Okay, ladies and gentlemen, may I very warmly welcome you to this presentation of the Q2 or second quarter report from Sandvik? It's a pleasure to see so many here in the city or in the Operaterrassen in Stockholm. I hope we have quite a lot connected from our international audience as well. Thank you. We will spend the next coming hour presenting the second quarter report, and we will do it the same way as we usually do. We start with some comments on the quarter from our CEO, Olof Faxander, and then we will add up with a Q&A session, where we also will be accompanied by our CFO, Ola Salmén. So with that said, Olof, your comments on the second quarter.
Thank you, Jan, and welcome everybody to this presentation of our Q2 results. I'm glad to see at least some of you made it here also to Operaterrassen here in this beautiful weather. And welcome everybody who's joining us by phone as well. So first, some highlights on our second quarter here. We saw continued, quite strong, I would say, order growth. In comparable terms, our order intake was up 20% compared to the same quarter last year. And we really saw improved demands for all business areas in the company. Especially strong sectors were the automotive sector, the mining sector continues to be very buoyant, and also the oil and gas sector is very strong. We've received some also very large project related orders during the quarter.
We had a SEK 1.2 billion materials handling order from South America in the quarter, and also a SEK 325 million order for Sandvik Materials Technology into the US oil and gas sector. Our invoicing was also up very strongly, up 24% comparedy to the same quarter the preceding year. The result ended up at SEK 3,562 million, resulting in an EBIT margin of 15.2%. The EBIT result was affected quite strongly by the currency effects we had in the quarter, and they amounted to SEK 720 million.
Net working capital increased somewhat to 26%, from the, a slight increase from the previous quarter, and the return on capital employed was nearly 20% on the back of continued strong, EBIT results, and also, I think, a fairly good capital efficiency in the company. Looking here by market, our invoicing grew in all geographical areas around the world. The strongest increases were in Africa and South America, and this is very strongly driven by the continued strong mining sector in the world. Also, the developed regions in the world continued to recover compared to the situation one year ago, and the U.S. was up, or North American region was up 29%, and Europe, 22%, compared to the same quarter last year.
Looking at our customer segments, as you see on the pie chart, all sectors are green, meaning that they're up more than 10% compared to the same quarter last year. And looking at the arrows, we have a stable to somewhat increasing trend, I would say, in more or less all segments. Only one where we have a negative trend in this pie chart is the consumer-related sectors, which are quite small area for the Sandvik Group. Aerospace continued, on the other hand, to be very strong in this quarter. Order intake, as I mentioned earlier, grew significantly from the same quarter last year. And looking at the graph, you can see that we had one of the best quarters in the company's history in terms of order intake.
So this really manifests how strong the business climate has been during the second quarter for the Sandvik Group. Total order intake was just above SEK 25 billion. Looking then at the EBIT and the return on capital employed, you can see that we also had a historically quite good EBIT result, not quite at the strongest quarters that we've had in the company history, but still a very, very strong result from a historical perspective. And the EBIT margin landed at 15.2%. Net working capital increased slightly from the previous quarter, and now is somewhat above our target of 25%, but we maintain our ambition to be below this target by the year-end.
In the third quarter, we normally have a seasonal weakness due to the vacation periods, mainly in Europe, so that will likely affect the net working capital as percentage of sales negatively, but we still maintain the target to be below the 25% by the year-end. Looking then at the bridge analysis from the second quarter last year to second quarter this year, you can see that in the additional volumes in comparable items between the two quarters generated a profit margin of 25.1%. Then this was affected negatively by quite significant currency effects of SEK 720 million. And in the second quarter last year, we had very positive metal price effects.
So they, of course, were not present in the same way, where we actually had a negative metal price effect in the second quarter of this year. Looking now more specifically at the business areas, Sandvik Tooling continued to improve, see improved demand in really all markets. And, especially the automotive, energy, and aerospace sectors were very, very strong for the tooling business area. The EBIT amounted to nearly SEK 1.6 billion, and we had a very healthy margin of 23% in this business. And, the background to this result is really continued increased volumes, increased productivity in the business, a positive price effect, and then this was negated by some negative currency effects amounting for this business area to SEK 310 million.
The cash flow was strong for Sandvik Tooling, and the return on capital employed was nearly 25%. Sandvik Mining and Construction saw continued strong demand. The mining sector is very, very strong on a global basis. And we had a somewhat more mixed picture, I would say, in the construction segment, where especially in China, you can see some weakness due to the fiscal or the financial tightening that is going on right now in the Chinese economy. Order intake increased 25%, excluding major project orders, and then on top of this, we had this SEK 1.2 billion order to South America. EBIT was SEK 1.4 billion for Sandvik Mining and Construction, resulting in a margin of 14.2%.
The background to this result is partially, of course, a positive effect of increased volumes, and also Sandvik Mining and Construction had a negative currency effect amounting to SEK 310 million. Return on capital employed was very high for the business area, over 30%, and net working capital landed at 26% of invoicing. This was partially affected by some supply problems we have due to component shortages within Sandvik Mining and Construction. We have not yet closed the acquisition of Shanbao in China, but we're expecting to close this transaction in the third quarter of this year. Looking then at Sandvik Materials Technology, we saw mixed demand in the quarter.
Energy and automotive, and again, aerospace also were very strong, and we saw weaker market situations in consumer-related markets and also in electronics. Improved demand in North America, but somewhat slower development in Europe and Asia for Sandvik Materials Technology. And again, we received a major order from umbilicals to the U.S. oil and gas industry of SEK 325 million in the quarter for Sandvik Materials Technology. EBIT amounted to just over SEK 400 million, and that resulted in a margin of 8.1%. And in Sandvik Materials Technology, actually, we had some slight positive currency effects of around twenty million Swedish kronor , but on the other hand, had negative metal price effects of roughly SEK 60 million.
This resulted in a return on capital employed of 7.6%, and the net working capital increased to 31% of invoicing for Sandvik Materials Technology. And this was partially influenced by a buildup of inventories for the summer shutdowns that we have in our especially Swedish operations. And when it comes to Sandvik Materials Technology, we have seen some increased market uncertainty in some areas here during the quarter. Then summarizing the quarterly financials, well, again, we saw very strong growth in our order intake, up in comparable terms, 20% from the same quarter last year, and invoicing up 24% compared to the same quarter last year.
The result was up only 3%, but if you consider the strong currency headwind we had, you can see that we've had a positive development, I would say, also there. The EBIT margin then resulted at 15.2%. The operating cash flow ended up at SEK 802 million and was affected negatively by the buildup of working capital in the company here. Cash flow then, after investing activities, landed at SEK -360 million. To sum up, the second quarter here, we saw continued improved demand. The order intake was up 20% compared to the same quarter last year, and this has meant that our order book has also increased for the company. The EBIT was strong at...
close to SEK 3.6 billion, and we saw increased volumes, but on the other hand, significant negative currency effects for the company. Net working capital at 26% of sales, and return on capital employed nearly at 20% for the Sandvik Group. With that, I end my presentation and ask Ola Salmén, maybe also to join me here, and we open up for questions. Yeah.
Okay. Yeah, and we will have a microphone here in Stockholm, and we will also invite, of course, the international audience to participate in this question and answer session. So we start with a question from the floor here in Stockholm.
Yeah. Hi, it's Fredric Stahl here at UBS. I think this is a question for Olof. Could you maybe give us an example from your own business or the data set that you work with that you know that triggered your cautious comments in the press release? So give us some examples of what you see that you think warrants caution into the second half. That's my first question.
Yeah. Well, first, I think it's fairly obvious for reading any newspaper today that we're living in a time with significant macroeconomic uncertainty. We have significant issues in the US regarding how they're going to agree about the budgets going forward, and so there. In Europe, we have a significant crisis with the Euro, with Greece, and also some question marks about a number of other economies. And on top of that, some financial tightening in China, driven by really the government's ambitions to slow down the growth rate somewhat and also fight inflation in China.
Do you have any examples from Sandvik's business, whether it's orders or comments from customers or-
Well, the only sort of really clear area, I would say, is the construction segment in China, where we see effects of this financial tightening in the Chinese market. Then I would also point to the uncertainty in the nuclear sector, but that's not necessarily dependent, of course, on the macroeconomic issues, but more related to the accident in the Fukushima plant in Japan.
Then a quick one to round up. Could you comment on the tooling organic growth so far in July?
No, I don't think I want to comment on that so far.
Okay, should we take a question from the international audience, please? Operator, can we have some assistance?
Thank you, sir. As a very brief reminder, ladies and gentlemen, to ask a question today, that is star one on your telephone keypad. Our first question today comes from Ben Maslen of Bank of America Merrill Lynch. Your line is open. Please go ahead.
Yeah, good afternoon, everyone. It's Ben Maslen from Merrill Lynch. Just three kind of questions, all tied to CapEx, basically. You seem to have nudged your guidance up for CapEx for the year to SEK 5 billion-SEK 6 billion. I have just three questions related to that. First, just why is this? Is this currency? Is this new projects? Why is the figure going higher? Secondly, just how happy are you spending so much at a time when your kind of outlook comments suggest things are slowing down a little bit? And then thirdly, you know, you seem to be adding capacity quite a bit in emerging markets outside of U.S. and Europe. Do you need to take any capacity out of developed economies to compensate for that? Thank you.
Well, first, most of our CapEx, the large proportion of it is really ongoing projects that we have approved a lot earlier than at the point in time that we stand right now. For example, the bulk of the steam generator tube investments are being paid out during this year. And also, we have restructuring projects like the new super site that we have in Australia with the Mining and Construction that is ongoing. So, CapEx is in the big items, not something in a company like Sandvik that you really can control on a quarter-to-quarter basis. These projects run over many years, and the current CapEx levels are very strongly really influenced about decisions we've taken at earlier points in time.
Our CapEx guidance is not necessarily up, but we felt it was more clear to give a number in SEK 1 billion instead of a percentage compared to depreciation, since depreciation, for example, can change over time due to how we choose to count things and so on.
Sure.
So this is an attempt to make it really simpler for people following our company and giving a more clear guidance. Then I must say, at the same time, CapEx is always a tricky thing to guide because projects run slower or faster, invoices, cash outlays for the CapEx projects can move back and forth, and that means that the CapEx number for one specific year can move up and down. Regarding adding capacity in emerging markets and the need for closures, I think I said earlier, the largest economic growth that we see in the world is in the emerging markets, and that's where we really need to grow our capacity.
If that will mean big cuts in our existing capacity, I don't really see that to date anywhere. As long as we have a really strong market situation, as we have seen during the second quarter, we need the capacity we have in the group. Now we're more looking at different ways to grow the company than actually reducing capacity at this point in time.
Good, very clear. And maybe, if I could just maybe follow up on the nuclear steam tubes. I mean, I think you mentioned in the report that there was a risk of deferrals or delays in some of these projects. Maybe if you could put a bit more color on that, what risk there is that the capacity you're adding ends up being, you know, underutilized for a reasonable period?
Well, I mean, since the accident in Japan, many nations have taken a lot of new measures regarding their nuclear programs. Our biggest market for these steam generator tubes is the Chinese market, and they are reviewing all their new projects in terms of nuclear power plants in China. And that is delaying the projects, and they might even move the location of certain nuclear power plants and so on. So there is a risk of this causing delays in the plants compared to the plans that they previously had. On the other hand, I would say that there is still a very, very high need for increased amounts of energy in the world due to the increased standards of living with the world's population.
So even though we've had the accident of Fukushima, the need for energy is still there, and it needs to be resolved. But so the risks of these projects being delayed, we have a lot of quite firm, or firm orders, I should say, in our order books today. But so I don't foresee cancellations at this point in time to those, but we could see delays in the delivery schedules compared to that, which temporarily could create overcapacity in our facilities.
Okay. Thanks very much.
Maybe I should just add to that a little bit, that the oil and gas industry is very strong, and the market there is very strong, and to a certain amount, we have a flexibility in shifting capacity from the steam generator tubes into oil and gas, some umbilicals, et cetera.
Yeah, so we don't foresee any significant finan-
No
... financial effects at this point of time-
That's right
... even if there are delays to these projects.
Okay, thank you. We take a question from the floor here in Stockholm.
Peder Frölén, Handelsbanken Capital Markets. One on each division. Could you comment a bit on the production disturbances seen in SMT in the first quarter, if they were solved or if they affected operating profitability? Secondly, on SMC, projects as a part of invoicing was 11%. Is it fair to assume that this is going up sequentially? I appreciate this is lumpy, but what you see in terms of invoicing. Thirdly, on tooling, given the 24% growth here, is it fair to assume that there were no big differences between the months in the quarter, demand-wise, that actually June was pretty strong?
Well, first, with the tube disturbances, we have been gradually recovering from the problems we had in the first quarter. They have had effects during the second quarter, and, but they have not been of, of the size that we had during the first quarter here, though. So we have a gradual improvement there, and I think that recovery is heading in the, in the right direction and according to our expectations. The projects business in SMC, well, that will vary, up and down between the, the quarters, and it is, is patchy. I don't think we really see any long-term trends of that, or foresee that, as share of our business going forward. But it's a, it's a certain share of our, our turnover in the SMC business.
Tooling, we don't really specify the sales, of course, down by month, but I mean, we have seen a very good market situation throughout the quarter in tooling. So, yeah, we're positive about the development during the second quarter for tooling.
Okay, thank you. Let's switch back to the international audience, please.
Our next question today will come from James Moore of Redburn Partners. Your line is open. Please go ahead.
Good afternoon, everyone. I've got three questions as well, one on construction demand. You said it was up year-on-year, but down sequentially. From what you see in quotation and tendering activity, do you see demand deteriorating sequentially as we move through the second half? Secondly, in your SMT division, your organic drop-through continues to be quite low. Is there any mix issue in SMT that explains that margin? And thirdly, in SMT, looking forward, I see your organic order growth was sharply down at -11%, and you talk about consumer and electronics as driving that, and we know consumer is weak out there. Are there margin mix impacts for future invoicing because the consumer and electronics side of SMT has a different margin to the divisional average that we should think about?
Well, firstly, regarding construction, I mean, we have seen a reduction in order intake in China. But we do, on the other hand, have other regions in the world where we also can sell our products and, which to a certain degree will balance that. The SMT drop-through, well, I mean, we're continuously looking at how we can gradually improve the profitability in SMT. And to really get up to significantly higher levels, we will need a much better leverage on additional volumes in SMT going forward. So we're aware of that level. And when it comes to order intake in SMT, well, there is a certain degree of timing issues in here.
But, as I said, I would say in terms of our three business areas, it's really in SMT we have the greatest market uncertainty. Really, the other two business areas are seeing a more or less across the board very strong demand situation.
Sorry, I have to come back, but I'm not sure those are answers to the questions. In terms of SMT, could you, could you say why the volume drop-through is so low, apart from saying you need to improve it? What is the reason for it being so low, and, and what's the driver of it getting better? And in SMT, I'm trying to understand if the margins for the consumer and electronic side that are-
Okay.
particularly weak in orders are gonna have an effect.
No, we don't expect the mix change to have a negative impact on margins on, SMT. Sorry, on your third question there.
As to SMT's organic drop-through, I think the answer to that is that the EBIT margin of SMT is on the low side, to say the least. We're not satisfied with the margin development in SMT, and we still have a way to go until we reach the levels where we would like it to be. So it's not so much of a drop-through, it's more of the general level of EBIT margin that we have in SMT.
But your volume is quite good, and your pricing is positive. So is the issue mix, or is it cost?
It's basically a cost issue, and it's related to the stability problems that we have talked about in the production processes. Even though that is improving somewhat, at least in this quarter, but we still have these problems.
Okay, thank you.
Thank you. I think we take one more question internationally.
Our next question today comes from Nico Dill of J.P. Morgan. Your line is open. Please go ahead.
Good afternoon, gentlemen. I'd like to ask three questions, please. First of all, I'd like to get a bit of a feel of how Europe and the U.S. are slowing, as you sort of perhaps are indicating here. What are your customers saying, that makes you feel a little bit more under pressure there? Secondly, I see a sequential step up in European Mining and Construction orders. Could you qualify, perhaps, where this is coming from? And third, I would actually like to go a little bit further into the Mining and Construction area. The drop-through here was about 23%, resulting in an absolute margin of 14.2%.
Just wondering whether you're happy with this performance, what has affected this margin, and, you know, what is the potential here going forward when the Australian plant comes up to speed?
Well, Europe's slowing. We're just in the report making clear that the uncertainty for the coming quarters has increased. We have not talked about the specific slowing in Europe, per se, for the company. Underground mining in Europe is really what has been driving the growth in the European markets here. That's the sector where we see the biggest strength, really, for SMC. The SMC drop-through, well, I don't know if you want to comment on that at all.
Yes, maybe I could do that. If you compare to what we had in the first, in the second quarter of last year, the project business was significantly lower in relation to sales in the second quarter of 2010. That's one reason. We have the currency effect, that's another reason. And also, as Olof was mentioning, we have some supply issues, shortages of components, and that also have a slight effect on this.
Could you give us a little bit of an indication how the margin should proceed once these supply issues get resolved, and secondly, when you get that new plant in Australia on track?
Yeah, I would say we would improve the margins once these supply constraints maybe has disappeared. And of course, the efficiency in the business that we have in Australia will also increase once the super site is up and running. But I won't, I can't give a more exact number on that.
Okay, thank you.
Thank you. We have more international questions, please.
We will take our next question today from Guillermo Peigneux-Lojo of Morgan Stanley. Your line is open. Please go ahead.
Hi, good afternoon. It's, Guillermo Peigneux-Lojo from Morgan Stanley. Just a question on, Australia mining. After the flooding, have you seen much of the aftermarket business recovering there, or you're still, waiting for that business to fully recover, and see it in your numbers?
... Yeah, well, yeah, we see a recovery there going forward. The aftermarket business was a slightly lower share comparably in this quarter than previously on a global basis. But in Australia, I mean, the markets, the mining sector there is gradually recovering also in Northeast Australia.
Okay, thank you.
Thank you. No question here in Stockholm, so we continue on, on the international basis.
Our next question today comes from Peter Testa of One Investments. Your line is open. Please go ahead.
Yes, thank you very much. I was wondering if you could help us understand, with your view on the macroeconomic environment, what you might be doing differently inside the Sandvik group to prepare for any sort of change, whether it be employment, short-term CapEx, or any other steps, on cost planning or anything that you feel necessary to do to changing your behavior in light of what you're projecting?
Well, I think we're only at a point right now where we need to create a readiness for potential changes in the market conditions in the future. We're not at the point where we've actually seen any downturns, material downturns in our markets. So, right now, we're only talking about contingency planning or so. We're still seeing a very, very strong growth rate in the company, and that's what we're focusing on at the moment. And what we see in the world around us is just alerting us to the fact that we have to have a readiness if there will be a change in this market, but-
So no revision in hiring plans or deferral of any expenditure to see what happens?
Not at this point in time, and I mean, year-on-year growth in order intake of 20% for the company, and so we're seeing very, very strong growth still for the Sandvik group.
Yeah.
So, it's not the point at which we are taking any actions towards a weaker market, so.
Very good. Thank you very much.
Thank you. We continue with another question internationally.
Our next question comes from Klas Bergelind of RBS. Your line is open. Please go ahead.
Hi, it's Dan Gunn with RBS. So just, just, you talked about higher margins as the supply constraints and FX sort of unwinds, and you talk about improvements in efficiency from Australia. And then I guess looking at the higher orders sequentially and year-on-year in Europe, in SMC, sort of bodes well for H2 in 2012. I guess the question really relates to your guidance again. Is your guidance or increased caution more macro and less micro, or is it something that you've seen in your actual numbers in recent trading weeks? Thanks.
It is more macro than micro, to answer your question, yeah.
Okay, so nothing in recent weeks that creates it. It's just more macro. Just to be clear on that.
No, that's correct, yeah.
Perfect. Thanks very much.
Thank you. That was a quick one. Another international question?
Our next question today comes from Roddy Bridge of Evolution Securities. Your line is open. Please go ahead.
Good afternoon. Three fairly quick things, actually. In your statement on Sandvik Tooling, you say order intake was stronger for high alloy products. I mean, excuse my stupidity, but I was wondering if you'd explain to me what I should be reading into that. Secondly, just to check that there weren't any significant costs at your problems, obviously, with production in Japan. And thirdly, just on the sort of cost front, I mean, you're going into the normal shutdown of summer at SMT. Are you expecting to do any sort of longer refurbishment or more expensive refurbishment this year that will affect production over the summer?
Well, first, I mean, the high alloy comment is that we have, I mean, better margins on those products, so it's a positive mix effect. Then I think your second question, first thing was, have we had any significant costs regarding the Japanese-
Yeah
... earthquake? Not really. We did have a short disturbance in our plants, but they very actually rapidly managed to get that plant in operation, and I think it's personally very impressive what they achieved and the motivation they had in getting that plant up and running after the incident they had there. The summer shutdown, no, we see that as being a fairly normal or a normal summer shutdown for SMT this year.
Okay, and one final thing. When you give your pie chart on page four-
Yes
A lot of the segments you give are showing a flat line. Are you really meaning that, sequentially, you're seeing no improvement in demand, or are you meaning that the growth rate has stayed stable?
The growth rate in many of the segments is there, but it is not been significant enough for us to want to... I mean, we only put it flat or 45 degrees up those arrows. So, we feel that it has to be fairly strong before we get to the rate where we put it 45 in the 45-degree angle. So, there's still positive growth in several of those segments, but it's modest, and that's why we put it flat instead of upwards.
Thank you very much.
... Okay, to add to that, Roddy, when I, when I talk, because it's my comment, actually, high alloy products in tooling. When I talk about that, I mean, normally, cemented carbide-based cutting tools, as opposed to the high-speed steel tools and the cemented carbide wear parts.
Ah, I understand then. Thank you very much.
Okay, thanks. So, no question on the floor here in Stockholm, so we continue on the, oh, we have one, yeah.
Yeah, hi, Mats Liss, Swedbank. Just a couple of ones on materials technology. First, if you could indicate how much the production problems have impacted your margin during the quarter, well, in absolute terms or something like that? And then, what do you mean by sort of the, I read somewhere that you are starting to re-evaluate your position within nuclear power industry, and what the potential outcome could be, and if you could give some sort of timeframe when you are ready in your process?
Well, we haven't been specific about... Well, we did guide on the percentage impact in the Q1 on the SMT, yeah.
Yeah, but we were not specifically pointing out that what impact our production or the stability problems, as we have described it, have on the margin. But as I said before, the margin on SMT is far below where we believe they should be, and part of the reason is these stability problems, so.
Well, when it comes to the nuclear sector, we have invested very heavily to increase our capacity, especially in steam generator tubing. We're not really reviewing our position proactively, as such. It's more a consequence of things that are happening in the market around us, and if we have a changed pattern of deliveries and demand on these facilities, then we will, of course, need to adapt to that. If that would happen, we still judge that there's a very good opportunity to fill that capacity with, for example, umbilical tubing, due to the combinability of the mills, that we can supply several sectors there, which will limit a financial impact of that change.
And we're saying that it's probable that there will be certain delays due to these political discussions that are going on in many countries today.
Yeah, and, and then finally, just one about tooling. Also, the incremental margin there in the quarter, 47%. Are you more than satisfied with that, or is it still to be improved?
Well, it's... I mean, I think that's a very healthy margin, that improvement, and really, that's based on that we're increasing the utilization rates in our existing plants. That gives us that high operational leverage on this increasing, and high leverage on our results on these increasing volumes. Okay, thank you. I think also viewing or commenting on the drop-through margins, I think it's fair to add also that remember that we are comparing to an extremely good second quarter last year. So for all three business areas, these comparisons are very tough. Having said that, we take one more question in Stockholm.
Yes, sorry about this, but a follow-up on the drop-through. Looking at tooling again, is it fair to assume that the second quarter last year is still rather low in terms of, call it activity level, attending fairs, traveling, and stuff like that, which means that the actual operating leverage might even be stronger? And if so, could you help us out, when you actually started to have full pace in your normal business after recession? Is it the second quarter, or was it the third quarter after the summer, when you actually push the gain here? On SMT, you are talking about increased uncertainty. We have discussed certain several reasons for that.
Could you give us some examples what you actually are doing in the division in order to lift the profitability, and also in terms of maybe coping with the larger certainties? So just some example what you actually have done during the quarter to improve the disturbances, or the stability or the level of margin.
If I take the SMT question first, I mean, we have, of course, a focus on... Well, the main focus currently in SMT is regarding improving our mix in the products we sell out of the business area, and also improving the productivity in the plants based on production disturbances that we have had during the first quarter. So those have been the main activities in SMT during the second quarter.
And if I can comment on the tooling question, I think you should remember that the second quarter of last year was somewhat of really everything was on the good side. The volumes came in, and the cost levels were still on a very low side. And from that, we have continued to increase, and tooling is continuously increasing both volumes and margins as well. But tooling is still, on a comparable basis, not back really on peak volume levels, as they were in 2000, beginning 2008, or so. So that's also part of the reason why you see the leverage are rather high on the tooling side.
Still a little bit behind peak levels, but approaching those peak levels.
... Okay, thank you. I think also many of our short-term working week programs ended during the second quarter last year. So that also contributes to the fact that we had quite a lot of cost savings and at the same time enjoyed the volume increase that came during that time.
It was the best of two worlds, in a way-
Yeah
with the more or less all the cost savings there, and volumes were coming up-
Correct
in the second quarter.
Okay, let's move abroad, to the international audience, please.
Our next question today comes from Guillermo Peigneux-Lojo of Morgan Stanley. You're live, please go ahead.
Thank you very much. A question again, regarding tooling, and precisely about the things we're talking about, in terms of utilization rates and demand levels. Could you sort of put numbers to it, so just to see what level on average will, where you're running your, your tooling plants, throughout the second quarter? And secondly, if you also want to sort of frame the levels of demand, are we at, let's say, 2007 levels, or are we sort of very close to peak levels? I think you sound very close, but just wanted to know whether we just basically 10% or just 5% away from those levels.
We are, let's say about 5-7% below peak levels. And peak levels were, end 2007, beginning 2008. That's where we measured the previous peak levels, that is. And as to utilization levels, we are maybe around 90% of the capacity that we're running at the moment.
Oh, okay, and a follow-up. I think in the past, Sandvik actually always run an extra 10% capacity just in case, for let's say, future demand, surprise increases and so on. Would you be sort of feeling like you will need to add capacity in tooling as well, given the current levels of demand?
Not in the short, and at least, we are also able to increase our capacity. It's always difficult to really define what is 100% capacity.
Yeah
... so we are able to increase our capacity a little bit from where we are today. So we don't see, in the short term at least, no need for any substantial increase in capacity levels.
Thank you. And last, maybe on pricing on tooling, what have you been seeing there through the quarter?
We have a rather positive price environment in tooling and in the sense that we are able to increase our prices more than what we did in the previous years. We are back more or less on the levels where we were before the recession in terms of price development.
Okay, thank you.
So I think we are roughly on about 2% price increases at the moment.
Yeah.
Okay, we continue internationally.
Our next question today comes from Neal Dihora of Morningstar. Your line is open, please go ahead.
Yeah, hey, thanks. Just a couple of questions. I guess in the past, I guess five quarters, you guys have given nuclear orders for SMT. I wonder if you could give those for this quarter? And I guess specifically on the new plant capacity, when do you expect that to be complete? And how long does it normally take to switch over from nuclear to oil and gas type products? Thanks.
What was your first question regarding nuclear orders?
You guys, I guess in the past, like, five quarters, you guys have given the actual dollar amount, I think, or not the dollar, but the kronor amount. In the last quarter, it was SEK 3.3 billion. Prior to that, it was SEK 500 million, prior to that, SEK 700 million. I just wondered if you had a specific number for this particular quarter, the second quarter.
We normally announce that when we have the big-
Yeah
... project orders, not on the running rate basis, but yeah.
Okay.
And we haven't-
We haven't received any such orders in the quarter. The capacity is being installed and should be fully installed by 2012 is our current plans in terms of the ramp up there.
How quickly can you switch that into oil and gas?
The shifting, yeah, that can more or less be done momentarily. In fact, if we do oil and gas tubing, the demands are lower, so we reduce the number of process steps necessary when manufacturing the oil and gas tubes. So, we actually need slightly less equipment to manufacture those than we do for the nuclear tubes.
Okay, very helpful. Thanks.
Yeah.
Thank you. Let's continue internationally.
Our next question today comes from Klas Bergelind of RBS. Your line is open, please go ahead.
Yes, hi, guys, Klas Bergelind, RBS. I just want to get back to Ben's question on SMC and on the margin. You delivered 14.2% in the quarter, and I'm just trying to understand the clean margin here. I see it as three things impacting the margin. First, you have a FX hit, that's SEK 310 million. Possibly half of that is transactional impact, right? Then you get to 15.5. On top of that, you see bottlenecks in manufacturing, and then you have the project business, the share of revenues increasing to 11%, project sales versus 7% last year. So I calculate the underlying margin clean, about 16% here. Is that a fair assumption?
Then sort of a follow-up question, given that you see the quarter-on-quarter acceleration in SMC in Europe, are you clean of any project orders as far as I can see, do you see any possibility of increased pricing in SMC? And particularly given that you see bottlenecks, I think you had 2% this quarter, where can this pricing go, going forward, do you think? Thanks.
Well, I mean, to start with the pricing, we've had a positive trend during the second quarter here, so that's moving in the right direction for Sandvik Mining and Construction.
... regarding the margins, do you want to comment on that or-
Yeah, maybe I should do. I don't have the numbers in front of me, and I think I followed your math a little bit, and I don't. I think it's quite fair, as you were mentioning, the 16 or 16+% as what could be called a clean margin. Whether that's possible to call it a clean margin or not, I don't know, but you're probably fair there.
Perfect. Then sort of a follow-up on that, I mean, looking at sort of 11% of sales, I think that Peter was, was referring to this before as well, that in the second half, can you give us some sort of flavor what the project sales can be in the second half?
In the second half of this year?
Yeah.
Well, I don't have that number. Do you have that number?
We have guided for a share of project sales being in the range of 10%-15% for the full year, and we are around 10 now, so it should not be lower than where we are today. But we know we-
So it implies quite a big step-up then in the second half, if you're going to reach the full year run rate of 15, right?
Pardon, 10-15.
10-15.
10-15.
10 to 15, okay.
Yeah. It's in the range, because you can't really say exactly when the projects are delivered and invoiced. But we have also clearly stated that we will not allow the project business to become more than 15% of sales, because it's such a different kind of business. We don't want that to take more space than so.
Okay, perfect. Thank you.
Thank you. One more question?
Our next question comes from Sébastien Gruter of Société Générale. Your line is open. Please go ahead.
Hi, good afternoon to everyone. Just two questions. First one on SMT. The book-to-bill in Europe is well below one times in Q2. I would like to know if it's related to the market, or is it due to competitive issues from your side? And should we expect this low book-to-bill ratio in Europe to have any impact in Q3? That is for SMT. And my second question, I don't know if you commented on that, but I see in the bridge, Mining and Construction , SEK 100 million, one-time impact for at SMC. Is it due to the supply chain issues you mentioned earlier on? Thank you.
Could you repeat the first question? I didn't really get that.
Was it the-
It's Materials Technology and the low book-to-bill ratio in Europe. I think it was below 0.9 times in Q2. I'd like to know if it's due to the market weakness you've seen in Q2, or is it due to some competitive issues on your side? And what could be the impact in Q3 and Q4, in for Europe at SMT?
Well, I think, if you're talking about the share of sales in Europe, it's... I mean, we've seen in some sectors a more challenging market situation on standard products, which mainly go into the European area, and maybe some more strength in other regions, which has led to Europe being a lesser share. Do you want to take the other-
Just to follow up, I mean, the order intake is down 19% organically in Europe for SMT. And I'd just like to know if it's a reflection of a weak market, or if it's just an issue for Sandvik?
I would say it's more a volatile project market into the oil and gas industry, for example.
Yeah. That's right.
Yeah.
More of a timing issue-
Yeah
... I should say.
Yeah. I can take the Bridge question-
Yeah
... because I've done the bridge.
Yeah, you've done the bridge.
Yeah. The SEK 100 million being a one-off in the Mining and Construction is not related to the bottleneck issues or the component shortages. Those kind of issues we regard as operational, so they are part of the reason why the underlying or the drop-through margin is not higher than what it is. That SEK 100 million negative is relating to one-offs reversing from Q2 last year.
Okay. And what were these one-offs?
I don't exactly remember what kind of one-offs we had at that point in time.
I don't have that on top of my head right now-
No
... because it was last year's numbers, so-
We can, we-
We can come back on that.
We can take that, we can take that later on-
Yeah
... by phone or something.
Okay, thank you.
Okay, I think that we are sort of done today, if we don't have a final question from here, the floor in Stockholm, which we don't have. So if that is so, we would like to thank you all for coming, for listening in, and attending our presentation. And just a short reminder, the fourteenth of September, we have a Capital Markets Day. That's the next big event for Sandvik. The first of November, you will hear us presenting the next quarterly report, the third quarter report. But before that, we wish you all a very pleasant summer, at least if you are in the Northern Hemisphere, and thank you all.
Thank you. Thank you very much.