Sandvik reports high demand but fewer orders in Q2 2019

Sandvik AB, headquartered in Stockholm, Sweden, has reported
its results for the second quarter of 2019. Revenues were said to have remained
steady, but adjusted operating profit declined by 2%, adversely impacted by the
negative earnings development in Sandvik Machining Solutions. In the period,
order intake declined by 5% and the adjusted operating margin declined to

Björn Rosengren, President and CEO of Sandvik, stated, ”In
the second quarter, the level of demand was at a historically high level.
Customer activity in the mining industry remained robust, while softer market
activity in our early-cyclical businesses was noted toward the end of the
quarter, most tangibly in the automotive and general engineering

“The adjusted operating margin declined to 18.8%. I am
not entirely satisfied with this level,” he added. “After a long
period of high focus on managing strong growth, we now further emphasise focus
on efficiency measures. We will take further action in all business areas to
deliver strong margins long-term. These activities will be promptly implemented
and include a personnel reduction of approximately 2,000, which is on top of
the 450 whom have already left during the first six months.”

“Consequently, cost of about 1.2 billion SEK will
impact operating profit in the second half of 2019. I expect total savings of
about 1.4 billion SEK, and these should start filtering through already toward
the end of this year,” he stated. 

Across the Sandvik Group, order intake decreased in the
company’s main global markets, with Asia showing a decline of 6%, Europe a
decline of 10% and North America a decline of 8%. Orders in South America
remained stable, while orders in Australia saw a significant increase of 57%.

Sandvik Machining Solutions saw a slight decline
in its Q2 operating profit, reporting a total Q2 operating profit of SEK 2,483
million, down 11% on the same period in 2018. The operating margin declined to
23.3%, compared to 26.8% in the same period in 2018. The company stated that
underabsorption of fixed costs due to lower production volumes impact the
operating margin by -2.7% points year-on-year. The operating margin was also
adversely impacted by reduced profitability in the tungsten powder and blanks
business as organic growth declined. 

Sandvik Mining and Rock Technology saw a continued
high order intake, earnings growth and margin expansion, and further expanded
its digital offering. The division saw an operating profit improved by 13%,
amounting to SEK 2,115 million (Q2 2018: 1,865). Organic growth was flat at 0%,
with revenues improving organically by 3% year-on-year. In total, orders for
equipment remained at a high level, positively impacted primarily by the
mechanical cutting and automation divisions, while orders for underground
mining equipment declined.

Sandvik Materials Technology saw a decline in organic
orders of 20% year-on-year. Excluding the impact of large orders, the decline
was reported to be 17% year-on-year. Operating profit excluding the effects of
metal prices was SEK 454 million (Q2 2018: 338 million), implying an underlying
margin of 11.3% (Q2 2018: 8.7%). Adjusted operating profit increased by 9% and
the adjusted operating margin improved to 14.6%. It was announced that the
internal separation of Sandvik Materials Technology has now been

For the first six months 2019, demand for Sandvik’s products
was said to have remained stable year-on-year. Excluding the impact from large
orders, the growth amounted to -1%. Revenues increased by 1%. Demand for
Sandvik’s products declined at a low to mid-single-digit rate in all three
major regions. 

The six month order intake was SEK 53,905 million (2018:
52,620 million) and revenues were SEK 51,492 million (2018: 49,822 million),
implying a book-to-bill ratio of 105%. Adjusted operating profit increased by
2% year-on-year to SEK 9,535 million (2018: 9,338 million) and the adjusted
operating margin was 18.5% (2018: 18.7%), positively impacted in the amount of
SEK 954 million due to changed exchange rates.

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