Slide 1: Interim Report Second Quarter 2014
INTERIM REPORT JULY 17 SECOND QUARTER 2014
Slide 2: Summary Q2 2014
SUMMARY Q2 2014 DELIVERY ON OUR STRATEGIC AGENDA • Closure of 4 additional production units initiated • Varel acquisition finalized STABLE MARKET CONDITIONS • Overall largely unchanged demand vs end of Q1 • Mining market stable at a low level EBIT 2,556 MSEK, 11.6% • Acquisition related cost -75 MSE
Slide 3: Our Way Forward
OUR WAY FORWARD SANDVIK SANDVIK SANDVIK SANDVIK SANDVIK MINING MACHINING MATERIALS CONSTRUCTION VENTURE SOLUTIONS TECHNOLOGY Shifting geographic Adjusting overcapacity Accelerate growth of strategic Realign production footprint Develop existing portfolio footprint closer to (reducing production unit
Slide 4: Growth Opportunities with Varel on Board
GROWTH OPPORTUNITIES WITH VAREL ON BOARD STRONG STRATEGIC MATCH • Solid position in focus sector oil and gas • Drilling technologies • Completion tools for complex wells • Sales primarily driven by • Number of wells drilled • Complexity of wells • Footage drilled • High growth and strong profitabili
Slide 5: Growth Opportunities with Varel on Board
GROWTH OPPORTUNITIES WITH VAREL ON BOARD FINANCIAL SUMMARY VAREL SYNERGIES WITH SANDVIK Q2 Actual (21 May – 30 June) Synergies with Sandvik • Invoicing 248 MSEK • Supply chain cost synergies • Adjusted EBIT 33 MSEK (13.2%) • Leverage technical know-how and R&D capabilities • Utilize global reach Est
Slide 6: Invoicing by Markets and Segments
INVOICING BY MARKETS AND SEGMENTS MARKETS, SHARE OF GROUP TOTAL CUSTOMER SEGMENTS EUROPE ASIA Consumer related Invoicing growth vs Q22013 Other 39% 19% Aerospace > +5% -5 to +5% -5%* +1%* Energy < -5% NORTH AMERICA AUSTRALIA 19% 7% Automotive Mining -5%* -17%* AFRICA SOUTH AMERICA 9% 7% Construction
Slide 7: Order Intake and Invoicing
ORDER INTAKE INVOICING 21,194 MSEK 22,051 MSEK CHANGE P/V +0% CHANGE P/V -6% MSEK MSEK 30 000 150% 30 000 120% 25 000 125% 25 000 100% 20 000 100% 20 000 80% 15 000 75% 15 000 60% 10 000 50% 10 000 40% 5 000 25% 5 000 20% 0 0% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 201
Slide 8: EBIT and Cash Flow
EBIT 2,556 MSEK CASH FLOW MARGIN 11.6% CASH FLOW FROM OPERATING ACTIVITIES 1 355 MSEK MSEK MSEK 5 000 40% 5 000 350% 300% 4 000 4 000 30% 250% 3 000 3 000 20% 200% 2 000 2 000 150% 10% 100% 1 000 1 000 50% 0% 0 2007 2008 2009 2010 2011 2012 2013 2014 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 -10%
Slide 9: Financial Targets
FINANCIAL TARGETS CURRENT TARGET MANAGEMENT FOCUS • Product launches through focused R&D GROWTH -4%* 8% • Increase exposure towards high growth markets and segments • Adjust geographic footprint • Reduce Net Working Capital ROCE 12.3%** 25% • Selective capital allocation (investments) • Restore earn
Slide 10: Mats Backman, CFO
MATS BACKMAN CFO
Slide 11: Restructuring Our Footprint
RESTRUCTURING OUR FOOTPRINT PRODUCTION UNITS Reduce number of production units from 150 to 125 over next three to four years 150 Initiated closures Initial phase launched in Q4 2013 • Closure of ~10 units 125 • Annual savings of 800 MSEK at end 2015 • Total restructuring cost 900 MSEK (Q4 2013) 100
Slide 12: Restructuring Our Footprint
RESTRUCTURING OUR FOOTPRINT FIRST PHASE - PLANNED TIME OF COMPLETION FOR INITIATED CLOSURES Q2 2014 H2 2014 2015 TOTAL SANDVIK MINING - 2 3 5 SANDVIK MACHINING SOLUTIONS - 2 2 4 SANDVIK CONSTRUCTION 1 - 1 2 GROUP TOTAL 1 4 6 11 11 Sandvik Interim Report on the second quarter 2014
Slide 13: Net Working Capital
NET WORKING CAPITAL MSEK 35 000 45% 40% 30 000 35% 25 000 30% 20 000 25% TARGET 15 000 20% 15% 10 000 10% 5 000 5% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 Net working capital Net working capital / Invoiced sales 12 Sandvik Interim Report on the second quarter 2014
Slide 14: Net Working Capital
NET WORKING CAPITAL % OF INVOICING BY BUSINESS AREA 60% 50% 40% 30% TARGET 20% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 Sandvik Mining Sandvik Machining Solutions Sandvik Materials Technology Sandvik Construction 13 Sandvik Interim Report on the second quarter 2014
Slide 15: Two Successful Bond Issues
TWO SUCCESSFUL BOND ISSUES FURTHER IMPROVED MATURITY PROFILE AND ATTRACTIVE RATES • Swedish Medium Term Note program • 4 BSEK • Maturity 2020/2021 • Listed on NASDAQ OMX Stockholm • Euro Medium Term Note program • 350 MEUR • 12 years • 3% coupon rate 14 Sandvik Interim Report on the second quarter 2
Slide 16: Summary
SUMMARY DELIVERY ON STRATEGY SUPPLY CHAIN OPTIMIZATION PROGRAM FIRST PHASE FULLY INITIATED POTENTIAL TO IMPROVE CAPITAL EFFICIENCY STABLE DEMAND 15 Sandvik Interim Report on the second quarter 2014
Slide 17: Back-up Slides
BACK-UP SLIDES
Slide 18: Acquisition of Varel
ACQUISITION OF VAREL ACQUISITION PRICE AND GOODWILL PURCHASE PRICE ALLOCATION Purchase price 5.1 BSEK Assigned to tangible and intangible assets 1.6 BSEK • Consideration for shares 2.8 BSEK • Amortized over 10 years • Loan settlement 2.3 BSEK • ~40 MSEK per quarter Assigned to inventories 170 MSEK G
Slide 19: Sandvik Mining Q2 2014
SANDVIK MINING Q2 2014 STABILIZED DEMAND • No signs of recovery nor further deterioration EBIT452 MSEK, 7.1% • Currency effects -115 MSEK • Low sales and production rates SUPPLY CHAIN OPTIMIZATION • Closure of an additional 4 units initiated in Australia (3) and Germany 18 Sandvik Interim Report on
Slide 20: Sandvik Mining Q2 2014
SANDVIK MINING Q2 2014 MSEK Order intake 6,217 MSEK 10 000 50% Invoicing 6,385 MSEK 8 000 40% 6 000 30% EBIT 452 MSEK 4 000 20% ROCE 10.5% 2 000 10% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 -2 000 -10% Invoicing EBIT margin ROCE 12 months 19 Sandvik Interim Report on the second quarter 2014
Slide 21: Sandvik Machining Solutions Q2 2014
SANDVIK MACHINING SOLUTIONS Q2 2014 STABLE BUSINESS CONDITIONS • Strong development in the aerospace industry • Europe on par with the preceding quarter • Positive development in Asia EBIT 1,561 MSEK, 20.3% • Currency effects -30 MSEK DELIVERY ON OUR STRATEGIC AGENDA • Investments in sales and R&D •
Slide 22: Sandvik Machining Solutions Q2 2014
SANDVIK MACHINING SOLUTIONS Q2 2014 MSEK Order intake 7,768 MSEK 10 000 50% Invoicing 7,676 MSEK 8 000 40% EBIT 1,561 MSEK 6 000 30% 4 000 20% ROCE 27.7% 2 000 10% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 -2 000 -10% Invoicing EBIT margin ROCE 12 months 21 Sandvik Interim Report on the second qu
Slide 23: Sandvik Materials Technology Q2 2014
SANDVIK MATERIALS TECHNOLOGY Q2 2014 STABLE DEMAND AND PROFITABILITY • Operating margin, 12.2% adjusted for metal price effects • Currency effects 50 MSEK STRATEGIC ALLIANCE WITH TENARIS FOR OIL AND GAS PRODUCTS INVENTORY BUILD-UP • Increased stock availability in preparation for maintenance stops d
Slide 24: Sandvik Materials Technology Q2 2014
SANDVIK MATERIALS TECHNOLOGY Q2 2014 MSEK Order intake 3,449 MSEK 6 000 30% 5 000 Invoicing 3,866 MSEK 20% 4 000 EBIT 647 MSEK 3 000 10% Adjusted for metal price effects, 2 000 470 MSEK, 12.2 % of invoicing 0% 1 000 ROCE 12.0% 0 2007 2008 2009 2010 2011 2012 2013 2014 -10% -1 000 -20% Invoicing -2 0
Slide 25: Sandvik Construction Q2 2014
SANDVIK CONSTRUCTION Q2 2014 CONTINUED CHALLENGING MARKET CONDITIONS • Slightly improved activity in South America EBIT 51 MSEK, 2.3% • Low sales and production rates • Currency effect -40 MSEK CLOSURE OF PRODUCTION UNIT IN CHAUNY, FRANCE COMPLETED 24 Sandvik Interim Report on the second quarter 201
Slide 26: Sandvik Construction Q2 2014
SANDVIK CONSTRUCTION Q2 2014 MSEK Order intake 2,013 MSEK 4 000 40% Invoicing 2,281 MSEK 3 000 30% 2 000 20% EBIT 51 MSEK 1 000 10% ROCE -1.6% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 -1 000 -10% -2 000 Invoicing EBIT margin ROCE 12 months -20% 25 Sandvik Interim Report on the second quarter 201
Slide 27: Sandvik Venture Q2 2014
SANDVIK VENTURE Q2 2014 UNCHANGED MARKET CONDITIONS ADJUSTED EBIT 262 MSEK (14.2%) • EBIT 187 MSEK (10.2%) • Acquisition related cost 75 MSEK VAREL ACQUISITION FINALIZED • Consolidated as from 21 May 26 Sandvik Interim Report on the second quarter 2014
Slide 28: Sandvik Venture Q2 2014
SANDVIK VENTURE Q2 2014 MSEK Order intake 1,741 MSEK 3 000 40% 2 000 30% Invoicing 1,841 MSEK 20% 1 000 EBIT 187 MSEK 10% 0 2007 2008 2009 2010 2011 2012 2013 2014 0% ROCE 15.8% -1 000 -10% -2 000 -20% -3 000 -30% -4 000 -40% -5 000 -50% Invoicing EBIT margin ROCE 12 months 27 Sandvik Interim Report
Slide 29: Bridge Analysis Sandvik Group
BRIDGE ANALYSIS SANDVIK GROUP PRICE/ VOLUME/ STRUCTURE MSEK Q2 2013 PRODUCTIVITY CURRENCY ONE-OFFS* Q2 2014 Invoicing 23,043 -1,400 -30 390 22,051 EBIT 2,961 -600 -200 385 2,556 EBIT margin 12.8% -43% - - 11.6% * Includes metal price effects 28 Sandvik Interim Report on the second quarter 2014
Slide 30: Bridge Analysis
BRIDGE ANALYSIS PRICE/ VOLUME/ STRUCTURE MSEK Q2 2013 PRODUCTIVITY CURRENCY ONE-OFFS* Q2 2014 SANDVIK MINING Invoicing 8,136 -1,500 -235 - 6,385 EBIT 1,153 -600 -115 - 452 EBIT margin 14% -40% - - 7% SANDVIK MACHINING SOLUTIONS Invoicing 7,281 200 135 50 7,676 EBIT 1,525 60 -25 - 1,561 EBIT margin 2
Slide 31: Bridge Analysis
BRIDGE ANALYSIS PRICE/ VOLUME/ STRUCTURE MSEK Q2 2013 PRODUCTIVITY CURRENCY ONE-OFFS Q2 2014 SANDVIK CONSTRUCTION Invoicing 2,326 -60 15 - 2,281 EBIT 141 -55 -35 - 51 EBIT margin 6% -92% - - 2% SANDVIK VENTURE Invoicing 1,332 145 50 315 1,841 EBIT -18 70 10 125 187 EBIT margin -1% 48% - - 10% 30 San
Slide 32: Loan and Duration Profile
LOAN AND DURATION PROFILE LONG TERM 84% AMOUNT MSEK AVERAGE DURATION US Private Placement 5,563 5 years Fin institutions, EIB, NIB 2,299 8 years Swedish MTN 11,512 5 years European MTN 10,081 12 years Bank loans 321 3 years Share swap 1,657 1 year SHORT TERM 16% Commercial paper 2,452 6 months Fin i
Slide 33: Loan Maturity Profile
LOAN MATURITY PROFILE MSEK 3 000 Loan Cash position 2 000 1 000 0 -1 000 -2 000 -3 000 -4 000 -5 000 6 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2029 2032 2033 Months 32 Sandvik Interim Report on the second quarter 2014
Slide 34: Guidance
GUIDANCE CAPEX Estimated at about 5bn SEK for 2014. CURRENCY EFFECTS Given currency rates at quarter end the effect on EBIT would be marginal for Q3 2014. Given currency rates, stock levels and metal prices at the quarter end, it is estimated METAL PRICE EFFECTS that EBIT for Q3 2014 will be affecte
Slide 35: Disclaimer Statement
DISCLAIMER STATEMENT “Some statements herein are forward-looking and the actual outcome could be materially different. In addition to the factors explicitly commented upon, the actual outcome could be materially affected by other factors for example, the effect of economic conditions, exchange-rate