Sandvik reports high demand but fewer orders in Q2 2019
July 17, 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 18.8%.
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 segments.”
“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 initiated.
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.