Thank you very much, and most warmly welcome to all of you to this conference call presenting the first quarter results from Sandvik. I'm Jan Lissåker, Head of Investor Relations, and together with Anders Thelin, member of Sandvik's executive management team, and also President for Sandvik Tooling, we will present the first quarter results. As you know, today, we also have an ongoing board meeting and an upcoming AGM, and this is the reason why neither CFO Ola Salmén nor CEO Olof Faxander is participating in this pre-presentation. There is however, an opportunity to ask questions and raise discussions with our CEO, Olof Faxander, on Friday this week at 1:00 P.M. Central European time, when we have invited to another conference call. For this call, we have about 1 hour, including the normal Q&A session.
After the slides we use for the presentation, you find the usual backup slides attached that provide some additional information, just as you normally get. Before we start, I would like to raise your attention about one actual error that we had in the issued reports. On the first page of the interim report, there is a statement saying that profit of the financial items for the first quarter was SEK 2,885 million. That number is corrected to SEK 2,855 million. So it's just on the first page. Inside the report, it's okay, but just to make you aware of this, there are new reports, of course, available at our website. So starting the presentation, Anders, would you like to start?
Yes. Thank you, Jan. Together, we will walk you through the slides for the presentation, and we will not spend that much time on the actual figures, as all of you already have read the report, but rather comment on that. Let me start with the observation that the demand continued to strengthen during the quarter, but otherwise, it was quite an extraordinary first quarter. It has been characterized by floodings in Australia, the disaster in Japan, political unrest in North Africa and Middle East, and on our own behalf, we also had a fire. However, all of this have had a limited effect on the Sandvik financial performance during the first quarter. Speaking about the financial performance, order intake and invoicing developed well. We had a solid improvement and a continued good global demand.
Operating profit improved, ended up at SEK 3.3 billion, or 14.8% of invoicing, much as a result of strong sales. Return on capital employed continued to improve, partly from good operating profit, partly from stable capital efficiency, and our net working capital came in at the target level of 25% of sales. Sandvik Materials Technology recently signed a multi-year agreement with Westinghouse for cladding tubes we use in the nuclear industry. The total order volume is corresponding to more than SEK 3 billion. We had a handful of important events, also after the closing of the first quarter during April. Jonas Gustavsson was appointed to be the new president for Sandvik Materials Technology, and a member of the group executive management team.
Last week, we announced a new joint venture in China, this one with Shandong, and it's related to equipment for the coal industry in China. We also landed a major project order at the value of SEK 1.2 billion. This order related to materials handling equipment, and it was received by mining and construction in South America. As mentioned, we had a fire at our production facility in Sandviken for wire here in Sweden, and but the effects from the fire on the group and on our financial performance is limited. Next slide shows invoicing split by market compared to same quarter a year back, and you'll find the price volume changes in the blue circles, and the share of the invoicing in the squares.
As you can see, in most regions, we have a growth rate between 25%-30%, exception being Australia and South America. This is mainly depending on the comparison with the previous year. In, in terms of South America, we are comparing with a weak quarter previous year, and in terms of Australia, we have a strong comparison. This is mostly an effect of the volatile nature of project invoicing on Sandvik Mining and Construction. Sandvik Mining and Construction being the dominant player of the Sandvik group in these two markets. Then, Jan, we are over to the side that you will-
Yeah.
Make some comments on.
We look at the same, kind of market, but split by customer segment. The invoicing shows a similar picture, of course, a continued strong market, on a global basis. The colors in this pie chart shows the change versus last year, and the arrows shows more of the sequential change in invoice sales. In the mining market, the aftermarket slowly increased from an already high level, while equipment continued to increase. Project invoicing was not as high as the last quarter, but the market is still very strong and the activity is good, even if the order intake and invoicing is fluctuating, as you have realized many times before in the Sandvik reporting. The engineering segment was flat sequentially, but developed strong, compared to last year.
Construction has been a drag for quite some time now, and we indicated in last quarter that we saw some signs of improvement. I think that this is fairly significantly actually verified in the first quarter. Construction is improving also in Europe and North America, which was the weak areas in prior quarters. It's still coming from very low levels, but the trend is good. Automotive continued to improve in the quarter. Energy continued to be very strong, flat versus previous quarter, but on a very high level. Consumer industries, partly improving, but a little bit more of a mixed picture, I would say. Aerospace finally continued to improve in this quarter. So all in all, I would say that the strong market that we saw in the fourth quarter continued also in the first quarter.
Looking at the order intake graph, of course, shows the same strength, the same trends, and so on, and how strong the quarter really was from an order intake perspective. In fact, only the first quarter in 2008 has been on par with this quarter. Mining and construction had a very strong project order intake in Q4. That's why we have this very tough comparison compared versus the previous quarter. And this, combined with a significant currency headwind, explains the decline from the fourth quarter of 2010.
If we continue into EBIT and ROCE, return on capital employed, operating profit and margin, improved significantly based on both increased sales and good leverage, especially for Sandvik Tooling, and also a generally increased production rates, which, of course, helps in our kind of business model. Still, there were some factors with negative effect on the result, such as the negative currency affecting the EBIT with SEK 450 million negative. And on top of that, as you might have read in the report, we had some production disturbances within materials technology that caused us some headache, and we're struggling to solve the problems. On the other hand, as guided for, we had metal price effects on materials technology that were positive this quarter with SEK 80 million.
At present currencies and present prices, we expect no material impact for the next quarter, however. And finally, return on capital employed continued to improve and is approaching the group target of 25% of sales. As for capital efficiency, we came in at the target level of 25%. We indicated that already after the Q4 report, that the 22% was not really sustainable on a short-term perspective, so our ambition now is to get stabilized at or below 25%. In the bridge analysis, we separate currency effects and structural effects and one-offs from the underlying business, and this is, of course, to show the performance from a more operational point of view.
As we are comparing with the quarter last year, very much affected by the financial crisis, the leverage is and should be greater than normal, and I think we are still quite satisfied with the 41% shown in this, in this slide. Anders, do you want to spend some time on business areas?
Yes. Let me start with a few words on Sandvik Tooling. During this quarter, Sandvik Tooling showed a satisfying development. All regions, and we could actually also say all customer segments, saw an increased demand. And in particular, Europe was strong, and Europe was led by Germany. That was the strongest market we had for this quarter. Of course, we had the sad effects on the society in Japan from the earthquake, but if we look on the effects on our business, we didn't see any significant effects during the first quarter.
Actually, we had one of our plants very close to the epicenter of the earthquake, and we were very pleased to find out that none of our employees had been hurt, and that actually they were able to get the plant back into full operation within three weeks. I think it really showed the enormous strength from the society and our employees. Looking ahead, you should also note. The area that has been devastated by the tsunami, actually is not really a strongly industrially developed area, but rather an agricultural area, and it corresponds to only about 5% of our sales in Japan. The positive net price effect, together with productivity, more than offset the negative currency effect and the increased cost that we had for raw material in Sandvik Tooling.
As usual, during the second quarter, we will ramp up production somewhat to make us well prepared for the summer vacation period. All in all, Tooling delivered an improved operating profit and a margin of 21.5% on EBIT level, verifying a good leverage from our business model. Cash flow continued to be strong, and our return on capital employed improved to 23%. Turning over to mining and construction, we can note that the activity in the global mining industry continued to increase during the first quarter. And as Jan already talked about, demand in construction industry also increased from a low level, but a very significant improvement. And in April, if we move forward from the first quarter, we also booked an order for equipment corresponding to SEK 1.2 billion in South America.
Demand for equipment continued to grow, and we are now seeing longer lead times from some suppliers. Although the situation is not at all near as strained as it was in early 2008, it will still have an influence on our inventory and our work in progress. Basically, all markets are showing very strong development, including Australia, despite some negative effects due to the flooding. Production rates increased, and consequently, from production rates increases and longer lead times, we saw some inventory build up and some more work in progress. Profitability improved further, despite significant negative currency effects, and the return on capital employed actually exceeded our 30% target for mining construction.
Last week, as you noted, we announced the joint venture in Shandong, in China, and the joint venture is related to equipment for the coal industry. We are pleased with this joint venture. It will strengthen our presence in China, and it will also help to increase our growth rate. The third business area, Materials Technology, also enjoyed an improved order intake during the quarter, an improvement of 14%, and a consequential strengthening of the order books. We saw continued strong demand from both energy and mining segments. As of today, we have not seen cancellations or delays in our nuclear order book as a result of the tragic events in Japan. In the area of nuclear industry, the multi-year agreement was signed with Westinghouse earlier in the quarter, related to deliveries of cladding tubes to the nuclear industry worldwide.
Although the markets continue to improve gradually, the total result of the business area, Materials Technology, is not up to our expectations. The most important reason for this is production problems within the tube mill in Sandviken. Unfortunately, they had negative consequences for us. Negative impact on the result, increased inventory, a lower output, and also a risk of losing market opportunities going forward. In April, it was announced that Peter Gossas will retire after nine years as president for Materials Technology, reaching the age of 62. Succeeding him is Jonas Gustavsson, and he's previously been the president of Wire and Heating Technology, that he has led in an impressive turnaround. Jonas stepped into his new position on the management team as of May first. That was a little bit of the three business areas. Jan, do you have some more financial presentation?
Yeah, we can continue on the financials. It'll be interesting to see what Jonas can do with Materials Technology. I think most of us and the people listening to this thinks as well. To the quarterly financials in a summary, increased demand on a global basis results in a strong, strong order intake, and we continue to build order book. We increased invoicing for all business areas, and despite that, we are actually not quite back at peak levels when it comes to volumes. There are a lot of distortion from acquisitions and currency and so on. We had a significant currency headwind and a disappointing performance by Materials Technology, no doubt about that. But the operating profit and the margin still improved significantly compared to year ahead or year previous year.
Based on higher sales and production rates, ongoing improvement programs, and also a positive product mix this quarter, where we had strong development in Tooling and Seco Tools. The higher profit, of course, contributed to a good cash flow, but that was also partly offset by an increase in working capital, both in inventories and receivables. Affecting cash flow was also the last payment relating to the Wolfram acquisition that was made or done during the first quarter. So if we summarize this, Anders?
Yeah. All in all, we saw a good financial development in most respects. The quarter was otherwise characterized by natural disasters, but also important events for us. In signing multi-year agreement with Westinghouse, a new president for Materials Technology, and this fascinating, interesting joint venture in China for mining and construction.
Yeah, that's something to look forward to, and also the continuation of the Shanbao acquisition that we announced just before Christmas, I believe.
Yeah.
Talking about the future or the present, this was the quarter.
Yeah.
What can we say about the market situation in April?
Well, first quarter actually came in above at least my expectations. It was a stronger improvement in the first quarter than we had anticipated. April, being a month with Easter, is always difficult to judge, but it looks like April continues to be strong in all our basic segments.
All in all, the trend is continuing, and we sort of sign off to the same market descriptions as most of the peers.
Yes, that's correct.
Good. So if that concludes our presentation, our formal presentation, operator, please, can you help us out with the Q&A session?
Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off for your signal to reach our equipment. Again, please press star one to ask a question. We will pause for a moment to allow everyone to signal. We will take our first question from James Moore from Redburn. Please go ahead.
Yes, hi, good afternoon, everybody. Hello, Anders. Hello, Jenny. I was just wondering how much you can help the market with respect to the outlook for SMT. If we dial back three months, you guys were thinking you could move the underlying margin forward, maybe 1% or so, and then within the quarter, you signaled some of these issues, and the margin has dropped 3%-3.5% on an underlying basis since the last quarter. It feels like the production issues and some of the other issues you face are ongoing. So can you help us think about where the clean margin is going to develop in the next quarter and for the year, or at least put some comments around that to help us forecast the outlook for SMT?
Hi, James. That wasn't the nicest question to start with, of course, but anyway, let me do my best. I mean, you have followed us, and you have followed Materials Technology for quite a long time. You know the complexity of that market and that business. We would very much like to be able to guide you as to where, when we will solve the problems. But it's not a quick fix, and we have sort of come to a conclusion that we shouldn't make any promises that we can't keep. We have done that too much in the past, and that's a lesson learned, and that's something that we have to bear in mind going forward.
I think that when you look at this quarter, and yes, the underlying margin, if you, if you reduce it, with the metal price effect, was lower than in, in the fourth quarter. On the, on the other hand, we had a little bit... We, we had a weaker product mix. We had planned lower deliveries to, to mainly the nuclear industry, but also part of the, the oil and gas industry. So I think that the underlying, margin would-- was probably around the same as it was in, in the fourth quarter, or let's say around 7% or so. We are addressing the problems, but again, we thought, we have thought so for many times before, and you have seen that it, it keeps repeating itself.
From that point of view, we expect them to improve, we expect them to work strongly with this problem, but we will not make any promises as to when we will see a significant improvement.
Okay, can I just follow up on that?
Yeah.
The poor mix, are you able to quantify how much that impacted the margin? And is that something that you expect to reverse with the visibility you have on demand?
... bookings coming in oil and nuclear?
It's a temporary lower delivery level to the nuclear industry in the first quarter. So if you reduce the EBIT with the metal price effect, you will arrive to slightly above 6%, I think. I think you would arrive to around 7% if you could adjust for the product mix. So if you take 7% as an underlying sort of normalized margin level at this performance situation, I think that's—that would be my mental starting point, so to say.
The production and development cost issues that you face there, presumably they are ongoing issues, and they aren't about to disappear?
They are ongoing issues, and we—I mean, they sort of, they reduce, as Anders said, they reduce our output, they increase our cost per delivered ton or whatever, or meter of tube. But it's not that it keeps on going week after week after week, but it's enough if there are too frequent problems. So one or two or three weeks in a row, you can run the operation smoothly, and the fourth week or once in a while, something happens, and then you have to remelt like a 70-ton batch or so, and that's very costly. But it's also part of the business model. But if it keeps coming too frequently, then we have a problem, then we have a cost problem and an efficiency problem, and not the least, a production planning problem.
Okay, thank you.
Okay, thanks.
We will take our next question from Johan Trocmé from Nordea. Please go ahead.
Hi, Anders and Jan, Johan Trocmé, Nordea. Can I ask you two questions, please? First of all, on materials technology, can you just describe a little bit to us, are the problems which have burdened the first quarter exclusively relating to the tubing part of the business, or are there other ongoing issues in the background in other parts of SMT as well? And secondly, on the cash flow development and the working capital, could you give us some sort of idea if the deterioration of working capital in the first quarter was in any way materially influenced by the ongoing issues within SMT? And if so, how much? Or, or is the current 25% of sales where you expected it to end up, given the business conditions?
Okay. Hi, Johan. Nice to talk to you. When it comes to materials technology, yes, it was a tubing problem only, and it was a tube production problem in Sandviken only. If you look at the rest of the tube organization, the new plants in China, for example, they are gradually ramping up now and performing better and better quarter by quarter. And if we look at the other product areas in materials technology, most of them are performing according to plan or at least at satisfying levels. We have an impressive turnaround, I would say, in the wire and heating area, as Anders described also when it comes to the heritage of Jonas Gustavsson.
So it's completely in the tubing area, in the production area, and it's related to our ramp up of volumes. As long as we had... Before the crisis, we had quite good volumes in tube, and we had an experienced workforce, and then during the crisis, we had to reduce quite a lot, and we did that on a permanent basis. Now, when the recovery came, we needed to rehire people, and we got in a number of people that should be enough for the kind of production rates we are operating with, but we also need to educate them. We need to get them to know all the procedures and routines around this quite complex production process.
And this has to be done from the core, the experienced core that we still have in this organization of production people. The same core is also dedicated for startup operations and ramping up production in the new facilities for nuclear tube manufacturing here in Sandviken. So we are in a bit of a constraint with this part of the organization. That's why we have quite a hard time to say how fast we can move on to solve the problems. And of course, this, as I said, it affects very much the production planning in materials technology because it's a big batch manufacturing setup, and it had quite a significant impact on the inventories for materials technology.
And that was also part of the reason why we increased net working capital in the quarter. It shouldn't be like it looked. Even if we kept our target of 25%, that was more of, I shouldn't say lucky, but this was one of the areas where we are not satisfied. That's definitely Materials Technology.
Would it be fair to say, Janne, that it was several hundred million SEK, that the impact was on inventory from the issue within tubes?
I think that's fair to say. I think that's fair to say.
Very clear. Thanks very much.
Mm-hmm. Thank you.
We will take our next question from Magnus Axén from Evli Bank. Please go ahead.
Hello, Magnus Axén from Evli Bank.
... I would like you to or question if you could say something about the price effect in the quarter and also mixed effect in Tooling and also productivity improvements, and also in a little bit longer perspective, if you still think it's possible in Tooling to reach margins above previous peak levels, given that we will soon be at volume or demand levels exceeding previous peak levels?
Mm-hmm. Hi, Magnus.
Hi.
When it comes to net price effects, we have a business model where for the most of our product lines, we don't have an automatic price adjustments for material. But we are rather selling productivity and value, and that is not raw material. So that's the model we are working with. But it turns out that we actually are fairly successful in arguing improvements in front of our customers in a situation like this.
So far, this year, we have been able to compensate the additional costs we got from raw material price increases with net price increases. And it has worked this quarter, it worked before. I don't see why it shouldn't continue to be that way. I think the business model is fairly stable and robust in those terms. Then, of course, when it comes to productivity, there is a very good opportunity to improve productivity with increased volumes when we get them. We still have a bit to go in Tooling until we're back to the volumes we had pre-crisis. But volumes, it helps us to improve productivity.
Comparing whether we will end up on or above or somewhat below the previous peak levels for margin, we also have to consider currency that is rather negative for Tooling right now. But that, of course, can change. But it's a bit out of our control in terms of adjusting.
But otherwise, it shouldn't be a problem.
I don't see-
Challenging, but not a problem.
Yeah, I don't see any reason why we shouldn't be able to exceed our previous margins when we...
Yeah. Okay, a quick follow-up or just related to that, just, so that we all have the same base here. Could you say something about approximately then, I mean, then, of course, for Tooling, where volume-wise, where we are now, compared to, well, let's see, mid-2008, or what you consider being early peak levels?
The earlier peak level, I agree with you. That was the first half, 2008. That's the strongest half year.
We have some 7% still to go.
Yeah. Well, it's about 7-8% to go when you talk about sales levels, but during that half year, we also built inventory. We were in a significant growth mode, and we were preparing for a summer vacation. So we were producing more than sales.
Yeah.
Production volume-wise, it's more than 8% that's missing.
Yeah, yeah.
Okay.
Okay, but, yeah.
Yeah. And since then, we have developed our inventory management and refined our assortment. So we are much leaner on the inventory, which brings down production volume-
Yeah
compared to the previous comparison.
Yeah.
But anyhow, I mean, I don't really see why we shouldn't be able to get back to the previous peak levels.
So you still find that, talking about the cost base as such, you we should still say that we are. You have some of the savings communicated, perhaps you get tired of that question, but communicating of savings during the crisis. And of course, it's natural that you add cost if it's, if you could gain from it, so to speak, in the growth, growing environment. So I have all respect of that, but do you still have a lower cost base? You could say that then, or something left of those savings.
We are still about 2,000 fewer employees compared to the peak level.
Yeah.
But we are investing, and we have been investing in R&D and sales and other efforts to continue to grow and thus increase our footprint, particularly in the growing markets.
Yes.
But about 2,000 fewer employees with the same volume should work in the right direction.
Okay.
Very clear. I'm satisfied. Thanks.
Thanks, Magnus.
Thank you.
You continue to deliver very high leverage on incremental pace-
which also verifies this. Yeah. Thanks, Magnus.
Okay, thank you very much.
Yep.
We will take our next question from Johan Eliason from Cheuvreux. Please go ahead.
Yeah, hi, this is Johan Eliason from Cheuvreux. Coming back to cost cutting and leverage, et cetera, mining and construction, obviously did a big change of the inventory set up at the time of the peak of the bubble, so to say. I was wondering if you are seeing some benefits from there, and what else is ongoing in terms of restructuring inside the mining and construction right now?
Yeah, that's correct. They were transferring part of their inventories from sort of a local warehousing concept to central warehousing concept. I don't have a full update on the situation on that, but most of that is done. I think the previous quarter showed very good performance from mining and construction when it comes to reducing inventories. Then it, of course, relates a little bit to the kind of product mix that we are delivering and so on. But all in all, I think, I don't know if you guys have a better update. Most of that should be done by now.
So the, the volumes coming through now should imply a lower inventory tie up, compared to that time?
Yeah. They are almost back to peak volume levels, but much less problems with deliveries, despite the fact that they have lower inventory now than they had at that point in time.
On other cost cutting measures, are there any anything particular ongoing in SMC?
Oh, yeah. They have their ongoing consolidation and then the improvement programs that we have talked about for quite some time, but it's also long-term measures to consolidate smaller sites into biggers. I mean, you know that we are investing in a huge site in Hunter Valley, in Australia, and they're also ramping up production in the Jiading facility outside of Shanghai. So it's not fair to expect a very rapid improvement or a stepwise improvement. It will be gradual, but it will be a long-term improvement, and that's our firm conviction. They are definitely on the right track. And if you look at the return on capital employed, I mean, they are above 30%. They have a business area target of 25%.
Yes, there is still a gap on the margin side versus Atlas Copco's corresponding, division, but when it comes to return on capital employed, they are on par. So, of course, efficiency is improving in mining and construction, but there is more to come, but it will be a multi-year project.
Gradually, it will show up.
Excellent, Manu. Thanks.
Thank you. Thank you.
We will take our next question from Ben Maslin, from Bank of America. Please go ahead.
Yeah, good afternoon, everyone. It's Ben from Merrill Lynch. Two questions, please, Anders and Jan. Firstly, just coming back to Materials Technology and the seasonality. You normally have a much stronger margin in the second quarter, given that you build inventory ahead of the summer shutdowns, then it obviously reverses in Q3. Given the ramp-up problems you've had on the tubing side and now the small fire in the wire business, do you think you'll still see the same seasonal pattern this year, or will we see something different? That's the first question. And then just on CapEx, I'm looking at your kind of guidance comments.
It looks like you've raised guidance for CapEx this year to be 120%-30% above depreciation from somewhat previously. Can you just talk a little bit about, you know, where this extra investment is going? You know, my impression was that you still had quite a bit of excess capacity in certain areas across the group. Thank you.
Mm-hmm. Hi, Ben. Thanks. Well, Materials Technology and seasonality, yes, they are the business area that has the most significant seasonality in the third quarter, has always been, even if you also compete with them, Anders.
I think that it, it's fair to assume that if we have delivery problems in wire and the … Sorry, in tube, I would stay with wire for a bit. If we have delivery problems in tube, we have to make up for that, and that would maybe impact our summer planning, but I don't have an up-to-date situation of that yet. When it comes to wire and the fire at wire, the total sales value from that unit is about 10 million SEK, so it's quite limited from a group point of view. On the other hand, we have to solve with, and they are producing some very good, profitable, and critical problems. 10 million SEK per week. Yes, thank you, Magnus. Backing me up like that.
So we have to solve that for the customers, of course, and but I think that we are in a good process of doing so. We are transferring some products to our other sites, and we are using external help for doing so as well. So hopefully, that will be solved to a large degree within not too long time. So it's a bit hard just now to say how the summer planning will look for materials technology based on these issues. Well, and then when it comes to CapEx, to some degree, we are increasing our guidance from somewhat, or we are clarifying, I would say, because during the quarter, we have talked quite a lot about what is somewhat.
Well, it might be in the range of 120%-130% of depreciation.
Yep, sure.
So, it's not that much of an increased guidance, I would say. But some things have happened since we said that on or below depreciation was our guidance, and that is, of course, the Hunter Valley site, the big mining and construction site in Australia, that initially was planned to be some kind of rental setup. We are now investing in that all by ourselves. We got the agreement with Westinghouse, which increased capacity for cladding tubes for the nuclear industry. And then, of course, we also have the ongoing nuclear ramp-up, where we are continuing that despite the issues in Japan and the discussions after that, where we haven't seen any significant changes in the view on that.
There are some new projects coming in also that sort of justifies the slight upgrading in guidance.
Great, thank you. And maybe if I could just have a follow-up to Anders, just on Tooling. Can you just say where were your production rates during the quarter, relative to your actual sales level? Were you building inventory or was it fairly in line?
It was fairly in line this quarter.
Okay, thank you very much.
Thank you.
Thanks, Ben.
We will take our next question from Colin Gibson from HSBC. Please go ahead.
Thanks very much indeed. Yeah, it's Colin at HSBC. A couple of questions, please, then. First of all, just a question on the FX headwind in Q1. Obviously, quite a lot happened, and I appreciate currency ranges, currency exchanges do change all the time. But you know, we started off, what, at the start of February, looking for SEK 150-200 million of headwind. My impression was that you, by the end of the quarter, were looking for more like SEK 300 million of headwind. It came in at SEK 450 million. Did I just misunderstand how much headwind you really were looking for in the quarter, or was there something in particular that brought the final number to SEK 450 million?
Which, as I say, was quite a big change then over the two months from the start of February. And then second question, what can you say at this point about the timing of any further strategic news, if you like, that we might expect to hear from Olof or from Jonas at SMT? Do you think they will have a more—either of them will have a more complete picture of what it is they want to do in time for this year's Capital Markets Day?
Hi, Colin. Well, yeah, I think, first of all, we were quite explicit about the definitions of our guidance when it came to FX effects. At the fourth quarter report release, we said clearly that based on the currencies and prices, or the currencies at the end of the previous quarter, which is our normal definition, it would have been around SEK 150 million negative. But then what happened during this particular quarter was that the Swedish currency continued to strengthen on a gradual basis. And all of a sudden, people came out and guided different numbers here and there, and of course, people started to ask us as well. So we recalculated that based on the situation in February, I think, like that. And then we arrived to around SEK 300 million.
What happened after that was that week by week, the situation worsened. The Swedish krona continued to strengthen versus especially the US dollar, I think. And that's why we ended up by 4.450. I think that that is the situation that is recognized by many other companies as well.
Okay, thank you.
So if that goes for FX, strategic news from our CEO being in the company for 100 days. Well, I think you have to, to wait some time for that. Of course, if it comes something that is significant and that we need to communicate, we will do so one way or the other. If it's affecting the value of the company, we have to issue a press release. But most likely, in the Capital Markets Day, we will be able to talk about this. If we are ready before that, well, one way or the other, you will hear about it. If it's something significant, we need to do it. But the Capital Markets Day, I think, is, is a good opportunity to raise these questions.
Great. Thank you.
Thanks.
We will take our next question from Peder Frölén, from Handelsbanken. Please go ahead.
Yes, thank you. On the production situation in Tooling, I guess you usually produce a couple of percentage points above invoicing in the second quarter. Could you just sort of clarify if that's your plan? I thought you mentioned that during the call. And also on your guidance, and maybe it's easier to talk about Tooling, given the character of the business. You talked about April is good, and the trend continues. If you look at the volume sequentially, it seems like Tooling volumes increased by 7%-8% in the first quarter over the fourth. Is that really the type of sequential development you are looking for? And finally, just a clarification on prices. How much is price contribution in Tooling and in SMC?
The reason for the sort of quite specific question is that others are sort of talking about the price element, especially in the mining construction field.
Mm-hmm. Okay, Peder . Yes, we plan to produce more during the second quarter to have a good delivery situation during vacation. A handful of percent improvement. When it comes to the sequential, yes, as I explained, the first quarter came in stronger than we had expected, with a 7% sequential growth from fourth quarter. Demand is still strong, but we don't expect to continue to see sequential growth of 7% between the quarters.
...So we see more stabilized, strong demand. When it comes to the price, net price effect, I would say about 2% is what has been achieved so far this year.
And Anders, are you talking about Tooling specifically on group level?
Tooling.
Yeah, it varies a bit between the business areas. I think that tooling is maybe on top. It's a bit more difficult to assess exactly on mining and construction. But they are. I think they are slightly behind Tooling when it comes to price increases.
Yes, a follow-up. Invoicing on project in essence is 10%, down from 15%. Is that a 2 percentage point sequential headwind or what is it?
On the margin?
Tailwind, sorry, sequentially.
I think it was 15% of invoicing in the fourth quarter projects.
Yeah.
It was about 10% this quarter. I would like to know about the sequential tailwind from that mix.
It helps. I can't really say. Have we done that calculation? I don't think so. We can come back to that issue, but it's the normal impact that we have. I think you are about right, 1-2 percentage points is usually what we have when we go from 10-15 or 15-10.
And given the project orders that you have received in the last, say, 12 months, is it fair to assume that 10 is on the low side, and maybe 15 is more normal given the backlog?
I think that you, you can expect an increase going forward. If we will reach exactly 15 for the full year, I can't say, but, but it will be higher than 10. That, that's our prediction. Closer, yeah.
Very clear. Thank you.
Thanks.
Thanks, Peder .
We will take our next question from Ann-Sofie Nordh from Nordea. Please go ahead.
Yes, hello. You mentioned in the report some impact on the automotive from the Japan issues. Is that something you've actually noticed, or are you just being very cautious here regarding your the second and third quarter? And also, on the financial net, is there anything extraordinary in that number, or is that a fairly clean number?
Hi, Ann-Sofie . I think, first of all, automotive in Japan and the impact is still quite a speculative impact. As Anders said, we haven't seen a financial impact or any impact on order intake in the first quarter. But just based on all the speculations and the information about automotive production being stopped or at least reduced in Japan for the second quarter, it's not unlikely that we will see something coming up in May or so.
Okay.
And then when it comes to the second question, that was financials.
But I think that was quite a clean financial net financial list.
Yeah.
Financial net SEK 416. Yeah, that, that's about where it should be.
Yeah, good.
I haven't even noticed. So 1.6, 1.7 on an annual basis. Okay?
Thank you very much.
Thank you.
We will take our next question from Guillermo Peigneux, from Morgan Stanley. Please go ahead.
Hi, good afternoon. It's Guillermo Peigneux from Morgan Stanley. Just maybe a couple of questions. First, regarding Tooling. When you compare basically the organic growth you achieved in the quarter, you are clearly outpacing some of your peers in the U.S.. And I was wondering whether that is actually driven by pricing per se, or do you think it's regional mix, or are you actually gaining market share?
We like to believe that we are gaining market share.
Thank you. Then probably maybe a follow-up on that. I think it's around 58%, drop-through or incrementals on that division. Is fair to assume that give or, or basically, despite the fact that maybe sequential growth will slow down, but price increases could actually partially offset that. Is that... Is fair to assume that that incremental number should be flattish, second quarter?
Yeah, more or less. More or less.
Yeah.
More or less.
As long as we don't reach the capacity roofs, the capsule capacity-
Okay
... We are, we have guided for at least 50% drop-through.
Yeah. As long as we are below previous peak levels.
Yeah.
Yeah.
Yeah. And then, on SMT operations, maybe one of the issues that come up to my mind is the capacity of your stainless steel mill in Sandviken. Is that something that you're looking at, or is completely even or unthinkable, that you may cut capacity on the steel mill?
That we will increase capacity or what?
Decrease capacity.
Decrease? Uh.
You can't really do that on a sort of partially decrease capacity. Either you have it or you don't have it.
So it's impossible, yeah?
Yeah. That's the kind of setup we have so far, I think.
Yeah, and then, yeah.
It's more related to the way that we have our shift forms. We can reduce the number of shifts or so, but that won't help to cover the... I mean, we would still have the fixed cost.
Okay. And then, maybe one question regarding, how much of your CapEx is actually customer funded? When you, when you guide towards 120%-130%?
Yeah, basically not, or a very limited part. The part still remaining in the, in parts of the nuclears, are sort of funded by prepayments, but normally they are still recorded as CapEx spendings in our books.
All right, and then maybe a check, or a bookkeeping question regarding your joint venture with Shandong. Is it around about potentially 1 billion, 1 billion sales, SEK 1 billion sales? Or is it all going to be consolidated under your accounts, and how much capital are you putting in the joint venture?
Yes, we expect it to, within a few years, be at least SEK 1 billion sales operation. We will, and yes, we will consolidate it fully in our books. And we will put in a very limited amount of CapEx spending in that. Most of the CapEx spending will come from the mother company or the counterpart.
Very helpful. Thank you.
Thank you.
We will take our next question from Sebastian Grütter from Société Générale. Please go ahead.
Yeah, good morning, to both. Two questions. First, on the FX guidance for Q2, could you give us a breakdown of that by division? And my second question is on the corporate line, minus SEK 170 million in Q1, was a bit higher than what I was expecting, and it seems like there was a positive contribution from FX in that line. So, could you give us some color on the outlook for these corporate items? Should we expect something like SEK 150-200 million negative per quarter, or was there something unusual in Q1? Thank you.
The FX effect in Q1 was... In the first quarter, that was your question, wasn't it?
No, no, in the second quarter, the SEK 800 million.
Uh, sorry.
Could you give us a breakdown?
Yeah.
-by division?
Materials Technology, a very limited effect. Most of it will hit Tooling and Mining and Construction, and it will hit them equally hard.
Okay.
That's the best guidance for now. When it comes to group common costs, SEK 170, yes, it was slightly above what we have seen, but this is an item that jumps a little bit up and down. And I think on an annualized basis, it usually is around SEK 500 or between SEK 500 and SEK 550. So but it jumps a bit up and down as well, so it's not anything trend-wise exceptional in this.
Okay, thank you.
Mm-hmm. Thank you, Sebastian. I think that we have to ramp up this, this conference call. We are off for the AGM, and I want to thank you all for listening and the guys around me for helping and assisting, Anders, you included, of course. We are always available on the telephone, me and Magnus, at least. And we, as I said, we have invited for another conference call on Friday, 1:00 P.M., Central European Time, with Olof Faxander. That gives you another opportunity to raise these questions and discuss with him. And the next quarterly report from Sandvik will come on the nineteenth of July, if I'm not mistaken.
Operators, thank you very much for your assistance and all the rest of you. Thanks a lot for listening and participating. Hope to talk to you soon again.
Thank you, all of you out there. Have a good day.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.