments that were on the weaker side. The fall of 24 was a little bit weaker. It jumped up a little bit in Q1. So sequentially so to say on a daily perspective but that's the only thing I would call out.

No, we still stick with the assumption that around 40% is a realistic leverage for the machining business long term. Now in this quarter a lot of the growth was driven by price to offset inflation. We have tariff surcharges and so on and have a very high component of the growth driven by price then to mitigate these type of effects then we are protecting our margin we're not expecting an incremental margin of that on that type of growth so that's why it's a little bit lower in the quarter.

I can start with that. No, but I mean there are many several dynamics driving this. One, as you say, is sort of some type of constraint of supply from China. That is of course possible that it's being reversed quickly and then that can have an impact on the prices. There are other dynamics as well such as the growth in the defense industry which is also driving demand for tungsten and then you have tariffs and so on that comes into the picture as well. So it is a complex picture. Tungsten historically has been volatile. So we are prepared for all sort of eventualities and scenarios. But yeah currently the momentum is positive at least. No, I think you summarize it well.

Yeah, I think it's going well and very happy with the strong deliveries in the quarter which I think is a testament that I mean when we invoice it means we have produced them maybe three to five months earlier and then it takes a while to get them to customers and do local adaptations and so on. This shows that you know while back midyear production levels were starting to ramp up and reach higher levels and then it has now taken a while to get it out to customers and of course now we have a continuous feed of new equipment on its way to customers. We are continuing to do adjustments to the production plans and so on as we speak. But I think the step change has been managed and we can also see it on the lead times that we are managing to keep the lead times under control despite the high order intake which I've said has been a high priority for us because we have seen in prior up cycles that if the lead times become too long you start to lose business on lead time and we have really wanted to minimize the risk of that. Then of course as Cecilia mentioned we have a bit of seasonality in the business as you know with Q1 being typically a little bit lower invoicing simply because you have the southern hemisphere with countries being on holiday in the beginning of the quarter. But yeah, I'm happy with the ramp up and cannot say there are anything I would like us to have done differently or more.

I mean if we start with I mean as we have seen here the cash flow is strong and the net debt is coming down. We have always said we wanna be you know...

Maybe slightly below one and that's where we are now. It also means that we have given green light since a while back to most of our divisions to pursue M&A in strategic areas. It takes a while once you have taken a little bit of a pause to get back and sort of make the pipeline active again. But I would say across the areas we did identify we have ongoing conversations, then it's always a matter of right price, right timing. But we have an active pipeline and I would expect more M&A to come in this year than in 24 and 25. Thank you.

Eh yes, pricing cutting tools detailed breakdown in terms of the specifics. We had slight volume growth and then eh search charges related to tariff and the rest is price but we cannot unfortunately be more specific than that.

Yeah, I mean okay so I mean Ton prices of course continue have continued to go up, scrap as well, which means there will be a continued price dynamic here on the powder itself. We are adjusting prices on a regular basis basically on a monthly basis depending on the latest APT notation and then when it comes to our other products cutting tools or drill bits and so on, then of course we adjust prices when needed to compensate for the increased raw material cost. But I cannot give more specifics other than that we are. If Ton prices continue up, we will of course have to continue to do price adjustments for that.

Yeah. Are you right on infrastructure? We say there are positive signs but it hasn't really translated into order intake increasing to a level where we put the arrow up. But we are positive, we are seeing a little bit more activity, quoting, stock levels coming down and so on. So it is a positive trend but not yet visible in our order intake in Q4. Of course, Q1 will be important as you know, it's the order where you typically get the orders for the summer season, construction season. So we will have to see in Q1 if we can continue with this trend. For general engineering, in Europe it's stable. I would also say that there is a little bit of positive sentiment in some areas, in particular certain countries where maybe we have seen a little bit more positive development, some of the larger continental European countries, but also here not something we can really claim is visible in the numbers and PMI is hovering around 50, there is still uncertainty. So I would say the jury is still out on a more broad-based recovery.

Thank you.

No, I wouldn't say. Some of this infrastructure sort of positive sentiment is of course also coming in Germany where there is a big package and even if it hasn't come through yet, it means that some dealers or customers are maybe preparing for higher demand picture. So in that sense indirectly it might impact but otherwise I cannot point to any specific stimulus outcomes unless you count defense into the stimulus package, but that's a different category. In defense we indeed see significantly increased demand.

So demolition and recycling for us that's our attachment tools and they go into things like civil construction projects, also infrastructure projects. So it's a mix. We also say we see an improvement in aggregates which is more kind of infrastructure road building and so on. So I would say if you look at the US, we are positive in infrastructure more generically right now. We did get, for a couple of years we haven't really seen dealer orders coming in in anticipation of the summer season but in Q4 we started to get some dealer orders for that which is a good sign. We'll see if it continues into Q1.

Capex focus. Well, we gave the guidance. Typically for us the largest share of our capex is maintenance replacement capex but then of course we also have expansionary capex built in there and that's mainly for the mining.

Yeah, if we start with the first one, it was pretty similar to prior quarter and also the full year picture meaning brownfield is the majority slightly over 50%, replacements about a third, and then the remaining greenfield. That's been fairly consistent besides certain quarters when we have received a large greenfield order such as the second quarter. But that's a general trend that's been there for a couple of years, which actually means if you look at the growth, it is broad-based growth because everything is growing since the ratio is the same. On underground versus surface, I would say as I mentioned earlier we see solid double-digit growth in all equipment divisions meaning both surface and underground. If you look more specifically, for example the rotary business, I would say we see growth that is higher than the average for our business, but in general surface and underground are equally strong.

I mean we cannot say too much but I think the main driver for it being higher than the around 28-30% now would be if we would have a volume recovery and that is of course something we did not give guidance on. We said Q1 started at a stable level compared to Q4.

The Ton prices don't really impact our rock processing business. When we look at the margin development for this year, it's driven by a positive price versus inflation last year with a weak comparable. We had some price pressure in wear parts last year. Then we have good leverage on the higher volumes. We have the positive impact from savings but then a significant currency headwind of 1.7 percentage points. So those are the main components for the margin development for the rock processing.

Tungsten dynamics will be in the machining business. That's where we have it.

Vladare new equipment of that also included. Yeah, I mean we will you will get an updated figure with the annual report but I don't think we give quarterly breakdown per commodity. I look at you Louise.

What I can say is that of course copper and gold have been a bit stronger than the average that you will see in 2024. But as I also said it is a broad-based demand picture. I mean, we have a good business within silver, palladium and so on as well. So slightly higher than the historic average but not material higher. I think it's a fair reflection that the quarter looks quite similar on a full year basis.

Now actually the main reason this quarter was high comps. They had some larger orders and a strong demand in Q4 of 24. The underlying demand as we see it is unchanged. Then of course if you compare to our mining business area, they don't have the same dynamics in the sense that their largest commodity exposure is to iron ore where you have a lot of crushing and screening, and iron ore of course is at decent levels but it's not at the gold, copper, silver type dynamics there. And then finally downstream mining has a slightly different cycle than upstream mining. It tends to be a little bit more late cycle. You need to first ramp up production enough to hit your thresholds for the processing plant capacity before you do additional investments there. So it is a little bit of a different dynamic but overall the mining demand in Q4 also for rock processing was robust.

I can start and you can see if you want to add.

I think it's a very good comment. I mean, we have many years in China where price increases have been off the table completely. Now also our local competitors which have been operating at very low margins have to raise prices in line with the tungsten increase, which maybe creates a broader market dynamic anticipating this phenomenon.

There is to my knowledge no substitute unless you go to even more advanced material such as diamond-based materials which is even more expensive.

We see no impact from that. Overall we have high mix low volume products in this area. So our volumes are such that we tend to not feel this kind of dynamics since we can always worst case find things on the spot market since our volumes are so low.

Thank you.

I think the last question I think we got last time as well and my answer is the same. I mean this is let's call it the business tactics or business secret. We will not give that away to the audience. So we will manage that tactically as we feel gives the most value to the business.

Yeah. Just because we would have better cost absorption with higher volumes that is what would drive a higher, a more normal leverage of 40% as opposed to the 28-30% we're seeing at the moment. On the mine output, I don't have a ton for you but what we can say is that in terms of the overall production of powder, the mine is roughly or just over 10% of our supply, and then 55% roughly is recycled material from buyback programs and the rest is sourced from other sources.

Increase capacity obviously. In what areas do bottlenecks specifically on the supply chain? I mean historically we have typically seen bottlenecks with major components such as engines or certain drivetrain components. We worked fairly diligently ahead of that this time so at the moment we can produce as we have planned to produce. No specific bottleneck. We have of course been helped by the fact that we were early out here and secondly that we don't see this type of increase in production in adjacent industries. So we can get what we want for the moment. When it comes to assembly and these kind of things, we can scale fairly straightforward with partners, our own people and also the fact that we have new sites coming online in Asia both in India and Malaysia. So we can produce what we want to produce right now.

Thank you.

I mean we stick to what we have said in terms of long-term growth rate should be high single digits. Now in this quarter and some quarters in 25 we have been in the double digits. And that is maybe a bit of an acceleration driven by commodity prices and the fact that customers want to push even harder. But I think the long-term trend we believe it should be high single digits. And it's driven by a number of factors. Our fleet size continues to grow. That obviously drives aftermarket growth. The fleet is still very old in relation to historic fleet age, that also drives aftermarket. The technology content in each machine we deliver is increasing constantly, which both means you need more service and parts, different types of parts as well, sensors and so on. It also increases our aftermarket capture rate because the more advanced the machine is, the more difficult it is for a third party or local service workshop to do the service. So all of these things are combining into the dynamic that we are seeing this healthy growth in the aftermarket business.

I mean our approach has always been that you have to have a very long-term perspective. We have obviously explained before how we believe we can be value creative to our shareholders based on the strategy and execution that we have had and we are of course very happy that we feel we have gotten recognition for that in the past 12 months or so. And if the discussion would be there in any way, it would never be around tactics, around share price or cycles or anything like that because if you do it, you do it once and for eternity so to say. So it has to be driven by other fundamental reasons and we believe as we have said that Sandvik is a great group. We have 23 market-leading divisions. And based on the strategy and operational performance, we should be able to create value and we have created value now in the current group structure.

Okay, so we have a few minutes left and three in line. So ask you to keep your Qs and A short.

Okay, that was record long but... If we start with the growth in machining, as we said, software is growing double digits now, not in the 20 to 30% range. And if you wait a little bit, you will soon get the broken out intelligent manufacturing restated figures. As you know since we will start report it separately so then you will get the exact figures, but it's below 20% let's say that. I'll jump to your third question on rock tools and ground support. Yes, so if parts and services are growing double and aftermarket is high single, you can see that they are a little bit below. That is I would say normal. All the dynamics I mentioned around the growth dynamic around service and parts, all of them are of course not relevant for rock tools and ground support. They are more purely production driven, so you have a little bit of a lower overall market growth. On tungsten, I'm not sure about that.

I think well it was a question on tungsten and tariff and reaching the peak now in terms of the prebuy impact. I think here some dynamics is that we will start to have these effects also in our comps as from the second quarter onwards. That of course limits the impact when you look at the year-over-year development. But I think in terms of are we at the peak or not is very hard to say. Both how tungsten or APT prices will develop, also with tariffs there were some discussions as you know between US and Europe again just a couple of weeks back additional tariff, so very hard to say how this will develop in 26.