Sandstorm Gold Ltd. Price & Performance (SAND)

And also from my side, welcome to our first quarter report in 2025. If we start by summarizing the quarter, we see good momentum in the mining business. While cutting tools and 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 EBITA margin improved by 1.5 percentage points, corresponding to a margin of 19.7% and the rolling twelve 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 SEK $3.00 7,000,000. Adjusted profit for the quarter was NOK 3,800,000,000.0, 3,300,000,000.0 in the same period last year. And the free operating cash flow was SEK 3.8 slightly improved versus the same rounded number of SEK 3,800,000,000.0 last year. We also continue to focus on our strategy execution and made good progress. Several innovations launched with focus on electrification. And also nine acquisitions announced in the quarter, which I will come back to in this presentation.

If 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 gap 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 then at the segments, you can see that Mining is 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, weak, 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 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, a little bit better, but still down high single. Aerospace, positive sentiment there, up mid single digits in Europe. North America underlying flat in reported numbers, down mid single digits, where we continue to see a slow pickup of order intake from the largest customers. That is clearly working through some inventories. And then also negative in China with low double digit in Aerospace. The other segments, a bit more mixed picture, overall down low single digits Europe, down low single North America, up double digits driven by some specific segments like Rail that was positive in the quarter and then Asia down mid single digits. So overall, a quite mixed picture in terms of the demand across regions and segments.

If you summarize this then, we see an order intake of SEK 32,800,000,000.0 in the quarter. Revenues of SEK 29,300,000,000.0, which is a healthy book to bill of 112%, in line, I would say, with seasonality. But a healthy book to bill still. If we look at this from a slightly different then, we can see that this was the fourth 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. Margin development strong 19.7% and in absolute terms, up 9% to almost SEK 5,800,000,000.0. I would say this is a good margin level considering quarter one is always seasonally low from a volume point of view. We see strong leverage in all business areas on the back of the structured 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 and Rock 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 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 totaling almost SEK 1,000,000,000, excluding major orders organic order intake was up 7%. If we include them, it was up 10%. Very strong margin performance, SEK 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 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 hole 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, the 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% or 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 fifteen point one 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 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 acquisition of OSA 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 then it's been a traded product. Through this acquisition, we are bringing this in house, which is supporting technology development 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 U. S, 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 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, going from Q4 into Q1. Also, if we look at the end of the quarter, we didn't see any specific effects such as prebuys or declines. And when we look at the 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. I 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 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 dilution from Mentioned acquisitions.

We have acquired seven resellers chem 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 Matthias 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 one 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 mitigate this. I would say the main risk for us as we see it 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 U. S, 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 U. S. And then into Canada and Mexico. Because that has been a tariff free zone. And also, of course, being rerouted. So we minimize that exposure 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 you know, 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 where applicable. We have also notified customers and partners in several of our business of potential upcoming tariff surcharges.

Are rebalancing product capacity where in some cases, we might produce today in Europe sending to The U. S. And vice versa. We produce something else The U. S. And sending to Europe. And of course, depending on the tariff levels, that's something that will be rebalanced. We will also, if needed, increase production capacity in The U. S. But currently, we don't really see a need for that. But if tariff rates would increase materially, that will also be something we will look at. And I want to be clear here, we're talking about existing manufacturing footprint that we have already in The U. S, 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.

Yes. Thank you, Stefan. So let's dive into the numbers then in a more detail together. And as usual, let's start with the growth. Bridge. And as Stefan 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 one. Percent. And in total, then orders grew by 2% and revenues by 1%. Adjusted EBITA grew by 9%, reaching $5,800,000,000 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 And the tax rate both excluding items affecting comparability and also on a normalized basis. Was in line within the guided range. Net working capital, just below 30%. Cash flow, 3,800,000,000.0 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 SEK 3.01. If we continue then with the bridge the EBITDA bridge and starting as usual with the organic column. As Stefan 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 percentage points. Currency also had a positive impact one percentage 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 and L, looking at the finance net. As I said, this came down year over year from about 500,000,000 to SEK 300,000,000, 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 net working cap in the 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 fourth quarter. This was driven by currency. In terms of net working capital volume, we had a normal seasonal increase driven by inventory. [indiscernible] 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 the table, you can see that EBITDA adjusted for noncash 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 beginning of the year. And then that resulted in a free operating cash flow of SEK 3,800,000,000.0. And in the graph, you can see the trend line that on a twelve 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 debt over EBITDA 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 40,000,000,000 If we then look at outcome versus guidance, currency for the quarter came in at $237,000,000 cap SEK 1,000,000,000 interest net, 200,000,000.0. 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 SEK 600,000,000 in the second quarter. Based on the currency rates at the March. And for the other items, cap CapEx, interest net and the tax rate, we have left the full year guidance unchanged. And with that, I will hand back to you, Stefan, for summary and conclusions.

Thank you, Cecilia. Yes, so if we conclude, we saw a mixed demand in the quarter with strength in mining, continued order growth in software, while cutting tools was impacted by the weak weakness in industrial activity, although stable then sequentially from fourth quarter. We see improvements in all financial metrics, good margin performance, with good cost control and good savings realizations. And I think we show in the quarter, again, a proven resilience both on the top and bottom line. And we'll, 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 seven reseller acquisitions and also strengthened our position and offering in demolition and recycling. I think we all know it's a challenging and macroeconomic environment that we are in with tariff 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 target 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 Market Day in May. On many of these topics. So I think I will see many of you there. Thank you.

All right. Thank you, Stefan and Cecilia. It's now time to open up the Q and A session. So operator, please, can you coordinate the first question?

Thank you, madam. We will now begin the question and answer session. Our first question comes from James Moore from Redburn Atlantic. Please go ahead. Yes, good morning, everybody.

And afternoon. Thanks for the time. Could I ask two questions, please? I was surprised about the stable comment for SMM over the first two weeks 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 U. S. 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 The U. S. CapEx freeze just because the tariffs were not implemented at the beginning of the first two weeks of April, they've come in more and I want to since that date. There's been a change. That's really maybe we can take them one at a time. That's the first question.

No, I mean, 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 any abnormal activity, so to say, and that goes also across geographies. Is very much the levels given if we go from Q4 to Q1, stable dailies, Given what we then would expect in the first two weeks April, that's also what we see. So yes, 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.

That's very helpful. And the second one is could you elaborate on the math behind why you think there's no margin impact? And tied to that, how are you handling U. S. Cutting tools that come from Chimo? Are you putting all of the tariff onto the price? And if the market is accepting it, are you doing something else to react?

Yes, you want to start on that?

I 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 Stefan went through in the presentation. So the example bullets that we saw there. So it's redirecting flows using our existing 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.

And maybe if I just follow-up Yeah. Go ahead.

Say how much of the how much of the kind of I got the sense that the majority of your U. S. Business came from in SMM, came from Tmall Sweden. So I guess 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?

No. We have an in search plant in The U. S. 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 of all of these things.

Okay. Thank you very much.

The next question comes from John Keem from Deutsche Bank. Please go ahead.

Hi, good afternoon. Thanks for the opportunity. Two, 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?

What do mean volumes in In 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.

Yeah. I would say if if you combine the growth in Q4 with the decline in Q1, would still have a net positive impact not net positive in the overall And so would say it's a positive trend. We are not separating out price from volume in Powder specifically, but also volumes are up. [indiscernible] and I would say, as I mentioned that we are seeing an 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 yes, let's see where that goes, but that's a potential positive at least.

Okay. Very helpful. And second question, if I may. [indiscernible] previously talked about the 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?

Yes. I mean, 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 2022. 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 coming quarters during the year, there's still a positive bridge effect coming through from those restructuring initiatives also supporting leverage then throughout the year.

Okay. Thank you very much.

The next question comes from Klas Bergelind from Citi. Please go ahead.

Spiegelsan and Cecilia, CLASS at Citi. So I want to come back to tariffs, but I want to ask a little bit about supply chains. I just wonder if you have started to see some disruptions yet. You might not have a direct impact, but can impact you indirectly in the assembly end of the business if you start to see shortages of components. I have one more, but I'll start there.

No, I cannot say that we are seeing any [indiscernible] Of the kind you described here. Not at the moment, at least. Okay. But that's good. My yes, my exactly, that was a short answer. My second one was on the defense business. It's a small part of SMN, but it's arguably very cutting tool in 10 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.

Yes, thanks. Good question. And 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 some of the other segments as well, and we are cleaning that up and we'll come with more, let's say, sort through view at the CMD in May. So I'll you'll have to wait until then.

Sounds good. Very quick one on Mining, my final one, is the arrow is now pointing upwards. Could you comment here across the commodities deals and to what extent gold versus copper are sort of developing more favorably quarter on quarter?

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.

The next question comes from Sebastian Kuner from RBC Capital. Please go ahead.

I have three, hopefully, short questions and answers.

First is on capacity utilization in SMM. I mean, your adjusted capacity last year in Q1. But since then, we have like 5% drop in organic volumes. What's the utilization there at the moment? That's my first question.

Yes. 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 with the balance that we have But yes, let's see going forward.

Okay. Second is on currency. I mean, we go into a major currency headwind time now. I calculate up to minus 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 headwind for on the margin from translation? Thank you.

Yes. On mining, on the equipment order, we hedge the vast majority of orders so we can lock in the margin especially as it's typically some time, of course, between the point of order and delivery. Then that is, of course, it gives margin predictability for us. But it's I mean, over time, we need to work with mitigating currency headwinds of course, in other ways to make sure we're looking at our cost base, price, etcetera. But majority of orders are locked in or currency hedged, so we have predictability of of the margin on the orders that we've already taken.

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.

I think there are a couple couple of larger providers in the outside of China, and 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 we 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, it's also very limited capacity, very few that can do that and recycle the scrap into new powder. I think we are one out of two that can do that in a substantial way. So if there's a And how big is it? Yes, sure. Sorry.

Sorry, what to do?

Yes. How big is it in the context of SMN?

It's we haven't given a specific figure, but it's between 510% of SMM.

Thank you. SMM.

The next question comes from Michael Harlow from Morgan Stanley. Please go ahead.

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 machining business. And how we should think about capacity going to Europe given what's happening between The U. S. 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, it's just more hesitation from the customers or a slowdown given the uncertainty that we are seeing right now. Thank you.

If I start with mining. Well, as you can see at this point with order intake and so on, it's 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 hesitations are not related to the late developments. It's 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 U. S, I think it's way too early to have a view or to speculate At this point, most of the local competition we see in China [indiscernible] 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 U. S. As of today, so it's not that they need to redirect anything. So yes, 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 that is likely, at least for the moment.

Thank you. That was very helpful.

The next question comes from Daniela Costa from Goldman Sachs. Please go ahead. Hi, good afternoon. Thank you for taking my questions. I have three follow ups as on things that have been previously discussed, but I would ask them one at a time. Just going back to it's very clear you're not seeing much on SMM at the moment, but you've changed the portfolio, I guess, 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, 20% drop in volumes, just to put out an example, you drop by about 4,400 basis points on margins in SMM in 2020. This time around, given what 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?

I can start if you want to. Yes, I mean, since 2020, we worked really hard with improving our resilience margin resilience in the within SMM both through increasing variable costs, working with our [indiscernible] 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 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. Don't know if you want to add anything, Stefan.

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 comfortable now with how we would handle it than in the past.

Got it. Thank you very much. And then just a clarification or a follow-up on China. You were going to or you are going to do some big investments on SMM. To expand their capacity locally. Would the picture change if China saw a significant contraction on GDP because of the cross currents with the tariffs. How is the investment sensitive to the local climate in or really not longer term decision that you rather do now?

Yes. This is linked to investments of in an inserts factory for our newly acquired local premium company Shoso Anno, in China. And the new factory went live or was completed in Q4 of last year, so it's already there, so to So the current developments will 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 also starting to ramp up volumes in the factory, and that will gradually continue throughout the year.

I mean you can take this in 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 in involving China, the timing is great to have local manufacturing capability. So I guess depending on what your focus is I think it shows that this 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 prove to be challenging.

Got it. And then just a final one, just a clarification sort of I think the mine the SMR organic sales growth was 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 revenues taking longer for any reason for types of projects? Just wondering the color there.

Yes. 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 2020, '3, we always have a gradual increase in volumes throughout the quarters. And Q4, 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 2021, 2022. 2024, now 2025. So there is no let's say, driver negative or anything behind it. It's just seasonality.

Got it. Thank you very much.

Next question comes from Magnus Kruber from Nordea. Please go ahead. [indiscernible] Nordea's question on the China factor in SMM. I mean, I think SMM was the only business area we saw margins decline year over year adjusted for FX. So how much drag did we have in the quarter from under absorption in S and M?

China factory?

We don't give any specifics, but you can see the factory sits in as I said, in Schossoano, which is part of structure. So it's part of of that dilution that you see in the structure part of the bridge. So that's where it sits. We're giving any more specifics other than that.

Understand. Thank you. And then just also a follow-up on James' 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 change in or different phasing with respect to how quickly you can offset it and how quickly the tariffs will come through on the cost side. I'm just thinking if we see 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?

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 growth I mean, if we thought it would have a much bigger impact, for example, in then we will probably have said something around that. I don't know if you have anything to add to that. No. [indiscernible] Yes, that's That's I appreciate that. Thank you so much.

Cheers.

The next question comes from Tore Fangerman from Bank of America. Please go ahead.

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 order growth rate of around minus 3%? And how much of the mine 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 March. And then my second question would be on the restructuring program. Could you just explain a little more where the improvement is coming from? Is it more on SG and A topic, a COGS topic? And what would you expect is more to come for the next one to two years?

Thank you.

Okay. If I start with the market stuff there around the SMM, And starting then with the April comment, when we say stable, whatever we say, but now stable, it is in relation to the daily order intake as an average in the quarter. You will 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 months, 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 this is a stable development. In Q4, the minus 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 through the quarter, I would say, is nothing to call out. It's normal how Q1 usually looks like with a stronger margin and so on.

But that's just normal seasonality in Q1. Restructuring?

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, launched in Q1 of last year. Then at the end of last year, we had realized most of these programs so that '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 90%, 95% savings realization. So there's not so much in terms of additional savings coming from these programs. It's more a full year bridge effect that we are expecting this year.

Perfect. Thank you so much both.

We have a follow-up question from John Kim from Deutsche Bank. Please go ahead. You may proceed with your question, sir. We are not able to hear you.

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, but between the local premium segment and your core segment before the Chinese acquisition called it, one point years ago, two years ago?

Yes. If we go back to Q1, we commented on and said that the local premium was definitely growing higher than the average. I would say in Q1, we 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.

Helpful. Thank you.

Also the next one is a follow-up from James Moore from Redburn Atlantic. Please go ahead.

Yes.

Thanks for the follow-up. I just wanted to go back to the [indiscernible] manufacturing footprint of SMM and The US and trying to understand your exposure. 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. [indiscernible] 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 SMM COGS into The USA? Through moving to your existing facilities. Could you move it that much, or is it more on the pricing side of really the mass of the response works.

Yeah. I understand. And 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 U. S. Is 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 and The U. S. And focus The U. S. Manufacturing manufacturing we have on The U. S. Market. Second step will be to increase capacity 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's 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 exactly how it will end up depends on the level of the tariffs. But we can increase capacity, of course, in The U. S. 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 The restructuring 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 the time scales we're talking about here.

We're talking about quarters in terms of timing. And then depends on what products, SANTEC 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 optimize towards. But we we have the plans, we know what to do depending on the outcomes.

That's a really helpful map, Stefan. Thanks.

We have another follow-up question from Michael Hallux. From Morgan Stanley. Please go ahead.

If I may just ask a follow-up on the topic of tariffs. How should we think about your setup versus Kennametal's in The U. S? And what happens if we see well, if you would have an advantage or a disadvantage in case of the price increase, if that makes sense to Thank you.

Yes. First of all, let me say, don't think there's going to be any winners if there's a global trade war. And we had talked about China before. We are now the only Western manufacturer with low manufacturing capability for InSearch 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 I mean if you look at The U. S, 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 U. S. It's not It's not a big thing for us. So if the competitive dynamics forces us to increase capacity in The U. S, we will do that. That's our plan.

Thank you. Very helpful.

The next question is a follow-up from Magnus Kruber from Nordea. Please go ahead.

Hi, Magnus here again. I think it's very difficult to assess obviously what to invest what your customers are doing more than what we had already said. But how do you how are you thinking respect to your own investment decisions in different businesses? Are you holding on investments now in anticipation of what we will see over the next ninety days? Or how are you thinking?

In terms of CapEx investments that we have part of the SEK 5,000,000,000 guidance for the year, the vast majority of that is maintenance CapEx and also investment into new ERP systems, etcetera. So you can see in the first quarter now, we had SEK 1,000,000,000. 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.

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 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.

All right. I think it's time to end now. And but before we do, also I would like to remind you that Sandvik has our Capital Markets Day, May 21, 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.