Good afternoon, and welcome to Sandvik's presentation of the first quarter results 2026. We want to start apologizing. We had some technical issues, and therefore we're a bit late. We will start as usual, with Sandvik presenting the highlights of the first quarter, and presenting our CEO, Stefan Widing, and our CFO, Cecilia Felton. My name is Louise Tjeder, Head of Investor Relations. We start with the presentation, and the remaining time we will spend on the Q&A session. With this short welcome, I hand over the word to you, Stefan.
Thank you, Louise. Also from my side, welcome to our first quarter report in 2026. As you have already seen, we had a strong start to the year. Strong demand across all business areas with double-digit organic growth in the quarter in all four business areas. Total order intake grew by 12%, and organic order intake growth was 23%. Total revenues increased by 5%, and the organic growth was 15%. Adjusted EBITA was just over SEK 6.1 billion, corresponding to a margin of 20%, up from 19.7% last year. Also, the adjusted profit for the period increased to SEK 4.1 billion from SEK 3.8 billion in the prior year. We had a free operating cash flow of SEK 3.6 billion, corresponding to a cash conversion of 62%, which is in line with normal seasonality for this time of the year. Some strategic highlights in the quarter.
In mining, we completed an acquisition of ThoroughTec Simulation. ThoroughTec is designing and delivering OEM-agnostic mining and construction training simulators. This is a key capability for us as there is a skills gap in the industry, and the machines are getting more and more advanced. A very good addition that will strengthen our aftermarket and digital offering. Rock Processing launched two new cone crushers in the high running segments, the 400 and the 600 series, in the quarter. They have improved aftermarket capabilities and improved automation capabilities, for example. Intelligent Manufacturing have launched a very important technology for us, EverPath. EverPath is the next generation toolpath platform. Toolpath platforms are basically the brains of a CAM software. It's the algorithms that are defining the path the tool will take when you machine a component. Most players in the industry are using a third-party algorithm for this.
We have spent the last three years developing our own unique algorithms based on Sandvik knowledge, that provides better quality and higher performance in the machining process. This is, again, core technology for us, and we will spend more time talking about this also going forward. You will probably hear more about it at our CMD, for example. I cannot underestimate how important this launch has been or will be going forward. Also in machining, we completed an acquisition of K&Y Diamond. This is a Canadian company, and the leading manufacturer of monocrystalline diamond tools, for ultra-precision applications such as optics, medical, and aerospace, where you need extremely good surface finish. This is a technology that is required. We have not had it in-house before, so it adds strong capabilities in high-growth segments that are important for us going forward. Going into the mining market.
Here we have continued good momentum both upstreams and downstreams. The activity levels remain high in the industry, driven by favorable commodity prices. We also have a high production pace, more advanced machines, and combination with an aging fleet that is driving consumption of parts and services. We also continue to see strong investments in digital and automation, and we see increasing exploration activities, of course, also driven by the favorable commodity prices. If you look at the infrastructure market, we have indicated in previous quarters that we have started to see some improvements, but we have been waiting now for the first quarter, which is an important quarter for ordering ahead of the summer season. We're happy to see a strong recovery in infrastructure in both U.S. and Europe, and in both aggregates and demolition and recycling.
In Asia, it's a bit more mixed picture, where China is more muted while India is strong. You might have seen in the report we have a new market segmentation for machining for the current state of the business. The old one was starting to get a bit obsolete, so wanted to take a few moments to explain it here. We have general industry, 64% of the business. This is the previous general engineering segment, which also includes a big portion of the distribution sales, complemented by a number of other smaller segments that tend to go into general industry, or products that are going broadly into various markets. We have aerospace and defense, the second largest segment, 12%. Here we have aerospace defense and space, which is an increasingly important segment for us. We have light vehicles at 9%, which I think is self-explanatory.
Mining and energy, 7% of the business. Also fairly self-explanatory. Transportation, which is 6%, and here we have heavy vehicles such as trucks, railway, and shipbuilding. We have the smaller segment, medical and electronics, 2%, that we are breaking out also because it's a strategically important segment with high growth going forward. Something we want to highlight more in the future. These are the segments we will comment on going forward. If we do that, I want to also emphasize the arrows on this slide represents the underlying development in the market. It's not representative of our organic growth. I will come to that. This is how we see the underlying market development. Here we can see general industry has turned positive. It's been flat for a couple of quarters.
Now we see early signs of an improvement in general industry, basically in all regions. Aerospace and defense continues to be very strong across the board. A little bit flatter in China. We should remember that in China, this is primarily commercial aviation, and certain segments are missing in China for compliance reasons. Light vehicles is down overall, a muted market, a bit flattish in Europe, but down in North America and China, very strong in India, but quite weak in the rest of the world. The other segments, mining and energy, transportation, medical, and electronics are all fairly positive. They are up in Europe, a little bit more mixed in North America and China.
We are not commenting on these in India and rest of the world, because in that combination, it's too small sales to draw any real conclusions from the underlying market in a given quarter. I usually comment also on our organic growth. We thought, why not include that as a picture as well? Here you see our organic growth, our price volume in the combination of these segments and regions. You have a zero for flat, one plus for low single, two pluses for mid single, three pluses for high single digit, and four pluses for double digits, or of course, minuses if it's going in the negative direction. This will, of course, broadly correlate with underlying development, but it's not a given in every place, so to say.
You can see general industry, Europe up high single, while in North America, China, and India is up double digits, rest of the world up mid-single and overall up double digits. Aerospace and defense strong across the board, double-digit growth. Light vehicles then a bit more mixed. Overall, low single-digit growth. Same as in Europe and North America, flattish in China, strong in India, weak in rest of the world. For the other segments and regions, you can see good development, high single digits to double-digit growth, more or less, in all combinations here of segments and regions. A good demand picture overall, except for light vehicles. Looking then at order intake and revenues. We have order intake of SEK 36.8 billion, which is an all-time high. We have revenues of SEK 30.7 billion, and this is a Book- to- Bill of 120%. Very positive, of course.
You know we always tend to have a positive Book- to-B ill in the first quarter, but I think it's fair to say that the order intake was stronger than we also had expected in the quarter. A very strong performance from the business. Looking then at this from a growth perspective, we can see that we had the fourth consecutive quarter of double-digit organic order growth, eighth consecutive quarter of growth on the order side. We also see now the revenues are starting to pick up with the second quarter of double-digit revenue growth now following the strong order trend. Going into our business areas, starting with mining, continued very strong demand with positive momentum across the board, pretty much. We have a record high order intake. First time we passed SEK 19 billion in a single quarter.
We have double-digit organic order intake growth in equipment, and as you can see in the table down to the right, it's actually up 43%, which is a strong performance given also relatively good comps. Aftermarket up also in the double digits or 11%. Also want to emphasize the strong performance we saw in Digital Mining Technologies, which is also reported in the aftermarket portion of the business here, helping that further. Total order intake increased by 11% and the organic growth was 22%. If we exclude major orders, it was up 26%, showing a very strong underlying demand that is very broad-based in the business. Adjusted EBITA around SEK 3 billion, pretty much the same as last year.
Profit margin 19.8%, down from 20.8%. We have a very strong operating leverage of 38% on the higher volumes, but it's not enough to offset the very negative currency impact of SEK 810 million, which is a margin dilution of 310 basis points. Should also comment maybe a bit on the seasonality of the revenues. We have a revenue growth of 14%, which is the same as we saw in Q4, meaning that the ramp-up is continuing as planned, and also meaning that we have the same sort of sequential seasonality drop from Q4 to Q1 as we had also last year. That, as you can see in this graph, is what we normally have as a seasonality impact in the first quarter. Ramp-up is continuing as planned otherwise. Rock Processing, a solid recovery in infrastructure, as we've said, broad-based demand in both demolition and recycling and aggregates.
Positive underlying demand in mining. The total order intake increased by 3% and organically it increased by 12%. We had a couple of large orders, which was nice to see. Besides, if we exclude that, the organic order intake growth was 6%. You can also see in the table to the right that the orders were driven by strong equipment orders, a little bit weaker on the aftermarket side. That is primarily a timing effect related to some specific customers that we expect to recover throughout the year. Profitability was weak in the quarter, SEK 290 million, a margin of 12%, down from 15.1% last year. We had the revenue growth organically of 0%, which as you can understand, means a negative volume if we take out the price component. This was driven by timing of deliveries. We didn't manage to get out certain deliveries that was planned.
Unfortunately, these were also higher margin products. We have a negative volume in combination with a negative mix in the quarter, driving a negative organic operating leverage. Not happy with the margin in the quarter, but we expect them to recover throughout the year. Of course, the negative currency of 220 basis points when the volume is negative, that will hit straight into the P&L. Very difficult to mitigate that with a negative volume. That was a challenge for them as well in the quarter. Machining had a very eventful quarter, we can say, driven by the dynamics in the Wolfram market, but strong underlying demand in important segments as you have seen, aerospace, defense, medical, very strong. Also solid demand in general industry. This is partly driven by pre-buying, but also we are seeing early signs of an improved underlying sentiment in the market.
Cutting tools grew by 18% on the order side and 10% on the revenue side. This difference is important because this is essentially when we talk about pre-buying, what we are really talking about is pre-ordering. This is the delta between orders and revenues, our customers placing orders for a bit later delivery, to secure supply and to secure price. We have the powder business, which more than doubles their order intake in the quarter, driven then by the surging tungsten prices. Order intake increased by 17% and organically by 28%. If we look at the first weeks now in April, we see the daily order intake for cutting tools being above the average daily order intake in the first quarter, if we take normal seasonality into account.
We want to emphasize that there is of course more uncertainty than normal in this, given the volatile dynamics around tungsten and also in general in the world. We are seeing a good start of April for sure. EBITA in the quarter, SEK 2.8 billion, up from SEK 2.4 billion, a profit margin of 22.9%, up from 21%. Here we have good price realization, with cost inflation being covered by pricing. We also have a positive margin effect driven by timing in the powder business. We can comment more on that later. I'm sure you have questions. Also, higher volumes, savings from the restructuring program, contributed positively, and we have a very good organic leverage of 41% in the quarter. Of course, a negative currency impact of 130 basis points offsetting part of that. Intelligent Manufacturing then, first time reported as a standalone business area. A good start of the year.
A solid broad-based demand for both CAM and metrology software solutions. We see the strongest growth in North America and also globally in the aerospace and defense segments. We have high single-digit organic intake growth in maintenance and double-digit growth in license sales. This is also partly due to lower comps as last year started a bit on the weaker side. We also see good growth in subscription sales. That is also why we have the table you can see down to the right, where we have the reported organic growth of 11%, but we also show the impact that the conversion from perpetual license to subscription is given to the top line. You can also see the underlying growth. As we have said before, subscription are still at a low level for us. We are at the start of this journey.
It's in the low single digits currently, but with good growth. We expect that to continue to grow over the next years. Total order intake increased by 6%, and then, as I said, organically by 11%. Solid profitability, margin of 20.7% versus 20.6% last year. Since this is a new business area, you're not so familiar with it, but I think it's important to look at the 2025 bars in the graph. You will see that we have a clear seasonality effect in Intelligent Manufacturing, when margins are lower in the first half of the year and much stronger in the second half of the year. This is an expected and solid start of the year from a margin point of view.
We have higher volumes and good price realization, but partly offset by a restructuring charge that we have taken that impacts the margin by about 100 basis points. This charge is not in items affecting comparability because we expect to see returns within the year. We just see it as a timing effect on margin. Yeah, this will contribute positively then in the next quarters throughout the year. We also had currency diluting by 50 basis points and structure having an accretion, driving an accretion by 10 basis points. With that, I hand over to you, Cecilia.
Yeah. Thank you, Stefan. All right, let's dive into the numbers then together in a bit more detail. As Stefan mentioned, we had good growth both on orders and revenues. Orders reaching SEK 36.8 billion, and revenues SEK 30.7 billion. Earnings grew year-on-year by 6%, reaching SEK 6.1 billion, and that then corresponds to a margin of 20%, so within our margin corridor. Net financial items came down year-over-year. I will go through that in a bit more detail in a few minutes. The tax rate, excluding items affecting comparability, was 25.2%, and on a normalized basis it was 24%. Net working capital continued to trend down both year-over-year and also sequentially on a 12-month rolling basis, reaching 28.1%. Free operating cash flow was SEK 3.6 billion, corresponding to a cash conversion of 62%.
Returns improved slightly year-over-year, and Adjusted EPS increased to SEK 3.27. If we then look at the profitability development, as I said, Adjusted EBITA grew by 6% year-over-year, reaching SEK 6.2 billion. As Stefan mentioned, this was driven by good price realization, higher volumes, and also a positive margin effect, mainly driven by timing in the powder business. From a group perspective, savings were accretive with 40 basis points, which then resulted all in all in a good leverage of 41%. We still had a significant headwind in terms of currency, 240 basis points for the group. On a 12-month rolling basis, the Adjusted EBITA margin is now at 19.4%. If we continue with the bridge then, and starting with the organic column, as I mentioned, a good leverage of 41%. This was accretive to the margin by 2.7 percentage points.
Currency was a significant headwind, as you can see here, both on revenues and EBITA, and diluted to the margin by 2.4 percentage points, and structure was slightly accretive. All in all then, that brings us from a margin of 19.7% last year to 20% this year. If we then continue down in the P&L, looking at the finance net, as I said, it came down year-over-year. As you can see in the table here, if you look at the first row, this was mainly driven by a lower interest net, and that in turn was a result of lower borrowed volumes. The reported tax rate was 23.9%, and if we exclude items affecting comparability, it was 25.2%. A bit on the high side compared to our guidance. However, we had some charges related to transfer price adjustments from prior years in the quarter.
If we exclude those, the normalized tax rate was 24%, so within the guided range. Net working capital, as you can see on the left, continues to trend down on a 12-month rolling basis, reaching 28.1% in the quarter. Compared to a year ago, it's an improvement of 1.7 percentage points. On the right, you can see the development by business area. You can also see, if you look at the blue and the golden trend lines, that the improvement was driven by Mining and Rock Processing. As you can see here, if you look on the graph on the left in the bars, Q1 is, from a seasonality point of view, a lower cash flow quarter. That was also the case now in 2026. We had a free operating cash flow of SEK 3.6 billion, corresponding to a cash conversion of 62% in the quarter.
If you look at the rolling 12 months trend line, you can see that we are now at 88%. If you look at the year-over-year development in the table, you can see that EBITDA adjusted for non-cash was higher than last year. CapEx was a little bit lower, but then we had a bigger net working capital buildup this year as we are ramping up for future growth. Financial net debt also came down in the quarter, driven by the positive cash flow and reached SEK 24 billion. In relation to 12 months rolling EBITDA, we're now at 0.8. Capitalized leases and the pension liability increased very slightly sequentially, resulting in a net debt of SEK 31 billion. If we look at outcome versus guidance, currency came in pretty much in line with guidance around SEK 1.4 billion negative for the quarter. CapEx was SEK 0.8 billion.
Interest net, as I mentioned, was SEK -150 million, and the normalized tax rate was right in the middle of the guided range. Looking ahead then at the second quarter and the full year, if we start with currency, we still expect a headwind in the second quarter of SEK 500 million . This is based on the currency rates as of the 20th of April. For CapEx interest net and the tax rate, we have left guidance unchanged for the full year. With that, I will hand back to you, Stefan.
Thank you. I will just conclude then. If we start from the market side, as we have said, we see a strong mining market. We see recovery in infrastructure. We also see signs of improved sentiment in general industry, in manufacturing. We also have a continued uncertain geopolitical and macro environment, of course, that we need to take into consideration. Our financial performance in the quarter was strong. We saw strong demand across all business areas. We have order intake and revenues growing double digits, and we have a margin within our margin corridor. We also continue to make good strategic progress. We have a couple of very interesting acquisitions in the quarter. As we talked about, we see double-digit growth in our digital businesses, and we continue to innovate at a good pace.
Looking forward, our focus will be to continue to deliver consistent financial performance every quarter while we continue to invest into building a stronger Sandvik for the long term. We have a very solid platform to build on, I think a strong performance culture and a very flexible mindset and organization. We are ready to face the challenges that the world is continuing to throw at us. Thank you so much. Let's go into Q&A.
Thank you, Stefan, and thank you, Cecilia. Yes, indeed, it's time for the Q&A session. Operator, please, we can start with the first question.
We will now begin the question- and- answer session. The first question comes from Chitrita Sinha with JPMorgan. Please go ahead.
Good morning, Stefan, and Cecilia. Oh, actually, good afternoon. Thanks for taking my questions. My first one is just on cutting tools demand. It's obviously very helpful to have the slide with the detail by end market. However, I'm trying to understand how much of that 18% order growth was driven by pre-buying the underlying volumes and then pricing. Clearly, the comments for the start of April are also positive. Is this largely due to pre-buying? Given your conversation with customers, how sustained do you think this demand is? Thank you.
Yes. On your first question, if we start with orders up for cutting tools, orders up 18%, revenues up 10% organically. The pre-buy effect we are saying is really a pre-ordering effect. The delta is between the 18% and 10%. If you look at the revenue growth of 10%, we see very negligible pre-buying effect in that number. The 10% consists then of, we have a tariff effect that we have talked about before of around 1.5% that you need to factor in there. We have a normal or the price, let's call it the inflationary price increases we have done. We will not give that specifically. You have to do your own assumptions. What remains is the volume growth, which then is sort of a demand-driven growth.
With that, I think you get a pretty good idea of where we are sitting in the underlying volume growth. How sustainable is the current pace? Very difficult to say. If we look at the order intake, we know there is some pre-buying there. The driver for that, normally when we do a price increase, we see some pre-buying the weeks ahead of the price going into effect, and then we see an offset of that the weeks after the new price release, or let's say a month before and the month after, and then it's neutralized. We had not expected really any effect in March, given that the price increases we have announced are happening in the beginning of May. That could still be a factor.
We also think it's a factor that tungsten prices have continued to go up throughout the month, so there might be that customers feel that it's just no point in waiting. Why not already now increase inventory levels a bit, or at least place the orders for doing that? There is another effect as well, which I think is maybe for us the most interesting, which is that we are seeing competitors not being able to supply due to raw material constraints. They come to us instead, and they want a reliable supplier, meaning there is also a market share impact here, where customers simply want to secure that they have supply, and that is also then given. We might call it a pre-buy. It might also be partly market share gain.
It's very difficult for us to assess what is what at this point in time. My conclusion is this is for us a positive dynamic, but it's very difficult to quantify it with such short period of data that we still have in this relation.
Thank you so much for the color. Actually, if I could just follow up on that last market share comment. Is there anything that you've seen from competitors which might, in terms of changed activity that might play a part in going forward?
Oh, sorry. Please, can you repeat the question? There was some glitches here.
I was just following up on your last comment on the market share development. Is there anything that you've seen thus far in terms of competitor changes or anything that maybe you might be seeing that they're doing differently for this obviously tungsten increase?
No, what we are seeing is key competitors are following our price increases. The only difference, as I was alluding to, is we are quite unique in the supply chain we have, which gives us certainty of supply, which is something some customers are looking for in this situation. We're not really seeing any difference in terms of how others are acting currently.
Brilliant. Thank you so much. Just my final question on mining demand. If you could just provide a bit more color in terms of by commodity, sorry, given the volatility in prices this year. Thank you.
Yeah. Of course, there were some reduction in some commodities following the conflict in the Middle East. They have rebounded a bit from that again. At current levels with gold around $4,700-$4,800, copper still close to $13,000. It's still a significant buffer for our customers at these price levels. I would say most mines would be profitable at half the gold price and probably have a 40% downturn in the copper price before it becomes an issue. I think it's still very strong underlying demand, and it goes for a number of other commodities as well. At this point, I don't see that as an issue.
Very clear. Thank you.
The next question comes from Daniela Costa with Goldman Sachs. Please go ahead.
Hi. Good afternoon. I have two questions as well, but the first one is kind of following up on the tungsten topic, but actually focused on mining. I understand on drill bits, there is also significant exposure to tungsten, and I guess you can leverage your own mine, which some of your peers are not able to. When you look at sort of the double-digit growth in after markets, how much of that is pricing of tungsten pass-through, and are you also gaining market share on that? Maybe if you could help us quantify that, and I'll ask the second question afterwards.
Yeah, you are right. Of course, we have tungsten coming into the drill bits as well.
Yeah, I think so.
I wouldn't say at this point it has had any specific impact, actually. Aftermarket growth is not driven by our Rock Tools business. I would say they are pretty neutral overall in that regard. We have not really taken advantage, so to say, of this situation from a market point of view. Tungsten prices are a smaller part of the overall cost of goods sold for a drill bit than a cutting tool. You will see a smaller impact than you would have for cutting tools. We have a value-based pricing model anyway on the Rock Tools side. We will see going forward as things flow through the supply chain. Currently in this quarter, I would say it has had not any material impact on the Rock Tools business.
Very clear. Thank you. My second question was just-
Parts and services and digital also in aftermarket.
Yes. Yeah.
Thank you. Just switching gears a bit to the Intelligent Manufacturing. The market is discussing a lot this whole debate of software and AI and the impacts, and you have some important software exposure in there. Can you help us think about how do you see pricing models changing ahead? I guess there's a lot of debate about commoditization from a potential AI threat on software versus there's also a benefit of cost savings maybe for yourself. How do you still think about the changing environment for software business?
Yeah, thanks. A good question. I'm super excited about the development in AI, and in particular in relation to our software business. These are not generic software solutions that you can just replace with an AI agent. The software solutions are first of all, in many cases, tied to our hardware business. There's a hardware connection, there's a data connection. It contains a lot of proprietary knowledge that I don't think even the best models have, so to say. This is also why I mentioned EverPath, this tool path platform, which is unique and proprietary algorithms that is not available unless you have the domain expertise in cutting that we have.
For me, the AI technologies that we are also using in our products, they are super exciting because they help us accelerate the vision we have with, for example, closed loop manufacturing or optimizing the output from a mine. I don't see us being, let's say, impacted negatively in the sense that it's being debated in the market for some more generic software providers. I see it as a net positive for our software business.
[inaudible] It's a significantly higher margin in the powder business now than in the machining. A bit of timing effect aside from our. Thank you.
Again, I can start. Yeah. In this quarter, powder was accretive to the machining margin. I think the way to think about it is if I'm going back to Stefan's reasoning on the top line, if you start with cutting tools, we have the 10% organic growth. We have the tariff surcharge 1.5%. Then you apply a price assumption, slight volume growth on the revenue side. But then for the cutting tools, we also have a headwind coming from both currency and also price, not being able to mitigate inflation as we are lagging due to the higher raw material costs. Also when you look at the year-over-year improvement of the margin for the machining business area, that is also driven by the powder business.
In powder, as you know, the margin development there, it's mainly driven by timing in terms of pricing versus cost, where price lags ATP prices with one- month, whereas on the cost side, we have a three-month lag.
Understood. Thank you. Am I right that you still are not happy to confirm the tonnage of tungsten you need per year? There's some numbers out for your mines in Austria for the tonnage they produce, and you mentioned 10%-15% is from own sources, so we can deduce it. Is there a particular reason why you don't disclose the tonnage actually? Because that would make everyone's calculation easier.
It's an operational number that we simply don't disclose. Partly because, as you say, you can estimate it fairly well, and we don't want to be talking about tonnages of the mine. We are not in the business of tungsten and the mine. Well, it's not a detail anymore maybe, but it's just something we have decided we will not disclose. I don't think it will improve your calculations meaningfully considering what the data you already have.
Yeah. I'm just saying it distorts the growth numbers this year quite drastically. That's why it is relevant. I understand your argument. My last question is on mining equipment pricing. There's a certain FX headwind between orders and revenues, and that seems to have affected margins. Can you tell us a little bit about the pricing plan for mining equipment and what you see going forward in terms of pricing development? Thank you.
Do you want to start? Should I start?
Yeah.
Yeah. I think we have to separate a bit equipment and aftermarket or parts and services. For equipment with FX impact, when we take an order for equipment that is going to be delivered maybe 10 months later, we hedge that order, so then there is no FX exposure anymore. We lock in the margin at the time of taking the order. Then, of course, as the FX moves and we have new deals coming up, we adjust the price. Basically, the business is being held to a gross margin on the deals. They adjust that continuously and then lock in the FX effect. There can always be timing effects in this, and sometimes we have some hedging mismatches and so on. They tend to be pretty immaterial. From that sense, FX is handled on the equipment side.
Aftermarket is a bit differently with parts and services, where there is more kind of framework agreements or pricing has been agreed for the flow of parts. Here we have currency clauses in the contract. Typically, if FX moves by 5% or in some cases maybe 10%, we have the right to adjust the price list. That we have done in a number of occasions now, but it also takes a little while before that is flowing through in the P&L. You could also say We have always said the operating leverage in mining should be around 30%. It's stronger than 30% now. Part of that is, of course, because we have to compensate a little bit for the adverse FX impacts in some markets. Yeah.
Perfect. Thank you so much.
The next question comes from Edward Hussey with UBS. Please go ahead.
Hi, Stefan. Hi, Cecilia. Thanks for taking my questions. Sticking to the tungsten theme, I just wanted to ask two questions on the dynamic. The first one is, in a scenario where the tungsten prices begin to pull back, how is this going to impact pricing within the metal cutting business? Because some of your peers have been talking about essentially following the market. I'm just wondering how much confidence you have in terms of holding on to pricing in that scenario.
Yeah. I would say we are, of course, doing scenario plannings around various things, but it's a hypothetical scenario at this point, and I think it depends on a lot of parameters, what is the change, the rate of the change, et cetera. I don't want to speculate at this point how we will act. Of course, let's assume prices go down by 50%, just picking a number, of course, it will have an impact on pricing, but I don't want to speculate on exactly how we would act in that situation.
Okay. The second question is just on the dynamic that we're seeing between China versus ex-China APT pricing. It seems like the Chinese pricing is beginning to pull back, and the spread seems to be widening between the two. Clearly, this stands to benefit potentially some of the Chinese metal cutting companies. How do you think about this from a market share perspective? Do you see any risk of the Chinese metal cutting companies potentially taking market share?
No, not driven by this. Well, first of all, remember, we now have a sizable cutting tool business in China as well after some recent acquisitions. We are part of the, let's say, the positive growth in the Chinese market currently. You are right that it has been a bit of a widening gap on the tungsten prices inside China and outside of China. I don't think we can draw too much conclusions from that yet. It's still a very volatile and dynamic situation. We, of course, have supply. We have Chinese tungsten supplied to our Chinese cutting tool company. If needed, we can also compete using our Chinese brands, if that would become a major issue. Yeah, again, too speculative at the moment, I think, how that dynamic would be more specifically.
Okay. Thanks. Maybe one more recurring question. On that dynamic, again, if we begin to see, obviously you work more in the premium side, so maybe there's no risk to you guys, but if we begin to see some of the sort of mid-market, maybe lower market metal cutting being replaced by Chinese competition, do you think this could create an arbitrage on the price and that ultimately is going to put downward pressure on the European tungsten price?
I think that's too many steps in the reasoning that are, at this stage, hypothetical for me to comment on that. You would have to see a massive shift in market shares for that to have a impact on the tungsten prices. For me, it feels pretty far-fetched, even though it might be a theoretical scenario. I don't see really a risk at the moment for that dynamic. No.
Okay. Brilliant. Thank you very much.
The next question comes from John Kim in Deutsche Bank. Please go ahead.
Hi. Good afternoon. Thanks for the opportunity. Two questions, if I may. If we think about the aftermarket order growth in SMR and mining, if you're to characterize what you've seen in Q1 versus last year, is the acceleration growth more on the volumes or is it more price mix driven?
It's volume driven.
Better activity levels?
It's volume driven.
Volume driven. Okay. Sorry, didn't hear that. Thank you. If we think about the tungsten price up and the market demand, I'm struggling a little bit with how pricing is being digested in this market because if I understand it, your tungsten price is up pretty substantially year-on-year. That's a pretty strong component of a carbide insert, and you have about a three-month delay, if I heard Cecilia right on the notional versus the order pricing. Given this dynamic, is the market and your competitive base here pre-producing to keep ahead of the price ups, underlying cost up?
No, I think we should clarify the time lag there. The three months is on the powder business. That's a starting point. Then the powder business is providing powder to our cutting tool business. Then you have another six-month, approximately, lag. The cutting tools we are selling now, give or take, are using powder that was bought nine months ago. Which is why.
Understood.
Sorry, go ahead.
Please go ahead.
You can continue with your next question, please.
Just a quick follow-up on that. How would you characterize your Q1 inventory levels given the dynamics in price cost in your various businesses? Are you strategically?
We had in price and volume an increase in inventory within the machining business, driven by higher tungsten prices. That's both for the cutting tools and for the powder business combined. In terms of volume, if we take the tungsten price to a side, there was no increase.
Okay. Thank you.
The next question comes from Vlad Sergievskiy with Barclays. Please go ahead.
Yes, good afternoon. Thanks very much for taking my two questions. First will be on mining demand. Excluding large orders, base new equipment orders in mining actually appear to go to completely new level in this first quarter compared to already a very high level last year. Any color you could give us, is there any particular commodity or customer group driving this increase? Are there any market share gains that could potentially explain such a strong performance in Q1?
Yeah. You're right. It was strong order intake on the equipment side. If you look at the breakdown between the different categories, you can see that brownfield was very strong in the quarter. It was 63%. It's usually around 50%. It's not because greenfields and replacements were weak, it was because of an exceptionally strong brownfield month. Besides that, there is nothing to call out in terms of commodities and so on. Of course, copper, gold, and these commodities at high prices are contributing in a good way, but there are also many other commodities that are at good levels. As far as market shares goes, it's difficult for us to say. I guess we will have to wait a week or so to find out more about that. At least we are confident that we have a strong position in the market currently.
That's all we can say at the moment, I guess.
Thanks very much. The second will be on tungsten. How much roughly do you think cutting tool prices need to go up to reflect current spot tungsten prices? And based on your assessment, how material is the physical shortage of tungsten today? And is there a possibility that smaller cutting tool producers over coming months or quarters will find it harder and harder to secure material supply for them?
If I start with the second part, maybe you can comment on.
Yeah, sure.
On the first one. It's difficult for us, in a way, it's pricing that is impacting the demand level and how much more tungsten would be required for prices to be more in balance is, I don't know. We cannot really say that. This is driven by a combination of China putting more restrictions on export. It's important to say that the reason prices are high also in China is because also in China, there is a shortage, partly driven by output from mines being down, driven by depleting ore grades and other dynamics. That is then the supply side of the things. There is a demand side of things as well, where about a quarter of the tungsten market, at least historically, have been consumed by the defense industry. It's important metal for certain applications, such as ammunition.
Of course, that demand is going up, as we all know, quite a lot. It's also being used more in certain electronics applications that is also driving demand beyond what used to be the historical levels. I think there is a real supply shortage. How big it is, I don't know. As I mentioned earlier, we are seeing competitors, especially, of course, you tend to be more vulnerable if you are smaller, that have issues with getting supply and have issues also delivering, which of course, in this case, is working in our favor. Whether that situation will get even worse going forward or whether this supply imbalance will be more balanced and it will be easier, I don't know. We cannot say that. Our focus is, of course, to use the fact that we have a safe and secure supply chain.
That is a business advantage when we engage with customers. That is, of course, something we should try to take advantage of. That's our focus. When it comes to the price levels, I don't know if you have?
I can comment as much as I can, but I cannot, of course, be specific in terms of what price increases we are planning going forward. We've announced a price increase now in May. We're, of course, looking at the tungsten price development, and our ambition is, of course, to mitigate this also for the cutting tools businesses over time. I think it's important also to think about from our customer perspective, as for our typical customer, cutting tools is around 3% of the total production cost. I think that also puts it a bit into context from the customer perspective.
I think it's also another point around pricing power and then dynamics in the market is also if you compare a premium supplier or brand versus a mid-market brand, then in terms of the price, if you're a premium supplier, of course, the raw material cost is a lower share as compared to if you're a mid-market provider. If you are a mid-market player, you will likely need to increase your prices more, in relation to your current price. Which of course then is a favorable dynamic for us and our premium cutting tools brands. The only last point I can give to help to give you some guidance is what Stefan referred to before, that for the cutting tools, there's a nine-month lag.
Three months coming from powder, when the raw materials in the powder business getting processed, and then additional six months as part of the inventory turnover time, for the cutting tool brands. The raw material cost that we are seeing now in Q1 is related to nine months back. I cannot be super specific.
That's very helpful. Thanks very much.
I hope that can give us a little bit of color.
The next question comes from Tore Fangmann in Bank of America. Please go ahead.
Good afternoon. Thank you for taking our question, squeezing me in. Just two from my side. The first one is a follow-up question on the strong aftermarket growth and the acceleration to the 11% that you've seen. What has really driven this? Basically, which kind of product or service offering has driven the growth, and is this double-digit growth sustainable? Thank you.
Yeah. Despite another great quarter for parts and services and aftermarket, I think we stick to that we think long term, this is a high single-digit growth business. Although we had a very good quarter. What is driving this at the moment is a number of things. It starts, of course, with high production pace from our customers, which means they will spend on parts and services to keep the machines operating as much as possible. We have a growing fleet, especially on surface, which is now starting to kick in and provide more aftermarket business for us as well. The machines are, in general, more advanced, which both drives more need for service. It also tends to increase our capture rate because it's more difficult for a third- party to come in and do service.
We also have an aging fleet, and I think here it's a dynamic where in this current environment, some of the orders that maybe originally were a replacement order now becomes almost like a brownfield order because they, instead of replacing an old machine, they keep both, to keep producing as much as possible. That is also helping the aftermarket business. I think it's a combination of factors driving the current strong demand.
Okay, we will take one more question, and then we need to wrap up.
That'd be great.
Our last question comes from William Mackie with Kepler. Please go ahead.
Thank you very much for squeezing me in, and good afternoon to you all. My question relates to Rock Processing. I'm sorry I got dropped off, if I missed it, but can you give a little more visibility on how the backlog that you have in Rock Processing is expected to convert into revenues Q1 into Q2? Specifically, how you see the bridge towards your 14%-15% margin target level versus what you saw in the first quarter, please?
Yeah. We have had solid order intake in the business also in Q1, and that is, of course, positive. We have a positive Book-to-Bill. Unfortunately, deliveries were a bit short in Q1, but we expect a normal backlog conversion going forward. Here the lead time, it varies a lot, of course, but let's say they are around the four to five months typically. That is the type of backlog conversion we should see in general. I don't know if you want to comment on the margin.
On the margin, as we said in this quarter, it was very much impacted by the delays in the deliveries, and we are not, of course, able to adjust our cost base because of the timing of deliveries between the quarters. With the catch-up coming now, and on the delivery side, margins should also improve, of course.
All right. Thank you.
Thank you.
It's now time to wrap up. Again, apologies for the technical issues, disturbing noise. We thank you for calling in and for asking your questions, and we wish you a good afternoon. Thank you.