Sandvik AB, headquartered in Stockholm, Sweden, has reported its results for the fourth quarter of 2020, in which the business maintained its recovery from the impact of the coronavirus (COVID-19) pandemic. Revenues declined organically by -6%, while adjusted operating profit declined by -11% to SEK 4,505 million (Q4 2019: SEK 5,066 million). Order intake declined organically by -2% and the adjusted operating margin increased to 20.1% (Q4 2019: 19.1%).
During a second wave of COVID-19, the company states that a gradual recovery was seen in specific end-markets and segments in the fourth quarter. Organic order intake for the group was slightly negative, but excluding major orders, showed a positive development year on year for the first time since the first quarter of 2019, fueled by strong demand in the mining business. While demand in aerospace and oil & gas remained subdued, customer activity in engineering and, in particular, automotive intensified in the period.
Demand in parts of Europe improved sequentially driven by automotive and mining activity, and overall organic order intake declined year on year by -2%. North America declined with -23% while order intake in Asia increased by 4%, reflecting the continued economic recovery in the region.
Stefan Widing, president and CEO of Sandvik, commented, “The pace of recovery that was noted at the beginning of October continued throughout the fourth quarter. Demand in our long-cycle mining business was strong and we saw a sequential uptick in our short-cycle business. Consequently, organic order intake (excluding major orders) for the Group grew by 3% year on year. Despite lower revenues in the wake of COVID-19, we delivered strong and improved adjusted margin of 20.1% (19.1) in the quarter, supported by our short and long term savings initiatives, which is a confirmation of our tight cost control and our agility during this year’s challenging market conditions.”
“During the quarter, we delivered approximately SEK 920 million in savings and lower discretionary spend for the group compared with the preceding year. However, the headwind from currency had an impact on both reported revenues and reported operating profit. Organic order intake and revenues for full-year 2020 declined by -12% and -11% respectively, heavily impacted by the COVID-19 pandemic. At the same time, Sandvik has been able to maintain resilient adjusted margins of 16.9% (18.6).”
“While the quarter was characterised by increased optimism and a higher degree of activity, we nonetheless find ourselves in the midst of the second wave of COVID-19,” he continued. “It remains difficult to predict the short-term consequences, and in the long-term, the handling of the pandemic and economic policy decisions will determine the speed and strength of the recovery. Meanwhile, our priorities are to continue with precautionary measures to keep our employees and customers safe and to stay focused on executing our savings initiatives while capturing the interesting growth opportunities that lie ahead of us.”
Sandvik Manufacturing and Machining Solutions
Sandvik Manufacturing and Machining Solutions saw order intake and revenues decline year on year. While all three major geographic markets displayed negative development, customer activity in parts of Europe and Asia intensified from the lower levels noted in earlier periods of 2020. A more positive sentiment in North America in automotive was also noted.
The largest decline in organic revenues was noted in North America followed by Europe decreasing by -21% and -10% respectively. The decline in Asia was -4%, with positive development in China driven by domestic consumption. In Europe, order intake in Germany and Italy was only slightly negative compared to the year-earlier period, driven by good recovery in automotive. The number of working days had a slightly positive impact of 0.5% on both orders and revenues. Wolfram, the tungsten powder business noted a strong improvement in order intake resulting from intensified customer activity.
Adjusted operating profit amounted to SEK 1,742 million (Q4 2019: SEK 2,000 million), decreasing -13% year on year. The adjusted operating margin improved to 21.4% (Q4 2019: 20.3%). Savings from the cost measures announced in 2019 amounted to SEK 120 million and temporary savings were approximately SEK 410 million. Savings from the new initiatives announced in 2020 had a SEK 15 million impact in the quarter. Changed exchange rates had a negative impact of SEK -125 million year on year.
During the quarter, the acquisition of US-based CGTech and the Indian company Miranda Tools were completed. Sandvik also acquired a minority stake in the privately-owned US software company Oqton.
Sandvik Manufacturing and Machining Solutions is said to have had no major disruptions to its operations due to COVID-19. However, despite improved momentum during the period the pandemic continued to weigh heavily on demand in aerospace and the oil & gas segment.
Sandvik Mining and Rock Technology
Sandvik Mining and Rock Technology saw an adjusted operating profit declined by -11% year on year, mainly due to exchange rates. The adjusted operating margin increased slightly to 21.7% (Q4 2019: 21.6%), reaching an all-time high, supported by strong revenues and savings measures.
The company states that order intake was record-high, increasing by 15% year on year, with strong development for both equipment and aftermarket. Total equipment orders increased by 23%, reaching an all-time high, supported by overall robust sentiment and orders for underground mining equipment and automation. Aftermarket orders increased by 8% driven by Parts & Services. All regions noted positive development, with Africa/Middle East noting a growth rate of 31% and Asia 9%, with both Europe and North America recording a low to mid-double digit rate. The aftermarket business accounted for 55% of revenues while the equipment business accounted for 45%.
On October 9, 2020, the divestment of the exploration business was announced and on December 24, 2020, the acquisition of DSI Underground, a global leader in safety solutions within underground mining and tunnelling, was announced. Costs of SEK 84 million were related to the acquisition of DSI Underground and were charged to the quarter.
COVID-19 is said to have had only a minor impact on production during the fourth quarter andboth supply and distribution proceeded as planned.
Sandvik Materials Technology
Sandvik Materials Technology saw order intake decline by -31% primarily due to a major order received in energy in the year-earlier period. Excluding major orders, the order intake was -7%. The decline in revenues was less steep at -10%, supported by the backlog. Order intake in the major regions with the exception of Asia, declined year on year.
Tube noted negative order intake and the weakest segments were oil & gas and aerospace, with no signs of sequential improvement. Excluding a major order within advanced tubular products of SEK 1,089 million in the preceding year, the order intake was -7%. Strong development in medical and consumer-related segments as well as in industrial heating. Alloy surcharges impacted order intake and revenues year on year with approximately -2.8% and -3.2% respectively.
Adjusted operating profit excluding metal price effects totalled SEK 399 million (Q4 2019: SEK 485million), yielding an underlying margin of 11.6% (Q4 2019: 12.%). Including positive metal price effects, the adjusted operating profit decreased to SEK 528 million (Q4 2019: SEK 659 million) and the adjusted operating margin decreased to 15.4% (Q4 2019: 16.4%).
A negative effect from lower invoicing and a less favourable mix within oil & gas and aerospace partly offset by a positive mix within industrial heating and consumer-related products. Savings from cost measures announced in 2019 amounted to SEK 20 million and temporary savings were approximately SEK 40 million. Savings from the new initiatives announced in 2020 had a SEK 20 million impact in the quarter. Exchange rates had a negative impact of SEK -43 million year on year. Changed metal prices had a negative impact of SEK -45 million year on year.
Sandvik Materials Technology’s production is said to have largely unaffected by the COVID-19 pandemic, although there were some temporary shutdowns. Supply and distribution chains remained largely intact. Market weakness remains high in the oil & gas and aerospace segments.