Sandvik : Annual Report

2023 in brief

Key figures

1. Adjusted for items affecting comparability, see page 47.
   For definitions of alternative performance measures, see page 155.
2. Total number of recordable injuries per million hours worked.
3. Full-timeequivalent.

Revenues by customer segment

Mining51%

Engineering 20%

Infrastructure 10%

Automotive7%

Aerospace4%

Other8%

Revenues by market area

Order intake and revenues, MSEK, revenue growth, %, fixed exchange rates

Adjusted EBITA, MSEK and adjusted EBITA margin, %

EBITA, adjusted

EBITA margin, adjusted

Financial net debt, MSEK, and financial net debt/EBITDA

Financial net debt

Financial net debt/EBITDA

Value-creating offerings

Sandvik is a global, high-tech engineering group providing solutions that enhance productivity, profitability and sustainability for the manufacturing, mining and infrastructure industries. We have approximately 41,000 employees and sales

in about 170 countries.

Share of revenues

53%

Share of adjusted EBITA

Sandvik Mining and Rock Solutions

A global leading supplier of equipment and tools, parts, service, digital solutions and sustainability-driving technologies for mining and infrastructure industries.

Divisions

• Digital Mining Technologies
• Ground Support
• Load and Haul
• Mechanical Cutting
• Parts and Services
• Rock Tools
• Rotary Drilling
• Surface Drilling
• Underground Drilling

9%

Share of revenues

6%

Share of adjusted EBITA

Sandvik Rock Processing Solutions A leading supplier of equipment, service and technical solutions for processing rock and minerals in the mining and infrastructure industries.

Divisions

• Stationary Crushing and Screening
• Mobile Crushing and Screening
• Attachment Tools

39%

Share of revenues

41%

Share of adjusted EBITA

1. Business area segments
2. As of January 1, 2024

Sandvik Manufacturing and

Machining Solutions

A market-leading manufacturer of tools and tooling systems for advanced metal cutting, expanding into digital manufacturing­ and software solutions, as well as technologies such as additive manufacturing­ and in-line metrology.

Sandvik Machining Solutions¹

• Sandvik Coromant
• Seco
• Walter
• Dormer Pramet
• Powder Solutions
• Tool Flow Solutions
• GWS2

Sandvik Manufacturing Solutions¹

Adjusted EBITA is excluding Group activities and items affecting comparability.

• Design and Planning Automation
• Industrial Metrology

Key customer segments and share of revenues

51%

Mining

We deliver drill rigs, rock drilling tools and systems, load and haul machines, tunneling equipment, continuous mining and mechanical cutting equipment, crushing and screening, service and sustainability-driving technologies to increase digitalization, auto- mation, safety and customer productivity.

10%

Infrastructure

We offer solutions that increase safety and customer productivity in breaking, drilling, cutting, crushing and screening. Application areas include tunneling, quarrying, demolition and recycling.

4%

Aerospace

We work closely with the world's aerospace­ companies. As they apply new materials to manufacture airplanes that are lighter, safer and more fuel efficient, advanced tooling solutions and end-to-end optimization are critical.

20%

General engineering

Our tools and tooling systems for metal cutting and manufacturing software are used in

engineering­industries worldwide, improving

productivity,­profitability, quality and safety as well as reducing environmental impact. We are also a global leader in high-alloy metal powder.

7%

Automotive

Our software solutions, tools and tooling systems for turning, milling and drilling in metals, as well as our industrial metrology offering, increase productivity when manufacturing, for example, engines and transmissions.

8%

Other

Includes mainly energy, die and mould,

electronics,­ medical, pump and valve, rail and defense.

We have a clear strategy and growth focus where the solutions we offer contribute to making our customers more productive and more sustainable. Through our leading market positions, a growing share of parts, services and consum- ables, and a targeted expansion within our customersʼ value chains, we have become a more agile and resilient business with a strengthened platform for long-term growth.

Our performance in 2023 is clear evidence of that transfor- mation. Revenues, at fixed exchange rate, grew by a strong 9 percent and we delivered an all-time high adjusted operating profit (EBITA) of SEK 25.2 billion, an increase of 12 percent.

The world is changing and Sandvik is changing with it. We have a strong platform to build on with world-leading market positions, strong brands and a winning culture. Based on this foundation, we are well positioned to capture future growth opportunities and drive digital and sustainability shifts in the industries in which we operate.

We continued to see good progress in many strategic focus areas during the year. There continues to be strong customer demand for our battery-electric and automated mining solutions and we won several major orders as well as a large number of repeat orders, underscoring the quality and strength of our offering. We have increased our focus on surface drilling and in 2023 we made good progress, including several product launches and a record order in the fourth quarter.

Our machining solutions business is building a stronger position to meet external trends, such as the increasing demand for aluminium machining for electric vehicles, as well as increasing interest in automation and digital solutions. Pro- ductivity, sustainability and safe operations are at the core of Sandvik. With our unique offering that combines world-leading equipment, tools and software solutions, we have great potential to create value for our customers.

A new face

Sandvik has in many aspects become a new company in recent years. To reflect this, we launched a new, modern brand identity and logotype that represents our purpose, our world- leading positions and our strategic direction. The new face of Sandvik means that we are even better equipped to live up to our purpose: We make the shift - advancing the world through engineering.

An agile company

Our efforts over the past few years to strengthen the resil- ience, flexibility and speed of our decentralized structure

continue to pay off. We actively work with maintaining resilient revenue streams and have a constant cost focus to make Sandvik even more competitive, more efficient and less com- plex. All parts of our business have contingency plans in place, enabling quick responses to different scenarios. In a multifac- eted demand environment, with geopolitical tension, lingering inflation pressure and supply chain disruptions, I am proud that we managed to keep our adjusted EBITA margin at 20.0 percent, within our target range.

Building on innovation

Sandvik is built on world-leading research and development (R & D), and this continues to be essential to ensure our future success. Our R & D investments amounted to SEK 4.8 billion in 2023, corresponding to 3.8 percent of the Group's revenue. Organic revenue growth was 6 percent, with continuing strong momentum in highly strategic areas such as manufacturing software, parts, services and consumables, automation and battery-electric vehicles. Some of the innovations introduced were the first of their kind in the industries we serve, and it is clear from the developments in strategic focus areas that our innovative product portfolio is stronger than ever.

Platform for growth

We aim to grow both organically and through acquisitions, and in recent years we have been very active in establishing a strong acquisition agenda. The seven acquisitions made in 2023 further enhance our strong positions in the marketplace and strengthened our position in areas such as mine optimi- zation, CAM solutions, electrification, powder solutions and medical.

Previously acquired companies have added great value to the Sandvik Group. The acquisition of SP Mining within Sand- vik Rock Processing Solutions in 2022, for example, increased our exposure towards the mining industry and also increased the share of parts, services and consumables sales, adding positively to the 2023 results. The acquisition of Deswik in 2022, the world's leading mine planning software company, made it possible for us to provide a unique end-to-end customer offering.

We are making continued progress in our work to leverage the world-class assets we have within Sandvik and to gradually realize our goal of helping our customers in component manufacturing automate the entire production cycle - from design and planning to manufacturing and verification.

Sustainable development

In September, our targets to reduce greenhouse gas emissions were validated by the Science Based Targets initiative. This third-party validation of our emission targets is essential as we set the strategic direction of Sandvik. We also see that we have a big opportunity to drive sustainability through our customer offerings.

The total recordable injury frequency rate was 3.0 (3.1). We have a zero harm vision for accidents in the workplace and have intensified our focus on this area to continue our long- term positive trend. Sandvik continues to support the principles of the United Nations Global Compact and contributes to the UN Sustainable Development Goals.

A stronger company

In 2023, we continued to build a stronger Sandvik and it is clear that we are making good progress. With the performance this year we have again proven our ability to navigate challenges that come our way, and we look forward with confidence to the opportunities ahead of us. I would like to thank our fantastic employees, whose continued outstanding efforts are the main reason that we can look back at another strong year. I would also like to extend a big thank you to our shareholders and customers for your continued trust.

Stefan Widing

President and CEO

Financial targets

Sandvik has long-term financial targets focusing

on growth, profitability, financial position and dividend.

Growth9%

Outcome

Target

A growth of 7 percent through a business cycle, organically and through acquisitions.

Outcome

A revenue growth (CAGR vs 2019) of 9 per- cent. In 2023, total growth at fixed exchange rates was 9 percent, of which organic growth was 6 percent. Revenue growth was 12 percent over a three-year period and 7 percent over a five-year period.

%

15

Actual

Target

EBITA margin 20.0% range

Outcome

Target

An adjusted EBITA margin range through a business cycle of 20-22 percent.

Outcome

The adjusted EBITA margin amounted to 20.0 percent (20.0), in line with the target.

%

24

22

The target was achieved as the financial net debt/EBITDA ratio was 1.2.

0.5

0.0

-0.5

19 20 21 22 23

Dividend43% payout ratio1)

Outcome

Target outcomes are 2023 results. All figures except financial net debt/EBITDA are excluding Alleima and other operations for previous years.

1. The dividend payout ratio is only related to cash dividends and does not consider the distributed value from Alleima to shareholders in 2022. The ratio is calculated on adjusted earnings per share, diluted, for the total Group for all years except 2022 when it excludes earnings related to Alleima.

Target

A dividend payout ratio of 50 percent of earnings per share, adjusted for items affecting comparability, through a business cycle.

Outcome

A solid performance in 2023 resulted in

a proposed dividend of SEK 6.9 billion (6.3) corresponding to a payout ratio of 43 per- cent. The average payout ratio for a three- year period amounted to 42 percent and for a five-year period to 39 percent.

Actual

Target

Sustainability targets

We have set sustainability goals in selected focus areas and we report on KPIs for our operations to track progress towards targets. In addition to our own operations, we also work with customers and suppliers to achieve the goals.

Target

Our target is to reduce our scope 1 and 2 greenhouse gas (GHG) emissions by 50 percent by 2030, compared to 2019.

Outcome

In 2023, we increased our GHG emissions by 1 percent to 141 ktons. The increase was primarily due to lower sourcing of low-emission electricity, such as certificates. Emissions from own operations (scope 1) decreased by 3 percent. Compared to the base year (2019), GHG emissions have been reduced by 23 percent and we are on track to reach the 2030 target.

GHG emissions

Circularity71%

Outcome

Target

Our target is to increase our waste circularity to 90 percent by 2030.

Outcome

We achieved 71 percent (73) waste circular- ity. The decrease is mainly due to acquired companies and we are still in line to achieve the 2030 target. Total waste decreased by 21 percent to 336 ktons.

Waste circularity

Safety3.0

Outcome

Target

Our target is to reduce the Total Recordable Injury Frequency Rate (TRIFR) to 1.9 by 2030, representing a 50 percent reduction from the baseline average 2016-2018.

Outcome

The TRIFR amounted to 3.0 (3.1). Compared to the baseline (average 2016-2018) it has decreased by 21 percent. Acquisitions continue to negatively impact both TRIFR and LTIFR trends. Regrettably, one fatality was reported.

Digitalization and automation

The manufacturing and mining industries are experiencing a shift to digitalization and automation. Access to big data, sophisticated analytical tools, robotics and artificial intelligence are creating new business opportunities and improved business intelligence. New ways for people to interact with machines and the ability to transfer digital instructions into physical products or equipment enable real-time decisions in the machining process. Such developments contribute to reduced costs, increased productivity and improved management of fluctuations in demand. It also puts higher demands on our coworkers' expertise. Sandvik offers digitalized solutions and services to optimize its customers' operations pertaining to costs, productivity and environmental impact.

Historically, design, machining and analysis have been three clearly defined phases in the manufacturing of components. New technology, digitalization and metrology are leading to the integration of the three phases to form a seamless, automated end-to-end value chain.

In the mining industry, digitalization and automation are used across the value chain, from mine planning through mining and crushing operations to the extraction of miner- als. Data collection, for example in mining equipment, enables advanced analysis to optimize processes and predict maintenance needs. We are the market leader in automated solutions for mining equipment.

Economic and political developments

Macro factors such as globalization, political governance and cyclicality impact Sandvik. A growing middle class and rapid urbanization increase the demand for metals and minerals, the need for infrastructure investments, and the demand for consumer and industrial goods. Regionalization and protec- tionism affect trade regulations, such as customs duties or new legal requirements. Our global and local presence and our decentralized way of working allow us to be flexible and adapt to changing conditions. All of our business areas have action plans in place to manage changes in market conditions.