Apr 16, 2025 / 11:00AM GMT
Louise Tjeder - Sandvik AB - Vice President, Head - Investor Relations, Sandvik Group Spokesperson
Hello everyone and welcome toamic's presentation of the first quarter results 2025. My name is Louis Tedder, head of investor relations, and beside me I have SaviO, Stephan Viding and CFO Cecilia, Felton.
We will do the normal procedure, meaning Stefan and Cecilia will start with the presentation and take you through the key highlights of the quarter, and after that we will move on to the questions.
And with this I hand over the word to you, Stefan.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Thank you, Louis, and also from my side, welcome to our first quarter report in 2025.
We start by summarizing the quarter, we see good momentum in the mining business while cutting tools and the infrastructure continue to be impacted by the uncertain macro environment.
Also positive is that manufacturing software continues to grow at mid single digits.
Total order intake increased by 2%, and of that, the organic growth was 2%, and revenue increased by 1%, and of that organic was also 1%.
We improved our financial performance on all key metrics. Adjusted I beta margin improved by 1.5% points corresponding to a margin of 19.7%, and the rolling 12 months margin is now 19.5%. We see in particular a very strong positive impact from the restructuring programs and savings that we have had, and this quarter, the positive bridge effect was 307 million.
Adjusted profit for the quarter was 3.8 billion, 3.3 billion in the same period last year, and the free operating cash flow was 3.8, slightly improved versus the same rounded number of 3.8 last year.
We also continue to focus on our strategy execution and made good progress. Several innovations launched with the focus on electrification, and also 9 acquisitions announced in the quarter, which I will come back to in this presentation.
We start with innovation, a very important launch in the quarter where we have been lagging an offering for cable electric rotary drill rigs, and now we have launched an electric option for our entire range of automation ready rotary drill rigs. So this fills an important GAAP in our product portfolio and is part of our ambitions to improve our market position within surface mining.
If we then take a look at the regions and segments as usual, starting with the regional view first, Europe was down 8%. Here, cutting tools was down 7%. North America was up 4%, cutting tools down mid single digits.
Asia up 9%, China cutting tools down low single digits, while Asia was flat, driven in particular by a strong performance in India.
And then we have more of the mining markets with Africa, Middle East up 2%, strong performance in Australia up 12%, and South America also strong at up 8%.
Looking down at the segments, you can see that mining, is, have had a strong performance. We believe the market momentum has improved, and in particular, strong performance this quarter in Australia and South America.
General engineering, we down mid single digits overall, also down mid single in both Europe and North America.
While China saw an improvement in general engineering of up mid single digits while Asia was more flattish overall.
Infrastructure, I would say stable, but at, muted levels as before.
We continue to see more positive picture in North America, but of course, that is also, more risky going forward, of course, in North America given everything that's happening there.
Automotive down, and this was the most, negative, segment in the quarter.
Down low double digits overall. Europe down low double, North America down low double and China down a little bit better but still down high single.
Aerospace positive sentiment there up mid single digits in Europe, North America underlying flat in reporting numbers down mid single digits where we continue to see a slow pick up of order intake from the largest customers that is clearly working through some inventories and then also negative in China, with low double digits in aerospace.
The other segments, a bit more mixed picture overall down, low single digits, Europe down low single, North America up to double digits driven by some specific segments like rail that was positive in the quarter, and then a shut down mid single digits.
So overall a a quite mixed picture in terms of the demand, across regions and segments.
If you summarize this, then we see an order intake of 32.8 billion in the quarter revenues of 29.3, which is a healthy book to build of 112% in line, I would say with with seasonality, but a healthy book to build.
If we look at this from a slightly different perspective, then we can see that this was the 4th quarter in a row with positive organic order intake, and that has also gradually translated into now a positive organic revenue growth of 1% where we were flat in Q4.
Modern development strong 19.7% and in absolute terms up 9% to almost 5.8 billion.
I would say this is a good margin level considering quarter 1 is always seasonally low from a volume point of view.
We see strong leverage in all business areas on the back of the structural savings and good cost control we have had, and we are also supported in this quarter by currency accretion in most of the businesses.
Mining solutions, strong organic order intake, 26% up in equipment, double digit growth in parts and services again, aftermarket growth, 2%, but excluding a major order in aftermarket last year, up 5%. So here you see a little bit of difference between parts and services and the consumables in the aftermarket, but overall very strong performance.
We had, major orders totalling almost 1 billion, excluding, major orders, organic order intake was up 7%. If we include them, it was up 10%.
Very strong margin performance 20.8, especially then given that Q1 is a low volume quarter from an invoicing point of view.
So good leverage, positive impact from savings, and I would say overall, surprisingly good, with a very clean quarter from an execution point of view.
We had help here from, savings, and also from exchange rates. Already mentioned the important product launch, for the electric rotary blast to drill rig range, and also want to highlight that we continue to see good demand from our digital solutions in the quarter.
Rock processing here demand in mining continues to be stable while infrastructure then continues to be at a lower activity level, especially in Europe. Total order intake decreased by 3%, which the organic decline was 2%. But if we exclude major orders, it was a positive development with plus 2%.
Good margin improvement as well at 15.1. Good savings realization and contribution from the savings programs in particular. Also here support from currency.
Also here we launched a new important product in the field of electrification, a mobile electric cone crusher, that will support our organic growth journey for customers that prefer electric options.
We also announced in the quarter the acquisition of also demolition equipment, which gives us a full range of demolition and recycling equipment for attachment tools. This is something we have already had in the assortment before, but that it's been a traded product through this acquisition we are bringing this in-house, which is supporting both technology development and and long term from an opportunity point of view.
Then going into manufacturing and machining solutions, industrial activity continues to remain at a low level. I already went through all the segments.
Also mentioned that software continues to grow at mid single digits, driven by strong performance in the US, while powder in this quarter declined year on year in mid single digits.
And here, we had a very high order intake in Q4. We mentioned then that some of that might be timing, so I would say we, that is most likely the case here that this is timing between the quarters. Overall demand for powder is good, and we'll come on to that also when we talk tariffs and and restrictions imposed by China, that is likely to have a positive impact on us.
Total order intake decreased by 3%.
Organically down 6%, and if we look at cutting tools then overall down mid single digits, and this represents a stable development in dailies compared to the fourth quarter. So overall market situation, I would say stable, going from Q4 into Q1.
Also, if we look at the end of the quarter, we didn't see any specific effects such as pre-buys or declines. And when we look at the start of April in the first two weeks, we see the daily order intake being stable, compared to what we would expect from normal seasonality and dynamics around beginning end of months and so on.
Want to highlight though.
I always say this, we only report what we see in the first two weeks, and of course the external events in the world means that drawing conclusions from this is more difficult than it has ever been, but this is what we see so far.
The margin in the SMM was strong given the volume declines, 20.9%, so an improvement versus last year. Again, similar story, very good cost control, quite material positive impact from the restructuring programs here, slightly less help from currency and also some delusion from structure.
Mentioned acquisitions.
We have acquired 7 resellers, cam resellers in the quarter, and this is an important strategy. It's very value accretive acquisitions overall. It supports our customer relations as we get closer to our customers, and it also supports the synergy realization when it comes to cross selling among our different software brands. And this is something that Math will talk more about at our capital markets day in May.
We also wanted to give you some more flavor on the tariff situation and an update on that.
First of all, and I think a key takeaway is that at the current tariff rates, the ones that are in effect here and now, we expect a limited margin impact based on all the activities we are doing to or have done to to mitigate this. I would say the main risk for us as we see today is the overall impact on the global economy.
Which of course is as difficult for us to predict as it is for you, but that is today, I would say the main risk, not the tariffs themselves.
We have here a number of examples of mitigating activities and of course all our divisions have different exposures and different footprints. So this is not a list that applies to all of them, but these are examples of activities our businesses are taking.
We, for example, have very limited flows between China and US, but those that we have had are being mitigated, for example, through supply chain activities. We are rerouting flows that today might go through the US and then into Canada and Mexico.
Because that has been a tariff-free zone, and also, of course, being rerouted, so we minimize, that exposures, bringing goods directly into Canada and Mexico.
Tungsten raw material is exempt from tariff currently, but there has been earlier in the quarter export restrictions placed on this raw material by China, and that we have seen has led to increased demand for tungsten outside of China. And as we are one of the major providers of that raw material in the world.
Mostly for our own internal consumption for drill bits and cutting tools, but we also sell externally. So this is a potential upside depending on what happens with this going forward.
We have put in tariff clauses and revisited our commercial agreements were applicable. We have also notified customers and partners in several of our businesses of potential upcoming tariff surcharges. We are rebalancing product capacity where In some cases, we might produce today in Europe, sending to the US and vice versa, we produce something else in the US and sending to Europe. And of course, depending on the tariff levels, that's something that will be rebalanced.
We will also, if needed, increased production capacity in the US, but currently we don't really see a need for that. But if tariff rates would increase materially, that will also be something we would look at. And I want to be clear here we're talking about existing manufacturing footprint that we have already in the US, increasing capacity and that there is no need for any type of greenfield investments.
So overall, current situation I think is very much manageable, but there is of course a risk to the overall global economy.
I will with that hand over to Cecilia to take us through some more details.
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
Yes, thank you, Stefan. So let's dive into the numbers then in a bit more detail together.
And as usual, let's start with the growth bridge, and as Stephan mentioned, you can see here that organically orders grew by 2% and revenues by 1%.
Structure contributed positively with 1% on both orders and revenue while currency had a negative impact of 1%.
And in total then orders grew by 2% and revenues by 1%.
Adjusted EITA grew by 9%, reaching 5.8 billion, corresponding to a very good margin at 19.7%. Net financial items came down year over year. I will show you a detailed specification of that in a few minutes.
And the tax rate, both excluding items affecting comp comparability and also on a normalized basis, was in line with the guided range.
Networking capital just below 30%, cash flow 3.8 billion corresponding to a cash conversion of 70% in the quarter.
Returns improved and excluding amortization of surplus values, it reached 16.7% in the quarter.
And adjusted EPS also improved to 3.016.
If we continue then with the bridge, the beta bridge and starting as usual with the organic column, as Stean mentioned, we had a highly positive leverage in the quarter, although, as you can see, on small numbers.
Nevertheless, this gave an accretion to the margin with 0.6% points.
Currency also had a positive impact, 1% point accretion while structure was neutral to the margin.
And then that brought us from a margin of 18.2% last year to 19.7% this year.
If we then continue down the P&L looking at the finance net, as I said, this came down year over year from about 500 million to 300, as you can see here, and this is mainly driven by the lower interest net and that's due to a combination of a positive currency impact, lower interest rates, and also slightly lower borrowed volumes.
As I said, tax rate, both excluding items affecting comparability and on a normalized basis, came in at 23.8%, so pretty much in the middle of the guided range.
If we then continue looking at the balance sheet and networking capital in relative terms, you can see here in the graph on the left that we are just below 30%.
In absolute terms, though, if you look at the bars, you can see a sequential step down, versus the 4th quarter. This was driven by a currency.
In terms of networking capital volume, we had a normal seasonal increase, driven by inventory that which is typical for the first quarter of the year.
Cash flow, then, if we start with looking at the year over year development in the table, you can see that EEO adjusted for non-cash items was slightly higher compared to last year. CapEx, was a bit lower. And then, as I mentioned, we had a normal seasonal buildup of inventory here at beginning of the year.
And then that resulted in a free operating cash flow of 3.8 billion.
And in the graph you can see the trend line that on a 12 month rolling basis, cash conversion is at 93%.
Financial net debt came down slightly sequentially from from the fourth quarter. This was driven by the cash flow and also our balance sheet, target metric financial net that over IETA came down to 1.1% in the first quarter. We ended last year at 1.2%. capitalized leases came down or decreased a little bit sequentially driven by currency, while the pension liability was largely unchanged, and that resulted in a net debt of 40 billion.
If we then look at outcome versus guidance, currency for the quarter came in at 237 million, CapEx 1 billion, interest net 0.2 billion, and the normalized tax rate, as I mentioned, pretty much in the middle of the guided range.
And then if we look ahead at the second quarter and the full year, we expect a negative currency impact of minus 600 million in the second quarter, based on the currency rates at the end of March.
And for the other items CapEx, interest net, and the tax rate, we have left the full year guidance unchanged.
And with that I will hand back to you for summary and conclusions.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Thank you, Cecilia.
Yeah, so if you conclude, we saw mixed demand in the quarter with strength in mining, continued order growth in software, while cutting tools was impacted by the weakness in industrial activity, although stable and sequentially from 4th quarter.
We see improvements in all financial metrics, good modern performance, with good cost control and good savings realizations. And I think we show in the quarter again the proven resilience both on the top and bottom line, and we will of course continue to have focus on executing in an agile way in this dynamic environment.
We continue to execute on our strategy. Several innovations launched in the quarter.
We have strengthened our positions in CAM further with the 7 reseller acquisitions, and also strengthened our position and offering in demolition and recycling.
I think we all know it's a challenging geopolitical and macroeconomic environments that we are in with tariffs and barriers to global trade.
I do think we continue to show that our setup, we have a global footprint with manufacturing in all key regions, strong customer relationships and market leading innovations means that we are well placed to manage this situation in a good way.
And we will continue to leverage this platform to deliver on the targets we have communicated and our strategic ambitions.
I know it's a lot of focus on the short term now, but of course we are really pleased to be able to talk more about the mid to long term view as well at our capital markets day in in May on many of these topics. So I think I will see many of you there.
Thank you.
Louise Tjeder - Sandvik AB - Vice President, Head - Investor Relations, Sandvik Group Spokesperson
All right, thank you, Stefan and Cecilia. It's now time to open up the Q&A session. So operator, please, can you?
Coordinate the first question.
Questions and Answers:
Operator(Operator instructions)
James Moore, Redburn Atlantic.
James Moore - Redburn Atlantic - Analyst
Yes, good morning, everybody, afternoon.
Thanks for the time. Could I ask two questions, please? I was surprised about the stable comment for SMM on the first two weeks of April. I wondered if you could dig into that a little bit in two dimensions really on timing and geographically I'm just Wondering whether there was any sign of the US demand deteriorating and whether that's been offset by better performance in other geographies like Europe, Asia, and Africa, and if you could quantify that and whether you see any growing signs of a US CapEx freeze just because the tariffs.
Were not implemented at the beginning of the first two weeks of April, they've come in more belatedly, and I wonder since that date, whether there's been a change. That's really maybe we could take them one at a time. That's the first question.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
No, I mean, I understand your question, and I mean, I can tell you we were also nervous, waiting for these numbers to come in, during these first two weeks, but I mean the only thing we can say is we don't see any abnormal activity, so to say, and that goes also across the ographies.
It's very much, the levels given.
If we go from 4 to Q1 stable dailies.
Given what we then would expect in the first two weeks of April, that's also what we see.
So.
Yeah, it's difficult to really put more color to it since it is nothing really to call out. The only thing we are calling out is of course that we understand the Let's say the overall uncertainty and maybe expectations that things will change, but we can only say what we see here and now, and it is stable.
James Moore - Redburn Atlantic - Analyst
And that's very helpful. And then the second one is, could you elaborate on the maths behind why you think there's no margin impact and tied to that, how are you handling US cutting tools that come from Gmo? Are you putting all of the tariffs onto the price and is the market accepting it, or are you doing something else to react?
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, you want to start that.
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
I mean, when it comes to the margin impact and the reason why we don't, why we expect a limited, impact based on the current rates, I think those are the reasons that Stean went through in the presentation. So the example bullets, that we saw there, so it's redirecting flows using our existing pro footprint, looking at customer surcharges. Rebalancing what we produce, where in the world, so it's really what you saw in those bullets that are the reason for that.
The movie I.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Just follow up.
James Moore - Redburn Atlantic - Analyst
Yeah, how much of the.
How much of the kind of, I got the sense that the majority of your US business came from in SMM came from Gmo, Sweden. So I guess the question would be how much of that are you able to relocate to coming from other geographies, or is it more that you're taking it through.
Mexico and Canada.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
No, we have an in such plant in the US as well, and that is of course something we can leverage both when we talk about rebalancing of the production, but then of course we also can address this through pricing, and it's a combination of all of these things.
James Moore - Redburn Atlantic - Analyst
Okay, thank you very.
Operator
John Kim, Deutsche Bank.
John Kim - Deutsche Bank - Analyst
Hi, good afternoon. Thanks for the opportunity, too, if I may. If we took your Q4 orders and Q1 orders together for metal powders, and we were to think about the year on year, would it be flat up or down? And could you comment on volumes?
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
What do you mean volumes in.
John Kim - Deutsche Bank - Analyst
Powder. And metal powders. So if you were to kind of neutralize the price effects, is the metal powders demand up if we adjust for seasonality or pre-buying or however you want to phrase it.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, I would say, if you combine the growth in Q4 with the decline in Q1, you would still have a net positive impact, not net positive in the overall, and, so I would say it's a positive trend.
We are not separating out price from volume in powder specifically, but also volumes are up.
And I would, and I would say, as I mentioned that we are seeing an in rather an increased sort of interest in our powder since China is limiting exports of tungsten powder, and we are one of relatively few non-Chinese suppliers in the western part of the world. So, yeah, let's see where that goes, but that's the potential positive at least.
John Kim - Deutsche Bank - Analyst
Okay, very helpful. And second question, if I may, you previously talked about the steps you're taking the levers you can throw to optimize for an uncertain tariff world. How should we think about this on your cost structures or cost margin evolution this year?
You.
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
Yeah, I mean, with the with the current tariff levels, we're not expecting a material impact. Also, if we look at, we initiated some restructuring programs, both last year and in 22.
And we had realized most of the run rate savings at the end of last year, but it's still as in this quarter, but also the coming quarters during the year there's still a positive bridge effect coming through from.
From those restructuring, initiatives also supporting leverage done throughout the year.
Okay, thank.You very much.
Operator
Klas Bergelind, Citi.
Klas Bergelind - Citigroup - Analyst
Thank you. Hi, Speaker of Finance Cecilialaas it is. So I want to come back to terrorists, but I want to ask a little bit about supply chains. I just wonder if you've started to see some disruptions yet. You might not have a direct impact that can impact you indirectly in the supply in the assembly and of the business if you start to see shortages of components. I have one more, but I'll start there.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
No, I cannot say that we are seeing any impact, of the kind you describe here, not at the moment at least.
Klas Bergelind - Citigroup - Analyst
Okay, that's good. Then my Yeah. My, exactly, that was a short answer. My second one was on the defense business. It's a small part of SMM, but it's arguably very cutting tool intensive and should be growing a lot at the moment. It sits within other.
How big is it today and what is the growth there currently? I mean, like we've seen with the powder business, it's small, but growth can be meaningful, and I guess every little bit helps, so interested in that.
Thank you.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, thanks a good question, and, I, I'll pass on it now. It's something we will show some more numbers on at the CMD, because of the interest in defense, and it is a positive, definitely, but we are doing a bit more deeper, let's say analysis, because of the historical.
Historically it's maybe not been as much focus, so we have defense business sitting in some of the other segments as well and we are cleaning that up and we'll come with a.
More, let's say thought through view at the CMD in May, so I'll, you'll have to wait until then.
Klas Bergelind - Citigroup - Analyst
Sounds good. Very quick one on mining. My final one is the arrow is now pointing upwards. Could you comment here across the commodity states and to what extent gold versus copper are sort of developing more favorably quote one quarter.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
No, I think both of them are positive. I mean gold obviously at record high, but copper is also at very healthy prices, even if it came down a bit in the past weeks, it basically only came back to where it was, a few months ago, and with the long term cycles we see customers in both of these commodities, going at full speed, to take maximum advantage of the current prices.
Thank you.
Thank you.
Operator
Sebastian Kuenne, RBC Capital.
Sebastian Kuenne - RBC Capital Markets - Analyst
Yeah, hi, thank you for taking my questions. I have 3 hopefully short questions and answers. First is on capacity utilization in SMM. I mean, you adjusted capacity last year to 1, but since then we have like 5% drop in organic volumes.
What's the utilization there at the moment?
What my first question.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, I mean.
Of course, there is some under absorption in these numbers that's a given, considering where we are on the volume side, but we had quite significant programs that we launched beginning of last year on top of also previous programs.
So I think we have done a lot, to mitigate this, which you can also see in the numbers, and whether we need to do more going forward that remains to be seen. I think let's see now what happens overall, in the market, but I think right now we are quite comfortable with the balance that we have. But, yeah, let's see going forward.
Sebastian Kuenne - RBC Capital Markets - Analyst
Okay, second on currency, I mean we go into a major currency headwinds, time now. I calculate up to 10% currency headwinds by Q4.
Can you explain a bit, what how you hedge the existing contracts, especially for the mining equipment and, what you see as the headwinds for?
On the march from cancellation.
Thank you.
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
Yeah, on the mining, on the equipment order we hedge the vast majority of orders so we can lock in the margin.
Especially as it's typically sometime of course between the point of order and and delivery, then that is of course, it gives more predictability for us, but it's it's, I mean, over time we need to work with mitigating currency headwinds, of course, in other ways to make sure looking at our cost-based price, etc.
But the majority of orders are locked in or currency hedge, so we have predictability of of the margin on the orders that we already taken.
Sebastian Kuenne - RBC Capital Markets - Analyst
Thank you. My last question is on the powders. Can you tell us a bit about the contribution to, SMM and, again, how can the market change going forward? Are you by far the largest provider for tungsten powder going forward? Maybe a bit more clarity there.
Thank you.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
I think there are a couple of larger providers in the outside of China, we are one of them.
About, roughly half of what we produce, we use ourselves in the cutting tools and the drill bits, and then we sell also externally, including to some of our competitors, and of course if there is a shortage and maybe I should also add.
Our raw material comes from our own mine.
And then also from recycling, so we have buyback programs where we buy back, scrap, and here is also very limited capacity, very few that can do that and recycle the scrap into new powder.
I think we are one out of 2 that can do that in a substantial way.
So if there's.
Sebastian Kuenne - RBC Capital Markets - Analyst
A big is it? Yeah, sorry.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Sorry, what to do?
Sebastian Kuenne - RBC Capital Markets - Analyst
Yeah, how big is it in.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
In the context of, it's, we haven't given a specific figure, but it's between 5 and 10% of SMM.
Sebastian Kuenne - RBC Capital Markets - Analyst
Thank you, very helpful.
Thank you very much.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Thank you.
Operator
Michael Harleaux, Morgan Stanley.
Michael Harleaux - Morgan Stanley - Analyst
Oh hello, thank you for the presentation and thank you for taking questions. I was wondering if you could give us your views on your competitors from China, for the business and how we should think about, capacity going to Europe given, what's happening between the US and between China. And then on the mining business I was wondering if you could update us on what you see from your customers. I don't mean regarding gold and copper, but regarding other commodities if you see more hesitation from your customers or slow down given the uncertainty that we're seeing right now.
Thank you.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, if I start with the mining, well, as you can see at this point with order intake and so on, it's very good momentum.
I cannot call out any specific areas where we see where we see hesitation at this point.
Of course, again, going forward, it's difficult to predict, but, the commodities where there might be some excitations are the are not related to the latest, the development is more related to where the commodity prices have been, for some time it's been more challenging in Nickel.
Iron ore is okay, but a little bit more hesitation and so on depending on iron ore prices.
So no new dynamic as we can see yet, but of course mines typically have a little bit longer planning cycles as well.
But that's where we are right now.
Chinese competition in machining in relation to the current, tariffs between China and US, I think it's way too early to To have a view or to speculate.
At this point, most of the local competition which we see in China is, I would say towards the lower end of mid market if we take a European point of view, so there might be some opportunities, for them, but, it's not that they are selling much into US as of today, so it's not that they need to redirect anything.
So yeah, too early to say if this will have any change in the dynamic, but, at the moment I don't think it's something That is likely at least for the moment.
Michael Harleaux - Morgan Stanley - Analyst
Thank you. That was very helpful.
Operator
Daniela Costa, Goldman Sachs.
Daniela Costa - Goldman Sachs - Analyst
Hi, good afternoon.
Thank you for taking my questions. I have 3 follow ups as well on things that have been previously discussed, but I would ask them one at a time. Just going back to very clear you're not seeing much on SMM at the moment, but you've changed the portfolio I guess from from 2020 to now quite a bit, and I was wondering if you could comment on your how different do you see the resilience. If we end up seeing let's say a 20% drop in volumes, just to put out an example, you dropped by about 40,400 basis points on margins in SMM in 2020. This time around, given everything that you've done to the portfolio, would you say you're substantially different in terms of your detrimental leverage if we do end up seeing any slowdown?
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
I can start if you want to. Yes, I mean, since, 2020 we worked really hard with, improving our resilience, our margin resilience in the within SMM, both through increasing variable cost, working with our fixed cost footprint, through the restructuring programs.
Being more agile with price through the inflationary period that we went, through, and, also building or increasing the share of software revenues, and I think I think we've had also a couple of quite tough years behind us and demonstrated a very good margin resilience and I mean, typically we say that we would aim for a leverage of around 40%.
And that's both, of course, when we grow and in a downturn. Now, of course.
Volumes are already at a low level, given the developments in the last couple of years. But I mean, if we look at this quarter and volumes were down, we had a very good leverage of 25%, so.
So we are of course working very consciously on this continuously, and I think if you compare to where we were in 2020, I think as an organization we've improved a lot. I don't know if you want to add anything, Stefan.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
No, I agree with that. Then it's always difficult to predict if we take, what you described here as.
Financial crisis scenario and so on, but I think we showed during COVID that we could handle a much deep already done a deeper decline in a much better way and since then I think we have improved further.
So I don't think we can quantify it, but I think we are more com comfortable now with how we would handle it than in the past.
Daniela Costa - Goldman Sachs - Analyst
Got it, thank you very much. And then just clarification or follow up on China, you were going to, well, you are going to do some big investments on SMM to expand their, cap capacity locally, this would the. Sure change if China saw a significant contraction on on on GDP because of the cross currents with the tariffs, how is the is the investment sensitive to the local climate in or really not is a longer term decision that you rather do now.
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
Yeah, this is linked to, an investments in an inserts factory, for our.
Newly acquired local premium company Shuo Ano in in China and the new factory went live or was completed in Q4 of last year so it's already already there so to say. So if the current developments would not impact that but I mean long term this is an important investment for us to be able to continue to grow and have a competitive, position in China and also part of working with regionalization.
Then this year we are slowly then starting to ramp up volumes in in the factory and that will gradually continue throughout the year.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
I mean you can take this from two angles you could say, okay, if there is now a A big drop in the GDP in China because of this, the timing is bad, but on the other hand, if there is a global trade war involving China, the timing is great to have local manufacturing capabilities. So I guess depending on what your focus is, I think it shows that it was the right thing to do, to push forward with having local manufacturing capability in China, even if the timing.
From an economical cycle point of view would would prove to be.
Challenging.
Daniela Costa - Goldman Sachs - Analyst
. Got it. And then just a final one, just a clarification on sort of I think the mind, the SMR organic sales growth was a bit lighter than the market expected, maybe can you elaborate a little bit whether on that maybe expectations were just too high or are the conversion between orders and and revenues taking longer for any reason or for types of projects just wondering the color there.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, no, I mean, for, I don't think there is any specific, driver at all. I think it's normal seasonality.
If you look historically, with the exception of 2023, we always have a gradual increase in volumes throughout the quarters, and 4 and then you always then you have a drop into Q1 and then it climbs upwards. I know there was a little bit extra drama last year when the drop was bigger than also we maybe had anticipated, as a normal outcome. But this year I would say this is normal seasonality, and maybe 2023 distorts the picture a bit if you see that as a normal seasonality. The seasonality in 2023 was much lower than we usually have had if you look at 21, 22.
24 now 25, so there is no.
Let's say driver negative or anything behind it, it's just seasonality.
Daniela Costa - Goldman Sachs - Analyst
Got it thank you very much.
Operator
Magnus Kruber, Nordea.
Magnus`Kruber - Nordea - Analyst
Hi Stephan Cecilia Louis here from there a few from me as well and to follow up on Dalia's question on the China factor and SMM. I mean, I think SMM was the only business area which saw margins decline year on year adjusted for FX. So how much drag did you have in the quarter from under absorption in SMM China factory?
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
We don't give any specifics, but you can see it, the factory sits in, as I said in Shuanu, which is part of structure, so it's part of that, dilution that you see in the structure, part of the bridge. So that's where it sits.
But we're not giving any more more specifics on other than that.
Magnus`Kruber - Nordea - Analyst
Understand, thank you. And then I also follow up on James's question on the tariffs and the offsets that you're implementing there. Do you think that there is actually no possibility at all that we see any sort of changing or different facing with respect to how quickly you can offset it and how quickly the tariffs will come through on the cost side. I'm thinking if we see some something of that in Q2 before you sort of claw that back through the rest of the year or.
Is it too small for it to matter?
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
I think first of all, a general comment, of course it's a highly complex situation with a lot of moving pieces, so it is very difficult to give precise answers given timings here and there, so but, so that's why I think you should look at the general statement. We believe it will be a limited impact, and I think we can say that goes.
We, I mean, if we thought it would have a much bigger impact, for example, in Kyoto, then we would probably have said something around that.
I don't know if you have anything to add.
So.
Magnus`Kruber - Nordea - Analyst
Yeah, that's true, that's fair, no, that's it. I appreciate that.
Thank you so much, cheers.
Operator
(Operator instructions)
Tore Fangmann, Bank of America.
Tore Fangmann - Bank of America Securities - Analyst
Good afternoon.
Thank you for taking my questions. Two from my side. One is more of a clarification on SMM. Could you say how this has performed sequentially through the quarter as we came out of Q4 with organic oil growth rate of around 3%. And how much of the 6 was basically driven by March and the later part of March. And then just to clarify here, the April comment of stable development then refers to the whole Q1 or rather to the end of March. And then my second question would be on the restructuring program. Could you just explain a little more where the improvements coming from? Is it more an SG&A topic, a cog topic, and what would you expect is more to come for the next 1 or 2 years?
Thank you.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Okay, if I start with the market stuff there on the SMM, and starting down with the April comment when we say, stable.
Whatever we say, but now it's stable. It is in relation to the daily water intake, as an average in the quarter.
You will, you, so it's the average of Q1 and not the last weeks of Q1, and that is because you will always, if you look at the month, they are always a little bit like a sore tooth. Months always start a little bit slower and then they go up.
Towards the end. So we see the normal pattern, in April, and then also versus the average in Q1.
On the progression through the quarter and the minus 3 in Q4, I want to emphasize that versus Q4, this is a stable development.
In 4, the 3 was helped a lot by high order intake on the powder side.
But if you look at the comments around cutting tools in Q4, it was a different number, and it's very similar to the cutting tool numbers now also in Q1.
Then the progression of the quarter I would say is not nothing to call out. It's normal, how Q1 usually looks like with a stronger march and so on.
But that's just normal seasonality in one.
Restructuring.
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
Yes, so with the restructuring programs we've had two programs running in parallel. The first program we launched in 2022 and the second program we launched in Q1 of last year.
Then at the end of last year, we had realized most of these programs. So the 22 program we had realized around 90% of the run rate savings and for the program that we announced last year, we had realized about 80% of the run rate savings.
And now at the end of Q1, we were at 9 95% savings realization. So there's not so much in terms of additional savings coming from these programs, it's more a fuller bridge effect that we are expecting this year.
Tore Fangmann - Bank of America Securities - Analyst
Perfect thank you so much both.
Operator
John Kim, Deutsche Bank.
You may proceed with your question, sir. We are not able to hear you.
John Kim - Deutsche Bank - Analyst
Hi, sorry about that. Thanks for the opportunity. Could we go back to China for a second, and could you give us some color on cutting tool demand that you saw in Q1, maybe a little bit more detail between the local premium segment and your your core segment before the Chinese acquisition called a year and a half years ago, 2 years ago.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, if we go back to Q1, we commented on that and said that, the local premium was definitely growing higher than than the average. I would say in Q1 we did did not quite see that as much, but I don't know really how much conclusions to draw from that since it's only one quarter and.
And we are quite new with having this business as well. So in Q1, the average China business and the local premium business had similar performance.
So as similar as the premium.
Okay.
Operator
James Moore, Redburn Atlantic.
James Moore - Redburn Atlantic - Analyst
Yes, thanks for the follow up. I just wanted to go back to the the manufacturing footprint of SMM in the US and trying to understand your exposure. Would it be possible to say how much of the cost of goods sold of SMM is localized in the US? I assume it's quite a low number, like 20% or something, and I guess you can do two things to handle this. One is move more of your COGS into the US and Secondly, put prices up, and I'm really just trying to understand how much your mitigation action is the former versus the latter. Like, do you think you can get to 70-80% of US S&M COGS into the USA through moving to your existing facilities? Could you move it that much or is it more on the pricing side that really the mass of the response works?
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, I understand, and the This will of course depend on the level of the tariffs, and if tariffs at current levels, I think it's.
Easier and actually better to mitigate more towards this with pricing.
Because otherwise, The cost in the US is higher than the tariffs pretty much. But the higher the tariffs, the more, of course, we will rebalance production.
And, this first step is to rebalance with existing capacity, as I said, meaning then produce less for Europe in the US and focus the US manufacturing we have on the US market.
The second step will be to increase capacity in in those facilities, and I cannot say exactly how much we will do or what currently because we don't know where the, let's say mid to long term tariffs will be. We know what we're doing here and now with the current situation, but we also know there are ongoing negotiations, and this is a so-called pause.
So what will happen beyond that? But that we are planning for all of these scenarios, preparing, and then exactly how it will end up depends on the level of the tariffs. But we can increase capacity, of course, in the US. We have existing facilities, even if we have set up, we have to set up, for example, a new production line, that is something we, I mean, we move things around in this structuring programs all the time. So it will be of course a little bit of a lag to do that, but the time frame is still, very much manageable in relation to, sort of the time scales we're talking about here. We're talking about quarters in, on, in terms of timing, and that depends on.
You know what products some take some are faster, some are longer.
But, very difficult to give a straight answer given that we don't know yet exactly what we're going to optimize towards, but we have the plans, we know what to do depending on the outcomes.
James Moore - Redburn Atlantic - Analyst
That's a really helpful map Stefan, thanks.
Operator
Michael Harleaux, Morgan Stanley.
Michael Harleaux - Morgan Stanley - Analyst
Thank you for taking my question. If I may just ask a follow up on the topic of tariffs, how should we think about your setup versus kind of metals, in the US and what happens if, we see, well, if you would have an advantage or a disadvantage in case of a price increase, if that makes sense to you?
Thank you.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
Yeah, well, first of all, let me say, I don't think there's going to be any winners if there's a global trade war and we talked about China before. We are now the only Western manufacturer with local manufacturing capability for research in China.
So there's going to be puts and takes here, for sure, which also means opportunities, in some regions. We are of course going to, I mean, if you look at the US, most of competition are in a situation actually where they are importing basically everything. We are one of the few with local manufacturing capabilities.
If, we have to, we will simply increase production capacity in the US. It's not.
It's not a big thing for us. So if the competitive dynamics forces us to increase capacity in the US, we will do that.
That's our plan.
Michael Harleaux - Morgan Stanley - Analyst
Thank you, very.
Operator
Magnus Kruber, Nordea.
Magnus`Kruber - Nordea - Analyst
Hi, my name is here again. Yeah, I think it's very difficult to assess obviously what the invest, what your customers are doing more than what we had already said. But how do you, how are you thinking with respect to your own investment decisions in different businesses? Are you holding on the investments now in anticipation of What we will see over the next 90 days or or how are you thinking?
Cecilia Felton - Sandvik AB - Chief Financial Officer, Executive Vice President
In terms of CapEx investments that we have part of the 5 billion guidance for the year, the vast majority of that is maintenance, CapEx and also investment into new ERP systems, etc. So.
You can see in the first quarter now, we had 1 billion sick. So I think the current dynamics will not have a material impact of the type of projects or investment that we have as part of our CapEx pipeline.
Stefan Widing - Sandvik AB - President, Chief Executive Officer, Director
The then we should add that CapEx is also part of our contingency plans. So if we end up in a situation where we go into a more serious contingency because of market developments, we can of course tighten the screws, but I don't think that's where we are right now.
But thank you so much.
Louise Tjeder - Sandvik AB - Vice President, Head - Investor Relations, Sandvik Group Spokesperson
All right, I think it's time to to end now and, but before we do also I would like to remind you that San has our Capital Markets Day 2021st of May, and if you wish to attend but haven't registered, please contact investor relations and we will help you with that.
And with this, we say thank you for calling in and have a good day.
Call participants:
Corporate ParticipantsLouise Tjeder, Sandvik AB - Vice President, Head - Investor Relations, Sandvik Group Spokesperson
Stefan Widing, Sandvik AB - President, Chief Executive Officer, Director
Cecilia Felton, Sandvik AB - Chief Financial Officer, Executive Vice President
Conference Call Participants
James Moore, Redburn Atlantic - Analyst
John Kim, Deutsche Bank - Analyst
Klas Bergelind, Citigroup - Analyst
Sebastian Kuenne, RBC Capital Markets - Analyst
Michael Harleaux, Morgan Stanley - Analyst
Daniela Costa, Goldman Sachs - Analyst
Magnus `Kruber, Nordea - Analyst
Tore Fangmann, Bank of America Securities - Analyst
Refinitiv StreetEvents Transcript
Q1 2025 Sandvik AB Earnings Call
Apr 16, 2025 / 11:00AM GMT
