Slide 1: Interim Report Fourth Quarter 2017
INTERIM REPORT FOURTH QUARTER 2017 1
Slide 2: 2017 – Record year in many aspects
2017 – RECORD YEAR IN MANY ASPECTS BROAD-BASED MARKET OPERATIONAL AND RECORD HIGH ADJUSTED RECOVERY STRUCTURAL IMPROVEMENTS EARNINGS Orders +15% and revenues +10% Group and SMT decentralization All segments and business areas in growth Progress in portfolio consolidation Footprint program finalized
Slide 3: Summary Q4
SUMMARY Q4 ROBUST DEMAND • ORDER INTAKE +15% • LARGE ORDER RECEIVED IN SMT • POSITIVE DEVELOPMENT IN ALL BUSINESS AREAS, REGIONS AND SEGMENTS STRONG ADJUSTED EARNINGS AND MARGIN • SUPPORTED PRIMARILY BY STRONG REVENUE GROWTH ADDITIONAL STRENGTH TO BALANCE SHEET FROM DISPOSAL • NET GEARING AT LOW LEV
Slide 4: Market development
Y/Y UNDERLYING DEMAND TREND MARKET DEVELOPMENT segment bubble size – share of group revenue 2017 Sequential % of group Y/Y underlying revenue FY17 order intake demand trend EUROPE 39% +16% NORTH AMERICA 21% +17% ASIA 20% +12% AFRICA/MIDDLE EAST 9% -2% SOUTH AMERICA 5% +19% AUSTRALIA 6% +32% 4 SANDVI
Slide 5: Order intake and revenues
ORDER INTAKE REVENUES ORDER GROWTH IN ALL SEGMENTS AND ACROSS BA:S DOUBLE DIGIT GROWTH IN ALL BA:S REPORTED P/V REPORTED P/V 24 106 15% 23 936 15% MSEK MSEK 25 000 95 000 25 000 95 000 20 000 85 000 20 000 85 000 15 000 75 000 15 000 75 000 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Order int
Slide 6: EBIT development
EBIT DEVELOPMENT MSEK +24% 5 000 19% EBIT ADJUSTED • 36% EBIT GROWTH 4 000 16% 4 066 EXCLUDING FX AND METALS MSEK • SUPPORTED BY 3 000 13% ADJUSTED EBIT % STRONG REVENUE GROWTH 17.0 2 000 10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 EBIT* EBIT%* *Adjusted for items affecti
Slide 7: Sandvik Machining Solutions
SHARE OF REVENUES 2017 40% SANDVIK MACHINING Q4 2016 Q4 2017 CHANGE SOLUTIONS MSEK ORDER INTAKE 8 688 9 424 +12%* STRONG UNDERLYING GROWTH REVENUES 8 734 9 310 +10%* − Negative working day effect of -1.5% OPERATING PROFIT 1 883 2 282 +21% % OF REVENUES 21.6% 24.5% − Large orders PBT +1% *At fixed ex
Slide 8: Sandvik Mining and Rock Technology
SHARE OF REVENUES 2017 40% SANDVIK MINING AND Q4 2016 Q4 2017 CHANGE ROCK TECHNOLOGY MSEK ORDER INTAKE 9 145 9 586 +10%* REVENUES 8 418 9 732 +21%* STRONG UNDERLYING MARKET SENTIMENT OPERATING PROFIT 986 1 575 +60% − Strong development in replacement equipment, % OF REVENUES 11.7% 16.2% both undergr
Slide 9: Sandvik Materials Technology
SHARE OF REVENUES 2017 15% SANDVIK MATERIALS MSEK Q4 2016 Q4 2017 CHANGE TECHNOLOGY ORDER INTAKE 2 943 3 964 +38%* REVENUES 3 366 3 633 +10%* OPERATING PROFIT 404 270 -33% INCREASED ORDERS ALBEIT UNFAVORABLE MIX % OF REVENUES 12.0% 7.4% − Large order for O&G of 630 MSEK UNDERLYING MARGIN³ 8.8% 4.6%
Slide 10: Consolidation of business portfolio
CONSOLIDATION OF BUSINESS PORTFOLIO ~10% ~4% MINING SYSTEMS HYPERION OF GROUP OF GROUP EBIT REVENUES PROCESS SYSTEMS WELDING WIRE 10 Including Mining Systems reported in discontinued operations SANDVIK: Interim Report on the fourth quarter 2017 Comments and numbers refer to continuing operations unl
Slide 11: Tomas Eliasson, CFO
TOMAS ELIASSON CFO SANDVIK |_|
Slide 12: Financial summary
GROWTH, % ORDER REVENUES INTAKE ORGANIC: +15 +15 FINANCIAL SUMMARY CURRENCY: STRUCTURE: -4 -1 -4 -1 TOTAL +10 +10 MSEK Q4 2016 Q4 2017 CHANGE % FY 2016 FY 2017 CHANGE % ORDER INTAKE 21 993 24 106 +15¹ 81 861 95 444 +15¹ REVENUES 21 817 23 936 +15¹ 81 553 90 905 +10¹ OPERATING PROFIT 3 277 7 976 n/a
Slide 13: Bridge analysis
BRIDGE ANALYSIS SANDVIK GROUP PRICE/ VOLUME/ STRUCTURE MSEK Q4 2016 PRODUCTIVITY CURRENCY ONE-OFFS* Q4 2017 REVENUES 21 817 3 197 -896 -182 23 936 ADJUSTED EBIT 3 277 1 231 -375 -67 4 066 ADJUSTED EBIT MARGIN 15.0% 39% - - 17.0% MARGIN ACCRETION / DILUTION +3.0% -0.8% -0.2% • Includes metal price ef
Slide 14: Bridge analysis full year
BRIDGE ANALYSIS SANDVIK GROUP FULL YEAR PRICE/ VOLUME/ STRUCTURE MSEK 2016 PRODUCTIVITY CURRENCY ONE-OFFS* 2017 REVENUES 81 553 8 059 +1 065 +228 90 905 ADJUSTED EBIT 11 018 3 585 +45 -10 14 638 ADJUSTED EBIT MARGIN 13.5% 44% - - 16.1% MARGIN ACCRETION / DILUTION +2.8% -0.15% -0.05% • Includes metal
Slide 15: Net working capital / relative NWC by BA
NET WORKING CAPITAL RELATIVE NWC BY BA RECORD-LOW MSEK 27 500 35% 45% 40% 25 000 30% 35% 30% 22 500 25% 25% 20 000 20% 20% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 NWC (continuing operations) Sandvik Machining Solutions Sandvik Mining & Rock Technology NWC % of revenues (continuing operatio
Slide 16: Free operating cash flow
FREE OPERATING CASH FLOW MSEK 6 000 16 000 5 000 MSEK Q4 2016 Q4 2017 Δ 14 000 EBITDA + non cash 4 386 5 227 +841 4 000 NWC change 968 1 212 +244 3 000 12 000 Capex* -1 254 -1 354 -100 2 000 FOCF** 4 100 5 085 +985 10 000 1 000 *Including investments and disposals in rental, tangible and intangible
Slide 17: Net debt
NET DEBT MSEK GEARING 40 000 1,4 1,2 • S&P CREDIT RATING UPGRADE – FROM BBB TO BBB+ 30 000 1,0 20 000 0,8 • NET GEARING 0.33 10 000 0,6 – SUPPORTED BY SPS DIVESTMENT 0,4 0 0,2 2013 2014 2015 2016 2017 Net debt excl. net pension liability Net pension liability Net gearing incl. net pension liabilitie
Slide 18: Reported and underlying tax rate
REPORTED AND UNDERLYING TAX RATE Q4 2017 Q1-4 2017 REPORTED 16.7 22.3 EXCL. CAPITAL GAIN SPS 22.3 25.5 EXCL. SPS AND US TAX 27.3 27.0 REFORM TAX RATE 26-28% STILL VALID FOR 2018 18 SANDVIK: Interim Report on the fourth quarter 2017 Comments and numbers refer to continuing operations unless otherwise
Slide 19: Outcome and guidance
OUTCOME AND GUIDANCE Q4 2017 Underlying currency effect (MSEK): -403 (-450) Total currency effect (MSEK): -375 Metal price effect in quarter (MSEK): +101 (~0) Q1 2018 Underlying currency effect (MSEK): -250* Metal price effect in quarter (MSEK): +100** FULL YEAR 2018 Capex (BSEK): ~4 (FY17: 3.6) Net
Slide 20: Dividend proposal
DIVIDEND PROPOSAL 12 Payout ratio % 10 2015 2016 2017 8 Reported 140 63 33 Adjusted 6 57 63 44 4 2 2,50 2,75 3,50* 0 2015 2016 2017 *Proposed div idend Dividend EPS Reported EPS adjusted SANDVIK: Interim Report on the fourth quarter 2017 Comments and numbers refer to continuing operations unless oth
Slide 21: Looking forward
LOOKING FORWARD FOCUS ON GROWTH – ORGANIC AND M&A • M&A MOST LIKELY IN SMS GRADUAL SMT IMPROVEMENT IMPLEMENTATION OF TURNAROUND ACTIONS CONTINUOUS EFFICIENCY IMPROVEMENTS NEW PRODUCTS PERFOMAX® DRILL SECO TOOLS RANGER DXI SURFACE TOP HAMMER DRILL TITANIUM POWDER DEVELOPMENT SANDVIK: Interim Report o
Slide 22: Back-up slides
BACK-UP SLIDES SANDVIK P|
Slide 23: End-customer segments
MINING ENERGY (31%) (11%) GENERAL CONSTRUCTION ENGINEERING (11%) (24%) AUTOMOTIVE AEROSPACE (13%) (6%) END-CUSTOMER SEGMENTS (% of group revenues 2017 excl. Mining systems; Other e.g. consumer goods, electronics, chemical and miscellaneous was 4% ) 23 SANDVIK: Interim Report on the fourth quarter 20
Slide 24: Reaching the targets ahead of plan
REACHING THE TARGETS AHEAD OF PLAN ABSOLUTE ROCE NET DEBT/ DIVIDEND EBIT GROWTH IMPROVEMENT EQUITY RATIO PAYOUT RATIO ≥7% ≥3%PTS <0.8 50% CONTINUING OPERATIONS 100% BSEK % +15.8% +5 pts 1.2 50% 1.0 1.0 13.9 TARGET 0% 0.8 2015 2016 2017 0.7 0.6 10.4 GROUP TOTAL ~14% ~19% 0.4 0.3 150% 0.2 100%
Slide 25: Profitability development
GROUP LEVERAGE: PROFITABILITY DEVELOPMENT +39% +32 -375 -8 -59 4,066 +1,199 3,277 EBIT Q4 16 ORGANIC ANNOUNCED CURRENCY METAL PRICE STRUCTURE EBIT Q4 17 GROWTH SAVINGS EFFECT SMT PROGRAMS ADJUSTED 15.0% 17.0% MARGIN 25 SANDVIK: Interim Report on the fourth quarter 2017 Comments and numbers refer to
Slide 26: Bridge analysis
BRIDGE ANALYSIS PRICE/ VOLUME/ STRUCTURE MSEK Q4 2016 PRODUCTIVITY CURRENCY ONE-OFFS* Q4 2017 MACHINING SOLUTIONS REVENUES 8 734 863 -287 - 9 310 EBIT 1 883 552 -153 - 2 282 EBIT MARGIN 21.6% +64% - - 24.5% MINING AND ROCK TECHNOLOGY REVENUES 8 418 1 801 -487 - 9 732 EBIT 986 785 -196 - 1 575 EBIT M
Slide 27: All programs completed, 93% delivered
ALL PROGRAMS COMPLETED 93% DELIVERED SAVINGS ANNUAL RUN-RATE (MSEK) VS. LAST YEAR AND TOTAL TARGET 2.1 BSEK GROUP TOTAL SANDVIK MACHINING SANDVIK MINING AND SANDVIK MATERIALS ACTIVITIES ANNUAL RUN-RATE SOLUTIONS ROCK TECHNOLOGY TECHNOLOGY VS. LAST YEAR SAVINGS ANNUAL RUN-RATE SUPPLY CHAIN OPTIMIZATO
Slide 28: All programs finalized – sites closed
ALL PROGRAMS FINALIZED – 23 SITES CLOSED SUPPLY CHAIN OPTIMIZATION PROGRAM FIRST PHASE (10) CONTINUING OPERATIONS FINALIZED AT END Q4 2015 RUN-RATE SAVINGS 600 MSEK END OF Q4 (out of 690 MSEK target) SECOND PHASE (8) FINALIZED AT END Q4 2017 (LAST UNIT CLOSED Q4 2017) RUN-RATE SAVINGS OF 320 MSEK (3
Slide 29: Other operations
SHARE OF REVENUES 2017 5% OTHER OPERATIONS NON-STRATEGIC ASSETS CLOSURE OF SPS DIVESTMENT 1 DEC 2017 • Resulted in 3.9 BSEK capital gain DISPOSAL OF HYPERION • Carve-out process progressing according to plan, closure expected during H1 2018 ADJUSTED EARNINGS IMPACTED BY TRANSACTION RELATED COSTS • E
Slide 30: Other operations
SHARE OF REVENUES 2017 5% OTHER OPERATIONS NON-STRATEGIC ASSETS MSEK ORDER INTAKE REVENUES 2 000 25% 1 133 1 261 1 500 20% MSEK MSEK 1 000 15% EBIT ADJUSTED ROCE 500 10% 149 18% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 5% MSEK 2014 2015 2016 2017 Revenues ROCE %² EBIT % adjusted¹ ¹Adjusted
Slide 31: Loan and duration profile
LOAN AND DURATION PROFILE AMOUNT MSEK AVERAGE DURATION LONG TERM US Private Placement 4 796 3 years Fin institutions, EIB, NIB 1 408 6 years 96% Swedish MTN European MTN 5 647 10 821 3 years 8 years Bank loans 169 1 year Share swap - - SHORT TERM US Private Placement 0 0 month Fin institutions, EIB,
Slide 32: Loan maturity profile
LOAN MATURITY PROFILE MSEK 4 500 AVERAGE 4 000 INTEREST RATE: 3 500 ~4% 3 000 2 500 2 000 1 500 1 000 500 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 32 SANDVIK: Interim Report on the fourth quarter 2017 Comments and numbers refer to continuing operations unless
Slide 33: Guidance
GUIDANCE CAPEX Estimated at about 4 BSEK for 2018 CURRENCY Given currency rates at end of January 2018 the effect on operating profit from transaction and EFFECTS translation would be -250 MSEK for Q1 2018 METAL PRICE Given currency rates, stock levels and metal prices at the end of January 2018, it
Slide 34: 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